<PAGE>
As filed with the Securities and Exchange commission on September __, 1997
Registration No. 333-_________
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------------
FORM S-4
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
--------------------------
AMERICAN FAMILY HOLDINGS, INC.
(Exact name of registrant as specified in governing instrument)
Delaware 6500 33-0769625
- ------------------------- ---------------------------- ------------------
(State or Jurisdiction of (Primary Standard Industrial (IRS Employer
Organization or Classification Code Number) Identification
Incorporation) Number)
4220 Von Karman Avenue, Suite 110
Newport Beach, California 92660
(Address of principal executive offices)
--------------------------
David G. Lasker, President
American Family Holdings, Inc.
4220 Von Karman Avenue, Suite 110
Newport Beach, California 92660
(Name and address of agent for service)
--------------------------
Copy to:
David R. Decker, Esq.
Arter & Hadden
700 South Flower Street, 30th Floor
Los Angeles, California 90017
Approximate date of commencement of proposed sale to the public:
As soon as practical after the effective date of the Registration Statement
If the securities being registered on this form are being offered in connection
with the formation of a holding company and there is compliance with General
Instruction G, check the following box: / /
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
Proposed
Title of Amount Proposed Maximum Maximum
Securities Being Being Offering Price Per Aggregate Amount of
Registered Registered Share or Unit(3) Offering Price Registration Fee(4)
- ---------------- ---------- ------------------ -------------- ----------------
<S> <C> <C> <C> <C>
Common Stock 1,577,285 $10.00 $15,772,850 $5,438.48
Units(1) 500,000 $10.00 5,000,000 1,724.00
Common Stock 1,000,000(2) $ 8.00 8,000,000 2,758.40
TOTAL 3,077,285 $28,772,850 $9,920.88
</TABLE>
(1) Units consist of one share of Common Stock and a warrant to purchase two
shares of Common Stock at a per share price equal to 80% of closing
price on the trading date before exercise.
(2) Issuable upon exercise of the warrants included in the Units.
(3) $10 is an arbitrary amount chosen and is not intended to imply that the
Common Stock will trade at a price of $10 per share.
(4) The registration fee for the common stock and the Units to be issued in
this offering has been calculated using the maximum number of shares
and Units that can be issued in this offering. The registration fee for
the common stock issuable upon exercise of the warrants has been
calculated pursuant to Rule 457(i) assuming that all of the warrants
would be exercised at a price equal to 80% of the offering price of the
other common stock issued in this offering.
The Registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until this registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
AMERICAN FAMILY HOLDINGS, INC.
CROSS-REFERENCE SHEET
Item of Form S-4 PROSPECTUS CAPTION OR LOCATION
- ---------------- ------------------------------
A. INFORMATION ABOUT THE TRANSACTION
1. Forepart of Registration Statement
and Outside Cover Page of Prospectus Cover of Registration Statement;
Cross-Reference Sheet; Outside
Front Cover Page of Prospectus
2. Inside Front and Outside Back Cover
Page of Prospectus................. Prospectus Summary; Reports to
Shareholders
3. Risk Factors, Ratio of Earnings to
Fixed Charges and Other Information Prospectus Summary; Risk Factors;
Business and Properties; Background
and Reasons for the Acquisition
4. Terms of The Transaction............ Prospectus Summary; Background and
Reasons for the Acquisition;
Comparison of Tenancy-in-Common
Interests and Shares; Comparisons
of Programs and Company;
Description of Shares; Federal
Income Tax Consequences; Appraisals
and Fairness Opinion
5. Pro Forma Financial Information..... Prospectus Summary; Financial
Statements
6. Material Contracts with the Company
being Acquired...................... Background and Reasons for the
Acquisition; Interests of Certain
Persons in the Acquisition
7. Additional Information Required for
Reoffering by Persons and Partied
Deemed to be Underwriters........... Not Applicable
8. Interests of Named Experts and
Counsel............................. Not Applicable
9. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities......................... Fiduciary Responsibility and
Indemnification
B. INFORMATION ABOUT THE REGISTRANT
10. Information with Respect to S-3
Registrants......................... Not Applicable
11. Incorporation of Certain Information
by Reference........................ Not Applicable
12. Information with Respect to S-2 or
S-3 Registrants..................... Not Applicable
13. Incorporation of Certain Information
by Reference........................ Not Applicable
<PAGE>
AMERICAN FAMILY HOLDINGS, INC.
CROSS-REFERENCE SHEET
(continued)
Item of Form S-4 PROSPECTUS CAPTION OR LOCATION
- ---------------- ------------------------------
14. Information with Respect to
Registrants other than S-3 or S-2
Registrants......................... Prospectus Summary; Business and
Properties; Selected Financial
Information; Management's
Discussion and Analysis of
Financial Condition and Results
of Operations
C. INFORMATION ABOUT THE COMPANY BEING ACQUIRED
15. Information with Respect to S-3
Companies........................... Not Applicable
16. Information with Respect to S-2 or
S-3 Companies....................... Not Applicable
17. Information with Respect to
Companies other than S-3 or S-2
Companies........................... Prospectus Summary; Business and
Properties; Background and Reasons
for the Acquisition; Selected
Financial Information; Management's
Discussion and Analysis of
Financial Condition and Results
of Operations; Financial Statements
D. VOTING AND MANAGEMENT INFORMATION
18. Information if Proxies, Consents or
Authorizations are being Solicited.. Prospectus Summary; Voting
Procedures; Interests of Certain
Persons in the Acquisition;
Principal Shareholders; Management
Following the Acquisition
19. Information if Proxies, Consents or
Authorizations are Not to be
Solicited or in an Exchange Offer... Not Applicable
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT.
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF
ANY SUCH STATE.
<PAGE>
PROSPECTUS SUBJECT TO COMPLETION, DATED ____________, 1997
IF YOU ARE AN INVESTOR IN ANY OF THE FOLLOWING, YOUR VOTE IS VERY IMPORTANT
SACRAMENTO/DELTA GREENS "TRUDY PAT" PROGRAM
OCEANSIDE "TRUDY PAT" PROGRAM
YOSEMITE/AHWAHNEE I "TRUDY PAT" PROGRAM
YOSEMITE/AHWAHNEE II "TRUDY PAT" PROGRAM
MORI POINT "TRUDY PAT" PROGRAM
AMERICAN FAMILY HOLDINGS, INC.
- - PROPOSED ACQUISITION OF PROGRAM PROPERTIES
American Family Holdings, Inc. is offering shares of its stock in exchange
for the assets, certain liabilities and business activities owned by investors
in five former "Trudy Pat" programs managed by National Investors Financial,
Inc. For this proposed acquisition, American Family Holdings will issue
$15,772,850 of shares of common stock at $10 per Share. The stock will be
listed for trading on the ___________ under the symbol "___."
In each of the programs, the investors will vote on whether to participate in
the acquisition. INVESTORS HOLDING A MAJORITY OF THE AMOUNT INVESTED IN EACH OF
THE FIVE PROGRAMS MUST VOTE TO PARTICIPATE IN ORDER FOR THE ACQUISITION TO TAKE
PLACE.
NATIONAL STRONGLY RECOMMENDS THAT ALL INVESTORS VOTE "YES" ON THE
ACQUISITION.
This solicitation commenced on _______, 1997 and expires at 5:00 p.m.,
pacific time, on __________, 1997 unless extended. Call 1-800-590-7772 with
questions.
- - OFFER OF ADDITIONAL STOCK TO INVESTORS
American Family Holdings is also offering $5,000,000 of units (consisting of
one share of common stock and one warrant to purchase two additional shares)
at $10 each exclusively to current investors in the programs. NASD
broker-dealers will receive a commission totalling $0.70 per unit for any units
sold with their help. If all the units are sold with their help, the proceeds
of the sale, net of estimated expenses of $200,000, will be $4,650,000. If you
want to participate, subscriptions for units should be returned with your
ballot. Subscriptions will be accepted on a FIRST-COME-FIRST-SERVED BASIS.
SPECIAL RISKS OF THE ACQUISITION:
- - If the acquisition is approved, you will receive stock in American Family
Holdings, Inc. You will have no further direct interest in the real estate of
your program.
- - The nature of your investment will change from a tenancy-in-common interest
in real property to shares of stock.
- - The trading price for the stock is uncertain.
- - There may be conflicts of interest in the structure of the acquisition.
- - You do not have independent advisors representing you in structuring this
transaction.
- - American Family Holdings may not have resources to develop and maximize the
properties' potential following the acquisition, since it will not be able to
require investors to pay mandatory assessments.
You should study the "Risk Factors" on page __.
---------------------------------
THE TRANSACTION AND SECURITIES HAVE NOT BEEN APPROVED BY
THE SECURITIES AND EXCHANGE COMMISSION, ANY STATE SECURITIES
COMMISSION OR THE ATTORNEY GENERAL OF THE STATE OF NEW YORK
NONE OF THESE HAS DETERMINED THAT THIS PROSPECTUS IS TRUTHFUL
OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
---------------------------------
The date of this Prospectus is _______________, 1997
<PAGE>
Various Photos Representing Properties
to be Acquired by
Family Holdings, Inc.
<PAGE>
TABLE OF CONTENTS
Page
----
PROSPECTUS SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
Exchange Value/Allocation of Shares . . . . . . . . . . . . . . . . . . .1
Current Status of the Programs. . . . . . . . . . . . . . . . . . . . . .2
The Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
Organization Chart. . . . . . . . . . . . . . . . . . . . . . . . . . . .4
Consent Solicitation/Summary of Voting Procedures . . . . . . . . . . . .4
No Dissenters' Rights . . . . . . . . . . . . . . . . . . . . . . . . . .5
Alternatives to the Acquisition . . . . . . . . . . . . . . . . . . . . .6
Fairness. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
Fairness Opinion. . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
National's Recommendation . . . . . . . . . . . . . . . . . . . . . . . .7
Summary of Benefits of the Acquisition. . . . . . . . . . . . . . . . . .7
Summary of Business Plan. . . . . . . . . . . . . . . . . . . . . . . . .8
Comparison of the Programs and the Company. . . . . . . . . . . . . . . .9
Tax Consequences of Acquisition . . . . . . . . . . . . . . . . . . . . 10
Conflicts of Interest Related to the Acquisition. . . . . . . . . . . . 11
Conditions to Acquisition . . . . . . . . . . . . . . . . . . . . . . . 11
Consequences if Acquisition Not Approved. . . . . . . . . . . . . . . . 11
Delivery of Stock Certificates. . . . . . . . . . . . . . . . . . . . . 12
The Offering/Use of Proceeds. . . . . . . . . . . . . . . . . . . . . . 12
Summary Financial Information . . . . . . . . . . . . . . . . . . . . . 12
RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Risks of the Acquisition. . . . . . . . . . . . . . . . . . . . . . . . 14
Real Estate Risks . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Risks Affecting Operation of a Golf Course. . . . . . . . . . . . . . . 18
Risks Relating to Residential Development . . . . . . . . . . . . . . . 18
Resort Destination Risks. . . . . . . . . . . . . . . . . . . . . . . . 18
Specific Risks Relating to Timeshare. . . . . . . . . . . . . . . . . . 18
Anti-Takeover Provisions. . . . . . . . . . . . . . . . . . . . . . . . 19
BACKGROUND AND REASONS FOR THE ACQUISITION . . . . . . . . . . . . . . . . . 20
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Management of the Programs Since Foreclosure. . . . . . . . . . . . . . 21
Efforts to Dispose of the Properties. . . . . . . . . . . . . . . . . . 23
Terms of the Acquisition. . . . . . . . . . . . . . . . . . . . . . . . 25
Exchange Value and Allocation of Shares . . . . . . . . . . . . . . . . 26
Determination of Exchange Values. . . . . . . . . . . . . . . . . . . . 26
<PAGE>
TABLE OF CONTENTS
(continued)
Page
----
Allocation of Shares among the Programs . . . . . . . . . . . . . . . . 30
Allocation of Shares among Investors. . . . . . . . . . . . . . . . . . 31
Company Shares Held by Affiliates or Employees of National. . . . . . . 31
Expected Benefits of Acquisition. . . . . . . . . . . . . . . . . . . . 32
Alternatives to Acquisition . . . . . . . . . . . . . . . . . . . . . . 33
Conditions to the Acquisition . . . . . . . . . . . . . . . . . . . . . 35
Recommendation of National and Fairness Determination . . . . . . . . . 35
DIVIDEND POLICY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
COMPARISON OF TENANCY-IN-COMMON INTERESTS AND SHARES . . . . . . . . . . . . 37
COMPARISONS OF PROGRAMS AND COMPANY. . . . . . . . . . . . . . . . . . . . . 42
VOTING PROCEDURES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Time of Voting. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Record Date and Outstanding Votes . . . . . . . . . . . . . . . . . . . 48
Approval Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Investor Ballot and Vote Required . . . . . . . . . . . . . . . . . . . 49
Revocability of Consent . . . . . . . . . . . . . . . . . . . . . . . . 50
Solicitation of Votes; Solicitation Expenses. . . . . . . . . . . . . . 50
No Dissenters' Rights . . . . . . . . . . . . . . . . . . . . . . . . . 50
Issuance of Certificates for Acquisition Shares . . . . . . . . . . . . 51
INTERESTS OF CERTAIN PERSONS IN THE ACQUISITION. . . . . . . . . . . . . . . 51
Benefits to National. . . . . . . . . . . . . . . . . . . . . . . . . . 51
Benefits to Shareholders of National. . . . . . . . . . . . . . . . . . 52
Lack of Independent Representation of Investors . . . . . . . . . . . . 52
Features Discouraging Potential Takeovers . . . . . . . . . . . . . . . 53
Allocation of Services and Expenses . . . . . . . . . . . . . . . . . . 53
Non-Arm's-Length Agreements . . . . . . . . . . . . . . . . . . . . . . 53
Competition with the Company from Other Programs
Organized by National. . . . . . . . . . . . . . . . . . . . . . . 53
FIDUCIARY RESPONSIBILITY AND INDEMNIFICATION . . . . . . . . . . . . . . . . 54
Fiduciary Responsibility of National. . . . . . . . . . . . . . . . . . 54
Indemnification of Officers and Directors of the Company. . . . . . . . 54
Officers and Directors Insurance. . . . . . . . . . . . . . . . . . . . 55
ii
<PAGE>
TABLE OF CONTENTS
(continued)
Page
----
BUSINESS AND PROPERTIES. . . . . . . . . . . . . . . . . . . . . . . . . . . 55
The Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Business of the Company . . . . . . . . . . . . . . . . . . . . . . . . 56
Properties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Consolidation of the Programs . . . . . . . . . . . . . . . . . . . . . 58
The Residential Development Industry. . . . . . . . . . . . . . . . . . 58
The Lodging and Recreation Industry . . . . . . . . . . . . . . . . . . 59
The Business Strategy . . . . . . . . . . . . . . . . . . . . . . . . . 62
The Consolidated Business Plan. . . . . . . . . . . . . . . . . . . . . 62
Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
POLICIES WITH RESPECT TO CERTAIN ACTIVITIES. . . . . . . . . . . . . . . . . 66
Investment Policies . . . . . . . . . . . . . . . . . . . . . . . . . . 66
Financing Policies. . . . . . . . . . . . . . . . . . . . . . . . . . . 67
Miscellaneous Policies. . . . . . . . . . . . . . . . . . . . . . . . . 67
Working Capital Reserves. . . . . . . . . . . . . . . . . . . . . . . . 68
USE OF PROCEEDS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
CAPITALIZATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
SELECTED FINANCIAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . 70
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .73
Overview. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
Results of Operations - The Oceanside Program . . . . . . . . . . . . . 73
Results of Operations - The Yosemite/Ahwahnee Programs. . . . . . . . . 74
Results of Operations - The Mori Point Program. . . . . . . . . . . . . 75
Results of Operations - The Sacramento/Delta Greens Program . . . . . . 76
Liquidity and Capital Resources . . . . . . . . . . . . . . . . . . . . 76
Historical Cash Flows . . . . . . . . . . . . . . . . . . . . . . . . . 78
New Accounting Pronouncements . . . . . . . . . . . . . . . . . . . . . 80
MANAGEMENT FOLLOWING THE ACQUISITION . . . . . . . . . . . . . . . . . . . . 81
Executive Officers and Directors. . . . . . . . . . . . . . . . . . . . 82
Directors and Executive Officers Compensation and Incentives. . . . . . 85
Stock Incentive Plan. . . . . . . . . . . . . . . . . . . . . . . . . . 86
iii
<PAGE>
TABLE OF CONTENTS
(continued)
Page
----
401(k) Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87
Employment Agreements . . . . . . . . . . . . . . . . . . . . . . . . . 88
Limitation of Liability and Indemnification . . . . . . . . . . . . . . 88
SECONDARY MARKET FOR TENANCY-IN-COMMON INTERESTS . . . . . . . . . . . . . . 89
PRINCIPAL SHAREHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . 89
Principal Shareholders. . . . . . . . . . . . . . . . . . . . . . . . . 90
Director and Officer Stock Ownership. . . . . . . . . . . . . . . . . . 90
DESCRIPTION OF SHARES. . . . . . . . . . . . . . . . . . . . . . . . . . . . 91
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91
Common Stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91
Preferred Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92
Warrants. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92
Certain Shareholder Voting Requirements . . . . . . . . . . . . . . . . 92
Transfer Agent and Registrar. . . . . . . . . . . . . . . . . . . . . . 93
THE OFFERING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93
Offering of Acquisition Shares. . . . . . . . . . . . . . . . . . . . . 93
Offering of Units . . . . . . . . . . . . . . . . . . . . . . . . . . . 93
APPRAISALS AND FAIRNESS OPINION. . . . . . . . . . . . . . . . . . . . . . . 95
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95
Experience of Independent Appraisers. . . . . . . . . . . . . . . . . . 96
Independent Appraisals. . . . . . . . . . . . . . . . . . . . . . . . . 96
On-Going Relationships. . . . . . . . . . . . . . . . . . . . . . . . . 98
Experience of Independent Valuator. . . . . . . . . . . . . . . . . . . 98
Fairness Opinion. . . . . . . . . . . . . . . . . . . . . . . . . . . . 98
FEDERAL INCOME TAX CONSEQUENCES. . . . . . . . . . . . . . . . . . . . . . .100
Qualification of the Acquisition as a Qualifying
Section 351 Transaction. . . . . . . . . . . . . . . . . . . . . .101
Federal Income Tax Consequences of the Acquisition. . . . . . . . . . .102
Federal Income Tax Consequences to Investors
After the Effective Date . . . . . . . . . . . . . . . . . . . . .104
iv
<PAGE>
TABLE OF CONTENTS
(continued)
Page
----
REPORTS TO SHAREHOLDERS. . . . . . . . . . . . . . . . . . . . . . . . . . .105
LEGAL MATTERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .105
EXPERTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .106
FURTHER INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . .106
GLOSSARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .106
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
APPENDICES
- ----------
Appendix 1 Fairness Opinion. . . . . . . . . . . . . . . . . . . . . . .A-1
Appendix 2 Selected Additional Appraisal Information . . . . . . . . . .A-2
ACCOMPANYING THE PROSPECTUS
- ---------------------------
- - OFFICIAL INVESTOR BALLOT
- - SUBSCRIPTION ORDER FORM
- - BROKER/DEALER INFORMATION FORM
- - Instructions to Investors on How to Complete the Official Investor Ballot
and Subscription Order Form
v
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARIZES MORE DETAILED INFORMATION AND FINANCIAL STATEMENTS
ELSEWHERE IN THIS PROSPECTUS.
EXCHANGE VALUE/ALLOCATION OF SHARES
American Family Holdings, Inc., a Delaware corporation (the "company" or
"we") has offered to acquire the properties of the "Trudy Pat" programs for the
total acquisition price of $15,772,850 in the form of 1,577,285 shares
arbitrarily valued at $10 per share. The exchange value for a property is not
the same as the appraised value and may not be the same as the market value for
a property that could be sold separately.
In the Spring of 1997, each of the programs' properties was appraised "as
is" at a value reflecting its highest and best use. However, in all cases,
money is needed for the programs for working capital and development. Due to
the structure of the "Trudy Pat" programs, traditional financing is not
generally available for those purposes. Sources of needed capital are primarily
limited to mandatory assessments from investors. Even though investors in some
programs have contributed money in response to mandatory assessments authorized
by a majority vote pursuant to their tenancy-in-common documents, the money is
not enough to permit them to achieve the highest and best use for the
development.
National and the company believe that the programs' properties, taken and
operated together, have financial advantages for each other which increase their
potential, and which are not available due to the limitations of "Trudy Pat"
structure. These advantages include
- Certain properties have some cash available from investor assessments
which could be used where most needed.
- Certain properties are able to generate cash which could be used for
development of all of the properties.
- Opportunities to obtain financing from outside sources would be
greater in the new structure which would be to the advantage of all of the
properties.
With this in mind, exchange values for the programs were calculated by adjusting
the appraised value of each property by factors deemed appropriate by National
and the company to reflect their relative "stand alone" values as "Trudy Pat"
programs. See "Background and Reasons for the Acquisition -- Determination of
Acquisition Prices" at page __.
<PAGE>
The number of shares to be assigned to each program was determined by
dividing the program's exchange value by the total exchange value of all the
properties and multiplying that fraction by the total number of shares to be
paid by the company.
The amount owed by the original borrower to each program plus the amount of
assessments paid by investors at [AUGUST 15, 1997], appraised real estate
values, exchange values and number and percentage of shares allocated to each
program are:
<TABLE>
<CAPTION>
% of Total
% of Shares to be
Amount Real Estate No. of Shares Outstanding
Owed plus Appraised Exchange Shares Issued in After the
Name of Program Assessments Value(1) Value Allocated Acquisition Acquisition(2)
--------------- ----------- -------- ----- --------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
Sacramento/Delta Greens $ 6,015,723 $ 2,000,000 $ 1,215,200 121,520 7.70% 6.24%
Oceanside 27,325,000 3,700,000 5,303,100 530,310 33.62 27.22
Yosemite/Ahwahnee I 8,982,429 8,050,000 2,007,882 200,788 12.73 10.31
Yosemite/Ahwahnee II 19,450,567 12,866,000 3,955,186 395,519 25.08 20.30
Mori Point 12,240,744 5,500,000 3,291,482 329,148 20.87 16.89
------------ ------------ ------------ --------- ------ -----
TOTAL $ 74,014,463 $ 32,116,000 $ 15,772,850 1,577,285 100.00% 80.95%
------------ ------------ ------------ --------- ------ -----
------------ ------------ ------------ --------- ------ -----
</TABLE>
(1) Appraisals were conducted in May 1997.
(2) 84.84% if all units are sold. The other shares will be held by management
and other founders of the company.
Shares will be distributed to you in accordance with your pro rata
investment in a program (including assessments paid and interest accrued to
you through the date you took beneficial ownership of the property) as
adjusted for voluntary advances. For example
You will receive the following number
If you invested $10,000 in of company shares
-------------------------- -----------------
Sacramento/Delta Greens
Oceanside
Yosemite/Ahwahnee I
Yosemite/Ahwahnee II
Mori Point
CURRENT STATUS OF THE PROGRAMS
Each of the programs began as tenancy-in-common, secured loan arrangements.
Due to failure of the borrowers to repay the loans, the investors in each of the
programs are now the equity owners of the real estate that secured the loans.
As the servicing agent for the loans, National became the manager of the
programs' assets.
2
<PAGE>
The properties owe a significant amount of delinquent property taxes
totalling over $920,000 all together as of June 30, 1997. Further, National
believes that none of the programs are capable of attaining a maximum return of
invested dollars in their present stand-alone status.
While the properties of the Oceanside and Sacramento/Delta Greens programs
may be able to be sold for cash, they cannot be sold for prices sufficient to
return the owners' invested dollars at this time. National believes that those
properties should either be built out and sold as single-family homes or sold
when appropriate.
Without a substantial infusion of capital, the Yosemite/Ahwahnee properties
cannot reach their full economic potential, and, despite the appraised value,
cannot be sold for an amount sufficient to return the owners' invested dollars
at this time. National believes that failure to continue to fund the
development of the Yosemite/Ahwahnee site will result in a serious deterioration
of its value.
At present, Mori Point is vacant land with a proposal to be developed into
a hotel conference center. In order to commence development, we have to raise
capital to proceed with the real estate permitting process and to establish a
plan to protect the habitat of two endangered species that are located on the
property. Presently, this property cannot be sold for an amount sufficient to
return the owner's invested dollars.
The acquisition has been proposed because National and the company believe
that the properties, when combined, can be sold and/or developed in a way that
will increase the overall value of the company. Thus, through increases in the
value of the shares, were that to occur, the owners could receive a greater
percentage of their original invested dollars than the properties could yield if
operated or sold, individually.
THE COMPANY
The company was formed on August 6, 1997 to conduct the acquisition. The
founding shareholders of the company are Yale Partnership for Growth and
Development, L.P. and J-Pat, L.P., family partnerships established by David
Lasker and James Orth, respectively, as well as other employees, consultants of
National, or the company. The company has no significant assets or liabilities.
The company's principal executive offices are located at 4220 Von Karman Avenue,
Suite 110, Newport Beach, California 92660, telephone number 1-800-590-7772.
3
<PAGE>
ORGANIZATION CHART
After the acquisition, the company will be organized as follows:
- --------------------------------------------------------------------------
Yale
Partnership
for Growth and J-Pat, L.P. Consultants
All Development, (controlled and other
Programs' L.P. by James Orth, a Employees of
Investors (controlled by principal of National or
David Lasker, National) Company
a principal of
National)
- --------------------------------------------------------------------------
80.95% 7.5% 7.5% 4.05%
(84.84% if all (5.97% if all (5.97% if all (3.22% if all
units sold) units sold) units sold) units sold)
- --------------------------------------------------------------------------
American Family Holdings, Inc.
- --------------------------------------------------------------------------
100%
--------------------------
American Family
Communities, Inc.(1)
--------------------------
100%
- --------------------------------------------------------------------------
Delta Greens Yosemite Woods Oceanside Homes, Mori Point
Homes, Inc.(2) Family Resort, Inc.(2) Destinations,
Inc.(2) Inc.(2)
- --------------------------------------------------------------------------
- -----------------------
(1) A subsidiary formed to coordinate the management and operation of the
properties.
(2) Subsidiaries formed to hold title to the various properties and to conduct
the day-to-day operations.
CONSENT SOLICITATION/SUMMARY OF VOTING PROCEDURES
RECEIPT OF CONSENTS. We must receive your ballot by 11:59 p.m., Pacific
Time, on ____________, 1997 (unless extended by the company) to be counted in
the vote on the acquisition.
4
<PAGE>
VOTING. You are entitled to one vote for each dollar you have invested in
a program, on the record date, ___________, 1997. Only owners on the record
date are entitled to vote. Voting will be on a program-by-program basis.
VOTES OUTSTANDING. On the record date, the following number of dollars of
investment, each entitled to one vote, were outstanding for each of the
programs:
Name of Program Number of Votes
--------------- ---------------
(8/15/97)
Sacramento/Delta Greens 6,015,723
Oceanside 27,325,000
Yosemite/Ahwahnee I 8,982,429
Yosemite/Ahwahnee II 19,450,567
Mori Point 12,240,744
VOTE REQUIRED. In order for the acquisition to be approved, those of you
holding a majority of the dollars invested in EACH of the programs must approve
the acquisition.
You may vote YES or NO or ABSTAIN on the acquisition. If you do not submit
a ballot or you ABSTAIN, you will be counted as voting AGAINST the acquisition.
You may vote only using the ballot provided, and only during the
solicitation period, which ends __________, 1997 or at a later date the company
may announce. You must return the completed ballot to National before the
solicitation period expires. If your ballot is signed but unmarked, it will be
counted as a vote FOR the acquisition.
NO DISSENTERS' RIGHTS
If you vote "NO" on the acquisition, and the acquisition is approved, you
will have no choice other than to take shares in the company. You will not be
entitled to object to the transaction and receive a cash payment for your
interest under the tenancy-in-common agreements governing the programs or
applicable law. See "Voting Procedures -- No Dissenters' Rights" at page __.
You may withdraw or change your ballot before the solicitation period
expires. You will need to complete and mail a substitute ballot, and a letter
stating that you are revoking your consent.
5
<PAGE>
ALTERNATIVES TO THE ACQUISITION
National considered several alternatives to the acquisition, including (a)
continuing the operations of each of the programs under their respective
separate business plans, (b) liquidation of each of the programs either directly
or in the context of a bankruptcy, and (c) a bankruptcy reorganization of the
programs. It concluded that none of these alternatives would be as beneficial
to the investors as the acquisition. See "Background and Reasons for the
Acquisition -- Alternatives to the Acquisition" at page __.
FAIRNESS
From a financial point of view, the company and National believe the terms
of the acquisition are fair as a whole and to the investors in each of the
programs. We have based our determination on many factors, including:
- a better quality form of investment;
- the relative exchange values offered to investors for their assets;
- the shares in the company to be held by principals, employees, and
consultants of National, the programs or the company upon completion of the
acquisition;
- the opportunity for each of you to vote for or against the
acquisition;
- valuation of the real estate assets of each of the programs by the
independent appraisers; and
- the Fairness Opinion rendered by the independent valuation firm. See
"Background and Reasons for the Acquisition" at page __.
National reviewed the value you will receive in connection with the
acquisition and compared it with what you might receive under the alternatives
to acquisition. Despite the adjustments to appraised value to arrive at
exchange values, National concluded that the likely market value of the shares
of the company would be higher in the long run than the value you would have
received if any of the alternatives to the acquisition had been implemented.
See "Background and Reasons for the Acquisition -- Recommendation of National
and Fairness Determination" at page __. Based on this comparison, National
concluded that the acquisition is financially fair.
6
<PAGE>
FAIRNESS OPINION
National hired an independent valuation firm to review the fairness of the
acquisition. That firm's opinion (the "Fairness Opinion") concludes that the
allocation of the shares in the transaction (which includes allocation of shares
to the programs and principals, employees and consultants of National and the
company) is financially fair to you. See "Appraisals and Fairness Opinion --
Fairness Opinion" at page __.
NATIONAL'S RECOMMENDATION
While National and the principals of National will receive benefits from
the acquisition, NATIONAL STRONGLY RECOMMENDS THAT ALL INVESTORS VOTE "YES" ON
THE ACQUISITION. See "Interests of Certain Persons in the Acquisition and
Conflicts of Interest" at page __, "Background and Reasons for the Acquisition"
at page __, and "Appraisals and Fairness Opinion" at page __.
SUMMARY OF BENEFITS OF THE ACQUISITION
YOU MAY HAVE A LIQUID TRADING MARKET FOR YOUR SHARES. After the
acquisition, shares will be listed on the ______________. If a trading market
exists, you will have the opportunity to liquidate all or some of those shares
at your preference.
YOU MAY HAVE MORE CONTROL OF TIMING OF LIQUIDATION OF YOUR INVESTMENT. You
can control when you choose to take profits or losses. Under the current
programs, you have been subject to a majority vote to sell or retain the
property, regardless of whether or not the timing and decision were favorable to
you.
YOU WILL OWN SHARES IN A POOL OF ASSETS WHOSE DIVERSITY CAN MITIGATE RISK.
Your investment will be spread over an initial asset base of four different real
estate projects (the two Yosemite/Ahwahnee programs will be one project after
the acquisition).
YOU WILL HAVE EXPERIENCED PROPERTY MANAGEMENT. We have hired and intend to
hire additional key real estate management professionals who are experienced in
real estate development, operation and construction.
YOU WILL NO LONGER BE LIABLE FOR MANDATORY ASSESSMENTS. Your tenancy-in-
common agreement and servicing agreement will be cancelled by the acquisition,
meaning your liability for mandatory assessments will cease.
7
<PAGE>
YOUR LIABILITY WILL BE LIMITED TO THE AMOUNT OF YOUR INVESTMENT. As
beneficial owners of the assets and businesses of the programs, you are not
effectively insulated from personal liability based on operation of those
assets. As shareholders of a corporation, you will be.
SUMMARY OF BUSINESS PLAN
Our objective is to preserve as much of the owners' invested dollars as is
possible and improve the value and performance of the properties currently held
by the programs in the following ways:
- By developing selected properties for their highest and best use;
- By increasing the current cash flow from the operating assets;
- By maximizing the potential profit margins of for-sale products; and
- By raising funds for the company's operations through a strategic
combination of sales of units to you or other existing owners and the sale of
selected real estate assets acquired from the programs to outside buyers.
- By acquiring other similar projects or assets consistent with our
objectives and business plan.
RESIDENTIAL DEVELOPMENTS. We will continue to build homes for sale on the
Oceanside Property and seek buyers for the remaining lots. By using the funds
available from the sale of the units or from the sale of certain assets of the
programs, we expect to start construction of single-family lots of the
Sacramento/Delta Greens project. Cash flow from sales of single-family homes
and lots would continue our growth and build value.
RESORT DEVELOPMENTS. We will enhance the value of Yosemite/Ahwahnee by
continuing to develop the project. While the project itself presently has
little cash available for capital improvements, we believe the highest potential
rewards lie in this segment of the company's asset base. By using the funds
available from the sale of the units or from the sale of certain assets of other
programs, we will aggressively seek timeshare approvals at Yosemite/Ahwahnee and
will continue to sell memberships and build recreational vehicle sites. We will
also process the necessary approvals for the Mori Point asset which we believe
has the potential to attract industry-oriented joint venture partners or
purchasers. We may also target additional resort or over-night-stay projects
for potential acquisition or joint venture. See "Business and Properties --
Properties" at page __ and "-- Consolidation of the Programs" at page __ for
further details regarding all of the properties.
8
<PAGE>
MANAGEMENT. The Board of Directors will oversee the management of the
company. After the acquisition all directors will be elected by the
shareholders. The Board will consist of six directors, including three
directors who are independent of the company. For background on management
of the company and their compensation, see "Management Following the
Acquisition" at page __.
COMPARISON OF THE PROGRAMS AND THE COMPANY
The summary information below highlights a number of significant
differences between the programs and the company. See "Comparison of the
Programs and the Company" at page __.
FORM OF ORGANIZATION. The programs began as tenancy-in-common investments
in Trudy Pat loans. The company is a corporation which offers to investors
certain benefits such as limited liability and professional management which may
not be present to the same degree in the present ownership structure.
LENGTH OF INVESTMENT. When you invested in the programs, you expected to
receive a return of your investment in two to four years. After the
acquisition, the company will have no time limit to dispose of any assets, and
you will not receive net asset sales proceeds. Instead, these proceeds will be
reinvested in the company. Your publicly traded shares will replace the process
of liquidating program assets as your way to receive a return of your capital
and any profits.
DIVERSIFICATION. Each of the programs has only one real estate asset. By
contrast, the company will hold the real estate assets of all five programs and
will be more diversified. In acquiring shares, you are investing in an on-
going, diversified, real estate operating company.
ADDITIONAL EQUITY. None of the current programs are authorized to raise
additional funds, except through mandatory assessments. The company will have
more flexibility to raise capital to finance its business. We may issue
additional stock to raise money or to make new real estate investments. These
are traditional methods of acquiring capital, but this would dilute your
interests. Such stock could have priority in dividends distributions and
liquidation proceeds.
BORROWING POLICIES. Borrowing is difficult under the present program
structure. The company will be able to borrow to improve or expand its asset
base. However, borrowing may also increase the company's risk from leveraged
investments.
COMPENSATION, FEES AND DISTRIBUTIONS. National will stop earning servicing
fees under the program agreements in the aggregate amount of approximately
$650,000 per year. As of June 30, 1997, the Programs have accrued fees and
advances due to National and its principals of $2,024,621. If the
9
<PAGE>
acquisition is approved, National and its principals will cancel $946,111 of
these accrued fees and advances that it has made on behalf of program owners.
National and its principals will continue to be owed $1,078,510 which will be
assumed and paid in the general course of the company's business. In addition,
National also has represented that it was owed fees and made advances to the
programs totalling $2,065,264 which it has previously agreed to forgive. These
fees and advances have not been accrued on the historical balance sheets of the
programs presented in this prospectus. National's principals will own interests
in the company and will also receive salaries as officers of the company.
National, itself, will hold shares received in exchange for its interests held
as a "Trudy Pat" investor in each of the programs.
MANAGEMENT CONTROL AND RESPONSIBILITIES. Currently, National serves as
your servicing agent. Under its contract, it cannot be removed except by a
majority vote of invested dollars in a particular program, which is generally an
extraordinary event. You will have greater control over the management of the
company than you had over the programs. You will be able to vote for certain
members of your Board of Directors every year. In the beginning, principals and
affiliates of National will control a maximum of 19.05% of the voting shares
(15.01% if all units are sold).
MANAGEMENT LIABILITY AND INDEMNIFICATION. The directors and officers of
the company will be entitled to potentially stronger indemnification from the
company for their actions than is presently the case for National in the program
agreements.
VOTING RIGHTS. Presently, you only have voting rights in the particular
program in which you are an investor. As a shareholder, you will have the right
to vote for directors and other matters according to applicable law or the
company's charter documents.
LIQUIDITY. The tenancy-in-common interests in the programs constitute
illiquid investments which are very difficult to sell. The shares are expected
to be listed on the _____ and be freely tradable.
TAX CONSEQUENCES OF ACQUISITION
The company intends to treat the acquisition as a tax-free transaction.
However, due to uncertainties about the individual investors' plans for holding
the stock, no assurance can be given that the acquisition will not create a
taxable transaction for investors. If the acquisition is treated as taxable,
National and the company believe most owners will have tax losses to report.
See "Federal Income Tax Consequences" at page __.
10
<PAGE>
CONFLICTS OF INTEREST RELATED TO THE ACQUISITION
National and the company will be subject to conflicts of interest relating
to the acquisition and the on-going operation of the properties. These include
- the amount of $1,078,510 which will remain owing to National and its
principals after the acquisition;
- principals, consultants and employees of National, the programs and
the company will enjoy certain benefits if the acquisition is completed;
- the fact that you did not have independent advisers representing you
in structuring the acquisition;
- employment agreements for the officers of the company were not
negotiated at arm's-length; and
- some persons will be employees of the company and National and will
not be able to devote 100% of their time to the company.
For a complete discussion of these risks, see "Interests of Certain Persons
in the Acquisition and Conflicts of Interest" at page __.
CONDITIONS TO ACQUISITION
The principal conditions to the acquisition are
- approval of the acquisition by all of the programs through a majority
vote of the investors in each,
- receipt of a final Fairness Opinion from the independent valuator
regarding the actual allocation of shares,
- approval of the shares for listing on the _______________, and
- the issuance of a policy of title insurance to the company.
CONSEQUENCES IF ACQUISITION NOT APPROVED
If the acquisition is not approved, each of the programs will proceed to
implement its business plan to the extent possible. Most of the programs will
require additional working capital which may be available only through mandatory
assessments of the investors in each program. If a program's business plan
proves unsuccessful with any program, National will try to get investor approval
to sell the assets of that program for the best price possible and return any
net proceeds of the sale to the program's investors. National does not believe
11
<PAGE>
that a sale of any program's property will be able to return the invested
dollars of the investors at this time.
DELIVERY OF STOCK CERTIFICATES
The company will mail your shares to you shortly after the acquisition
becomes effective.
THE OFFERING/USE OF PROCEEDS
The company is offering up to 500,000 units at $10 per unit to be issued
exclusively to existing program investors. The sales will be completed if
the acquisition is approved. Each unit consists of one share and a
warrant. For a period of two years, each warrant entitles the holder to purchase
two shares of common stock at a per share purchase price equal to 80% of the
closing price for the company's common stock on the on the trading
date before the warrant exercise date. NASD broker-dealers will receive an
aggregate of $0.70 per unit commission from the company for any units sold
with their help.
The company will use funds raised by the sale of units to pay delinquent
property taxes, expenses of the acquisition, and for working capital, as
detailed in its business plan. Funds raised on exercise of warrants will be
used for working capital.
SUMMARY FINANCIAL INFORMATION
We are providing the following summary financial information to aid you in
your analysis of the financial aspects of the acquisition. This information was
derived from our pro forma and historical financial statements (and related
notes) found later in this prospectus and should be read in conjunction with
that information. See "Financial Statements" beginning on page F-1. The
historical financial statements for the full year were audited; those for
interim periods and those showing pro forma information were not audited. The
unaudited financial information reflects all adjustments (consisting only of
normal recurring accruals) which are considered necessary to present fairly the
financial information for the periods. The results of any interim period are
not necessarily indicative of results for a full year, and historical and pro
forma results do not predict future results.
12
<PAGE>
<TABLE>
<CAPTION>
Company Pro Forma The Acquisition Historical
-------------------------------------------------------------------- -----------------------------------------
Six Months
Six Months Ended Years Ended Ended Year Ended
June 30, 1997 December 31, 1996 June 30 December 31
--------------------------------- --------------------------------- ----------- ---------------------------
The Acquisition The Acquisition
and the Offering The Acquisition and the Offering The Acquisition 1997 1996 1995
---------------- --------------- ---------------- --------------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues $ 4,084,437 $ 4,084,437 $ 6,675,718 $ 6,675,718 $ 4,084,437 $ 6,675,718 $ 6,333,143
Cost of sales 3,069,580 3,069,580 5,327,856 5,327,856 3,069,580 5,327,856 5,346,735
------------ ------------ ------------ ------------ ----------- ------------ ------------
Gross profit 1,014,857 1,014,857 1,347,862 1,347,862 1,014,857 1,347,862 986,408
Expenses:
Selling,
general and
administrative 2,280,561 2,280,561 4,017,227 4,017,227 2,105,561 3,667,227 2,033,496
Land write-down 590,172 590,172 845,000 845,000 590,172 845,000 -
Management fees 0 0 0 0 325,000 650,000 650,000
Acquisition
expenses 367,000 567,000 575,000 775,000 - - -
------------ ------------ ------------ ------------ ----------- ------------ ------------
Total expenses 3,237,733 3,437,733 5,437,227 5,637,227 $ 3,020,733 $ 5,162,227 $ 2,683,496
Net interest
income 29,525 29,525 63,518 63,518 29,525 63,518 135,875
------------ ------------ ------------ ------------ ----------- ------------ ------------
Net loss (2,193,351) (2,393,351) (4,025,847) (4,225,847) $(1,976,351) $ (3,750,847) $ (1,561,213)
------------ ------------ ------------ ------------ ----------- ------------ ------------
------------ ------------ ------------ ------------ ----------- ------------ ------------
Net loss per share (0.90) (1.23) (1.64) (2.17) N/A N/A N/A
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Average number of
shares outstanding 2,448,468 1,948,468 2,448,468 1,948,468 N/A N/A N/A
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Balance Sheet Data:
Cash and cash
equivalents 5,768,366 1,240,366 N/A N/A 1,240,366 863,373 N/A
Total real estate 19,023,727 19,023,727 N/A N/A 19,023,727 19,283,472 N/A
Total assets 28,758,932 24,230,932 N/A N/A 24,308,932 25,535,082 N/A
Total debt 387,512 387,512 N/A N/A 387,512 424,767 N/A
Total liabilities 3,627,764 3,827,764 N/A N/A 4,206,875 3,952,822 N/A
Stockholders'/
owners' equity 25,131,168 20,403,168 N/A N/A 20,102,057 21,582,260 N/A
</TABLE>
13
<PAGE>
RISK FACTORS
THE ACQUISITION INVOLVES CERTAIN RISKS. YOU COULD LOSE ALL, OR A
SIGNIFICANT AMOUNT OF THE REMAINING VALUE, OF YOUR INVESTMENT IF THE COMPANY IS
NOT SUCCESSFUL, IF THE STOCK MARKET DECLINES OR IF REAL ESTATE VALUES IN
CALIFORNIA DECLINE FURTHER. YOU SHOULD READ THIS ENTIRE PROSPECTUS, INCLUDING
ANY SUPPLEMENTS. BEFORE COMPLETING THE ACCOMPANYING BALLOT, YOU SHOULD ALSO
CAREFULLY CONSIDER THE FOLLOWING RISKS, WHICH APPLY TO ALL PROGRAMS AND THEIR
INVESTORS.
IN THIS PROSPECTUS AND ELSEWHERE, NATIONAL AND THE COMPANY OR THEIR
REPRESENTATIVES HAVE MADE FORWARD-LOOKING STATEMENTS REGARDING VARIOUS BUSINESS
PLANS, TYPES OF INVESTMENTS TO BE MADE AND HYPOTHETICAL RESULTS OF SALES OF
PROGRAM PROPERTIES. THE STATEMENTS ARE QUALIFIED BY THE "RISK FACTORS"
DISCUSSED BELOW. THESE FACTORS COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY
FROM THOSE DISCUSSED. YOU SHOULD NOT RELY ON THE COMPANY'S STATEMENTS OR PLANS
AS A PREDICTION OF ACTUAL RESULTS.
RISKS OF THE ACQUISITION
YOU WILL HAVE NO DISSENTERS' RIGHTS IN CONNECTION WITH THE ACQUISITION. If
you vote against the acquisition, and it is approved, you will not be able to
object to the acquisition and receive the appraised value of your tenancy-in-
common interest in your program's assets. You will have no choice other than to
accept shares for your interests. See "Voting Procedures - No Right of
Appraisal" at page __.
THE NATURE OF YOUR INVESTMENT WILL CHANGE. If the acquisition is
completed, your investment will no longer be a tenancy-in-common interest in a
particular program's property. Instead, you will hold shares in an on-going,
publicly-traded real estate company whose assets may be changed by the company's
management without your approval. You will be able to liquidate your investment
only by selling your shares on the _____________, and only if a trading market
exists, or in private transactions. If the market value of the shares does not
reflect the fair market value of the company's assets, you may not realize the
full value of your investment. You will not receive liquidation proceeds as
individual program properties are sold. As an investor in the larger company,
rather than any individual program, you will have less relative voting power.
THE TRADING PRICE FOR THE SHARES IS UNCERTAIN. The shares have never been
sold in a public securities market. If the shares trade, the trading price may
be less than the $10 issuance price or the book value of the company's assets.
The market price of the shares may be volatile after the acquisition if
investors decide to sell a large number of the shares shortly after the
acquisition.
14
<PAGE>
THERE MAY BE CONFLICTS OF INTEREST IN NATIONAL'S STRUCTURING THE
ACQUISITION. Shares and compensation to be held or received after the
acquisition by National, and by principals, employees and consultants of
National, the programs and the company have been determined by National and its
principals. For additional information concerning the potential conflicts
between National, its principals and the investors and the procedures adopted to
mitigate the impact of these conflicts on the acquisition, see "Interests of
Certain Persons in the Acquisition and Conflicts of Interest" at page __,
"Background and Reasons for the Acquisition - Recommendation of National and
Fairness Determination" at page __, and "--Terms of the Acquisition" at page __.
YOU DO NOT HAVE INDEPENDENT ADVISORS REPRESENTING YOU IN STRUCTURING THIS
TRANSACTION. Therefore, the terms of the acquisition may be less favorable to
you and more favorable to National and its principals. If the acquisition had
been negotiated by independent parties at arm's length, the principals of
National and the company might have been given fewer shares. Additionally, the
allocation of shares might have been more favorable to one program than another.
THERE MAY BE DIFFERENCES BETWEEN EXCHANGE VALUES AND REALIZABLE VALUES.
The exchange value of the programs may not be what the properties would sell for
in a cash sale transaction. Appraisals reflect conditions in the second quarter
of 1997, and do not reflect subsequent events. Exchange values reflect
adjustments to appraised values described in "Background and Reasons for the
Acquisition - Determination of Acquisition Prices" at page __.
THE COMPANY MAY INCUR SIGNIFICANT ADDITIONAL DEBT. After the acquisition,
the properties will not be subject to any liens other than possible mechanics'
liens and an aggregate of approximately $920,000 in property taxes owed as of
June 30, 1997. However, the Board of Directors could allow the company to
borrow using the company's real estate assets as security. If cash flow cannot
cover debt repayment, the company could lose those assets to creditors. See
"Policies with Respect to Certain Activities - Financing Policies" at page __.
THE BOARD OF DIRECTORS WILL HAVE THE ABILITY TO CHANGE INVESTMENT,
FINANCING AND OTHER POLICIES OF THE COMPANY WITHOUT SHAREHOLDER CONSENT. The
Board will determine major acquisition, financing, debt and distribution
policies of the company. The Board may amend or revise these policies as well
as the business plan without shareholder approval. You will have no direct
control over these changes. See "Business and Properties" at page __ and
"Policies with Respect to Certain Activities" at page __.
DISTRIBUTIONS WILL BE UNPREDICTABLE. After the acquisition, you will not
receive any regular distributions. Instead, in the early years, the Board
intends to accumulate cash for working capital or other uses.
15
<PAGE>
REAL ESTATE RISKS
ALL OF THESE FACTORS CAN AFFECT OUR REVENUES, PROFITS AND DIVIDEND
DISTRIBUTIONS, IF ANY, AND THE VALUE OF YOUR INVESTMENT.
THERE ARE SIGNIFICANT DELINQUENT PROPERTY TAXES. If delinquent property
taxes are not timely paid, the company could lose one or more of the properties
to tax sales. Each of the programs' properties is subject to the following
delinquent property taxes as of June 30, 1997: Sacramento/Delta Greens -
approximately $45,000; Oceanside - approximately $10,000; Yosemite/Ahwahnee
(combined) - approximately $596,000; and Mori Point - approximately $269,000.
Annual payments required for all the properties total approximately $386,700.
In the case of Sacramento/Delta Greens and Mori Point, National has entered into
five year payment plans with the applicable taxing authorities. It plans to do
the same with Yosemite/Ahwahnee shortly.
PERMITS TO DEVELOP CERTAIN PROPERTIES HAVE LAPSED OR HAVE NOT YET BEEN
OBTAINED. If needed permits for development are not obtained or reissued, the
business plan for the company will have to be revised or abandoned.
Additionally, the presence of two endangered species on the Mori Point property
increases the risks that necessary approvals may not be received if an
acceptable habitat mitigation plan cannot be developed. The permitting process
with the California Coastal Commission and other governmental agencies is
expensive and time consuming.
COMPLIANCE WITH CONDITIONS IN EXISTING PERMITS AND APPROVALS MAY REQUIRE
CHANGES TO DEVELOPMENT PLANS. For example, the tentative tract map for the
Sacramento/Delta Greens property requires that studies must be conducted to
identify any endangered species' habitat which may exist on the property. If
any are identified, changes to the tentative development plans will have to be
made and approved that will reduce or eliminate any damage to the habitat.
UNITS OR CERTAIN ASSETS MUST BE SOLD TO FURTHER THE BUSINESS PLAN.
Unless funds from sale of the units or from sale of certain assets of the
programs become available, the company will not be able to proceed with its
business plan and properties might be lost to tax sales before sales to third
parties can be arranged. The company will also need financing from other
sources to complete its plan. Financing sources are not predictable and
interest rates or other costs of financing may be prohibitive. Other than a
construction loan source for the Oceanside project, neither the projects nor
the company have received any commitment from other sources.
HOLDING AN INVENTORY OF RESIDENTIAL LOTS AT THE OCEANSIDE OR
SACRAMENTO/DELTA GREENS PROPERTIES MAY CAUSE THE COMPANY TO INCUR SUBSTANTIAL
CARRYING COSTS UNTIL THE LOTS CAN BE SOLD. Changing market conditions may
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increase the difficulty of selling the lots. If the company chooses to build
homes on the lots, delays in construction, the lack of reasonably priced
construction or mortgage financing, and the general California economy could
lengthen the holding period for the lots.
FEDERAL, STATE AND LOCAL LAW MAY REQUIRE EXPENSIVE HAZARDOUS SUBSTANCE
CLEAN-UP OR REMOVAL AS WELL AS EXPENSIVE PUBLIC IMPROVEMENTS. Although we have
not conducted any environmental audits on the properties, we are not aware of
any environmental liability. Local governments have required residential
developers to pay assessments for streets, schools and parks which increase the
cost of development. Increased costs can have a negative affect on the
company's sale of residential lots.
IF THERE IS AN UNINSURED LOSS, THE COMPANY COULD LOSE ITS INVESTMENT,
PROFITS OR CASH FLOW FROM A PROPERTY. The company will carry customary
insurance for its properties. Certain extraordinary losses such as earthquakes
and floods may be uninsurable or too expensive to insure. The company does not
plan to carry earthquake or flood insurance. If an uninsured loss occurs, the
company would lose capital as well as revenues, and would still owe other debts
related to the property affected, if any.
THERE MAY BE SIGNIFICANT RISKS IN THE DEVELOPMENT OF ADDITIONAL PROJECTS.
We may develop additional projects in the future, although we have no immediate
plans to do so. See "Business and Properties - Investments in Real Estate or
Interests in Real Estate" at page __. Real estate development involves more
risks than in the ownership and operation of established projects. Financing
may not be available on favorable terms for development projects; construction
may not be completed on schedule or budget; long-term financing may not be
available on completion of construction; and sites may not be sold on profitable
terms.
THERE ARE CERTAIN RISKS ASSOCIATED WITH THE CALIFORNIA MARKET. We
presently conduct all of our business in California. While economic conditions
are improving in California, our markets have been affected by substantial
fluctuations in local economic conditions, interest rates, inflation, employment
levels and regulations. California has also experienced draught conditions,
resulting in water conservation measures and rationing. In the past, these
conditions have caused local governments to restrict residential development.
California's climate and geology present risks of natural disaster such as
earthquakes and floods.
WHEN THE ACQUISITION IS COMPLETED, NATIONAL AND ITS PRINCIPALS WILL BE OWED
$1,078,510 BY THE COMPANY. This represents accrued fees and expenses from the
programs which National has not cancelled. This amount is due and payable and
the company intends to start paying it in the normal course of business as funds
are available.
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RISKS AFFECTING OPERATION OF A GOLF COURSE
THERE ARE INDUSTRY OPERATING RISKS, INCLUDING INCREASED COMPETITION,
SEASONALITY, WEATHER AND COURSE CONDITIONS. While no new golf courses have
opened near the Ahwahnee Golf Course, new courses could increase the competition
and reduce the rounds played. Seasonal variations may require the company to
supplement revenue at the golf course to meet operating expenses. Weather can
negatively affect the turf grass and reduce the number of rounds played.
Inflationary costs may not be offset by increased dues. Also, golf's success
depends on discretionary spending by consumers, which may be vulnerable to
regional and economic conditions, as well as to pleasure or destination travel
preferences by visitors and tourists.
RISKS RELATING TO RESIDENTIAL DEVELOPMENT
THE COMPANY MAY BE AFFECTED BY MARKET RISKS AND COMPETITION. The market
for residential real estate is cyclical and the residential lot development
industry is highly competitive. If the demand for new lots does not keep pace
with competitive supply, our properties may be sold at a loss. The location of
the company's lots, the presence of other competition, customer acceptance and
pricing are all factors affecting success. Competitors may have better
financial, managerial and other resources, affecting our ability to successfully
compete.
RESORT DESTINATION RISKS
THERE ARE RISKS ASSOCIATED WITH RESORT DEVELOPMENT. In addition to normal
real estate risks, financing is hard to obtain, and the lodging industry can be
unpredictable, seasonal and very competitive. Without additional financing or
capital, the company will not be able to develop its resort projects as part of
its growth strategy. Economic conditions, changes in travel patterns, extreme
weather conditions, labor and other variable costs can all affect revenues and
profits. For example, Spring through Fall at the Yosemite/Ahwahnee property are
the periods of highest occupancy. Seasonality can be expected to cause
quarterly fluctuations in the company's revenues. In the resort and
hotel/conference center property at Mori Point, we may be competing against
well-known chains and extended-stay inns.
SPECIFIC RISKS RELATING TO TIMESHARE
- - NEGATIVE PRESS SURROUNDING THE REMARKETING OF TIMESHARES MIGHT NEGATIVELY
IMPACT SALES AND OPERATIONS.
- - MARKETING COSTS ARE HIGH RELATIVE TO SELLING PRICE WHICH CAN REDUCE OR
ELIMINATE PROFITS FROM THE SALE OF TIMESHARE INTERESTS.
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- - THERE ARE RELATIVELY MORE DEFAULTS AMONG TIMESHARE OWNERS WHEN THEY BORROW
TO BUY TIMESHARES COMPARED TO HOMEBUYERS WHO BORROW TO BUY A HOME. IF A BUYER
DEFAULTS, WE WOULD INCUR COSTS IN REMARKETING THE TIMESHARE.
- - WE DO NOT HAVE AN EXCHANGE NETWORK TO ENHANCE MARKETING APPEAL. IF WE
CANNOT OFFER SUCH A NETWORK IN THE FUTURE, WE MAY BE AT A COMPETITIVE
DISADVANTAGE.
- - THE TIMESHARE INDUSTRY IS EXTREMELY COMPETITIVE.
- - WE MAY NOT BE ABLE TO SECURE DEVELOPMENT FINANCING ON ACCEPTABLE TERMS.
ANTI-TAKEOVER PROVISIONS
Certain provisions of the charter documents may restrict changes in control
of the company's management. These provisions may make it more difficult or
expensive for another party to acquire and exercise control of the company or to
change its management, even if that change would be beneficial to you. Some of
these provisions include:
1. THE BOARD'S ABILITY TO ISSUE PREFERRED SHARES WHICH COULD AFFECT YOUR
VOTING POWER AND TO ISSUE ADDITIONAL SHARES TO DISCOURAGE OR IMPEDE A MERGER OR
OTHER TRANSACTION THAT MAY BE IN YOUR BEST OR FINANCIAL INTEREST. See
"Description of Shares" at page __ and "Future Sales of Stock" at page __.
2. THE BOARD IS DIVIDED INTO THREE CLASSES SERVING STAGGERED THREE YEAR
TERMS. You may not be able to efficiently change control of the company if you
believe that change would be in your best interests. See "Comparisons of
Programs and Company - Anti-Takeover Provisions" at page __.
3. THERE ARE RESTRICTIONS ON CERTAIN BUSINESS COMBINATIONS WITH
INTERESTED PARTIES. There are restrictions on what interested parties can do
for three years, without the approval of the Board of Directors. See
"Comparison of Programs and Company - Restrictions on Related Party Transactions
and Business Combinations" at page __.
4. THE DELAWARE LAW, AS WELL AS THE CHARTER DOCUMENTS, LIMIT THE
LIABILITY OF DIRECTORS AND OFFICERS TO SHAREHOLDERS. See "Fiduciary
Responsibility and Indemnification - Limitation on Liability of Directors and
Officers of the Company" at page __.
5. CHANGES TO THE COMPANY'S CERTIFICATE OF INCORPORATION WHICH COVER
ANTI-TAKEOVER PROVISIONS REQUIRE THE APPROVAL OF TWO-THIRDS OF THE COMPANY'S
VOTING STOCK. See "Comparisons of the Programs and the Company - Anti-Takeover
Provisions" at page __.
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CAPITALIZED TERMS USED THROUGHOUT THE REST OF THIS PROSPECTUS
ARE DEFINED IN THE GLOSSARY AT THE END OF THE PROSPECTUS,
JUST BEFORE THE FINANCIAL STATEMENTS.
BACKGROUND AND REASONS FOR THE ACQUISITION
GENERAL
National is a California corporation that was formed in 1986. National is
a licensed real estate broker in the State of California. Pursuant to a series
of permits issued by the California Department of Corporations, National offered
fractionalized interests in loans secured by deeds of trusts to investors who
satisfied the suitability standards set forth in the applicable offering
materials and who could invest a minimum of $2,000. The fractionalized
interests were commonly referred to as trust deed participation or "Trudy Pat"
investments.
From 1988 through 1993, National arranged a number of loans for various
builders and land developers. In return, these borrowers offered promissory
notes and the security of a first deed of trust on their real estate project(s)
as collateral for a loan, normally at 50% or less loan-to-value ratio (the ratio
of the cumulative amount of the notes divided by the value of the property as
appraised by an independent qualified real estate appraiser) for unimproved
property and up to 85% loan-to-value of the completed property (determined by
independent appraisers) for property under construction. The notes generally
were short-term (two years), often with extensions for one or two years at the
option of the borrower and provided interest to investors which was
significantly higher than yields of other types of investments available at the
time. Pursuant to a servicing agreement executed by each Investor, National was
to receive a servicing fee of one-twelfth of one percent of the note amount per
month.
Each Trudy Pat offering was independent of another and extensive disclosure
documents were provided to each Investor. The disclosure documents provided
investors with specific details of the investment opportunity including: the
nature of the investment as a tenancy-in-common interest, a description of the
property used as security for the loan, type of property, value as appraised by
an independent qualified appraiser, terms of the loan, loan amount, loan-to-
value ratio, interest rate, borrower resume and experience, borrower financial
statements, other appraisal information, as well as a full disclosure of the
risks involved with the investment.
Trudy Pat interests were sold exclusively through participating NASD member
broker-dealers. At the time of purchase through their broker, all Investors
executed documents which included an acknowledgment of receipt of the offering
circular, a servicing agreement and a tenancy-in-common agreement, as well as
representations of their suitability as participants according to the standards
set forth in the offering documents and an acknowledgment, confirmed by their
broker, of their understanding of the pertinent facts relating to the liquidity
and marketability of their interests. The servicing agreement provided for
National to collect payments from the borrower on behalf of the Investors and
distribute the proceeds of the
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collection net of National's servicing fees. The servicing agreements also
authorized National to take various remedial actions on behalf of Investors in
the event of a borrower default, subject to broad discretionary powers and
authorities. The tenancy-in-common agreement explained the relationship among
the Investors and provided, among other things, that Investors would be bound by
certain decisions made by holders of a majority of the interests.
In 1989, National completed the funding of a real estate loan for the
Sacramento/Delta Greens Program in an aggregate amount of $5,000,000 by selling
undivided tenant-in-common interests in such loan to 332 Investors. National
completed the funding of similar real estate loans for the Yosemite/Ahwahnee I
Program (1989) in an aggregate amount of $6,500,000 with 426 Investors; for the
Mori Point Program (1990) in an aggregate amount of $10,000,000 with 486
Investors; for the Yosemite/Ahwahnee II Program (1992) in an aggregate amount of
$13,500,000 with 837 Investors; and for the Oceanside Program (1993) in an
aggregate amount of $30,000,000 with 1,755 Investors. All of such offerings
were sold pursuant to permits issued by the California Department of
Corporations and interests were sold only to persons who were residents of the
State of California.
Each Program has served as a separate investment vehicle for Investors.
Underwriting of a loan was based on an appraisal by an independent real estate
appraiser. In the case of each of the Programs, the borrowers have defaulted on
their loans and National has obtained title to the real property securing the
loans as the agent of and for the benefit of the Investors in each of the
Programs. The interests which each of the Investors held in the real estate
loans have been converted through the foreclosure process into tenant-in-common
interests in the underlying real estate that formerly secured the loans. (For
purposes of this discussion, the term "foreclosure" includes, but is not limited
to, taking title to real estate constituting security for the applicable loans
through exercise of a power of sale under a deed of trust or through accepting a
deed from the applicable borrower.)
In the case of each of the Programs, current appraisals indicate that the
value of the Properties is significantly lower than the unpaid principal and
interest on the loans due principally to the deteriorating market conditions for
real estate which occurred throughout California. Despite the limited
additional funding available from Investors or otherwise, National has attempted
to maximize the value of the real estate assets while seeking ways to convert
them to distributable cash for Investors. See "Management of Programs Since
Foreclosure."
MANAGEMENT OF THE PROGRAMS SINCE FORECLOSURE
SACRAMENTO/DELTA GREENS PROGRAM. As the agent of and on behalf of the
Sacramento/Delta Greens Program Investors, National took title to the Property
of the Sacramento/Delta Greens (formerly "North Shores") Program in March 1993.
The Property is located in Sacramento, California, and is held for the benefit
of the Sacramento/Delta Greens Investors by National Investors Land Holding
Trust IV. Subsequent to the foreclosure, on behalf of the Sacramento/Delta
Greens Investors, National hired consultants and engineers to determine the
economic, political and environmental issues surrounding the Property. It was
determined
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that there was considerable resistance to developing the Property into any
duplex housing and, so, it was redesigned to include over 500 lots to be
developed in multiple phases as a single-family detached, entry-level housing
product and the revised tentative map has been accepted by the City of
Sacramento. Attempts have been made to find joint venture partners to assist in
the financial requirements for processing the final tract map, as well as to
provide capital for infrastructure. However, because of market conditions
through 1996, most builders in the area were attracted to real estate projects
that already had finished lots. In late 1996, National hired a market research
firm whose study demonstrated a positive outlook for the demand for entry-level
homes in the area. The study indicated that the Sacramento market for single-
family residential housing has improved. National is in the process of
obtaining engineering for the final subdivision map for the initial phase of the
project and it is anticipated that, subject to the availability of financing,
the Property will be developed and homes will be constructed in successive
phases.
OCEANSIDE PROGRAM. In November 1993, due to a technical default in the
loan, National succeeded in obtaining the borrower's agreement to grant the
ownership of the Oceanside Properties to Oceanside Development, Inc. ("ODI") on
behalf of the Oceanside Investors. An experienced and reputable homebuilder was
hired and, since 1993, a total of 116 homes in the Encore tract have been built
and sold. An additional 23 lots were recently sold to that homebuilder.
Principal and interest in the aggregate amount of approximately $7,000,000 has
also been returned to Investors. There are an additional 111 lots available on
which homes can be built on the Symphony tract. Another major homebuilder and
potential buyer of the Symphony lots has estimated that the cost to finish the
lots is substantially in excess of cost estimates provided by consultants hired
for the project by National. As a result, a potential sale to that builder was
recently cancelled. Negotiations will continue with this potential buyer if
possible. If a satisfactory sale of the Symphony tract does not occur, National
believes that the remaining lot inventory of the Program can be built-out within
a two to three year time frame based on current absorption rates and prices.
However, without significant increases in prices and sales velocity, Investors
would not likely receive a full return of their investment from the completion
of the construction and sales of homes on the remaining lots. Since the
original projections by the borrower were based on the construction of a number
of homes which exceeded the number of lots initially acquired with loan
proceeds, the Program has anticipated that more lots would be acquired so that a
sufficient number of homes could be constructed and sold to provide for an
acceptable monetary return to Investors.
YOSEMITE/AHWAHNEE PROGRAMS. Title to the Yosemite/Ahwahnee Programs'
Properties was obtained in September 1995. The properties are located in Madera
County, California, approximately 46 miles northeast of Fresno and 15 miles
south of Yosemite National Park. Title to the 660-acre portion of the project
is held by National Investors Land Holding Trust VIII for the benefit of the
Yosemite/Ahwahnee II Program Investors and title to the 990-acre parcel is held
by National Investors Land Holding Trust IX as the agent of and for the benefit
of the Yosemite/Ahwahnee I Program Investors.
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Upon completion of funding of the Yosemite/Ahwahnee II loan, the Yosemite/
Ahwahnee I Investors were secured by a first deed of trust on the 660-acre
portion and by a second deed of trust on the 990-acre portion. The
Yosemite/Ahwahnee II Investors were secured by a first deed of trust on the 990-
acre portion and a second deed of trust on the 660-acre portion. After the
borrower's default, National foreclosed on the second deeds of trust as the
agent of and on behalf of the Investors in each Program. The first deeds of
trust will be "extinguished" as a part of the Acquisition.
Since taking over the operation of these Properties, National has operated
them as the agent of and on behalf of the Investors through a corporation known
as Ahwahnee Golf Course and Resort, Inc. Approximately $3,000,000 has been
funded by Investors' assessments in these Programs to provide working capital to
maintain, improve and further develop the project, and to fund the negative cash
flow from operations. National has attempted to obtain conventional financing
for the project without success. It has also explored the possibility of a sale
of the entire project; however, no offers were forthcoming. National has
continued its efforts to enhance the revenue production from the golf course,
club house and restaurant facilities, to market and develop recreation vehicle
sites, and to pursue additional entitlements required to develop the remainder
of the project, potentially as a timeshare facility. The project is expected to
experience negative cash flow until and unless additional recreational vehicle
sites are constructed or until timeshare sales can commence.
MORI POINT PROGRAM. The Mori Point Program Property was foreclosed on in
August 1992 after National received relief from the borrower's bankruptcy stay
from the Bankruptcy Court. Title is held by National Investors Land Holding
Trust as the agent of and for the benefit of the Investors. The Property was
originally to be developed into a hotel/conference center in Pacifica,
California, which is approximately 15 miles southwest of San Francisco on the
coast. National has endeavored to negotiate alternative uses for the Property
which would be supported by the community and be more economically feasible than
a hotel/conference center. However, improvements in economic conditions in the
Bay Area have recently revived the potential for and are encouraging to segments
of the hotel industry. Reinstating the specific plan and tentative tract map
that expired under the original borrower's ownership will require substantial
funds in order to conduct the necessary environmental studies and mitigation for
two endangered species, as well as to complete the required land planning,
engineering and preliminary architectural plans. Such funds are not currently
available and would have to come from additional capital submitted by the
Program's Investor group or by an industry joint venture partner. An offer from
a potential joint venture partner was received in early October 1996, but such
offer was rejected by Investors holding a majority of the interests.
EFFORTS TO DISPOSE OF THE PROPERTIES
SACRAMENTO/DELTA GREENS PROGRAM. Subsequent to foreclosure on the
Property, the project manager informally presented the Property to several small
and medium sized builders in the Sacramento area. No significant interest was
shown by such builders at that time. However, approximately a year later, a
purchase offer was received which was rejected by the Investors.
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More recently, during the first half of 1997, National informally presented the
Property to a limited number of large, public homebuilders. While more interest
was shown, again no significant steps were taken by any of such builders to
enter negotiations to acquire the Property.
OCEANSIDE PROGRAM. Immediately after acquiring the Property in 1993
from the original borrower, ODI hired an experienced and reputable
homebuilder to build and market homes on the Property. A total of 116 homes
have been built and sold in the Encore tract. The remaining 23 lots have
been recently sold to that builder. In the second quarter of 1997, ODI began
the process of marketing the Symphony tract lots on an "as-is" basis. Those
efforts resulted an initial offer from another major homebuilder to buy the
Symphony tract and a sale escrow was opened. A sale at that price would not
have yielded an amount sufficient to return the Investors' capital. After
conducting due diligence, the potential buyer was unwilling to complete the
transaction at the negotiated price, so the escrow was cancelled. The
Company will purchase all of the remaining real estate assets of the
Oceanside Program and then attempt to complete a sale of the Symphony tract,
if appropriate.
YOSEMITE/AHWAHNEE I AND II PROGRAMS. The foreclosures took place in
September 1995. At that time, the Programs' Properties also included 47
finished one- to three-acre estate lots available for sale. Two of those lots
were sold and other listings have been allowed to expire. Although the estate
lots were listed with local brokers, no further offers were forthcoming. After
the foreclosure, National contacted several of the former borrowers' potential
joint venture partners and possible purchasers of the Properties, but no offers
were forthcoming.
MORI POINT PROGRAM. After foreclosing, the Property was listed for sale
with a large commercial brokerage firm to no avail. There have been no recent
efforts to sell the Property.
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In short, after careful consideration, National has determined that none of
the Properties belonging to the Investors of any of the Programs may be sold in
the current real estate market in their respective present conditions for an
amount sufficient to yield the Investors a satisfactory return of their invested
capital. In addition, National has determined that, in present market
conditions, the most likely way that the Investors in any of the Programs have
of receiving a satisfactory return of their invested capital is to consolidate
the assets of the Programs and use the funds that can be generated from the sale
of units and one or more of the Properties to finance the continued development
and expansion of the others, which National believes can be developed and
operated in such a way as to permit the possibility of a greater return to all
of the Investors in the various Programs. Cash from the sale of some of the
Company's assets may also be utilized to acquire other assets that are suitable
for the Company's plans for growth and increased value.
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TERMS OF THE ACQUISITION
STRUCTURE OF THE ACQUISITION. If the Acquisition is approved, it will take
the form of a purchase of the Properties and assets of each of the Programs by
the Company from the Investors using the Shares of the Company as consideration
for the purchase. As a part of the Acquisition, remaining "Trudy Pat"
encumbrances on any of the Properties will be released by Investors so that the
Company, through subsidiaries, will own the Properties free and clear of all
mortgage liens.
Each purchase is proposed to be effected pursuant to a purchase agreement
with each Program (acting through National as the agent) and the Company.
Pursuant to the purchase agreements, the Properties will be purchased "as is"
with no warranties, other than title, surviving the closing of the sale. The
Company will receive a deed to each of the Properties and new policies of title
insurance will be included with each transfer.
The transactions described below will have occurred or will take place
simultaneously with, or shortly after, the closing of the Acquisition.
- The Company was formed as a Delaware corporation with family
partnerships of the principals of National (David Lasker and James Orth),
along with certain affiliates, consultants and employees of National and the
Company, as the founders. American Family Communities, Inc. will be formed
as a subsidiary of the Company to oversee all of the Programs' Properties.
Also, Delta Greens Homes, Inc., Oceanside Homes, Inc., Yosemite Woods Family
Resort, Inc., and Mori Point Destinations, Inc. will be formed as second-tier
subsidiary corporations of the Company to hold the Properties of each of the
Programs with the two Yosemite/Ahwahnee Programs being combined into one
subsidiary. Upon completion of the Acquisition, the founders will hold
19.05% of the Company's outstanding Shares assuming that no units are
purchased pursuant to this Prospectus. See "Appraisals and Fairness Opinion"
for a discussion of the fairness of the transaction.
- The Shares of the Company issued pursuant to the Acquisition, as well
as those sold as part of the units pursuant to this Prospectus, will have been
approved for listing, upon notice of issuance, by the ____________.
- Certificates for the Shares will be mailed to Investors after the
Acquisition is completed.
- Shares and warrants underlying the units purchased pursuant to this
Prospectus will be mailed to the Investors who purchase them and the funds in
the Escrow representing the purchase price of such units will be released to the
Company after the Acquisition is completed.
As a result of the Acquisition, the Investors will cease to own interests
in the Properties of the respective Programs in which they have invested. After
the Acquisition, through subsidiaries, the Company will own all of the
Properties, as well as the business and operations, owned by the Programs prior
to the Acquisition.
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National may decide not to pursue the Acquisition at any time before it
becomes effective, whether before or after approval by the Investors.
EFFECTIVE TIME. If approved, the Acquisition is expected to be completed
(with title to the real estate being transferred to the applicable subsidiary)
on __________, 1997 (approximately five business days after the planned date for
tabulation of the votes of Investors in each Program (the "Effective Time").
EXCHANGE VALUE AND ALLOCATION OF SHARES
GENERAL. Exchange Values were determined as of September __, 1997, and
have been assigned to each of the Programs solely to establish a consistent
method of allocating Company Shares for purposes of the Acquisition. The
Exchange Values of the Programs do not necessarily reflect the aggregate price
at which Company Shares may be sold, nor are they based solely on the Appraised
Value of the real estate assets of each Program. See "--Determination of
Exchange Values" and "Risk Factors." The number of Shares to be issued to each
Program upon consummation of the Acquisition will equal the Exchange Value of
the Program divided by $10, an arbitrary amount chosen for the sole purpose of
allocating Shares and which is not intended to imply that such Shares will trade
at a price of $10 per share. As of the date of this Prospectus, National does
not know of any material change in the prospects or financial performance of any
of the Programs which will materially affect the Exchange Value.
No fractional Shares will be issued by the Company in connection with the
Acquisition. Each Investor who would otherwise be entitled to a fractional
Share will receive one Share for each fractional Share of 0.5 or greater. No
Shares will be issued for fractional Shares of less than 0.5.
DETERMINATION OF EXCHANGE VALUES
National has followed and applied a carefully considered method to estimate
the value of the Programs in an "as is" condition based on their present "Trudy
Pat" ownership structure.
The "Trudy Pat" was designed to provide a way for large numbers of
individuals to invest together in notes secured by real property. If a note
went into default, then National, acting in its capacity as servicing agent on
behalf of investors, was empowered to take the necessary steps to foreclose on
the property securing the note. In the case of the Properties, National was
successful in converting defaulted notes into ownership of the
Properties for Investors. While the "Trudy Pat" structure worked well for
investors when the note was performing and through the foreclosure process,
certain disadvantages became evident for investors once they became investors in
the Properties. The main disadvantages are as follows:
1. Although the original notes were designed to provide investors with
positive cash flow in the form of interest income and principal repayment,
ownership of property held for development does not generate cash flow.
Requirements related to the maintenance, management and development of the real
estate often result in negative cash flow to the owners
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until the time that the real estate is sold. In order to cover the negative
cash flow, investors are each obligated to submit their proportional share of
funds required to protect their interest in the property and to perform the
necessary maintenance and improvements in accordance with their specified
objectives as directed by the majority of investors. Some investors do not meet
those obligations and thereby delay or impair the results.
2. Although some of the funding requirements might be addressed by
introducing outside financing to the projects, the "Trudy Pat" structure is not
conducive to securing outside financing because traditional lenders are
reluctant to make loans where ownership is widely dispersed and management is
unable to make certain decisions without conducting votes. Nearly all title
companies now maintain policies which include restrictions making it very
difficult to obtain title insurance when multiple investors hold beneficial
ownership. All lenders require title insurance as a condition of financing. In
the cases where National has negotiated proposals from non-traditional lenders
to introduce outside financing, investors have found the terms unappealing for
various reasons and have never voted to approve such financing.
3. Investors who originally planned on a short two to four year term, now
own property and hold an investment that does not provide them with the ability
to sell their interests or to otherwise obtain liquidity and which exposes them
to the disadvantages explained above. Thus, the Acquisition by the Company has
many advantages over the "Trudy Pat" structure. See "Benefits of the
Acquisition."
The starting point for determining the Exchange Value was the current "as
is" real estate value of each Property. This value was estimated by independent
appraisers who conducted appraisals on each Property according to industry
standards. Then, the real estate value was adjusted for certain critical
business factors which, in National's and the Company's opinion, are necessary
to arrive at a fair, proper and meaningful Exchange Value for each "Trudy Pat"
Program. Certain business factors are considered "positive," and will cause the
Exchange Value to be adjusted upward from the estimates contained in the
respective real estate appraiser's reports. Likewise, certain factors are
considered "negative," and will cause the Exchange Value to be adjusted downward
from the estimates contained in the respective real estate appraiser's reports.
The following are considered the positive factors:
POTENTIAL LIQUIDITY FACTOR. The Potential Liquidity Factor of a Program is
measured by estimating the amount of cash that the Company believes might be
available through financing of a Program's assets within a six month period
following the Effective Time and dividing that amount by the current real estate
value.
POTENTIAL INVESTOR ASSESSMENT FACTOR. The Potential Investor Assessment
Factor of a Program is determined by estimating the average yearly amount that
National estimates that Investors would be able and willing to invest in the
Program in the form of mandatory assessments, based on prior experience, and
dividing that amount by the current real estate value.
27
<PAGE>
QUICK-SALE FACTOR. The Quick-Sale Factor of a Program is determined by
estimating the amount of cash that the Company believes might be available
through a sale of Program assets which could be liquidated within a six month
period following the Effective Time and dividing that amount by the current real
estate value.
The following are considered the negative factors:
CASH REQUIREMENT FACTOR. The Cash Requirement Factor is determined by
estimating the average amount that the Company believes is needed yearly to meet
the average reasonable and prudent financial needs of the Program and dividing
that amount by the current real estate value.
INVESTOR ASSESSMENT RESISTANCE FACTOR. The Investor Assessment Resistance
Factor is determined by estimating the difference between the average amount
that the Company believes is needed yearly to meet the average reasonable and
prudent financial needs of the Program and the average amount that National
believes that Investors would be able and willing to invest in the Program in
the form of mandatory assessments, based on prior experience (the numerator of
the Potential Assessment Resistance Factor described above). This amount is
then divided by the numerator of the Potential Investment Assessment Factor.
TERM TO MAXIMUM/FULL REPAYMENT FACTOR. The Term to Maximum/Full Repayment
Factor is determined by the following chart:
Term Factor
---- ------
0-6 months 0%
7-12 months 10%
13-18 months 20%
19-24 months 30%
25-30 months 40%
31-36 months 50%
and increasing 10% for every
additional six month period or
part thereof up to 100%.
The importance of each factor is unique. Therefore, each factor has been
weighted as a percentage in determining the Exchange Value. National and the
Company determined that a very important factor should have a weight of 70% to
100%, a moderately important factor should have a weight of 40% to 60%, and a
less important factor should have a weight of ten percent to 30%.
These weighted percentages were used to arrive at the Exchange Value
through the adjustment to the appraised real estate value by multiplying the
factor by the weight. The factors described above have been assigned the
following weights:
28
<PAGE>
POTENTIAL LIQUIDITY FACTOR. Although the potential for financing a
Program's Property was considered to be very important, Investors have indicated
an unwillingness to assume the risks of borrowing money using the Property as
security. Therefore, this factor has been assigned a relatively low weight of
20%.
POTENTIAL INVESTOR ASSESSMENT FACTOR. This factor is considered to be
moderately important because the willingness of Investors to support their
Program with payment of assessments has been determined to have a positive
result on the disposition of the Property. This factor has been assigned a
weight of 50%.
QUICK SALE FACTOR. A quick sale of a Property can result in cash
distributions to Investors. Often, the quick sale price is just a fraction of
the fair market value of a Property. This was not considered to be a
relatively important factor due to the fact that it does not fall within the
Investors' objectives for the Programs based on the initial documentation,
follow-up questionnaires and surveys and many conversations with Investors.
Investors in all of the Programs have generally indicated an unwillingness to
accept a quick sale at a greatly discounted price, and therefore it has been
assigned a weight of 10%.
CASH REQUIREMENT FACTOR. This factor is considered to be moderately
important because the cash requirements must be met if a Property is to be
disposed of successfully. It was determined that this factor is of equal
importance to the Potential Investor Assessment Factor, so it has been assigned
a weight of 50%.
INVESTOR ASSESSMENT RESISTANCE FACTOR. If Investors are unable or
unwilling to support the Property they own, then their Property could face
severe hardships. This was considered to be a major factor and has been
assigned a weight of 75%.
TERM TO MAXIMUM REPAYMENT FACTOR. Although "Trudy Pat" Investors expected
a short-term investment, their beneficial ownership of real estate may not
provide a realistic possibility for a short-term holding period. However, some
balance can be sought to maximize the yield in the shortest possible time frame.
Since this balance is subject to considerable external constraints, it has been
assigned a weight of 10%.
The weighted factors resulted in an upward adjustment to the appraised real
estate value in the case of positive factors, or a downward adjustment in the
case of negative factors, and the results of this method of calculating the
Exchange Value of the Properties effectively lowered the Exchange Value of the
Sacramento/Delta Greens, the Yosemite/Ahwahnee I, the Yosemite/Ahwahnee II and
the Mori Point Properties. The Oceanside Property was unaffected by the
calculations because its assets are the nearest to realizing cash, relative to
the other properties. The following comments are provided to explain how the
most significant adjustments affected the Properties since each Property is a
distinctly separate entity prior to the Acquisition and each Property has
different characteristics.
29
<PAGE>
MORI POINT. The value of the Mori Point Property is seriously impaired by
the Investor Assessment Resistance Factor. National estimates that property
taxes, maintenance and processing of the Property for permits will cost
significantly more than Investors are willing to reinvest in coming years in the
form of mandatory assessments, based on actual experience. Unless funds are
made available to process an endangered species habitat conservation plan, and
unless such a plan is approved by the appropriate governmental authorities, the
Property will likely remain undeveloped and the value will not approach the
amount estimated by the real estate appraiser.
SACRAMENTO/DELTA GREENS. Sacramento/Delta Greens has a tentative tract map
to build over 500 single-family homes. Final engineering and plans must be
completed soon to retain the map and Investors as a group have demonstrated a
resistance to pay even the most basic costs. Thus, the project is seriously
impaired by the Investor Assessment Resistance Factor.
YOSEMITE/AHWAHNEE. Although Investors have supported this project since
foreclosure in September 1995, much work was needed. The golf course is in good
condition and gross revenue has risen significantly. Unfortunately, revenues
from golf, food services and recreational vehicle membership sales have fallen
well short of expenses and the project has severe negative cash flow. A major
cash infusion is necessary to expand the recreational vehicle park and develop a
potential timeshare sales program on the site. There has been extensive
participation by Yosemite/Ahwahnee Investors in past assessments. However,
based on steadily declining compliance with mandatory assessments, National does
not believe that Yosemite/Ahwahnee Investors are willing to provide sufficient
additional capital to support these further efforts through additional
assessments. National further expects that negative cash flow will continue to
create financial stress on the project. Current property taxes must be paid
this year, and a payment plan must be entered into for the delinquent property
taxes, or the Property may be lost to a forced sale by the tax assessor.
Therefore, the Investor Assessment Resistance Factor has a major negative affect
on the Exchange Value of the Yosemite/Ahwahnee Properties.
In summary, the weighted factors adversely influence the Exchange Value
of each of the projects with the exception of OCEANSIDE. These adjustments
are a result of the disadvantages of the present "Trudy Pat" ownership
structure. The Properties require a significant amount of cash to achieve
their "highest and best use" as set forth in the recent independent
appraisers' reports. A change in the ownership structure like the
Acquisition provides alternative methods of raising working capital and does
not depend on mandatory assessment of investors.
ALLOCATION OF SHARES AMONG THE PROGRAMS
The total number of Shares issued in the Acquisition (sometimes referred to
as "Acquisition Shares") will be equal to the aggregate Exchange Value of the
Programs divided by the arbitrary price of $10. The number of Acquisition
Shares allocable to each Program will be determined by multiplying the number of
Acquisition Shares allocable among all of the Programs by a fraction, the
numerator of which is the Exchange Value of the Program and the denominator of
which is the total Exchange Value of all of the Programs.
30
<PAGE>
The amount owed by the original borrower to each Program plus the amount of
assessments paid by Investors at [AUGUST 15, 1997], appraised real estate
values, exchange values and number and percentage of shares allocated to each
program are:
<TABLE>
<CAPTION>
% of Total
% of Shares to be
Amount Real Estate No. of Shares Outstanding
Owed plus Appraised Exchange Shares Issued in After the
Name of Program Assessments Value(1) Value Allocated Acquisition Acquisition(2)
--------------- ----------- -------- ----- --------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
Sacramento/Delta Greens $ 6,015,723 $ 2,000,000 $ 1,215,200 121,520 7.70% 6.24%
Oceanside 27,325,000 3,700,000 5,303,100 530,310 33.62 27.22
Yosemite/Ahwahnee I 8,982,429 8,050,000 2,007,882 200,788 12.73 10.31
Yosemite/Ahwahnee II 19,450,567 12,866,000 3,955,186 395,519 25.08 20.30
Mori Point 12,240,744 5,500,000 3,291,482 329,148 20.87 16.88
TOTAL $ 74,014,463 $ 32,116,000 $ 15,772,850 1,577,285 100.00% 80.95%
</TABLE>
- -----------------------
(1) Appraisals were conducted in May 1997.
(2) 84.84% if all units are sold. The other shares will be held by management
and other founders of the company.
ALLOCATION OF SHARES AMONG INVESTORS
The method utilized to allocate shares to the Investors will involve two
steps. The Shares will first be allocated among the Programs based upon the
Exchange Value of each of the Programs relative to the aggregate Exchange Value
of all of the Programs. National believes that the Exchange Values of the
Programs represent fair estimates of the "as is" value of each Program based on
the current "Trudy Pat" ownership structure and constitute a reasonable basis
for allocating the Shares among all of the Programs.
Next, the Shares allocable to a particular Program will be allocated among
the Investors pro rata in relation to each Investor's Adjusted Outstanding
Investment in a particular Program. In order to determine an Investor's
Adjusted Outstanding Investment, each Investor's investment will be increased or
decreased, if at all, to take into account the payment by that Investor of any
mandatory assessments or voluntary advances. The basis for such adjustments is
found in each of the Programs' tenancy-in-common agreements.
COMPANY SHARES HELD BY AFFILIATES OR EMPLOYEES OF NATIONAL
None of the Acquisition Shares or units described in this Prospectus are
allocable to National or any of its shareholders except to the extent of any of
National's investments in the Programs. Such investments are $3,118 in the
Sacramento/Delta Greens Program; $2,099 in the Oceanside Program; $2,373 in the
Yosemite/Ahwahnee I Program; $46,537 in the Yosemite/Ahwahnee II Program; and
$5,279 in the Mori Point Program. In the Acquisition, National will receive an
aggregate of 1,245 Shares, reflecting 63 Shares, 41 Shares, 53 Shares, 946
Shares and 142 Shares, respectively, for its investments in the Sacramento/Delta
Greens Program, Oceanside Program, Yosemite/Ahwahnee I Program,
Yosemite/Ahwahnee II Program and Mori Point Program. As described in "Terms of
the Acquisition" above, the principal founders of the Company were the family
partnerships of David Lasker and James Orth, the
31
<PAGE>
principals of National. Upon completion of the Acquisition, they will retain,
in the aggregate, 292,270 Shares, or 15% of the outstanding Shares of the
Company assuming none of the units are sold or 11.94% of the outstanding Shares
of the Company if all of the units are sold. National and the management of the
Company believe that this is a fair allocation of the outstanding Shares of the
Company after the Acquisition because it fairly reflects the management efforts
that have been brought to bear to accomplish the Acquisition. The fairness of
the allocation of shares to the founders of the Company is included in the
Fairness Opinion described later in this Prospectus.
EXPECTED BENEFITS OF ACQUISITION
National believes that the Acquisition is the best way to obtain a maximum
recovery by Investors in each of the Programs for the following reasons:
CONTROL OF TIMING OF LIQUIDATION. By creating freely tradable equity
securities in the Company, the Acquisition permits Investors to liquidate all or
a portion of their Shares when such liquidation best serves such Investors. In
addition, by controlling the timing of the liquidation of their investments,
Investors will have better control of the timing of the tax impact of the
liquidation. Furthermore, the Programs will not be forced to sell their
Properties in the current economic environment and recognize the losses that
would be generated by such sales. If the Programs could be liquidated by
selling off the Properties at the current Appraised Value (which, except for the
Oceanside Property, National does not believe is likely), the Investors would
realize unreturned cash (exclusive of accrued interest) losses aggregating
approximately $33,829,000, including estimated aggregate losses on the
Sacramento/Delta Greens Property of $3,571,000, the Oceanside Property of
$23,675,000, the Yosemite/Ahwahnee Properties in the aggregate of $1,583,000,
and the Mori Point Property of $5,069,000.
BENEFITS TO THE COMPANY OF LISTED SHARES. In addition to the flexibility
Investors will have to liquidate their interests at a time that best suits their
respective individual needs, National believes that having the Shares of the
Company listed for trading on the _______________ will provide benefits to the
Company itself which could enhance Investor value. The Company may have access
to outside capital in the form of debt or equity through the capital markets
that the individual Programs would not have. For example, it is possible that
the Company may be able to take advantage of its size in order to access the
capital markets for additional debt or equity investors to provide expansion or
completion of development and construction funding for the various projects. The
growth of the Company will be a capital-intensive process.
DIVERSITY OF INVESTMENT. The Acquisition will allow Investors to
participate in an investment portfolio of four properties rather than one
property. These Properties are in diverse geographic locations in California
and have different development orientation. The diversity of the Company's
portfolio spreads the risk of an investment in the Company over a broader group
of assets and reduces the dependence of the investment upon the performance of
any particular asset.
32
<PAGE>
LIQUIDITY THROUGH LISTING OF SHARES. The Company has applied for listing
of the Shares on the ______________. Listing the Shares is a condition to the
Acquisition. Thus, the Acquisition offers liquidity to the Investors for all or
some of their Shares if a market develops. Although the Acquisition is not the
only means by which Investors could achieve liquidity in their investments in
the Programs, National believes that the Acquisition is preferable to the
alternatives (described below in "--Alternatives to Acquisition") even though an
indefinite period of time may be required before the value of the Shares is
stabilized and there is an adequate demand from buyers for the Shares. National
believes that a sale of the Properties in the current market would result in
unnecessary losses to Investors.
EXPERIENCED MANAGEMENT. The Company will employ key management
professionals that have expertise in real estate development, operation and
construction. See "Management After the Acquisition."
ECONOMICS OF SCALE. The Company will initially consist of the
consolidation of the assets of five different Programs with the intent to expand
through the acquisition of additional projects in the future. Such
consolidation, compared to the ownership and management of the Programs
separately, presents the opportunity for significant cost savings and efficiency
in terms of personnel and other resources. Although necessary on-site project
operations, equipment and management will be provided on a local basis, the
overall corporate resources will be centralized. This centralized corporate
management is charged with maximizing the profitability of each of the projects
on behalf of the entire Company. This will avoid duplication of essential
personnel and services that would otherwise be necessary to have for each
project should they be owned, operated or managed separately.
ELIMINATION OF MANDATORY ASSESSMENTS. Completion of the Acquisition will
result in the cancellation of the servicing agreement and the tenancy-in-common
agreement for each of the Programs and National will no longer be a Servicing
Agent for the Investors. There will be no further assessments of Investors of
any kind pursuant to those agreements.
ALTERNATIVES TO ACQUISITION
Before deciding to recommend the Acquisition, National considered
alternatives in an effort to achieve the most favorable cash flow distribution
and the maximum Investor return. These alternatives were (i) continued
operation of each of the Programs under their respective business plans under
the existing tenancy-in-common structure, (ii) liquidation of each of the
Programs in an orderly manner or in a bankruptcy liquidation, and (iii) a
reorganization of the Programs in a bankruptcy proceeding. Set forth below are
the conclusions of National regarding its belief that the Acquisition is more
beneficial to the Investors than the alternatives considered. At this time,
National is unable to quantify the consideration that would be received by
Investors pursuant to any of the alternatives.
CONTINUATION OF THE PROGRAMS. An alternative to the Acquisition would be
to continue the Programs. The Programs would remain separate groups of tenancy-
in-common investors, with their own assets and liabilities, governed by their
existing servicing agreement and tenancy-
33
<PAGE>
in-common agreement. Although National would still be entitled to servicing
fees on an on-going basis, as well as accrued fees and expenses, National could
discern no advantages to Investors in achieving their objectives from the
continued operation of the Programs under their respective existing business
plans. National rejected this alternative because it was concluded that
maintaining the Programs separately would likely have the following negative
results when compared with the benefits that National perceived may be derived
from the Acquisition: (i) a less efficient and cost effective exit strategy for
Investors wishing to liquidate their investment at a future date; (ii) inability
of the Investors to better control the timing of the tax impact of the
liquidation of their particular investment; (iii) illiquidity of individual
investments on a current basis due to the lack of any established secondary
market; (iv) difficulty in valuing the individual investments due to the virtual
non-existence of a secondary market for the interests; (v) less flexibility and
control in actively managing the real estate underlying each of the Programs;
and (vi) access to capital for the Programs would be limited to Investor
assessments.
The capital needed to finish lots and provide for the infrastructure is a
requirement for the Sacramento/Delta Greens Program. Continuing to build homes
and potentially acquiring additional lots are requirements for the Oceanside
Program. With respect to Yosemite/Ahwahnee, the business plan for those
Programs assumes that there will be a large infusion of additional capital to
support the expansion of the recreational vehicle park, construction of
timeshare units and very aggressive marketing of these and other products. The
Mori Point project needs funds to continue with the hotel/conference center
entitlement process. Unfortunately, there are limited sources of outside
capital to fund the financial demands of any of these business plans
independently. Absent the Acquisition which may provide the Company with more
traditional financing alternatives and which, through the sale of certain
portions of some of the real estate assets, could generate internal capital, THE
MOST LIKELY SOURCE OF CAPITAL TO COMPLETE THE BUSINESS PLANS OF THE RESPECTIVE
PROGRAMS IS MANDATORY ASSESSMENTS AND VOLUNTARY ADVANCES FROM TRUDY PAT
INVESTORS. ANY DELAY ON THE PART OF INVESTORS IN PROVIDING SUCH CAPITAL WOULD
HAVE A SIGNIFICANT NEGATIVE EFFECT ON THE SUCCESS OF ANY OF SUCH BUSINESS PLANS.
LIQUIDATION OF THE PROGRAMS. Another alternative available to National is
to proceed with a liquidation of each of the Programs and distribute the net
liquidation proceeds to the Trudy Pat Investors. National concluded that there
would be several disadvantages to using this strategy. A complete liquidation
of the Programs would deprive those Investors who do not desire to liquidate
their investment from participating in the benefits of future performance and
possible property value improvements. In the case of each of the Programs, a
sale in bulk in the near future of the applicable Properties would yield a
significant loss to each of the Investors. This result would be contrary to the
original objectives of the Programs and those of the Investors as confirmed
through surveys, questionnaires and conversations. Such a liquidation might be
accomplished in a bankruptcy proceeding, the complexities involved due to the
"Trudy Pat" format of the Programs, as well as the administrative and other
costs, made bankruptcy liquidation particularly unattractive. In addition,
liquidation of the Programs' Properties does not have certain other benefits of
the Acquisition, including (i) permitting Investors to hold their investment
until the time when liquidation is appropriate for their individual investment
and tax strategy, (ii) the opportunity to participate in acquisition and
financing opportunities existing in
34
<PAGE>
the real estate market through equity ownership in the Company, (iii) the
transaction costs and time associated with the Acquisition are expected to be
significantly less than those which would be incurred in an orderly liquidation
of the Programs' assets through additional improvements or a build-out, and (iv)
the complete liquidation of the Programs would cause the recognition of capital
losses by Investors to the extent the selling price of the Properties is less
than their tax basis. See "--Expected Benefits of Acquisition - Control of
Timing of Liquidation" for the estimated total capital loss that would be
recognized for each of the Programs if their respective Properties were sold in
bulk for their appraised value.
BANKRUPTCY REORGANIZATION. In addition to a liquidation in a bankruptcy
proceeding, National also considered attempting to use the bankruptcy laws to
reorganize the Programs to accomplish the consolidation goals of the Acquisition
subject to approval of the Bankruptcy Court. This approach was not selected
because (i) there was some question as to whether the Programs, individually or
collectively, met the conditions precedent to a successful reorganization in a
bankruptcy proceeding, and (ii) National determined that the administrative
costs and further delays would not be as beneficial to the Investors as the
Acquisition.
CONDITIONS TO THE ACQUISITION
The principal conditions to the Acquisition are: (i) approval of the
Acquisition by holders of a majority of the tenancy-in-common interests in each
of the Programs; (ii) commitment of a reputable title company to issue to the
Company an extended coverage policy of title insurance on each of the parcels of
real property owned by each of the Programs; (iii) receipt of the Fairness
Opinion from the Independent Valuator regarding the allocation of the Shares;
and (iv) approval of the Shares for listing on the _______________. No federal
or state regulatory requirements must be complied with or approval obtained in
connection with the Acquisition. National may decide not to pursue the
Acquisition at any time before it becomes effective, whether before or after
approval by the Investors.
RECOMMENDATION OF NATIONAL AND FAIRNESS DETERMINATION
National believes the Acquisition to be fair to, and in the best interests
of, each of the Programs and the Investors therein. National recommends that
the Investors approve the Acquisition.
National believes that the likely market value of the Shares will be higher
than the expected proceeds from liquidation, but, of course, there can be no
assurance that that will be true. In proposing the Acquisition, the current
form of each of the Programs was outweighed by the Company's (i) potential to
provide improved liquidity to the Investors through ownership of the Company's
Shares; (ii) potential for growth; and (iii) Investors' increased control over
the timing of the tax consequences of liquidation.
Based on its analysis of the Acquisition, National believes that (i) the
terms of the Acquisition when considered as a whole are fair to the Investors;
(ii) the Shares offered to the Investors constitute fair consideration for the
Properties held in tenancy-in-common by the
35
<PAGE>
Investors; and (iii) after comparing the potential benefits and detriments of
the Acquisition with those of the earlier described alternatives, the
Acquisition is more attractive to the Investors than such alternatives. These
beliefs are based upon National's analysis of the terms of the Acquisition, an
assessment of its potential economic impact upon the Investors, a consideration
of the amount of the equity of the Company which will be held by consultants and
employees of National, the Company and the Programs, a comparison of the
potential benefits and detriments of the Acquisition and alternatives to the
Acquisition, and a review of the financial condition and performance of the
Programs and the terms of critical agreements such as the servicing agreements
and the tenancy-in-common agreements for each of the Programs.
National also believes that the Acquisition is procedurally fair for the
following reasons. First, the Acquisition is required to be approved by
Investors holding a majority of each Program's outstanding tenancy-in-common
interests in compliance with the provisions of the tenancy-in-common agreement
of each of the Programs, and is subject to certain conditions set forth under
"Conditions to the Acquisition" above. Second, National believes that the
Exchange Values of the Programs have been determined according to a process that
is fair, because the process involved appraisals of all of the Programs'
Properties by independent appraisers, as well as certain adjustments thereto to
take into account certain factors deemed material by the Company and National
for an equitable allocation of Shares among the Programs. See "--Determination
of Exchange value."
Although National reasonably believes the terms of the Acquisition are
fair to the Investors, the principals of National have conflicts of interest
with respect to the Acquisition. These conflicts include, among others, (i)
the determination not to retain independent parties to act on behalf of the
Investors or the Programs, (ii) the principal shareholders of National may
realize substantial economic benefits upon completion of the Acquisition, and
(iii) National's relief from on-going obligations under the servicing
agreements with respect to each of the Programs. However, it should be noted
that, if the Acquisition is completed, National and its principals will have
cancelled $3,011,375 of accrued fees from the performance of servicing agent
and other project management related activities under the applicable
servicing agreements, of which $946,111 has been accrued on the financial
statements of the Programs at June 30, 1997. It should be further noted
that, at $10 per Share, the amount of fees cancelled by National and its
principals would be equal to over 300,000 Shares. Additionally, National
will not be entitled to any further servicing fee with respect to the
Properties which amounts, in the aggregate, to $650,000 annually. For a
further discussion of the conflicts of interest and potential benefits of the
Acquisition to National and its principal shareholders, see "Interests of
Certain Persons in the Acquisition and Conflicts of Interest - Substantial
Benefits to Affiliates of National."
DIVIDEND POLICY
The Company has no plans to pay dividends in the foreseeable future. Funds
otherwise available for dividends will be utilized to potentially increase Share
value through acquisition and development.
36
<PAGE>
COMPARISON OF TENANCY-IN-COMMON INTERESTS AND SHARES
The following summary compares a number of differences between the
ownership of tenancy-in-common interests in the Programs and Shares of the
Company and the effect relating thereto.
Differing Factor Tenancy-in-Common Interests Shares
- ---------------- --------------------------- ------
GENERAL BUSINESS Each of the Programs The business of all
commenced as five of the Programs
opportunities to will be consolidated
participate in a loan into the Company. The
secured by to-be-improved Company has broader
real property. The investment objectives
Programs are not seeking which will include the
to make additional loans sale or completion of
or purchase new the projects originally
properties. undertaken by the
developers which
borrowed from Investors
of the Programs, as
well as possibly
expanding into other
real estate ventures.
The current plans of
the Company may be
recast at the
discretion of the Board
of Directors without
the consent of the
Shareholders.
DISTRIBUTIONS AND The Programs were The initial policy of
DIVIDENDS initially designed to the Company will be to
yield regular interest preserve its cash
payments to the Investors resources for growth
and to have the principal and internal
of the various loans development and, thus,
repaid in accordance with the Company does not
their respective terms, plan to make dividend
usually two to four distributions in the
years. foreseeable future.
The Board of Directors
has the discretion to
determine whether or
not and when to declare
and pay dividends and
the amount thereof.
37
<PAGE>
MANAGEMENT The business and affairs The business and affairs
of each of the Programs of the Company are
are managed by National managed by the officers
pursuant to the of the Company under the
applicable servicing direction of the Board
agreement. National may of Directors. The Board
be terminated as the of Directors will
servicing agent by the ultimately be divided
vote of holders of a into three classes
majority of the serving staggered three
interests of a year terms. One-third
particular Program. of the Board of
Directors will be
elected annually by
holders of the Shares to
serve for three year
terms. Directors can be
removed from office by
the affirmative vote of
the holders of at least
a majority of the then-
outstanding Shares.
FIDUCIARY DUTIES None of the Programs are Officers and Directors
partnerships and, thus, of the Company are
National does not have subject to the Delaware
the common law fiduciary common law which imposes
duties that it would fiduciary duties of
have if it were the care, loyalty, good
general partner of a faith and fair dealing
partnership. However, on the officers and
as an agent, National directors of the
has fiduciary-like Company.
duties to Investors to
use reasonable care,
skill and diligence in
its work, not to compete
with Investors'
interests without
consent, and not to take
adverse interests to
Investors without
consent.
VOTING RIGHTS Under the tenancy-in- Under the Charter
common agreements of Documents of the
each of the Programs, Company, the
the Investors have Shareholders have voting
voting rights with rights with respect to
respect to collection, (i) election of
servicing and Directors; (ii) the sale
administration of the or disposition of all or
Outstanding Investment substantially all of the
of the Programs, as well assets of the Company at
as termination of the any one time; (iii) the
applicable servicing merger or consolidation
agreement. Each holder of the Company; (iv) the
of a tenancy-in-common dissolution of the
interest is entitled to Company; and (v) certain
vote on each matter anti-takeover
presented to the provisions.
Investors of a
particular Program.
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<PAGE>
Approval of any matter Each Share entitles its
submitted to the holder to cast one vote
Investors in a on each matter presented
particular Program to holders of Shares.
requires approval of
holders of a majority of Approval of any matter
the tenancy-in-common submitted to holders of
interests of that Shares generally
Program. requires the affirmative
vote of
holders of a majority of
the outstanding shares,
however, amendments to
the anti-takeover
provisions of the
Certificate of
Incorporation of the
Company require a two-
thirds vote.
SPECIAL MEETINGS None A special meeting of
Shareholders may by
called by the Board of
Directors of the
Company, the Chairman of
the Board or the
President only.
REDEMPTION The tenancy-in-common The Shares are not
interests are not redeemable. The Shares
redeemable. Investors can be sold on the
in a particular Program ________________ if an
may only receive a active trading market
return of their exists.
investment upon the
repayment of the
applicable note or other
liquidation of all or
part of the assets of
the Program.
LIQUIDATION RIGHTS In the event of the Upon liquidation of the
liquidation of a Company, the
particular Program, the Shareholders will be
assets of the Program entitled to share
remaining after ratably in any assets
satisfaction of all remaining after the
debts and liabilities of satisfaction of
the Program, the obligations to creditors
satisfaction of expenses and any liquidation
of liquidation of the preferences on any
assets of the Program Preferred Stock that may
and the establishment of be then outstanding.
a reasonable reserve in
connection therewith are
distributed to the
Investors pro rata in
accordance with their
respective percentage
interests in the
applicable Program.
39
<PAGE>
RIGHT TO COMPEL Holders of a majority The vote of Shareholders
DISSOLUTION of the tenancy-in- owning at least a
common interests in a majority of the
particular Program may outstanding shares in
vote to compel the sale the Company is
of the Program's assets sufficient to cause the
with the result that dissolution of the
the Program will be Company.
dissolved.
LIMITED LIABILITY As tenancy-in-common Shareholders are not
owners of the assets of generally liable for
the Programs, the obligations of the
Investors are not Company.
effectively insulated
from personal liability
based on operation of
those assets.
LIQUIDITY AND There is no organized The Shares will be
MARKETABILITY secondary market for freely transferable and
the tenancy-in-common it is a condition to the
interests held by consummation of the
Investors. Thus, Acquisition that the
trading in the tenancy- Shares be approved for
in-common interests is listing on the
sporadic and occurs ________________.
solely through private
transactions.
RESTRICTIONS ON There are certain None.
TRANSFER restrictions on
transfer of the tenancy-
in-common interests.
CONTINUITY OF None of the Programs The Charter Documents
EXISTENCE are designed to have provide for perpetual
perpetual existence. existence.
FINANCIAL REPORTS None of the Programs The Company will be
are subject to the subject to the reporting
reporting requirements requirements of the
of the Exchange Act. Exchange Act and will
However, National, file annual and
without obligation to quarterly reports. The
do so, has endeavored Company currently
to provide the intends to provide
Investors in each of annual and quarterly
the Programs with reports to its
regular reports about Shareholders.
such Programs'
respective activities.
40
<PAGE>
PAYMENTS TO NATIONAL National is entitled to While National and its
AND ITS AFFILIATES fees and reimbursement Affiliates will hold
of expenses for services Shares of the Company,
it renders to each of the only form of
the Programs pursuant to compensation paid to
the servicing some of such persons
agreements. will be pursuant to
their employment
agreements or
otherwise. ONLY
$1,078,510 OF THE PAST
DUE FEES AND EXPENSES
DUE TO NATIONAL AND
ITS PRINCIPALS WILL
REMAIN AS LIABILITIES
OF THE COMPANY.
CERTAIN LEGAL RIGHTS Holders of a majority of Delaware law affords
the Outstanding shareholders rights to
Investment in a Program bring derivative
must vote to terminate actions when the
the servicing agreement officers or Directors
between National and the of the Company have
Program Investors. failed to institute an
action to recover
damages and class
actions to recover
damages. Shareholders
may also have rights
to bring actions in
federal court to
enforce federal
rights.
INSPECTION OF BOOKS Holders of tenancy-in- Under Delaware law,
AND RECORDS common interests in a each Shareholder has
Program have no the right, subject to
contractual right to certain reasonable
inspect books and standards, to obtain
records maintained by from the Company from
National with regard to time to time upon
a Program. However, as reasonable written
the servicing agent for demand for any purpose
the Investors, National reasonably related to
permits them to review the Shareholder's
such books and records interest as a
on reasonable notice. Shareholder of the
Company, certain
information regarding
the status of the
business, affairs and
financial condition of
the Company. Pursuant
to Rule 14a-7 under
the Exchange Act, the
Shareholders will have
the right to obtain a
list of Shareholders
from the Company
whenever the Company
solicits proxies or
consents.
41
<PAGE>
COMPARISONS OF PROGRAMS AND COMPANY
The information below highlights a number of the significant differences
between the Programs and the Company relating to, among other things, forms of
organization, investment objectives, policies and restrictions, asset
diversification, capitalization, management structure and investor rights.
These comparisons are intended to assist Investors in understanding how their
investments will be changed if, as a result of the Acquisition, their
tenancy-in-common interests in the assets, liabilities and businesses of their
respective Programs are exchanged for Shares of the Company.
FORM OF ORGANIZATION
Program Company
------- -------
None of the Programs are The Company is a Delaware
organized business entities such corporation formed for the purpose
as corporations, partnerships or of acquiring the Programs'
business trusts. Each commenced Properties, as well as investing in
as an opportunity to participate and managing other real estate
in a loan secured by to-be- opportunities. The Company will be
improved real property through a taxed as a corporation.
tenancy-in-common investment
mechanism. Each Program remains
as a tenancy-in-common among its
Investors. Investors are
individually responsible for the
tax consequences of a Program and
the reporting thereof.
LENGTH OF INVESTMENT
Program Company
------- -------
An investment in any of the Unlike the Programs, the Company
Programs originally was presented intends to continue its operations
to Investors as an opportunity to for an indefinite time period and
take a tenancy-in-common the Company has no specific plans
participation in a loan secured for the disposition of assets
by real property. As such, the acquired through the Acquisition or
investments were finite in length subsequent acquisitions. The
with the expectation that Company is allowed to retain net
Investors' investments were to be sale or refinancing proceeds for new
returned, with interest, within a investments, capital expenditures,
two to four year period. working capital reserves or other
appropriate purposes.
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<PAGE>
NATURE OF INVESTMENT
Program Company
------- -------
Since the respective Ownership The Shares constitute equity
Date of each of the Programs, the interests in the Company. Each
Investors in such Programs have Shareholder will be entitled to its
been the beneficial owners (as pro rata share of distributions made
tenants-in-common) of the assets with respect to the Shares. The
and the businesses of the distributions payable to
respective Programs. Actual Shareholders are not fixed in amount
title to the Properties is held and are only paid when declared by
by various entities acting as the Board of Directors. The Company
agents for the Investors in the has no present plans to pay
several Programs. distributions.
PROPERTIES AND DIVERSIFICATION
Program Company
------- -------
The investment portfolio of each The Company is authorized to own and
of the Programs is limited to acquire the Programs' Properties,
the assets acquired as of the make other investments and issue
applicable Ownership Date, as additional equity and debt
well as such additional assets securities to acquire additional
as may have been acquired with assets.
mandatory Investor assessments
or voluntary Investor advances
since the Ownership Date. None
of the Programs have the
authority to raise additional
funds from third parties to
expand its investment portfolios.
ADDITIONAL EQUITY AND DILUTION
Program Company
------- -------
None of the Programs are The Board of Directors may, in its
authorized to raise additional discretion, issue additional equity
funds other than through the securities. The Company may sell
assessment/advance process additional equity from time to time
prescribed by the applicable to increase its available capital.
tenancy-in-common agreement. The issuance of additional equity
Therefore, except to the extent securities may result in a dilution
that existing Investors in a of the interests of the
particular Program pay mandatory Shareholders.
assessments or make voluntary
advances, no dilution of an
Investor's interest in the
Program can occur.
43
<PAGE>
BORROWING POLICIES
Program Company
------- -------
None of the Programs are The Company is permitted to
authorized to borrow funds borrow, on a secured or unsecured
necessary, appropriate or basis, funds to advance its
advisable to conduct its business business without limits.
and affairs. The only additional
funds which the Programs may raise
comes from mandatory assessments
from, or voluntary advances by,
existing Investors.
RESTRICTIONS ON RELATED PARTY TRANSACTIONS AND BUSINESS COMBINATIONS
Program Company
------- -------
None of the applicable servicing Under Delaware law, transactions
agreements or tenancy-in-common between the Company and one or
agreements for the Programs more of its directors or officers,
restrict any of the Programs from or between the Company or any
entering into business affiliate of a director or
transactions with National or its officer, are not void or voidable
affiliates. if the transaction is approved in
good faith by a majority of the
disinterested directors or
Shareholders based on full
disclosure; or the transaction is
fair as to the Company as of the
time it is authorized, approved or
ratified by the Board of
Directors, an appropriate
committee or the Shareholders. In
addition, the Company's
Certificate of Incorporation, as
well as Delaware law, prohibit
certain business combinations with
owners of more than 15% of the
outstanding voting stock of the
Company ("interested
stockholders"), or an affiliate of
such person, within the three year
period immediately prior to the
date on which such stockholder
became an interested stockholder.
44
<PAGE>
MANAGEMENT CONTROL AND RESPONSIBILITY
Program Company
------- -------
National acts as servicing agent The Board of Directors has
for each of the Programs pursuant exclusive control over the
to servicing agreements entered Company's business and affairs
into with each of the Investors subject only to the restrictions
in each Program. Pursuant to the in the Charter Documents.
servicing agreements, National is Shareholders have the right to
essentially invested with elect members of the Board of
management authority to conduct Directors. The Directors are
the business of each of the accountable to the Company as
Programs. The servicing fiduciaries and are required to
agreements are terminable on 30 exercise good faith and integrity
days' written notice, provided in conducting the Company's
that the Investors do not have the affairs. See "Fiduciary
power to terminate the servicing Responsibility." The Shareholders
agreements unless and until all have greater control over the
amounts owed to National management of the Company than the
thereunder have been paid in full. Investors have over the Programs
National does not need to seek re- because members of the Company's
election but instead serves unless Board of Directors are elected by
removed by the Investors, which is the Shareholders.
generally an extraordinary event.
Pursuant to the tenancy-in-common
agreements for each of the
Programs, matters concerning the
collection, servicing and
administration of the Outstanding
Investment for each of the
Programs is governed by the will
of Investors holding more than 50%
of the Outstanding Investment. As
servicing agent, National is
accountable as a fiduciary to each
of the Programs and is required to
exercise good faith and integrity
in its dealings in conducting the
affairs of each of the Programs.
See "Fiduciary Responsibility."
45
<PAGE>
MANAGEMENT LIABILITY AND INDEMNIFICATION
Program Company
------- -------
Pursuant to the servicing The Company's Directors are not
agreements, National is personally liable for ordinary
indemnified and held harmless by liabilities of the Company. The
the Investors from and against Charter Documents provide that a
any and all liabilities for acts Director's liability for breach of
or omissions performed in the fiduciary duty is limited to the
course of its activities as full extent allowable under
servicing agent, except as to such Delaware law. The Charter
liabilities caused or contributed Documents and Delaware law provide
to, in whole or in part, by any indemnification rights to
gross negligence or willful Directors and officers who act in
misconduct on the part of National good faith, and in a manner
or its Agents. reasonably believed to be in or
not opposed to the best interests
of the Company and, with respect
to criminal actions or
proceedings, who act without
reasonable cause to believe their
conduct was unlawful. In
addition, the Charter Documents
indemnify Directors and officers
against amounts paid for
settlement, authorize the Company
to advance expenses incurred in
defense upon receipt of an
appropriate undertaking to repay
such amounts if appropriate, and
authorize the Company to carry
insurance for the benefit of the
officers and Directors. See
"Fiduciary Responsibility."
46
<PAGE>
ANTI-TAKEOVER PROVISIONS
Program Company
------- -------
Changes in management of any of The Charter Documents contain a
the Programs can be effected only number of provisions that may have
by removal of National as the the effect of delaying or
servicing agent by holders of a discouraging a hostile takeover of
majority of the Outstanding the Company. These provisions
Investment in such Programs. This include, among others, (i) the
would be an extraordinary event. power of the Board of Directors to
issue additional equity securities
in the Company; (ii) the
classified Board of Directors
wherein only one-third of the
Directors are re-elected to the
Board in any given year and
Directors serve three year terms;
(iii) any action required or
permitted to be taken by
Shareholders of the Company must
be effected at a duly called
annual meeting or a special
meeting unless such action
requiring or permitting
stockholder approval is approved
by a majority of the Board of
Directors; (iv) special meetings
of Shareholders may only be called
by a majority of the Board, a
Chairman of the Board or the
President; (v) Directors may only
be removed for cause and only by
the affirmative vote of holders of
not less than two-thirds of the
voting power of all outstanding
Shares; and (vi) amendments to the
anti-takeover provisions of the
Certificate of Incorporation may
only be effected by the
affirmative vote of holders of not
less than two-thirds of the voting
power of all outstanding Shares.
See "Description of Shares."
47
<PAGE>
VOTING RIGHTS
Program Company
------- -------
Holders of a majority of the The Company's Board of Directors
Outstanding Investment in each consists of three classes.
Program may control decisions Shareholders are entitled to elect
respecting the collection, one class of the Company's Board
servicing and administration of of Directors at each annual
such Outstanding Investment. meeting of the Company. In
Otherwise, investors in the addition, Shareholders have the
Programs have no voting rights. power to amend the Charter
Documents by the votes required
therein, to dissolve the Company
and to approve business
combinations between the Company
and other entities.
LIMITED LIABILITY OF INVESTORS
Program Company
------- -------
As tenants-in-common in the Under Delaware law, Shareholders
respective programs, the Investors will not be liable for Company
are not effectively insulated from debts or obligations. Upon
personal liability. Pursuant to issuance, the Shares will be fully
the tenancy-in-common agreements, paid and non-assessable.
Investors are susceptible to
mandatory assessments.
VOTING PROCEDURES
THE VOTE OF EACH INVESTOR IS IMPORTANT. EACH INVESTOR IS URGED TO MARK,
DATE AND SIGN THE INVESTOR BALLOT AND RETURN IT IN THE ENCLOSED ENVELOPE.
TIME OF VOTING
The vote of the Investors with respect to the Acquisition will be tabulated
on _____________, 1997, unless such date is extended by the Company in its sole
discretion. The vote will be tabulated by National and verified by BDO Seidman,
LLP, which is not affiliated with the Company, the Programs or National. See
"Investor Ballot and Vote Required."
RECORD DATE AND OUTSTANDING VOTES
The Acquisition is being submitted for approval to those Investors holding
interests in the Programs as of the Record Date. The Record Date is
[_________________] for all Programs. At the Record Date, the following number
of votes were held of record by the number of Investors indicated below.
48
<PAGE>
[AT 8/15/97] Number of Votes
Number of Votes Required for Approval Number of
Program Held of Record of Acquisition Investors
------- -------------- --------------------- ---------
Sacramento/Delta Greens 6,015,723 3,007,862 332
Oceanside 27,325,000 13,662,501 1,755
Yosemite/Ahwahnee I 8,982,429 4,491,215 426
Yosemite/Ahwahnee II 19,450,567 9,725,284 837
Mori Point 12,240,744 6,120,373 486
Each Investor is entitled to one vote for each dollar (or fraction thereof
exceeding $0.50) of Outstanding Investment it has in the applicable Program.
APPROVAL DATE
The Prospectus and form of Investor Ballot constitutes National's notice of
the proposed Acquisition. Each Investor has until 11:59 p.m., Pacific Time, on
________________, unless extended by the Company in its sole discretion (the
"Approval Date"), to inform the Company whether such Investor wishes to approve
or disapprove of his Program's participation in the Acquisition. The Company
and National ask that each Investor vote by completing and returning the form of
Investor Ballot accompanying this Prospectus in the manner described below.
INVESTOR BALLOT AND VOTE REQUIRED
Investors who wish to vote "YES" for the Acquisition should complete, sign
and return the Investor Ballot relating to their interests which accompanies
this Prospectus. Each Investor's attention is directed to the Investor Ballot
and Instructions accompanying this Prospectus. Investor Ballots must be
delivered in person or by mail or by other delivery service to National at the
following address on, or prior to, the Approval Date: National Investors
Financial, Inc., Attention: Vivian Kennedy, 4220 Von Karman Avenue, Suite 110,
Newport Beach, California 92660.
Approval of the Acquisition by a Program requires the vote of Investors
holding a majority of the outstanding votes as of the Record Date. National
will tabulate the votes and such tabulation will be verified by BDO Seidman,
LLP. Abstentions will be tabulated with respect to the Acquisition and related
matters. Broker (or other custodian) non-votes, if any, are not counted for
purposes of determining whether the Acquisition and related proposals have been
approved. Abstentions and broker (or other custodian) non-votes will have the
effect of a vote against the Acquisition. See table in "--Record Date and
Outstanding Votes" for the number of votes which must be cast in favor of the
Acquisition for it to be approved by each respective Program.
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<PAGE>
Investors who sign and return the Investor Ballot without indicating a vote
will be deemed to have voted "YES" in favor of the Acquisition.
Investors who wish to vote against the Acquisition should also complete a
Investor Ballot. The failure to return a Investor Ballot will have the effect
of a vote against the Acquisition.
If the Acquisition is approved by all Programs, Investors in all Programs
will receive Acquisition Shares whether they voted in favor or against, or
abstained from voting on the Acquisition.
All questions as to the form of all documents and the validity (including
time of receipt) of all approvals will be determined by National and such
determinations will be final and binding. National reserves the absolute right
to waive any of the defects or irregularities in any approval of the Acquisition
or preparation of the form of Investor Ballot. National's interpretation of the
terms and conditions of the Acquisition will be final and binding. National
shall be under no duty to give notification of any defects or irregularities in
any approval of the Acquisition or preparation of the form of Investor Ballot
and shall not incur any liability for failure to give such notification.
REVOCABILITY OF CONSENT
Investors may withdraw or revoke their consent at any time prior to the
Approval Date. To be effective, a written, telegrahic, fax or telex notice of
revocation or withdrawal of the Investor Ballot must be received by no later
than the Approval Date, addressed as follows: National Investors Financial,
Inc., Attention: Vivian Kennedy, 4220 Von Karman Avenue, Suite 110, Newport
Beach, California 92660, telecopy number 714-752-9753. A notice of revocation
or withdrawal must specify the Investor's name and the name of the Program to
which such revocation or withdrawal relates.
SOLICITATION OF VOTES; SOLICITATION EXPENSES
Votes of Investors may be solicited by the management of National or by
third parties. Costs of solicitation will be allocated among the Programs, pro
rata in accordance with Exchange Values. No party will receive any compensation
contingent upon solicitation of a favorable vote or success of the Acquisition.
NO DISSENTERS' RIGHTS
If the Acquisition is approved, Investors in any of the Programs who
dissent or abstain from consenting to the Acquisition will not be entitled to
dissenters' or appraisal rights under the tenancy-in-common agreements or the
Delaware or California Law. Such rights, when they exist, give the holders of
securities the right to surrender such securities for an appraised value in
cash, if they oppose a merger or similar reorganization. No such rights will be
provided by National, the Programs, or the Company.
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<PAGE>
ISSUANCE OF CERTIFICATES FOR ACQUISITION SHARES
Promptly after the Effective Time, there will be issued and mailed to
former Investors of record at the Effective Time a certificate representing
the number of Acquisition Shares to which such Investor is entitled.
If any certificate representing Acquisition Shares is to be issued in a
name other than that in which an Investor is registered on National's books
for each Program as of the Effective Time, it will be a condition of such
issuance that the person requesting such change pay to the Company's transfer
agent any transfer fee or taxes required by reason of the issuance of a
certificate representing shares in any name other than that of the registered
Investor, or the person requesting such change establishes to the
satisfaction of the Company that any transfer tax has been paid or is not
applicable.
After the Effective Time, there will be no further registration of
transfers of tenancy-in-common interests that were issued and outstanding
immediately before such time and that were exchanged for Shares.
INTERESTS OF CERTAIN PERSONS IN THE ACQUISITION
AND CONFLICTS OF INTEREST
A number of potential conflicts of interest are inherent in the
relationship between National (and its shareholders) and the Trudy Pat
Investors. In recognition of these conflicts, and the resulting need to
independently determine that the Acquisition is in the best interest of the
Investors, National and the Company engaged the Independent Valuator to
render the Fairness Opinion and the independent appraisers to independently
determine the value of the Properties. Certain conflicts of interest are
summarized below.
BENEFITS TO NATIONAL
The benefits of the Acquisition for National primarily reside in the
relief from its duties and related costs as servicing agent for the Programs
that are acquired by the Company. Asset management for the Programs will no
longer be necessary. Although some of the Programs (Oceanside and Yosemite
Ahwahnee I and II) paid National its contractual fees for such activities,
some of the Programs (Sacramento/Delta Greens and Mori Point) accrued these
fees and other amounts due National. Without having current payments for
such fees, National frequently operated under financial constraints and
unprofitably. Additionally, without obligation to do so, National also
advanced its own funds to the Mori Point and Yosemite/ Ahwahnee Programs, for
the benefit of those Investors. Aside from servicing-related activities,
specific operational functions performed by National's principals and
employees that will no longer be required to be performed by them relate to
construction disbursements, budget analysis, vendor and subcontractor
payments, accounting and bookkeeping, site inspections and work
verifications, insurance negotiations, bonding, property and use tax
coordination and
51
<PAGE>
payment, council and planning meeting attendance, political involvement,
consultant selection and management, securities, real estate and specialty
legal resource management, investor and broker administration and
tenancy-in-common-oriented communication and management. If the Acquisition
is approved, these duties will be undertaken by the Company's management.
Upon completion of the Acquisition, National can focus on its duties on
other projects for which it serves and performs the functions of servicing
agent and asset manager. Since the volume of its responsibilities will
decrease with the Acquisition, National may be able to decrease some of the
associated direct and variable costs.
BENEFITS TO SHAREHOLDERS OF NATIONAL
The two principals of National, David Lasker and James Orth, will
benefit significantly and individually from the Acquisition since their
respective family partnerships are shareholders of the Company. National can
make more concentrated efforts to relieve itself of the costly
responsibilities of asset and development management on behalf of others and
determine ways to regain and increase profitable loan servicing activities,
which are less demanding in terms of management, personnel and other
resources. See "Principal Shareholders."
LACK OF INDEPENDENT REPRESENTATION OF INVESTORS
While the Independent Valuator has provided the Fairness Opinion, and
the independent appraisers have independently determined the value of the
Properties, neither the Company nor National has retained any outside
representatives to act solely on behalf of the Investors in determining the
terms and conditions of the Acquisition. National did not engage an
independent representative because it believes it can fairly represent the
interests of the Investors. Further, Investors have the opportunity to vote
on the Acquisition. No group of Investors was empowered to negotiate the
terms and conditions of the Acquisition or to determine what procedures
should be in place to safeguard the rights and interests of the Investors.
In addition, no investment banker, attorney, financial consultant or expert
was engaged to represent the interests of the Investors. National and its
principals have been the parties responsible for structuring all the terms
and conditions of the Acquisition. Legal counsel was engaged by National to
assist with the preparation and documentation of the Acquisition, including
this Prospectus, and did not serve, or purport to serve, as legal counsel for
the Programs or the Investors. If another representative or representatives
had been retained for the Investors, the allocation of the Shares may have
been more favorable to certain Programs and less favorable to others, and
fewer Shares may have been allocated to principals and other Affiliates of
National. In addition, had separate representation for each of the Programs
been arranged by National, the terms of the Acquisition may have been
different.
While independent representatives were not engaged to represent the
interests of the Programs in structuring the Acquisition, National believes
the procedures used to protect the financial interests of the Investors are
fair. For example, National received independent verification of its view
that permitting the Company's founders to hold 19.05% of the outstanding
Shares of the Company upon completion of the Acquisition is fair under the
52
<PAGE>
circumstances. In addition, the Shares will be allocated among the Programs
in accordance with their respective Exchange Values, and within the Programs
among the Investors pro rata in accordance with their Adjusted Outstanding
Investment in each of the Programs. Recognizing the inherent conflict of
interest of having National establish these numbers independently (without
active involvement from persons not having a financial interest in the
Acquisition), they engaged independent appraisers to value the real estate
assets owned by each of the Programs and the Independent Valuator to render
an opinion on the overall fairness of the allocation of Shares in the
transaction, including the number of Shares in the Company allocated to the
programs, as well as to affiliates, employees, and the principal shareholders
of National and the Company. See "Appraisal and Fairness Opinion."
FEATURES DISCOURAGING POTENTIAL TAKEOVERS
Certain features of the Charter Documents, as well as the Delaware law,
could be used by management of the Company to delay, discourage or defeat
efforts of third parties to take control of the Company, or acquire a
significant number of the Shares. See "Comparisons of Programs and the
Company - Anti-Takeover Provisions."
ALLOCATION OF SERVICES AND EXPENSES
Certain employees of National who will become employees of the Company
currently provide services related to the operation of other Programs which
will not be included in the Acquisition. These Programs were also formed by
National. If the Acquisition is consummated, certain employees of National
who will become employees of the Company will continue to provide services
related to non-participating programs. As a result, possible conflicts of
interest may arise regarding allocation of services of these employees
between the Company, National and the non-participating programs.
NON-ARM'S-LENGTH AGREEMENTS
All agreements and arrangements, including those relating to
compensation, between the Company and employees of the Company who are also
employees of National will not be the result of arm's-length negotiations.
COMPETITION WITH THE COMPANY FROM OTHER PROGRAMS ORGANIZED BY NATIONAL
National will retain the servicing agent and asset management
responsibilities for the following five other projects: two undeveloped
projects that are zoned for single-family residential use (totalling over 30
acres) an undeveloped 6-acre project that is zoned for commercial use,
located in Victorville, California; an undeveloped 660-acre project with a
vesting, tentative map for 1,330 single-family mixed units with a golf course
and amenities that is located in Contra Costa County, California; and an
undeveloped 800-acre project with an application for a vesting tentative
tract map for 539 single-family detached, large lot, equestrian-oriented
residential lots located in Palmdale, California. Some or all of these
projects may be available for future acquisition by the Company or its
subsidiaries. However, National will
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continue to apply time and resources to the management of these projects. In
order to do this, they will require the on-going attention of Messrs. Orth
and Lasker, as well as some of the personnel expertise that may also be
employed by the Company or its subsidiaries. It is anticipated that there
will be minimal conflicts; however, National is committed to continue to
provide the same quality of service for these projects as it currently does
on behalf of and for the benefit of the Programs.
FIDUCIARY RESPONSIBILITY AND INDEMNIFICATION
FIDUCIARY RESPONSIBILITY OF NATIONAL
The Programs are not partnerships and, thus, National does not have the
fiduciary duties of a general partner in dealing with the Programs. However,
as servicing agent for each of the Programs, National has the specific duties
to Investors set forth in the various servicing agreements. In addition,
under California law, as an agent, National is under a fiduciary duty to
Investors (i) to use reasonable care, diligence and skill in its work, (ii)
not to compete with the Investors' interests without full disclosure to, and
agreement from, the Investors, and (iii) not to obtain an interest adverse to
the Investors without full disclosure to, and consent from, the Investors.
INDEMNIFICATION OF OFFICERS AND DIRECTORS OF THE COMPANY
The directors and officers of the Company, in exercising the powers and
responsibilities of managing the Company, owe the Company and its
shareholders a duty of care and a duty of loyalty. However, under the
so-called "business judgment rule," which could apply to the officers and
directors of the Company, the officers and directors of the Company may not
be liable for errors in judgment or other acts or omissions made in good
faith which are done in a manner they believe to be in the best interests of
the Company and are performed with the care that an ordinarily prudent person
in a like position would use under similar circumstances. In the event any
legal action were brought against officers or directors of the Company, they
might be able to assert defenses based on the business judgment rule.
According to the Charter Documents, officers and directors and other
agents of the Company are entitled to indemnification from the Company for
any loss, damage or claim (including any reasonable attorneys' fees incurred
by such person in connection therewith) due to any act or omission made by
him or her, except in the case of fraudulent or illegal conduct of such
person. See "Management After the Acquisition - Limitation of Liability and
Indemnification."
The indemnification provided by the Charter Documents is not deemed to
be exclusive of any other rights to which those indemnified may be entitled
under any agreement, vote of shareholders or directors, or otherwise, and
shall inure to the benefit of the heirs, executors and administrators of such
person. Any repeal or modification of the indemnification provisions
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contained in the Charter Documents will not adversely affect any right or
protection of a director or officer of the Company existing at the time of
such repeal or modification.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to officers, directors or persons controlling the Company
pursuant to any provisions described in this Consent Solicitation/Prospectus, in
the opinion of the Commission, such indemnification is against public policy as
expressed in the Securities Act and is therefore unenforceable.
OFFICERS AND DIRECTORS INSURANCE
The Company intends to obtain insurance for the benefit of the Company's
officers, directors and other agents relating to the liability of such
persons. Such insurance would insure the officers, directors and agents of
the Company from any claim arising out of an alleged wrongful act by such
persons while acting as officers, directors or agents of the Company, and the
Company to the extent that it has indemnified the officers, directors and
agents for such loss.
BUSINESS AND PROPERTIES
THE COMPANY (OR ITS REPRESENTATIVES) OR NATIONAL FROM TIME TO TIME MAY
MAKE OR MAY HAVE MADE CERTAIN FORWARD-LOOKING STATEMENTS, WHETHER ORALLY OR
IN WRITING, INCLUDING WITHOUT LIMITATION, STATEMENTS IN THIS PROSPECTUS OR
OTHERWISE RELATING TO THE BUSINESS PLAN OF THE COMPANY, THE BUSINESS PLANS OF
THE RESPECTIVE PROGRAMS, ESTIMATES OF REAL ESTATE VALUES, ESTIMATES OF
POTENTIAL FINANCIAL RESULTS FROM PROGRAM OPERATIONS OR FROM SALES OF PROGRAM
REAL ESTATE AND OTHER MATTERS. SUCH STATEMENTS ARE QUALIFIED IN THEIR
ENTIRETY BY REFERENCE TO, AND ARE ACCOMPANIED BY, THE FACTORS DISCLOSED UNDER
THE HEADING "RISK FACTORS." SUCH FACTORS MAY CAUSE ACTUAL RESULTS TO DIFFER
MATERIALLY FROM THOSE RESULTS CONTAINED IN SUCH FORWARD-LOOKING STATEMENTS.
ACCORDINGLY, FORWARD-LOOKING STATEMENTS SHOULD NOT BE RELIED UPON AS A
PREDICTION OF ACTUAL RESULTS.
THE COMPANY
The Company was formed as a Delaware corporation named American Family
Holdings, Inc. on August 6, 1997 to conduct the Acquisition. It currently
files no reports with the Commission under the Exchange Act. It will operate
as a holding company, with actual day-to-day management of the operations of
the Properties being handled by a wholly-owned subsidiary named American
Family Communities, Inc. ("AFC"). Upon completion of the Acquisition, the
Properties will be held and operated through four separate subsidiaries of
AFC, namely Delta Greens Homes, Inc. (Sacramento/Delta Greens Property),
Yosemite Woods Family Resort, Inc. (Yosemite/Ahwahnee Properties), Oceanside
Homes, Inc. (Oceanside Property) and Mori Point Destinations, Inc. (Mori
Point Property).
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BUSINESS OF THE COMPANY
Upon completion of the Acquisition, the Company will be a diversified
real estate company involved in the residential development industry, as well
as the lodging and recreational industries. Its overall initial objective
will be to consolidate the various business plans of the Programs into a
unified Company business plan with the ultimate goal of creating sufficient
value in the Company's Shares to allow for Investors in the Programs to have
the ability to recover a significantly larger portion of their Outstanding
Investments in such Programs than if the Acquisition did not occur.
As a part of its plan, in the future the Company may seek to acquire
certain assets and properties that are synergistic and add value to the
Company in accordance with its overall business plan. It may also seek to
acquire and develop additional properties that take advantage of its
expertise or its competitive position in order to enhance its financial
performance. Such additional acquisitions may include, but are not limited
to: (a) resort-oriented properties, such as hotels; (b)
extended-stay-oriented properties, such as recreational vehicle or timeshare
facilities; (c) leisure-oriented properties, such as golf courses and
recreation facilities; and (d) residential development properties. The
Company may also purchase or form adjunct businesses to supplement and
enhance these types of properties, such as customer financing, loan
servicing, mortgage brokerage, real estate brokerage, property management,
merchandising, marketing and telecommunications.
PROPERTIES
The Company will purchase the Properties in their "as is" condition from
the Investors in the Programs, except that any remaining Investors' liens
will be removed. Upon completion of the Acquisition, the Company, through
its subsidiaries, will own four Properties which are described below.
SACRAMENTO/DELTA GREENS PROPERTY. The Delta Greens Property consists of
a 121-acre site in South Sacramento, California, located approximately
one-half mile east of Interstate 5. Title is held by National Investors Land
Holding Trust IV as the agent of and for the benefit of the Program's
Investors. The Property is unencumbered by liens and is subject to no
leases, sales contracts or options. It has a revised and approved tentative
tract map from the City of Sacramento for over 500 lots for the construction
of single-family homes. The area in which the Property is located is
populated primarily by lower to lower-middle income workers with combined
family incomes of $25,000 to $35,000. The nearby Meadowview has a reputation
as a high crime area, but an active community effort is underway to upgrade
the community identity.
OCEANSIDE PROPERTY. The Oceanside Property consisted of two tracts
named "Encore," and "Symphony." Title is held by ODI as the agent of and for
the benefit of Oceanside Investors. The Property is located in the
east-central portion of the city of Oceanside, California, some five miles
east of the downtown area. There are several homebuilding companies building
competitive single-family residences in the immediate area surrounding the
property.
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The Property is presently encumbered by a first lien in the amount of
$27,325,000 which is held by ODI for the benefit of the Oceanside Program's
Investors. That lien will be extinguished in the Acquisition so that the
Company will own the Property free of encumbrances other than property taxes.
The Symphony tract of the Property is for sale.
YOSEMITE/AHWAHNEE PROPERTIES. The Yosemite/Ahwahnee Properties consist
of approximately 1,650 acres divided into two parcels, one containing 660
acres and one containing 990 acres. The 660 acre parcel was intended to be
developed with 218 residential estate lots, 1-3 acres in size. Of the 58
completed lots in this portion of the property, 13 have been sold. The
balance of the project consists of approximately 990 acres which has been
partially developed into an 18-hole golf course, a clubhouse and other
amenities. In addition, this portion contains a recreational vehicle
membership park developed for an eventual 600 spaces. It currently contains
54 "full hookup" sites with an additional 110 sites with full hookups under
construction. "Full hookups" are spaces that have water, sewer, electrical
and even cable service to the site. The Properties are located in Madera
County, California, approximately 46 miles northeast of Fresno and 15 miles
south of Yosemite National Park. Over the past few years, the Park has
averaged an annual visitor rate of 4.1 million people with the average group
size being approximately 3.3 people.
Title to the 660 acre parcel is held by National Investors Land Holding
Trust VIII for the benefit of the Investors in Yosemite/Ahwahnee II Program.
Title to the 990 acre parcel is held by National Investors Land Holding Trust
IX for the benefit of Investors in the Yosemite/ Ahwahnee I Program. The 660
acre parcel is presently encumbered by a first trust deed held for the
benefit of the Investors in the Yosemite/Ahwahnee I Program. The 990 acre
parcel is presently encumbered by a first trust deed held for the benefit of
the Investors in the Yosemite/ Ahwahnee II Program. The aggregate principal
balance due on the both parcels remains at approximately $20,000,000. The
trust deeds will be extinguished as part of the Acquisition so that there
will be no liens on the Properties except for taxes.
MORI POINT PROPERTY. The Mori Point Property consists of approximately
105 acres oceanfront land located in Pacifica, California. Pacifica is a
coastal suburban community of approximately 40,000 residents located about 15
miles from downtown San Francisco and 7.5 miles west of the San Francisco
International Airport. The site is bounded on the north by Sharp Park Golf
Course, which is a publicly-owned golf course operated by the City of San
Francisco; on the south by a 120-acre parcel known as the "Quarry" which is
approved for mixed-use development as part of Pacifica's Redevelopment
District; and on the east by the Pacific Coast Highway. There is in excess
of a quarter of a mile of oceanfront on the west. The Property is
unencumbered by liens and is subject to no leases or sales contracts or
options. Portions of this Property include habitat for two endangered
species. Development will not be permitted unless it can be demonstrated
that impact on the garter snake habitat can be ultimately mitigated. The
cost to develop and implement a mitigation plan is expected to be expensive
and potentially time-consuming. The Company believes that the impact can be
mitigated and that approvals from the Department of Fish and Game can be
obtained; however, if a satisfactory, economical, mitigation plan cannot be
developed, no development could take place on the Property. This
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would radically reduce its value. Title to the Mori Point property is held
by National Investors Land Holding Trust for the benefit of Investors in the
Mori Point Program.
CONSOLIDATION OF THE PROGRAMS
Prior to the Acquisition, the Programs operated according to their
respective business plans. There have been many impediments to achieving the
objectives of Investors under those business plans. Upon completion of the
Acquisition, each of the Properties will be held in subsidiaries of the
Company with AFC coordinating the management according to a unified business
plan which is designed to maximize the value of the Company's Shares. The
economies of scale which will result from the consolidation will allow AFC to
introduce resources such as additional management and development
opportunities that would not have been economically feasible for the Program
to obtain for themselves. Further, the consolidation will also reduce the
dependence of Investors in a particular Program on the geographic or economic
constraints which their respective operations were subject to prior to the
Acquisition. For example, Sacramento/Delta Greens Investors are entirely
dependent upon the economic opportunities available from building entry-level
homes in South Sacramento submarket. That dependency will be substantially
reduced by the Acquisition. As another example, the Oceanside Investors are
restricted to accepting the economic opportunities available from building
homes in Oceanside, California, and acquiring additional lots. The
Acquisition will allow for Oceanside Investors to have geographical
diversification in residential development because of the Sacramento/Delta
Greens Property, as well as being diversified into the lodging and recreation
industries as made available with the Yosemite/Ahwahnee and the Mori Point
Properties. This diversification will reduce the Oceanside Investors
dependence on homebuilding exclusively in the Oceanside market. Conversely,
the Yosemite/Ahwahnee and Mori Point Investors' opportunities will be
expanded and diversified as well to take advantage of those represented by
the Sacramento/Delta Greens and the Oceanside Properties.
Upon completion of the Acquisition, the Company's resources can be
managed such that the operation of each of its subsidiaries contributes
meaningfully to the achievement of its consolidated business objectives.
Initially, the Company will be involved in two primary industries: (1) the
residential development industry, and (2) the lodging and recreation industry.
THE RESIDENTIAL DEVELOPMENT INDUSTRY
After a protracted economic downturn, the residential development
industry shows signs of significant improvement in California. Until
recently, inventories of lots were at relatively high levels and capital for
acquisition and development of unimproved land was limited.
The Company anticipates that the demand for unimproved land will
increase substantially in the near future and that unimproved properties with
entitlements, ready for physical improvements, will be in greatest demand.
In order to build homes, land entitlements (necessary governmental approvals)
must be obtained and maintained in effect. Entitlements include development
agreements, vesting tentative maps and recorded maps. These give a developer
the
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right to obtain building permits to begin construction upon compliance with
conditions that are usually within the developer's control.
In order to acquire land for residential development, the Company may
use options and other relatively non-capital intensive structures, and will
fund additional acquisitions whenever possible with non-recourse seller
financing.
The Company views land as a component of a home's cost structure, rather
than for its speculative value. Due to the cyclical nature of the industry,
the critical role of risk-management in land development, and the low margins
that are typical in today's homebuilding market, the Company will seek to
place more emphasis on the acquisition and development of residential land to
entitle and sell to merchant homebuilders as opposed to a primary emphasis on
the actual construction of homes. The Company intends to focus its
residential development operations primarily in the infill and emerging
market segments. Properties acquired by the Company through the Acquisition
will be in various stages of the approval process and development.
THE LODGING AND RECREATION INDUSTRY
This industry includes many distinct
product categories, including commercial lodging-oriented products such as
hotels and conference centers, recreation-oriented products such as golf
courses, equestrian facilities, sports complexes, marinas, theme parks,
destination resorts, recreational vehicle resorts, and vacation-oriented
products such as timeshare resorts, to name a few. Initially, the Company
will focus on the future development of an executive conference center and
timeshare resort, and the operation of a golf course and recreational vehicle
and timeshare resorts.
THE EXECUTIVE CONFERENCE CENTER INDUSTRY
An Executive Conference Center is distinguished from general, resort,
institutional and academic conference centers by virtue of its positioning
within the target market to attract corporate executive meetings. According
to the International Association of Conference Centers ("IACC"), a conference
center is defined as "a facility whose primary purpose is to accommodate
small to medium-sized meetings." A fully dedicated conference center differs
from a hotel or resort that has meeting space in that the primary purpose of
a conference center is to satisfy and accommodate groups by offering a
self-contained, full-service meeting environment. It is dedicated to
accommodating small-to-medium sized groups, and meetings usually comprise at
least 60% of a facility's overall business. Due to this dedication to
meetings, conference centers tailor their facilities and services primarily
to the needs of the meeting planner by providing all necessary arrangements
for the complete schedule of activities from arrival to departure. The
pricing structure for a conference is often a single, uniform per person rate
- - a package that includes lodging, meals, coffee breaks, meeting services,
and equipment fees, called a Complete Meeting Package, or the Full American
Plan. Meeting rooms are designed and used only for meetings and do not
double as banquet rooms or exhibition space. Meal functions are held in a
central dining area. The IACC defines five types of conference centers, one
of which, the Executive or Dedicated Conference center, the Company feels
suits the Mori Point site the best.
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At an Executive (Dedicated) Conference Center, groups are typically
composed of corporations, associations, and other organizations that
emphasize quality of accommodations and services over price. This type of
facility was developed primarily to satisfy upper-level management meetings
and education/training seminars. Facilities usually include sophisticated
equipment and are staffed with professional conference coordinators. Because
of its proximity to San Francisco and the Silicon Valley, the Company
believes that the Mori Point Conference Center could be positioned within
this category of facilities.
According to a recent report issued by the IACC and PKF Consulting
entitled "Conference Center Industry, A Statistical and Financial Profile -
North American 1996," since the recession in 1991 to year-end 1995, U.S.
conference centers have achieved a 27.2% increase in occupancy. This
compares to an 8.3% increase in occupancy for the overall lodging industry
during the same period. Except for resort conference centers, all types of
conference facilities have enjoyed double digit increases in occupancy since
1991.
Total revenue, measured on a per occupied room basis, has grown
approximately 20% for resort and executive conference centers since 1991.
For comparative purposes, cumulative inflation during the same period was
11.9% and the total revenue for U.S. hotels grew only 10.4%.
The primary competitive lodging market for the proposed conference
center at Mori Point is comprised of four hotels with a total of 508 rooms.
The selection of the competitive supply was based on location, facilities and
amenities, room rate structure, and market orientation. These hotels are all
full-service hotels and conference centers which cater to group and leisure
demand emanating primarily from the Bay Area, but with a secondary component
of national business attracted to their coastal locations. The secondary
competitive lodging market is comprised of three group-oriented airport
properties with 1,865 guest rooms, rendering the total potential current
competition to 2,373 rooms.
THE RECREATIONAL VEHICLE RESORT INDUSTRY.
Recent statistics indicate that recreational vehicle travel is on the
rise and, like timeshare, is being pushed by the baby boomer demands.
According to the California Travel Parks Association, there are now an
estimated 25 million recreational vehicle enthusiasts in the United States.
Recreational vehicle owners travel an average of 5,900 miles a year and spend
23 days on the road. The average recreational vehicle owner is 48 years old,
owns his own home, has a household income just under $40,000 and is
overwhelmingly pleased with the purchase. Recreational vehicle sales have
increased by 44% between 1992 and 1995 and are projected to continue to
increase as the "boomers" enter their prime buying years of between 45 and
54. They value the recreational vehicle as a less expensive way for the
entire family to travel together. Recreational vehicle camping topped
hiking, wilderness camping, biking, horseback riding, canoeing, boating and
many other forms of recreation for satisfaction among participants in outdoor
activities. Nine of ten recreational vehicle owners agree that recreational
vehicles are a great way to travel because they offer the convenience of home
away from home; a majority said that recreational vehicle parks are like a
second neighborhood; and there is a real camaraderie
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among users. Also, weekend trips have increased 85% since 1984 and recreational
vehicles are well suited for such weekend travel.
THE TIMESHARE INDUSTRY
THE MARKET. The leisure industry is primarily made up of two components
for overnight accommodations: commercial lodging establishments and timeshare
or "vacation ownership" resorts. For many vacationers, particularly those with
families, a lengthy stay at a quality commercial lodging establishment can be
very expensive, and the space provided to the guest relative to the cost
(without renting multiple rooms) is not economical for vacationers. First
introduced in Europe in the mid-1960s, ownership of vacation intervals has been
one of the fastest growing segments of the hospitality industry over the past
two decades.
The Company believes that the following factors have contributed to the
increased acceptance of the timeshare concept among the general public and the
substantial growth of the timeshare industry over the past 15 years:
- Increased consumer confidence resulting from consumer protection
regulation of the timeshare industry;
- The entrance of brand name national lodging companies to the industry;
- Increased flexibility of timeshare ownership due to the growth of
exchange organizations;
- Improvement in the quality of both the facilities themselves and the
management of available timeshare resorts;
- Increased consumer awareness of the value and benefits of timeshare
ownership; and
- Improved availability of financing for purchasers of timeshare units.
The timeshare industry traditionally has been highly fragmented and
dominated by local and regional resort developers and operators. The Company
believes that one of the most significant factors contributing to the current
success of the timeshare industry is the entry into the market of some of the
world's major lodging, hospitality and entertainment companies, such as
Marriott, Disney, Hilton, Hyatt, Four Seasons and Inter-Continental, as well as
Promus and Westin. However, none of such brand name lodging companies are
presently potential competitors of the Company.
THE CONSUMER. The Company believes that the prime market for vacation
intervals is customers in the 40-55 year age range who are reaching the peak of
their earning power and are rapidly gaining more leisure time.
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According to an American Resort Development Association ("ARDA") study, the
three primary reasons cited by consumers for purchasing a vacation interval are
(i) the ability to exchange the vacation interval for accommodations at other
resorts through exchange networks (cited by 82% of vacation interval
purchasers), (ii) the money savings over traditional resort vacations (cited by
61% of purchasers) and (iii) the quality and appeal of the resort at which they
purchased a vacation interval (cited by 54% of purchasers). The ARDA study also
indicated that vacation interval buyers have a high rate of repeat purchases.
In addition, customer satisfaction increases with length of ownership, age,
income, multiple location ownership and accessibility to vacation interval
exchange networks. The Company plans to create a timeshare facility at the
Yosemite/Ahwahnee Property to take advantage of expected growth in the timeshare
industry as the baby-boom generation enters the 40-55 year age bracket, the age
group which purchased the most vacation intervals in 1994.
THE BUSINESS STRATEGY
The Company's objective is to become one of North America's leading
developers and operators of timeshare and recreational vehicle resort
properties, utilizing its residential assets to create the necessary cash flow
and capital to do so. The Company expects that it will have a competitive
advantage by virtue of the location advantages of the Yosemite/Ahwahnee and Mori
Point Properties. By striving to meet this objective, the Company expects that
it will be capable of enhancing the value and financial performance of the
businesses and assets currently held by the Investors in separate Programs
through the consolidation which the Acquisition will provide.
In order to meet its objectives, the Company intends to (i) develop the
Properties for their highest and best use, thereby maximizing the value of the
Company's asset base; (ii) increase the current cash flow from the Company's
consolidated operations, thereby enhancing the value of the Company's
businesses; (iii) maximize the profit margins of tangible and intangible for-
sale products by lowering costs and promoting efficiencies through economies of
scale; (iv) raise funds through a strategic combination of the sale of units to
Investors and the sale of selected real estate assets acquired from the Programs
to outside parties in order to finance the Company's operations and expansion;
and (v) generate revenues through lateral expansion by acquiring complimentary
projects and assets which are consistent with the Company's objectives and
business plans (external growth).
EXTERNAL GROWTH STRATEGY. When appropriate, and assuming market acceptance
for the Company's Shares, it is intended that growth through acquisitions will
be initially achieved through (i) the issuance of Shares of the Company to the
seller of the asset(s) to be acquired or (ii) the utilization of options to
purchase real estate assets. Preserving cash may be preferable even though such
transactions may result in the dilution of the current Shareholders.
THE CONSOLIDATED BUSINESS PLAN
It is anticipated that the Company will have a minimum of $600,000 of
liquidity if none of the units are sold and approximately $5,000,000 if all
units are sold. The Company will seek additional liquidity from the sale of one
or more of the Company's assets or a combination
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thereof. It will then conduct the following activities in such a manner so
as to maximize positive cashflow in the most expeditious way.
THE SACRAMENTO/DELTA GREENS PROPERTY. It is the intent of the Company to
develop the Property in phases. Depending on the availability of working
capital from the sale of units and/or assets, the Company will seek to obtain
final map approval from the City of Sacramento for 50 lots by the second quarter
of 1998. The necessary infrastructure (main road and utilities) can then be
built along with finished lots, model homes and the first phase of productions
homes. The Company believes that the first home sales can occur within six
months of obtaining the final map. It will cost nearly $3,000,000 for the
infrastructure and first phase of home construction. Subject to receipt of
government approvals and construction occurring on a timely basis, the project
is expected to generate cash flow by the fourth quarter of 1998, and to become
profitable by the second quarter of 1999. Depending on the amount, the Company
may provide these funds internally should no outside financing sources be
available. Once the first phase of homes has been built and are selling, the
Company will begin processing the final map for the next parcel of 50 lots and
will begin an aggressive program to sell this and other parcels to merchant
builders so as to accelerate the cash flow and profitability to the Company and
its Shareholders.
THE OCEANSIDE PROPERTY. The Company has completed the construction and
recent sale of the Encore tract. The Company will also continue to pursue the
buildout of the Symphony tract and aggressively seek a potential buyer as soon
as possible after the Acquisition is completed.
THE YOSEMITE/AHWAHNEE PROPERTIES. Yosemite National Park is located
within a six hour drive of over 30 million people. The Company plans to
aggressively focus on the following areas of operations and development for
these properties: (1) recreational vehicle facility, (2) timeshare
development, and (3) the golf course facility.
Recreational vehicle development presents additional cash flow and profit
opportunities. In addition to the existing 54 recreational vehicle sites, the
Company intends to complete the construction of 110 more. Revenue from
membership sales and dues is expected to continue to increase in 1998 based on
investing an additional amount of about $350,000 in the construction of the new
recreational vehicle sites. Additional revenues can be generated from the
financing of the installment purchases of memberships, since most memberships
are purchased on an installment basis over a two to seven year time frame.
There are virtually no competitive recreational vehicle resorts in the
immediate area of the Property. The recreational vehicle park is a member of
Coast to Coast Resorts, AOR and Western Horizons. These affiliations are
important marketing tools. They allow members reciprocal use of many other
recreational vehicle camp resorts located regionally and across the country.
Bass Lake Resort, the nearest competitor, consists of 175 sites and is located
about 12 miles from the Property's site. It has about 1,900 members and has
been operational since 1984. On the other hand, the Yosemite/Ahwahnee
recreational vehicle park has been fully operational since August 1996 with 54
sites and has over 280 members to date. The Company intends to
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aggressively expand this membership base. The Bass Lake recreational vehicle
resort is of significantly lesser quality than the Yosemite/Ahwahnee
recreational vehicle park. It is older with deferred maintenance, has no
golf course and lacks space for any additional amenities or expansion.
The timeshare industry continues its significant growth pace,
particularly for developments that are well located near natural amenities,
like the Yosemite/Ahwahnee Property. A prominent timeshare industry
consultant has evaluated the project and has recommended a 170-unit timeshare
development on the Property. The Company will begin the processing of
permits and licenses with the appropriate agencies as soon as possible.
Final approval is expected to take about nine months before construction can
begin. An initial investment of approximately $3,000,000 will be required to
begin timeshare construction and an aggressive marketing program.
In terms of timeshare competition, the Property has none. As of October
1996, there were 15 timeshare projects in California with active marketing and
sales programs. They include six from the Desert-Palm Springs and Big Bear
Mountain ski areas, four from the Lake Tahoe area and the remaining five in
other scattered locations. There is one relatively small project of 13 units
near Bass Lake, run by Worldmark, a timeshare operator located in Seattle. That
project is of no competitive consequence because of its size and lack of
comparable amenities. There is no present or planned direct competition in the
immediate vicinity from any of the major companies involved in the timeshare
industry such as Marriott, Hyatt, Four Seasons, Disney or Hilton.
Since 1995, a significant amount of capital has been used for improvements
to the golf course. The golf course is considered to be a primary amenity to
attract future timeshare sales. Annual revenues have increased over 200% since
1995 and rounds played have more than doubled. Additional revenues are a
natural bi-product from the golf course for the ancillary products like food,
liquor and clothing.
There are also no comparable golf courses in the area. A nine-hole course
exists approximately five miles from the Property. It offers a recreational
facility primarily for local players but has no resort-type amenities or room
for expansion. In addition, there is another nine-hole course just inside
Yosemite Park near the Wawona Hotel. It is designed and used primarily for
tourist day stop and family-type entertainment. For persons seeking a golf-
related vacation or the challenges of a regulation course, neither nine-hole
course would be viewed as competitive.
THE MORI POINT PROPERTY. The Company will continue with the proposed
development plan for a hotel/conference center on the Property. Because of its
proximity to San Francisco and the Silicon Valley, the Company considers that
the Mori Point Property could be positioned competitively within the executive
conference center category of facilities. Furthermore, it presents itself as an
outstanding timeshare location. Detailed plans for the development of the
Property do not exist at this time. Therefore, an accurate cost to develop the
facility, as well as a timetable, is not possible. A study of the endangered
species' habitat and any potential
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mitigation measures is being conducted as are other environmentally-related
issues like traffic impacts. It is anticipated that over $500,000 will be
needed by the Company to complete the permitting process and deal with any
other environmental concerns. Within 12-18 months from completion of the
Acquisition, the Company will determine whether it can obtain governmental
approvals to complete the development of the Property. During that period, it
will consider whether it will be necessary to sell the Property or enter into
a joint venture agreement.
The following table provides a summary of the current primary and second
competition of the proposed executive conference center for Mori Point.
Property Number of Rooms Amenities
- -------- --------------- ---------
Primary Competition
Seascape Resort - Aptos 164 A, B, C, D
Chaminade Conference Center - Santa Cruz 152 A, C
Lighthouse Inn - Pacifica 95 A, B, C
Half Moon Bay Lodge 81
Secondary Competition
Hyatt Regency 791 A, B, C, D
Marriott 684 A, B, C, D
Westin 330 A, B, C, D
TOTAL 2,373
- ----------------
A - Restaurant
B - Meeting Rooms
C - Swimming Pool
D - Exercise Room
INSURANCE
Management of the Company believes that each of the Properties is
adequately insured for title, property and casualty matters.
EMPLOYEES
It is anticipated that the Company's initial employees will consist of
approximately 15 individuals located at the home office in Newport Beach,
California, who will handle the responsibilities of management, accounting and
administration of the subsidiaries through AFC. There will initially be
approximately 35 additional full- and part-time employees at the
Yosemite/Ahwahnee Property who will handle the operation and maintenance of the
project and carry forward with the development and entitlement activities.
Marketing and consulting services for the recreational vehicle membership sales
and resort operations are contracted through Western Horizons, a Colorado-based
recreational vehicle park management and marketing company. None of the
employees will be subject to collective bargaining agreements.
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LEGAL PROCEEDINGS
Neither the Company nor the Properties is the subject of any material,
legal proceeding.
POLICIES WITH RESPECT TO CERTAIN ACTIVITIES
The following is a discussion of certain investment, financing, conflicts
of interest and other policies of the Company. These policies have been
determined by the Company's Board of Directors and generally may be amended or
revised from time to time by the Board of Directors without a vote of the
shareholders.
INVESTMENT POLICIES
INVESTMENTS IN REAL ESTATE. Initially, the Company will invest in the
Properties it receives in the Acquisition. This is a portfolio of properties in
various stages of development. As the business plans for the various Properties
described herein are either completed or matured, the Company will seek to
acquire and develop or manage, as appropriate, properties which are compatible
with its existing properties. Such properties may include resort properties (in
the development phase or completed), residential properties (in the development
phase), or such other types of properties as the Board of Directors may from
time to time in its sole discretion deem to be appropriate investments for the
Company. The Company expects that most of its initial investments will be
located in the State of California, although there is no requirement that such
be the case.
The Company has no policy with regard to whether it will acquire assets
primarily for possible capital gain or primarily for income. It will acquire
the Properties in the Acquisition and properties in the future in the manner
deemed by the Board of Directors to be in the best interests of the Company and
its shareholders in making profits. The Company has no specific policy as to
the percentage of assets which will be concentrated in any specific property;
however, the Board of Directors will use its best efforts to diversify the
Company's investment portfolio as much as possible.
INVESTMENTS IN REAL ESTATE MORTGAGES. While the Company will emphasize
equity real estate investments, it may, in its discretion, invest in mortgages
and other interests related to real estate. The Company does not presently
intend to invest in mortgages, but may do so. The mortgages which the Company
may purchase may be first mortgages or junior mortgages and may or may not be
insured by a governmental agency.
SECURITIES OF OR INTERESTS IN PERSONS PRIMARILY ENGAGED IN REAL ESTATE
ACTIVITIES. The Company may also invest in securities of entities engaged in
real estate activities or securities of other issuers, including for the purpose
of exercising control over such entities. However, the Company has no present
plans to make any such investment in securities. In any event, the Company does
not intend that its investments in securities will require it to register as an
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"investment company" under the Investment Company Act of 1940, and the Company
would divest itself of such securities before any such registration would be
required.
JOINT VENTURES. The Company may enter into joint ventures or partnerships
or other participations with real estate developers, builders, owners and others
for the purpose of obtaining or retaining equity interests in a particular
property.
OFFERING SECURITIES IN EXCHANGE FOR PROPERTY. The Company may offer its
securities in exchange for a property in which it wishes to invest.
REPURCHASING ITS OWN SHARES. The Company may purchase or repurchase Shares
from any person for such consideration as the Board of Directors may determine
in its reasonable discretion, whether more or less than the original issuance
price of such Share or the then trading price of such Share.
ISSUANCE OF ADDITIONAL SECURITIES. The Board of Directors may, in its
discretion, issue additional equity securities from time to time to increase its
available capital. Such issuance will result in a dilution of the interests of
the then-existing Shareholders.
FINANCING POLICIES
ISSUANCE OF SENIOR SECURITIES. The Company may, at any time, issue
securities senior to the Shares, upon such terms and conditions as may be
determined by the Board of Directors.
BORROWING POLICY. The Company may, at any time, borrow, on a secured or
unsecured basis, funds to finance its business and, in connection therewith,
execute, issue and deliver promissory notes, commercial paper, notes,
debentures, bonds and other debt obligations which may be convertible into
shares or other equity interests or be issued together with warrants to acquire
shares or other equity interests. The Charter Documents impose no limit upon
the Company's debt.
LENDING POLICIES. The Company may, at any time, make mortgage loans
secured by properties of the type in which the Company may invest, subject to
restrictions on related party transactions contained in the Delaware General
Corporation Law.
MISCELLANEOUS POLICIES
REPORTS TO SHAREHOLDERS. The Company will be subject to the reporting
requirements of the Exchange Act and will file annual and quarterly reports.
The Company currently intends to provide annual and quarterly reports to its
Shareholders.
COMPANY CONTROL. The Board of Directors has exclusive control over the
Company's business and affairs subject only to restrictions in the Charter
Documents and the Delaware General Corporation Law. Shareholders have the right
to elect members of the Board of Directors. The Directors are accountable to
the Company as fiduciaries and are required to exercise good faith and integrity
in conducting the Company's affairs.
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WORKING CAPITAL RESERVES
The Company will attempt to maintain working capital reserves (and when not
sufficient, access to borrowing) in amounts that the Board of Directors
determines to be adequate to meet the normal contingencies in connection with
the operation of the Company's business and investments.
USE OF PROCEEDS
If all units are sold through the efforts of broker-dealers, the Company
will receive $4,650,000 before estimated offering expenses of $200,000. The
net proceeds from the sale of the units offered hereby will be used by the
Company to pay delinquent property taxes, Acquisition Expenses, to fund its
business plan and for working capital purposes.
CAPITALIZATION
The following table sets forth the capitalization of the Company as of June
30, 1997 after giving effect to the completion of the Acquisition and the
Acquisition and the Offering.
June 30, 1997
----------------------------------
Pro Forma
Pro Forma Acquisition
Acquisition and the Offering
------------ ----------------
DEBT:
Capital lease obligations $ 387,512 $ 387,512
------------ ------------
Total debt 387,512 387,512
STOCKHOLDERS' EQUITY:
Common Stock(1) 1,948 2,448
Additional paid-in capital(1) 20,390,932 24,840,432 (2)
Accumulated deficit(3) (645,000) (367,000)
Stockholders' notes receivable (3,712) (3,712)
------------ ------------
Total stockholders' equity 20,403,168 24,472,168
------------ ------------
Total capitalization $ 20,131,680 $ 24,859,680
------------ ------------
------------ ------------
- ----------------
(1) Gives pro forma effect to the utilization of carryover basis in conjunction
with the Acquisitions, the conversion of investor interests into common
stock ownership in the Company and the initial capitalization of the
Company.
(2) Gives pro forma effect to the sale of 500,000 units at $10 per unit, after
commissions and estimated expenses totalling $550,000.
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(3) Gives pro forma effect to the reduction to stockholders' equity of costs
allocated to the Acquisition upon completion of the Acquisition or the
Acquisition and the Offering.
DILUTION
Assuming completion of the Acquisition, the following table sets forth
on a pro forma basis as of June 30, 1997, with respect to the founders and
consultants, existing Program Investors and the Investors purchasing units in
the Offering, a comparison of the number and percentage of Shares purchased
and cash or other consideration paid and the average price per share. The
calculations are based on the Offering price of $10 per unit, before
deduction of underwriting discounts and commissions and estimated offering
expenses payable by the Company. Further, it assumes no separate value is
assigned to the warrants which are part of the units.
<TABLE>
<CAPTION>
Acquisition
----------------------------------------------------------
Average
Price per
Shares Purchased Total Consideration Share
------------------ -------------------------- ---------
Number Percent Number Percent
--------- ------- ------------ -------
<S> <C> <C> <C> <C> <C>
Founders and Consultants 371,183 19% $ 949,823(1) 5% $ 2.56
Program Investors 1,577,285 81 19,443,057 95 12.33
--------- --- ------------ --- -------
Total 1,948,468 100% $ 20,392,880 100% $ 10.47
--------- --- ------------ --- -------
--------- --- ------------ --- -------
</TABLE>
<TABLE>
<CAPTION>
Acquisition and Offering
----------------------------------------------------------
Average
Price per
Shares Purchased Total Consideration Share
------------------ -------------------------- ---------
Number Percent Number Percent
--------- ------- ------------ -------
<S> <C> <C> <C> <C> <C>
Founders and Consultants 371,183 15% $ 949,823(1) 4% $ 2.56
Program Investors 1,577,285 64 19,443,057 77 12.33
Offering Investors 500,000 21 5,000,000 19 10.00
--------- --- ------------ --- -------
Total 2,448,468 100% $ 25,392,880 100% $ 14.46
--------- --- ------------ --- -------
--------- --- ------------ --- -------
</TABLE>
- ----------------
(1) Amount consists of $3,712 of cash and $946,111 of fees forgiven by
National and its principals.
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<PAGE>
SELECTED FINANCIAL INFORMATION
The following selected financial information should be read in
conjunction with the discussion set forth in "Management's Discussion and
Analysis of Financial Condition and Results of Operations," and all of the
financial statements included elsewhere in this Prospectus. The pro forma
financial information is not necessarily indicative of what the actual
financial position and results of operations of the Company would have been
as and for the periods indicated, nor does it purport to represent the future
financial position and results of operations for future periods.
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<PAGE>
<TABLE>
<CAPTION>
Company Pro Forma The Acquisition Historical
-------------------------------------------------------------------- ---------------------------------
Six Months
Six Months Ended Year Ended Ended Years Ended
June 30, 1997 December 31, 1996 June 30 December 31
-------------------------------- --------------------------------- ---------- -------------------
The Acquisition The Acquisition
and the Offering The Acquisiton and the Offering The Acquisition 1997 1996 1995
---------------- -------------- ---------------- --------------- ---------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues $ 4,084,437 $ 4,084,437 $ 6,675,718 $ 6,675,718 $ 4,084,437 $ 6,675,718 $ 6,333,143
Cost of sales 3,069,580 3,069,580 5,327,856 5,327,856 3,069,580 5,327,856 5,346,735
----------- ----------- ----------- ----------- ----------- ----------- -----------
Gross profit 1,014,857 1,014,857 1,347,862 1,347,862 1,014,857 1,347,862 986,408
Expenses:
Selling, general and
administrative 2,280,561 2,280,561 4,017,227 4,017,227 2,105,561 3,667,227 2,033,496
Land write-down 590,172 590,172 845,000 845,000 590,172 845,000 -
Management fees 0 0 0 0 325,000 650,000 650,000
Acquisition expenses 367,000 567,000 575,000 775,000 - - -
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total expenses 3,237,733 3,437,733 5,437,227 5,637,227 $ 3,020,733 $ 5,162,227 $ 2,683,496
Net interest income 29,525 29,525 63,518 63,518 29,525 63,518 135,875
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net loss (2,193,351) (2,393,351) (4,025,847) (4,225,847) $(1,976,351) $(3,750,847) $(1,561,213)
----------- ----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net loss per share (0.90) (1.23) (1.64) (2.17) N/A N/A N/A
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Average number of
shares outstanding 2,448,468 1,948,468 2,448,468 1,948,468 N/A N/A N/A
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Balance Sheet Data:
Cash and cash
equivalents 5,768,366 1,240,366 N/A N/A 1,240,366 863,373 N/A
Total real estate 19,023,727 19,023,727 N/A N/A 19,023,727 19,283,472 N/A
Total assets 28,758,932 24,230,932 N/A N/A 24,308,932 25,535,082 N/A
Total debt 387,512 387,512 N/A N/A 387,512 424,767 N/A
Total liabilities 3,627,764 3,827,764 N/A N/A 4,206,875 3,952,822 N/A
Stockholders'/
owners' equity 25,131,168 20,403,168 N/A N/A 20,102,057 21,582,260 N/A
</TABLE>
71
<PAGE>
<TABLE>
<CAPTION>
The Acquisition Historical The Acquisition Historical
------------------------------------- ---------------------------------------
Six Months Six Months
Ended Years Ended Ended Years Ended
June 30 December 31 June 30 December 31
---------- ----------------------- ----------- -----------------------
1997 1996 1995 1997 1996 1995
---------- --------- --------- ----------- --------- ------
<S> <C> <C> <C> <C> <C> <C>
Investment Program Investment Program
Data Data
Oceanside Mori Point
- --------- ----------
Cash and cash Cash and cash
equivalents $ 985,670 $ 660,207 $ N/A equivalents $ 58,428 $ 39,032 $ N/A
Real estate 3,219,920 3,219,920 N/A Real estate 4,100,000 4,100,000 N/A
Total assets 6,818,707 7,938,216 N/A Total assets 4,164,950 4,139,032 N/A
Total debt -- 3,910 N/A Total debt -- -- N/A
Total liabilities 1,197,804 1,207,402 N/A Total liabilities 759,908 807,514 N/A
Total owners' equity 5,620,903 6,730,814 N/A Total owners' equity 3,405,242 3,331,518 N/A
Revenues 3,240,050 5,490,180 5,920,600 Revenues -- -- --
Gross margin 368,036 515,020 624,859 Gross margin -- -- --
Net Loss 659,911 548,675 367,219 Net Loss 122,852 189,125 146,867
Ahwahnee Sacramento/Delta Greens
- -------- -----------------------
Cash and cash Cash and cash
equivalents $ 173,99 $ 101,551 $ N/A equivalents $ 22,272 $ 62,583 $ N/A
Real estate 9,703,807 9,734,050 N/A Real estate 2,000,000 2,230,000 N/A
Total assets 11,300,190 11,165,251 N/A Total assets 2,025,085 2,292,583 N/A
Total debt 387,512 420,857 N/A Total debt -- -- N/A
Total liabilities 2,010,140 1,678,840 N/A Total liabilities 239,023 259,066 N/A
Total owners' equity 9,290,050 9,486,411 N/A Total owners' equity 1,786,062 2,033,517 N/A
Revenues 844,387 1,185,538 412,543 Revenues -- -- --
Gross margin 646,821 832,842 361,549 Gross margin -- -- --
Net Loss 870,008 1,950,363 915,537 Net Loss 323,580 1,062,684 131,590
</TABLE>
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF THE FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The following discussion should be read in conjunction with the
"Selected Financial Information" as well as the financial statements listed
in the index on page F-1. If approved by the Investors in the five former
"Trudy Pat" programs, the programs discussed below will be acquired by the
Company. Except for historical information contained herein, the matters
discussed in this report contain forward-looking statements that involve
risks and uncertainties that could cause results to differ materially.
RESULTS OF OPERATIONS - THE OCEANSIDE PROGRAM
COMPARISON OF SIX MONTHS ENDED JUNE 30, 1997 TO 1996
For the six months ended June 30, 1997 the net loss amounted to $659,911
compared to $269,996 for the six months ended June 30, 1996. The increase in
the net loss is primarily due to the following factors: an increase in
revenue of $168,570, an increase in cost of sales of $55,231, an increase in
selling, general and administrative expenses of $135,827 and a writedown in
the real estate inventory of $360,172 during 1997.
The increase in revenues is principally due to the increase in the
average selling price per home of $10,000, while the number of homes sold
during each period remained the same.
The increase in cost of sales of approximately $55,231 (2%) was
principally due to the significant increase in incentives provided to the
buyers in conjunction with the sales of homes during the six months ended
June 30, 1997 as compared to 1996.
Selling, general and administrative expenses increased by $135,827 (33%)
due to an increase in professional fees related to the proposed acquisition
of the investment program by the Company.
Based on feedback and offers received from potential buyers in the
marketplace, the Program wrotedown its real estate inventory to its estimated
fair value as of June 30, 1997 of $1,000,000, resulting in a $360,172 charge
against income during the six months ended June 30, 1997.
COMPARISON OF YEAR ENDED DECEMBER 31, 1996 TO 1995
For the year ended December 31,1996, the net loss amounted to $548,675
compared to a net loss of $367,219 for the year ended December 31,1995. The
change of results are primarily from the following factors: a decrease in
revenue of $430,420, which has been offset by a
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<PAGE>
decrease in cost of sales of $320,581, an increase in selling, general and
administrative expenses of $46,126 and a decrease in interest income of
$25,491.
Revenues decreased in 1996 by $430,420 or 7% as compared to 1995. This
decrease was caused by two less homes being sold in 1996 as compared to 1995,
as well as a decrease in the average selling price of approximately $2,000
per house. These figures are indicative of the soft single family housing
market throughout Southern California during 1995 and 1996.
Cost of sales decreased in 1996 by $320,581 or 6% as compared to 1995
primarily due to the decrease in the number of houses sold discussed above.
Selling, general and administrative expenses increased $46,126 or 6% as
compared to 1995. The increase is principally due to an increase in rent
expense paid for leases of model homes within the development.
The decrease in interest income of $25,491 or 24% was due to a decrease
in the average invested cash balance during 1996 as compared to 1995.
RESULTS OF OPERATIONS - THE YOSEMITE/AHWAHNEE PROGRAMS
COMPARISON OF SIX MONTHS ENDED JUNE 30, 1997 TO 1996
For the six months ended June 30, 1997, the net loss amounted to
$870,008, compared to a net loss of $812,670 for the six months ended June
30, 1996. The change of results is primarily from the following factors: an
increase in revenues $600,679, an increase in cost of sales of $131,465 and
an increase in selling, general and administrative expenses of $524,072.
The increase in revenues of $600,679 (246%) was primarily due to the
operation of the golf course for the entire period of 1997, while it was
closed for refurbishing for a portion of the six months ended June 30, 1996,
as well as $427,489 of recreational vehicle memberships. The increase in
cost of sales of $131,465 (199%) was principally due to the increase in
membership sales activity.
The increase in selling, general and administrative expenses of $524,072
(59%) is a result of the increased operations of the golf course and the
increased recreational vehicle membership sales effort during 1997 as
compared to the same period in 1996.
COMPARISON OF YEAR ENDED DECEMBER 31, 1996 TO 1995
Due to the minimal operations of the resort during the first nine months
of 1995, the property experienced significant increases in revenues and
expenses which are discussed in the following paragraphs.
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<PAGE>
For the year ended December 31, 1996, the property experienced a net
loss of $1,950,363 compared to a net loss of $915,537 for the year ended
December 31, 1995. The change of results is due to the following factors: an
increase in revenue of $772,995, an increase in cost of sales of $301,702, an
increase in selling, general and administrative expenses of $1,467,998 and an
increase in interest expense of $38,121.
Revenues increased in 1996 by $772,995 or 187%. This increase was
primarily attributable to the sale of $513,799 of recreational vehicle
memberships, the increased fees received from the operation of the golf
course during 1996 and the sale of two of the property's developed lots for
$99,961 during 1996. The increase in cost of sales of $301,702 (592%) was
principally due to the increase in, and the change in makeup of, revenues.
Selling, general and administrative expenses increased $1,467,998 (134%)
during 1996 as compared to 1995. The increase was primarily attributable to
increases in salaries and wages of $506,693, consulting fees of $272,557,
advertising and promotion of $178,489, repairs and maintenance of $139,110
and depreciation and amortization of $77,535.
The property had interest expense of $18,962 during 1996, while having
interest income of $19,159 during 1995. This change was due to the
incurrence of capital lease obligations during 1996, the interest expense
from which more than offset any interest income from bank accounts and notes
receivable.
RESULTS OF OPERATIONS - THE MORI POINT PROGRAM
COMPARISON OF SIX MONTHS ENDED JUNE 30, 1997 TO 1996
No sales activity occurred during the period on this property location.
There were however, operating expenses and management fees incurred in order
to maintain these properties. Operating expenses increased from $28,511 for
the six months ended June 30,1996 to $73,340 at June 30, 1997, an increase of
$44,829. The operating expenses primarily consist of property taxes and
costs associated with the contemplated acquisition of this program by the
Company. Property tax expense increased by $26,405 due to an increase in the
assessed property value, while the program expended approximately $20,000
associated with the acquisition of the program. Management fees were
consistent for both periods at $50,000 per period. These fees were for the
management and administration of the property.
COMPARISON OF YEAR ENDED DECEMBER 31, 1996 TO 1995
No sales activity occurred during the period on this property location.
There were however, operating expenses and management fees incurred in order
to maintain these properties. Operating expenses increased from $46,867 at
December 31,1995 to $90,348 at December 31, 1996, an increase of $43,481.
The operating expenses primarily consist of property taxes and legal
expenses. During 1996, property taxes increased by $27,092 due to an
increase in the property value. Legal expenses increased by $10,525. These
legal expenses mainly relate to a proposed development on this property which
never materialized. Management fees were
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<PAGE>
consistent for both year ends at $100,000 per year. These fees were for the
management and administration of the property.
RESULTS OF OPERATIONS - THE SACRAMENTO/DELTA GREENS PROGRAM
COMPARISON OF SIX MONTHS ENDED JUNE 30, 1997 TO 1996
No development activity occurred during the periods on this property.
There were however, operating expenses and management fees incurred in order
to maintain these properties. Operating expenses increased from $40,365 for
the six months ended June 30,1996 to $69,059 at June 30, 1997, an increase of
$28,694. The increased operating expenses is primarily due to the employment
of consultants during 1997 to perform studies related to the proposed
development of the property. Management fees were consistent for both
periods at $25,000 per period.
Due to a decrease in the median prices of homes in the communities
surrounding Delta Greens during 1996 and a decrease in the number homes zoned
for this property during 1997, impairment losses of $422,500 and $230,000
were recorded on the property's financial statements during the periods
presented.
COMPARISON OF YEAR ENDED DECEMBER 31, 1996 TO 1995
No development activity occurred during the periods on this property.
There were however, operating expenses and management fees incurred in order
to maintain these properties. Operating expenses increased from $93,523 at
December 31,1995 to $169,649 at December 31, 1996, an increase of $76,126.
The operating expenses primarily consist of property taxes, planning and
engineering expenses, and consulting fees. During 1996, planning and
engineering expenses increased by $48,219 due to engineer studies and surveys
performed on the property. Consulting fees increased by $44,875. These
consulting expenses relate to the proposed development of this property.
Management fees were consistent for both year ends at $50,000 per year.
These fees were for the management and administration of the property.
Due to a decrease in the median prices of homes in the communities
surrounding Delta Greens during 1996, an impairment loss of $845,000 was
recorded on the property's 1996 financial statements.
LIQUIDITY AND CAPITAL RESOURCES
Upon completion of the Acquisitions on a pro forma basis as of June 30,
1997, the Company will have approximately $1,240,000 of unrestricted cash
available to operate the Company and develop its owned real estate. The
Company is also attempting to raise additional funds by offering units for
sale in conjunction with the Acquisitions, which if fully subscribed would
result in net proceeds of approximately $4,450,000, after allocated
Acquisition Expenses of $200,000.
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In addition to the methods discussed above, the Company anticipates
creating additional liquidity through the following methods on an as needed
basis:
(a) Obtain additional mortgage debt against the properties: At June
30, 1997, the Company had no debt and approximately $920,000 of delinquent
property taxes levered against its real estate. Based on its lack of
significant leverage, the Company believes that significant liquidity can be
generated through additional borrowings, if necessary
(b) Obtain additional funding by selling off additional properties:
The Company believes some of the properties, or portions thereof, can be sold
to generate sufficient liquidity to develop the remaining properties
(c) Reduce development capital needs through joint venture
arrangements: The Company believes that it will be able enter into joint
venture arrangements to develop and operate one or more of its current
properties.
(d) Conserve development capital by slowing down the currently planned
development process: If the Company is unable to raise sufficient
development funds utilizing the methods discussed above, the pace of property
development can be slowed until necessary internal or external funding is
generated.
Listed below is a summary, by project, of the estimated time period to
develop each project as well as the projected external financing needed to
complete development:
YOSEMITE/AHWAHNEE
The Company would develop and construct 170 vacation homes on currently
entitled lots which would be sold as time share intervals. The Company
expects that it will require an initial amount of approximately $3,000,000 of
funding for this development phase which would last for approximately 6
years. In addition, the Company plans to continue to develop the
recreational vehicle park, which should be self-funding from sales of
currently available recreational vehicle memberships. Although the Company
currently does not have the proper entitlements to develop the remaining raw
land within the resort, the Company does anticipate eventually developing
this land subsequent to the completion of the other projects occurring within
the resort which have been described above.
OCEANSIDE
The Company could start developing the Symphony project residential
homes. The Symphony project consists of 111 lots upon which the Company
projects building single family homes principally containing 3 to 4 bedrooms.
The Company anticipates that funds which have been generated from the Encore
tract, along with approximately $700,000 of equity funding and an estimated
maximum of $3,500,000 of construction financing, will be sufficient to
develop Symphony, which should be completed within approximately two years
from the date of commencement.
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MORI POINT
The Company anticipates developing a state of the art business
conference center located near San Francisco, California. The Company
anticipates that approximately $500,000 and 1.5 years is needed to complete
the entitlement and mapping process. If construction commences upon
completion of the entitlement/mapping process, the Company anticipates that
the business conference center would be operational by 2001. The business
conference center will consist of multiple meeting rooms, restaurant, indoor
and outdoor facilities, which is expected to require approximately
$40,000,000 of external funding. Due to the significant development funding
required for this project, the Company anticipates that it will seek a joint
venture development partner to reduce the funding required of the Company.
SACRAMENTO/DELTA GREENS
The property is zoned for a single-family housing project, consisting of
over 500 homesites, in Sacramento, California. The total expected funding
needs for this project are approximately $3,000,000, with completion of the
project currently estimated for approximately 10 years after commencement.
LIQUIDITY SUMMARY
The Company expects to meet its short- and long-term liquidity
requirements through the methods described above in addition to cash
generated from the operations of the resort properties once these properties
are operational. The Company believes that the liquidity sources described
above will be adequate to satisfy the cash requirements of the Company for
the 12 months following the completion of the Acquisition.
HISTORICAL CASH FLOWS
THE OCEANSIDE PROGRAM
Cash flows from operations decreased from net inflows of $1,277,135 for
the year ended December 31, 1995 to net inflows of $1,002,238 for the year
ended December 31, 1996. The decrease is principally due to the increase in
the net loss of the property from $367,219 during 1995 to $548,675 during
1996. Cash flows from operations increased from inflows of $765,061 for the
six months ended June 30, 1996 to inflows of $784,227 for the six months
ended June 30, 1997. The significant cash inflows were due to the large
number of houses sold during the six months ended June 30, 1996 and 1997.
Cash flows used in investing activities decreased, going from $323,914
in 1995 to $114,062 in 1996, due to the slowdown in development of the
Symphony site. Cash flows used in investing activities decreased from the
six months ended June 30, 1996 to the six months ended June 30, 1997 also due
to changes in the level of development expenditures made on the Symphony site.
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Cash flows from financing activities were net outflows of $900,000 and
$896,090 for the years ended December 31, 1995 and 1996, which were
principally composed of capital distributions. For the six months ended June
30, 1996, cash outflows for financing activities of $450,000 occurred while
cash outflows for the six months ended June 30, 1997 of $453,910 occurred.
These outflows are also composed principally of distributions paid to Program
investors.
THE YOSEMITE/AHWAHNEE PROGRAM
Cash used in operations increased from net outflows of $546,788 for the
year ended December 31, 1995 to net outflows of $1,247,623 for the year ended
December 31, 1996. The decrease is principally due to the increase in the
net loss of the property from $915,537 during 1995 to $1,950,363 during 1996.
Cash flows from operations improved from the six months ended June 30, 1996
to 1997, decreasing from outflows of $512,083 to outflows of $478,434. The
decrease is principally due to significant increases in accounts payable and
accrued expenses in 1997 versus smaller increases in these balances during
the six months ended June 30, 1996.
Cash flows used in investing activities resulted principally from
purchasing equipment for the golf course and minor additions to the property
as a whole. Net cash used in investing activities was $112,631, $72,149,
$20,084 and $89,422 for the years ended December 31, 1995 and 1996 and for
the six months ended June 30, 1996 and 1997.
Cash flows from financing activities were net inflows of $1,003,278,
$1,074,023, $245,665 and $640,302 for the years ended December 31, 1995 and
1996 and the six months ended June 30, 1996 and 1997. The level of owner
contributions into the property was the principal component driving the above
fluctuations in cash flows from financing activities.
THE MORI POINT PROGRAM
Cash flows from operations changed from $0 for the year ended December
31, 1995 to outflows of $163,278 for the year ended December 31, 1996. The
change is principally due to payments being made on accrued liabilities.
Cash flows used in operations increased from outflows of $130,414 for the six
months ended June 30, 1996 to $176,980 for the six months ended June 30,
1997. The increase is principally due to a decrease in accrued liabilities
in 1997.
Cash flows from financing activities for the year ended December 31,
1996 consisted of $202,310 made up of contributions from investors. For the
six months ended June 30, 1996 and 1997, cash inflows from financing
activities were $163,463 and $196,376. Inflows consisted of additional
contributions from existing program investors.
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THE SACRAMENTO/DELTA GREENS PROGRAM
Cash outflows from operations were $77,874, $207,594, $120,912 and
$116,436 for the years ended December 31, 1995 and 1996 and for the six
months ended June 30, 1996 and 1997. The variations are principally due to
the timing of payments of accounts payable and accrued liabilities.
Cash flows from financing activities for the years ended December 31
1996 and 1995 and the six months ended June 30, 1996 and 1997 consisted of
contributions from investors of $12,033, $262,572, $245,816 and $76,125.
NEW ACCOUNTING PRONOUNCEMENTS
Statements of Financial Accounting Standards No. 125, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishment of
Liabilities" (SFAS No. 125) issued by the Financial Accounting Standards
Board ("FASB") is effective for transfers and servicing of financial assets
and extinguishment of liabilities occurring after December 31, 1996, and is
to be applied prospectively. Earlier or retroactive application is not
permitted. The new standard provides accounting and reporting standards for
transfers and servicing of financial assets and extinguishment of
liabilities. Because the Company is not currently engaging in any
transactions within the scope of this pronouncement, the Company does not
expect adoption of SFAS No. 125 to have a material effect on its financial
position or result of operations.
Statements of Financial Accounting Standards No. 128, "Earnings Per
Share" (SFAS No. 128) issued by the FASB is effective for financial
statements for both interim and annual periods ending after December 15,
1997. Earlier application is not permitted. SFAS 128 requires dual
presentation of basic and diluted earnings per share ("EPS") on the face of
the income statement. It also requires a reconciliation of the numerator and
denominator of the basic EPS computation to the numerator and denominator of
the diluted EPS computation. This statement also requires restatement of all
prior period EPS data presented. The Company does not expect adoption of
SFAS No. 128 to have a material effect on its results of operations.
Statements of Financial Accounting Standards No. 129, "Disclosure of
Information about Capital Structure" (SFAS No. 129) issued by the FASB is
effective for financial statements ending after December 15, 1997. The new
standard reinstates various securities disclosure requirements previously in
effect under Accounting Principles Board Opinion No. 15, which has been
superseded by SFAS No. 128. The adoption of SFAS No. 129 will not have a
material effect on the financial position or results of operations of the
Company.
Statements of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" (SFAS No. 130) issued by the FASB is effective for
financial statements with fiscal years beginning after December 15, 1997.
Earlier application is permitted. SFAS 130 establishes standards for
reporting and display of comprehensive income and its components in a full
set of general-purpose financial statements. The adoption of SFAS No. 130
will not have a material effect on the financial position or results of
operations of the Company
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Statements of Financial Accounting Standards No. 131 "Disclosures about
Segments of an Enterprise and Related Information" (SFAS No. 131) issued by
the FASB is effective for financial statement beginning after December 15,
1997 (ALTHOUGH THE FASB IS ENCOURAGING EARLIER APPLICATION). The new
standard requires that public business enterprises report certain information
about operating segments in complete sets of financial statements OF THE
ENTERPRISE AND IN CONDENSED FINANCIAL STATEMENTS of interim periods issued to
shareholders. It also requires that public business enterprises report
certain information about their products and services, the geographic areas
in which they operate and their major customers. The adoption of SFAS No.
131 will not have a material effect on the financial position or results of
operations of the Company.
MANAGEMENT FOLLOWING THE ACQUISITION
The Company will operate under the direction of the Board, the members
of which are accountable to the Company and its shareholders as fiduciaries.
The Board will be responsible for the management and control of the affairs
of the Company; however, the executive officers of the Company and its
subsidiaries will manage the Company's and its subsidiaries' day-to-day
affairs and the acquisition and disposition of investments, subject to the
Board's supervision. The Company currently has six directors; it must have
at least one and may have no more than nine directors. As a matter of
policy, the Company will maintain at least two Independent Directors on the
Board; that is, persons who are not employed by or otherwise affiliated with
the Company prior to becoming directors. The Board will then be divided into
three classes serving staggered three year terms. See "Comparisons of
Programs and the Company -- Anti-Takeover Provisions."
Any director may resign at any time and may be removed with or without
cause by the shareholders upon the affirmative vote of a majority of all the
votes entitled to be cast for the election of directors at a special meeting
called for the purpose of such proposed removal. The notice of such meeting
shall indicate that the purpose, or one of the purposes, of such meeting is
to determine if a director will be removed. A vacancy created by death,
resignation or removal of a director may be filled by a vote of a majority of
the remaining directors. Each director will be bound by the Company's
Charter Documents.
The directors are not required to devote all of their time to the
Company and are only required to devote such of their time to the affairs of
the Company as their duties require. The directors will meet quarterly or
more frequently if necessary. It is not expected that the directors will be
required to devote a substantial portion of their time to discharge their
duties as directors. Consequently, in the exercise of their fiduciary
responsibilities, the directors will be relying heavily on the executive
officers of the Company. The Board is empowered to fix the compensation of
all officers that it selects and may pay directors such compensation for
special services performed by them as it deems reasonable. Initially, the
Company will pay Independent Directors a retainer fee of $20,000 per year,
plus $1,000 per meeting attended, plus 2,500 options
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to purchase shares, plus out-of-pocket expenses in attending meetings The
Company will not pay any director compensation to the officers of the Company
who also serve as directors.
The general investment and borrowing policies of the Company are set
forth in this Prospectus. The directors shall establish further written
policies on investments and borrowings and shall monitor the administrative
procedures, investment operations and performance of the Company to assure
that such policies are in the best interest of the shareholders and are
fulfilled. Until modified by the directors, the Company shall follow the
policies on investments and borrowings set forth in this Prospectus.
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company are as follows:
Term
Name Age Position Expires
---- --- -------- -------
David G. Lasker 51 Co-Chairman of the Board, 2000
President and Chief Financial
Officer
James N. Orth 50 Co-Chairman of the Board, 2000
Chief Executive Officer and
Secretary
L.C. "Bob" Albertson, Jr. 53 Executive Vice President of 1999
the Company and President
and Chief Executive Officer
of American Family
Communities, Inc., Director
Charles F. Hanson 60 Director 1999
Dudley Muth 57 Director 1998
James G. LeSieur, III 56 Director 1998
The following is a biographical summary of the experience of the
directors and executive officers of the Company.
DAVID G. LASKER - Co-Chairman of the Board, President and Chief
Financial Officer of the Company. Mr. Lasker has served as Chairman and
President of National Investors Financial, Inc. since 1986. Prior to that,
he served as Chairman and Vice chairman of the Board of Directors of American
Merchant Bank, a commercial bank headquartered in Orange County, California,
from 1985 to 1986. His experience includes all phases of negotiating,
underwriting, closing and servicing of residential and commercial loans.
Since the Ownership Date, Mr.
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Lasker has overseen the development and construction of the Oceanside
Property. He has served as project manager of the Mori Point Property. He
and Mr. Orth have supervised the predevelopment activities of the
Sacramento/Delta Greens Property and they have shared the responsibility for
the management and ultimate development of a business plan for the
Yosemite/Ahwahnee Properties. He and Mr. Orth are responsible for overall
management of the Company. Mr. Lasker holds a Bachelor of Science degree from
Purdue University and an M.B.A. from the University of Southern California.
JAMES ORTH - Co-Chairman of the Board, Chief Executive Officer and
Secretary of the Company. Since 1986, Mr. Orth has been Executive Vice
President and a member of the Board of Directors of National Investors
Financial, Inc. Prior to that, in 1980, he was a founding member of NIF
Securities, Inc., a securities broker-dealer oriented to the capitalization of
start-up and second-stage business ventures. In addition, he has been a
founder and executive officer of a variety of companies specializing in
financial management, marketing and distribution. From 1969 through 1976, Mr.
Orth was employed by IBM Corporation as a marketing representative and
territory manager. From 1978 to 1980, he was vice president and branch
manager of ENI Corporation, an oil and gas exploration company. He received a
Bachelor of Science in Mathematics-Statistics, French and Economics from the
University of Wyoming in 1969 and did post-graduate work in the MBA-Finance
program at the University of Colorado.
L.C. "BOB" ALBERTSON, JR. - Executive Vice President and Director of the
Company, President and Chief Executive Officer of American Family Communities,
Inc., a wholly-owned subsidiary of the Company. Mr. Albertson is responsible
for the operation of the Company's Properties and the implementation of the
Company's business plan. Mr. Albertson is a 32-year veteran of the
homebuilding industry. From 1985 to 1996, he served as President of Presley
Homes, Southern California Region, a large publicly-traded homebuilding
company. From 1981 to 1983, he was President of Barrett American, Irvine, a
publicly-traded homebuilding company based in Great Britain. Mr. Albertson is
President of HomeAid America, a non-profit organization supported by the
National Association of Homebuilders. From 1985 to 1986, he served as
President of the Building Industry Association/Orange County Region.
CHARLES F. HANSON - Director of the Company. Since 1989, Mr. Hanson has
served as Co-Chairman of the Board of Larson Training Centers, Inc., a
vocational training company with campuses in the Cities of Orange and Carson,
California. Also, since 1994, he has served as an independent marketing
director for a major pharmaceutical company. In 1991, he developed Coastal
Pacific Commercial Corporation, a consulting company to the real estate
industry. From 1987 to 1989, Mr. Hanson was associated with CIS Corporation,
a New York stock exchange-listed company and a leading equipment leasing firm,
as Vice President and National Sales Manager. In 1985, he developed Half-Time
Associates, Inc., a national seminar company. From 1983 to 1985, Mr. Hanson
was associated with Integrated Resources, Inc. as Vice President, Director of
Marketing. Prior positions at Integrated Resources, Inc. included Senior
Executive Vice President of Integrated Resources Equity Corp. and Executive
Vice President, National Sales Manager and Director of Marketing for
Integrated Resources Energy Group. Mr. Hanson
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received his Liberal Arts degree from the University of Washington. He is
Registered Principal with the NASD and is licensed with the New York Stock
Exchange.
DUDLEY MUTH - Director of the Company. Mr. Muth's career includes over
20 years of extensive experience in the field of corporate management, law,
securities and real estate. From June 1993 through May 1997, Mr. Muth served
as a consultant on real estate and securities matters and as Vice President of
Drake Capital Securities, Inc. He recently rejoined Drake Capital Securities,
Inc. to direct all compliance and legal activities. From March 1990 until
June 1992, he served as president of First Diversified Financial Services,
Inc., a syndicator of all-cash investments in California real estate. From
June 1987 until February 1990, he was President of USREA/WESPAC which
controlled two public real estate investment trusts. From January 1985 to May
1987, Mr. Muth was President of Cambio Equities Corporation and Cambio
Securities Corporation. From October 1982 to December 1984, he served as
Executive Vice President of Angeles Corporation. From July 1977 through
September 1979, he was Vice President and Director of Compliance for Pacific
Stock Exchange, Inc. In 1967, he began his career in the tax department of
Arthur Andersen & Co. Mr. Muth received his Bachelor of Arts degree in
Economics from Pomona College, his M.B.A. in accounting from UCLA Graduate
School of Management, and his J.D. from the University of Southern California.
He is a member of the California State Bar and a Registered Principal with the
NASD.
JAMES G. LESIEUR, III - Director of the Company. From April 1991 to the
present, Mr. LeSieur has been President and Chief Executive Officer of Sunwest
Bank, Tustin, California. Prior to that, he was Executive Vice President and
Chief Financial Officer of Sunwest Bank from December 1985 to March 1991, and
held other responsible officer positions with that bank from September 1975 to
November 1985. Before joining Sunwest Bank, he was with Arthur Young &
Company (independent accountants). He received a Bachelor of Science degree
from Purdue University and an M.B.A. degree from Wharton Graduate School of
University of Pennsylvania.
COMMITTEES OF THE BOARD OF DIRECTORS
EXECUTIVE COMMITTEE. In due course, the Board of Directors will
establish an executive committee (the "Executive Committee") which will be
granted the authority to acquire and dispose of real property and the power
to authorize, on behalf of the full Board of Directors, the execution of
certain contracts and agreements. The Company expects that the Executive
Committee will ultimately consist of the co-Chairmen of the Board of
Directors and two Independent Directors.
AUDIT COMMITTEE. The audit committee will consist of two Independent
Directors and one "inside" director (the "Audit Committee"). The Audit
Committee will make recommendations concerning the engagement of independent
auditors, review with the independent auditors the plans and result of the
audit engagement, approve professional services provided by the independent
auditors, review the independence of the independent auditors, consider the
range of audit and non-audit fees and review the adequacy of the Company's
internal accounting controls.
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COMPENSATION COMMITTEE. In due course, the Board of Directors will
establish a compensation committee (the "Compensation Committee") to
determine compensation, including awards under the Company's Stock Incentive
Plan for the Company's executive officers. The Company expects that the
Compensation Committee will ultimately consist of two Independent Directors.
NOMINATING COMMITTEE. In due course, the Board of Directors will
establish a nominating committee (the "Nominating Committee") to nominate
persons to serve on the Company's Board of Directors as vacancies arise. The
Nominating Committee will ultimately consist of three directors, at least two
of whom will be Independent Directors
DIRECTORS AND EXECUTIVE OFFICERS COMPENSATION AND INCENTIVES
The Company will compensate designated key managers of the Company with
cash compensation and certain incentives including stock option and bonus
plans. The below table sets forth the estimated annual base salary to be
paid to the Chief Executive Officer, President and Vice Presidents, as well
as the stock options for the officers and directors.
<TABLE>
<CAPTION>
Annual Common Stock
Name Position Salary(1) Options
- ---- -------- --------- ------------
<S> <C> <C> <C>
David G. Lasker* Co-Chairman of the Board, $ 180,000 10,000(2)
President and Chief Financial
Officer
James N. Orth Co-Chairman of the Board, $ 180,000 10,000(2)
Chief Executive Officer and
Secretary
L.C. "Bob" Albertson, Jr. Executive Vice President and $ 200,000 10,000(2)
Director of the Company;
President and Chief Executive
Officer of American Family
Communities, Inc., Director
Charles F. Hanson Director - 2,500(3)
Dudley Muth* Director - 2,500(3)
James G. LeSieur, III* Director - 2,500(3)
</TABLE>
- -------------
* Initial members of Audit Committee.
(1) Employment Agreements for Messrs. Lasker, Orth and Albertson contain
provisions for bonus payments based on performance criteria.
(2) To be issued upon completion of the Acquisition. These options are
nonqualified stock options which are not issued pursuant to the Company's
1997 Stock Option and Incentive
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Plan. They have a ten year term, vest one-third per year commencing with
the date of grant. They are exercisable at $10 per share.
(3) To be issued upon completion of the Acquisition. These options are issued
pursuant to the Company's 1997 Stock Option and Incentive Plan. They have
a ten-year term and are exercisable one year from the date of grant at $10
per Share.
STOCK INCENTIVE PLAN
The Company has established a stock incentive plan (the "Stock Incentive
Plan") to enable executive officers, key employees and directors of the
Company and its subsidiaries to participate in the ownership of the Company.
The Stock Incentive Plan is designed to attract and retain executive
officers, other key employees and directors of the Company and its
subsidiaries and to provide incentives to such persons to maximize the
Company's value, as well as cash flow, available for distribution. The Stock
Incentive Plan provides for the award to such executive officers and
employees of the Company and its subsidiaries of stock-based compensation
alternatives such as restricted stock, nonqualified stock options and
incentive stock options and provides for the grant to Independent Directors
of nonqualified stock options on a formula basis.
The Stock Incentive Plan will be administered by the Compensation
Committee, which is authorized to select from among the eligible employees of
the Company and its subsidiaries the individuals to whom options are to be
granted and to determine the number of shares to be subject thereto and the
terms and conditions thereof. The Compensation Committee is also authorized
to adopt, amend and rescind rules relating to the administration of the Stock
Incentive Plan. Nonqualified stock options shall be granted to Independent
Directors in accordance with the formula set forth in the Stock Incentive
Plan.
The Stock Incentive Plan was approved by the Company's founding
shareholders September 15, 1997. The following awards may be made under the
Plan:
NONQUALIFIED STOCK OPTIONS will provide for the right to purchase Common
Stock at a specified price which may be less than fair market value on the
date of grant (but not less than par value), and usually will become
exercisable in installments after the grant date. Nonqualified stock options
may be granted for any reasonable term.
INCENTIVE STOCK OPTIONS, if granted, will be designed to comply with the
provisions of the Code and will be subject to restrictions contained in the
Code, including exercise prices equal to at least 100% of fair market value
of Common Stock on the grant date and a ten year restriction on their term,
but may be subsequently modified to disqualify them from treatment as an
incentive stock option.
RESTRICTED STOCK is Common Stock of the Company which may be awarded to
key employees of the Company by the Compensation Committee, subject to such
restrictions on the exercise of full ownership as such Committee may
determine. Restrictions may relate, among other things, to duration of
employment, Company performance and individual performance.
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Promptly after the Closing of the Acquisition, the Company expects to
issue to certain officers, directors and key employees of the Company and its
subsidiaries options to purchase an aggregate of _____ shares of Common Stock
pursuant to the Stock Incentive Plan. The term of each of such options will
be _____ years from the date of grant. Commencing one year from the Closing,
each such option will vest 25% per year over four years and is exercisable at
a price per share equal to the public offering price per Share in the
Offering. The expected allocations of the options to such persons is as
presented above in the "Directors and Executive Officers Compensation and
Incentives."
185,000 shares of Common Stock, subject to adjustment, will be reserved
for issuance under the Stock Incentive Plan. There is no limit on the number
of awards that may be granted to any one individual (other than Independent
Directors who annually receive a fixed number of options automatically)
FEDERAL INCOME TAXES. If the option has no readily ascertainable fair
market value, no income is recognized by a participant at the time an option
is granted. If the option is an incentive stock option ("ISO"), no income
will be recognized upon the participant's exercise of the option. Income is
recognized by a participant when he or she disposes of shares acquired under
an ISO. The exercise of a nonqualified stock option ("NQSO") generally is a
taxable event that requires the participant to recognize, as ordinary income,
the difference between the shares' fair market value on the exercise date and
the option price.
The employer (either the Company or its affiliate) will be entitled to
claim a federal income tax deduction on account of the exercise of a NQSO.
The amount of the deduction is equal to the ordinary income recognized by the
participant. The employer will not be entitled to a federal income tax
deduction on account of the grant or the exercise of an ISO. The employer
may claim a federal income tax deduction on account of certain dispositions
of Common Stock acquired upon the exercise of an ISO.
401(K) PLAN
The Company intends to establish a qualified retirement plan, with a
salary deferral feature designed to qualify under Section 401 of the Code
(the "401(k) Plan"). The 401(k) Plan will permit the employees of the
Company and the Operating Partnership to defer a portion of their
compensation in accordance with the provisions of Section 401(k) of the Code.
The 401(k) Plan will allow participants to defer up to 15% of their eligible
compensation on a pre-tax basis subject to certain maximum amounts. Matching
contributions may be made in amounts and at times determined by the Company.
Amounts contributed by the Company for a participant will vest over a period
of years to be determined and will be held in trust until distributed
pursuant to the terms of the 401(k) Plan.
Employees of the Company and its subsidiaries will be eligible to
participate in the 401(k) Plan if they meet certain requirements concerning
minimum age and period of credited service. All contributions to the 401(k)
Plan will be invested in accordance with participant elections among certain
investment options. Distributions from participant accounts will not be
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permitted before age 59 1/2, except in the event of death, disability,
certain financial hardships or termination of employment.
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with Messrs. Lasker
and Orth for a term of five years and Mr. Albertson for a term of three
years, each subject to automatic one year extensions unless terminated. The
agreements provide for annual compensation in the amounts set forth under
"Executive Compensation" above and contain provisions for bonus consideration
based on performance standards. In addition, except to the extent required
to carry on pre-existing duties to investors in other programs managed by
National or other pre-existing real estate investments, each agreement
includes provisions restricting the officers from competing with the Company
during the term of such employment; providing for certain salary and benefit
continuance for six months if the officer is permanently disabled; and,
providing for a severance payment in the amount of 2.99 times the officer's
average salary and bonus over the past five years (or such shorter time as
the officer was employed), payable in 18 equal monthly installments, in the
event of a change of control of the Company resulting in the officer's
demotion or reduction in his compensation or responsibilities within two
years of the change of control event. Change of control is generally defined
to include a consolidation in the hands of one Person of 40% or more of the
voting securities of the Company, a business combination which is not
approved by employee after which the existing shareholders of the Company
hold less than 51% of the voting securities of the resulting entity, or a
change in membership of the Board of Directors resulting in 50% or more of
the Board of Directors not being nominated by management.
LIMITATION OF LIABILITY AND INDEMNIFICATION
The Company's Charter Documents limit the liability of the Company's
directors to the Company and its stockholders for money damages to the
fullest extent permitted from time to time by Delaware law. Delaware law
presently permits the liability of directors to a corporation or its
shareholders for money damages to be limited, except (i) for any breach of
the director's duty of loyalty to the corporation or its stockholders; (ii)
for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of the law; (iii) for unlawful
distributions to stockholders; and (iv) for any transaction from which the
director derived an improper benefit.
The Company's By-Laws require the Company to indemnify its directors,
officers and certain other parties (collectively "agents") to the fullest
extent permitted from time to time by Delaware law. The Company's
Certificate of Incorporation and By-Laws also permit the Company to indemnify
its agents who have served another corporation or enterprise in various
capacities at the request of the Company. The Delaware law presently permits
a corporation to indemnify its agents against judgments, penalties, fines,
settlements and reasonable expenses actually incurred by them in connection
with any proceeding to which they may be made a party by reason of their
service to or at the request of the Company, unless it is established that:
(i) the act or omission of the indemnified party was material to the matter
giving rise to the proceeding
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and was committed in bad faith or was the result of active and deliberate
dishonesty; (ii) the indemnified party actually received an improper personal
benefit; or (iii) in the case of any criminal proceeding, the indemnified
party had reasonable cause to believe that the act or omission was unlawful.
Indemnification may be made against judgments, penalties, fines, settlements
and reasonable expenses actually incurred by the director or officer in
connection with the proceeding; provided, however, that if the proceeding is
one by or in the right of the Company, indemnification may not be made with
respect to any proceeding in which the director or officer has been adjudged
to be liable to the Company. In addition, a director or officer may not be
indemnified with respect to any proceeding charging improper personal benefit
to the director or officer in which the director or officer was adjudged to
be liable on the basis that the personal benefit was improperly received.
The termination of any proceeding by conviction, or upon a plea of NOLO
CONTENDERE or its equivalent, or an entry of any order of probation prior to
judgment, creates a rebuttable presumption that the director or officer did
not meet the requisite standard of conduct required for indemnification to be
permitted. Indemnification under the provisions of the Delaware law is not
deemed exclusive to any other rights, by indemnification or otherwise, to
which an officer or director may be entitled under the Company's Charter or
By-Laws, or under resolutions of shareholders or directors, contract or
otherwise.
The Company will apply for a directors and officers liability insurance
policy in an amount of $5,000,000. The directors and officers liability
insurance insures (i) the directors and officers of the Company from any
claim arising out of an alleged wrongful act by such persons while acting as
directors and officers of the Company and (ii) the Company to the extent that
it has indemnified the directors and officers for such loss.
SECONDARY MARKET FOR TENANCY-IN-COMMON INTERESTS
There is no organized market for the tenancy-in-common interests held by
Investors in the Programs. Any transfers of such interests must be privately
negotiated among willing parties.
PRINCIPAL SHAREHOLDERS
The following tables set forth information as of the date hereof as to
each person or entity who owns of record or is known by the Company to own
beneficially five percent or more of the Company's outstanding voting
securities and information as to the securities ownership of management. All
stock ownership shown below is direct unless otherwise indicated.
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PRINCIPAL SHAREHOLDERS
<TABLE>
<CAPTION>
Percent of All
Name and Address Common Stock Voting Shares Outstanding, Assuming
- ---------------- ------------ -----------------------------------
Acquisition
Acquisition Completed and All
Completed Only Units Sold
-------------- ----------
<S> <C> <C> <C>
Yale Partnership for Growth
and Development, L.P.(1)
4220 Von Karman Avenue 146,135 7.5% 5.97%
Suite 110
Newport Beach, CA 92660
J-Pat, L.P.(2)
4220 Von Karman Avenue 146,135 7.5% 5.97%
Suite 110
Newport Beach, CA 92660
</TABLE>
- ----------------
(1) As manager of the general partner, Mr. Lasker controls this partnership
and has sole voting and investment power.
(2) As manager of the general partner, Mr. Orth controls this partnership and
has sole voting and investment power.
DIRECTOR AND OFFICER STOCK OWNERSHIP
<TABLE>
<CAPTION>
Percent of
Percent Class if
of Class if Acquisition
Acquisition Completed Common
Common Completed and All Stock Percent
Name/Position Stock Only Units Sold Options of Class
------------- ------ ----------- ----------- ------- --------
<S> <C> <C> <C> <C> <C>
David G. Lasker, President, Chief
Executive Officer, Chief Financial 146,135 7.5% 5.97% 10,000(1) 26.66%
Officer and Director(2)
James Orth, Chief Executive
Officer, Secretary and Director(3) 146,135 7.5% 5.97% 10,000(1) 26.66%
L.C. "Bob" Albertson, Jr. Executive
Vice President, Director 38,969 2.0% 1.59% 10,000(1) 26.66%
Charles F. Hanson, Jr., Director - - - 2,500 6.67%
Dudley Muth, Director - - - 2,500 6.67%
James G. LeSieur III, Director - - - 2,500 6.67%
Directors and Officers as a group 331,239 17.0% 13.53% 37,500 100.00%
</TABLE>
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- -----------------
(1) Messrs. Lasker, Orth and Albertson each may exercise options to purchase
3,333 shares presently.
(2) Mr. Lasker controls Yale Partnership for Growth and Development, L.P.
which owns the Shares reported. He has sole voting and investment power.
(3) Mr. Orth controls J-Pat, L.P. which owns the Shares reported. He has sole
voting and investment power.
DESCRIPTION OF SHARES
The following description of the Shares and other capital stock of the
Company does not purport to be complete but contains a summary of portions of
the Company's Certificate of Incorporation and is qualified in its entirety
by reference to the Company's Certificate of Incorporation.
GENERAL
The total number of shares of stock which the Company has authority to
issue is 12,000,000 shares, of which 10,000,000 are shares of Common Stock,
$0.001 par value per share ("Common Stock"), and 2,000,000 are shares of
Preferred Stock, $0.001 par value per share ("Preferred Stock"). The Board
of Directors is authorized to provide for the issuance of shares of
Preferred Stock in one or more series, to establish the number of shares in
each series and to fix the designation, powers, preferences and the rights of
such series and the qualifications, limitations or restrictions thereof.
COMMON STOCK
All shares of Common Stock offered hereby will be duly authorized, fully
paid and nonassessable. Subject to the preferential rights of any other
shares or series of shares of Preferred Stock, holders of Common Stock will
be entitled to receive distributions on such Common Stock if, as and when
authorized and declared by the Board of Directors of the Company out of
assets legally available therefor and to share ratably in the assets of the
Company legally available for distribution to its Shareholders in the event
of its liquidation, dissolution or winding-up after payment of, or adequate
provision for, all known debts and liabilities of the Company.
Each outstanding share of Common Stock entitles the holder to one vote
on all matters submitted to a vote of Shareholders, including the election of
directors, and, except as otherwise required by law or except as provided
with respect to any other class or series of shares of stock, the holders of
such shares of Common Stock will possess the exclusive voting power. There
is no cumulative voting in the election of directors, which means that the
holders of a majority of the outstanding shares of Common Stock can elect all
of the directors then standing for election and the holders of the remaining
shares, if any, will not be able to elect any directors. Holders of
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Common Stock have no conversion, sinking fund, redemption rights or any
preemptive rights to subscribe for any securities of the Company.
PREFERRED STOCK
The Preferred Stock may be issued from time to time in one or more
series as authorized by the Board of Directors. Prior to issuance of shares
of each series, the Board of Directors by resolution shall designate that
series to distinguish it from all other series and classes of stock of the
Company, shall specify the number of shares to be included in the series and
shall set the terms, preferences, conversion or other rights, voting powers,
restrictions, limitations as to dividends or other distributions,
qualifications and terms or conditions of redemption. Subject to the express
terms of any other series of preferred stock outstanding at the time and
notwithstanding any other provision of the Certificate of Incorporation, the
Board of Directors may increase or decrease the number of shares of, or alter
the designation or classify or reclassify, any unissued shares of any series
of Preferred Stock by setting or changing, in any one or more respects, from
time to time before issuing the shares, and the terms, preferences,
conversion or other rights, voting powers, restrictions, limitations as to
dividends or other distributions, qualifications or terms or conditions of
redemption of the shares of any series of Preferred Stock. There are no
shares of Preferred Stock outstanding and the Company has no present plans to
issue any.
WARRANTS
The only presently existing warrants will be issued as part of the
units. Each warrant will have a two year life, is immediately exercisable,
and will allow the holder to purchase two shares of Common Stock for a per
share purchase price equal to 80% of the closing price for the Company's
Common Stock on the on the trading date immediatley preceding the
warrant exercise date. These warrants are detachable from the units
immediately on issuance and contain appropriate anti-dilution clauses and
will be fully transferable from the date of the close of the Acquisition.
The Common Stock issued upon exercise of these warrants has been registered
under the Securities Act and, when issued, will be freely tradable. The
Company does not intend to list the warrants on any market or exchange.
CERTAIN SHAREHOLDER VOTING REQUIREMENTS
The Company's Certificate of Incorporation requires the concurrence of
the holders of two-thirds of the voting power of the outstanding voting stock
to amend specified provisions of the Company's Certificate of Incorporation
and By-Laws, which provide that (i) shareholders generally may not call a
special meting of shareholders or act by written consent; (ii) subject to
applicable law, the Company's Board of Directors will be divided into three
classes, the effect of which is that only approximately one-third of the
Board will be elected each year; (iii) directors may be removed by the
Shareholders only for cause and only upon the affirmative vote of two-thirds
of the voting power of the outstanding voting stock; (iv) a vote of
two-thirds of the voting power of the outstanding voting stock not held by an
"interested stockholder" is required for the approval of specified types of
business combinations; and (v) subject to applicable law, holders of Common
Stock will not be entitled to cumulative voting of shares for the election of
directors. These provisions, together with a classified Board of Directors
and the authorization to issue
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Preferred Stock on terms designated by the Board of Directors, could be used
to defend against certain business combinations not favored by the Board of
Directors (so-called "hostile takeovers").
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Company's Common Stock is _______.
THE OFFERING
OFFERING OF ACQUISITION SHARES
Subject to the conditions set forth in this Prospectus, the Company is
offering to Investors in the Programs an aggregate of 1,577,285 Shares
("Acquisition Shares") in exchange for all of the real estate, certain of the
liabilities and business of all of the Programs. The Acquisition Shares will
be allocated to the Programs based on Exchange Values and will be further
allocated within each of the Programs pro rata in respect of the Adjusted
Outstanding Investments of the Investors in the respective Programs. For
example,
You will receive the following number
If you invested $10,000 in of company shares
-------------------------- -----------------
Sacramento/Delta Greens
Oceanside
Yosemite/Ahwahnee I
Yosemite/Ahwahnee II
Mori Point
No sales commission will be paid by any party in connection with the
exchange of the Acquisition Shares for the real estate of the Programs.
Immediately after the approval of the Acquisition, as agent of and on
behalf of the Investors, National or an affiliated entity will execute the
acquisition agreements for the Properties of each of the Programs and title to
each of the Properties will pass to the Company in accordance with California
real estate law. In addition, certificates for the Acquisition Shares will be
prepared by the Company's Transfer Agent and Registrar, and promptly mailed to
all Investors of record.
OFFERING OF UNITS
The Company is also offering to Investors EXCLUSIVELY an aggregate of
500,000 units at $10 per unit. A unit consists of one Share and one warrant.
For a period of two years, each warrant entitles the holder to purchase two
additional shares of Common Stock at a per share price equal to 80% of the
closing price for the Company's Common Stock on the on the trading
date immediately preceding the warrant exercise date. The warrants are
immediately exercisable. Shares purchasable upon exercise of Warrants will
be registered under the Securities Act. Units will be allocated among the
Investors
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on a first-come-first-serve basis. NASD broker-dealers which assist in
selling the units will receive an aggregate commission of $0.70 per unit sold.
Any unsubscribed for units may be purchased at the offering price by
officers or directors of the Company simultaneously with the Closing of the
Acquisition.
ESCROW ARRANGEMENTS. Commencing on the date of this Prospectus, all
funds received by the Company from orders for units will be placed promptly
in an interest bearing escrow account with the Escrow Agent at the National's
expense until such funds are released as described below. Separate escrow
accounts will be established for benefit plan funds as required by law or
such benefit plans. Payment for units will be payable to "First Trust of
California, N.A., as Escrow Agent for American Family Holdings, Inc. Unit
Offering," but sent to the Company which will promptly send them to the
Escrow Agent. Such funds will be held in trust for the benefit of
subscribing Investors to be used for the purposes set forth in this
Prospectus. The funds will be invested in a money market account maintained
by the Escrow Agent. The interest, if any, earned on escrow funds prior to
the transmittal of such proceeds to the Company will not become part of the
Company's capital. Instead, within 15 days following the issuance of units,
the Company will cause the Escrow Agent to make distributions to subscribing
Investors of all interest earned on their escrowed funds used to purchase the
Shares.
As soon as practicable after the Closing of the Acquisition, the Company
will cause to be issued units to all Investors whose orders have been
accepted. The Offering of units will terminate at the time of the Effective
Time of the Acquisition.
On or after the date received by the Escrow Agent, Investors will have no
right to withdraw any funds submitted to the Escrow Agent prior to the earlier
of the Effective Time of the Acquisition or the determination by National that
the votes to approve the Acquisition are not available. No sales of units
will be consummated unless the Acquisition is approved.
If the Acquisition is not approved within 45 days after the date of this
Prospectus, or such later date as may by approved by National and the Company,
then the Company will cancel all existing orders for units and all funds
submitted on account of such orders will be released from escrow and promptly
returned to each investor together with all interest earned thereon.
Pending use of funds received by the Company from the Escrow Agent, the
Company may invest such funds in Permitted Temporary Investments.
FIRST TRUST OF CALIFORNIA, N.A., IS ACTING ONLY AS AN ESCROW AGENT IN
CONNECTION WITH THE OFFERING OF THE UNITS DESCRIBED IN THIS PROSPECTUS, AND
HAS NOT ENDORSED, RECOMMENDED OR GUARANTEED THE PURCHASE VALUE OR REPAYMENT OF
THE UNITS.
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APPRAISALS AND FAIRNESS OPINION
GENERAL
Exchange Values were determined as of August __, 1997 and have been
assigned to each of the Programs solely to establish a method of allocating
the Shares for purposes of the Acquisition. The Exchange Values were
determined by National and the Company. The starting point for the Exchange
Values was the independent appraised value of each of the Program's real
estate. See "Background and Reasons for the Acquisition --Determination of
Exchange Values" for adjustments to the appraised values that were made to
arrive at the Exchange Values for the property of each Program. Such
appraised values were determined for the Programs by the following appraisers:
Name of Program Name and Address of Appraisers
--------------- ------------------------------
Sacramento/Delta Greens David E. Lane, Inc.
9851 Horn Road, Suite 150
Old Mills Winery Office Park
Sacramento, California 95827
Oceanside Boznanski & Company
283 North Rampart Street
Suite A
Orange, California 92868
Yosemite/Ahwahnee I and II Arnold Associates
751 West 18th Street
Post Office Box 272
Merced, California 95341
and
The Mentor Group, Inc.
4333 Park Terrace Drive
Suite 200
Westlake Village, California 91361
Mori Point PKF Consulting
425 California Street
San Francisco, California 94104
National then engaged Houlihan Valuation Advisors, 2029 Century Park
East, Suite 2890, Los Angeles, California 90067, the Independent Valuator, to
render an opinion that the transaction, including allocation of Shares among
the Programs, as well as the number of Shares
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<PAGE>
retained by management of the Company and other founders of the Company, is
fair to the Investors from a financial point of view. The independent
appraisals are attached as Appendix 1 to this Prospectus. The Fairness
Opinion have been filed as exhibits to the Registration Statement of which
this Prospectus is a part. Copies may be obtained without charge by writing
to Vivian Kennedy, National Investors Financial, Inc., 4220 Von Karman Avenue,
Suite 110, Newport Beach, California 92660.
National did not impose any limitations on the scope of the
investigations of the independent appraisers or the Independent Valuator to
enable them to render their respective appraisals and the Fairness Opinion.
National and the Company determined the consideration to be paid to the
Investors.
EXPERIENCE OF INDEPENDENT APPRAISERS
Each of the independent appraisers is a member in a nationally recognized
society such as the American Institute of Real Estate Appraisers ("MAI").
Each has been involved in the appraisal of real estate in California in the
various Programs' regions for many years. National believes that each of the
independent appraisers is recognized among such appraiser's regional peers as
being well experienced in appraising the type of real estate it was asked to
value. National selected the appraisers because of the appraisers' respective
experience and reputation in connection with real estate assets of the nature
they were, respectively, asked to value.
INDEPENDENT APPRAISALS
Each of the independent appraisers was engaged by National in the Spring
of 1997 to appraise the "as is," highest and best use, value of the real
estate portfolio of a particular Program. Each of the independent appraisers
has consented to the use of the appraisals in this Prospectus.
SUMMARY OF METHODOLOGY. In the case of the real estate in the
Sacramento/Delta Greens Program, the independent appraiser determined that the
sales comparison, land residual, and discounted cash flow methods for
appraising real estate were appropriate to use. In the case of the real estate
in the Oceanside Program, the independent appraiser determined that the sales
comparison and land residual methods for appraising real estate were
appropriate to use for both the 23 remaining finished lots in the Encore tract
and the 111 partially finished residential lots in the Symphony tract. In the
case of the real estate in the Yosemite/Ahwahnee I and II Programs, the
independent appraiser determined that the sales comparison, income and cost
methods for appraising real estate were appropriate to use on various portions
of the Properties. In the case of the real estate in the Mori Point Program,
the independent appraiser determined that the discounted cash flow, ground
rent capitalization and sales comparison methods for appraising real estate
were appropriate to use.
In conducting each of the appraisals, representatives of the several
appraisers reviewed and relied upon, without independent verification, certain
information provided by National, including, but not limited to: applicable
financial information; property descriptions; historical
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<PAGE>
acquisition information; title information relating to encumbrances; and such
other information as was requested by the appraiser and available to National.
Representatives of each of the appraisers performed site inspections on the
real estate of each of the Programs in 1997. In the course of these visits,
any physical facilities were inspected and information on the local market, as
well as the subject property, was gathered.
Where appropriate, applicable government records were reviewed and
information was gathered from applicable government officials. As
appropriate, historical operating statements for certain of the Properties
were reviewed.
Each appraiser then estimated the value of the real estate of the
applicable Programs based on the approaches to valuation described above.
CONCLUSION AS TO APPRAISED VALUE. Based on the valuation methodology
used by each of the appraisers, the estimated "as is" value of the real estate
for each of the Programs is as follows:
Real Estate "As Is"
Name of Program Value Conclusion(1) Appraisal Date
--------------- ------------------- --------------
Sacramento/Delta Greens $ 2,000,000 May 9, 1997
Oceanside $ 3,700,000 May 15, 1997
Yosemite/Ahwahnee I and II $ 20,916,000(2) May 1, 1997
Mori Point $ 5,500,000 May 1, 1997
- -----------------
(1) See Appendix 2 for a description of each appraiser's conclusion with
regard to the valuation methods selected and with regard to separately
identifiable portions of the Property of each program.
(2) In the Fall of 1996, National hired The Mentor Group, Inc. ("Mentor") to
appraise the Yosemite/Ahwahnee Properties as a guide for planning purposes.
National used the Mentor appraisal to estimate the quick sale proceeds of the
Yosemite/Ahwahnee Properties if the Investors were unwilling to fund the
substantial capital costs required to develop the Properties to their highest
and best use. As of October 10, 1996, using primarily the cost approach,
Mentor determined the "as is" value of the subdivision portion of the
properties to be $530,000 and the "as is" value of the balance (deemed excess
land) as $3,460,000 for an aggregate appraised value of approximately
$4,000,000. Mentor determined that the highest and best use of the
Properties, as of the appraisal date, was to hold the project for future study
or project implementation. National has also used the Mentor appraisal to
further analyze the financial constraints of the "Trudy Pat" structure and its
lack of ability to attract traditional sources of financing. In the Spring of
1997, National hired Arnold Associates to determine the "as is" value of the
Properties assuming that they were developed at their highest and best use,
recognizing that, to achieve highest and best use, it would take a substantial
continued investment in the Properties and a significant amount of time.
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<PAGE>
ASSUMPTIONS, LIMITATIONS AND QUALIFICATIONS. Each appraisal report was
prepared in accordance with the Uniform Standards of Professional Appraisal
Practice. Each appraiser utilized certain assumptions to determine the
Appraised Value of the Properties.
ON-GOING RELATIONSHIPS
Each of the appraisers was paid a fee for its appraisals deemed to be
reasonable by National. The fees for such appraisals were paid out of funds
available to the respective Programs through cash flow or assessments. In
addition, each appraiser was reimbursed for reasonable travel and other
out-of-pocket expenses incurred in making site visits and in preparing the
valuations. The fees were negotiated between National and each of the
appraisers and payment thereof is not dependent upon completion of the
Acquisition. Neither National nor the Company has retained any of the
appraisers in the past, although the borrower in the Oceanside Program used
Boznanski & Company and the borrower in the Yosemite/Ahwahnee I and II
Programs used Arnold Associates in connection with the original "Trudy Pat"
loan. National and the Company may engage one or more of the appraisers to
provide appraisal and other services in the future. There is no contract,
agreement or understanding between National or the Company on the one hand and
any of the appraisers on the other hand regarding any future engagement.
None of the appraisers have any obligation to update their appraisals.
Except for improvement in revenues from operations of the golf course at the
Yosemite/Ahwahnee Properties, since the date of the Mentor appraisal, neither
National nor the Company are aware of any conditions which have changed since
the date of the appraisals which may affect appraised values.
EXPERIENCE OF INDEPENDENT VALUATOR
The Independent Valuator is regularly engaged in the valuation of
businesses and their securities in connection with a variety of business
combination transactions and for estate, tax, corporate and other purposes.
The founding principals of the Independent Valuator have been regularly
engaged in business valuations for more than 20 years. National selected the
Independent Valuator because of its experience and reputation in connection
with the valuation of business combination transactions. Neither National nor
the Company has any prior relationship with the Independent Valuator and
neither has present plans to retain the Independent Valuator in the future.
FAIRNESS OPINION
GENERAL. The Independent Valuator was engaged by National to analyze
certain aspects of the Acquisition and has delivered a written summary of its
determination, based on the review, analysis, scope and limitations described
therein, as to the fairness of the Acquisition, from a financial point of
view, to the Investors in each of the Programs (the "Fairness Opinion"). The
full text of the Fairness Opinion is set forth in Appendix A and should be
read in its entirety. A development of a fairness opinion is a complex
analytical process. It is not easily susceptible to partial analysis or
summary description.
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Neither National nor the Company imposed any conditions or limitations on
the scope of the Independent Valuator's investigation or methods and
procedures to be used in rendering the Fairness Opinion. The Company has
agreed to indemnify the Independent Valuator against certain liabilities
arising out of the Independent Valuator's engagement.
MATERIALS REVIEWED. In preparing the Fairness Opinion, the Independent
Valuator reviewed and analyzed the following: (i) this Consent Solicitation
Statement/Prospectus; (ii) real estate appraisals with respect to each of the
Properties prepared by independent real estate appraisers; (iii) feasibility
studies with respect to the Yosemite/Ahwahnee Properties and the
Sacramento/Delta Green Property; (iv) audited financial statements for each of
the Sacramento/Delta Greens Property, the Mori Point Property, the Oceanside
Property, and the Yosemite/Ahwahnee I and II Properties, as well as unaudited
pro forma consolidated financial statements for the Company for the year ended
December 31, 1996 and the six months ended June 30, 1997; (v) certain
documents related to the Trudy Pat loans on the Properties; and (vi) other
documents and schedules pertinent to their analysis. In addition, the
Independent Valuator met with members of management of the Company and
National regarding matters pertinent to its analysis, conducted site visits to
each of the Properties, met with the general manager of the Yosemite/Ahwahnee
I and II Properties, and conducted such other studies, analyses and inquiries
as it deemed appropriate.
The Independent Valuator did not independently verify the accuracy or
completeness of the information supplied to it with respect to the Company or
the Properties and does not assume any responsibility with respect to that
information.
CONCLUSIONS. National requested that the Independent Valuator opine as
to the fairness, from a financial point of view, of the allocation of the
Shares among the Programs and to the founders of the Company. Based on its
review and analysis described above, as well as certain assumptions described
below, the Independent Valuator concluded that the allocation is fair, from a
financial point of view, to the Investors.
ASSUMPTIONS. The Independent Valuator assumed that the financial
statements provided to it correctly reflect the financial results and
condition of the Company (on a pro forma basis) and the Properties for the
time periods covered in accordance with generally accepted accounting
principles consistently applied. The Independent Valuator further assumed
that there has been no material change in the financial results and condition
of the Company (on a pro forma basis) or the Properties since the date of the
most recent financial statements made available to it.
LIMITATIONS AND QUALIFICATIONS. The Independent Valuator was not asked
to and therefore did not solicit third party indications of interest in
acquiring all or any of the Properties. Furthermore, the Independent Valuator
did not negotiate the Acquisition or advise National or the Company with
respect to alternatives to the Acquisition, or select the method of
determining the allocation of the Shares or establish the allocations.
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Further, the Independent Valuator expressed no opinion as to (a) the
fairness of the Acquisition (other than the fairness of the allocations) as
described above or the amounts or allocations of Acquisition Expenses; (b) the
prices at which the Shares may trade following the Acquisition or the trading
value of the Shares as compared with the current market value of the Programs'
Properties if liquidated in current real estate markets; and (c) alternatives
to the Acquisition.
COMPENSATION. The Independent Valuator has been paid a fee of $35,000
for preparing the Fairness Opinion. In addition, the Independent Valuator
will be reimbursed for all reasonable out-of-pocket expenses, including legal
fees up to a maximum of $750, and indemnified against certain liabilities,
including certain liabilities under the federal securities laws. The fee was
negotiated between National and the Independent Valuator. Payment of the fee
is not dependent upon completion of the Acquisition. The Independent Valuator
has rendered no services to either National or the Company, or their
Affiliates, in the past.
FEDERAL INCOME TAX CONSEQUENCES
The following discussion is a summary of the material Federal income tax
consequences of the Acquisition to the Investors and the Company. It is based
on the Internal Revenue Code of 1986, as amended ("Code"), the Income Tax
Regulations, judicial decisions, current positions of the Treasury Department
and the Internal Revenue Service ("Service") contained in published Revenue
Rulings and Revenue Procedures, and current administrative positions of the
Service, any of which could be materially and adversely changed, possibly on a
retroactive basis, at any time.
It is impractical to summarize all potential Federal, state, local and
foreign tax consequences of the Acquisition. Accordingly, the following
discussion does not address any aspect of state, local or foreign law or
Federal estate or gift tax matters. Moreover, the following discussion does
not address special considerations that may apply (i) to certain classes of
Investors including, without limitation, Investors who are insurance
companies, financial institutions, securities dealers, foreign persons or
Investors who receive Shares as compensation, or (ii) to Investors subject to
special rules including, without limitation, the personal holding company tax,
the accumulated earnings tax, the tax on unrelated business taxable income of
tax-exempt entities, and the S corporation rules. The Federal income tax
consequences to any particular Investor may be affected by matters not
discussed below. Consequently, the following discussion should not be
regarded as a complete analysis of all the possible tax consequences or as a
substitute for careful tax planning by Investors.
No advance rulings have been or will be obtained from the Service with
respect to any aspect of the Acquisition. Consequently, no assurance can be
given that the Service will not challenge an Investor's or the Company's tax
treatment of the Acquisition. In the event of a challenge, an Investor or the
Company may be adversely affected and personally may incur substantial legal
and accounting fees and costs even if the challenge proves to be unsuccessful.
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INVESTORS SHOULD CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THE
FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF THE ACQUISITION AS THEY
RELATE TO THEIR PERSONAL TAX SITUATIONS.
QUALIFICATION OF THE ACQUISITION AS A QUALIFYING SECTION 351 TRANSACTION
1. GENERAL RULES. The Federal income tax consequences of the
Acquisition will depend primarily on whether the Acquisition qualifies as a
Section 351 transaction. (All "Section" references in this summary are to
the specified Section of the Code.) The Company intends to treat the
Acquisition as a qualifying Section 351 transaction.
The Acquisition will qualify under Section 351 if, collectively,
Investors in the Programs which sell the Properties to the Company in
exchange for Shares and Investors who acquire units are in "control" of the
Company "immediately after the exchange." The Company's transfer of the
Properties to its subsidiary corporations will not invalidate the Acquisition
from qualifying as a Section 351 transaction. See Revenue Ruling 77-499,
1977-2 C.B. 110.
(a) CONTROL. The term "control" is defined in Section 368(c) as
stock possessing at least 80% of the total combined voting power of all
classes of stock entitled to vote and at least 80% of the total number of
shares of all other classes of stock of a corporation. Investors will
acquire 80% or more of the Shares of the Company (which is the only class of
stock of the Company) and, accordingly, will acquire "control" of the Company.
(b) IMMEDIATELY AFTER THE EXCHANGE. The "immediately after the
exchange" requirement of Section 351 has been the subject of considerable
litigation, remains uncertain in certain respects, and is subject to a
case-by-case analysis of the facts subject to application of the "step
transaction doctrine" to those facts. This uncertainty is compounded because
the courts have not universally agreed upon all of the components that are
used in determining whether the step transaction doctrine should be applied.
The principal issue of the step transaction doctrine as
potentially applicable to the Acquisition is whether Investors, who will own
80% or more of the outstanding Shares on the Effective Date, may be treated
as owning less than 80% "immediately after the exchange." This may occur if
Investors, in subsequent transactions contemplated by them on the Effective
Date, dispose of any Shares. This also could occur if the Company issues
additional Shares after the Acquisition in a transaction subject to the step
transaction doctrine. The Company does not intend to issue any additional
Shares with respect to which the step transaction may apply.
Under the step transaction doctrine, if an Investor's
subsequent disposition of Shares and his receipt of Shares in the Acquisition
are treated as elements of a single integrated transaction of the Investor,
the Acquisition may fail to satisfy the "immediately after the exchange"
requirement.
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Courts generally have enunciated three tests to determine
whether the step transaction doctrine may be applied to disqualify a
transaction under Section 351, and one court may apply one of the following
tests while another court applies another:
(i) END RESULT TEST: Under this test, ostensibly separate
transactions are combined when it appears that they were really components
steps of a single transaction and that each of the steps was intended to be
taken for the purpose of reaching a specific end result.
(ii) MUTUAL INTERDEPENDENCE TEST: Under this test, the courts
consider whether steps are so interdependent that the legal relationships
created by one transaction would be fruitless without the completion of the
entire series of transactions.
(iii) BINDING OBLIGATION TEST: Under this test, a transaction
will be aggregated with another transaction if there is a binding commitment
to do the other transaction.
2. APPLICATION TO THE ACQUISITION. The Company is not aware of any
facts which lead it to believe that any subsequent disposition of Shares by
one or more Investors may be subject to any of the "step transaction" tests
discussed above. Accordingly, the Company intends to take the position that
the Acquisition is a qualifying Section 351 transaction. There can be no
assurance, however, that the Service will not take a contrary position.
FEDERAL INCOME TAX CONSEQUENCES OF THE ACQUISITION
1. TAX CONSEQUENCES TO INVESTORS OF A QUALIFYING SECTION 351
TRANSACTION. If the Acquisition is a qualifying Section 351 transaction, the
tax consequences to the Investors will include the following:
(a) Pursuant to Section 351(a), no gain or loss will be recognized
by Investors in a Program which sells a Property in exchange for Shares.
Sections 357(b) and 357(c) provide special gain recognition rules if
properties subject to liabilities are contributed to a corporation for the
principal purpose of tax avoidance or if such liabilities exceed the tax
basis of the contributed Properties. It is not anticipated that any Investor
will recognize gain under these rules.
(b) Pursuant to Section 358, an Investor's tax basis in his Shares
on the Effective Date generally will be equal to the sum of the tax basis of
his real estate interests in the purchased Properties at that time and any
gain recognized by him (none is anticipated) in the Acquisition. However, an
Investor's tax basis in his Shares will be reduced by the amount of his share
of any liabilities to which the contributed Properties are subject, except to
the extent that the payment of such liabilities would have been deductible.
(c) Pursuant to Section 1223(1), an Investor's holding period in
his Shares will be determined by including ("tacking") the holding period of
his real estate interests in the Properties purchased by the Company if held
by him as capital assets or Section 1231(b) assets. An Investor's interests
in the contributed Properties may constitute a
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<PAGE>
combination of capital assets and Section 1231(b) assets, for which tacking
of holding periods is allowed, and non-capital assets, for which tacking of
holding periods is not allowed. In such event, it may be necessary to make
an allocation under Section 1223(1), with the result that the tax basis of
each Share received by the Investor will be divided for holding-period
purposes. See Rev. Rul. 85-164, 1985-2 C.B. 117.
2. TAX CONSEQUENCES OF ACQUISITION TO THE COMPANY OF A QUALIFYING
SECTION 351 TRANSACTION. If the Acquisition is a qualifying Section 351
transaction, the tax consequences to the Company will include the following:
(a) Pursuant to Section 1032, no gain or loss will be recognized
by the Company on its receipt of the Properties in exchange for the issuance
of Shares.
(b) Pursuant to Section 362(a), the initial tax bases of the
Company in the contributed Properties will be equal to the sum of the tax
bases of the Investors in the Properties on the Effective Date and any gain
recognized by the Investors (none is anticipated) in the Acquisition.
(c) Pursuant to Section 1223(2), the Company's holding periods in
the contributed Properties will include tacking of the holding periods of the
Investors in the Properties.
3. TAX CONSEQUENCES OF PURCHASE OF UNITS. No gain or loss will be
recognized by an Investor with respect to the purchase of units. An
Investor's $10 tax basis for each unit is divided between the Share and
warrant to purchase Shares based on the relative fair market value of the
Share and the warrants on the Effective Date. Each Investor should consult
and rely on his own tax advisor for purposes of determining the allocation of
tax basis between the Share and the warrant. The holding periods of the
Share and warrant constituting a unit will commence on the day after the
Effective Date.
4. TAX CONSEQUENCES IF THE ACQUISITION DOES NOT QUALIFY AS A SECTION
351 TRANSACTION. As discussed above, the Company intends to report the
Acquisition as a qualifying Section 351 transaction. However, if for any
reason the Acquisition does not qualify, the tax consequences will include
the following:
(a) INVESTORS.
(i) An Investor will recognize gain or loss upon his receipt
of Shares in exchange for his real estate interests in the Properties sold by
the Programs. The amount of gain or loss will equal the difference between
the tax basis of his interests in the contributed Properties the Effective
Date and his amount realized in the Acquisition. The amount realized
generally will be equal to the sum of the fair market value on the Effective
Date of the Shares he acquires and his share of any liabilities to which the
Properties are subject. The character of an Investor's gain or loss will
depend on his holding periods with respect to his
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<PAGE>
interests in the contributed properties and whether such interests are
capital assets, Section 1231(b) assets or non-capital assets.
(ii) An Investor's initial tax basis in the Shares he acquires
will be equal to the fair market value of the Shares on the Effective Date.
An Investor's holding period of such Shares will commence on the day after
the Effective Date, with no tacking of his holding periods for his interests
in the Properties sold to the Company.
(b) COMPANY. The Company will not recognize any gain or loss upon
the receipt of contributed Properties of the Programs in exchange for the
issuance of Shares. The initial tax basis of the Company in the Properties
generally will be equal to the sum of the fair market value of the Shares on
the Effective Date and the amount of liabilities to which the Properties are
subject. The Company's holding periods in the Properties will commence on
the day after the Effective Date.
FEDERAL INCOME TAX CONSEQUENCES TO INVESTORS AFTER THE EFFECTIVE DATE
1. SHAREHOLDERS NOT TAXABLE ON COMPANY'S INCOME. The Company is a C
corporation ( a "regular" corporation, rather than an S corporation) and is a
separate entity from the Shareholders for tax purposes. Consequently, the
Company will file its own income tax returns and pay tax on its taxable
income. The Company's taxable income will not flow through to the
shareholders for purposes of determining their tax liabilities.
2. DISTRIBUTIONS TO SHAREHOLDERS. Distributions by the Company to the
Shareholders will be taken into account in determining their tax liabilities.
In general, distributions will be taxable as dividend income to the extent of
the Company's current or accumulated "earnings and profits" (as calculated
for Federal income tax purposes). Any distributions to a Shareholder in
excess of earnings and profits (i) will constitute a non-taxable return of
capital to the extent of the tax basis of his Shares, and (ii) will be
treated as taxable gain from the sale or exchange of the Shares to the extent
the distribution exceeds the tax basis of his Shares. The character of such
gain will depend on the Investor's holding period for such Shares and whether
the Shares are held as a capital asset (subject to the "collapsible
corporation" rules discussed below).
3. DISPOSITION OF SHARES; EXERCISE OF WARRANTS.
(a) SHARES. If an Investor disposes of Shares in a taxable
transaction, the Investor generally will recognize gain or loss equal to the
difference between the tax basis of his Shares and the amount realized in the
disposition. The character of such gain or loss generally will depend on the
Investor's holding period for such Shares and whether the Shares are held as
a capital asset. The "collapsible corporation" rules of Section 341 may
apply under some circumstances to convert capital gain into ordinary income.
However, even if the Company were treated as a collapsible corporation, any
capital gain recognized by an Investor would not be converted into ordinary
income unless (i) the Investor owns (taking into account certain attribution
rules) at certain times more than 5% of the outstanding stock of the Company,
or (ii)
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<PAGE>
the Investor's stock is attributed to another shareholder who owns at certain
times more than 5% the outstanding stock of the Company.
(b) WARRANTS. No gain or loss will be recognized by an Investor
upon his receipt of Shares pursuant to the exercise of warrants. The tax
basis of such Shares will be equal to the sum of the exercise price and the
tax basis of the warrants. The holding period for Shares will commence on
the date of exercise of the warrants. An Investor will recognize a loss if a
warrant expires without being exercised in an amount equal to the tax basis
of the warrant. An Investor generally will recognize gain or loss upon the
disposition of a warrant in an amount equal to the difference of the amount
realized upon disposition and the tax basis of the warrant.
REPORTS TO SHAREHOLDERS
The Company intends to provide periodic reports to Shareholders
regarding the operations of the Company over the course of the year.
Financial information contained in all reports to Shareholders will be
prepared on the accrual basis of accounting in accordance with generally
accepted accounting principles. The Company's annual report, which will
include financial statements audited and reported upon by independent public
accountants, will be furnished within 120 days following the close of each
fiscal year. Summary information regarding the quarterly financial results
of the Company will be furnished to Shareholders on a quarterly basis.
Investors have the right under applicable federal and Delaware laws to
obtain information about the Company and, at their expense, may obtain a list
of names and addresses of all of the Shareholders to be used for a proper
purpose. In the event that the Commission promulgates rules and/or in the
event that the applicable ________________ Exchange rules and regulations are
amended so that, taking such changes into account, the Company's reporting
requirements are reduced, the Company may cease preparing and distributing
certain of the aforementioned reports, if the directors determine such action
to be in the best interests of the Company and if such cessation is in
compliance with the rules and regulations of the Commission.
LEGAL MATTERS
Certain legal matters, including the legality of the Shares and the
units and the description of federal income tax consequences contained under
"Federal Income Tax Considerations," will be passed upon for the Company by
Arter & Hadden, Los Angeles, California.
105
<PAGE>
EXPERTS
The Financial Statements of American Family Holdings, Inc. and its
subsidiaries and the Programs included in this Prospectus and in the
Registration Statement of which this Prospectus is a part have been audited
by BDO Seidman, LLP, independent certified public accountants, to the extent
and for the periods set forth in their reports appearing elsewhere herein and
in the Registration Statement and have been so included in reliance upon such
reports given upon the authority of that firm as experts in accounting and
auditing.
FURTHER INFORMATION
This Consent Solicitation Statement/Prospectus does not contain all the
information set forth in the Registration Statement on Forms S-4 and the
exhibits relating thereto which the Company has filed with the Commission, in
Washington, D.C., under the Securities Act, and to which reference is hereby
made. The Registration Statement and the exhibits and schedules forming a
part thereof filed by the Company with the Commission can be inspected and
copies obtained at the Public Reference Section of the Commission, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the following regional offices
of the Commission: 7 World Trade Center, 13th Floor, New York, New York
10048 and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Copies of such material can be obtained from the Public
Reference Section of the Commission, 450 Fifth Street, N.W., Washington, D.
C. 20549, at prescribed rates, and electronically through the Commission's
Electronic Data Gathering, Analysis and Retrieval system at the Commission's
Website (http://www.sec.gov).
All summaries contained herein of documents which are filed as exhibits
to the Registration Statement are qualified in their entirety by this
reference to those exhibits. The Company has not knowingly made any untrue
statement of a material fact or omitted to state any fact required to be
stated in the Registration Statements, including this Prospectus, or
necessary to make the statements therein not misleading.
GLOSSARY
"Acquisition" means the purchase of the assets, liabilities and business
of each of the Programs in exchange for Shares.
"Acquisition Expenses" means all of the costs and expenses incurred by
the Company or the Programs in connection with the Acquisition including such
expenses as: (i) preparation, printing, filing and delivering of the
Registration Statement and the Prospectus; (ii) the filing fees payable to
the Securities and Exchange Commission and to the National Association of
Securities Dealers, Inc.; (iii) costs associated in transferring to the
Company title to the
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<PAGE>
Properties and providing the Company with title insurance with respect to
each of the Properties; (iv) the escrow arrangements, including the
compensation to the Escrow Agent; (v) the fees and costs incurred by the
Company in listing its Shares on the ______________; (vi) fees and costs of
the Company's counsel and independent auditors; (vii) fees and costs of
independent appraisers and the Independent Valuator; (viii) all expenses
incurred in connection with the solicitation of Investor votes regarding the
Acquisition; and (ix) other expenses related to the offering of the units.
"Acquisition Shares" means the Shares to be delivered to the Investors
in exchange for their interests in Programs.
"Adjusted Outstanding Investment" means the Outstanding Investment of an
Investor adjusted to take into account the interest owed, or due to be
received, as the case may be, on voluntary advances to the applicable Program
made in lieu of mandatory assessments which certain other Investors failed to
make.
"Affiliate" means, with respect to any Person, (i) any Person directly
or indirectly controlling, controlled by or under common control with such
Person, (ii) any Person owning or controlling ten percent or more of the
outstanding voting securities of such Person; (iii) any officer, director,
member (in the case of a limited liability company) or partner of such Person
or of any Person specified in (i) or (ii) above; and (iv) any company in
which any officer, director, member or partner of any Person specified in
(iii) above is an officer, director, member or partner.
"Appraised Value" means the fair market value of a Property according to
an appraisal made by an independent qualified appraiser. Such qualification
may be demonstrated by membership in a nationally recognized society such as
American Institute of Real Estate Appraisers ("MAI"), or its equivalent, but
not limited thereto.
"Charter Documents" means the Certificate of Incorporation and By-Laws
of the Company.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time, or any similar law or provision enacted in lieu thereof, unless the
context indicates otherwise.
"Commission" means the Securities and Exchange Commission.
"Company" means American Family Holdings, Inc., a Delaware corporation.
"Directors" means persons authorized to manage and direct the affairs of
the Company and who are members of the Board of Directors of the Company.
"Effective Time" means the date and time as of which the Acquisition is
completed, and title to the Properties has passed to the Company.
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<PAGE>
"Escrow" means the account established by the Company with the Escrow
Agent wherein the funds received from Investors desiring to purchase units
are held pending completion of the Acquisition.
"Escrow Agent" means First Trust of California, N.A.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Exchange Value" means the value of the assets, liabilities and business
of a Program for purposes of allocating Shares among the Programs in the
Acquisition.
"Fairness Opinion" means the opinion of the Independent Valuator to the
Programs as to the fairness, from a financial point of view, of the
Acquisition transaction to the Investors.
"Independent Director" means a Director of the Company whose primary
business or professional affiliations, if any, are with organizations not
affiliated with the Company. As of the date of the Prospectus, there are no
Independent Directors.
"Independent Valuator" means Houlihan Valuation Advisors.
"Investor" means a Person that purchased a tenancy-in-common interest in
one of the Trudy Pat loans, secured by a deed of trust, that formed the basis
of one of the Programs.
"Investor Ballot" means the ballot accompanying this Prospectus to be
used by the Investor to vote its wishes to approve or disapprove
participation of a particular Program in the Acquisition, and to subscribe
for units.
"IRS" means the U.S. Internal Revenue Service.
"NASD" means the National Association of Securities Dealers, Inc.
"National" means National Investors Financial, Inc., the company which
organized, and acts as servicing agent for the Investors in, each of the
Programs.
"ODI" means Oceanside Development, Inc., the entity formed to hold title
to the Oceanside Property for the benefit of Investors in the Oceanside
Program and to supervise continued development.
"Offering" means the offering of 500,000 units described in the
Prospectus.
"Outstanding Investment" means the sum of the unpaid principal balance
owed to an Investor as of the Ownership Date plus accrued but unpaid interest
on such balance as of the Ownership Date plus all amounts advanced by the
Investor pursuant to demands from National
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<PAGE>
plus all amounts voluntarily advanced by an Investor on behalf of Investors
who failed to honor a demand for an advance from National.
"Ownership Date" means, with respect to a particular Program Property,
the date on which title to the Property in question was taken and controlled
for the benefit of the Investors in such Program.
"Permitted Temporary Investments" means United States government
securities, certificates of deposit or other time or demand deposits of
commercial banks, savings banks, savings and loan associations or similar
institutions which have a net worth of at least $100,000,000 or in which such
certificates or deposits are fully insured by any federal or state government
agency, United States dollar deposits in foreign branches of banks which have
a net worth of at least $100,000,000, bank repurchase agreements covering
securities of the United States government or governmental agencies,
commercial paper, bankers acceptance, public money funds or other similar
short-term highly liquid investments.
"Person" means any natural person, partnership, corporation, limited
liability company, association or other legal entity.
"Prior Ownership Group" or "POG" means the Properties to be acquired by
the Company from Investors in each of the Programs.
"Program" means any one of the following: Sacramento/Delta Greens
Program, Mori Point Program, Oceanside Program, Yosemite/Ahwahnee I Program
or Yosemite/Ahwahnee II Program. "Programs" means each of the foregoing
collectively. None of the Programs is structured as a partnership,
corporation, trust, limited liability company, or separately identifiable
business association of any kind. Each Program merely consists of a group of
Persons, each of whom purchased a fractionalized, tenancy-in-common, interest
in a loan secured by a deed of trust on real property. Such group of Persons
is bound together only by a servicing agreement with National and a
tenancy-in-common agreement among themselves. The tenancy-in-common
agreements permit holders of a majority of the Outstanding Investments in a
particular Program to bind the Program on certain decisions including sale
of the Program's Property.
"Property" or "Properties" means the interests in real property held by
one or more of the Programs or the Company.
"Prospectus" means this Consent Solicitation Statement/Prospectus which
is included in the Registration Statement filed with the Commission in
connection with the issuance of the Shares in the Acquisition and the
issuance of the units.
"Record Date" means the date five days before the date of this
Prospectus.
"Registration Statement" means the Company's registration statement on
Form S-4 containing the Prospectus, filed with the Commission in the form in
which it becomes effective, as the same may be at any time and from time to
time thereafter amended or supplemented.
"Securities Act" means the U.S. Securities Act of 1933, as amended.
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"Shares" means common stock in the Company.
"Shareholder" means a Person holding Shares.
"Solicitation Period" means the period commencing on the date this
Consent Solicitation Statement/Prospectus is first mailed or delivered to
Investors and continuing until the later of (i) ___________, 1997 and (ii)
such later dates as may be selected by the Company.
"Trudy Pat" means trust deed participation. With regard to the
Programs, Trudy Pat refers to the loans, secured by first deeds of trust, in
which fractional, tenancy-in-common, interests were purchased by the
applicable Investors. Each Program started out as a "Trudy Pat" loan.
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INDEX TO FINANCIAL STATEMENTS
PRO FORMA COMBINED FINANCIAL INFORMATION:
Pro Forma Combined Balance Sheets as of June 30, 1997................ F-4
Notes to Pro Forma Combined Balance Sheets........................... F-5
Pro Forma Combined Statements of Operations for the year ended
December 31, 1996 and for the six months ended June 30, 1997....... F-6
Notes to Pro Forma Combined Statements of Operations................. F-7
AMERICAN FAMILY HOLDINGS, INC.
Report of Independent Certified Public Accountants................... F-8
Balance Sheet as of August 31, 1997.................................. F-9
Notes to Balance Sheet............................................... F-10
THE OCEANSIDE PROGRAM
Report of Independent Certified Public Accountants................... F-12
Balance Sheets as of December 31, 1996 and June 30, 1997
(unaudited)........................................................ F-13
Statements of Operations for two years ended December 31, 1996
and 1995 and the six months ended June 30, 1997 and 1996
(unaudited)........................................................ F-14
Statements of Owners' Equity for two years ended December 31, 1996
and 1995 and the six months ended June 30, 1997 (unaudited)........ F-15
Statements of Cash Flows for two years ended December 31, 1996
and 1995 and the six months ended June 30, 1997 and 1996
(unaudited)........................................................ F-16
Notes to Financial Statements........................................ F-17
THE YOSEMITE/AHWAHNEE PROGRAMS
Report of Independent Certified Public Accountants................... F-22
Balance Sheets as of December 31, 1996 and June 30, 1997
(unaudited)........................................................ F-23
Statements of Operations for two years ended December 31, 1996
and 1995 and the six months ended June 30, 1997 and 1996
(unaudited)........................................................ F-24
Statements of Owners' Equity for two years ended December 31, 1996
and 1995 and the six months ended June 30, 1997 (unaudited)........ F-25
Statements of Cash Flows for two years ended December 31, 1996
and 1995 and the six months ended June 30, 1997 and 1996
(unaudited)........................................................ F-26
Notes to Financial Statements........................................ F-27
THE MORI POINT PROGRAM
Report of Independent Certified Public Accountants................... F-32
Balance Sheets as of December 31, 1996 and June 30, 1997
(unaudited)........................................................ F-33
Statements of Operations for two years ended December 31, 1996
and 1995 and the six months ended June 30, 1997 and 1996
(unaudited)........................................................ F-34
Statements of Owners' Equity for two years ended December 31, 1996
and 1995 and the six months ended June 30, 1997 (unaudited)........ F-35
Statements of Cash Flows for two years ended December 31, 1996
and 1995 and the six months ended June 30, 1997 and 1996
(unaudited)........................................................ F-36
Notes to Financial Statements........................................ F-37
F-1
<PAGE>
INDEX TO FINANCIAL STATEMENTS
THE SACRAMENTO/DELTA GREENS PROGRAM
Report of Independent Certified Public Accountants................... F-40
Balance Sheets as of December 31, 1996 and June 30, 1997
(unaudited)........................................................ F-41
Statements of Operations for two years ended December 31, 1996
and 1995 and the six months ended June 30, 1997 and 1996
(unaudited)........................................................ F-42
Statements of Owners' Equity for two years ended December 31, 1996
and 1995 and the six months ended June 30, 1997 (unaudited)........ F-43
Statements of Cash Flows for two years ended December 31, 1996
and 1995 and the six months ended June 30, 1997 and 1996
(unaudited)........................................................ F-44
Notes to Combined Financial Statements............................... F-45
F-2
<PAGE>
AMERICAN FAMILY HOLDINGS, INC.
PRO FORMA COMBINED BALANCE SHEETS
The following unaudited Pro Forma Combined Balance Sheets as of June
30, 1997 and the Pro Forma Combined Statements of Operations and the Pro
Forma Combined Statements of Cash Flows for the year ended December 31, 1996
and for the six months ended June 30, 1997 have been prepared to reflect the
(i) acquisitions of the assets, certain liabilities and business of the
Oceanside Program, the Yosemite/Ahwahnee Programs, the Mori Point Program and
the Sacramento/Delta Greens Program and (ii) the incorporation of American
Family Holdings, Inc. ("the Company") (collectively, "The Acquisition"); and
(i) The Acquisition and (ii) The sale of $5,000,000 of Units at $10 per Unit
(collectively, "The Acquisition and The Offering"). The unaudited Pro Forma
Balance Sheets have been prepared as if The Acquisition and The Acquisition
and The Offering had been consummated as of June 30, 1997. The unaudited Pro
Forma Statements of Operations for the year ended December 31, 1996 and the
six months ended June 30, 1997 have been prepared as if The Acquisition and
The Acquisition and The Offering, occurred at the beginning of the periods
presented. The unaudited Pro Forma Combined Financial Statements and related
notes should be read in conjunction with the audited financial statements
contained elsewhere in this Prospectus. The unaudited Pro Forma Combined
Financial Statements are not necessarily indicative of what the actual
financial position or results of operations would have been for the
respective periods if the transactions had been consummated on the dates
indicated, nor does it purport to represent the future financial position or
results of operations of the Company.
F-3
<PAGE>
AMERICAN FAMILY HOLDINGS, INC.
PRO FORMA COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
As of June 30, 1997
-------------------------------------------------------------------------
The Pro Forma Pro Forma
Company Programs(1) Adjustments Combined
------- ----------- ----------- ---------
<S> <C> <C> <C>
THE ACQUISITION
ASSETS:
Real estate, net........................... $ - $ 19,023,727 $ $ 19,023,727
Cash and cash equivalents.................. - 1,240,366 1,240,366
Restricted cash............................ - 1,529,782 - 1,529,782
Notes receivable........................... - 421,670 421,670
Inventory.................................. - 1,497,248 1,497,248
Property and equipment..................... - 450,537 450,537
Other assets............................... - 145,602 (78,000)(3) 67,602
----------- ------------ ------------
Total assets.......................... - 24,308,932 24,230,932
----------- ------------ ------------
----------- ------------ ------------
LIABILITIES:
Line of credit............................. - 0 0
Capital lease obligations.................. - 387,512 387,512
Accounts payable and other liabilities..... - 3,819,363 567,000(3) 3,440,252
..................................... (946,111)(5)
----------- ------------ ------------
Total liabilities..................... - 4,206,875 3,827,764
----------- ------------ ------------
----------- ------------ ------------
STOCKHOLDERS' EQUITY:
Common Stock............................... - 0 1,577(2) 1,948
..................................... 371(2)
Additional paid-in-capital................. - 0 20,100,480(2) 20,390,932
..................................... 3,341(2)
..................................... 946,111(5)
Accumulated deficit........................ - - (645,000)(3) (645,000)
Stockholders' notes receivable............. - - (3,712)(2) (3,712)
Owners' equity............................. - 20,102,057 (20,102,057)(2) -
----------- ------------ ------------
Total stockholders' equity............ - 20,102,057 20,403,168
----------- ------------ ------------
Total liabilities and
stockholders' equity............. - 24,308,932 24,230,936
----------- ------------ ------------
----------- ------------ ------------
THE ACQUISITIONS AND THE OFFERING
ASSETS:
Real estate, net........................... $ - $ 19,023,727 $ $ 19,023,727
Cash and cash equivalents.................. - 1,240,366 4,528,000(4) 5,768,366
Restricted cash............................ - 1,529,782 - 1,529,782
Notes receivable........................... - 421,670 421,670
Inventory.................................. - 1,497,248 1,497,248
Property and equipment..................... - 450,537 450,537
Other assets............................... - 145,602 (78,000)(4) 67,602
----------- ------------ ------------
Total assets.......................... - 24,308,932 28,758,932
----------- ------------ ------------
----------- ------------ ------------
LIABILITIES:
Line of credit............................. - 0 0
Capital lease obligations.................. - 387,512 387,512
Accounts payable and other liabilities..... - 3,819,363 367,000(3) 3,240,252
..................................... (946,111)(5)
----------- ------------ ------------
Total liabilities..................... - 4,206,875 3,627,764
----------- ------------ ------------
----------- ------------ ------------
STOCKHOLDERS' EQUITY:
Common Stock............................... - 0 1,577(2) 2,448
..................................... 371(2)
500(3)
Additional paid-in-capital................. - 0 20,100,480(2) 25,499,432
..................................... 3,341(2)
..................................... 946,111(5)
..................................... 4,449,500(3)
Accumulated deficit........................ - - (367,000)(3) (367,000)
Stockholders' notes receivable............. - - (3,712)(2) (3,712)
Owners' equity............................. - 20,102,057 (20,102,057)(2) -
----------- ------------ ------------
Total stockholders' equity............ 20,102,057 25,131,168
----------- ------------ ------------
----------- ------------ ------------
Total liabilities and
stockholders' equity............. - 24,308,932 28,758,932
----------- ------------ ------------
----------- ------------ ------------
</TABLE>
F-4
<PAGE>
AMERICAN FAMILY HOLDINGS, INC.
NOTES TO PRO FORMA COMBINED BALANCE SHEETS
PRO FORMA ADJUSTMENTS
These pro forma adjustments reflect two scenarios: (i) the completion
of the Acquisition, and (ii) the completion of the Acquisition and the
receipt of the net proceeds from the Offering. The following sets forth the
adjustments:
(1) Reflects the historical combined balance sheets of the Programs as of
June 30, 1997.
(2) To reflect the utilization of carryover basis in conjunction with the
Acquisitions, the conversion of investor interests into common stock
shares of the Company and the initial capitalization of the Company.
(3) To reflect accrual of the Acquisition costs and the effect on the
accumulated deficit.
June 30, 1997
-------------
Acquisition
Acquisition and Offering
----------- ------------
Total costs $ 800,000 $ 800,000
Less: Amount previously expensed (233,000) (233,000)
---------- ------------
Costs to account for $ 567,000 $ 567,000
Costs allocated to proceeds
from the Offering 0 (200,000)
---------- ------------
Acquisition expenses to accrue $ 567,000 $ 367,000
Deferred offering costs to
expense 78,000 -
---------- ------------
Increase in accumulated
deficit $ 645,000 $ 367,000
---------- ------------
---------- ------------
(4) Reflects the following:
Proceeds of offering $ 5,000,000
Costs allocated to proceeds
of the offering (200,000)
Commissions (350,000)
---------------
Increase to stockholder's equity 4,450,000
Costs previously incurred 78,000
---------------
Increase in cash and cash equivalents $ 4,528,000
---------------
---------------
(5) Represents the forgiveness of accrued expenses, owed to National, upon
successful completion of the Acquisition.
F-5
<PAGE>
AMERICAN FAMILY HOLDINGS, INC.
PRO FORMA COMBINED STATEMENTS OF OPERATIONS
The pro forma combined statements of operations presented below reflect
the acquisitions as previously described as if they occurred at the beginning
of the periods presented. The Company was omitted from the statements
presented below since it had no operations during the periods presented.
<TABLE>
<CAPTION>
Year Ended December 31, 1996 Six Months Ended June 30, 1997
------------------------------------------- ----------------------------------------------
Pro Forma Pro Forma Pro Forma Pro Forma
Programs(1) Adjustments Combined Programs(1) Adjustments Combined
----------- ----------- ---------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
THE ACQUISITION
Revenues................. $ 6,675,718 $ $ 6,675,718 $ 4,084,437 $ $ 4,084,437
Cost of sales............ 5,327,856 5,327,856 3,069,580 3,069,580
------------ ------------ ------------ ------------
Gross profit............. 1,347,862 1,347,862 1,014,857 1,014,857
Selling, general and
administrative...... 3,667,227 350,000(2) 4,017,227 2,105,561 175,000(2) 2,280,561
Land write down.......... 845,000 845,000 590,172 590,172
Management fees.......... 650,000 (650,000)(2) 0 325,000 (325,000)(2) -
Acquisition expenses(3).. 0 775,000 775,000 0 567,000 567,000
------------ ------------- ------------ ------------ ------------- ------------
Total expenses........... 5,162,227 5,637,227 3,020,733 3,437,733
------------ ------------ ------------ ------------
Interest income (expense) 63,518 63,518 29,525 29,525
------------ ------------ ------------ ------------
Net income (loss)........ (3,750,847) (4,225,847) (1,976,351) (2,393,351)
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Net loss per
common share(4)..... (2.17) (1.23)
------------ ------------
------------ ------------
THE ACQUISITIONS AND THE OFFERING
Revenues................. $ 6,675,718 $ $ 6,675,718 $ 4,084,437 $ $ 4,084,437
Cost of sales............ 5,327,856 5,327,856 3,069,580 3,069,580
------------ ------------ ------------ ------------
Gross profit............. 1,347,862 1,347,862 1,014,857 1,014,857
Selling, general and
administrative...... 3,667,227 350,000(2) 4,017,227 2,105,561 175,000(2) 2,280,561
Land write down.......... 845,000 845,000 590,172 590,172
Management fees.......... 650,000 (650,000)(2) 0 325,000 (325,000)(2) -
Acquisition expenses(3).. 0 575,000 575,000 0 367,000 367,000
------------ ------------- ------------ ------------ ------------- ------------
Total expenses........... 5,162,227 5,437,227 3,020,733 3,237,733
------------ ------------ ------------ ------------
Interest income (expense) 63,518 63,518 29,525 29,525
------------ ------------ ------------ ------------
Net income (loss)........ (3,750,847) (4,025,847) (1,976,351) (2,193,351)
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Net loss per
common share(4)..... (1.64) (0.90)
----------- ------------
----------- ------------
</TABLE>
F-6
<PAGE>
AMERICAN FAMILY HOLDINGS, INC.
NOTES TO PRO FORMA COMBINED STATEMENTS OF OPERATIONS
PRO FORMA ADJUSTMENTS
(1) Reflects the historical combined statements of operations of the Programs
for the year ended December 31, 1996 and the six months ended
June 30, 1997.
(2) To reflect the replacement of National as asset manager of the investment
programs with the new management structure of the Company.
(3) To reflect the cost of the Acquisition transaction as shown below:
<TABLE>
<CAPTION>
December 31, 1996 June 30, 1997
----------------- -------------
Acquisition Acquisition
Acquisition and Offering Acquisition and Offering
----------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Total costs $ 800,000 $ 800,000 $ 800,000 $ 800,000
Less: Amount
previously expensed (25,000) (25,000) (233,000) (233,000)
---------- ---------- ---------- ----------
Costs to account for $ 775,000 $ 775,000 $ 567,000 $ 567,000
Costs allocated to
proceeds from the
Offering 0 (200,000) 0 (200,000)
---------- ---------- ---------- ----------
Acquisition expenses $ 775,000 $ 575,000 $ 567,000 $ 367,000
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
(4) Net loss per share is based on 1,948,468 (Acquisition) and 2,448,468
(Acquisition and Offering) weighted average number of shares outstanding.
F-7
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
American Family Holdings, Inc.
Los Angeles, California
We have audited the accompanying balance sheet of American Family Holdings,
Inc. as of August 31, 1997. The financial statement is the responsibility of
the Company's management. Our responsibility is to express an opinion on the
financial statement based on our audit.
We conducted our audit 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 statement is 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 audit provides a
reasonable basis for our opinion.
In our opinion, based on our audit, the financial statement referred to above
presents fairly, in all material respects, the financial position of American
Family Holdings, Inc. of as of August 31, 1997 in conformity with generally
accepted accounting principles.
BDO SEIDMAN, LLP
Los Angeles, California
September 5, 1997
F-8
<PAGE>
AMERICAN FAMILY HOLDINGS, INC.
BALANCE SHEET
AUGUST 31, 1997
STOCKHOLDERS' EQUITY (Note 2):
Preferred Stock, shares authorized - 2,000,000;
issued and outstanding 0............................................. -
Common Stock, $0.001 par value; shares authorized -
10,000,000; shares issued and outstanding - 371,183.................. 371
Additional paid in capital........................................... 3,341
Stockholders notes receivable........................................ (3,712)
-----
Total stockholders' equity.......................................... -
-----
-----
See accompanying notes to financial statements.
F-9
<PAGE>
AMERICAN FAMILY HOLDINGS, INC.
NOTES TO BALANCE SHEET
NOTE 1. ORGANIZATION AND BASIS OF FINANCIAL PRESENTATION
American Family Holdings, Inc. (the Company) was organized and
incorporated in Delaware to become a publicly held corporation which would
acquire the assets, certain liabilities and business activities owned by
investors in the investment programs listed below in exchange for ownership
in the Company. The Company will also attempt to sell a maximum of 500,000
shares of common stock and warrants (the "Units") at a price of $10 per Unit.
Each warrant entitles the holder to purchase two additional shares of common
stock at 80% of the closing price of the stock on the day prior to exercise
of the warrant. The warrant has a term of two years following the completion
of the Offering. Listed below are the investment programs to be acquired and
the number of common stock shares of the Company issued to the investors in
these programs:
Shares of
Investment Program Common Stock
- ------------------ ------------
Oceanside 530,310
Yosemite/Ahwahnee I and II 596,307
Mori Point 329,148
Sacramento/Delta Greens 121,520
---------
1,577,285
---------
---------
ACCOUNTING 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 and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
NOTE 2. EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with two members of
senior management for a term of five years and one member of senior
management for a term of three years, each subject to automatic one year
extensions unless terminated. The agreements provide for annual compensation
of $180,000, $180,000 and $200,000 and contain provisions for bonus
consideration based on performance standards. In addition, except to the
extent required to carry on pre-existing duties to investors in other
programs managed by National or other pre-existing real estate investments,
each agreement includes provisions restricting the officers from competing
with the Company during the term of such employment; providing for certain
salary and benefit continuance for six months if the officer is permanently
disabled; and, providing for a severance payment in the amount of 2.99 times
the officer's average salary and bonus over the past five years (or such
shorter time as the officer was employed), payable in 36 equal monthly
installments, in the event of a change of control of the Company resulting in
the officer's demotion or reduction in his compensation or responsibilities
within two years of the change of control event.
F-10
<PAGE>
AMERICAN FAMILY HOLDINGS, INC.
NOTES TO BALANCE SHEET
(CONTINUED)
NOTE 3. STOCK INCENTIVE PLAN
The Company has established a stock incentive plan (the "Stock Incentive
Plan") to enable executive officers, key employees and directors of the
Company and its subsidiaries to participate in the ownership of the Company.
The following awards may be made under the Plan:
NONQUALIFIED STOCK OPTIONS will provide for the right to purchase Common
Stock at a specified price which may be less than fair market value on the
date of grant (but not less than par value), and usually will become
exercisable in installments after the grant date. Nonqualified stock options
may be granted for any reasonable term.
INCENTIVE STOCK OPTIONS, if granted, will be designed to comply with the
provisions of the Code and will be subject to restrictions contained in the
Code, including exercise prices equal to at least 100% of fair market value
of Common Stock on the grant date and a ten year restriction on their term,
but may be subsequently modified to disqualify them from treatment as an
incentive stock option.
RESTRICTED STOCK is Common Stock of the Company which may be awarded to
key employees of the Company by the Compensation Committee, subject to such
restrictions on the exercise of full ownership as such Committee may
determine. Restrictions may relate, among other things, to duration of
employment, Company performance and individual performance
Promptly after the Closing of the Acquisition, the Company expects to
issue to certain officers, directors and key employees of the Company and its
subsidiaries options to purchase an aggregate of _____ shares of Common Stock
pursuant to the Stock Incentive Plan. The term of each of such options will
be _____ years from the date of grant. Commencing one year from the Closing,
each such option will vest 25% per year over four years and is exercisable at
a price per share equal to the public offering price per Share in the
Offering. The expected allocations of the options to such persons is as
presented above in the "Directors and Executive Officers Compensation and
Incentives."
185,000 shares of Common Stock, subject to adjustment, will be reserved
for issuance under the Stock Incentive Plan. There is no limit on the number
of awards that may be granted to any one individual (other than Independent
Directors who annually receive a fixed number of options automatically)
F-11
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
National Investors Financial, Inc.
Los Angeles, California
We have audited the accompanying balance sheet of the Oceanside "Trudy Pat"
Program ("Oceanside Program") (as defined in Note 1) as of December 31, 1996,
and the related statements of operations, changes in owners' equity and cash
flows for each of the two years in the period ended December 31, 1996. These
financial statements are the responsibility of 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 audits 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
presentation of the financial statements. We believe that our audits provide
a reasonable basis for our opinion.
In our opinion, based on our audits, the financial statements referred to
above present fairly, in all material respects, the financial position of the
Oceanside Program as of December 31, 1996, and the results of operations and
cash flows for each of the two years in the period ended December 31, 1996 in
conformity with generally accepted accounting principles.
BDO SEIDMAN, LLP
Los Angeles, California
May 27, 1997
F-12
<PAGE>
THE OCEANSIDE PROGRAM
BALANCE SHEETS
December 31, June 30,
1996 1997
------------ -----------
(Unaudited)
ASSETS:
Cash and cash equivalents $ 660,207 $ 985,670
Restricted cash 1,780,141 1,529,781
Real estate inventory 2,231,159 1,000,000
Real estate property held for sale (Note7) 3,219,920 3,219,920
Property and equipment, net (Note 3) 21,823 22,422
Other assets 24,966 60,914
---------- ---------
Total assets $7,938,326 $6,818,707
---------- ---------
---------- ---------
LIABILITIES:
Line of credit (Note 4) $ 3,910 $ -
Accounts payable 585,768 476,779
Accrued expenses and other liabilities
(Note 5) 617,724 721,025
---------- ---------
Total liabilities 1,207,402 1,197,804
COMMITMENTS AND CONTINGENCIES (Note 5)
OWNERS' EQUITY:
Owners' Equity 6,730,814 5,620,903
---------- -----------
Total liabilities and owners' equity $7,938,216 $6,818,707
---------- -----------
---------- -----------
See accompanying notes to financial statements.
F-13
<PAGE>
THE OCEANSIDE PROGRAM
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Six Months Ended
Year Ended December 31, June 30,
----------------------- -------------------
1996 1995 1997 1996
---------- ---------- ---------- ----------
(Unaudited)
<S> <C> <C> <C> <C>
REVENUES FROM HOME SALES $5,490,180 $5,920,600 $3,240,050 $3,071,480
COST OF HOME SALES 4,975,160 5,295,741 2,872,014 2,816,783
---------- ---------- ---------- ----------
GROSS PROFIT 515,020 624,859 368,036 254,697
EXPENSES:
Selling, general and administrative 842,987 796,861 551,563 415,736
Real estate inventory writedown (Note 8) - - 360,172 -
Management fees (Note 5) 300,000 300,000 150,000 150,000
--------- ---------- ---------- ----------
Total expenses 1,142,987 1,096,861 1,061,735 565,736
Interest income 79,292 104,783 33,788 41,043
--------- ---------- ---------- ----------
Net income (loss) $ (548,675) $ (367,219) $ (659,911) $ (269,996)
--------- ---------- ---------- ----------
--------- ---------- ---------- ----------
</TABLE>
See accompanying notes to financial statements.
F-14
<PAGE>
THE OCEANSIDE PROGRAM
STATEMENTS OF OWNERS' EQUITY
Amount
----------
Balance January 1, 1995 $9,446,708
Capital distributions (900,000)
Net loss for the year (367,219)
----------
Balance December 31, 1995 8,179,489
Capital distributions (900,000)
Net loss for the year (548,675)
Balance December 31, 1996 6,730,814
Capital distributions (unaudited) (450,000)
Net loss for the period (unaudited) (659,911)
----------
Balance June 30, 1997 (unaudited) $5,620,903
----------
----------
See accompanying notes to financial statements.
F-15
<PAGE>
THE OCEANSIDE PROGRAM
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months Ended
Year Ended December 31, June 30,
----------------------- ----------------------
1996 1995 1997 1996
---------- ---------- --------- ---------
(Unaudited)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (548,675) $ (367,219) $ (659,911) $ (269,996)
Adjustments net loss to cash
provided by (used in) operating
activities:
Depreciation and amortization 3,352 903 4,255 1,676
Increase (decrease) from changes in:
Restricted cash 326,089 447,123 250,360 185,806
Real estate inventory 770,688 761,195 1,231,159 1,102,682
Other assets (24,120) 400,718 (35,948) (152,324)
Accounts payable 286,196 (160,904) (108,989) (187,622)
Accrued expenses and
other liabilities 188,708 195,319 103,301 84,839
--------- ---------- --------- ---------
Net cash provided by (used in)
operating activities 1,002,238 1,277,135 784,227 765,061
CASH FLOWS USED IN INVESTING ACTIVITIES:
Purchase of property and equipment (17,600) (8,478) (4,854) (4,712)
Additions to real estate property held
for sale (96,462) (315,436) - (34,681)
---------- ---------- --------- ---------
Net cash used in investing activities (114,062) (323,914) (4,854) (39,393)
CASH FLOWS FROM FINANCING ACTIVITIES:
Line of credit proceeds 3,600,000 - 1,821,560 -
Line of credit repayments (3,596,090) - (1,825,470) -
Contributions (distributions) (900,000) (900,000) (450,000) (450,000)
----------- ---------- ---------- ---------
Net cash provided by (used in)
financing activities (896,090) (900,000) (453,910) (450,000)
---------- ---------- ---------- ---------
Net increase (decrease) in
cash and cash equivalents (7,914) 53,221 325,463 275,668
Cash and cash equivalents
at beginning of period 668,121 614,900 660,207 668,121
-------- ---------- ---------- --------
Cash and cash equivalents
at end of period $ 660,207 $ 668,121 $ 985,670 $ 943,789
---------- ---------- --------- ---------
---------- ---------- --------- ---------
Cash paid during the
period for interest $ 9,526 $ - $ 4,272 $ -
---------- ---------- --------- ---------
---------- ---------- --------- ---------
</TABLE>
Interest capitalized for the year ended December 31, 1996 and for the six
months ended June 30, 1997 were $14,939 and $4,536.
See accompanying notes to financial statements.
F-16
<PAGE>
THE OCEANSIDE PROGRAM
NOTES TO FINANCIAL STATEMENTS
(Information with respect to the six months
ended June 30, 1996 and 1997 is unaudited)
NOTE 1. ORGANIZATION AND BASIS OF PRESENTATION
ORGANIZATION
During 1993 National Investors Financial, Inc. ("National"), represented
by NASD registered securities broker-dealers, completed the funding of a real
estate loan for the Oceanside Program (the "Program") to entities affiliated
with the Ved Corporation, the original borrowers, in the amount of
$30,000,000 by selling undivided tenant-in-common interests in such loan to
1,755 investors. In November of 1993, the borrower granted the property
("Oceanside Development") securing the loan to Oceanside Development, Inc., a
California corporation (the "Company"), formed by National on behalf of the
investors in the Oceanside Program. Oceanside Development is a single family
detached home development consisting of two tracts, Encore and Symphony. The
property is located in Oceanside, California and is currently held by
Oceanside Development, Inc. on behalf of the Oceanside Investors. The
Oceanside property was recently appraised at $6,484,000 as of the date of
grant from the original borrower. Therefore, the property has been written
down to its fair market value at the time of grant and the investors'
interests in the property is reflected as Owners' Equity in the financial
statements.
The accompanying financial statements include the accounts of the Program and
do not include the accounts of National.
AMERICAN FAMILY HOLDINGS, INC. American Family Holdings, Inc. a
California corporation, was formed to be a publicly-held corporation to
acquire the businesses of certain investment programs previously syndicated
by National in exchange for common stock. In addition, American Family
Holdings, Inc. will offer a maximum of 500,000 units, which consists of one
share of common stock and one warrant at a price of $10 per unit. Each
warrant entitles the holder to purchase two additional shares of common stock
at 80% of the closing price of the stock on the day prior to exercise of the
warrant. The warrant has a term of two years following the completion
of the Offering.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH EQUIVALENTS AND RESTRICTED CASH
The Oceanside Program management considers all highly liquid investments
with an original maturity of three months or less when purchased to be cash
equivalents. The Program has restricted bonded cash accounts which may only
be used for capital expenditures on the residential properties. The
restricted cash balance at December 31, 1996 and June 30, 1997 were
$1,780,141 and $1,529,781.
REAL ESTATE INVENTORIES AND REAL ESTATE PROPERTY HELD FOR SALE
Costs incurred which are included in real estate inventories and property
held for sale consist of land, land development costs, direct and indirect
costs of construction, other overhead costs, interest and property taxes.
Interest and property taxes are capitalized to real estate inventories when
development activities begin, and capitalization ends when the qualifying
assets are ready for their intended use. As of December 31, 1996 and June
30, 1997, the Oceanside Development had 41 and 25 lots classified as
inventory and 111 lots classified as property held for sale.
F-17
<PAGE>
THE OCEANSIDE PROGRAM
NOTES TO FINANCIAL STATEMENTS
(Information with respect to the six months
ended June 30, 1996 and 1997 is unaudited)
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Effective January 1, 1996, the Program adopted the provisions of Statement of
Financial Accounting Standards No.121 ("SFAS No. 121") "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of",
which requires impairment losses to be recorded on long-lived assets being
developed, based on fair value, when indicators of impairment are present and
the undiscounted cash flows estimated to be generated by those assets are
less than the assets' carrying amount. Assets held for sale are to be
carried at the lower of cost or fair value less the costs to sell.
Real estate properties are carried at its net realizable value. Net
realizable value is the price obtainable in the future for parcels as
improved with a completed housing unit, net of disposal and holding costs
(including interest), without provision for future profit and without
discounting future cash receipts to present value.
The estimation process in determining the value of real estate assets is
inherently uncertain and relies to a considerable extent on current and
future economic and market conditions, the availability of suitable financing
to fund holding, development, and construction activities, and the repayment
or refinancing of existing indebtedness. Such economic and market conditions
may effect management's development and marketing plans. Accordingly, the
ultimate realizations to differ from amounts presently estimated.
SALE AND PROFIT RECOGNITION
Revenues from home sales are recognized when closings have occurred. At
the time of revenue recognition, costs of home sales are charged with direct
costs of construction and an allocation of a project's total estimated costs.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation and amortization
are being provided principally on the straight line method over the estimated
useful lives or the related assets. Estimated useful lives range from 3-5
years.
INCOME TAXES
The financial statements include the activity of the Program, which income
or losses are included in the investors' respective tax returns.
UNAUDITED INTERIM FINANCIAL STATEMENTS
The interim financial statements for the six months ended June 30, 1996
and 1997 are unaudited; however in the opinion of management of the Program,
the interim financial statements include all adjustments, consisting only of
normal recurring adjustments, necessary for a fair presentation of the
results for the interim period. The results of operations for such interim
period are not necessarily indicative of the results to be obtained for the
full year.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles required 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 and reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
F-18
<PAGE>
THE OCEANSIDE PROGRAM
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
(Information with respect to the six months
ended June 30, 1996 and 1997 is unaudited)
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
Based upon certain market assumptions and information available to
management, the carrying values of financial instruments as of December 31,
1996 and June 30, 1997 approximate their fair values. The carrying value of
cash and cash equivalents, accounts payable and accrued expenses are assumed
to approximate fair value as they are short term in nature and receivable or
payable on demand. The fair value of the line of credit was estimated based
on similar interest rates available for comparable financial instruments.
NOTE 3. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
December 31, June 30,
1996 1997
------------ --------
Office and computer equipment $ 933 $ 933
Furniture and fixtures 25,145 29,999
------- --------
26,078 30,932
Less accumulated depreciation (4,255) (8,510)
-------- --------
$ 21,823 $ 22,422
-------- --------
-------- --------
NOTE 4. LINE OF CREDIT
The line of credit is as discussed below:
<TABLE>
<CAPTION>
Interest December 31, June 30,
Rate 1996 1997
-------- ------------ --------
<S> <C> <C> <C>
OCEANSIDE PROPERTY
$3,600,000 construction loan facility with a bank,
paid through the sales of homes, due on
demand including interest; collateralized by a
first trust deed on a portion of the property 9.5% $ 3,910 $ -
------- -------
------- -------
</TABLE>
Accrued interest at December 31, 1996 and June 30, 1997 was $5,413 and $0.
Subsequent to June 30, 1997, this facilty was retired.
F-19
<PAGE>
THE OCEANSIDE PROGRAM
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
(Information with respect to the six months
ended June 30, 1996 and 1997 is unaudited)
NOTE 5. COMMITMENTS
SERVICING/MANAGEMENT AGREEMENT
The Program is currently managed, subject to a servicing agreement, by
National. National also currently manages six other programs under similar
servicing agreements. As documented within the servicing agreement, National
is to receive an annual fee equal to 1% of the original loan balance.
National's requirements under the servicing agreement include managing the
assets of the Program to assure that the purpose and the activities of the
Program are continued for the investors. The Program incurred asset
management expenses of $300,000, $300,000, $150,000 and $150,000 for the
years ended December 31, 1995 and 1996 and for the six months ended June 30,
1996 and 1997. Additionally, the Program accrued compensation expense of
$192,000, $192,000, $96,000 and $96,000 for the years ended December 31, 1995
and 1996 and for the six months ended June 30, 1996 and 1997 payable to
senior management of the Program, who are also the principals of National.
Total accrued and unpaid management fees and compensation included in
"accrued expenses and other liabilities" as of December 31, 1996 and June 30,
1997 were $608,000 and $704,000.
CONTRACT WITH FEE BUILDER
The Program entered into an agreement with a fee builder to build out and
sell the Oceanside Development property. The agreement can be terminated
without cause by the Company with sixty days notice to the builder.
LAWSUITS
The Program is, from time to time, involved in various lawsuits generally
incidental to its business operations. In the opinion of management, the
ultimate resolution of these matters, if any, will not have a significant
effect on the financial position of the Program.
NOTE 6. CAPITAL CONTRIBUTIONS
Through a voting procedure that can be initiated by National as Servicing
Agent, a majority of the investors has the power to require all investors in
the Program to make additional capital contributions. Such contributions are
only recorded to the extent of cash received.
NOTE 7. CONCENTRATION OF CREDIT RISK
The Program's financial instruments that are exposed to concentrations of
credit risk consist of cash and cash equivalents and restricted cash accounts
placed with federally insured financial institutions. Such accounts may at
times exceed federally insured limits. The Program has not experienced any
losses on such accounts.
F-20
<PAGE>
THE OCEANSIDE PROGRAM
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
(Information with respect to the six months
ended June 30, 1996 and 1997 is unaudited)
NOTE 8. REAL ESTATE INVENTORY WRITEDOWN
Based on feedback and offers received from potential buyers in the
marketplace, the Program wrotedown its real estate inventory to its estimated
fair value as of June 30, 1997 of $1,000,000, resulting in a $360,172 charge
against income during the six months ended June 30, 1997.
F-21
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
National Investors Financial, Inc.
Los Angeles, California
We have audited the accompanying balance sheets of the Yosemite/Ahwahnee I
and II "Trudy Pat" Programs (the "Yosemite/Ahwahnee Programs") (as defined in
Note 1) as of December 31, 1996, and the related consolidated statements of
operations, changes in owners' equity and cash flows for each of the two
years in the period ended December 31, 1996. These consolidated financial
statements are the responsibility of 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 audits 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
presentation of the financial statements. We believe that our audits provide
a reasonable basis for our opinion.
In our opinion, based on our audits, the financial statements referred to
above present fairly, in all material respects, the financial position of the
Yosemite/Ahwahnee Programs as of December 31, 1996, and the results of
operations and cash flows for each of the two years in the period ended
December 31, 1996 in conformity with generally accepted accounting principles.
BDO SEIDMAN, LLP
Los Angeles, California
May 27, 1997
F-22
<PAGE>
THE YOSEMITE/AHWAHNEE PROGRAMS
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, June 30,
1996 1997
------------ ----------
(Unaudited)
<S> <C> <C>
ASSETS:
Real estate and improvements (Note 3) $ 9,734,050 $ 9,703,807
Cash and cash equivalents 101,551 173,997
Notes receivable (Note 4) 255,274 421,670
Inventory 538,414 497,248
Property and equipment, net (Note 5) 490,296 428,115
Other assets 45,666 75,353
---------- -----------
Total assets $11,165,251 $11,300,190
----------- -----------
----------- -----------
LIABILITIES:
Capital lease obligations (Note 6) 420,857 387,512
Accounts payable 281,740 328,373
Accrued expenses and other liabilities (Note 7) 976,243 1,294,255
----------- -----------
Total liabilities 1,678,840 2,010,140
COMMITMENTS AND CONTINGENCIES (NOTE 7)
OWNERS' EQUITY:
Owners' Equity 9,486,411 9,290,050
----------- -----------
Total liabilities and owners' equity $11,165,251 $11,300,190
----------- -----------
----------- -----------
</TABLE>
See accompanying notes to financial statements.
F-23
<PAGE>
THE YOSEMITE/AHWAHNEE PROGRAMS
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Six Months Ended
Year Ended December 31, June 30,
----------------------- -------------------
1996 1995 1997 1996
---------- ---------- --------- ---------
(Unaudited)
<S> <C> <C> <C> <C>
REVENUES
Golf course operations $ 571,778 $ 412,543 $ 416,898 $ 243,708
Sale of RV memberships 513,799 - 427,489 -
Sale of developed lots 99,961 - - -
---------- --------- --------- ---------
Total revenues 1,185,538 412,543 844,387 243,708
COST OF SALES
Golf course operations 165,836 50,994 90,827 66,101
RV memberships 103,670 - 106,739 -
Developed lots 83,190 - - -
---------- --------- --------- ---------
Total cost of sales 352,696 50,994 197,566 66,101
GROSS PROFIT 832,842 361,549 646,821 177,607
EXPENSES:
Selling, general and administrative 2,564,243 1,096,245 1,411,599 887,527
Management fees (Note 7) 200,000 200,000 100,000 100,000
---------- --------- --------- ---------
Total expenses 2,764,243 1,296,245 1,511,599 987,527
Interest income(expense) (18,962) 19,159 (5,230) (2,750)
---------- --------- --------- ---------
Net loss $(1,950,363) $(915,537) $(870,008) $(812,670)
----------- --------- --------- ---------
----------- --------- --------- ---------
</TABLE>
See accompanying notes to financial statements.
F-24
<PAGE>
THE YOSEMITE/AHWAHNEE PROGRAMS
STATEMENTS OF OWNERS' EQUITY
Balance January 1, 1995 (Note 8) $10,202,036
Capital contributions 1,009,164
Net loss for the year (915,537)
----------
Balance December 31, 1995 10,295,663
Capital contributions 1,141,111
Net loss for the year (1,950,363)
----------
Balance December 31, 1996 9,486,411
Capital contributions (unaudited) 673,647
Net loss for the period (unaudited) (870,008)
-----------
Balance June 30, 1997 (unaudited) $ 9,290,050
-----------
-----------
See accompanying notes to financial statements.
F-25
<PAGE>
THE YOSEMITE/AHWAHNEE PROGRAMS
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months Ended
Year Ended December 31, June 30,
----------------------- ------------------
1996 1995 1997 1996
----------- -------- ------- -------
(Unaudited)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(1,950,363) $(915,537) $(870,008) $(812,670)
Adjustments net loss to cash
provided by (used in) operating activities:
Cost of developed lots sold 83,190 - - -
Depreciation and amortization 303,228 225,763 181,846 136,889
Increase (decrease) from changes in:
Inventory 103,670 - 41,166 -
Other assets (264,478) (36,462) (196,083) 4,708
Accounts payable 172,210 109,530 46,633 59,085
Accrued expenses and
other liabilities 304,920 69,918 318,012 99,905
---------- -------- --------- --------
Net cash used in operating activities (1,247,623) (546,788) (478,434) (512,083)
CASH FLOWS USED IN INVESTING ACTIVITIES:
Purchase of property and equipment (48,899) (25,650) (83,481) (18,569)
Additions to real estate (23,250) (86,981) (5,941) (1,515)
---------- -------- --------- --------
Net cash provided by (used in)
investing activities (72,149) (112,631) (89,422) (20,084)
CASH FLOWS FROM FINANCING ACTIVITIES:
Capital lease repayments (67,088) (5,886) (33,345) (11,763)
Contributions 1,141,111 1,009,164 673,647 257,428
---------- -------- --------- --------
Net cash provided by (used in)
financing activities 1,074,023 1,003,278 640,302 245,665
Net increase (decrease) in
cash and cash equivalents (245,749) 343,859 72,446 (286,502)
Cash and cash equivalents
at beginning of period 347,300 3,441 101,551 347,300
---------- -------- --------- --------
Cash and cash equivalents
at end of period $ 101,551 $ 347,300 $ 173,997 $ 60,798
---------- -------- --------- --------
---------- -------- --------- --------
Cash paid during the
period for interest $ - $ - $ - $ -
---------- -------- --------- --------
---------- -------- --------- --------
</TABLE>
See accompanying notes to financial statements.
F-26
<PAGE>
THE YOSEMITE/AHWAHNEE PROGRAMS
NOTES TO FINANCIAL STATEMENTS
(Information with respect to the six months
ended June 30, 1996 and 1997 is unaudited)
NOTE 1. ORGANIZATION AND BASIS OF PRESENTATION
ORGANIZATION During 1989 and 1992 National Investors Financial, Inc.
("National"), represented by NASD registered securities broker-dealers,
completed the funding of two real estate loans for the Yosemite/Ahwahnee
Programs (the "Programs") by selling undivided tenant-in-common interests in
such loans to investors. The Yosemite/Ahwahnee I loan was in the amount of
$6,500,000 to 426 investors and Yosemite/Ahwahnee II was in the amount of
$13,500,000 to 837 investors. In September of 1995, on behalf of the
Yosemite/Ahwahnee investors, National foreclosed on the borrower and took
title to the property ("Ahwahnee Golf Course and Resort") involved. Ahwahnee
Golf Course and Resort is projected to be a multi-faceted resort, which
currently includes a country club and a partially completed recreational
vehicle park, with plans to develop the remainder of the project, potentially
as a timeshare facility. The 1,650 acre property is located in Madera County,
California, approximately 15 miles south of Yosemite National Park and is
currently held in trust by National on behalf of the Yosemite/Ahwahnee
Investors. During 1996, the Company had the property appraised. This
appraisal assumed an immediate cash sale and resulted in a valuation of
$4,000,000. Since the Company's business plan is to develop the property and
not sell it, a second appraisal of the property was performed. During 1997,
the Company obtained this appraisal, which assumes that the property is
developed at its highest and best use, and the result of the appraisal, after
certain accounting-related adjustments made by the Company, was a value of
$10,800,000. Therefore, the property has been written down to its fair
market value at the time of the foreclosure and the investors' interest in
the property is reflected as Owners' Equity in the financial statements.
Since taking over these properties, National has operated them on behalf of
the investors through a corporation known as Ahwahnee Golf Course and Resort,
Inc.
The accompanying financial statements include the accounts of the Programs
and do not include the accounts of National.
AMERICAN FAMILY HOLDINGS, INC. American Family Holdings, Inc. a
California corporation, was formed to be a publicly-held corporation to
acquire the businesses of certain investment programs previously syndicated
by National in exchange for common shares. In addition, American Family
Holdings, Inc. will offer a maximum of 500,000 units, which consist of one
share of common stock and one warrant at a price of $10 per unit. Each
warrant entitles the holder to purchase two additional shares of common stock
at 80% of the closing price of the stock on the day prior to exercise of the
warrant. The warrant has a term of two years following the completion of the
Offering.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH EQUIVALENTS
The Programs' management considers all highly liquid investments with an
original maturity of three months or less when purchased to be cash
equivalents.
REAL ESTATE AND IMPROVEMENTS
Real estate and improvements are carried at cost. Expenditures for
additions and improvements are capitalized, and expenditures for repairs and
maintenance are charged to expense as incurred. Depreciation is provided on
a straight-line basis on land improvements and buildings and improvements
over estimated useful lives ranging from 5-30 years.
F-27
<PAGE>
THE YOSEMITE/AHWAHNEE PROGRAMS
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
(Information with respect to the six months
ended June 30, 1996 and 1997 is unaudited)
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Effective January 1, 1996, the Programs adopted the provisions of Statement
of Financial Accounting Standards No.121 ("SFAS No. 121") "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of",
which requires impairment losses to be recorded on long-lived assets being
developed, based on fair value, when indicators of impairment are present and
the undiscounted cash flows estimated to be generated by those assets are
less than the assets' carrying amount. Assets held for sale are to be
carried at the lower of cost or fair value less the costs to sell.
Real estate properties are carried at its net realizable value. Net
realizable value is the price obtainable in the future for parcels as
improved with a completed housing unit, net of disposal and holding costs
(including interest), without provision for future profit and without
discounting future cash receipts to present value.
The estimation process in determining the value of real estate assets is
inherently uncertain and relies to a considerable extent on current and
future economic and market conditions, the availability of suitable financing
to fund holding, development, and construction activities, and the repayment
or refinancing of existing indebtedness. Such economic and market conditions
may effect management's development and marketing plans. Accordingly, the
ultimate realizations may differ from amounts presently estimated.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation and amortization
are being provided principally on the straight line method over the estimated
useful lives or the related assets. Estimated useful lives range from 3-5
years.
REVENUE RECOGNITION
The Programs generate revenues from its golf course operations and sales
of recreational vehicle memberships. Revenues from the sale of timeshare
intervals are not recognized until the Programs have received at least 10% of
the total purchase price and the statutory 3 day rescission period has
elapsed. Until a contract to purchase a timeshare interval qualifies as a
sale, all payments received are accounted for as customer deposits.
COST OF SALES AND INVENTORY OF RV MEMBERSHIPS
Cost of sales of recreational vehicle memberships is determined by
dividing the total costs incurred in the development of the recreational
vehicle facility by the number of units completed. Inventory of recreational
vehicle memberships, including all land costs and improvements, is stated at
cost, which is not greater than its net realizable value.
INCOME TAXES
The financial statements include the activity of the Programs, whose
income or losses are included in the investors' respective tax returns.
UNAUDITED INTERIM FINANCIAL STATEMENTS
The interim financial statements for the six months ended June 30, 1997 are
unaudited; however in the opinion of Programs' management, the interim
financial statements include all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of the results for
the interim period. The results of operations for such interim period are
not necessarily indicative of the results to be obtained for the full year.
F-28
<PAGE>
THE YOSEMITE/AHWAHNEE PROGRAMS
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
(Information with respect to the six months
ended June 30, 1996 and 1997 is unaudited)
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles required 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 and reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
Based upon certain market assumptions and information available to
management, the carrying values of financial instruments as of December 31,
1996 and June 30, 1997 approximate their fair values. The carrying value of
cash and cash equivalents, accounts payable and accrued expenses are assumed
to approximate fair value as they are short term in nature and receivable or
payable on demand. The fair values of notes receivable and capital lease
obligations were estimated based on similar interest rates available for
comparable financial instruments.
NOTE 3. REAL ESTATE AND IMPROVEMENTS
Real estate and improvements consist of the following:
December 31, June 30,
1996 1997
------------- ---------
Land $ 8,114,645 $8,114,645
Land improvements 1,251,044 1,334,526
Buildings and improvements 820,783 820,783
------------- ---------
10,186,472 10,269,954
Less accumulated depreciation (452,422) (566,147)
------------- ---------
$ 9,734,240 $9,703,807
------------ ----------
------------ ----------
NOTE 4. NOTES RECEIVABLE
The Programs make unsecured loans to individuals in conjunction with its
sales of recreational vehicle memberships. These loans bear interest at
rates between 0% and 17%, range in length from one to seven years and may be
prepaid at any time without penalty. Notes receivable are shown net of
discounts of $8,500 and $16,250 as of December 31, 1996 and June 30, 1997.
F-29
<PAGE>
THE YOSEMITE/AHWAHNEE PROGRAMS
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
(Information with respect to the six months
ended June 30, 1996 and 1997 is unaudited)
NOTE 5. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
December 31, 1996 March 31, 1997
----------------- --------------
<S> <C> <C>
Capital lease equipment $505,998 $ 507,382
Furnitures and fixtures 25,349 25,349
Machinery and equipment 37,033 41,677
----------- --------------
568,380 574,408
Less accumulated depreciation (78,084) (146,293)
----------- --------------
$ 490,296 $ 428,115
----------- --------------
----------- --------------
</TABLE>
NOTE 6. CAPITAL LEASE OBLIGATIONS
Future minimum rental payments under noncancellable capital leases as of
December 31, 1996 were as follows:
Amount
--------
1997 $121,433
1998 120,923
1999 113,893
2000 113,893
2001 59,184
--------
Total minimum lease payments 529,326
Amount representing interest 108,469
--------
Present value of minimum lease payments 420,857
--------
--------
NOTE 7. COMMITMENTS
SERVICING/MANAGEMENT AGREEMENT
The Programs are currently managed, subject to a servicing agreement, by
National. National also currently manages five other programs under similar
servicing agreements. As documented within the servicing agreement, National
is to receive an annual fee equal to 1% of the original loan balance.
National's requirements under the servicing agreement include managing the
assets of the Programs to assure that the purpose and activities of the
Programs are continued for the investors. The Programs incurred asset
management expenses of $200,000, $200,000, $100,000 and $100,000 for the
years ended December 31, 1995 and 1996 and for the six months ended June 30,
1996 and 1997. Additionally, the Programs accrued compensation expense of
$58,620, $264,000, $132,000 and $132,000 for the years ended December 31,
1995 and 1996 and for the six months ended June 30, 1996 and 1997 payable to
senior management of the Company, who are also principals of National. Total
accrued and unpaid management fees and compensation included in "accrued
expenses and other liabilities" as of December 31, 1996 and June 30, 1997
were $79,594 and $173,926.
F-30
<PAGE>
THE YOSEMITE/AHWAHNEE PROGRAMS
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
(Information with respect to the six months
ended June 30, 1996 and 1997 is unaudited)
NOTE 7. COMMITMENTS (CONTINUED)
LAWSUITS
The Program is, from time to time, involved in various lawsuits generally
incidental to its business operations. In the opinion of management, the
ultimate resolution of these matters, if any, will not have a significant
effect on the financial position of the Program.
DELINQUENT PROPERTY TAXES
The Program has delinquent property taxes of $595,994 as of June 1997.
The Program is in the process of negotiating a payment plan with appropriate
taxing authorities relative to the payment of these past due taxes.
NOTE 8. CAPITAL CONTRIBUTIONS
Through a voting procedure that can be initiated by National as Servicing
Agent, a majority of the investors has the power to require all investors in
the Program to make additional capital contributions. Such contributions are
only recorded to the extent of cash received.
NOTE 9. DEBT FORECLOSURE
In September 1995, the management company, for the benefit of investors in
debt securities secured by the Property, foreclosed on the Property. Due to
the debtor's financial position as of December 31, 1994, the foreclosure has
been accounted for as if it took place prior to January 1, 1995.
NOTE 10. SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
During the years ended December 31, 1995 and 1996, the Company entered
into capital lease obligations of $195,259 and $298,572.
F-31
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
National Investors Financial, Inc.
Los Angeles, California
We have audited the accompanying balance sheet of the Mori Point "Trudy Pat"
Program (the "Mori Point Program") (as defined in Note 1) as of December 31,
1996, and the related statements of operations, changes in owners' equity and
cash flows for each of the two years in the period ended December 31, 1996.
These financial statements are the responsibility of 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 audits 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
presentation of the financial statements. We believe that our audits provide
a reasonable basis for our opinion.
In our opinion, based on our audits, the financial statements referred to
above present fairly, in all material respects, the financial position of the
Mori Point Program as of December 31, 1996, and the results of operations and
cash flows for each of the two years in the period ended December 31, 1996 in
conformity with generally accepted accounting principles.
BDO SEIDMAN, LLP
Los Angeles, California
May 27, 1997
F-32
<PAGE>
THE MORI POINT PROGRAM
BALANCE SHEETS
December 31, June 30,
1996 1997
----------- ----------
(Unaudited)
ASSETS:
Land $4,100,000 $4,100,000
Cash and cash equivalents 39,032 58,428
Other assets -- 6,522
----------- ----------
Total assets $4,139,032 $4,164,950
----------- ----------
----------- ----------
LIABILITIES:
Accrued expenses and other
liabilities (Note 3) $ 807,514 $ 759,908
COMMITMENTS AND CONTINGENCIES (NOTE 3)
OWNERS' EQUITY:
Owners' Equity 3,331,518 3,405,042
----------- ----------
Total liabilities and
owners' equity $4,139,032 $4,164,950
----------- ----------
----------- ----------
See accompanying notes to financial statements.
F-33
<PAGE>
THE MORI POINT PROGRAM
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Six Months Ended
Year Ended December 31, June 30,
----------------------- --------------------
1996 1995 1997 1996
----------- ----------- ---------- --------
(Unaudited)
<S> <C> <C> <C> <C>
EXPENSES:
Selling, general and administrative $90,348 $46,867 $73,340 $ 28,511
Management fees (Note 3) 100,000 100,000 50,000 50,000
--------- -------- -------- --------
Total expenses 190,348 146,867 123,340 78,610
Interest income 1,223 -- 488 589
--------- --------- -------- --------
Net loss $(189,125) $(146,867) $(122,852) $(77,922)
--------- --------- -------- --------
--------- --------- -------- --------
</TABLE>
See accompanying notes to financial statements.
F-34
<PAGE>
THE MORI POINT PROGRAM
STATEMENTS OF OWNERS' EQUITY
Total
----------
Balance January 1, 1995 $3,465,200
Net loss for the year (146,867)
----------
Balance December 31, 1995 3,318,333
Capital contributions 202,310
Net loss for the year (189,125)
----------
Balance December 31, 1996 3,331,518
Capital contributions (unaudited) 196,376
Net loss for the period (unaudited) (122,852)
----------
Balance June 30, 1997 (unaudited) $3,405,042
----------
----------
See accompanying notes to financial statements.
F-35
<PAGE>
THE MORI POINT PROGRAM
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months Ended
Year Ended December 31, June 30,
-------------------------- -----------------------
1996 1995 1997 1996
---------- ---------- ---------- ----------
(Unaudited)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(189,125) $(146,867) $(122,852) $(77,922)
Increase (decrease) from changes in:
Other assets - - (6,522) -
Accrued expenses 25,847 146,867 (47,606) (52,492)
---------- ---------- ---------- ----------
Net cash used in operating
activities (163,278) - (176,980) (130,414)
CASH FLOWS FROM FINANCING ACTIVITIES:
Contributions 202,310 - 196,376 163,463
---------- ---------- ---------- ----------
Net cash provided by
financing activities 202,310 - 196,376 163,463
Net increase (decrease) in cash and cash
equivalents 39,032 - 19,396 33,049
Cash and cash equivalents at beginning
of period - - 39,032 -
---------- ---------- ---------- ----------
Cash and cash equivalents
at end of period $ 39,032 $ - $ 58,428 $ 33,049
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
See accompanying notes to financial statements.
F-36
<PAGE>
THE MORI POINT PROGRAM
NOTES TO FINANCIAL STATEMENTS
(Information with respect to the six months
ended June 30, 1996 and 1997 is unaudited)
NOTE 1. ORGANIZATION AND BASIS OF PRESENTATION
ORGANIZATION
During 1990 National Investors Financial, Inc. ("National"), represented
by NASD registered securities broker-dealers, completed the funding of a real
estate loan for the Mori Point "Trudy Pat" Program (the "Program") in the
amount of $10,000,000 by selling undivided tenant-in-common interests in such
loan to 486 investors. In August of 1992, on behalf of the Mori Point
Program investors, National foreclosed on and took title to the property
("Mori Point") involved in the Mori Point Program. Mori Point is currently
raw land which is zoned for a 275 room hotel/conference center, 60
residential units and an equestrian/commercial facility. The property is
located in Pacifica, California and is currently held in trust by National on
behalf of the Mori Point Investors. The Mori Point property was recently
appraised at $4,100,000 as of the date of foreclosure. Therefore, the
property has been written down to its fair market value at the time of the
foreclosure and the investors' interest in the property is reflected as
Owners' Equity in the financial statements.
The accompanying financial statements include the accountants of the Program
and do not include the accounts of National.
AMERICAN FAMILY HOLDINGS, INC.
American Family Holdings, Inc. a California corporation, was formed to be
a publicly-held corporation to acquire the businesses of certain investment
programs previously syndicated by National in exchange for common shares. In
addition, American Family Holdings, Inc. will offer a maximum of 500,000
units, which consist of one share of common stock and one warrant at a price
of $10 per unit. Each warrant entitles the holder to purchase two additional
shares of common stock at 80% of the closing price of the stock on the day
prior to exercise of the warrant. The warrant has a term of two years
following the completion of the Offering.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH EQUIVALENTS
Management of the Program considers all highly liquid investments with an
original maturity of three months or less when purchased to be cash
equivalents.
LAND
Land is carried at the lower of cost or its net realizable value.
Effective January 1, 1996, the Program adopted the provisions of Statement of
Financial Accounting Standards No.121 ("SFAS No. 121") "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of",
which requires impairment losses to be recorded on long-lived assets being
developed, based on fair value, when indicators of impairment are present and
the undiscounted cash flows estimated to be generated by those assets are
less than the assets' carrying amount. Assets held for sale are to be carried
at the lower of cost or fair value less the costs to sell.
Real estate properties are carried at its net realizable value. Net
realizable value is the price obtainable in the future for parcels as
improved with a completed housing unit, net of disposal and holding costs
(including interest), without provision for future profit and without
discounting future cash receipts to present value.
F-37
<PAGE>
THE MORI POINT PROGRAM
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
(Information with respect to the six months
ended June 30, 1996 and 1997 is unaudited)
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The estimation process in determining the value of real estate assets is
inherently uncertain and relies to a considerable extent on current and
future economic and market conditions, the availability of suitable financing
to fund holding, development, and construction activities, and the repayment
or refinancing of existing indebtedness. Such economic and market conditions
may effect management's development and marketing plans. Accordingly, the
ultimate realizations may differ from amounts presently estimated.
INCOME TAXES
The financial statements include the activity of the Program, whose income
or losses are included in the investors' respective tax returns.
UNAUDITED INTERIM FINANCIAL STATEMENTS
The interim financial statements for the six months ended June 30, 1996
and 1997 are unaudited; however in the opinion of the Program's management,
the interim financial statements include all adjustments, consisting only of
normal recurring adjustments, necessary for a fair presentation of the
results for the interim period. The results of operations for such interim
period are not necessarily indicative of the results to be obtained for the
full year.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles required 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 and reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
NOTE 3. COMMITMENTS
SERVICING/MANAGEMENT AGREEMENT
The Program is currently managed, subject to a servicing agreement, by
National. National also currently manages six other programs under similar
servicing agreements. As documented within the servicing agreement, National
is to receive an annual fee equal to 1% of the original loan balance.
National's requirements under the servicing agreement include managing the
assets of the Program to assure that the purpose and activities of the
Program are continued for the investors. The Program incurred asset
management expenses of $100,000, $100,000, $50,000 and $50,000 for the years
ended December 31, 1995 and 1996 and for the six months ended June 30, 1996
and 1997. Total accrued and unpaid management fees included in "accrued
expenses and other liabilities" as of December 31, 1996 and June 30, 1997
were $441,218 and $491,218.
LAWSUITS
The Program is, from time to time, involved in various lawsuits generally
incidental to its business operations. In the opinion of management, the
ultimate resolution of these matters, if any, will not have a significant
effect on the financial position of the Program.
F-38
<PAGE>
THE MORI POINT PROGRAM
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
(Information with respect to the six months
ended June 30, 1996 and 1997 is unaudited)
NOTE 3. COMMITMENTS (CONTINUED)
DELINQUENT PROPERTY TAXES
The Program has delinquent property taxes of $268,690 as of June 1997.
The Program has entered into a five-year payment plan with appropriate taxing
authorities relative to the payment of these past due taxes.
NOTE 4. CAPITAL CONTRIBUTIONS
Through a voting procedure that can be initiated by National as Servicing
Agent, a majority of the investors has the power to require all investors in
the Program to make additional capital contributions. Such contributions are
only recorded to the extent of cash received.
F-39
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
National Investors Financial, Inc.
Los Angeles, California
We have audited the accompanying balance sheet of the Sacramento/Delta Greens
"Trudy Pat" Program (the "Sacramento/Delta Greens Program") (as defined in
Note 1) as of December 31, 1996, and the related statements of operations,
changes in owners' equity and cash flows for each of the two years in the
period ended December 31, 1996. These financial statements are the
responsibility of 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 audits 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
presentation of the financial statements. We believe that our audits provide
a reasonable basis for our opinion.
In our opinion, based on our audits, the financial statements referred to
above present fairly, in all material respects, the financial position of the
Sacramento/Delta Greens Program as of December 31, 1996, and the results of
operations and cash flows for each of the two years in the period ended
December 31, 1996 in conformity with generally accepted accounting principles.
BDO SEIDMAN, LLP
Los Angeles, California
May 27, 1997
F-40
<PAGE>
THE SACRAMENTO/DELTA GREENS PROGRAM
BALANCE SHEETS
December 31, June 30,
1996 1997
------------- -----------
(Unaudited)
ASSETS:
Land $2,230,000 $2,000,000
Cash and cash equivalents 62,583 22,272
Other assets - 2,813
------------- -----------
Total assets $2,292,583 $2,025,085
------------- -----------
------------- -----------
LIABILITIES:
Accounts payable $ 29,924 $ 25,640
Accrued expenses and other liabilities (Note 3) 229,142 213,383
------------- -----------
Total liabilities 259,066 239,023
COMMITMENTS AND CONTINGENCIES (NOTE 3)
OWNERS' EQUITY:
Owners' Equity 2,033,517 1,786,062
------------- -----------
Total liabilities and owners' equity $2,292,583 $2,025,085
------------- -----------
------------- -----------
See accompanying notes to financial statements.
F-41
<PAGE>
THE SACRAMENTO/DELTA GREENS PROGRAM
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
--------------------- ----------------------
1996 1995 1997 1996
--------- --------- --------- --------
(UNAUDITED)
<S> <C> <C> <C> <C>
EXPENSES:
Selling, general and administrative $ 169,649 $ 93,523 $ 69,059 $ 40,365
Land write-down (Note 5) 845,000 - 230,000 422,500
Management fees (Note 3) 50,000 50,000 25,000 25,000
---------- --------- --------- ---------
Total expenses 1,064,649 143,523 324,059 487,865
Interest income 1,965 11,933 479 731
---------- --------- --------- ---------
Net income (loss) $(1,062,684) $(131,590) $(323,580) $(487,134)
---------- --------- --------- ---------
---------- --------- --------- ---------
</TABLE>
See accompanying notes to financial statements.
F-42
<PAGE>
THE SACRAMENTO/DELTA GREENS PROGRAM
STATEMENTS OF OWNERS' EQUITY
TOTAL
----------
Balance January 1, 1995 $2,953,186
Capital contributions 12,033
Net loss for the year (131,590)
----------
Balance December 31, 1995 2,833,629
Capital contributions 262,572
Net loss for the year (1,062,684)
----------
Balance December 31, 1996 2,033,517
Capital contributions (unaudited) 76,125
Net loss for the period (unaudited) (323,580)
----------
Balance June 30, 1997 (unaudited) $1,786,062
----------
----------
See accompanying notes to financial statements.
F-43
<PAGE>
THE SACRAMENTO/DELTA GREENS PROGRAM
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months Ended
Year Ended December 31, June 30,
------------------------ ----------------------
1996 1995 1997 1996
----------- --------- --------- ---------
(Unaudited)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(1,062,684) $(131,590) $(323,580) $(487,134)
Adjustment to reconcile net income
(loss) to net cash provided by (used in)
operating activities -
Real estate property write-down 845,000 - 230,000 422,500
Increase (decrease) from changes in:
Other assets - - (2,813) -
Accounts payable 29,924 - (4,284) -
Accrued expenses (19,834) 53,716 (15,759) (56,278)
----------- --------- --------- ---------
Net cash provided by (used in)
operating activities (207,594) (77,874) (116,436) (120,912)
CASH FLOWS FROM FINANCING ACTIVITIES:
Contributions 262,572 12,033 76,125 245,816
----------- --------- --------- ---------
Net cash provided by
financing activities 262,572 12,033 76,125 245,816
----------- --------- --------- ---------
Net increase (decrease) in cash and cash
equivalents 54,978 (65,841) (40,311) 124,904
Cash and cash equivalents at beginning
of period 7,605 73,446 62,583 7,605
----------- --------- --------- ---------
Cash and cash equivalents
at end of period $ 62,583 $ 7,605 $ 22,272 $ 132,509
----------- --------- --------- ---------
----------- --------- --------- ---------
Cash paid during the period for interest $ - $ - $ - $ -
----------- --------- --------- ---------
----------- --------- --------- ---------
</TABLE>
See accompanying notes to financial statements.
F-44
<PAGE>
THE SACRAMENTO/DELTA GREENS PROGRAM
NOTES TO FINANCIAL STATEMENTS
(Information with respect to the six months
ended June 30, 1996 and 1997 is unaudited)
NOTE 1. ORGANIZATION AND BASIS OF PRESENTATION
ORGANIZATION
During 1989 National Investors Financial, Inc. ("National"), represented
by NASD registered securities broker-dealers, completed the funding of a real
estate loan for the Sacramento/Delta Greens Program (the "Program") in the
amount of $5,000,000 by selling undivided tenant-in-common interests in such
loan to 332 investors. In March of 1993, on behalf of the Sacramento/Delta
Greens Program investors, National foreclosed on the property and took title
to the property ("Sacramento/Delta Greens") involved in the Sacramento/Delta
Greens Program. Sacramento/Delta Greens is currently raw land which is zoned
and has an approved tentative tract map for a single-family detached housing
development of 534 homes. The property is located in Sacramento, California
and is currently held in Trust by National on behalf of the Sacramento/Delta
Greens investors. The Sacramento/Delta Greens property was recently
appraised at $3,075,000 as of the date of foreclosure. Therefore, the
property has been written down to its fair market value at the time of the
foreclosure and the investors' interest in the property is reflected as
Owners' Equity in the financial statements.
The accompanying financial statements include the accounts of the Program and
do not include the accounts of National.
AMERICAN FAMILY HOLDINGS, INC.
American Family Holdings, Inc. a California corporation, was formed to be
a publicly-held corporation to acquire the businesses of certain investment
programs previously syndicated by National in exchange for common shares. In
addition, American Family Holdings, Inc. will offer a maximum of 500,000
units, which consist of one share of common stock and one warrant at a price
of $10 per unit. Each warrant entitles the holder to purchase two additional
shares of common stock at 80% of the closing price of the stock on the day
prior to exercise of the warrant. The warrant has a term of two years
following the completion of the Offering.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH EQUIVALENTS
Management of the Program considers all highly liquid investments with an
original maturity of three months or less when purchased to be cash
equivalents.
LAND
Land is carried at the lower of cost or its net realizable value.
Effective January 1, 1996, the Program adopted the provisions of Statement of
Financial Accounting Standards No.121 ("SFAS No. 121") "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of",
which requires impairment losses to be recorded on long-lived assets being
developed, based on fair value, when indicators of impairment are present and
the undiscounted cash flows estimated to be generated by those assets are
less than the assets' carrying amount. Assets held for sale are to be carried
at the lower of cost or fair value less the costs to sell.
Real estate properties are carried at its net realizable value. Net
realizable value is the price obtainable in the future for parcels as
improved with a completed housing unit, net of disposal and holding costs
(including interest), without provision for future profit and without
discounting future cash receipts to present value.
F-45
<PAGE>
THE SACRAMENTO/DELTA GREENS PROGRAM
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
(Information with respect to the six months
ended June 30, 1996 and 1997 is unaudited)
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The estimation process in determining the value of real estate assets is
inherently uncertain and relies to a considerable extent on current and
future economic and market conditions, the availability of suitable financing
to fund holding, development, and construction activities, and the repayment
or refinancing of existing indebtedness. Such economic and market conditions
may effect management's development and marketing plans. Accordingly, the
ultimate realizations may differ from amounts presently estimated.
INCOME TAXES
The financial statements include the activity of the Program, whose income
or losses are included in the investors' respective tax returns.
UNAUDITED INTERIM FINANCIAL STATEMENTS
The interim financial statements for the six months ended June 30, 1996
and 1997 are unaudited; however in the opinion of the Property's management,
the interim financial statements include all adjustments, consisting only of
normal recurring adjustments, necessary for a fair presentation of the
results for the interim period. The results of operations for such interim
period are not necessarily indicative of the results to be obtained for the
full year.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles required 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 and reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
NOTE 3. COMMITMENTS
SERVICING/MANAGEMENT AGREEMENT
The Program is currently managed, subject to a servicing agreement, by
National. National also currently manages six other programs under similar
servicing agreements. As documented within the servicing agreement, National
is to receive an annual fee equal to 1% of the original loan balance.
National's requirements under the servicing agreement include managing the
assets of the Program to assure that the purpose and activities of the
program are continued for the investors. The Program incurred asset
management expenses of $50,000, $50,000, $25,000 and $25,000 for the years
ended December 31, 1995 and 1996 and for the six months ended June 30, 1996
and 1997. Total accrued and unpaid management fees included in "accrued
expenses and other liabilities" as of December 31, 1996 and June 30, 1997
were $146,611 and $167,444.
LAWSUIT
The Program is, from time to time, involved in various lawsuits generally
incidental to its business operations. In the opinion of management, the
ultimate resolution of these matters, if any, will not have a significant
effect on the financial position of the Program.
F-46
<PAGE>
THE SACRAMENTO/DELTA GREENS PROGRAM
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
(Information with respect to the six months
ended June 30, 1996 and 1997 is unaudited)
NOTE 3. COMMITMENTS (CONTINUED)
DELINQUENT PROPERTY TAXES
The Program has delinquent property taxes of $45,939 as of June 30, 1997.
The Program has entered into a five-year payment plan with appropriate taxing
authorities relative to the payment of these past due taxes.
NOTE 4. CAPITAL CONTRIBUTIONS
Through a voting procedure that can be initiated by National as Servicing
Agent, a majority of the investors has the power to require all investors in
the Program to make additional capital contributions. Such contributions are
only recorded to the extent of cash received.
NOTE 5. LAND WRITE-DOWN
Due to changes in zoning and the housing market surrounding
Sacramento/Delta Greens, write-downs in the cost of the land of $845,000,
$422,500 and $230,000 were recorded during the year ended December 31, 1996
and the six months ended June 30, 1996 and 1997.
F-47
<PAGE>
APPENDICES
Appendix 1 Fairness Opinion
Appendix 2 Selected Additional Appraisal Information
<PAGE>
[FORM OF FAIRNESS OPINION]
_________ __, 1997
Mr. David G. Lasker
President
National Investors Financial, Inc.
4220 Von Karmen Avenue
Suite 110
Newport Beach, CA 92660
Dear Mr. Lasker:
We understand that a transaction is contemplated (the "Acquisition") whereby
a newly formed company, American Family Holdings, Inc. (the "Company"), will
purchase the real estate assets, liabilities and business activities (the
"Properties") relating to certain trust deed participation ("Trudy Pat") loan
programs sponsored by National Investors Financial, Inc. ("National"). The
Trudy Pat loans were initially funded by groups of investors (the
"Investors") who, by virtue of the borrowers' default on the loans, have
become the beneficial owners of the Properties which secured the loans.
These include Trudy Pat loans on real property in Sacramento, California
("Delta Greens"), Pacifica, California ("Mori Point"), Oceanside, California
("Oceanside"), and two separate parcels in Oakhurst, California
("Yosemite/Ahwahnee I" and "Yosemite/Ahwahnee II"). The Company's initial
capitalization was 371,183 shares of common stock, represented by 146,135
shares each to two partnerships controlled by the principals of National and
78,913 total shares issued to employees of National and the Company, and
consultants to certain of the Properties (collectively, the "Founders'
Shares"). As consideration for the purchase of the Properties, the Company
will issue shares of common stock (the "Shares") to the respective Investors
in the following amounts: [121,520]shares to the Delta Greens Investors
(representing [6.24] percent of the total shares outstanding after the
issuance of the Shares), [329,148] Shares to the Mori Point Investors
(representing [16.89] percent of the total Shares outstanding after the
issuance of the Shares), [530,310] shares to the Oceanside Investors
(representing [27.22] percent of the total Shares outstanding after the
issuance of the Shares), [200,788] Shares to the Yosemite/Ahwahnee I
Investors (representing [10.31] percent of the total Shares outstanding after
the issuance of the Shares) and [395,519] Shares to the Yosemite/Ahwahnee II
Investors (representing [20.30] percent of the total Shares outstanding after
the issuance of the Shares). In connection with the Acquisition, it is
anticipated that the Company's common stock will be listed for public sale on
the ____________ under the symbol ________. Concurrent with the Acquisition,
the Company will also commence an offering (the "Offering") of additional
common shares to the Investors in the aggregate amount of up to $5,000,000,
at a price of $10 per Unit, each Unit representing one new share of common
stock and one warrant to purchase two additional shares of common stock at a
per share purchase price equal to 80% of the closing market price on the
trading date immediately prior to the exercise date.
You have requested our opinion (the "Opinion") as to the fairness of the
allocation of Shares pursuant to the Acquisition, inclusive of the Founders'
Shares, from a financial point of view, to the Investors in each of Delta
Greens, Mori Point, Oceanside, Yosemite/Ahwahnee I and Yosemite/Ahwahnee II.
Our Opinion is limited to the fairness of the allocation of Shares to the
Investors in connection with the Acquisition and does not consider the terms
of the proposed Offering. Therefore, we have not performed an analysis of,
and express no opinion with respect to, the proposed price of $10 per Unit
nor the fairness of such price to the Investors. Our Opinion is further
limited by the fact that, due to lack of information, we were unable to
perform an analysis of the Company's anticipated cost structure after giving
effect to the Acquisition and the Offering. As a result,
<PAGE>
we have not performed an analysis of, and express no opinion with respect to,
the Company's cost structure on a going forward basis and whether such
structure will result in a greater cost for services to the Investors than
they were incurring collectively when the Properties were being managed by
National.
In connection with this Opinion, we have made such reviews, analyses and
inquiries as we have deemed necessary and appropriate under the circumstances.
Among other things, we have:
1. Reviewed a draft copy of the Consent Solicitation Statement/Prospectus for
the Acquisition Offering (the "Prospectus") dated October ___, 1997;
2. Reviewed the following real estate appraisals (the "Appraisals") with
respect to the Properties:
a) an appraisal of the Yosemite/Ahwahnee I and II Properties, prepared by
Arnold Associates, as of May 1, 1997 (the "Arnold Appraisal"),
b) an appraisal of the Yosemite/Ahwahnee I and II Properties, prepared by
the Mentor Group, as of October 10, 1996 (the "Mentor Appraisal"),
c) an appraisal of the Mori Point Property, prepared by PKF Consulting,
as of May 19, 1997 (the "PKF Appraisal"),
d) an appraisal of the Delta Greens Property, prepared by David E, Lane,
Inc., as of May 9, 1997 (the "Lane Appraisal"), and
e) an appraisal of the Oceanside Property, prepared by Boznanski and
Company, as of March 31, 1997 (the "Boznanski Appraisal");
3. Reviewed the following feasibility studies with respect to the Properties:
a) a study of the Yosemite/Ahwahnee I and II Properties, prepared by
LEXES Enterprises, dated August 28, 1996,
b) a study of the Yosemite/Ahwahnee I and II Properties, prepared by RCI
Consulting, dated November 1996, and
c) a study of the Delta Greens Property, prepared by Barnett Research
Associates, dated December 23, 1996;
4. Reviewed the Agreement of Purchase and Sale and Joint Escrow Instructions
between Oceanside Development, Inc. and a publicly traded homebuilder,
dated as of June 18, 1997 (the "Purchase Agreement"), relating to a
potential sale of a portion of the
2
<PAGE>
Oceanside Property, the Symphony tract (which agreement has since been
canceled by the Company in accordance with its rights under the agreement);
5. Reviewed audited financial statements for each of the Delta Greens
Property, the Mori Point Property, the Oceanside Property and the
Yosemite/Ahwahnee I and II Properties, as well as pro forma consolidated
financial statements for the Company, for the year ended December 31, 1996
and the six months ended June 30, 1997;
6. Met with management of the Company and National regarding matters pertinent
to our analysis;
7. Conducted site visits to each of the Properties, and met with the General
Manager of the Yosemite/Ahwahnee I and II Properties;
8. Reviewed certain documents related to the Trudy Pat loans on the
Properties;
9. Reviewed certain other documents and schedules which were pertinent to our
analysis; and
10. Conducted such other studies, analyses and inquiries as we have deemed
appropriate.
We have not independently verified the accuracy and completeness of the
information supplied to us with respect to the Company or the Properties and do
not assume any responsibility with respect to it. Our Opinion is necessarily
based on business, economic, market and other conditions as they exist and can
be evaluated by us at the date of this letter.
We have assumed that the financial statements provided to us correctly reflect
the financial results and condition of the Company (on a pro forma basis) and
the Properties for the time periods covered in accordance with generally
accepted accounting principles consistently applied. We have further assumed
that there has been no material change in the financial results and condition of
the Company (on a pro forma basis) or the Properties since the date of the most
recent financial statements made available to us. We have not been requested
to, and did not, solicit third party indications of interest in acquiring all or
any part of the Properties. Furthermore, at your request, we have not
negotiated the Acquisition or advised you with respect to alternatives to it.
We are not experts in real estate appraisal and, therefore, we have relied to an
extent upon the opinions and analyses expressed in the Appraisals. However,
because of certain issues that exist with respect to both the Properties and the
Appraisals, the determination of the fairness of the Acquisition to the
Investors was not based solely on the Appraisals. With respect to the
Yosemite/Ahwahnee I and II Properties, the wide disparity between the
conclusions expressed in the Arnold and Mentor Appraisals necessitated
additional analysis and scrutiny of the Appraisals. Management has represented
to us that it believes that the expected price that could be obtained for these
Properties under a scenario whereby they would need to be sold quickly is closer
to the
3
<PAGE>
values expressed in the Mentor Appraisal than those expressed in the Arnold
Appraisal, whereas the value of the Properties as part of the Company, with
sufficient time and financial resources to develop them according to plan, is
closer to the values expressed in the Arnold Appraisal than those expressed in
the Mentor Appraisal. The Yosemite/Ahwahnee I and II Properties have also been
operating in a substantial negative cash flow situation, necessitating frequent
additional cash investments from the Investors in those programs. Management
represents that it believes those Investors are no longer willing to fund those
negative cash flows which is a factor which must be considered in our analysis.
With respect to the Mori Point Property, management is of the opinion that the
PKF Appraisal does not adequately reflect the impact on the value of the
Property related to the time, expense and uncertainty regarding the
environmental mitigation issues . With respect to the Oceanside Property, in
spite of the fact that the Purchase Agreement has been canceled, we have
considered the fact that, according to management, negotiations with the
potential buyer are expected to continue and that there is a high likelihood
that a sale of the Symphony tract will be completed to either that particular
entity or another buyer in the near future. We have also relied upon
management's representations regarding the estimated amount of cash and liquid
assets to be generated by the liquidation of the other portion of the Oceanside
Property, the Encore tract.
Based on the foregoing, and in reliance thereon, it is our opinion that the
allocation of the Shares pursuant to the Acquisition, inclusive of the
Founders' Shares, is fair to the Investors in Delta Greens, Mori Point,
Oceanside, Yosemite/Ahwahnee I and Yosemite/Ahwahnee II, from a financial
point of view.
This Opinion is furnished solely for your benefit and may not be relied upon
by any other person without our express, prior written consent. We
understand, however, that this Opinion may be referred to in the Prospectus
to be filed by the Company in connection with this Acquisition. This Opinion
is delivered to you subject to the conditions, scope of engagement,
limitations and understandings set forth in this Opinion and subject to the
understanding that the obligations of HVA in the Acquisition are solely
corporate obligations, and no officer, director, employee, agent, shareholder
or controlling person of HVA shall be subjected to any personal liability
whatsoever to any person, nor will any such claim be asserted by or on behalf
of you or your affiliates.
HOULIHAN VALUATION ADVISORS
4
<PAGE>
Appendix 2
SELECTED ADDITIONAL APPRAISAL INFORMATION
The following selected additional information about the appraisals of the
Programs' Properties is presented so that the Investors can better understand
the methods used and results of the appraisals.
SACRAMENTO/DELTA GREENS PROGRAM (David E. Lane, Inc.)
Sales Comparison Approach $2,134,000
Land Residual Approach 2,403,000
Discounted Cash Flow 1,815,000
Conclusion of "as is" value $2,000,000
----------
----------
Heaviest reliance was placed on the Sales Comparison Approach because the
Property is undeveloped and generates no revenue.
OCEANSIDE PROGRAM (Boznanski & Company)
ENCORE 23 lots
Sales Comparison Approach $1,265,000
Land Residual Approach 851,000
Conclusion of "as is" value $850,000
----------
----------
The Land Residual Approach was deemed to be the more realistic as it took
into account remaining development costs and a builder's profit.
SYMPHONY 111 lots
Sales Comparison Approach $2,636,000 - $3,164,000
Land Residual Approach 2,850,000
Conclusion of "as is" value $2,850,000
----------
----------
The Land Residual Approach was deemed to be the more realistic as it took
into account remaining development costs and was approximately the mid-point of
Sales Comparison Approach range.
A2.1
<PAGE>
MORI POINT (PKF Consulting)
Discounted Cash Flow $5,300,000
Ground Rent Capitalization Approach 6,000,000
Sales Comparison Approach 5,400,000
Conclusion of "as is" value $5,500,000
----------
----------
As the sales comparisons available were not similarly sized or located, of
a similar development potential, the greatest reliance was placed on the
Discounted Cash Flow Approach as good market information was available to
support the potential cash flow and development cost of the potential
project. The Ground Rent Capitalization Approach was used as a test of
reasonableness.
YOSEMITE/AHWANHEE I AND II (Arnold Associates)
GOLF COURSE/COUNTRY CLUB
Sales Comparison Approach $5,400,000
Income Approach 4,810,000
Cost Approach 6,270,000
Conclusion of "as is" value $4,480,000(1)
---------
---------
(1) Reflects a $5,100,000 stabilized value less $620,000 of lost income
during stabilization process of the golf course.
The Sales Comparison Approach was deemed the most reliable because
sufficient market data existed, although the comparables were superior in
location, quality or condition. The Income Approach was not reliable as
there was no historical data available.
RV PARK
Sales Comparison Approach $3,886,000
Cost Approach 3,986,000
Conclusion of "as is" value $3,886,000
----------
----------
The Sales Comparison Approach was deemed the most reliable. The Cost
Approach was suspect because of lack of historical data. There was no
historical data to support the Income Approach.
COUNTRY CLUB ESTATES ("as is") $2,250,000
ESTATE "OUTLOTS" F, G AND H ("as is") $5,800,000
OTHER "OUTLOTS" C, D AND E ("as is") $4,500,000
A2.2
<PAGE>
In each of the above three categories, only the Sales Comparison Approach
was used as such approach was deemed the only reliable indicator value for
the types of property in question.
Utilizing primarily a cost approach, in October 1996, The Mentor Group,
Inc. appraisal valued the subdivision (Country Club Estates) "as is" at
$530,000 and the balance of the real estate (as excess land) at "as is"
$3,460,000, for a combined appraised value of approximately $4,000,000.
A2.3
<PAGE>
OFFICIAL INVESTOR BALLOT
[attach mailing label here The Primary Investor named on this label
for each distinct investor] is listed as a participant in one or more
of the Programs involved in the
Acquisition and is eligible to vote and
subscribe.
THE SOLICITATION OF VOTES AND THE OFFERING OF UNITS EXPIRES AT 11:59 PM,
PACIFIC TIME, ON ___________, 1997, UNLESS EXTENDED (THE "EXPIRATION TIME").
SUMMARY NOTE: Pursuant to the Prospectus dated _________, 1997 (the
"Prospectus"), which accompanied the original mailing of this Official
Investor Ballot, American Family Holdings, Inc. (the "Company") is
proposing to acquire the assets, certain liabilities and business
activities of the Programs (the "Acquisition") in exchange for shares of
the Company's common stock (the "Shares"). The Acquisition requires the
approval of Investors holding a majority beneficial economic interest in
each of the Programs. If a majority of Investors in any one of the
Programs does not approve the Acquisition prior to the Expiration Time,
then the Acquisition will not occur. If the Acquisition is approved,
all Investors in each of the Programs are bound by the vote of the
majority that granted approval. Capitalized terms in this Official
Investor Ballot shall have the same meaning as in the accompanying
Prospectus.
NATIONAL RECOMMENDS A "YES" VOTE.
VOTING BALLOT (PLEASE INDICATE ONE CHOICE ONLY)
_____ YES! I vote to approve the Acquisition described in the
Prospectus, and, as part of that Acquisition, to
receive Acquisition Shares in the Company in exchange
for my Adjusted Outstanding Investment in the
Program(s). I authorize and instruct National to
reconvey and extinguish on my behalf all encumbrances
against the Program's real estate in which I have an
interest.
_____ NO. I vote against the Acquisition. I have read and
understand the portions of the Prospectus which
describe the consequences to my investment in the
Program(s) if the Acquisition does not occur.
_____ ABSTAIN. I abstain from voting. I understand that my
abstention will be counted as a vote AGAINST
participation in the Acquisition.
The undersigned Investor represents and warrants that the Investor
(1) has received and reviewed the Prospectus, (2) understands that
if the Acquisition is completed, the Investor will become a
shareholder in the Company, (3) has full power and authority to
vote as an Investor pursuant to the Program's tenancy-in-common
agreement(s), (4) understands that if a voting selection is not
indicated, but this ballot is signed and delivered, the Investor
will be deemed to have voted in favor of the Acquisition, and (5)
that to the best of Investor's knowledge, when and if Investor's
interests in the property sold are transferred to the Company in
exchange for Shares, the Company will acquire good, marketable and
unencumbered title to them, free and clear of all liens,
restrictions and encumbrances, and that the interests in the
property sold will not be subject to any adverse claim other than
property taxes. This vote, and all authority conferred herein,
shall survive the death or incapacity of the undersigned, and any
obligations of the undersigned in connection with this vote and
subscription shall be binding upon its heirs, successors and
assigns.
- ----------------------------- ---------------------------
Signature of Primary Investor Date
- ----------------------------
Print Name
Daytime Telephone Tax I.D. No.
---------- -------------
<PAGE>
AMERICAN FAMILY HOLDINGS, INC.
SUBSCRIPTION ORDER FOR UNITS
I am subscribing for _______ Units at $10.00 each for a total amount of
$__________. I have enclosed a check for that amount, made payable to
"First Trust of California, N.A, as Escrow Agent for American Family
Holdings, Inc. Unit Offering." I understand that no Units will be
sold if the Acquisition described in Prospectus dated
-------------, 1997,
of American Family Holdings, Inc., is not completed.
STATEMENT: The undersigned Investor, under penalties of perjury,
certifies that (i) the number shown below is the Investor's correct
Taxpayer Identification Number or Social Security Number (or the
Investor is waiting for a number to be issued) and (ii) the Investor is
not subject to backup withholding either because the Investor has not
been notified by the Internal Revenue Service (IRS) that the Investor is
subject to backup withholding as a result of a failure to report all
interests or dividends, or the IRS has notified the Investor that the
Investor is no longer subject to backup withholding. (NOTE: CLAUSE
(ii) IN THIS CERTIFICATION SHOULD BE CROSSED OUT IF THE INVESTOR IS
SUBJECT TO BACKUP WITHHOLDING.)
INVESTOR INFORMATION
Name of Investor
-------------------------------------------
Name of Joint Investor
-------------------------------------------
Street address
-------------------------------------------
City/State/Zip
-------------------------------------------
Business Telephone Number
-------------------------------------------
Home Telephone Number
-------------------------------------------
- -------------------------------------------- --------------------------
Investor's Tax I.D. No./Social Security No. Joint Investor's Tax I.D.
No./Social Security No.
- -------------------------------------------- --------------------------
Signature of Investor Signature of Joint
Investor
Date: Date:
--------------------------------------- ---------------------
<PAGE>
BROKER/DEALER INFORMATION
The Broker must sign below to complete order. Broker hereby warrants that it
is a duly licensed Broker and may lawfully sell shares in the state
designated as the Investor's residence.
Broker/Dealer Firm Name
--------------------------------------------------------
Registered Representative Name
-------------------------------------------------
Registered Representative Mailing Address
--------------------------------------
--------------------------------------------------------------------------
--------------------------------------------------------------------------
City State Zip Code
------------------------------------- -------- ------------
Broker Number Telephone Number
----------------------------------- -------------
The undersigned confirms by his or her signature that he or she (i) has
reasonable grounds to believe that the information and representations
concerning the Investor identified herein are true, correct and complete in
all respects; (ii) has discussed such Investor's prospective purchase of
Units with such Investor; (iii) has advised such Investor of all pertinent
facts with regard to the liquidity and marketability of the Units pursuant to
the NASD's Conduct Rules; (iv) has delivered a current Prospectus and related
supplements, if any, to such Investor; and (v) has reasonable grounds to
believe that the purchase of Units is a suitable investment for such Investor
and that such Investor is in a financial position to enable such Investor to
realize the benefits of such an investment and to suffer any loss that may
occur with respect thereto.
Registered Representative Name
---------------------------------------------
- ----------------------------------------- ------------------------------
Registered Representative Signature Date
Broker/Dealer Authorized Signature
-----------------------------------------
Printed Name
---------------------------------------------------------------
ALL INVESTOR AND BROKER/DEALER INFORMATION MUST BE COMPLETED
OR REGISTRATION CANNOT PROCEED
<PAGE>
INSTRUCTIONS TO INVESTORS ON HOW TO COMPLETE THE
OFFICIAL INVESTOR BALLOT AND SUBSCRIPTION ORDER FORM
STEPS TO COMPLETE THE INVESTOR BALLOT AND SUBSCRIPTION ORDER
1. Indicate your voting selection in the space provided on the ballot.
Select one choice only.
2. Sign the ballot, indicate the date, and print your name and the
taxpayer identification number associated with your investment.
Also, make sure to include your daytime phone number in case someone
needs to contact you.
3. Regardless of whether you vote, indicate whether you are subscribing
for Units on the Subscription Order. If so, complete the investor
information, sign it, and include a check.
4. If a broker/dealer is involved in your purchase of Units, have the
Broker/Dealer Information page completed.
SIGNATURES
The signature on the ballot must correspond with the name shown on the
label attached to the ballot and must match the signature on file with the
Program(s). Pursuant to the tenancy-in-common agreements governing the
Programs, if two or more persons jointly hold title to a beneficial interest
in a Program, then only the Primary Investor is entitled to sign the ballot
and cast votes for that interest. If the Investor signing the ballot is the
Primary Investor in more than one of the Programs involved in the
Acquisition, his/her vote will be recorded for all of the interests which
they are entitled to cast votes, unless the Investor acts in a fiduciary or
representative capacity for the separate interests, in which case separate
ballots bearing different labels will be required and provided to the
Investor.
If the ballot is being signed by a trustee, an executor, an
administrator, a guardian, an attorney-in-fact, an officer of a corporation,
an agent or another person acting in a fiduciary or representative capacity,
such person should so indicate when signing, and must submit proper evidence
of their authority to so act, unless such evidence is already on file with
the Program.
SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS
If the Shares are to be issued in a name other than that shown on the
label affixed to the ballot, or if the Shares are to be sent to someone or
someplace other than what is shown on the label affixed to the ballot,
contact the Investor Services department at National Investors Financial,
Inc. at 1-800-548-0050. All special issuance and delivery requests are
subject to acceptance.
DELIVERY OF THE INVESTOR BALLOT
In order for a vote to be counted towards approval of the
Acquisition, a properly completed and duly executed ballot, along with
any other documents required pursuant to the ballot, these instructions,
or the agreements governing the Programs, must be received by
<PAGE>
National prior to the Expiration Time. The method of delivering the ballot
and related documents to National's offices is at the Investor's election and
risk, but delivery will only be deemed to have been made when actually
received by National. If an Investor decides to use delivery by U.S. mail or
by another common carrier, it is recommended that the materials be sent a
sufficient amount of time prior to the Expiration Time to ensure timely
delivery.
REVOCATION OF A VOTE
If you have cast a vote and want to change it at any time prior to the
Expiration Time, you may revoke your previous vote by delivering a substitute
ballot to National along with a letter stating that the prior vote is revoked
and that the substitute ballot supersedes it. After the Expiration Time,
votes will no longer be revocable unless the Acquisition does not occur, in
which case all votes will be revoked automatically. Any notice of
revocation, to be effective, must indicate the beneficial interests to which
it relates and must be executed in the same manner as the ballot that
contained the vote which is subject to revocation.
SUBSCRIPTIONS
Subscription Orders for Units will be accepted on a first-come,
first-served basis, and the quantity of Units offered to Investors is
strictly limited. If you choose to subscribe, you must enclose a check
payable to "First Trust of California, N.A, as Escrow Agent for American
Family Holdings, Inc. Unit Offering," along with your order form, and your
funds will be held in escrow until the Acquisition is completed. If you
complete the subscription information, but fail to enclose a check, your
subscription will be deemed invalid. You may subscribe after sending your
ballot by sending a copy of the form with your check at any time prior to
completion of the Acquisition, subject to availability of Units. Units can
only be issued to the same investor(s), and in the same manner, as Shares are
issued to those same investor(s) entitled to participate in the Acquisition
and the Offering. If the Acquisition is not completed, the Offering will be
terminated and your money (plus accrued interest) will be returned by the
Escrow Agent.
TRANSFER OF INTERESTS
If you transfer your beneficial interests in a Program after the date
the solicitation begins but before the Expiration Time, then if time permits,
the Prospectus will be sent to the successor holder(s) of the interests.
Such a transfer will terminate your right to vote on the Acquisition or to
participate in the Offering, and any votes concerning the transferred
interests must be cast by the successor holder(s).
WHERE TO SEND YOUR INVESTOR BALLOT AND SUBSCRIPTION ORDER
Send your completed and duly executed ballot or order for Units, along
with any related documents, to National Investors Financial, Inc., 4220 Von
Karman Avenue, Suite 110, Newport Beach, CA 92660. After determining that
subscriptions are valid, checks will be forwarded immediately to the Escrow
Agent.
<PAGE>
BROKER/DEALERS: Please verify all information on the Subscription
Order and complete the Broker/Dealer Information page. Be sure to send
original order forms to National at the above address, but send the checks,
together with a copy of the order, to First Trust of California, N.A., Global
Escrow Deposit Services, 550 South Hope Street, Suite 500, Los Angeles,
California, 90071, Attention: Brad E. Scarbrough. Please forward ballots to
National Investors Financial, Inc., at the address in the preceding paragraph.
QUESTIONS OR ADDITIONAL MATERIALS:
Contact National at the above address or by calling (714) 833-8600.
Inside California, you can reach National toll-free by calling 1-800-548-0050.
<PAGE>
PART II
INFORMATION NOT REQUIRED
IN PROSPECTUS
Item 20 Indemnification of Directors and Officers
Pursuant to the Registrant's Certificate of Incorporation and By-Laws
and pursuant to Section 145 of the Delaware General Corporation Law,
directors, officers and agents of the Registrant are entitled to
indemnification for their actions in respect of the Registrant to the fullest
extent permitted by Delaware law.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to officers, directors and controlling persons of the
Registrant pursuant to such provisions, or otherwise, the Registrant has been
advised that, in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable.
Item 21 Exhibits and Financial Statement Schedules
1.1 Form of Wholesaling Agreement between the Company and
L.H. Friend, Weinress, Frankson & Presson, Inc.
1.2 Form of Selling Agreement between the Company and
participating broker-dealers
2.1 Form of Agreement of Purchase and Sale and Joint Escrow
Instructions for Mori Point Property
2.2 Form of Agreement of Purchase and Sale and Joint Escrow
Instructions for Oceanside Property
2.3 Form of Agreement of Purchase and Sale and Joint Escrow
Instructions for Yosemite/Ahwahnee I and II Property
2.4 Form of Agreement of Purchase and Sale and Joint Escrow
Instructions for Delta Greens Property
3.1 Certificate of Incorporation of American Family Holdings,
Inc.
3.2 Certificate of Amendment of Certification of Incorporation
before the Issuance of Stock
3.3 By-Laws of American Family Holdings, Inc.
4.1 Pages 1 through 4 of the Certificate of Incorporation of
the Company Filed as Exhibit 3.1 above defining the rights
of security holders are incorporated herein by this
reference
4.2 American Family Holding Inc. Warrant to Purchase Shares
of Common Stock
5.1 Opinion of Arter & Hadden regarding legality of Shares
10.1 Form of Employment Agreement of David Lasker*
10.2 Form of Employment Agreement of James Orth*
10.3 Form of Employment Agreement of L.C. "Bob" Albertson, Jr.*
10.4 1997 Stock Option and Incentive Plan for Officers,
Independent Directors and Employees of American Family
Holdings, Inc. and Affiliates
21.1 Subsidiaries of the Registrant
II-1
<PAGE>
23.1 Consent of Arter & Hadden as counsel contained in Exhibit
5.1
23.2 Consent of BDO Seidman, LLP as independent accountants
23.3 Consent of Houlihan Valuation Advisers
23.4 Consent of David E. Lane, Inc. (re Delta Greens appraisal)
23.5 Consent of Boznanski and Company (re Oceanside appraisal)
23.6 Consent of Arnold Associates (re Yosemite/Ahwahnee
appraisals)
23.7 Consent of PKF Consulting (re Mori Point appraisal)
23.8 Consent of The Mentor Group, Inc. (re Yosemite/Ahwahnee
appraisal)
24.1 Power of Attorney (see signature page)
27 Financial Data Schedule
99.1 Appraisal Report "Delta Greens" Residential Subdivision,
Sacramento, California, value dated as of May 9, 1997
99.2 Appraisal of Ahwahnee Golf Course and Resort, Madera
County, California, value dated as of May 1, 1997
99.3 Complete, Self-Contained Appraisal 23 Finished Residential
Lots Being a Part of "Encore," Oceanside, California, value
dated as of March 31, 1997
99.4 Complete, Self-Contained Appraisal Partially Finished
Residential Land 111 Residential Lots, "Symphony,"
Oceanside, California, value dated as of May 15, 1997
99.5 Appraisal of Fee Simple Estate in a 104.98 Acre Parcel
Designated for Hotel Development, Located at Mori Point
in Pacific, California, value dated as of May 1, 1997
99.6 Appraisal of Ahwahnee Resort and Country Club, value
dated October 10, 1996
99.7 Form of Fairness Opinion of Houlihan Valuation Advisors
--see Appendix 1 to Prospectus
* To be filed by amendment
Item 22 Undertakings
(a) Item 512 Undertakings.
(i) The undersigned Registrant hereby undertakes:
(A) to file, during any period in which offers or sales
are being made, a post-effective amendment to this Registration Statement:
(1) to include any prospectus required by Section
10(a)(3) of the Securities Act of 1933;
(2) to reflect in the Prospectus any facts or
events arising after the effective date of the Registration Statement (or the
most recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in the
Registration Statement; and
II-2
<PAGE>
(3) to include any material information with
respect to the plan of distribution not previously disclosed in the
Registration Statement or any material change to such information in the
Registration Statement.
(B) that, for the purpose of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new Registration Statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the official BONA FIDE offer thereof.
(C) to remove from registration by means of a
post-effective amendment any of the securities being registered which remain
unsold at the termination of the offering.
(ii) Insofar as indemnification for liabilities arising under
the Act may be permitted to directors, officers and controlling persons of
the Company pursuant to the foregoing provisions, or otherwise, the Company
has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable.
In the event that claim for indemnification against such
liabilities (other than the payment by the Company of expenses incurred or
paid by a director, officer or controlling person of the Company in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities
being registered, the Company will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
competent jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the
final adjudication of such issue.
(b) Other Part II, Form S-4, Undertakings.
(i) The undersigned Registrant hereby undertakes to respond
to requests for information that is incorporated by reference into the
Prospectus pursuant to Items 4, 10(b), 11, or 13 of this Form, within one
business day of receipt of such request, and to send the incorporated
documents by first-class mail or other equally prompt means. This includes
information contained in documents filed subsequent to the effective date of
the Registration Statement through the date of responding to the date of the
request.
(ii) The undersigned Registrant hereby undertakes to supply by
means of a post-effective amendment all information concerning a transaction,
and the Program being acquired involved therein, that was not the subject to
and included in the Registration Statement when it became effective.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant and has duly caused this registration statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Newport Beach, State of California, on October 3, 1997.
AMERICAN FAMILY HOLDINGS, INC.
By /s/ David G. Lasker
------------------------------
David G. Lasker,
Co-Chairman of the Board
POWER OF ATTORNEY
Each person whose signature appears appoints each of David G. Lasker and
James N. Orth, his agent and attorney-in-fact, with full power of
substitution to execute for him and in his name, in any and all capacities,
all amendments (including post-effective amendments) to the Registration
Statement to which this power of attorney is attached.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
Co-Chairman of the Board,
President, Chief Financial October 3, 1997
/s/ David G. Lasker Officer and Chief Accounting
- -------------------------------- Officer
David G. Lasker
Co-Chairman of the Board,
/s/ James N. Orth Chief Executive Officer and
- -------------------------------- Secretary October 3, 1997
James N. Orth
/s/ L.C. "Bob" Albertson, Jr. Executive Vice President and
- -------------------------------- Director October 3, 1997
L.C. "Bob" Albertson, Jr.
/s/ Charles F. Hanson
- -------------------------------- Director October 3, 1997
Charles F. Hanson
/s/ Dudley Muth
- -------------------------------- Director October 3, 1997
Dudley Muth
/s/ John G. LeSieur, III
- -------------------------------- Director October 3, 1997
John G. LeSieur, III
</TABLE>
II-4
<PAGE>
EXHIBIT INDEX
Exhibit
- -------
1.1 Form of Wholesaling Agreement between the Company and L.H. Friend,
Weinress, Frankson & Presson, Inc.
1.2 Form of Selling Agreement between the Company and participating
broker-dealers
2.1 Form of Agreement of Purchase and Sale and Joint Escrow Instructions
for Mori Point Property
2.2 Form of Agreement of Purchase and Sale and Joint Escrow Instructions
for Oceanside Property
2.3 Form of Agreement of Purchase and Sale and Joint Escrow Instructions
for Yosemite/Ahwahnee I and II Property
2.4 Form of Agreement of Purchase and Sale and Joint Escrow Instructions
for Delta Greens Property
3.1 Certificate of Incorporation of American Family Holdings, Inc.
3.2 Certificate of Amendment of Certification of Incorporation
before the Issuance of Stock
3.3 By-Laws of American Family Holdings, Inc.
4.1 Pages 1 through 4 of the Certificate of Incorporation of the
Company Filed as Exhibit 3.1 above defining the rights of security
holders are incorporated herein by this reference
4.2 American Family Holding Inc. Warrant to Purchase Shares
of Common Stock
5.1 Opinion of Arter & Hadden regarding legality of Shares
10.1 Form of Employment Agreement of David Lasker*
10.2 Form of Employment Agreement of James Orth*
10.3 Form of Employment Agreement of L.C. "Bob" Albertson, Jr.*
10.4 1997 Stock Option and Incentive Plan for Officers, Independent
Directors and Employees of American Family Holdings, Inc. and
Affiliates
21.1 Subsidiaries of the Registrant
23.1 Consent of Arter & Hadden as counsel contained in Exhibit 5.1
23.2 Consent of BDO Seidman, LLP as independent accountants
23.3 Consent of Houlihan Valuation Advisers
23.4 Consent of David E. Lane, Inc. (re Delta Greens appraisal)
23.5 Consent of Boznanski and Company (re Oceanside appraisal)
23.6 Consent of Arnold Associates (re Yosemite/Ahwahnee appraisals)
23.7 Consent of PKF Consulting (re Mori Point appraisal)
23.8 Consent of The Mentor Group, Inc. (re Yosemite/Ahwahnee
appraisal)
24.1 Power of Attorney (see signature page)
27 Financial Data Schedule
99.1 Appraisal Report "Delta Greens" Residential Subdivision,
Sacramento, California, value dated as of May 9, 1997
99.2 Appraisal of Ahwahnee Golf Course and Resort, Madera County,
California, value dated as of May 1, 1997
99.3 Complete, Self-Contained Appraisal 23 Finished Residential Lots
Being a Part of "Encore," Oceanside, California, value dated as of
March 31, 1997
<PAGE>
99.4 Complete, Self-Contained Appraisal Partially Finished Residential
Land 111 Residential Lots, "Symphony," Oceanside, California, value
dated as of May 15, 1997
99.5 Appraisal of Fee Simple Estate in a 104.98 Acre Parcel Designated
for Hotel Development, Located at Mori Point in Pacific, California,
value dated as of May 1, 1997
99.6 Appraisal of Ahwahnee Resort and Country Club, value dated October
10, 1996
99.7 Form of Fairness Opinion of Houlihan Valuation Advisors
--see Appendix 1 to Prospectus
* To be filed by amendment
<PAGE>
EXHIBIT 1.1
AMERICAN FAMILY HOLDINGS, INC.
$5,000,000 OF UNITS
WHOLESALING AGREEMENT
American Family Holdings, Inc.
4220 Von Karman
Suite 110
Newport Beach, California 92660
Dear Sir:
American Family Holdings, Inc., a Delaware corporation (the "Corporation"),
proposes to offer and sell to investors, upon the terms and conditions set forth
in the Prospectus dated _______________, 1997, and as the same may be amended or
supplemented from time to time (the "Prospectus"), Units (consisting of one
share of Common Stock and one warrant to purchase one share of Common Stock)
aggregating $5,000,000, $10 per Unit (the "Offering"). The Offering will not be
completed if the Acquisition described in the Prospectus is not completed.
You are hereby requested to perform, on an exclusive basis, the wholesaling
activities related to the public offering of the Units and by your execution of
a counterpart of this letter in the place indicated, you agree to use your best
efforts, consistent with the terms of this Offering as set forth in the
Prospectus, to perform the services customarily performed by persons conducting
wholesaling services for similar offerings, in accordance with the following
terms and conditions:
1. SOLICITATION AND SOLICITATION MATERIAL. Solicitation and other
activities by you hereunder shall be undertaken only in accordance with
applicable laws and regulations and the terms hereof. Accompanying this letter
is a copy of the Prospectus which you may use to familiarize yourself with the
terms of this Offering. Additional copies of the Prospectus will be sent to you
in reasonable quantities upon your request. No person is authorized to use any
solicitation material other than that referred to in the Prospectus and no
person is authorized to use any solicitation material in any state where such is
prohibited by law.
2. COMPENSATION. As a compensation for services rendered in connection
with your activities, the Corporation hereby agrees to pay to you a commission
equal to two percent of the sales price of the Units sold by broker-dealers
through your efforts or through the efforts of any officer or employee of the
Corporation whose assistance is made available to you. Payment of the
compensation described in this Paragraph 2 is subject to the provisions of
Paragraph 3 hereof.
3. CONDITIONS FOR PAYMENT OF SALES COMPENSATION. All commissions payable
by the Corporation under Paragraph 2 above are subject to acceptance by the
Corporation of the Subscription Agreements from potential investors and the
Corporation specifically reserves the right to reject any such Agreement. In
the event that the Offering is not completed or if the transactions referred to
herein and in the Prospectus are not consummated for any reason, and, as a
result thereof, all subscription payments are refunded to all potential
investors, no commission will be due or payable to you. Commissions to be paid
to you pursuant to Paragraph 2 hereof shall be paid by the Corporation to you
within 15 days following the completion of the Acquisition. There is no minimum
number of Units which must be sold.
4. REPORTS. You agree to provide the Corporation progress reports on
your sales activities on a regular basis, such basis to be mutually agreed upon
among the parties hereto.
5. UNAUTHORIZED INFORMATION AND REPRESENTATIONS. Neither you nor any
other person is authorized by the Corporation or any other person to give any
information or make any representation in connection with this Agreement or the
Offering other than those contained in the Prospectus furnished by the
Corporation. You agree not to publish, circulate or otherwise use any other
advertisement or solicitation material under any circumstances
<PAGE>
unless you have obtained the prior written agreement of the Corporation and such
materials have been approved by counsel to the Corporation and by any relevant
securities regulatory authorities.
6. BLUE SKY QUALIFICATIONS. The Corporation assumes no obligation or
responsibility with respect to the qualification of the Units or the right to
solicit purchases of the Units under the laws of any state or other
jurisdiction. Services to be performed by you hereunder are to be performed
only within the states or other jurisdictions in which solicitations by broker-
dealers are qualified to be made. The Corporation has listed the [UNITS][COMMON
STOCK AND WARRANTS] on the ______________ and, as such, believes their offer and
sale is exempt from blue sky regulation in all states other than
_______________.
7. GENERAL. You hereby represent that you are a member in good
standing of the National Association of Securities Dealers, Inc. and that you
will continue such qualification during the term of this Agreement. Upon
your acceptance of this Agreement, you agree to comply with any applicable
requirements of the Securities Act of 1933, as amended (the "Act"), and of
the Securities Exchange Act of 1934, as amended, and the published rules and
regulations thereunder, any applicable rules of the National Association of
Securities Dealers, Inc., and the rules and regulations of all state
securities authorities, as applicable.
8. TERMINATION. This Agreement shall be deemed to have been entered into
as of _______________, 1997 and it may be terminated by written or telegraphic
notice to you from the Corporation upon 60 days prior written notice and, in any
case, will terminate at the close of business on ___________, 199_ (unless
extended thereafter by the Corporation), PROVIDED that all compensation payable
to you under the terms and conditions hereof shall be paid when due, although
this Agreement shall have theretofore been terminated.
9. EXCLUSIVE AGREEMENT. You will provide to the Corporation the services
described herein on an exclusive basis, and the Corporation hereby agrees that
it will employ no other person or entity to perform such wholesaling services
during the term of this Agreement.
10. INDEMNIFICATION.
(a) The Corporation agree to indemnify and hold harmless you and each
person who controls you within the meaning of the Act, against any losses,
claims, damages or liabilities, joint or several, to which you may become
subject, under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereto) arise out of or are based upon (i)
any untrue statement or alleged untrue statement of a material fact contained in
the Prospectus; or (ii) the omission or alleged omission to state in the
Prospectus a material fact required to be stated therein or necessary to make
the statements therein in the light of the circumstances under which they were
made not misleading; and will reimburse you for any legal or other expenses
reasonably incurred by you in connection with investigating or defending any
such loss, claim, damage, liability or action, provided, however, that you shall
not be indemnified for any losses, liabilities or expenses arising from or out
of an alleged violation of federal or state securities laws unless (1) there has
been a successful adjudication on the merits of each count involving alleged
securities law violations as to the particular indemnitee, (2) such claims have
been dismissed with prejudice on the merits by a court of competent jurisdiction
as to the particular indemnitee or (3) a court of competent jurisdiction
approves a settlement of the claims against a particular indemnitee. In any
claim for indemnification for federal or state securities law violations, the
party seeking indemnification shall place before the court the position of the
Securities and Exchange Commission and the position, if applicable, of any state
securities regulatory authority in any jurisdiction in which Units were sold
with respect to the issue of indemnification for securities law violations. The
Corporation shall not incur the cost of that portion of any insurance, other
than public liability insurance, which insures any party against any liability
the indemnification of which is herein prohibited.
(b) You agree to indemnify and hold harmless the Corporation against any
losses, claims, damages or liabilities to which the Corporation may become
subject, under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereto) arise out of or are based upon (i)
any untrue
2
<PAGE>
statement or alleged untrue statement of a material fact in any communication
between you, your representatives or agents and any investor, or (ii) the
omission or alleged omission to state a material fact required to be stated in
any communication between you, your representatives or agents, and any investor,
or necessary to make the statements to said investor not misleading.
(c) Promptly after receipt by an indemnified party under this Paragraph 10
of notice of the commencement of any action, such indemnified party will, if a
claim in respect thereto is to be made against any indemnifying party under this
Paragraph 10, notify in writing the indemnifying party of the commencement
thereof; and the omission so to notify the indemnifying party will relieve it
from any liability under this Paragraph 10 as to the particular item for which
indemnification is then being sought but not from any other liability which it
may have to any indemnified party. In case any such action is brought against
any indemnified party, and it notifies an indemnifying party of the
commencement thereof, the indemnifying party will not be liable to such
indemnified party under this Paragraph 10 for any legal or other expenses
subsequently incurred by such indemnified party in connection with the defense
thereof other than reasonable costs of investigation. If any such indemnifying
party elects to defend any such action, such indemnifying party shall not be
liable to any such indemnified party on account of any settlement of such claim
or action effected without the consent of such indemnifying party. Any
indemnified party may, at its own cost and expense, participate at any time in
any claim or action covered by this Paragraph 10.
11. MISCELLANEOUS. In the event that any dispute arises between you and
the Corporation out of or by reason of this Agreement, then and in that event
such parties do hereby agree that said dispute shall be arbitrated in accordance
with the then existing rules of the American Arbitration Association in Orange
County, California, and that any award rendered thereunder, including attorneys'
fees and costs to the prevailing party, may be entered in any court of competent
jurisdiction, state or federal, including attorneys' fees and costs to the
prevailing party.
This Agreement constitutes the entire Agreement between you and the
Corporation and any change, amendment or alteration to this Agreement shall be
ineffective unless reduced to writing and executed by both parties. This
Agreement shall be governed by California law without giving effect to conflicts
of law or choice of law provisions. Each party agrees to perform any further
acts and execute and deliver any other documents which may reasonably be
necessary to carry out the terms of this Agreement.
It is expressly understood that no representations have been made in
connection with this Agreement other than as herein set forth, except those
representations contained in the Prospectus provided to you.
Very truly yours,
AMERICAN FAMILY HOLDINGS, INC.,
a Delaware corporation
By_____________________________
David G. Lasker, President
Agreed and Accepted By:
L.H. Friend, Weinress, Frankson & Presson, Inc.
By_____________________________________________
Name_________________________________________
Title________________________________________
Date: ________________________, 1997
3
<PAGE>
AMERICAN FAMILY HOLDINGS, INC.
$5,000,000 OF UNITS
SELLING AGREEMENT
Dear Sir or Madam:
American Family Holdings, Inc., a Delaware corporation (the "Corporation"),
proposes to offer and sell to qualified investors, upon the terms and conditions
set forth in the Prospectus, dated the date upon which the Corporation's
Registration Statement (of which the Prospectus is a part) is declared effective
by the Securities and Exchange Commission, and as the same may be amended or
supplemented from time to time (the "Prospectus"), units, consisting of one
share of Common Stock and a warrant to purchase one share of Common Stock
("Units") aggregating $5,000,000 sold as described in the Prospectus, at $10 per
Unit.
You are invited to participate on a nonexclusive basis in this public
offering of Units and by your execution of the confirmation attached hereto, you
agree to use your best efforts, consistent with the terms of this offering as
set forth in the Prospectus, to find purchasers for the Units who are acceptable
to the Corporation, in accordance with the following terms and conditions:
1. PERSONS SOLICITED. You may only solicit the persons whose names and
addresses are set forth on Exhibit A hereto. Subscriptions will not be accepted
from any other persons.
2. SOLICITATION AND SOLICITATION MATERIAL. Solicitation and other
activities by you hereunder shall be undertaken only in accordance with
applicable laws and regulations and the terms hereof. Accompanying this letter
is a copy of the Prospectus which you may use to familiarize yourself with the
terms of this offering. Additional copies of the Prospectus will be sent to you
in reasonable quantities upon your request. No person is authorized to use any
solicitation material other than that referred to in the Prospectus and no
person is authorized to use any solicitation material in any state where such
use is prohibited by law.
3. MANNER OF MAKING OFFERS. Offers will be made only by delivery of a
copy of the Prospectus to a prospective purchaser (an "Offeree"). Before you
receive a Subscription Agreement from an Offeree you should verify that the
Offeree has received, read and is familiar with the Prospectus.
4. COMPENSATION. As compensation for services rendered in soliciting and
obtaining purchasers of the Units, the Corporation has agreed to pay to you a
commission equal to five percent. Such commissions will be evidenced by the
appearance on the Subscription Agreements which have been accepted by the
Corporation of the name of your firm as the Broker-Dealer having solicited such
purchases. You agree that all funds received by you with respect to any
Subscription Agreement shall be promptly transmitted, by the end of the next
business day after receipt, to First Trust of California, N.A., Global Escrow
Deposit Services, 550 South Hope Street, Suite 500, Los Angeles, California
90071, Attention: Brad E. Scarbrough. You will agree to instruct investors to
make checks payable to "First Trust of California, N.A., as Escrow Agent for
American Family Holdings, Inc. Unit Offering". Under no circumstances may you
withhold any portion of the purchase price received from a purchaser of Units to
be applied toward payment of your commission. It is expressly understood that
any and all costs and other related matters which you incur other than those
which the Corporation agrees in writing shall be reimbursed will be your sole
responsibility. In the event that the Corporation decides in the future to
provide compensation in the form of cash sales incentives, such payments would
only be made pursuant to applicable regulatory requirements and approval; if
such items were approved and instituted, your firm would be required to control
the distribution of such items to persons associated with your firm and your
firm would be required to reflect the value of such items on your books and
records.
5. CONDITIONS FOR PAYMENT OF SALES COMPENSATION. All commissions and
agreed reimbursements of expenses payable by the Corporation under Paragraph 4
above are subject to acceptance of the Subscription Agreement by the Corporation
and the Corporation specifically reserves the right to reject any such
Agreement. In
<PAGE>
the event that the Acquisition described in the Prospectus is not completed or
if the transactions referred to herein and in the Prospectus are not consummated
for any reason, all subscription payments shall be refunded to all investors and
no commission will be due or payable to you. There is no minimum number of
Units which must be sold. Commissions and agreed reimbursements of expenses to
be paid to you pursuant to Paragraph 4 hereof shall be paid by the Corporation
to the Broker-Dealer as shown on the Subscription Agreement within 15 days
following the closing of the offering.
6. UNAUTHORIZED INFORMATION AND REPRESENTATIONS. Neither you nor any
other person is authorized by the Corporation or any other person to give any
information or make any representations in connection with this Agreement or the
offering of the Units other than those contained in the Prospectus furnished by
the Corporation. You agree not to publish, circulate, or otherwise use any
other advertisement or solicitation material under any circumstances.
7. BLUE SKY QUALIFICATIONS. The Corporation assumes no obligation or
responsibility with respect to the qualification of the Units or the right to
solicit purchases of the Units under the laws of any state or other
jurisdiction, but the Corporation will advise you in writing as to the states or
other jurisdictions in which it is believed that solicitations of purchases of
the Units may be made under the applicable blue sky or securities laws.
Solicitations are to be made only by Broker-Dealers, agents and salesmen
qualified to act as such for such purpose within the states or other
jurisdictions in which they make such solicitations.
8. GENERAL. You hereby represent that you are a member in good standing
of the National Association of Securities Dealers, Inc. ("NASD") and that you
will continue such qualification during the term of this Agreement. Upon your
acceptance of this Agreement and in your soliciting purchases of the Units, you
agree to comply with any applicable requirements of the Securities Act of 1933,
as amended, the Securities Exchange Act of 1934, as amended, and the published
rules and regulations thereunder, and the rules and regulations of all state
securities authorities, as applicable. You agree to comply with the rules and
regulations of the NASD including all applicable Conduct Rules. In reference to
those Conduct Rules, you agree in recommending the purchase, sale or exchange of
Units to a participant, you will have reasonable grounds to believe that the
Corporation is suitable for the participant, and that, prior to participating in
the sale of Units hereunder, you shall have reasonable grounds to believe that
all material facts related to the offering are fully and accurately disclosed
and provide a basis for evaluating the offering, and that prior to any purchase,
you shall inform the prospective participant of all relevant facts relating to
the liquidity and marketability of the Corporation. You agree that each
Subscription Agreement will be executed by a principal of your firm. You
acknowledge your obligation to assure the adequacy and accuracy of the material
facts relating to, without limitation, items of compensation, physical
properties, tax aspects, financial stability and expenses of the Corporation,
the Corporation's conflict and risk factors, and appraisals and other pertinent
reports.
9. TERMINATION. This Agreement may be terminated by written or
telegraphic notice to you from the Corporation and, in any case, will terminate
at the close of business at the end of the 180th day following the date of the
Prospectus (unless extended thereafter by the Corporation, provided that all
compensation payable to you under the terms and conditions hereof shall be paid
when due, although this Agreement shall have theretofore been terminated).
10. LIABILITY OF PARTICIPATING BROKER-DEALERS AND INDEMNIFICATION.
Nothing herein contained shall constitute Program and the Broker-Dealers, or any
of them, an association, partnership, unincorporated business or other separate
entity.
(a) The Corporation agrees to indemnify and hold harmless you and
each person who controls you within the meaning of the Securities Act of 1933,
as amended (the "Act"), against any losses, claims, damages or liabilities,
joint or several, to which you may become subject, under the Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereto) arise out of or are based upon (i) any untrue statement or alleged
untrue statement of a material fact contained (A) in the Prospectus, (B) in any
state securities or "blue sky" application or other document executed by the
Corporation specifically for that purpose or based upon
2
<PAGE>
written information furnished by the Corporation filed in any state or other
jurisdiction in order to qualify any or all of the Units or perfect exemptions
from qualification under the securities laws thereof (any such application,
document or information being hereinafter called a "Blue Sky Application"); or
(ii) the omission or alleged omission to state in the Prospectus or in any Blue
Sky Application a material fact required to be stated therein or necessary to
make the statements therein in the light of the circumstances under which they
were made not misleading; and will reimburse you for any legal or other expenses
reasonably incurred by you in connection with investigating or defending any
such loss, claim, damage, liability or action, provided, however, that you shall
not be indemnified for any losses, liabilities or expenses arising from or out
of an alleged violation of federal or state securities laws unless (1) there has
been a successful adjudication on the merits of each count involving alleged
securities law violations as to the particular indemnitee, or (2) such claims
have been dismissed with prejudice on the merits by a court of competent
jurisdiction as to the particular indemnitee or (3) a court of competent
jurisdiction approves a settlement of the claims against a particular
indemnitee. In any claim for indemnification for federal or state securities
law violations, the party seeking indemnification shall place before the court
the position of the Securities and Exchange Commission and the position, if
applicable, of any state securities regulatory authority in any jurisdiction in
which Units were sold with respect to the issue of indemnification for
securities law violations. The Corporation and the General Partner shall not
incur the cost of that portion of any insurance, other than public liability
insurance, which insures any party against any liability the indemnification of
which is herein prohibited.
(b) You agree to indemnify and hold harmless the Corporation, and its
officers, directors and other controlling persons, against any losses, claims,
damages or liabilities to which the Corporation or such General Partner may
become subject, under the Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereto) arise out of or are based
upon (i) any untrue statement or alleged untrue statement of a material fact in
any communication between you, your representatives or agents and an investor,
or (ii) the omission or alleged omission to state a material fact required to be
stated in any communication between you, your representatives or agents and any
investor, or necessary to make the statements to said investor not misleading.
(c) Promptly after receipt by an indemnified party under this
Paragraph 10 of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereto is to be made against any indemnifying party
under this Paragraph 10, notify in writing the indemnifying party of the
commencement thereof; and the omission so to notify the indemnifying party will
relieve it from any liability under this Paragraph 10 as to the particular item
for which indemnification is then being sought but not from any other liability
which it may have to any indemnified party. In case any such action is brought
against any indemnified party, and it notifies an indemnifying party of the
commencement thereof, the indemnifying party will not be liable to such
indemnified party under this Paragraph 10 for any legal or other expenses
subsequently incurred by such indemnified party in connection with the defense
thereof other than reasonable costs of investigation. If any such indemnifying
party elects to defend any such action, such indemnifying party shall not be
liable to any such indemnified party on account of any settlement of such claim
or action effected without the consent of such indemnifying party. Any
indemnified party may, at its own cost and expense, participate at any time in
any claim or action covered by this Paragraph 10.
(d) You agree that you will perform appropriate due diligence in
respect to the offering, and that you will not rely on any due diligence
performed by L.H. Friend, Weinress, Frankson & Presson, Inc. in its capacity as
wholesaler of the Units.
11. MISCELLANEOUS. You shall retain on behalf of the Corporation, in your
files, for a period of at least four years, information which will establish
that each purchaser of Units meets the applicable suitability standards set
forth in the Prospectus.
In the event that any dispute arises between you and the Corporation
out of or by any reason of this Agreement, then and in that event such parties
do hereby agree that said dispute shall be arbitrated in accordance with the
then existing rules of the American Arbitration Association in Orange County,
California, and
3
<PAGE>
that any award rendered thereunder, including attorneys' fees and costs to the
prevailing party, may be entered in any court of competent jurisdiction, state
or federal, including attorneys' fees and costs to prevailing party.
This Agreement constitutes the entire agreement between you and the
Corporation and any change, amendment or alteration to this Agreement shall be
ineffective unless reduced to writing and executed by both parties. This
Agreement shall be governed by California law without giving effect to conflicts
of law or choice of law provisions. Each party agrees to perform any further
acts and execute and deliver any other documents which may reasonably be
necessary to carry out the terms of this Agreement.
It is expressly understood that no representations have been made in
connection with this Agreement other than as herein set forth, except those
representations contained in the Prospectus or the Sales Literature provided to
you.
Very truly yours,
AMERICAN FAMILY HOLDINGS, INC.,
a Delaware corporation
By_____________________________
David G. Lasker, President
4
<PAGE>
AMERICAN FAMILY HOLDINGS, INC.
4220 Von Karman, Suite 110, Newport Beach, California 92660
Dear Sir or Madam:
We hereby confirm our acceptance of the terms and conditions of the foregoing
Selling Agreement. We hereby acknowledge receipt of the Prospectus referred to
in the foregoing Agreement and confirm that in executing this confirmation we
have relied upon such Prospectus and upon no other representations whatsoever,
written or oral. We confirm that we are members in good standing of the
National Association of Securities Dealers, Inc. and that we will comply with
the Conduct Rules of that association, and we are qualified to act as a
securities broker-dealer in all states or jurisdictions in which we intend to
solicit purchasers of Units, as indicated below.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
/ / Alabama / / Illinois / / Montana / / Puerto Rico
/ / Alaska / / Indiana / / Nebraska / / Rhode Island
/ / Arizona / / Iowa / / Nevada / / South Carolina
/ / Arkansas / / Kansas / / New Hampshire / / South Dakota
/ / California / / Kentucky / / New Jersey / / Tennessee
/ / Colorado / / Louisiana / / New Mexico / / Texas
/ / Connecticut / / Maine / / New York / / Utah
/ / Delaware / / Maryland / / North Carolina / / Vermont
/ / District of Columbia / / Massachusetts / / North Dakota / / Virginia
/ / Florida / / Michigan / / Ohio / / Washington
/ / Georgia / / Minnesota / / Oklahoma / / West Virginia
/ / Hawaii / / Mississippi / / Oregon / / Wisconsin
/ / Idaho / / Missouri / / Pennsylvania / / Wyoming
</TABLE>
OR
/ /All jurisdictions in the United States
OR
/ /All jurisdictions in the United States except
- -------------------------------------------------------------------------------
(The foregoing does not indicate Blue Sky status of the Offering)
- ----------------------------------- ----------------------------------
Broker-Dealer Name Date
- ----------------------------------- ----------------------------------
By: (Authorized Signature:
President, Partner or Proprietor) (Main Office Address)
- ----------------------------------- ----------------------------------
(Print or Type Name) (City and State)
- ----------------------------------- ----------------------------------
(Print or Type Title) (Telephone Number)
<PAGE>
AGREEMENT OF PURCHASE AND SALE
AND JOINT ESCROW INSTRUCTIONS
BY AND BETWEEN
NATIONAL INVESTORS FINANCIAL, INC.,
a California corporation, AS TRUSTEE for
NATIONAL INVESTORS LAND HOLDING TRUST,
AS SELLER
AND
MORI POINT DESTINATIONS, INC.,
a California corporation,
AS BUYER
RELATING TO
PROPERTY LOCATED IN
Pacifica, California
known as
"MORI POINT"
DATED AS OF
September ___, 1997
<PAGE>
TABLE OF CONTENTS
PAGE
----
1. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. Purchase and Sale . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.1 Purchase and Sale. . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.2 Substance of Transactions. . . . . . . . . . . . . . . . . . . . . . 6
3. Exchange Value. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
4. Escrow. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
5. Cancellation Fees and Expenses. . . . . . . . . . . . . . . . . . . . . 6
6. Deliveries to Escrow Holder . . . . . . . . . . . . . . . . . . . . . . 7
6.1 By Seller. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
6.2 By Buyer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
6.3 By Buyer and Seller. . . . . . . . . . . . . . . . . . . . . . . . . 7
7. Condition of Title. . . . . . . . . . . . . . . . . . . . . . . . . . . 8
7.1 Permitted Exceptions . . . . . . . . . . . . . . . . . . . . . . . . 8
7.2 Title Provided by Seller . . . . . . . . . . . . . . . . . . . . . . 8
8. Conditions to the Close of Escrow . . . . . . . . . . . . . . . . . . . 8
8.1 Conditions Precedent to Buyer's Obligations. . . . . . . . . . . . . 8
8.1.1 Title. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
8.1.2 Representations, Warranties and Covenants of Seller. . . . . . . . . 8
8.1.3 Seller's Deliveries. . . . . . . . . . . . . . . . . . . . . . . . . 9
8.2 Conditions Precedent to Seller's Obligations . . . . . . . . . . . . 9
9. Approval of Seller's Constituents . . . . . . . . . . . . . . . . . . . 9
10. Property "As-Is. . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
10.1 No Side Agreements Or Representations; As-Is Purchase . . . . . . . 9
10.2 Disclosures; Specific Acknowledgment Regarding Condition
of Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
11. Title Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
12. Costs and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . 13
13. Disbursements and Other Actions. . . . . . . . . . . . . . . . . . . . 14
13.1 Escrow Holder.. . . . . . . . . . . . . . . . . . . . . . . . . . . 14
13.2 By Transfer Agent . . . . . . . . . . . . . . . . . . . . . . . . . 14
13.3 Possession.. . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
14. Joint Representations and Warranties . . . . . . . . . . . . . . . . . 15
i
<PAGE>
14.1 Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
14.2 Actions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
14.3 Due Execution . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
14.4 Valid and Binding . . . . . . . . . . . . . . . . . . . . . . . . . 15
14.5 Broker. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
15. Seller's Warranties and Representations. . . . . . . . . . . . . . . . 15
15.1 Non-Foreign Entity. . . . . . . . . . . . . . . . . . . . . . . . . 15
15.2 Hazardous Substances. . . . . . . . . . . . . . . . . . . . . . . . 16
15.3 Clean-up. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
15.4 Claims. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
16. Pre-Closing Covenants. . . . . . . . . . . . . . . . . . . . . . . . . 16
16.1 No Transfers. . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
16.2 No Alterations. . . . . . . . . . . . . . . . . . . . . . . . . . . 16
16.3 Maintenance.. . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
16.4 Obligations Under Contracts.. . . . . . . . . . . . . . . . . . . . 16
16.5 Expenditures. . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
17. Condemnation and Destruction . . . . . . . . . . . . . . . . . . . . . 17
17.1 Eminent Domain or Taking. . . . . . . . . . . . . . . . . . . . . . 17
17.2 Damage or Destruction . . . . . . . . . . . . . . . . . . . . . . . 17
18 Utilities and Deposits. . . . . . . . . . . . . . . . . . . . . . . . . 18
18.1 Utilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
18.2 Refundable Deposits . . . . . . . . . . . . . . . . . . . . . . . . 18
19. Mediation of Disputes. . . . . . . . . . . . . . . . . . . . . . . . . 18
20. Arbitration of Disputes: . . . . . . . . . . . . . . . . . . . . . . . 19
21. Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
22. Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
23. Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
23.1 Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
23.2 Partial Invalidity. . . . . . . . . . . . . . . . . . . . . . . . . 20
23.3 Possession of the Property. . . . . . . . . . . . . . . . . . . . . 20
23.4 Waivers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
ii
<PAGE>
23.5 Successors and Assigns. . . . . . . . . . . . . . . . . . . . . . . 20
23.6 Professional Fees . . . . . . . . . . . . . . . . . . . . . . . . . 20
23.7 Entire Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . 21
23.8 Time of Essence . . . . . . . . . . . . . . . . . . . . . . . . . . 21
23.9 Construction. . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
23.10 Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . . . 21
23.11 Wear and Tear. . . . . . . . . . . . . . . . . . . . . . . . . . . 21
23.12 No Recordation . . . . . . . . . . . . . . . . . . . . . . . . . . 21
23.13 Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
23.14 Disclaimer . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
23.15 Waiver of Jury Trial . . . . . . . . . . . . . . . . . . . . . . . 22
EXHIBITS
EXHIBIT A - Legal Description
EXHIBIT B - Form of Grant Deed
EXHIBIT C - FIRPTA Affidavit
EXHIBIT D - Assignment and Assumption
EXHIBIT E - Bill of Sale and General Assignment of Intangibles
iii
<PAGE>
AGREEMENT OF PURCHASE AND SALE
AND JOINT ESCROW INSTRUCTIONS
THIS AGREEMENT OF PURCHASE AND SALE AND JOINT ESCROW INSTRUCTIONS
("AGREEMENT") is made and entered into as of ____________ __, 1997, by and
between NATIONAL INVESTORS FINANCIAL, INC., a California corporation and a
licensed California real estate broker, AS TRUSTEE for NATIONAL INVESTORS
LAND HOLDING TRUST ("SELLER"), and MORI POINT DESTINATIONS, INC., a
California corporation ("BUYER").
R E C I T A L S
A. Seller is the title holder of that certain unimproved real property
commonly known as "Mori Point", consisting of approximately 105 acres, located
in the County of San Mateo, State of California, as more particularly described
in EXHIBIT A attached hereto (the "Real Property"). Buyer is a wholly-owned
subsidiary of American Family Communities, Inc., a California corporation
("AFC").
B. Seller holds record title to the Real Property as agent of and for the
benefit of various investors who are the beneficiaries of National Investors
Land Holding Trust (the "Trust").
C. Seller desires to sell to Buyer and Buyer desires to purchase from
Seller the Property (as hereinafter defined) on the terms and conditions set
forth in this Agreement.
NOW, THEREFORE, in consideration of the foregoing Recitals, which Recitals
are incorporated herein by this reference, and for other good and valuable
consideration, the receipt and adequacy of which is hereby acknowledged, Buyer
and Seller agree as follows:
A G R E E M E N T
1. DEFINITIONS: For the purposes of this Agreement the following terms
will be defined as follows:
1.1 "ACTUAL KNOWLEDGE OF SELLER" means and is limited to the actual
knowledge of David Lasker and James N. Orth (both of whom are licensed
California real estate brokers) without having conducted any independent
inquiry or inspection, and shall not include the knowledge of any other
persons or firms, it being understood and agreed by Buyer that neither David
Lasker nor James N. Orth is charged with knowledge of all of the acts and/or
omissions of predecessors in title to the Property or management of the
Property before Seller's acquisition of the Property and the Actual Knowledge
of Seller shall not include information or material which may be in the
possession of Seller generally, but of which neither David Lasker nor James
N. Orth is actually aware.
1.2 "AFC" means American Family Communities, Inc., a California
corporation, which is a wholly-owned subsidiary of AFH.
1.
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1.3 "AFH" means American Family Holdings, Inc., a Delaware corporation.
Buyer is a wholly-owned subsidiary of AFC, which, in turn, is a wholly-owned
subsidiary of AFH.
1.4 "ASSIGNMENT" shall have the meaning given thereto in Section 6.1(d)
hereof.
1.5 "BILL OF SALE" shall have the meaning given thereto in Section 6.1(e)
hereof.
1.6 "CLOSING DATE" means ___________, 1997, unless an earlier date is
agreed to in a writing subsequent to this Agreement executed and delivered by
each of the parties hereto to the other, and is the last date on which the
Closing and Close of Escrow can occur, subject to extension as provided for in
this Agreement.
1.7 "CLOSING" and "CLOSE OF ESCROW" are terms used interchangeably in
this Agreement. The Closing or the Close of Escrow will be deemed to have
occurred when the Grant Deed is recorded in the official records of the county
in which the Property is located.
1.8 "EFFECTIVE DATE" means the date hereof.
1.9 "ENVIRONMENTAL AUDIT" means any environmental audit, review or testing
of the Property performed by Buyer or any third party or consultant
engaged by Buyer to conduct such study.
1.10 "ENVIRONMENTAL LAW" means any law, statute, ordinance or regulation
pertaining to health, industrial hygiene or the environment including, without
limitation, CERCLA (Comprehensive Environmental Response, Compensation and
Liability Act of 1980) and RCRA (Resources Conservation and Recovery Act of
1976), as amended.
1.11 "ESCROW" shall have the meaning given thereto in Section 4 hereof.
1.12 "ESCROW HOLDER" means _______________________________, whose
address is _______________________________________________________________,
Attn: ___________________.
1.13 "EXCHANGE VALUE" is the adjusted appraised value of the Property which
takes into consideration various factors to balance the business value of the
Property within its present ownership structure.
1.14 "FIRPTA CERTIFICATE" shall have the meaning given thereto in
Section 6.1(b) hereof.
1.15 "GRANT DEED" shall have the meaning given thereto in Section 6.1(a)
hereof.
1.16 "HAZARDOUS SUBSTANCE" means any substance, material or waste which is
or becomes designated, classified or regulated as being "toxic" or "hazardous"
or a "pollutant" or
2.
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which is or becomes similarly designated, classified or regulated, under any
Environmental Law, including asbestos, petroleum and petroleum products.
1.17 "IMPROVEMENTS" means any and all improvements and fixtures situated on
the Real Property.
1.18 "INVESTORS" means the beneficiaries of the Trust.
1.19 "INTANGIBLES" means all of Seller's right, title and interest in and
to all intangible property used, owned or issued solely and strictly in
connection with the Real Property, Improvements and Personal Property,
including, but not limited to: (i) trade names and trademarks, contract rights,
accounts receivables and other intangible property used in connection with the
ownership and operation of the Property; (ii) all licenses, permits,
certificates of occupancy, approvals, dedications and entitlements issued,
approved or granted by any governmental authorities having jurisdiction over the
Property; and (iii) all development rights, conditional use permits, variances
and other intangible rights, titles, interests and privileges owned by Seller
and related to or issued in connection with the Land and/or Improvements, its
use, occupancy, operation and development, but in no way related to Seller's
financial data or other proprietary information or other property of Seller.
1.20 "NOTICES" will be sent as provided in Section 21 to:
Seller: National Investors Land Holding Trust
c/o National Investors Financial, Inc.
4675 MacArthur Court, Suite 1240
Newport Beach, CA 92660
Attn: Mr. David Lasker
Telephone: (714) 833-8600
Facsimile: (714) 752-9753
with a copy to: Arter & Hadden
700 South Flower Street, Suite 3000
Los Angeles, CA 90017
Attn: Bruce H. Newman, Esq.
Telephone: (213) 629-9300
Facsimile: (213) 617-9255
Buyer: Mori Point Destinations, Inc.
______________________
______________________
Attn:__________________
Telephone: _____________
Facsimile: ______________
3.
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with a copy to: Arter & Hadden
700 South Flower Street, Suite 3000
Los Angeles, CA 90017
Attn: Bruce H. Newman, Esq.
Telephone: (213) 629-9300
Facsimile: (213) 617-9255
Escrow Holder: __________________________________
__________________________________
__________________________________
Attn: ___________________
Telephone: ________________________
Facsimile: ________________________
1.21 "OPENING OF ESCROW" shall have the meaning given thereto in Section 4
hereof.
1.22 "OTHER ASSETS" means cash, cash equivalent, notes and other negotiable
instruments and any and all other assets in the possession or control of
Seller, the value of which is determined by possession, and any other assets
other than the Real Property, Personal Property or Intangibles relating to the
Real Property.
1.23 "PERMITTED EXCEPTIONS" shall have the meaning given thereto in
Section 7.1 hereof.
1.24 "PERSONAL PROPERTY" means the equipment, furniture and fixtures, books
and records and other personal property, if any, owned by Seller and
located on the Property as of the Effective Date, including without limitation,
those items listed on SCHEDULE 1 to the Bill of Sale.
1.25 "PROPERTY" means collectively, (i) the Real Property, (ii) the
Improvements , (iii) the Intangibles, (iv) the Personal Property and (v) the
Other Assets.
1.26 "PROSPECTUS" means the Consent Solicitation Statement/Prospectus of
Buyer.
1.27 "REAL PROPERTY" means that certain real property located in the County
of San Mateo, State of California and commonly known as "Mori Point" and more
particularly described in EXHIBIT A attached hereto. The Real Property consists
of approximately 105 acres of land including approximately 2,000 feet of beach
front.
1.28 "TITLE COMPANY" means ________________________________________.
1.29 "TITLE POLICY" shall have the meaning given thereto in Section 11
hereof.
1.30 "TRANSFER AGENT" means ___________________, who address is
__________________, Attn: ___________, Facsimile No. ___________..
4.
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2. PURCHASE AND SALE:
2.1 PURCHASE AND SALE. Upon and subject to the terms and conditions
set forth in this Agreement, Seller agrees to sell to Buyer and Buyer agrees to
buy from Seller the Property, together with all easements, hereditaments,
entitlements (to the extent transferable) and appurtenances thereto. In
consideration of Seller's sale of the Property to Buyer, Buyer will (a) cause to
be delivered to the investors of Seller the Exchange Value in accordance with
Section 3, and (b) perform all of Buyer's other obligations hereunder.
2.2 SUBSTANCE OF TRANSACTIONS. Notwithstanding any other provision
of this Agreement, the transfer of the Property directly from Seller to Buyer
is for convenience purposes only to effect expeditiously the culmination of
the transfers set forth in this Section 2.2, and for all purposes hereunder
it is the intent of the parties that such transfer reflects the following
transfers, which shall occur in the following order: (i) all of the
Investors, through their approval of the transactions contemplated under this
Agreement, contribute all of their interests in the Property to AFH in
exchange for shares of common stock of AFH, such shares to be distributed to
them pursuant to Sections 3 and 13.2 hereof; (ii) AFH contributes the
Property to AFC as a contribution to the capital of AFC; and (iii) AFC
contributes the Property to Buyer as a contribution to the capital of Buyer.
Seller's transfer of the Property directly to Buyer reflects Seller's
transfer of the Property from the Investors to AFH, from AFH to AFC, and from
AFC to the Buyer, in each instance in Seller's capacity as the agent of and
on behalf of such transferors.
3. EXCHANGE VALUE: In consideration for the sale of the Property to
Buyer, Buyer will deliver to Seller an amount equal to the Exchange Value for
the Property. The Exchange Value for the Property is $______________, which
shall be paid in the form of, and by issuance and delivery of, _____ shares of
common stock in AFH to the investors of Seller, to be distributed by the
Transfer Agent at the Closing outside of Escrow in accordance with Section 13.2
hereof. Upon the request of any party hereto, whether made before or after the
Closing, the parties hereto will allocate the Exchange Value to the Real
Property, Improvements, Personal Property, Other Assets and the Intangibles.
4. ESCROW: Immediately upon execution of this Agreement, Buyer and
Seller will open an escrow (the "ESCROW") with the Escrow Holder by delivering
to Escrow Holder a fully executed copy of this Agreement (the "OPENING OF
ESCROW"). The purchase and sale of the Property will be completed through the
Escrow. Buyer and Seller agree to execute any additional instructions
consistent with this Agreement which are reasonably required by the Escrow
Holder. If there is a conflict between any printed escrow instructions and this
Agreement, the terms of this Agreement will govern.
5. CANCELLATION FEES AND EXPENSES: If the Closing does not occur at the
time and in the manner provided in this Agreement because of the default of one
of the parties, the non-defaulting party has the right to cancel the Escrow by
written notice to the defaulting party and to the Escrow Holder. All costs of
cancellation, if any, will be paid by the defaulting party.
5.
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6. DELIVERIES TO ESCROW HOLDER:
6.1 BY SELLER. On or prior to the Closing Date, Seller will deliver or
cause to be delivered to Escrow Holder the following items:
(a) A Grant Deed ("GRANT DEED"), in the form attached to this
Agreement as EXHIBIT B, duly executed and acknowledged by Seller and in
recordable form, conveying the Property to Buyer.
(b) A Transferor's Certificate of Non-Foreign Status attached to this
Agreement as EXHIBIT C ("FIRPTA CERTIFICATE"), duly executed by or on
behalf of Seller.
(c) A properly executed California Form RE 590 or other evidence
sufficient to establish that Buyer is not required to withhold any portion
of the Exchange Value pursuant to Sections 18805 and 26131 of the
California Revenue and Taxation Code ("FORM 590").
(d) An Assignment and Assumption of Agreements ("ASSIGNMENT") duly
executed by Seller in favor of Buyer in the form attached to this Agreement
as EXHIBIT D.
(e) A Bill of Sale and General Assignment of Intangibles in the form
attached to this Agreement as EXHIBIT E ("BILL OF SALE"), duly executed by
Seller and conveying all right, title and interest of Seller in the
Personal Property and the Intangibles to Buyer.
(f) Such corporate resolutions, certificates of good standing and/or
other corporate or partnership documents relating to Seller as are
reasonably required by Buyer or Escrow Holder or both in connection with
this transaction.
6.2 BY BUYER. On or prior to the Closing Date, Buyer will deliver or
cause to be delivered to Escrow Holder the following items:
(a) Such corporate resolutions, certificates of good standing and/or
other corporate or partnership documents relating to Buyer as are
reasonably required by Seller or Escrow Holder or both in connection with
this transaction.
(b) Amounts due to pay costs and expenses as set forth in Section 12
hereof.
6.3 BY BUYER AND SELLER. Buyer and Seller will each deposit such other
instruments consistent with this Agreement as are reasonably required by Escrow
Holder or otherwise required to close escrow. In addition Seller and Buyer
hereby designate Escrow Holder as the "REPORTING PERSON" for the transaction
pursuant to Section 6045(e) of the Internal Revenue Code.
6.
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7. CONDITION OF TITLE:
7.1 PERMITTED EXCEPTIONS. At the Close of Escrow, fee simple title to the
Property will be conveyed to Buyer by Seller by Grant Deed, subject only to the
following title matters ("PERMITTED EXCEPTIONS"):
(a) all property tax liens (whether or not payment of property taxes
are delinquent) and all other matters shown in that certain Amended
Commitment for Title Insurance effective [TO BE DETERMINED], issued by the
Title Company, bearing Order No.________; and
(b) matters affecting the condition of title to the Property created
by, at the request of or with the written consent of Buyer.
7.2 TITLE PROVIDED BY SELLER. The parties agree that (a) except as
specifically provided in the Grant Deed or implied by law, Seller makes no
express or implied warranties regarding the condition of title to the Property,
and (b) Buyer shall rely solely on the Title Policy for protection against any
title defects.
8. CONDITIONS TO THE CLOSE OF ESCROW:
8.1 CONDITIONS PRECEDENT TO BUYER'S OBLIGATIONS. The following conditions
must be satisfied not later the earlier of the Closing Date or such other period
of time as may be specified below:
8.1.1 TITLE. As of the Closing, the Title Company will issue or
have committed to issue to Buyer the Title Policy described in Section 11.
8.1.2 REPRESENTATIONS, WARRANTIES AND COVENANTS OF SELLER. Seller
will have duly performed each and every agreement to be performed by Seller
hereunder and, subject to the provisions of Section 10, Seller's express
representations and warranties set forth in this Agreement will be true and
correct in all material respects as of the Closing Date. However,
notwithstanding anything to the contrary stated or implied in this Section
8.1.2, Seller shall have no liability for the breach of any
representations, warranties or covenants set forth in this Agreement,
whether express or implied, absent a finding by a court of competent
jurisdiction that either David Lasker or James N. Orth or both of them
withheld information with respect thereto from Buyer or falsified
information delivered to and relied upon by Buyer and that such action
amounted to a violation of a representation or warranty set forth herein.
8.1.3 SELLER'S DELIVERIES. Seller will have delivered the items
described in Section 6.1.
The conditions set forth in this Section 8.1 are solely for the benefit of
Buyer and may be waived only by Buyer. At all times Buyer has the right to
waive any condition. Such waiver or
7.
<PAGE>
waivers must be in writing to Seller. If any conditions are not satisfied on
or before the Closing Date, and Buyer has not waived the unsatisfied conditions,
Seller will not be deemed to be in default (unless Seller has breached
Sections 8.1.2 or 8.1.3 above) and Buyer's sole remedy will be to terminate this
Agreement.
8.2 CONDITIONS PRECEDENT TO SELLER'S OBLIGATIONS. The Close of Escrow and
Seller's obligations with respect to this transaction are subject to the
following conditions precedent: (a) Buyer's delivery to Escrow Holder on or
before the Closing Date, of the items described in Section 6.2; (b) the approval
of such of Seller's constituents as Seller shall deem necessary or advisable in
its sole and absolute discretion as set forth in Section 9 hereof; (c) Buyer
having duly performed each and every agreement to be performed by Buyer
hereunder; and (d) Buyer's representations, warranties and covenants set forth
in this Agreement, will be true and correct in all material respects as of the
Closing Date. The conditions set forth in this Section 8.2 are solely for the
benefit of Seller and may be waived only by Seller, with such waiver or waivers
to be in writing to Buyer. If any conditions are not satisfied on or before the
Closing Date, and Seller has not waived the unsatisfied conditions, Buyer will
not be deemed to be in default (unless Buyer has breached Sections 8.2(a), (c)
or (d) above) and Seller's sole remedy will be to terminate the Agreement.
9. APPROVAL OF SELLER'S CONSTITUENTS: Seller shall exercise reasonable
diligence to obtain the approval of this transaction by such of the constituents
of Seller as Seller shall deem necessary or advisable, in its sole and absolute
discretion, and shall notify Buyer and Escrow Holder when such approvals have
been obtained. If Seller is not able to obtain such approvals from such
constituents on or before the date which is ____ days after the Effective Date,
or such later date as is mutually agreed to by Buyer and Seller, then Seller may
cancel this Agreement by notice to Buyer and Escrow Holder given prior to the
end of that time period, and in that event Seller shall pay all title and escrow
cancellation costs. Seller shall indemnify and hold Buyer harmless from any
claim, damage, loss, liability, action, settlement, including Buyer's reasonable
attorneys' fees suffered by Buyer and which results from or relates to the
Seller's securing approval of this transaction and transferring the Property to
Buyer pursuant to such approval.
10. PROPERTY "AS-IS":
10.1 NO SIDE AGREEMENTS OR REPRESENTATIONS; AS-IS PURCHASE. BUYER
REPRESENTS, WARRANTS AND COVENANTS TO SELLER THAT BUYER HAD THE OPPORTUNITY TO
INDEPENDENTLY AND PERSONALLY INSPECT THE PROPERTY AND IMPROVEMENTS, IF ANY, AND
THAT BUYER HAS ENTERED INTO THIS AGREEMENT AFTER HAVING MADE SUCH PERSONAL
EXAMINATION AND INSPECTION. BUYER AGREES THAT BUYER WILL ACCEPT THE PROPERTY,
IN ITS THEN CONDITION AS-IS AND WITH ALL ITS FAULTS, INCLUDING WITHOUT
LIMITATION, ANY FAULTS AND CONDITIONS SPECIFICALLY REFERENCED IN THIS AGREEMENT,
SUBJECT TO THE EXPRESS COVENANTS, INDEMNITIES, REPRESENTATIONS AND WARRANTIES
MADE BY SELLER ELSEWHERE HEREIN. NO PERSON ACTING ON BEHALF OF SELLER IS
AUTHORIZED TO MAKE, AND BY EXECUTION HEREOF, BUYER ACKNOWLEDGES AND AGREES THAT,
EXCEPT FOR
8.
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THOSE REPRESENTATIONS, WARRANTIES, COVENANTS, INDEMNITIES AND AGREEMENTS
EXPRESSLY MADE BY SELLER IN THIS AGREEMENT, SELLER HAS NOT MADE, DOES NOT MAKE
AND SPECIFICALLY NEGATES AND DISCLAIMS ANY REPRESENTATIONS, WARRANTIES,
PROMISES, COVENANTS, AGREEMENTS OR GUARANTIES OF ANY KIND OR CHARACTER
WHATSOEVER, WHETHER EXPRESS OR IMPLIED, ORAL OR WRITTEN, PAST, PRESENT OR
FUTURE, OF, AS TO, CONCERNING OR WITH RESPECT TO:
(A) THE VALUE OF THE PROPERTY OR THE INCOME TO BE DERIVED
THEREFROM;
(B) THE SUITABILITY OF THE PROPERTY FOR ANY AND ALL ACTIVITIES
AND USES WHICH BUYER MAY CONDUCT THEREON, INCLUDING ANY DEVELOPMENT OF
THE PROPERTY;
(C) THE HABITABILITY, MERCHANTABILITY, MARKETABILITY,
PROFITABILITY OR FITNESS FOR A PARTICULAR PURPOSE OF THE PROPERTY;
(D) THE MANNER, QUALITY, STATE OF REPAIR OR LACK OF REPAIR OF
THE PROPERTY;
(E) THE NATURE, QUALITY OR CONDITION OF THE PROPERTY, INCLUDING
WITHOUT LIMITATION, THE WATER, SOIL AND GEOLOGY;
(F) THE TYPE, AVAILABILITY OR COST OF ANY ENTITLEMENTS REQUIRED
TO DEVELOP THE PROPERTY;
(G) THE COMPLIANCE OF OR BY THE PROPERTY OR ITS OPERATION WITH
ANY LAWS, RULES, ORDINANCES OR REGULATIONS OF ANY APPLICABLE
GOVERNMENTAL AUTHORITY OR BODY;
(H) THE MANNER, CONDITION OR QUALITY OF THE CONSTRUCTION OR
MATERIALS, IF ANY, INCORPORATED INTO THE PROPERTY;
(I) COMPLIANCE WITH ANY ENVIRONMENTAL PROTECTION, POLLUTION OR
LAND USE LAWS, RULES, REGULATION, ORDERS OR REQUIREMENTS, INCLUDING
BUT NOT LIMITED TO, THE ENDANGERED SPECIES ACT, TITLE III OF THE
AMERICANS WITH DISABILITIES ACT OF 1990 OR ANY OTHER LAW, RULE OR
REGULATION GOVERNING ACCESS BY DISABLED PERSONS, CALIFORNIA HEALTH &
SAFETY CODE, THE FEDERAL WATER
9.
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POLLUTION CONTROL ACT, THE FEDERAL RESOURCE CONSERVATION AND RECOVERY
ACT, THE U.S. ENVIRONMENTAL PROTECTION AGENCY REGULATIONS AT 40
C.F.R., PART 261, THE COMPREHENSIVE ENVIRONMENTAL RESPONSE
COMPENSATION AND LIABILITY ACT OF 1980, AS AMENDED, THE RESOURCES
CONSERVATION AND RECOVERY ACT OF 1976, THE CLEAN WATER ACT, THE SAFE
DRINKING WATER ACT, THE HAZARDOUS MATERIALS TRANSPORTATION ACT, THE
TOXIC SUBSTANCE CONTROL ACT, AND REGULATIONS PROMULGATED UNDER ANY OF
THE FOREGOING;
(J) THE PRESENCE OR ABSENCE OF HAZARDOUS MATERIALS AT, ON,
UNDER, OR ADJACENT TO THE PROPERTY;
(K) THE CONTENT, COMPLETENESS OR ACCURACY OF ANY MATERIALS,
INCLUDING ANY INFORMATIONAL PACKAGE, COST TO COMPLETE ESTIMATE OR
OTHER MATERIALS PREPARED BY OR ON BEHALF OF SELLER;
(L) THE CONFORMITY OF THE IMPROVEMENTS TO ANY PLANS OR
SPECIFICATIONS FOR THE PROPERTY, INCLUDING ANY PLANS AND
SPECIFICATIONS THAT MAY HAVE BEEN OR MAY BE PROVIDED TO BUYER;
(M) THE CONFORMITY OF THE PROPERTY TO PAST, CURRENT OR
FUTURE APPLICABLE ZONING OR BUILDING REQUIREMENTS;
(N) DEFICIENCY OF ANY UNDERSHORING;
(O) DEFICIENCY OF ANY DRAINAGE;
(P) THE FACT THAT ALL OR A PORTION OF THE PROPERTY MAY BE
LOCATED ON OR NEAR AN EARTHQUAKE FAULT LINE OR LOCATED IN AN
ALQUIST-PRIOLO SPECIAL STUDY ZONE;
(Q) THE EXISTENCE OF VESTED LAND USE, ZONING OR BUILDING
ENTITLEMENTS AFFECTING THE PROPERTY;
(R) ANY AND ALL REQUIREMENTS OR CONDITIONS OF APPROVAL OF
STATE AND LOCAL GOVERNMENTAL AGENCIES FOR DEVELOPMENT OF THE PROPERTY
INCLUDING, WITHOUT LIMITATION, THE CONSTRUCTION OF OFFSITE AND ONSITE
ROADS, UTILITIES AND OTHER IMPROVEMENTS; OR
10.
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(S) WITH RESPECT TO ANY OTHER MATTER CONCERNING THE PROPERTY
EXCEPT AS MAY BE OTHERWISE EXPRESSLY STATED HEREIN, INCLUDING ANY AND
ALL SUCH MATTERS REFERENCED, DISCUSSED OR DISCLOSED IN ANY DOCUMENTS
DELIVERED BY SELLER TO BUYER, IN ANY PUBLIC RECORDS OF ANY
GOVERNMENTAL AGENCY OR ENTITY OR UTILITY COMPANY, OR IN ANY OTHER
DOCUMENTS AVAILABLE TO BUYER.
(T) BUYER FURTHER ACKNOWLEDGES AND AGREES THAT BUYER IS RELYING
SOLELY ON ITS OWN INVESTIGATION OF THE PROPERTY AND ITS OWN REVIEW OF
ALL INFORMATION AND DOCUMENTATION CONCERNING THE PROPERTY, AND NOT ON
ANY INFORMATION PROVIDED OR TO BE PROVIDED BY SELLER. BUYER FURTHER
ACKNOWLEDGES AND AGREES THAT ANY INFORMATION MADE AVAILABLE TO BUYER
OR PROVIDED OR TO BE PROVIDED BY OR ON BEHALF OF SELLER WITH RESPECT
TO THE PROPERTY WAS OBTAINED FROM A VARIETY OF SOURCES AND THAT SELLER
HAS NOT MADE ANY INDEPENDENT INVESTIGATION OR VERIFICATION OF SUCH
INFORMATION AND MAKES NO REPRESENTATIONS AS TO THE ACCURACY OR
COMPLETENESS OF SUCH INFORMATION EXCEPT AS MAY OTHERWISE BE PROVIDED
HEREIN. BUYER AGREES TO FULLY AND IRREVOCABLY RELEASE ALL SUCH
SOURCES OF INFORMATION AND PREPARERS OF INFORMATION AND DOCUMENTATION
TO THE EXTENT SUCH SOURCES OR PREPARERS ARE SELLER, OR ITS EMPLOYEES,
OFFICERS, DIRECTORS, REPRESENTATIVES, BENEFICIARIES, INVESTORS,
AGENTS, SERVANTS, ATTORNEYS, AFFILIATES, PARENT COMPANIES,
SUBSIDIARIES, SUCCESSORS OR ASSIGNS FROM ANY AND ALL CLAIMS, DAMAGES
AND LIABILITIES ARISING FROM SUCH INFORMATION OR DOCUMENTATION, EXCEPT
IF AND TO THE EXTENT THAT BUYER EMPLOYS SUCH SOURCES OR PREPARERS OF
INFORMATION TO ACT ON BEHALF OF BUYER, IN WHICH EVENT THE LIABILITY OF
SUCH SOURCES OR PREPARERS OF INFORMATION TO BUYER SHALL BE DETERMINED
BY THEIR OWN INDEPENDENT AGREEMENTS WITH BUYER, AND SELLER SHALL NOT
BE LIABLE FOR SUCH AGREEMENTS OR OBLIGATIONS. SELLER IS NOT LIABLE OR
BOUND IN ANY MANNER BY ANY ORAL OR WRITTEN STATEMENTS, REPRESENTATIONS
OR INFORMATION PERTAINING TO THE PROPERTY, OR THE OPERATION THEREOF,
FURNISHED BY ANY OF THE FOREGOING ENTITIES AND INDIVIDUALS OR ANY
OTHER INDIVIDUAL OR ENTITY.
10.2 DISCLOSURES; SPECIFIC ACKNOWLEDGMENT REGARDING CONDITION OF
PROPERTY. Buyer acknowledges the disclosures expressly made by Seller in this
Agreement, the Prospectus and in correspondence from Seller, its attorneys
and/or its agents to Buyer, its attorneys and/or its agents. Without limiting
the generality of the foregoing, Buyer acknowledges that Seller has disclosed
11.
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the following: a portion of the Real Property contains a breeding and habitat
area for the San Francisco garter snake and the red legged frog, both of which
are classified as endangered species. Federal and state law requires that
permits be secured prior to development from both the United States Fish and
Wildlife Service and the California Department of Fish and Game. The
procurement of such permits will require, among other things, the preparation
and approval of a Habitat Conservation Plan which must be approved by the United
States Fish and Wildlife Service and California Department of Fish and Game. An
Environmental Audit currently is being prepared in connection with the Habitat
Conservation Plan. Buyer acknowledges that it is likely that the Habitat
Conservation Plan will require a portion of the Real Property to be set aside
from development and to remain undeveloped.
11. TITLE INSURANCE: At the Close of Escrow, the Title Company will
issue to Buyer at Buyer's sole cost and expense an ALTA Standard Coverage Policy
(1990) with coverage in an amount equal to the appraised value of the Real
Property as determined by Buyer in its sole discretion, showing title to the
Real Property vested in Buyer, subject only to the Permitted Exceptions and the
standard printed exceptions and conditions in the policy of title insurance
("TITLE POLICY"). If Buyer elects to obtain any additional endorsements or an
extended coverage policy, the additional premium and costs of survey for the
extended coverage policy and the cost of any endorsements will be at Buyer's
sole cost and expense; however, Buyer's election to obtain an extended coverage
policy will not delay the Closing and Buyer's inability to obtain an extended
coverage policy or any such endorsements will not be deemed to be a failure of
any condition to Closing.
12. COSTS AND EXPENSES: Buyer will pay the costs of Closing the
transaction as follows:
(a) all premiums for the Title Policy;
(b) all escrow fees and costs;
(c) all city and county documentary transfer taxes;
(d) all document recording charges;
(e) all sales taxes;
(f) one half of all escrow fees and costs;
(g) the entire additional cost of any ALTA extended coverage title
policy, the cost of any required survey and, the cost of any endorsements
required by Buyer; and
(h) All other costs and expenses necessarily incurred to close the
transaction.
12.
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13. DISBURSEMENTS AND OTHER ACTIONS:
13.1 ESCROW HOLDER. At the Close of Escrow, Escrow Holder will promptly
undertake all of the following:
(a) Cause the Grant Deed (with documentary transfer tax information
to be affixed AFTER recording) to be recorded with the County Recorder and
obtain conformed copies thereof for distribution to Buyer and Seller.
(b) Direct the Title Company to issue the Title Policy to Buyer
within 15 BUSINESS DAYS after Closing.
(c) Deliver to Buyer the FIRPTA Certificate, the Form 590 and any
other documents (or copies thereof) deposited into Escrow by Seller.
Deliver to Seller any other documents (or copies thereof) deposited into
Escrow by Buyer.
(d) Notify the Transfer Agent by telephone and facsimile that
the Close of Escrow has occurred.
13.2 BY TRANSFER AGENT. Promptly after the Close of Escrow, Transfer
Agent shall deliver all shares of common stock of AFH in payment of the Exchange
Value for the Property to the persons, at the addresses and in the amounts
designated by Seller.
13.3 POSSESSION. Possession of the Other Assets in Seller's possession or
control and all other Property shall be delivered by Seller to Buyer at the
Close of Escrow.
14. JOINT REPRESENTATIONS AND WARRANTIES: In addition to any express
agreements of the parties contained herein, the following constitute
representations and warranties of the parties each to the other:
14.1 AUTHORITY. Each party has the legal power, right and authority to
enter into this Agreement and the instruments referenced herein, and to
consummate this transaction.
14.2 ACTIONS. All requisite action (corporate, trust, partnership or
otherwise) has been taken by each party in connection with the entering into of
this Agreement, the instruments referenced herein, and the consummation of this
transaction. Except as provided in Section 9, no further consent of any
partner, shareholder, creditor, investor, judicial or administrative body,
governmental authority or other party is required.
14.3 DUE EXECUTION. The individuals executing this Agreement and the
instruments referenced herein on behalf of each party and the partners, officers
or trustees of each party, if any, have the legal power, right, and actual
authority to bind each party to the terms and conditions of those documents.
14.4 VALID AND BINDING. This Agreement and all other documents required to
close this transaction are and will be valid, legally binding obligations of and
enforceable against each party in accordance with their terms, subject only to
applicable bankruptcy, insolvency, reorganization,
13.
<PAGE>
moratorium laws or similar laws or equitable principles affecting or limiting
the rights of contracting parties generally.
14.5 BROKER. Seller represents and warrants to Buyer, and Buyer
represents and warrants to Seller, that no broker or finder has been engaged by
them, respectively, in connection with any of the transactions contemplated by
this Agreement, or to its knowledge is in any way connected with any of such
transactions. Buyer will indemnify, save harmless and defend Seller from any
liability, cost, or expense arising out of or connected with any claim for any
commission or compensation made by any person or entity claiming to have been
retained or contacted by Buyer in connection with this transaction. Seller will
indemnify, save harmless and defend Buyer from any liability, cost, or expense
arising out of or connected with any claim for any commission or compensation
made by any person or entity claiming to have been retained or contacted by
Seller in connection with this transaction. This indemnity provision will
survive the Closing or any earlier termination of this Agreement.
15. SELLER'S WARRANTIES AND REPRESENTATIONS: Seller makes the following
representations, and warranties and acknowledges that Buyer will rely on such
representations and warranties in acquiring the Property; provided that
liability for any breach is subject to Section 8.1.2 hereof:
15.1 NON-FOREIGN ENTITY. Seller is not a "foreign person" within the
meaning of Section 1445(f)(3) of the Internal Revenue Code.
15.2 HAZARDOUS SUBSTANCES. To Seller's Actual Knowledge, since the date of
Seller's acquisition of the Property, no Hazardous Substances are now or have
been used, stored, generated or disposed of on or within the Property except in
the normal course of use and operation of the Property and in compliance with
all applicable Environmental Laws.
15.3 CLEAN-UP. To Seller's Actual Knowledge, since the date of Seller's
acquisition of the Property, there are and have been no federal, state or local
enforcement, clean-up, removal, remedial or other governmental or regulatory
actions instituted or completed affecting the Property, other than such other
matters as may otherwise be disclosed in any Environmental Audit or in any other
documents provided or made available to Buyer.
15.4 CLAIMS. To Seller's Actual Knowledge, there are no outstanding claims
that have been made by any third party against Seller relating to any Hazardous
Substances on or within the Property.
The provisions of this Section 15 shall no longer bind Seller if this
Agreement expires or is terminated for any reason, or if the Closing
contemplated hereunder occurs.
16. PRE-CLOSING COVENANTS. So long as this Agreement remains in full
force and effect:
14.
<PAGE>
16.1 NO TRANSFERS. Without the prior written consent of Buyer, Seller will
not convey any interest in the Property and will not subject the Property to any
additional liens, encumbrances, covenants, conditions, easements, rights of way
or similar matters after the date of this Agreement, except as may be otherwise
provided for in this Agreement, which will not be eliminated prior to the Close
of Escrow.
16.2 NO ALTERATIONS. Seller will not make any material alterations to the
Property without Buyer's consent, which will not be unreasonably withheld or
delayed.
16.3 MAINTENANCE. Seller will maintain the Property in substantially the
same condition as it is in, as of the date of this Agreement, and manage the
Property in accordance with Seller's established practices.
16.4 OBLIGATIONS UNDER CONTRACTS. Seller will keep and perform all of the
obligations to be performed by Seller under any contracts affecting the
Property. Without prior written consent of Buyer, which will not be
unreasonably withheld or delayed, Seller will not enter into any contract or
agreement providing for the provision of goods or services to or with respect to
the Property or the operation thereof unless such contracts or agreements can be
terminated without penalty by the Closing Date. Seller will not enter into any
leases for any portion of the Property.
16.5 EXPENDITURES. Seller will incur only expenditures necessary for the
day-to-day operation and maintenance of the Property, and will not incur capital
expenditures or liabilities not in the ordinary course of business. Seller
shall retain all Other Assets in Seller's possession on or after the date hereof
except for payment of such permitted liabilities and expenditures.
17. CONDEMNATION AND DESTRUCTION:
17.1 EMINENT DOMAIN OR TAKING. If proceedings under a power of eminent
domain relating to the Property or any part thereof are commenced prior to Close
of Escrow, Seller will promptly inform Buyer in writing.
(a) If such proceedings involve the taking of title to all or a
material interest in the Property, Buyer may elect to terminate this
Agreement by notice in writing sent within 10 DAYS of Seller's written
notice to Buyer, in which case neither party will have any further
obligation to or rights against the other except any rights or obligations
of either party which are expressly stated to survive termination of this
Agreement.
(b) If the proceedings do not involve the taking of title to all or a
material interest in the Property, or if Buyer does not elect to terminate
this Agreement, this transaction will be consummated as described herein
and any award or settlement payable with respect to such proceeding will be
paid or assigned to Buyer upon Close of Escrow.
(c) If this sale is not consummated for any reason, any condemnation
award or settlement will belong to Seller.
15.
<PAGE>
17.2 DAMAGE OR DESTRUCTION. Except as provided in this Section, prior to
the Close of Escrow the entire risk of loss of damage by earthquake, flood,
landslide, fire or other casualty is borne and assumed by Seller. If, prior to
the Close of Escrow, any part of the Improvements is damaged or destroyed by
earthquake, flood, landslide, fire or other casualty, Seller will promptly
inform Buyer of such fact in writing and advise Buyer as to the extent of the
damage and whether it is, in Seller's reasonable opinion, "MATERIAL" or not
"MATERIAL".
(a) If such damage or destruction is "MATERIAL", Buyer has the option
to terminate this Agreement upon written notice to the Seller given not
later than 10 DAYS after receipt of Seller's written notice to Buyer
advising of such damage or destruction.
(b) For purposes hereof, "MATERIAL" is deemed to be any damage or
destruction to the Improvements where the cost of repair or replacement is
estimated to be more than 25% of the Exchange Value of the Property and
will take more than 60 DAYS to repair.
(c) If this Agreement is so terminated, the provisions of Section 5
will govern.
(d) If Buyer does not elect to terminate this Agreement, or if the
casualty is not material, Seller will reduce the Exchange Value by the
value reasonably estimated by Seller to repair or restore the damaged
portion of the Improvements, less any sums expended by Seller to make
emergency repairs to the Improvements or the Property or otherwise protect
the physical condition of the Improvements or the Property, and this
transaction will close pursuant to the terms of this Agreement.
(e) If the damage is not material, Seller's notice to Buyer of the
damage or destruction will also set forth Seller's reduced Exchange Value
and Seller's allocation of value to the damaged portion of the
Improvements. If Buyer does not accept Seller's reduced Exchange Value,
Buyer's sole remedy will be to terminate this Agreement.
(f) Whether or not the sale of the Property is consummated hereunder,
all rights to insurance claims or proceeds in respect of damage or
destruction to the Improvements occurring prior to the Close of Escrow will
belong to Seller.
18. UTILITIES AND DEPOSITS:
18.1 UTILITIES. Seller will notify all utility companies servicing the
Property of the sale of the Property to Buyer and will notify the utility
companies that all utility bills henceforth are to be sent to Buyer. Buyer
shall be entitled to receive any and all refunds of all utility deposits held by
utility companies and Seller will assign to Buyer all of Seller's right, title
and interest in any such utility deposits.
16.
<PAGE>
18.2 REFUNDABLE DEPOSITS. To the extent there exists any refundable
deposits made in connection with the development of the Property prior to the
Closing ("Refundable Deposits"), Seller shall assign to Buyer all of Seller's
right, title and interest in and to such Refundable Deposits.
19. MEDIATION OF DISPUTES: No party to this Agreement shall initiate any
litigation against any other party to this Agreement concerning any controversy
or claim arising out of or relating to this Agreement or any agreements or
instruments relating hereto or delivered in connection herewith, including, but
not limited to, any claim based on or arising from an alleged tort, unless and
until (i) at least 60 days before the same shall be filed, a complete copy of
each of the summons and complaint (and/or any other documentation required to
initiate such litigation) to be filed by the complaining party shall have been
delivered to the other party or parties to any such dispute, and (ii) the
complaining party has made itself available to meet in Los Angeles, California
with the other party or parties for no more than 3 business days of non-binding
mediation. Until and unless such mediation has taken place, the complaining
party must give notice to the non-complaining party that it will, and then it
must, make itself available for such mediation during at least 20 business days
during the 60 days before the date on which such summons and complaint will be
filed.
20. ARBITRATION OF DISPUTES: ANY CONTROVERSY OR CLAIM ARISING OUT OF OR
RELATING TO THIS AGREEMENT OR ANY AGREEMENTS OR INSTRUMENTS RELATING HERETO OR
DELIVERED IN CONNECTION HEREWITH, INCLUDING, BUT NOT LIMITED TO A CLAIM BASED ON
OR ARISING FROM AN ALLEGED TORT WILL, AT THE REQUEST OF ANY PARTY, BE DETERMINED
BY ARBITRATION IN ACCORDANCE WITH THE FEDERAL ARBITRATION ACT (9 U.S.C. SECTION
1 ET SEQ.) UNDER THE AUSPICES AND RULES OF THE AMERICAN ARBITRATION ASSOCIATION
("AAA"). THE AAA WILL BE INSTRUCTED BY EITHER OR BOTH PARTIES TO PREPARE A LIST
OF THREE (3) JUDGES WHO HAVE RETIRED FROM THE SUPERIOR COURT OF THE STATE OF
CALIFORNIA, A HIGHER CALIFORNIA COURT OR ANY FEDERAL COURT. WITHIN 10 DAYS OF
RECEIPT OF THE LIST, EACH PARTY MAY STRIKE 1 NAME FROM THE LIST. THE AAA WILL
THEN APPOINT THE ARBITRATOR FROM THE NAME(S) REMAINING ON THE LIST. THE
ARBITRATION WILL BE CONDUCTED IN SAN FRANCISCO, LOS ANGELES OR SAN DIEGO,
WHICHEVER IS THE CLOSEST CITY TO THE NEXUS OF THE DISPUTE. ANY CONTROVERSY IN
INTERPRETATION OR ENFORCEMENT OF THIS PROVISION OR WHETHER A DISPUTE IS
ARBITRABLE, WILL BE DETERMINED BY THE ARBITRATOR. JUDGMENT UPON THE AWARD
RENDERED BY THE ARBITRATOR MAY BE ENTERED IN ANY COURT HAVING JURISDICTION. THE
INSTITUTION AND MAINTENANCE OF AN ACTION FOR JUDICIAL RELIEF OR IN PURSUIT OF AN
ANCILLARY REMEDY DOES NOT CONSTITUTE A WAIVER OF THE RIGHT OF ANY PARTY,
INCLUDING THE PLAINTIFF, TO SUBMIT THE CONTROVERSY OR CLAIM TO ARBITRATION.
NOTICE: BY INITIALING IN THE SPACE BELOW YOU ARE AGREEING TO HAVE ANY DISPUTE
ARISING OUT OF THE MATTERS INCLUDED IN THE 'ARBITRATION
17.
<PAGE>
OF DISPUTES' PROVISION DECIDED BY NEUTRAL ARBITRATION AS PROVIDED BY CALIFORNIA
LAW AND YOU ARE GIVING UP ANY RIGHTS YOU MIGHT POSSESS TO HAVE THE DISPUTE
LITIGATED IN A COURT OR BY JURY TRIAL. BY INITIALING IN THE SPACE BELOW YOU ARE
GIVING UP YOUR JUDICIAL RIGHTS TO DISCOVERY AND APPEAL UNLESS SUCH RIGHTS ARE
SPECIFICALLY INCLUDED IN THE "ARBITRATION OF DISPUTES" PROVISION. IF YOU REFUSE
TO SUBMIT TO ARBITRATION AFTER AGREEING TO THIS PROVISION, YOU MAY BE COMPELLED
TO ARBITRATE UNDER THE AUTHORITY OF THE CALIFORNIA CODE OF CIVIL PROCEDURE.
YOUR AGREEMENT TO THIS ARBITRATION PROVISION IS VOLUNTARY.
WE HAVE READ AND UNDERSTAND THE FOREGOING AND AGREE TO SUBMIT DISPUTES ARISING
OUT OF THE MATTERS INCLUDED IN THE 'ARBITRATION OF DISPUTES' PROVISION TO
NEUTRAL ARBITRATION.
Buyer's Initials ________ Seller's Initials _________
21. NOTICES: All notices or other communications required or permitted
hereunder must be in writing, and must be personally delivered (including by
means of professional messenger service) or sent by overnight courier, or sent
by registered or certified mail, postage prepaid, return receipt requested to
the addresses set forth in Section 1 hereof. All notices sent by mail will be
deemed received 2 DAYS after the date of mailing and all notices sent by other
means permitted herein shall be deemed received on the earlier of the date
delivered or the date on which delivery is refused.
22. ASSIGNMENT: Neither party shall have the right to assign this
Agreement without the other party's prior written consent.
23. MISCELLANEOUS:
23.1 COUNTERPARTS. This Agreement may be executed in counterparts.
23.2 PARTIAL INVALIDITY. If any term or provision of this Agreement
will be deemed to be invalid or unenforceable to any extent, the remainder of
this Agreement will not be affected thereby, and each remaining term and
provision of this Agreement will be valid and be enforced to the fullest extent
permitted by law.
23.3 POSSESSION OF THE PROPERTY. Seller will deliver possession of
the Property to Buyer upon the Close of Escrow.
23.4 WAIVERS. No waiver of any breach of any covenant or provision
contained herein will be deemed a waiver of any preceding or succeeding breach
thereof, or of any other covenant or provision contained herein. No extension
of time for performance of any obligation or act will be deemed an extension of
the time for performance of any other obligation or act except those of the
waiving party, which will be extended by a period of time equal to the period of
the delay.
18.
<PAGE>
23.5 SUCCESSORS AND ASSIGNS. This Agreement is binding upon and
inures to the benefit of the permitted successors and assigns of the parties
hereto.
23.6 PROFESSIONAL FEES. In the event of the bringing of any action,
arbitration or suit by a party hereto against another party hereunder by reason
of any breach of any of the covenants, agreements or provisions on the part of
the other party arising out of this Agreement, then in that event the prevailing
party will be entitled to have the recovery of and from the other party all
costs and expenses of the action, mediation or suit, actual attorneys' fees,
witness fees and any other professional fees resulting therefrom.
23.7 ENTIRE AGREEMENT. This Agreement (including all Exhibits
attached hereto) constitutes the entire contract between the parties hereto with
respect to the subject matter hereof and may not be modified except by an
instrument in writing signed by the party to be charged.
23.8 TIME OF ESSENCE. Seller and Buyer hereby acknowledge and agree
that time is strictly of the essence with respect to each and every term,
condition, obligation and provision hereof.
23.9 CONSTRUCTION. Seller and Buyer and their respective advisors
believe that this Agreement is the product of all of their efforts, that it
expresses their agreement and that it should not be interpreted in favor of or
against either Buyer or Seller. The parties further agree that this Agreement
will be construed to effectuate the normal and reasonable expectations of a
sophisticated seller and buyer.
23.10 GOVERNING LAW. The parties hereto expressly agree that this
Agreement will be governed by, interpreted under, and construed and enforced in
accordance with the laws of the State of California.
23.11 WEAR AND TEAR. Buyer specifically acknowledges that Seller will
continue to use the Property in the course of its business and accepts the fact
that reasonable wear and tear will occur after the date of this Agreement.
Buyer specifically agrees that Seller is not responsible for repairing such
reasonable wear and tear and that Buyer is prohibited from raising such wear and
tear as a reason for not consummating this transaction or for requesting a
reduction in the Exchange Value.
23.12 NO RECORDATION. No memorandum or other document relating to this
Agreement will be recorded without the prior written consent of Seller, and any
such consent or approval will be conditioned upon Buyer providing Seller with a
quitclaim deed fully executed and acknowledged by Buyer, quitclaiming any and
all interests that it may have in the Property to Seller, which quitclaim deed
Seller may record in the event that this Agreement is terminated or the
transaction contemplated herein is not consummated.
19.
<PAGE>
23.13 SURVIVAL. All obligations of the parties contained herein which
by their terms do not arise until after the Close of Escrow and any other
provisions of this Agreement which by their terms survives the Close of Escrow,
shall survive the Close of Escrow.
23.14 DISCLAIMER. Nothing herein creates any right or remedy for the
benefit of any person not a party hereto, nor creates a fiduciary relationship,
an agency or a partnership. All obligations of the parties contained herein
which by their terms do not arise until after the Close of Escrow and any other
provisions of this Agreement which by their terms survives the Close of Escrow,
shall survive the Close of Escrow.
23.15 WAIVER OF JURY TRIAL. Each party, acting with knowledge of its
rights after a full opportunity to consult with counsel, voluntarily waives all
rights to trial by jury in all proceedings for which a trial by jury would
otherwise be available or required, and which involve any matter arising out of
or connected with rights or duties under, or enforcement or interpretation of,
this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date and year hereinabove written.
"SELLER": "BUYER":
NATIONAL INVESTORS FINANCIAL, MORI POINT DESTINATIONS, INC.,
INC., a California corporation, AS TRUSTEE a California corporation
for NATIONAL INVESTORS LAND
HOLDING TRUST
By: By:
------------------------------------ ------------------------
Its: Its:
------------------------------------ ------------------------
and and
By: By:
------------------------------------ ------------------------
Its: Its:
------------------------------------ ------------------------
20.
<PAGE>
Agreed to and accepted
by Escrow Holder:
By:
------------------------------------
Its:
------------------------------------
21.
<PAGE>
EXHIBIT A
LEGAL DESCRIPTION
<PAGE>
EXHIBIT B
FORM OF DEED
RECORDING REQUESTED BY,
WHEN RECORDED MAIL TO:
Arter & Hadden
700 South Flower Street, Suite 3000
Los Angeles, California 90017
Attn: Bruce H. Newman, Esq.
- --------------------------------------------------------------------------------
(Above Space For Recorder's Use Only)
GRANT DEED
In accordance with Section 11932 of the California Revenue and Taxation
Code, Grantor has declared the amount of transfer tax which is due by a separate
statement which is not being recorded with this Grant Deed.
FOR A VALUABLE CONSIDERATION, RECEIPT OF WHICH IS HEREBY ACKNOWLEDGED,
NATIONAL INVESTORS FINANCIAL, INC., a CALIFORNIA corporation, AS TRUSTEE for
NATIONAL INVESTORS LAND HOLDING TRUST ("Grantor"), hereby grants to MORI POINT
DESTINATIONS, INC., a California corporation ("Grantee"), the real property in
the County of San Mateo, State of California, and described in EXHIBIT A
attached hereto and made a part hereof.
DATED: __________________, 1997
NATIONAL INVESTORS FINANCIAL, INC., a California
corporation, AS TRUSTEE for NATIONAL INVESTORS
LAND HOLDING TRUST
By:
--------------------------
Its:
-------------------------
- ---------------
MAIL TAX STATEMENTS TO:
<PAGE>
ACKNOWLEDGMENT
STATE OF CALIFORNIA )
) ss.
COUNTY OF )
On ____________________, before me, __________________________________,
personally appeared ______________________________, personally known to me (or
proved to me on the basis of satisfactory evidence) to be the person(s) whose
name(s) is/are subscribed to the within instrument and acknowledged to me that
he/she/they executed the same in his/her/their authorized capacity(ies), and
that by his/her/their signature(s) on the instrument the person(s), or the
entity upon behalf of which the person(s) acted, executed the instrument.
WITNESS my hand and official seal.
______________________________
Notary Public in and for said
County and State [SEAL]
<PAGE>
Document No. ____________________ Date Recorded_________________
STATEMENT OF TAX DUE AND REQUEST THAT TAX DECLARATION
NOT BE MADE A PART OF THE PERMANENT RECORD
IN THE OFFICE OF THE COUNTY RECORDER
(Pursuant to Section 11932 R&T Code)
To: Registrar-Recorder
County of ________________________________________
Request is hereby made in accordance with the provisions of the Documentary
Transfer Tax Act that the amount of tax due not be shown on the original
document which names:
- -----------------------------------
(as grantor)
and
- -----------------------------------
(as grantee)
Property described in the accompanying document is located in
( ) unincorporated area or (x) City of _________________.
The amount of tax due on the accompanying document is $_______________.
______ Computed on full value of property conveyed, or
______ Computed on full value less liens and encumbrances remaining at time
of sale.
- -----------------------------------
- -----------------------------------
By:
---------------------------
Its:
---------------------------
<PAGE>
EXHIBIT C
Seller's FIRPTA Affidavit
CERTIFICATION OF NON-FOREIGN STATUS
Section 1445 of the Internal Revenue Code provides that a transferee
of a U.S. real property interest must withhold tax if the transferor is a
foreign person. To inform the transferee that withholding of tax is not
required upon the disposition of a U.S. real property interest by NATIONAL
INVESTORS FINANCIAL, INC., a California corporation, AS TRUSTEE for NATIONAL
INVESTORS LAND HOLDING TRUST ("TRANSFEROR"), each of the undersigned hereby
certifies the following on behalf of Transferor:
1. Transferor is not a foreign corporation, foreign partnership,
foreign trust and foreign estate (as those terms are defined in the Internal
Revenue Code and Income Tax Regulations);
2. Transferor's U.S. employer identification number is ________; and
3. Transferor's office address is _________________________________,
___________________.
Transferor understands that this certification may be disclosed to the
Internal Revenue Service by transferee and that any false statement contained
herein could be punished by fine, imprisonment or both.
Under penalties of perjury each of the undersigned declares that he
has examined this certification and to the best of his knowledge and belief it
is true, correct and complete, and he further declares that he has authority to
sign the document on behalf of the Transferor.
NATIONAL INVESTORS FINANCIAL, INC., a
California corporation, AS TRUSTEE for
NATIONAL INVESTORS LAND HOLDING TRUST
By:
---------------------
Its:
---------------------
<PAGE>
EXHIBIT D
ASSIGNMENT AND ASSUMPTION
OF
AGREEMENTS
THIS ASSIGNMENT AND ASSUMPTION OF AGREEMENTS (this "Assignment") is
executed as of ______________, but effective as of the Effective Date (as
hereinafter defined), by and between NATIONAL INVESTORS FINANCIAL, INC., a
California corporation, AS TRUSTEE for NATIONAL INVESTORS LAND HOLDING TRUST
("Assignor") and MORI POINT DESTINATIONS, INC., a California corporation
("Assignee"), with reference to the following facts:
RECITALS:
A. Assignor, as the agent of and for the benefit of various
investors, holds title to that certain real property commonly known as "Mori
Point", located in the County of San Mateo, State of California, as more
particularly described on Exhibit "A" attached hereto and incorporated herein by
reference (the "Property").
B. Concurrently herewith, Assignor has executed that certain Grant
Deed conveying and granting to Assignee the Property.
C. As part of the transfer and conveyance of the Property to
Assignee, Assignor has agreed to transfer, assign, grant and convey to Assignee
all of its right, title and interest in and to all agreements relating to the
Property, on the terms and conditions herein contained.
NOW, THEREFORE, in consideration of the foregoing Recitals, which
Recitals are by this reference incorporated herein, and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. ASSIGNMENT. Assignor hereby grants, assigns, transfers, sets
over, sells, conveys and delivers to Assignee all of Assignor's right, title,
interest, benefits and privileges under the agreements relating to the Property
which are set forth in Exhibit "B" attached hereto and made a part hereof
(collectively, the "Agreements"). The assignment provided for in this Section 1
is effective concurrently with the transfer of the Property from Assignor to
Assignee (the "Effective Date").
1
<PAGE>
2. ASSIGNEE'S ASSUMPTION. Assignee hereby accepts the assignment
from Assignor, assumes and agrees to perform all duties and obligations of
Assignor under the terms of the Agreements which are required to be performed on
or after the Effective Date.
4. DELIVERIES; REPORTS. On or before the Effective Date, Assignor
shall deliver to Assignee the original Agreements or if such original Agreements
are not in Assignor's possession, certified copies of such Agreements. Assignor
shall furnish and deliver to Assignee, promptly after receipt thereof,
duplicates or copies of all reports, notices, requests, demands, declarations,
certificates or other instruments hereafter received by Assignor and relating to
the Agreements. Assignee's address for receipt of the foregoing is ____________
______________________________________________________________.
5. FURTHER ASSURANCES. Assignor and Assignee shall execute,
acknowledge and deliver all such instruments and take all such action as may be
necessary to further assure to Assignee the rights assigned hereby and the full
benefits hereof and to preserve and protect this Assignment and all of the
rights, powers and remedies of Assignee provided for herein.
6. SUCCESSORS AND ASSIGNS. This Assignment shall be binding upon
and inure to the benefit of the successors and assigns of the respective parties
hereto.
7. GOVERNING LAW. This Assignment shall be governed by, and
construed in accordance with, the laws of the State of California.
8. COUNTERPARTS. This Assignment may be executed in several
counterparts, each of which shall be an original, but all of which taken
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, Assignor and Assignee have executed this
Assignment as of the date first above written but effective as of the Effective
Date.
ASSIGNOR: NATIONAL INVESTORS FINANCIAL, INC., a
California corporation, AS TRUSTEE for
NATIONAL INVESTORS LAND HOLDING TRUST
By:
--------------------------------
Its:
--------------------------------
ASSIGNEE: MORI POINT DESTINATIONS, INC. a California
corporation
By:
--------------------------------
Its:
--------------------------------
2
<PAGE>
EXHIBIT "A"
LEGAL DESCRIPTION
3
<PAGE>
EXHIBIT "B"
CONTRACTS
4
<PAGE>
EXHIBIT E
BILL OF SALE AND GENERAL ASSIGNMENT OF INTANGIBLES
This Bill of Sale and General Assignment of Intangibles is made as of
the ____ day of ___________________________, 1997 (this "Assignment"), by
NATIONAL INVESTORS FINANCIAL, INC., a California corporation, AS TRUSTEE for
NATIONAL INVESTORS LAND HOLDING TRUST ("Assignor") to MORI POINT DESTINATIONS,
INC. ("Assignee").
R E C I T A L
Assignee and Assignor have entered into an Agreement of Purchase and
Sale and Joint Escrow Instructions dated ________, 1997 ("Agreement of Purchase
and Sale") under which Assignee has agreed to purchase from Assignor, that
certain real property and all buildings, structures and improvements on said
real property commonly identified as ____ __________________, _____________,
State of California and legally described on EXHIBIT A attached hereto (the
"Property").
TERMS AND CONDITIONS
NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties agree as follows:
1. Assignor hereby assigns, transfers and sets over unto Assignee,
its successors and assigns, all personal property of Seller, if any, located on
and used in connection with the operation of the improvements on the Property
(the "Personal Property"). Buyer accepts such Personal Property in its "AS-IS"
condition and "WITH ALL FAULTS". Seller specifically disclaims all express or
implied warranties regarding the existence or condition of, or title to, such
Personal Property, including without limitation the implied warranties of
merchantability and suitability for a particular purpose.
2. Assignor hereby assigns, transfers and sets over unto Assignee,
its successors and assigns, all of its right, title and interest in and to the
following ("General Intangibles") if, and only to the extent, that the General
Intangibles exist and Assignor has the right to so transfer them:
(A) All of Assignor's right, title and interest in and to all
intangible property used, owned or issued solely in connection with the
Property, including but not limited to, all licenses, permits, certificates of
occupancy, approvals, maps, dedications, subdivision maps and entitlements
issued, approved or granted by any governmental agencies or instrumentalities
having any jurisdiction over the Property (the "Authorities") or otherwise in
connection with the Property; all development rights, conditional use permits,
variances, "floor
1
<PAGE>
area ratio" development rights and other intangible rights, titles, interests,
privileges and appurtenances owned by Assignor and related to or issued in
connection with the Property and/or its use, occupancy, operation and/or
development; all licenses, consents, easements, rights of way, and approvals
required from private parties to make use of utilities and to insure vehicular
and pedestrian ingress and egress to the Property; and any pending applications
or requests as to any of the foregoing;
(B) All building plans, specifications and drawings,
engineering, and other documents prepared in connection with the construction,
reconstruction, maintenance, repair, or operation any improvements on the
Property (the "Improvements");
(C) All warranties and guarantees relating to the workmanship,
construction, installation materials, and design of the Improvements and the
personal property situated on the Property, including but not limited to those
made by or received from any third party with respect to any building, building
component, structure, fixture, machinery, equipment or material situated on,
contained in any building or other improvement situated on, or comprising a part
of any building or other improvement situated on any part of the Property;
(D) All rights, claims or awards benefiting the Property;
(E) All prepaid fees and fee credits, and all of Seller's right,
title and interest in and to refundable deposits, bonds and other collateral
furnished in connection with development of the Property; and
(F) All rights and general intangibles now owned by Assignor
solely in connection with the Property and any improvement and/or fixture
located on the Property, including, without limitation, the rights to hold, use,
sell and transfer the Property and Improvements and general intangibles.
3. Assignor hereby covenants that it will, at any time and from time
to time upon written request therefor, execute and deliver to Assignee, its
successors and assigns any new or confirmatory instruments and take such further
acts as Assignee may reasonably request to fully evidence the assignment
contained herein and to enable Assignee, its successors and assigns to fully
realize and enjoy the rights and interests assigned hereby.
4. Assignee hereby accepts the foregoing assignment.
5. Assignor hereby represents and warrants to Assignee that it has
not previously assigned or hypothecated its interest in the foregoing described
General Intangibles; however, Assignee shall have no claims or rights against
Assignor, and Assignor shall have no obligation or liability to Assignee for any
General Intangibles described herein which do not exist, or which Assignor does
not have the right to transfer to Assignee.
6. This Assignment shall be binding upon and inure to the benefit of
the legal representatives, assigns, or successors in interest of the Assignor
and Assignee.
2
<PAGE>
IN WITNESS WHEREOF, the Assignor has executed this Assignment as of
_________, 1997.
NATIONAL INVESTORS FINANCIAL, INC., a
California corporation, AS TRUSTEE for
NATIONAL INVESTORS LAND HOLDING TRUST
By:
--------------------------------
Its:
--------------------------------
3
<PAGE>
AGREEMENT OF PURCHASE AND SALE
AND JOINT ESCROW INSTRUCTIONS
BY AND BETWEEN
OCEANSIDE DEVELOPMENT, INC.,
a California corporation,
AS SELLER,
AND
OCEANSIDE HOMES, INC.,
a California corporation,
AS BUYER
RELATING TO
PROPERTY LOCATED IN
Oceanside, California
known as
The Symphony and Encore Development
DATED AS OF
September ___, 1997
<PAGE>
TABLE OF CONTENTS
Page
----
1. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. PURCHASE AND SALE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.1 Purchase and Sale . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.2 Substance of Transactions . . . . . . . . . . . . . . . . . . . . . . . 5
3. EXCHANGE VALUE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
4. ESCROW. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
5. CANCELLATION FEES AND EXPENSES. . . . . . . . . . . . . . . . . . . . . . . 6
6. DELIVERIES TO ESCROW HOLDER . . . . . . . . . . . . . . . . . . . . . . . . 6
6.1 By Seller . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
6.2 By Buyer. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
6.3 By Buyer and Seller . . . . . . . . . . . . . . . . . . . . . . . . . . 7
7. CONDITION OF TITLE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
7.1 Permitted Exceptions. . . . . . . . . . . . . . . . . . . . . . . . . . 7
7.2 Title Provided by Seller. . . . . . . . . . . . . . . . . . . . . . . . 7
8. CONDITIONS TO THE CLOSE OF ESCROW . . . . . . . . . . . . . . . . . . . . . 7
8.1 Conditions Precedent to Buyer's Obligations . . . . . . . . . . . . . . 7
8.1.1 Title . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
8.1.2 Representations, Warranties and Covenants of Seller . . . . . . . . 7
8.1.3 Seller's Deliveries . . . . . . . . . . . . . . . . . . . . . . . . 8
8.2 Conditions Precedent to Seller's Obligations. . . . . . . . . . . . . . 8
9. APPROVAL OF SELLER'S CONSTITUENTS . . . . . . . . . . . . . . . . . . . . . 8
i
<PAGE>
10. PROPERTY "AS-IS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
10.1 No Side Agreements Or Representations; As-Is Purchase. . . . . . . . . 9
10.2 Disclosures; Specific Acknowledgment Regarding Condition of Property .12
11. TITLE INSURANCE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12
12. COSTS AND EXPENSES . . . . . . . . . . . . . . . . . . . . . . . . . . . .12
13. DISBURSEMENTS AND OTHER ACTIONS. . . . . . . . . . . . . . . . . . . . . .13
13.1 Escrow Holder. . . . . . . . . . . . . . . . . . . . . . . . . . . . .13
13.2 By Transfer Agent. . . . . . . . . . . . . . . . . . . . . . . . . . .13
13.3 Possession. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13
14. JOINT REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . . .13
14.1 Authority. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13
14.2 Actions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13
14.3 Due Execution. . . . . . . . . . . . . . . . . . . . . . . . . . . . .13
14.4 Valid and Binding. . . . . . . . . . . . . . . . . . . . . . . . . . .14
14.5 Broker . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14
15. SELLER'S WARRANTIES AND REPRESENTATIONS. . . . . . . . . . . . . . . . . .14
15.1 Non-Foreign Entity . . . . . . . . . . . . . . . . . . . . . . . . . .14
15.2 Hazardous Substances.. . . . . . . . . . . . . . . . . . . . . . . . .14
15.3 Clean-up.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14
15.4 Claims.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14
16. PRE-CLOSING COVENANTS. . . . . . . . . . . . . . . . . . . . . . . . . . .15
16.1 No Transfers.. . . . . . . . . . . . . . . . . . . . . . . . . . . . .15
16.2 No Alterations.. . . . . . . . . . . . . . . . . . . . . . . . . . . .15
16.3 Maintenance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15
ii
<PAGE>
16.4 Obligations Under Contracts. . . . . . . . . . . . . . . . . . . . . .15
16.5 Expenditures.. . . . . . . . . . . . . . . . . . . . . . . . . . . . .15
17. CONDEMNATION AND DESTRUCTION . . . . . . . . . . . . . . . . . . . . . . .15
17.1 Eminent Domain or Taking . . . . . . . . . . . . . . . . . . . . . . .15
17.2 Damage or Destruction. . . . . . . . . . . . . . . . . . . . . . . . .16
18 UTILITIES AND DEPOSITS. . . . . . . . . . . . . . . . . . . . . . . . . . .17
18.1 Utilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17
18.2 Refundable Deposits. . . . . . . . . . . . . . . . . . . . . . . . . .17
19. MEDIATION OF DISPUTES. . . . . . . . . . . . . . . . . . . . . . . . . . .17
20. ARBITRATION OF DISPUTES: . . . . . . . . . . . . . . . . . . . . . . . . .17
21. NOTICES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .18
22. ASSIGNMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .18
23. MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .18
23.1 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . .18
23.2 Partial Invalidity . . . . . . . . . . . . . . . . . . . . . . . . . .18
23.3 Possession of the Property . . . . . . . . . . . . . . . . . . . . . .19
23.4 Waivers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19
23.5 Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . .19
23.6 Professional Fees. . . . . . . . . . . . . . . . . . . . . . . . . . .19
23.7 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . .19
23.8 Time of Essence. . . . . . . . . . . . . . . . . . . . . . . . . . . .19
23.9 Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19
23.10 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . .19
23.11 Wear and Tear . . . . . . . . . . . . . . . . . . . . . . . . . . . .19
23.12 No Recordation. . . . . . . . . . . . . . . . . . . . . . . . . . . .20
iii
<PAGE>
23.13 Survival. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20
23.14 Disclaimer. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20
23.15 Waiver of Jury Trial. . . . . . . . . . . . . . . . . . . . . . . . .20
EXHIBITS
EXHIBIT A - Legal Description
EXHIBIT B - Form of Grant Deed
EXHIBIT C - FIRPTA Affidavit
EXHIBIT D - Assignment And Assumption
EXHIBIT E - Bill Of Sale And General Assignment Of Intangibles
iv
<PAGE>
AGREEMENT OF PURCHASE AND SALE
AND JOINT ESCROW INSTRUCTIONS
THIS AGREEMENT OF PURCHASE AND SALE AND JOINT ESCROW INSTRUCTIONS
("AGREEMENT") is made and entered into as of __________ ___, 1997, by and among
OCEANSIDE DEVELOPMENT, INC., a California corporation ("ODI") ("SELLER"), and
OCEANSIDE HOMES, INC., a California corporation ("BUYER").
RECITALS
A. Seller is title holder of an unimproved property commonly known as
the "Symphony Development" consisting of approximately 111 unsold residential
lots, located in the City of Oceanside, County of San Diego, State of
California, as more particularly described in EXHIBIT A attached hereto (the
"Real Property"). Buyer is a wholly owned subsidiary of American Family
Communities, Inc., a California corporation ("AFC").
B. The Real Property is encumbered by a Deed of Trust in which National
Investors Financial, Inc., a California corporation, is the original
beneficiary, a deed of trust having been recorded on December 31, 1991 as
Instrument No. 1391-0685127 of Official Records of San Diego County, California
(the "Deed of Trust"). The beneficial interest under the Deed of Trust has been
assigned to various investors.
C. Seller holds record title to the Real Property as agent of and for the
benefit of various investors, which investors hold the beneficial interest under
the Deed of Trust.
D. Seller desires to sell to Buyer and Buyer desires to purchase from
Seller the Property (as hereinafter defined), including the Real Property, on
the terms and conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the foregoing Recitals, which Recitals
are incorporated herein by this reference, and for good and valuable
consideration, the receipt and adequacy of which is hereby acknowledged, Buyer
and Seller agree as follows:
AGREEMENT
1. DEFINITIONS: For the purposes of this Agreement the following terms
will be defined as follows:
1.1 "ACTUAL KNOWLEDGE OF SELLER" means and is limited to the actual
knowledge of David Lasker and James N. Orth (both of whom are licensed
California real estate brokers) without having conducted any independent
inquiry or inspection, and shall not include the knowledge of any other
persons or firms, it being understood and agreed by Buyer that neither David
Lasker nor James N. Orth is charged with
1.
<PAGE>
knowledge of all of the acts and/or omissions of predecessors in title to the
Property or management of the Property before Seller's acquisition of the
Property and the Actual Knowledge of Seller shall not include information or
material which may be in the possession of Seller generally, but of which
neither David Lasker nor James N. Orth is actually aware.
1.2 "AFC" means American Family Communities, Inc., a California
corporation, which is a wholly-owned subsidiary of AFH.
1.3 "AFH" means American Family Holdings, Inc., a Delaware corporation.
Buyer is a wholly-owned subsidiary of AFC, which, in turn, is a wholly-owned
subsidiary of AFH.
1.4 "ASSIGNMENT" shall have the meaning given thereto in Section 6.1(d)
hereof.
1.5 "BILL OF SALE" shall have the meaning given thereto in Section 6.1(e)
hereof.
1.6 "CLOSING DATE" means ___________, 1997, unless an earlier date is
agreed to in a writing subsequent to this Agreement executed and delivered by
each of the parties hereto to the other, and is the last date on which the
Closing and Close of Escrow can occur, subject to extension as provided for in
this Agreement.
1.7 "CLOSING" and "CLOSE OF ESCROW" are terms used interchangeably in
this Agreement. The Closing or the Close of Escrow will be deemed to have
occurred when the Grant Deed is recorded in the official records of the county
in which the Property is located.
1.8 "DEED OF TRUST" shall have the meaning given thereto in the Recitals.
1.9 "EFFECTIVE DATE" means the date hereof.
1.10 "ENVIRONMENTAL AUDIT" means any environmental audit, review or
testing of the Property performed by Buyer or any third party or consultant
engaged by Buyer to conduct such study.
1.11 "ENVIRONMENTAL LAW" means any law, statute, ordinance or regulation
pertaining to health, industrial hygiene or the environment including, without
limitation, CERCLA (Comprehensive Environmental Response, Compensation and
Liability Act of 1980) and RCRA (Resources Conservation and Recovery Act of
1976), as amended.
1.12 "ESCROW" shall have the meaning given thereto in Section 4 hereof.
2.
<PAGE>
1.13 "ESCROW HOLDER" means _______________________________, whose address
is _______________________________________________________________, Attn:
_____________________.
1.14 "EXCHANGE VALUE" is the adjusted appraised value of the Property,
which takes into consideration various factors to balance the business value of
the Property within its present ownership structure.
1.15 "FIRPTA CERTIFICATE" shall have the meaning given thereto in
Section 6.1(b) hereof.
1.16 "GRANT DEED" shall have the meaning given thereto in Section 6.1(a)
hereof.
1.17 "HAZARDOUS SUBSTANCE" means any substance, material or waste which
is or becomes designated, classified or regulated as being "toxic" or
"hazardous" or a "pollutant" or which is or becomes similarly designated,
classified or regulated, under any Environmental Law, including asbestos,
petroleum and petroleum products.
1.18 "IMPROVEMENTS" means any and all improvements and fixtures situated
on the Real Property.
1.19 "INTANGIBLES" means all of Seller's right, title and interest in
and to all intangible property used, owned or issued solely and strictly in
connection with the Real Property, Improvements and Personal Property,
including, but not limited to: (i) trade names and trademarks, contract
rights, accounts receivables and other intangible property used in connection
with the ownership and operation of the Property; (ii) all licenses, permits,
certificates of occupancy, approvals, dedications and entitlements issued,
approved or granted by any governmental authorities having jurisdiction over
the Property; and (iii) all development rights, conditional use permits,
variances and other intangible rights, titles, interests and privileges owned
by Seller and related to or issued in connection with the Land and/or
Improvements, its use, occupancy, operation and development, but in no way
related to Seller's financial data or other proprietary information or other
property of Seller.
1.20 "INVESTORS" means the beneficiaries under the Deed of Trust.
1.21 "NOTICES" will be sent as provided in Section 21 to:
Seller: __________________________
__________________________
__________________________
Attn: Mr. David Lasker
Telephone: (714) 833-8600
Facsimile: (714) 752-9753
3.
<PAGE>
with a copy to: Arter & Hadden
700 South Flower Street, Suite 3000
Los Angeles, CA 90017
Attn: Bruce H. Newman, Esq.
Telephone: (213) 629-9300
Facsimile: (213) 617-9255
Buyer: _________________________
______________________
______________________
Attn:__________________
Telephone: _____________
Facsimile: ______________
with a copy to: Arter & Hadden
700 South Flower Street, Suite 3000
Los Angeles, CA 90017
Attn: Bruce H. Newman, Esq.
Telephone: (213) 629-9300
Facsimile: (213) 617-9255
Escrow Holder: ____________________________
____________________________
____________________________
Attn: _____________________
Telephone: ________________
Facsimile: ________________
1.22 "OPENING OF ESCROW" shall have the meaning given thereto in
Section 4 hereof.
1.23 "OTHER ASSETS" means cash, cash equivalent, notes and other
negotiable instruments and any and all other assets in the possession or
control of Seller, the value of which is determined by possession, and any
other assets other than the Real Property, Personal Property or Intangibles
relating to the Real Property.
1.24 "PERMITTED EXCEPTIONS" shall have the meaning given thereto in
Section 7.1 hereof.
1.25 "PERSONAL PROPERTY" means the equipment, furniture and fixtures,
books and records and other personal property, if any, owned by Seller and
located on the Property as of the Effective Date, including without limitation,
those items listed on SCHEDULE 1 to the Bill of Sale.
4.
<PAGE>
1.26 "PROPERTY" means collectively, (i) the Real Property, (ii) the
Improvements, (iii) the Intangibles, (iv) the Personal Property and (v) the
Other Assets.
1.27 "PROSPECTUS" means the Consent Solicitation Statement/Prospectus
of Buyer.
1.28 "REAL PROPERTY" means that certain real property located in
the County of San Diego, State of California and commonly known as "The
Symphony Development" and more particularly described in EXHIBIT A attached
hereto. The Real Property is more particularly described in the Recitals.
1.29 "TITLE COMPANY" means _________________________________________.
1.30 "TITLE POLICY" shall have the meaning given thereto in Section 11
hereof.
1.31 "TRANSFER AGENT" means _________________ who address is
_____________, Attn: ___________, Facsimile No. ___________..
2. PURCHASE AND SALE:
2.1 PURCHASE AND SALE. Upon and subject to the terms and
conditions set forth in this Agreement, Seller agrees to sell to Buyer and
Buyer agrees to buy from Seller the Property, together with all easements,
hereditaments, entitlements (to the extent transferable) and appurtenances
thereto. In consideration of Seller's sale of the Property to Buyer, Buyer
will (a) deliver to the Investors the shares of common stock representing the
Exchange Value in accordance with Section 3, and (b) perform all of Buyer's
other obligations hereunder.
2.2 SUBSTANCE OF TRANSACTIONS. Notwithstanding any other
provision of this Agreement, the transfer of the Property directly from
Seller to Buyer is for convenience purposes only to effect expeditiously the
culmination of the transfers set forth in this Section 2.2, and for all
purposes hereunder it is the intent of the parties that such transfer
reflects the following transfers, which shall occur in the following order:
(i) all of the Investors, through their approval of the transactions
contemplated under this Agreement, contribute all of their interests in the
Property to AFH in exchange for shares of common stock of AFH, such shares to
be distributed to them pursuant to Sections 3 and 13.2 hereof; (ii) AFH
contributes the Property to AFC as a contribution to the capital of AFC; and
(iii) AFC contributes the Property to Buyer as a contribution to the capital
of Buyer. Seller's transfer of the Property directly to Buyer reflects
Seller's transfer of the Property from the Investors to AFH, from AFH to AFC,
and from AFC to the Buyer, in each instance in Seller's capacity as the agent
of and on behalf of such transferors.
3. EXCHANGE VALUE: In consideration for the sale of the Property to
Buyer, Buyer will deliver to Seller an amount equal to the Exchange Value of
the Property. The Exchange Value for the Property is $______________, which
shall be paid in the form of, and by issuance and delivery of, _____ shares
of common stock in AFH to the Investors, to be distributed by the Transfer
Agent at the Closing outside of Escrow in accordance with Section 13.2
hereof. Upon the request of any
5.
<PAGE>
party hereto, whether made before or after the Closing, the parties hereto will
allocate the Exchange Value to the Real Property, Personal Property,
Improvements, Other Assets and the Intangibles.
4. ESCROW: Immediately upon execution of this Agreement, Buyer and
Seller will open an escrow (the "ESCROW") with the Escrow Holder by delivering
to Escrow Holder a fully executed copy of this Agreement (the "OPENING OF
ESCROW"). The purchase and sale of the Property will be completed through the
Escrow. Buyer and Seller agree to execute any additional instructions
consistent with this Agreement which are reasonably required by the Escrow
Holder. If there is a conflict between any printed escrow instructions and this
Agreement, the terms of this Agreement will govern.
5. CANCELLATION FEES AND EXPENSES: If the Closing does not occur at the
time and in the manner provided in this Agreement because of the default of one
of the parties, the non-defaulting party has the right to cancel the Escrow by
written notice to the defaulting party and to the Escrow Holder. All costs of
cancellation, if any, will be paid by the defaulting party.
6. DELIVERIES TO ESCROW HOLDER:
6.1 BY SELLER. On or prior to the Closing Date, Seller will deliver or
cause to be delivered to Escrow Holder the following items:
(a) A Grant Deed ("GRANT DEED"), in the form attached to this
Agreement as EXHIBIT B, duly executed and acknowledged by Seller and in
recordable form, conveying the Property to Buyer.
(b) A Transferor's Certificate of Non-Foreign Status attached to this
Agreement as EXHIBIT C ("FIRPTA CERTIFICATE"), duly executed by or on
behalf of Seller.
(c) A properly executed California Form RE 590 or other evidence
sufficient to establish that Buyer is not required to withhold any portion
of the Exchange Value pursuant to Sections 18805 and 26131 of the
California Revenue and Taxation Code ("FORM 590").
(d) An Assignment and Assumption of Agreements ("ASSIGNMENT") duly
executed by Seller in favor of Buyer in the form attached to this Agreement
as EXHIBIT D.
(e) A Bill of Sale and General Assignment of Intangibles in the form
attached to this Agreement as EXHIBIT E ("BILL OF SALE"), duly executed by
Seller and conveying all right, title and interest of Seller in the
Personal Property and the Intangibles to Buyer.
(f) Such corporate resolutions, certificates of good standing and/or
other corporate or partnership documents relating to Seller as are
reasonably required by Buyer or Escrow Holder or both in connection with
this transaction.
6.2 BY BUYER. On or prior to the Closing Date, Buyer will deliver or
cause to be delivered to Escrow Holder the following items:
6.
<PAGE>
(a) Such corporate resolutions, certificates of good standing and/or
other corporate or partnership documents relating to Buyer as are
reasonably required by Seller or Escrow Holder or both in connection with
this transaction.
(b) Amounts due to pay costs and expenses as set forth in Section 12
hereof.
6.3 BY BUYER AND SELLER. Buyer and Seller will each deposit such other
instruments consistent with this Agreement as are reasonably required by Escrow
Holder or otherwise required to close escrow. In addition Seller and Buyer
hereby designate Escrow Holder as the "REPORTING PERSON" for the transaction
pursuant to Section 6045(e) of the Internal Revenue Code.
7. CONDITION OF TITLE:
7.1 PERMITTED EXCEPTIONS. At the Close of Escrow, fee simple title to the
Property will be conveyed to Buyer by Seller by Grant Deed, subject only to the
following title matters ("PERMITTED EXCEPTIONS"):
(a) all property tax liens (whether or not payments of property taxes
are delinquent) and all other matters shown in that certain Preliminary
Report dated as of _________________, issued by the Title Company, bearing
Order No. ____________, except Exception Nos. ________________________;
(b) matters affecting the condition of title to the Property created
by, at the request of or with the written consent of Buyer.
7.2 TITLE PROVIDED BY SELLER. The parties agree that (a) except as
specifically provided in the Grant Deed or implied by law, Seller makes no
express or implied warranties regarding the condition of title to the Property,
and (b) Buyer shall rely solely on the Title Policy for protection against any
title defects.
8. CONDITIONS TO THE CLOSE OF ESCROW:
8.1 CONDITIONS PRECEDENT TO BUYER'S OBLIGATIONS. The following conditions
must be satisfied not later the earlier of the Closing Date or such other period
of time as may be specified below:
8.1.1 TITLE. As of the Closing, the Title Company will issue or
have committed to issue to Buyer the Title Policy described in Section 11.
8.1.2 REPRESENTATIONS, WARRANTIES AND COVENANTS OF SELLER. Seller
will have duly performed each and every agreement to be performed by Seller
hereunder and, subject to the provisions of Section 10, Seller's express
representations and warranties set forth in this Agreement will be true and
correct in all material respects as of the Closing Date. However,
notwithstanding anything to the contrary stated or implied in this Section
8.1.2,
7.
<PAGE>
Seller shall have no liability for the breach of any representations,
warranties or covenants set forth in this Agreement, whether express or
implied, absent a finding by a court of competent jurisdiction that either
David Lasker or James N. Orth or both of them withheld information with
respect thereto from Buyer or falsified information delivered to and relied
upon by Buyer and that such action amounted to a violation of a
representation or warranty set forth herein.
8.1.3 SELLER'S DELIVERIES. Seller will have delivered the items
described in Section 6.1.
The conditions set forth in this Section 8.1 are solely for the benefit of
Buyer and may be waived only by Buyer. At all times Buyer has the right to
waive any condition. Such waiver or waivers must be in writing to Seller. If
any conditions are not satisfied on or before the Closing Date, and Buyer has
not waived the unsatisfied conditions, Seller will not be deemed to be in
default (unless Seller has breached Sections 8.1.2 or 8.1.3 above) and Buyer's
sole remedy will be to terminate this Agreement.
8.2 CONDITIONS PRECEDENT TO SELLER'S OBLIGATIONS. The Close of Escrow and
Seller's obligations with respect to this transaction are subject to the
following conditions precedent: (a) Buyer's delivery to Escrow Holder on or
before the Closing Date, of the items described in Section 6.2; (b) the approval
of such of Seller's constituents as Seller shall deem necessary or advisable in
its sole and absolute discretion as set forth in Section 9 hereof; (c) Buyer
having duly performed each and every agreement to be performed by Buyer
hereunder; and (d) Buyer's representations, warranties and covenants set forth
in this Agreement, will be true and correct in all material respects as of the
Closing Date. The conditions set forth in this Section 8.2 are solely for the
benefit of Seller and may be waived only by Seller, with such waiver or waivers
to be in writing to Buyer. If any conditions are not satisfied on or before the
Closing Date, and Seller has not waived the unsatisfied conditions, Buyer will
not be deemed to be in default (unless Buyer has breached Sections 8.2(a), (c)
or (d) above) and Seller's sole remedy will be to terminate the Agreement.
9. APPROVAL OF SELLER'S CONSTITUENTS: Seller shall exercise reasonable
diligence to obtain the approval of this transaction by such of the Investors as
Seller shall deem necessary or advisable, in its sole and absolute discretion,
and shall notify Buyer and Escrow Holder when such approvals have been obtained.
If Seller is not able to obtain such approvals from such Investors on or before
the date which is ____ days after the Effective Date, or such later date as is
mutually agreed to by Buyer and Seller, then Seller may cancel this Agreement by
notice to Buyer and Escrow Holder given prior to the end of that time period,
and in that event Seller shall pay all title and escrow cancellation costs.
Seller shall indemnify and hold Buyer harmless from any claim, damage, loss,
liability, action, settlement, including Buyer's reasonable attorneys' fees
suffered by Buyer and which results from or relates to the Seller's securing
approval of this transaction and transferring the Property to Buyer pursuant to
such approval.
8.
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10. PROPERTY "AS-IS":
<PAGE>
10.1 NO SIDE AGREEMENTS OR REPRESENTATIONS; AS-IS PURCHASE. BUYER
REPRESENTS, WARRANTS AND COVENANTS TO SELLER THAT BUYER HAD THE OPPORTUNITY TO
INDEPENDENTLY AND PERSONALLY INSPECT THE PROPERTY AND IMPROVEMENTS, IF ANY, AND
THAT BUYER HAS ENTERED INTO THIS AGREEMENT AFTER HAVING MADE SUCH PERSONAL
EXAMINATION AND INSPECTION. BUYER AGREES THAT BUYER WILL ACCEPT THE PROPERTY,
IN ITS THEN CONDITION AS-IS AND WITH ALL ITS FAULTS, INCLUDING WITHOUT
LIMITATION, ANY FAULTS AND CONDITIONS SPECIFICALLY REFERENCED IN THIS AGREEMENT,
SUBJECT TO THE EXPRESS COVENANTS, INDEMNITIES, REPRESENTATIONS AND WARRANTIES
MADE BY SELLER ELSEWHERE HEREIN. NO PERSON ACTING ON BEHALF OF SELLER IS
AUTHORIZED TO MAKE, AND BY EXECUTION HEREOF, BUYER ACKNOWLEDGES AND AGREES THAT,
EXCEPT FOR THOSE REPRESENTATIONS, WARRANTIES, COVENANTS, INDEMNITIES AND
AGREEMENTS EXPRESSLY MADE BY SELLER IN THIS AGREEMENT, SELLER HAS NOT MADE, DOES
NOT MAKE AND SPECIFICALLY NEGATES AND DISCLAIMS ANY REPRESENTATIONS, WARRANTIES,
PROMISES, COVENANTS, AGREEMENTS OR GUARANTIES OF ANY KIND OR CHARACTER
WHATSOEVER, WHETHER EXPRESS OR IMPLIED, ORAL OR WRITTEN, PAST, PRESENT OR
FUTURE, OF, AS TO, CONCERNING OR WITH RESPECT TO:
(A) THE VALUE OF THE PROPERTY OR THE INCOME TO BE DERIVED
THEREFROM;
(B) THE SUITABILITY OF THE PROPERTY FOR ANY AND ALL ACTIVITIES
AND USES WHICH BUYER MAY CONDUCT THEREON, INCLUDING ANY DEVELOPMENT OF
THE PROPERTY;
(C) THE HABITABILITY, MERCHANTABILITY, MARKETABILITY,
PROFITABILITY OR FITNESS FOR A PARTICULAR PURPOSE OF THE PROPERTY;
(D) THE MANNER, QUALITY, STATE OF REPAIR OR LACK OF REPAIR OF
THE PROPERTY;
(E) THE NATURE, QUALITY OR CONDITION OF THE PROPERTY, INCLUDING
WITHOUT LIMITATION, THE WATER, SOIL AND GEOLOGY;
(F) THE TYPE, AVAILABILITY OR COST OF ANY ENTITLEMENTS REQUIRED
TO DEVELOP THE PROPERTY;
(G) THE COMPLIANCE OF OR BY THE PROPERTY OR ITS OPERATION WITH
ANY LAWS, RULES, ORDINANCES OR REGULATIONS OF ANY APPLICABLE
GOVERNMENTAL AUTHORITY OR BODY;
9.
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(H) THE MANNER, CONDITION, COMPLETENESS OR QUALITY OF THE
CONSTRUCTION OR MATERIALS, IF ANY, INCORPORATED INTO THE PROPERTY;
(I) COMPLIANCE WITH ANY ENVIRONMENTAL PROTECTION, POLLUTION OR
LAND USE LAWS, RULES, REGULATION, ORDERS OR REQUIREMENTS, INCLUDING
BUT NOT LIMITED TO, THE ENDANGERED SPECIES ACT, TITLE III OF THE
AMERICANS WITH DISABILITIES ACT OF 1990 OR ANY OTHER LAW, RULE OR
REGULATION GOVERNING ACCESS BY DISABLED PERSONS, CALIFORNIA HEALTH &
SAFETY CODE, THE FEDERAL WATER POLLUTION CONTROL ACT, THE FEDERAL
RESOURCE CONSERVATION AND RECOVERY ACT, THE U.S. ENVIRONMENTAL
PROTECTION AGENCY REGULATIONS AT 40 C.F.R., PART 261, THE
COMPREHENSIVE ENVIRONMENTAL RESPONSE COMPENSATION AND LIABILITY ACT OF
1980, AS AMENDED, THE RESOURCES CONSERVATION AND RECOVERY ACT OF 1976,
THE CLEAN WATER ACT, THE SAFE DRINKING WATER ACT, THE HAZARDOUS
MATERIALS TRANSPORTATION ACT, THE TOXIC SUBSTANCE CONTROL ACT, AND
REGULATIONS PROMULGATED UNDER ANY OF THE FOREGOING;
(J) THE PRESENCE OR ABSENCE OF HAZARDOUS MATERIALS AT, ON,
UNDER, OR ADJACENT TO THE PROPERTY;
(K) THE CONTENT, COMPLETENESS OR ACCURACY OF ANY MATERIALS,
INCLUDING ANY INFORMATIONAL PACKAGE, COST TO COMPLETE ESTIMATE OR
OTHER MATERIALS PREPARED BY OR ON BEHALF OF SELLER;
(L) THE CONFORMITY OF THE IMPROVEMENTS TO ANY PLANS OR
SPECIFICATIONS FOR THE PROPERTY, INCLUDING ANY PLANS AND
SPECIFICATIONS THAT MAY HAVE BEEN OR MAY BE PROVIDED TO BUYER;
(M) THE CONFORMITY OF THE PROPERTY TO PAST, CURRENT OR FUTURE
APPLICABLE ZONING OR BUILDING REQUIREMENTS;
(N) DEFICIENCY OF ANY UNDERSHORING;
(O) DEFICIENCY OF ANY DRAINAGE;
10.
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(P) THE FACT THAT ALL OR A PORTION OF THE PROPERTY MAY BE
LOCATED ON OR NEAR AN EARTHQUAKE FAULT LINE OR LOCATED IN AN
ALQUIST-PRIOLO SPECIAL STUDY ZONE;
(Q) THE EXISTENCE OF VESTED LAND USE, ZONING OR BUILDING
ENTITLEMENTS AFFECTING THE PROPERTY;
(R) ANY AND ALL REQUIREMENTS OR CONDITIONS OF APPROVAL OF STATE
AND LOCAL GOVERNMENTAL AGENCIES FOR DEVELOPMENT OF THE PROPERTY
INCLUDING, WITHOUT LIMITATION, THE CONSTRUCTION OF OFFSITE AND ONSITE
ROADS, UTILITIES AND OTHER IMPROVEMENTS; OR
(S) WITH RESPECT TO ANY OTHER MATTER CONCERNING THE PROPERTY
EXCEPT AS MAY BE OTHERWISE EXPRESSLY STATED HEREIN, INCLUDING ANY AND
ALL SUCH MATTERS REFERENCED, DISCUSSED OR DISCLOSED IN ANY DOCUMENTS
DELIVERED BY SELLER TO BUYER, IN ANY PUBLIC RECORDS OF ANY
GOVERNMENTAL AGENCY OR ENTITY OR UTILITY COMPANY, OR IN ANY OTHER
DOCUMENTS AVAILABLE TO BUYER.
(T) BUYER FURTHER ACKNOWLEDGES AND AGREES THAT BUYER IS RELYING
SOLELY ON ITS OWN INVESTIGATION OF THE PROPERTY AND ITS OWN REVIEW OF
ALL INFORMATION AND DOCUMENTATION CONCERNING THE PROPERTY, AND NOT ON
ANY INFORMATION PROVIDED OR TO BE PROVIDED BY SELLER. BUYER FURTHER
ACKNOWLEDGES AND AGREES THAT ANY INFORMATION MADE AVAILABLE TO BUYER
OR PROVIDED OR TO BE PROVIDED BY OR ON BEHALF OF SELLER WITH RESPECT
TO THE PROPERTY WAS OBTAINED FROM A VARIETY OF SOURCES AND THAT SELLER
HAS NOT MADE ANY INDEPENDENT INVESTIGATION OR VERIFICATION OF SUCH
INFORMATION AND MAKES NO REPRESENTATIONS AS TO THE ACCURACY OR
COMPLETENESS OF SUCH INFORMATION EXCEPT AS MAY OTHERWISE BE PROVIDED
HEREIN. BUYER AGREES TO FULLY AND IRREVOCABLY RELEASE ALL SUCH
SOURCES OF INFORMATION AND PREPARERS OF INFORMATION AND DOCUMENTATION
TO THE EXTENT SUCH SOURCES OR PREPARERS ARE SELLER, OR ITS EMPLOYEES,
OFFICERS, DIRECTORS, REPRESENTATIVES, BENEFICIARIES, INVESTORS,
AGENTS, SERVANTS, ATTORNEYS, AFFILIATES, PARENT COMPANIES,
SUBSIDIARIES, SUCCESSORS OR ASSIGNS FROM ANY AND ALL CLAIMS, DAMAGES
AND LIABILITIES ARISING FROM SUCH INFORMATION OR DOCUMENTATION, EXCEPT
IF AND TO THE EXTENT THAT BUYER EMPLOYS SUCH SOURCES OR PREPARERS OF
INFORMATION TO ACT ON BEHALF OF BUYER, IN WHICH EVENT THE LIABILITY OF
SUCH SOURCES OR PREPARERS OF
11.
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INFORMATION TO BUYER SHALL BE DETERMINED BY THEIR OWN INDEPENDENT
AGREEMENTS WITH BUYER, AND SELLER SHALL NOT BE LIABLE FOR SUCH
AGREEMENTS OR OBLIGATIONS. SELLER IS NOT LIABLE OR BOUND IN ANY
MANNER BY ANY ORAL OR WRITTEN STATEMENTS, REPRESENTATIONS OR
INFORMATION PERTAINING TO THE PROPERTY, OR THE OPERATION THEREOF,
FURNISHED BY ANY OF THE FOREGOING ENTITIES AND INDIVIDUALS OR ANY
OTHER INDIVIDUAL OR ENTITY.
10.2 DISCLOSURES; SPECIFIC ACKNOWLEDGMENT REGARDING CONDITION OF PROPERTY.
Buyer acknowledges the disclosures expressly made by Seller in this Agreement,
the Prospectus and in correspondence from Seller, its attorneys and/or its
agents to Buyer, its attorneys and/or its agents.
11. TITLE INSURANCE: At the Close of Escrow, the Title Company will issue
to Buyer at Buyer's sole cost and expense an ALTA Standard Coverage Policy
(1990) with coverage in an amount equal to the appraised value of the Real
Property as determined by Buyer in its sole discretion, showing title to the
Real Property vested in Buyer, subject only to the Permitted Exceptions and the
standard printed exceptions and conditions in the policy of title insurance
("TITLE POLICY"). If Buyer elects to obtain any additional endorsements or an
extended coverage policy, the additional premium and costs of survey for the
extended coverage policy and the cost of any endorsements will be at Buyer's
sole cost and expense; however, Buyer's election to obtain an extended coverage
policy will not delay the Closing and Buyer's inability to obtain an extended
coverage policy or any such endorsements will not be deemed to be a failure of
any condition to Closing.
12. COSTS AND EXPENSES: Buyer will pay the costs of Closing the
transaction as follows:
(a) all premiums for the Title Policy;
(b) all escrow fees and costs;
(c) all city and county documentary transfer taxes;
(d) all document recording charges;
(e) all sales taxes;
(f) one half of all escrow fees and costs;
(g) the entire additional cost of any ALTA extended coverage title
policy, the cost of any required survey and, the cost of any endorsements
required by Buyer; and
(h) All other costs and expenses necessarily incurred to close the
transaction.
12.
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13. DISBURSEMENTS AND OTHER ACTIONS:
13.1 ESCROW HOLDER. At the Close of Escrow, Escrow Holder will promptly
undertake all of the following:
(a) Cause the Grant Deed (with documentary transfer tax information
to be affixed AFTER recording) to be recorded with the County Recorder and
obtain conformed copies thereof for distribution to Buyer and Seller.
(b) Direct the Title Company to issue the Title Policy to Buyer
within 15 BUSINESS DAYS after Closing.
(c) Deliver to Buyer the FIRPTA Certificate, the Form 590 and any
other documents (or copies thereof) deposited into Escrow by Seller.
Deliver to Seller any other documents (or copies thereof) deposited into
Escrow by Buyer.
(d) Notify the Transfer Agent by telephone and facsimile that the
Close of Escrow has occurred.
13.2 BY TRANSFER AGENT. Promptly after the Close of Escrow, Transfer
Agent shall deliver all shares of common stock of AFH in payment of the Exchange
Value for the Property to the persons, at the addresses and in the amounts
designated by Seller.
13.3 POSSESSION. Possession of the Other Assets in Seller's possession or
control and all other Property shall be delivered by Seller to Buyer at the
Close of Escrow.
14. JOINT REPRESENTATIONS AND WARRANTIES: In addition to any express
agreements of the parties contained herein, the following constitute
representations and warranties of the parties each to the other:
14.1 AUTHORITY. Each party has the legal power, right and authority to
enter into this Agreement and the instruments referenced herein, and to
consummate this transaction.
14.2 ACTIONS. All requisite action (corporate, trust, partnership or
otherwise) has been taken by each party in connection with the entering into of
this Agreement, the instruments referenced herein, and the consummation of this
transaction. Except as provided in Section 9, no further consent of any
partner, shareholder, creditor, investor, judicial or administrative body,
governmental authority or other party is required.
14.3 DUE EXECUTION. The individuals executing this Agreement and the
instruments referenced herein on behalf of each party and the partners, officers
or trustees of each party, if any, have the legal power, right, and actual
authority to bind each party to the terms and conditions of those documents.
13.
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14.4 VALID AND BINDING. This Agreement and all other documents required to
close this transaction are and will be valid, legally binding obligations of and
enforceable against each party in accordance with their terms, subject only to
applicable bankruptcy, insolvency, reorganization, moratorium laws or similar
laws or equitable principles affecting or limiting the rights of contracting
parties generally.
14.5 BROKER. Seller represents and warrants to Buyer, and Buyer
represents and warrants to Seller, that no broker or finder has been engaged by
them, respectively, in connection with any of the transactions contemplated by
this Agreement, or to its knowledge is in any way connected with any of such
transactions. Buyer will indemnify, save harmless and defend Seller from any
liability, cost, or expense arising out of or connected with any claim for any
commission or compensation made by any person or entity claiming to have been
retained or contacted by Buyer in connection with this transaction. Seller will
indemnify, save harmless and defend Buyer from any liability, cost, or expense
arising out of or connected with any claim for any commission or compensation
made by any person or entity claiming to have been retained or contacted by
Seller in connection with this transaction. This indemnity provision will
survive the Closing or any earlier termination of this Agreement.
15. SELLER'S WARRANTIES AND REPRESENTATIONS: Seller makes the following
representations and warranties and acknowledges that Buyer will rely on such
representations, and warranties in acquiring the Property, each of which will
survive the Closing for a period of one (1) year; provided that any claims must
be made in writing to Seller within the one (1) year period and liability for
any breach is subject to Section 8.1.2 hereof:
15.1 NON-FOREIGN ENTITY. Seller is not a "foreign person" within the
meaning of Section 1445(f)(3) of the Internal Revenue Code.
15.2 HAZARDOUS SUBSTANCES. To Seller's Actual Knowledge, since the date of
Seller's acquisition of the Property, no Hazardous Substances are now or have
been used, stored, generated or disposed of on or within the Property except in
the normal course of use and operation of the Property and in compliance with
all applicable Environmental Laws.
15.3 CLEAN-UP. To Seller's Actual Knowledge, since the date of Seller's
acquisition of the Property, there are and have been no federal, state or local
enforcement, clean-up, removal, remedial or other governmental or regulatory
actions instituted or completed affecting the Property, other than such other
matters as may otherwise be disclosed in any Environmental Audit or in any other
documents provided or made available to Buyer.
15.4 CLAIMS. To Seller's Actual Knowledge, there are no outstanding claims
that have been made by any third party against Seller relating to any Hazardous
Substances on or within the Property.
The provisions of this Section 15 shall no longer bind Seller if this
Agreement expires or is terminated for any reason, or if the Closing
contemplated hereunder occurs.
14.
<PAGE>
16. PRE-CLOSING COVENANTS: So long as this Agreement remains in full
force and effect:
16.1 NO TRANSFERS. Without the prior written consent of Buyer, Seller
will not convey any interest in the Property and will not subject the
Property to any additional liens, encumbrances, covenants, conditions,
easements, rights of way or similar matters after the date of this Agreement
which will not be eliminated prior to the Close of Escrow, or (ii) otherwise
provided for in this Agreement.
16.2 NO ALTERATIONS. Seller will not make any material alterations to
the Property without Buyer's consent, which will not be unreasonably withheld
or delayed.
16.3 MAINTENANCE. Seller will maintain the Property in substantially
the same condition as it is in, as of the date of this Agreement, and manage
the Property in accordance with Seller's established practices.
16.4 OBLIGATIONS UNDER CONTRACTS. Seller will keep and perform all of
the obligations to be performed by Seller under any contracts affecting the
Property. Without prior written consent of Buyer, which will not be
unreasonably withheld or delayed, Seller will not enter into any contract or
agreement providing for the provision of goods or services to or with respect
to the Property or the operation thereof unless such contracts or agreements
can be terminated without penalty by the Closing Date. Seller will not enter
into any leases for any portion of the Property.
16.5 EXPENDITURES. Seller will incur only expenditures necessary for
the (i) day-to-day operation and maintenance of the Property. Seller will not
incur liabilities not in the ordinary course of business. Seller shall
retain all Other Assets in Seller's possession on or after the date hereof
except for payment of such permitted liabilities and expenditures.
17. CONDEMNATION AND DESTRUCTION:
17.1 EMINENT DOMAIN OR TAKING. If proceedings under a power of eminent
domain relating to the Property or any part thereof are commenced prior to Close
of Escrow, Seller will promptly inform Buyer in writing.
(a) If such proceedings involve the taking of title to all or a
material interest in the Property, Buyer may elect to terminate this
Agreement by notice in writing sent within 10 DAYS of Seller's written
notice to Buyer, in which case neither party will have any further
15.
<PAGE>
obligation to or rights against the other except any rights or obligations
of either party which are expressly stated to survive termination of this
Agreement.
(b) If the proceedings do not involve the taking of title to all or a
material interest in the Property, or if Buyer does not elect to terminate
this Agreement, this transaction will be consummated as described herein
and any award or settlement payable with respect to such proceeding will be
paid or assigned to Buyer upon Close of Escrow.
(c) If this sale is not consummated for any reason, any condemnation
award or settlement will belong to Seller.
17.2 DAMAGE OR DESTRUCTION. Except as provided in this Section, prior to
the Close of Escrow the entire risk of loss of damage by earthquake, flood,
landslide, fire or other casualty is borne and assumed by Seller. If, prior to
the Close of Escrow, any part of the Improvements is damaged or destroyed by
earthquake, flood, landslide, fire or other casualty, Seller will promptly
inform Buyer of such fact in writing and advise Buyer as to the extent of the
damage and whether it is, in Seller's reasonable opinion, "MATERIAL" or not
"MATERIAL".
(a) If such damage or destruction is "MATERIAL", Buyer has the option
to terminate this Agreement upon written notice to the Seller given not
later than 10 DAYS after receipt of Seller's written notice to Buyer
advising of such damage or destruction.
(b) For purposes hereof, "MATERIAL" is deemed to be any damage or
destruction to the Improvements where the cost of repair or replacement is
estimated to be more than 25% of the Exchange Value of the Property and
will take more than 60 DAYS to repair.
(c) If this Agreement is so terminated, the provisions of Section 5
will govern.
(d) If Buyer does not elect to terminate this Agreement, or if the
casualty is not material, Seller will reduce the Exchange Value by the
value reasonably estimated by Seller to repair or restore the damaged
portion of the Improvements, less any sums expended by Seller to make
emergency repairs to the Improvements or the Property or otherwise protect
the physical condition of the Improvements or the Property, and this
transaction will close pursuant to the terms of this Agreement.
(e) If the damage is not material, Seller's notice to Buyer of the
damage or destruction will also set forth Seller's reduced Exchange Value
and Seller's allocation of value to the damaged portion of the
Improvements. If Buyer does not accept Seller's reduced Exchange Value,
Buyer's sole remedy will be to terminate this Agreement.
(f) Whether or not the sale of the Property is consummated hereunder,
all rights to insurance claims or proceeds in respect of damage or
destruction to the Improvements occurring prior to the Close of Escrow will
belong to Seller.
16.
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18. UTILITIES AND DEPOSITS:
18.1 UTILITIES: Seller will notify all utility companies servicing the
Property of the sale of the Property to Buyer and will notify the utility
companies that all utility bills henceforth are to be sent to Buyer. Buyer
shall be entitled to receive any and all refunds of all utility deposits held by
utility companies and Seller will assign to Buyer all of Seller's right, title
and interest in any such utility deposits.
18.2 REFUNDABLE DEPOSITS. To the extent there exists any refundable
deposits made in connection with the development of the Property prior to the
Closing including without limitation all bonds posted by Seller with the City of
Oceanside, California to secure Seller's obligations as developer of the Real
Property ("Refundable Deposits"), Seller shall assign to Buyer all of Seller's
right, title and interest in and to such Refundable Deposits.
19. MEDIATION OF DISPUTES: No party to this Agreement shall initiate any
litigation against any other party to this Agreement concerning any controversy
or claim arising out of or relating to this Agreement or any agreements or
instruments relating hereto or delivered in connection herewith, including, but
not limited to, any claim based on or arising from an alleged tort, unless and
until (i) at least 60 days before the same shall be filed, a complete copy of
each of the summons and complaint (and/or any other documentation required to
initiate such litigation) to be filed by the complaining party shall have been
delivered to the other party or parties to any such dispute, and (ii) the
complaining party has made itself available to meet in Los Angeles, California
with the other party or parties for no more than 3 business days of non-binding
mediation. Until and unless such mediation has taken place, the complaining
party must give notice to the non-complaining party that it will, and then it
must, make itself available for such mediation during at least 20 business days
during the 60 days before the date on which such summons and complaint will be
filed.
20. ARBITRATION OF DISPUTES: ANY CONTROVERSY OR CLAIM ARISING OUT OF OR
RELATING TO THIS AGREEMENT OR ANY AGREEMENTS OR INSTRUMENTS RELATING HERETO OR
DELIVERED IN CONNECTION HEREWITH, INCLUDING, BUT NOT LIMITED TO A CLAIM BASED ON
OR ARISING FROM AN ALLEGED TORT WILL, AT THE REQUEST OF ANY PARTY, BE DETERMINED
BY ARBITRATION IN ACCORDANCE WITH THE FEDERAL ARBITRATION ACT (9 U.S.C. SECTION
1 ET SEQ.) UNDER THE AUSPICES AND RULES OF THE AMERICAN ARBITRATION ASSOCIATION
("AAA"). THE AAA WILL BE INSTRUCTED BY EITHER OR BOTH PARTIES TO PREPARE A LIST
OF THREE (3) JUDGES WHO HAVE RETIRED FROM THE SUPERIOR COURT OF THE STATE OF
CALIFORNIA, A HIGHER CALIFORNIA COURT OR ANY FEDERAL COURT. WITHIN 10 DAYS OF
RECEIPT OF THE LIST, EACH PARTY MAY STRIKE 1 NAME FROM THE LIST. THE AAA WILL
THEN APPOINT THE ARBITRATOR FROM THE NAME(S) REMAINING ON THE LIST. THE
ARBITRATION WILL BE CONDUCTED IN SAN FRANCISCO, LOS ANGELES OR SAN DIEGO,
WHICHEVER IS THE CLOSEST CITY TO THE NEXUS OF THE DISPUTE. ANY CONTROVERSY IN
INTERPRETATION OR ENFORCEMENT OF THIS PROVISION OR WHETHER A DISPUTE IS
ARBITRABLE, WILL BE DETERMINED BY THE
17.
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ARBITRATOR. JUDGMENT UPON THE AWARD RENDERED BY THE ARBITRATOR MAY BE ENTERED
IN ANY COURT HAVING JURISDICTION. THE INSTITUTION AND MAINTENANCE OF AN ACTION
FOR JUDICIAL RELIEF OR IN PURSUIT OF AN ANCILLARY REMEDY DOES NOT CONSTITUTE A
WAIVER OF THE RIGHT OF ANY PARTY, INCLUDING THE PLAINTIFF, TO SUBMIT THE
CONTROVERSY OR CLAIM TO ARBITRATION.
NOTICE: BY INITIALING IN THE SPACE BELOW YOU ARE AGREEING TO HAVE ANY DISPUTE
ARISING OUT OF THE MATTERS INCLUDED IN THE 'ARBITRATION OF DISPUTES' PROVISION
DECIDED BY NEUTRAL ARBITRATION AS PROVIDED BY CALIFORNIA LAW AND YOU ARE GIVING
UP ANY RIGHTS YOU MIGHT POSSESS TO HAVE THE DISPUTE LITIGATED IN A COURT OR BY
JURY TRIAL. BY INITIALING IN THE SPACE BELOW YOU ARE GIVING UP YOUR JUDICIAL
RIGHTS TO DISCOVERY AND APPEAL UNLESS SUCH RIGHTS ARE SPECIFICALLY INCLUDED IN
THE "ARBITRATION OF DISPUTES" PROVISION. IF YOU REFUSE TO SUBMIT TO ARBITRATION
AFTER AGREEING TO THIS PROVISION, YOU MAY BE COMPELLED TO ARBITRATE UNDER THE
AUTHORITY OF THE CALIFORNIA CODE OF CIVIL PROCEDURE. YOUR AGREEMENT TO THIS
ARBITRATION PROVISION IS VOLUNTARY.
WE HAVE READ AND UNDERSTAND THE FOREGOING AND AGREE TO SUBMIT DISPUTES ARISING
OUT OF THE MATTERS INCLUDED IN THE 'ARBITRATION OF DISPUTES' PROVISION TO
NEUTRAL ARBITRATION.
Buyer's Initials ________ Seller's Initials _________
21. NOTICES: All notices or other communications required or permitted
hereunder must be in writing, and must be personally delivered (including by
means of professional messenger service) or sent by overnight courier, or sent
by registered or certified mail, postage prepaid, return receipt requested to
the addresses set forth in Section 1 hereof. All notices sent by mail will be
deemed received 2 DAYS after the date of mailing and all notices sent by other
means permitted herein shall be deemed received on the earlier of the date
delivered or the date on which delivery is refused.
22. ASSIGNMENT: Neither party shall have the right to assign this
Agreement without the other party's prior written consent.
23. MISCELLANEOUS:
23.1 COUNTERPARTS. This Agreement may be executed in counterparts.
23.2 PARTIAL INVALIDITY. If any term or provision of this Agreement will
be deemed to be invalid or unenforceable to any extent, the remainder of this
Agreement will not be affected thereby, and each remaining term and provision of
this Agreement will be valid and be enforced to the fullest extent permitted by
law.
18.
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23.3 POSSESSION OF THE PROPERTY. Seller will deliver possession of the
Property to Buyer upon the Close of Escrow.
23.4 WAIVERS. No waiver of any breach of any covenant or provision
contained herein will be deemed a waiver of any preceding or succeeding breach
thereof, or of any other covenant or provision contained herein. No extension
of time for performance of any obligation or act will be deemed an extension of
the time for performance of any other obligation or act except those of the
waiving party, which will be extended by a period of time equal to the period of
the delay.
23.5 SUCCESSORS AND ASSIGNS. This Agreement is binding upon and inures to
the benefit of the permitted successors and assigns of the parties hereto.
23.6 PROFESSIONAL FEES. In the event of the bringing of any action,
arbitration or suit by a party hereto against another party hereunder by reason
of any breach of any of the covenants, agreements or provisions on the part of
the other party arising out of this Agreement, then in that event the prevailing
party will be entitled to have the recovery of and from the other party all
costs and expenses of the action, mediation or suit, actual attorneys' fees,
witness fees and any other professional fees resulting therefrom.
23.7 ENTIRE AGREEMENT. This Agreement (including all Exhibits attached
hereto) constitutes the entire contract between the parties hereto with respect
to the subject matter hereof and may not be modified except by an instrument in
writing signed by the party to be charged.
23.8 TIME OF ESSENCE. Seller and Buyer hereby acknowledge and agree that
time is strictly of the essence with respect to each and every term, condition,
obligation and provision hereof.
23.9 CONSTRUCTION. Seller and Buyer and their respective advisors believe
that this Agreement is the product of all of their efforts, that it expresses
their agreement and that it should not be interpreted in favor of or against
either Buyer or Seller. The parties further agree that this Agreement will be
construed to effectuate the normal and reasonable expectations of a
sophisticated seller and buyer.
23.10 GOVERNING LAW. The parties hereto expressly agree that this
Agreement will be governed by, interpreted under, and construed and enforced in
accordance with the laws of the State of California.
23.11 WEAR AND TEAR. Buyer specifically acknowledges that Seller will
continue to use the Property in the course of its business and accepts the fact
that reasonable wear and tear will occur after the date of this Agreement.
Buyer specifically agrees that Seller is not responsible for repairing such
reasonable wear and tear and that Buyer is prohibited from raising such wear and
tear as a reason for not consummating this transaction or for requesting a
reduction in the Exchange Value.
19.
<PAGE>
23.12 NO RECORDATION. No memorandum or other document relating to this
Agreement will be recorded without the prior written consent of Seller, and any
such consent or approval will be conditioned upon Buyer providing Seller with a
quitclaim deed fully executed and acknowledged by Buyer, quitclaiming any and
all interests that it may have in the Property to Seller, which quitclaim deed
Seller may record in the event that this Agreement is terminated or the
transaction contemplated herein is not consummated.
23.13 SURVIVAL. All obligations of the parties contained herein which by
their terms do not arise until after the Close of Escrow and any other
provisions of this Agreement which by their terms survives the Close of Escrow,
shall survive the Close of Escrow.
23.14 DISCLAIMER. Nothing herein creates any right or remedy for the
benefit of any person not a party hereto, nor creates a fiduciary relationship,
an agency or a partnership. All obligations of the parties contained herein
which by their terms do not arise until after the Close of Escrow and any other
provisions of this Agreement which by their terms survives the Close of Escrow,
shall survive the Close of Escrow.
23.15 WAIVER OF JURY TRIAL. Each party, acting with knowledge of its
rights after a full opportunity to consult with counsel, voluntarily waives all
rights to trial by jury in all proceedings for which a trial by jury would
otherwise be available or required, and which involve any matter arising out of
or connected with rights or duties under, or enforcement or interpretation of,
this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date and year hereinabove written.
"SELLER": "BUYER":
OCEANSIDE DEVELOPMENT, INC., OCEANSIDE HOMES, INC.,
a California Corporation a California Corporation
By:_________________________________ By:_________________________________
Its:________________________________ Its:________________________________
and and
By:_________________________________ By:_________________________________
Its:________________________________ Its:________________________________
20.
<PAGE>
Agreed to and accepted
by Escrow Holder:
a______________________________
By:____________________________
Its:___________________________
21.
<PAGE>
EXHIBIT A
LEGAL DESCRIPTION
<PAGE>
EXHIBIT B
FORM OF DEED
RECORDING REQUESTED BY,
WHEN RECORDED MAIL TO:
Arter & Hadden
700 South Flower Street, Suite 3000
Los Angeles, California 90017
Attn: Bruce H. Newman, Esq.
________________________________________________________________________________
(Above Space For Recorder's Use Only)
GRANT DEED
In accordance with Section 11932 of the California Revenue and Taxation
Code, Grantor has declared the amount of transfer tax which is due by a separate
statement which is not being recorded with this Grant Deed.
FOR A VALUABLE CONSIDERATION, RECEIPT OF WHICH IS HEREBY ACKNOWLEDGED,
Oceanside Development, Inc., a California corporation ("Grantor"), hereby grants
to Oceanside Homes, Inc., a California corporation ("Grantee"), the real
property in the County of San Diego, State of California, and described in
EXHIBIT A attached hereto and made a part hereof.
DATED: __________________, 1997
_________________________
_________________________
By: _____________________
Its: ____________________
__________
MAIL TAX STATEMENTS TO:
<PAGE>
ACKNOWLEDGEMENT
STATE OF CALIFORNIA )
) ss.
COUNTY OF ________________ )
On ____________________, before me _____________________________________,
personally appeared _______________________, personally known to me (or proved
to me on the basis of satisfactory evidence) to be the person(s) whose name(s)
is/are subscribed to the within instrument and acknowledged to me that
he/she/they executed the same in his/her/their authorized capacity(ies), and
that by his/her/their signature(s) on the instrument the person(s), or the
entity upon behalf of which the person(s) acted, executed the instrument.
WITNESS my hand and official seal.
______________________________
Notary Public in and for said
County and State [SEAL]
<PAGE>
Document No. ____________________ Date Recorded_________________
STATEMENT OF TAX DUE AND REQUEST THAT TAX DECLARATION
NOT BE MADE A PART OF THE PERMANENT RECORD
IN THE OFFICE OF THE COUNTY RECORDER
(Pursuant to Section 11932 R&T Code)
To: Registrar-Recorder
County of _________________________
Request is hereby made in accordance with the provisions of the Documentary
Transfer Tax Act that the amount of tax due not be shown on the original
document which names:
___________________________________
(as grantor)
and
___________________________________
(as grantee)
Property described in the accompanying document is located in
( ) unincorporated area or (x) City of _______________________.
The amount of tax due on the accompanying document is $_______________.
_____ Computed on full value of property conveyed, or
_____ Computed on full value less liens and encumbrances remaining at time
of sale.
___________________________________
___________________________________
By: ___________________________
Its: ___________________________
<PAGE>
EXHIBIT C
Seller's FIRPTA Affidavit
CERTIFICATION OF NON-FOREIGN STATUS
Section 1445 of the Internal Revenue Code provides that a transferee
of a U.S. real property interest must withhold tax if the transferor is a
foreign person. To inform the transferee that withholding of tax is not
required upon the disposition of a U.S. real property interest by
______________________________ ("TRANSFEROR"), each of the undersigned hereby
certifies the following on behalf of Transferor:
1. Transferor is not a foreign corporation, foreign partnership,
foreign trust and foreign estate (as those terms are defined in the Internal
Revenue Code and Income Tax Regulations);
2. Transferor's U.S. employer identification number is ____________;
and
3. Transferor's office address is _________________________________,
___________________.
Transferor understands that this certification may be disclosed to
the Internal Revenue Service by transferee and that any false statement
contained herein could be punished by fine, imprisonment or both.
Under penalties of perjury each of the undersigned declares that he
has examined this certification and to the best of his knowledge and belief it
is true, correct and complete, and he further declares that he has authority to
sign the document on behalf of the Transferor.
_________________________
_________________________
By: _____________________
Its: ____________________
<PAGE>
EXHIBIT D
ASSIGNMENT AND ASSUMPTION
OF
AGREEMENTS
THIS ASSIGNMENT AND ASSUMPTION OF AGREEMENTS (this "Assignment") is
executed as of ______________, but effective as of the Effective Date (as
hereinafter defined), by and between __________________________________________,
a ___________________ ("Assignor"), and __________________________, a
_____________________________ ("Assignee"), with reference to the following
facts:
RECITALS:
A. Assignor, as the agent of and for the benefit of various
investors, holds title to that certain real property commonly known as
"__________________________", located in the City of ____________, County of
_________________, State of California, as more particularly described on
Exhibit "A" attached hereto and incorporated herein by reference (the
"Property").
B. Concurrently herewith, Assignor has executed that certain Grant
Deed conveying and granting to Assignee the Property.
C. As part of the transfer and conveyance of the Property to
Assignee, Assignor has agreed to transfer, assign, grant and convey to Assignee
all of its right, title and interest in and to all agreements relating to the
Property, on the terms and conditions herein contained.
NOW, THEREFORE, in consideration of the foregoing Recitals, which
Recitals are by this reference incorporated herein, and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. ASSIGNMENT. Assignor hereby grants, assigns, transfers, sets
over, sells, conveys and delivers to Assignee all of Assignor's right, title,
interest, benefits and privileges under the agreements relating to the Property
which are set forth in Exhibit "B" attached hereto and made a part hereof
(collectively, the "Agreements"). The assignment provided for in this Section 1
is effective concurrently with the transfer of the Property from Assignor to
Assignee (the "Effective Date").
1.
<PAGE>
2. ASSIGNEE'S ASSUMPTION. Assignee hereby accepts the assignment
from Assignor, assumes and agrees to perform all duties and obligations of
Assignor under the terms of the Agreements which are required to be performed on
or after the Effective Date.
4. DELIVERIES; REPORTS. On or before the Effective Date, Assignor
shall deliver to Assignee the original Agreements or if such original Agreements
are not in Assignor's possession, certified copies of such Agreements. Assignor
shall furnish and deliver to Assignee, promptly after receipt thereof,
duplicates or copies of all reports, notices, requests, demands, declarations,
certificates or other instruments hereafter received by Assignor and relating to
the Agreements. Assignee's address for receipt of the foregoing is ____________
______________________________________________________________.
5. FURTHER ASSURANCES. Assignor and Assignee shall execute,
acknowledge and deliver all such instruments and take all such action as may be
necessary to further assure to Assignee the rights assigned hereby and the full
benefits hereof and to preserve and protect this Assignment and all of the
rights, powers and remedies of Assignee provided for herein.
6. SUCCESSORS AND ASSIGNS. This Assignment shall be binding upon
and inure to the benefit of the successors and assigns of the respective parties
hereto.
7. GOVERNING LAW. This Assignment shall be governed by, and
construed in accordance with, the laws of the State of California.
8. COUNTERPARTS. This Assignment may be executed in several
counterparts, each of which shall be an original, but all of which taken
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, Assignor and Assignee have executed this
Assignment as of the date first above written but effective as of the Effective
Date.
ASSIGNOR: ________________________________
________________________________
ASSIGNEE: ________________________________
________________________________
2.
<PAGE>
EXHIBIT "A"
LEGAL DESCRIPTION
3.
<PAGE>
EXHIBIT "B"
CONTRACTS
4.
<PAGE>
EXHIBIT E
BILL OF SALE AND GENERAL ASSIGNMENT OF INTANGIBLES
This Bill of Sale and General Assignment of Intangibles is made as of
the ____ day of ___________________________, 1997 (this "Assignment"), by
_________________________, a _______________________, ("Assignor"), to
______________________, ("Assignee").
R E C I T A L
Assignee and Assignor have entered into an Agreement of Purchase and
Sale and Joint Escrow Instructions dated ________, 1997 ("Agreement of Purchase
and Sale") under which Assignee has agreed to purchase from Assignor, that
certain real property and all buildings, structures and improvements on said
real property commonly identified as ____ __________________, _____________,
State of California and legally described on EXHIBIT A attached hereto (the
"Property").
TERMS AND CONDITIONS
NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties agree as follows:
1. Assignor hereby assigns, transfers and sets over unto Assignee,
its successors and assigns, all personal property of Seller, if any, located on
and used in connection with the operation of the improvements on the Property
(the "Personal Property"). Buyer accepts such Personal Property in its "AS-IS"
condition and "WITH ALL FAULTS". Seller specifically disclaims all express or
implied warranties regarding the existence or condition of, or title to, such
Personal Property, including without limitation the implied warranties of
merchantability and suitability for a particular purpose.
2. Assignor hereby assigns, transfers and sets over unto Assignee,
its successors and assigns, all of its right, title and interest in and to the
following ("General Intangibles") if, and only to the extent, that the General
Intangibles exist and Assignor has the right to so transfer them:
(A) All of Assignor's right, title and interest in and to all
intangible property used, owned or issued solely in connection with the
Property, including but not limited to, all licenses, permits, certificates of
occupancy, approvals, maps, dedications, subdivision maps and entitlements
issued, approved or granted by any governmental agencies or instrumentalities
having any jurisdiction over the Property (the "Authorities") or otherwise in
connection with the Property; all development rights, conditional use permits,
variances, "floor area ratio" development rights and other intangible rights,
titles, interests, privileges and appurtenances owned by Assignor and related to
or issued in connection with the Property and/or
1
<PAGE>
its use, occupancy, operation and/or development; all licenses, consents,
easements, rights of way, and approvals required from private parties to make
use of utilities and to insure vehicular and pedestrian ingress and egress to
the Property; and any pending applications or requests as to any of the
foregoing;
(B) All building plans, specifications and drawings,
engineering, and other documents prepared in connection with the construction,
reconstruction, maintenance, repair, or operation any improvements on the
Property (the "Improvements");
(C) All warranties and guarantees relating to the workmanship,
construction, installation materials, and design of the Improvements and the
personal property situated on the Property, including but not limited to those
made by or received from any third party with respect to any building, building
component, structure, fixture, machinery, equipment or material situated on,
contained in any building or other improvement situated on, or comprising a part
of any building or other improvement situated on any part of the Property;
(D) All rights, claims or awards benefiting the Property;
(E) All prepaid fees and fee credits, and all of Seller's right,
title and interest in and to refundable deposits, bonds and other collateral
furnished in connection with development of the Property; and
(F) All rights and general intangibles now owned by Assignor
solely in connection with the Property and any improvement and/or fixture
located on the Property, including, without limitation, the rights to hold, use,
sell and transfer the Property and Improvements and general intangibles.
3. Assignor hereby covenants that it will, at any time and from time
to time upon written request therefor, execute and deliver to Assignee, its
successors and assigns any new or confirmatory instruments and take such further
acts as Assignee may reasonably request to fully evidence the assignment
contained herein and to enable Assignee, its successors and assigns to fully
realize and enjoy the rights and interests assigned hereby.
4. Assignee hereby accepts the foregoing assignment.
5. Assignor hereby represents and warrants to Assignee that it has
not previously assigned or hypothecated its interest in the foregoing described
General Intangibles; however, Assignee shall have no claims or rights against
Assignor, and Assignor shall have no obligation or liability to Assignee for any
General Intangibles described herein which do not exist, or which Assignor does
not have the right to transfer to Assignee.
2
<PAGE>
6. This Assignment shall be binding upon and inure to the benefit of
the legal representatives, assigns, or successors in interest of the Assignor
and Assignee.
IN WITNESS WHEREOF, the Assignor has executed this Assignment as of
_________, 1997.
______________________________________
______________________________________
By:___________________________________
Its:__________________________________
3
<PAGE>
AGREEMENT OF PURCHASE AND SALE
AND JOINT ESCROW INSTRUCTIONS
BY AND AMONG
AHWAHNEE GOLF COURSE & RESORT, INC.,
a California corporation,
NATIONAL INVESTORS FINANCIAL, INC.,
a California corporation, as Trustee of
National Investors Land Holding Trust VIII,
and
NATIONAL INVESTORS FINANCIAL, INC.,
a California corporation, as Trustee of
National Investors Land Holding Trust IX ,
COLLECTIVELY, AS SELLER,
AND
YOSEMITE WOODS FAMILY RESORT, INC.,
a California corporation,
AS BUYER
RELATING TO
PROPERTY LOCATED IN
Madera County, California
known as
"AHWAHNEE GOLF COURSE AND RESORT"
DATED AS OF
September___, 1997
172728.1E 09.17.97
AHWAHNEE PURCHASE AGREEMENT
<PAGE>
TABLE OF CONTENTS
Page
----
1. Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2. Purchase and Sale. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
3. Exchange Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
4. Escrow . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
5. Cancellation Fees and Expenses . . . . . . . . . . . . . . . . . . . . . . 7
6. Deliveries to Escrow Holder. . . . . . . . . . . . . . . . . . . . . . . . 7
6.1 By Seller . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
6.2 By Buyer. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
6.3 By Buyer and Seller . . . . . . . . . . . . . . . . . . . . . . . . . 8
7. Condition of Title . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
7.1 Permitted Exceptions. . . . . . . . . . . . . . . . . . . . . . . . . 8
7.2 Title Provided by Seller. . . . . . . . . . . . . . . . . . . . . . . 8
8. Conditions to the Close of Escrow. . . . . . . . . . . . . . . . . . . . . 9
8.1 Conditions Precedent to Buyer's Obligations . . . . . . . . . . . . . 9
8.1.1 Title . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
8.1.2 Representations, Warranties and Covenants of Seller . . . . . . 9
8.1.3 Seller's Deliveries . . . . . . . . . . . . . . . . . . . . . . 9
8.2 Conditions Precedent to Seller's Obligations. . . . . . . . . . . . . 9
9. Seller's Constituents' Approvals . . . . . . . . . . . . . . . . . . . . .10
10. Property "As-Is . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10
10.1 No Side Agreements Or Representations; As-Is Purchase. . . . . . . .10
10.2 Disclosures; Specific Acknowledgment Regarding Condition
of Property. . . . . . . . . . . . . . . . . . . . . . . . . . . . .13
11. Title Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13
12. Costs and Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . .13
13. Disbursements and Other Actions by Escrow Holder. . . . . . . . . . . . .13
13.1 Funds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14
14. Joint Representations and Warranties. . . . . . . . . . . . . . . . . . .14
14.1 Authority. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14
i
<PAGE>
14.2 Actions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14
14.3 Due Execution. . . . . . . . . . . . . . . . . . . . . . . . . . . .15
14.4 Valid and Binding. . . . . . . . . . . . . . . . . . . . . . . . . .15
14.5 Valid and Binding. . . . . . . . . . . . . . . . . . . . . . . . . .15
15. Seller's Warranties and Representations . . . . . . . . . . . . . . . . .15
15.1 Non-Foreign Entity . . . . . . . . . . . . . . . . . . . . . . . . .15
15.2 Hazardous Substances.. . . . . . . . . . . . . . . . . . . . . . . .15
15.3 Clean-up.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15
15.4 Claims.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16
16. Pre-Closing Covenants . . . . . . . . . . . . . . . . . . . . . . . .16
16.1 No Transfers.. . . . . . . . . . . . . . . . . . . . . . . . . . . .16
16.2 No Alterations.. . . . . . . . . . . . . . . . . . . . . . . . . . .16
16.3 Maintenance. . . . . . . . . . . . . . . . . . . . . . . . . . . . .16
16.4 Obligations Under Contracts. . . . . . . . . . . . . . . . . . . . .16
16.5 Expenditures.. . . . . . . . . . . . . . . . . . . . . . . . . . . .16
16. Condemnation and Destruction. . . . . . . . . . . . . . . . . . . . . . .17
16.1 Eminent Domain or Taking . . . . . . . . . . . . . . . . . . . . . .17
16.2 Damage or Destruction. . . . . . . . . . . . . . . . . . . . . . . .17
17 Utilities and Deposits . . . . . . . . . . . . . . . . . . . . . . . . . .18
17.1 Utilities C \l . . . . . . . . . . . . . . . . . . . . . . . . . . . . .18
17.2 Refundable Deposits. . . . . . . . . . . . . . . . . . . . . . . . .18
19. Mediation of Disputes . . . . . . . . . . . . . . . . . . . . . . . . . .19
20. ARBITRATION OF DISPUTES:. . . . . . . . . . . . . . . . . . . . . . . . .19
20. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .21
21. No Assumption of Agreements . . . . . . . . . . . . . . . . . . . . . . .21
22. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .21
22.1 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . .21
22.2 Partial Invalidity . . . . . . . . . . . . . . . . . . . . . . . . .21
22.3 Possession of the Property . . . . . . . . . . . . . . . . . . . . .21
22.4 Waivers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .21
22.5 Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . .21
22.6 Professional Fees. . . . . . . . . . . . . . . . . . . . . . . . . .21
22.7 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . .21
22.8 Time of Essence. . . . . . . . . . . . . . . . . . . . . . . . . . .22
22.9 Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . .22
22.10 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . .22
ii
<PAGE>
22.12 Wear and Tear . . . . . . . . . . . . . . . . . . . . . . . . . . .22
22.13 No Recordation. . . . . . . . . . . . . . . . . . . . . . . . . . .22
22.15 Survival. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .22
22.16 Disclaimer. . . . . . . . . . . . . . . . . . . . . . . . . . . . .22
22.17 Waiver of Jury Trial. . . . . . . . . . . . . . . . . . . . . . . .22
EXHIBITS
Exhibit A - Legal Description
Exhibit B - Form of Grant Deed
Exhibit C - FIRPTA Affidavit
Exhibit D - Assignment and Assumption
Exhibit E - Bill of Sale and General Assignment of Intangibles
Exhibit F - Membership Lists
Exhibit G - Payables to be Assumed By Buyer
iii
<PAGE>
AGREEMENT OF PURCHASE AND SALE
AND JOINT ESCROW INSTRUCTIONS
THIS AGREEMENT OF PURCHASE AND SALE AND JOINT ESCROW INSTRUCTIONS
("AGREEMENT") is made and entered into as of August ___, 1997, by and among
AHWAHNEE GOLF COURSE & RESORT, INC., a California corporation (the "COMPANY"),
NATIONAL INVESTORS FINANCIAL, INC., a California corporation and a licensed
California real estate broker ("NIF"), as Trustee of National Investors Land
Holding Trust VIII ("TRUST VIII") and NIF, as Trustee of National Investors Land
Holding Trust IX ("TRUST IX") (the Company, NIF as Trustee for Trust VIII and
NIF as Trustee for Trust IX being referred to collectively as "SELLER"), and
YOSEMITE WOODS FAMILY RESORT, INC., a California corporation ("BUYER").
R E C I T A L S
A. Seller is the title holder and operator of property commonly
known as "Ahwahnee Golf Course and Resort", consisting of 2 parcels containing
approximately 1,647.79 acres, located in the County of Madera, State of
California, as more particularly described in Exhibit A attached hereto (the
"Real Property"). The Real Property includes, among other things, a
non-proprietary golf and country club, a recreational vehicle park in parcel 2
and lots for existing or proposed single family dwellings in parcel 2. Buyer is
a wholly-owned subsidiary of American Family Communities, Inc., a California
corporation ("AFC").
B. National Investors Trust VIII holds record title as agent of and
for the benefit of various investors to that portion of the Real Property
referred to as Parcel 1 in Exhibit A attached hereto consisting of approximately
660 acres less 13 lots ("Parcel 1"). National Investors Trust IX holds record
title as agent of and for the benefit of various investors to that portion of
the Real Property referred to as Parcel 2 in Exhibit A attached hereto
consisting of approximately 990 acres ("Parcel 2"). The Company operates and
manages Parcels 1 and 2 and the Ahwahnee Golf Course and Resort as agent of and
for the benefit of the beneficiaries of Trust VIII and Trust IX, respectively.
C. Parcel 1 is encumbered by a deed of trust securing an obligation
in the original amount of $6,5000,000 which is held by various investors who are
also the beneficiaries of Trust IX. Parcel 2 is encumbered by a deed of trust
securing an obligation in the original amount of $13,360,000 which is held by
various investors, who are also the beneficiaries of Trust VII.
NOW, THEREFORE, in consideration of the foregoing Recitals, which
Recitals are incorporated herein by this reference, and for other good and
valuable consideration, the receipt of which is hereby acknowledged, Buyer and
Seller agree as follows:
1.
<PAGE>
AGREEMENT
1. DEFINITIONS: For the purposes of this Agreement the following
terms will be defined as follows:
1.1. "ACTUAL KNOWLEDGE OF SELLER" means and is limited to the actual
knowledge of David Lasker and James N. Orth (both of whom are licensed
California real estate brokers) without having conducted any independent
inquiry or inspection, and shall not include the knowledge of any other
persons or firms, it being understood and agreed by Buyer that neither David
Lasker nor James N. Orth is charged with knowledge of all of the acts and/or
omissions of predecessors in title to the Property or management of the
Property before Seller's acquisition of the Property and the Actual Knowledge
of Seller shall not include information or material which may be in the
possession of Seller generally, but of which neither David Lasker nor James
N. Orth is actually aware.
1.2. "AFC" means American Family Communities, Inc., a California
corporation, which is a wholly-owned subsidiary of AFH.
1.3. "AFH" means American Family Holdings, Inc., a Delaware
corporation. Buyer is a wholly-owned subsidiary of AFC, which, in turn, is a
wholly-owned subsidiary of AFH.
1.4. "ASSIGNMENT" shall have the meaning given thereto in
Section 6.1(d) hereof.
1.5. "BILL OF SALE" shall have the meaning given thereto in
Section 6.1(e) hereof.
1.6. "CLOSING DATE" means ___________, 1997, unless an earlier date is
agreed to in a writing subsequent to this Agreement executed and delivered by
each of the parties hereto to the other, and is the last date on which the
Closing and Close of Escrow can occur, subject to extension as provided for in
this Agreement.
1.7. "CLOSING" and "CLOSE OF ESCROW" are terms used interchangeably in
this Agreement. The Closing or the Close of Escrow will be deemed to have
occurred when the Grant Deed is recorded in the official records of the county
in which the Property is located.
1.8. "COUNTRY CLUB FACILITIES" means the golf course and clubhouse
facilities located on a portion of the Property, consisting generally of an
18-hole golf course, a clubhouse consisting of approximately ______ square feet
of space, a pro shop and restaurant and banquet facilities which accommodate up
to 250 people.
1.9. "COUNTRY CLUB PROPERTY" means that portion of the Property on
which the Country Club Facilities are located.
1.10. "EFFECTIVE DATE" means the date hereof.
2.
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1.11. "ENVIRONMENTAL AUDIT" means any environmental audit, review or
testing of the Property performed by Buyer or any third party or consultant
engaged by Buyer to conduct such study.
1.12. "ENVIRONMENTAL LAW" means any law, statute, ordinance or
regulation pertaining to health, industrial hygiene or the environment
including, without limitation, CERCLA (Comprehensive Environmental Response,
Compensation and Liability Act of 1980) and RCRA (Resources Conservation and
Recovery Act of 1976), as amended.
1.13. "ESCROW" shall have the meaning given thereto in Section 4
hereof.
1.14. "ESCROW HOLDER" means __________________________________
___________________________________________________________________.
1.15. "EXCHANGE VALUE" is the adjusted appraised value of the
Property with respect to Parcel 1 and Parcel 2 respectively, which takes into
consideration various factors to balance the business value of the Property
with respect to Parcels 1 and 2 within their present ownership structure.
1.16. "EXHIBITS" means the following, each of which is attached hereto
and incorporated herein by this reference:
Exhibit A - Legal Description
Exhibit B - Form of Grant Deed
Exhibit C - FIRPTA Affidavit
Exhibit D - Assignment and Assumption
Exhibit E - Bill of Sale and General Assignment of Intangibles
Exhibit F - Membership Lists
Exhibit G - Payables to be Assumed By Buyer
1.17. "FIRPTA CERTIFICATE" shall have the meaning given thereto in
Section 6.1(b) hereof.
1.18. "GRANT DEED" shall have the meaning given thereto in
Section 6.1(a) hereof.
1.19. "HAZARDOUS SUBSTANCE" means any substance, material or waste
which is or becomes designated, classified or regulated as being "toxic" or
"hazardous" or a "pollutant" or which is or becomes similarly designated,
classified or regulated, under any Environmental Law, including asbestos,
petroleum and petroleum products.
1.20 "IMPROVEMENTS" means all improvements and fixtures situated on
the Real Property, including, without limitation, the Country Club Facilities
and the RV Park.
3.
<PAGE>
1.21. "INTANGIBLES" means all of Seller's right, title and interest in
and to all intangible property used, owned or issued solely and strictly in
connection with the Real Property, Improvements and Personal Property,
including, but not limited to: (i) trade names and trademarks, contract rights,
accounts receivables and other intangible property used in connection with the
ownership and operation of the Property; (ii) all licenses other than the Liquor
License, permits, certificates of occupancy, approvals, dedications and
entitlements issued, approved or granted by any governmental authorities having
jurisdiction over the Property; (iii) all membership now in existence and unsold
or unissued memberships in the Country Club Facilities and the RV Park and all
rights of Seller under the Membership Bylaws of the Country Club Facilities and
the RV Park; and(iv) all development rights, conditional use permits, variances
and other intangible rights, titles, interests and privileges owned by Seller
and related to or issued in connection with the Land and/or Improvements, its
use, occupancy, operation and development, but in no way related to Seller's
financial data or other proprietary information or other property of Seller.
The Intangibles do not include the Liquor License.
1.22. "INVESTORS" means the beneficiaries of Trust VIII and Trust IX.
1.23. "LIQUOR LICENSE" means the general on-sale liquor license held by
David Englert for the service of liquor on and from the Country Club Facilities,
as well as the related furniture, fixtures and inventory and the operating
agreement and/or lease between the holder of the Liquor License and the Seller.
1.24. "NOTICES" will be sent as provided in Section 22 to:
Seller: National Investors Financial, Inc.
4675 MacArthur Court, Suite 1240
Newport Beach, California 92660
Attn: Mr. David Lasker
Telephone: (714) 833-8600
Facsimile: (714) 752-9753
with a copy to: Arter & Hadden
700 South Flower Street, Suite 3000
Los Angeles, CA 90017
Attn: Bruce H. Newman, Esq.
Telephone: (213) 629-9300
Facsimile: (213) 617-9255
Buyer: Yosemite Woods Family Resort, Inc.
________________________
________________________
Attn:___________________
Telephone: ____________
Facsimile: ____________
4.
<PAGE>
with a copy to: Arter & Hadden
700 South Flower Street, Suite 3000
Los Angeles, CA 90017
Attn: Bruce H. Newman, Esq.
Telephone: (213) 629-9300
Facsimile: (213) 617-9255
Escrow Holder: ________________________
________________________
________________________
Attn: _________________
Telephone: ____________
Facsimile: ____________
1.25. "OPENING OF ESCROW" shall have the meaning given thereto in
Section 4 hereof.
1.26. "OTHER ASSETS" means cash, cash equivalent, notes and other
negotiable instruments and any and all other assets in the possession or control
of Seller, the value of which is determined by possession, and any other assets
other than the Real Property, Personal Property or Intangibles relating to the
Real Property.
1.27. "PERMITTED EXCEPTIONS" shall have the meaning given thereto in
Section 7.1 hereof.
1.28. "PERSONAL PROPERTY" means the equipment, furniture and fixtures,
supplies, books and records, Records, advertising materials, brochures,
literature, office supplies, stationery, equipment, inventory, golf carts, golf
course maintenance vehicles, rental golf clubs, tools, linens, silverware,
glassware, china, kitchen utensils, serving pieces, decorations, appliances,
display cases, and other tangible fixed assets existing on the Closing Date on
the Property, and clothing items, golf balls and golfing supplies, golf clubs
and golf bags, tennis supplies and all other soft goods and materials held for
sale by the pro shop located on the Country Club Property and all such other
tangible fixed assets existing on the Closing Date on the Country Club
Facilities and on the remainder of the Property.
1.29. "PROPERTY" means collectively, (i) the Real Property, (ii) the
Improvements, (iii) the Intangibles, (iv) the Personal Property, (v) the Other
Assets, and (vi) the Records..
1.30. "PROSPECTUS" means the Consent Solicitation Statement/Prospectus
of Buyer.
1.31. "REAL PROPERTY" means that certain real property located in the
County of Madera, State of California and commonly known as "Ahwahnee Golf
Course and Resort" and more particularly described in Exhibit A attached hereto.
The Real Property is further described in the Recitals to this Agreement.
5.
<PAGE>
1.32. "RECORDS" means the list of members of the Country Club
Facilities and the RV Park, membership account statements and such of Seller's
books and records pertaining to the Property including, without limitation, the
Country Club Facilities, the RV Park and the Residential Lots.
1.33. "RESIDENTIAL LOTS" means developed and undeveloped lots for
single family dwellings located within Parcel 1 set forth on Exhibit A attached
hereto.
1.34. "RV PARK" means the recreational vehicle park consisting of
developed and undeveloped lots and six cabins, all located on a portion of the
Real Property and operated by Western Horizons.
1.35. "TITLE COMPANY" means __________________________________________.
1.36. "TITLE POLICY" shall have the meaning given thereto in Section 11
hereof.
1.37. "TRANSFER AGENT" means ________________, who address is
__________________, Attn: ___________, Facsimile No. ___________.
2. PURCHASE AND SALE:
2.1. PURCHASE AND SALE. Upon and subject to the terms and conditions
set forth in this Agreement, Seller agrees to sell to Buyer and Buyer agrees to
buy from Seller the Property, together with all easements, hereditaments,
entitlements (to the extent transferable) and appurtenances thereto. Buyer's
acquisition of the Property will be subject to liabilities only for current
payables incurred in the ordinary course of Seller's business, including the
Open Purchase Orders, and for property taxes all as set forth in Exhibit G. All
other liabilities of Seller, if any, are not assumed by Buyer and shall remain
the liability of Seller. In consideration of Seller's sale of the Property to
Buyer, Buyer will (a) deliver to the Investors the Exchange Value in accordance
with Section 3, and (b) perform all of Buyer's other obligations hereunder.
This purchase and sale contemplated by this Agreement expressly excludes the
purchase, sale or transfer of the Liquor License and the related furniture,
fixtures and inventory associated therewith. Notwithstanding the foregoing, at
the Close of Escrow, Seller will assign to Buyer its right, title and interest
in and to the operating agreement and/or lease with the holder of the Liquor
License.
2.2. SUBSTANCE OF TRANSACTIONS. Notwithstanding any other provision
of this Agreement, the transfer of the Property directly from Seller to Buyer
is for convenience purposes only to effect expeditiously the culmination of
the transfers set forth in this Section 2.2, and for all purposes hereunder
it is the intent of the parties that such transfer reflects the following
transfers, which shall occur in the following order; (i) all of the
Investors, through their approval of the transactions contemplated under this
Agreement, contribute all of their interests in the Property to AFH in
exchange for shares of common stock of AFH, such shares to be distributed to
them pursuant to Sections 3 and 13.2 hereof; (ii) AFH contributes the
Property to AFC as a contribution to the capital of AFC; and (iii) AFC
contributes the Property to Buyer as a contribution to the capital
6.
<PAGE>
of Buyer. Seller's transfer of the Property directly to Buyer reflects
Seller's transfer of the Property from the Investors to AFH, from AFH to AFC,
and from AFC to the Buyer, in each instance in Seller's capacity as the agent
of and on behalf of such transferors.
3. EXCHANGE VALUE: In consideration for the sale of the Property to
Buyer, Buyer will deliver to Seller an amount equal to the Exchange Value for
the Property. The Exchange Value for the ownership interests of the Property
with respect to Parcel 1 and in the $13,360,000 deed of trust is
$______________, and the Exchange Value for the ownership interests of the
Property with respect to Parcel 2 and in the $6,500,000 deed of trust is
$______________, which shall be paid in the form of, and by issuance and
delivery of, _____ shares of common stock in AFH to the investors of Seller, to
be distributed by the Transfer Agent at the Closing outside of Escrow in
accordance with Section 13.2 hereof. Upon the request of any party hereto,
whether made before or after the Closing, the parties hereto will allocate the
Exchange Value to the Real Property, the Improvements, the Intangibles, the
Personal Property and the Other Assets.
4. ESCROW: Immediately upon execution of this Agreement, Buyer and
Seller will open an escrow (the "ESCROW") with the Escrow Holder by delivering
to Escrow Holder a fully executed copy of this Agreement (the "OPENING OF
ESCROW"). The purchase and sale of the Property will be completed through the
Escrow. Buyer and Seller agree to execute any additional instructions
consistent with this Agreement which are reasonably required by the Escrow
Holder. If there is a conflict between any printed escrow instructions and this
Agreement, the terms of this Agreement will govern.
5. CANCELLATION FEES AND EXPENSES: If the Closing does not occur at
the time and in the manner provided in this Agreement because of the default of
one of the parties, the non-defaulting party has the right to cancel the Escrow
by written notice to the defaulting party and to the Escrow Holder. All costs
of cancellation, if any, will be paid by the defaulting party.
6. DELIVERIES TO ESCROW HOLDER:
6.1. BY SELLER. On or prior to the Closing Date, Seller will deliver
or cause to be delivered to Escrow Holder the following items:
(a) Two Grant Deeds ("GRANT DEEDS"), in the form attached to
this Agreement as Exhibit B, duly executed and acknowledged by NIF, as Trustee
of Trust VIII, and NIF, as Trustee for Trust IX, respectively, and in recordable
form, conveying the Property to Buyer.
(b) A Transferor's Certificate of Non-Foreign Status attached to
this Agreement as Exhibit C ("FIRPTA CERTIFICATE"), duly executed by or on
behalf of Seller.
(c) A properly executed California Form RE 590 or other evidence
sufficient to establish that Buyer is not required to withhold any portion of
the Exchange Value pursuant to Sections 18805 and 26131 of the California
Revenue and Taxation Code ("FORM 590").
(d) An Assignment and Assumption of Agreements ("ASSIGNMENT")
duly executed by Seller in favor of Buyer in the form attached to this Agreement
as Exhibit D.
7.
<PAGE>
(e) If requested by Buyer, a quitclaim deed to the Property or
any portion thereof in favor of Buyer, duly executed and acknowledged by the
Company.
(f) A Bill of Sale and General Assignment of Intangibles in
the form attached to this Agreement as Exhibit E ("BILL OF SALE"), duly executed
by Seller and conveying all right, title and interest of Seller in the Personal
Property and the Intangibles to Buyer.
(g) Such corporate resolutions, certificates of good standing
and/or other corporate or partnership documents relating to Seller as are
reasonably required by Buyer or Escrow Holder or both in connection with this
transaction.
6.2. BY BUYER. On or prior to the Closing Date, Buyer will deliver or
cause to be delivered to Escrow Holder the following items:
(a) Such corporate resolutions, certificates of good standing
and/or other corporate or partnership documents relating to Buyer as are
reasonably required by Seller or Escrow Holder or both in connection with this
transaction.
(b) Amounts due to pay costs and expenses as set forth in
Section 12 hereof.
6.3. BY BUYER AND SELLER. Buyer and Seller will each deposit such
other instruments consistent with this Agreement as are reasonably required by
Escrow Holder or otherwise required to close escrow. In addition Seller and
Buyer hereby designate Escrow Holder as the "REPORTING PERSON" for the
transaction pursuant to Section 6045(e) of the Internal Revenue Code.
7. CONDITION OF TITLE:
7.1. PERMITTED EXCEPTIONS. At the Close of Escrow, fee simple title
to the Property will be conveyed to Buyer by Seller by Grant Deed, subject only
to the following title matters ("PERMITTED EXCEPTIONS"):
(a) all property tax liens (whether or not payments of property
taxes are delinquent) and all other matters shown in that certain Preliminary
Report dated as of _______________, issued by the Title Company, bearing Order
No. ________________, except Exception Nos. ________________________________;
and
(b) matters affecting the condition of title to the Property
created by, at the request of or with the written consent of Buyer.
7.2. TITLE PROVIDED BY SELLER. The parties agree that (a) except as
specifically provided in the Grant Deed or implied by law, Seller makes no
express or implied warranties regarding the condition of title to the Property,
and (b) Buyer shall rely solely on the Title Policy for protection against any
title defects.
8.
<PAGE>
8. CONDITIONS TO THE CLOSE OF ESCROW:
8.1. CONDITIONS PRECEDENT TO BUYER'S OBLIGATIONS. The following
conditions must be satisfied not later the earlier of the Closing Date or such
other period of time as may be specified below:
8.1.1. TITLE. As of the Closing, the Title Company will issue
or have committed to issue to Buyer the Title Policy described in Section 11.
8.1.2. REPRESENTATIONS, WARRANTIES AND COVENANTS OF SELLER.
Seller will have duly performed each and every agreement to be performed by
Seller hereunder and, subject to the provisions of Section 10, Seller's express
representations and warranties set forth in this Agreement will be true and
correct in all material respects as of the Closing Date. However,
notwithstanding anything to the contrary stated or implied in this Section
8.1.2, Seller shall have no liability for the breach of any representations,
warranties or covenants set forth in this Agreement, whether express or implied,
absent a finding by a court of competent jurisdiction that either David Lasker
or James N. Orth or both of them withheld information with respect thereto from
Buyer or falsified information delivered to and relied upon by Buyer and that
such action amounted to a violation of a representation or warranty set forth
herein.
8.1.3. SELLER'S DELIVERIES. Seller will have delivered the
items described in Section 6.1.
The conditions set forth in this Section 8.1 are solely for the benefit of
Buyer and may be waived only by Buyer. At all times Buyer has the right to
waive any condition. Such waiver or waivers must be in writing to Seller. If
any conditions are not satisfied on or before the Closing Date, and Buyer has
not waived the unsatisfied conditions, Seller will not be deemed to be in
default (unless Seller has breached Sections 8.1.2 or 8.1.3 above) and Buyer's
sole remedy will be to terminate this Agreement.
8.2. CONDITIONS PRECEDENT TO SELLER'S OBLIGATIONS. The Close of
Escrow and Seller's obligations with respect to this transaction are subject
to the following conditions precedent: (a) Buyer's delivery to Escrow Holder
on or before the Closing Date, of the items described in Section 6.2; (b) the
approval of such of Seller's constituents as Seller shall deem necessary or
advisable in its sole and absolute discretion as set forth in Section 9
hereof; (c) Buyer having duly performed each and every agreement to be
performed by Buyer hereunder; and (d) Buyer's representations, warranties and
covenants set forth in this Agreement, will be true and correct in all
material respects as of the Closing Date. The conditions set forth in this
Section 8.2 are solely for the benefit of Seller and may be waived only by
Seller, with such waiver or waivers to be in writing to Buyer. If any
conditions are not satisfied on or before the Closing Date, and Seller has
not waived the unsatisfied conditions, Buyer will not be deemed to be in
default (unless Buyer has breached Sections 8.2(a), (c) or (d) above) and
Seller's sole remedy will be to terminate the Agreement.
9.
<PAGE>
9. APPROVAL OF SELLER'S CONSTITUENTS: Seller shall exercise
reasonable diligence to obtain the approval of this transaction by such of
the constituents of Seller as Seller shall deem necessary or advisable, in
its sole and absolute discretion, and shall notify Buyer and Escrow Holder
when such approvals have been obtained. If Seller is not able to obtain such
approvals from such constituents on or before the date which is ____ days
after the Effective Date, or such later date as is mutually agreed to by
Buyer and Seller, then Seller may cancel this Agreement by notice to Buyer
and Escrow Holder given prior to the end of that time period, and in that
event Seller shall pay all title and escrow cancellation costs. Seller shall
indemnify and hold Buyer harmless from any claim, damage, loss, liability,
action, settlement, including Buyer's reasonable attorneys' fees suffered by
Buyer and which results from or relates to the Seller's securing approval of
this transaction and transferring the Property to Buyer pursuant to such
approval.
10. PROPERTY "AS-IS":
10.1. NO SIDE AGREEMENTS OR REPRESENTATIONS; AS-IS PURCHASE. BUYER
REPRESENTS, WARRANTS AND COVENANTS TO SELLER THAT BUYER HAD THE OPPORTUNITY TO
INDEPENDENTLY AND PERSONALLY INSPECT THE PROPERTY AND IMPROVEMENTS, IF ANY, AND
THAT BUYER HAS ENTERED INTO THIS AGREEMENT AFTER HAVING MADE SUCH PERSONAL
EXAMINATION AND INSPECTION. BUYER AGREES THAT BUYER WILL ACCEPT THE PROPERTY,
IN ITS THEN CONDITION AS-IS AND WITH ALL ITS FAULTS, INCLUDING WITHOUT
LIMITATION, ANY FAULTS AND CONDITIONS SPECIFICALLY REFERENCED IN THIS AGREEMENT,
SUBJECT TO THE EXPRESS COVENANTS, INDEMNITIES, REPRESENTATIONS AND WARRANTIES
MADE BY SELLER ELSEWHERE HEREIN. NO PERSON ACTING ON BEHALF OF SELLER IS
AUTHORIZED TO MAKE, AND BY EXECUTION HEREOF, BUYER ACKNOWLEDGES AND AGREES THAT,
EXCEPT FOR THOSE REPRESENTATIONS, WARRANTIES, COVENANTS, INDEMNITIES AND
AGREEMENTS EXPRESSLY MADE BY SELLER IN THIS AGREEMENT, SELLER HAS NOT MADE, DOES
NOT MAKE AND SPECIFICALLY NEGATES AND DISCLAIMS ANY REPRESENTATIONS, WARRANTIES,
PROMISES, COVENANTS, AGREEMENTS OR GUARANTIES OF ANY KIND OR CHARACTER
WHATSOEVER, WHETHER EXPRESS OR IMPLIED, ORAL OR WRITTEN, PAST, PRESENT OR
FUTURE, OF, AS TO, CONCERNING OR WITH RESPECT TO:
(A) THE VALUE OF THE PROPERTY OR THE INCOME TO BE DERIVED THEREFROM;
(B) THE SUITABILITY OF THE PROPERTY FOR ANY AND ALL ACTIVITIES AND
USES WHICH BUYER MAY CONDUCT THEREON, INCLUDING ANY DEVELOPMENT OF THE PROPERTY;
(C) THE HABITABILITY, MERCHANTABILITY, MARKETABILITY, PROFITABILITY
OR FITNESS FOR A PARTICULAR PURPOSE OF THE PROPERTY;
10.
<PAGE>
(D) THE MANNER, QUALITY, STATE OF REPAIR OR LACK OF REPAIR OF THE
PROPERTY;
(E) THE NATURE, QUALITY OR CONDITION OF THE PROPERTY, INCLUDING
WITHOUT LIMITATION, THE WATER, SOIL AND GEOLOGY;
(F) THE TYPE, AVAILABILITY OR COST OF ANY ENTITLEMENTS REQUIRED TO
DEVELOP THE PROPERTY;
(G) THE COMPLIANCE OF OR BY THE PROPERTY OR ITS OPERATION WITH ANY
LAWS, RULES, ORDINANCES OR REGULATIONS OF ANY APPLICABLE GOVERNMENTAL AUTHORITY
OR BODY;
(H) THE MANNER, CONDITION OR QUALITY OF THE CONSTRUCTION OR
MATERIALS, IF ANY, INCORPORATED INTO THE PROPERTY;
(I) COMPLIANCE WITH ANY ENVIRONMENTAL PROTECTION, POLLUTION OR LAND
USE LAWS, RULES, REGULATION, ORDERS OR REQUIREMENTS, INCLUDING BUT NOT LIMITED
TO, THE ENDANGERED SPECIES ACT, TITLE III OF THE AMERICANS WITH DISABILITIES ACT
OF 1990 OR ANY OTHER LAW, RULE OR REGULATION GOVERNING ACCESS BY DISABLED
PERSONS, CALIFORNIA HEALTH & SAFETY CODE, THE FEDERAL WATER POLLUTION CONTROL
ACT, THE FEDERAL RESOURCE CONSERVATION AND RECOVERY ACT, THE U.S. ENVIRONMENTAL
PROTECTION AGENCY REGULATIONS AT 40 C.F.R., PART 261, THE COMPREHENSIVE
ENVIRONMENTAL RESPONSE COMPENSATION AND LIABILITY ACT OF 1980, AS AMENDED, THE
RESOURCES CONSERVATION AND RECOVERY ACT OF 1976, THE CLEAN WATER ACT, THE SAFE
DRINKING WATER ACT, THE HAZARDOUS MATERIALS TRANSPORTATION ACT, THE TOXIC
SUBSTANCE CONTROL ACT, AND REGULATIONS PROMULGATED UNDER ANY OF THE FOREGOING;
(J) THE PRESENCE OR ABSENCE OF HAZARDOUS MATERIALS AT, ON, UNDER, OR
ADJACENT TO THE PROPERTY;
(K) THE CONTENT, COMPLETENESS OR ACCURACY OF ANY MATERIALS, INCLUDING
ANY INFORMATIONAL PACKAGE, COST TO COMPLETE ESTIMATE OR OTHER MATERIALS PREPARED
BY OR ON BEHALF OF SELLER;
(L) THE CONFORMITY OF THE IMPROVEMENTS TO ANY PLANS OR SPECIFICATIONS
FOR THE PROPERTY, INCLUDING ANY PLANS AND SPECIFICATIONS THAT MAY HAVE BEEN OR
MAY BE PROVIDED TO BUYER;
(M) THE CONFORMITY OF THE PROPERTY TO PAST, CURRENT OR FUTURE
APPLICABLE ZONING OR BUILDING REQUIREMENTS;
11.
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(N) DEFICIENCY OF ANY UNDERSHORING;
(O) DEFICIENCY OF ANY DRAINAGE;
(P) THE FACT THAT ALL OR A PORTION OF THE PROPERTY MAY BE LOCATED ON
OR NEAR AN EARTHQUAKE FAULT LINE OR LOCATED IN AN ALQUIST-PRIOLO SPECIAL STUDY
ZONE;
(Q) THE EXISTENCE OF VESTED LAND USE, ZONING OR BUILDING ENTITLEMENTS
AFFECTING THE PROPERTY;
(R) ANY AND ALL REQUIREMENTS OR CONDITIONS OF APPROVAL OF STATE AND
LOCAL GOVERNMENTAL AGENCIES FOR DEVELOPMENT OF THE PROPERTY INCLUDING, WITHOUT
LIMITATION, THE CONSTRUCTION OF OFFSITE AND ONSITE ROADS, UTILITIES AND OTHER
IMPROVEMENTS; OR
(S) WITH RESPECT TO ANY OTHER MATTER CONCERNING THE PROPERTY EXCEPT
AS MAY BE OTHERWISE EXPRESSLY STATED HEREIN, INCLUDING ANY AND ALL SUCH MATTERS
REFERENCED, DISCUSSED OR DISCLOSED IN ANY DOCUMENTS DELIVERED BY SELLER TO
BUYER, IN ANY PUBLIC RECORDS OF ANY GOVERNMENTAL AGENCY OR ENTITY OR UTILITY
COMPANY, OR IN ANY OTHER DOCUMENTS AVAILABLE TO BUYER.
BUYER FURTHER ACKNOWLEDGES AND AGREES THAT BUYER IS RELYING SOLELY ON ITS
OWN INVESTIGATION OF THE PROPERTY AND ITS OWN REVIEW OF ALL INFORMATION AND
DOCUMENTATION CONCERNING THE PROPERTY, AND NOT ON ANY INFORMATION PROVIDED OR TO
BE PROVIDED BY SELLER. BUYER FURTHER ACKNOWLEDGES AND AGREES THAT ANY
INFORMATION MADE AVAILABLE TO BUYER OR PROVIDED OR TO BE PROVIDED BY OR ON
BEHALF OF SELLER WITH RESPECT TO THE PROPERTY WAS OBTAINED FROM A VARIETY OF
SOURCES AND THAT SELLER HAS NOT MADE ANY INDEPENDENT INVESTIGATION OR
VERIFICATION OF SUCH INFORMATION AND MAKES NO REPRESENTATIONS AS TO THE ACCURACY
OR COMPLETENESS OF SUCH INFORMATION EXCEPT AS MAY OTHERWISE BE PROVIDED HEREIN.
BUYER AGREES TO FULLY AND IRREVOCABLY RELEASE ALL SUCH SOURCES OF INFORMATION
AND PREPARERS OF INFORMATION AND DOCUMENTATION TO THE EXTENT SUCH SOURCES OR
PREPARERS ARE SELLER, OR ITS EMPLOYEES, OFFICERS, DIRECTORS, REPRESENTATIVES,
BENEFICIARIES, INVESTORS, AGENTS, SERVANTS, ATTORNEYS, AFFILIATES, PARENT
COMPANIES, SUBSIDIARIES, SUCCESSORS OR ASSIGNS FROM ANY AND ALL CLAIMS, DAMAGES
AND LIABILITIES ARISING FROM SUCH INFORMATION OR DOCUMENTATION, EXCEPT IF AND TO
THE EXTENT THAT BUYER EMPLOYS SUCH SOURCES OR PREPARERS OF INFORMATION TO ACT ON
BEHALF OF BUYER, IN WHICH EVENT THE LIABILITY OF SUCH SOURCES OR PREPARERS OF
INFORMATION TO BUYER SHALL BE DETERMINED BY THEIR OWN INDEPENDENT AGREEMENTS
WITH BUYER, AND SELLER SHALL NOT BE LIABLE
12.
<PAGE>
FOR SUCH AGREEMENTS OR OBLIGATIONS. SELLER IS NOT LIABLE OR BOUND IN ANY MANNER
BY ANY ORAL OR WRITTEN STATEMENTS, REPRESENTATIONS OR INFORMATION PERTAINING TO
THE PROPERTY, OR THE OPERATION THEREOF, FURNISHED BY ANY OF THE FOREGOING
ENTITIES AND INDIVIDUALS OR ANY OTHER INDIVIDUAL OR ENTITY.
10.2. DISCLOSURES; SPECIFIC ACKNOWLEDGMENT REGARDING CONDITION OF
PROPERTY. Buyer acknowledges the disclosures expressly made by Seller in this
Agreement, the Prospectus and in correspondence from Seller, its attorneys
and/or its agents to Buyer, its attorneys and/or its agents.
11. TITLE INSURANCE: At the Close of Escrow, the Title Company
will issue to Buyer at Buyer's sole cost and expense an ALTA Standard
Coverage Policy (1990) with coverage in an amount equal to the appraised
value of the Real Property as determined by Buyer in its sole discretion,
showing title to the Real Property vested in Buyer, subject only to the
Permitted Exceptions and the standard printed exceptions and conditions in
the policy of title insurance ("TITLE POLICY"). If Buyer elects to obtain
any additional endorsements or an extended coverage policy, the additional
premium and costs of survey for the extended coverage policy and the cost of
any endorsements will be at Buyer's sole cost and expense; however, Buyer's
election to obtain an extended coverage policy will not delay the Closing and
Buyer's inability to obtain an extended coverage policy or any such
endorsements will not be deemed to be a failure of any condition to Closing.
12. COSTS AND EXPENSES: Buyer will pay the costs of Closing the
transaction as follows:
(a) all premiums for the Title Policy;
(b) all escrow fees and costs;
(c) all city and county documentary transfer taxes;
(d) all document recording charges;
(e) all sales taxes;
(f) one half of all escrow fees and costs;
(g) the entire additional cost of any ALTA extended coverage
title policy, the cost of any required survey and, the cost of any endorsements
required by Buyer; and
(h) All other costs and expenses necessarily incurred to close
the transaction.
13.
<PAGE>
13. DISBURSEMENTS AND OTHER ACTIONS:
13.1. ESCROW HOLDER. At the Close of Escrow, Escrow Holder will
promptly undertake all of the following:
(a) Cause the Grant Deeds (with documentary transfer tax
information to be affixed AFTER recording) to be recorded with the County
Recorder and obtain conformed copies thereof for distribution to Buyer and
Seller.
(b) Direct the Title Company to issue the Title Policy to Buyer
within 15 BUSINESS DAYS after Closing.
(c) Deliver to Buyer the FIRPTA Certificate, the Form 590 and
any other documents (or copies thereof) deposited into Escrow by Seller.
Deliver to Seller any other documents (or copies thereof) deposited into Escrow
by Buyer.
(d) Notify the Transfer Agent by telephone and facsimile that
the Close of Escrow has occurred.
13.2. BY TRANSFER AGENT. Promptly after the Close of Escrow, Transfer
Agent shall deliver all shares of common stock of AFH in payment of the Exchange
Value for the Property to the persons, at the addresses and in the amounts
designated by Seller.
13.3. POSSESSION. Possession of the Other Assets in Seller's
possession or control, the Records and all other Property shall be delivered by
Seller to Buyer at the Close of Escrow.
13.4. ASSUMPTION OF LIABILITIES. All of Seller's accounts receivable
existing at the Closing shall become the property of, and shall be delivered to,
Buyer at the Close of Escrow. Any monies delivered to Seller after the Close of
Escrow shall be held by Seller in trust for the account of Buyer, and Seller
shall forthwith deliver such funds to Buyer. Buyer shall be liable only for
contracts expressly assumed by Buyer pursuant to the Assignment attached hereto
as Exhibit D, and only those current payables existing at the Close of Escrow,
including the Open Purchase Orders which are listed on Exhibit G hereto, and
shall be responsible for the payment thereof following the Closing. Seller
shall remain responsible for all liabilities and payables not set forth on
Exhibit G, or otherwise assumed by Buyer in writing.
14. JOINT REPRESENTATIONS AND WARRANTIES: In addition to any express
agreements of the parties contained herein, the following constitute
representations and warranties of the parties each to the other:
14.1 AUTHORITY. Each party has the legal power, right and authority
to enter into this Agreement and the instruments referenced herein, and to
consummate this transaction.
14.2. ACTIONS. All requisite action (corporate, trust, partnership or
otherwise) has been taken by each party in connection with the entering into of
this Agreement, the instruments referenced herein, and the consummation of this
transaction. Except as provided in Section 9, no
14.
<PAGE>
further consent of any partner, shareholder, creditor, investor, judicial or
administrative body, governmental authority or other party is required.
14.3. DUE EXECUTION. The individuals executing this Agreement and the
instruments referenced herein on behalf of each party and the partners, officers
or trustees of each party, if any, have the legal power, right, and actual
authority to bind each party to the terms and conditions of those documents.
14.4. VALID AND BINDING. This Agreement and all other documents
required to close this transaction are and will be valid, legally binding
obligations of and enforceable against each party in accordance with their
terms, subject only to applicable bankruptcy, insolvency, reorganization,
moratorium laws or similar laws or equitable principles affecting or limiting
the rights of contracting parties generally.
14.5. BROKER. Seller represents and warrants to Buyer, and Buyer
represents and warrants to Seller, that no broker or finder has been engaged by
them, respectively, in connection with any of the transactions contemplated by
this Agreement, or to its knowledge is in any way connected with any of such
transactions. Buyer will indemnify, save harmless and defend Seller from any
liability, cost, or expense arising out of or connected with any claim for any
commission or compensation made by any person or entity claiming to have been
retained or contacted by Buyer in connection with this transaction. Seller will
indemnify, save harmless and defend Buyer from any liability, cost, or expense
arising out of or connected with any claim for any commission or compensation
made by any person or entity claiming to have been retained or contacted by
Seller in connection with this transaction. This indemnity provision will
survive the Closing or any earlier termination of this Agreement.
15. SELLER'S WARRANTIES AND REPRESENTATIONS: Seller makes the
following representations and warranties and acknowledges that Buyer will rely
on such representations and warranties in acquiring the Property, provided that
liability for any breach is subject to Section 8.1.2 hereof:
15.1. NON-FOREIGN ENTITY. Seller is not a "foreign person" within the
meaning of Section 1445(f)(3) of the Internal Revenue Code.
15.2. HAZARDOUS SUBSTANCES. To Seller's Actual Knowledge, since the
date of Seller's acquisition of the Property, no Hazardous Substances are now or
have been used, stored, generated or disposed of on or within the Property
except in the normal course of use and operation of the Property and in
compliance with all applicable Environmental Laws.
15.3. CLEAN-UP. To Seller's Actual Knowledge, since the date of
Seller's acquisition of the Property, there are and have been no federal, state
or local enforcement, clean-up, removal, remedial or other governmental or
regulatory actions instituted or completed affecting the Property, other than
such other matters as may otherwise be disclosed in any Environmental Audit or
in any other documents provided or made available to Buyer.
15.
<PAGE>
15.4. CLAIMS. To Seller's Actual Knowledge, there are no outstanding
claims that have been made by any third party against Seller relating to any
Hazardous Substances on or within the Property.
15.5. MEMBERSHIPS. To Seller's Actual Knowledge, the list of members
and the status of the payment of the membership dues for such members set forth
in Exhibit F hereto are true, accurate and complete in all material respects.
The provisions of this Section 15 shall no longer bind Seller if
this Agreement expires or is terminated for any reason, or if the Closing
contemplated hereunder occurs.
16. PRE-CLOSING COVENANTS. So long as this Agreement remains in full
force and effect:
16.1. NO TRANSFERS. Without the prior written consent of Buyer, Seller
will not convey any interest in the Property and will not subject the Property
to any additional liens, encumbrances, covenants, conditions, easements, rights
of way or similar matters after the date of this Agreement, except as may be
otherwise provided for in this Agreement, which will not be eliminated prior to
the Close of Escrow. Notwithstanding the foregoing, Seller may continue to sell
golf course and RV memberships in the regular course of business.
16.2. NO ALTERATIONS. Seller will not make any material alterations to
the Property without Buyer's consent, which will not be unreasonably withheld or
delayed.
16.3. MAINTENANCE. Seller will maintain the Property in substantially
the same condition as it is in, as of the date of this Agreement, and manage the
Property in accordance with Seller's established practices.
16.4. OBLIGATIONS UNDER CONTRACTS. Seller will keep and perform all of
the obligations to be performed by Seller under any contracts affecting the
Property. Without prior written consent of Buyer, which will not be
unreasonably withheld or delayed, Seller will not enter into any contract or
agreement providing for the provision of goods or services to or with respect to
the Property or the operation thereof unless such contracts or agreements can be
terminated without penalty by the Closing Date. Seller will not enter into any
leases for any portion of the Property.
16.5. EXPENDITURES. Seller will incur only expenditures necessary for
the day-to-day operation and maintenance of the Property, and will not incur
capital expenditures or liabilities not in the ordinary course of business.
Seller shall retain all Other Assets in Seller's possession on or after the date
hereof except for payment of such permitted liabilities and expenditures.
16.
<PAGE>
17. CONDEMNATION AND DESTRUCTION:
17.1. EMINENT DOMAIN OR TAKING. If proceedings under a power of
eminent domain relating to the Property or any part thereof are commenced prior
to Close of Escrow, Seller will promptly inform Buyer in writing.
(a) If such proceedings involve the taking of title to all or a
material interest in the Property, Buyer may elect to terminate this Agreement
by notice in writing sent within 10 DAYS of Seller's written notice to Buyer, in
which case neither party will have any further obligation to or rights against
the other except any rights or obligations of either party which are expressly
stated to survive termination of this Agreement.
(b) If the proceedings do not involve the taking of title to all
or a material interest in the Property, or if Buyer does not elect to terminate
this Agreement, this transaction will be consummated as described herein and any
award or settlement payable with respect to such proceeding will be paid or
assigned to Buyer upon Close of Escrow.
(c) If this sale is not consummated for any reason, any
condemnation award or settlement will belong to Seller.
17.2. DAMAGE OR DESTRUCTION. Except as provided in this Section, prior
to the Close of Escrow the entire risk of loss of damage by earthquake, flood,
landslide, fire or other casualty is borne and assumed by Seller. If, prior to
the Close of Escrow, any part of the Improvements is damaged or destroyed by
earthquake, flood, landslide, fire or other casualty, Seller will promptly
inform Buyer of such fact in writing and advise Buyer as to the extent of the
damage and whether it is, in Seller's reasonable opinion, "MATERIAL" or not
"MATERIAL".
(a) If such damage or destruction is "MATERIAL", Buyer has the
option to terminate this Agreement upon written notice to the Seller given not
later than 10 DAYS after receipt of Seller's written notice to Buyer advising of
such damage or destruction.
(b) For purposes hereof, "MATERIAL" is deemed to be any damage
or destruction to the Improvements where the cost of repair or replacement is
estimated to be more than 25% of the Exchange Value of the Property and will
take more than 60 DAYS to repair.
(c) If this Agreement is so terminated, the provisions of
Section 5 will govern.
(d) If Buyer does not elect to terminate this Agreement, or if
the casualty is not material, Seller will reduce the Exchange Value by the value
reasonably estimated by Seller to repair or restore the damaged portion of the
Improvements, less any sums expended by Seller to make emergency repairs to the
Improvements or the Property or otherwise protect the physical condition of the
Improvements or the Property, and this transaction will close pursuant to the
terms of this Agreement.
17.
<PAGE>
(e) If the damage is not material, Seller's notice to Buyer of
the damage or destruction will also set forth Seller's reduced Exchange Value
and Seller's allocation of value to the damaged portion of the Improvements. If
Buyer does not accept Seller's reduced Exchange Value, Buyer's sole remedy will
be to terminate this Agreement.
(f) Whether or not the sale of the Property is consummated
hereunder, all rights to insurance claims or proceeds in respect of damage or
destruction to the Improvements occurring prior to the Close of Escrow will
belong to Seller.
18. UTILITIES AND DEPOSITS:
18.1. UTILITIES. Seller will notify all utility companies servicing
the Property of the sale of the Property to Buyer and will notify the utility
companies that all utility bills henceforth are to be sent to Buyer. Buyer
shall be entitled to receive any and all refunds of all utility deposits held by
utility companies and Seller will assign to Buyer all of Seller's right, title
and interest in any such utility deposits.
18.2. REFUNDABLE DEPOSITS. To the extent there exists any refundable
deposits made in connection with the development of the Property prior to the
Closing ("Refundable Deposits"), Seller shall assign to Buyer all of Seller's
right, title and interest in and to such Refundable Deposits.
19. EMPLOYEES:
19.1. TERMINATION OF EMPLOYEES.
(a) Effective no later than Closing, the Company will completely
and irrevocably terminate all agreements, contracts, arrangements, commitments
and other obligations pertaining to employment or in the nature of employment
contracts with all persons working at the Property, whether denominated as
"employees" or otherwise (the "Terminated Persons") (such terminations by Seller
are referred to collectively as the "Terminations").
(b) All wages, salary, accrued fringe benefits (including
accrued vacation pay), severance payments (if any), payments required by
Consolidated Omnibus Budget Reconciliation Act of 1986, as amended, and other
liabilities, compensation or amounts owed to Terminated Persons shall be fully
paid by Seller at or prior to Closing, except as follows:
(i) All Terminated Persons to whom Buyer is offering new
employment who are entitled to accrued vacation pay as of Closing
shall be given the option of (x) being paid their accrued vacation pay in
cash by Seller immediately after Closing, or (y) if they accept the offer
of new employment with Buyer, having a credit for their accrued vacation
time included as a fringe benefit to which they would be entitled upon
commencing employment with Buyer, subject to the policies and procedures
of Buyer.
18.
<PAGE>
(ii) Terminated Persons who elect the first option specified
in Section 5.1(b)(i) (or who do not accept the offer of new employment
with Buyer) shall be paid their accrued vacation pay by Seller
immediately after Closing.
(c) The notification to the employees of the option provided in
Section 19.1(a) shall be in a form mutually agreeable to Buyer and Seller.
(d) Seller shall grant Buyer reasonable opportunities to
communicate with all employees of the Company prior to the Closing for purposes
of allowing Buyer to convey offers of employment, for confirming the terms of
such employment, and for purposes related thereto.
19.2. NO AGREEMENTS OR LIABILITY. Buyer does not agree to adopt or to
continue in effect the terms and conditions of any collective bargaining
agreement between Seller and any labor organization or of any employment
contract between Seller and any employee of Seller. Buyer further does not
agree to retain any or all of the current employees of Seller or to maintain
existing staffing levels or job classifications. In the event that Buyer
decides to make offers of employment to any or all of the current employees of
Seller, Buyer reserves the right to establish the terms of such offers of
employment and does not agree to maintain or continue in effect any or all of
the current terms and conditions of employment of such employees or to give them
seniority or service credit of any kind for their prior employment.
19.3. INDEMNITY. Seller shall indemnify and hold buyer harmless from
any liability, claims, costs, expenses, including attorney fees and litigation
costs, arising out of or related to the employment of the Terminated Persons
with Seller or arising out of or related to the Terminations.
20. MEDIATION OF DISPUTES: No party to this Agreement shall initiate
any litigation against any other party to this Agreement concerning any
controversy or claim arising out of or relating to this Agreement or any
agreements or instruments relating hereto or delivered in connection herewith,
including, but not limited to, any claim based on or arising from an alleged
tort, unless and until (i) at least 60 days before the same shall be filed, a
complete copy of each of the summons and complaint (and/or any other
documentation required to initiate such litigation) to be filed by the
complaining party shall have been delivered to the other party or parties to any
such dispute, and (ii) the complaining party has made itself available to meet
in Los Angeles, California with the other party or parties for no more than 3
business days of non-binding mediation. Until and unless such mediation has
taken place, the complaining party must give notice to the non-complaining party
that it will, and then it must, make itself available for such mediation during
at least 20 business days during the 60 days before the date on which such
summons and complaint will be filed.
21. ARBITRATION OF DISPUTES: ANY CONTROVERSY OR CLAIM ARISING OUT OF
OR RELATING TO THIS AGREEMENT OR ANY AGREEMENTS OR INSTRUMENTS RELATING HERETO
OR DELIVERED IN CONNECTION HEREWITH, INCLUDING, BUT NOT LIMITED TO A CLAIM BASED
ON OR ARISING FROM AN ALLEGED TORT WILL, AT THE REQUEST OF ANY PARTY, BE
DETERMINED BY ARBITRATION IN
19.
<PAGE>
ACCORDANCE WITH THE FEDERAL ARBITRATION ACT (9 U.S.C. SECTION 1 ET SEQ.) UNDER
THE AUSPICES AND RULES OF THE AMERICAN ARBITRATION ASSOCIATION ("AAA"). THE AAA
WILL BE INSTRUCTED BY EITHER OR BOTH PARTIES TO PREPARE A LIST OF THREE (3)
JUDGES WHO HAVE RETIRED FROM THE SUPERIOR COURT OF THE STATE OF CALIFORNIA, A
HIGHER CALIFORNIA COURT OR ANY FEDERAL COURT. WITHIN 10 DAYS OF RECEIPT OF THE
LIST, EACH PARTY MAY STRIKE 1 NAME FROM THE LIST. THE AAA WILL THEN APPOINT THE
ARBITRATOR FROM THE NAME(S) REMAINING ON THE LIST. THE ARBITRATION WILL BE
CONDUCTED IN SAN FRANCISCO, LOS ANGELES OR SAN DIEGO, WHICHEVER IS THE CLOSEST
CITY TO THE NEXUS OF THE DISPUTE. ANY CONTROVERSY IN INTERPRETATION OR
ENFORCEMENT OF THIS PROVISION OR WHETHER A DISPUTE IS ARBITRABLE, WILL BE
DETERMINED BY THE ARBITRATOR. JUDGMENT UPON THE AWARD RENDERED BY THE
ARBITRATOR MAY BE ENTERED IN ANY COURT HAVING JURISDICTION. THE INSTITUTION AND
MAINTENANCE OF AN ACTION FOR JUDICIAL RELIEF OR IN PURSUIT OF AN ANCILLARY
REMEDY DOES NOT CONSTITUTE A WAIVER OF THE RIGHT OF ANY PARTY, INCLUDING THE
PLAINTIFF, TO SUBMIT THE CONTROVERSY OR CLAIM TO ARBITRATION.
NOTICE: BY INITIALING IN THE SPACE BELOW YOU ARE AGREEING TO HAVE ANY DISPUTE
ARISING OUT OF THE MATTERS INCLUDED IN THE 'ARBITRATION OF DISPUTES' PROVISION
DECIDED BY NEUTRAL ARBITRATION AS PROVIDED BY CALIFORNIA LAW AND YOU ARE GIVING
UP ANY RIGHTS YOU MIGHT POSSESS TO HAVE THE DISPUTE LITIGATED IN A COURT OR BY
JURY TRIAL. BY INITIALING IN THE SPACE BELOW YOU ARE GIVING UP YOUR JUDICIAL
RIGHTS TO DISCOVERY AND APPEAL UNLESS SUCH RIGHTS ARE SPECIFICALLY INCLUDED IN
THE "ARBITRATION OF DISPUTES" PROVISION. IF YOU REFUSE TO SUBMIT TO ARBITRATION
AFTER AGREEING TO THIS PROVISION, YOU MAY BE COMPELLED TO ARBITRATE UNDER THE
AUTHORITY OF THE CALIFORNIA CODE OF CIVIL PROCEDURE. YOUR AGREEMENT TO THIS
ARBITRATION PROVISION IS VOLUNTARY.
WE HAVE READ AND UNDERSTAND THE FOREGOING AND AGREE TO SUBMIT DISPUTES ARISING
OUT OF THE MATTERS INCLUDED IN THE 'ARBITRATION OF DISPUTES' PROVISION TO
NEUTRAL ARBITRATION.
Buyer's Initials ________ Seller's Initials _________
20.
<PAGE>
22. NOTICES: All notices or other communications required or
permitted hereunder must be in writing, and must be personally delivered
(including by means of professional messenger service) or sent by overnight
courier, or sent by registered or certified mail, postage prepaid, return
receipt requested to the addresses set forth in Section 1 hereof. All notices
sent by mail will be deemed received 2 DAYS after the date of mailing and all
notices sent by other means permitted herein shall be deemed received on the
earlier of the date delivered or the date on which delivery is refused.
23. ASSIGNMENT: Neither party shall have the right to assign this
Agreement without the other party's prior written consent.
24. MISCELLANEOUS:
24.1. COUNTERPARTS. This Agreement may be executed in counterparts.
24.2. PARTIAL INVALIDITY. If any term or provision of this Agreement
will be deemed to be invalid or unenforceable to any extent, the remainder of
this Agreement will not be affected thereby, and each remaining term and
provision of this Agreement will be valid and be enforced to the fullest extent
permitted by law.
24.3. POSSESSION OF THE PROPERTY. Seller will deliver possession of
the Property to Buyer upon the Close of Escrow.
24.4. WAIVERS. No waiver of any breach of any covenant or provision
contained herein will be deemed a waiver of any preceding or succeeding breach
thereof, or of any other covenant or provision contained herein. No extension
of time for performance of any obligation or act will be deemed an extension of
the time for performance of any other obligation or act except those of the
waiving party, which will be extended by a period of time equal to the period of
the delay.
24.5. SUCCESSORS AND ASSIGNS. This Agreement is binding upon and
inures to the benefit of the permitted successors and assigns of the parties
hereto.
24.6. PROFESSIONAL FEES. In the event of the bringing of any action,
arbitration or suit by a party hereto against another party hereunder by reason
of any breach of any of the covenants, agreements or provisions on the part of
the other party arising out of this Agreement, then in that event the prevailing
party will be entitled to have the recovery of and from the other party all
costs and expenses of the action, mediation or suit, actual attorneys' fees,
witness fees and any other professional fees resulting therefrom.
24.7. ENTIRE AGREEMENT. This Agreement (including all Exhibits
attached hereto) constitutes the entire contract between the parties hereto with
respect to the subject matter hereof and may not be modified except by an
instrument in writing signed by the party to be charged.
21.
<PAGE>
24.8. TIME OF ESSENCE. Seller and Buyer hereby acknowledge and agree
that time is strictly of the essence with respect to each and every term,
condition, obligation and provision hereof.
24.9. CONSTRUCTION. Seller and Buyer and their respective advisors
believe that this Agreement is the product of all of their efforts, that it
expresses their agreement and that it should not be interpreted in favor of or
against either Buyer or Seller. The parties further agree that this Agreement
will be construed to effectuate the normal and reasonable expectations of a
sophisticated seller and buyer.
24.10. GOVERNING LAW. The parties hereto expressly agree that this
Agreement will be governed by, interpreted under, and construed and enforced in
accordance with the laws of the State of California.
24.11. WEAR AND TEAR. Buyer specifically acknowledges that Seller will
continue to use the Property in the course of its business and accepts the fact
that reasonable wear and tear will occur after the date of this Agreement.
Buyer specifically agrees that Seller is not responsible for repairing such
reasonable wear and tear and that Buyer is prohibited from raising such wear and
tear as a reason for not consummating this transaction or for requesting a
reduction in the Exchange Value.
24.12. NO RECORDATION. No memorandum or other document relating to this
Agreement will be recorded without the prior written consent of Seller, and any
such consent or approval will be conditioned upon Buyer providing Seller with a
quitclaim deed fully executed and acknowledged by Buyer, quitclaiming any and
all interests that it may have in the Property to Seller, which quitclaim deed
Seller may record in the event that this Agreement is terminated or the
transaction contemplated herein is not consummated.
24.13. SURVIVAL. All obligations of the parties contained herein which
by their terms do not arise until after the Close of Escrow and any other
provisions of this Agreement which by their terms survives the Close of Escrow,
shall survive the Close of Escrow.
24.14. DISCLAIMER. Nothing herein creates any right or remedy for the
benefit of any person not a party hereto, nor creates a fiduciary relationship,
an agency or a partnership. All obligations of the parties contained herein
which by their terms do not arise until after the Close of Escrow and any other
provisions of this Agreement which by their terms survives the Close of Escrow,
shall survive the Close of Escrow.
24.15. WAIVER OF JURY TRIAL. Each party, acting with knowledge of its
rights after a full opportunity to consult with counsel, voluntarily waives all
rights to trial by jury in all proceedings for which a trial by jury would
otherwise be available or required, and which involve any matter arising out of
or connected with rights or duties under, or enforcement or interpretation of,
this Agreement.
22.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date and year hereinabove written.
"SELLER": "BUYER":
NATIONAL INVESTORS FINANCIAL, INC., YOSEMITE WOODS FAMILY RESORT,
A CALIFORNIA CORPORATION, AS INC., A CALIFORNIA CORPORATION
TRUSTEE OF NATIONAL INVESTORS
LAND HOLDING TRUST VIII
By: By:
------------------------------ ------------------------------
Its: Its:
------------------------------ ------------------------------
and
NATIONAL INVESTORS FINANCIAL, By:
INC., A CALIFORNIA CORPORATION, AS ------------------------------
TRUSTEE OF NATIONAL INVESTORS
LAND HOLDING TRUST IX Its:
------------------------------
By:
------------------------------
Its:
------------------------------
AHWAHNEE GOLF COURSE AND RESORT,
INC., A CALIFORNIA CORPORATION
By:
------------------------------
Its:
------------------------------
Agreed to and accepted
by Escrow Holder:
- -----------------------------------
By:
------------------------------
Its:
------------------------------
23.
<PAGE>
EXHIBIT A
LEGAL DESCRIPTION
<PAGE>
EXHIBIT B
FORM OF DEED
RECORDING REQUESTED BY,
WHEN RECORDED MAIL TO:
Arter & Hadden
700 South Flower Street, Suite 3000
Los Angeles, California 90017
Attn: Bruce H. Newman, Esq.
- ------
(Above Space For Recorder's Use Only)
GRANT DEED
In accordance with Section 11932 of the California Revenue and Taxation
Code, Grantor has declared the amount of transfer tax which is due by a separate
statement which is not being recorded with this Grant Deed.
FOR A VALUABLE CONSIDERATION, RECEIPT OF WHICH IS HEREBY ACKNOWLEDGED,
_________________________ ("Grantor"), hereby grants to YOSEMITE WOODS FAMILY
RESORT, INC., A CALIFORNIA CORPORATION ("Grantee"), the real property in the
County of Madera, State of California, and described in Exhibit A attached
hereto and made a part hereof.
DATED: , 1997
------------------------------
------------------------------
By:
-------------------------
Its:
-------------------------
MAIL TAX STATEMENTS TO:
<PAGE>
ACKNOWLEDGMENT
STATE OF CALIFORNIA )
) ss.
COUNTY OF )
On ____________________, before me _____________________________________,
personally appeared _______________________, personally known to me (or proved
to me on the basis of satisfactory evidence) to be the person(s) whose name(s)
is/are subscribed to the within instrument and acknowledged to me that
he/she/they executed the same in his/her/their authorized capacity(ies), and
that by his/her/their signature(s) on the instrument the person(s), or the
entity upon behalf of which the person(s) acted, executed the instrument.
WITNESS my hand and official seal.
- -----------------------------------
Notary Public in and for said
County and State [SEAL]
<PAGE>
Document No. ____________________ Date Recorded_________________
STATEMENT OF TAX DUE AND REQUEST THAT TAX DECLARATION
NOT BE MADE A PART OF THE PERMANENT RECORD
IN THE OFFICE OF THE COUNTY RECORDER
(Pursuant to Section 11932 R&T Code)
To: Registrar-Recorder
County of
--------------------
Request is hereby made in accordance with the provisions of the Documentary
Transfer Tax Act that the amount of tax due not be shown on the original
document which names:
- -----------------------------------
(as grantor)
and
- -----------------------------------
(as grantee)
Property described in the accompanying document is located in
( ) unincorporated area or (x) City of ____________________.
The amount of tax due on the accompanying document is $_______________.
_______ Computed on full value of property conveyed, or
_______ Computed on full value less liens and encumbrances remaining at time
of sale.
- -----------------------------------
- -----------------------------------
By:
------------------------------
Its:
------------------------------
<PAGE>
EXHIBIT C
Seller's FIRPTA Affidavit
CERTIFICATION OF NON-FOREIGN STATUS
Section 1445 of the Internal Revenue Code provides that a transferee
of a U.S. real property interest must withhold tax if the transferor is a
foreign person. To inform the transferee that withholding of tax is not
required upon the disposition of a U.S. real property interest by
_____________________________ ("TRANSFEROR"), each of the undersigned hereby
certifies the following on behalf of Transferor:
1. Transferor is not a foreign corporation, foreign partnership,
foreign trust and foreign estate (as those terms are defined in the Internal
Revenue Code and Income Tax Regulations);
2. Transferor's U.S. employer identification number is ___________;
and
3. Transferor's office address is
_______________________________________, ___________________.
Transferor understands that this certification may be disclosed to the
Internal Revenue Service by transferee and that any false statement contained
herein could be punished by fine, imprisonment or both.
Under penalties of perjury each of the undersigned declares that he
has examined this certification and to the best of his knowledge and belief it
is true, correct and complete, and he further declares that he has authority to
sign the document on behalf of the Transferor.
-------------------------
-------------------------
By:
--------------------
Its:
--------------------
<PAGE>
EXHIBIT D
ASSIGNMENT AND ASSUMPTION
OF
AGREEMENTS
THIS ASSIGNMENT AND ASSUMPTION OF AGREEMENTS (this "Assignment") is
executed as of ______________, but effective as of the Effective Date (as
hereinafter defined), by and among AHWAHNEE GOLF COURSE & RESORT, INC., a
California corporation (the "COMPANY"), NATIONAL INVESTORS FINANCIAL, INC., a
California corporation ("NIF"), as Trustee of National Investors Land Holding
Trust VIII ("TRUST VIII") and NIF, as Trustee of National Investors Land Holding
Trust IX ("TRUST IX") (the Company, NIF as Trustee for Trust VIII and NIF as
Trustee for Trust IX being referred to collectively as "ASSIGNOR"), and YOSEMITE
WOODS FAMILY RESORT, INC., a California corporation ("Assignee"), with reference
to the following facts:
RECITALS:
A. Assignor, as the agent of and for the benefit of various
investors, holds title to that certain real property commonly known as "Ahwahnee
Golf Course and Resort", located in the County of Madera, State of California,
as more particularly described on Exhibit "A" attached hereto and incorporated
herein by reference (the "Property"), holds title to the Property.
B. Concurrently herewith, Assignor has executed that certain Grant
Deed conveying and granting to Assignee the Property.
C. As part of the transfer and conveyance of the Property to
Assignee, Assignor has agreed to transfer, assign, grant and convey to Assignee
all of its right, title and interest in and to all agreements relating to the
Property, on the terms and conditions herein contained.
NOW, THEREFORE, in consideration of the foregoing Recitals, which
Recitals are by this reference incorporated herein, and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. ASSIGNMENT. Assignor hereby grants, assigns, transfers, sets
over, sells, conveys and delivers to Assignee all of Assignor's right, title,
interest, benefits and privileges under the agreements relating to the Property
which are set forth in Exhibit "B" attached hereto and made a part hereof
(collectively, the "Agreements"). The assignment provided for in this
1.
<PAGE>
Section 1 is effective concurrently with the transfer of the Property from
Assignor to Assignee (the "Effective Date").
2. ASSIGNEE'S ASSUMPTION AND INDEMNIFICATION. Assignee hereby
accepts the assignment from Assignor, assumes and agrees to perform all duties
and obligations of Assignor under the terms of the Agreements which are required
to be performed on or after the Effective Date and agrees to indemnify, defend
and hold harmless Assignor from any and all liability, loss, damage, claim, cost
and expense (including, without limitation, reasonable attorneys' fees and
costs) arising or accruing out of a failure of Assignee to perform its
obligations under the Agreements to be performed on and after the Effective
Date.
4. DELIVERIES; REPORTS. On or before the Effective Date, Assignor
shall deliver to Assignee the original Agreements or if such original Agreements
are not in Assignor's possession, certified copies of such Agreements. Assignor
shall furnish and deliver to Assignee, promptly after receipt thereof,
duplicates or copies of all reports, notices, requests, demands, declarations,
certificates or other instruments hereafter received by Assignor and relating to
the Agreements. Assignee's address for receipt of the foregoing is_____________
________________________________________________________________________.
5. FURTHER ASSURANCES. Assignor and Assignee shall execute,
acknowledge and deliver all such instruments and take all such action as may be
necessary to further assure to Assignee the rights assigned hereby and the full
benefits hereof and to preserve and protect this Assignment and all of the
rights, powers and remedies of Assignee provided for herein.
6. SUCCESSORS AND ASSIGNS. This Assignment shall be binding upon
and inure to the benefit of the successors and assigns of the respective parties
hereto.
7. GOVERNING LAW. This Assignment shall be governed by, and
construed in accordance with, the laws of the State of California.
8. COUNTERPARTS. This Assignment may be executed in several
counterparts, each of which shall be an original, but all of which taken
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, Assignor and Assignee have executed this
Assignment as of the date first above written but effective as of the Effective
Date.
ASSIGNOR:
ASSIGNEE:
2.
<PAGE>
EXHIBIT "A"
LEGAL DESCRIPTION
3.
<PAGE>
EXHIBIT "B"
CONTRACTS
4.
<PAGE>
EXHIBIT E
BILL OF SALE AND GENERAL ASSIGNMENT OF INTANGIBLES
This Bill of Sale and General Assignment of Intangibles is made as of
the ____ day of ___________________________, 1997 (this "Assignment"), by
AHWAHNEE GOLF COURSE & RESORT, INC., a California corporation (the "COMPANY"),
NATIONAL INVESTORS FINANCIAL, INC., a California corporation ("NIF"), as Trustee
of National Investors Land Holding Trust VIII ("TRUST VIII") and NIF, as Trustee
of National Investors Land Holding Trust IX ("TRUST IX") (the Company, NIF as
Trustee for Trust VIII and NIF as Trustee for Trust IX being referred to
collectively as "ASSIGNOR"), to YOSEMITE WOODS FAMILY RESORT, INC., a California
corporation ("Assignee").
R E C I T A L
Assignee and Assignor have entered into an Agreement of Purchase and
Sale and Joint Escrow Instructions dated ________, 1997 ("Agreement of Purchase
and Sale") under which Assignee has agreed to purchase from Assignor, that
certain real property and all buildings, structures and improvements on said
real property commonly identified as _______________________, _____________,
State of California and legally described on Exhibit A attached hereto (the
"Property").
TERMS AND CONDITIONS
NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties agree as follows:
1. Assignor hereby assigns, transfers and sets over unto Assignee,
its successors and assigns, all personal property of Seller, if any, located on
and used in connection with the operation of the improvements on the Property
(the "Personal Property"). Buyer accepts such Personal Property in its "AS-IS"
condition and "WITH ALL FAULTS". Seller specifically disclaims all express or
implied warranties regarding the existence or condition of, or title to, such
Personal Property, including without limitation the implied warranties of
merchantability and suitability for a particular purpose.
2. Assignor hereby assigns, transfers and sets over unto Assignee,
its successors and assigns, all of its right, title and interest in and to the
following ("General Intangibles") if, and only to the extent, that the General
Intangibles exist and Assignor has the right to so transfer them:
(A) All of Assignor's right, title and interest in and to all
intangible property used, owned or issued solely in connection with the
Property, including but not limited to, all licenses, permits, certificates of
occupancy, approvals, maps, dedications, subdivision
1.
<PAGE>
maps and entitlements issued, approved or granted by any governmental agencies
or instrumentalities having any jurisdiction over the Property (the
"Authorities") or otherwise in connection with the Property; all development
rights, conditional use permits, variances, "floor area ratio" development
rights and other intangible rights, titles, interests, privileges and
appurtenances owned by Assignor and related to or issued in connection with the
Property and/or its use, occupancy, operation and/or development; all licenses,
consents, easements, rights of way, and approvals required from private parties
to make use of utilities and to insure vehicular and pedestrian ingress and
egress to the Property; and any pending applications or requests as to any of
the foregoing;
(B) All building plans, specifications and drawings,
engineering, and other documents prepared in connection with the construction,
reconstruction, maintenance, repair, or operation any improvements on the
Property (the "Improvements");
(C) All warranties and guarantees relating to the workmanship,
construction, installation materials, and design of the Improvements and the
personal property situated on the Property, including but not limited to those
made by or received from any third party with respect to any building, building
component, structure, fixture, machinery, equipment or material situated on,
contained in any building or other improvement situated on, or comprising a part
of any building or other improvement situated on any part of the Property;
(D) All rights, claims or awards benefiting the Property;
(E) All prepaid fees and fee credits, and all of Seller's right,
title and interest in and to refundable deposits, bonds and other collateral
furnished in connection with development of the Property; and
(F) All rights and general intangibles now owned by Assignor
solely in connection with the Property and any improvement and/or fixture
located on the Property, including, without limitation, the rights to hold, use,
sell and transfer the Property and Improvements and general intangibles.
3. Assignor hereby covenants that it will, at any time and from time
to time upon written request therefor, execute and deliver to Assignee, its
successors and assigns any new or confirmatory instruments and take such further
acts as Assignee may reasonably request to fully evidence the assignment
contained herein and to enable Assignee, its successors and assigns to fully
realize and enjoy the rights and interests assigned hereby.
4. Assignee hereby accepts the foregoing assignment.
5. Assignor hereby represents and warrants to Assignee that it has
not previously assigned or hypothecated its interest in the foregoing described
General Intangibles; however, Assignee shall have no claims or rights against
Assignor, and Assignor shall have no obligation or liability to Assignee for any
General Intangibles described herein which do not exist, or which Assignor does
not have the right to transfer to Assignee.
2.
<PAGE>
6. This Assignment shall be binding upon and inure to the benefit of
the legal representatives, assigns, or successors in interest of the Assignor
and Assignee.
IN WITNESS WHEREOF, the Assignor has executed this Assignment as of
_________, 1997.
-------------------------
-------------------------
By:
--------------------
--------------------
Its:
--------------------
--------------------
3.
<PAGE>
EXHIBIT F
MEMBERSHIP LISTS
1. Golf Course.
------------
Type of Membership Member Name Status of Dues
------------------ ----------- --------------
TOTAL MEMBERS:
------
2. RV Park.
--------
Type of Membership Member Name Status of Dues
------------------ ------------ --------------
TOTAL MEMBERS:
------
4.
<PAGE>
EXHIBIT G
PAYABLES TO BE ASSUMED BY BUYER
5.
<PAGE>
AGREEMENT OF PURCHASE AND SALE
AND JOINT ESCROW INSTRUCTIONS
BY AND BETWEEN
NATIONAL INVESTORS LAND HOLDING TRUST IV,
AS SELLER
AND
DELTA GREENS HOMES, INC.,
a California corporation,
AS BUYER
RELATING TO
PROPERTY LOCATED IN
Sacramento, California
known as
"DELTA GREENS"
OR
"NORTH SHORES"
DATED AS OF
September ___, 1997
<PAGE>
TABLE OF CONTENTS
Page
----
1. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
1.1 Actual Knowledge of Seller. . . . . . . . . . . . . . . . . . .1
1.2 AFC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
1.3 AFH . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
1.4 Assignment. . . . . . . . . . . . . . . . . . . . . . . . . . .2
1.5 Bill of Sale. . . . . . . . . . . . . . . . . . . . . . . . . .2
1.6 Closing Date. . . . . . . . . . . . . . . . . . . . . . . . . .2
1.7 Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
1.8 Effective Date. . . . . . . . . . . . . . . . . . . . . . . . .2
1.9 Environmental Audit . . . . . . . . . . . . . . . . . . . . . .2
1.10 Environmental Law. . . . . . . . . . . . . . . . . . . . . . .2
1.11 Escrow . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
1.12 Escrow Holder. . . . . . . . . . . . . . . . . . . . . . . . .2
[1.13 Exchange Value] . . . . . . . . . . . . . . . . . . . . . . .2
1.14 FIRPTA Certificate . . . . . . . . . . . . . . . . . . . . . .2
1.15 Grant Deed . . . . . . . . . . . . . . . . . . . . . . . . . .2
1.16 Hazardous Substance. . . . . . . . . . . . . . . . . . . . . .3
1.17 Improvements . . . . . . . . . . . . . . . . . . . . . . . . .3
1.18 Investors. . . . . . . . . . . . . . . . . . . . . . . . . . .3
1.19 Intangibles. . . . . . . . . . . . . . . . . . . . . . . . . .3
1.20 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . .3
1.21 Opening of Escrow. . . . . . . . . . . . . . . . . . . . . . .4
i
<PAGE>
1.22 Other Assets . . . . . . . . . . . . . . . . . . . . . . . . .4
1.23 Permitted Exceptions . . . . . . . . . . . . . . . . . . . . .4
1.24 Personal Property. . . . . . . . . . . . . . . . . . . . . . .4
1.25 Property . . . . . . . . . . . . . . . . . . . . . . . . . . .4
1.26 Prospectus . . . . . . . . . . . . . . . . . . . . . . . . . .4
1.27 Real Property. . . . . . . . . . . . . . . . . . . . . . . . .4
1.28 Title Company. . . . . . . . . . . . . . . . . . . . . . . . .4
1.29 Title Policy . . . . . . . . . . . . . . . . . . . . . . . . .4
1.30 Transfer Agent . . . . . . . . . . . . . . . . . . . . . . . .4
2. Purchase and Sale . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
2.1 Purchase and Sale . . . . . . . . . . . . . . . . . . . . . . .5
2.2 Substance of Transactions . . . . . . . . . . . . . . . . . . .5
3. Exchange Value. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
4. Escrow. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
5. Cancellation Fees and Expenses. . . . . . . . . . . . . . . . . . . . . .5
6. Deliveries to Escrow Holder . . . . . . . . . . . . . . . . . . . . . . .6
6.1 By Seller . . . . . . . . . . . . . . . . . . . . . . . . . . .6
6.2 By Buyer. . . . . . . . . . . . . . . . . . . . . . . . . . . .6
6.3 By Buyer and Seller . . . . . . . . . . . . . . . . . . . . . .6
7. Condition of Title. . . . . . . . . . . . . . . . . . . . . . . . . . . .7
7.1 Permitted Exceptions. . . . . . . . . . . . . . . . . . . . . .7
7.2 Title Provided by Seller. . . . . . . . . . . . . . . . . . . .7
8. Conditions to the Close of Escrow . . . . . . . . . . . . . . . . . . . .7
8.1 Conditions Precedent to Buyer's Obligations . . . . . . . . . .7
8.1.1 Title . . . . . . . . . . . . . . . . . . . . . . .7
ii
<PAGE>
8.1.2 Representations, Warranties and Covenants of Seller. . .7
8.1.3 Seller's Deliveries. . . . . . . . . . . . . . . . . . .7
8.2 Conditions Precedent to Seller's Obligations. . . . . . . . . .8
9. Approval of Seller's Constituents . . . . . . . . . . . . . . . . . . . .8
10. Property "As-Is. . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
10.1 No Side Agreements Or Representations; As-Is Purchase. . . . .8
10.2 Disclosures; Specific Acknowledgment Regarding Condition of
Property. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
11. Title Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
12. Costs and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . 12
13. Disbursements and Other Actions. . . . . . . . . . . . . . . . . . . . 12
13.1 Escrow Holder. . . . . . . . . . . . . . . . . . . . . . . . 12
13.2 By Transfer Agent. . . . . . . . . . . . . . . . . . . . . . 13
13.3 Possession . . . . . . . . . . . . . . . . . . . . . . . . . 13
14. Joint Representations and Warranties . . . . . . . . . . . . . . . . . 13
14.1 Authority. . . . . . . . . . . . . . . . . . . . . . . . . . 13
14.2 Actions. . . . . . . . . . . . . . . . . . . . . . . . . . . 13
14.3 Due Execution. . . . . . . . . . . . . . . . . . . . . . . . 13
14.4 Valid and Binding. . . . . . . . . . . . . . . . . . . . . . 13
14.5 Broker . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
15. Seller's Warranties and Representations. . . . . . . . . . . . . . . . 14
15.1 Non-Foreign Entity . . . . . . . . . . . . . . . . . . . . . 14
15.2 Hazardous Substances . . . . . . . . . . . . . . . . . . . . 14
15.3 Clean-up . . . . . . . . . . . . . . . . . . . . . . . . . . 14
15.4 Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
16. Pre-Closing Covenants. . . . . . . . . . . . . . . . . . . . . . . . . 14
iii
<PAGE>
16.1 No Transfers . . . . . . . . . . . . . . . . . . . . . . . . 14
16.2 No Alterations . . . . . . . . . . . . . . . . . . . . . . . 14
16.3 Maintenance. . . . . . . . . . . . . . . . . . . . . . . . . 14
16.4 Obligations Under Contracts. . . . . . . . . . . . . . . . . 14
16.5 Expenditures . . . . . . . . . . . . . . . . . . . . . . . . 15
17. Condemnation and Destruction . . . . . . . . . . . . . . . . . . . . . 15
17.1 Eminent Domain or Taking . . . . . . . . . . . . . . . . . . 15
17.2 Damage or Destruction. . . . . . . . . . . . . . . . . . . . 15
18. Utilities and Deposits . . . . . . . . . . . . . . . . . . . . . . . . 16
18.1 Utilities. . . . . . . . . . . . . . . . . . . . . . . . . . 16
18.2 Refundable Deposits. . . . . . . . . . . . . . . . . . . . . 16
19. Mediation of Disputes. . . . . . . . . . . . . . . . . . . . . . . . . 16
20. Arbitration of Disputes: . . . . . . . . . . . . . . . . . . . . . . . 16
21. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
22. Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
23. Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
23.1 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . 18
23.2 Partial Invalidity . . . . . . . . . . . . . . . . . . . . . 18
23.3 Possession of the Property . . . . . . . . . . . . . . . . . 18
23.4 Waivers. . . . . . . . . . . . . . . . . . . . . . . . . . . 18
23.5 Successors and Assigns . . . . . . . . . . . . . . . . . . . 18
23.6 Professional Fees. . . . . . . . . . . . . . . . . . . . . . 18
23.7 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . 18
23.8 Time of Essence. . . . . . . . . . . . . . . . . . . . . . . 18
23.9 Construction . . . . . . . . . . . . . . . . . . . . . . . . 19
iv
<PAGE>
23.10 Governing Law . . . . . . . . . . . . . . . . . . . . . . . 19
23.11 Wear and Tear . . . . . . . . . . . . . . . . . . . . . . . 19
23.12 No Recordation. . . . . . . . . . . . . . . . . . . . . . . 19
23.13 Survival. . . . . . . . . . . . . . . . . . . . . . . . . . 19
23.14 Disclaimer. . . . . . . . . . . . . . . . . . . . . . . . . 19
23.15 Waiver of Jury Trial. . . . . . . . . . . . . . . . . . . . 19
EXHIBITS
EXHIBIT A -. . . . . . . . . . . . . . . . . .Legal Description
EXHIBIT B -. . . . . . . . . . . . . . . . . . . . Form of Deed
EXHIBIT C -. . . . . . . . . . . . . .Seller's FIRPTA Affidavit
EXHIBIT D -. . . . . . . . . . . . . .Assignment and Assumption
EXHIBIT E -. Bill of Sale and General Assignment of Intangibles
v
<PAGE>
AGREEMENT OF PURCHASE AND SALE
AND JOINT ESCROW INSTRUCTIONS
THIS AGREEMENT OF PURCHASE AND SALE AND JOINT ESCROW
INSTRUCTIONS ("AGREEMENT") is made and entered into as of _____________ ___,
1997, by and between NATIONAL INVESTORS FINANCIAL INC., a California
corporation and a licensed California real estate broker, as Trustee for
NATIONAL INVESTORS LAND HOLDING TRUST IV ("SELLER") and DELTA GREENS HOMES,
INC., a California corporation ("BUYER").
R E C I T A L S
A. Seller is the title holder of that certain unimproved real
property commonly known as "Delta Greens" or "North Shores", consisting of
approximately 121 acres, located in the City of Sacramento, County of
Sacramento, State of California, as more particularly described in EXHIBIT A
attached hereto (the "Real Property"). Buyer is a wholly owned subsidiary of
American Family Communities, Inc., a California corporation ("AFC").
B. Seller holds record title to the Real Property as agent of and
for the benefit of various investors who are the beneficiaries of National
Investors Trust IV (the "Trust").
C. Seller desires to sell to Buyer and Buyer desires to purchase
from Seller the Property (as hereinafter defined), including the Real Property,
on the terms and conditions set forth in this Agreement.
NOW THEREFORE, in consideration of the foregoing Recitals, which
Recitals are incorporated herein by this reference, and for other good and
valuable consideration, the receipt and adequacy of which is hereby
acknowledged, Buyer and Seller agree as follows:
A G R E E M E N T
1. DEFINITIONS: For the purposes of this Agreement the following
terms will be defined as follows:
1.1 "ACTUAL KNOWLEDGE OF SELLER" means and is limited to the actual
knowledge of David Lasker and James N. Orth (both of whom are licensed
California real estate brokers) without having conducted any independent
inquiry or inspection, and shall not include the knowledge of any other
persons or firms, it being understood and agreed by Buyer that neither David
Lasker nor James N. Orth is charged with knowledge of all of the acts and/or
omissions of predecessors in title to the Property or management of the
Property before Seller's acquisition of the Property and the Actual Knowledge
of Seller shall not include information or material which may be in the
possession of Seller generally, but of which neither David Lasker nor James
N. Orth is actually aware. 1.
<PAGE>
1.2 "AFC" means American Family Communities, Inc., a California
corporation, which is a wholly owned subsidiary of AFH.
1.2
1.3 "AFH" means American Family Holdings, Inc., a Delaware
corporation. Buyer is a wholly-owned subsidiary of AFC, which, in turn, is a
wholly-owned subsidiary of AFH.
1.4 "ASSIGNMENT" shall have the meaning given thereto in
Section 6.1(d) hereof.
1.5 "BILL OF SALE" shall have the meaning given thereto in
Section 6.1(e) hereof.
1.6 "CLOSING DATE" means ___________, 1997, unless an earlier date is
agreed to in a writing subsequent to this Agreement executed and delivered by
each of the parties hereto to the other, and is the last date on which the
Closing and Close of Escrow can occur, subject to extension as provided for in
this Agreement.
1.7 "CLOSING" and "CLOSE OF ESCROW" are terms used interchangeably in
this Agreement. The Closing or the Close of Escrow will be deemed to have
occurred when the Grant Deed is recorded in the official records of the county
in which the Property is located.
1.8 "EFFECTIVE DATE" means the date hereof.
1.9 "ENVIRONMENTAL AUDIT" means any environmental audit, review
or testing of the Property performed by Buyer or any third party or consultant
engaged by Buyer to conduct such study.
1.10 "ENVIRONMENTAL LAW" means any law, statute, ordinance or
regulation pertaining to health, industrial hygiene or the environment
including, without limitation, CERCLA (Comprehensive Environmental Response,
Compensation and Liability Act of 1980) and RCRA (Resources Conservation and
Recovery Act of 1976), as amended.
1.11 "ESCROW" shall have the meaning given thereto in Section 4
hereof.
1.12 "ESCROW HOLDER" means ___________
_____________________________________________________________________________.
1.13 "EXCHANGE VALUE" is the adjusted appraised value of the
Property, which takes into consideration various factors to balance the business
value of the Property within its present ownership structure.
1.14 "FIRPTA CERTIFICATE" shall have the meaning given thereto in
Section 6.1(b) hereof.
1.15 "GRANT DEED" shall have the meaning given thereto in
Section 6.1(a) hereof.
2.
<PAGE>
1.16 "HAZARDOUS SUBSTANCE" means any substance, material or waste
which is or becomes designated, classified or regulated as being "toxic" or
"hazardous" or a "pollutant" or which is or becomes similarly designated,
classified or regulated, under any Environmental Law, including asbestos,
petroleum and petroleum products.
1.17 "IMPROVEMENTS" means any and all improvements and fixtures
situated on the Real Property.
1.18 "INVESTORS" means the beneficiaries of the Trust.
1.19 "INTANGIBLES" means all of Seller's right, title and interest in
and to all intangible property used, owned or issued solely and strictly in
connection with the Real Property, Improvements and Personal Property,
including, but not limited to: (i) trade names and trademarks, contract rights,
accounts receivables and other intangible property used in connection with the
ownership and operation of the Property; (ii) all licenses, permits,
certificates of occupancy, approvals, dedications and entitlements issued,
approved or granted by any governmental authorities having jurisdiction over the
Property; and (iii) all development rights, conditional use permits, variances
and other intangible rights, titles, interests and privileges owned by Seller
and related to or issued in connection with the Land and/or Improvements, its
use, occupancy, operation and development, but in no way related to Seller's
financial data or other proprietary information or other property of Seller.
1.20 "NOTICES" will be sent as provided in Section 21 to:
Seller: National Investors Land Holding Trust IV
c/o National Investors Financial, Inc.
4675 MacArthur Court, Suite 1240
Newport Beach, CA 92660
Attn: Mr. David Lasker
Telephone: (714) 833-8600
Facsimile: (714) 752-9753
with a copy to: Arter & Hadden
700 South Flower Street, Suite 3000
Los Angeles, CA 90017
Attn: Bruce H. Newman, Esq.
Telephone: (213) 629-9300
Facsimile: (213) 617-9255
Buyer: Delta Greens Homes, Inc.
______________________
______________________
Attn:__________________
Telephone: _____________
Facsimile: ______________
3.
<PAGE>
with a copy to: Arter & Hadden
700 South Flower Street, Suite 3000
Los Angeles, CA 90017
Attn: Bruce H. Newman, Esq.
Telephone: (213) 629-9300
Facsimile: (213) 617-9255
Escrow Holder: ________________________________
________________________________
________________________________
Attn: ____________________
Telephone: _______________
Facsimile: ________________
1.21 "OPENING OF ESCROW" shall have the meaning given thereto in
Section 4 hereof.
1.22 "OTHER ASSETS" means cash, cash equivalent, notes and other
negotiable instruments and any and all other assets in the possession or control
of Seller, the value of which is determined by possession, and any other assets
other than the Real Property, Personal Property or Intangibles relating to the
Real Property.
1.23 "PERMITTED EXCEPTIONS" shall have the meaning given thereto in
Section 7.1 hereof.
1.24 "PERSONAL PROPERTY" means the equipment, furniture and fixtures,
books and records and other personal property, if any, owned by Seller and
located on the Property as of the Effective Date, including without limitation,
those items listed on SCHEDULE 1 to the Bill of Sale.
1.25 "PROPERTY" means collectively, (i) the Real Property, (ii) the
Improvements , (iii) the Intangibles, (iv) the Personal Property and (v) the
Other Assets.
1.26 "PROSPECTUS" means the Consent Solicitation Statement/Prospectus
of Buyer.
1.27 "REAL PROPERTY" means that certain real property located in the
City and County of Sacramento, State of California and commonly known as "Delta
Greens" or "North Shores" and more particularly described in EXHIBIT A attached
hereto. The Real Property consists of approximately 121 acres of land, located
in the southwest portion of the City of Sacramento, east of Interstate 5 and
south of the Meadowview area.
1.28 "TITLE COMPANY" means _________________________________________.
1.29 "TITLE POLICY" shall have the meaning given thereto in Section 11
hereof.
4.
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1.30 "TRANSFER AGENT" means ____________________, who address is
__________________, Attn: ___________, Facsimile No. ___________..
2. PURCHASE AND SALE:
2.1 PURCHASE AND SALE. Upon and subject to the terms and conditions
set forth in this Agreement, Seller agrees to sell to Buyer and Buyer agrees to
buy from Seller the Property, together with all easements, hereditaments,
entitlements (to the extent transferable) and appurtenances thereto. In
consideration of Seller's sale of the Property to Buyer, Buyer will (a) cause to
be delivered to the investors of Seller the Exchange Value in accordance with
Section 3, and (b) perform all of Buyer's other obligations hereunder.
2.2 SUBSTANCE OF TRANSACTIONS. Notwithstanding any other provision
of this Agreement, the transfer of the Property directly from Seller to Buyer
is for convenience purposes only to effect expeditiously the culmination of
the transfers set forth in this Section 2.2, and for all purposes hereunder
it is the intent of the parties that such transfer reflects the following
transfers, which shall occur in the following order: (i) all of the
Investors, through their approval of the transactions contemplated under this
Agreement, contribute all of their interests in the Property to AFH in
exchange for shares of common stock of AFH, such shares to be distributed to
them pursuant to Sections 3 and 13.2 hereof; (ii) AFH contributes the
Property to AFC as a contribution to the capital of AFC; and (iii) AFC
contributes the Property to Buyer as a contribution to the capital of Buyer.
Seller's transfer of the Property directly to Buyer reflects Seller's
transfer of the Property from the Investors to AFH, from AFH to AFC, and from
AFC to the Buyer, in each instance in Seller's capacity as the agent of and
on behalf of such transferors.
3. EXCHANGE VALUE: In consideration for the sale of the Property to
Buyer, Buyer will deliver to Seller an amount equal to the Exchange Value for
the Property. The Exchange Value for the Property is $______________, which
shall be paid in the form of, and by issuance and delivery of, _____ shares of
common stock in AFH to the investors of Seller, to be distributed by the
Transfer Agent at the Closing outside of Escrow in accordance with Section 13.2
hereof. Upon the request of any party hereto, whether made before or after the
Closing, the parties hereto will allocate the Exchange Value to the Real
Property, Personal Property, Improvements, Other Assets and the Intangibles.
4. ESCROW: Immediately upon execution of this Agreement, Buyer and
Seller will open an escrow (the "ESCROW") with the Escrow Holder by delivering
to Escrow Holder a fully executed copy of this Agreement (the "OPENING OF
ESCROW"). The purchase and sale of the Property will be completed through the
Escrow. Buyer and Seller agree to execute any additional instructions
consistent with this Agreement which are reasonably required by the Escrow
Holder. If there is a conflict between any printed escrow instructions and this
Agreement, the terms of this Agreement will govern.
5. CANCELLATION FEES AND EXPENSES: If the Closing does not occur at
the time and in the manner provided in this Agreement because of the default of
one of the parties, the non-
5.
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defaulting party has the right to cancel the Escrow by written notice to the
defaulting party and to the Escrow Holder. All costs of cancellation, if any,
will be paid by the defaulting party.
6. DELIVERIES TO ESCROW HOLDER:
6.1 BY SELLER. On or prior to the Closing Date, Seller will deliver
or cause to be delivered to Escrow Holder the following items:
(a) A Grant Deed ("GRANT DEED"), in the form attached to this
Agreement as EXHIBIT B, duly executed and acknowledged by Seller and in
recordable form, conveying the Property to Buyer.
(b) A Transferor's Certificate of Non-Foreign Status attached to
this Agreement as EXHIBIT C ("FIRPTA CERTIFICATE"), duly executed by or on
behalf of Seller.
(c) A properly executed California Form RE 590 or other evidence
sufficient to establish that Buyer is not required to withhold any portion
of the Exchange Value pursuant to Sections 18805 and 26131 of the
California Revenue and Taxation Code ("FORM 590").
(d) An Assignment and Assumption of Agreements ("ASSIGNMENT")
duly executed by Seller in favor of Buyer in the form attached to this
Agreement as EXHIBIT D.
(e) A Bill of Sale and General Assignment of Intangibles in the
form attached to this Agreement as EXHIBIT E ("BILL OF SALE"), duly
executed by Seller and conveying all right, title and interest of Seller in
the Personal Property and the Intangibles to Buyer.
(e) Such corporate resolutions, certificates of good standing
and/or other corporate or partnership documents relating to Seller as are
reasonably required by Buyer or Escrow Holder or both in connection with
this transaction.
6.2 BY BUYER. On or prior to the Closing Date, Buyer will deliver or
cause to be delivered to Escrow Holder the following items:
(a) Such corporate resolutions, certificates of good standing
and/or other corporate or partnership documents relating to Buyer as are
reasonably required by Seller or Escrow Holder or both in connection with
this transaction.
(b) Amounts due to pay costs and expenses as set forth in
Section 12 hereof.
6.3 BY BUYER AND SELLER. Buyer and Seller will each deposit such
other instruments consistent with this Agreement as are reasonably required by
Escrow Holder or otherwise required to close escrow. In addition Seller and
Buyer hereby designate Escrow Holder as the "REPORTING PERSON" for the
transaction pursuant to Section 6045(e) of the Internal Revenue Code.
6.
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7. CONDITION OF TITLE:
7.1 PERMITTED EXCEPTIONS. At the Close of Escrow, fee simple title
to the Property will be conveyed to Buyer by Seller by Grant Deed, subject only
to the following title matters ("PERMITTED EXCEPTIONS"):
(a) all matters shown in that certain Amended Commitment for
Title Insurance effective _____________, issued by the Title Company,
bearing Order No. ________, except Exception No. 6 shall not show; and
(b) matters affecting the condition of title to the Property
created by, at the request of or with the written consent of Buyer.
7.2. TITLE PROVIDED BY SELLER. The parties agree that (a) except as
specifically provided in the Grant Deed or implied by law, Seller makes no
express or implied warranties regarding the condition of title to the Property,
and (b) Buyer shall rely solely on the Title Policy for protection against any
title defects.
8. CONDITIONS TO THE CLOSE OF ESCROW:
8.1 CONDITIONS PRECEDENT TO BUYER'S OBLIGATIONS. The following
conditions must be satisfied not later the earlier of the Closing Date or such
other period of time as may be specified below:
8.1.1 TITLE. As of the Closing, the Title Company will issue
or have committed to issue to Buyer the Title Policy described in
Section 11.
8.1.2 REPRESENTATIONS, WARRANTIES AND COVENANTS OF SELLER.
Seller will have duly performed each and every agreement to be performed by
Seller hereunder and, subject to the provisions of Section 10, Seller's
express representations and warranties set forth in this Agreement will be
true and correct in all material respects as of the Closing Date. However,
notwithstanding anything to the contrary stated or implied in this
Section 8.1.2, Seller shall have no liability for the breach of any
representations, warranties or covenants set forth in this Agreement,
whether express or implied, absent a finding by a court of competent
jurisdiction that either David Lasker or James N. Orth or both of them
withheld information with respect thereto from Buyer or falsified
information delivered to and relied upon by Buyer and that such action
amounted to a violation of a representation or warranty set forth herein.
8.1.3 SELLER'S DELIVERIES. Seller will have delivered the
items described in Section 6.1.
The conditions set forth in this Section 8.1 are solely for the benefit of
Buyer and may be waived only by Buyer. At all times Buyer has the right to
waive any condition. Such waiver or waivers must be in writing to Seller. If
any conditions are not satisfied on or before the Closing
7.
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Date, and Buyer has not waived the unsatisfied conditions, Seller will not be
deemed to be in default (unless Seller has breached Sections 8.1.2 or 8.1.3
above) and Buyer's sole remedy will be to terminate this Agreement.
8.2 CONDITIONS PRECEDENT TO SELLER'S OBLIGATIONS. The Close of
Escrow and Seller's obligations with respect to this transaction are subject to
the following conditions precedent: (a) Buyer's delivery to Escrow Holder on or
before the Closing Date, of the items described in Section 6.2; (b) the approval
of such of Seller's constituents as Seller shall deem necessary or advisable in
its sole and absolute discretion as set forth in Section 9 hereof; (c) Buyer
having duly performed each and every agreement to be performed by Buyer
hereunder; and (d) Buyer's representations, warranties and covenants set forth
in this Agreement, will be true and correct in all material respects as of the
Closing Date. The conditions set forth in this Section 8.2 are solely for the
benefit of Seller and may be waived only by Seller, with such waiver or waivers
to be in writing to Buyer. If any conditions are not satisfied on or before the
Closing Date, and Seller has not waived the unsatisfied conditions, Buyer will
not be deemed to be in default (unless Buyer has breached Sections 8.2(a), (c)
or (d) above) and Seller's sole remedy will be to terminate the Agreement.
9. APPROVAL OF SELLER'S CONSTITUENTS: Seller shall exercise
reasonable diligence to obtain the approval of this transaction by such of the
constituents of Seller as Seller shall deem necessary or advisable, in its sole
and absolute discretion, and shall notify Buyer and Escrow Holder when such
approvals have been obtained. If Seller is not able to obtain such approvals
from such constituents on or before the date which is ____ days after the
Effective Date, or such later date as is mutually agreed to by Buyer and Seller,
then Seller may cancel this Agreement by notice to Buyer and Escrow Holder given
prior to the end of that time period, and in that event Seller shall pay all
title and escrow cancellation costs. Seller shall indemnify and hold Buyer
harmless from any claim, damage, loss, liability, action, settlement, including
Buyer's reasonable attorneys' fees suffered by Buyer and which results from or
relates to the Seller's securing approval of this transaction and transferring
the Property to Buyer pursuant to such approval.
10. PROPERTY "AS-IS":
10.1 NO SIDE AGREEMENTS OR REPRESENTATIONS; AS-IS PURCHASE. BUYER
REPRESENTS, WARRANTS AND COVENANTS TO SELLER THAT BUYER HAD THE OPPORTUNITY TO
INDEPENDENTLY AND PERSONALLY INSPECT THE PROPERTY AND IMPROVEMENTS, IF ANY, AND
THAT BUYER HAS ENTERED INTO THIS AGREEMENT AFTER HAVING MADE SUCH PERSONAL
EXAMINATION AND INSPECTION. BUYER AGREES THAT BUYER WILL ACCEPT THE PROPERTY,
IN ITS THEN CONDITION AS-IS AND WITH ALL ITS FAULTS, INCLUDING WITHOUT
LIMITATION, ANY FAULTS AND CONDITIONS SPECIFICALLY REFERENCED IN THIS AGREEMENT,
SUBJECT TO THE EXPRESS COVENANTS, INDEMNITIES, REPRESENTATIONS AND WARRANTIES
MADE BY SELLER ELSEWHERE HEREIN. NO PERSON ACTING ON BEHALF OF SELLER IS
AUTHORIZED TO MAKE, AND BY EXECUTION HEREOF, BUYER ACKNOWLEDGES AND AGREES THAT,
EXCEPT FOR THOSE REPRESENTATIONS, WARRANTIES, COVENANTS, INDEMNITIES AND
8.
<PAGE>
AGREEMENTS EXPRESSLY MADE BY SELLER IN THIS AGREEMENT, SELLER HAS NOT MADE, DOES
NOT MAKE AND SPECIFICALLY NEGATES AND DISCLAIMS ANY REPRESENTATIONS, WARRANTIES,
PROMISES, COVENANTS, AGREEMENTS OR GUARANTIES OF ANY KIND OR CHARACTER
WHATSOEVER, WHETHER EXPRESS OR IMPLIED, ORAL OR WRITTEN, PAST, PRESENT OR
FUTURE, OF, AS TO, CONCERNING OR WITH RESPECT TO:
(A) THE VALUE OF THE PROPERTY OR THE INCOME TO BE DERIVED
THEREFROM;
(B) THE SUITABILITY OF THE PROPERTY FOR ANY AND ALL
ACTIVITIES AND USES WHICH BUYER MAY CONDUCT THEREON, INCLUDING
ANY DEVELOPMENT OF THE PROPERTY;
(C) THE HABITABILITY, MERCHANTABILITY, MARKETABILITY,
PROFITABILITY OR FITNESS FOR A PARTICULAR PURPOSE OF THE
PROPERTY;
(D) THE MANNER, QUALITY, STATE OF REPAIR OR LACK OF REPAIR
OF THE PROPERTY;
(E) THE NATURE, QUALITY OR CONDITION OF THE PROPERTY,
INCLUDING WITHOUT LIMITATION, THE WATER, SOIL AND GEOLOGY;
(F) THE TYPE, AVAILABILITY OR COST OF ANY ENTITLEMENTS
REQUIRED TO DEVELOP THE PROPERTY;
(G) THE COMPLIANCE OF OR BY THE PROPERTY OR ITS OPERATION
WITH ANY LAWS, RULES, ORDINANCES OR REGULATIONS OF ANY APPLICABLE
GOVERNMENTAL AUTHORITY OR BODY;
(H) THE MANNER, CONDITION OR QUALITY OF THE CONSTRUCTION OR
MATERIALS, IF ANY, INCORPORATED INTO THE PROPERTY;
(I) COMPLIANCE WITH ANY ENVIRONMENTAL PROTECTION, POLLUTION
OR LAND USE LAWS, RULES, REGULATION, ORDERS OR REQUIREMENTS,
INCLUDING BUT NOT LIMITED TO, THE ENDANGERED SPECIES ACT, TITLE
III OF THE AMERICANS WITH DISABILITIES ACT OF 1990 OR ANY OTHER
LAW, RULE OR REGULATION GOVERNING ACCESS BY DISABLED PERSONS,
CALIFORNIA HEALTH & SAFETY CODE, THE FEDERAL WATER POLLUTION
CONTROL ACT, THE FEDERAL RESOURCE CONSER-
9.
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VATION AND RECOVERY ACT, THE U.S. ENVIRONMENTAL PROTECTION AGENCY
REGULATIONS AT 40 C.F.R., PART 261, THE COMPREHENSIVE
ENVIRONMENTAL RESPONSE COMPENSATION AND LIABILITY ACT OF 1980, AS
AMENDED, THE RESOURCES CONSERVATION AND RECOVERY ACT OF 1976, THE
CLEAN WATER ACT, THE SAFE DRINKING WATER ACT, THE HAZARDOUS
MATERIALS TRANSPORTATION ACT, THE TOXIC SUBSTANCE CONTROL ACT,
AND REGULATIONS PROMULGATED UNDER ANY OF THE FOREGOING;
(J) THE PRESENCE OR ABSENCE OF HAZARDOUS MATERIALS AT, ON,
UNDER, OR ADJACENT TO THE PROPERTY;
(K) THE CONTENT, COMPLETENESS OR ACCURACY OF ANY MATERIALS,
INCLUDING ANY INFORMATIONAL PACKAGE, COST TO COMPLETE ESTIMATE OR
OTHER MATERIALS PREPARED BY OR ON BEHALF OF SELLER;
(L) THE CONFORMITY OF THE IMPROVEMENTS TO ANY PLANS OR
SPECIFICATIONS FOR THE PROPERTY, INCLUDING ANY PLANS AND
SPECIFICATIONS THAT MAY HAVE BEEN OR MAY BE PROVIDED TO BUYER;
(M) THE CONFORMITY OF THE PROPERTY TO PAST, CURRENT OR
FUTURE APPLICABLE ZONING OR BUILDING REQUIREMENTS;
(N) DEFICIENCY OF ANY UNDERSHORING;
(O) DEFICIENCY OF ANY DRAINAGE;
(P) THE FACT THAT ALL OR A PORTION OF THE PROPERTY MAY BE
LOCATED ON OR NEAR AN EARTHQUAKE FAULT LINE OR LOCATED IN AN
ALQUIST-PRIOLO SPECIAL STUDY ZONE;
(Q) THE EXISTENCE OF VESTED LAND USE, ZONING OR BUILDING
ENTITLEMENTS AFFECTING THE PROPERTY;
(R) ANY AND ALL REQUIREMENTS OR CONDITIONS OF APPROVAL OF
STATE AND LOCAL GOVERNMENTAL AGENCIES FOR DEVELOPMENT OF THE
PROPERTY INCLUDING, WITHOUT LIMITATION, THE CONSTRUCTION OF
OFFSITE AND ONSITE ROADS, UTILITIES AND OTHER IMPROVEMENTS; OR
10.
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(S) WITH RESPECT TO ANY OTHER MATTER CONCERNING THE
PROPERTY EXCEPT AS MAY BE OTHERWISE EXPRESSLY STATED HEREIN,
INCLUDING ANY AND ALL SUCH MATTERS REFERENCED, DISCUSSED OR
DISCLOSED IN ANY DOCUMENTS DELIVERED BY SELLER TO BUYER, IN ANY
PUBLIC RECORDS OF ANY GOVERNMENTAL AGENCY OR ENTITY OR UTILITY
COMPANY, OR IN ANY OTHER DOCUMENTS AVAILABLE TO BUYER.
(T) BUYER FURTHER ACKNOWLEDGES AND AGREES THAT BUYER IS
RELYING SOLELY ON ITS OWN INVESTIGATION OF THE PROPERTY AND ITS
OWN REVIEW OF ALL INFORMATION AND DOCUMENTATION CONCERNING THE
PROPERTY, AND NOT ON ANY INFORMATION PROVIDED OR TO BE PROVIDED
BY SELLER. BUYER FURTHER ACKNOWLEDGES AND AGREES THAT ANY
INFORMATION MADE AVAILABLE TO BUYER OR PROVIDED OR TO BE PROVIDED
BY OR ON BEHALF OF SELLER WITH RESPECT TO THE PROPERTY WAS
OBTAINED FROM A VARIETY OF SOURCES AND THAT SELLER HAS NOT MADE
ANY INDEPENDENT INVESTIGATION OR VERIFICATION OF SUCH INFORMATION
AND MAKES NO REPRESENTATIONS AS TO THE ACCURACY OR COMPLETENESS
OF SUCH INFORMATION EXCEPT AS MAY OTHERWISE BE PROVIDED HEREIN.
BUYER AGREES TO FULLY AND IRREVOCABLY RELEASE ALL SUCH SOURCES OF
INFORMATION AND PREPARERS OF INFORMATION AND DOCUMENTATION TO THE
EXTENT SUCH SOURCES OR PREPARERS ARE SELLER, OR ITS EMPLOYEES,
OFFICERS, DIRECTORS, REPRESENTATIVES, BENEFICIARIES, INVESTORS,
AGENTS, SERVANTS, ATTORNEYS, AFFILIATES, PARENT COMPANIES,
SUBSIDIARIES, SUCCESSORS OR ASSIGNS FROM ANY AND ALL CLAIMS,
DAMAGES AND LIABILITIES ARISING FROM SUCH INFORMATION OR
DOCUMENTATION, EXCEPT IF AND TO THE EXTENT THAT BUYER EMPLOYS
SUCH SOURCES OR PREPARERS OF INFORMATION TO ACT ON BEHALF OF
BUYER, IN WHICH EVENT THE LIABILITY OF SUCH SOURCES OR PREPARERS
OF INFORMATION TO BUYER SHALL BE DETERMINED BY THEIR OWN
INDEPENDENT AGREEMENTS WITH BUYER, AND SELLER SHALL NOT BE LIABLE
FOR SUCH AGREEMENTS OR OBLIGATIONS. SELLER IS NOT LIABLE OR
BOUND IN ANY MANNER BY ANY ORAL OR WRITTEN STATEMENTS,
REPRESENTATIONS OR INFORMATION PERTAINING TO THE PROPERTY, OR THE
OPERATION THEREOF, FURNISHED BY ANY OF THE FOREGOING ENTITIES AND
INDIVIDUALS OR ANY OTHER INDIVIDUAL OR ENTITY.
10.2 DISCLOSURES; SPECIFIC ACKNOWLEDGMENT REGARDING CONDITION OF
PROPERTY. Buyer acknowledges the disclosures expressly made by Seller in this
Agreement, the Prospectus and in correspondence from Seller, its attorneys
and/or its agents to Buyer, its attorneys and/or its agents.
11.
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11. TITLE INSURANCE: At the Close of Escrow, the Title Company will
issue to Buyer at Buyer's sole cost and expense an ALTA Standard Coverage Policy
(1990) with coverage in an amount equal to the appraised value of the Real
Property as determined by Buyer in its sole discretion, showing title to the
Real Property vested in Buyer, subject only to the Permitted Exceptions and the
standard printed exceptions and conditions in the policy of title insurance
("TITLE POLICY"). If Buyer elects to obtain any additional endorsements or an
extended coverage policy, the additional premium and costs of survey for the
extended coverage policy and the cost of any endorsements will be at Buyer's
sole cost and expense; however, Buyer's election to obtain an extended coverage
policy will not delay the Closing and Buyer's inability to obtain an extended
coverage policy or any such endorsements will not be deemed to be a failure of
any condition to Closing.
12. COSTS AND EXPENSES: Buyer will pay the costs of Closing the
transaction as follows:
(a) all premiums for the Title Policy;
(b) all escrow fees and costs;
(c) all city and county documentary transfer taxes;
(d) all document recording charges;
(e) all sales taxes;
(f) one half of all escrow fees and costs;
(g) the entire additional cost of any ALTA extended coverage
title policy, the cost of any required survey and, the cost of any
endorsements required by Buyer; and
(h) All other costs and expenses necessarily incurred to close
the transaction.
13. DISBURSEMENTS AND OTHER ACTIONS:
13.1 ESCROW HOLDER. At the Close of Escrow, Escrow Holder will
promptly undertake all of the following:
(a) Cause the Grant Deed (with documentary transfer tax
information to be affixed AFTER recording) to be recorded with the County
Recorder and obtain conformed copies thereof for distribution to Buyer and
Seller.
(b) Direct the Title Company to issue the Title Policy to Buyer
within 15 BUSINESS DAYS after Closing.
12.
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(c) Deliver to Buyer the FIRPTA Certificate, the Form 590 and
any other documents (or copies thereof) deposited into Escrow by Seller.
Deliver to Seller any other documents (or copies thereof) deposited into
Escrow by Buyer.
(d) Notify the Transfer Agent by telephone and facsimile that
the Close of Escrow has occurred.
13.2 BY TRANSFER AGENT. Promptly after the Close of Escrow,
Transfer Agent shall deliver all shares of common stock of AFH in payment of the
Exchange Value for the Property to the persons, at the addresses and in the
amounts designated by Seller.
13.3 POSSESSION. Possession of the Other Assets in Seller's
possession or control and all other Property shall be delivered by Seller to
Buyer at the Close of Escrow.
14. JOINT REPRESENTATIONS AND WARRANTIES: In addition to any express
agreements of the parties contained herein, the following constitute
representations and warranties of the parties each to the other:
14.1 AUTHORITY. Each party has the legal power, right and authority
to enter into this Agreement and the instruments referenced herein, and to
consummate this transaction.
14.2 ACTIONS. All requisite action (corporate, trust, partnership or
otherwise) has been taken by each party in connection with the entering into of
this Agreement, the instruments referenced herein, and the consummation of this
transaction. Except as provided in Section 9, no further consent of any
partner, shareholder, creditor, investor, judicial or administrative body,
governmental authority or other party is required.
14.3 DUE EXECUTION. The individuals executing this Agreement and the
instruments referenced herein on behalf of each party and the partners, officers
or trustees of each party, if any, have the legal power, right, and actual
authority to bind each party to the terms and conditions of those documents.
14.4 VALID AND BINDING. This Agreement and all other documents
required to close this transaction are and will be valid, legally binding
obligations of and enforceable against each party in accordance with their
terms, subject only to applicable bankruptcy, insolvency, reorganization,
moratorium laws or similar laws or equitable principles affecting or limiting
the rights of contracting parties generally.
14.5 BROKER. Seller represents and warrants to Buyer, and Buyer
represents and warrants to Seller, that no broker or finder has been engaged by
them, respectively, in connection with any of the transactions contemplated by
this Agreement, or to its knowledge is in any way connected with any of such
transactions. Buyer will indemnify, save harmless and defend Seller from any
liability, cost, or expense arising out of or connected with any claim for any
commission or compensation made by any person or entity claiming to have been
retained or contacted by Buyer in connection with this transaction. Seller will
indemnify, save harmless and defend Buyer
13.
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from any liability, cost, or expense arising out of or connected with any claim
for any commission or compensation made by any person or entity claiming to have
been retained or contacted by Seller in connection with this transaction. This
indemnity provision will survive the Closing or any earlier termination of this
Agreement.
15. SELLER'S WARRANTIES AND REPRESENTATIONS: Seller makes the
following representations, and warranties and acknowledges that Buyer will rely
on such representations and warranties in acquiring the Property; provided that
liability for any breach is subject to Section 8.1.2 hereof:
15.1 NON-FOREIGN ENTITY. Seller is not a "foreign person" within the
meaning of Section 1445(f)(3) of the Internal Revenue Code.
15.2 HAZARDOUS SUBSTANCES. To Seller's Actual Knowledge, since the
date of Seller's acquisition of the Property, no Hazardous Substances are now or
have been used, stored, generated or disposed of on or within the Property
except in the normal course of use and operation of the Property and in
compliance with all applicable Environmental Laws.
15.3 CLEAN-UP. To Seller's Actual Knowledge, since the date of
Seller's acquisition of the Property, there are and have been no federal, state
or local enforcement, clean-up, removal, remedial or other governmental or
regulatory actions instituted or completed affecting the Property, other than
such other matters as may otherwise be disclosed in any Environmental Audit or
in any other documents provided or made available to Buyer.
15.4 CLAIMS. To Seller's Actual Knowledge, there are no outstanding
claims that have been made by any third party against Seller relating to any
Hazardous Substances on or within the Property.
The provisions of this Section 15 shall no longer bind Seller if
this Agreement expires or is terminated for any reason, or if the Closing
contemplated hereunder occurs.
16. PRE-CLOSING COVENANTS. So long as this Agreement remains in full
force and effect:
16.1 NO TRANSFERS. Without the prior written consent of Buyer, Seller
will not convey any interest in the Property and will not subject the Property
to any additional liens, encumbrances, covenants, conditions, easements, rights
of way or similar matters after the date of this Agreement, except as may be
otherwise provided for in this Agreement, which will not be eliminated prior to
the Close of Escrow.
16.2 NO ALTERATIONS. Seller will not make any material alterations to
the Property without Buyer's consent, which will not be unreasonably withheld or
delayed.
14.
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16.3 MAINTENANCE. Seller will maintain the Property in substantially
the same condition as it is in, as of the date of this Agreement, and manage the
Property in accordance with Seller's established practices.
16.4 OBLIGATIONS UNDER CONTRACTS. Seller will keep and perform all of
the obligations to be performed by Seller under any contracts affecting the
Property. Without prior written consent of Buyer, which will not be
unreasonably withheld or delayed, Seller will not enter into any contract or
agreement providing for the provision of goods or services to or with respect to
the Property or the operation thereof unless such contracts or agreements can be
terminated without penalty by the Closing Date. Seller will not enter into any
leases for any portion of the Property.
16.5 EXPENDITURES. Seller will incur only expenditures necessary for
the day-to-day operation and maintenance of the Property, and will not incur
capital expenditures or liabilities not in the ordinary course of business.
Seller shall retain all Other Assets in Seller's possession on or after the date
hereof except for payment of such permitted liabilities and expenditures.
17. CONDEMNATION AND DESTRUCTION:
17.1 EMINENT DOMAIN OR TAKING. If proceedings under a power of
eminent domain relating to the Property or any part thereof are commenced prior
to Close of Escrow, Seller will promptly inform Buyer in writing.
(a) If such proceedings involve the taking of title to all or a
material interest in the Property, Buyer may elect to terminate this
Agreement by notice in writing sent within 10 DAYS of Seller's written
notice to Buyer, in which case neither party will have any further
obligation to or rights against the other except any rights or obligations
of either party which are expressly stated to survive termination of this
Agreement.
(b) If the proceedings do not involve the taking of title to all
or a material interest in the Property, or if Buyer does not elect to
terminate this Agreement, this transaction will be consummated as described
herein and any award or settlement payable with respect to such proceeding
will be paid or assigned to Buyer upon Close of Escrow.
(c) If this sale is not consummated for any reason, any
condemnation award or settlement will belong to Seller.
17.2 DAMAGE OR DESTRUCTION. Except as provided in this Section, prior
to the Close of Escrow the entire risk of loss of damage by earthquake, flood,
landslide, fire or other casualty is borne and assumed by Seller. If, prior to
the Close of Escrow, any part of the Improvements is damaged or destroyed by
earthquake, flood, landslide, fire or other casualty, Seller will promptly
inform Buyer of such fact in writing and advise Buyer as to the extent of the
damage and whether it is, in Seller's reasonable opinion, "MATERIAL" or not
"MATERIAL".
15.
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(a) If such damage or destruction is "MATERIAL", Buyer has the
option to terminate this Agreement upon written notice to the Seller given
not later than 10 DAYS after receipt of Seller's written notice to Buyer
advising of such damage or destruction.
(b) For purposes hereof, "MATERIAL" is deemed to be any damage
or destruction to the Improvements where the cost of repair or replacement
is estimated to be more than 25% of the Exchange Value of the Property and
will take more than 60 DAYS to repair.
(c) If this Agreement is so terminated, the provisions of
Section 5 will govern.
(d) If Buyer does not elect to terminate this Agreement, or if
the casualty is not material, Seller will reduce the Exchange Value by the
value reasonably estimated by Seller to repair or restore the damaged
portion of the Improvements, less any sums expended by Seller to make
emergency repairs to the Improvements or the Property or otherwise protect
the physical condition of the Improvements or the Property, and this
transaction will close pursuant to the terms of this Agreement.
(e) If the damage is not material, Seller's notice to Buyer of
the damage or destruction will also set forth Seller's reduced Exchange
Value and Seller's allocation of value to the damaged portion of the
Improvements. If Buyer does not accept Seller's reduced Exchange Value,
Buyer's sole remedy will be to terminate this Agreement.
(f) Whether or not the sale of the Property is consummated
hereunder, all rights to insurance claims or proceeds in respect of damage
or destruction to the Improvements occurring prior to the Close of Escrow
will belong to Seller.
18. UTILITIES AND DEPOSITS:
18.1 UTILITIES. Seller will notify all utility companies servicing
the Property of the sale of the Property to Buyer and will notify the utility
companies that all utility bills henceforth are to be sent to Buyer. Buyer
shall be entitled to receive any and all refunds of all utility deposits held by
utility companies and Seller will assign to Buyer all of Seller's right, title
and interest in any such utility deposits.
18.2 REFUNDABLE DEPOSITS. To the extent there exists any refundable
deposits made in connection with the development of the Property prior to the
Closing ("Refundable Deposits"), Seller shall assign to Buyer all of Seller's
right, title and interest in and to such Refundable Deposits.
19. MEDIATION OF DISPUTES: No party to this Agreement shall initiate
any litigation against any other party to this Agreement concerning any
controversy or claim arising out of or relating to this Agreement or any
agreements or instruments relating hereto or delivered in connection herewith,
including, but not limited to, any claim based on or arising from an alleged
tort, unless and until (i) at least 60 days before the same shall be filed, a
complete copy of each of
16.
<PAGE>
the summons and complaint (and/or any other documentation required to initiate
such litigation) to be filed by the complaining party shall have been delivered
to the other party or parties to any such dispute, and (ii) the complaining
party has made itself available to meet in Los Angeles, California with the
other party or parties for no more than 3 business days of non-binding
mediation. Until and unless such mediation has taken place, the complaining
party must give notice to the non-complaining party that it will, and then it
must, make itself available for such mediation during at least 20 business days
during the 60 days before the date on which such summons and complaint will be
filed.
20. ARBITRATION OF DISPUTES: ANY CONTROVERSY OR CLAIM ARISING OUT OF
OR RELATING TO THIS AGREEMENT OR ANY AGREEMENTS OR INSTRUMENTS RELATING HERETO
OR DELIVERED IN CONNECTION HEREWITH, INCLUDING, BUT NOT LIMITED TO A CLAIM BASED
ON OR ARISING FROM AN ALLEGED TORT WILL, AT THE REQUEST OF ANY PARTY, BE
DETERMINED BY ARBITRATION IN ACCORDANCE WITH THE FEDERAL ARBITRATION ACT (9
U.S.C. SECTION 1 ET SEQ.) UNDER THE AUSPICES AND RULES OF THE AMERICAN
ARBITRATION ASSOCIATION ("AAA"). THE AAA WILL BE INSTRUCTED BY EITHER OR BOTH
PARTIES TO PREPARE A LIST OF THREE (3) JUDGES WHO HAVE RETIRED FROM THE SUPERIOR
COURT OF THE STATE OF CALIFORNIA, A HIGHER CALIFORNIA COURT OR ANY FEDERAL
COURT. WITHIN 10 DAYS OF RECEIPT OF THE LIST, EACH PARTY MAY STRIKE 1 NAME FROM
THE LIST. THE AAA WILL THEN APPOINT THE ARBITRATOR FROM THE NAME(S) REMAINING
ON THE LIST. THE ARBITRATION WILL BE CONDUCTED IN SAN FRANCISCO, LOS ANGELES OR
SAN DIEGO, WHICHEVER IS THE CLOSEST CITY TO THE NEXUS OF THE DISPUTE. ANY
CONTROVERSY IN INTERPRETATION OR ENFORCEMENT OF THIS PROVISION OR WHETHER A
DISPUTE IS ARBITRABLE, WILL BE DETERMINED BY THE ARBITRATOR. JUDGMENT UPON THE
AWARD RENDERED BY THE ARBITRATOR MAY BE ENTERED IN ANY COURT HAVING
JURISDICTION. THE INSTITUTION AND MAINTENANCE OF AN ACTION FOR JUDICIAL RELIEF
OR IN PURSUIT OF AN ANCILLARY REMEDY DOES NOT CONSTITUTE A WAIVER OF THE RIGHT
OF ANY PARTY, INCLUDING THE PLAINTIFF, TO SUBMIT THE CONTROVERSY OR CLAIM TO
ARBITRATION.
NOTICE: BY INITIALING IN THE SPACE BELOW YOU ARE AGREEING TO HAVE ANY DISPUTE
ARISING OUT OF THE MATTERS INCLUDED IN THE 'ARBITRATION OF DISPUTES' PROVISION
DECIDED BY NEUTRAL ARBITRATION AS PROVIDED BY CALIFORNIA LAW AND YOU ARE GIVING
UP ANY RIGHTS YOU MIGHT POSSESS TO HAVE THE DISPUTE LITIGATED IN A COURT OR BY
JURY TRIAL. BY INITIALING IN THE SPACE BELOW YOU ARE GIVING UP YOUR JUDICIAL
RIGHTS TO DISCOVERY AND APPEAL UNLESS SUCH RIGHTS ARE SPECIFICALLY INCLUDED IN
THE "ARBITRATION OF DISPUTES" PROVISION. IF YOU REFUSE TO SUBMIT TO ARBITRATION
AFTER AGREEING TO THIS PROVISION, YOU MAY BE COMPELLED TO ARBITRATE UNDER THE
AUTHORITY OF THE CALIFORNIA CODE OF CIVIL PROCEDURE. YOUR AGREEMENT TO THIS
ARBITRATION PROVISION IS VOLUNTARY.
17.
<PAGE>
WE HAVE READ AND UNDERSTAND THE FOREGOING AND AGREE TO SUBMIT DISPUTES ARISING
OUT OF THE MATTERS INCLUDED IN THE 'ARBITRATION OF DISPUTES' PROVISION TO
NEUTRAL ARBITRATION.
Buyer's Initials ________ Seller's Initials _________
2.1 NOTICES: All notices or other communications required or
permitted hereunder must be in writing, and must be personally delivered
(including by means of professional messenger service) or sent by overnight
courier, or sent by registered or certified mail, postage prepaid, return
receipt requested to the addresses set forth in Section 1 hereof. All notices
sent by mail will be deemed received 2 DAYS after the date of mailing and all
notices sent by other means permitted herein shall be deemed received on the
earlier of the date delivered or the date on which delivery is refused.
22. ASSIGNMENT: Neither party shall have the right to assign
this Agreement without the other party's prior written consent.
23. MISCELLANEOUS:
23.1 COUNTERPARTS. This Agreement may be executed in
counterparts.
23.2 PARTIAL INVALIDITY. If any term or provision of this
Agreement will be deemed to be invalid or unenforceable to any extent, the
remainder of this Agreement will not be affected thereby, and each remaining
term and provision of this Agreement will be valid and be enforced to the
fullest extent permitted by law.
23.3 POSSESSION OF THE PROPERTY. Seller will deliver possession
of the Property to Buyer upon the Close of Escrow.
23.4 WAIVERS. No waiver of any breach of any covenant or
provision contained herein will be deemed a waiver of any preceding or
succeeding breach thereof, or of any other covenant or provision contained
herein. No extension of time for performance of any obligation or act will be
deemed an extension of the time for performance of any other obligation or act
except those of the waiving party, which will be extended by a period of time
equal to the period of the delay.
23.5 SUCCESSORS AND ASSIGNS. This Agreement is binding upon and
inures to the benefit of the permitted successors and assigns of the parties
hereto.
23.6 PROFESSIONAL FEES. In the event of the bringing of any
action, arbitration or suit by a party hereto against another party hereunder by
reason of any breach of any of the covenants, agreements or provisions on the
part of the other party arising out of this Agreement, then in that event the
prevailing party will be entitled to have the recovery of and from the other
party all costs and expenses of the action, mediation or suit, actual attorneys'
fees, witness fees and any other professional fees resulting therefrom.
18.
<PAGE>
23.7 ENTIRE AGREEMENT. This Agreement (including all Exhibits
attached hereto) constitutes the entire contract between the parties hereto with
respect to the subject matter hereof and may not be modified except by an
instrument in writing signed by the party to be charged.
23.8 TIME OF ESSENCE. Seller and Buyer hereby acknowledge and
agree that time is strictly of the essence with respect to each and every term,
condition, obligation and provision hereof.
23.9 CONSTRUCTION. Seller and Buyer and their respective
advisors believe that this Agreement is the product of all of their efforts,
that it expresses their agreement and that it should not be interpreted in favor
of or against either Buyer or Seller. The parties further agree that this
Agreement will be construed to effectuate the normal and reasonable expectations
of a sophisticated seller and buyer.
23.10 GOVERNING LAW. The parties hereto expressly agree that this
Agreement will be governed by, interpreted under, and construed and enforced in
accordance with the laws of the State of California.
23.11 WEAR AND TEAR. Buyer specifically acknowledges that Seller
will continue to use the Property in the course of its business and accepts the
fact that reasonable wear and tear will occur after the date of this Agreement.
Buyer specifically agrees that Seller is not responsible for repairing such
reasonable wear and tear and that Buyer is prohibited from raising such wear and
tear as a reason for not consummating this transaction or for requesting a
reduction in the Exchange Value.
23.12 NO RECORDATION. No memorandum or other document relating to
this Agreement will be recorded without the prior written consent of Seller, and
any such consent or approval will be conditioned upon Buyer providing Seller
with a quitclaim deed fully executed and acknowledged by Buyer, quitclaiming any
and all interests that it may have in the Property to Seller, which quitclaim
deed Seller may record in the event that this Agreement is terminated or the
transaction contemplated herein is not consummated.
23.13 SURVIVAL. All obligations of the parties contained herein
which by their terms do not arise until after the Close of Escrow and any other
provisions of this Agreement which by their terms survives the Close of Escrow,
shall survive the Close of Escrow.
23.14 DISCLAIMER. Nothing herein creates any right or remedy for
the benefit of any person not a party hereto, nor creates a fiduciary
relationship, an agency or a partnership. All obligations of the parties
contained herein which by their terms do not arise until after the Close of
Escrow and any other provisions of this Agreement which by their terms survives
the Close of Escrow, shall survive the Close of Escrow.
23.15 WAIVER OF JURY TRIAL. Each party, acting with knowledge of
its rights after a full opportunity to consult with counsel, voluntarily waives
all rights to trial by jury in all proceedings
19.
<PAGE>
for which a trial by jury would otherwise be available or required, and which
involve any matter arising out of or connected with rights or duties under, or
enforcement or interpretation of, this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date and year hereinabove written.
"SELLER": "BUYER":
NATIONAL INVESTORS LAND HOLDING IV DELTA GREENS HOMES, INC.,
a California corporation
By: By:
--------------------------------- -------------------------------
Its: Its:
--------------------------------- -------------------------------
and and
By: By:
--------------------------------- -------------------------------
Its: Its:
--------------------------------- -------------------------------
Agreed to and accepted
by Escrow Holder:
By:
----------------------------------
Its:
----------------------------------
20.
<PAGE>
EXHIBIT A
LEGAL DESCRIPTION
<PAGE>
EXHIBIT B
FORM OF DEED
RECORDING REQUESTED BY,
WHEN RECORDED MAIL TO:
Arter & Hadden
700 South Flower Street, Suite 3000
Los Angeles, California 90017
Attn: Bruce H. Newman, Esq.
- --------------------------------------------------------------------------------
(Above Space For Recorder's Use Only)
GRANT DEED
In accordance with Section 11932 of the California Revenue and Taxation
Code, Grantor has declared the amount of transfer tax which is due by a separate
statement which is not being recorded with this Grant Deed.
FOR A VALUABLE CONSIDERATION, RECEIPT OF WHICH IS HEREBY ACKNOWLEDGED,
NATIONAL INVESTORS LAND HOLDING TRUST IV ("Grantor") hereby grants to DELTA
GREENS HOMES, INC., a California corporation ("Grantee"), the real property in
the County of Sacramento, State of California, and described in EXHIBIT A
attached hereto and made a part hereof.
DATED: , 1997
------------------
NATIONAL INVESTORS LAND HOLDING TRUST IV
By:
-----------------------------------
Its:
----------------------------------
- -------------
MAIL TAX STATEMENTS TO:
<PAGE>
ACKNOWLEDGMENT
STATE OF CALIFORNIA )
) ss.
COUNTY OF )
On ____________________, before me, _____________________________________,
personally appeared ______________________________, personally known to me (or
proved to me on the basis of satisfactory evidence) to be the person(s) whose
name(s) is/are subscribed to the within instrument and acknowledged to me that
he/she/they executed the same in his/her/their authorized capacity(ies), and
that by his/her/their signature(s) on the instrument the person(s), or the
entity upon behalf of which the person(s) acted, executed the instrument.
WITNESS my hand and official seal.
______________________________
Notary Public in and for said
County and State
[SEAL]
<PAGE>
Document No. Date Recorded
--------------------------- -----------------
STATEMENT OF TAX DUE AND REQUEST THAT TAX DECLARATION
NOT BE MADE A PART OF THE PERMANENT RECORD
IN THE OFFICE OF THE COUNTY RECORDER
(Pursuant to Section 11932 R&T Code)
To: Registrar-Recorder
County of
---------------------------
Request is hereby made in accordance with the provisions of the Documentary
Transfer Tax Act that the amount of tax due not be shown on the original
document which names:
- ------------------------------------
(as grantor)
and
- ------------------------------------
(as grantee)
Property described in the accompanying document is located in
( ) unincorporated area or (x) City of _________________________.
The amount of tax due on the accompanying document is $_______________.
_________ Computed on full value of property conveyed, or
_________ Computed on full value less liens and encumbrances remaining at time
of sale.
By:
---------------------------
Its:
---------------------------
<PAGE>
EXHIBIT C
Seller's FIRPTA Affidavit
CERTIFICATION OF NON-FOREIGN STATUS
Section 1445 of the Internal Revenue Code provides that a transferee
of a U.S. real property interest must withhold tax if the transferor is a
foreign person. To inform the transferee that withholding of tax is not
required upon the disposition of a U.S. real property interest by NATIONAL
INVESTORS LAND HOLDING TRUST IV ("TRANSFEROR"), each of the undersigned
hereby certifies the following on behalf of Transferor:
1. Transferor is not a foreign corporation, foreign partnership,
foreign trust and foreign estate (as those terms are defined in the Internal
Revenue Code and Income Tax Regulations);
2. Transferor's U.S. employer identification number is ___________;
and
3. Transferor's office address is _______________________________,
___________________.
Transferor understands that this certification may be disclosed to the
Internal Revenue Service by transferee and that any false statement contained
herein could be punished by fine, imprisonment or both.
Under penalties of perjury each of the undersigned declares that he
has examined this certification and to the best of his knowledge and belief it
is true, correct and complete, and he further declares that he has authority to
sign the document on behalf of the Transferor.
NATIONAL INVESTORS LAND HOLDING TRUST IV
By:
----------------------------------
Its:
-----------------------------------
<PAGE>
EXHIBIT D
ASSIGNMENT AND ASSUMPTION
OF
AGREEMENTS
THIS ASSIGNMENT AND ASSUMPTION OF AGREEMENTS (this "Assignment") is
executed as of ______________, but effective as of the Effective Date (as
hereinafter defined), by and between NATIONAL INVESTORS LAND HOLDING TRUST IV
("Assignor") and DELTA GREENS HOMES, INC., a California corporation
("Assignee"), with reference to the following facts:
RECITALS:
A. Assignor, as the agent of and for the benefit of various
investors, holds title to that certain real property commonly known as "DELTA
GREENS" or "NORTH SHORES", located in the City of Sacramento, County of
Sacramento, State of California, as more particularly described on Exhibit "A"
attached hereto and incorporated herein by reference (the "Property").
B. Concurrently herewith, Assignor has executed that certain Grant
Deed conveying and granting to Assignee the Property.
C. As part of the transfer and conveyance of the Property to
Assignee, Assignor has agreed to transfer, assign, grant and convey to Assignee
all of its right, title and interest in and to all agreements relating to the
Property, on the terms and conditions herein contained.
NOW, THEREFORE, in consideration of the foregoing Recitals, which
Recitals are by this reference incorporated herein, and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. ASSIGNMENT. Assignor hereby grants, assigns, transfers, sets
over, sells, conveys and delivers to Assignee all of Assignor's right, title,
interest, benefits and privileges under the agreements relating to the Property
which are set forth in Exhibit "B" attached hereto and made a part hereof
(collectively, the "Agreements"). The assignment provided for in this Section 1
is effective concurrently with the transfer of the Property from Assignor to
Assignee (the "Effective Date").
1
<PAGE>
2. ASSIGNEE'S ASSUMPTION. Assignee hereby accepts the assignment
from Assignor, assumes and agrees to perform all duties and obligations of
Assignor under the terms of the Agreements which are required to be performed on
or after the Effective Date.
4. DELIVERIES; REPORTS. On or before the Effective Date, Assignor
shall deliver to Assignee the original Agreements or if such original Agreements
are not in Assignor's possession, certified copies of such Agreements. Assignor
shall furnish and deliver to Assignee, promptly after receipt thereof,
duplicates or copies of all reports, notices, requests, demands, declarations,
certificates or other instruments hereafter received by Assignor and relating to
the Agreements. Assignee's address for receipt of the foregoing is
______________________________________________________________.
5. FURTHER ASSURANCES. Assignor and Assignee shall execute,
acknowledge and deliver all such instruments and take all such action as may be
necessary to further assure to Assignee the rights assigned hereby and the full
benefits hereof and to preserve and protect this Assignment and all of the
rights, powers and remedies of Assignee provided for herein.
6. SUCCESSORS AND ASSIGNS. This Assignment shall be binding upon
and inure to the benefit of the successors and assigns of the respective parties
hereto.
7. GOVERNING LAW. This Assignment shall be governed by, and
construed in accordance with, the laws of the State of California.
8. COUNTERPARTS. This Assignment may be executed in several
counterparts, each of which shall be an original, but all of which taken
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, Assignor and Assignee have executed this
Assignment as of the date first above written but effective as of the Effective
Date.
ASSIGNOR: NATIONAL INVESTORS LAND HOLDING TRUST IV
By: ________________________________
Its: ________________________________
ASSIGNEE: DELTA GREENS HOMES, INC., a California
corporation
By: _________________________________
Its: __________________________________
2
<PAGE>
EXHIBIT "A"
LEGAL DESCRIPTION
3
<PAGE>
EXHIBIT "B"
CONTRACTS
<PAGE>
EXHIBIT E
BILL OF SALE AND GENERAL ASSIGNMENT OF INTANGIBLES
This Bill of Sale and General Assignment of Intangibles is made as of
the ____ day of ___________________________, 1997 (this "Assignment"), by
NATIONAL INVESTORS LAND HOLDING TRUST IV ("Assignor") to DELTA GREENS HOMES,
INC. ("Assignee").
R E C I T A L
Assignee and Assignor have entered into an Agreement of Purchase and
Sale and Joint Escrow Instructions dated ________, 1997 ("Agreement of Purchase
and Sale") under which Assignee has agreed to purchase from Assignor, that
certain real property and all buildings, structures and improvements on said
real property commonly identified as _______________________, _____________,
State of California and legally described on EXHIBIT A attached hereto (the
"Property").
TERMS AND CONDITIONS
NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties agree as follows:
1. Assignor hereby assigns, transfers and sets over unto Assignee,
its successors and assigns, all personal property of Seller, if any, located on
and used in connection with the operation of the improvements on the Property
(the "Personal Property"). Buyer accepts such Personal Property in its "AS-IS"
condition and "WITH ALL FAULTS". Seller specifically disclaims all express or
implied warranties regarding the existence or condition of, or title to, such
Personal Property, including without limitation the implied warranties of
merchantability and suitability for a particular purpose.
2. Assignor hereby assigns, transfers and sets over unto Assignee,
its successors and assigns, all of its right, title and interest in and to the
following ("General Intangibles") if, and only to the extent, that the General
Intangibles exist and Assignor has the right to so transfer them:
(A) All of Assignor's right, title and interest in and to all
intangible property used, owned or issued solely in connection with the
Property, including but not limited to, all licenses, permits, certificates of
occupancy, approvals, maps, dedications, subdivision maps and entitlements
issued, approved or granted by any governmental agencies or instrumentalities
having any jurisdiction over the Property (the "Authorities") or otherwise in
connection with the Property; all development rights, conditional use permits,
variances, "floor area ratio" development rights and other intangible rights,
titles, interests, privileges and
1.
<PAGE>
appurtenances owned by Assignor and related to or issued in connection with the
Property and/or its use, occupancy, operation and/or development; all licenses,
consents, easements, rights of way, and approvals required from private parties
to make use of utilities and to insure vehicular and pedestrian ingress and
egress to the Property; and any pending applications or requests as to any of
the foregoing;
(B) All building plans, specifications and drawings,
engineering, and other documents prepared in connection with the construction,
reconstruction, maintenance, repair, or operation any improvements on the
Property (the "Improvements");
(C) All warranties and guarantees relating to the workmanship,
construction, installation materials, and design of the Improvements and the
personal property situated on the Property, including but not limited to those
made by or received from any third party with respect to any building, building
component, structure, fixture, machinery, equipment or material situated on,
contained in any building or other improvement situated on, or comprising a part
of any building or other improvement situated on any part of the Property;
(D) All rights, claims or awards benefiting the Property;
(E) All prepaid fees and fee credits, and all of Seller's right,
title and interest in and to refundable deposits, bonds and other collateral
furnished in connection with development of the Property; and
(F) All rights and general intangibles now owned by Assignor
solely in connection with the Property and any improvement and/or fixture
located on the Property, including, without limitation, the rights to hold, use,
sell and transfer the Property and Improvements and general intangibles.
3. Assignor hereby covenants that it will, at any time and from time
to time upon written request therefor, execute and deliver to Assignee, its
successors and assigns any new or confirmatory instruments and take such further
acts as Assignee may reasonably request to fully evidence the assignment
contained herein and to enable Assignee, its successors and assigns to fully
realize and enjoy the rights and interests assigned hereby.
4. Assignee hereby accepts the foregoing assignment.
5. Assignor hereby represents and warrants to Assignee that it has
not previously assigned or hypothecated its interest in the foregoing described
General Intangibles; however, Assignee shall have no claims or rights against
Assignor, and Assignor shall have no obligation or liability to Assignee for any
General Intangibles described herein which do not exist, or which Assignor does
not have the right to transfer to Assignee.
6. This Assignment shall be binding upon and inure to the benefit of
the legal representatives, assigns, or successors in interest of the Assignor
and Assignee.
2.
<PAGE>
IN WITNESS WHEREOF, the Assignor has executed this Assignment as of
_________, 1997.
NATIONAL INVESTORS LAND HOLDING
TRUST IV
By:
---------------------------------
Its:
---------------------------------
3.
<PAGE>
CERTIFICATE OF INCORPORATION
OF
AMERICAN FAMILY HOLDINGS, INC.
1. NAME. The name of the corporation is American Family Holdings, Inc.
(the "Corporation").
2. REGISTERED OFFICE AND AGENT. The registered office of the Corporation
in Delaware is located at 15 East North Street., City of Dover, County of Kent,
Delaware 19901, and the name and address of the Corporation's registered agent
in the State of Delaware is Incorporating Services, 15 East North Street., City
of Dover, County of Kent, Delaware 19901.
3. PURPOSE AND BUSINESS. The purpose of the Corporation is to engage in
any lawful act or activity for which corporations may now or hereafter be
organized under the General Corporation Law of the State of Delaware ("DGCL").
4. CAPITAL STOCK.
4.01 CLASSES AND NUMBER OF SHARES. The total number of shares of all
classes of stock which the Corporation shall have authority to issue is Twelve
Million (12,000,000), consisting of Ten Million (10,000,000) shares of Common
Stock, par value ($0.001) per share (the "Common Stock"), and Two
Million (2,000,000) shares of Preferred Stock, par value one cent ($0.001) per
share (the "Preferred Stock").
4.02 PREFERRED STOCK. The powers, preferences, rights,
qualifications, limitations and restrictions pertaining to the Preferred Stock,
or any series thereof, shall be such as may be fixed by the Board of Directors
in its sole discretion, authority to do so being hereby expressly vested in such
Board.
4.03 ISSUANCE OF THE COMMON STOCK AND THE PREFERRED STOCK. The Board
of Directors of the Corporation may from time to time authorize by resolution
the issuance of any or all shares of the Common Stock and the Preferred Stock
herein authorized in accordance with the terms and conditions set forth in this
Certificate of Incorporation for such purposes, in such amounts, to such
persons, corporations, or entities, for such consideration, and in the case of
the Preferred Stock, in one or more series, all as the Board of Directors in its
discretion may determine and without any vote or other action by the
stockholders, except as otherwise required by law.
4.04 CUMULATIVE VOTING. Except as otherwise required by applicable
law, there shall be no cumulative voting on any matter brought to a vote of
stockholders of the Corporation.
5. ADOPTION OF BY-LAWS. In furtherance and not in limitation of the
powers conferred by statute and subject to Article 6 hereof, the Board of
Directors is expressly authorized to adopt, repeal, rescind, alter or amend in
any respect the by-laws of the Corporation (the "By-Laws").
6. SHAREHOLDER AMENDMENT OF BY-LAWS. Notwithstanding Article 5 hereof,
the By-Laws may also be adopted, repealed, rescinded, altered or amended in any
respect by the stockholders of the Corporation, but only by the affirmative vote
of the holders of not less than a majority of the voting power of all
outstanding shares of voting stock, regardless of class and voting together as a
single voting class.
7. BOARD OF DIRECTORS. The business and affairs of the Corporation shall
be managed by and under the direction of the Board of Directors. Except as may
otherwise be provided pursuant to Section 4.02 hereof in connection
1
<PAGE>
with rights to elect additional directors under specified circumstances which
may be granted to the holders of any class or series of Preferred Stock, the
exact number of directors of the Corporation shall be determined from time to
time by a By-Law or amendment thereto.
8. CLASSIFICATION OF BOARD OF DIRECTORS. At such time as the number of
directors is five or more, the Board of Directors shall be and is divided into
three classes: Class I, Class II and Class III. The number of directors in each
class shall be the whole number contained in the quotient obtained by dividing
the authorized number of directors by three. If a fraction is also contained in
such quotient, then additional directors shall be apportioned as follows: if
such fraction is one-third, the additional director shall be a member of Class
I; and if such fraction is two-thirds, one of the additional directors shall be
a member of Class I and the other shall be a member of Class II. Except as
otherwise required by applicable law, each director shall serve for a term
ending on the date of the third Annual Meeting of Stockholders of the
Corporation (the "Annual Meeting") following the Annual Meeting at which such
director was elected; provided, however, that all of the Corporation's first
five directors shall serve for a term ending on the date of the first Annual
Meeting and that the directors elected at the Corporation's first Annual Meeting
to Class III shall serve for a term ending on the date of the first Annual
Meeting next following the end of the calendar year 1997, the directors first
elected to Class II shall serve for a term ending on the date of the second
Annual Meeting next following the end of the calendar year 1997 and the
directors first elected to Class I shall serve for a term ending on the date of
the third Annual Meeting next following the end of the calendar year 1997. All
directors shall have equal standing.
Notwithstanding the foregoing provisions of this Article 8: each
director shall serve until his successor is elected and qualified or until his
death, resignation or removal; no decrease in the authorized number of directors
shall shorten the term of any incumbent director; and additional directors,
elected pursuant to Section 4.02 hereof in connection with rights to elect such
additional directors under specified circumstances which may be granted to the
holders of any class or series of Preferred Stock, shall not be included in any
class, but shall serve for such term or terms and pursuant to such other
provisions as are specified in the resolution of the Board of Directors
establishing such class or series.
9. LIMITATION OF DIRECTOR LIABILITY. The liability of directors of the
Corporation for monetary damages for breach of fiduciary duty will be eliminated
to the maximum extent permitted by the DGCL as the same exists or may hereafter
be amended. The Corporation is authorized to provide indemnification for
officers, directors, employees, agents and other persons identified in Section
145 of the DGCL (collectively, "Agents") through By-Law provisions, agreements
with Agents, vote of stockholders or disinterested directors, or otherwise, in
excess of the indemnification provided by Section 145 of the DGCL subject to
limitations set forth in Section 102(b)(7) of the DGCL. Any amendment,
modification or repeal of the foregoing shall not adversely affect any right or
protection of a director of the Corporation in respect of any act or omission
occurring prior to the time of such amendment, modification or repeal.
10. VACANCIES ON BOARD OF DIRECTORS. Except as may otherwise be provided
pursuant to Section 4.02 hereof in connection with rights to elect additional
directors under specified circumstances which may be granted to the holders of
any class or series of Preferred Stock, newly created directorships resulting
from any increase in the number of directors, or any vacancies on the Board of
Directors resulting from death, resignation, removal or other causes, shall be
filled solely by the affirmative vote of a majority of the remaining directors
then in office, regardless of their class, even though less than a quorum of the
Board of Directors. Any director elected in accordance with the preceding
sentence shall hold office for the remainder of the full term of the class of
directors in which the new directorship was created or the vacancy occurred and
until such director's successor shall have been elected and qualified or until
such director's death, resignation or removal, whichever first occurs.
11. REMOVAL OF DIRECTORS. Except as may otherwise be provided pursuant to
Section 4.02 hereof in connection with rights to elect additional directors
under specified circumstances which may be granted to the holders of any class
2
<PAGE>
or series of Preferred Stock, any director may be removed from office only for
cause and only by the affirmative vote of the holders of not less than
two-thirds of the voting power of all outstanding shares of voting stock
entitled to vote in connection with the election of such director, regardless of
class and voting together as a single voting class. Failure of an incumbent
director to be nominated to serve an additional term of office shall not be
deemed a removal from office requiring any stockholder vote.
3
<PAGE>
12. SPECIAL STOCKHOLDER MEETINGS. Special meetings of the stockholders of
the Corporation for any purpose or purposes may be called at any time by a
majority of the Board of Directors or by the Chairman of the Board or the
President. Special meetings may not be called by any other person or persons.
Each special meeting shall be held at such date and time as is requested by the
person or persons calling the meeting, within the limits fixed by law.
13. STOCKHOLDER ACTION. Any action required or permitted to be taken by
the stockholders of the Corporation must be effected at a duly called Annual
Meeting or at a special meeting of stockholders of the Corporation, unless such
action requiring or permitting stockholder approval is approved by a majority of
the Board of Directors, in which case such action may be authorized or taken by
the written consent of the holders of outstanding shares of voting stock having
not less than the minimum voting power that would be necessary to authorize or
take such action at a meeting of stockholders at which all shares entitled to
vote thereon were present and voted, provided all other requirements of
applicable law and this Certificate of Incorporation have been satisfied.
14. LOCATION OF STOCKHOLDER MEETINGS. Meetings of stockholders of the
Corporation may be held within or without the State of Delaware, as the By-Laws
may provide. The books of the Corporation may be kept (subject to any provision
of applicable law) outside the State of Delaware at such place or places as may
be designated from time to time by the Board of Directors or in the By-Laws.
15. BUSINESS COMBINATIONS WITH INTERESTED STOCKHOLDERS.
15.01 DELAWARE LAW GOVERNS. Business combinations with Interested
Stockholders (as defined in Section 203 of the DGCL) are specifically governed
by Section 203 of the DGCL, as amended from time to time.
15.02 FIDUCIARY OBLIGATION OF BOARD OF DIRECTORS. The fact that
any action or transaction complies with the provisions of Section 203 of the
DGCL shall not be construed to impose any fiduciary duty, obligation or
responsibility on the Board of Directors or any member thereof to approve such
action or transaction or recommend its adoption or approval to the stockholders
of the Corporation, nor shall such compliance limit, prohibit or otherwise
restrict in any manner the Board of Directors, or any member thereof, with
respect to evaluations of, or actions and responses taken with respect to, such
action or transaction.
15.03 FIDUCIARY OBLIGATION OF INTERESTED STOCKHOLDER. Nothing
contained in this Article 15 shall be construed to relieve any Interested
Stockholder or any affiliate or associate thereof from any fiduciary obligation
imposed by law.
15.04 STOCKHOLDER APPRAISAL RIGHTS IN BUSINESS COMBINATIONS. To
the maximum extent permissible under the DGCL, the stockholders of the
Corporation shall be entitled to the statutory dissenters' rights provided
therein, notwithstanding any exception otherwise provided therein, with respect
to any business combination involving the Corporation and any Interested
Stockholder (or any affiliate or associate of any Interested Stockholder), which
requires the affirmative vote of stockholders.
16. AMENDMENTS TO ARTICLES 4 THROUGH 16. Except for the provisions of
Sections 4.01 and 4.02 hereof which may be amended by the affirmative vote of
holders of a majority of the voting power of outstanding stock entitled to vote,
the provisions set forth in this Article 16 and in Articles 4, 5, 6, 7, 8, 9,
10, 11, 12, 13, 14 and 15 hereof may not be repealed, rescinded, altered or
amended in any respect, and no other provision or provisions may be adopted
which impair(s) in any respect the operation or effect of any such provision,
except by the affirmative vote of the holders of not less than two thirds of the
voting power of all outstanding shares of voting stock regardless of class and
voting together as a single voting class, and, where such action is proposed by
an Interested Stockholder or by any affiliate of an Interested Stockholder, the
affirmative vote of a majority of the voting power of all outstanding shares of
voting stock, voting together as a single class, other than shares held by the
Interested Stockholder (or its affiliate) which proposed such action.
4
<PAGE>
17. OTHER AMENDMENTS. Except as provided in Article 16 hereof, the
Corporation reserves the right to adopt, repeal, rescind, alter or amend in any
respect any provision contained in this Certificate of Incorporation in the
manner now or hereafter prescribed by applicable law, and all rights conferred
on stockholders herein are granted subject to this reservation.
18. TERM OF EXISTENCE. The Corporation is to have perpetual existence.
19. NAME AND ADDRESS OF INCORPORATOR. The name and mailing address of the
incorporator of the Corporation is:
David R. Decker
700 South Flower Street, Suite 3000
Los Angeles, California 90017
I, THE UNDERSIGNED, being the incorporator hereinbefore named, for the
purpose of forming a corporation pursuant to the General Corporation Law of the
State of Delaware, do make this Certificate of Incorporation, hereby declaring
and certifying that this is my act and deed and the facts herein stated are
true, and accordingly have hereunto set my hand this 5th day of August 1997.
/s/ David R. Decker
-------------------
David R. Decker
5
<PAGE>
CERTIFICATE OF AMENDMENT
OF CERTIFICATE OF INCORPORATION
BEFORE THE ISSUANCE OF STOCK
American Family Holdings, Inc., a corporation organized and existing under
the General Corporation Law of Delaware ("Corporation"), does hereby certify:
1. The Corporation has not received any payment for its stock. No
directors or officers have been elected.
2. The amendment to the Corporation's Certificate of Incorporation
set forth in the following resolution was duly adopted by the Incorporator
pursuant to the provisions of Section 241 of the General Corporation Law of
Delaware:
RESOLVED, that the Certificate of
Incorporation of the Corporation shall be
amended so that in Section 4.01, all
referenced to "par value one cent" shall be
deleted and the words "par value one tenth
of one cent" shall be substituted in lieu
thereof.
IN WITNESS WHEREOF, American Family Holdings, Inc. has caused this
Certificate of be signed and attested by its Incorporator this 19th day of
August 1997.
American Family Holdings, Inc.
By /s/ David R. Decker
----------------------------
David R. Decker, Incorporator
<PAGE>
BY-LAWS
OF
AMERICAN FAMILY HOLDINGS, INC.
(A Delaware Corporation)
<PAGE>
ARTICLE I OFFICES. . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.01. REGISTERED OFFICE . . . . . . . . . . . . . . . . . . . 1
Section 1.02. PRINCIPAL EXECUTIVE OFFICE. . . . . . . . . . . . . . . 1
Section 1.03. OTHER OFFICES . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE II MEETINGS OF STOCKHOLDERS . . . . . . . . . . . . . . . . . . 1
Section 2.01. ANNUAL MEETINGS . . . . . . . . . . . . . . . . . . . . 1
Section 2.02. SPECIAL MEETINGS. . . . . . . . . . . . . . . . . . . . 1
Section 2.03. PLACE OF MEETINGS . . . . . . . . . . . . . . . . . . . 1
Section 2.04. NOTICE OF MEETINGS. . . . . . . . . . . . . . . . . . . 1
Section 2.05. CONDUCT OF MEETINGS . . . . . . . . . . . . . . . . . . 2
Section 2.06. QUORUM. . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 2.07. VOTES REQUIRED. . . . . . . . . . . . . . . . . . . . . 2
Section 2.08. CUMULATIVE VOTING . . . . . . . . . . . . . . . . . . . 2
Section 2.09. PROXIES . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 2.10. STOCKHOLDER ACTION. . . . . . . . . . . . . . . . . . . 2
Section 2.11. LIST OF STOCKHOLDERS. . . . . . . . . . . . . . . . . . 3
Section 2.12. INSPECTORS OF ELECTION. . . . . . . . . . . . . . . . . 3
ARTICLE III DIRECTORS. . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 3.01. POWERS. . . . . . . . . . . . . . . . . . . . . . . . . 3
<PAGE>
Section 3.02. NUMBER. . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 3.03. INDEPENDENT OUTSIDE DIRECTORS . . . . . . . . . . . . . 3
Section 3.04. ELECTION AND TERM OF OFFICE . . . . . . . . . . . . . . 4
Section 3.05. ELECTION OF CHAIRMAN OF THE BOARD . . . . . . . . . . . 5
Section 3.06. REMOVAL . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 3.07. VACANCIES AND ADDITIONAL DIRECTORSHIPS. . . . . . . . . 5
Section 3.08. REGULAR AND SPECIAL MEETINGS. . . . . . . . . . . . . . 5
Section 3.09. QUORUM. . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 3.10. VOTES REQUIRED. . . . . . . . . . . . . . . . . . . . . 6
Section 3.11. PLACE AND CONDUCT OF MEETINGS . . . . . . . . . . . . . 6
Section 3.12. ACTION BY UNANIMOUS WRITTEN CONSENT . . . . . . . . . . 6
Section 3.13. FEES AND COMPENSATION . . . . . . . . . . . . . . . . . 6
Section 3.14. COMMITTEES OF THE BOARD OF DIRECTORS. . . . . . . . . . 6
Section 3.15. MEETINGS OF COMMITTEES. . . . . . . . . . . . . . . . . 7
ARTICLE IV OFFICERS . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 4.01. DESIGNATION, ELECTION AND TERM OF OFFICE. . . . . . . . 7
Section 4.02. CHAIRMAN OF THE BOARD . . . . . . . . . . . . . . . . . 7
Section 4.03. PRESIDENT AND CHIEF EXECUTIVE OFFICER . . . . . . . . . 7
Section 4.04. CHIEF FINANCIAL OFFICER . . . . . . . . . . . . . . . . 7
Section 4.05. VICE PRESIDENTS . . . . . . . . . . . . . . . . . . . . 8
<PAGE>
Section 4.06. SECRETARY . . . . . . . . . . . . . . . . . . . . . . . 8
Section 4.07. ASSISTANT OFFICERS. . . . . . . . . . . . . . . . . . . 8
Section 4.08. WHEN DUTIES OF AN OFFICER MAY BE DELEGATED. . . . . . . 8
Section 4.09. OFFICERS HOLDING TWO OR MORE OFFICES. . . . . . . . . . 8
Section 4.10. COMPENSATION. . . . . . . . . . . . . . . . . . . . . . 8
Section 4.11. RESIGNATIONS. . . . . . . . . . . . . . . . . . . . . . 8
Section 4.12. REMOVAL . . . . . . . . . . . . . . . . . . . . . . . . 8
ARTICLE V INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND OTHER
CORPORATE AGENTS . . . . . . . . . . . . . . . . . . . . . . 8
Section 5.01 RIGHT TO INDEMNIFICATION . . . . . . . . . . . . . . . . 8
Section 5.02 PREPAYMENT OF EXPENSES . . . . . . . . . . . . . . . . . 9
Section 5.03 CLAIMS . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 5.04 NON-EXCLUSIVITY OF RIGHTS' . . . . . . . . . . . . . . . 9
Section 5.05 OTHER INDEMNIFICATION. . . . . . . . . . . . . . . . . . 9
Section 5.06 INSURANCE. . . . . . . . . . . . . . . . . . . . . . . . 9
Section 5.07 AMENDMENT OR REPEAL. . . . . . . . . . . . . . . . . . . 9
ARTICLE VI STOCK. . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 6.01. CERTIFICATES. . . . . . . . . . . . . . . . . . . . . . 9
Section 6.02. TRANSFER OF SHARES. . . . . . . . . . . . . . . . . . . 10
<PAGE>
Section 6.03. TRANSFER AGENT'S AND REGISTRARS . . . . . . . . . . . . 10
Section 6.04. STOCK LEDGERS . . . . . . . . . . . . . . . . . . . . . 10
Section 6.05. RECORD DATES. . . . . . . . . . . . . . . . . . . . . . 10
Section 6.06. NEW CERTIFICATES. . . . . . . . . . . . . . . . . . . . 10
Section 6.07. STOCK PURCHASE PLANS; STOCK OPTION PLANS. . . . . . . . 11
ARTICLE VII CORPORATE RECORDS. . . . . . . . . . . . . . . . . . . . . . 11
Section 7.01. TYPES OF RECORDS. . . . . . . . . . . . . . . . . . . . 11
Section 7.02. FINANCIAL STATEMENTS AND REPORTS. . . . . . . . . . . . 11
Section 7.03. STOCKHOLDERS' RIGHT OF INSPECTION . . . . . . . . . . . 11
Section 7.04. DIRECTORS' RIGHT OF INSPECTION. . . . . . . . . . . . . 12
ARTICLE VIII SUNDRY PROVISIONS. . . . . . . . . . . . . . . . . . . . . . 12
Section 8.01. FISCAL YEAR . . . . . . . . . . . . . . . . . . . . . . 12
Section 8.02. SEAL. . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 8.03. VOTING OF STOCK IN OTHER CORPORATIONS . . . . . . . . . 12
Section 8.04. AMENDMENTS. . . . . . . . . . . . . . . . . . . . . . . 12
<PAGE>
BY-LAWS
OF
AMERICAN FAMILY HOLDINGS, INC.
(A Delaware Corporation)
ARTICLE I
OFFICES
Section 1.01. REGISTERED OFFICE. The registered office of American Family
Holdings, Inc. (the "Corporation") in the State of Delaware shall be located at
15 East North Street, City of Dover, County of Kent, and the name of the
registered agent at that address shall be Incorporating Services.
Section 1.02. PRINCIPAL EXECUTIVE OFFICE. The principal executive office
of the Corporation shall be located at 4675 MacArthur Court, Suite 1240, Newport
Beach, California 92660. The Board of Directors of the Corporation (the "Board
of Directors") may change the location of said principal executive office.
Section 1.03. OTHER OFFICES. The Corporation may also have an office or
offices at such other place or places, either within or without the State of
Delaware, as the Board of Directors may from time to time determine or as the
business of the Corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 2.01. ANNUAL MEETINGS. The annual meeting of stockholders of the
Corporation shall be held between April 1 and May 30 of each year on such date
at such time as the Board of Directors shall determine. At each annual meeting
of stockholders, directors shall be elected in accordance with the provisions of
Section 3.04 hereof and any other proper business may be transacted.
Section 2.02. SPECIAL MEETINGS. Special meetings of stockholders for any
purpose or purposes may be called at any time by a majority of the Board of
Directors or by the Chairman of the Board. Special meetings may not be called
by any other person or persons. Each special meeting shall be held at such date
and time as is requested by the person or persons calling the meeting, with the
limits fixed by law.
Section 2.03. PLACE OF MEETINGS. Each annual or special meeting of
stockholders shall be held at such location as may be determined by the Board of
Directors or, if no such determination
<PAGE>
is made, at such place as may be determined by the Chairman of the Board. If no
location is so determined, any annual or special meeting shall be held at the
principal executive office of the Corporation.
Section 2.04. NOTICE OF MEETINGS. Written notice of each annual or
special meeting of stockholders stating the date and time when, and the place
where, it is to be held shall be delivered either personally or by mail to
stockholders entitled to vote at such meeting not less than ten (10) nor more
than sixty (60) days before the date of the meeting. The purpose or purposes
for which the meeting is called may, in the case of an annual meeting, and
shall, in the case of a special meeting, also be stated. If mailed, such notice
shall be directed to a stockholder at his address as it shall appear on the
stock books of the Corporation, unless he shall have filed with the Secretary of
the Corporation a written request that notices intended for him be mailed to
some other address, in which case such notice shall be mailed to the address
designated in such request. When a meeting is adjourned to another time or
place, notice need not be given of the adjourned meeting if the time and place
thereof are announced at the meeting at which the adjournment is taken. At the
adjourned meeting the Corporation may transact any business which might have
been transacted at the original meeting. If the adjournment is for more than
thirty days, or if after the adjournment a new record date is fixed for the
adjourned meeting, a notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the meeting.
Section 2.05. CONDUCT OF MEETINGS. All annual and special meetings of
stockholders shall be conducted in accordance with such rules and procedures as
the Board of Directors may determine subject to the requirements of applicable
law, and as to matters not governed by such rules and procedures, as the
chairman of such meeting shall determine. The chairman of any annual or special
meetings of stockholders shall be the Chairman of the Board. The Secretary, or
in the absence of the Secretary, a person designated by the Chairman of the
Board, shall act as secretary of the meeting.
Section 2.06. QUORUM. At any meeting of stockholders, the presence, in
person or by proxy, of the holders of record of shares then issued and
outstanding and entitled to vote representing a majority of the votes eligible
to be cast at the meeting shall constitute a quorum for the transaction of
business; provided, however, that this Section 2.06 shall not affect any
different requirement which may exist under statute, pursuant to the rights of
any authorized class or series of stock, or under the Certificate of
Incorporation of the Corporation (the "Certificate") for the vote necessary for
the adoption of any measure governed thereby. In the absence of a quorum, the
stockholders present in person or by proxy, by majority vote and without further
notice, may adjourn the meeting from time to time until a quorum is attained.
At any reconvened meeting following such an adjournment at which a quorum shall
be present, any business may be transacted which might have been transacted at
the meeting as originally notified.
<PAGE>
Section 2.07. VOTES REQUIRED. A majority of the votes cast at a duly
called meeting of stockholders, at which a quorum is present, shall be
sufficient to take or authorize action upon any matter which may properly come
before the meeting, unless the vote of greater or different number thereof is
required by statute, by the rights of any authorized class of stock or by the
Certificate. Unless the Certificate or the resolution of the Board of Directors
adopted in connection with the issuance of shares of any class or series of
stock provides for a greater or lesser number of votes per share, or limits or
denies voting rights, each outstanding share of stock, regardless of class,
shall be entitled to one vote on each matter submitted to a vote of meeting of
stockholders.
Section 2.08. CUMULATIVE VOTING. Except as otherwise provided by
applicable law, there shall be no cumulative voting permitted in the election of
Directors, or any other matter brought before the stockholders.
Section 2.09. PROXIES. A stockholder may vote the shares owned of record
by him either in person or by proxy executed in writing (which shall include
writings sent by telex, telegraph, cable or facsimile transmission) by the
stockholder himself or by his duly authorized attorney-in-fact. In addition, a
proxy may be transmitted in any other manner authorized by applicable law. No
proxy shall be valid after three (3) years from its date, unless the proxy
provides for a longer period. Unless other transmission is permitted by
applicable law, each proxy shall be in writing, subscribed by the stockholder or
his duly authorized attorney-in-fact, and dated, but it need not be sealed,
witnessed or acknowledged.
Section 2.10. STOCKHOLDER ACTION. Any action required or permitted to be
taken by the stockholders of the Corporation must be effected at a duly called
annual meeting or special meeting of stockholders of the Corporation, unless
such action requiring or permitting stockholder approval is approved by a
majority of the Board of Directors, in which case such action may be authorized
or taken by the holders of outstanding shares of stock having not less than the
minimum voting power that would be necessary to authorize or take such action at
a meeting of stockholders at which all shares entitled to vote thereon were
present and voted, provided all other requirements of applicable law and the
Certificate have been satisfied.
Section 2.11. LIST OF STOCKHOLDERS. The Secretary of the Corporation
shall prepare and make (or cause to be prepared and made), at least ten (10)
days before every meeting of stockholders, a complete list of the stockholders
entitled to vote at the meeting, arranged in alphabetical order and showing the
address of, and the number of shares registered in the name of, each
stockholder. Such list shall be open to the examination of any stockholder, for
any purpose germane to the meeting, during ordinary business hours, for a period
of at least ten (10) days prior to the meeting, either at a place within the
city where the meeting is to be held, which place shall be specified in the
<PAGE>
notice of the meeting, or, if not so specified, at the place where the meeting
is to be held. The list shall also be produced and kept at the time and place
of the meeting during the duration thereof, and may be inspected by any
stockholder who is present.
Section 2.12. INSPECTORS OF ELECTION. In advance of any meeting of
stockholders, the Board of Directors may appoint Inspectors of Election to act
at such meeting or at any adjournment or adjournments thereof. If such
Inspectors are not so appointed or fail or refuse to act, the chairman of any
such meeting may (and, upon the demand of any stockholder or stockholder's
proxy, shall) make such an appointment.
The number of Inspectors of Election shall be one (1) or three (3) as
directed by the Chairman of the Board from time to time. If there are three (3)
Inspectors of Election, the decision, act or certificate of a majority shall be
effective and shall represent the decision, act or certificate of all. No such
Inspector need be a stockholder of the Corporation.
The Inspectors of Election shall determine the number of shares
outstanding, the voting power of each, the shares represented at the meeting,
the existence of a quorum and the authenticity, validity and effect of proxies;
they shall receive votes, ballots, or consents, hear and determine all
challenges and questions in any way arising in connection with the right to
vote, count and tabulate all votes or consents, determine when the polls shall
close and determine the result; and finally, they shall do such acts as may be
proper to conduct the election or vote with fairness to all stockholders. On
request, the Inspectors shall make a report in writing to the secretary of the
meeting concerning any challenge, question or other matter as may have been
determined by them and shall execute and deliver to such secretary a certificate
of any fact found by them.
ARTICLE III
DIRECTORS
Section 3.01. POWERS. The business and affairs of the Corporation shall
be managed by and be under the direction of the Board of Directors. The Board
of Directors shall exercise all the power of the Corporation, except those that
are conferred upon or reserved to the stockholders by statute, the Certificate
or these By-Laws.
Section 3.02. NUMBER. Except as otherwise fixed pursuant to the
provisions of Article 4 of the Certificate in connection with rights to elect
additional directors under specified circumstances which may be granted to the
holders of any class or series of Preferred Stock, par value One Tenth of One
Cent ($0.001) per share of the Corporation ("Preferred Stock"), the number of
directors shall be fixed from time to time by resolution of the Board of
Directors but shall not be less than one (1)
<PAGE>
nor more than nine (9). The first Board of Directors shall consist of two (2)
directors and subsequent Boards of Directors shall consist of five (5) directors
until changed as herein provided.
Section 3.03. INDEPENDENT OUTSIDE DIRECTORS. At such time as the
Corporation offers its stock to members of the public through a registration
statement filed with the Securities and Exchange Commission, at least forty
percent (40%) of the members of the Board of Directors of the Corporation shall
at all times be "Independent Outside Directors," which term is hereby defined to
mean any director who:
1. has not in the last two (2) years been an officer or employee of the
Corporation or any of its subsidiaries or affiliates; and
2. is not related to an officer of the Corporation (or an officer of any
of the Corporation's parents, subsidiaries or affiliates) by blood, marriage or
adoption (except relationships more remote than first cousin); and
3. is not, and has not within the last two (2) years been, an officer, or
employee of, and does not own, and has not within the last two (2) years owned,
directly or indirectly, in excess of one percent (1%) of any firm, corporation
or other business or professional entity which has made or proposes to make,
during either the Corporation's or such entity's last or next fiscal year,
payments for property or services in excess of one percent (1%) of the gross
revenues either of the Corporation for its last fiscal year or of such entity
for its last fiscal year, but excluding payments determined by competitive bids,
public utility services at rates set by law or government authority, or payments
arising solely from the ownership of securities, or to which the Corporation was
indebted at any time during the Corporation's last fiscal year in an aggregate
amount in excess of one percent (1%) of the Corporation's total assets at the
end of such fiscal year or One Million Dollars ($1,000,000), whichever is less,
but excluding debt securities which have been publicly offered or which are
publicly traded; and
4. is not a member, employee or associate of a law firm which the
Corporation has retained in the last two (2) years or proposes to retain in the
next year; and
5. is not a control person of the Corporation (other than as a director
of the Corporation) as defined by the regulations of the Securities and Exchange
Commission.
Section 3.04. ELECTION AND TERM OF OFFICE. Except as provided in Section
3.07 hereof and subject to the right to elect additional directors under
specified circumstances which may be granted, pursuant to the provisions of
Article 4 of the Certificate, to the holders of any class or series of Preferred
Stock, directors shall be elected by the stockholders of the Corporation. When
<PAGE>
the size of the Board reaches five in number, the Board of Directors shall be
divided into three classes: Class I, Class II and Class III. The number of
directors in each class shall be the whole number contained in the quotient
obtained by dividing the authorized number of directors (fixed pursuant to
Section 3.02 hereof) by three. If a fraction is also contained in such
quotient, then additional directors shall be apportioned as follows: if such
fraction is one-third, the additional director shall be a member of Class I; and
if such fraction is two-thirds, one of the additional directors shall be a
member of Class I and the other shall be a member of Class II. Except as
otherwise required by applicable law, each director shall serve for a term
ending on the date of the third annual meeting of stockholders of the
Corporation following the annual meeting at which such director was elected;
provided, however, that all of the Corporation's initial directors shall serve
for a term ending on the date of the first annual meeting and that the directors
elected at the Corporation's first annual meeting to Class III shall serve for a
term ending on the date of the first annual meeting next following the end of
the calendar year 1997, the directors first elected to Class II shall serve for
a term ending on the date of the second annual meeting next following the end of
the calendar year 1997 and the directors first elected to Class I shall serve
for a term ending on the date of the third annual meeting next following the end
of the calendar year 1997.
Notwithstanding the foregoing provisions of this Section 3.04: each
director shall serve until his successor is elected and qualified or until his
death, resignation or removal; no decrease in the authorized number of directors
shall shorten the term of any incumbent director; and additional directors,
elected pursuant to Article 4 of the Certificate in connection with rights to
elect such additional directors under specified circumstances which may be
granted to the holders of any class or series of Preferred Stock, shall not be
included in any class, but shall serve for such term or terms and pursuant to
such other provisions as are specified in the resolution of the Board of
Directors establishing such class or series.
Section 3.05. ELECTION OF CHAIRMAN OF THE BOARD. At the organizational
meeting immediately following the annual meeting of stockholders, the directors
shall elect a Chairman of the Board and/or Co-Chairmen of the Board from among
the directors, who shall hold office until the corresponding meeting of the
Board of Directors in the next year and until his/their successors shall have
been elected or until his/their earlier resignation or removal. Any vacancy in
such office may be filled for the unexpired portion of the term in the same
manner by the Board of Directors at any regular or special meeting.
Section 3.06. REMOVAL. Subject to the right to elect directors under
specified circumstances which may be granted pursuant to Article 4 of the
Certificate to the holders of any class or series of Preferred Stock, any
director may be removed from office only as provided in Article 11 of the
Certificate.
<PAGE>
Section 3.07. VACANCIES AND ADDITIONAL DIRECTORSHIPS. Except as otherwise
provided pursuant to Article 4 of the Certificate in connection with rights to
elect additional directors under specified circumstances which may be granted to
the holders of any class or series of Preferred Stock, newly created
directorships resulting from any increase in the number of directors and any
vacancies on the Board of Directors resulting from death, resignation,
disqualification, removal or other cause shall be filled solely by the
affirmative vote of a majority of the remaining directors then in office,
regardless of their class, even though less than a quorum of the Board of
Directors. Any director elected in accordance with the preceding sentence shall
hold office for the remainder of the full term of the class of directors in
which the new directorship was created or the vacancy occurred and until such
director's successor shall have been elected and qualified or until such
director's death, resignation or removal, whichever first occurs. No decrease
in the number of directors constituting the Board of Directors shall shorten the
term of any incumbent director.
Section 3.08. REGULAR AND SPECIAL MEETINGS. Regular meetings of the Board
of Directors shall be held immediately following the annual meeting of the
stockholders, and at such other times as shall be from time to time set by the
Board of Directors, which shall be no less frequently than quarterly, unless a
regular meeting is otherwise called by the Chairman of the Board or a
Co-Chairman in accordance with applicable law.
Special meetings of the Board of Directors shall be held upon call by or at
the direction of the Chairman or a Co-Chairman of the Board, the President and
Chief Executive Officer, the Executive Vice President, or any two directors,
except that when the Board of Directors consists of one director, then the one
director may call a special meeting. Except as otherwise required by law,
notice of each special meeting shall be mailed to each director, addressed to
him at his residence or usual place of business, at least two days before the
day on which the meeting is to be held, or shall be sent to him at such place by
telex, telegram, cable, facsimile transmission or telephoned or delivered to him
personally, not later than the day before the day on which the meeting is to be
held. Such notice shall state the time and place of such meeting, but need not
state the purpose or purposes thereof, unless otherwise required by law, the
Certificate or these By-Laws.
Notice of any meeting need not be given to any director who shall attend
such meeting in person or who shall waive notice thereof, before or after such
meeting, in a signed writing.
Section 3.09. QUORUM. At all meetings of the Board of Directors, a
majority of the fixed number of directors shall constitute a quorum for the
transaction of business, except that when the Board of Directors consists of one
director, then the one director shall constitute a quorum. In the absence of a
quorum, the directors present, by majority vote and without notice other than by
announcement, may adjourn the meeting from time to time until a quorum shall be
present. At any
<PAGE>
reconvened meeting following such an adjournment at which a quorum shall be
present, any business may be transacted which might have been transacted at the
meeting as originally notified.
Section 3.10. VOTES REQUIRED. Except as otherwise provided by applicable
law or by the Certificate, the vote of a majority of the directors present at a
meeting duly held at which a quorum is present shall be sufficient to pass any
measure.
Section 3.11. PLACE AND CONDUCT OF MEETINGS. Each regular meeting and
special meeting of the Board of Directors shall be held at a location determined
as follows: The Board of Directors may designate any place, within or without
the State of Delaware, for the holding of any meeting. If no such designation
is made: (i) any meeting called by a majority of the directors shall be held at
such location, within the county of the Corporation's principal executive
office, as the directors calling the meeting shall designate; and (ii) any other
meeting shall be held at such location, within the county of the Corporation's
principal executive office, as the Chairman of the Board, or the Co-Chairmen,
may designate or, in the absence of such designation, at the Corporation's
principal executive office. Subject to the requirements of applicable law, all
regular and special meetings of the Board of Directors shall be conducted in
accordance with such rules and procedures as the Board of Directors may approve
and, as to matters not governed by such rules and procedures, as the chairman of
such meeting shall determine. The chairman of any regular or special meeting
shall be the Chairman, or a Co-Chairman, of the Board, or in his/their absence a
person designated by the Board of Directors. The Secretary, or in the absence
of the Secretary a person designated by the chairman of the meeting, shall act
as secretary of the meeting. Meetings of the Board of Directors may be held
through use of conference telephone or similar communications equipment so long
as all members participating in such meeting can hear one another at the time of
such meeting. Participation in such a meeting constitutes presence in person at
such meeting.
Section 3.12. ACTION BY UNANIMOUS WRITTEN CONSENT. Any action required or
permitted to be taken by the Board may be taken without a meeting, if all
members of the Board shall individually or collectively consent in writing to
such action. Such written consent or consents shall be filed with the minutes
of the proceedings of the Board. Such action by written consent shall have the
same force and effect as a unanimous vote of such Directors.
Section 3.13. FEES AND COMPENSATION. Directors shall be paid such
compensation as may be fixed from time to time by resolutions of the Board of
Directors (a) for their usual and contemplated services as directors, (b) for
their services as members of committees appointed by the Board of Directors,
including attendance at committee meetings as well as services which may be
required when committee members must consult with management staff, and (c) for
extraordinary services as directors or as members of committees appointed by the
Board of Directors, over and above those services for which compensation is
fixed pursuant to items (a) and (b) in this Section 3.13.
<PAGE>
Compensation may be in the form of an annual retainer fee or a fee for
attendance at meetings, or both, or in such other form or on such basis as the
resolutions of the Board of Directors shall fix. Directors shall be reimbursed
for all reasonable expenses incurred by them in attending meetings of the Board
of Directors and committees appointed by the Board of Directors and in
performing compensable extraordinary services. Nothing contained herein shall
be construed to preclude any director from serving the Corporation in any other
capacity, such as an officer, agent, employee, consultant or otherwise, and
receiving compensation therefor.
Section 3.14. COMMITTEES OF THE BOARD OF DIRECTORS. Subject to the
requirements of applicable law, the Board of Directors may from time to time
establish committees, including standing or special committees, which shall have
such duties and powers as are authorized by these By-Laws or by the Board of
Directors. Committee members, and the chairman of each committee, shall be
appointed by the Board of Directors. The Chairman of the Board, in conjunction
with the several committee chairmen, shall make recommendations to the Board of
Directors for its final action concerning members to be appointed to the several
committees of the Board of Directors. Any member of any committee may be
removed at any time with or without cause by the Board of Directors. Vacancies
which occur on any committee shall be filled by a resolution of the Board of
Directors. If any vacancy shall occur in any committee by reason of death,
resignation, disqualification, removal or otherwise, the remaining members of
such committee, so long as a quorum is present, may continue to act until such
vacancy is filled by the Board of Directors. The Board of Directors may, by
resolution, at any time deemed desirable, discontinue any standing or special
committee. Members of standing committees, and their chairmen, shall be elected
yearly at the organizational meeting of the Board of Directors which is held
immediately following the annual meeting of stockholders.
Section 3.15. MEETINGS OF COMMITTEES. Each committee of the Board of
Directors shall fix its own rules of procedure consistent with the provisions of
applicable law and of any resolutions of the Board of Directors governing such
committee. Each committee shall meet as provided by such rules or such
resolution of the Board of Directors, and shall also meet at the call of its
chairmen or any two (2) members of such committee. Unless otherwise provided by
such rules or by such resolution, the provisions of these By-Laws under Article
III entitled "Directors" relating to the place of holding meetings and the
notice required for meetings of the Board of Directors shall govern the place of
meetings and notice of meetings for committees of the Board of Directors. A
majority of the members of each committee shall constitute a quorum thereof,
except that when a committee consists of one (1) member, then the one (1) member
shall constitute a quorum. In the absence of a quorum, a majority of the
members present at the time and place of any meeting may adjourn the meeting
from time to time until a quorum shall be present and the meeting may be held as
adjourned without further notice or waiver. Except in cases where it is
otherwise provided by the rules of such committee or by a resolution of the
Board of Directors, the vote of a majority of the
<PAGE>
members present at a duly constituted meeting at which a quorum is present shall
be sufficient to pass any measure by the committee.
ARTICLE IV
OFFICERS
Section 4.01. DESIGNATION, ELECTION AND TERM OF OFFICE. The Corporation
shall have a Chairman or Co-Chairman of the Board, a President and Chief
Executive Officer, such Vice Presidents as the Board of Directors deems
appropriate, a Secretary and a Chief Financial Officer. Co-Chairmen of the
Board shall also be elected if deemed appropriate by the Board of Directors.
These officers shall be elected annually by the Board of Directors at the
organizational meeting immediately following the annual meeting of stockholders,
and each such officer shall hold office until the corresponding meeting of the
Board of Directors in the next year and until his successor shall have been
elected and qualified or until his earlier resignation, death or removal. Any
vacancy in any of the above offices may be filled for the unexpired portion of
the term by the Board of Directors at any regular or special meeting.
Section 4.02. CHAIRMAN OF THE BOARD. The Chairman of the Board shall be
the Chairman of the Board of Directors and shall, subject to the power and
authority of the Board of Directors, have general supervision, direction and
control of the business and affairs of the Corporation. In addition to the
above duties, he shall have such other duties as may from time to time be
assigned to him by the Board of Directors. If Co-Chairmen are elected, they
shall share such duties in whatever manner is determined by the Board of
Directors.
Section 4.03. PRESIDENT AND CHIEF EXECUTIVE OFFICER. The President and
Chief Executive Officer shall be the general manager and chief executive officer
of the Corporation, subject to the power of the Board of Directors, and shall be
accountable to the Chairman (or Co-Chairmen) of the Board. He shall have
general charge and supervision of the operating elements of the Corporation and
shall perform such other duties as may be assigned to him from time to time by
the Board of Directors or the Chairman.
Section 4.04. CHIEF FINANCIAL OFFICER. The Chief Financial Officer shall
be the financial officer of the Corporation. He shall be responsible to the
Chairman and President for the management and supervision of all financial
matters and to provide for the financial growth and stability of the
Corporation. He shall attend all regular meetings of the Board of Directors and
keep the Directors currently informed concerning all significant financial
matters that could impact upon the business or affairs of the Corporation. He
shall also perform such additional duties as may be assigned to him from time to
time by the Board of Directors or the Chairman and President.
<PAGE>
Section 4.05. VICE PRESIDENTS. Vice Presidents of the Corporation that
are elected by the Board of Directors shall perform such duties as may be
assigned to them from time to time by the Chairman of the Board or the
President.
Section 4.06. SECRETARY. The Secretary shall keep the minutes of the
meetings of the stockholders, the Board of Directors and all committee meetings.
He shall be the custodian of the corporate seal and shall affix it to all
documents which he is authorized by law or the Board of Directors to sign and
seal. He also shall perform such other duties as may be assigned to him from
time to time by the Board of Directors or the Chairman of the Board or the
President.
Section 4.07. ASSISTANT OFFICERS. The Chairman (or Co-Chairmen) of the
Board or the President may appoint one or more assistant secretaries, and such
other assistant officers as the business of the Corporation may require, each of
whom shall hold office for such period, have such authority and perform such
duties as may be specified from time to time by the Chairman of the Board or the
President.
Section 4.08. WHEN DUTIES OF AN OFFICER MAY BE DELEGATED. In the case of
the absence or disability of an officer of the Corporation or for any other
reason that may seem sufficient to the Board of Directors, the Board of
Directors, or any officer designated by it, or the Chairman of the Board, may,
for the time of the absence or disability, delegate such officer's duties and
powers to any other officer of the Corporation.
Section 4.09. OFFICERS HOLDING TWO OR MORE OFFICES. The same person may
hold any two or more of the above-mentioned offices. However, no officer shall
execute, acknowledge or verify any instrument in more than one capacity, if such
instrument is required by law, by the Certificate or by these By-Laws, to be
executed, acknowledged or verified by any two or more officers.
Section 4.10. COMPENSATION. The Board of Directors shall have the power
to fix the compensation of all officers and employees of the Corporation.
Section 4.11. RESIGNATIONS. Any officer may resign at any time by giving
written notice to the Board of Directors, to a Chairman of the Board, to the
President, or to the Secretary of the Corporation. Any such resignation shall
take effect at the time specified therein unless otherwise determined by the
Board of Directors. The acceptance of a resignation by the Corporation shall
not be necessary to make it effective.
Section 4.12. REMOVAL. Any officer of the Corporation may be removed,
with or without cause, by the affirmative vote of a majority of the entire Board
of Directors. Any assistant officer
<PAGE>
of the Corporation may be removed, with or without cause, by a Chairman of the
Board, the President or by the Board of Directors.
ARTICLE V
INDEMNIFICATION OF DIRECTORS, OFFICERS,
EMPLOYEES AND OTHER CORPORATE AGENTS
Section 5.01 RIGHT TO INDEMNIFICATION. Except to the extent prohibited
by then applicable law, the Corporation shall indemnity and hold harmless, to
the fullest extent permitted by applicable law as it presently exists or may
hereafter be amended, each person who was or is a party to, or is threatened to
be made a party to, any threatened, pending or completed action, suit or
proceeding, whether or not by or in the right of the Corporation, and whether
civil, criminal, administrative, investigative or otherwise (any such action,
suit or proceeding being hereinafter in this Article referred to as a
"proceeding"), by reason of the fact that such person is or was a director,
officer, employee or agent of the Corporation, or is or was serving at the
request of the Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise (including
without limitation employee benefit plans and non-profit enterprises) (any such
person being hereafter in this Article referred to as an "indemnifiable party"),
against all liability and loss suffered and expenses (including attorneys' fees)
reasonably incurred by such person. The Corporation shall be required to
indemnify a person in connection with a proceeding (or part thereof) initiated
by such person only if the proceeding (or part thereof) was authorized by the
Board of Directors of the Corporation.
Section 5.02 PREPAYMENT OF EXPENSES. The Corporation may, in its
discretion, pay the expenses (including attorneys' fees) incurred in defending
any proceeding in advance of its final disposition, provided, however, that the
payment of expenses incurred by a director or officer in advance of the final
disposition of the proceeding shall be made only upon receipt of an undertaking
by the director or officer to repay all amounts advanced if it should be
ultimately determined that the director or officer is not entitled to be
indemnified under this Article or elsewhere.
Section 5.03 CLAIMS. If a claim for indemnification or payment of
expenses under this Article is not paid in full within 60 days after a written
claim therefor has been received by the Corporation, the claimant may file suit
to recover the unpaid amount of such claim and, if successful in whole or in
part, shall be entitled to be paid the expense of prosecuting such claim. In
any action the Corporation shall have the burden of proving that the claimant
was not entitled to the requested indemnification or payment of expenses under
applicable law.
Section 5.04 NON-EXCLUSIVITY OF RIGHTS. The rights conferred on any
person by this Article 5 shall not be exclusive of any other rights which such
person may have or hereafter acquire
<PAGE>
under any statute, provision of the Certificate of Incorporation, these By-Laws,
agreement, vote of stockholders or disinterested directors or otherwise.
Section 5.05 OTHER INDEMNIFICATION. The Corporation's obligation, if
any, to indemnify any person who was or is serving at its request as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust, enterprise or nonprofit entity shall be reduced by any amount such person
may collect as indemnification from such other corporation, partnership, joint
venture, trust, enterprise or nonprofit enterprise.
Section 5.06 INSURANCE. The Corporation shall have power to purchase and
maintain insurance on behalf of any indemnifiable party against any liability
asserted against or incurred by the indemnifiable party in such capacity or
arising out of the indemnifiable party's status as such whether or not the
Corporation would have the power to indemnity the indemnifiable party against
such liability.
Section 5.07 AMENDMENT OR REPEAL. Any repeal or modification of the
foregoing provisions of this Article 5 shall not adversely affect any right or
protection hereunder of any person in respect of any act or omission occurring
prior to the time of such repeal or modification.
ARTICLE VI
STOCK
Section 6.01. CERTIFICATES. Except as otherwise provided by law, each
stockholder shall be entitled to a certificate or certificates which shall
represent and certify the number and class (and series, if appropriate) of
shares of stock owned by him in the Corporation. Each certificate shall be
signed in the name of the Corporation by a Chairman of the Board or the
President or a Vice President together with the Secretary, or an Assistant
Secretary, or the Chief Financial Officer. Any or all of the signatures on any
certificate may be facsimile. In case any officer, transfer agent or registrar
who has signed or whose facsimile signature has been placed upon a certificate
shall have ceased to be such officer, transfer agent or registrar before such
certificate is issued, it may be issued by the Corporation with the same effect
as if such person were an officer, transfer agent or registrar at the date of
issue.
Section 6.02. TRANSFER OF SHARES. Shares of stock shall be transferable
on the books of the Corporation only by the holder thereof, in person or by his
duly authorized attorney, upon the surrender of the certificate representing the
shares to be transferred, properly endorsed, to the Corporation's registrar if
the Corporation has a registrar. The Board of Directors shall have power and
authority to make such other rules and regulations concerning the issue,
transfer and registration of certificates of the Corporation's stock as it may
deem expedient.
<PAGE>
Section 6.03. TRANSFER AGENTS AND REGISTRARS. The Corporation may have
one or more transfer agents and one or more registrars of its stock whose
respective duties the Board of Directors or the Secretary may, from time to
time, define. No certificate of stock shall be valid until countersigned by a
transfer agent, if the Corporation has a transfer agent, or until registered by
a registrar, if the Corporation has a registrar. The duties of transfer agent
and registrar may be combined.
Section 6.04. STOCK LEDGERS. Original or duplicate stock ledgers,
containing the names and addresses of the record stockholders of the
Corporation, and the number of shares of each class of stock held by them, shall
be kept at the principal executive office of the Corporation or at the office of
its transfer agent or registrar. The Secretary or his designee shall prepare
and make, at least ten (10) days before every meeting of stockholders, a
complete list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open
to the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten (10) days prior to
the meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder who is present.
Section 6.05. RECORD DATES. The Board of Directors shall fix, in advance,
a date as the record date for the purpose of determining stockholders entitled
to notice of, or to vote at, any meeting of stockholders or any adjournment
thereof, or stockholders entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock, or in order to make a
determination of stockholders for any other proper purpose. Such date in any
case shall be not more than sixty (60) days, and in case of a meeting of
stockholders, not less than ten (10) days, prior to the date on which the
particular action, requiring such determination of stockholders, is to be taken.
Only those stockholders of record on the date so fixed shall be entitled to any
of the foregoing rights, notwithstanding the transfer of any such stock on the
books of the Corporation after any such record date fixed by the Board of
Directors.
Section 6.06. NEW CERTIFICATES. In case any certificate of stock is lost,
stolen, mutilated or destroyed, the Board of Directors may authorize the
issuance of a new certificate in place thereof upon such terms and conditions as
it may deem advisable; or the Board of Directors may delegate such power to any
officer or officers or agents of the Corporation; but the Board of Directors or
such officer or officers or agents, in their discretion, may refuse to issue
such a new certificate unless
<PAGE>
the Corporation is ordered to do so by a court of competent jurisdiction.
Furthermore, the Corporation, or its officers or agents, may require the owner
of a lost, stolen, mutilated or destroyed certificate, or his legal
representative, to give the Corporation a bond (or other security) sufficient to
indemnity it against any claim that may be made on account of the alleged loss,
theft, mutilation or destruction of any such certificate or the issuance of new
certificates or uncertificated shares.
Section 6.07. STOCK PURCHASE PLANS; STOCK OPTION PLANS.
1. The Corporation may adopt and carry out a stock purchase plan or
agreement or stock option plan or agreement providing for the issue and sale,
for such consideration as may be fixed, of its unissued shares, or of issued
shares acquired or to be acquired, to one or more of the employees or directors
of the Corporation or of a subsidiary or to a trustee on their behalf and for
the payment for such shares in installments or at one time, and may provide for
aiding any such persons in paying for such shares by compensation for services
rendered, promissory notes or otherwise.
2. A stock purchase plan or agreement or stock option plan or agreement
may include, among other features, the fixing of eligibility for participation
therein, the class and price of shares to be issued or sold under the plan or
agreement, the number of shares which may be subscribed for, the method of
payment therefor, the reservation of title until full payment therefor, the
effect of the termination of employment, an option or obligation on the part of
the Corporation to repurchase the shares upon termination of employment, subject
to applicable law, restrictions upon transfer of the shares and the time limits
of and termination of the plan.
ARTICLE VII
CORPORATE RECORDS
Section 7.01. TYPES OF RECORDS. The Corporation shall keep adequate and
correct books and records of account, shall keep minutes of the proceedings of
the stockholders, Board of Directors and committees of the Board of Directors
and shall keep at its principal executive office, or at the office of its
transfer agent or registrar, a record of its stockholders, giving the names and
addresses of all stockholders and the number and class of shares held by each.
Such minutes shall be kept in written form. Such other books and records shall
be kept either in written form or in any other form capable of being converted
into clearly legible written form within a reasonable time.
Section 7.02. FINANCIAL STATEMENTS AND REPORTS. To the extent applicable,
the Corporation will file with the Securities and Exchange Commission ("SEC")
all quarterly, other
<PAGE>
interim, and annual financial reports required by the Securities Exchange Act of
1934 (the "Exchange Act"). Further, so long as the Corporation is subject to
the reporting requirements of Section 12 of the Exchange Act, it shall prepare
and submit to stockholders an annual report in accordance with Rule 14a-3 of the
SEC. A copy of the foregoing reports shall be maintained in the principal
executive office of the Corporation and such reports shall be exhibited at all
reasonable times to any stockholder requesting an examination of them.
The financial statements referred to in this section shall be accompanied
by the report thereon, if any, of any independent accountants engaged by the
Corporation or the certificate of an authorized officer of the Corporation that
such financial statements were prepared without audit from the books and records
of the Corporation.
Section 7.03. STOCKHOLDERS' RIGHT OF INSPECTION. The books and records
and minutes of proceedings of the stockholders and the Board of Directors and
committees of the Board of Directors shall be open to inspection, upon the
written demand under oath stating the purpose thereof, by any stockholder or
holder of a voting trust certificate at any reasonable time during usual
business hours, for any proper purpose. This right of inspection shall extend
to the records of the subsidiaries, if any, of the Corporation. Such inspection
may be made in person, or by agent or attorney, and the right of inspection
includes the right to copy and make extracts.
<PAGE>
Section 7.04. DIRECTORS' RIGHT OF INSPECTION. Every director shall have
the right at any reasonable time to inspect and copy all books, records and
documents of every kind and to inspect the physical properties of the
Corporation and/or its subsidiary corporations for a purpose reasonably related
to his position as a director. Such inspection may be made in person or by
agent or attorney and the right of inspection includes the right to copy and
make extracts.
ARTICLE VIII
SUNDRY PROVISIONS
Section 8.01. FISCAL YEAR. The fiscal year of the corporation shall end
on the 31st day of December of each year.
Section 8.02. SEAL. The seal of the Corporation shall bear the name of
the Corporation, the date of its incorporation, and the word "Delaware."
Section 8.03. VOTING OF STOCK IN OTHER CORPORATIONS. Any shares of stock
in other corporations or associations, which may from time to time be held by
the Corporation, may be represented and voted at any of the stockholders'
meetings thereof by the Chairman of the Board or his designee. The Board of
Directors, however, may by resolution appoint some other person or persons to
vote such shares, in which case such person shall be entitled to vote such
shares upon the production of a certified copy of such resolution.
Section 8.04. AMENDMENTS. These By-Laws may be adopted, repealed,
rescinded, altered or amended only as provided in Articles 5 and 6 of the
Certificate.
<PAGE>
EXHIBIT 4.2
AMERICAN FAMILY HOLDINGS, INC.
(A Delaware Corporation)
Warrant to Purchase
Shares of Common Stock
1. GRANT OF WARRANT. For value received, American Family Holdings, Inc.,
a Delaware corporation ("Company"), hereby grants to _______________ or his
registered assigns ("Holder"), the right to purchase from the Company
("Warrant") two shares ("Shares") of Company Common Stock, $0.001 par value,
("Common Stock"). The per share exercise price for such Warrant shall be 80% of
the closing market price for the Common Stock on the trading date immediately
preceding the date of the exercise of the Warrant ("Exercise Price").
2. RIGHT AND MANNER OF EXERCISE. This Warrant shall be exercisable for a
730-day period commencing on the Issuance Date (as herein defined) (the
"Exercise Period"). The Holder may elect to exercise this Warrant anytime
during the Exercise Period only as to both of the Shares by delivering written
notice of exercise to the Company (as provided in Section 11) in the form
attached hereto as Exhibit A accompanied by a certified or bank cashier's check
in an amount equal to two times the Exercise Price, as such may have been
adjusted pursuant to the terms of this Agreement. For purposes of this
Agreement the term "Issuance Date" shall mean fifth business day after the
consummation of the Acquisition described in the prospectus included in the
Company's Registration Statement on Form S-4 filed by the Company with the U.S.
Securities and Exchange Commission in October 1997.
3. RESERVATION AND AVAILABILITY OF SHARES. The Company will at all times
reserve and keep available, free from preemptive rights, out of the aggregate of
its authorized but unissued shares of Common Stock for the purpose of enabling
it to satisfy any obligation to issue Shares upon exercise of this Warrant the
full number of Shares deliverable upon the exercise or conversion of the entire
outstanding amount of this Warrant. Before taking any action which would cause
an adjustment pursuant to Section 5 reducing the Exercise Price, the Company
will take any corporate action which may, in the opinion of its counsel, be
necessary in order that the Company may validly and legally issue fully paid and
non-assessable Shares at the Exercise Price as so adjusted. The Company
covenants that all Shares which may be issued upon exercise of this Warrant
will, upon issue, be fully paid and non-assessable and free from all taxes
liens, charges security interests with respect to the issue thereof.
4. ISSUANCE OF SHARES AND NEW WARRANT. If the purchase rights evidenced
by this Warrant are exercised, one or more certificates for the Shares shall be
issued as soon as practicable thereafter to the Holder exercising such rights.
Upon such issuance, this Warrant will be cancelled automatically.
5. ADJUSTMENT OF EXERCISE PRICE/ANTI-DILUTION. The Exercise Price and
the number and kind of securities purchasable upon the exercise of this Warrant
shall be subject to adjustment from time to time upon the happening of the
events enumerated in this Section 5.
5.1. STOCK SPLITS AND COMBINATIONS. If the Company shall at any time
subdivide or combine its outstanding Common Stock, or fix a record date for
payment of a dividend in Common Stock or other securities of the Company
exercisable, convertible or exchangeable for Common Stock (in which latter event
the maximum number of shares of Common Stock issuable upon the exercise,
conversion or exchange of such securities shall be deemed to have been
distributed), after that subdivision, combination or dividend, the number of
Shares shall be adjusted to that number of Shares which is determined by (A)
multiplying the number of shares of Common Stock purchasable immediately prior
to such adjustment by the Exercise Price in effect immediately prior to such
adjustment, and then (B) dividing that product by the Exercise Price in effect
immediately after such adjustment. If the Company shall at any time subdivide
the outstanding shares of Common Stock or fix a record date for payment of a
dividend in Common Stock or other securities exercisable, convertible or
exchangeable into shares of Common Stock, the Exercise Price then in effect
immediately before that subdivision or dividend shall be proportionately
decreased, and, if the Company shall at any time combine the outstanding shares
of Common Stock, then the Exercise Price in effect immediately before that
combination shall be proportionately increased. Any adjustment under this
Section 5.1 shall become effective at the close of business on the date the
subdivision or combination becomes effective or the dividend is distributed.
5.2 RECLASSIFICATION, EXCHANGE AND SUBSTITUTION. If the Shares
issuable upon exercise of the Warrant shall be changed into the same or a
different number of shares of any other class or classes of securities, whether
by capital reorganization, reclassification, or otherwise (other than a
subdivision or combination or payment of dividend of securities provided for
above), the Holder of this Warrant shall, on its exercise, be entitled
<PAGE>
to purchase for the same aggregate consideration, in lieu of the Shares which
the Holder would have become entitled to purchase but for such change, a
number of shares of such other class or classes of securities which such
Holder would have been entitled to receive as the holder of that number of
Shares subject to purchase by the Holder on exercise of this Warrant
immediately before that change.
5.3 REORGANIZATIONS, MERGERS, CONSOLIDATIONS OR SALES OF ASSETS. If
at any time there shall be a capital reorganization of the Common Stock (other
than a subdivision, combination, payment of dividend, reclassification or
exchange of Common Stock provided for above), or merger or consolidation of the
Company with or into another corporation, or the sale of the Company's
properties and assets as, or substantially as, an entirety to any other person,
then, as a part of such reorganization, merger, consolidation or sale, lawful
provision shall be made so that the Holder of this Warrant shall thereafter be
entitled to receive upon exercise of this Warrant, during the period specified
in this Warrant and upon payment of the Exercise Price then in effect, the
number of Shares or other securities or property of the Company, or of the
successor corporation resulting from such merger or consolidation, to which a
Holder of the Shares issuable upon exercise of this Warrant would have been
entitled in such capital reorganization, merger, or consolidation or sale if
this Warrant had been exercised immediately before that capital reorganization,
merger, consolidation, or sale. In any such case, appropriate adjustment (as
determined in good faith by the Company's Board of Directors) shall be made in
the application of the provisions of this Warrant with respect to the rights and
interests of the Holder of this Warrant after the reorganization, merger,
consolidation, or sale such that the provisions of this Warrant (including
adjustment of the Exercise Price then in effect and number and kind of
securities purchasable upon exercise of this Warrant) shall be applicable after
that event in relation to any securities purchasable after that event upon
exercise of this Warrant.
5.4 MINIMUM EXERCISE PRICE ADJUSTMENT. No adjustment in the Exercise
Price shall be required unless such adjustment would require an increase or
decrease of at least one-half of one percent (0.005) or more of the Exercise
Price, provided, however, that any adjustments which by reason of this
Subsection 5.4 are not required to be made shall carried forward and taken into
account in any subsequent adjustment. All calculations under this Section 5
shall be made to the nearest cent or to the nearest one-hundredth of a Share as
the case may be.
6. NOTICES TO HOLDER. Upon any adjustment of the Exercise Price pursuant
to Section 5, the Company within 20 days thereafter shall cause to be given to
the Holder pursuant to Section I 1 hereof written notice of such adjustment,
which notice shall set forth a brief statement of the facts requiring such
adjustment and set forth the computation by which such adjustment was made.
Where appropriate, such notice may be given in advance and included as a part of
the notice required to be mailed under the other provisions of this Section 6.
In the event of any of the following:
6.1 the Company shall authorize the issuance to its holders of shares
of Common Stock of rights or warrants to subscribe for or purchase shares of
Common Stock or of any other subscription rights or warrants; or
6.2 the Company shall authorize the distribution to all holders of
shares of Common Stock of evidences of its indebtedness or assets (other than
cash dividends not exceeding $0.01 per share of Common Stock payable during any
three-month period or distributions or dividends payable in shares of Common
Stock); or
6.3 any consolidation or merger to which the Company is a party and
for which approval of any shareholder of the Company is required, or of the
conveyance or transfer of the properties and assets of the Company as, or
substantially as, an entirety, or of any reclassification or change of
outstanding shares of Common Stock issuable upon exercise of this Warrant (other
than a change in par value, or from par value to no par value, or from no par
value to par value, or as a result of a subdivision or combination); or
6.4 the voluntary or involuntary dissolution, liquidation or winding
up of the Company; or
6.5 the Company proposes to take any action (other than actions of
the character described in Subsection 5.1 except as required under Subsection
6.3 above) which would require an adjustment of the Exercise Price pursuant
to Section 5;
then the Company shall cause to be given to the Holder, at least 20 days (or ten
days in any case specified in Subsections 6.1 or 6.2 above) prior to the
applicable record date hereinafter specified, a written notice stating (i) the
date as of which the holders of record of shares of Common Stock to be entitled
to receive any such rights, warrants, or distribution is to be determined, or
(ii) the date on which any such consolidation, merger, conveyance, transfer,
dissolution, liquidation, or winding up is expected to become effective, and the
date as of which it is that holders of
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<PAGE>
record of shares of Common Stock shall be entitled to exchange their shares
of Common Stock for securities or other property, if any, deliverable upon
such reclassification, consolidation, merger, conveyance, transfer,
dissolution, liquidation, or winding up. The failure to give the notice
required by this Section 6 or any defect therein shall not affect the
legality or validity of any distribution, right, warrant, consolidation,
merger, conveyance, merger, dissolution, liquidation, or winding up, or the
vote upon any such action.
7. TRANSFERS. The holder acknowledges that this Warrant and the Common
Stock underlying this Warrant have been registered with the Securities and
Exchange Commission (the "SEC") under the Securities Act of 1933, as amended
(the "Act").
8. FRACTIONAL SHARES. No fractional shares of Common Stock shall be
issued in connection with any exercise of this Warrant. In lieu of the issuance
of such fractional share, the Company shall make a cash payment equal to the
then fair market value of such fractional share as determined in good faith by
the Company's Board of Directors.
9. PRIVILEGE OF STOCK OWNERSHIP. The Holder shall for all purposes be
deemed to have become the holder of record of Shares issued upon an exercise
of this Warrant on, and the certificate evidencing such Shares shall be
dated, the date upon which the holder presents to the Company a notice of an
intent to exercise this Warrant pursuant to Section 2 together with a
certified or bank cashier's check for the Exercise Price. Prior to exercise
of this Warrant, the holder shall not be entitled to any rights as a
shareholder of the Company, including (without limitation) the right to vote,
receive dividends or other distributions, exercise preemptive rights or be
notified of shareholder meetings, and such holder shall not be entitled to
any notice or other communication concerning the business or affairs of the
Company except as otherwise provided herein.
10. SUCCESSORS AND ASSIGNS. The terms and provisions of this Warrant
shall inure to the benefit of, and be binding upon the Company and the Holder
hereof and their respective successors and assigns.
11. NOTICES. All notices, requests, demands and other communications
(collectively, "Notices") under this Warrant shall be in writing and shall be
deemed to have been duly given on the date of service if served personally on
the party to whom Notice is to be given, or on the third business day after the
date of mailing if mailed to the party to whom Notice is to be given, by first
class mail, registered to the Holder, at his address as shown in the Company
records; and if to the Company, at its principal office. Any party may change
its address for purposes of this Section by giving the other party written
Notice of the new address in the manner set forth above.
12. GOVERNING LAW. This Warrant shall be governed by and construed in
accordance with the laws of the State of Delaware without regard to principles
of conflicts of laws.
13. LOSS OR MUTILATION OF WARRANT. Upon receipt of evidence reasonably
satisfactory to the Company regarding the loss, theft, mutilation or destruction
of this Warrant and upon delivery of appropriate indemnification with respect
thereto or upon surrender or cancellation of the mutilated Warrant, the Company
will make and deliver to the Holder a new Warrant of like tenor.
Dated: _______________, 1997 AMERICAN FAMILY HOLDINGS, INC.
By
--------------------------
David G. Lasker, President
By
---------------------------
James N. Orth, Secretary
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<PAGE>
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned sell(s), assign(s), and transfer(s)
unto _______________________, of ___________________________, the right to
purchase Shares evidenced by the within Warrant, and does hereby irrevocable
constitute and appoint __________________ to transfer such right on the books
of the Company, with full power of substitution.
DATED: _______________________, 199_
____________________________________
SIGNATURE
______________________________________________________________________________
NOTICE:
The signature to this Assignment must correspond with the name as written
upon the face of the within Warrant, in every particular, without alteration
or enlargement or any change whatsoever.
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<PAGE>
EXHIBIT A
EXERCISE NOTICE
AMERICAN FAMILY HOLDINGS, INC.
4220 Von Karman Avenue
Suite 110
Newport Beach, California 92660
Gentlemen:
The undersigned hereby elects to purchase, pursuant to the provisions of
the American Family Holdings, Inc. Warrant dated ______________, 1997 held by
the undersigned, two shares of the Common Stock of American Family Holdings,
Inc.
A certified or cashier's check as payment of the purchase price of
$__________ per share of Common Stock (based on the closing market price of the
Common Stock on _______________, 19__) in U.S. funds required under such Warrant
accompanies this Exercise Notice.
DATED:______________________, 199_
Signature: ________________________________________
Address: ________________________________________
________________________________________
Tax I.D. No. ________________________________________
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October 3,1997
66944/66608
American Family Holdings, Inc.
4220 Von Karman Avenue
Suite 110
Newport Beach, California 92660
Re: Registration Statement on Form S-4
----------------------------------
Gentlemen:
We have acted as special counsel to American Family Holdings, Inc. (the
"Company") in connection with the preparation and filing with the Securities and
Exchange Commission under the Securities Act of 1933, as amended, of a
Registration Statement on Form S-4 (the "Registration Statement") relating to
the public offering by the Company of 1,577,285 shares of Common Stock in the
Acquisition described in the Prospectus in the Registration Statement
("Prospectus") and up to 500,000 units, each unit consisting of one share of
Common Stock and a warrant to purchase two shares of Common Stock for a per
share purchase price equal to 80% of the closing market price on the trading
day before exercise (the "Units").
In so acting, we have examined and relied upon the original or copies,
certified or otherwise identified to our satisfaction, of such corporate
records, documents, certificates, and other instruments, and such factual
information otherwise supplied to us by the Company as in our judgment are
necessary or appropriate to enable us to render the opinion expressed below.
On the basis of and subject to the foregoing, we are of the opinion the
Common Stock and Units, when issued and sold pursuant to the Registration
Statement and Prospectus, will, under the laws of the State of California, upon
payment therefor in accordance with the terms of the Registration Statement and
the Prospectus, be duly and validly issued, fully paid, and non-assessable.
<PAGE>
American Family Holdings, Inc.
October 3, 1997
Page 2
We consent to the use of this opinion as an exhibit to the Registration
Statement and to the use of our name under the headings "Federal Income Tax
Consequences" and "Legal Matters" in the Preliminary Prospectus forming a part
of the Registration Statement.
Very truly yours,
/s/ Arter & Hadden
<PAGE>
EXHIBIT 10.4
1997 STOCK OPTION AND INCENTIVE PLAN
FOR THE OFFICERS, INDEPENDENT DIRECTORS AND EMPLOYEES OF
AMERICAN FAMILY HOLDINGS, INC.
AND
AFFILIATES
1. PURPOSE. Subject to stockholder approval, American Family Holdings,
Inc., a Delaware corporation (the "Company"), has adopted the 1997 Stock
Option and Incentive Plan for the Officers, Independent Directors and Key
Employees of American Family Holdings, Inc. and Affiliates (the "Plan"),
effective September __, 1997. The purpose of the Plan is to assist the
Company, and its Affiliates, in recruiting and retaining highly qualified
individuals and in furnishing such individuals with added incentive for high
levels of performance. For purposes of the Plan, an Affiliate is any "parent
corporation" or "subsidiary corporation," as such terms are defined in
Section 424 of the Internal Revenue Code of 1986, as amended (the "Code").
The Plan is intended to grant options that qualify as incentive stock options
under the Code and options that do not so qualify, and to grant Common Stock
subject to restrictions ("Restricted Stock") determined by the Administrator.
2. ADMINISTRATION. The Plan shall be administered by the Board of
Directors of the Company (the "Board") until the Company has a class of
equity securities registered pursuant to Section 12 of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, thereafter, by a
committee (the "Committee") appointed by the Board, consisting of two or more
directors, each of whom is a "disinterested person" within the meaning of
paragraph (c)(2)(i) of Rule 16b-3 under the Exchange Act and an "outside
director" within the meaning of Section 162(m)(4)(C)(i) of the Code. The
entity administering the Plan, whether it be the Board or the Committee, is
herein referred to as the "Administrator." The Administrator shall have full
discretionary authority to construe and interpret the Plan, to prescribe
rules and "regulations" relating to the Plan, and to make all determinations
necessary or advisable for the administration of the Plan.
3. ELIGIBILITY. The individuals who shall be eligible to receive
options or awards hereunder shall be such key employees and directors of the
Company, or its Affiliates, as the Administrator may select. Non-employee
directors of the Company shall be eligible to receive options only under this
Plan and only as provided in Section 5.1 (d) hereof.
4. STOCK SUBJECT TO THE PLAN. Subject to adjustment as provided in
Section 8, the stock subject to the Plan shall be Common Stock of the
Company, $0.001 par value per share. The aggregate number of such shares
which may be issued upon exercise of options or Restricted Stock rights
granted under the Plan shall not exceed 185,000 shares. Exclusive of the
number of shares available for incentive stock options which shall be fixed
at a maximum of 25,000 shares until increased by vote of the stockholders,
such aggregate number (subject to limitations on authorized shares of Common
Stock in the Company's Articles of Incorporation) shall be automatically
adjusted upward, if necessary, on the first business day of each calendar
year, commencing 1999, to the nearest whole number of shares that equals ten
percent of the
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<PAGE>
Company's outstanding Common Stock on a fully diluted basis on the date of
adjustment. If options granted hereunder terminate without having been
exercised in full, the unpurchased shares subject thereto shall again be
available under the Plan. Unless otherwise provided by applicable law, stock
that is Restricted Stock under Section 7 hereof which is reacquired by the
Company pursuant to Section 7.7 hereof may again be available under the Plan
if the Administrator so determines.
5. STOCK OPTIONS
5.1 (a) The Committee shall from time to time, in its absolute
discretion:
(i) Select from among the key employees of the Company or
its Affiliates, such of them as in its opinion should be granted options;
(ii) Determine the number of shares to be subject to such
options granted to the selected key employees;
(iii) Determine whether such options are to be
incentive stock options or non-qualified stock options; and
(iv) Determine the terms and conditions of such options,
consistent with this Plan.
(b) Upon the selection of a key employee to be granted an
option, the Committee shall instruct the Secretary of the Company to issue
the option and may impose such conditions on the grant of the option as it
deems appropriate.
(c) Subject to Section 12.2(b) hereof, any incentive stock
option granted under this Plan may be modified by the Committee to disqualify
such option from treatment as an "incentive stock option" under Section 422
of the Code.
(d) When a person is initially elected to the Board as an
Independent Director (as hereafter defined) after the adoption of this Plan,
each such Independent Director automatically shall be granted an option to
purchase 2,500 shares of Common Stock (subject to adjustment as provided in
Section 8) on the date of his or her election to the Board. During the term
of the Plan, each then current Independent Director shall automatically be
granted, on January 1 of each year, an option to purchase 2,500 shares of
Common Stock (subject to adjustment as provided in Section 8). Members of
the Board who are employees of the Company or its Affiliates who subsequently
retire from the Company and remain on the Board may not receive an initial
option grant pursuant to the first sentence of tis Section 5.1(d), but to the
extent they are otherwise eligible, will receive after retirement from the
Company options as described in the preceding sentence. None of the foregoing
option grants authorized by this Section 5.1(d) shall be incentive stock
options. For purposes of the Plan, "Independent Director" means a member of
the Board who is not an employee of the Company or its Affiliates.
2
<PAGE>
5.2 The purchase price of the shares of stock subject to options
shall not be less than 100% of the fair market value of such shares on the
date the options are granted. Such fair market value shall be determined as
follows: (i) if the shares of Common Stock are listed or admitted to trading
on any securities exchange or the NASDAQ/National Market, the closing price,
regular way, on such day, or if no such sale takes place on such day, the
average of the closing bid and asked prices on such day, (ii) if the shares
of Common Stock are not listed or admitted to trading on any securities
exchange or the NASDAQ/National Market, the last reported sale price on such
day or, if no sale takes place on such day, the average of the closing bid
and asked prices on such day, as reported by a reliable quotation source
designated by the Company, or (iii) if the shares of Common Stock are not
listed or admitted to trading on any securities exchange or the
NASDAQ/National Market and no such last reported sale price or closing bid
and asked prices are available, the average of the reported high bid and low
asked prices on such day, as reported by a reliable quotation source
designated by the Company, or if there shall be no bid and asked prices on
such day, the average of the high bid and low asked prices, as so reported,
on the most recent day (not more than ten days prior to the date in question)
for which prices have been so reported; provided that if there are no bid and
asked prices reported during the ten days prior to the date in question, the
fair market value of the shares of Common Stock shall be determined by the
Administrator acting in good faith on the basis of such quotation and other
information as it considers, in its reasonable judgment, appropriate.
5.3 The purchase price shall be paid in full upon exercise of an
option either in cash or, to the extent authorized by the Administrator, by
delivery of stock of the Company duly endorsed for transfer. The fair market
value of any stock so delivered shall be determined in accordance with
Section 5.2. However, the Administrator may assist any optionee (including
an optionee who is an officer or director) in the exercise of options under
the Plan, including the satisfaction of any federal and state income and
employment tax obligations arising therefrom, by (i) authorizing the
extension of a loan from the Company to such optionee, (ii) permitting the
optionee to pay the option price in installments over a period of years, or
(iii) authorizing a guarantee by the Company of a third party loan to the
optionee, with or without security or interest.
5.4 Each option shall have a term of ten years or such shorter term
as may be fixed by the Administrator. Options may be exercised at such times
and for such number of shares as determined by the Administrator. Unless
otherwise specified by the Administrator, options shall expire one year after
termination of the option holder's employment or directorship with the Company
or Affiliate due to death or disability (within the meaning of Section
22(e)(3) of the Code) or thirty days after termination of employment or
directorship due to any other reason. For purposes of determining when an
option is exercisable, the employment relationship shall be treated as
continuing intact while the optionee is on military leave, sick leave or
other bona fide leave of absence (such as temporary employment by a state or
the U.S. government) if the period of such leave does not exceed 90 days, or,
if longer, so long as the optionee's right to re-employment is guaranteed
either by statute or by contract. Where the period of leave exceeds 90 days
and where the optionee's right to re-employment is not guaranteed either by
statute or by
3
<PAGE>
contract, the employment relationship will be deemed to have terminated on
the 91st day of such leave.
5.5 Options may not be exercised for a fraction of a share. In the
Administrator's discretion, the right to exercise options may accrue in
installments, which need not be equal, at a rate which shall be set forth in
the option agreement, but the right to exercise must accrue at the rate of at
least 20% per year over five years. The number of shares eligible for
exercise will be rounded down to the next whole number of shares. To the
extent not exercised, option installments shall accumulate and be
exercisable, in whole or in part, at any time after the date upon which they
first accrue, but not later than the date the option by its terms expires.
5.6 No option granted under the Plan shall be transferable other
than by will or living trust or by the laws of descent and distribution or
pursuant to a "qualified domestic relations order" as defined in the Code.
Options shall be exercisable during the lifetime of the optionee only by the
optionee.
5.7 The Administrator may provide in any option agreement that the
option may be exercised for a period following termination of employment or
directorship longer than that specified in Section 5.4, including termination
due to death or disability, to the extent of the number of shares for which
the option is exercisable immediately prior to the termination of employment
or directorship.
5.8 The Administrator shall have the authority to effect, at any
time and from time to time, with the consent of the affected optionees, the
cancellation of any or all outstanding options and, to grant in substitution
therefor new options under the Plan covering the same or different numbers of
shares of stock but having a purchase price per share not less than the fair
market value on the new grant date, subject to Section 6.3.
5.9 No option granted hereunder may, unless otherwise specifically
provided in the option agreement, be exercised to the extent such exercise
would cause the Company (or an Affiliate) to lose the benefit of any tax
deduction by virtue of Section 162(m) of the Code (which applies to
compensation in excess of $1 million paid to certain employees of
publicly-held corporations) or any similar provision.
5.10 Any option granted under the Plan may contain such additional
or more restrictive provisions as the Administrator shall deem advisable,
consistent with the Plan.
5.11 An individual shall acquire no rights as an optionee as
contemplated by or pursuant to the Plan unless and until a written option
agreement is executed by the Company and such individual. No person shall
have any rights as a shareholder with respect to any shares covered by an
option granted pursuant to the Plan until the issuance of a stock certificate
to such person.
5.12 The cash proceeds received by the Company from the sale of
shares pursuant to options granted under the Plan shall be used for general
corporate purposes.
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<PAGE>
5.13 The Company shall distribute financial statements at least
annually to all holders of options or shares of stock issued under the Plan.
6. INCENTIVE STOCK OPTIONS
6.1 The terms and conditions set forth in this Section 6 shall
apply to all options granted under the Plan that are intended to be incentive
stock options within the meaning of Section 422 of the Code (Incentive Stock
Options). Any option the terms of which provide that it will not be treated
as an incentive stock option shall not be subject to such terms and
conditions.
6.2 Incentive stock options shall be granted only to employees of
the Company or its Affiliates.
6.3 The aggregate fair market value of stock with respect to which
incentive stock options are exercisable for the first time by an individual
during any Calendar year may not exceed $100,000 (determined as of the time
the option with respect to such stock is granted).
6.4 If any employee to whom an incentive stock option is to be
granted pursuant to the provisions of the Plan is, on the date of grant, the
owner of shares (determined with application of ownership attribution rules
of Section 424(d) of the Code) possessing more than ten percent of the total
combined voting power of all classes of stock of the Company or any of its
Affiliates, then (i) the option price per share of the stock subject to such
incentive stock option shall not be less than 110% of the fair market value
of a share of such stock on the date of grant, and (ii) the incentive stock
option shall not have a term in excess of five years from the date of grant.
7. RESTRICTED STOCK
7.1 Restricted Stock may be awarded to any employee whom the
Committee determines is a key employee.
7.2 (a) The Committee may from time to time, in its absolute
discretion:
(i) Select from among the key employees (including
employees to whom options have previously been granted and/or shares of
Restricted Stock have previously been issued) such of them as in its opinion
should be awarded Restricted Stock; and
(ii) Determine the purchase price and other terms and
conditions applicable to such Restricted Stock, consistent with this Plan.
(b) The Committee shall establish the purchase price and form
of payment for Restricted Stock; provided, however, that such purchase price
shall be no less than the par value of the Common Stock to be purchased. In
all cases, legal consideration shall be required for each issuance of
Restricted stock.
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<PAGE>
(c) Upon the selection of a key employee to be awarded
Restricted Stock, the Committee shall instruct the Secretary of the Company
to issue such Restricted Stock and may impose such conditions on the issuance
of such Restricted Stock as it deems appropriate.
7.3 Restricted Stock shall be issued only pursuant to a written
Restricted Stock Agreement, which shall be executed by the selected key
employee and an authorized officer of the Company and which shall contain
such terms and conditions as the Committee shall determine, consistent with
this Plan.
7.4 As consideration for the issuance of Restricted Stock, in
addition to payment of the purchase price, the selected key employee shall
agree, in the written Restricted Stock Agreement, to remain in the employ of
the Company or one of its Affiliates for a period of at least one year after
the Restricted Stock is issued. Nothing in this Plan or in any Restricted
Stock Agreement hereunder shall confer on any Restricted Stockholder any
right to continue in the employ of the Company or any of its Affiliates.
7.5 Upon delivery of the shares of Restricted Stock to the escrow
holder pursuant to Section 7.8, the Restricted Stockholder shall have all the
rights of a stockholder with respect to said shares, subject to the
restrictions in his Restricted Stock Agreement, including the right to vote
the shares and to receive all dividends and other distributions paid or made
with respect to the shares; provided, however, that in the discretion of the
Committee, any extraordinary distributions with respect to the Common Stock
shall be subject to the restrictions set forth in Section 7.6.
7.6 All shares of Restricted Stock issued under this Plan
(including any shares received by holders thereof with respect to shares of
Restricted Stock as a result of stock dividends, stock splits or any other
form of recapitalization) shall, in the terms of each individual Restricted
Stock Agreement, be subject to such restrictions as the Committee shall
provide, which restrictions may include, without limitation, restrictions
based on duration of employment with the Company, Company performance and
individual performance; provided, however, that by a resolution adopted after
the Restricted Stock is issued, the Committee may, on such terms and
conditions as it may determine to be appropriate, remove any or all of the
restrictions imposed by the terms of the Restricted Stock Agreement.
Restricted Stock may not be sold or encumbered until all restrictions are
terminated or expire.
7.7 The Committee shall provide in the terms of each individual
Restricted Stock Agreement that the Company shall have the right to
repurchase from the Restricted Stockholder the Restricted Stock then subject
to restrictions under the Restricted Stock Agreement immediately upon a
termination of employment of such person for any reason at a cash price per
share equal to the price paid by the Restricted Stockholder for such
Restricted Stock; provided, however, that provision may be made that no such
right of repurchase shall exist in the event of a termination of employment
without cause or because of the Restricted Stockholders death or permanent
and total disability or normal retirement.
6
<PAGE>
7.8 The Secretary of the Company or such other escrow holder as the
Committee may appoint shall retain physical custody of each certificate
representing Restricted Stock until all of the restrictions imposed under the
Restricted Stock Agreement with respect to the shares evidenced by such
certificate expire or shall have been removed; provided, however, that in no
event shall the Restricted Stockholder retain physical custody of any
certificates representing Restricted Stock issued to him or her until all
restrictions have lapsed or been removed.
7.9 In order to enforce the restrictions imposed upon shares of
Restricted Stock hereunder, the Committee shall cause a legend or legends to
be placed on certificates representing all shares of Restricted Stock that
are still subject to restrictions under Restricted Stock Agreements, which
legend or legends shall make appropriate reference to the conditions imposed
thereby.
8. ADJUSTMENTS UPON CHANGES IN STOCK. If any change is made in the
number or kind of securities which are subject to the Plan (through stock
split, reverse stock split, stock dividend, recapitalization, combination or
reclassification of the Company's stock), the Administrator shall make
appropriate and equitable adjustments as to the number and kind of securities
subject to outstanding options under the Plan and the exercise price of any
shares subject to such outstanding options.
9. REGULATORY APPROVAL, REGISTRATION, AND INVESTMENT PURPOSE
9.1 The implementation of the Plan, the granting of any option or
share right hereunder, and the issuance of stock under any share right or
upon the exercise of any option shall be subject to the Company's procurement
of all approvals and permits required by regulatory authorities having
jurisdiction over the Plan, the options and share rights granted under it,
and the stock issued pursuant to it.
9.2 The Plan, the shares of stock subject thereto, and the options
and share rights granted thereunder may, in the discretion of the Board, be
registered under the Securities Act of 1933 as amended or under the
securities laws of any state. Unless the stock subject to an option shall
have been registered under the Securities Act of 1933, each option granted
under the Plan shall be granted on the condition that the optionee agree that
purchases of stock thereunder shall be for investment and not with a view to
resale or distribution of such stock. As a condition to the issuance of any
shares purchased upon the exercise of any option granted pursuant to the Plan
which are not registered under such Act, the optionee, his legal
representative, executor, administrator, heir or legatee, as the case may be,
receiving such shares shall deliver to the Company a writing, in form and
substance satisfactory to the Company and its counsel, implementing such
agreement.
10. WITHHOLDING. The Company's obligation to deliver upon the exercise
or surrender of any option granted under the Plan shall be subject to the
optionee's prior or simultaneous satisfaction of all applicable federal,
state, and local income and employment tax withholding requirements arising
in connection with the performance of such obligation. If the holder of a
non-qualified stock option must satisfy tax withholding obligations in
connection with option
7
<PAGE>
exercise, the Administrator may permit the optionee to satisfy the
obligation, in whole or in part, by electing to have a portion of the total
value of the shares of stock subject to the nonstatutory option paid in the
form of cash in lieu of the issuance of stock. The Administrator may impose
conditions on any such election, including such conditions as may be required
to satisfy the requirements of Rule 16b-3 under the Exchange Act (or any
successor rule).
11. ADDITIONAL ADMINISTRATIVE PROVISIONS
11.1 Members of the Committee shall receive such compensation for
their services as members as may be determined by the Board. All expenses
and liabilities which members of the Committee or Board incur in connection
with the administration of this Plan shall be borne by the Company. The
Committee may, with the approval of the Board, employ attorneys, consultants,
accountants, appraisers, brokers, or other persons. The Committee, the
Board, the Company and the Company's officers and directors shall be entitled
to rely upon the advice, opinions or valuations of any such persons. All
actions taken and all interpretations and determinations made by the
Committee or Board in good faith shall be final and binding upon all
Optionees, Restricted Stockholders, the Company and its Affiliates and all
other interested persons. No members of the Committee or Board shall be
personally liable for any action, determination or interpretation made in
good faith with respect to this Plan, any Option or any Restricted Stock, and
all members of the Committee and Board shall be fully protected by the
Company in respect of any such action, determination or interpretation.
11.2 The Committee may in its discretion delegate to the Chief
Executive Officer of the Company or the Secretary of the Company, or both,
any or all of the administrative duties and authority of the Committee under
this Plan, other than the authority to make grants or awards under this Plan,
to determine the price, timing or amount of such grants or awards or to
determine any other matter required by Rule 16b-3 under the Exchange Act to
be determined in the sole discretion of the disinterested persons.
11.3 Notwithstanding Section 11.2, the Committee may in its
discretion delegate to the Chief Executive Officer of the Company any or all
of its authority to make grants or awards under this Plan with respect to any
key employee who is not an "Executive Officer" of the Company (within the
meaning of Rule 405 promulgated under the Securities Act of 1933, as
amended), subject to any limitations the Committee may impose.
11.4 No member of the Board or the Committee, or director, officer
or employee of the Company or its Affiliates shall be liable, responsible or
accountable in damages or otherwise for any determination made or other
action taken or any failure to act by such person so long as such person is
not determined to be guilty by a final adjudication of willful misconduct
with respect to such determination, action or failure to act.
11.5 To the fullest extent permitted by law, each of the members of
the Board and the Committee and each of the directors, officers and employees
of the Company and any of its Affiliates shall be held harmless and be
indemnified by the Company for any liability, loss (including amounts paid in
settlement), damages or expenses (including reasonable attorneys' fees)
suffered by virtue of any determinations, acts or failures to act, or alleged
acts or failures to
8
<PAGE>
act, in connection with the administration of this Plan so long as such
person is not determined by a final adjudication to be guilty of willful
misconduct with respect to such determination, action or failure to act.
12. EFFECTIVE DATE, AMENDMENT AND TERMINATION
12.1 The Plan was effective on September __, 1997. The Plan shall
be approved by the Company's shareholders within 12 months of such date.
Restricted Stock shall not vest and any option exercised before shareholder
approval is obtained must be rescinded if shareholder approval is not
obtained within such 12-month period. Such shares shall not be counted in
determining whether such shareholder approval is obtained.
12.2 The Board shall have complete and exclusive power and authority
to amend or terminate the Plan, and the Administrator may amend or modify
outstanding options or share rights issued under the Plan in any or all
aspects whatsoever not inconsistent with the terms of the Plan; provided,
however, that:
(a) no amendment or termination shall adversely affect the
rights of a holder of options or Restricted Stock with respect to options or
Restricted Stock then outstanding unless the holder consents to such
amendment or termination;
(b) the Board shall not, without the approval of the Company's
shareholders, amend the Plan to (i) increase the maximum number of shares
issuable under the Plan, except for automatic adjustments under Section 4 and
for permissible adjustments under Section 8, (ii) materially increase the
benefits accruing to participants under the Plan, (iii) modify the
eligibility requirements for the grant of options or Restricted Stock under
the Plan, or (iv) modify Section 5.1(d) providing for automatic grants of
options to Independent Directors.
12.3 Unless the Plan is sooner terminated in accordance with this
Section 12, no option may be granted under the Plan after the earlier of (a)
ten years after the date specified in Section 12.1 or (b) the date on which
all shares available for issuance under the Plan have been issued or canceled
pursuant to the exercise or surrender of options or Restricted Stock granted
hereunder.
13. PER RECIPIENT LIMIT. Subject to adjustment as provided in Section
8, the aggregate amount of options and other awards granted under the Plan to
any one individual shall not exceed such percentage, if any, of the total
number of shares, determined pursuant to Section 4 hereof, which are
available for options or Restricted Stock awards, as is deemed appropriate by
the Administrator.
14. GOVERNING LAW. The Plan and the option agreements and the
Restricted Stock agreements shall be governed by and construed in accordance
with the laws of the State of California.
9
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF THE REGISTRANT
Name of Subsidiary State of Organization
------------------ ---------------------
AFH Development, Inc.(1) California
AFH-Delta Greens, Inc.(2) California
AFH-Oceanside, Inc.(2) California
AFH-Ahwahnee, Inc.(2) California
AFH-Mori Point, Inc.(2) California
- ------------------
(1) Wholly-owned by Registrant
(2) Wholly-owned subsidiaries of AFH Development, Inc.
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
To the Stockholders and Directors of
American Family Holdings, Inc.
We hereby consent to the use in the Prospectus constituting a part of this
Registration Statement on Form S-4 of our report dated September 5, 1997,
relating to the financial statement of American Family Holdings, Inc., as of
August 31, 1997; and our reports dated May 27, 1997 relating to the financial
statements of the Oceanside Program, the Yosemite/Ahwahnee Program, the Mori
Point Program and the Sacramento/Delta Greens Program for each of the two years
in the period ended December 31, 1996, which are contained in that Prospectus.
We also consent to the reference to us under the caption "Experts" in the
Prospectus
/s/ BDO Seidman, LLP
BDO Seidman, LLP
Los Angeles, California
October 2, 1997
<PAGE>
EXHIBIT 23.3
CONSENT
The undersigned hereby consents to the filing of its Fairness Opinion as
an exhibit to the registration statement on Form S-4 filed by American Family
Holdings, Inc. with the Securities and Exchange Commission (the "Registration
Statement") and to the reference to us under the caption "Appraisals and
Fairness Opinion" in the prospectus which is a part of the Registration
Statement.
Dated: ____________________, 1997
HOULIHAN VALUATION ADVISORS
By /s/ Bret Tack
---------------------------------
Print Name Bret Tack
-------------------------
Title Principal
------------------------------
<PAGE>
EXHIBIT 23.4
CONSENT
The undersigned hereby consents to the filing of its real estate
appraisal for the property identified below as an exhibit to the registration
statement on Form S-4 filed by American Family Holdings, Inc. with the
Securities and Exchange Commission (the "Registration Statement") and to the
reference to us under the caption "Appraisals and Fairness Opinion" in the
prospectus which is a part of the Registration Statement.
Dated: ____________________, 1997
Property: Sacramento/Delta Greens DAVID E. LANE, INC.
By /s/ David E. Lane
----------------------------
Print Name David E. Lane
--------------------
Title President
-------------------------
<PAGE>
EXHIBIT 23.5
CONSENT
The undersigned hereby consents to the filing of its real estate
appraisals for the property identified below as an exhibit to the
registration statement on Form S-4 filed by American Family Holdings, Inc.
with the Securities and Exchange Commission (the "Registration Statement")
and to the reference to us under the caption "Appraisals and Fairness
Opinion" in the prospectus which is a part of the Registration Statement.
Dated: ____________________, 1997
Property: Oceanside BOZNANSKI & COMPANY
(Encore and Symphony parcels)
By /s/ Carl W. Boznanski
--------------------------------
Print Name Carl W. Boznanski
------------------------
Title President
-----------------------------
<PAGE>
EXHIBIT 23.6
CONSENT
The undersigned hereby consents to the filing of its real estate
appraisal for the property identified below as an exhibit to the registration
statement on Form S-4 filed by American Family Holdings, Inc. with the
Securities and Exchange Commission (the "Registration Statement") and to the
reference to us under the caption "Appraisals and Fairness Opinion" in the
prospectus which is a part of the Registration Statement.
Dated: ____________________, 1997
Property: Yosemite/Ahwahnee I and II ARNOLD ASSOCIATES
By /s/ R.W. Arnold
----------------------------
Print Name R.W. Arnold
--------------------
Title Owner
-------------------------
<PAGE>
EXHIBIT 23.7
CONSENT
The undersigned hereby consents to the filing of its real estate
appraisal for the property identified below as an exhibit to the registration
statement on Form S-4 filed by American Family Holdings, Inc. with the
Securities and Exchange Commission (the "Registration Statement") and to the
reference to us under the caption "Appraisals and Fairness Opinion" in the
prospectus which is a part of the Registration Statement.
Dated: ____________________, 1997
Property: Mori Point PKF CONSULTING
By /s/ Thomas E. Callahan
----------------------------------
Print Name Thomas E. Callahan
--------------------------
Title Executive Vice President
-------------------------------
<PAGE>
EXHIBIT 23.8
CONSENT
The undersigned hereby consents to the filing of its real estate
appraisal for the property identified below as an exhibit to the registration
statement on Form S-4 filed by American Family Holdings, Inc. with the
Securities and Exchange Commission (the "Registration Statement") and to the
reference to us under the caption "Appraisals and Fairness Opinion" in the
prospectus which is a part of the Registration Statement.
Dated: ____________________, 1997
Property: Yosemite/Ahwahnee I and II THE MENTOR GROUP, INC.
By /s/ Davis R. Blaine
----------------------------
Print Name Davis R. Blaine
--------------------
Title Chairman
-------------------------
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE PROFORMA
COMBINED FINANCIAL INFORMATION AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 1,240,366
<SECURITIES> 0
<RECEIVABLES> 421,670
<ALLOWANCES> 0
<INVENTORY> 1,497,248
<CURRENT-ASSETS> 0
<PP&E> 450,537
<DEPRECIATION> 0
<TOTAL-ASSETS> 24,230,932
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 1,948
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 24,230,932
<SALES> 4,084,437
<TOTAL-REVENUES> 0
<CGS> 3,069,580
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,280,561
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 29,525
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,395,351)
<EPS-PRIMARY> (1.23)
<EPS-DILUTED> 0
</TABLE>
<PAGE>
Appraisal Report
"DELTA GREENS"
RESIDENTIAL SUBDIVISION
(534-Lot Tentative Map)
Sacramento, Califorinia
DAVID E. LANE, INC.
Real Estate Appraisers & Counselors
<PAGE>
APPRAISAL REPORT
OF
"DELTA GREENS"
RESIDENTIAL SUBDIVISION
534-LOT TENTATIVE MAP
SACRAMENTO,CALIFORNIA
FOR
NATIONAL INVESTORS FINANCIAL, INC.
AS OF
MAY 9, 1997
&
MARCH 3, 1993
David E. Lane, Inc.
Real Estate Appraisers
<PAGE>
[Letterhead]
David G. Lasker, President
National Investors Financial, Inc.
4675 MacArthur Court, Suite 1240
Newport Beach, CA 92660
Dear Mr. Lasker:
We have made an investigation and analysis relative to estimating the market
values of a 121.4-acre parcel of unimproved residential land with an approved
tentative map for 534 single-family residential lots, indentified herein as
"Delta Greens", and located in Sacramento, Califorinia.
It is our opinion that the as-is market values of the property, subject to the
LIMITING CONDITIONS AND SPECIAL ASSUMPTIONS of this report, as of May 9, 1997
and March 3, 1993 dates of value are, respectively.
TWO MILLION DOLLARS ($2,000,000)
and
THREE MILLION SEVENTY-FIVE THOUSAND DOLLARS ($3,075,000)
This is a "Complete Appraisal". You will find the data and reasoning for these
conclusions on the pages following of this "Self-Contained Appraisal Report".
Thank you for the opportunity of making this appraisal.
Respectfully submitted,
DAVID E. LANE, INC.
<TABLE>
<CAPTION>
<S> <C>
/s/Michael E. Vogt, /s/David E. Lane
- -------------------------------------- -----------------------------
MICHAEL E. VOGT, SRPA DAVID E. LANE, MAI
Certified General Real Estate Appraiser Certified General Real Estate Appraiser
California Certificate No. AG009632 California Cerificate No.AG003106
</TABLE>
<PAGE>
TABLE OF CONTENTS
GENERAL DATA
PURPOSE OF APPRAISAL 1
INTENDED USE OF REPORT 1
DATES OF VALUE 1
SCOPE OF APPRAISAL 1
DEFINITION OF VALUE 3
MARKETING TIME 4
GENERAL LIMITING CONDITIONS 5
SPECIAL ASSUMPTIONS 6
LOCATION MAP facing
IDENTIFICATION OF PROPERTY 7
COMMUNITY MAP facing
COMMUNITY DESCRIPTION 8
RESIDENTIAL MARDET OVERVIEW 12
PROPERTY DATA
ASSESSOR MAP facing
DESCREPTION OF PROPERTY 16
General 16
Location 16
Configuration and Dimensions 16
Acdcess and Roads 16
Topography and Soils 17
Utilities and Services 17
Flood Zone 17
Earthquake Zone 17
Environmental Hazards 18
Easements 18
STATUS OF PROPERTY 18
TENTATIVE MAP -
ASSESSED VALUES AND TAXES 19
ZONING 20
HIGHEST AND BEST USE 20
PHOTOGRAPHS
David E. Lane, Inc.
Real Estate Appraisers
<PAGE>
TABLE OF CONTENTS (continued)
VALUATION
METHODS OF VALUATION 22
SALES COMPARISON 23
Sales Map facing
Sales Chart 24
Data Sheets 25
Discussion of Sales 36
Analysis and Conclusion 39
LAND RESIDUAL ANALYSIS 42
DISCOUNTED CASH FLOW 43
DCF Chart 45
CONCLUSION OF 1997 VALUE 46
CONCLUSION OF 1993 VALUE 47
CERTIFICATION
ADDENDA
Sacramento Area Analysis
City Council Resolution
Letter re Revised Tentative Map
Qualifications of Appraisers
David E. Lane, Inc.
Real Estate Appraisers
<PAGE>
PURPOSE OF APPRAISAL
The purpose of this appraisal is to estimate the market value in fee simple
of the property described hereinafter, subject to the LIMITING CONDITIONS and
SPECIAL ASSUMPTIONS later set forth.
INTENDED USE OF REPORT
The report is to be used by the client for registration with the SEC under
the Securities Act, and for an offering circular to be distributed to
investors.
DATES OF VALUE
As of May 9, 1997, the date of the last inspection, and as of March 3, 1993,
when the property was re-acquired through foreclosure proceedings.
SCOPE OF APPRAISAL
The valuation analysis is based on several physical inspections of the
property and a review of all information provided, such as maps, plans, and
various reports that were completed by others, including the market study by
Nancy Barnett, Ph.D, titled "Delta Greens, Market Feasibility/Product
Analysis", dated December 23, 1996. In addition, the appropriate governmental
agencies were contacted to determine factors such as zoning, general and
community plan designations, land areas, and the availability of utilities
and services.
A study of the neighborhood and surrounding communities was made to
determine where pertinent market data might be found. Since the property is
located in a neighborhood where there is little new development, the data was
found to be rather limited. The search was therefore expanded into the larger
Sacramento regional market where similar developments have been completed.
The data was analyzed to determine the highest and best use of the property,
and the appropriate valuation techniques to use.
1
David E. Lane, Inc.
Real Estate Appraisers
<PAGE>
SCOPE OF APPRAISAL (continued)
In the first sections of the report more-general information is found. The
report then specifically describes the property as it exists and as proposed
for eventual development. Following the discussion of highest and best use
the valuation analysis is found.
This is a COMPLETE APPRAISAL, submitted in a SELF-CONTAINED REPORT, prepared
in conformance with Standards Rule 2-2(a) of the UNIFORM STANDARDS OF
PROFESSIONAL APPRAISAL PRACTICE (USPAP), as promulgated by the Appraisal
Standards Board of The Appraisal Foundation.
2
David E. Lane, Inc.
Real Estate Appraisers
<PAGE>
DEFINITION OF VALUE*
Market value is defined as follows:
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 and knowledgeably, and assuming the price is not
affected by undue stimulus. Implicit 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 United States 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.
The "specified date" contemplated by the definition of market value is the
date of value indicated in this appraisal. The "reasonable time...for
exposure in the open market" refers to the marketing time leading up to the
date of value. Therefore, the value estimate presumes a sale occurring on the
date of value.
_________________
* UNIFORM STANDARDS OF PROFESSIONAL APPRAISAL PRACTICE, Appraisal Standards
Board of The Appraisal Foundation, 1996 Edition, page 10.
3
David E. Lane, Inc.
Real Estate Appraisers
<PAGE>
MARKETING TIME
Marketing time, or the forecasted time after the current date of value
necessary to market the property and close escrow at the appraised value, is
estimated as two years. This estimate is based on the opinions of brokers who
are knowledgable of this type of property, the current exposure periods of
some listings, and the past exposure periods of some comparable sales in the
Sacramento metropolitan area. The price achieved may or may not be equal to
our current value estimate, depending on changes in the property and/or
economic conditions.
4
David E. Lane, Inc.
Real Estate Appraisers
<PAGE>
GENERAL LIMITING CONDITIONS
- - The legal description, dimensions, and areas used herein are assumed to
be correct.
- - Title to the property is assumed to be free and clear of any liens or
encumbrances, and to be merchantable title, unless otherwise specified
herein.
- - No responsibility is assumed for matters that are legal in nature.
- - Information furnished the appraiser by others has been reviewed and
analyzed and is believed to be reasonably accurate, but cannot be
guaranteed.
- - Unless otherwise specified herein, it is assumed that there are no
adverse subsurface conditions, particularly those relating to
soil-bearing capacity.
- - Unless otherwise stated in this report: The existence of hazardous
material, which may or may not be present on the property, was not
observed by the appraiser. The appraiser has no knowledge of the
existence of such materials on or in the property. The appraiser,
however, is not qualified to detect such substances. The presence of
substances such as asbestos, radon, urea-formaldehyde foam insulation,
or other potentially hazardous materials may affect the value of the
property. The value estimate is predicated on the assumption that there
is no such material on or in the property that would cause a loss in
value. No responsibility is assumed for any such conditions, or for
any expertise or engineering knowledge required to discover them.
- - Unless otherwise stated in this report: No "Phase I" environmental
assessment investigation has been made as to (a) the possible existence
of a hazardous waste area that might be located in close enough
proximity to the property appraised so as to have an effect on highest
and best use or market value, nor as to (b) the historical use or
ownership of the subject property beyond the three years required by
Standards Rule 1-5(a)(ii) of the Uniform Standards of Professional
Appraisal Practice (USPAP.
- - The property appraised may or may not be subject to the Americans with
Disabilities Act of 1990 (ADA). Title III of said Act provides for
penalties for discrimination in failing "...to remove architectural
barriers...in existing facilities [unless] an entity can demonstrate that
the removal...is not readily achievable..." [Section 302(b)(2)(A)(iv,v)].
Unless otherwise noted in this appraisal, it is assumed that the
property appraised is not substantially impacted by this law.
- - This appraisal is specifically limited to the condition that all
information on sales, listings, offers, options, leases, and other
pertinent data has been revealed to the appraiser. In the event there
are unrevealed or unknown facts that would change the opinion of value
expressed herein, the appraiser reserves the right to make such change.
5
David E. Lane, Inc.
Real Estate Appraisers
<PAGE>
GENERAL LIMITING CONDITIONS (CONTINUED)
Unless otherwise noted, this report is preliminary to the extent that
no physical or functional analysis of the building, equipment, or other
improvements, if any, has been made by a structural or other engineer,
and the conclusions as to condition are based solely on the observations
of the appraiser as a result of a routine inspection, with no search
made to uncover hidden defects, if any.
- - The report is to be used by the client for registration with the
SEC under the Securities Act, and for an offering circular to be
distributed to investors.
SPECIAL ASSUMPTIONS
- - As of the 1993 date of value the property was approved for 596
lots, including 144 duplexes. This map was identified as "North Shore",
as completed by Frost McCormick & Heuston, and shown as Exhibit "A" in
Resolution 91-878, as approved by the City Council in 1991.
- - As of the 1997 date of value the property is approved for 534 lots,
all single family. This map is identified as "Delta Greens", as
completed by Psomas and Associates, dated 3/6/97, Project Number
MAR0903. By letter from the Department of Public Works, City of
Sacramento, this map was found to be "substantially in conformance"
with the prior approvals and entitlements granted.
- - It is assumed that physical and economic conditions as of the 1993
date of value were as reported herein. No inspection or investigation
was made in 1993.
David E. Lane, Inc. 6
Real Estate Appraisers
<PAGE>
[MAP]
LOCATION MAP
<PAGE>
IDENTIFICATION OF PROPERTY
The property appraised is a 121.40-acre holding comprised of five parcels of
unimproved urban land, now zoned for single-family residential use, and with
a currently-approved tentative subdivision map for 534 single-family lots. In
1993 there was an approved map for 596 lots in place, including 144 duplex
units.
The property is located within the southeast quadrant of the intersection of
Meadowview Road and Freeport Boulevard, east of Interstate 5, approximately
five miles south of downtown Sacramento and the State Capitol, in the
incorporated area of the City of Sacramento.
The Assessor parcel numbers (APNs) are 52-0010-033, 034, 039, 053, and 054.
The owner of record is National Investors Land Holding Trust IV.
No legal descriptions were provided. Reliance has been placed on the Assessor
map and tentative subdivision maps contained herein.
TITLE HISTORY
The last transfer of title took place in March 1993 (grant deed reference
930323/1415). It was the result of foreclosure proceedings.
David E. Lane, Inc. 7
Real Estate Appraisers
<PAGE>
[MAP]
COMMUNITY MAP
<PAGE>
COMMUNITY DESCRIPTION
The property is located in the southwesterly incorporated area of the City of
Sacramento, approximately five miles south of downtown Sacramento. The
community is generally bounded by the Union Pacific Railroad corridor on the
east, by undeveloped acreage to the south, by Freeport Boulevard on the west,
and by Florin Road on the north. Past I-5, to the west, lies the much newer
and more favored "Pocket" area, which community bears little resemblance to
the developments surrounding the subject. The center of the Meadowview
community is generally thought of as the intersection of Meadowview Road and
24th Street, about one-half mile northeast of the subject.
Access to the community is provided by several major thoroughfares. Running
north/south are Freeport Boulevard, 24th Street, and Franklin Boulevard.
Running east/west are Meadowview Road, which becomes Mack Road east of
Brookfield Drive in the nearby Valley Hi community, and Florin Road to the
extreme north.
Most of the Meadowview community is developed to residential uses, both
single-family houses, apartments, and four-unit condominiums, the latter
having gradually been converted to rentals. With the exception of the usual
number of older free-standing houses found in areas near a city's limits,
most of these homes were built from the 1950s to the 1970s; ironically, few
houses were built here during the residential "boom" of the late 1980s. The
majority of the housing in the residential areas and, specifically, along the
various streets radiating out from the subject, can be described as small- to
medium-sized, two or three bedrooms with one or two baths and, although not
really old, in fair-to only-average condition. The amount of deferred
maintenance on some of the houses less than 20 years old is quite surprising.
The median price in the Meadowview community is usually reported as around
$80,000. However, public information obtained from the Sacramento
Association of REALTORS finds that the area south of Meadowview Road, wherein
the subject lies, had a median price of $46,000 in 1996, DOWN from $55,000 in
1995. Current listings range from only $54,900 to $88,110.
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COMMUNITY DESCRIPTION (continued)
The area north of Meadowview Road had a median price of $83,000 in
1996, compared to $87,750 during 1995. The prices in this specific area,
however, are also upwardly-influenced by some houses in the same ZIP
code, located west of Freeport Boulevard. They are not truly of the same
neighborhood; the current range of listings is from only $36,000 to
$349,500, but the first 35 listings, up to $100,000 in price, only
average $69,500.
These prices are among the lowest price ranges in the metropolitan area. Most
houses in the Meadowview market will not sell for over $90,000, and the
$100,000-$125,000 threshold appears difficult at this time. In regard to the
latter, the only new development near the subject that has passed the higher
benchmark price is the 32-lot "Meadowvale" subdivision, near the northwest
corner of Meadowview and 24th Streets. "Steamboat Bend", a 236-lot
subdivision by Hofmann Construction, in proximity to and west of the subject
along Amherst Street, failed to pass the $100,000 mark after about five years
of marketing in the 1990s.
The smaller "Meadowvale" subdivision was developed in early 1992, but
only 22 houses were sold by the original developer by early 1995. Thus,
the absorption was only seven houses per year, and that at prices of
from $89,000 for small two-bedroom/two-bathroom houses at $100 per
square foot, to $125,000 for medium-sized four-bedroom/two+-bathroom
houses at $65 per square foot. In early 1995 some of the undeveloped
lots, and some finished and unfinished houses were repossessed by the
construction lender. A few of these have sold at prices reduced about
10% to 20% from the earlier sale prices. And, it is noted that the
assessed values on almost all of the houses have been reduced
significantly ($10,000-$20,000) from the earlier sale prices by the
County Assessor.
The "Steamboat Bend" subdivision met with a similar plight. Of the
planned 236 houses, only 115 of the mapped lots have been completed and
made ready for construction. Of these lots, only 46 have been developed
with houses. The range of prices on these small- to medium-sized houses
was from only $70,000
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COMMUNITY DESCRIPTION (continued)
for a small three-bedroom/two-bathroom houses at $53 per square foot, to
$99,000 for medium-sized four-bedroom/two+-bathroom houses at $60 per
square foot, with the average sale price about $85,000. Although some
sales did achieve $70 to $80 per square foot, the average prices
represent the lowest of the range found during that period. These are
attractive, average-quality starter houses, on typically-sized lots.
Sales were made from 1991 to 1996, or an absorption rate of only nine
houses per year; many were last sold by auction, according to some
sources. The developers have reportedly "mothballed" the existing lots.
The recent marketing history of these two projects does not support the
likelihood of sales success for traditional single-family housing in the
Meadowview community, or on the subject property. Some similar evidence
can be found in the existence of 22 manufactured and ready single-family
lots at the northeast corner of Meadowview Road and Tisdale Way, at the
easterly extreme of the neighborhood near the Union Pacific Railroad
tracks. They still sit vacant after being finished at least 15 years ago.
The community is still predominantly residential in nature. In spite of
new residential and commercial development that has been experienced to
the east, in the Valley Hi community for instance, around Highway 99 at
Mack Road, the specific neighborhood remains one of the least-viable
commercial/retail areas of Sacramento. Rents are often in the range of
$0.25 to $0.50 per square foot, compared to an area-wide tendency of
around $1.00 per square feet. For instance, there is a modern
neighborhood center located at the southeast corner of Florin Road and
24th Street (which is associated with the Meadowview community by its
location on 24th Street). It has been mostly vacant since the late 1970s
or early 1980s, while others were developed new, or renovated,
throughout the region.
This area once had a a typical mix of retail/service tenants found in
such centers; it is now occupied by thrift stores, grocery stores, a
bingo parlor, and local, "mom and pop" businesses. Some office space
that was once occupied by smaller agencies of the State of California
now remains vacant, after almost
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COMMUNITY DESCRIPTION (continued)
10 years. Two large, new-automobile sales facilities were built on
inexpensive land at the northeast corner of this intersection in the
last 1980s, and they have since been vacated by the owners.
The major intersections along Meadowview Road near the subject exhibit
even less retail success, and many commercially-zoned corner sites still
remain undeveloped. New construction has been limited to public
projects, such as a new community center at the southeast corner of
Meadowview Road and 24th Street. There is an unusually-high number of
properties improved as churches. Vacancies are high for most property
types in the neighborhood, and maintenance is often poor. There is a
visually-evident high supply of undeveloped acreage along Meadowview
Road, especially considering that it is within the city limits and quite
near a freeway interchange. The inventory ranges from small corner
parcels to those several acres in size. Some brokers have suggested that
there is little or no commercial-developer interest in the area, and
that only public uses will work here. This, again, does not suggest a
viable retail/commercial neighborhood.
There have been various attempts by neighborhood groups to both
physically and socially clean up the neighborhood and to overcome the
generally-negative reputation of Meadowview, with only moderate progress
made to date. Many potential tenants, businesses and, apparently,
new-home owners appear, simply, not willing to risk a venture in
Meadowview at this time.
The outlook for the Meadowview community remains questionable. It does
enjoy quick and easy access to downtown Sacramento via nearby I-5, a
proximity to some supporting industrial, retail, and commercial
developments, and some available land with utilities to allow for
additional new and modern development. To the east and the west of the
community new residential projects have met with at least average, to
good, marketing success. All of these factors should increase the
desirability and marketing viability of the neighborhood in the future.
However, it is more probable that values will remain stagnant in the
near term, due to increased competition and supply in other communities
that have much better reputations.
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RESIDENTIAL MARKET OVERVIEW
The Sacramento area single-family residential housing market presents a
conflicting picture regarding present or near-future conditions. There
are some factors that that are quite favorable to new development and
marketing success, and others that are still hindering it.
Seemingly favorable to the market is that mortgage rates are, still,
much lower than they were just over one decade ago--when they were from
12% to 14% for several years. Most are still in the 8.0% to 8.75% range
locally for a fixed-term, 30-year mortgage, and variable-rate loans can
be found starting just over 6%. These rates are only slight increases
from something below 8% that could be obtained for several years in the
early 1990s, and the difference is not one that has been attributable to
the decline in sales. In spite of the relatively-low interest rates,
most financial activity has been in re-financing homes, rather than in
outright purchases. Additions and remodeling have also increased. And,
both activities have declined dramatically as many who wish to
re-finance often no longer have sufficient equity in their homes; in
late 1996 it was found that approximately 11% of the homeowners in the
metropolitan area actually owed more on their properties than they were
worth. Federal money policy, with stated and continued concern over even
moderate inflation may slow residential financial activity, yet again,
in the near future.
For a buyer, the number of all houses on the market has remained
relatively high, although it has recently declined to around 6,000, from
almost 8,000 during the early 1990s (recent Multiple Listing Service
statistics suggest that sellers now perceive an improved market, and
listings are increasing again). Both figures are much higher than the
2,500 or so that was typical in the 1980s. And, the inventory of new
houses remains around 2,500. The current inventory of both are figures
that are generally agreed to represent about one year of housing sales.
The median house price for the metropolitan area has hovered in the
$125,000 to $120,000 range for several years, on a slight downward trend
with each succeeding recent year, and on an obvious downward trend from
a high of $146,000 in 1990. This figure is upwardly-skewed by house
prices in nearby
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RESIDENTIAL MARKET OVERVIEW (continued)
Placer and El Dorado Counties, as well. MLS statistics for Sacramento
County and the City of West Sacramento show that the median home price
was only $112,000 as of February 1997, only $1,000 more than one year
prior. It is generally perceived that in many neighborhoods housing
prices have declined around 20% from the price levels achieved in 1990.
Such a situation has also forced those who might wish to buy-up into
larger housing to postpone such moves. Out-of-the-area investors in
houses (those who never intended to be occupants), who may have had some
inflationary effect on prices, also left the local market several years
ago.
In addition, public concern over the direction of the national,
regional, and local economies, whether they were still in, or heading out
of, the prolonged recession of the early 1990s, combined with
flat-to-increasing unemployment rates locally, brought the level of
buyer confidence down month-by-month for several years (only in 1997 has
the area's unemployment rate finally declined from being above the
State's average for several years). The metropolitan area affordability
index is now usually stated as around 35-40%, after being 45% in 1989,
and 53% in 1988. Foreclosures in the area are also still running higher
than the State figures, the latter having declined by 21% in March 1997
compared to a year earlier; this was the fourth month in a row it had
declined. For Sacramento County, however, there was a 9.4% increase from
the prior year, and even nearby Placer County saw a 10% increase. Many
surrounding counties, and Central Valley areas, likewise, experienced
increases, while the nearby Coastal communities saw decreases. With each
announcement of the improvement in foreclosures (supposedly lagging the
economy and market), the imminent recovery of real estate, lead by the
"Bay Area", is touted.
The results of the above have been great difficulty in selling many
houses and a strong resistance to purchasing anything over $200,000 in
price. First-time buyer housing became the "clarion call" for most all
developers and contractors by 1992, and consequently, that segment
became quite competitive. In most of the average-quality subdivisions
developers still find that buyer incentives are a way of business. These
may include, for example: dramatically-lowered prices (probably at only
break-even prices of $65 to $70
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RESIDENTIAL MARKET OVERVIEW (continued)
per square foot); incentive packages -- in item upgrades, buy-downs,
vacations, etc. (with some billboard signs even advertising their worth as
$20,000); and the use of the lease/option-to-buy, again -- as was done in the
residential market of the early 1980s.
Permits for single-family houses have been running around 6,500 per year for
the combined Sacramento-Placer-El Dorado-Yolo Counties market, according the
information from the Building Industry Association. For 1996 a total of
8,102 permits were pulled, a 9% increase over 1995 figures of around 7,400.
Something around 6,000-7,000 is usually indicated as the required increase in
new-housing stock based on projected population increases; it remains to be
seen if developer optimism is met with increased sales, or with inventory.
Also notable, is that permits for multiple-family housing units increased by
52% in 1996 from 1995, to 899 units in the combined Sacramento-Yolo area.
Figures from the City of Sacramento, wherein the subject lies, show that
permits for single-family houses increased by only 5% in 1996 from 1995, to
412 units. This compares to consistently-declining figures of 441 in 1994,
547 in 1993, 629 in 1992, 887 in 1991, and a high of 1,885 in 1990. Thus,
current numbers represent only about 5% of the total metropolitan new-housing
market. This should not be surprising, as the population of the city has
increased little in the 1990s, while the unincorporated areas of the county,
surrounding small cities in the county such as Folsom, and many desirable
areas of both Placer and El Dorado Counties have increased by as much as 10%
per year at times.
Sales of new and existing homes continue to exhibit wide peaks and valleys in
activity, with some tantalizing hint each recent year that the market will
pull out of the doldrums soon. By 1991 sales had collapsed to one-half to
one-third those of 1990. Since 1991 the annual figure has been in the range
of 5,500 to 6,500 homes, compared to over 10,000 in the late 1980s.
Residential land prices, for both finished and "paper" lots, and for zoned
land, have likewise declined, as housing prices have. For example, finished
lots that
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RESIDENTIAL MARKET OVERVIEW (continued)
had sold for $35,000 to $45,000 in the southern areas of the county have now
declined to $25,000 to $35,000; land with tentative maps that was selling for
$17,000 to $21,000 per lot, some even close to $30,000 up to 1993, is now
selling for $7,500 to $13,000 per lot; and, land that was zoned, but without
entitlements, that was selling for $50,000 to $75,000 per acre up to 1991 is
now valued at $25,000 to $50,000 per acre -- with few sales to be found. In
summary, most residential land has declined from 25% to 50% from values of
the late-1980s to early-1990s.
Seldom discussed as an impact on the market, (and if so, probably as
favorable), is the much-wider geographical area where new housing can be
found when compared to just 10-15 years ago. Since then, areas such as
Antelope, Laguna, Elk Grove, and Vineyard in the county, and north Natomas in
the city, have been designated as future residential, with tens of thousands
of units planned for residential use in new general plans. In 1993 the Land
Use Element of the updated General Plan of Sacramento County noted over
35,000 residential units planned in five major areas alone, with 25,000
undeveloped then. The North Natomas area of the City is about to be opened
to master-planned, mixed-use developments after being stymied for over a
decade by flood and environmental concerns. Likewise, in nearby Placer
County, the City of Roseville, the City of Rocklin, Stanford Ranch, and other
unincorporated areas have joined in the increase of new subdivisions. Even
the City of Davis, west of Sacramento in Yolo County, after decades with a
known slow-growth direction, has allowed new development along Interstate 80.
The opening of the Southport area in West Sacramento, even closer, will also
add to the many choices that homebuyers have. Buyers, apparently quite
willing to commute for the "right" house, will have at least two more decades
of new housing available. Agents are quick to note that "home-shoppers" have
less loyalty to any one neighborhood compared to years past, and that most
are now super-knowledgeable buyers. The area around the subject cannot
really be included as part of a major market for new residential housing at
this time.
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DESCRIPTION OF PROPERTY
GENERAL
The property appraised is a holding of readily-developable urban land that is
comprised of five parcels, with a total of 121.40 gross acres, according to
the Assessor maps.
LOCATION
The property is an interior one, located inside the southeast corner of the
intersection of Meadowview Road and Freeport Boulevard, east of nearby
Interstate 5.
CONFIGURATION AND DIMENSIONS
The property is irregular in shape but can be described as
somewhat-rectangular. The dimensions are many and varied. See ASSESSOR MAP
on the facing page.
ACCESS AND ROADS
Initial access to the property would first be off Meadowview Road from the
north, or off 24th Street from the east. Both are wide two-way, four- or
two-lane thoroughfares that are mostly improved with curbs, gutters,
sidewalks and lights. Immediate or primary access would then most likely be
by Amherst Street from the west or by John Still Drive from the east. Other
streets that lead into the property are Lytle Street, 19th Street, Manorside
Drive, Sweetbrier Way, and Manorcrest Way. The latter are more-narrow
arterial streets that are improved with with curbs, gutters, and sidewalks.
Streets within the subdivision will be 44 feet wide and will have the
required modern street frontage improvements.
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DESCRIPTION OF PROPERTY (CONTINUED)
TOPOGRAPHY AND SOILS
In the past the property may have been used for low-grade agricultural uses,
and although not perfectly leveled, it can be described as generally flat. A
soil survey has not been provided. The area in general, and the subject, are
apparently capable of supporting structures of the type that will eventually
be built on the land.
UTILITIES AND SERVICES
Water and drainage are provided by the City of Sacramento; sewerage is
by the Sacramento Regional County Sanitation District; electrical power is
from Sacramento Municipal Utility District (SMUD); natural gas is available
from Pacific Gas and Electric Company (PG&E); and, telephone service is by
GTE or Pacific Bell. City police and fire protection is provided, and the
area has a good number of schools from K through 12 in the immediate
neighborhood or nearby.
FLOOD ZONE
The property is designated A99, a flood-hazard designation, on the FEMA flood
map Community Panel 060266 0030 E, dated November 15, 1989. This is a
temporary designation, pending current improvements in the system now
protecting much of the Sacramento area.
EARTHQUAKE ZONE
Not located on or near a "Fault-Rupture Hazard Zone" per the ALQUIST-PRIOLO
SPECIAL STUDIES ZONES MAPS, State of California, Department of Conservation,
Division of Mines and Geology, as defined in Publication 42, revised 1990.
Located in Earthquake Zone 3.
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DESCRIPTION OF PROPERTY (continued)
ENVIRONMENTAL HAZARDS
No environmental site assessment (Phase I type or otherwise) was provided. It
is assumed that there are no hazardous materials or contamination affecting
the property. (See under GENERAL LIMITING CONDITIONS.) The appraisers do not
have any reason to suspect that a problem may exist, neither by the current
or past uses of the land nor by the uses on the surrounding developed
properties.
EASEMENTS
No title report was provided. The tentative map does indicate the existence
of several utility easements throughout the property and a large pipeline and
drainage easement that runs along the southerly boundary of the total
property. They serve both the surrounding land and the subject project. It is
assumed that there are no easements having a negative impact on value.
STATUS OF PROPERTY
The property is proposed for development with 534 residential lots, all now
consisting of single-family units. The density is therefore 4.4 units per
gross acre. They vary is size from 5,200 to just over 8,500 square feet. In
addition, there is an 8.3-acre parcel to be dedicated as a park. A copy of
the most recent tentative map, dated March 6, 1997, follows this section.
The first tentative subdivision map, called "North Shore", with 596 lots, was
approved by the City Council on October 29, 1991. In July of 1995 an extension
of time was requested, and a two-year extension was granted in October 1995,
to expire October 1997. A copy of the last resolution, which includes the
first with conditions for approval, is found in the ADDENDA. By a letter from
the Department of Public Works, dated April 2, 1997, the revised tentative
map for only 534 lots, with some other revisions and corrections, was found
to be in "substantial conformance" with the original approval. The most
notable condition is that a bridge be built across the future E Street south
extension. A copy of this letter is in the ADDENDA.
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ASSESSED VALUES AND TAXES
The property is on the 1996-1997 assessment roll at the following assessed
full values:
Parcel No. Land Imps. Total
----------- -------- ------- --------
52-0010-033 $273,000 $-0- $273,004
52-0010-034 $249,627 $-0- $249,627
52-0010-039 $383,520 $-0- $383,520
52-0010-053 $411,113 $-0- $411,113
52-0010-054 $820,264 $-0- $820,264
-------- ------- --------
$2,137,528 $-0- $2,137,528
Based on our estimate of current market value, the property appears to be
slightly over-assessed, by perhaps 5% to 10%.
The property is located in tax code area 3-054, where the current tax rate is
1.0204%, or total real property taxes of about $21,811. In addition, there
are some direct levies, which total an additional $10,408 annually. The total
tax bill, then, is approximately $31,408.
In California, property taxes are limited by State law to 1% of assessed
value plus special assessments approved by the voters. The base year for the
assessed value is 1975. A sale of the property triggers a reappraisal by the
Assessor at current market value. Increases are limited to a maximum value
appreciation of 2% per year.
Since the definition of market value used in this appraisal is based on the
most probable price that the property would bring if offered for sale, a
hypothetical sale must be envisioned, and annual taxes in that event would
typically be 1.0% of value, plus direct levies, or a total of about 1.5%.
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ZONING
The property is zoned R-1, Standard Single Family, by the City of Sacramento.
This is "a low density residential zone composed of single family detached
residences on lots a minimum of 52 by 100 feet in size." A small group of
other uses, such as family- and day-care facilities are also allowed. Some
recreational, religious, and educational uses are allowed, with special
permits or variances. Halfplexes or duplexes are allowed only on corner lots.
Minimum lot sizes are listed as 5,200 square feet for interior lots and 6,200
feet for corner lots.
The property is designated as Low Density Residential (4 to 15 units per
acre) on the General Plan of the City, and it is shown as Residential (4 to 8
units per acre) on the South Sacramento Community Plan.
HIGHEST AND BEST USE
Highest and best use is defined as:*
The reasonably probable and legal use of vacant land or an improved
property, which is physically possible, approriately supported,
financially feasible, and that results in the highest value. The four
criteria [that] the highest and best use must meet are legal
permissibility, physical possibility, financial feasibility, and maximum
profitability.
As vacant land, the highest and best use should be one that is legally
allowable, physically possible, compatible with the surrounding developed
properties and therefore appropriate, and financially feasible (theoretically,
at maximum profitability).
As planned, and now as specifically allowed, the proposed development as a
residential subdivision is in conformance with the zoning. It is legally
allowed by all the zoning and planning designations that overlay it. And,
entitlements to develop the property have been obtained. Such a development
would also be
__________________
* THE DICTIONARY OF REAL ESTATE APPRAISAL, Appraisal Institute, Third
Edition, 1993, page 171.
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HIGHEST AND BEST USE (continued)
compatible with the existing old and new properties that surround it.
Physically, at about 4.4 dwellings units per acre, it is typical of such
projects. And, there are no physical restraints that prevent the subdivision
as mapped. There is ready availability of utilities and other public services
as well.
The financial feasibility of the proposed project creates the greatest
concern at this time, which is also true of many similar developments, since
it is outside social and economic, forces that are making such
determinations. The market for residential land is still quite soft, with
less purchase activity occurring over the past several years. Furthermore,
the property is located next to an existing newer residential subdivision
that has recently failed in the sales market (Steamboat Bend). That project
was priced within the range that is generally accepted as a level that is
lacking within the total residential market. Based on the analyses set forth
later in this report, development of the subject subdivision is judged to be
only marginally feasible in the current market.
Maximum profitability would most likely be attained by construction of
entry-level detached houses, from 1,000 to 1,500 square feet in size, with
three or four bedrooms and two baths, and averaging above the $100,000 price
level ($90,000-$125,000). Yet, the $75,000-$90,000 price range is more likely
to meet with marketing success in this particular neighborhood. Based on
current development costs, both direct and indirect, and without any subsidy,
such low prices are generally considered to be not profitable for a home
builder -- unless land prices are then accepted as being lower than commonly
considered "typical" or reasonable. Currently, it does not appear that an
approved tentative map adds significantly to the value of bare-but-zoned-land
in the subject's neighborhood.
The highest and best use is to hold the property until the existing supply of
competing new housing that is available in better locations is diminished.
Perhaps, then, the benefits of an infill location, closer to the downtown
area, will warrant new construction. Or, perhaps in time, another highest and
best use might be suggested.
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METHODS OF VALUATION
Because the property is undeveloped, and generates no income, sales
comparison is usually considered to be the most valid approach to value.
However, based on the existence of entitlements, in the form of the approved
tentative map, a simple discounted cash flow (DCF), which may be considered a
form of subdivision analysis, may also suggest a supportable value estimate.
Also, some consideration may be given to the costs to develop, with a
residual price that a developer could "afford" to pay for the land with its
entitlements.
In the sales comparison approach to value, recent sales and listings of
similar property are compared to the subject. Since properties are rarely
identical, it is usually necessary to make comparisons on a unit-price basis
to account for size differences, and to make adjustments for (a) the time
factor, if applicable; (b) the location factor; and (c) zoning and/or
density; and (d) physical characteristics of the sale properties compared to
the subject.
The property is compared to recent sales of tentatively-mapped properties on
a price-per-paper-lot basis. Where supportable through some direct evidence,
these adjustments can be made with confidence; where there is lack of
support, because there is a lack of either quantity or quality of data, they
become somewhat subjective. In the latter case, a more meaningful technique
is to "bracket" the property appraised within comparable transactions that
represent sold properties that are both inferior and superior to the subject.
In this particular case, however, no sales were found in the region that are
inferior to the subject's specific location, so all comparables require some
significant downward adjustments to them.
Because of this, some weight is also given to a simple analysis where
finished-lot estimated values are reduced by typical costs to develop
infrastructure today.
Finally, in this case, the DCF analysis, although it also has a weakness in
the selected absorption period, assumes equal weight in the reconciliation of
value. This is a form of "subdivision analysis", and it assumes that sale
agreements are reached whereby the mapped lots are sold in phases over time.
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SALES COMPARISON
GENERAL
An investigation was made to find current sales, listings, and offers on
similar land. Charted on the following page, with a SALES MAP facing, are the
comparable sales and listing used in this section. Following the SALES CHART
are DATA SHEETS on each of the sales, where some simple legal and physical
details are provided. A narrative discussion with some suggested adjustments
results in one estimate of the current value of the property, using a
per-paper-lot basis.
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PAPER LOT SALES
DELTA GREENS
MAY-97
<TABLE>
DATE SIZE IN NO. OF LOTS PER PRICE
NO. APN IDENTIFICATION SOLD ZONING ACRES LOTS ACRE SALE PRICE PER LOT
- --- ------------------ ---- ------ ------- ----- -------- ---------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 117-0213-012 Apr-95 R-1 4.26 20 4.4 $230,000 $11,500
2 226-0174-007 Apr-94 R-1 4.09 24 5.9 $292,000 $12,167
226-0180-001
3 47-0013-011 Nov-91 R-1A 3.76 29 7.7 $305,000 $10,517
4 38-0052-017 Listing R-1 5.7 35 5.7 $510,000 $11,941
5 203-0070-067 Mar-94 RD-5 9.2 43 4.7 $445,000 $10,349
6 117-0160-065 Jan-96 R-1 13.24 70 5.3 $892,500 $12,750
7 115-0170-025,041,042 Feb-95 RD-5 22.78 109 4.8 $1,328,100 $12,184
8 117-0160-062,063 Aug-95 R-1A 19.38 119 6.1 $892,500 $ 7,500
9 48-0012-001,004 Listing R-1 19.38 124 6.4 $1,370,000 $11,048
10 115-0170-010 Oct-94 RD-7 70.71 401 5.7 $4,175,000 $10,411
11 134-0670-009,010,011 Apr-94 RD-7 104.2 519 5.0 $5,369,500 $10,866
012,015,016,017
</TABLE>
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SALES COMPARISON (continued)
DISCUSSION OF SALES
Comparable 1 ($11,500 per paper lot) is within the Laguna area, which is a
neighborhood considered quite superior to the subject's. The property is much
smaller than the subject, and it is mapped for only 20 lots, so it represents
the somewhat-higher prices that a small purchase would command. This property
was mapped together with an adjoining one to the east under different
ownership, for a total of 53 lots. After this was approved the owners
attempted to market the total property as one but, because of a wide
difference of opinion over value, one owner eventually sold to the other. At
the time the buyer had intentions to finish the lots and market them, but at
this time there is no obvious activity on the property. Still, this is a
superior comparable.
Comparable 2 ($12,167 per paper lot) is a distant sale. Although it is within
the City, it is in an area of North Sacramento called Robla. To some degree,
there are similar political, social, and economic influences present in this
large neighborhood. However, at the time of purchase, sales of surrounding
new houses were in the range of $100,000 to $127,000 for 1,150 to 1,500
square feet -- a price level the subject could not command now. Like
Comparable 1, this is also a small group of lots. Overall, this is a
superior comparable.
Comparable 3 ($10,517 per paper lot) is the oldest sale considered, but also
the closest one. Located south of Florin Road on 24th Street, it represents
the only sale from the subject's neighborhood. Like Comparables 1 and 2, this
is also a small group of lots. Sold on an option negotiated around 1990, it
is notable in that similar lots (this map is rather dense) were selling for
around $17,000 throughout the south area of the County and other parts of the
City then, so it was at about 60% of those prices. To date, the buyer has no
plan of building, as he believes that he cannot achieve even $100,000 for a
house. He also believes that he cannot recover his purchase price, but does
not offer an opinion of current value. This is a "dated" and smaller
comparable, but is otherwise quite useful for comparison purposes.
Comparable 4 ($11,941 per paper lot) is an extended listing of a small group
David E. Lane, Inc.
Real Estate Appraisers
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<PAGE>
SALES COMPARISON (continued)
DISCUSSION OF SALES (continued)
of lots in a neighborhood with many of the same political, social, and
economic influences affecting it. Two small subdivisions to the west, which
total about 48 lots under different ownership, have failed to be completed
after about six years. A few houses were finally started there last year, and
from the pattern of sales it appears that a fate similar to Meadowvale and
Steamboat Bend is likely; there were a few sales around $85,000, then some
large houses sold at $125,000 (for 1,800 square feet), and now it appears
that construction has halted. The newest agents have just pulled the listing
to reconsider the pricing, and now a figure of only $5,000 PER PAPER LOT has
been suggested; in 1994 a different agent had thought that $8,000 per lot was
the most probable price. This suggests a decline in value of 37% in the last
three years. This property serves as a similar comparable, with the major
adjustment being for the small number of lots. Since it has been listed for
about four or five years, it is quite obvious that the value is not near the
list price.
Comparable 5 ($10,349 per paper lot) is also a distant sale. It is located in
the Antelope area of the northeasterly part of the County. This area has, for
many years, been considered prime for residential development. The specific
location is quite superior to the subject's, and new houses in surrounding
subdivisions were selling for $120,000 to $140,000 then, or 50% to 65% higher
than likely for the subject. This superior property is also a rather small
grouping of lots.
Comparable 6 ($12,750 per paper lot) is the most recent transaction. The sale
is located in the Laguna area of the City of Sacramento, which is a very
superior location. The property was purchased to expand an existing M.J.
Brock subdivision to the south that had met with market success. This is
still a rather small grouping of lots, but the price was probably influenced
upward by the particular buyer's needs.
Comparable 7 ($12,184 per paper lot) is located in the Vineyard area of
Sacramento County, which is east of Highway 99 (and the Laguna area) and
north of Elk Grove. This area, like Antelope, is an area designated by the
County for
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<PAGE>
SALES COMPARISON (continued)
DISCUSSION OF SALES (continued)
residential development in the coming decades. This area is considered about
equal to Laguna, or quite superior to the area around the subject. The sale
involves a medium-sized group lots.
Comparable 8 ($7,500 per paper lot) is located in the Valley Hi area (north
of Laguna Creek) of the City. This market area is perceived as somewhat
inferior to the Laguna area by homebuyers, but it is still quite superior to
the subject's neighborhood. Houses being built in this subdivision now, named
"Bridges", are being sold at $89,990 ($103/s.f.) to $123,990 ($73/s.f.) for
models from 876 to 1,704 square feet in size. This would make these houses
higher-priced per square foot than those built in the Steamboat Bend
subdivision west of the subject, which took five years to sell 46 homes. 45
of the 60 houses built within this project are sold. The sale involves a
good-sized group lots, about one-fifth the subject, sold as one. This
comparable is superior to the subject, and suggests that it would not sell
near $7,500 per lot as one transaction.
Comparable 9 ($11,048 per paper lot) is an extended listing of a good-sized
group of lots in the subject's neighborhood. Like Comparable 4, it has been
listed so long (and by more than one broker) that the tentative map has
really expired. The current listing agent states that there has been no
interest shown in this property and that a price less than $5,000/lot might
be required to sell. This property wraps around the northwest corner of
Meadowview and 24th Street, and is adjacent to the Meadowvale project. To a
great degree the comparison of this situation to the subject and Steamboat
Bend is strikingly similar.
Comparable 10 ($10,411-$11,761 per paper lot) is located in the superior
Vineyard area. It is one of the largest recent purchases of paper lots. Now
improved with two subdivisions by the same developer, the range of prices is
from $109,500 to $158,990, or an average price about 50% higher than likely
for the subject. This comparable is similar only by size and is superior in
all other aspects.
David E. Lane, Inc.
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<PAGE>
SALES COMPARISON (continued)
DISCUSSION OF SALES (continued)
Comparable 11 ($10,866 paper lot) is located in the superior Elk Grove area.
It is also one of the largest recent purchases of paper lots. Now improved
with several subdivisions by the same developer, the range of prices on one
of the groups is from $119,990 to $143,990, or an average price about 55%
higher than likely for the subject. This comparable is similar only by size,
and is superior in all other aspects.
ANALYSIS AND CONCLUSION
Notable is that the sales now range from only $7,500 to $12,750 per paper
lot, compared to typical prices of $17,000 to $21,000 up to four or five
years ago, a decline of from 55% to 40% in per-lot prices since then. Also
obvious is that buyers are willing to pay $10,000 to $13,000 per paper lot in
other areas, but not in the Meadowview neighborhood. In spite of the
persistence of owners to list parcels in that price range, the properties
languish on the market.
These declines in value can be compared to sales of un-mapped land as well.
For instance, APN 121-0100-007, a 20.148-acre parcel in the Vineyard area,
zoned RD-5 and now planned for 75 houses, sold for only $27,794 per acre in
November 1995. This can be directly compared to, APN 121-0100-006, a
20.0-acre parcel adjacent to this, zoned UR and now developed with houses,
which sold for $84,000 per acre in June 1991. This indicates a 67% loss in
value in four years. Realistically, most of the surrounding land was selling
for $50,000 to $75,000 about 1990, so a better indication is a loss in value
of 44% to 63% over five years.
To make some comparison in neighborhoods, APN 116-0011-035 (& others), a
22.19-acre parcel in the Laguna area, now improved with two subdivisions of
140 houses, sold for $57,929/acre in December 1994. This can be compared to
APN 065-0060-22, a 15.9-acre parcel located in the Power Inn area of south
Sacramento (similar, but rated slightly superior to the subject), still
vacant but
David E. Lane, Inc.
Real Estate Appraisers
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<PAGE>
SALES COMPARISON (continued)
ANALYSIS AND CONCLUSION (continued)
planned for 79 houses, that sold for $37,831 per acre in December 1994. This
sale indicates at least a 35% lower value for the subject's location. And,
the above-discussed recent sale in Vineyard suggests from $18,000 to $14,000
per acre for unmapped land ($27,794 x 0.65 to 0.50) in the area of the
subject.
In analyzing Comparable 3, the only sale from the subject's neighborhood, it
is noted that this property sold at a price about 60% of those from viable
neighborhoods. A similar ratio can be applied to all of the other sales
today, which would then suggest a value range of $4,500 to $7,650 per lot,
before any consideration of the large number of lots involved with the
subject.
When weighing the now-lower expectation of price from Comparable 4, 37% lower
than three years ago, and the general decline in other residential land
values as noted previously, then Sale 3 could also be reduced to an
indication of about $5,250 per lot based on its 1991 price ($10,517 x .50).
And, this is for a small group of lots.
Placing most weight on Comparable 8, as it may be the best one at this time,
when all factors of adjustment are considered, and applying a 50% to 65%
ratio of neighborhood value as determined by comparison, $3,750 to $4,875 is
indicated. This sale also represents a good number (119) of lots sold at
once, so it suggests something far below $5,000 per lot for 534 lots.
Review of the sales on the chart does not illustrate a large discount for the
size of the purchases. But, generally, a range from almost $13,000 to about
$10,000 per lot can be seen when arranged in descending order from the
smaller groups to the larger ones. And, past history (and common sense)
suggests that a discount is still required to sell a large group of lots. It
is probably just that a larger body of current sales does not exist to better
demonstrate the discount.
David E. Lane, Inc.
Real Estate Appraisers
40
<PAGE>
SALES COMPARISON (continued)
ANALYSIS AND CONCLUSION (continued)
Based on this analysis, the value of the subject lies in the range of $3,500
TO $4,500 per lot today. A unit value in the middle of this range is
concluded to be appropriate, and one that might entice some offers to
purchase, or:
534 paper lots @ $4,000 per lot = $2,136,000
These unit values may appear to be below the current market range indicated
by recent sales of medium-density land, but they are considered reasonable
since a buyer would probably have to hold the property for several years,
until such time as construction would be warranted by prices in the
residential new-house market, and when the project would be financially
feasible.
David E. Lane 41
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<PAGE>
LAND RESIDUAL ANALYSIS
In this analysis, a simple deduction is applied to an estimated finished-lot
price that a homebuilder could afford to pay in the Meadowview neighborhood.
As discussed under HIGHEST AND BEST USE, and to some degree under COMMUNITY
DESCRIPTION, it is our conclusion that the most-probable price range that
would result in sales of houses is from $75,000 TO $90,000, and at an average
house price of about $85,000 --- if higher, buyers will continue to look at
the many alternatives throughout the metropolitan area and purchase there
instead. Past studies completed during other appraisal assignments have found
that:
- - Lot prices in prime neighborhoods can often represent 33% of the total
price of the finished house.
- - Lot prices in "typical" neighborhoods usually equal about 25% of total
price.
- - Lot prices in the least-desirable locations are usually at 15% to 20% of
total price.
Applying the higher end of this last ratio to a suggested average price, an
acceptable finished-lot price would be: $85,000 x 0.20 = $17,000
Presently the cost to develop residential lots is from $11,000 to $14,000
each. Of course, there can be some economy of scales involved, and more lots
may result in something at the lower range. Costs to develop the subject have
not been provided (if completed), but a specific one would probably fall
within this range. The suggested paper-lot value range is, then:
$17,000 value less $14,000 costs = $3,000 per lot
$17,000 value less $11,000 costs = $6,000 per lot
The value estimate by land residual analysis is:
534 paper lots @ $4,500 per lot = $2,430,000
David E. Lane, Inc. 42
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DISCOUNTED CASH FLOW ANALYSIS
An all-cash discounted cash flow (DCF) has been completed. In order to
accomplish this, various assumptions and forecasts are made. These are
generally supportable by review of market data consisting of similar analyses
completed by brokers and investors on a variety of properties. Others are
based on current economic data and financial surveys that are publicly
available. Some are, of course, based on estimates within this report.
In effect, this will resemble a "subdivision analysis", except that the
purpose is really to estimate the value of the property as if sold to one
buyer (bulk) who then might sell under a similar scenario, or put in
infrastructure and build on the lots over time.
The sale proceeds must be discounted to a total present value. To complete
this a "base" to value, an absorption period, annual expenses, and a discount
rate must be selected. The two analyses are found on the page following,
using Excel and an HP-12c calculator. Not all of the many mathematical
calculations necessary have been discussed in detail, or are shown on the
spreadsheet. The forecasts and assumptions used are:
- - A sell-out, or absorption, period of ten years.
- - A base paper lot value of $7,500 for small groups of lots, with step-up
increases of $500 per lot per year --- as many option or phased sales are
usually arranged (last year is at $12,000 per lot).
- - Lots sold in groups of two phases per year in numerical order, using the
current tentative map of 534 lots.
- - Commission and marketing of 5%, as limited sales agreements are envisioned.
David E. Lane, Inc. 43
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DISCOUNTED CASH FLOW ANALYSIS (continued)
- - Real estate taxes based on an interpolated value of $2,000,000, times the
combined 1.5% tax and levies rate, with the declining total value of the
remaining lots increased by 2% annually.
- - Miscellaneous costs, such as insurance and overhead, of 1% of sales.
- - A discount rate of 20%.
The estimate value by discounted cash flow is: $1,815,000
David E. Lane, Inc. 44
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DISCOUNTED CASH FLOW ANALYSIS
"DELTA GREENS"
May 1997
<TABLE>
<CAPTION>
YEAR 1 2 3 4 5 6 7 8 9 10
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SALES EACH YEAR: $360,000 536,000 493,000 315,000 522,500 530,000 651,000 605,000 598,000 588,000
LESS
COMMISSIONS: 18,000 26,800 24,650 15,750 26,125 26,500 32,550 30,250 29,900 29,400
MISCELLANEOUS: 3,600 5,360 4,930 3,150 5,225 5,300 6,510 6,050 5,980 5,880
REAL ESTATE TAXES: 32,219 29,743 25,643 22,093 19,951 16,585 13,341 9,547 6,181 2,999
NET TO SALES: $306,181 474,097 437,777 274,007 471,199 481,615 598,599 559,153 555,939 549,721
NET PRESENT VALUE: $255,151 329,234 253,343 132,141 189,364 161,292 167,068 130,041 107,745 88,783
SUMMATION $1,814,152
Rounded To: $1,815,000
CRITERIA:
NO. OF LOTS: 534
TOTAL SALES: $5,104,000
LOT PRICES: $7,500 + $500/YEAR
SELL-OFF RATE: TWO PHASES PER YEAR
SALES COMMISSIONS: 5%
MISCELLANEOUS COSTS: 1%
REAL ESTATE TAXES: 1.5%
YIELD RATE: 20%
</TABLE>
Page 45
<PAGE>
CONCLUSION OF 1997 VALUE
The estimates of current value from the three analyses used are:
SALES COMPARISON: $2,136,000
LAND RESIDUAL: $2,403,000
DISCOUNTED CASH FLOW: $1,815,000
Although the range produced is wider than typical, that should be expected
for such a property. Each of the three might be considered by a hypothetical
buyer.
The sales comparison is weakened because there are no sales of this size in a
similar or inferior neighborhood to bracket the subject well, and most of the
sold properties require significant downward adjustments. In this case, more
is really learned from a few of the listings, and from conversations with
brokers, than from sales. Although a more-detailed adjustment process might
appear to be more "scientific", adequate data is, simply, lacking in the
lot-sales market.
The land residual is worth some consideration, as it does suggest a maximum,
or "affordable" land price that could be paid. It is weak in that it really
does not consider absorption of such a large number of lots. Simplistically,
a home developer would probably make some additional discount, be that for
holding costs, a small element of profit, or some other, often-nebulous,
factor.
The discounted cash flow is weak in that groups of paper lots are usually
sold as one transaction, or in several phases, rather than over such a long
forecasted period. However, most information of this sort is from the
more-desirable neighborhoods, where the buyer/developers are usually
optimistic about a sales program (otherwise, why purchase at all?). It would
be difficult to base such an analysis on sales or absorptions of new houses
in superior locations; the history of nearby projects in the neighborhood
suggests a long period, even at lower house prices than are suggested herein.
This analysis is really another attempt to recognize the element of size,
which may be lacking to some degree in the sales comparison, and as it
certainly is in the land residual analysis.
David E. Lane, Inc. 46
Real Estate Appraisers
<PAGE>
CONCLUSION OF 1997 VALUE (continued)
It is therefore our conclusion that the as-is market value of the property
identified as "Delta Greens", a 534-lot residential subdivision with approved
tentative map, located in Sacramento, California, as of May 9, 1997, is:
TWO MILLION DOLLARS ($2,000,000)
CONCLUSION OF 1993 VALUE
Primary emphasis has been placed on the current market value. Just as there
are few current sales of truly-comparable properties to compare to the
subject, there were none in 1993. The 1993 value is therefore estimated by
factoring the current estimate of value back for time.
As discussed under RESIDENTIAL MARKET OVERVIEW and SALES COMPARISON, a
decline in residential land values can be demonstrated over the last three to
six years. This has been on the order of 25% to 50%, based on elements such
as location, proximity to new development, the entitlement status of a
property, and the stage of completion (raw land, mapped land, or finished
lots).
Based on our analysis, the current value estimate should be factored up by
about 35% for the last four years or so. The calculation yields:
$2,000,000/0.65=$3,076,923; rounded to: $3,075,000
The calculation equals only $5,159 per lot for the 596 lots that were
approved in 1993, or $5,868 per lot if the duplex lots are treated as one
(effectively 524 lots). Both are reasonable, and although it is not likely
that an appraiser would have selected such odd per-unit prices, the sales
reflect these kinds of figures.
It is therefore our conclusion that the as-is market value of the property
then identified as "North Shore", a 596-lot residential subdivision with
approved tentative map, as of the March 3, 1993 date of value, was:
THREE MILLION SEVENTY-FIVE THOUSAND DOLLARS ($3,075,000)
David E. Lane, Inc. 47
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CERTIFICATION
The undersigned does hereby certify that, to the best of my knowledge and
belief, and except as otherwise noted in this appraisal report:
1. The statements of fact contained in this report are true and correct.
2. The reported analyses, opinions, and conclusions are limited only by the
reported assumptions and limiting conditions, and are my personal,
unbiased, professional analyses, opinions, and conclusions.
3. I have no present or prospective interest in the property that is the
subject of this report, and I have no personal interest or bias with
respect to the parties involved.
4. My assignment is not based on a requested minimum value, a specific
value, or the approval of a loan.
5. 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 value estimate, the attainment of a stipulated result, or
occurrence of a subsequent event.
6. I have made a personal inspection of the property that is the subject of
this report.
7. No one provided significant professional assistance to the person
signing this report.
8. I have the appropriate education, experience, and knowledge to complete
this assignment competently.
9. My analyses, opinions, and conclusions were developed, and this report
has been prepared, in conformity with the requirements of the Code of
Ethics and the Standards of Professional Practice of the Appraisal
Institute, and with the Uniform Standards of Professional Appraisal
Practice, as promulgated by the Appraisl Standards Board of The Appraisal
Foundation.
10. The use of this report is subject to the requirements of the Appraisal
Institute relating to the review by its duly authorized representatives.
11. The Appraisal Institute conducts a program of continuing education for
its designated members. As of the date of this appraisal, I have
completed the requirements under the voluntary continuing education
program of the Appraisal Institute.
/s/ Michael E. Vogt
---------------------------------
Michael E. Vogt, SRPA, SRA
State-Certified General Appraiser
No. AG 9632; expires Dec. 9, 2000
<PAGE>
CERTIFICATION
I certify that, to the best of my knowledge and belief:
- - The statements of fact contained in this report are true and correct.
- - The reported analyses, opinions, and conclusions are limited only by 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 personal 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.
- - My analyses, opinions, and conclusions were developed, and this report
has been prepared, in conformity with the Uniform Standards of
Professional Appraisal Practice (USPAP) of The Appraisal Foundation, and
in conformity with the requirements of the Code of Professional Ethics
and the Standards of Professional Appraisal Practice of the Appraisal
Institute.
- - I aver that I am competent to complete this report in accordance with
the competency provisions in the USPAP.
- - I have made a personal inspection of the property that is the subject of
this report.
- - Michael E. Vogt provided significant professional assistance to the
person signing this report.
- - The use of this report is subject to the requirements of the Appraisal
Institute relating to review by its duly authorized representatives.
- - As of the date of this report, I, David E. Lane, have completed the
requirements under the continuing education program of the Appraisal
Institute.
/s/ David E. Lane
---------------------------------------
DAVID E. LANE, MAI
Certified General Real Estate Appraiser
California Certificate No. AG003106
David E. Lane, Inc.
Real Estate Appraisers
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ATTACHMENT 3
ITEM # 1
P95-063 OCTOBER 12, 1995 PAGE 9
- -------------------------------------------------------------------------------
RESOLUTION NO. 1344
ADOPTED BY THE SACRAMENTO PLANNING COMMISSION
ON DATE OF SEPTEMBER 28, 1995
A RESOLUTION ADOPTING FINDINGS OF
FACT AND APPROVING A TENTATIVE MAP
TIME EXTENSION FOR PROPERTY LOCATED
EAST OF HIGHWAY 5 & SOUTH OF
MEADOWVIEW ROAD (P95-063)
APN: 052-0010-033, -034, -039, -053 & -054
WHEREAS, the City Planning Commission on September 28, 1995, held a public
hearing on the request for approval of a Tentative Map Time Extension at
property located at the above described location;
WHEREAS, all governmental and utility agencies affected by the development of
the proposed subdivision have been notified an given the opportunity to
respond;
WHEREAS, the City Environmental Coordinator has determined that the proposed
project will not have a significant effect on the environment, and has
provided notice to the public of the preparation of a Negative Declaration.
WHEREAS, the Planning staff has submitted to the City Planning Commission its
report and recommendations on the proposed subdivision;
NOW, THEREFORE, BE IT RESOLVED BY THE COMMISSION OF THE CITY OF SACRAMENTO
THAT:
1. The Tentative Map Time Extension for two
years (valid through October 29, 1997) is
hereby approved based upon the following
findings of fact:
A. A Negative Declaration has been
prepared in compliance with CEQA,
State and City Guidelines, and the
City Planing Commission has reviewed
and considered the information
contained herein.
<PAGE>
ITEM # 1
P95-063 OCTOBER 12, 1995 PAGE 11
- -------------------------------------------------------------------------------
and on-site controls shall be implemented.
ADVISORY NOTES:
The following advisory notes are informational in nature and are not a
requirement of this Tentative Map.
D. The applicant must comply with the
City of Sacramento's Grading, Erosion
and Sediment Control Ordinance. This
ordinance will require the applicant
to prepare erosion and sediment
control plans for both during and
after construction of the proposed
project, prepare preliminary and
final grading plans and prepare plans
to control urban runoff pollution
from the project site during
construction.
/S/ILLEGIBLE
- ---------------------------------
CHAIRPERSON
ATTEST:
/S/Gail Stonehouse
- ---------------------------------
SECRETARY TO PLANNING COMMISSION
P95-080
<PAGE>
EXHIBIT 3-B ITEM 6
PAGE 13
AMENDED
RESOLUTION NO. 91-878
ADOPTED BY THE SACRAMENTO CITY COUNCIL
ON DATE OF OCT 29 1991
A RESOLUTION APPROVING TENTATIVE MAP TO SUBDIVIDE 121.4 +/- VACANT
ACRES INTO 596 LOTS (451 FOR SINGLE FAMILY, 144 FOR HALF-PLEX AND
ONE PARK) FOR PROPERTY LOCATED SOUTH OF MEADOWVIEW ROAD, WEST OF
JOHN STILL DRIVE
(P90-407) (APN: 052-0010-033, 034, 039, 053, AND 054)
WHEREAS, the City Council on OCT 29 1991, held a public hearing on the
request for approval of a tentative map for property located at the above
described location;
WHEREAS, all governmental and utility agencies affected by the development of
the proposed subdivision have been notified and given the opportunity to
respond;
WHEREAS, the Environmental Coordinator has determined that the proposed
project will not have the potential to have a significant effect on the
environment, and has provided notice to the public of the preparation of a
Negative Declaration;
WHEREAS, the City Planning Commission has submitted to the City Council its
report and recommendations on the proposed subdivision;
WHEREAS, the City Council has considered the design of the proposed
subdivision in relation to feasible future passive or natural heating and
cooling opportunities; and
WHEREAS, the City Council has considered the effects that approval of the
proposed subdivision would have on the housing needs of the Sacramento
Metropolitan area and balances these needs against the public service needs of
City residents and available fiscal and environmental resources.
NOW, THEREFORE, BE IT RESOLVED BY THE COUNCIL OF THE CITY OF SACRAMENTO THAT:
- --------------------------------------------------------------------------------
FOR CITY CLERK USE ONLY
RESOLUTION NO: 91-878
------------
DATE ADOPTED: OCT 29 1991
------------
<PAGE>
ITEM 6
PAGE
B. Prepare a sewer, water and drainage study for the review and
approval of the Public Works Department. Construction of these
improvements shall be assured to the satisfaction of the Public
Works Department prior to filing the first phase or the entire map.
Phased or incremental construction may be allowed by the Public
Works Department pending the results of the sewer, water, and
drainage study. Phased construction may require offsite utility
construction;
C. Applicant shall extend the 54" drain pipe under Manorside Drive or
construct a bridge or relocate Manorside Drive to the north to
provide for drainage to the satisfaction of the Flood Control and
Sewer Division;
D. Applicant shall pay a fair share contribution toward the drainage
study on Sump 33 and 34 as determined by the Flood Control and
Sewer Division;
E. Pursuant to City Code Section 40.1302 (parkland dedication), the
applicant shall submit to the City an appraisal of the property to
be subdivided and pay the required parkland dedication in-lieu fees.
The appraisal shall be dated not more than 90 days prior to the
filing of the Final Map;
F. Submit a soils test prepared by a registered engineer to be used in
street design;
G. Pursuant to City Code Section 40.319-1, the applicant shall
indicate easements on the Final Map to allow for the placement of
centralized mail delivery units. The specific locations for such
easements shall be subject to review and approval of the City
Engineer after consultation with the U.S. Postal Service;
H. Dedicate a standard 12.5-foot public utility easement for
underground public utility facilities and appurtenances adjacent to
all public ways;
I. Notice: Property to be subdivided in accordance with this map may be
subject to flooding. Interested parties should ascertain whether and
to what extent such flooding may occur. The applicable base flood
elevations for the property should be reviewed. Base flood
elevations are contained in the U.S. Army Corps of Engineers Flood
Insurance Study Working Map for the Sacramento Community, dated
January 1989, available at the City of Sacramento's Public Works
Department, Development Services Division, Room 100, 927 10th Street;
- --------------------------------------------------------------------------------
FOR CITY CLERK USE ONLY
RESOLUTION NO.: 91-878
------------
DATE ADOPTED: OCT 29 1991
------------
<PAGE>
ITEM 6
PAGE
P. Phased construction will require that 2 points of service for a
water distribution system are provided to each phase. Improvements
and dedications off-site may be required. City will condemn at
developer's expense, if necessary;
Q. Show all existing easements, width of existing sewer and drainage
easements shall be increased to 15 foot minimum;
R. Dedicate a 70 foot canal right-of-way in fee. Construct chain link
fence along canal right-of-way. Dedicate right-of-way in fee for and
construct access ramps upstream and downstream at Street "E" and
downstream at Manorside Drive.
*S. Construct bridge at Street "E" over canal, and provide slope
easements along Street "E", to the extent such easements are
determined to be necessary; provided that the City may eliminate
the requirement that the bridge at Road "E" be constructed, or may
modify the alignment and location of Road "E" and the bridge, if
the City finds that elimination of the bridge or modification of
the alignment and location of Road "E" and the bridge is necessary
and appropriate, given the nature and scope of development of the
property located to the south of the subject site.
T. Place a note on the final map: The applicant shall provide front
yard landscaping and irrigation, as well as rear and side yard
fences prior to the final building inspection.
U. Prior to recordation of the Final Map, applicant shall negotiate with
the Sacramento City Unified School District a written agreement in
satisfaction of the proposed subdivision's school facilities
impacts on the District, as mutually agreed to by the applicant and
the District, subject to ratification by the District's Board of
Trustees;
V. Applicant shall construct vertical curb and gutter and paving
adjacent to the park site. Applicant shall enter into a reimbursement
agreement with the City for frontage improvements adjacent to the
park site;
W. Park site shall not be used for a construction site during
construction of all phases;
X. Street "J" shall be designed to a 27' half street adjacent to
subdivision lots and 18' of paving with a vertical curb and gutter
adjacent to the park within 23' of right-of-way; and
- --------------------------------------------------------------------------------
FOR CITY CLERK USE ONLY
RESOLUTION NO: 91-878
------------
DATE ADOPTED: OCT 29 1991
------------
<PAGE>
EXHIBIT - A ITEM 6
PAGE
TENTATIVE MAP
[MAP]
RESOLUTION 91-878
OCT 29 1991
P90-407 September 12, 1991 Item #3
<PAGE>
[City Seal]
[Letterhead]
April 2, 1997
Psomas and Associates
2295 Gateway Oaks Drive Suite 250
Sacramento, CA 95833
Attention: Susan Williams
Dear Ms. Williams:
SUBJECT: DELTA GREENS TENTATIVE MAP (FORMERLY NORTH SHORES ) P95-063; (P083)
Thank you for submitting your revised tentative map for subject project. A
revision was necessary because the original tentative map had incorrectly shown
the location of the drainage canal, and had failed to show a 30-inch storm
drain.
The revised tentative map shall be considered to be in substantial conformance.
The following are informational notes:
1. All phasing shall be approved at time of plan check.
2. A 20-foot maintenance road is required on both sides of canal.
3. Traffic calming devices on John Still Drive shall be reviewed and may
be required at time of plan check.
4. A total of 534 single family lots are approved as shown on the revised
tentative map.
If you have any questions, please contact me at (916) 264-7493.
Sincerely yours,
/s/Jon Blank
JON BLANK
Associate Engineer
JB:dt
JB2-08.B
cc: Dave Brent, Senior Engineer, Utilities
Dawn Holm, Associate Planner, Planning & Development
Steve Pyburn, Associate Engineer, Transportation Planning
Glenn Marshall, Associate Engineer, Entitlements & Special Projects
<PAGE>
QUALIFICATIONS OF MICHAEL E. VOGT, SRPA, SRA
EXPERIENCE
Property types appraised include: Improved commercial, industrial, and retail;
residential income; various farms; special-purpose facilities; undeveloped
land and sites of many types; single-family residential, and the review of
appraisals.
EMPLOYMENT
March 1986 - present: Self-employed independent fee appraiser.
April 1980 - February 1986: Associated with David E. Lane, Inc., Appraisers
and Counselors.
August 1978 - March 1980: Fee appraiser and appraiser research assistant.
May 1975 - August 1978: Appraiser II, Yolo County Assessor's Office, Rural and
Commercial Departments.
EDUCATION
Formal: B. A. Degree, Economics, 1973; California State University, Sacramento
Appraisal Courses: Dynamics of Office Building Valuation, 1996; Data
Confirmation and Verification, 1996; Federal and State Laws and Regulations,
1995; Standards of Professional Practice, 1994, 1990, & 1981; Case Studies,
1989; Rural Valuation, 1983; Basic Valuation Procedures, 1982; Real Estate
Principles, 1981; Introduction to Appraising Real Property, 1981; R-2
Examination; 1981; Principles of Income Property Appraisal, 1979; Narrative
Report Seminar, 1979. This partial list does not include many appraisal- and
real estate-related seminars.
MEMBERSHIPS
SRPA, SRA Member of the Appraisal Institute; designations awarded in 1982.
CERTIFICATION
Certified-General Real Estate Appraiser, OREA-State of California,
Identification Number AG 9632; expires December 9, 2000.
OTHER
Current member of the Regional Ethics and Counseling Panel, Appraisal
Institute. Chapter President, 1986, Sacramento Chapter No. 101, Society of
Real Estate Appraisers; that chapter consolidated with the Appraisal
Institute as of 1991. Chairman of the Professional Practice Committee, SREA,
from 1987 to 1990. Treasurer, SREA, 1983 to 1985. Past instructor, SREA,
Principles of Appraisal.
<PAGE>
QUALIFICATIONS OF MICHAEL E. VOGT, SRPA, SRA
PARTIAL CLIENT LIST
American Real Estate Group; Church of Jesus Christ of Latter Day Saints;
County of Placer; County of Sacramento; Fleming Companies, Inc.; First
Interstate Bank of California; First Northern Bank; Great American Asset
Management; Mr. Steve House, CPA; Imperial Thrift and Loan Association; Mr.
Archie Parker, Attorney at Law; Placer Savings and Loan; Sacramento
Commercial Bank; Sammis Company; U.S. Bank; Wells Fargo Bank; and, West
America Bank.
COUNTIES OF ASSIGNMENTS
Alameda, Amador, Butte, Calaveras, Colusa, Contra Costa, El Dorado, Marin,
Napa, Nevada, Placer, Riverside, Sacramento, San Joaquin, Solano, Sonoma,
Sutter, Tehama, Tuolumne, Yolo, and Yuba.
EXAMPLE APPRAISAL ASSIGNMENTS
Bradshaw Plaza, Sacramento; proposed 60,000-feet retail center
Braley-Graham Buick, Sacramento; automobile sales and repair facility
Camp Sunshine Mini Storage, Sonora; proposed 42,000-feet facility
Capitol Bank of Commerce, Sacramento; 360,000-feet 18-story office
250 Cleveland Avenue, Sacramento; new 30-unit apartment
Crest Theatre, Sacramento; 1,000-seat historical theater
Esquire Theatre, Sacramento; theater converted to 30,000-feet office
Finnegan's, Sacramento; 8,000-feet dinner-style restaurant
Galt Bingo, Galt; bowling alley converted to bingo parlor
Golden Key Best Western, Auburn; existing 50-room motel
Lodi Motor Lodge, Lodi; proposed 42-room motel
2100 L Street, Sacramento; renovated and remodeled 150,000-feet office
Moore Ranch, Placer County; 3,000-acre transitional farm land
<PAGE>
QUALIFICATIONS
DAVID E. LANE, MAI, CRE
APPRAISAL EXPERIENCE
Mr. Lane has been an independent fee appraiser and counselor since 1965. Real
estate appraised has included all types of residential, commercial,
industrial, urban, rural, and special purpose property. Mr. Lane has also
appraised leasehold estates and easements as well as fee title and is
qualified as an appraiser of fixtures and goodwill. Mr. Lane served as the
California representative on a nationwide panel to review and create
questions for the Certified General Appraiser examination, 1994-1995.
Mr. Lane has appraised property in the following California counties:
Amador El Dorado Modoc San Joaquin Siskiyou Tuolumne
Butte Fresno Napa San Mateo Solano Yolo
Calaveras Humboldt Nevada Santa Clara Sonoma Yuba
Colusa Lake Placer Santa Cruz Stanislaus
Contra Costa Lassen Plumas Shasta Suter
Del Norte Merced Sacramento Sierra Tehama
Mr. Lane has also appraised property in the following states:
STATE OF IDAHO STATE OF NEVADA STATE OF UTAH STATE OF WYOMING
Ada County Washoe County Summit County Laramie County
Bonneville County Sweetwater County
EXPERT WITNESS
Mr. Lane has qualified as an expert witness in real estate valuation in the
following courts:
<TABLE>
<CAPTION>
CALIFORNIA SUPERIOR COURTS: U.S. DISTRICT COURTS: OTHER COURTS:
<S> <C> <C> <C>
Amador San Francisco Sacramento State of Idaho: District Court
Del Norte San Joaquin San Francisco of Bonneville County
El Dorado Shasta State of Nevada: District
Lake Solano BANKRUPTCY COURTS: Court of Washoe County
Lassen Sonoma Sacramento
Los Angeles Stanislaus Santa Rosa
Napa Sutter San Francisco
Placer Yolo Modesto
Sacramento
</TABLE>
ARBITRATION
Mr. Lane has acted as arbitrator in numerous cases, including appointment
under Section 1273.010 et seq. of the California Code of Civil Procedure.
EDUCATION
Sacramento State College, B.A.: numerous educational seminars and conferences.
MEMBERSHIPS AND LICENSES
Certified General Real Estate Appraiser, State of California, Certificate
Number AG003106.
CRE Member, American Society of Real Estate Counselors, Certificate Number
898.
MAI Member, Appraisal Institute, Certificate Number 4186; currently certified
under the Appraisal Institute's voluntary continuing education program.
Senior Member (SR/WA), International Right of Way Association.
Former State Inheritance Tax Referee, Sacramento County, 1968-1975.
Probate Reference, Sacramento County, effective September 1, 1996.
<PAGE>
DAVID E. LANE, MAI, CRE
PARTIAL LIST OF CLIENTS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
FEDERAL GOVERNMENT: STATE GOVERNMENT: COUNTIES: CITIES:
Internal Revenue Service Dept. of General Services Sacramento Sacramento Davis
U.S. Air Force Dept. of Transportation Contra Costa Auburn Folsom
U.S. Corps of Engineers The Reclamation Board Del Norte Nevada Lakeport Lincoln
U.S. Department of Justice El Dorado Solano Modesto Rocklin
U.S. Postal Service SCHOOL DISTRICTS: Sonoma Yolo Oroville Roseville
Sacramento Davis Yuba Plymouth
REDEVELOPMENT AGENCIES: Bowman Eureka Santa Rosa
Sacramento Redding Elk Grove Folsom OIL COMPANIES: Sebastopol
Crescent City Napa Lincoln Grant Chevron, U.S.A. Vacaville
Santa Rosa Natomas Robla Shell Oil West Sacramento
Suisun City Rocklin San Juan Texaco, Inc. Las Vegas, Nevada
Boise, Idaho Washington Winters Union Oil Rock Springs, Wyoming
Idaho Falls, Idaho Woodland
Cheyenne, Wyoming
</TABLE>
<TABLE>
<CAPTION>
OTHER PUBLIC BODIES:
<S> <C>
American River Fire Protection District Roseville Community Hospital
American River Flood Control District Sacramento Municipal Utility District
Arcade Creek Recreation and Park District Sacramento-Placerville Transportation Corridor
Elk Grove Community Services District Joint Powers Authority
Napa Sanitation District Sacramento Regional Transit District
Northridge Water District South Yuba Water District
PERS Trucker-Donner Recreation and Park; District
Rancho Murieta Community Services District University of California, Berkeley Foundation
Reclamation District No. 1000 Western Regional Sanitation Landfill Authority
Regents of the University of California
</TABLE>
<TABLE>
<CAPTION>
INSURANCE & TITLE COMPANIES:
<S> <C> <C>
Allstate Insurance First American Title Company State Farm
California Fair Plan Association Founders Title Company Ticor
California Mutual Insurance Company Hudson Company Transamerica Title Company
Chicago Title Insurance Company Lawyers Title Underwriters Adjusting Company
CNA Insurance Placer Title Company Western Title Company
Fidelity Title
NATIONAL OR INTERNATIONAL COMPANIES:
American Recreation Centers Granite Rock Company Montgomery Ward
Amerigas Grossman's Morrison Homes
Bergen Brunswig Hazama USA Corp Nissan
British-American Bingo Koll Company Perma-Bilt
Campbell Soup Koppers, Inc. Pacific Scene
CB Commercial Lerner Company Procter & Gamble
Centennial Group, Inc. Levitz, Corporation J.E. Robert Companies
Circle K Liquid Air, Inc. Southern Pacific Railroad
Clarklift-West Lockwood-Ames Syufy Enterprises
Copley Real Estate Advisors Lone Star Industries Trust for Public Lands
Cowell Foundation Lucky Stores Union Carbide
Dairy Queen Mazda Union Pacific Railroad
Denver & Rio Grande Railroad MCI U.S. Home
Diamond International Marley Tile Walgreen's
Ford Motor Company McDonald's Corporation Wenco Corporation
Foremost McKesson McDonnell-Douglas Corporation Winchell Donuts
General Electric Investment Corp. Mitsubishi Corporation
</TABLE>
<PAGE>
DAVID E. LANE, MAI, CRE
PARTIAL LIST OF CLIENTS (continued)
<TABLE>
<CAPTION>
LOCAL ENTITIES:
<S> <C> <C>
AKT Development James J. Cordano Co. Red Cross
Baptist Church Joe Benvenuti RJB Company
Bel Air Markets KCS Development Roman Catholic Bishop
California Farm Bureau KVIE Sacramento Board of Realtors
California School Boards Association Kimmel Construction, Inc. Sacramento Dental Associates
Camray L & P Land & Development Sacramento Sports Association
Castle & Crown (now Parker Development Co.) Salvation Army
Cemo Development League of California Cities Separovich-Domich Co.
Christ Unity Church Lexington Homes Stanford Ranch
Continental-Heller Construction Co. Lukenbill Enterprises Sterling Homes
Crocker Development Meeks Building Centers Sutter Health
Dame Construction Nelson-Rodgers Company The Sacramento Bee
Daru Development Odd Fellow Association The Sacramento Union
Downtown Plaza Associates Ose Properties Teichert Land Co.
Duke Development Pacific Coast Building Products Thomson-Diggs
East Lawn Mortuary Pacific Gas and Electric United Way
Fox & Craskadon Planning & Conservation League University of the Pacific (McGeorge
Granite Construction Company Rancho Murieta Properties, Inc. School of Law)
Grupe
ATTORNEYS:
Allen, Matkins, Leck, Gamble & Greve Clifford Wengel & Paras Orrick Herrington & Sutcliffe
Mallory Hogan & Hartson Porter Scott Weiberg & Delehant
Boutin Lassner Gibson Perry & Hoge Fenton Jones & Appel Ramsey Morrison Keddy & Wallis
Delehant Hyde Miller & Owen Robinson & Wood Inc.
Brenton A. Bleier Law Office Kronick Moskovitz Tiedemann & Schei Pendergast & Collins
Brobeck Phleger & Harrison Girard Sheppard Mullin Richter &
Burger & Flaherty Lillick & Charles Hampton
de la Vergne & McMurry Loeb & Loeb Trainor, Robertson, Smits & Wade
Diepenbrock Wulff Plant McDonald Carano Wilson McCune Tobin & Tobin
& Hannegan Bergin Frankovich & Hicks Wilke Fleury Hoffelt Gould &
Downey Brand Seymour & Rohwer McDonough Holland & Allen Birney
Friedman & Collard
</TABLE>
<TABLE>
<CAPTION>
FINANCIAL INSTITUTIONS:
<S> <C> <C>
American Savings Consolidated Credits Bank, Limited Mercantile Bank
Bank of America FDIC Metrobank
Bank of California Fireman's Fund Mitsubishi Bank
Bank of San Francisco First Commercial Bank Nationwide Bank
Bank of Tokyo First Northern Bank Nova Scotia Bank
Bank of the West Fort Worth National Bank Point West Bank
Bay View Federal Savings & Loan Great American Bank Prudential-Bache
California Federal Bank Great American First Savings River City Bank
California Security Bank Bank San Francisco Federal Savings &
Capital Federal Savings & Loan Home Savings of America Loan
Capitol Bank of Commerce Lake Savings & Loan State Savings & Loan
Central Bank Manufacturers Bank Wells Fargo Bank
Coast Federal Bank Mather Federal Credit Union Westamerica Bank
CoBank Merator Savings Bank Western Sierra National Bank
Commerce Security Bank
</TABLE>
<PAGE>
APPRAISAL OF
AHWAHNEE GOLF COURSE & RESORT
National Investors Financial, Inc. Property
Madera County, California
as of
May 1, 1997
&
September 19, 1995
for
National Investors Financial, Inc.
Mr. David G. Lasker, President
4675 MacArthur Court, Suite 1230
Newport Beach, California 92660
by
R. W. Arnold, MAI, ARA
751 West 18th Street, P. O. Box 272
Merced, California 95341
<PAGE>
[LOGO]
[LETTERHEAD]
June 26, 1997
Mr. David G. Lasker, President
National Investors Financial, Inc.
4675 MacArthur Court, Suite 1230
Newport Beach, California 92660
Dear Mr. Lasker:
At your request I have inspected the property owned by Ahwahnee Golf Course
& Resort, Inc. for the purpose of estimating market value as of May 1, 1997 and
September 19, 1995. The property consists of some 1,647.79+/- acres. Existing
uses are an 18 hole golf course with clubhouse and supporting buildings; a
partially completed RV park (55 spaces of an approved 600 spaces); 58 subdivided
residential lots, 45 of which we are appraising; 483.50 acres of open land
designated for 160 residential units; and an additional 532.16 acres with
potential for some 200 more units.
Factors and trends influencing real estate values have been considered. As
one may well expect, we found no sales of properties comparable to the subject
as a whole. However, we were able to find sales comparable to the subject's
individual uses. My analyses, conclusions and supporting data are herewith
submitted in a report of 116 pages. This appraisal meets FIRREA and Appraisal
Institute Standards and Ethics as a Summary Report. In my opinion the market
value of the subject property, as described herein, is as of:
PARCEL ACREAGE 5/1/97 9/19/95
- --------------------------------------------------------------------------------
OUTLOT "A" Ahwahnee Country Club 141.53 $4,480,000 $2,430,000
OUTLOT "B" Ahwahnee RV Park 367.31 3,886,000 3,886,000
PHASE I Ahwahnee Country Club Estates 123.29 2,250,000 3,525,000
PHASE II, III, IV Outlots "F", "G" & "H" 483.50 5,800,000 5,800,000
Outlots "C", "D" & "E" +532.16 +4,500,000 +4,500,000
------- ----------- ----------
TOTALS 1,647.29 $20,916,000 $20,141,000
Respectfully submitted,
/S/ R. W. Arnold
___________________________
R. W. Arnold, ARA, MAI
CA #AG005595
<PAGE>
CERTIFICATION
I certify that, to the best of my knowledge and belief:
-- the statements of fact contained in this report are true and correct.
-- the reported analyses, opinions, and conclusions are limited only by
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 personal interest or bias with
respect to the parties involved.
-- the appraisal assignment was not based on a requested minimum
valuation, a specific valuation, or the approval of a loan.
-- my compensation is not contingent upon the report 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.
-- my analyses, opinions, and conclusions were developed, and this report
has been prepared, in conformity with the requirements of the Uniform
Standards of Professional Appraisal Practice, the Code of Professional
Ethics and the Standards of Professional Appraisal Practice of the
Appraisal Institute, the Standards of Professional Practice of the
American Society of Farm Managers and Rural Appraisers, and Title XI
of the Financial Institution Reform, Recovery, and Enforcement Act.
-- the use of this report is subject to the requirements of the Appraisal
Institute and American Society of Farm Managers and Rural Appraisers
relating to review by its duly authorized representatives.
-- as of the date of this report, R. W. Arnold has completed the
requirements of the continuing education program of the Appraisal
Institute and the American Society of Farm Managers and Rural
Appraisers.
-- R. W. Arnold has made a personal inspection of the property that is
the subject of this report.
-- J. Kenneth Hopper, MAI, and Thomas W. Austin, MAI, provided
significant professional assistance to the person signing this report.
/S/ R. W. Arnold
__________________________
R. W. Arnold, MAI, ARA
<PAGE>
TABLE OF CONTENTS
APPRAISAL CONDITIONS AND DEFINITIONS........................................1
Assumptions and Limiting Conditions....................................1
Purpose and Function of the Appraisal..................................3
Scope of the Appraisal.................................................3
Definition of Market Value.............................................3
Other Definitions......................................................4
Highest and Best Use...................................................4
Property Rights Appraised..............................................4
AREA ANALYSIS...............................................................5
IDENTIFICATION OF PROPERTY..................................................6
Legal Description......................................................6
Personal Property......................................................6
Zoning.................................................................6
Assessment Data........................................................7
Flood Zone.............................................................7
Ownership History......................................................7
The Larger Parcel......................................................7
Highest and Best Use...................................................7
OUTLOT "A"..................................................................9
OUTLOT "B".................................................................26
PHASE I....................................................................32
PHASE II, III & IV.........................................................35
OUTLOTS "C", "D" & "E".....................................................38
QUALIFICATIONS OF R. W. ARNOLD.............................................42
EXHIBITS:
"A" LAND USE DATA....................................................43
"B" WILDLIFE HABITAT AGREEMENT.......................................64
"C" AHWAHNEE COUNTRY CLUB ESTATES
SUBDIVISION CC & R's............................................68
<PAGE>
1
APPRAISAL CONDITIONS AND DEFINITIONS
ASSUMPTIONS AND LIMITING CONDITIONS
This appraisal report has been made with the following general assumptions:
-- No responsibility is assumed for the legal description or for matters
including legal or title considerations. Title to the property is
assumed to be good and marketable unless otherwise stated. The
property is assumed to be available for its highest and best use.
-- The property is appraised free and clear of any or all liens or
encumbrances unless otherwise stated.
-- Responsible ownership and competent property management are assumed.
-- The information furnished by others is believed to be reliable.
However, no warranty is given for its accuracy.
-- The appraiser assumes no responsibility for economic or physical
factors occurring after the date of value which may affect the
opinions herein stated. The projections included in this report are
subject to changes in future conditions that cannot be accurately
predicted by the appraiser and could affect the future income or value
projections.
-- No engineering survey has been made by the appraiser. Except as
specifically stated, data relative to size and area were taken from
sources considered reliable. The plot plans and illustrative material
in this report are included only to assist the reader in visualizing
the property.
-- That there are no hidden or unapparent conditions of the property,
subsoil, or structures that render it more or less valuable. No
responsibility is assumed for such conditions or for arranging for
engineering studies that may be required to discover them.
-- That there is full compliance with all applicable federal, state, and
local environmental regulations and laws unless noncompliance is
stated, defined, and considered in the appraisal report.
-- That unless otherwise stated in this report, the existence of
hazardous material, which may or may not be present on the property,
was not observed by the appraiser. The appraiser has no knowledge of
the existence of such materials on or in the property. The appraiser
however, is not qualified to detect such substances. The presence of
any potentially hazardous materials or substances may affect the value
of the property. The value estimate is predicated on the assumption
that there are no such materials or substances on or in or under the
property that would cause a loss in value. No responsibility is
assumed for any
<PAGE>
2
such conditions, or for any expertise or engineering
knowledge required to discover them. The client is urged to retain an
expert in this field, if desired.
-- That all applicable zoning and use regulations and restrictions have
been complied with, unless a nonconformity has been stated, defined,
and considered in the appraisal report.
-- That all required licenses, certificates of occupancy, consents, or
other legislative or administrative authority from any local, state,
or national government or private entity or organization have been or
can be obtained or renewed for any use on which the value estimate
contained in this report is based.
-- That the utilization of the land and improvements is within the
boundaries or property lines of the property described and that there
is no encroachment or trespass unless noted in the report.
This appraisal report has been made with the following general limiting
conditions:
-- The distribution, if any, of the total valuation in this report
between land and improvements applies only under the stated program of
utilization. The separate allocations for land and buildings must not
be used in conjunction with any other appraisal and are invalid if so
used.
-- Any value estimates provided in the report apply to the entire
property, and any proration or division of the total into fractional
interests will invalidate the value estimate, unless such proration or
division of interests has been set forth in the report.
-- The appraiser, by reason of this appraisal, is not required to give
further consultation, testimony, or be in attendance in court with
reference to the property in question unless arrangements have been
previously made.
-- The Americans with Disabilities Act (ADA) became effective January 26,
1992. The appraiser has not made a specific compliance survey and
analysis of this property to determine whether or not it is in
conformity with the various detailed requirements of the ADA. It is
possible that a compliance survey of the property, together with a
detailed analysis of the requirements of the ADA, could reveal that
the property is not in compliance with one or more of the requirements
of the Act. If so, this fact could have a negative effect upon the
value of the property. Since the appraiser has no direct evidence
relating to this issue, the appraiser did not consider possible
noncompliance with the requirements of ADA in estimating the value of
the property.
<PAGE>
3
PURPOSE AND FUNCTION OF THE APPRAISAL
We were requested to estimate the market value of Yosemite Woods Family
Resort (Ahwahnee Golf Course & Resort) as of May 1, 1997 and September 19, 1995.
The report will be used for financial evaluation and other analysis by National
Investors Financial, Inc.
SCOPE OF THE APPRAISAL
In the completion of this appraisal, a thorough investigation of factors
and trends considered pertinent to the valuation assignment has been performed.
In addition to making use of data contained in our office files, the following
investigations were made:
* Over the past thirteen years I have inspected the property
numerous times. My last trip through the property, for the
purpose of this valuation, was June 18, 1997.
* Information was obtained about recent property transfers
from County records, Realtors other appraisers. Copies of
grant deeds were obtained to verify that each sale is bona
fide. Buyers, sellers, and/or brokers were contacted to
verify sale information and to obtain further details of the
circumstances surrounding each sale.
* Use was made of County road maps, geological survey maps and
soil maps to gain physical information about the subject
properties and the comparable sales.
* Madera County Planning Department was consulted on
conditions which may have changed since issue of the
original development permit, Exhibit "A".
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 and knowledgeably, and assuming the price is not affected
by undue stimulus. Implicit 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 own best interests;
3. a reasonable time is allowed for exposure in the open market;
4. payment is made in terms of cash in United States
dollars or in terms of financial arrangements comparable thereto; and
<PAGE>
4
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.
[UNIFORM STANDARDS OF PROFESSIONAL APPRAISAL PRACTICE, The Appraisal Foundation,
December 1990, page B-7.]
OTHER DEFINITIONS
FEE SIMPLE TITLE: Absolute ownership unencumbered by any other interest or
estate, subject only to the limitations imposed by the
government powers of taxation, eminent domain, police power,
and escheat. [American Institute of Real Estate Appraisers,
THE DICTIONARY OF REAL ESTATE APPRAISAL, 3rd ed., (Chicago:
American Institute Of Real Estate Appraisers, 1993), 140.]
HIGHEST AND BEST USE
Highest and best use may be defined as "the reasonably probable and legal
use of vacant land or improved property, which is physically possible,
appropriately supported, financially feasible, and that results in the highest
value." [American Institute of Real Estate Appraisers, THE APPRAISAL OF REAL
ESTATE, 10th ed., (Chicago: American Institute of Real Estate Appraisers, 1992),
45.]
There are four tests or conditions that must be met when determining
whether a specific use for a property is its highest and best use. The use must
be legal, I.E., it must conform to zoning. The site must be physically
adaptable for the use. The proposed use must be financially feasible and it
must be the most productive use, yielding the highest return on investment.
PROPERTY RIGHTS APPRAISED
All the rights of fee simple title, subject to easements and restrictions
of record will be considered. Physical inspection reveals no obvious adverse
interests. A preliminary title report by Commonwealth Land Title Insurance
Company #M19157-90 dated October 29, 1996 was examined. The report shows
delinquent taxes and numerous financial transactions between Stewart Thomas
Development L.P. and National Investors Financial. No adverse easements or
restrictions were discovered.
<PAGE>
[MAP]
REGIONAL MAP
<PAGE>
5
AREA ANALYSIS
Madera County is located in the central San Joaquin Valley 2.5 hours
southeast of San Francisco and 4 hours northwest of Los Angeles. The western
portion of the county is utilized for diverse agriculture whereas the eastern
portion, the subject location, is dependent upon mining, recreation and
retirees.
Oakhurst is located along State Highway 41 at the 2,400' elevation.
Highway 41 begins in Santa Margarita at Highway 101 near the Pacific Ocean and
traverses northerly through Oakhurst terminating in Yosemite Valley, about 30
miles north of Oakhurst. Near the eastern area of Oakhurst, Highway 49
commences and heads north along the "Golden Chain" of mining towns and mines
and eventually terminates in the Grass Valley area at Highway 20. Both of the
highways are well travelled.
Yosemite National Park is the obvious draw. The National Park Service
provided the following data based on number of visitors entering from the
respective park gates. The 1996 count did not include December as the entire
park was closed because of the political debacle in Washington D.C. We did not
include 1997 data to date because of the flood and resulting closure of the
park.
1993 thru 1996 Average
Entrance Visitors % of Total
-------- -------- ----------
Arch Rock (140) 970,903 23.9
South (41) 1,314,872 32.4
Big Oak Flat (120 E) 1,119,854 27.6
Tioga (120 W) 653,674 16.1
--------- -----
4,056,730 100.0
This data shows that an average 1,314,872 visitors passed through Oakhurst
during the past four years. While many of these people are not prospective
purchasers for the various entities of the subject property, the exposure is
there. Yosemite, with the help of the 1997 flood, is closing many campgrounds
which were politically unpopular. Thus, additional outside accommodations must
be developed. Oakhurst/Ahwahnee is a logical area for some of these
accommodations.
Oakhurst is an unincorporated community and is the banking and shopping
center for perhaps 35,000 to 40,000 people in eastern Madera and Mariposa
Counties. As shown on the opposite page, Yosemite National Park and Bass Lake
are a short distance away.
During the past 25 years, the Mother Lode area has been developing to
recreation and retirement uses which commenced in the Sacramento-Auburn area and
has drifted south and north. Oakhurst has seemed to benefit the greatest in the
southern portion of the Mother Lode chain. This is due no doubt to its
relatively close proximity to the Los Angeles basin where many of the future
retirees and recreational homeowners reside.
<PAGE>
[MAP OF PROJECT SITE]
<PAGE>
6
The community has traffic congestion because the only through street is the
highway. A stoplight has been installed at the three-way Highway 49-41
intersection and Highway 41 and Road 426 intersection. Bass Lake, a destination
recreation area, is located about five miles northeast off Highway 41.
Ahwahnee, the subject area, is located about five miles northwest along Highway
49. The entire area is developing to rural residences on a variety of lot
sizes, usually one acre minimum; many with five or more acres. These rural
residence sites have on-site wells and septic systems. In summary, the economy
of the area is changing from timber and agriculture to recreation and
retirement.
IDENTIFICATION OF PROPERTY
LEGAL DESCRIPTION
Parcel 1: Lots 1 through 58, inclusive, and Outlots "F", "G" and "H" of Tract
No. 221, in the County of Madera, State of California, as shown
on a map filed in Book 38 at Pages 30 to 38, inclusive, of Maps,
Madera County Records.
Excepting therefrom Lots 20, 34, 35, 38, 40, 42, 43, 47, 48, 50, 54, 55 and
56 of said tract.
Parcel 2: Outlots "A", "B", "C", "D" and "E" of Tract No. 221, in the County of
Madera, State of California, as shown on the map filed in Book 38
at Pages 30 to 38, inclusive of Maps, Madera County Records.
Excepting from those portions of the Outlot "E" all coal and other minerals
as reserved in United States, Patents, as Recorded in Book 7 of Patents, at
Pages 25 and 436; and 30% of all oil, gas, minerals and hydrocarbon substances
as reserved in deed from Martha G. Stephenson, Recorded December 27, 1975 in
Book 707 at Page 620 of Official Records, Madera County Records.
Parcels 1 and 2 are also known as Madera County APN (Assessor's Parcel
Number) 55-580-01 through 19, 55-580-21 through 33, 55-580-36 through 39, 55-
580-41, 55-580-44 through 46, 55-580-49, 55-580-51 through 53, 55-580-57 and 58,
55-570-01 through 07, 57-630-01 through 03.
PERSONAL PROPERTY
No personal property is included the valuation of this report.
ZONING
By Minute Order Number 2743, on February 4, 1985, a Conditional Use Permit
was approved for a 600 pad RV park and 18 hole golf course on approximately 530
acres of the larger parcel with single-family development on a portion of the
remainder. On December 12, 1989, the Madera County Planning Commission approved
Resolution PCR 89-64 which allows development of the subject in the format as
described herein with certain mitigation
<PAGE>
AHWAHNEE PROPERTY TAX
3/97
- --------------------------------------------------------------------------------
PARCEL NUMBER 1996-97 TAX SUPPS BACK TAXES TOTAL
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
055-570-001 42,636.38 0.00 191,115.05 233,752.43
- --------------------------------------------------------------------------------
055-570-002 8,752.08 0.00 55,531.67 64,283.75
- --------------------------------------------------------------------------------
055-570-003 818.37 0.00 4,215.30 5,033.67
- --------------------------------------------------------------------------------
055-570-004 673.55 0.00 3,474.92 4,148.47
- --------------------------------------------------------------------------------
055-570-005 2,453.05 0.00 9,555.80 12,408.55
- --------------------------------------------------------------------------------
055-570-006 2,218.02 0.00 15,343.49 18,586.21
- --------------------------------------------------------------------------------
055-570-007 3,152.03 0.00 18,274.72 20,375.75
- --------------------------------------------------------------------------------
055-580-001 630.39 377.40 432.51 1,938.60
- --------------------------------------------------------------------------------
055-580-002 630.39 384.94 332.51 1,697.84
- --------------------------------------------------------------------------------
055-580-003 630.39 354.52 1,213.10 2,005.01
- --------------------------------------------------------------------------------
055-580-004 630.39 390.22 545.55 1,869.17
- --------------------------------------------------------------------------------
055-580-005 630.39 388.70 852.29 1,877.38
- --------------------------------------------------------------------------------
055-580-006 630.39 366.78 998.55 1,995.72
- --------------------------------------------------------------------------------
055-580-007 577.85 349.70 635.48 1,764.03
- --------------------------------------------------------------------------------
055-580-008 577.85 353.88 309.68 1,741.59
- --------------------------------------------------------------------------------
088-580-009 630.39 379.64 915.29 1,926.32
- --------------------------------------------------------------------------------
055-580-010 735.48 439.16 1,078.38 2,253.02
- --------------------------------------------------------------------------------
055-580-011 735.48 450.46 1,008.77 2,191.71
- --------------------------------------------------------------------------------
055-580-012 735.48 452.18 930.51 2,128.47
- --------------------------------------------------------------------------------
055-580-013 735.48 458.04 957.40 2,150.92
- --------------------------------------------------------------------------------
055-580-014 735.48 447.46 1,025.10 2,208.04
- --------------------------------------------------------------------------------
055-580-015 735.48 463.70 871.95 2,071.13
- --------------------------------------------------------------------------------
055-580-016 682.94 417.90 692.76 1,993.60
- --------------------------------------------------------------------------------
055-580-017 735.48 437.62 937.53 2,110.73
- --------------------------------------------------------------------------------
055-580-018 682.94 399.76 1,003.58 2,086.36
- --------------------------------------------------------------------------------
055-580-019 682.94 393.74 1,193.84 2,275.32
- --------------------------------------------------------------------------------
055-580-021 735.48 437.28 1,525.12 2,697.88
- --------------------------------------------------------------------------------
055-580-022 682.94 418.40 1,387.29 2,486.63
- --------------------------------------------------------------------------------
055-580-023 735.48 440.58 1,503.39 2,679.55
- --------------------------------------------------------------------------------
055-580-024 735.48 432.34 1,555.59 2,724.41
- --------------------------------------------------------------------------------
055-580-025 682.94 428.84 1,307.58 2,419.36
- --------------------------------------------------------------------------------
055-580-026 735.48 464.84 1,346.62 2,548.92
- --------------------------------------------------------------------------------
055-580-027 682.94 420.14 1,363.12 2,466.20
- --------------------------------------------------------------------------------
055-580-028 735.48 444.44 1,479.33 2,659.25
- --------------------------------------------------------------------------------
055-580-029 735.48 450.10 1,442.90 2,628.48
- --------------------------------------------------------------------------------
055-580-030 735.48 438.02 1,520.35 2,693.85
- --------------------------------------------------------------------------------
055-580-031 735.48 451.62 1,433.27 2,620.37
- --------------------------------------------------------------------------------
055-580-032 735.48 458.62 1,337.29 2,581.59
- --------------------------------------------------------------------------------
055-580-033 630.39 351.52 1,457.11 2,459.02
- --------------------------------------------------------------------------------
055-580-036 735.48 431.22 1,563.65 2,730.55
- --------------------------------------------------------------------------------
055-580-037 735.48 435.52 1,555.35 2,757.15
- --------------------------------------------------------------------------------
055-580-039 735.48 455.96 1,341.33 2,542.77
- --------------------------------------------------------------------------------
055-580-041 630.39 367.18 1,302.38 2,320.25
- --------------------------------------------------------------------------------
055-580-044 735.48 417.62 1,950.91 2,804.01
- --------------------------------------------------------------------------------
055-580-045 735.48 448.34 1,457.11 2,648.53
- --------------------------------------------------------------------------------
055-580-046 735.48 431.62 1,551.42 2,728.52
- --------------------------------------------------------------------------------
055-580-049 735.48 418.76 1,543.55 2,797.89
- --------------------------------------------------------------------------------
055-580-051 735.48 445.22 1,474.48 2,655.18
- --------------------------------------------------------------------------------
055-580-052 735.48 435.36 1,537.27 2,708.11
- --------------------------------------------------------------------------------
055-580-053 735.48 405.90 1,725.95 2,867.33
- --------------------------------------------------------------------------------
055-580-057 735.48 449.34 1,447.52 2,632.64
- --------------------------------------------------------------------------------
055-580-058 735.48 444.82 1,231.01 2,411.31
- --------------------------------------------------------------------------------
057-630-001 5,058.60 56.66 25,518.25 30,733.52
- --------------------------------------------------------------------------------
057-630-002 8,094.70 0.00 44,693.38 52,793.08
- --------------------------------------------------------------------------------
057-630-003 4,291.60 799.62 16,985.67 22,078.09
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
108,679.67 19,832.94 442,420.02 570,932.63
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
7
requirements as shown in Exhibit "A" for documentation. The subject is a
mixed land use property with 218 single-family lots, 2 recreation parcels (18
hole golf course and 600 pad RV park) and 3 outlots (for future development).
The map opposite the next page shows the respective uses. The golf course
is zoned as open space. The remainder is RRS, single family residential, 1
to 5 acre or larger lots.
ASSESSMENT DATA
The chart on the opposite page was prepared by Tracy Kennedy Desmond,
Madera County Treasurer and Tax Collector. It was prepared in March 1997 and
was current as of June 4, 1997. Taxes were last paid in 1991-92 tax year. As
of June 4, 1997 the 1996-97 taxes have not been paid.
FLOOD ZONE
The subject property is designated Zone X, an area determined to be outside
the 500 year floodplain as per FIRM Community Panel #0601700225 dated August 4,
1987.
OWNERSHIP HISTORY
The property was purchased by Alan Thomas, etal, in 1978 when it was
approved for a 690 lot single-family development with golf course, etc. Over
the years, changes in title, always including Thomas, and density of the project
have changed. Stewart Thomas Development L.P. a California Limited Partnership
was formed. National Investors Financial Inc, a California Corporation
foreclosed on the property on September 19, 1995.
THE LARGER PARCEL
The larger parcel was purchased by Alan Thomas, etal, in 1978 for
$2,200,000 or $1,333 per acre for the 1,647.79 acre site. At that time, the
entire parcel was approved for 690 single-family lots and a golf course. A
series of changes in the master plan commenced in 1985 and finally concluded in
1989 resulting in the current complex as permitted in Exhibit "A". The map
opposite the following page shows these uses. Exhibit "C" is the CC & R's
currently of record for Ahwahnee Country Club Estates.
Elevations range from a low of 1,625' where Miami Creek exits at the
southwest portion of the property to a high of 3,000' in Section 33, the eastern
portion of the property. Miami Creek is normally an all year stream. The
property has a water right "being 265 inches measured with a 4 inch pressure per
water location to Edward J. Leonard, dated September 18, 1893, recorded
September 21, 1893 in Volume 1 of water rights, Page 2, Madera County Records".
This is equivalent to 1,480 gallons per minute. This water will be utilized by
the golf course and other landscaping.
The county required additional water for domestic and fire protection. Six
wells have been constructed yielding approximately 400 gallons per minute. In
addition, there is a 500,000 gallon storage tank and 2,500 gallon transfer tank.
<PAGE>
[PLAT MAP]
<PAGE>
8
The intersection from Highway 49, at Harmony Lane, has been completed and
all main line roads and water, electrical, cable, and telephone utilities are in
the main road, Opah Drive.
The water system has been dedicated to Madera County and Maintenance
District #46 formed. Cost at this point is $100 per parcel per year. The
District will maintain the water system. The main roads were offered for
dedication to Madera County by instrument #16284 recorded in 1991. The county
will not accept them but they are built to county standards.
As part of the mitigation process, some 300+/- acres has to be devoted to
wildlife habitat. This area is hatch marked on the opposite page. The
document, recorded March 20, 1991, #6911, is included as Exhibit "B".
This property was designed to be a single parcel. The irrigation and
domestic water system serves several parcels, some of which have been offered to
Madera County. The property is served by septic tanks with some leach lines
from the RV park and proposed residential units extending under various holes of
the golf course.
Extensive research and documentation will be required prior to sale of
individual parcels, golf course, RV park, Phase I and remaining residential land
to prepare easements and maintenance agreements. We are not qualified to do
this research and documentation.
HIGHEST AND BEST USE
The subject consisting of 1,647.79 acres is a unique property particularly
when so close to a populated area. With today's political climate we are unsure
what uses would be granted for development. Most likely the permitted use would
not be allowed. Regardless, more mitigation acres for wildlife, etc., would be
required.
The subject, with entitlements, is a complex property. While some may not
consider the entitled uses compatible, taken individually, they fit the
community and as designed will work. Current ownership is considering
condensing the residential space, possibly requesting additional units offset by
additional open space. In either instance, the entitled use or changed use is
the subject's highest and best use.
<PAGE>
[TOPOGRAPHY MAP]
<PAGE>
9
OUTLOT "A"
AHWAHNEE COUNTRY CLUB
LEGAL DESCRIPTION
Outlot "A" of Ahwahnee Country Club Estates Subdivision, Tract No. 221
recorded in Book 38 of Maps at Pages 30 through 38, Madera County Records. The
parcel contains 141.53 acres gross. The property is also known as APN 55-570-
01. The property is shown on the opposite page.
ASSESSMENT DATA
The Madera County Assessor assesses the property for the 1996-97 tax year
as follows:
AV Land $1,934,263 + AV Improvements $1,733,506 + Personal Property
$379,643 = Total Assessed Value $4,047,412 x Approximate Tax Rate
$1.00/$100 Assessed Value = Total Approximate Tax $40,474.
As buildings are added, they will be assessed at market value by supplemental
tax bills. Upon sale or transfer, the property will be reassessed at market
value and taxed accordingly.
SITE DESCRIPTION
The site is improved with an 18 hole championship-length golf course which
was completed in 1989. In its current configuration, the course plays to a par
70 from the championship markers (blue tees) and par 71 from the regular tees.
The distance is 6,319 yards from the blue tees (championship), 5,716 yards from
the white tees (regular), and 4,941 yards from the red tees. The course is
rated 70.8 from blue, 68.1 from white and 68.6 from the red tees, and the
respective slope ratings are 132, 125 and 119.
The golf course was constructed of average-to-fair quality materials, but
the work completed over the past two years has dramatically increased the
overall project quality. Ahwahnee offers a challenging tract which meanders
through the natural mountain terrain and a meadow/wetlands area. Many fairways
are narrow and precise ball placement is required on both drives and approach
shots. Several holes are designed with elevated tees adjacent to natural grass
and there are many raised greens with sloping surrounds. Almost half the holes
have doglegs and most have sloping fairways, which increases the difficulty of
approach shots. Generally speaking, the course is challenging yet fair to most
golfers.
The course is irrigated through an underground sprinkler system with
surface sprinklers in some areas. There are no on-site pumps specific to the
golf course and water is dispersed through gravity flow and natural pressure.
There is an on-site well and pump for domestic water (clubhouse) which can be
used to pump water to the course, but the domestic pump has only been used once
due to the adequate natural pressure throughout the course. The larger parcel
has water rights to Miami Creek, which essentially runs year round. Many times
in mountain regions, the native mountain grass tends to overtake both
<PAGE>
[Map]
Total Building Area: 12,241 Sq Ft.
<PAGE>
10
fairways and greens, but the current owners pre-emerged in 1996-97 and have
managed to maintain approximately 90% of the seeded grasses on tees, fairways
and greens.
The leach field for the RV park is under the driving range and Hole #1.
Leach fields for the other residential lots are proposed to be placed in the
out-of-bounds area of Holes #9, #16 and #18.
BUILDING IMPROVEMENTS
Supporting the golf course is a 12,241 square foot (SF) clubhouse, which
was completed in 1990, see opposite page. The structure was built of class-D,
average-to-good quality wood frame materials. The entry is covered and the
walkway is aggregate concrete. Windows are tinted glass set in anodized
aluminum frames, many of which overlook the golf course and/or driving range.
The interior is divided into an entry, dining areas, bar/lounge, administrative
offices, restrooms, a commercial kitchen and the pro shop. Construction
materials include a concrete foundation and floor, stucco exterior walls and a
modified gable roof covered with concrete tiles. Interior features include a
tile entry with a rock fountain and carpeting throughout most remaining areas.
Ceilings are pitched with recessed indirect lights and several attached ceiling
fans. Heating and cooling is roof mounted and vents are recessed into the
ceiling, along with music and a fire sprinkler system.
The kitchen is a full-service commercial kitchen with lunch, dinner and
banquet capabilities. Restrooms feature tile flooring, painted sheetrock walls
and ceiling. Fixtures include three sinks, three stalls with toilets, and two
urinals in the men's restroom. An exhaust fan, music and sprinklers are
recessed into the ceiling.
Immediately north of the clubhouse is a swimming pool, restroom building,
miniature golf course and mechanical/storage building. The pool is surrounded
by a black iron fence and there is concrete decking with sun chairs.
There is a natural grass driving range at the base of the clubhouse which
features yardage markers and nearly 300 yards of range distance. A practice
putting green, chipping area and miniature golf course are also in close
proximity to the clubhouse.
PROJECT HISTORY
As indicated previously, the course was built in 1989. After completion,
the course received marginal play and the lack of funds had a direct impact on
the owner's ability to maintain the course. In 1993, total golf course
maintenance was reported at only $13,000, which means maintenance was virtually
non-existent. The irrigation system was constructed in a manner with no
sprinklers around the greens and surrounds and the previous owners relied
heavily on natural irrigation. Because of the lack of an adequate watering
system, there was little to no grass surrounding the greens and fairway grass
was also marginal. The drainage system was also inadequate in that the course
would be unplayable for several days after heavy rains. Because of the lack of
scheduled and required maintenance prior to 1995, the course was in fair-to-poor
condition, which led to minimal play and very few returned customers.
<PAGE>
11
Since 1995, the current owners have been determined to renovate the course
to a good playable condition. The drainage system was completely reconstructed
(re-routed and new ponds) so that play can now resume two days after heavy
rains. The irrigation system was also re-configured, automatic sprinklers were
added to all 18 greens and surrounds and the back nine fairways are now fully
automated. Seven tee complexes were re-built and a few of the greens were also
renovated. Fairways, tees, greens and surrounds have been seeded and fertilized
and all greens were recently aerated and sanded.
The clubhouse was completed in 1990 and only minor modification has
occurred since that time such as painting and general cleaning. It is currently
in good condition and there are no significant repairs or renovation required.
The improvements made to the course over the past 18 months have
dramatically improved the playing condition of the golf course. It is currently
in good playable condition, which will only increase as newly seeded areas
begin to take shape. Future plans include re-building the 15th green and
possibly two other greens, creating a few new tee complexes and continuing to
rebuilt and maintain grass fairways, tees, greens and surrounds. By comparison
to other courses in the area, the subject is now above-average and should
continue to improve.
MARKET ANALYSIS
The golf industry in California has seen dramatic fluctuations in prices
over the past few years. During the late-1980's and early-1990's, sales prices
were near all-time highs and demand for acquiring courses was good. In the mid-
1990's, the industry began to show declines and in some areas prices fell as
much as 50%. In the valuation section, we will analyze several golf course
sales, two of which were purchased in 1990 for $15,000,000 and later sold in
1994 and 1996 for around $7,500,000. Since 1994, the market has stabilized in
most areas and prices for well located good quality facilities are consistently
between $7,000,000 and $8,000,000. During this same time period, green fee
rates have been fairly stable with only slight increases in fees. However, over
the past 12 months, some courses have increased greens fees by 5% to 10%, which
is one of the largest annual increases over the past several years.
Although some regions have shown declines over the past few years, the golf
industry in other areas, such as Mariposa, Tuolumne and Calaveras Counties, is
in good demand and new courses are proposed to meet the demand. In these
counties, there are over 12 existing private and public courses. The area is
similar to the subject in that they are foothill and mountain regions located at
least 30 minutes from major metropolitan areas. Although the Oakhurst area has
not been as well received as Tuolumne and Calaveras Counties, there is
precedence set for the future.
The subject property is located about 10 minutes outside the community of
Oakhurst, and is about 50 minutes north of the City of Fresno. Competition in
the Oakhurst area comes from River Creek Golf Course, a 9 hole course located at
the southwest quadrant of Highway 49 and Road 600, about 10 minutes southwest of
the subject. It was built in 1991 and includes 9 holes measuring about 3,200
yards, playing to a par 36. River Creek
<PAGE>
12
represents an average quality golf course supported by a small clubhouse
containing 3,257 SF. Green fees are $18 for 18 holes (9 holes played twice)
on weekdays and $22 on weekends. Although the actual number of rounds was not
available, it reportedly has a significant amount of play. The project is
inferior to the subject in quality and condition, as well as for the 9 hole
format, which is less desirable for most golfers and tends to increase playing
time and reduce the number of playable rounds. The subject has a competitive
advantage over River Creek and should be capable of achieving green fees in
excess of this course.
There is one additional public course of note, this being the Wawona Golf
Course located near the southern entrance of Yosemite National Park. This
seasonal course is at an elevation of 4,500' and is closed a good part of the
year due to weather. As of the date of this appraisal, the course was closed
due to damage occurred during the winter storms, which caused flooding and
.slides throughout many areas of Yosemite. Historical rates at Wawona were near
$18 for 18 holes, which is slightly below the subject. The historic (built in
1918) and scenic atmosphere of Yosemite create an above-average quality course,
but the 9 hole format is inferior to the subject. By comparison to Wawona, the
subject should be capable of obtaining higher green fees and a greater number of
rounds due to the seasonal nature of Wawona.
The only other golf course in the area is Yosemite Lakes Park Golf Course
near Coarsegold, but this is a private 9 hole tract which does not compete with
the subject since it is not open for public play.
According to the Madera County Planning Department, there are no additional
courses proposed for Eastern Madera County.
Since the subject is only 50+ minutes from Fresno, Madera and Merced, it
will obtain a great deal of play from these metropolitan areas. Golfers often
travel outside the city to play a good course at a reasonable price, which is
what Ahwahnee offers. Because of the traveling distance, the main competition
will be from other courses outside the Fresno City Limits, such as Brighton
Crest near Millerton Lake and Sherwood Forest near the small City of Sanger.
There are other courses lying south of the City of Fresno (such as Selma
Valley), but they are either private clubs or are inferior in project quality
and condition and they have not been included in this analysis.
The subject should be very competitive with the outlying course areas of
Fresno. First, the course is developed over a mountain terrain, which is
uncommon for Fresno, which offers mostly flat courses with minimal undulation.
Second, the quality and condition of the golf course is above average, yet green
fees are reasonable. Third, the subject is above the winter fog line, which
deters many golfers from playing in Fresno and the surrounding areas. Finally,
Ahwahnee offers above-average supporting facilities including a natural grass
practice range, and a good quality clubhouse with full bar and premium lunch
potential compared to the limited hot dog and sandwiches offered at some public
courses in the valley. The primary detrimental factor is the distance and
travel time from the Cities of Fresno, Madera and Merced, which is at the upper-
limit for recreational golfers.
<PAGE>
GOLF COURSE SURVEY - DAILY FEE COURSES
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Green Fees Approx.
-----------------------------------
Monday Number
Course to Sat/Sun # of Course Yardage of
No. Name Location Elevation Thursday Friday Holiday Holes Age Quality Condition (Champ.) Par Rating Rounds
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 Ahwahnee Ahwahnee 1,700' 18 holes $25 $25 $25 18 8 years Ave-Good Ave-Good 6,319 70 70.8 n/a
G.C. Twilight $25 $25 $25
Subject
Property
2 River Oakhurst 2,000' 18 - $18 $18 $22 9 6 years Average Ave-Good 6,232 72 69.3 n/a
Creek TW $18 $18 $22
3 Wawona Yosemite 4,500' 18 - $18 $18 $18 9 70 years Average Average 6,015 70 69.1 n/a
G.C. TW n/a n/a n/a
4 La Valley 600' 18 - $20 $25 $33 18 23 years Ave-Good Good 6,425 71 70.2 50,000
Contenta Springs TW $14 $17 $20
5 Mt. Sonora 1,600' 18 - $19 $22 $25 18 6 years Ave-Good Ave-Good 6,665 72 71.9 42,000
Springs TW $12 $14 $17
6 Forest Murphy's 3,400' 18 - $20 $20 $27 18 25 years Ave-Good Ave-Good 5,886 60 58.3 35,000
Meadows TW $20 $20 $27
7 Brighton Millerton 600' 18 - $35 $35 $45 18 6 years Good Ave-Good 6,431 72 71.4 n/a
Crest TW $25 $25 $25
8 Greenhorn Angeles 18 - $25 $25 $35 18 1 year Good Good 6,814 72 n/a n/a
Cr. Camp TW
9 Saddle Cr. Copperopolis 18 - $30 $30 $40 18 1 year Good Good
TW
10 Lake Don LaGrange 18 - $12 $12 $18 18 25 years Ave-Fair Average 6,311 70 68.5 25,000
Pedro TW
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
13
However, the positive attributes should enable the subject to attract golfers
from these areas, as long as green fees are reasonable and the condition of
the course is maintained.
In addition to analyzing courses in the outlying areas of Fresno, we have
considered several courses to the north of the subject within Mariposa, Tuolumne
and Calaveras Counties. These courses are very similar to the subject since
they are foothill and mountain regions requiring at least a 30 minute travel
from any metropolitan area (Merced, Stockton, Turlock and Modesto). The area
surrounding Sonora and San Andreas are becoming a popular golf course region,
improved with over ten, 9 or 18 hole public and private courses, some of which
have been included in our survey. Because of the similarities in course
quality, terrain, surrounding population and proximity to metropolitan areas,
the courses in Mariposa, Tuolumne and Calaveras Counties provide reasonable
comparables for green fees, number of expected yearly rounds and total revenue
and expenses.
On the opposite page is a survey of several similar daily fee golf courses.
Green fees generally range between $18 and $35 during the week and $25 and $45
during weekends and holidays. Annual rounds were not available from all
courses, but the general range is from 35,000 to 55,000 rounds per year. The
subject's current green fees are $25 for either weekday or weekend and does not
change depending upon the time of day. Since weekends and holidays are the most
popular times to play, these should naturally be slightly higher than weekday
rates, which is supported by the survey.
Based on the attributes of the subject and the competing facilities, we
have estimated the subject's green fees at $23 for weekdays and $28 for
weekends. Some price break should also be given for late afternoon rounds,
which is also supported by the survey.
With respect to annual rounds played, the lower-end of the survey is
appropriate due to the subject's course configuration, cart path rules and
overall location. A total of 40,000 rounds appears reasonable.
The changes made to the subject over the past 18 months has created a
dramatic change in the opinion of local individuals and guests of the course.
The number of members has increased over the past few months and total revenue
for the first four months of 1997 is up over 60% from the first four months of
1996. Scheduled promotions and tournaments have increased from previous levels.
From January to October 1997, the course will host over 25 non-member activities
and/or tournaments, which will also help word-of mouth and future activity.
Overall, the outlook for the future is very bright as long as operations and
management continue in the same direction. In our opinion, the subject's
ability to compete should continue to grow into the foreseeable future.
ANALYSIS AND VALUATION
This assignment requires an estimate of the subject's market value as of
May 1, 1997 (date of inspection) and September 19, 1995. For the current
valuation, the sales comparison approach, income approach and cost approach were
used to value the subject. The first value estimated will be known as the
stabilized market value, which assumes the rounds played, total income,
expenses, etc., are at a stabilized level. Once the stabilized
<PAGE>
COMPARABLE SALES SUMMARY
CALIFORNIA GOLF COURSE FACILITIES
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
LAND SIZE Rounds
Sale COURSE TYPE Sale Sales No. of Champ. (ACRES) Played
No. Course Name/Location Designer Date Price Holes Yardage Density at Sale
- ------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 Cresta Verde DAILY FEE Sep-94 $7,150,000 18 5,694 N/A n/a
1295 Cresta Road Randolf Scott
Corona, CA.
- ------------------------------------------------------------------------------------------------------------------
2 Fountain Grove DAILY FEE Mar-96 $7,500,000 18 6,797 207.6 n/a
1525 Fountain Grove Pkw. Ted Robinson 0.09
Santa Rosa, CA.
- ------------------------------------------------------------------------------------------------------------------
3 San Juan Hills C.C. DAILY FEE Dec-94 $7,682,000 18 6,003 123.0 n/a
32120 San Juan Creek Rd. N/A 0.15
San Juan Capistrano, CA.
- ------------------------------------------------------------------------------------------------------------------
4 Carmel Mountain Ranch SEMI-PRIVATE Mar-95 $7,500,000 18 6,615 170.1 50,000
14050 Carmel Ridge Rd. Ronald Fream 0.11
San Diego, CA.
- ------------------------------------------------------------------------------------------------------------------
5 Summit Pointe DAILY FEE Feb-94 $7,250,000 18 6,331 120.4 75,000
1500 Country Club Dr. N/A 0.15
Milpitas, CA.
- ------------------------------------------------------------------------------------------------------------------
6 River Island C.C. PRIVATE May-92 $3,335,003 18 7,027 223.8 35,000
31989 River Island Dr. Robert Putman 0.08
Porterville, CA.
- ------------------------------------------------------------------------------------------------------------------
7 Mountain Springs G.C. SEMI-PRIVATE Jun-94 $3,800,000 18 6,765 203.6 30,000
1000 Championship Dr. Robert Graves 0.09 (1993)
Sonora, CA.
- ------------------------------------------------------------------------------------------------------------------
8 Canyon Oaks G.C. DAILY FEE Apr-94 $2,450,000 18 6,779 150.6 n/a
999 Yosemite Drive Golfco 0.12
Chico, CA.
- ------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
Price Price Price Price Par YEAR BLT. Club
Sale per per per per Rating QUALITY House
No. Course Name/Location Hole Yard Acre Round Slope Condition Size Remarks
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 Cresta Verde $397,222 $1,256 - - 71 1927 N/A Average quality course with
1295 Cresta Road 67.3 AVE-GOOD mature trees and moderate
Corona, CA. 111 Ave-Good course slopes. Minimal
clubhouse facilities.
- -----------------------------------------------------------------------------------------------------------------------------------
2 Fountain Grove $416,667 $1,103 $36,127 - 72 1985 22,800 Previously sold in 1990 at
1525 Fountain Grove Pkw. 72.8 GOOD an allocated price of over
Santa Rosa, CA. 132 Good $15,000,000. Good location
and well maintained.
- -----------------------------------------------------------------------------------------------------------------------------------
3 San Juan Hills C.C. $426,778 $1,280 $62,455 - 71 1967 7,500 Previously sold in 1990 for
32120 San Juan Creek Rd. 68.3 GOOD $15,000,000.
San Juan Capistrano, CA. 114 Good
- -----------------------------------------------------------------------------------------------------------------------------------
4 Carmel Mountain Ranch $416,667 $1,134 $44,092 $150 72 1986-90 21,648 According to a seller's
14050 Carmel Ridge Rd. 72.9 AVE-GOOD representative, the club
San Diego, CA. 136 Ave-Good will no longer offer
memberships and will
promote daily use. Some
renovation took place in
the early 1990's.
- -----------------------------------------------------------------------------------------------------------------------------------
5 Summit Pointe $402,778 $1,145 $60,196 $97 72 1978 6,300 Clubhouse includes pro shop
1500 Country Club Dr. 70.0 GOOD and dining room but not the
Milpitas, CA. 121 Good maintenance shed and cart
storage.
- -----------------------------------------------------------------------------------------------------------------------------------
6 River Island C.C. $185,278 $475 $14,902 $95 72 1964 9,512 Other improvements include
31989 River Island Dr. 74.1 AVE-GOOD 4 tennis courts and a 1,564
Porterville, CA. 124 Average sqft pro shop.
- -----------------------------------------------------------------------------------------------------------------------------------
7 Mountain Springs G.C. $211,111 $562 $18,660 $127 72 1990 5,804 New owners renovated the
1000 Championship Dr. 71.9 AVE-GOOD course and improved
Sonora, CA. 128 Ave-Fair drainage, tees, greens,
etc. Rounds played has
improved from 30,000 in
1993 to over 42,000 in
1995.
- -----------------------------------------------------------------------------------------------------------------------------------
8 Canyon Oaks G.C. $136,111 $361 $16,268 - 72 1927 Temp. Purchased through
999 Yosemite Drive 72.9 AVE-GOOD bankruptcy court. Semi-
Chico, CA. 133 Ave-Fair private club with only 50
members. New owners
proposed $1,000,000 in
course improvements and an
irrigation system and
$2,000,000 for a new
clubhouse.
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
14
value is reconciled, deductions will be made to account for the lost income
during the stabilization of the project (rounds played, members, etc.).
The final value will be the market value as of September 19, 1995. We
considered using each approach to value, but all of the approaches could not be
used for various reasons. Because of the past management problems and poor
condition of the course, the property was not capable of generating a level of
income required to cover operating expenses. As such, the income approach would
not provide a reliable estimate of value. The cost approach was also
inappropriate due to the lack of support for depreciation of a 6 year old
deteriorated golf course. In our opinion, the only applicable approach for the
September 1995 valuation is the sales comparison approach, in which the subject
is compared to sales of golf courses in a similar condition.
The discussion of value will begin with the stabilized market value as of
May 1, 1997, and will be followed by the market value as is, as of May 1, 1997.
The final section is the historical valuation as of September 19, 1995. The
following discussion of value is in summary format.
STABILIZED MARKET VALUE - MAY 1, 1997
The three approaches have been used beginning with the sales comparison
approach, followed by the income approach, cost approach and reconciliation.
SALES COMPARISON APPROACH
On the opposite page is a chart summarizing eight sales located throughout
California. In summary, the sales were purchased between May 1992 and March
1996 and each represents a full-length, 18-hole golf course. The courses were
built between 1927 and 1990 and most had supporting facilities such as a
clubhouse and driving range. The sales prices range from $2,450,000 to
$7,682,000, which is equivalent to $136,111 to $426,778 per hole.
In the valuation of the subject, consideration is given to several factors
such as location, income potential from green fees and annual rounds, course
quality, condition, future potential, supporting facilities such as the
clubhouse, pro shop and driving range.
Sales 1 through 5 represent average-to-good quality courses in above-
average locations, such as Corona, Santa Rosa and San Diego. These are
prestigious golf course regions which are more desirable than the subject's
location. Many of these public courses are achieving green fees between $40 and
$75 per round, which is well above the subject's level. Because of the superior
locations, course quality and/or supporting facilities, downward adjustments are
needed to the unit prices extracted from Sales 1 through 5.
Sales 6 through 8 are included primarily for the valuation of the subject
as of September 1995, but are included in this analysis to set the lower-end of
golf course sales prices. The sales prices of these three comparables range
from $2,450,000 to $3,800,000, which is equal to $136,111 to $211,111 per hole.
In its current condition, the subject is
<PAGE>
SUMMARY OF GROSS INCOME MULTIPLIERS
GOLF COURSE SALES
<TABLE>
<CAPTION>
Sale Course Project Sale Sales Gross Net Net-Gross
No. Course Name/Location Type Quality Date Price Income Income Ratio G.I.M. O.A.R.
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 Cresta Verde Daily Fee Ave-Good $7,150,000 $1,200,000 $600,000 50.0% 5.96 8.39%
Corona
- -----------------------------------------------------------------------------------------------------------------------------------
2 Fountain Grove Daily Fee Good Mar-96 $7,500,000 N/A N/A -- -- --
Santo Rosa
- -----------------------------------------------------------------------------------------------------------------------------------
3 San Juan Hills Daily Fee Good Dec-94 $7,682,000 N/A N/A -- -- --
San Juan Capistrano
Mar-90 $15,500,000 $2,150,000 $780,000 36.3% 7.21 5.03%
- -----------------------------------------------------------------------------------------------------------------------------------
4 Carmel Mountain Ranch Semi-Private Ave-Good Mar-95 $7,500,000 $3,100,000 $600,000 19.4% 2.42 8.00%
San Diego
Jul-93 $7,000,000 $1,970,000 $532,000 27.0% 3.55 7.60%
- -----------------------------------------------------------------------------------------------------------------------------------
5 Summit Pointe Daily Fee Good Feb-94 $7,250,000 $1,700,000 $600,000 35.3% 4.26 8.28%
Milpitas
- -----------------------------------------------------------------------------------------------------------------------------------
6 River Island Private Ave-Good May-92 $3,335,000 $1,597,067 $71,550 4.5% 2.09 2.15%
Porterville
- -----------------------------------------------------------------------------------------------------------------------------------
7 Mountain Springs Semi-Private Ave-Good Jun-94 $3,800,000 $936,095 $98,407 10.5% 4.06 2.59%
Sonora (1994 inc.)
$1,043,065 $259,832 24.9% 3.64 6.84%
(1995 inc.)
- -----------------------------------------------------------------------------------------------------------------------------------
8 Canyon Oaks Daily Fee Ave-Fair Apr-94 $2,450,000 N/A N/A -- -- --
Chico
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
15
superior to each of these sales in quality and/or condition and upward
adjustments are needed to the unit prices shown above.
The primary unit of comparison is the price per hole analysis since this is
the most common element of comparison. Other indicators, including the price
per yard, price per acre, price per round, and gross income multiplier are used
as supporting values. The chart on the opposite page summarizes the GIM.
After reviewing the comparable sales, it is our opinion the value of the subject
is bracketed by Sale 1 at $397,222 per hole, and Sale 7 at $211,111 per hole.
We have reconciled the price per hole analysis at $300,000 per hole, which
produces a total value of $5,400,000. The following chart summarizes the
valuation by each unit of comparison.
Price Per Hole: 18 holes @ $300,000/hole = $5,400,000
Price Per Yard: 6,319 yards @ $800/yard = $5,055,200
Rounded $5,050,000
Price Per Acre: 141.53 acres @ $35,000/acre = $4,953,550
Rounded $4,950,000
Price Per Round: 40,000 rounds @ $110/round = $4,400,000
Gross Income: $1,409,259 x 4.00 GIM = $5,637,036
Rounded $5,640,000
Giving greatest weight to the price per hole, the sales comparison approach
is reconciled at $5,400,000. The additional values provide sufficient support.
RECONCILED VALUE - SALES COMPARISON APPROACH $5,400,000
INCOME APPROACH
The income approach begins with estimating the subject's potential gross
annual income. Because of the financial difficulties of prior years and the
lack of efficient bookkeeping, we are forced to estimate the subject's
stabilized income without the help of historical data. Income is generated from
several sources including non-member green fee income, monthly membership dues,
food and beverage, golf shop, driving range and miscellaneous. The majority of
the income is derived from green fees and monthly dues. Green fees are based on
the project non-member green fee rates and anticipated annual rounds played
while monthly dues income is based on the projected number of members and the
monthly membership rates.
The chart opposite the following page summarizes the estimated income from
green fees and monthly dues. Specific attention is given to the "blended" green
fee rates.
Because of late-afternoon specials, promotional events, coupon specials,
senior discounts, etc., which are usually offered at courses such as this, the
blended, or actual collected green fee rate per round will be far less than the
prime-time rates. The blended rates are determined through analysis of the
subject's location, anticipated demand, project
<PAGE>
ESTIMATED INCOME FROM GREEN FEES AND MONTHLY DUES
AHWAHNEE GOLF COURSE
18 HOLE GOLF COURSE
- -------------------------------------------------------------------------------
VARIABLES:
- ----------
NUMBER OF ROUNDS PLAYED:
Total Member Rounds 17,500
Total Non-Member Rounds 22,000
------
Total Number of Golf Rounds 40,000
Non-Member Rounds - Monday thru Friday 60% 13,500
Non-Member Rounds - Sat/Sun/Holiday 40% 9,000
ESTIMATED GREEN FEES:
Weekday Peak $20.00
Weekday Off-Peak (midday) $14.00
Weekend/Holiday Peak $28.00
Weekend/Holiday Off-Peak (midday) $20.00
BLENDED GREEN FEE INCOME (NON-MEMBERS): **
INCOME PER ROUND - MONDAY THROUGH FRIDAY $17.00
INCOME PER ROUND - SAT/SUN/HOLIDAYS $23.00
INCOME FROM MEMBERSHIP DUES:
Projected Number of Resident Members (lifetime) 125
Projected Number of Non-Resident Members 250
Monthly Dues - Resident Members (golf dues only) $100.00
Monthly Dues - Non-Resident Members (golf dues only) $50.00
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
ANNUAL
ESTIMATED INCOME FROM NON-MEMBER GREEN FEES: INCOME
- --------------------------------------------
<S> <C> <C>
MONDAY THROUGH FRIDAY 13,500 rounds x $17.00 per round = $229,500
SATURDAY/SUNDAY/HOLIDAYS 9,000 rounds x $23.00 per round = $207,000
--------
> > > > $436,500
ESTIMATED INCOME FROM MEMBERSHIP MONTHLY DUES:
- ----------------------------------------------
Resident Members 125 members @ $100.00 per month = $12,500
Non-Resident Members 250 members @ $50.00 per month = $12,500
--------
$25,000
Annualized x 12
--------
> > > > $300,000
--------
TOTAL ESTIMATED INCOME FROM GREEN FEES AND MONTHLY DUES: $736,500
- -----------------------------------------------------------------------------------------------
</TABLE>
** Blended green fee rate considers peak play, off-peak rates,
senior discounts, promotional specials and tournaments.
<PAGE>
16
promotion (to increase play) and also from the blended green fee income
obtained from similar courses (for confidentially reasons, specific course
data cannot be disclosed). Income from monthly membership dues was determined
after analyzing the subject's current membership and future expectations
(owner's budget), and the memberships of similar projects such as Mountain
Springs Golf Course in Sonora, a project having a similar location and design.
As shown on the chart, the green fee and monthly dues income is estimated at
$736,500.
Income from additional sources is based on a percent of total income and
was estimated after analyzing income statements of similar courses, as well as
reviewing the NGF Operating and Financial Profiles (1995 edition). This data is
summarized on a chart entitled "Income and Expense Analysis". Based on the
available data, the subject's income from all sources have been estimated at
$1,416,346. From this is deducted operating expenses.
Expenses were estimated in a similar manner and are based on a percent of
total revenue. On the following page is the income approach financial summary,
which outlines the income and operating expenses. As shown, total expenses are
estimated at $1,019,769. Deducting expenses from gross income yields a net
operating income of $396,577, which is equal to 28% of gross income. This
percentage is supported by the NGF financial profile and survey of similar
courses.
The final step in the income approach is capitalizing the net income into
value. Opposite the previous page is a chart summarizing several sales of golf
course facilities and the overall rates extracted from the sales. The range is
from 2.15% to 8.39%, with the more recent sales essentially setting the upper-
end of the range. Based on the attributes of the sale and subject properties,
we have selected an overall rate of 8.25%. The final value is determined by
dividing the net income of $396,577 by the overall rate of 8.25%, to yield a
value of $4,806,993, rounded to $4,810,000.
<PAGE>
17
SUMMARY OF OVERALL RATES
GOLF COURSE SALES
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
Sale Course Project Sale Sales Gross Net Net-Gross
No. Course Name/Location Type Quality Date Price Income Income Ratio G.I.M. O.A.R.
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 Cresta Verde Daily Fee Ave-Good Sep-94 $7,150,000 $1,200,000 $600,000 50.0% 5.96 8.39%
Corona
- ------------------------------------------------------------------------------------------------------------------------------
2 Fountain Grove Daily Fee Good Mar-96 $7,500,000 N/A N/A -- -- --
Santo Rosa
- ------------------------------------------------------------------------------------------------------------------------------
3 San Juan Hills Daily Fee Good Dec-94 $7,682,000 N/A N/A -- -- --
San Juan Capistrano
Mar-90 $15,500,000 $2,150,000 $780,000 36.3% 7.21 5.03%
- ------------------------------------------------------------------------------------------------------------------------------
4 Carmel Mountain Ranch Semi-Private Ave-Good Mar-95 $7,500,000 $3,100,000 $600,000 19.4% 2.42 8.00%
San Diego
Jul-93 $7,000,000 $1,970,000 $532,000 27.0% 3.55 7.60%
- ------------------------------------------------------------------------------------------------------------------------------
5 Summit Pointe Daily Fee Good Feb-94 $7,250,000 $1,700,000 $600,000 35.3% 4.26 8.28%
Milpitas
- ------------------------------------------------------------------------------------------------------------------------------
6 River Island Private Ave-Good May-92 $3,335,000 $1,597,067 $71,550 4.5% 2.09 2.15%
Porterville
- ------------------------------------------------------------------------------------------------------------------------------
7 Mountain Springs Semi-Private Ave-Good Jun-94 $3,800,000 $936,095 $98,407 10.5% 4.06 2.59%
Sonora (1994 inc.)
$1,043,065 $259,832 24.9% 3.64 6.84%
(1995 inc.)
- ------------------------------------------------------------------------------------------------------------------------------
8 Canyon Oaks Daily Fee Ave-Fair Apr-94 $2,450,000 N/A N/A -- -- --
Chico
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
INCOME AND EXPENSE ANALYSIS
AS A % OF TOTAL INCOME
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
San Joaquin Visalia Brookside Riverside Sycamore Lemoore
Country Club Country Club Country Club Golf Course Canyon GC Golf Course
------------ -------------- ------------- ----------- ------------- --------------
Fresno Visalia Stockton Fresno Arvin Lemoore
Fiscal May-95 1994 (10 mos.) 1993 1991 Fiscal Jun-94 Fiscal Jun-94
Actual Actual Actual Actual Actual Actual
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Course Type Private Private Private Municipal Municipal Municipal
GROSS INCOME:
Green Fees - Monthly Dues 82.6% 54.2% 75.9% 48.2% 44.4% 57.9%
Golf Cart Rentals 7.6% 11.2% 5.8% 15.9% 26.7% 17.9%
Golf Shop 0.0% 4 0.0% 4 3.6% 6.3% 3.3% 5.6%
Food & Beverage 0.0% 4 23.7% 12.9% 8.1% 22.4% 13.8%
Driving Range/Misc. 9.8% 7 10.9% 7 1.8% 21.5% 3.2% 4.8%
------ ------ ------ ------ ------ ------
Total Income as % 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
EXPENSES (As % of Income):
Course Maintenance/Range 43.3% 40.5% 35.9% 22.2% 41.2% 44.1%
Food & Beverage 3.9% 23.9% 11.1% 16.6% 18.8% 4.4%
Pro Shop, Carts 5.1% 9.9% 4.7% 13.5% 0.0% 2 15.0%
Admin. & Gen./Fixed Charges 24.6% 15.6% 34.8% 22.3% 26.1% 7.8%
Miscellaneous 3.9% 0.0% 1.1% 0.0% 24.7% 5 13.2%
------ ------ ------ ------ ------ ------
Total Expenses as % of Income 80.8% 89.9% 87.6% 74.6% 110.8% 84.5%
NET INCOME AS A % OF GROSS: 19.2% 10.1% 12.4% 25.4% -10.8% 15.5%
<CAPTION>
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
Mountain The Preserve La Contenta
Springs G.C. at Ball Ranch Golf Course NGF
------------ -------------- ------------- Operating
Sonora Fresno County Valley Springs and
1995 1996-97 1995 Financial
Actual Budget Actual Profiles 6
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Course Type Daily Fee Daily Fee Daily Fee Daily Fee
Courses
GROSS INCOME:
Green Fees - Monthly Dues 56.0% 61.9% 59.3% 56.0%
Golf Cart Rentals 29.9% 17.7% 22.7% 17.0%
Golf Shop 3.3% 1 9.2% 13.5% 10.0%
Food & Beverage 2.8% 2 8.3% 4.4% 2 12.0%
Driving Range/Misc. 8.1% 2.8% 0.1% 3 5.0%
------ ------ ------ ------
Total Income as % 100.0% 100.0% 100.0% 100.0%
EXPENSES (As % of Income):
Course Maintenance/Range 30.8% 19.7% 26.0% N/A
Food & Beverage 0.0% 2 6.7% 8 0.0% 2 --
Pro Shop, Carts 21.2% 17.7% 9 24.0% 10 --
Admin. & Gen./Fixed Charges 20.5% 16.1% 20.9% --
Miscellaneous 2.6% 1.9% 0.15% --
------ ------ ------ ------
Total Expenses as % of Income 75.1% 62.2% 71.1% 72.0%
NET INCOME AS A % OF GROSS: 24.9% 37.8% 28.9% 28.0%
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
</TABLE>
1 Net of Costs of Goods Sold.
2 On-site restaurant is leased to separate operator.
3 No driving range.
4 Included with Green Fees/Dues income.
5 Included significant legal expenses.
6 1995 Edition.
7 Includes Transfer/Forfeiture Fees
8 Includes Food/Beverage Costs of Goods Sold
9 Includes Merchandise Costs of Goods Sold and "Golf Operations"
10 Includes Merchandise Costs of Goods Sold
<PAGE>
18
INCOME APPROACH - STABILIZED VALUE
AHWAHNEE GOLF COURSE
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
% of Stabilized
Total Income
- ------------------------------------------------------------------------------
<S> <C> <C>
ESTIMATE OF POTENTIAL GROSS INCOME:
Green Fees 52.0% $736,500
Golf Carts/Rentals 24.0% $339,923
Golf Shop/Merchandise 5.0% $70,817
Food & Beverage 14.0% $198,288
Driving Range & Miscellaneous 5.0% $70,817
----- ----------
Total Gross Income: 100.0% $1,416,346
ESTIMATE OF OPERATING EXPENSES:
Course Maintenance 25.0% $354,087
Food & Beverage 11.0% $155,798
Pro Shop, Carts 13.0% $184,125
Admin. & Fixed Charges 22.0% $311,596
Miscellaneous 1.00% $14,163
----- ----------
Total Expenses 72.0% $1,019,769
NET OPERATING INCOME: $396,577
Net/Gross Ratio 28.0%
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
</TABLE>
CAPITALIZATION OF NET INCOME
Net Income $396,577
------------ = -------- = $4,806,993
Overall Rate 8.25%
----------
ESTIMATED VALUE BY THE INCOME APPROACH $4,810,000
----------
- ------------------------------------------------------------------------------
<PAGE>
REPLACEMENT COST NEW - APPRAISER'S ESTIMATE
SOURCE: MARSHALL VALUATION SERVICE
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
<S> <C> <C>
DIRECT COSTS - STRUCTURES/IMPROVEMENTS:
Clubhouse & Pro Shop 12,241 SqFt @ $90.00 per SqFt = $1,101,690
Maintenance Buildings 3,000 SqFt @ $25.00 per SqFt = $75,000
Funiture, Fixtures, Equipment (including maintenance) = $225,000
Landscaping, Paving, Utilities, Misc. = $175,000
----------
SUB-TOTAL - CLUBHOUE & SUPPORTING FACILITIES: > > > > $1,576,690
DIRECT COSTS - GOLF COURSE:
Costs Include:
Clearing, grading, irrigation system, drainage, trees, greens,
fairways, service roads, cart paths, architect's fees & Misc.:
Cost per Hole: 18 Holes @ $125,000 per Hole = $2,250,000
Miscellaneous Improvements:
Lakes, bridges, concrete flat, misc.: = $250,000
----------
SUB-TOTAL - 18-Hole Championship Golf Course: > > > > $2,500,000
----------
TOTAL DIRECT COSTS - GOLF COURSE & CLUBHOUSE: $4,076,690
PLUS: INDIRECT (SOFT) COSTS:
Engineering, Consulting Fees, Financing, Supervision,
Carrying costs, County Fees & Permits & Misc.: @ 12% $489,203
----------
TOTAL DIRECT AND INDIRECT CONSTRUCTION COSTS: $4,565,893
PLUS: ENTREPRENEURIAL PROFIT: @ 10% $456,589
----------
TOTAL CONSTRUCTION COST NEW - APPRAISER'S ESTIMATE: $5,022,482
----------
----------
ROUNDED TO $5,020,000
----------
DEPRECIATION, 3.75% -188,250
----------
$4,831,750
LAND VALUE - 141.53 ACRES @ $10,000/ACRE = +1,439,400
----------
$6,271,150
</TABLE>
<PAGE>
19
COST APPROACH
The cost approach derives the market value by adding depreciated
improvement value to the value of the underlying land. The approach is
summarized on the chart opposite the next page.
The cost of the golf course and clubhouse was estimated after reviewing the
MARSHALL VALUATION SERVICE COST HANDBOOK, and from analyzing the actual
development costs of other golf courses in California. The total cost of the
golf course and clubhouse is reconciled at $5,020,000. From this is deducted
depreciation and obsolescence. With the exception of irrigation systems, signs,
etc., the golf course itself does not depreciate, unless maintenance is poor.
Because the subject has been renovated and is currently in good condition, the
golf course has no measurable depreciation. However, like all building
improvements, the clubhouse is a depreciating asset, and depreciation is
estimated at 3.75%. Deducting depreciation from total cost new produces a
depreciated improvement value of $4,831,750.
To this is added value of the underlying land, which is estimated at
$1,439,400 ($10,000/acre), for a final value by the cost approach of $6,270,000
(rounded). A summary of the approach can be found on the opposite page. Land
value is estimated in the Out Lot section of this report.
RECONCILED STABILIZED MARKET VALUE
The three approaches discussed previously produced the following values:
Sales comparison approach $5,400,000
Income approach $4,810,000
Cost approach $6,270,000
In our opinion, the sales comparison approach provides a good indication of
value since market data provided a reasonable range of prices to support the
subject's unit values (price per hole, acre, etc.). Because it used four
physical units of comparison and one economic comparison, the approach gains
reliability. However, the majority of the market data was superior to the
subject in location, quality and/or condition and most required sizable
adjustments. Nonetheless, the approach remains a fairly good indicator of
value.
The income approach is often given strong weight for income-producing
properties such as a daily fee golf course. However, it loses reliability since
there was no historical income or expense data from the subject property.
Nonetheless, when considering the property type and available data, the income
approach provides a reasonably good indication of value.
<PAGE>
ESTIMATE OF DEPRECIATION - PHYSICAL DETERIORATION
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
<S> <C>
DIRECT CONSTRUCTION COSTS COSTS NEW:
Clubhouse & Proshop 12,241 SqFt @ $90.00 per SqFt = $1,101,690.00
Cart Storage/Maintenance 3,000 SqFt @ $25.00 per SqFt = $75,000.00
-------------
Total Direct Construction Cost New: $1,176,690.00
Indirect Costs: 12% = $141,202.80
-------------
TOTAL DIRECT AND INDIRECT COSTS $1,317,892.80
PLUS: ENTREPRENEURIAL PROFIT: 10% = $131,789.28
-------------
TOTAL REPLACEMENT COST NEW: $1,449,682.08
LESS: DEPRECIATION - PHYSICAL DETERIORATION
Effective Age 5 Years
Economic Life 40 Years
TOTAL ESTIMATED DEPRECIATION - BUILDING IMPROVEMENTS:
5 YEARS DIVIDED BY 40 YEARS = 12.50%
SAY 13.00% = ($188,458.67)
- -------------------------------------------------------------------------------------
</TABLE>
COST APPROACH SUMMARY
AHWAHNEE GOLF COURSE
---------------------------------------------------------------------------
Reconciled Replacement Cost New
Golf Course & Supporting Facilites $5,020,000.00
LESS: Depreciation & Obsolescence (building structures) ($188,458.67)
-------------
Depreciation Improved Value $4,831,541.33
ADD: Underlying Land Value $420,000.00
-------------
Final Estimated Value by the Cost Approach $5,251,541.33
-------------
ROUNDED TO $5,250,000.00
-------------
---------------------------------------------------------------------------
<PAGE>
20
The cost approach is most effective when improvements are new and actual
costs are known. When considering the age, accrued depreciation, and the
support for the underlying land value, the cost approach has been given only
back-up valuation weight.
In the final analysis, similar valuation weight is given to the sales
comparison and income approaches, and back-up weight is given to the cost
approach. The stabilized market value has been reconciled at $5,100,000.
RECONCILED STABILIZED MARKET VALUE $5,100,000
MARKET VALUE AS IS - MAY 1, 1997
Under the previous assumption, the subject was operating at a stabilized
income and rounds played. In reality, the property has not yet reached
stabilized income and a deduction should be made to account for rent loss until
stabilization.
The chart opposite the following page summarizes the calculations. At the
end of the first year, income should be 60% stabilized and operating expenses
should be 75%. Because of required maintenance with increasing play, expenses
will reach stabilization before income. By the forth year, we expect both the
income and expenses will be stabilized.
The difference between each year's net income and stabilized net income
represents total lost income through the stabilization process. The discounted
value of the lost income is calculated at $620,000, which is deducted from
stabilized market value of $5,100,000, to yield the market value as-is, as of
May 1, 1997, at $4,480,000. The following summarizes the valuation.
Stabilized market value $5,100,000
Lost income during absorption - 620,000
----------
MARKET VALUE AS IS - MAY 1, 1997 $4,480,000
MARKET VALUE AS OF SEPTEMBER 19, 1995
Market value as of September 19, 1995 has been determined by the sales
comparison approach, in which the subject is compared to sales that were in
similar condition and/or level of play. Opposite page 22 is a chart summarizing
Sales 1 through 8, which were introduced in the previous section.
Sales 1 through 5 are given minimal weight since each is vastly superior in
location, course quality and condition. Sales 6 through 8 are given greatest
weight due to similarities in either location, quality, condition and/or rounds
per year. Sale 6 is the River Island Country Club located outside the City of
Porterville. This lower-foothill course had suffered from low membership and
total revenue had fallen significantly. The property was considered distressed
at the time of sale and the purchase price of $3,335,000 or $185,278 per hole,
is well below courses of similar quality and condition. For the subject, a
further
<PAGE>
ESTIMATE OF LOST INCOME BEFORE STABILIZATION
AHWAHNEE GOLF COURSE
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
-------------------------------------------------
Stabilized
Year 1 Year 2 Year 3 Year 4
--------------------------------------------------
<S> <C> <C> <C> <C>
Percent of Stabilized Income 60% 75% 90% 100%
Percent of Stablized Operating Expenses 75% 90% 100% 100%
Projected Gross Income $849,808 $1,062,260 $1,274,711 $1,416,346
Projected Operating Expenses ($764,827) ($917,792) ($1,019,769) ($1,019,769)
--------- ---------- ----------- -----------
Projected Net Operating Expenses $84,981 $144,467 $254,942 $396,577
Stabilized Net Operating Income (Year 4): $396,577 $396,577 $396,577
--------- ---------- -----------
Lost Income: $311,596 $252,110 $141,635
Present Value Factor @ 8% 0.92593 0.85734 0.79383
--------- ---------- -----------
Present Value of Lost Income Before Stabilization $288,515 $216,143 $112,434
Cumulative Present Value of Lost Income $617,092
---------
ROUNDED TO $620,000
---------
</TABLE>
<PAGE>
21
downward adjustment is needed for the subject's inferior quality and condition
as of September 1995.
Sale 7 is the Mountain Springs Golf Course in Sonora, which was purchased
in June 1994 for $3,800,000 or $211,111 per hole. The project is similar to the
subject in location, and also in the fact that the course needed renovation to
the drainage, irrigation systems, a few tee complexes, fairways and greens.
However, the overall quality and condition was not nearly as poor as the subject
and Mountain Springs required less renovation. Mountain Springs was still
generating 30,000 rounds of golf per year, which was far superior to the
subject. With all factors considered, downward adjustments are needed to the
sales price.
Sale 8 is the Canyon Oaks Golf Course located outside Chico, California.
In April 1994, this 18 hole course was purchased from bankruptcy court for
$2,450,000 or $136,111 per hole. The project was in fair condition and the new
owners were to spend over $1,000,000 in course improvements (including
irrigation) and over $2,000,000 for a new clubhouse. The sale is considered
fairly similar to the subject in course condition since sizable renovation was
needed. The project is inferior to the subject in supporting clubhouse
facilities, since there was only a temporary clubhouse at the time of sale.
However, the income at the time of sale and the overall income potential of the
Canyon Oak project is superior to the subject. In our opinion, both upward and
downward adjustments are required to the price of $2,450,000 or $136,111 per
hole.
In the final analysis, greatest weight is given to Sale 8 and the value of
the subject is reconciled at $135,000 per hole or $2,430,000. In the previous
section, we used four additional units of comparison to support market value.
However, both the price per round and gross income multiplier analysis could not
be used because the property was not capable of generating a sufficient level of
income or number of rounds to use the techniques properly. As such, the
property was valued only on its physical attributes.
The following table summarizes the estimated values under the sales
comparison approach.
Price Per Hole: 18 holes @ $135,000/hole = $2,430,000
Price Per Yard: 6,319 yards @ $400/yard = $2,527,600
Rounded $2,530,000
Price Per Acre: 141.53 acres @ $15,000/acre = $2,122,950
Rounded $2,120,000
The price per hole analysis provides the best indication of value and the
sales comparison approach has been reconciled at $2,430,000.
As previously mentioned, both the income and cost approaches are
inapplicable for the valuation as of September 1995, and the market value as is
has been reconciled at $2,430,000.
RECONCILED MARKET VALUE AS OF SEPTEMBER 19, 1995 $2,430,000
<PAGE>
COMPARABLE SALES SUMMARY
CALIFORNIA GOLF COURSE FACILITIES
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
Land Size Rounds Price Price
Sale Course Type Sale Sales No. of Champ. (ACRES) Played per per
No. Course Name/Location Designer Date Price Holes Yardage Density at Sale Hole Yard
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 Cresta Verde Daily Fee Sep-94 $7,150,000 18 5,694 N/A n/a $397,227 $1,256
1295 Cresta Road ---------
Corona, CA. Randolf Scott
- -------------------------------------------------------------------------------------------------------------------------
2 Fountain Grove Daily Fee Mar-96 $7,500,000 18 6,797 207.6 n/a $416,667 $1,103
1525 Fountain Grove Pkw. --------- -----
Ted Robinson 0.09
Santa Rosa, CA.
- -------------------------------------------------------------------------------------------------------------------------
3 San Juan Hills C.C. Daily Fee Dec-94 $7,682,000 18 6,003 123.0 n/a $426,778 $1,280
32120 San Juan Creek Rd. --------- -----
San Juan Capistrano, CA. N/A 0.15
- -------------------------------------------------------------------------------------------------------------------------
4 Carmel Mountain Ranch Semi-Private Mar-95 $7,500,000 18 6,615 170.1 50,000 $416,667 $1,134
14050 Carmel Ridge ------------ -----
Ronald Frearn 0.11
San Diego, CA.
- -------------------------------------------------------------------------------------------------------------------------
5 Summit Pointe Daily Fee Feb-94 $7,250,000 18 6,331 120.4 75,000 $402,778 $1,145
1500 Country Club Dr. --------- -----
Milpitas, CA. N/A 0.15
- -------------------------------------------------------------------------------------------------------------------------
6 River Island C.C. Private May-92 $3,335,000 18 7,027 223.8 35,000 $185,278 $475
31989 River Island Dr. ------- -----
Porterville, CA. Robert Putman 0.08
- -------------------------------------------------------------------------------------------------------------------------
7 Mountain Springs G.C. Semi-Private Jun-94 $3,800,000 18 6,765 203.6 30,000 $211,111 $562
1000 Championship Dr. ------------ -----
Sonora, CA. Robert Graves 0.09 (1993)
- -------------------------------------------------------------------------------------------------------------------------
8 Canyon Oaks G.C. Daily Fee Apr-94 $2,450,000 18 6,779 150.6 n/a $136,111 $361
999 Yosemite Drive --------- -----
Chico, CA. Golfco 0.12
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
Price Price Par YEAR BLT. Club-
Sale per per Rating QUALITY House
No. Course Name/Location Acre Round Slope Condition Size Remarks
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 Cresta Verde -- -- 71 1927 N/A Average quality course with mature
1295 Cresta Road 67.3 Ave-Good trees and moderate course slopes.
Corona, CA. -------- Minimal clubhouse facilities.
111 Ave-Good
- -------------------------------------------------------------------------------------------------------------------------------
2 Fountain Grove $36,127 -- 72 1985 22,800 Previously sold in 1990 at an allocated
1525 Fountain Grove Pkw. 72.8 Good price of over $15,000,000. Good location
---- and well maintained.
Santa Rosa, CA. 132 Good
- -------------------------------------------------------------------------------------------------------------------------------
3 San Juan Hills C.C. $62,455 -- 71 1967 7,500 Previously sold in 1990 for $15,000,000
32120 San Juan Creek Rd. 68.3 Good
San Juan Capistrano, CA. ----
114 Good
- -------------------------------------------------------------------------------------------------------------------------------
4 Carmel Mountain Ranch $44,092 $150 72 1986-90 21,648 According to a seller's representative,
14050 Carmel Ridge 72.9 Ave-Good the club will no longer offer memberships
-------- and will promote daily use. Some
San Diego, CA. 136 Ave-Good renovation took place in the early 1990's.
- -------------------------------------------------------------------------------------------------------------------------------
5 Summit Pointe $60,196 $97 72 1978 6,300 Clubhouse includes pro shop and dining
1500 Country Club Dr. 70.0 Ave-Good room but not the maintenance shed and
Milpitas, CA. -------- cart storage.
121 Good
- -------------------------------------------------------------------------------------------------------------------------------
6 River Island C.C. $14,902 $95 72 1964 9,512 Other improvements include 4 tennis
31989 River Island Dr. 74.1 Ave-Good courts and a 1,564 sqft pro shop.
--------
Portersville, CA. 124 Average
- -------------------------------------------------------------------------------------------------------------------------------
7 Mountain Springs G.C. $18,660 $129 72 1990 5,804 New owners renovated the course and
1000 Championship Dr. 71.9 Ave-Good improved drainage, tees, greens, etc.
-------- Rounds played has improved from
Sonora, CA. 128 Ave-Fair 30,000 in 1993 to over 42,000 in 1995.
- -------------------------------------------------------------------------------------------------------------------------------
8 Canyon Oaks G.C. $16,268 -- 72 1927 Temp. Purchased through bankruptcy court.
999 Yosemite Drive 72.9 Ave-Good Semi-private club with only 50 members.
-------- New owners proposed $1,000,000 in course
Chico, CA. 133 Ave-Fair improvements and an irrigation system
and $2,000,000 for a new clubhouse.
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
22
VALUATION SUMMARY
After carefully considering all of the data and pertinent information in
regard to the property under appraisal, it is our opinion that the market values
of the fee simple estate are as follows:
STABILIZED MARKET VALUE - MAY 1, 1997 $5,100,000
MARKET VALUE AS IS - MAY 1, 1997 $4,480,000
MARKET VALUE AS IS - SEPTEMBER 19, 1995 $2,430,000
<PAGE>
26
OUTLOT "B"
AHWAHNEE RV PARK
LEGAL DESCRIPTION
Outlot "B" of Ahwahnee Country Club Estates Subdivision, Tract No. 221
recorded in Book 38 of Maps at Pages 30 through 38, Madera County Records. The
parcel contains 360.77 acres net, 367.31 acres gross. The property is also
known as Madera County APNs 55-570-02 and 57-630-01. They are assessed as
134.81 acres and 232.50 acres respectively. Approximately 80 acres, the west
one-half of the northwest one-quarter of Section 33 is assessed with this parcel
although it is in Outlot "E".
ASSESSMENT DATA
The property is assessed and taxed by Madera County for the 1996-97 tax
year as follows:
AV Land $740,177 + AV Improvements $547,705 = Total Assessed Value
$1,287,882 x Tax Rate $1.014569/$100 Assessed Value = Total Tax
$13,066.45.
Upon sale or transfer, the property will be reassessed at market value and taxed
accordingly.
SITE DESCRIPTION
This acreage is designated for a 600 space RV park and native habitat in
substantially the configuration shown on the opposite page. Interior roads are
to a minimum of 20 foot paved section. Each space is a minimum of 30' by 60'
with a graveled pad and parking for two vehicles in front of the RV. Utilities
are electrical service with 20, 30 and 50 amp outlets, sewer, water, telephone
and television. A propane system will be installed for park owned cabins. See
the drawing of typical space layout opposite the next page.
Opposite the entry road is a 1,600 SF clubhouse on concrete foundation and
floor, wood-frame, plyscore exterior and composition shingle roof. The building
has a kitchen, restrooms and meeting room. One of four restrooms, 911 SF each,
has (female - 3 showers, 3 water closets, and a triple vanity) and (male - 3
showers, 2 water closets, 2 urinals and a double vanity).
The leach fields for the park's septic systems are under the driving range,
hole 1 and the out of bounds between holes 6 and 9. Should these parcels be
separated, easements and maintenance agreements must be agreed upon.
The park is to be operated as a membership only facility substantially like
Bass Lake Recreation Resort RV Park in Bass Lake but under the Coast to Coast
program.
At date of value, park roads are pioneered, 55 spaces are complete and in
operation. Utilities are extended to the next expansion phase. There are 100
additional spaces currently under construction with completion estimated for
August 1st. The parcel contains
<PAGE>
27
a permit for 600 spaces so only 9.17% of the parcel or 33.7 acres are used
with 333.6 acres for future development.
The 175 space Bass Lake Recreation Resort RV Park has been operating since
1984 as a membership only park. Occupancy of this type facility cannot be
compared with a park serving the public. As we found in our rent survey, there
are few short term RV spaces available in the Bass Lake, Oakhurst area except
those offered by the forest service. The "available" spaces are rented at $15 -
$20 per night. Occupancy is 90% plus year round. The Bass Lake Recreation
Resort is operating at 28% occupancy year round by members only.
With the amenities available to the subject, Ahwahnee Golf Course, Bass
Lake and Yosemite, we would expect occupancy to be at 50% within two years of
converting to a conventional park.
No operational costs are available for several reasons. The subject is
operated as a membership park and no records are available. The foreclosure
fairly well stopped occupancy. No promotion has been made. We can make an
income and expense projection based on previous RV park appraisals.
Gross Income $20/night x 55 spaces x 365 days = $401,500
Vacancy and rental loss - 50% -200,750
--------
Adjusted Gross Income $200,750
Expenses:
Taxes $13,100
Advertising 2,000
Utilities 40,000
Maintenance 5,000
Management 24,000
Insurance 5,000
Employees 12,000
Miscellaneous +5,000 -106,100
------ --------
Net (47%) $ 94,650
VALUATION
In the typical appraisal of an income producing property, three approaches
to value are used, cost, sales comparison and income. In this instance no
historic costs are available. We rely on MARSHALL VALUATION SERVICE data and
contractor estimates from those capable of developing the park. We found
several sales of parks in Northern California from which we develop value
indicators. In the income approach, we were unable to get income and expenses
data.
<PAGE>
28
COST APPROACH
Land value is estimated at $10,000 per acre from sales in the Outlot "C",
"D" and "E" valuation section. Depreciation is judged to be 5% as the building
improvements are new and park maintenance appears to be good.
Land value - 33.7 acres @ $10,000/acre = $337,000
Building improvements - $6,000/space
x 55 spaces = $330,000
Depreciation -16,500 +313,500
-------- --------
Depreciated value of improved park $650,500
Future development acreage - 333.6 acres
@ $10,000/acre = +3,336,000
----------
Value indicated by cost approach $3,986,000
SALES COMPARISON APPROACH
We searched for sales in smaller communities of Northern California.
Income and expense data were not available from any of the sales. The following
sales chart shows pertinent data on each transaction.
<TABLE>
<CAPTION>
Sales Price
Sale Sale Spaces Rec.Date Seller
No. Date Location $/Space Doc # Buyer Remarks
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1 Mar-94 Shasta KOA $1,000,000 4/1/94 Lewellen Bankruptcy sale of
900 N. Mt. Shasta 114 5644 Merlow typical KOA in fair
Mount Shasta $8,772 condition
APN 57-631-230
Siskiyou
2 Apr-95 Redding RV Park $1,165,000 3/28/95 Gordon Park is 5 years old
419 Boulder Drive 110 3272-5 Edney & in good condition
Redding $10,590
APN 116-180-05
Shasta
3 Apr-97 Yosemite Pines $1,900,000 Pending Park is 2 years old
20450 Old Hwy 120 199 & in good condition
Groveland $9,548 Escrow to close
APN 7-000-00 7/1/97
Tuolumne
May-97 Subject 52
</TABLE>
Sale 1 is not representative of the market. It is of inferior quality
and, as a bankrupt property, was not in good condition. Sales 2 and 3 are
indicative of the subject's value. The value of the 55 completed spaces is
estimated to be $10,000 each. To this we add the value of the remaining site
consisting of 333.6 acres and approved for 545 spaces.
<PAGE>
29
Existing Spaces 55 x $10,000/space $500,000
Future Land 333.6 ac x $10,000/ac +3,336,000
----------
The value indicated by the sales comparison approach is $3,886,000
INCOME APPROACH
We do not have sufficient data from the subject or sales to develop this
approach. Rather than speculate on unsupported numbers, we suggest not using
the approach is more prudent.
VALUE CONCLUSION
The cost approach indicated $3,986,000 and is somewhat suspect due to the
lack of historical data. However, it is an indication of the high range of
value. The sales comparison approach $3,886,000 is supported by reliable sales
which are in a relatively tight value range. We rely on the sales comparison
approach. Our analysis reveals no change in value between May 1, 1997 and
September 19, 1995.
The value indicated for Outlot "B" is, as of May 1, 1997 and September 19,
1995, $3,886,000.
<PAGE>
32
PHASE I
AHWAHNEE COUNTRY CLUB ESTATES
LEGAL DESCRIPTION
Lots 1 through 58, inclusive, as shown on map of Tract Number 221, Ahwahnee
Country Club Estates Phase I, filed and recorded June 28, 1991, in Volume 38 of
Maps, at Pages 30 to 38, Madera County Records. Excepting Lots 20, 34, 35, 38,
40, 42, 43, 47, 48, 50, 54, 55 and 56. Thus, a total of 47 lots. The property
is also known as Madera County APN's 55-580-01 through 19, 21 through 33, 36,
37, 39, 41, 44, 45, 46, 49, 51 through 53, 57 and 58. The total parcel contains
123.29 acres gross.
ASSESSMENT DATA
The Madera County Assessors Office assesses the property for the 1996-97
tax year as follows:
AV Land $2,775,000 x Tax Rate $1.00079/$100 = Tax $27,771 + Special
Assessment $19,776 = Total Taxes $47,547.
SITE DESCRIPTION
Ahwahnee Country Club Estates consists of 218 lots with an average size of
2.64 acres, 114,998 SF. Phase I is 58 lots which are complete with electricity
and water in place. These lots are relatively flat and all with good building
sites. Some lots back up to the golf course, others have views of the course
and the remaining lots have views of the hill country, oak trees and rocks. The
plat on the opposite page shows Phase I. All lots have public water, power,
telephone and cables underground.
SITE HISTORY
In mid 1991, an attempt to market the 58 lots in Phase I was commenced at
prices of $95,000 to $190,000. As the clubhouse was not even started, a $10,000
discount was offered. In addition, a $15,000 discount was offered for cash.
Lots 40 and 55 were sold under these terms, I.E., $100,000 and $120,000
respectively. Marketing was stopped in January 1992 in order to substantially
complete the country club improvements before re-entering the market.
Advertising was commenced in June 1992. Since re-entering the market, eleven
lots have been sold at $80,000 to $125,000 before again being stopped. Two lots
were sold after the foreclosure for $55,000 each. Since then, no marketing
attempts have been made. The remaining lots are to be sold as time share
improved parcels. Of the eleven lots sold, seven have been improved with
quality dwellings similar to that in the following photograph. The time share
single family residences are to be of similar quality.
<PAGE>
33
VALUATION
Thirteen lots have sold since September 1994 in River Creek Estates. These
lots are nearly adjacent and sold for $50,000 to $86,000, an average of $66,962.
As discussed in the Ahwahnee Country Club analysis, River Creek is a nine hole
golf course inferior to the subject.
Twenty lots have sold in Miami Creek Estates since January 1994. These
lots are nearly adjacent and sold for $42,500 to $80,000, an average price of
$56,579. They have no golf course.
The Greenhorn Creek development near Angels Camp is a bulk sale transferred
19 lots at $59,853 each since January 1995. They are adjacent to an 18 hole
golf course.
Bass Lakes Estates is scheduled on the market shortly at a low of $75,000.
This development is close to the lake but not a golf course.
The earlier sales in Ahwahnee Estates were in a different economic climate.
Our sources state that they sold at market. However, values are different today
and the lack of sales indicates a downward trend.
We believe the subject to have a competitive edge on the sales discussed
above because of the golf course. A prudent value range appears to be $50,000
assuming reasonable promotion.
In my opinion, the market value of the subject 45 lots, as of May 1, 1997,
is (45 lots x $50,000/lot) $2,250,000.
MARKET VALUE AS OF SEPTEMBER 19, 1995
Based on sales within the subdivision and other developments prior to
September 1997, we find a downward trend from the earlier $120,000 plus per lot
value. We suggest a reasonable value for the lots, as of September 19, 1995, is
($75,000/lot x 47 lots) $3,525,000.
VALUATION SUMMARY
Market value as of May 1, 1997 $2,250,000
Market value as of September 19, 1995 $3,525,000
<PAGE>
35
PHASE II, III & IV
AHWAHNEE COUNTY CLUB ESTATES
LEGAL DESCRIPTION
Outlots "F", "G" and "H" of Tract Number 221 in the County of Madera, State
of California, Book 38, Page 30 to 38. The property is also known as APN 55-
570-05, 06 and 07.
ASSESSMENT DATA
The Madera County Assessor Office assesses the property for the 1996-97 tax
year as follows:
AV Land $620,381 x Tax Rate $1.00079/$100 = Total Taxes $6,208.71.
SITE DESCRIPTION
The subject consists of some 483.5 acres. It is approved for 160
residences.
Outlot Phase Acreage Lots
------ ----- ------- ----
"F" II 244.67 81
"G" III 122.66 41
"H" IV +116.17 +38
------- ---
483.50 160
Phase II and III have some lots overlooking the golf course and others have
views of the hillsides. Phase IV will have hillside views with the possibility
of some RV park overlook. These lots average 3.02 acres in size. As these lots
are not mapped, changes in concept and realignment of Road 621 could change
density and possibly trigger additional wildlife habitat easement acreage.
Topography is gentle to relatively steep. However, with an average of
three acres per lot, a suitable site will be found without damaging the
indigenous trees.
VALUATION
We searched for sales of residential acreage properties with entitlements
and found none. The following chart shows sales of properties purchased for
development. One will note there has been no decrease nor increase in value.
At best, activity has been slow. The lack of activity is not considered a
negative or downward trend.
<PAGE>
36
<TABLE>
<CAPTION>
Sale Sale Sales Rec. Date Seller
No. Date Location Price Acres $/Acre Zone Doc # /Buyer
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 Jan-91 SEC Hwy 99 & $ 210,000 20.11 $10,443 Res 3/29/91 Albright
Sunrise #07953 Clay
Ahwahnee
APN 55-141-39
2 Oct-91 Tuolumne City 3,120,000 316 9,873 Multi 11/1/91 West Coast
APN 9-060-30, 31; Use 18059 Loveless
9-111-07, 08, 09;
9-131-08; 9-132-01,
07, 08, 09, 10;
9-133-13, 15;
62-040-08; 62-100-
22;
62-630-01, 04, 06
3 Jul-92 Shaver Lake 1,300,000 127.94 10,161 Res 7/23/94 Bretz
APN 130-140-60, 103417 SLFP
83, 86
May-97 Subject 483.5 Res
</TABLE>
The subject has entitlements to 160 residential lots whereas none of the
sales have any. This is a major value factor in that time and money must be
spent in order to secure these rights. The subject is superior to the sales on
this factor alone. We suggest a value of $12,000/acre represents market value
of Phases II, III and IV. We conclude the value to be the same for May 1, 1997
and September 19, 1995 ($12,000/ac x 483.5 ac = $5,802,000), rounded $5,800,000.
<PAGE>
38
OUTLOTS "C", "D" & "E"
LEGAL DESCRIPTION
Outlots "C", "D" and "E" of Tract Number 221 in the County of Madera, State
of California, Book 38, Page 30 to 38. The property is also known as APN 55-
570-03 and 04 and 57-630-02.
ASSESSMENT DATA
The Madera County Assessor Office assesses the property for the 1996-97 tax
year as follows:
AV Land $871,995 x Tax Rate $1.00079/$100 = Total Taxes $8,726.84.
SITE DESCRIPTION
These properties include two small lots overlooking the golf course and a
large parcel at the east edge of the property. Total area is 532.16 acres. The
two small lots, Outlots "C" and "D" gently slope toward the golf course. Outlot
"E", like Outlots "C" and "D", is held for future development. Outlot "E" also
contains the 300+/- acres of Wildlife Conservation Easement. This area is the
steeper and more remote area of the property.
Miami Creek flows through the property. As the larger parcel is entitled
to 1,450 GPM of this year round flow a reservoir has been constructed. Water
from this source irrigates the golf course and other landscaping by gravity.
Water pressure on the golf course is reportedly 125 pounds. Additional wells
and a storage tank are located on a hill within the easement. According to
current management, only during the drought year of 1994 was the latter system
needed.
The Wildlife Conservation Easement is hatch marked on the opposite page.
This easement is required in order to develop as entitled, I.E., Outlots "A" and
"B", Phases I, II, III and IV and some undetermined development on Outlot "E".
Arguments can be made that the easement contributes no value to the
property. As stated earlier, no easement, no development. To the contrary,
many would suggest the easement should be valued at the same value as buildable
acreage. We conclude that Outlot "E" has a value toward the buildable acreage.
VALUATION
We searched for sales of properties zoned for residential use, but without
entitlements.. We found the following sales which are representative of the
subject if fully developable.
<PAGE>
39
<TABLE>
<CAPTION>
Sale Sale Sales Rec. Date Seller
No. Date Location Price Acres $/Acre Zone Doc # /Buyer
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 Jan-91 SEC Hwy 99 & $ 210,000 20.11 $10,443 Res 3/29/91 Albright
Sunrise #07953 Clay
Ahwahnee
APN 55-141-39
2 Oct-91 Tuolumne City 3,120,000 316 9,873 Multi 11/1/91 West Coast
APN 9-060-30, 31; Use 18059 Loveless
9-111-07, 08, 09;
9-131-08; 9-132-01,
07, 08, 09, 10;
9-133-13, 15;
62-040-08; 62-100-
22;
62-630-01, 04, 06
3 Jul-92 Shaver Lake 1,300,000 127.94 10,161 Res 7/23/94 Bretz
APN 130-140-60, 103417 SLFP
83, 86
May-97 Subject 483.5 Res
</TABLE>
As part of the larger parcel this outlot would command $10,000 per acre as
indicated by the sales. However, as an individual parcel, we believe the value
would be less, say, $8,500 per acre. The indicated value of Outlots "C", "D"
and "E" is ($8,500/acre x 532.16 ac = $4,523,360), rounded $4,500,000.
<PAGE>
42
QUALIFICATIONS OF R. W. ARNOLD
EXPERIENCE:
California Division of Highways - 1959 to 1963
Independent Fee Appraiser - 1963 to date
APPRAISED FOR:
Federal, State and Local Governmental Agencies, Financing Institutions,
Attorneys, Corporations, Investors and Property Owners.
Properties in Alpine, Amador, Calaveras, Fresno, Inyo, Madera, Mariposa, Merced,
Monterey, Placer, Sacramento, San Benito, San Bernardino, San Joaquin,
Stanislaus and Tuolumne Counties.
EDUCATION:
Bachelor of Science Degree - California State University, Fresno, 1958
Attended various classes, seminars and conferences by colleges, universities and
professional appraisal organizations.
PROFESSIONAL AFFILIATIONS:
Member Appraisal Institute, MAI designation.
Member American Society of Farm Managers and Rural Appraisers, ARA designation.
Both organizations conduct voluntary programs of continuing education for their
designated members. I am current under both programs.
State of California Certified General Real Estate Appraiser, OREA #AG005595
Assistant Regional Member for the Review and Counseling Division Region I of AI.
American Right-of-Way Association
Merced County Association of Realtors, Realtor Member
Committee member and officer in the above organizations
National Association of Realtors
California Association of Realtors
Member of Merced County Assessment Appeals Board, 1977 through 1991
EXPERT WITNESS:
Superior Courts of the following counties: Fresno, Los Angeles, Madera,
Mariposa, Merced, Monterey, San Benito, San Joaquin, Santa Barbara, Stanislaus
and Tuolumne.
United States District Court for the Eastern District of California
<PAGE>
COMPLETE, SELF-CONTAINED APPRAISAL
23 FINISHED RESIDENTIAL LOTS
BEING A PORTION OF
"ENCORE"
OCEANSIDE, CALIFORNIA
<PAGE>
COMPLETE, SELF-CONTAINED APPRAISAL
OF
23 FINISHED RESIDENTIAL LOTS
AS EXISTING
BEING A PART OF
"ENCORE"
LOTS 25 THROUGH 39, TRACT NO. 12797
MISSION SANTA FE PARCELS 5 AND 6 - UNIT 1
AND
LOTS 39, 44, 45 THROUGH 50, TRACT NO. 12798
MISSION SANTA FE PARCELS 5 AND 6 - UNIT 2
PREPARED FOR
NATIONAL INVESTORS FINANCIAL, INC.
MR. DAVID G. LASKER
PRESIDENT
REPORT DATE
JUNE 15, 1997
DATE OF VALUE
MARCH 31, 1997
PREPARED BY
BOZNANSKI AND COMPANY
PROPERTY VALUATION AND CONSULTATION
<PAGE>
[LETTERHEAD]
June 15, 1997
Mr. David G. Lasker Re: Complete, Self-Contained Appraisal -
President Encore - 23 Residential Lots
National Investors Financial, Inc. Oceanside, California
4675 MacArthur Court
Suite 1240
Newport Beach, California 92660 File No. 1348.02
Dear Mr. Lasker:
In accordance with the written authorization we have received, Boznanski and
Company, a real property appraisal firm, has prepared this valuation analysis
that establishes the "as is" market value of 23 essentially finished
residential lots as of March 31, 1997.
The subject property is located within a 137-lot tract that lies south of
Mesa Drive and east of College Boulevard, in the city of Oceanside, San Diego
County, California. The subject consists of 23 essentially finished lots
that represent the last two phases of an ongoing detached development known
as Encore. These lots are essentially all finished, with the exception of
sidewalks and driveway approaches required for the 15 lots that front Toulon
Street. The 23 lots have gross areas of 7,201 sf to 18,404 sf, with an
average of 11,012 sf.
The 23 subject lots are proposed to be improved as the last two phases of a
detached single family residential tract known as Encore. There are to be
four types of detached residences ranging in size from 1,768 sf to 2,440 sf,
with a weighted average of 2,146 sf, by Brehm Communities.
This analysis does not consider the 15 lots within Phase 7, which are currently
under construction. As of April 25, 1997, all but two were sold. They are
expected to close-escrow in mid-June 1997, the expected date of completion.
<PAGE>
National Investors Financial, Inc. -2- June 15, 1997
Our valuation task in this analysis is to establish the market value of the
fee simple interest of the 23 subject lots "as is". The Market Data or Sales
Comparison Approach to land value has been utilized in valuing the vacant
subject land. The Residual Method, which will utilize the Market Approach to
Improved Property Value as well as cost data provided us, is also utilized in
estimating land value.
BASED ON THE INVESTIGATION AND ANALYSIS OUTLINED IN THE ACCOMPANYING REPORT,
AND SUBJECT TO THE CERTIFICATION AND CONTINGENT AND LIMITING CONDITIONS
ATTACHED TO THIS REPORT, WE CONCLUDE THAT THE "AS IS" MARKET VALUE OF THE FEE
SIMPLE INTEREST IN THE 23 SUBJECT LOTS, BEING A PART OF THE ENCORE TRACT IN
OCEANSIDE, CALIFORNIA, AS OF MARCH 31, 1997, IS:
$850,000
EIGHT HUNDRED FIFTY THOUSAND DOLLARS
This self-contained report is intended to comply with the reporting
requirements set forth under Standard Rules 2-2(a) of the Uniform Standards
of Professional Appraisal Practice (USPAP). As such, this report DESCRIBES
the data, reasoning and analysis that were used in the appraisal process to
develop the appraiser's opinion of value.
This complete appraisal assignment has been completed in accordance with
Title XI of FIRREA and the Uniform Standards of Professional Appraisal
Practice (USPAP). This report is not considered to depart from the specific
guidelines of USPAP.
Following this letter is a complete, self-contained appraisal report which
describes the subject area and the conditions of this appraisal, identifies
the subject property and its characteristics and then specifically enumerates
the methodology used in valuing the property.
We retain a copy of this report, together with worksheets, documents and
other data upon which our conclusions and opinion of value are based.
We certify that we have no past, present or contemplated future interest in this
property and that we have acted in accordance with accepted ethics and standards
in our profession.
<PAGE>
National Investors Financial, Inc. -3- June 15, 1997
Thank you for this opportunity to provide appraisal services.
Respectfully submitted,
BOZNANSKI AND COMPANY
/s/Mark W. Linnes /s/Carl W. Boznanski
Mark W. Linnes, MAI Carl W. Boznanski, C.R.A.
Review Appraiser Principal Appraiser
Certified General Appraiser President
CA# AG003328 Certified General Appraiser
CA# AG010837
/s/Daniel H. Herron
Daniel H. Herron
Senior Appraiser
Certified General Appraiser
CA# AG012417
<PAGE>
SUMMARY OF SALIENT FACTS AND CONCLUSIONS
PROJECT NAME: Encore
PROPERTY LOCATION: Toulon Street, north of Terracina Street,
and Bella Collina Street, west of Woodhaven
Drive, Oceanside, California
DATE OF VALUE: March 31, 1997
INTEREST APPRAISED: Fee Simple
ASSESSED OWNER/
APPRAISED OWNER: Oceanside Development, Inc.
PROPERTY:
ASSESSOR'S PARCEL NOS.: 158-600-25 through 29
158-600-30 through 32
158-610-01 through 07
158-612-04 through 15
LEGAL DESCRIPTION: Lots 25 to 39, Tract 12797, Mission Santa
Fe Parcels 5 and 6 - Unit 1
Lots 39, 44, 45 to 50, Tract 12798, Mission
Santa Fe Parcels 5 and 6 - Unit 2
SITE SIZE: 253,284 sf; 5.8146 acres (gross)
Minimum Lot Size: 7,201 sf (gross)
Maximum Lot Size: 18,404 sf (gross)
Average Lot Size: 11,012 sf (gross)
BUILDING AREAS: Plan 1 - 1,768 sf
(Proposed as of March 31 1997) Plan 2 - 1,944 sf
Plan 3 - 2,284 sf
Plan 4 - 2,440 sf
Weighted Avg. 2,146 sf
HIGHEST AND BEST USE: Single family residential
VALUE CONCLUSION "AS IS": $850,000
<PAGE>
CERTIFICATION AND RESTRICTION UPON DISCLOSURE AND USE
THE UNDERSIGNED DOES HEREBY CERTIFY THAT, EXCEPT AS OTHERWISE NOTED IN THIS
APPRAISAL REPORT:
1. I HAVE NO PAST, PRESENT OR CONTEMPLATED FUTURE INTEREST IN THE REAL
ESTATE THAT IS SUBJECT OF THE APPRAISAL REPORT.
2. I HAVE NO PERSONAL INTEREST OR BIAS WITH RESPECT TO THE SUBJECT MATTER
OF THIS APPRAISAL REPORT OR TO THE PARTIES INVOLVED.
3. THE COMPENSATION RECEIVED FOR THIS ASSIGNMENT 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.
4. THE APPRAISER ACTED IN AN INDEPENDENT CAPACITY AND THIS APPRAISAL
ASSIGNMENT WAS NOT BASED ON A REQUESTED MINIMUM VALUATION, A SPECIFIC
VALUATION OR THE APPROVAL OF A LOAN.
5. THE APPRAISER BY MEANS OF EDUCATION AND PREVIOUS APPRAISAL EXPERIENCE IS
COMPETENT TO COMPLETE THIS REPORT.
6. TO THE BEST OF MY KNOWLEDGE AND BELIEF THE STATEMENTS OF FACT CONTAINED
IN THIS APPRAISAL REPORT, UPON WHICH THE ANALYSES, OPINIONS AND
CONCLUSIONS EXPRESSED HEREIN ARE BASED, ARE TRUE AND CORRECT.
7. THE REPORTED ANALYSES, OPINIONS, AND CONCLUSIONS ARE LIMITED ONLY BY THE
REPORTED ASSUMPTIONS AND LIMITING CONDITIONS, AND ARE MY PERSONAL,
UNBIASED PROFESSIONAL ANALYSES, OPINIONS, AND CONCLUSIONS.
8. THIS APPRAISAL REPORT HAS BEEN MADE IN CONFORMITY WITH AND IS SUBJECT TO
THE REQUIREMENTS OF THE UNIFORM STANDARDS OF PROFESSIONAL APPRAISAL
PRACTICE OF THE APPRAISAL FOUNDATION.
9. DANIEL H. HERRON MADE A PERSONAL INSPECTION OF THE SUBJECT PROPERTY AND
PERFORMED THE PRIMARY ANALYSES IN THIS REPORT, CARL W. BOZNANSKI,
PRESIDENT AND PRINCIPAL APPRAISER WITH BOZNANSKI AND COMPANY, AND MARK
W. LINNES, MAI, REVIEW APPRAISER, HAVE REVIEWED THE ENTIRE ATTACHED
APPRAISAL REPORT, HAVE REVIEWED THE ENTIRE FILE MEMORANDA AND DATA
REGARDING THE SUBJECT PROPERTY AND THE ANALYSES CONTAINED IN THE
ATTACHED REPORT, AND HAVE DISCUSSED THIS APPRAISAL AND THE SUBJECT
PROPERTY WITH THE APPRAISER WHO HAS ALSO SIGNED THIS REPORT. HOWEVER,
NEITHER MR. BOZNANSKI NOR MR. LINNES HAVE PERSONALLY INSPECTED THE
SUBJECT PROPERTY, NOR HAVE THEY PERSONALLY VIEWED OR INSPECTED THE
MARKET COMPARABLES USED IN THIS ANALYSIS.
10. NO ONE OTHER THAN THE UNDERSIGNED PROVIDED SIGNIFICANT PROFESSIONAL
ASSISTANCE IN THE PREPARATION OF THE ANALYSES, CONCLUSIONS AND OPINIONS,
CONCERNING THE REAL ESTATE NOTED HEREIN, THAT ARE SET FORTH IN THIS
APPRAISAL REPORT.
11. DISCLOSURE OF THE CONTENTS OF THIS APPRAISAL REPORT IS GOVERNED BY THE
AGREEMENT BETWEEN THE APPRAISER AND THE CLIENT FOR THIS ASSIGNMENT.
12. NEITHER ALL NOR ANY PART OF THE CONTENTS OF THIS REPORT (ESPECIALLY ANY
CONCLUSIONS AS TO VALUE, THE IDENTIFY OF THE APPRAISER OR THE FIRM WITH
WHICH HE IS ASSOCIATED) SHALL BE DISSEMINATED TO THE PUBLIC THROUGH
ADVERTISING MEDIA, PUBLIC RELATIONS MEDIA, NEWS MEDIA, SALES MEDIA OR
ANY OTHER PUBLIC MEANS OF COMMUNICATION WITHOUT THE PRIOR WRITTEN
CONSENT AND APPROVAL OF THE UNDERSIGNED.
/s/ Daniel H. Herron /s/ Carl W. Boznanski /s/ Mark W. Linnes
-------------------- ---------------------- ------------------
CA# AG012417 CA# AG010837 CA# AG003328
June 15, 1997 June 15, 1997 June 15, 1997
<PAGE>
CONTINGENT AND LIMITING CONDITIONS
UPON WHICH APPRAISAL IS MADE
----------------------------
THIS REPORT IS MADE EXPRESSLY SUBJECT TO THE CONTINGENT AND LIMITING
CONDITIONS, FACTORS, AND ASSUMPTIONS HEREWITH.
1. THAT THE VESTING AND LEGAL DESCRIPTION FURNISHED THIS APPRAISER ARE
CORRECT.
2. THAT MEASUREMENTS AND AREAS FURNISHED BY OTHERS ARE CORRECT. NO
SURVEY HAS BEEN MADE FOR THE PURPOSE OF THE APPRAISAL.
3. THAT THE MAPS AND EXHIBITS FOUND IN THIS REPORT ARE PROVIDED FOR
READER REFERENCE PURPOSES ONLY. NO GUARANTEE AS TO ACCURACY IS EXPRESSED
OR IMPLIED.
4. THAT THE PROPERTY IS APPRAISED AS IF FREE AND CLEAR OF LIENS AND
THAT THE TITLE IS GOOD AND MARKETABLE.
5. THAT NO GUARANTEE IS MADE AS TO THE CORRECTIONS OF ESTIMATES OR
OPINIONS FURNISHED BY OTHERS WHICH HAVE BEEN USED IN MAKING THIS
APPRAISAL.
6. THAT NO LIABILITIES BE ASSUMED ON ACCOUNT OF INACCURACIES IN SUCH
ESTIMATES OR OPINIONS.
7. THAT NO LIABILITY IS ASSUMED ON ACCOUNT OF MATTERS OF A LEGAL
NATURE AFFECTING THIS PROPERTY, SUCH AS TITLE DEFECT, LIENS,
ENCROACHMENTS, OVERLAPPING BOUNDARIES, ET CETERA.
8. UNLESS OTHERWISE STATED IN THIS REPORT, THE EXISTENCE OF HAZARDOUS
MATERIAL, WHICH MAY OR MAY NOT BE PRESENT ON THE PROPERTY, WAS NOT
OBSERVED BY THE APPRAISER. THE APPRAISER HAS NO KNOWLEDGE OF THE
EXISTENCE OF SUCH MATERIALS ON OR IN THE PROPERTY. THE APPRAISER,
HOWEVER, IS NOT QUALIFIED TO DETECT SUCH SUBSTANCES SUCH AS ASBESTOS,
UREA-FORMALDEHYDE FOAM INSULATION, OR OTHER POTENTIALLY HAZARDOUS
MATERIALS MAY AFFECT THE VALUE OF THE PROPERTY. THE VALUE ESTIMATE IS
PREDICATED ON THE ASSUMPTION THAT THERE IS NO SUCH MATERIAL ON OR IN THE
PROPERTY THAT WOULD CAUSE A LOSS IN VALUE. NO RESPONSIBILITY IS ASSUMED
FOR ANY SUCH CONDITIONS, OR FOR ANY EXPERTISE OR ENGINEERING KNOWLEDGE
REQUIRED TO DISCOVER THEM. THE CLIENT IS URGED TO RETAIN AN EXPERT IN
THIS FIELD, IF DESIRED.
9. IT IS ASSUMED THAT THERE ARE NO HIDDEN OR UNAPPARENT CONDITIONS OF
THE PROPERTY, SUBSOIL, OR STRUCTURES THAT RENDER IT MORE OR LESS
VALUABLE. NO RESPONSIBILITY IS ASSUMED FOR SUCH CONDITIONS OR FOR
ARRANGING FOR ENGINEERING STUDIES THAT MY BE REQUIRED TO DISCOVER THEM.
10. THAT THIS APPRAISAL IS SUBJECT TO REVIEW UPON PRESENTATION OF DATA
WHICH MIGHT BE LATER MADE AVAILABLE, UNDISCLOSED OR NOT AVAILABLE AT
THIS WRITING.
11. THAT THE APPRAISER HEREIN, BY REASON OF THIS APPRAISAL, IS NOT
REQUIRED TO GIVE TESTIMONY OR ATTENDANCE IN COURT OR ANY GOVERNMENTAL
HEARING WITH REFERENCE TO THE PROPERTY IN QUESTION, UNLESS ARRANGEMENTS
HAVE PREVIOUSLY BEEN MADE THEREFORE.
12. THE AMERICANS WITH DISABILITIES ACT (ADA) BECAME EFFECTIVE JANUARY
26, 1992. THE APPRAISER HAS NOT MADE A SPECIFIC COMPLIANCE SURVEY AND
ANALYSIS OF THE SUBJECT PROPERTY TO DETERMINE WHETHER OR NOT IT IS IN
CONFORMITY WITH THE VARIOUS DETAILED REQUIREMENTS OF THE ADA. IT IS
POSSIBLE THAT AN ADA COMPLIANCE SURVEY OF THE SUBJECT IMPROVEMENTS
COULD REVEAL THAT THE SUBJECT PROPERTY IS NOT IN COMPLIANCE WITH ONE OR
MORE REQUIREMENTS OF THE ACT. IF SO, THIS FACT COULD HAVE A NEGATIVE
EFFECT UPON THE VALUE OF THE SUBJECT PROPERTY. SINCE THE APPRAISER HAS
NO DIRECT EVIDENCE RELATING TO THIS ISSUE, THE COMPLIANCE, OR
NON-COMPLIANCE, WITH ADA WAS NOT TAKEN INTO CONSIDERATION IN THE
VALUATION OF THE SUBJECT PROPERTY.
<PAGE>
TABLE OF CONTENTS
-----------------
COMPLETE, SELF-CONTAINED APPRAISAL
ENCORE - 23 RESIDENTIAL LOTS
OCEANSIDE, CALIFORNIA
---------------------
INTRODUCTION
Title Page
Letter of Transmittal
Summary of Salient Facts and Conclusions
Certification
Contingent and Limiting Conditions
Table of Contents
<TABLE>
<CAPTION>
GENERAL DATA (TAB) PAGE
----
<S> <C>
Purpose of the Appraisal . . . . . . . . . . . . . . . . . . 1
Market Value . . . . . . . . . . . . . . . . . . . . . . 1
Property Rights Appraised . . . . . . . . . . . . . . . . . . 1
Parcel . . . . . . . . . . . . . . . . . . . . . . . . . 2
Intended Use of the Appraisal . . . . . . . . . . . . . . . . 2
Date of Value . . . . . . . . . . . . . . . . . . . . . . . . 2
Scope of the Appraisal . . . . . . . . . . . . . . . . . . . 2
General . . . . . . . . . . . . . . . . . . . . . . . . 2
Valuation Background . . . . . . . . . . . . . . . . . . 3
Appraisal Format . . . . . . . . . . . . . . . . . . . . 3
Environs . . . . . . . . . . . . . . . . . . . . . . . . . . 4
City . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Local . . . . . . . . . . . . . . . . . . . . . . . . . 5
Access . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Traffic . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Regional Area Map
Local Area Map
Environs Photographs
SUBJECT PROPERTY (TAB)
General . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Owner Apparent/Assessed Owner/Appraised Owner . . . . . . . . 12
Sales History . . . . . . . . . . . . . . . . . . . . . . . . 12
Property Location . . . . . . . . . . . . . . . . . . . . . . 13
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS (CONT.):
SUBJECT PROPERTY (CONT.) PAGE
----
<S> <C>
Legal Description . . . . . . . . . . . . . . . . . . . . . . 14
Assessor's Data . . . . . . . . . . . . . . . . . . . . . . . 14
Physical Description - Land . . . . . . . . . . . . . . . . . 14
Physical Description - Improvements . . . . . . . . . . . . . 18
Zoning . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Present Use and Occupancy . . . . . . . . . . . . . . . . . . 21
Highest and Best Use . . . . . . . . . . . . . . . . . . . . 21
Tract Map
Assessor's Maps
Zoning Map
Aerial Photograph
Ground Photographs
VALUATION (TAB)
Approach to Value . . . . . . . . . . . . . . . . . . . . . . 37
Market Data Approach - Land . . . . . . . . . . . . . . . . . 38
Residual Analysis . . . . . . . . . . . . . . . . . . . . . . 39
Correlation and Conclusion . . . . . . . . . . . . . . . . . 46
Lot Premiums
Job Cost Excerpts - Brehm
Market Data Summary (Table I) - Land Sales
Market Data Map - Land Sales
Market Data Summary (Table II) - Encore's Phase 7 Sales
Market Data Map - Encore's Phase 7 Sales
Market Data - Land Sales
Market Data - Encore Phase 7 Sales
ADDENDA (TAB)
Appraisers' Qualifications
Carl W. Boznanski, C.R.A.
Daniel H. Herron
Mark W. Linnes, MAI
</TABLE>
<PAGE>
ENCORE - PORTION
OCEANSIDE, CALIFORNIA
GENERAL DATA
PURPOSE OF THE APPRAISAL:
It is the purpose of this appraisal to set forth an estimate of and
support for the "as is" market value of the fee simple interest of 23
essentially finished residential lots.
MARKET VALUE
Market Value is 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 and knowledgeably, and
assuming the price is not affected by undue stimulus. Implicit in this
definition is the consummation of the sale as of a specified date and the
passing of title from seller to buyer under conditions whereby:
a. Buyer and seller are typically motivated.
b. Both parties are well informed or well advised, and acting
in what they consider their own best interests;
c. A reasonable time is allowed for exposure in the open
market;
d. Payment is made in terms of cash in United States dollars or
in terms of financial arrangements comparable thereto; and
e. 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.
The "AS IS" VALUE is defined as the market value of a property as it
physically and legally exists as of the present time, usually the effective
date of the appraisal is prepared. It is also a value without hypothetical
conditions, assumptions or qualifications.
PROPERTY RIGHTS APPRAISED
Property rights appraised are the fee simple interest in the estate,
assuming the property to be free and clear of all liens, under responsible
ownership and competent management and having good and marketable title.
Mineral rights, if any, are not considered herein. Likewise, unless noted,
we are not valuing business interests or any items of fixtures or
equipment.
1
BOZNANSKI & COMPANY
<PAGE>
ENCORE - PORTION
OCEANSIDE, CALIFORNIA
PURPOSE OF THE APPRAISAL (CONT.):
Fee simple is an absolute ownership unencumbered by any other interest
or estate, but subject to the limitations of eminent domain, escheat,
police power, and taxation. It is an inheritable estate.
PARCEL
The term "parcel" as used herein means any contiguous tract of land in
the same ownership and use whether such tract consists of one or more
platted lots or a fractional part thereof.
INTENDED USE OF THE APPRAISAL:
This appraisal is intended to provide a value basis, for financing
purposes, of the fee owned land as further described herein. The intended
user of this report is the owner, Oceanside Development, Inc.
DATE OF VALUE:
This appraisal report is dated June 15, 1997, corresponding to the
completion of our investigation, analysis of relevant data and the
preparation of this report. Our date of value is defined as of March 31,
1997.
SCOPE OF THE APPRAISAL:
GENERAL
The subject property is located within a 137-lot tract that lies south
of Mesa Drive and east of College Boulevard, in the city of Oceanside, San
Diego County, California. The subject consists of 23 essentially finished
lots that represent the last two phases of an ongoing detached development
known as Encore. These lots are essentially all finished, with the
exception of sidewalks and driveway approaches required for the 15 lots
that front Toulon Street. The 23 lots have gross areas of 7,201 sf to
18,404 sf, with an average of 11,012 sf. (The net areas were not provided
us.
The 23 subject lots are proposed to be improved as the last two phases
of a detached single family residential tract known as Encore. There are
to be four types of detached residences ranging in size from 1,768 sf to
2,440 sf, with a weighted average of 2,146 sf, to be built by Brehm
Communities.
2
BOZNANSKI & COMPANY
<PAGE>
ENCORE - PORTION
OCEANSIDE, CALIFORNIA
SCOPE OF THE APPRAISAL (CONT.):
VALUATION BACKGROUND
Our opinion of value and this report follow an onsite property inspection,
discussions with the owners or their representative, interviews with
knowledgeable persons in the area, including city of Oceanside officials,
analysis of pertinent material supplied to us, a market data sales
investigation, and a highest and best use analysis.
In developing this report, all three valuation techniques were considered.
However, the Income Approach does not apply to vacant residential land that
is proposed to be sold to individual owner/users. The Cost Approach, in its
traditional format, is not considered either. However, cost data is
utilized in a residual analysis. Thus, the Market Approach or Direct Sales
Comparison Approach will be the primary valuation technique utilized in
this report.
The Market Data Approach to Value is looked to as providing the most
significant and relevant value indications for the essentially vacant
subject site. The process involves a comparison of the subject property
with residential subdivisions of similar and competing use, which have
been subjected to the forces of the market through sale. Market data is
also utilized in estimating the Aggregate Retail Value of the detached
single family residences that are currently proposed. A residual analysis,
which utilizes our conclusion of revenue and cost data provided us, will
also be utilized in estimating land value.
APPRAISAL FORMAT
The report is divided into four major sections . . . General Data, Subject
Property, Valuation, and Addenda. The General Data Section provides
background information and sets the tone of the assignment. It defines the
purpose, intended use, date of value and scope of the appraisal and
describes the environs, access and traffic. Also included here are maps and
ground photographs showing the area.
The Subject Property Section contains a summary of pertinent information
relating to the property's ownership, sales history, location, legal
description, Assessor's data, physical description of the land, zoning,
present use and occupancy and highest and best use. Various exhibits,
including title report, Assessor maps and photographs, are also included
here.
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SCOPE OF THE APPRAISAL (CONT.):
The Market Data Approach to Land Value is then discussed in the Valuation
Section. This technique is applied in our valuation analysis relative to
the subject property and a conclusion is thereby achieved. The details of
those items of vacant land market data, having relevance to the appraisal
problem at hand are then set forth along with a market data map and a
market data summary illustrating the comparable properties relative
geographical location in relation to the subject. The Residual Method is
also presented.
The last report section is the Addenda, which contains the appraiser's
qualifications.
ENVIRONS:
CITY
The City of Oceanside is located between two of Southern California's
largest cities. It is located 84 miles south of the city of Los Angeles and
36 miles north of the city of San Diego. The City has an area of about
40.6 square miles and has frontage along the Pacific Ocean. It is bound by
Camp Joseph H. Pendleton of the United State Marine Corp. to the northwest,
unincorporated county territory to the east, and the cities of Vista and
Carlsbad to the southeast.
As of January 1, 1997, the City had a population of 149,220, which
represents an increase of 20,822 or 16% over the 1990 Census figure, which
itself is 51,700 or 67% over the 1980 Census. Also, there were 56,567
housing units as of January 1, 1997. This includes 27,336 detached and
8,258 attached units.
Freight and passenger movement is provided by virtually all types of
transportation services. Rail transportation is provided by the Santa Fe
Railroad for freight and AMTRAK for passenger. Over 95 trucking and
moving/storage firms serve the northern county of San Diego
providing overnight delivery to Arizona, San Diego, San Francisco and Los
Angeles. Air transportation is available at several airports including
Lindberg Field (San Diego International) 32 miles south, McClellan-Palomar
Airport (Carlsbad) 7 miles south, and Oceanside Municipal Airport. Busing
services are provided by North County Transit, Greyhound and Continental
Trailways. In addition, direct transfers for AMTRAK
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ENVIRONS (CONT.):
and local intercity buses are offered by the Oceanside Transit
Center. Shipping services are provided by the Port of San Diego which is
located 39 miles south, and the Oceanside Small Craft Harbor. Vehicular
transportation is made available by the Interstate 5 Freeway (north/south)
and State Highway 76 and 78 (east/west).
Utilities are supplied to the area by the following entities:
Water: City of Oceanside
Natural Gas: San Diego Gas and Electric
Electric Power: San Diego Gas and Electric
Telephone: Pacific Bell
Sewer: City of Oceanside
Serving the community is a Council-Manager type of government. The
City also has its own police and fire departments. The City became
incorporated in 1988.
There are over 3,000 acres in the city limits master planned with
2,000+ acres zoned for light industry and 1,000 acres zoned for commercial
development.
The eastern portion of the city of Oceanside had experienced rapid
development in the late 1980s and early 1990s. Nearest to the subject is
the planned community of Rancho Del Oro. This 2,000-acre master-planned
community will have some 4,400 residential units, three town centers
(retail) and 780 acres of industrial land. Other industrial areas within
the Oceanside area, including the above mentioned Rancho Del Oro
community, are identified as Oceanside Airport, Industry Street Corridor
and Vista Pacific.
LOCAL
The subject development is located in the east central portion of the
city of Oceanside. It is just to the north and west of the city of Vista
and some five miles east of downtown Oceanside. This area is primarily
zoned for planned residential development. There are areas zoned for scenic
parks and small commercial developments here also. The immediate area
surrounding the subject is being built-up with single family residences
similar to that proposed on the subject property.
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ENVIRONS (CONT.):
Immediately south of the subject, across Old Grove Road (Temple Heights
Drive), are existing detached single family residential developments within
the master planned community of Rancho Del Oro. This 2,000-acre
master-planned community has some 4,400 residential units, three town
centers (retail) and 780 acres of industrial land. The community is
expected to be built out in the year 2005. As part of this development is
an elementary school and park, both located to the west of the subject.
Developments within the immediate area that are not a part of Rancho Del
Oro include the previous subject owner/developer's three- to five-year-old
development, Bella Collina. Immediately south of the subject and west of
Bella Collina is a 111-lot tract that is currently owned by the Appraised
Owner, Oceanside Development, Inc. It is proposed to be developed by Brehm
Communities with five types of residences ranging in size from 1,821 sf to
2,847 sf. Further north, across Mesa Drive, is the recently sold-out
development of Centex Homes, Northview. It was developed on lots acquired
from the RTC which were previously owned by Friedman Homes.
Commercial development serving these homes are located along Oceanside
Boulevard and College Boulevard. Found here are two neighborhood shopping
centers, one with a major grocery tenant. Similar centers have been
constructed on the two sites at the westerly corners of Mission Avenue and
College Boulevard. One is anchored by Wal-Mart. A small site located to
the immediate northwest of the subject is zoned for commercial use, but is
currently vacant.
The large and sprawling Gaujome County Regional Park is located
northeast of the subject, across North Santa Fe Avenue.
ACCESS:
Currently, the 23 subject lots are served by two local streets. The
larger tract of which the subject is a part is served by two secondary
arterials.
MESA DRIVE is a diagonally running (northeast to southwest) secondary
arterial that is located just north of the subject. Access from the
larger tract of which the subject is a part to Mesa Drive is provided by
AVENIDA DE LA PLATA and WOODVIEW DRIVE. Mesa Drive begins at Mission
Avenue near Interstate 5 to the west and ends at North Santa Fe Avenue
to the northeast, a distance of some
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ACCESS (CONT.):
six miles. In the immediate subject area it has a right-of-way width
of 84 feet. It is fully asphalt paved and has two travel lanes in each
direction, plus left hand turn lanes at its intersections. Bordering the
street are concrete curbs, gutters and sidewalks. Street lights are in
place as well.
COLLEGE BOULEVARD is the other secondary arterial located in close
proximity to the subject. It is located west of the subject and is
available from MESA DRIVE. College Boulevard provides access to MISSION
AVENUE (76) to the north and HIGHWAY 78 to the south.
The two local streets that serve each of the 23 subject lots include:
BELLA COLLINA STREET and TOULON STREET. Each of these streets has a right-
of-way width of 60 feet. Both are fully asphalt paved and have concrete
curbs, gutters along the perimeter. Sidewalks and driveway aprons exist in
front of the eight lots along Bella Collina Street, but do not exist in
front of the 15 lots along Toulon Street.
TRAFFIC:
As of June 1994, the City of Oceanside's Engineering Department of
Transportation reported that the 24-hour average daily traffic count (ADT)
for Mesa Drive was 6,200. The current ADT is estimated by the City to be
10% higher.
No counts are available for the two internal collectors that serve the
subject. Because of their local nature, however, their ADTs are estimated
at no more than 500.
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SUBJECT PROPERTY
GENERAL:
The following paragraphs, which describe the subject property, are
based on information provided us, on available public records and from our
on-site inspection. We were provided information from the current
developer, Brehm Communities. We physically inspected the subject on two
occasions, including August 21, 1991, and April 25, 1997. The ground and
aerial photographs were taken at the time of our most recent inspection.
OWNER APPARENT/APPRAISED OWNER/ASSESSED OWNER:
Oceanside Development, Inc.
c/o National Investors Financial Incorporated
4675 MacArthur Court
Suite 1240
Newport Beach, California 92660
SALES HISTORY:
According to the San Diego County Assessor, as published by TRW Redi,
the 23 subject lots, as well as another 210 lots within both Encore and
Symphony, last transferred on November 17, 1993, as recorded on Document
No. 774468, for an undisclosed price. The property was acquired by
Oceanside Development Incorporated, c/o National Investors Financial
Incorporated, from The VED Corporation General Partnership, c/o Bella
Collina Ltd. and Oceanside Terracina Ltd. The 233 lots include 111 lots
within Symphony, and 122 lots/homes in Encore. The 122 lots/homes included
four models, three production homes, 17 framed homes and 24 finished lots
and 74 blue top lots.
The VED Corporation purchased Mission Santa Fe Parcels 5 and 6, which
includes a portion of Symphony (Lots 46-97 of Tract 12797) and all of
ENCORE (Lots 1-45 of Tract 12797 and Lots 1-92 of Tract 12798), from the
Mission Santa Fe Investment Company, a California limited partnership. The
total purchase price for both parcels, which encompassed some 189 lots, was
$1,974,500 or $10,447 per lot. No other information on this transaction
was made known to us.
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SALES HISTORY (CONT.):
The 137-lot tract, which was originally developed by The VED
Corporation as a detached single family residential project known as
Encore, was first available for sale on October 1, 1992. Through November
17, 1993, VED had closed escrow on 15 of 18 production homes in Phase One.
An additional 16 units within phases one through three had pending sales;
however, most or all of these sales fell out of escrow due to VED's
financial problems.
Brehm Communities took over the project in mid-January 1994 and have
sold a total of 97 homes, including four models. 84 homes have closed
escrow and 13 homes within Phase 7 are in escrow as of April 25, 1997.
They were scheduled to close escrow in mid-June 1997, their expected date
of completion. (Please refer to Table II at the end of this report for a
summary on the pending sales in Phase 7.)
We are not aware of any other transactions . . . past, present or
pending, regarding the subject property.
PROPERTY LOCATION:
4901-4915 Bella Collina Street
4902, 4916 Bella Collina Street
1304-1366 Toulon Street
1301-1341 Toulon Street
Oceanside, California 92056-1911
Eight of the 23 subject lots are located along Bella Collina Street,
west of Woodview Drive. The other 15 are located along Toulan Street, north
of Terracina Street.
The subject lots are part of a larger tract that is located south of
Mesa Drive and east of College Boulevard, within the east centralmost part
of the city of Oceanside, in the northwestern part of the county of San
Diego, California.
Thomas Brother Guide: Page 1087; Grids B3-C3 (San Diego County - 1997)
Census Tract: 193 (San Diego SMSA - 1990)
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LEGAL DESCRIPTION:
The subject property is situated in the State of California, County of
San Diego, and is described as follows:
Lots 25 through 39 of Mission Santa Fe Parcel 5 and 6 - Unit 1, in the
City of Oceanside, County of San Diego, State of California, according
to the Map thereof No. 12797, as recorded in the Office of the County
Recorder of San Diego County; Lots 39, 44, 45 through 50, of Mission
Santa Fe Parcels 5 and 6 - Unit 2, in the City of Oceanside, County of
San Diego, State of California, according to Map thereof No. 12798, as
recorded in the Office of the County Recorder of San Diego County.
ASSESSOR'S DATA (1996-97):
Assessor's Parcel Nos.: 158-600-25 through 29
158-600-30 through 32
158-610-01 through 07
158-612-04 through 15
Assessed Values (Land Value)*:
Land: $828,872
Improvements: -0-
--------
Total: $828,872
Tax Rate Area: 7101 and 7025
Tax Rate: $1.01344 per $100 Assessed Value (96-97)
Taxes: $8,400+/- (96-97 est.)
$8,600+/- (Projected)*
* Projected tax based on our conclusion of Market Value.
PHYSICAL DESCRIPTION - LAND:
OVERALL
Shape: Very irregular (See attached Assessor's Maps and Tract Map
for further definition)
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PHYSICAL DESCRIPTION - LAND (CONT.):
Dimensions: See attached Assessor's Maps and Tract Map for
definition
Area Content: 5.8146 ACRES or 253,284 SF
The total gross area above was provided us by the
subject property's current developer, Brehm
Communities. The net areas were not available for
all 23 lots, but were provided us for the 15 lots
within Phase 8. They are within a range of 5,640
sf to 10,160 sf, with an average of 7,543 sf. The
difference between the net and gross area for the
15 lots is 73,996 sf or 4,933 sf per lot.
Individual Lot Areas: Minimum: 7,201 sf (gross)
Maximum: 18,404 sf (gross)
Average: 11,012 sf (gross)
Topography: The 23 subject lots are located within a hillside
development with a topography that generally
slopes downward from south to north. The 11 lots
that back up to Mesa Drive have flat and level
building pads that lie above the grade of the
street. Between the pad and the street are slopes.
The other 12 lots have flat pads that lie below a
northerly slope.
Soils: We are in receipt of a "Geotechnical Grading Plan
Review" including addendums and revisions, for the
entire land area that was owned by the VED
Corporation, including the three developments: Bella
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PHYSICAL DESCRIPTION - LAND (CONT.):
Collina, Symphony and Encore. All of these
documents are as prepared by Pacific Soils
Engineering, Inc., of San Diego, California, are
identified as Work Order 400134. The earliest
report was prepared on August 30, 1988, and the
latest was prepared on April 25, 1990.
The "Geotechnical Grading Plan Review" is based on
a review of numerous geotechnical reports prepared
by Leighton and Associates, Inc. and on grading
plans as prepared by Hunsaker and Associates. In
addition, this report is based on subsurface work
as performed by Pacific Soils Engineering, Inc.
Upon review of all three sources, it was found
that the subject site was suitable for the
intended development subject to the conditions and
recommendations of the referenced engineer. In
addition, the proposed development was not
anticipated to adversely affect the gross
stability of the natural slopes.
EPA Superfund
(CERCLIS): No (As of January 1993)
Hazardous Substances: Unless otherwise stated in this report, the
existence of hazardous substances, including
without limitation asbestos, polychlorinated
biphenyl's, petroleum leakage, or agricultural
chemicals, which may or may not be present on
the property, or other environmental conditions,
were not called to the attention of nor did the
appraiser become aware of such during the
appraiser's inspection. The appraiser has no
knowledge
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PHYSICAL DESCRIPTION- LAND (CONT.):
of the existence of such materials nor in the
property unless otherwise stated. The appraiser,
however, is not qualified to test such
substances or conditions. If the presence of such
substances, such as asbestos, urea formaldehyde
foam insulation, or other hazardous substances or
environmental conditions, may affect the value of
the property, the value estimated is predicated on
the assumption that there is no such condition on
or in the property or in such proximity thereto
that it would cause a loss in value. No
responsibility is assumed for any such conditions,
nor for any expertise or engineering knowledge
required to discover them.
Access: Each of the eight lots that front Bella Collina
Street is accessible across a concrete paved
driveway apron. Similar aprons/approaches are
proposed for the 15 lots that front Toulon Street.
Utilities: All wet and dry utilities are currently available
to each of the 23 lots. (Refer to the Job Cost
Report at the rear of this report for a summary of
the utilities cost and fees that have been paid as
of March 1997.)
Easements: There are no known or apparent easements along or
across the various subject lots that would affect
their highest and best use development. This
assumption is contingent upon review of a title
report, however.
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PHYSICAL DESCRIPTION - LAND (CONT.):
Offsite Improvements: Currently, both Bella Collina Street and Toulon
Street are asphalt paved. Also, each has street
lights, and concrete curbs and gutters. However,
only Bella Collina Street has sidewalks and
driveway aprons/ approaches.
Flood Hazard: The Federal Emergency Management Agency (FEMA),
through the National Flood Insurance Program,
publishes flood insurance rate maps. A map
identified as Community-Panel Number
060294-0012C, dated June 18, 1987, indicates that
the subject property is located in Flood Zone X,
an area determined to be outside of the 500-year
flood zone.
Earthquake Hazard: The subject property, as well as the entire city
of Oceanside, is not located in an Earthquake
Fault Zone as specified by the Alquist-Priolo
Earthquake Fault Zoning Act.
PHYSICAL DESCRIPTION - IMPROVEMENTS:
EXISTING
Currently, the 23 lots do not have any building improvements.
PROPOSED
Proposed to be developed on the 23 subject lots as part of the ongoing
tract known as Encore by Brehm Communities are four types of detached
single family homes. They are summarized as follows:
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PHYSICAL DESCRIPTION - IMPROVEMENTS (CONT.):
----------------------------------------------------
Floors/ Bed/ Living Product Total
Plan Parking Bath Area (sf) Mix Area (sf)
----------------------------------------------------
1 1/3 3/2 1,768 4 7,072
2 1/3 3/2 1,944 6 11,664
3 2/3 4/2.5 2,284 7 15,988
4 2/3 5/3 2,440 6 14,640
----------------------------------------------------
The 23 proposed homes will have a total area of 49,364 sf, with a
weighted average of 2,146 sf per residence.
These detached homes will have a large front yard setback. They will
be built of frame and stucco construction with some exterior wood siding.
The homes will be constructed on concrete slab foundations and have both
gable and hip roofs. Fireplace structures are to be enclosed. They will
have three-car garages.
Copies of floor plans and elevations are presented toward the rear of
this section.
The features anticipated to be included in these homes are presented
as follows:
Exterior
Tile Roof
Painted Stucco Exterior
Sectional Garage Doors
Concrete Driveway and Walkways
Concrete Patios
Side and rear yard fencing
Front yard landscaping
Kitchen
Dual Self-Cleaning Oven
Automatic Dishwasher
Garbage Disposal
Microwave Oven
Wood Cabinets
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PHYSICAL DESCRIPTION - IMPROVEMENTS (CONT.):
Pantry
Ceramic Tile Counter Tops
Sheet Vinyl Floor
Island Counters
Master Bedroom
Double Entry Doors
Retreats
Dual Basin Sinks
Ceramic Tile Counter Tops
Oval Acrylic Tub with Ceramic Tile Wainscot
Separate Stall Shower (Plans 2, 3 and 4)
Walk-In Closet
Optional Fireplaces (Plans 2 and 3)
Interior
Ceramic Tile Entry
Carpeting in all other living areas
Volume Ceilings
Forced Air Heating
Fireplaces
Skylights
Bathrooms
Sheet Vinyl Floor Finish
Cultural Marble Countertops
Acrylic Tubs with Ceramic Tile Wainscot
Dual Basin Sinks
Optional Items
Air Conditioning
Mirrored Wardrobe Doors
Garage Door Openers
Tub/Shower Enclosures
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ZONING:
RS and RS-HD (Single Family Residential - Hillside Development); as
per City of Oceanside Property Development Regulations.
The purpose of this zone is to establish standards for single family
residential development. All dwelling units shall have a minimum lot area
per dwelling of not less than 6,000 sf. Setbacks are as follows: front -
20 feet, side - 5 feet and rear - 15 feet. Lot width shall be a minimum of
60 feet. Maximum lot coverage is set at 40%.
This single family residential zone is in conformance with the City's
General Plan requirements.
The overall subject development has received approval from the city of
Oceanside and is in full conformance with all applicable zoning criteria.
PRESENT USE AND OCCUPANCY:
Currently, the 23 subject lots are vacant land. They are proposed to
be built with detached residences and sold to owner/users.
HIGHEST AND BEST USE:
DEFINITION
Highest and best use is defined as that reasonable and probable use
that will support the highest present value, as presently defined, as of
the date of the appraisal. Alternately, it is that use, from among
reasonably probable and legal alternate uses found to be physically
possible, appropriately supportive, financially feasible, and which results
in highest land value.
PHYSICALLY POSSIBLE
The subject property is located in the east central part of the city
of Oceanside, in an area characterized by rolling topography. The site had
been partially graded for detached single family residential development.
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HIGHEST AND BEST USE (CONT.):
LEGALLY PERMISSIBLE
The subject property is zoned for detached single family residential
residences on lots having a minimum area of 6,000 sf.
FINANCIALLY FEASIBLE
GENERAL
Financial feasibility takes into consideration neighborhood land use
trends, competition, value trends, and factors of supply and demand
relative to various alternate uses that are physically possible and legally
permissible.
LAND USE TRENDS
The subject development is located in the east central portion of the
city of Oceanside. It is just to the north and west of the city of Vista
and some five miles east of downtown Oceanside. This area is primarily
zoned for planned residential development. There are areas zoned for scenic
parks and small commercial developments here also. The immediate area
surrounding the subject is being built-up with single family residences
similar to that proposed for the subject property.
Immediately south of the subject, across Old Grove Road (Temple
Heights Drive), is currently existing detached single family residential
developments within the master planned community of Rancho Del Oro. This
2,000-acre master-planned community is to have some 4,400 residential
units, three town centers (retail) and 780 acres of industrial land. The
community is expected to be built out in the year 2005. As part of this
development is an elementary school and park, both located to the west of
the subject.
Developments within the immediate area that are not a part of Rancho
Del Oro include the larger tract (Encore) of which the subject is a part
and the previous subject owner/developer's three-to five-year-old
development, Bella Collina. Immediately south of the subject is a 111-lot
tract currently owned by Oceanside Development, Inc. It is proposed to be
developed by Brehm Communities with five types of residences ranging in
size from 1,821 sf to 2,847 sf. Further north, across Mesa Drive, is the
recently sold-out development of Centex Homes, Northview. It was developed
on lots acquired from the RTC which were previously owned by Friedman
Homes.
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HIGHEST AND BEST USE (CONT.):
Commercial development serving these homes are located along Oceanside
Boulevard and College Boulevard. Found here are two neighborhood shopping
centers, one with a major grocery tenant. Similar centers have been
constructed on the two sites at the westerly corners of Mission Avenue and
College Boulevard. One is anchored by Wal-Mart. A small site located to
the immediate northwest of the subject is zoned for commercial use, but is
currently vacant.
The large and sprawling Gaujome County Regional Park is located
northeast of the subject, across North Santa Fe Avenue.
COMPETITION
According to a competitive audit of the Coastal North sub-market of
San Diego County as prepared by the Meyers Group for the first quarter of
1997, there are a total of 14 active tracts that are offering detached
residences for sale in the city of Oceanside. These 14 tracts had a total
project size of 1,469 units, with an average size of 105 units. As of
March 1997, they had released a total of 1,223 units. Thus, 246 units were
proposed. Since the fourth quarter of 1993, the number of projects and
number of units released have decreased by 51% and 36%.
VALUE TRENDS
According to the Meyers Group, the weighted average price for detached
residences for the entire Oceanside sub-market for the first quarter of
1997 is $214,006 for a 2,213 sf residence. This weighted average is some
$2,654 higher than the average reported for the fourth quarter of 1993 for
a similar sized residence.
Also according to Meyers, the base price for the Encore tract has gone
down zero to $10,000 per plan between November 1993 and March 1997,
representing decreases of zero to about 5%.
SUPPLY AND DEMAND
According to the Meyers Group, there were a total of 161 sales during
the second quarter of 1997 for the Oceanside submarket. This total
reflects an average sales rate of about 2.32 units per month.
Encore has been selling at an overall rate of 2.02 units per month.
For the first quarter of 1997, it sold at a rate of 2.12 units per month.
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HIGHEST AND BEST USE (CONT.):
HIGHEST AND BEST USE - "AS VACANT"
Considering the subject's site size, topography, zoning and the fact
that sale prices of residences contribute to the value of the underlying
land, we conclude that the 23 subject lots are best be utilized for medium
density residential development.
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VALUATION
APPROACH TO VALUE:
Our valuation task in this analysis is to establish the "as is" market
value of the 23 subject lots. Eight of the 23 are finished lots and the
other 15 are essentially finished, only requiring sidewalks and driveway
aprons/ approaches. However, there are additional costs required for the
23 lots as they exist within the context of the larger tract. The bulk of
these costs are for the large, open space slopes and for the southerly
extension of Avenida De La Plata. In our analysis, therefore, we will
value the 23 lots as finished land and then subtract all remaining costs
within a residual analysis.
Our analysis of the market value of the 23 lots will consider the
Market Data or Sales Comparison Approach. Because the data we uncovered
includes land in the various stages of the site development and entitlement
process, however, we are also considering a land residual analysis. This
analysis provides a value of a property at a current point in time by first
estimating its total cost or value indication when finished and then
subtracting all costs required to develop to its finished state, which can
be either finished land or finished product (i.e. house).
The residual land analysis that utilizes a finished product value
considers the proposed plans for the subject, which includes four homes
ranging in size from 1,768 sf to 2,440 sf, with a weighted average of 2,146
sf. The proposed homes will be compared with the most current phase, Phase
7, of Encore. These homes are currently under construction and are
expected to be finished in mid-June 1997. The Aggregate Retail Value of the
proposed residences have been estimated by utilizing the Market Data or
Sales Comparison Approach.
All market data items have been verified by one or more sources
considered to be reliable, including parties in the transaction, brokers
familiar with the transaction, COMPS, Inc., or other market data reporting
sources, and/or by full value documentary stamps on deeds followed by the
County Assessor's re-evaluation in the public records.
NON-ECONOMIC VALUE
The subject parcel does not appear to have any intrinsic, natural,
cultural or scientific value, based upon our inspection and investigation,
and in the course of our analysis we have not been made aware by any
government agency or professional group of the potential for such value.
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OCEANSIDE, CALIFORNIA
MARKET DATA APPROACH - LAND:
Our opinion of finished land value is resultant from a search for and
an analysis of the residential land sales that occurred within the city of
Oceanside and its surrounding areas.
As a result of our search, three comparables were found that can be
applied in our analysis of the subject property. They sold between January
of 1995 and April of 1997, with no more pertinent transactions known to us.
They sold at unit prices of $21,384 to $58,400 per lot. However, these
prices reflect land in the various stages of the site development and
entitlement process. The three reported finish lot costs of $46,384 per
lot to $58,400 per lot, including school fees.
The three comparables are summarized in chart form (Table I) and
presented toward the rear of this section. A map that geographically
locates each comparable in relation to the subject is also presented.
Finally, each sale is described in detail within a market data sheet.
Each sale is further discussed as follows:
COMPARABLE NOS. 1A, 1B, AND 1C represent separate transactions within
a takedown whereby the sale price of the lots was established in August of
1996. The three properties are located within a gate-guarded community
known as Ocean Hills At Leisure Village in Oceanside. This area is
considered slightly superior to the subject area. The three sales occurred
between August 1996 and April of 1997. They are zoned for medium to high-
density residential development and were reported to have average lot sizes
of 4,500 sf. A total of 70 lots sold in these transactions at prices that
average $57,361 per lot. They sold as finished lots. About half of these
lots have views considered similar to the subject property. Considering
their smaller average lot size, these comparables are considered inferior
to the subject.
COMPARABLE NO. 2 is a 215-lot subdivision that is located adjacent to
the Castle Creek Country Club, within unincorporated county territory, east
of the 15 Freeway. This property sold as essentially vacant land with all
offsites available to the site. These lots have since been finished and
are currently being improved with a detached single family residential
development on lots having an average
38
BOZNANSKI & COMPANY
<PAGE>
ENCORE - PORTION
OCEANSIDE, CALIFORNIA
MARKET DATA APPROACH - LAND (CONT.):
size of about 5,000 sf. Less than half these lots have frontage along
the golf course. This property sold in July of 1995 at an all cash price
of $6,143,000 or $28,572 per lot. The finished lot cost was reported
between $56,500 to $57,000 per lot, not including a $4,000 per lot
assessment for sewers. The finished lot cost does include school fees.
COMPARABLE NO. 3 consists of a 159-lot subdivision located along the
north side of Via Rancho Road, northwest of Mesa Drive, in close proximity
to the subject property. This essentially level site sold as essentially
vacant land with perimeter offsite improvements in place. These 159 lots
have an average area of 4,383 sf, and a minimum lot size of 2,500 sf. It
sold in January of 1995 at a total price of $3,400,000 or $21,384 per lot.
Its finished lot cost was reported at $46,384 per lot. School fees for
this project have been waived.
Our analysis also considers the purported offer to purchase the 111-
lot tract (Symphony) from Oceanside Development, Inc., by Beazer Homes at a
finished lot cost of $67,500 per lot, less all costs required to complete
the lots as finished and graded. Considering Symphony's superior views and
larger lot sizes, a downward adjustment toward the subject is required.
Therefore, we conclude that the subject's finished land value
indication is $55,000+/- PER LOT, including school fees.
RESIDUAL LAND ANALYSIS:
GENERAL
Our residual land analysis will include two separate scenarios. The
first will utilize a finished land value estimate and the second will
utilize a finished product (land plus home plus site improvements) as a
basis from which to back out all necessary costs to arrive at these
finished values. Each scenario is further discussed as follows.
SCENARIO 1
As previously determined, our finished land value estimate for the 23
subject lots, as of March 31, 1997, is $55,000 per lot or $1,265,000.
39
BOZNANSKI & COMPANY
<PAGE>
ENCORE - PORTION
OCEANSIDE, CALIFORNIA
RESIDUAL LAND ANALYSIS (CONT.):
The costs required to bring the 23 subject lots to a finished land
status is based on a Job Cost Report provided us as prepared by the
proposed builder, Brehm Communities. These costs were prepared as of March
31, 1997. (A summary of these costs is presented toward the rear of this
section.)
Brehm's remaining site development costs, which are net of incurred
costs, are summarized as follows:
CATEGORY Total Per Lot
-------------------- --------- --------
Indirect Costs $ 63,796 $ 2,774
(w/school fees)
Direct Costs $391,789 $17,034
-------- -------
Subtotal $455,585 $19,808
In addition to indirect and direct costs, the residual analysis
considers the owner/ developer's profit. Based on the previous
owner/developer's April 1993 profit estimate for Symphony, at 12.8%, and
interviews with other owner/developers in the area, we will consider a
profit of 12.5%.
Thus, the subject's land value, as of March 31, 1997, as determined by
the Residual Method, is calculated as follows:
Total Per Lot %
---------- ------- ------
Finished Land Value $1,265,000 $55,000 100.0%
Site Development Costs
Indirect (63,796 ) (2,774) 5.04%
Direct (391,789) (17,034) 30.97%
Developer's Profit (12.5%) (158,125) (6,875) 12.50%
---------- ------- ------
Residual Land Value Indication $ 651,290 $28,317 51.49%
40
BOZNANSKI & COMPANY
<PAGE>
ENCORE - PORTION
OCEANSIDE, CALIFORNIA
RESIDUAL LAND ANALYSIS (CONT.):
Therefore, the value indication as determined in Scenario 1 (finished
land to "as is" land as of March 31, 1997) is estimated at $28,317+/- per
lot or $651,290.
SCENARIO 2
This, the second land residual analysis, will establish an aggregate
retail value of the 23 residences as if they were built as of March 1997,
based on the developer's proposed product type and mix. For the subject 23
lots within Phases 8 and 9, Brehm is planning on developing detached
residences ranging in size from 1,768 sf to 2,440 sf, with a weighted
average of 2,146 sf. Similar to the preceding residual analysis, we will
utilize a non-discounted, aggregate retail value, assuming no change in
time within a static model.
Our opinion of value of the proposed 23 detached residences is
resultant from an analysis of the most recent sales within the larger
tract of which the subject is a part. Thus, we will analyze the 13 pending
sales in Phase 7 of Encore. The 15 homes within this phase will be
complete in mid-June 1997.
At the end of this section is a summary (Table II) of the 13 pending
sales within Phase 7 of Encore. Also found here is a market data map that
geographically relates each comparable to the subject. Finally, each
pending sale is described in detail within its own market data sheet.
COMPARABLE NO. 1 is the only Plan 1 sale in Phase 7. It sold at a net
(net of incentives) price of $161,900 or $91.57 psf. This property has a
mid-block location and no view.
As reported by The Meyers Group, the base list price for Phase 7,
released in October 12, 1996, was reported at $166,900.
COMPARABLE NOS. 2 AND 3, at $167,750 ($86.29 psf) and $179,900 ($92.54
psf), provide value indications for Plan 2. The difference in price, at
$12,150, is attributed to a larger lot size and elevated view above Mesa
Drive.
A base list price of $174,900 was reported by Meyers for Phase 7.
41
BOZNANSKI & COMPANY
<PAGE>
ENCORE - PORTION
OCEANSIDE, CALIFORNIA
RESIDUAL LAND ANALYSIS (CONT.):
COMPARABLE NOS. 4 THROUGH 8 provide value indications for Plan 3.
These sales revealed net prices of $183,400 or $80.30 psf to $191,900 or
$84.02 psf, with an average of $187,800 or $82.22 psf. However, the lowest
price paid is for a lot with interior corner exposure. Thus, four of the
five are between $185,900 and $191,900. Premiums up to $6,000 were
achieved by larger, cul-de-sac lots.
Meyers reported a base list price of $189,900 for Phase 7.
COMPARABLE NOS. 9 THROUGH 13 provide value indications for Plan 4.
These five properties sold at net prices of $192,275 to $202,900, with an
average of $197,175 or $80.81 psf. The highest price paid is for an 11,160
sf lot with an elevated view above Mesa Drive.
A base list price of $199,900 was reported for Phase 7 by Meyers.
NET RETAIL PRICE CONCLUSION - PER PLAN
Therefore, we conclude the following net base prices for the proposed
plans for the subject property.
--------------------------
Plan Base Price
--------------------------
1 $162,000
2. $168,000
3 $183,000
4 $193,000
--------------------------
LOT PREMIUMS
Additional costs in the purchase of a new home include lot premiums.
Developers typically charge premiums based on a site's size, view and
location.
The previous developer, The VED Corporation, had estimated lot
premiums for Phase 7 in the range of negative $4,000 to a positive of
$13,000. Negative premiums were applied to those lots with rear slopes
that rises upward. Lots with
42
BOZNANSKI & COMPANY
<PAGE>
ENCORE-PORTION
OCEANSIDE, CALIFORNIA
RESIDUAL LAND ANALYSIS (CONT.):
larger sizes and elevated views above Mesa Drive were estimated to
have higher premiums. For the most part, these assumptions held true.
However, the lowest price for Plan 3, at $183,400, was a level, corner lot
(Lot 19). Also, the actual premiums were about $2,500 to $5,000 less than
the 1993 estimates.
The premiums are summarized as follows:
PHASE 7 - ENCORE
'93 VED
Lot Net Price Estimate Actual
---- --------- -------- ---------------
Plan 2 8 $167,750 ( 3,000) Base
17 $179,900 +15,000 +12,150 over Lot 8
Plan 3 9 $185,900 ( 3,000) +2,500 over Lot 19
16 $188,900 + 8,000 +5,500 over Lot 19
18 $191,900 +13,000 +8,500 over Lot 19
19 $183,400 + 1,000 Base
21 $188,900 -0- +5,500 over Lot 19
Plan 4 10 $195,900 ( 2,000) + 3,625 over Lot 10
11 $192,275 ( 3,000) Base
13 $193,900 + 2,000 + 1,625 over Lot 10
14 $200,900 + 5,000 + 8,625 over Lot 10
15 $202,900 +13,000 +10,625 over Lot 10
Previous and current lot premium estimates for Phase 8 are as follows:
Net Lot '93 VED Current
Lot Size (sf) Slope View Estimate Estimate
--- --------- ----- ---- -------- --------
25 6,980 Down No -0- -0-
26 6,250 Down No ( 1,000) -0-
27 6,130 Down No ( 2,000) -0-
28 6,080 Down No ( 2,000) -0-
29 6,860 Down No -0- -0-
30 7,940 Down No + 4,000 + 2,000
31 9,670 No No + 8,000 + 4,000
32 9,890 No No + 9,000 + 4,500
33 10,160 No No +11,000 + 5,000
43
<PAGE>
ENCORE-PORTION
OCEANSIDE, CALIFORNIA
RESIDUAL LAND ANALYSIS (CONT.):
Net Lot '93 VED Current
Lot Size (sf) Slope View Estimat Estimate
--- --------- ----- ---- ------- --------
34 8,740 Up No + 8,000 + 4,000
35 8,490 Up No + 6,000 + 4,000
36 7,910 Up No + 4,000 + 2,000
37 6,650 Up No ( 1,000) -0-
38 5,640 Up No ( 1,000) -0-
39 5,760 Up No -0- -0-
-------- --------
Subtotal +43,000 +25,000
We also estimate premiums for the eight lots in Phase 9 as follows:
Gross Lot '93 VED Current
Lot Size (sf) Slope View Estimate Estimate
--- --------- ----- ---- -------- ---------
39 10,952 Down Yes N/A + 5,000
44 13,684 Down Yes N/A + 5,000
45 10,513 Up No N/A + 5,000
46 10,341 Up No N/A + 5,000
47 10,232 Up No N/A + 5,000
48 11,202 Up No N/A + 5,000
49 11,287 Up No N/A + 5,000
50 11,433 Up No N/A + 5,000
--------- --------
Subtotal N/A +40,000
Therefore, we conclude an average lot premium of $2,826 per lot for
the 23 subject lots.
OPTIONS
The final cost element that goes into the purchase of a home includes
interior upgrades, floor plan options and exterior options (i.e. decks).
Upgrades are not considered in our analysis, however, because they are not
considered in the original construction budget. Also, the improvements
would not be complete if the lender were to take possession of the project.
44
<PAGE>
ENCORE-PORTION
OCEANSIDE, CALIFORNIA
RESIDUAL LAND ANALYSIS (CONT.):
CONCLUSION - AGGREGATE RETAIL VALUE
Utilizing the above conclusions, the Aggregate Retail Value or Gross
Receipts of the 23-lot subject development, as proposed to be constructed,
is as follows:
LIVING TOTAL BASE TOTAL
PLAN AREA (SF) MIX PRICE PER PLAN
----- ----------- ------ --------- ----------
1 1,768 4 $162,000 $ 648,000
2 1,944 6 $168,000 $1,008,000
3 2,284 7 $183,000 $1,281,000
4 2,440 6 $193,000 $1,158,000
-----------------------------------------------------
Total $4,095,000
Add Lot Premiums $ 65,000
----------
Overall Value $4,160,000
Per Unit Average $ 180,870
Subtracted from the total revenue or aggregate retail value are such
development costs as: direct construction, indirect construction, general
and administrative, loan fees, interest, marketing and models, closing
costs and customer service. Developer's profit, estimated at 12.5%, is
also subtracted to give an "as is" land value indication from this residual
analysis.
The costs utilized are as obtained from the Job Cost Report provided
us as prepared by Brehm Communities as of March 31, 1997. (Excerpts are
contained toward the rear of this section.)
For the entire project, the total remaining cost, exclusive of Phase
7's construction building cost, is $3,423,155 or $148,823 per unit. This
figure is compared to the per phase costs reported for Phases 8 and 9,
which include the subject. The total remaining cost for these two phases
was reported at $2,788,718 or $121,249 per unit. Because the higher cost
includes lots/units that are not part of the subject, our analysis will
utilize the lower figure, at $2,788,718. (Brehm only provided us a partial
breakdown of the figure to be utilized by us. Those costs not reported
will be lumped together as "other".)
45
<PAGE>
ENCORE-PORTION
OCEANSIDE, CALIFORNIA
RESIDUAL LAND ANALYSIS (CONT.):
The "as is" land value is estimated as follows:
Per Unit Overall %
-------- ---------- --------
Revenue
Base Retail Value $178,043 $4,095,000 98.44%
Lot Premiums $ 2,826 $ 65,000 1.56%
-------- ---------- --------
Total Revenue $180,870 $4,160,000 100.00%
Site and Building Development Costs
Offsite - Indirect $ 9,544 $ 219,515 5.28%
Construction - Building Site $ 1,244 $ 28,605 0.69%
Construction Buildings $ 93,892 $2,159,521 51.91%
Marketing $ 6,277 $ 144,361 3.47%
Other $ 10,292 $ 236,716 5.69%
--------- ---------- -------
Total Development Costs ( 121,249) ( 2,788,718) 67.04%
Profit (12.5%) ( 22,609) ( 520,000) 20.46%
---------- ------------ -------
Residual Land Value Indication $ 37,012 $ 851,282 20.46%
Therefore, the value indication as determined in Scenario 2 (finished
product to "as is" land as of March 31, 1997) is estimated at $37,012 per
lot or $851,282.
CORRELATION AND CONCLUSION:
The two valuation techniques utilized in this report are summarized as
follows:
Value Approach Value Indication
---------------- ------------------
Market Approach - "As Is" N/A
Residual Analysis
Scenario 1 $651,000
Scenario 2 $851,000
46
<PAGE>
ENCORE-PORTION
OCEANSIDE, CALIFORNIA
CORRELATION AND CONCLUSION (CONT.):
Because Scenario 1 includes a $17,034 per lot direct offsite cost,
which is not implied in the costs provided us for Phases 8 and 9, most
weight is given to Scenario 2. (The "other" category, which includes
direct offsite costs, is at $10,292 per lot.) The $17,034 per lot cost
includes slope landscaping, which we assume will be completed at project's
end.
BASED ON THE INVESTIGATION AND ANALYSIS OUTLINED IN THE ACCOMPANYING
REPORT, AND SUBJECT TO THE CERTIFICATION AND CONTINGENT AND LIMITING
CONDITIONS ATTACHED TO THIS REPORT, WE CONCLUDE THAT THE "AS IS" MARKET
VALUE OF THE FEE SIMPLE INTEREST IN THE 23 SUBJECT LOTS, REPRESENTING PHASE
8 AND 9 OF ENCORE, LOCATED IN OCEANSIDE, CALIFORNIA, AS OF MARCH 31, 1997,
IS:
$850,000
EIGHT HUNDRED FIFTY THOUSAND DOLLARS
Any significant changes to the site size or configuration, to the
improvements in size or quality, or any other material information supplied
to us in this analysis, as further identified herein, could affect our
valuation conclusion and would require a re-evaluation of our analysis.
We retain a copy of this report, together with worksheets, documents
and other data upon which our conclusions and opinion of value are based.
We certify that we have no past, present or contemplated future
interest in this property and that we have acted in accordance with
accepted ethics and standards in our profession.
47
<PAGE>
ENCORE PREMIUMS UNIT 1
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
NET LOT CUL- SOUTH NORTH TOTAL ROUNDED
LOT LOT SIZE PREMIUM DE-SAC EXPOSURE EXPOSURE SLOPE VIEW PREMIUMS OFF
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 6,990 $2,985 $2,000 ($7,500) ($2,515) ($3,000)
- ----------------------------------------------------------------------------------------------------------------------------
2 7,340 $3,510 $2,000 ($7,500) ($1,990) ($2,000)
- ----------------------------------------------------------------------------------------------------------------------------
3 7,060 $3,090 $2,000 ($7,500) ($2,410) ($2,000)
- ----------------------------------------------------------------------------------------------------------------------------
4 6,460 $2,190 $2,000 ($7,500) ($3,310) ($3,000)
- ----------------------------------------------------------------------------------------------------------------------------
*5 6,370 $2,055 $2,000 ($7,500) ($3,445) ($3,000)
- ----------------------------------------------------------------------------------------------------------------------------
6 6,390 $2,085 $2,000 ($7,500) ($3,415) ($3,000)
- ----------------------------------------------------------------------------------------------------------------------------
7 6,330 $1,995 $2,000 ($7,500) ($3,505) ($4,000)
- ----------------------------------------------------------------------------------------------------------------------------
*8 6,680 $2,520 $2,000 ($7,500) ($2,980) ($3,000)
- ----------------------------------------------------------------------------------------------------------------------------
9 6,760 $2,640 $2,000 ($7,500) ($2,860) ($3,000)
- ----------------------------------------------------------------------------------------------------------------------------
10 7,120 $3,180 $2,000 ($7,500) ($2,320) ($2,000)
- ----------------------------------------------------------------------------------------------------------------------------
*11 6,910 $2,865 ($5,000) ($2,135) ($2,000)
- ----------------------------------------------------------------------------------------------------------------------------
12 6,280 $1,920 $1,000 ($4,000) ($1,080) ($1,000)
- ----------------------------------------------------------------------------------------------------------------------------
13 6,980 $2,970 $2,000 ($3,000) $1,970 $2,000
- ----------------------------------------------------------------------------------------------------------------------------
*14 7,520 $3,780 $3,000 ($2,000) $4,780 $5,000
- ----------------------------------------------------------------------------------------------------------------------------
*15 11,160 $9,240 $4,000 $13,240 $13,000
- ----------------------------------------------------------------------------------------------------------------------------
16 8,090 $4,635 $5,000 ($2,000) $7,635 $8,000
- ----------------------------------------------------------------------------------------------------------------------------
*17 10,430 $8,145 $4,000 ($2,000) $5,000 $15,145 $15,000
- ----------------------------------------------------------------------------------------------------------------------------
*18 8,060 $4,590 $3,000 $5,000 $12,590 $13,000
- ----------------------------------------------------------------------------------------------------------------------------
19 6,890 $2,835 ($2,000) $835 $1,000
- ----------------------------------------------------------------------------------------------------------------------------
*20 7,320 $3,480 ($2,000) $1,480 $1,000
- ----------------------------------------------------------------------------------------------------------------------------
*21 6,510 $2,265 ($2,000) $265 $0
- ----------------------------------------------------------------------------------------------------------------------------
22 6,960 $2,940 ($1,000) $1,940 $2,000
- ----------------------------------------------------------------------------------------------------------------------------
23 7,670 $4,005 ($1,500) $2,505 $3,000
- ----------------------------------------------------------------------------------------------------------------------------
24 9,600 $6,900 ($2,000) ($1,000) $3,900 $4,000
- ----------------------------------------------------------------------------------------------------------------------------
25 6,980 $2,970 ($2,000) ($1,000) $0
- ----------------------------------------------------------------------------------------------------------------------------
26 6,250 $1,875 ($2,000) ($1,000) ($1,125) ($1,000)
- ----------------------------------------------------------------------------------------------------------------------------
27 6,130 $1,695 ($2,000) ($2,000) ($2,305) ($2,000)
- ----------------------------------------------------------------------------------------------------------------------------
28 6,080 $1,620 ($2,000) ($2,000) ($2,380) ($2,000)
- ----------------------------------------------------------------------------------------------------------------------------
29 6,860 $2,790 ($2,000) ($1,000) ($210) $0
- ----------------------------------------------------------------------------------------------------------------------------
30 7,940 $4,410 $2,000 ($2,000) ($500) $3,910 $4,000
- ----------------------------------------------------------------------------------------------------------------------------
31 9,670 $7,005 $3,000 ($2,000) $8,005 $8,000
- ----------------------------------------------------------------------------------------------------------------------------
32 9,890 $7,335 $4,000 ($2,000) $9,335 $9,000
- ----------------------------------------------------------------------------------------------------------------------------
33 10,160 $7,740 $5,000 ($2,000) $10,740 $11,000
- ----------------------------------------------------------------------------------------------------------------------------
34 8,740 $5,610 $5,000 $2,000 ($5,000) $7,610 $8,000
- ----------------------------------------------------------------------------------------------------------------------------
35 8,490 $5,235 $4,000 $2,000 ($5,000) $6,235 $6,000
- ----------------------------------------------------------------------------------------------------------------------------
36 7,910 $4,365 $3,000 $2,000 ($5,000) $4,365 $4,000
- ----------------------------------------------------------------------------------------------------------------------------
37 6,650 $2,475 $2,000 ($5,000) ($525) ($1,000)
- ----------------------------------------------------------------------------------------------------------------------------
38 5,640 $960 $2,000 ($4,000) ($1,040) ($1,000)
- ----------------------------------------------------------------------------------------------------------------------------
39 5,760 $1,140 $2,000 ($3,000) $140 $0
- ----------------------------------------------------------------------------------------------------------------------------
40 6,020 $1,530 $2,000 ($1,000) $2,530 $3,000
- ----------------------------------------------------------------------------------------------------------------------------
41 8,580 $5,370 ($2,000) $10,000 $13,370 $13,000
- ----------------------------------------------------------------------------------------------------------------------------
*42 6,840 $2,760 ($2,000) $11,000 $11,760 $12,000
- ----------------------------------------------------------------------------------------------------------------------------
43 7,930 $4,395 ($2,000) $12,000 $14,395 $14,000
- ----------------------------------------------------------------------------------------------------------------------------
44 8,630 $5,445 ($2,000) $13,000 $16,445 $16,000
- ----------------------------------------------------------------------------------------------------------------------------
*45 7,720 $4,080 ($2,000) $14,000 $16,080 $16,000
- ----------------------------------------------------------------------------------------------------------------------------
TOTAL $336,750.00 $167,625 $48,000 $34,000 ($40,000) ($128,000) $70,000 $151,665 $153,000
- ----------------------------------------------------------------------------------------------------------------------------
AVG. 7,483 $3,725 $1,067 $756 (889) ($2,844) $1,556 $3,370 $3,400
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
TOTAL $1,005,220.00 $480,330.00 $120,500.00 $66,000.00 ($98,000.00) ($290,000.00) $97,500.00 $376,360.00 $378,000.00
- ----------------------------------------------------------------------------------------------------------------------------
AVG. 7,337 3,506 880 482 (715) (2,117) 712 2,747 2,759
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
TABLE I
MARKET DATA SUMMARY
RESIDENTIAL LAND SALES
OCEANSIDE, CALIFORNIA
---------------------
<TABLE>
<CAPTION>
SALES PRICE
SALE LOT SITE NO. ---------------------- FINISHED LOT
NO. LOCATION DATE ZONE SIZE (SF) AREA (ACS.) LOTS TOTAL PER LOT COST (EST.)
- -- ------------------------- ------ ---- ------------ ----------- ---- ---------- -------- ------------
<C> <S> <C> <C> <C> <C> <C> <C> <C> <C>
1a Demeter Way, Dassia Way 4/2/97 RMA 4,500 (avg.) 2.066 20 $1,144,500 $57,225 $57,225
Oceanside
1b Demeter Way, Dassia Way 9/6/96 RMA 4,500 (avg.) 4.442 43 $2,462,000 $57,226 $57,226
Oceanside
1c Malea Way 8/30/96 RMA 4,500 (avg.) 0.723 7 $ 408,800 $58,400 $58,400
Oceanside
2 Circle "R" Court, south of 7/14/95 A7O 5,000 24.679 215 $6,143,000 $28,572 $56,000-
Circle "R" Drive $57,000
Vista (uninc.)
3 N/S Via Rancho Road 1/17/95 RMB 4,383 (avg.) 17.52 (Gr.) 159 $3,400,000 $21,384 $46,384
NW/O Mesa Drive 16.00 (Nt.)
Oceanside
</TABLE>
Prepared by:
BOZNANSKI AND COMPANY
June 15, 1997
<PAGE>
TABLE II
MARKET DATA SUMMARY
PHASE 7 - ENCORE
OCEANSIDE, CALIFORNIA
---------------------
<TABLE>
<CAPTION>
NET PRICE
NET LOT STREET ------------------
NO. OCEANSIDE ADDRESS PLAN SIZE (SF) SIZE (SF) ORIENTATION SLOPE VIEW TOTAL PER SF
- -- --------------------- ---- --------- --------- ----------- ------- -- -------- ------
<C> <S> <C> <C> <C> <C> <C> <C> <C> <C>
1 4819 Terracina Street 1 1,768 6,280 Mid-block Rear-Up No $161,900 $91.57
2 4845 Terracina Street 2 1,944 6,680 Mid-block Rear-Up No $167,750 $86.29
3 4808 Terracina Street 2 1,944 10,430 Cul-de-sac Rear-Down Yes $179,900 $92.54
4 4839 Terracina Street 3 2,284 6,760 Mid-block Rear-Up No $185,900 $81.39
5 4802 Terracina Street 3 2,284 8,090 Cul-de-sac Rear-Down Yes $188,900 $82.71
6 4814 Terracina Street 3 2,284 8,060 Cul-de-sac No No $191,900 $84.02
7 4838 Terracina Street 3 2,284 6,890 Corner No No $183,400 $80.30
8 4850 Terracina Street 3 2,284 6,510 Corner No No $188,900 $82.71
9 4833 Terracina Street 4 2,440 7,120 Corner Rear-Up No $195,900 $80.29
10 4825 Terracina Street 4 2,440 6,910 Corner Rear-Up No $192,275 $78.80
11 4813 Terracina Street 4 2,440 6,980 Mid-block Rear-Up No $193,900 $79.47
12 4807 Terracina Street 4 2,440 7,520 Cul-de-sac Rear-Up No $200,900 $82.34
13 4801 Terracina Street 4 2,440 11,160 Cul-de-sac Rear-Down Yes $202,900 $83.16
</TABLE>
Prepared by:
BOZNANSKI AND COMPANY
June 15, 1997
<PAGE>
LAND
MARKET DATA NO. 1a
LOCATION: Demeter Way and Dassia Way, Oceanside
LEGAL: Lots 27 through 34, 62 and 63, Leisure
Village Oceanside Unit No. 6, Map No.
12405; Lots 23 through 27, 57 through 61,
Leisure Village Oceanside Unit 8B, Map
No.12630
SELLER: Acacia Credit Fund 5-A LLC
BUYER: M. J. Brock & Sons, Inc.
ZONE: RMA; City of Oceanside
PRESENT USE: Unknown
LAND: Shape: Irregular
Area: 2.066 acres; 90,000 sf (nt.)
Topo: Flat and level
ASSESSOR'S DATA: A. P. Nos: 169-501-23 through 31
169-540-08, 09, 27 through 34
RECORDED: 4/2/97; Document No. 151091
SALES PRICE: $1,144,500; $57,225 per lot
TERMS: All cash sale
CONFIRMED: Sean Dyer - Buyer; COMPS, Inc.; Public
Records
IMPROVEMENTS: The 20 lots that make up this transaction
sold as finished land.
<PAGE>
LAND
MARKET DATA NO. 1a (CONT.)
REMARKS: This property is located within a gate-
guarded community known as Oceanhills at
Leisure Village. Access through the gates
to view the property was not permitted.
This transaction is part of a larger
takedown; the buyer has already acquired 50
lots in two previous transactions (see
Sales 1b and 1c). The price was
established in August 1996.
The average lots size is 4,500 sf.
<PAGE>
LAND
MARKET DATA NO. 1b
LOCATION: Demeter Way and Dassia Way, Oceanside
LEGAL: Lots 11 through 26, 65 through 69, Leisure
Village Oceanside Unit No. 6; Lots 1 through
16, 68 through 73, Leisure Village Oceanside
Unit 8B, Map No. 12630.
SELLER: Acacia Credit Fund 5-A LLC
BUYER: M. J. Brock & Sons, Inc.
ZONE: RMA; City of Oceanside
PRESENT USE: Unknown
LAND: Shape: Irregular
Area: 4.442 acres; 193,500 sf (Nt.)
Topo: Flat and level
ASSESSOR'S DATA: A. P. Nos: 169-501-1 through 16
169-501-38 through 43
169-540-11 through 26
169-541-11 through 15
RECORDED: 9/6/96; Document No. 453089
SALES PRICE: $2,462,000; $57,226 per lot
TERMS: All cash sale
CONFIRMED: Sean Dyer - Buyer; COMPS, Inc.;
Public Records
IMPROVEMENTS: The 43 lots that make up this transaction
sold as finished land.
<PAGE>
LAND
MARKET DATA NO. 1b (CONT.)
REMARKS: This property is located within a gate-
guarded community known as Oceanhills at
Leisure Village. Access through the gates
to view the property was not permitted.
This transaction is part of a larger
takedown; the buyer has already acquired 50
lots in two previous transactions (see
Sales 1a and 1c). The price was
established in August 1996.
The average lots size is 4,500 sf.
<PAGE>
LAND
MARKET DATA NO. 1c
LOCATION: Malea Way, Oceanside
LEGAL: Lots 61 through 64, 66, 67 and 68, Leisure Village
Oceanside Unit No. 8A; Map 12494
SELLER: Acacia Credit Fund 5-A LLC
BUYER: M. J. Brock & Sons, Inc.
ZONE: RMA; City of Oceanside
PRESENT USE: Unknown
LAND: Shape: Irregular
Area: 0.723 acres; 31,500 sf (Nt.)
Topo: Flat and level
ASSESSOR'S DATA: A. P. Nos: 169-550-61 through 64
169-550-66, 67, 68
RECORDED: 8/30/96; Document No. 443312
SALES PRICE: $408,800; $58,400 per lot
TERMS: All cash sale
CONFIRMED: Sean Dyer - Buyer; COMPS, Inc.; Public Records
IMPROVEMENTS: The 7 lots that make up this transaction sold as
finished land.
<PAGE>
LAND
MARKET DATA NO. 1c (CONT.)
REMARKS: This property is located within a gate-guarded
community known as Oceanhills at Leisure Village.
Access through the gates to view the property was
not permitted.
This transaction is part of a larger takedown; the
buyer has already acquired 50 lots in two previous
transactions (see Sales 1a and 1b). The price was
established in August 1996.
The average lots size is 4,500 sf.
<PAGE>
LAND
MARKET DATA NO. 2
LOCATION: Circle "R" Court, south of Circle "R" Drive, Vista
(unincorporated)
LEGAL: Lots 1 - 82, Map 13245, County of San Diego, Tract
4754; Lots 164 - 208, Map 13250, County of San Diego,
Tract 4754; Lots 98 - 107, Map 13246, County of San
Diego, Tract 4754; Lots 109 - 156, Map 13249, County
of San Diego, Tract 4754
SELLER: Circle Creek Partners
BUYER: Shannon/Dosson LLC
ZONE: A70; San Diego County
PRESENT USE: Under construction
LAND: Shape: Irregular
Area: 83.090 acres; 3,619,400 sf (Gr.)
24.679 acres; 1,075,000 sf (Nt.)
Topo: Flat and level
ASSESSOR'S DATA: A. P. Nos.: 172-290-01 through 23
172-290-33 through 42
172-290-44 through 69
172-291-01 through 59
172-292-01 through 48
172-293-01 through 19
RECORDED: 7/14/95; Document Nos. 300868, 300867
SALES PRICE: $6,143,000; $28,572 per lot
TERMS: All cash sale
CONFIRMED: Mark Atherton - Buyer; COMPS, Inc.; Public Records
<PAGE>
LAND
MARKET DATA NO. 2 (CONT.)
IMPROVEMENTS: This site sold as vacant land with nearby utilities.
All offsites are currently in place as well as model
and production homes.
REMARKS: The property sold with an approved tentative map
allowing the development of 215 residences on lots
having minimum areas of 4,500 sf and an average area
of 5,000 sf.
This project lies adjacent to an existing golf course
known as the Castle Creek Country Club. About 20% of
the lots have golf course frontage.
Homes range in size from 1,350 sf to 2,300 sf. Because
the sales office was closed, we were unable to verify
the sales prices.
The finished lot cost was reported at $56,000 to
$57,000 per lot, including school fees, but not
including a $4,000 per lot assessment for sewer.
<PAGE>
LAND
MARKET DATA NO. 3
LOCATION: North side of Via Rancho Road, northwest of Mesa Drive,
Oceanside
LEGAL: Lot 5, Ivey Ranch Unit 3, Map 11717 (old)
Lots 1 to 27, Map 13277, Ivey Ranch, Lots 5 (condo)
(new)
SELLER: Las Brisas-Parkside Development Corp.
BUYER: Barratt American, Inc.
ZONE: RMB; City of Oceanside
PRESENT USE: Single family residential
LAND: Shape: Irregular
Area: 17.520 acres; 763,171 sf (Gross)
16,000 acres; 696,960 sf (Net)
Topo: Flat and level
ASSESSOR'S DATA: A. P. No.: 160-570-05 (old)
160-640-01 through 27
(excluding streets) (new)
RECORDED: 1/17/95; Document No. 018684
SALES PRICE: $3,400,000; $21,384 per lot
TERMS: $500,000 (15%) down; $2,900,000 (85%) 1st trust
deed - Seller - short term financing
CONFIRMED: Michael Pattinsin - Barrat Americann - (619)
431-0800; COMPS, Inc.; Public Records
IMPROVEMENTS: This site sold as raw, vacant land with perimeter
offsites and utilities.
<PAGE>
LAND
MARKET DATA NO. 3 (CONT.)
This site is currently being improved with a
159-unit high-density detached residential tract
known as Park Lane. It is summarized as follows:
-----------------------------------------------
Base
Plan Bed/Bath Size (sf) Price
-----------------------------------------------
1 3/2 1,481 Sold Out
2 3/2 1,579 $149,990
3 4/3 1,886 $163,990
4 4/3 1,921 $167,990
-----------------------------------------------
REMARKS: The owner's representative reported a finished lot
cost of $46,384 per lot, with school fees waived.
(The original developer built two schools in the
Ivey Ranch Development.) Thus, land development
costs total about $25,000 per lot.
The buyer remapped the property during escrow.
Based on the reported net site area, the average
lot size is 4,383 sf. However, the owner's
representative reported a minimum lot size of
2,500 sf.
This site last sold in September of 1989, as
recorded on Document No. 499848, for a full price
of $5,350,000. Thus, the January 1995 sale
reflects a decrease of $1,950,000 or 36.5%.
MARKET EXPOSURE TIME: Unknown
CONDITIONS OF SALE: Apparently normal.
<PAGE>
RESIDENCE
MARKET DATA NO. 1
ADDRESS: 4819 Terracina Street, Oceanside
LEGAL: Lot 12, Map 12797, Mission Santa Fe, Parcels 5 and 6,
Unit 1
SELLER: Encore Oceanside L.L.C.
BUYER: Unknown
ZONE: RS; City of Oceanside
PRESENT USE: Under construction
LAND: Shape: Irregular
Area: 6,280 sf (net - pad)
Topo: Rear yard slopes up to west
ASSESSOR'S DATA: A. P. No.: 158-600-12
RECORDED: Pending Sale
BASE PRICE: $166,900
INCENTIVE: ( 5,000)
NET PRICE: $161,900; $91.57 psf
TERMS: Unknown
CONFIRMED: Brehm Communities
IMPROVEMENTS: Proposed at this location is a three-bedroom,
two-bathroom residence identified as Plan 1.
It has an area of 1,768 sf.
<PAGE>
CARL W. BOZNANSKI
LICENSE
State of California: Certified - General Real Estate Appraiser No.
AG010837
EDUCATION
University of Southern California - M.B.A. Degree, Major in Management,
Minor in Finance
University of Notre Dame - B.S.A.E. Degree, Major in Aeronautical
Engineering
University of Southern California, University of California and Orange
Coast College - First Year Law School - Real Estate Courses in
Finance, Law and Practice; Contracts Courses
Appraisal Institute, Society of Real Estate Appraisers, Orange
Coast College, Real Estate Trainers, California State University -
Fullerton, Marshall Valuation Service, Caltrans - Over 400 hours in
courses and seminars covering topics such as: Standards of
Professional Practice, Real Estate, Appraisal Principles, Basic
Valuation Procedure, Real Estate Appraisal, Capitalization &
Cash Flow, Basic Valuation/Capitalization, Regression Analyses,
Income Capitalization, Hotel/Motel Valuation,
Commercial/Residential Cost Analyses, FIRREA - Overview &
Application, Partial Taking, Understanding Limited Appraisals,
Appraising Land
EXPERIENCE
BOZNANSKI AND COMPANY, INC. 1984 - PRESENT Mr. Boznanski is the founder
and Principal Appraiser of this real property valuation and
consultation firm. Property evaluation has encompassed all types of
real estate for a myriad of purposes. The firm also performs
business appraisals.
Valuation appraisals have been performed for acquisition purposes,
both for governmental and private client; for assessment districts;
for domestic and partnership property settlements; for litigation;
for tax matters, for estate purposes; and in support of various
financial dealings. These appraisals call for the
determination of either present or past fair market value.
They include whole and fractional interests as well as
discounted cash flow analysis. Long-term leased fee and
leasehold estate evaluations have also been determined. Easements
and surface right values have been established. Numerous ground
leases have been valued. The appraisals cover all types of
property, including vacant land as well as improved property.
Specific types of property appraised have included farm land,
single family and multiply family residential, including
condominiums, as well as commercial, office, industrial and special
purpose parcels. Among the special purpose properties appraised
have been a major sports stadium,
<PAGE>
EXPERIENCE (Cont.)
a major amusement park, sub-division land development studies,
hospitals, medical centers, nursing homes, retirement homes,
hotels, shopping centers, service stations, car washes,
garden nurseries, building centers, auto dealerships,
bowling alleys, municipal buildings, mobile home parks,
dairy processing plants, wineries, pre-schools, school sites,
residential tracts, etc. Several very large scale municipal
appraisal projects have been performed encompassing up to more than
100 parcels. These latter right-of-way appraisals have been for total
acquisition as well as for partial taking.
Other types of appraisals performed include reuse appraisals of
property to be used for industrial, office, residential, commercial
and auto center purposes. This type of appraisal considers the
evaluation of properties with certain developmental restrictions.
Review of appraisals have been conducted for numerous governmental
agencies, financial institutions and private parties in order to
determine the adequacy of appraisals prepared by others.
Mr. Boznanski has performed numerous condemnation appraisals (eminent
domain) for both governmental and private clients and has appeared
many times in various California Superior Courts as an expert witness
in real property matters. In addition, he has testified on numerous
occasions in United States Federal Bankruptcy Court.
He has also been responsible for land use feasibility, absorption and
economic studies conducted on residential, commercial and industrial
sites in order to establish cost-benefit ratios for proposed or
existing developments.
DONAHUE & COMPANY, INC. 1970-1984. A founder of Donahue and Company, Inc.
and one of two principals, Mr. Boznanski, as a Senior Property
Specialist of the firm, was responsible for performing appraisals on
all types of real property, as well as managing the development of
urban study programs. He oversaw the general operations of the firm
in his capacity of Executive Vice President.
TRANS-CAPITAL INVESTMENT ASSOCIATES, 1969 - 1974. General Partner,
providing consultation and operational direction to a private
investment fund, Venture Equity.
SYSTEMATIC MANAGEMENT ASSOCIATES, 1967-1968 AND 1969-1970. Principal
providing management and engineering consultation concerning systems
controls of aerospace projects.
<PAGE>
EXPERIENCE (CONT.)
PRC TECHNICAL APPLICATIONS, INC. 1968-1969. Regional Manager of the firm
performing a wide range of engineering and management services.
These tasks were performed for government agencies as well as for
major contractors. He was responsible for the marketing, management
and technical performance of a staff of 25.
NORTH AMERICAN ROCKWELL. 1958-1967. Engineering Supervisor accountable
for the implementation of engineering systems controls for various
systems of the Apollo spaceship as well as other aerospace projects.
ASSOCIATIONS
National Association of Review Appraisers & Mortgage Underwriters - Senior
Member (C.R.A.)
PUBLIC OFFICE
Planning Commissioner, City of Yorba Linda, 1980-Present
Chairman - 1981/1986/1991/1996
Vice Chairman - 1980/1985/1990/1995
PUBLIC SPEAKING - REAL PROPERTY VALUATION
Association For Governmental Leasing & Finance - Boston 1995
CLIENTS (PARTIAL LIST)
Approved Appraiser - Resolution Trust Corporation
PUBLIC - CITIES AND REDEVELOPMENT AGENCIES
Apple Valley Glendale Poway
Azusa Hesperia Rancho Mirage
Barstow Indio Riverside
Carson Irwindale San Bernardino
Claremont Lakewood San Clemente
Compton La Mirada San Diego
Corona Lynwood Santa Ana
Downey Montebello Tehachapi
Duarte National City Temple City
El Monte Norco Tustin
El Segundo Orange Victorville
Fontana Pasadena West Covina
Fullerton Pleasanton West Sacramento
Pomona
<PAGE>
CLIENTS (PARTIAL LIST) (CONT.)
PUBLIC - OTHER
<TABLE>
<S> <C>
Anaheim Union High School District Orange, County of - GSA/Real
Apple Valley Unified School District Estate Division
Apple Valley Water District Orange County Transit Authority
Caltrans (State Transportation Dept.) Palmdale School District
Center School District Perris Union High School
Chaffey College Placentia-Yorba Linda School District
Escondido School District Pomona Valley Municipal Water District
Federal Deposit Insurance Corporation Rancho Santiago College
Fountain Valley Municipal Water District Rescue School District
Hemet Unified School District Rim of the World School District
Keppell School District Romoland School District
Lancaster Elementary School District Santa Ana Unified School District
Lake Elsinore School District San Jacinto Unified School District
Los Angeles County Sanitation Districts Southern Kern School District
Los Banos School District Tehachapi School District
Manhattan Beach Unified School District U.S. Department of Agriculture,
Metropolitan Water District Forest Service
Moreno Valley Unified School District U.S. Department of Navy
Murrieta Valley Unified School District
</TABLE>
CORPORATE AND FINANCIAL
<TABLE>
<S> <C>
Adams Properties, Inc. Coast Savings and Loan
Adohr Farms Columbia Savings and Loan
American International Bank Dah Sing Bank
ARCO East West Federal Bank
Bank of A. Levy El Dorado Bank
Bank of America Emerson International
Bank of Anaheim Espee Federal Credit Union
Bank of California Ewing Development Co.
Bank of Hollywood Exxon Company, U.S.A.
Bank of Newport Fairway Ford
Bank of Taiwan Fallbrook National Bank
Beacon Bay Enterprises Far West Savings and Loan
Bianchi International Farmers Insurance
R. C. Boatman Fedco
Bourns, Inc. First Continental Bank
Buena Park Lumber Company First State Bank
California Commerce Bank Fluorocarbon, Co.
California State Bank Ford Motor Land Development Co.
Carl Karcher Enterprises Forest Lawn Co.
Century America Corp. Founders Financial
China Trust Bank of California Friedman Homes
Citicorp Real Estate Fullerton Savings and Loan
</TABLE>
<PAGE>
CLIENTS (PARTIAL LIST)(CONT.)
<TABLE>
<S> <C>
General Bank Rancho Bank
Global Cellular, Inc. Rancon Corporation
W. R. Grace Corp. Rhoades Development Co.
Gulf Oil Co. Safeway Stores
Hazel Corp. Santa Barbara Federal Savings
Hopkins Development Co. Shappell Industries
Hunco Development Co. Shell Oil Company
Imperial Bank Siam Commercial Bank
Imperial Federal Savings South Bay Bank
Independence Savings and Loan Standard Oil of California
Laura Scudders, Inc. Sterling Transit Co., Inc.
Leach Corporation Sunwest Bank
Lewis Homes System Auto Parks, Inc.
A. M. Lewis, Inc. Thriftimart, Inc.
Lippo Bank Tierra Financial, Inc.
Long Beach Bank Tokai Bank
Long Beach Equities, Inc. Torry Pines Bank
Lunnen Development Co. Traffic Control Services, Inc.
Malibu Savings and Loan Trans-National Bank
Marineland Union Bank
Marine National Bank United National Bank
Miller & Schroeder Financial University National Bank
Mistui-Manufactures Bank VED Corporation
Mobil Land Development Co. Ventura County Bank
Municipal Services Vineyard Bank
National Building Centers Vista Bank
Omni Bank Washington National Savings Bank
Overland Bank Wells Fargo Bank
Pacific National Bank Western State Bank
PaineWebber Westin Mortgage
Price Company Westminster Nurseries
Price Waterhouse Woodhaven Developers
</TABLE>
ATTORNEYS, PRIVATE FIRMS AND INDIVIDUALS
Lee Abbott, Esq., Westwood
Michael Antin, Esq., Westwood
Best, Best & Kreiger, Esq., Riverside
Edward L. Butterworth, Pasadena
Robert W. Clemmer, Esq., Orange
E. Gene Crain, Esq., Newport Beach
Cooksey, Coleman & Howard, Esq., Tustin
John Culbertson, Fallbrook
Richard Devericks, Camarillo
Steve Henry, Santa Monica
Howrey & Simon, Esq. Los Angeles
Houlihan, Lokey, Howard & Zukin, Century City
<PAGE>
CLIENTS (PARTIAL LIST)(CONT.):
David Kagon, Esq., Century City
Teong H. Kay, Los Angeles
Thomas King, Esq., Huntington Beach
Dr. Robert Larner, Los Angeles
Raymond Larson, Tustin
David Lowry, Rancho California
Lee Marvin, Tucson, Arizona
John D. McGuire, Esq., Santa Ana
Paul Miller, Esq., Santa Fe Springs
John G. Nelson, Esq., Whittier
Frank Oldman, Esq., Newport Beach
Gerald J. Phillips, Esq., Tustin
Robert C. Politiski, Esq., Santa Ana
Shepherd, Mullin, Richter & Hampton, Esq., Los Angeles
Shernoff, Lipsky & Blickenstaff, Esq., Claremont
Michael A. Vanic, Esq., Los Angeles
Julian R. Warner, Esq., Century City
Ronald E. Wiksell, Esq., Santa Ana
Gerold G. Williams, Esq., Newport Beach
Herbert B. Wittenberg, CPA, West Covina
Thomas L. Woodruff, Esq., Orange
QUALIFIED REAL PROPERTY EXPERT WITNESS
Kern County Superior Court
Los Angeles County Superior Court
Orange County Superior Court
Riverside County Superior Court
San Bernardino County Superior Court
San Diego County Superior Court
Ventura County Superior Court
United States District Court
Orange County Assessment Appeals Board
Private Arbitration Hearings
<PAGE>
DANIEL H. HERRON
LICENSE
State of California: Certified - General Real Estate Appraiser No. AG012417
EDUCATION
California State University, Fullerton
Bachelor of Arts - Finance (1986)
Appraisal Institute Courses
Basic Valuation Procedure (1987)
Capitalization Theory and Techniques Parts A & B (1991)
Standards of Professional Practice Parts A & B (1993)
Appraisal Principles (1994)
Appraisal Institute Seminars
Appraising Apartments (1988)
Discounted Cash Flow Analysis in the Home Building Industry (1993)
CANDIDATE
MAI Designation - Appraisal Institute M911619
Southern California Chapter
EXPERIENCE
BOZNANSKI & COMPANY, INC., 1986 - PRESENT. Mr. Herron is a Staff
Appraiser in this real property valuation and consultation firm.
Property evaluation has been performed on all types of real estate
for a myriad of purposes.
<PAGE>
EXPERIENCE (CONT.)
Mr. Herron prepares both detailed narrative and form appraisal
reports for financial institutions, governmental agencies,
attorneys and private clients. These documents are prepared in
support of various acquisition and disposition. These
appraisals call for the determination of either present or
past fair market value. They include whole and fractional
interests as well as discounted cash flow analysis. Long-term
leased fee and leasehold estate evaluations have also been
prepared.
Specific types of property appraised have included all types
of vacant land, as well as single family and multiple
residential dwellings, plus strip commercial and shopping
centers. Additionally, office as well as light industrial and
warehouse improved properties have been evaluated. Special
purpose property values have also been determined. Residential
tract absorption studies have been prepared.
<PAGE>
MARK W. LINNES, MAI
LICENSE
State of California: Certified - General Real Estate Appraiser No.
AG 003328
EDUCATION
Graduated from the University of Southern California in 1955 with a
Bachelor of Science Degree in Finance. Completed courses and passed
examinations for the Appraisal Institute Course I, IA, II, IV and VI.
Passed A.I.R.E.A. Leasehold Examination and completed numerous coursed
in the field of Real Estate including Law, Finance, Title,
Construction Estimating and Appraisals.
The Appraisal Institute conducts a voluntary program of continuing
education for its designated members. MAI's and RM's who meet the
minimum standards of this program are awarded periodic educational
certification. Mr. Linnes has satisfied these requirements.
PROFESSIONAL AFFILIATIONS
Member of the Appraisal Institute
Affiliate member of the Whittier Board of Realtors
EXPERIENCE AND CURRENT STATUS
Ten years as a staff condemnation appraiser with the California
Department of Transportation. Qualifies as an expert witness in the
Counties of Los Angeles and Orange.
Employment with the California Department of Transportation was
terminated in 1973 to accept a position with the Donahue & Company,
Tustin, California, as a senior staff appraiser. Since March, 1975, he
has been an independent fee appraiser and an affiliate of Boznanski
and Company, Inc., since 1984.
Appraisal assignments have included single family and income
residential properties, commercial, industrial and special purpose
properties. Assignments have also included public and private rights-
of-way for freeway and street widening, surface and subsurface
easement right-of-way for electrical and oil line transmission and
city redevelopment project acquisition appraisals.
<PAGE>
CLIENTS - PUBLIC
City of Azusa
City of Commerce
City of Downey
City of Huntington Beach
City of Ontario
City of Orange
City of Santa Ana
County of Los Angeles
County of Orange
Department of the Army - Corps of Engineers
U.S. Postal Service
State Department of Transportation
Metropolitan Water District of Southern California (MWD)
Los Angeles Unified School District
Lowell Joint School District (Whittier)
CLIENTS - PRIVATE
Southern California Edison Company
E. I. Du Pont De Nemours & Company
3-M Company
Crocker National Bank
Security Pacific Bank
Bank of America
Southern California Bank
Santa Barbara Bank and Trust
Continental Bank
Far West Savings
Home Savings
North American Savings
Southern Pacific Transportation Company
TICOR
Stewart Title Company
General Telephone Company
Quaker State Oil Company
Mobile Oil Company
Holiday Inn - Barstow, California
World Vision, Inc.
Far East Broadcasting Company
<PAGE>
CLIENTS - PRIVATE (CONT.)
American Bible Society
Salvation Army
Kaiser Permanente Hospitals
Willdan Associates
McLean Cadillac - Tustin
Mills Ford - Anaheim
Thomson & Nelson, Attorneys - Whittier
John Pitts, Attorney - Fullerton
Stanford M. Ehrmann, Attorney - Beverly Hills
Rankin, Sproat & Pollack, Attorneys - Oakland
<PAGE>
COMPLETE, SELF-CONTAINED APPRAISAL
PARTIALLY FINISHED RESIDENTIAL LAND
111 RESIDENTIAL LOTS
"SYMPHONY"
OCEANSIDE, CALIFORNIA
<PAGE>
COMPLETE, SELF-CONTAINED APPRAISAL
OF
111 PARTIALLY FINISHED RESIDENTIAL LOTS
AS EXISTING
"SYMPHONY"
LOTS 1 THROUGH 59, TRACT NO. 12677
MISSION SANTA FE PARCEL 4 - UNIT 2
AND
LOTS 46 THROUGH 97, TRACT NO. 12797
MISSION SANTA FE PARCELS 5 AND 6 - UNIT 1A
PREPARED FOR
NATIONAL INVESTORS FINANCIAL, INC.
MR. DAVID G. LASKER
PRESIDENT
REPORT DATE
MAY 15, 1997
DATE OF VALUE
MAY 15, 1997
PREPARED BY
BOZNANSKI AND COMPANY
PROPERTY VALUATION AND CONSULTATION
<PAGE>
[LETTER HEAD]
May 15, 1997
Mr. David G. Lasker Re: Complete, Self-Contained Appraisal -
President Symphony - 111 Residential Lots
National Investors Financial, Inc. Oceanside, California
4675 MacArthur Court
Suite 1240
Newport Beach, California 92660 File No. 1344.02
Dear Mr. Lasker:
In accordance with the written authorization we have received, Boznanski and
Company, a real property appraisal firm, has prepared this valuation analysis
that establishes the market value of a partially finished, 111-lot residential
subdivision as it currently exists. The effective date of value is May 15,
1997.
The subject property is located within the easterly quadrant of Mesa Drive and
College Boulevard, in the city of Oceanside, San Diego County, California.
Currently, it is a partially graded hillside subdivision with recorded tract
maps allowing the development of 111 detached single family residences. Water
and sewer lines have been installed and are available to a portion of the site.
The site has a total net area of 796,680 square feet (sf) or 18.1286 acres.
Individual lots have a minimum area of 5,180 sf, a maximum area of 11,060 sf and
an average area of 7,114 sf. These areas represent flat, buildable pads that are
net of slopes. The overall site is located within two different zoning areas
that require minimum gross lot areas of 6,000 sf and 10,000 sf.
The overall subject site is proposed to be improved with 111 detached single
family residences, including models, to be known as Symphony. There are to be
five types of detached residences ranging in size from 1,821 sf to 2,847 sf to
be built by Brehm Communities.
<PAGE>
National Investors Financial, Inc. -2- May 15, 1997
Our valuation task in this analysis is to establish the market value of the fee
simple interest of the entire subject property as it currently exists. The
Market Data or Sales Comparison Approach to land value has been utilized in
valuing the vacant subject land. The Residual Method is also utilized in
estimating land value.
BASED ON THE INVESTIGATION AND ANALYSIS OUTLINED IN THE ACCOMPANYING REPORT, AND
SUBJECT TO THE CERTIFICATION AND CONTINGENT AND LIMITING CONDITIONS ATTACHED TO
THIS REPORT, WE CONCLUDE THAT THE MARKET VALUE OF THE FEE SIMPLE INTEREST IN THE
SUBJECT PROPERTY, AS OF MAY 15, 1997, IS:
$2,850,000
- -------------------------------------------------------------------------------
TWO MILLION EIGHT HUNDRED FIFTY THOUSAND DOLLARS
- -------------------------------------------------------------------------------
This self-contained report is intended to comply with the reporting requirements
set forth under Standard Rules 2-2(a) of the Uniform Standards of Professional
Appraisal Practice (USPAP). As such, this report DESCRIBES the data, reasoning
and analysis that were used in the appraisal process to develop the appraiser's
opinion of value.
This complete appraisal assignment has been completed in accordance with Title
XI of FIRREA and the Uniform Standards of Professional Appraisal Practice
(USPAP). This report is not considered to depart from the specific guidelines
of USPAP.
Following this letter is a complete, self-contained appraisal report which
describes the subject area and the conditions of this appraisal, identifies the
subject property and its characteristics and then specifically enumerates the
methodology used in valuing the property.
We retain a copy of this report, together with worksheets, documents and other
data upon which our conclusions and opinion of value are based.
We certify that we have no past, present or contemplated future interest in this
property and that we have acted in accordance with accepted ethics and standards
in our profession.
<PAGE>
National Investors Financial, Inc. -3- May 15, 1997
Thank you for this opportunity to provide appraisal services.
Respectfully submitted,
BOZNANSKI AND COMPANY
/s/ Mark W. Linnes /s/ Carl W. Boznanski
Mark W. Linnes, MAI Carl W. Boznanski, C.R.A.
Review Appraiser Principal Appraiser
Certified General Appraiser President
CA# AG003328 Certified General Appraiser
CA# AG010837
/s/ David H. Herron
Daniel H. Herron
Senior Appraiser
Certified General Appraiser
CA# AG012417
<PAGE>
SUMMARY OF SALIENT FACTS AND CONCLUSIONS
PROJECT NAME: Symphony
PROPERTY LOCATION: Easterly quadrant of Mesa Drive and
College Boulevard, Oceanside, California
DATE OF VALUE: May 15, 1997
INTEREST APPRAISED: Fee Simple
ASSESSED OWNER/
APPRAISED OWNER: Oceanside Development, Inc.
PROPERTY:
ASSESSOR'S PARCEL NOS.: 158-580-01 through 36
158-581-01 through 23
158-601-01 through 52
LEGAL DESCRIPTION: Lots 1 to 59, Tract 12677, Mission Santa Fe
Parcel 4 - Unit 2
Lots 46 to 97, Tract 12797, Mission Santa Fe
Parcels 5 and 6 - Unit 1A
SITE SIZE: 789,680 sf; 18.1287 acres (net)
Minimum Lot Size: 5,180 sf
Maximum Lot Size: 11,060 sf
Average Lot Size: 7,114 sf
BUILDING AREAS: Plan 1 - 1,821 sf
(Proposed as of May 1997) Plan 2 - 2,265 sf
Plan 3 - 2,371 sf
Plan 4 - 2,552 sf
Plan 5 - 2,847 sf
Weighted Avg. 2,379 sf
HIGHEST AND BEST USE: Single family residential
VALUE CONCLUSION: $2,850,000
<PAGE>
CERTIFICATION AND RESTRICTION UPON DISCLOSURE AND USE
THE UNDERSIGNED DOES HEREBY CERTIFY THAT, EXCEPT AS OTHERWISE NOTED IN THIS
APPRAISAL REPORT:
1. I HAVE NO PAST, PRESENT OR CONTEMPLATED FUTURE INTEREST IN THE REAL
ESTATE THAT IS THE SUBJECT OF THE APPRAISAL REPORT.
2. I HAVE NO PERSONAL INTEREST OR BIAS WITH RESPECT TO THE SUBJECT MATTER
OF THIS APPRAISAL REPORT OR TO THE PARTIES INVOLVED.
3. THE COMPENSATION RECEIVED FOR THIS ASSIGNMENT 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.
4. THE APPRAISER ACTED IN AN INDEPENDENT CAPACITY AND THIS APPRAISAL
ASSIGNMENT WAS NOT BASED ON A REQUESTED MINIMUM VALUATION, A SPECIFIC
VALUATION OR THE APPROVAL OF A LOAN.
5. THE APPRAISER BY MEANS OF EDUCATION AND PREVIOUS APPRAISAL EXPERIENCE IS
COMPETENT TO COMPLETE THIS REPORT.
6. TO THE BEST OF MY KNOWLEDGE AND BELIEF THE STATEMENTS OF FACT CONTAINED
IN THIS APPRAISAL REPORT, UPON WHICH THE ANALYSES, OPINIONS AND
CONCLUSIONS EXPRESSED HEREIN ARE BASED, ARE TRUE AND CORRECT.
7. THE REPORTED ANALYSES, OPINIONS, AND CONCLUSIONS ARE LIMITED ONLY BY THE
REPORTED ASSUMPTIONS AND LIMITING CONDITIONS, AND ARE MY PERSONAL,
UNBIASED PROFESSIONAL ANALYSES, OPINIONS, AND CONCLUSIONS.
8. THIS APPRAISAL REPORT HAS BEEN MADE IN CONFORMITY WITH AND IS SUBJECT TO
THE REQUIREMENTS OF THE UNIFORM STANDARDS OF PROFESSIONAL APPRAISAL
PRACTICE OF THE APPRAISAL FOUNDATION.
9. DANIEL H. HERRON MADE A PERSONAL INSPECTION OF THE SUBJECT PROPERLY AND
PERFORMED THE PRIMARY ANALYSES IN THIS REPORT. CARL W. BOZNANSKI,
PRESIDENT AND PRINCIPAL APPRAISER WITH BOZNANSKI AND COMPANY, AND
MARK W. LINNES, MAI. REVIEW APPRAISER, HAVE REVIEWED THE ENTIRE ATTACHED
APPRAISAL REPORT, HAVE REVIEWED THE ENTIRE FILE MEMORANDA AND DATA
REGARDING THE SUBJECT PROPERTY AND THE ANALYSES CONTAINED IN THE
ATTACHED REPORT, AND HAVE DISCUSSED THIS APPRAISAL AND THE SUBJECT
PROPERTY WITH THE APPRAISER WHO HAS ALSO SIGNED THIS REPORT. HOWEVER,
NEITHER MR. BOZNANSKI NOR MR. LINNES HAVE PERSONALLY INSPECTED THE
SUBJECT PROPERTY, NOR HAVE THEY PERSONALLY VIEWED OR INSPECTED THE MARKET
COMPARABLES USED IN THIS ANALYSIS.
10. NO ONE OTHER THAN THE UNDERSIGNED PROVIDED SIGNIFICANT PROFESSIONAL
ASSISTANCE IN THE PREPARATION OF THE ANALYSES, CONCLUSIONS AND OPINIONS,
CONCERNING THE REAL ESTATE NOTED HEREIN, THAT ARE SET FORTH IN THIS
APPRAISAL REPORT.
11. DISCLOSURE OF THE CONTENTS OF THIS APPRAISAL REPORT IS GOVERNED BY THE
AGREEMENT BETWEEN THE APPRAISER AND THE CLIENT FOR THIS ASSIGNMENT.
12. NEITHER ALL NOR ANY PART OF THE CONTENTS OF THIS REPORT (ESPECIALLY ANY
CONCLUSIONS AS TO VALUE, THE IDENTIFY OF THE APPRAISER OR THE FIRM WITH
WHICH HE IS ASSOCIATED) SHALL BE DISSEMINATED TO THE PUBLIC THROUGH
ADVERTISING MEDIA, PUBLIC RELATIONS MEDIA, NEWS MEDIA, SALES MEDIA OR
ANY OTHER PUBLIC MEANS OF COMMUNICATION WITHOUT THE PRIOR WRITTEN
CONSENT AND APPROVAL OF THE UNDERSIGNED.
/s/ Daniel H. Herron /s/ Carl W. Boznanski /s/ Mark W. Linnes
----------------------- ----------------------- ---------------------
CA# AG012417 CA# AG010837 CA# 003328
May 15, 1997 May 15, 1997 May 15, 1997
<PAGE>
CONTINGENT AND LIMITING CONDITIONS
UPON WHICH APPRAISAL IS MADE
THIS REPORT IS MADE EXPRESSLY SUBJECT TO THE CONTINGENT AND LIMITING
CONDITIONS, FACTORS, AND ASSUMPTIONS HEREWITH.
1. THAT THE VESTING AND LEGAL DESCRIPTION FURNISHED THIS APPRAISER ARE
CORRECT.
2. THAT MEASUREMENTS AND AREAS FURNISHED BY OTHERS ARE CORRECT. NO SURVEY
HAS BEEN MADE FOR THE PURPOSE OF THE APPRAISAL.
3. THAT THE MAPS AND EXHIBITS FOUND IN THIS REPORT ARE PROVIDED FOR READER
REFERENCE PURPOSES ONLY. NO GUARANTEE AS TO ACCURACY IS EXPRESSED OR
IMPLIED.
4. THAT THE PROPERTY IS APPRAISED AS IF FREE AND CLEAR OF LIENS AND THAT
THE TITLE IS GOOD AND MARKETABLE.
5. THAT NO GUARANTEE IS MADE AS TO THE CORRECTIONS OF ESTIMATES OR OPINIONS
FURNISHED BY OTHERS WHICH HAVE BEEN USED IN MAKING THIS APPRAISAL.
6. THAT NO LIABILITIES BE ASSUMED ON ACCOUNT OF INACCURACIES IN SUCH
ESTIMATES OR OPINIONS.
7. THAT NO LIABILITY IS ASSUMED ON ACCOUNT OF MATTERS OF A LEGAL NATURE
AFFECTING THIS PROPERTY, SUCH AS TITLE DEFECTS, LIENS, ENCROACHMENTS,
OVERLAPPING BOUNDARIES, ET CETERA.
8. UNLESS OTHERWISE STATED IN THIS REPORT, THE EXISTENCE OF HAZARDOUS
MATERIAL, WHICH MAY OR MAY NOT BE PRESENT ON THE PROPERTY, WAS NOT
OBSERVED BY THE APPRAISER. THE APPRAISER HAS NO KNOWLEDGE OF THE
EXISTENCE OF SUCH MATERIALS ON OR IN THE PROPERTY. THE APPRAISER, HOWEVER,
IS NOT QUALIFIED TO DETECT SUCH SUBSTANCES SUCH AS ASBESTOS,
UREA-FORMALDEHYDE FOAM INSULATION, OR OTHER POTENTIALLY HAZARDOUS
MATERIALS MAY AFFECT THE VALUE OF THE PROPERTY. THE VALUE ESTIMATE IS
PREDICATED ON THE ASSUMPTION THAT THERE IS NO SUCH MATERIAL ON OR IN THE
PROPERTY THAT WOULD CAUSE A LOSS IN VALUE. NO RESPONSIBILITY IS ASSUMED
FOR ANY SUCH CONDITIONS, OR FOR ANY EXPERTISE OR ENGINEERING KNOWLEDGE
REQUIRED TO DISCOVER THEM. THE CLIENT IS URGED TO RETAIN AN EXPERT IN
THIS FIELD, IF DESIRED.
9. IT IS ASSUMED THAT THERE ARE NO HIDDEN OR UNAPPARENT CONDITIONS OF THE
PROPERTY, SUBSOIL, OR STRUCTURES THAT RENDER IT MORE OR LESS VALUABLE. NO
RESPONSIBILITY IS ASSUMED FOR SUCH CONDITIONS OR FOR ARRANGING FOR
ENGINEERING STUDIES THAT MAY BE REQUIRED TO DISCOVER THEM.
10. THAT THIS APPRAISAL IS SUBJECT TO REVIEW UPON PRESENTATION OF DATA
WHICH MIGHT BE LATER MADE AVAILABLE, UNDISCLOSED OR NOT AVAILABLE AT
THIS WRITING.
11. THAT THE APPRAISER HEREIN, BY REASON OF THIS APPRAISAL, IS NOT REQUIRED
TO GIVE TESTIMONY OR ATTENDANCE IN COURT OR ANY GOVERNMENTAL HEARING WITH
REFERENCE TO THE PROPERTY IN QUESTION, UNLESS ARRANGEMENTS HAVE
PREVIOUSLY BEEN MADE THEREFORE.
12. THE AMERICANS WITH DISABILITIES ACT (ADA) BECAME EFFECTIVE JANUARY 26,
1992. THE APPRAISER HAS NOT MADE A SPECIFIC COMPLIANCE SURVEY AND
ANALYSIS OF THE SUBJECT PROPERTY TO DETERMINE WHETHER OR NOT IT IS IN
CONFORMITY WITH THE VARIOUS DETAILED REQUIREMENTS OF THE ADA. IT IS
POSSIBLE THAT AN ADA COMPLIANCE SURVEY OF THE SUBJECT IMPROVEMENTS COULD
REVEAL THAT THE SUBJECT PROPERTY IS NOT IN COMPLIANCE WITH ONE OR MORE
REQUIREMENTS OF THE ACT. IF SO, THIS FACT COULD HAVE A NEGATIVE EFFECT
UPON THE VALUE OF THE SUBJECT PROPERTY. SINCE THE APPRAISER HAS NO
DIRECT EVIDENCE RELATING TO THIS ISSUE, THE COMPLIANCE, OR NON-COMPLIANCE,
WITH ADA WAS NOT TAKEN INTO CONSIDERATION IN THE VALUATION OF THE
SUBJECT PROPERTY.
<PAGE>
TABLE OF CONTENTS
COMPLETE, SELF-CONTAINED APPRAISAL
SYMPHONY - 111-LOT SUBDIVISION
OCEANSIDE, CALIFORNIA
INTRODUCTION
Title Page
Letter of Transmittal
Summary of Salient Facts and Conclusions
Certification
Contingent and Limiting Conditions
Table of Contents
GENERAL DATA (TAB) PAGE
----
Purpose of the Appraisal............................................ 1
Market Value .................................................. 1
Property Rights Appraised .......................................... 2
Parcel......................................................... 2
Intended Use of the Appraisal....................................... 2
Date of Value....................................................... 2
Scope of the Appraisal.............................................. 2
General........................................................ 2
Valuation Background........................................... 3
Appraisal Format............................................... 4
Environs............................................................ 4
City........................................................... 4
Local.......................................................... 6
Access.............................................................. 7
Traffic............................................................. 8
Regional Area Map
Local Area Map
Environs Photographs
<PAGE>
TABLE OF CONTENTS (CONT.):
SUBJECT PROPERTY (TAB) PAGE
----
General............................................................. 13
Owner Apparent/Assessed Owner/Appraised Owner....................... 13
Sales History....................................................... 13
Property Location................................................... 14
Legal Description................................................... 14
Assessor's Data..................................................... 15
Physical Description - Land......................................... 15
Physical Description - Improvements................................. 20
Zoning.............................................................. 22
Present Use and Occupancy........................................... 23
Highest and Best Use................................................ 23
Tract Map
Assessor's Maps
Zoning Map
Aerial Photograph
Ground Photographs
VALUATION (TAB)
Approach to Value................................................... 35
Market Data Approach - Land......................................... 36
Residual Analysis................................................... 38
Adjustment Grids (Tables 1 - 5)..................................... 43
Correlation and Conclusion.......................................... 52
Job Cost Excerpts - Brehm
Lot Premiums - Symphony
Market Data Summary (Table 6) - Land Sales
Market Data Map - Land Sales
Market Data Summary (Table 7) - Residential Tract Developments
Market Data Map - Residential Tract Developments
Market Data - Land Sales
<PAGE>
TABLE OF CONTENTS (CONT.):
ENCORE (TAB)
NORTHVIEW II (TAB)
BRIDALGATE PARK (TAB)
ADDENDA (TAB)
Appraisers' Qualifications
Carl W. Boznanski, C.R.A.
Daniel H. Herron
Mark W. Linnes, MAI
<PAGE>
SYMPHONY
OCEANSIDE, CALIFORNIA
GENERAL DATA
PURPOSE OF THE APPRAISAL:
It is the purpose of this appraisal to set forth an estimate of and
support for the retrospective market value of the fee simple interest of
a partially finished residential subdivision as it currently exists.
MARKET VALUE
Market Value is 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 and knowledgeably, and
assuming the price is not affected by undue stimulus. Implicit in this
definition is the consummation of the sale as of a specified date and the
passing of title from seller to buyer under conditions whereby:
a. Buyer and seller are typically motivated.
b. Both parties are well informed or well advised, and acting
in what they consider their own best interests;
c. A reasonable time is allowed for exposure in the open
market;
d. Payment is made in terms of cash in United States dollars or
in terms of financial arrangements comparable thereto; and
e. 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.
AGGREGATE RETAIL VALUE represents the sum of the gross receipts of the
individual units, as if completed on the date of the appraisal and sold to
individual buyers. This value is net of any types of concessions granted
by the seller, whether it is in the form of below market financing, free
upgrades, seller-paid closing costs, or reduction in sale price. This
value, which is sometimes referred to as the GROSS SELLOUT VALUE, is not
necessarily market value, however, because it does not consider the
expenses of disposition or holding, or the calculation of present worth.
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SYMPHONY
OCEANSIDE, CALIFORNIA
PURPOSE OF THE APPRAISAL (CONT.):
PROPERTY RIGHTS APPRAISED
Property rights appraised are the fee simple interest in the estate,
assuming the property to be free and clear of all liens, under responsible
ownership and competent management and having good and marketable title.
Mineral rights, if any, are not considered herein. Likewise, unless noted,
we are not valuing business interests or any items of fixtures or
equipment.
Fee simple is an absolute ownership unencumbered by any other interest
or estate, but subject to the limitations of eminent domain, escheat,
police power, and taxation. It is an inheritable estate.
PARCEL
The term "parcel" as used herein means any contiguous tract of land in
the same ownership and use whether such tract consists of one or more
platted lots or a fractional part thereof.
INTENDED USE OF THE APPRAISAL:
This appraisal is intended to provide a value basis, for financing
purposes, of the fee owned land as further described herein. The intended
user of this report is the owner, Oceanside Development, Inc.
DATE OF VALUE:
This appraisal report is dated May 15, 1997, corresponding to the
completion of our investigation, analysis of relevant data and the
preparation of this report. Our date of value is also defined as of May
15, 1997.
SCOPE OF THE APPRAISAL:
GENERAL
The subject property is located within the easterly quadrant of Mesa
Drive and College Boulevard, in the city of Oceanside, San Diego County,
California. Currently, it is a partially graded hillside subdivision with
approved tentative tract maps allowing the development of 111 detached
single family residences. Water and sewer lines have been installed and
are available to a
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<PAGE>
SYMPHONY
OCEANSIDE, CALIFORNIA
SCOPE OF THE APPRAISAL (CONT.):
portion of the site. The site has a total net area of 789,680 square
feet (sf) or 18.1286 acres. Individual lots have a minimum area of 5,180
sf, a maximum area of 11,060 sf and an average area of 7,114 sf. These
areas represent flat, buildable pads that are net of slopes. The overall
site is located within two different zoning areas that require minimum
gross lot areas of 6,000 sf and 10,000 sf.
The overall subject site is proposed to be improved with 111 detached
single family residences, including models, to be known as Symphony. There
are to be five types of detached residences ranging in size from 1,821 sf
to 2,847 sf, all with three-car garages, to be built Brehm Communities.
VALUATION BACKGROUND
Our opinion of value and this report follow an onsite property
inspection, discussions with the owners or their representative, interviews
with knowledgeable persons in the area, including city of Oceanside
officials, analysis of pertinent material supplied to us, a market data
sales investigation, and a highest and best use analysis.
In developing this report, all three valuation techniques were
considered. However, the Income Approach does not apply to vacant
residential land that is proposed to be sold to individual owner/users. The
Cost Approach, in its traditional format, is not considered either.
However, cost data is utilized in a residual analysis. Thus, the Market
Approach or Direct Sales Comparison Approach will be the primary valuation
technique utilized in this report.
The Market Data Approach to Value is looked to as providing the most
significant and relevant value indications for the essentially vacant
subject site. The process involves a comparison of the subject property
with residential subdivisions of similar and competing use, which have
been subjected to the forces of the market through sale. Market data is
also utilized in estimating the Aggregate Retail Value of the detached
single family residences that are currently proposed. A residual
analysis, which utilizes our conclusion of revenue and cost data provided
us, will also be utilized in estimating land value.
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<PAGE>
SYMPHONY
OCEANSIDE, CALIFORNIA
SCOPE OF THE APPRAISAL (CONT.):
APPRAISAL FORMAT
The report is divided into five major sections . . . General Data,
Subject Property, Valuation, Competing Developments and Addenda. The
General Data Section provides background information and sets the tone of
the assignment. It defines the purpose, intended use, date of value and
scope of the appraisal and describes the environs, access and traffic.
Also included here are maps and ground photographs showing the area.
The Subject Property Section contains a summary of pertinent
information relating to the property's ownership, sales history, location,
legal description, Assessor's data, physical description of the land,
zoning, present use and occupancy and highest and best use. Various
exhibits, including title report, Assessor maps and photographs, are also
included here.
The Market Data Approach to Land Value is then discussed in the
Valuation Section. This technique is applied in our valuation analysis
relative to the subject property and a conclusion is thereby achieved. The
details of those items of vacant land market data, having relevance to the
appraisal problem at hand are then set forth along with a market data map
and a market data summary illustrating the comparable properties relative
geographical location in relation to the subject. The Residual Method is
also presented.
Residential tracts utilized in the Residual Method are presented as
market data. Each tract is outlined in individual tabbed sub-sections.
These sub-sections represent the Competing Development section.
The last report section is the Addenda, which contains the appraiser's
qualifications.
ENVIRONS:
CITY
The City of Oceanside is located between two of Southern California's
largest cities. It is located 84 miles south of the city of Los Angeles
and 36 miles north of the city of San Diego. The City has an area of about
40.6 square miles and has frontage along the Pacific Ocean. It is bound by
Camp Joseph H. Pendleton of the United State Marine Corp to the northwest,
unincorporated county territory to the east, and the cities of Vista and
Carlsbad to the southeast.
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<PAGE>
SYMPHONY
OCEANSIDE, CALIFORNIA
ENVIRONS (CONT.):
As of January 1, 1997, the City had a population of 149,220, which
represents an increase of 20,822 or 16% over the 1990 Census figure, which
itself is 51,700 or 67% over the 1980 Census. Also, there were 56,567
housing units as of January 1, 1997. This includes 27,336 detached and
8,258 attached units.
Freight and passenger movement is provided by virtually all types of
transportation services. Rail transportation is provided by the Santa Fe
Railroad for freight and AMTRAK for passenger. Over 95 trucking and
moving/storage firms serve the northern county of San Diego providing
overnight delivery to Arizona, San Diego, San Francisco and Los Angeles.
Air transportation is available at several airports including Lindberg
Field (San Diego International) 32 miles south, McClellan-Palomar Airport
(Carlsbad) 7 miles south, and Oceanside Municipal Airport. Busing services
are provided by North County Transit, Greyhound and Continental Trailways.
In addition, direct transfers for AMTRAK and local intercity buses are
offered by the Oceanside Transit Center. Shipping services are provided
by the Port of San Diego which is located 39 miles south, and the Oceanside
Small Craft Harbor. Vehicular transportation is made available by the
Interstate 5 Freeway (north/south) and State Highway 76 and 78 (east/west).
Utilities are supplied to the area by the following entities:
Water: City of Oceanside
Natural Gas: San Diego Gas and Electric
Electric Power: San Diego Gas and Electric
Telephone: Pacific Bell
Sewer: City of Oceanside
Serving the community is a Council-Manager type of government. The
City also has its own police and fire departments. The City became
incorporated in 1988.
There are over 3,000 acres in the city limits master planned with
2,000+/- acres zoned for light industry and 1,000 acres zoned
for commercial development.
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SYMPHONY
OCEANSIDE, CALIFORNIA
ENVIRONS (CONT.):
The eastern portion of the city of Oceanside had experienced rapid
development in the late 1980s and early 1990s. Nearest to the subject is
the planned community of Rancho Del Oro. This 2,000-acre master-planned
community will have some 4,400 residential units, three town centers
(retail) and 780 acres of industrial land. Other industrial areas within
the Oceanside area, including the above mentioned Rancho Del Oro
community, are identified as Oceanside Airport, Industry Street Corridor
and Vista Pacific.
LOCAL
The subject development is located in the east central portion of the
city of Oceanside. It is just to the north and west of the city of Vista
and some five miles east of downtown Oceanside. This area is primarily
zoned for planned residential development. There are areas zoned for scenic
parks and small commercial developments here also. The immediate area
surrounding the subject is being built-up with single family residences
similar to that proposed on the subject property.
Immediately south of the subject, across Old Grove Road (Temple
Heights Drive), are existing detached single family residential
developments within the master planned community of Rancho Del Oro. This
2,000-acre master-planned community has some 4,400 residential units, three
town centers (retail) and 780 acres of industrial land. The community is
expected to be built out in the year 2005. As part of this development is
an elementary school and park, both located to the west of the subject.
Ongoing developments within the immediate area that are not a part of
Rancho Del Oro included the previous subject owner/developer's two
developments, Bella Collina and Encore. Further north, across Mesa Drive,
is the recently sold-out development of Centex Homes, Northview. It was
developed on lots acquired from the RTC which were previously owned by
Friedman Homes.
Commercial development serving these homes are located along Oceanside
Boulevard and College Boulevard. Found here are two neighborhood shopping
centers, one with a major grocery tenant. Similar centers have been
constructed on the two sites at the westerly corners of Mission Avenue and
College Boulevard. One is anchored by Wal-Mart. A small site located to
the immediate northwest of the subject is zoned for commercial use, but is
currently vacant.
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BOZNANSKI & COMPANY
<PAGE>
SYMPHONY
OCEANSIDE, CALIFORNIA
ENVIRONS (CONT.):
The large and sprawling Gaujome County Regional Park is located
northeast of the subject, across North Santa Fe Avenue.
ACCESS:
Currently, the majority of the 111 subject lots do not have direct
access. However, the larger parcel is accessible from two local streets.
These two local streets, plus a third proposed local street, do and will
provide access to two secondary arterials. Each lot is proposed to be
served by four internal neighborhood collectors.
MESA DRIVE is a diagonally running (northeast to southwest) secondary
arterial that is located just north of the subject. Access between Mesa
Drive and the subject is to be provided by a proposed, interior street,
AVENIDA DE LA PLATA. Mesa Drive begins at Mission Avenue near Interstate 5
to the west and ends at North Santa Fe Avenue to the northeast, a distance
of some six miles. In the immediate subject area it has a right-of-way
width of 84 feet. It is fully asphalt paved and has two travel lanes in
each direction, plus left hand turn lanes at its intersections. Bordering
the street are concrete curbs, gutters and sidewalks. Street lights are in
place as well.
COLLEGE BOULEVARD is the other secondary arterial located in close
proximity to the subject. It is available from AVENIDA EMPRESSA, which
ends in a T-intersection in front of the subject at AVENIDA DE LA PLATA.
Also, it is accessible from OLD GROVE ROAD, which provides access to the
southeast part of the subject via Pine Ridge Road and Bella Collina Street.
Internal neighborhood collectors that are to serve each of the 111
subject lots include: BELLA COLLINA STREET, NAPOLI STREET, VERONA STREET,
AND AVENIDA DE LA PLATA. Each of these streets is to have a right-of-way
width of 60 feet. They are to be fully asphalt paved with concrete curbs,
gutters and sidewalks in place. Only the easternmost part of Bella Collina
Street, serving Lots 55 - 59, exists.
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BOZNANSKI & COMPANY
<PAGE>
SYMPHONY
OCEANSIDE, CALIFORNIA
TRAFFIC:
As of June 1994, the City of Oceanside's Engineering Department of
Transportation reported that the 24-hour average daily traffic count (ADT)
for Mesa Drive was 6,200. The current ADT is estimated by the City to be
10% higher.
No counts are available for the four internal collectors within the
proposed subject development since they are yet to be constructed.
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<PAGE>
ENVIRONS
SYMPHONY
OCEANSIDE, CALIFORNIA
[PHOTO]
Westerly view across Avenida De La Plata and toward College Boulevard along
Mesa Drive. The subject is partially shown left.
[PHOTO]
View east across Avenida De La Plata along Mesa Drive. Shown mid-picture is
the owner/developer's Encore project. The subject is located off to the right.
9
<PAGE>
ENVIRONS
SYMPHONY
OCEANSIDE, CALIFORNIA
[PHOTO]
Southerly view across Mesa Drive along Avenida De La Plata. The subject is
located beyond the existing tract (Encore) in the foreground.
[PHOTO]
View south across Terracina Street along the proposed path of Avenida De La
Plata.
10
<PAGE>
LOCAL AREA MAP
OCEANSIDE, CALIFORNIA
[MAP]
11
<PAGE>
REGIONAL AREA MAP
OCEANSIDE, CALIFORNIA
[MAP]
12
<PAGE>
SYMPHONY
OCEANSIDE, CALIFORNIA
SUBJECT PROPERTY
GENERAL:
We were provided a title report for a portion of the subject property
in the course of this assignment. It covers the 59 lots of Tract 12677
-Mission Santa Fe Parcel 4 - Unit 2. This report is as prepared by First
American Title Insurance Company of San Diego, California, is identified
as Order No. 980040-6 and is dated June 15, 1990. The ownership, legal
description and site description contained herein are as obtained from
this document, from available public records, from information provided
us by the current (Brehm) and previous (VED) developers, and from our
physical inspections of the subject property on June 29, 1990, November
6, 1992, May 12, 1993 and April 25, 1997. The ground and aerial
photographs were taken at about the time of our most recent inspection.
OWNER APPARENT/APPRAISED OWNER/ASSESSED OWNER:
Oceanside Development, Inc.
c/o National Investors Financial Incorporated
4675 MacArthur Court
Suite 1240
Newport Beach, California 92660
SALES HISTORY:
According to the San Diego County Assessor, as published by TRW Redi,
the 111 subject lots, as well as another 115 lots (Encore), last
transferred on November 17, 1993, as recorded on Document No. 774468,
for an undisclosed price. The property was acquired by Oceanside
Development Incorporated, c/o National Investors Financial Incorporated,
from The VED Corporation General Partnership, c/o Bella Collina Ltd.
and Oceanside Terracina Ltd.
The VED Corporation purchased Mission Santa Fe Parcel 4, which represents
a portion of the overall subject property, from the Mission Santa Fe
Investment Company, a California Limited Partnership, for a full price
of $1,962,000. This sale recorded in December of 1986 on Document
No. 265815. The VED Corporation purchased the property with a down payment
of $52,000 (2.65%) and by acquiring a first trust deed of $1,910,000
(97.45%). This sale encompasses the 59 lots of Tract 12677 that was
originally a part of the VED's Bella Collina project. Thus, the sale
price reflected a unit price of $33,254 per lot.
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<PAGE>
SYMPHONY
OCEANSIDE, CALIFORNIA
SALES HISTORY (CONT.):
The VED Corporation also purchased Mission Santa Fe Parcels 5 and 6,
which includes the remaining portion of Symphony (Lots 46-97 of Tract
12797) and Encore (Lots 1-45 of Tract 12797 and Lots 1-92 of Tract
12798), from the Mission Santa Fe Investment Company, a California
limited partnership. The total purchase price for both parcels, which
encompasses some 189 lots, was $1,974,500 or $10,447 per lot. No other
information on this transaction was made known to us.
We were provided a current, although undated and unsigned purchase
agreement by and between Oceanside Development, Inc. (Seller) and Beazer
Homes Holding Corporation (Buyer) for the 111-lot subject property. The
purported purchase price of $7,492,500 or $67,500 per lot is a gross
sale price that includes an agreed upon cost to produce finished,
graded lots. Thus, the actual purchase would be reduced by the cost
to produce finished, graded lots.
We are not aware of any other transactions . . . past, present or
pending, regarding the subject property.
PROPERTY LOCATION:
1305-1377, 1302-1366 Napoli Street
5002-5092, 5001-5107 Bella Collina Street
4905-4993, 4914-4998 Verona Street
The subject site is located immediately north of Old Grove Avenue,
south of Mesa Drive and east of College Boulevard. It is within
the east centralmost part of the city of Oceanside, in the northwestern
part of the county of San Diego, California.
Thomas Brother Guide: Page 1087; Grid B3, C3 (San Diego County
- 1997)
Census Tract: 193 (San Diego SMSA - 1990)
LEGAL DESCRIPTION:
The subject property is situated in the State of California, County of
San Diego, and is described as follows:
Lots 1 through 59 of Mission Santa Fe Parcel 4 - Unit 2, in the City of
Oceanside, County of San Diego, State of California, according to the
Map thereof No.
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SYMPHONY
OCEANSIDE, CALIFORNIA
LEGAL DESCRIPTION (CONT.):
12677, as recorded in the Office of the County Recorder of San Diego
County; Lots 46 through 97, of Mission Santa Fe Parcels 5 and 6 -
Unit 1, in the City of Oceanside, County of San Diego, State of
California, according to Map thereof No. 12797, as recorded in the
Office of the County Recorder of San Diego County.
ASSESSOR'S DATA (1996-97):
Assessor's Parcel Nos.: 158-580-01 through 36; 158-581-01 through
23; 158-601-01 through 52
Assessed Values (Land Value)*:
Land: $2,099,125
Improvements: -0-
----------
Total: $2,099,125
Tax Rate Area: 7101 and 7025
Tax Rate: $1.01344 per $100 Assessed Value (96-97)
Taxes: $21,273.37 (96-97 est.)
$28,900+/- (Projected)*
* Projected tax based on our conclusion of Market Value.
PHYSICAL DESCRIPTION - LAND:
OVERALL
Shape: Very irregular (See attached Assessor's Maps and
Tract Maps for further definition)
Dimensions: See attached Assessor's Maps and Tract Maps for
definition
Area Content: 18.1286 ACRES or 789,680 SF
(This total net buildable area was provided
us by the subject property's previous owner/
developer)
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<PAGE>
SYMPHONY
OCEANSIDE, CALIFORNIA
PHYSICAL DESCRIPTION - LAND (CONT.):
Individual Lot Areas: Minimum: 5,180 sf
Maximum: 11,060 sf
Average: 7,114 sf
Topography: The overall subject site has a rolling
topography that generally slopes downward
from south to north.
The 59 lots within Mission Santa Fe Parcel 4
- Unit 2 are in various stages of the grading
process. Lots 27 through 35 slope upward
from a street-fronting elevation as low as
378.7 feet to a rear yard elevation of
430.0+/-feet. Thus, Lots 1 through 24 and
37 through 45 are to have views oriented
mainly to the northwest. Lots 25 through 36
and 46 through 59 are to be backed up to a
slope. As of November 1993, Lots 1 through
25 are blue-top graded. However, they
require re-scarification and
re-certification.
The 52 lots within Mission Viejo Santa Fe
Parcels 5 and 6 -Unit 1 are also in various
states of the grading process. Lots 46 through
97 are rough graded. Lots 67 through 77 and
Lots 88 through 97 are expected to have
average views.
Soils: We are in receipt of a "Geotechnical Grading
Plan Review" including addendums and revisions,
for the entire land area owned by the VED
Corporation, including their two other
developments, Bella Collina and Encore. All of
these documents are as prepared by Pacific
Soils Engineering, Inc., of San Diego,
California, are identified as Work Order
400134. The earliest report was prepared on
August 30, 1988, and the latest was prepared
on April 25, 1990.
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SYMPHONY
OCEANSIDE, CALIFORNIA
PHYSICAL DESCRIPTION - LAND (CONT.):
The "Geotechnical Grading Plan Review" is
based on a review of numerous geotechnical
reports prepared by Leighton and Associates,
Inc. and on grading plans as prepared by
Hunsaker and Associates. In addition, this
report is based on subsurface work as performed
by Pacific Soils Engineering, Inc.
Upon review of all three sources, it was
found that the subject site was suitable for
the intended development subject to the
conditions and recommendations of the
referenced engineer. In addition, the
proposed development was not anticipated
to adversely affect the gross stability of
the natural slopes.
According to the Job Cost Reports provided
us, Brehm has incurred costs for soils
engineering and erosion control.
EPA Superfund
(CERCLIS): No (As of January 1993)
Hazardous Substances: Unless otherwise stated in this report, the
existence of hazardous substances, including
without limitation asbestos, polychlorinated
biphenyl's, petroleum leakage, or agricultural
chemicals, which may or may not be present on
the property, or other environmental
conditions, were not called to the attention
of nor did the appraiser become aware of such
during the appraiser's inspection. The
appraiser has no knowledge of the existence
of such materials nor in the property unless
otherwise stated. The appraiser, however, is
not qualified to test
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SYMPHONY
OCEANSIDE, CALIFORNIA
PHYSICAL DESCRIPTION - LAND (CONT.):
such substances or conditions. If the presence
of such substances, such as asbestos, urea
formaldehyde foam insulation, or other
hazardous substances or environmental
conditions, may affect the value of the
property, the value estimated is predicated
on the assumption that there is no such
condition on or in the property or in such
proximity thereto that it would cause a loss
in value. No responsibility is assumed for
any such conditions, nor for any expertise or
engineering knowledge required to discover
them.
Access: Each of the 111 lots are to be accessible
across a concrete paved driveway apron. These
driveways are to be reached by one of the
following public internal neighborhood
collectors: Bella Collina Street, Napoli
Street and Verona Street. With an exception
to a small portion of Bella Collina Street,
these streets do not exist.
Bella Collina Street is in place along the
frontage of Lots 55-59 of Tract 12677. It
provides access to Old Grove Road from Pine
Ridge Road.
Utilities: As of November 1993, there are both wet and dry
utilities available to Lots 55-59.
Water and sewer lines are in place along
Napoli, Verona and Terracina streets, as well
as the northerly part of Avenida de la Plata.
They are connected to main lines along Mesa
Drive.
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SYMPHONY
OCEANSIDE, CALIFORNIA
PHYSICAL DESCRIPTION - LAND (CONT.):
According to the Job Cost Reports provided us,
Brehm has incurred costs for joint utility
trenching, storm drains and water. Also, some
fees have been paid.
Easements: There are no known or apparent easements
along or across the various subject lots that
would affect their highest and best use
development. The title report indicates various
easements for road, storm drains and public
utility purposes along and across various
portions of Mission Santa Fe Parcel 4.
However, we conclude that these easement areas
would not adversely affect the ultimate
development of the subject property in the
manner proposed, so long as these easement
areas are taken into account in the
development, which it appears that they have
been.
Offsite Improvements: As of November 1993, only a small portion
(335+/- feet) of Bella Collina Street existed.
The remaining street area did not exist. The
site area proposed for street use is either
raw land, rough graded or as cut-out within
blue-top graded lots.
Each of the three streets that are to serve
the 111 lots are to have full offsite
improvements. Such improvements include:
full asphalt street paving, concrete curbs,
gutters, sidewalks and street lights.
Flood Hazard: The Federal Emergency Management Agency
(FEMA), through the National Flood
Insurance Program, publishes flood
isurance rate maps. A map identified as
Community-Panel Number 060294-0012C,
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<PAGE>
SYMPHONY
OCEANSIDE, CALIFORNIA
PHYSICAL DESCRIPTION - LAND (CONT.):
dated June 18, 1987, indicates that the
subject property is located in Flood
Zone X, an area determined to be outside
of the 500-year flood zone.
Earthquake Hazard: The subject property, as well as the entire
city of Oceanside, is not located in an
Earthquake Fault Zone as specified by the
Alquist-Priolo Earthquake Fault Zoning Act.
PHYSICAL DESCRIPTION - IMPROVEMENTS:
EXISTING
Currently, the overall subject site does not have any building
improvements.
PROPOSED
Proposed to be developed within the Symphony project by the current
developer, Brehm Communities, are five types of detached single family
homes. They are summarized as follows:
NO. SIZE (SF)
1 1,821
2 2,265
3 2,371
4 2,552
5 2,847
Although details of these proposed homes were not provided us, we
anticipate that they will be similar to and/or slightly superior
to Brehm's ongoing project (Encore) to the subject's immediate north.
These detached homes will have a large front yard setback. They will
be built of frame and stucco construction with some exterior wood siding.
The homes will be constructed on concrete slab foundations and have both
gable and hip roofs. Fireplace structures are to be enclosed. They will
have three-car garages.
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SYMPHONY
OCEANSIDE, CALIFORNIA
PHYSICAL DESCRIPTION - IMPROVEMENTS (CONT.):
Copies of floor plans and elevations were not provided us. However, the
features anticipated to be included in these homes are presented as
follows:
Exterior
Tile Roof
Painted Stucco Exterior
Concrete Driveway and Walkways
Concrete Patios
Side and rear yard fencing
Front yard landscaping
Kitchen
Dual Self-Cleaning Oven
Automatic Dishwasher
Garbage Disposal
Trash Compactor
Microwave Oven
Wood Cabinets
Pantry
Ceramic Tile Counter Tops
Sheet Vinyl Floor
Island Counters
Master Bedroom
Double Entry Doors
Retreats
Dual Basin Sinks
Ceramic Tile Counter Tops
Oval Acrylic Tub with Ceramic Tile Wainscot
Separate Stall Shower with Ceramic Tile Wainscot
Walk-In Closet
Mirrored Wardrobe Doors
Optional Fireplaces
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<PAGE>
SYMPHONY
OCEANSIDE, CALIFORNIA
PHYSICAL DESCRIPTION - IMPROVEMENTS (CONT.):
Interior
Ceramic Tile Entry
Carpeting in all other living areas
Volume Ceilings
Forced Air Heating
Fireplaces
Bathrooms
Sheet Vinyl Floor Finish
Cultural Marble Countertops
Acrylic Tubs with Ceramic Tile Wainscot
Single to Dual Basin Sinks
Optional Items
Air Conditioning
Mirrored Wardrobe Doors
Garage Door Openers
ZONING:
LOTS 1 TO 59, TRACT 12677
RE-B (Residential Estate B); as per City of Oceanside Property
Development Regulations.
The purpose of this zone is to establish standards for single family
residential development. All dwelling units shall have a minimum
lot area per dwelling of not less than 10,000 sf. Setbacks are as
follows: front -25 feet, side - 7.5 feet and rear - 20 feet. Lot
width shall be a minimum of 70 feet. Maximum lot coverage is set at 30%.
This single family residential zone is in conformance with the City's
General Plan requirements.
The overall subject development has received city of Oceanside approval
and is in full conformance with all applicable zoning criteria.
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<PAGE>
SYMPHONY
OCEANSIDE, CALIFORNIA
ZONING (CONT.):
LOTS 46 TO 96, TRACT 12797
RS-HD (Single Family Residential - Hillside Development); as per City of
Oceanside Property Development Regulations.
The purpose of this zone is to establish standards for single family
residential development. All dwelling units shall have a minimum lot area
per dwelling of not less than 6,000 sf. Setbacks are as follows:
front - 20 feet, side - 5 feet and rear - 15 feet. Lot width shall be a
minimum of 60 feet. Maximum lot coverage is set at 40%.
This single family residential zone is in conformance with the City's
General Plan requirements.
The overall subject development has received approval from the city of
Oceanside and is in full conformance with all applicable zoning criteria.
PRESENT USE AND OCCUPANCY:
Currently, the overall subject property is vacant and is in the
preliminary stages of the grading process.
HIGHEST AND BEST USE:
DEFINITION
Highest and best use is defined as that reasonable and probable use that
will support the highest present value, as presently defined, as of the
date of the appraisal. Alternately, it is that use, from among reasonably
probable and legal alternate uses found to be physically possible,
appropriately supportive, financially feasible, and which results in
highest land value.
PHYSICALLY POSSIBLE
The subject property is located in the east central part of the city of
Oceanside, in an area characterized by rolling topography. The site had
been partially graded for detached single family residential development.
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<PAGE>
SYMPHONY
OCEANSIDE, CALIFORNIA
HIGHEST AND BEST USE (CONT.):
LEGALLY PERMISSIBLE
The subject property and its immediately surrounding parcels and are
zoned from medium to high density residential development. The City also
had established certain areas for open space.
FINANCIALLY FEASIBLE
GENERAL
Financial feasibility takes into consideration neighborhood land use
trends, competition, value trends, and factors of supply and demand
relative to various alternate uses that are physically possible and
legally permissible.
LAND USE TRENDS
The subject development is located in the east central portion of the
city of Oceanside. It is just to the north and west of the city of
Vista and some five miles east of downtown Oceanside. This area is
primarily zoned for planned residential development. There are areas
zoned for scenic parks and small commercial developments here also. The
immediate area surrounding the subject is being built-up with single
family residences similar to that proposed for the subject property.
Immediately south of the subject, across Old Grove Road (Temple Heights
Drive), is currently existing detached single family residential
developments within the master planned community of Rancho Del Oro. This
2,000-acre master-planned community is to have some 4,400 residential
units, three town centers (retail) and 780 acres of industrial land.
The community is expected to be built out in the year 2005. As part of
this development is an elementary school and park, both located to the
west of the subject.
Ongoing developments within the immediate area that are not a part of
Rancho Del Oro include the previous subject owner/developer's two
developments, Bella Collina and Encore. Further north, across Mesa
Drive, is the recently sold-out development of Centex Homes, Northview.
It was developed on lots acquired from the RTC which were previously
owned by Friedman Homes.
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<PAGE>
SYMPHONY
OCEANSIDE, CALIFORNIA
HIGHEST AND BEST USE (CONT.):
Commercial development serving these homes are located along Oceanside
Boulevard and College Boulevard. Found here are two neighborhood
shopping centers, one with a major grocery tenant. Similar centers have
been constructed on the two sites at the westerly corners of Mission
Avenue and College Boulevard. One is anchored by Wal-Mart. A small site
located to the immediate northwest of the subject is zoned for
commercial use, but is currently vacant.
The large and sprawling Gaujome County Regional Park is located
northeast of the subject, across North Santa Fe Avenue.
COMPETITION
According to a competitive audit of the Coastal North sub-market of San
Diego County as prepared by the Meyers Group for the first quarter of
1997, there are a total of 14 active tracts that are offering detached
residences for sale in the city of Oceanside. These 14 tracts had a
total project size of 1,469 units, with an average size of 105 units.
As of March 1997, they had released a total of 1,223 units. Thus, 246
units were proposed. Since the fourth quarter of 1993, the number of
projects and number of units released have decreased by 51% and 36%.
VALUE TRENDS
According to the Meyers Group, the weighted average price for detached
residences for the entire Oceanside sub-market for the first quarter of
1997 is $214,006 for a 2,213 sf residence. This weighted average is
some $2,654 higher than the average reported for the fourth quarter of
1993 for a similar sized residence.
SUPPLY AND DEMAND
According to the Meyers Group, there were a total of 161 sales during
the second quarter of 1997 for the Oceanside submarket. This total
reflects an average sales rate of about 2.32 units per month.
HIGHEST AND BEST USE - "AS VACANT"
Considering the subject's site size, topography, zoning and the fact
that sale prices of residences contribute to the value of the underlying
land, we conclude that the subject 111-lot subdivision is best be
utilized for low density residential development.
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<PAGE>
MISSION SANTE FE PARCELS
CITY OF OCEANSIDE, COUNTY OF SAN DIEGO
INDEX MAP
(SEE SHEET 3 FOR PROCEDURE)
[MAP]
26
<PAGE>
[MAP]
MAP 12677 - Mission Santa Fe PCL-4 Unit 2
27
<PAGE>
[MAP]
MAP 12677 - Mission Santa Fe PCL-4 Unit 2
28
<PAGE>
[MAP]
MAP 12797 - Mission Santa Fe Parcels 5 & 6 - Unit 1
29
<PAGE>
[MAP]
ZONE MAP
Oceanside, California
30
<PAGE>
[AERIAL PHOTOGRAPH]
31
<PAGE>
SUBJECT PROPERTY
SYMPHONY
OCEANSIDE, CALIFORNIA
[PHOTO]
Northeasterly view from the intersection of Avenida De La Plata and
Avenida Empressa across the subject property.
32
<PAGE>
SUBJECT PROPERTY
SYMPHONY
OCEANSIDE, CALIFORNIA
[PHOTO]
View southeast across the intersection of Avenida De la Plata and Terracina
Street at the subject property.
33
<PAGE>
SUBJECT PROPERTY
SYMPHONY
OCEANSIDE, CALIFORNIA
[PHOTO]
View west from the intersection of Pine Ridge Road and Bella Collina Street
at the four essentially finished lots (Lots 55 - 59).
<PAGE>
SYMPHONY
OCEANSIDE, CALIFORNIA
VALUATION
APPROACH TO VALUE:
Our valuation task in this analysis is to establish the market value of
111-lot subject property as it currently exists. It currently exists as
a partially graded subdivision with partial wet utilities and recorded
tract map.
Our analysis of the market value of the site will consider the Market
Data or Sales Comparison Approach. Because the data we uncovered
includes land in the various stages of the site development and
entitlement process, we are also considering a land residual analysis.
This analysis provides a value of a property at a current point in time
by first estimating its total cost or value indication when finished and
then subtracting all costs required to develop to its finished state,
which can be either finished land or finished product (i.e. house).
The residual land analysis that utilizes a finished product value
considers the proposed plans for the subject, which includes five
homes ranging in size from 1,821 sf to 2,847 sf, with an average of
2,379 sf. The proposed homes will be compared to similar types of
detached residential developments located within the city of Oceanside.
We looked for residences ranging in size from about 1,800 sf to 2,850
sf, which is similar to the product range that is proposed to be offered
at the subject property. The Aggregate Retail Value of the proposed
subject development, on an overall basis, has been estimated by
utilizing the Market Data or Sales Comparison Approach.
All market data items have been verified by one or more sources
considered to be reliable, including parties in the transaction, brokers
familiar with the transaction, COMPS, Inc., or other market data
reporting sources, and/or by full value documentary stamps on deeds
followed by the County Assessor's re-evaluation in the public records.
NON-ECONOMIC VALUE
The subject parcel does not appear to have any intrinsic, natural,
cultural or scientific value, based upon our inspection and
investigation, and in the course of our analysis we have not been made
aware by any government agency or professional group of the potential
for such value.
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SYMPHONY
OCEANSIDE, CALIFORNIA
MARKET DATA APPROACH - LAND:
Our opinion of land value is resultant from a search for and an analysis
of the residential land sales that occurred within the city of Oceanside
and its surrounding areas.
As a result of our search, six comparables were found that can be
applied in our analysis of the subject property. Five of the six are
located within the city of Oceanside. They sold between July of 1993
and April of 1997, with no more pertinent transactions known to us.
They sold at unit prices of $21,384 to $87,500 per lot. However, these
prices reflect land in the various stages of the site development and
entitlement process. Also, four of the six reported finish lot costs of
$46,384 per lot to $87,500 per lot, including school fees.
The six comparables are summarized in chart form (Table 5) and presented
toward the rear of this section. A map that geographically locates each
comparable in relation to the subject is also presented. Finally, each
sale is described in detail within a market data sheet.
Each sale is further discussed as follows:
COMPARABLE NOS. 1a, 1b, AND 1c represent separate transactions within a
takedown whereby the sale price of the lots was established in August of
1996. The three properties are located within a gate-guarded community
known as Ocean Hills At Leisure Village in Oceanside. This area is
considered slightly superior to the subject area. The three sales
occurred between August 1996 and April of 1997. They are zoned for
medium to high-density residential development and were reported to have
average lot sizes of 4,500 sf. A total of 70 lots sold in these
transactions at prices that average $57,361 per lot. They sold as
finished lots. About half of these lots have views considered similar
to the subject property. Considering their smaller average lot size,
these comparables are considered inferior to the subject.
COMPARABLE NO. 2 is a 215-lot subdivision that is located adjacent to
the Castle Creek Country Club, within unincorporated county territory,
east of the 15 Freeway. This property sold as essentially vacant land
with all offsites available to the site. These lots have since been
finished and are currently being improved with a detached single family
residential development on lots having an average
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SYMPHONY
OCEANSIDE, CALIFORNIA
MARKET DATA APPROACH - LAND (CONT.):
size of about 5,000 sf. Less than half these lots have frontage along
the golf course. This property sold in July of 1995 at an all cash
price of $6,143,000 or $28,572 per lot. The finished lot cost was
reported between $56,500 to $57,000 per lot, not including a $4,000 per
lot assessment for sewers. The finished lot cost does include school
fees.
COMPARABLE NO. 3 consists of a 159-lot subdivision located along the
north side of Via Rancho Road, northwest of Mesa Drive, in close
proximity to the subject property. This essentially level site sold as
essentially vacant land with perimeter offsite improvements in place.
These 159 lots have an average area of 4,383 sf, and a minimum lot size
of 2,500 sf. It sold in January of 1995 at a total price of $3,400,000
or $21,384 per lot. Its finished lot cost was reported at $46,384 per
lot. School fees for this project have been waived.
COMPARABLE NO. 4 is a 97-lot subdivision that is located along Palmera
and Woodhaven drives and Paseo Hermosa, just east of the subject
property. This site is similar to the subject property in that it has an
average lot size of 10,000 sf. Also, it has a rolling topography. It
sold as vacant land, with all offsite improvements required. It sold in
November of 1994 under apparently normal marketing conditions at an all
cash price of $2,500,000 or $25,773 per lot. We were unable to confirm
this project's finished lot cost estimate.
COMPARABLE NO. 5 is located at the southeast quadrant of Ivey Ranch Road
and Via Rancho Road, in the city of Oceanside, in an area considered
similar. It is located within the same master plan development as
Comparable No. 3. Thus, school fees for this site are assumed to have
been waived. This property consists a 148-lot subdivision with minimum
lot sizes of 5,000 sf. It sold as rough graded land with approved
tentative tract map allowing the development of 148 single family
residences. It sold in August of 1994 at an all cash price of
$4,400,000 or $29,730 per lot. Again, we were unable to confirm the
finished lot cost for this development, which is currently being
improved by Centex Homes, the same owner/developer as Comparable No. 2.
COMPARABLE NO. 6 consists of a 24-lot subdivision located along Cyrus
Way, in the city of Oceanside, in an area considered superior. These 24
lots are located on a hilltop, with most having very good views. The
average lot size for this development was reported at 6,000 sf. This
property sold in July of 1994 as finished land at a total price of
$2,100,000 or $87,500 per lot.
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SYMPHONY
OCEANSIDE, CALIFORNIA
MARKET DATA APPROACH - LAND (CONT.):
With its partially graded land, partial wet utilities, recorded tract
map, average lot size of 7,114 sf (net) and hillside topography, the
subject is considered most similar to Comparable Nos. 3 - ($25,773/lot)
and Comparable No. 4 - ($29,730/lot). Considering that land values have
decreased an estimated 5% since these sales, therefore, we estimate a
value indication for the subject within a range of about $23,750 TO
$28,500 PER LOT OR WITHIN AN OVERALL VALUE RANGE OF $2,636,000 TO
$3,164,000. Because an exact determination of their status was not
available, however, the above value range will be checked against value
indications from a residual analysis.
A finished land value indication for the subject, which will be utilized
in the following residual land analysis, is primarily based on
Comparable Nos. 1, 2 and 6. Considering that 53 of the subject lots
have good views, their best indication of value is Comparable No. 6, at
$87,500 per lot. Comparable No. 1, which includes three sales of a
takedown, which average about $58,000 per lot, are most similar to the
subject's other 58 lots. However, both Comparable Nos. 1 and 6 are
located in areas considered slightly superior.
Our analysis also considers the purported offer to purchase the subject
by Beazer Homes at a finished lot cost of $67,500 per lot, less all
costs required to complete the lots as finished and graded.
Therefore, we conclude that the subject's finished land value indication
is $67,500+ or minus PER LOT, including school fees.
RESIDUAL LAND ANALYSIS:
GENERAL
Our residual land analysis will include two separate scenarios. The
first will utilize a finished land value estimate and the second will
utilize a finished product (land plus home plus site improvements) as a
basis from which to back out all necessary costs to arrive at these
finished values. Each scenario is further discussed as follows.
SCENARIO 1
As previously determined, our finished land value for the 111-lot
subject property as of May 15, 1997, is $67,500 per lot or $7,492,000.
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<PAGE>
SYMPHONY
OCEANSIDE, CALIFORNIA
RESIDUAL LAND ANALYSIS (CONT.):
The costs required to bring the subject to a finished land status is
based on a Job Cost Report provided us as prepared by the proposed
builder, Brehm Communities. These costs were prepared as of March 31,
1997. (A summary of these costs is presented toward the rear of this
section.)
Brehm's remaining site development costs, which are net of incurred
costs, are summarized as follows:
Category Total Per Lot
---------------- ---------- -------
Indirect Costs $1,800,676 $16,222
(w/school fees)
Direct Costs $1,912,469 $17,229
---------- -------
Subtotal $3,713,145 $33,452
In addition to indirect and direct costs, the residual analysis
considers the owner/developer's profit. Based on the previous
owner/developer's April 1993 profit estimate of 12.8%, and interviews
with other owner/developers in the area, we will consider a profit of
12.5%.
Thus, the subject's land value as of May 15, 1997, as determined by the
Residual Method, is calculated as follows:
Total Per Lot %
----------- -------- -----
Finished Land Value $ 7,492,500 $ 67,500 100.0%
Site Development Costs
Indirect (1,800,676) (16,222) 24.0%
Direct (1,912,469) (17,229) 25.5%
Developer's Profit (12.5%) (936,563) (8,438) 12.5%
----------- -------- -----
Residual Land Value Indication $ 2,842,792 $ 25,611 37.9%
Rounded $ 2,843,000 $ 25,613 37.9%
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SYMPHONY
OCEANSIDE, CALIFORNIA
RESIDUAL LAND ANALYSIS (CONT.):
Therefore, the value indication as determined in Scenario 1 (finished
land to "as is" land as of May 15, 1997) is estimated at $25,613 per
lot or $2,843,000.
SCENARIO 2
This, the second land residual analysis, will establish an aggregate
retail value of the 111 residences as if they were built as of May 1997,
based on the developer's proposed product type and mix. For the 111
lots, Brehm is planning on developing detached residences ranging is
size from 1,821 sf to 2,847 sf, with a weighted average of 2,379 sf.
Similar to the preceding residual analysis, we will utilize a
non-discounted, aggregate retail value, assuming no change in time
within a static model. The model assumes no change in price over time
nor any discounting.
Our opinion of value of the proposed 111 detached residences is
resultant from a search for and an analysis of similar type tracts
within Oceanside that are being offered for sale.
As a result of our investigations, three residential tracts were found
that can be applied in our analysis of the subject. These three
represent low density projects that are improved with detached
residences having areas of 1,768 sf to 2,740 sf. Base prices range from
a low of $116,900 to a high of $218,000, revealing unit prices of $74.23
per square foot (psf) to $94.40 psf.
At the end of this sections is a summary (Table 6) of the comparable
residential tract survey we conducted on the three comparable
developments in the Oceanside area. Also found here is a market data
map that geographically relates each comparable to the subject.
For each of these comparables we have a two- to three-page summary,
which includes such salient facts and figures as: project name, tract
number, location, project description, lot size, development status,
association dues and taxes, improvement description, sale prices, lot
premiums, incentives and absorption.
Following each summary are copies of building plans and building
elevations as well as actual photographs of the various plans discussed
for each respective development.
40
BOZNANSKI & COMPANY
<PAGE>
SYMPHONY
OCEANSIDE, CALIFORNIA
RESIDUAL LAND ANALYSIS (CONT.):
MARKET SURVEY SUMMARY
The following data summarizes the market conclusions reached in the
course of our residential market survey.
COMPARABLE NO. 1 represents a 137-unit detached residential tract known
as Encore. As of April 1997, base prices were as follows:
--------------------------------------
ENCORE
--------------------------------------
Plan Size (sf) Base Price Price/Sf
--------------------------------------
1 1,768 $166,900 $ 94.40
2 1,944 $174,900 $ 89.97
3 2,284 $189,900 $ 83.14
4 2,440 $199,900 $ 81.93
--------------------------------------
SALES ACTIVITY: 107 units sold in 53 months at an average rate of 2.02
units per month. For the first quarter of 1997, the sales rate was
reported at 2.12 units per month.
CONCESSIONS: Incentives were reported at $5,000 to $7,500.
PROJECT COMPARABILITY: This project is a development of Brehm, and is
located immediately adjacent to the proposed subject development. It is
located below the grade of Symphony and is considered to represent a
lower end project.
COMPARABLE NO. 2 is a 104-unit project more commonly known as Northview
II. It is summarized as follows:
--------------------------------------
NORTHVIEW II
--------------------------------------
Plan Size (sf) Base Price Price/Sf
--------------------------------------
1 2,003 $188,900 $ 94.35
2 2,439 $190,990 $ 74.23
3 2,573 $207,990 $ 78.84
4 2,740 $206,990 $ 75.54
--------------------------------------
41
BOZNANSKI & COMPANY
<PAGE>
SYMPHONY
OCEANSIDE, CALIFORNIA
RESIDUAL LAND ANALYSIS (CONT.):
SALES ACTIVITY: 103 units sold in 19 months at an average of 5.42 units
per month. For the first quarter of 1997, the sales rate was reported
at 1.48 units per month.
CONCESSIONS: The average concession was reported at $5,000, including
upgrades and closing costs.
PROJECT COMPARABILITY: This project represents an extension of the
Northview project, which is located immediately north of the subject,
across Mesa Drive. Although the models remained at this location, the
production homes were built in an area considered slightly inferior.
(See Land Comparable No. 4.)
COMPARABLE NO. 3 is a 153-unit project that is known as Bridalgate Park.
It is summarized as follows:
--------------------------------------
BRIDALGATE PARK
--------------------------------------
Plan Size (sf) Base Price Price/Sf
--------------------------------------
1 1,920 $181,000 $94.27
2 2,103 $189,500 $90.11
3 2,325 $204,000 $87.74
4 2,602 $213,500 $82.05
--------------------------------------
SALES ACTIVITY: 65 units have sold in a 34.5+/-month period at an
average of 1.88 units per month. For the first quarter of 1997, the
sales rate was reported at 5.8 units per month.
CONCESSIONS: $2,000 to $5,000
PROJECT COMPARABILITY: This project is located in an area considered
inferior, Access is difficult. Also, it does not have any view lots.
The following charts (Tables 1 through 5) adjust these comparables
relative to the subject in a sequential manner for various elements.
The base list price is adjusted for numerous factors, including:
concessions/incentives, living area, bedrooms, bathrooms, number of
garages, lot size, and quality of construction.
42
BOZNANSKI & COMPANY
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
SALES PRICE ADJUSTMENT GRID - TABLE 1
RE: PLAN ONE
- --------------------------------------------------------------------------------------------
SUBJECT COMPARABLE COMPARABLE COMPARABLE
NO. 1 NO. 2 NO. 3
Development Symphony Encore Northview II Bridalgate Park
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Plan One Two One One
- --------------------------------------------------------------------------------------------
Sale Price xxxx $174,900 $188,900 $185,000
- --------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
ADJUSTMENTS
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Concessions None Yes (5,000) Yes (5,000) Yes (3,500)
- --------------------------------------------------------------------------------------------
Living Area ($37/psf) 1,821 sf 1,944 sf (4,551) 2,003 sf (5,254) 1,920 sf (3,663)
- --------------------------------------------------------------------------------------------
Bedrooms ($1,000) Unk. 3 -0- 3 -0- 4 -0-
- --------------------------------------------------------------------------------------------
Bathrooms ($3,000) Unk. 2 -0- 2 -0- 2 -0-
- --------------------------------------------------------------------------------------------
Garage ($5,000) Unk. 3-car -0- 3-car -0- 3-car -0-
- --------------------------------------------------------------------------------------------
Improv. Quality Good Similar -0- Similar -0- Similar -0-
- --------------------------------------------------------------------------------------------
Appeal Good Similar -0- Similar -0- Similar -0-
- --------------------------------------------------------------------------------------------
Other None None -0- None -0- None -0-
- --------------------------------------------------------------------------------------------
Total Adjustment (9,551) (10,254) (7,163)
- --------------------------------------------------------------------------------------------
INDICATED VALUE $170,349 $178,646 $177,837
- --------------------------------------------------------------------------------------------
</TABLE>
43
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
SALES PRICE ADJUSTMENT GRID - TABLE 2
RE: PLAN TWO
- --------------------------------------------------------------------------------------------
SUBJECT COMPARABLE COMPARABLE COMPARABLE
NO. 1 NO. 2 NO. 3
Development Symphony Encore Northview II Bridalgate Park
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Plan Two Three One Two
- --------------------------------------------------------------------------------------------
Sale Price xxxx $189,900 $188,990 $193,000
- --------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
ADJUSTMENTS
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Concessions None Yes (5,000) Yes (5,000) Yes (3,500)
- --------------------------------------------------------------------------------------------
Living Area ($37/psf) 2,265 sf 2,284 sf (703) 2,003 sf +9,694 2,105 sf +5,994
- --------------------------------------------------------------------------------------------
Bedrooms ($1,000) Unk. 4 -0- 3 -0- 4 -0-
- --------------------------------------------------------------------------------------------
Bathrooms ($3,000) Unk. 2.5 -0- 2 -0- 3 -0-
- --------------------------------------------------------------------------------------------
Garage ($5,000) 3-car 3-car -0- 3-car -0- 3-car -0-
- --------------------------------------------------------------------------------------------
Improv. Quality Good Similar -0- Similar -0- Similar -0-
- --------------------------------------------------------------------------------------------
Appeal Good Similar -0- Similar -0- Similar -0-
- --------------------------------------------------------------------------------------------
Other None None -0- None -0- None -0-
- --------------------------------------------------------------------------------------------
Total Adjustment (5,703) +4,694 +2,494
- --------------------------------------------------------------------------------------------
Indicated Value $184,197 $193,684 $195,494
- --------------------------------------------------------------------------------------------
</TABLE>
44
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
SALES PRICE ADJUSTMENT GRID - TABLE 3
RE: PLAN THREE
- --------------------------------------------------------------------------------------------
SUBJECT COMPARABLE COMPARABLE COMPARABLE
NO. 1 NO. 2 NO. 3
Development Symphony Encore Northview II Bridalgate Park
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Plan Three Three Two Three
- --------------------------------------------------------------------------------------------
Sale Price xxxx $189,900 $190,990 $205,000
- --------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
ADJUSTMENTS
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Concessions None Yes (5,000) Yes (5,000) Yes (3,500)
- --------------------------------------------------------------------------------------------
Living Area ($37/psf) 2,371 sf 2,284 sf +3,219 2,573 sf (7,474) 2,325 sf +1,702
- --------------------------------------------------------------------------------------------
Bedrooms ($1,000) Unk. 4 -0- 4 -0- 5 -0-
- --------------------------------------------------------------------------------------------
Bathrooms ($3,000) Unk. 2.5 -0- 2.5 -0- 3 -0-
- --------------------------------------------------------------------------------------------
Garage ($5,000) 3-car 3-car -0- 3-car -0- 3-car -0-
- --------------------------------------------------------------------------------------------
Improv. Quality Good Similar -0- Similar -0- Similar -0-
- --------------------------------------------------------------------------------------------
Appeal Good Similar -0- Similar -0- Similar -0-
- --------------------------------------------------------------------------------------------
Other None None -0- None -0- None -0-
- --------------------------------------------------------------------------------------------
Total Adjustment (1,781) (12,474) (1,798)
- --------------------------------------------------------------------------------------------
Indicated Value $188,119 $178,516 $203,202
- --------------------------------------------------------------------------------------------
</TABLE>
45
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
SALES PRICE ADJUSTMENT GRID - TABLE 4
RE: PLAN FOUR
- --------------------------------------------------------------------------------------------
SUBJECT COMPARABLE COMPARABLE COMPARABLE
NO. 1 NO. 2 NO. 3
Development Symphony Encore Northview II Bridalgate Park
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Plan Four Four Three Four
- --------------------------------------------------------------------------------------------
Sale Price xxxx $199,900 $207,990 $218,000
- --------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
ADJUSTMENTS
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Concessions None Yes (5,000) Yes (5,000) Yes (3,500)
- --------------------------------------------------------------------------------------------
Living Area ($37/psf) 2,552 sf 2,440 sf +4,144 2,638 sf (3,182) 2,602 sf (1,850)
- --------------------------------------------------------------------------------------------
Bedrooms ($1,000) Unk. 5 -0- 4 -0- 5 -0-
- --------------------------------------------------------------------------------------------
Bathrooms ($3,000) Unk. 5 -0- 3 -0- 3 -0-
- --------------------------------------------------------------------------------------------
Garage ($5,000) 3-car 3-car -0- 3-car -0- 3-car -0-
- --------------------------------------------------------------------------------------------
Improv. Quality Good Similar -0- Similar -0- Similar -0-
- --------------------------------------------------------------------------------------------
Appeal Good Similar -0- Similar -0- Similar -0-
- --------------------------------------------------------------------------------------------
Other None None -0- None -0- None -0-
- --------------------------------------------------------------------------------------------
Total Adjustment (856) (8,182) (5,350)
- --------------------------------------------------------------------------------------------
Indicated Value $199,044 $199,808 $212,650
- --------------------------------------------------------------------------------------------
</TABLE>
46
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------
SALES PRICE ADJUSTMENT GRID - TABLE 5
RE: PLAN FIVE
- -------------------------------------------------------------------------
SUBJECT COMPARABLE COMPARABLE
NO. 2 NO. 3
Development Symphony Northview II Bridalgate Park
- -------------------------------------------------------------------------
<S> <C> <C> <C>
Plan Five Four Four
- -------------------------------------------------------------------------
Sale Price xxxx $206,900 $218,000
- -------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
ADJUSTMENTS
- -------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Concessions None Yes (5,000) Yes (3,500)
- -------------------------------------------------------------------------
Living Area ($37/psf) 2,847 sf 2,740 sf +3,959 2,602 sf +9,065
- -------------------------------------------------------------------------
Bedrooms ($1,000) Unk. 5 -0- 5 -0-
- -------------------------------------------------------------------------
Bathrooms ($3,000) Unk. 3 -0- 3 -0-
- -------------------------------------------------------------------------
Garage ($5,000) 3-car 3-car -0- 3-car -0-
- -------------------------------------------------------------------------
Improv. Quality Good Similar -0- Similar -0-
- -------------------------------------------------------------------------
Appeal Good Similar -0- Similar -0-
- -------------------------------------------------------------------------
Other None None -0- None -0-
- -------------------------------------------------------------------------
Total Adjustment (1,041) +5,565
- -------------------------------------------------------------------------
Indicated Value $205,859 $223,565
- -------------------------------------------------------------------------
</TABLE>
47
<PAGE>
SYMPHONY
OCEANSIDE, CALIFORNIA
RESIDUAL LAND ANALYSIS (CONT.):
Concessions typically account for the difference between the asking and
actual base sale price. For most developments, however, homes are
selling at or near their asking price, with no concessions being
granted. Living area adjustments are based on a typical unit cost basis
of $37.00 per sf, which is the same as the cost as reported by Brehm.
Adjustments for such items as number of bedrooms, bathrooms and garages
are estimates based on paired sales and discussions with sales
representatives.
Table No. 1 reveals value indications of $170,349 to $178,646, with an
average of $175,611, for the subject's Plan One.
Value indications of $184,197 to $195,494, with an average of $191,125,
were revealed in Table 2 for the subject's Plan Two.
Table 3 illustrates the adjustments for the subject's Plan Three. Value
indications range from $178,516 to $203,202, with an average of
$189,946. Because its value indication is less than that for Plan Two,
least consideration has been given to Northview II, at $178,516.
Table 4 illustrates value indications of $199,044 to $212,650, with an
average of $203,834, for the subject's Plan Four.
Finally, value indications of $205,859 and $223,565, excluding an
indication from Encore, with an average of $214,712, is shown in Table 5
for Plan Five.
Because of its proximity to the subject and that its developer is Brehm
Communities, most consideration has been given to Comparable No. 1,
Encore. However, its quality and amenities is anticipated to be similar
to Northview II and Bridalgate Park.
NET RETAIL PRICE CONCLUSION - PER PLAN
Therefore, we conclude the following base prices for the proposed plans
for the subject property.
48
BOZNANSKI & COMPANY
<PAGE>
SYMPHONY
OCEANSIDE, CALIFORNIA
RESIDUAL LAND ANALYSIS (CONT.):
PLAN BASE PRICE
-------------------
1 $175,000
2 $195,000
3 $205,000
4 $210,000
5 $220,000
LOT PREMIUMS
Additional costs in the purchase of a new home include lot premiums.
Developer's typically charge premiums based on a site's size, view and
location.
The previous developer, The VED Corporation, had estimated lot premiums
in the range of negative $4,000 to a positive of $48,000, with an
average $13,018 ($1,445,000 DIVIDED BY 111). (A chart which summarizes
projected lot premiums as provided us by the previous owner/developer is
presented toward the rear of this section.) This average is compared to
the three comparables as follows:
NO. PREMIUM RANGE
--- -------------
1 Up to $10,000
2 Up to $21,000
3 None
Considering that the subject is superior to all three comparables, we
conclude that the previous developer's view premium estimate of $13,018
per lot is still supported in the market.
OPTIONS
The final cost element that goes into the purchase of a home includes
interior upgrades, floor plan options and exterior options (i.e. decks).
Upgrades are not considered in our analysis, however, because they are
not considered in the original construction budget. Also, the
improvements would not be complete if the lender were to take possession
of the project.
49
BOZNANSKI & COMPANY
<PAGE>
SYMPHONY
OCEANSIDE, CALIFORNIA
RESIDUAL LAND ANALYSIS (CONT.):
CONCLUSION - AGGREGATE RETAIL VALUE
Utilizing the above conclusions, the Aggregate Retail Value or Gross
Receipts of the 111-lot subject development, as previously proposed to
be constructed, is as follows:
LIVING TOTAL BASE TOTAL
PLAN AREA (SF) MIX PRICE PER PLAN
-------------------------------------------------
1 1,821 22 $175,000 $ 3,850,000
2 2,265 22 $195,000 $ 4,290,000
3 2,371 28 $205,000 $ 5,740,000
4 2,552 11 $210,000 $ 2,310,000
5 2,847 28 $220,000 $ 6,160,000
-------------------------------------------------
Total $22,350,000
Add Lot Premiums $ 1,445,000
-----------
Overall Value $23,795,000
Per Unit Average $ 214,369
Subtracted from the total revenue or aggregate retail value are such
development costs as: direct construction, indirect construction,
general and administrative, loan fees, interest, marketing and models,
closing costs and customer service. Developer's profit, estimated at
12.5%, is also subtracted to give an "as is" land value indication from
this residual analysis.
The costs utilized are as partly obtained from the Job Cost Reports as
prepared by Brehm. Costs provided us include direct and indirect site
development, direct and indirect construction (i.e. production home
costs), and landscaping/fencing. Not included are such costs as
financing, overhead and sales costs. The costs not provided by Brehm
are estimated from the previous developer's proforma, dated April 1993,
and from interviews with other developers.
The following residual analysis considers virtually all revenue and
expenses, except for the construction, maintenance and recovery of the
models. Likewise, revenue from model recovery was not considered. Thus,
we estimated the Marketing/Model expense item at about $3,000 per unit
for such costs as advertising and brochures.
50
BOZNANSKI & COMPANY
<PAGE>
SYMPHONY
OCEANSIDE, CALIFORNIA
RESIDUAL LAND VALUE (CONT.)
The finished lot value is estimated as follows:
Per Unit Overall %
--------- ------------ ------
Revenue
Base Retail Value $ 201,351 $ 22,350,000 93.93%
Lot Premiums $ 13,018 $ 1,445,000 6.07%
--------- ------------ ------
Total Revenue $ 214,369 $ 23,795,000 100.00%
Site Development Costs
Site Indirects $ 16,222 $ 1,800,676 7.57%
Site Directs $ 17,229 $ 1,912,469 8.04%
Building Development Costs
Landscaping/Fencing $ 4,897 $ 543,604 2.28%
Construction Indirects $ 9,204 $ 1,021,613 4.29%
Construction Directs $ 87,949 $ 9,762,333 41.03%
G&A/Overhead $ 6,431 $ 713,850 3.00%
Base Loan Fees $ 2,144 $ 237,950 1.00%
Interest Reserve $ 8,575 $ 951,800 4.00%
Marketing $ 3,216 $ 356,925 1.50%
Closing Costs $ 4,287 $ 475,900 2.00%
Customer Service $ 536 $ 59,488 0.25%
Property Tax $ 1,072 $ 118,975 0.50%
--------- ------------ ------
Total Development Costs (161,762) (17,955,583) 75.46%
Developer Profit (12.5%) (26,796) (2,974,375) 12.50%
--------- ------------ ------
Residual Land Value Indication $ 25,811 $ 2,865,042 12.04%
Therefore, the value indication as determined in Scenario 2 (finished
product to "as is" land as of May 15, 1997) is estimated at $25,811
per lot or $2,865,042.
51
BOZNANSKI & COMPANY
<PAGE>
SYMPHONY
OCEANSIDE, CALIFORNIA
CORRELATION AND CONCLUSION:
The two valuation techniques utilized in this report are summarized
as follows:
Value Approach Value Indication
----------------- ---------------------
Market Approach $2,636,000-$3,164,000
Residual Analysis
Scenario 1 $2,843,000
Scenario 2 $2,865,000
Because of the abundance of data, most weight has been given to the
residual analysis. The average of the two scenarios, at $2,850,000,
is within the range of the Market Approach.
BASED ON THE INVESTIGATION AND ANALYSIS OUTLINED IN THE ACCOMPANYING
REPORT, AND SUBJECT TO THE CERTIFICATION AND CONTINGENT AND LIMITING
CONDITIONS ATTACHED TO THIS REPORT, WE CONCLUDE THAT THE MARKET VALUE
OF THE FEE SIMPLE INTEREST IN THE 111-LOT SUBJECT PROPERTY, LOCATED IN
OCEANSIDE, CALIFORNIA, AS IT CURRENTLY EXISTS, AS OF MAY 15, 1997, IS:
$2,850,000
- -------------------------------------------------------------------------------
TWO MILLION EIGHT HUNDRED FIFTY THOUSAND DOLLARS
- -------------------------------------------------------------------------------
Any significant changes to the site size or configuration, to the
improvements in size or quality, or any other material information
supplied to us in this analysis, as further identified herein, could
affect our valuation conclusion and would require a re-evaluation of
our analysis.
We retain a copy of this report, together with worksheets, documents
and other data upon which our conclusions and opinion of value are
based.
We certify that we have no past, present or contemplated future
interest in this property and that we have acted in accordance with
accepted ethics and standards in our profession.
52
BOZNANSKI & COMPANY
<PAGE>
TABLE 6
MARKET DATA SUMMARY
RESIDENTIAL LAND SALES
OCEANSIDE, CALIFORNIA
---------------------
<TABLE>
<CAPTION>
Sales Price
Sale Lot Site No. -------------------- Finished Lot
No. Location Date Zone Size (sf) Area (acs.) Lots Total Per Lot Cost (est.)
- --- ----------------------- ------- ---- ------------ ----------- ---- ---------- ------- ------------
<C> <S> <C> <C> <C> <C> <C> <C> <C> <C>
1a Demeter Way, Dassia Way 4/2/97 RMA 4,500 (avg.) 2.066 20 $1,144,500 $57,225 $57,225
Oceanside
1b Demeter Way, Dassia Way 9/6/96 RMA 4,500 (avg.) 4.442 43 $2,462,000 $57,226 $57,226
Oceanside
1c Malea Way 8/30/96 RMA 4,500 (avg.) 0.723 7 $ 408,800 $58,400 $58,400
Oceanside
2 Circle "R" Court, south 7/14/95 A7O 5,000 24.679 215 $6,143,000 $28,572 $56,000-
of Circle "R" Drive $57,000
Vista (uninc.)
</TABLE>
Prepared by:
BOZNANSKI & COMPANY
May 15, 1997
Page 1 of 2
BOZNANSKI AND COMPANY
<PAGE>
TABLE 7
MARKET DATA SUMMARY
RESIDENTIAL LAND SALES
OCEANSIDE, CALIFORNIA
---------------------
<TABLE>
<CAPTION>
Sales Price
Sale Lot Site No. -------------------- Finished Lot
No. Location Date Zone Size (sf) Area (acs.) Lots Total Per Lot Cost (est.)
- --- ----------------------- ------- ---- ------------ ----------- ---- ---------- ------- ------------
<C> <S> <C> <C> <C> <C> <C> <C> <C> <C>
3 N/S Via Rancho Road 1/17/95 RMB 4,383 (avg.) 17.52 (Gr.) 159 $3,400,000 $21,384 $46,384
NW/O Mesa Drive 16.00 (Nt.)
Oceanside
4 Palmera Drive, 11/15/94 REB 10,000 (avg.) 22.268 (Nt.) 97 $2,500,000 $25,773 Not reported
Woodhaven Drive,
Paseo Hermosa
Oceanside
5 SEQ Ivey Ranch Road 8/12/94 RMA 5,000 (min.) 32.59 (Gr.) 148 $4,400,000 $29,730 Not reported
and Via Rancho Road
Oceanside
6 Cyrus Way, NW/O 7/19/93 RMA 6,000 (avg.) 3.856 24 $2,100,000 $87,500 $87,500
Leisure Village Way
Oceanside
</TABLE>
Prepared by:
BOZNANSKI AND COMPANY
May 15, 1997
Page 2 of 2
BOZNANSKI AND COMPANY
<PAGE>
TABLE 7
MARKET DATA SUMMARY
RESIDENTIAL TRACT DEVELOPMENTS
OCEANSIDE, CALIFORNIA
---------------------
<TABLE>
<CAPTION>
Monthly Absorption
No. Units/ Base Building Price Sales --------------------
No. Project/Developer Min. Lot Size Plan Price Size (sf) Per sf Opened 1st Qtr 97 Overall
- --- ------------------- ------------- ---- -------- --------- ------ ---------- ---------- -------
<C> <S> <C> <C> <C> <C> <C> <C> <C> <C>
1 Encore 137 1 $166,900 1,768 $94.40 10/1/92 2.12 2.02
Brehm Communities 7,000 sf 2 $174,900 1,944 $89.97 (53+ mos.)
3 $189,900 2,284 $83.14
4 $199,900 2,440 $81.93
-------- ----- ------
Wt. Avg. $182,900 2,109 $87.36
2 Northview II 104 1 $188,990 2,003 $94.35 8/1/95 1.48 5.42
Centex Homes 7,500 sf 2 $190,990 2,573 $74.23 (19 mos.)
3 $207,990 2,638 $78.84
4 $206,990 2,740 $75.54
-------- ----- ------
Wt. Avg. $198,740 2,489 $80.74
3 Bridalgate Park 117 1 $185,000 1,920 $94.27 4/16/94 5.80 1.88
Lennar Homes 10,000 sf 2 $193,000 2,103 $90.11 (34.5 mos.)
3 $205,000 2,325 $87.74
4 $218,000 2,602 $82.05
-------- ----- ------
Wt. Avg. $200,250 2,238 $88.54
</TABLE>
Prepared by:
BOZNANSKI AND COMPANY
May 15, 1997
BOZNANSKI AND COMPANY
<PAGE>
LAND
MARKET DATA NO. 1a
LOCATION: Demeter Way and Dassia Way, Oceanside
LEGAL: Lots 27 through 34, 62 and 63, Leisure
Village Oceanside Unit No. 6, Map No.
12405; Lots 23 through 27, 57 through 61,
Leisure Village Oceanside Unit 8B, Map
No.12630
SELLER: Acacia Credit Fund 5-A LLC
BUYER: M. J. Brock & Sons, Inc.
ZONE: RMA; City of Oceanside
PRESENT USE: Unknown
LAND: Shape: Irregular
Area: 2.066 acres; 90,000 sf (nt.)
Topo: Flat and level
ASSESSOR'S DATA: A. P. Nos: 169-501-23 through 31
169-540-08, 09, 27
through 34
RECORDED: 4/2/97; Document No. 151091
SALES PRICE: $1,144,500; $57,225 per lot
TERMS: All cash sale
CONFIRMED: Sean Dyer - Buyer; COMPS, Inc.; Public
Records
IMPROVEMENTS: The 20 lots that make up this transaction
sold as finished land.
BOZNANSKI AND COMPANY
<PAGE>
LAND
MARKET DATA NO. 1a (CONT.)
REMARKS: This property is located within a
gate-guarded community known as
Oceanhills at Leisure Village. Access
through the gates to view the property
was not permitted.
This transaction is part of a larger
takedown; the buyer has already acquired
50 lots in two previous transactions (see
Sales 1b and 1c). The price was
established in August 1996.
The average lots size is 4,500 sf.
BOZNANSKI AND COMPANY
<PAGE>
LAND
MARKET DATA NO. 1b
LOCATION: Demeter Way and Dassia Way, Oceanside
LEGAL: Lots 11 through 26, 65 through 69,
Leisure Village Oceanside Unit No. 6;
Lots 1 through 16, 68 through 73, Leisure
Village Oceanside Unit 8B, Map No. 12630.
SELLER: Acacia Credit Fund 5-A LLC
BUYER: M. J. Brock & Sons, Inc.
ZONE: RMA; City of Oceanside
PRESENT USE: Unknown
LAND: Shape: Irregular
Area: 4.442 acres; 193,500 sf (Nt.)
Topo: Flat and level
ASSESSOR'S DATA: A. P. Nos: 169-501-1 through 16
169-501-38 through 43
169-540-11 through 26
169-541-11 through 15
RECORDED: 9/6/96; Document No. 453089
SALES PRICE: $2,462,000; $57,226 per lot
TERMS: All cash sale
CONFIRMED: Sean Dyer - Buyer; COMPS, Inc.; Public
Records
IMPROVEMENTS: The 43 lots that make up this transaction
sold as finished land.
BOZNANSKI AND COMPANY
<PAGE>
LAND
MARKET DATA NO. 1b (CONT.)
REMARKS: This property is located within a
gate-guarded community known as
Oceanhills at Leisure Village. Access
through the gates to view the property
was not permitted.
This transaction is part of a larger
takedown; the buyer has already acquired
50 lots in two previous transactions
(see Sales 1a and 1c). The price was
established in August 1996.
The average lots size is 4,500 sf.
BOZNANSKI AND COMPANY
<PAGE>
LAND
MARKET DATA NO. 1c
LOCATION: Malea Way, Oceanside
LEGAL: Lots 61 through 64, 66, 67 and 68,
Leisure Village Oceanside Unit No. 8A;
Map 12494
SELLER: Acacia Credit Fund 5-A LLC
BUYER: M. J. Brock & Sons, Inc.
ZONE: RMA; City of Oceanside
PRESENT USE: Unknown
LAND: Shape: Irregular
Area: 0.723 acres; 31,500 sf (Nt.)
Topo: Flat and level
ASSESSOR'S DATA: A. P. Nos: 169-550-61 through 64
169-550-66, 67, 68
RECORDED: 8/30/96; Document No. 443312
SALES PRICE: $408,800; $58,400 per lot
TERMS: All cash sale
CONFIRMED: Sean Dyer - Buyer; COMPS, Inc.; Public
Records
IMPROVEMENTS: The 7 lots that make up this transaction
sold as finished land.
BOZNANSKI AND COMPANY
<PAGE>
LAND
MARKET DATA NO. 1c (CONT.)
REMARKS: This property is located within a
gate-guarded community known as
Oceanhills at Leisure Village. Access
through the gates to view the property
was not permitted.
This transaction is part of a larger
takedown; the buyer has already acquired
50 lots in two previous transactions (see
Sales 1a and 1b). The price was
established in August 1996.
The average lots size is 4,500 sf.
BOZNANSKI AND COMPANY
<PAGE>
LAND
MARKET DATA NO.2
LOCATION: Circle "R" Court, south of Circle "R"
Drive, Vista (unincorporated)
LEGAL: Lots 1 - 82, Map 13245, County of San
Diego, Tract 4754; Lots 164 - 208, Map
13250, County of San Diego, Tract 4754;
Lots 98 - 107, Map 13246, County of San
Diego, Tract 4754; Lots 109 - 156, Map
13249, County of San Diego, Tract 4754
SELLER: Circle Creek Partners
BUYER: Shannon/Dosson LLC
ZONE: A70; San Diego County
PRESENT USE: Under construction
LAND: Shape: Irregular
Area: 83.090 acres; 3,619,400 sf (Gr.)
24.679 acres; 1,075,000 sf (Nt.)
Topo: Flat and level
ASSESSOR'S DATA: A. P. Nos.: 172-290-01 through 23
172-290-33 through 42
172-290-44 through 69
172-291-01 through 59
172-292-01 through 48
172-293-01 through 19
RECORDED: 7/14/95; Document Nos. 300868, 300867
SALES PRICE: $6,143,000; $28,572 per lot
TERMS: All cash sale
CONFIRMED: Mark Atherton - Buyer; COMPS, Inc.;
Public Records
BOZNANSKI AND COMPANY
<PAGE>
LAND
MARKET DATA NO.2 (CONT.)
IMPROVEMENTS: This site sold as vacant land with nearby
utilities. All offsites are currently in
place as well as model and production
homes.
REMARKS: The property sold with an approved
tentative map allowing the development of
215 residences on lots having minimum
areas of 4,500 sf and an average area of
5,000 sf.
This project lies adjacent to an existing
golf course known as the Castle Creek
Country Club. About 20% of the lots have
golf course frontage.
Homes range in size from 1,350 sf to
2,300 sf. Because the sales office was
closed, we were unable to verify the
sales prices.
The finished lot cost was reported at
$56,000 to $57,000 per lot, including
school fees, but not including a $4,000
per lot assessment for sewer.
BOZNANSKI AND COMPANY
<PAGE>
LAND
MARKET DATA NO.3
LOCATION: North side of Via Rancho Road, northwest
of Mesa Drive, Oceanside
LEGAL: Lot 5, Ivey Ranch Unit 3, Map 11717 (old)
Lots 1 to 27, Map 13277, Ivey Ranch, Lots
5 (condo) (new)
SELLER: Las Brisas-Parkside Development Corp.
BUYER: Barratt American, Inc.
ZONE: RMB; City of Oceanside
PRESENT USE: Single family residential
LAND: Shape: Irregular
Area: 17.520 acres; 763,171 sf (Gross)
16,000 acres; 696,960 sf (Net)
Topo: Flat and level
ASSESSOR'S DATA: A. P. No.: 160-570-05 (old)
160-640-01 through 27
(excluding streets) (new)
RECORDED: 1/17/95; Document No. 018684
SALES PRICE: $3,400,000; $21,384 per lot
TERMS: $500,000 (15%) down; $2,900,000 (85%)
1st trust deed - Seller - short term
financing
CONFIRMED: Michael Pattinsin - Barrat Americann -
(619) 431-0800; COMPS, Inc.; Public
Records
IMPROVEMENTS: This site sold as raw, vacant land with
perimeter offsites and utilities.
BOZNANSKI AND COMPANY
<PAGE>
LAND
MARKET DATA NO.3 (CONT.)
This site is currently being improved
with a 159-unit high-density detached
residential tract known as Park Lane. It
is summarized as follows:
---------------------------------------
Base
Plan Bed/Bath Size (sf) Price
---------------------------------------
1 3/2 1,481 Sold Out
2 3/2 1,579 $149,990
3 4/3 1,886 $163,990
4 4/3 1,921 $167,990
---------------------------------------
REMARKS: The owner's representative reported a
finished lot cost of $46,384 per lot,
with school fees waived. (The original
developer built two schools in the Ivey
Ranch Development.) Thus, land
development costs total about $25,000 per
lot.
The buyer remapped the property during
escrow.
Based on the reported net site area, the
average lot size is 4,383 sf. However,
the owner's representative reported a
minimum lot size of 2,500 sf.
This site last sold in September of 1989,
as recorded on Document No. 499848, for a
full price of $5,350,000. Thus, the
January 1995 sale reflects a decrease of
$1,950,000 or 36.5%.
MARKET EXPOSURE TIME: Unknown
CONDITIONS OF SALE: Apparently normal.
BOZNANSKI AND COMPANY
<PAGE>
LAND
MARKET DATA NO.4
LOCATION: Palmera Drive, Woodhaven Drive and Paseo
Hermosa Drive, Oceanside
LEGAL: Lots 1 through 97, Palmera Map 12823
SELLER: D.R. Horton San Diego No. 12, Inc.
BUYER: Centex Real Estate Corporation
ZONE: REB; City of Oceanside
PRESENT USE: Single family residential
LAND: Shape: Irregular
Area: 22.268 acres 970,000 sf (Net)
Topo: Rolling
ASSESSOR'S DATA: A. P. No.: 158-620-01 through 21;
158-621-01 through 37;
158-622-01 through 39
RECORDED: 11/15/94; Document No. 660397
SALES PRICE: $2,500,000; $25,773 per lot
TERMS: All cash sale
CONFIRMED: COMPS, Inc.; Public Records
IMPROVEMENTS: This site sold as raw, vacant land with
perimeter offsites and utilities.
The 97 lots that make up this tract have
since been improved with a development
known as Northview II. The most current
base prices, as of March 1997, are
summarized as follows:
BOZNANSKI AND COMPANY
<PAGE>
LAND
MARKET DATA NO. 4 (CONT.)
---------------------------------------
Base
Plan Bed/Bath Size (sf) Price
---------------------------------------
1 3/2 2,003 $188,990
2 4/2.5 2,573 $190,990
3 4/3 2,638 $207,990
4 4/3 2,740 $206,990
---------------------------------------
REMARKS: Prior to its sale, the property had a
recorded tract map allowing the
development of 97 detached residences on
lots having an average area of 10,000 sf.
[PHOTO]
BOZNANSKI AND COMPANY
<PAGE>
LAND
MARKET DATA NO. 5
LOCATION: Southeast quadrant of Ivey Ranch Road and Via Rancho Road,
Oceanside
LEGAL: Lots 10 and 11, Ivey Ranch Unit #3, Map 11718 (old)
Lots 1 to 148, Map 13205 - Ivey Glen (new)
SELLER: Richcop Associates Limited Partnership
BUYER: Centex Real Estate Corp.
ZONE: RMA; City of Oceanside
PRESENT USE: Single family residential
LAND: Shape: Irregular
Area: 32.590 acres; 1,419,620 sf (Gr.)
Topo: Flat and level
ASSESSOR'S DATA: A. P. Nos.: 160-570-11, 21 (old)
160-650-01 through 92 (new)
160-615-01 through 56 (new)
RECORDED: 8/12/94; Document No. 491098
SALES PRICE: $4,400,000; $29,730 per lot
TERMS: All cash sale
CONFIRMED: COMPS, Inc.; Public Records
IMPROVEMENTS: This site sold as rough graded land with perimeter utilties
and offsites.
This site is currently being improved with a residential
tract known as Ivey Glen. It is summarized as follows:
BOZNANSKI AND COMPANY
<PAGE>
LAND
MARKET DATA NO. 5 (CONT.):
-----------------------------------------
Base
Plan Bed/Bath Size (sf) Price
-----------------------------------------
1 3/2 1,620 $157,990
2 3/2.5 1,947 $160,990
3 4/2.5 2,173 $174,990
4 4/3 2,415 $187,990
-----------------------------------------
REMARKS: The property sold with an approved tentative tract map that
allowed the development of 148 lots. The minimum lot size
was reported at 5,000 sf, and the average was reported at
5,500 sf.
[PHOTO]
BOZNANSKI AND COMPANY
<PAGE>
LAND
MARKET DATA NO. 6
ADDRESS: 4601-4694 Cyrus Way, Oceanside
LOCATION: Cyrus Way, northwesterly of Leisure Village Way, Oceanside
LEGAL: Lots 1 through 24, and Lot 30, Leisure Village Oceanside
Unit No. 9, Map No. 12136
SELLER: Cap I Foreclosure Corp.
BUYER: LVOH 24 L.P. Ltd.
ZONE: RMA; City of Oceanside
PRESENT USE: Single family residential
LAND: Shape: Irregular
Area: 3.856 acres; 167,958 sf
Topo: Flat and level
ASSESSOR'S DATA: A. P. Nos.: 169-520-01 through 24, 30
RECORDED: 7/19/94; Document No. 447916
SALES PRICE: $2,100,000; $87,500 per lot
TERMS: $200,000 (10%) down; $1,300,000 (90%) 1st Trust Deed -
Scripps Bank - terms unknown
CONFIRMED: COMPS, Inc.; Public Records
IMPROVEMENTS: These 24 lots sold as finished land.
REMARKS: The lots have an average area of 6,000 sf, most with views.
BOZNANSKI AND COMPANY
<PAGE>
COMPARABLE NO. 1
NAME/DEVELOPER: Encore/Brehm Communities
TRACT NO: 12798
LOCATION: South of Mesa Drive, west of Woodhaven Drive, Oceanside,
California
DESCRIPTION: A 137-unit detached single family residential development
LOT SIZE:
STATUS: 114 units within seven phases have been released as of
October 1, 1992. 99 units are compete and 15 (Phase 7) under
construction. They are expected to be complete in mid-June
1997.
H.O.A. DUES: $7.32/month
TAX ASSESSMENT: Overall tax rate estimated at 1.25%. Also, there is a
$166/year landscape assessment.
IMPROVEMENT DESCRIPTION:
CONSTRUCTION: Average quality frame and stucco construction, Contemporary
style, one- and two-story design, concrete tile roof.
FEATURES: Standard items include: side and rear yard fencing, front
yard landscaping and three-car garages.
Optional items include: air conditioning, garage door
openers, mirrored wardrobes.
BOZNANSKI AND COMPANY
<PAGE>
COMPARABLE NO. 1 (CONT.):
FLOOR PLANS:
-----------------------------------------
Floors/ Bed/
Plan Mix Parking Bath Size (sf)
-----------------------------------------
1 17% 1/3 3/2 1,768
2 21% 1/3 3/3 1,944
3 29% 2/3 4/2.5 2,284
4 33% 2/3 5/3 2,440
-----------------------------------------
SALES PRICE INFORMATION:
BASE SALE PRICES:
-----------------------------------------
Plan Size (sf) Overall Per sf
-----------------------------------------
1 1,768 $166,900 $94.40
2 1,944 $174,900 $89.97
3 2,284 $189,900 $83.14
4 2,440 $199,900 $81.93
-----------------------------------------
PREMIUMS: Up to $10,000 for lot size and view
FINANCING: Conventional
CONCESSIONS: $5,000 to $7,500
ABSORPTION:
DATE SALES
STARTED: October 1, 1992
TIME IN MARKET: 55.5+/- months
UNITS RELEASED:
Total: 114
Completed: 99
Under Construction: 15
Standing Inventory: -0-
BOZNANSKI AND COMPANY
<PAGE>
COMPARABLE NO. 1 (CONT.):
SALES:
Overall Sales: 112 (2.02/month)
First Quarter 1997: 7 (2.12/month)
Closed Escrows: 99 (1.78/month)
Open Escrows: 13
Available: 2
REMARKS: Sales were interputed for several months due to the project
being taken over from the VED Corporation by Brehm
Communities. The product type remained essentially the same.
BOZNANSKI AND COMPANY
<PAGE>
COMPARABLE NO. 2
NAME/DEVELOPER: Northview II/Centex Homes
TRACT NO: 12823
LOCATION: Palmera, Woodhaven and Hermosa drives, Oceanside, California
DESCRIPTION: A 104-unit detached single family residential development
with double-loaded streets and view lots
LOT SIZE: 7,500 sf (minimum)
STATUS: 104 units within seven phases were released as of August 1,
1995. All were complete as of March 6, 1997
H.O.A. DUES: None
TAX ASSESSMENT: Overall tax rate estimated at 1.25%. There is a $163/year
assessment.
IMPROVEMENT DESCRIPTION:
CONSTRUCTION: Average quality frame and stucco construction, Contemporary
style, one- and two-story design, concrete tile roof.
FEATURES: Standard items include: rear yard fencing, front yard
landscaping, walk-in closets (master bed), and mirrored doors
(master bedroom).
Optional items include: air conditioning, security systems,
microwave, and garage door opener.
BOZNANSKI AND COMPANY
<PAGE>
COMPARABLE NO. 2 (CONT.):
FLOOR PLANS:
-----------------------------------------
Floors/ Bed/
Plan Mix Parking Bath Size (sf)
-----------------------------------------
1 21% 1/3 3/2/D 2,003
2 18% 2/3 4/2.5/L 2,573
3 28% 2/3 4/3 2,638
4 33% 2/3 5/3 2,740
-----------------------------------------
SALES PRICE INFORMATION:
BASE SALE PRICES:
-----------------------------------------
Plan Size (sf) Overall Per sf
-----------------------------------------
1 2,003 $188,990 $94.35
2 2,573 $190,990 $74.23
3 2,638 $207,990 $78.84
4 2,740 $206,990 $75.54
-----------------------------------------
PREMIUMS: Up to $21,000
FINANCING: Conventional
CONCESSIONS: $5,000
ABSORPTION:
DATE SALES
STARTED: August 1, 1995
TIME IN MARKET: 19+/- months
UNITS RELEASED:
Total: 104
Completed: 104
Under Construction: -0-
Standing Inventory: 1
BOZNANSKI AND COMPANY
<PAGE>
COMPARABLE NO. 2 (CONT.)
SALES:
Overall Sales: 103 (5.42/month)
First Quarter 1997: 5 (1.48/month)
Closed Escrows: 74 (3.89/month)
Open Escrows: 29
Available: 1
REMARKS: This development represents an extension of and slight
modification to a development that started in May 1992.
See Land Sale No. 4 for information on the site's sale.
Access and location is inferior to the subject.
BOZNANSKI AND COMPANY
<PAGE>
COMPARABLE NO. 3
NAME/DEVELOPER: Bridalgate Park/Lennar Homes
TRACT NO: 12841
LOCATION: Easterly quadrant of Mission Meadows and Spur Avenue,
Oceanside, California
DESCRIPTION: A 117-unit detached single family residential development
with no view lots
LOT SIZE: 10,000 sf (minimum)
STATUS: 65 units within six phases were released as of April 16,
1994. 36 units were complete as of March 1997.
H.O.A. DUES: None
TAX ASSESSMENT: Unknown
IMPROVEMENT DESCRIPTION:
CONSTRUCTION: Average quality frame and stucco construction, Contemporary
style, one- and two-story design, concrete tile roof.
FEATURES: Standard items include: rear yard fencing, front yard
landscaping, microwave and walk-in closet (master bedroom).
Optional items include: air conditioning, security systems,
and mirrored wardrobes.
BOZNANSKI AND COMPANY
<PAGE>
COMPARABLE NO. 3 (CONT.):
FLOOR PLANS:
-----------------------------------------
Floors/ Bed/
Plan Mix Parking Bath Size (sf)
-----------------------------------------
1 32% 1/3 4/2 1,920
2 15% 2/3 4/3 2,103
3 23% 2/3 5/3 2,325
4 29% 2/3 5/3/B 2,602
-----------------------------------------
SALES PRICE INFORMATION:
BASE SALE PRICES:
-----------------------------------------
Plan Size (sf) Overall Per sf
-----------------------------------------
1 1,920 $185,000 $96.35
2 2,103 $193,000 $91.77
3 2,325 $205,000 $88.17
4 2,602 $218,000 $83.78
-----------------------------------------
PREMIUMS: $2,000 to $12,000 - Lot size
FINANCING: Conventional
CONCESSIONS: $2,000 to $5,000
ABSORPTION:
DATE SALES
STARTED: April 16, 1994
TIME IN MARKET: 34.5 months
UNITS RELEASED:
Total: 65
Completed: 54
Under Construction: 11
Standing Inventory: -0-
BOZNANSKI AND COMPANY
<PAGE>
COMPARABLE NO. 3 (CONT.)
SALES:
Overall Sales: 65 (1.88/month)
First Quarter 1997: 19 (5.80/month)
Closed Escrows: 33 (0.96/month)
Open Escrows: 32
Available: -0-
REMARKS: Access and general location is inferior.
BOZNANSKI AND COMPANY
<PAGE>
CARL W. BOZNANSKI
LICENSE
State of California: Certified - General Real Estate Appraiser No.
AG010837
EDUCATION
University of Southern California - M.B.A. Degree, Major in Management,
Minor in Finance
University of Notre Dame - B.S.A.E. Degree, Major in Aeronautical
Engineering
University of Southern California, University of California and Orange
Coast College - First Year Law School - Real Estate Courses in
Finance, Law and Practice; Contracts Courses
Appraisal Institute, Society of Real Estate Appraisers, Orange
Coast College, Real Estate Trainers, California State University -
Fullerton, Marshall Valuation Service, Caltrans - Over 400 hours in
courses and seminars covering topics such as: Standards of
Professional Practice, Real Estate, Appraisal Principles, Basic
Valuation Procedure, Real Estate Appraisal, Capitalization &
Cash Flow, Basic Valuation/Capitalization, Regression Analyses,
Income Capitalization, Hotel/Motel Valuation,
Commercial/Residential Cost Analyses, FIRREA - Overview &
Application, Partial Taking, Understanding Limited Appraisals,
Appraising Land
EXPERIENCE
BOZNANSKI AND COMPANY, INC. 1984 - PRESENT Mr. Boznanski is the founder
and Principal Appraiser of this real property valuation and
consultation firm. Property evaluation has encompassed all types of
real estate for a myriad of purposes. The firm also performs
business appraisals.
Valuation appraisals have been performed for acquisition purposes,
both for governmental and private client; for assessment districts;
for domestic and partnership property settlements; for litigation;
for tax matters, for estate purposes; and in support of various
financial dealings. These appraisals call for the
determination of either present or past fair market value.
They include whole and fractional interests as well as
discounted cash flow analysis. Long-term leased fee and
leasehold estate evaluations have also been determined. Easements
and surface right values have been established. Numerous ground
leases have been valued. The appraisals cover all types of
property, including vacant land as well as improved property.
Specific types of property appraised have included farm land,
single family and multiply family residential, including
condominiums, as well as commercial, office, industrial and special
purpose parcels. Among the special purpose properties appraised
have been a major sports stadium,
<PAGE>
EXPERIENCE (Cont.)
a major amusement park, sub-division land development studies,
hospitals, medical centers, nursing homes, retirement homes,
hotels, shopping centers, service stations, car washes,
garden nurseries, building centers, auto dealerships,
bowling alleys, municipal buildings, mobile home parks,
dairy processing plants, wineries, pre-schools, school sites,
residential tracts, etc. Several very large scale municipal
appraisal projects have been performed encompassing up to more than
100 parcels. These latter right-of-way appraisals have been for total
acquisition as well as for partial taking.
Other types of appraisals performed include reuse appraisals of
property to be used for industrial, office, residential, commercial
and auto center purposes. This type of appraisal considers the
evaluation of properties with certain developmental restrictions.
Review of appraisals have been conducted for numerous governmental
agencies, financial institutions and private parties in order to
determine the adequacy of appraisals prepared by others.
Mr. Boznanski has performed numerous condemnation appraisals (eminent
domain) for both governmental and private clients and has appeared
many times in various California Superior Courts as an expert witness
in real property matters. In addition, he has testified on numerous
occasions in United States Federal Bankruptcy Court.
He has also been responsible for land use feasibility, absorption and
economic studies conducted on residential, commercial and industrial
sites in order to establish cost-benefit ratios for proposed or
existing developments.
DONAHUE & COMPANY, INC. 1970-1984. A founder of Donahue and Company, Inc.
and one of two principals, Mr. Boznanski, as a Senior Property
Specialist of the firm, was responsible for performing appraisals on
all types of real property, as well as managing the development of
urban study programs. He oversaw the general operations of the firm
in his capacity of Executive Vice President.
TRANS-CAPITAL INVESTMENT ASSOCIATES, 1969 - 1974. General Partner,
providing consultation and operational direction to a private
investment fund, Venture Equity.
SYSTEMATIC MANAGEMENT ASSOCIATES, 1967-1968 AND 1969-1970. Principal
providing management and engineering consultation concerning systems
controls of aerospace projects.
<PAGE>
EXPERIENCE (CONT.)
PRC TECHNICAL APPLICATIONS, INC. 1968-1969. Regional Manager of the firm
performing a wide range of engineering and management services.
These tasks were performed for government agencies as well as for
major contractors. He was responsible for the marketing, management
and technical performance of a staff of 25.
NORTH AMERICAN ROCKWELL. 1958-1967. Engineering Supervisor accountable
for the implementation of engineering systems controls for various
systems of the Apollo spaceship as well as other aerospace projects.
ASSOCIATIONS
National Association of Review Appraisers & Mortgage Underwriters - Senior
Member (C.R.A.)
PUBLIC OFFICE
Planning Commissioner, City of Yorba Linda, 1980-Present
Chairman - 1981/1986/1991/1996
Vice Chairman - 1980/1985/1990/1995
PUBLIC SPEAKING - REAL PROPERTY VALUATION
Association For Governmental Leasing & Finance - Boston 1995
CLIENTS (PARTIAL LIST)
Approved Appraiser - Resolution Trust Corporation
PUBLIC - CITIES AND REDEVELOPMENT AGENCIES
Apple Valley Glendale Poway
Azusa Hesperia Rancho Mirage
Barstow Indio Riverside
Carson Irwindale San Bernardino
Claremont Lakewood San Clemente
Compton La Mirada San Diego
Corona Lynwood Santa Ana
Downey Montebello Tehachapi
Duarte National City Temple City
El Monte Norco Tustin
El Segundo Orange Victorville
Fontana Pasadena West Covina
Fullerton Pleasanton West Sacramento
Pomona
<PAGE>
CLIENTS (PARTIAL LIST) (CONT.)
PUBLIC - OTHER
<TABLE>
<S> <C>
Anaheim Union High School District Orange, County of - GSA/Real
Apple Valley Unified School District Estate Division
Apple Valley Water District Orange County Transit Authority
Caltrans (State Transportation Dept.) Palmdale School District
Center School District Perris Union High School
Chaffey College Placentia-Yorba Linda School District
Escondido School District Pomona Valley Municipal Water District
Federal Deposit Insurance Corporation Rancho Santiago College
Fountain Valley Municipal Water District Rescue School District
Hemet Unified School District Rim of the World School District
Keppell School District Romoland School District
Lancaster Elementary School District Santa Ana Unified School District
Lake Elsinore School District San Jacinto Unified School District
Los Angeles County Sanitation Districts Southern Kern School District
Los Banos School District Tehachapi School District
Manhattan Beach Unified School District U.S. Department of Agriculture,
Metropolitan Water District Forest Service
Moreno Valley Unified School District U.S. Department of Navy
Murrieta Valley Unified School District
</TABLE>
CORPORATE AND FINANCIAL
<TABLE>
<S> <C>
Adams Properties, Inc. Coast Savings and Loan
Adohr Farms Columbia Savings and Loan
American International Bank Dah Sing Bank
ARCO East West Federal Bank
Bank of A. Levy El Dorado Bank
Bank of America Emerson International
Bank of Anaheim Espee Federal Credit Union
Bank of California Ewing Development Co.
Bank of Hollywood Exxon Company, U.S.A.
Bank of Newport Fairway Ford
Bank of Taiwan Fallbrook National Bank
Beacon Bay Enterprises Far West Savings and Loan
Bianchi International Farmers Insurance
R. C. Boatman Fedco
Bourns, Inc. First Continental Bank
Buena Park Lumber Company First State Bank
California Commerce Bank Fluorocarbon, Co.
California State Bank Ford Motor Land Development Co.
Carl Karcher Enterprises Forest Lawn Co.
Century America Corp. Founders Financial
China Trust Bank of California Friedman Homes
Citicorp Real Estate Fullerton Savings and Loan
</TABLE>
<PAGE>
CLIENTS (PARTIAL LIST)(CONT.)
<TABLE>
<S> <C>
General Bank Rancho Bank
Global Cellular, Inc. Rancon Corporation
W. R. Grace Corp. Rhoades Development Co.
Gulf Oil Co. Safeway Stores
Hazel Corp. Santa Barbara Federal Savings
Hopkins Development Co. Shappell Industries
Hunco Development Co. Shell Oil Company
Imperial Bank Siam Commercial Bank
Imperial Federal Savings South Bay Bank
Independence Savings and Loan Standard Oil of California
Laura Scudders, Inc. Sterling Transit Co., Inc.
Leach Corporation Sunwest Bank
Lewis Homes System Auto Parks, Inc.
A. M. Lewis, Inc. Thriftimart, Inc.
Lippo Bank Tierra Financial, Inc.
Long Beach Bank Tokai Bank
Long Beach Equities, Inc. Torry Pines Bank
Lunnen Development Co. Traffic Control Services, Inc.
Malibu Savings and Loan Trans-National Bank
Marineland Union Bank
Marine National Bank United National Bank
Miller & Schroeder Financial University National Bank
Mistui-Manufactures Bank VED Corporation
Mobil Land Development Co. Ventura County Bank
Municipal Services Vineyard Bank
National Building Centers Vista Bank
Omni Bank Washington National Savings Bank
Overland Bank Wells Fargo Bank
Pacific National Bank Western State Bank
PaineWebber Westin Mortgage
Price Company Westminster Nurseries
Price Waterhouse Woodhaven Developers
</TABLE>
ATTORNEYS, PRIVATE FIRMS AND INDIVIDUALS
Lee Abbott, Esq., Westwood
Michael Antin, Esq., Westwood
Best, Best & Kreiger, Esq., Riverside
Edward L. Butterworth, Pasadena
Robert W. Clemmer, Esq., Orange
E. Gene Crain, Esq., Newport Beach
Cooksey, Coleman & Howard, Esq., Tustin
John Culbertson, Fallbrook
Richard Devericks, Camarillo
Steve Henry, Santa Monica
Howrey & Simon, Esq. Los Angeles
Houlihan, Lokey, Howard & Zukin, Century City
<PAGE>
CLIENTS (PARTIAL LIST)(CONT.):
David Kagon, Esq., Century City
Teong H. Kay, Los Angeles
Thomas King, Esq., Huntington Beach
Dr. Robert Larner, Los Angeles
Raymond Larson, Tustin
David Lowry, Rancho California
Lee Marvin, Tucson, Arizona
John D. McGuire, Esq., Santa Ana
Paul Miller, Esq., Santa Fe Springs
John G. Nelson, Esq., Whittier
Frank Oldman, Esq., Newport Beach
Gerald J. Phillips, Esq., Tustin
Robert C. Politiski, Esq., Santa Ana
Shepherd, Mullin, Richter & Hampton, Esq., Los Angeles
Shernoff, Lipsky & Blickenstaff, Esq., Claremont
Michael A. Vanic, Esq., Los Angeles
Julian R. Warner, Esq., Century City
Ronald E. Wiksell, Esq., Santa Ana
Gerold G. Williams, Esq., Newport Beach
Herbert B. Wittenberg, CPA, West Covina
Thomas L. Woodruff, Esq., Orange
QUALIFIED REAL PROPERTY EXPERT WITNESS
Kern County Superior Court
Los Angeles County Superior Court
Orange County Superior Court
Riverside County Superior Court
San Bernardino County Superior Court
San Diego County Superior Court
Ventura County Superior Court
United States District Court
Orange County Assessment Appeals Board
Private Arbitration Hearings
<PAGE>
DANIEL H. HERRON
LICENSE
State of California: Certified - General Real Estate Appraiser No. AG012417
EDUCATION
California State University, Fullerton
Bachelor of Arts - Finance (1986)
Appraisal Institute Courses
Basic Valuation Procedure (1987)
Capitalization Theory and Techniques Parts A & B (1991)
Standards of Professional Practice Parts A & B (1993)
Appraisal Principles (1994)
Appraisal Institute Seminars
Appraising Apartments (1988)
Discounted Cash Flow Analysis in the Home Building Industry (1993)
CANDIDATE
MAI Designation - Appraisal Institute M911619
Southern California Chapter
EXPERIENCE
BOZNANSKI & COMPANY, INC., 1986 - PRESENT. Mr. Herron is a Staff
Appraiser in this real property valuation and consultation firm.
Property evaluation has been performed on all types of real estate
for a myriad of purposes.
<PAGE>
EXPERIENCE (CONT.)
Mr. Herron prepares both detailed narrative and form appraisal
reports for financial institutions, governmental agencies,
attorneys and private clients. These documents are prepared in
support of various acquisition and disposition. These
appraisals call for the determination of either present or
past fair market value. They include whole and fractional
interests as well as discounted cash flow analysis. Long-term
leased fee and leasehold estate evaluations have also been
prepared.
Specific types of property appraised have included all types
of vacant land, as well as single family and multiple
residential dwellings, plus strip commercial and shopping
centers. Additionally, office as well as light industrial and
warehouse improved properties have been evaluated. Special
purpose property values have also been determined. Residential
tract absorption studies have been prepared.
<PAGE>
MARK W. LINNES, MAI
LICENSE
State of California: Certified - General Real Estate Appraiser No.
AG 003328
EDUCATION
Graduated from the University of Southern California in 1955 with a
Bachelor of Science Degree in Finance. Completed courses and passed
examinations for the Appraisal Institute Course I, IA, II, IV and VI.
Passed A.I.R.E.A. Leasehold Examination and completed numerous coursed
in the field of Real Estate including Law, Finance, Title,
Construction Estimating and Appraisals.
The Appraisal Institute conducts a voluntary program of continuing
education for its designated members. MAI's and RM's who meet the
minimum standards of this program are awarded periodic educational
certification. Mr. Linnes has satisfied these requirements.
PROFESSIONAL AFFILIATIONS
Member of the Appraisal Institute
Affiliate member of the Whittier Board of Realtors
EXPERIENCE AND CURRENT STATUS
Ten years as a staff condemnation appraiser with the California
Department of Transportation. Qualifies as an expert witness in the
Counties of Los Angeles and Orange.
Employment with the California Department of Transportation was
terminated in 1973 to accept a position with the Donahue & Company,
Tustin, California, as a senior staff appraiser. Since March, 1975, he
has been an independent fee appraiser and an affiliate of Boznanski
and Company, Inc., since 1984.
Appraisal assignments have included single family and income
residential properties, commercial, industrial and special purpose
properties. Assignments have also included public and private rights-
of-way for freeway and street widening, surface and subsurface
easement right-of-way for electrical and oil line transmission and
city redevelopment project acquisition appraisals.
<PAGE>
CLIENTS - PUBLIC
City of Azusa
City of Commerce
City of Downey
City of Huntington Beach
City of Ontario
City of Orange
City of Santa Ana
County of Los Angeles
County of Orange
Department of the Army - Corps of Engineers
U.S. Postal Service
State Department of Transportation
Metropolitan Water District of Southern California (MWD)
Los Angeles Unified School District
Lowell Joint School District (Whittier)
CLIENTS - PRIVATE
Southern California Edison Company
E. I. Du Pont De Nemours & Company
3-M Company
Crocker National Bank
Security Pacific Bank
Bank of America
Southern California Bank
Santa Barbara Bank and Trust
Continental Bank
Far West Savings
Home Savings
North American Savings
Southern Pacific Transportation Company
TICOR
Stewart Title Company
General Telephone Company
Quaker State Oil Company
Mobile Oil Company
Holiday Inn - Barstow, California
World Vision, Inc.
Far East Broadcasting Company
<PAGE>
CLIENTS - PRIVATE (CONT.)
American Bible Society
Salvation Army
Kaiser Permanente Hospitals
Willdan Associates
McLean Cadillac - Tustin
Mills Ford - Anaheim
Thomson & Nelson, Attorneys - Whittier
John Pitts, Attorney - Fullerton
Stanford M. Ehrmann, Attorney - Beverly Hills
Rankin, Sproat & Pollack, Attorneys - Oakland
<PAGE>
APPRAISAL OF THE FEE SIMPLE ESTATE
IN A 104.98 ACRE PARCEL
DESIGNATED FOR HOTEL DEVELOPMENT
LOCATED AT MORI POINT IN PACIFICA, CALIFORNIA
(SUMMARY REPORT FORMAT)
EFFECTIVE DATE OF THE APPRAISAL:
MAY 1, 1997
PREPARED FOR:
MR. DAVID L. LASKER, PRESIDENT
NATIONAL INVESTORS FINANCIAL, INC.
4675 MACARTHUR COURT, SUITE 1240
NEWPORT BEACH, CALIFORNIA 92661
PREPARED BY:
PKF CONSULTING
SAN FRANCISCO, CA 94104
DATE OF THE REPORT:
MAY 19, 1997
<PAGE>
May 19, 1997 [LETTERHEAD]
Mr. David L. Lasker
President
National Investors Financial, Inc.
4675 Mac Arthur Court, Suite 1240
Newport Beach, CA 92661
RE: APPRAISAL OF THE 104.98 MORI POINT PARCEL, PACIFICA, CALIFORNIA
Dear Mr. Lasker:
In accordance with your request, we have completed an appraisal of the 104.98
acre parcel located at Mori Point in Pacifica, California.
The purpose of this appraisal is to estimate the current "as is" market value of
the fee simple estate in the above-referenced property. Additionally, we have
also developed an estimate of the market value of the property as of August 31,
1992 (the retrospective value). The function of the appraisal is for use in a
proposed sale of the property. The effective date of this appraisal is May 1,
1997.
The scope of our work included an inspection of the subject property, an
analysis of local economic and market conditions, an analysis of the local hotel
and conference center market, and derivation of a value estimate using the
Subdivision (discounted cash flow) Development, Ground Rent Capitalization and
Sales Comparison Approaches to valuation.
To develop our opinion of value, we have performed a complete appraisal process,
as defined by the Uniform Standards of Professional Appraisal Practice.
However, at the request of our client, this appraisal is communicated in a
SUMMARY REPORT format. This report is intended to comply with the reporting
requirements set forth under Standards Rule 2-2(b) of the Uniform Standards of
Professional Appraisal Practice for a Summary Appraisal Report. As such, it
presents only summary discussions of the data, reasoning, and analyses that were
used in the appraisal process to develop the appraiser's opinion of value.
Supporting documentation concerning the data, reasoning, and analyses is
retained in the appraiser's files. The depth of discussion contained in this
report is specific to the needs of the client and for the intended use stated
above.
------------------------------------------
Member, Pannell Kerr Forster International
<PAGE>
Mr. David L. Lasker -2- May 19, 1997
- -------------------------------------------------------------------------------
To the best of our belief, this appraisal report conforms to requirements of the
Code of Professional Ethics and Standards of Professional Appraisal Practice of
the Appraisal Institute and the Uniform Standards of Professional Appraisal
Practice (USPAP) established by the Appraisal Foundation. The report is subject
to the Certification and General Statement of Assumptions and Limiting
Conditions presented in the Addenda. In addition, this appraisal is subject to
the following three special assumptions.
- In 1984 a development plan for the subject was approved through a
public referendum. This plan allowed for the development of 60
residential units, an equestrian complex and a hotel/conference
center. Following a draft Environment Impact Report, the plan
received approval by the City of Pacifica and the California
Coastal Commission for a 275-room hotel/conference center and two
restaurants. The 60 residential units would not be approved
until the hotel was constructed. Following a series of
extensions, the specific plan and tentative map expired in 1992.
Accordingly, to develop the site, a new specific plan will need
to be approved. This would include review and approval of a new
Environmental Impact Report, a specific plan, tentative map,
development and phasing schedule, and if necessary, a variance
from the land coverage controls standards of the Hillside
Preservation District Ordinance. For the purpose of this
appraisal, it was assumed that the subject would receive all
necessary approvals for the development of a 275-room
hotel/conference center.
- Due to the fact that the 60 residential units will not be
approved until the hotel is constructed, the value of this
development right is highly speculative. Accordingly, for the
purpose of this appraisal, we have not reflected any contributory
value from this residential component.
- Portions of the site may include primary or secondary habitat of
the San Francisco garter snake. As a result, an appropriate
biological study must precede any development of this area, and
development will be permitted only if it can be demonstrated that
any impact from the development of the site can be adequately
mitigated. For the purpose of this appraisal, we have assumed
that any mitigation, if required, would be approved by the
Department of Fish and Game.
Based on the work undertaken and our experience as real estate analysts and
appraisers, we are of the opinion that the "as is" market value of the fee
simple estate in the 104.98 acre Mori Point parcel, as of May 1, 1997, is:
--------------------------------------------------
FIVE MILLION FIVE HUNDRED THOUSAND DOLLARS
--------------------------------------------------
$5,500,000
--------------------------------------------------
--------------------------------------------------
<PAGE>
Mr. David L. Lasker -3- May 19, 1997
- -------------------------------------------------------------------------------
Further, we are of the opinion that the retrospective value of the subject
parcel as of August 31, 1992 was:
--------------------------------------------------
FOUR MILLION ONE HUNDRED THOUSAND DOLLARS
--------------------------------------------------
$4,100,000
--------------------------------------------------
--------------------------------------------------
PKF Consulting appreciates this opportunity to be of service to you. Should you
have any questions, or if we can be of further assistance, please do not
hesitate to contact us.
Yours sincerely,
PKF CONSULTING
/s/ Thomas E. Callahan
----------------------------------------------
By Thomas E. Callahan, CPA, CRE, MAI
Executive Vice President
California Certified General Appraiser #AG9618
<PAGE>
TABLE OF CONTENTS
- -------------------------------------------------------------------------------
PAGE
INTRODUCTION 1
A. Identification of the Property 3
B. Purpose and Function of the Appraisal 3
C. Property Rights Appraised 3
D. Important Dates 3
E. Summary of Ownership and Sales History 3
F. Definition of Values 4
1. Market Value 4
2. Retrospective Value Estimate 4
G. Scope and Methodology of the Appraisal 4
AREA AND NEIGHBORHOOD REVIEW 6
A. Introduction 6
B. Area Review 6
1. San Francisco Bay Area 6
2. San Mateo County 9
3. Pacifica 10
C. Neighborhood Analysis 11
D. Conclusion 11
PROPERTY DESCRIPTION 12
A. Site Description 12
1. Location, Access, and Visibility 12
2. Topography, Shape and Size 12
3. Climate 13
4. Zoning and Other Governmental Regulation 13
5. Easements and Covenants 16
6. Utilities 16
7. Assessed Value and Property Taxes 16
8. Soil Conditions and Hazardous Materials 17
9. Flood, Wetlands, and Earthquake Zones 17
B. Proposed Development Plan 18
1. The Conference Center Concept 18
2. Property Design and Configuration 19
3. Development Timeline 20
<PAGE>
TABLE OF CONTENTS
- -------------------------------------------------------------------------------
MARKET ANALYSIS AND HIGHEST AND BEST USE 22
A. Introduction 22
B. The Meetings Market 22
C. The Performance of Executive Conference Centers 24
D. The Competitive Lodging Market 26
1. Primary Competition 28
2. Additions to Supply 29
3. Market Performance of the Competitive Properties 30
4. Rooms Demand for the Competitive Market 30
5. Conclusions on Market Demand 31
E. Highest and Best Use 32
1. Highest and Best Use as if Vacant 33
2. Financially Feasible and Maximally Productive 33
VALUATION 35
A. Introduction 35
B. Subdivision Development (Discounted Cash Flow Analysis) 35
1. Introduction 35
2. Projected Market Position of the Subject Property 36
3. Cash Flow Projections 37
4. Operating Statistics on Comparable Conference Centers 37
5. Stabilized Year Estimate 41
6. Estimated Operating Results for a Stabilized Year 46
7. Estimated Annual Operating Results for the Holding Period 48
8. Discounted Cash Flow Analysis 52
9. Deduction for the Costs to Open the Conference Center 55
10. Development Cost Summary 58
11. Estimated "As Is" Value of the Subject 60
C. Ground Rent Capitalization 60
D. Sales Comparison Approach 62
1. Introduction 62
2. Analysis of Sales 63
E. Reconciliation and Final Estimate of Value 65
F. Retrospective Value of the Site as of August 31, 1992 66
ADDENDA
A. Certification of the Appraisers
B. Statement of Assumptions and Limiting Conditions
C. Qualifications of the Appraisers
D. Legal Description
E. Title Report
<PAGE>
INTRODUCTION
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SUMMARY OF IMPORTANT FACTS AND CONCLUSIONS
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Property Location West of Highway 1 between the Rockaway Beach and
Sharp Park exits at Mori Point, in Pacifica,
San Mateo County, California
- -------------------------------------------------------------------------------
Owner National Investors Financial, Inc.
- -------------------------------------------------------------------------------
Assessor's Parcel Number 018-150-010 and 016-430-010
- -------------------------------------------------------------------------------
Effective Date of Appraisal May 1, 1997 and August 31, 1992
- -------------------------------------------------------------------------------
Property Rights Appraised Fee Simple Estate
- -------------------------------------------------------------------------------
HIGHEST AND BEST USE
- -------------------------------------------------------------------------------
Highest and Best Use Development of a 275-room Hotel/Conference Center
- -------------------------------------------------------------------------------
PROPERTY DESCRIPTION
- -------------------------------------------------------------------------------
Site:
Area 104.98 Acres (4,572,924 square feet)
Zoning Planned Development (P.D.) allowing for a
275-room Hotel/Conference Center
Flood Zone C
Environmental
Development Plan:
Earthquake Fault
Zone No
Shape Roughly rectangular
Topography Steep slopes
Number of Rooms 275
Estimated Gross
Building Area 213,375 square feet or 776 square feet per room
Estimated Date
of Opening January 1, 2001
Stabilized Occupancy 68.0%
Average Room Rate $145.00 (1997 value dollars)
Stabilized Net
Operating Income $5,457,000 (1997 value dollars)
- -------------------------------------------------------------------------------
VALUATION CONCLUSION
- -------------------------------------------------------------------------------
Development Approach $5,300,000
Ground Rent Capitalization $6,000,000
Sales Comparison Approach $5,400,000
- -------------------------------------------------------------------------------
FINAL ESTIMATE OF "AS IS"
MARKET VALUE -
MAY 1, 1997 $5,500,000
- -------------------------------------------------------------------------------
Retrospective Value as of
August 31, 1992 $4,100,000
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
1
<PAGE>
PHOTOGRAPHS OF THE SUBJECT PROPERTY
- -------------------------------------------------------------------------------
[View of the site from the North (the Levee)]
[View of the Northern Slope of the site from Mori Point Road]
- -------------------------------------------------------------------------------
2
<PAGE>
INTRODUCTION
- -------------------------------------------------------------------------------
A. IDENTIFICATION OF THE PROPERTY
The subject of this appraisal is a 104.98 acre parcel located on Mori Point in
the City of Pacifica, County of San Mateo, State of California. A legal
description of the site is presented in the Addenda.
B. PURPOSE AND FUNCTION OF THE APPRAISAL
The purpose of this appraisal is to estimate the "as is" market value of the fee
simple estate in the subject. The function of the appraisal is for use in a
proposed sale of the property.
C. PROPERTY RIGHTS APPRAISED
The property rights appraised represent the fee simple estate in the subject. A
fee simple estate is defined as:
ABSOLUTE OWNERSHIP UNENCUMBERED BY ANY OTHER INTEREST OR ESTATE,
SUBJECT ONLY TO THE LIMITATIONS IMPOSED BY THE GOVERNMENTAL POWERS OF
TAXATION, EMINENT DOMAIN, POLICE POWER, AND ESCHEAT.(1)
D. IMPORTANT DATES
The effective date of the appraisal is May 1, 1997. The property was inspected
by Thomas E. Callahan, CPA, CRE, MAI and Corey Limbach on several occasions
between April 29th and May 15th, 1997. In addition, we are also performing a
retrospective valuation of the subject as of August 31, 1992.
E. SUMMARY OF OWNERSHIP AND SALES HISTORY
National Investors Financial, Inc., on behalf of investors, took title to the
subject through foreclosure on August 31, 1992. The amount of the unpaid debt
secured by the subject at that time was $11,975,058. We are not aware of any
sales transactions involving the subject which have occurred during the past
three years.
- ----------------------------------
(1) Appraisal Institute, The Dictionary of Real Estate Appraisal, 3rd ed
(Chicago: Appraisal Institute, 1993) pg 140
- -------------------------------------------------------------------------------
3
<PAGE>
INTRODUCTION
- -------------------------------------------------------------------------------
F. DEFINITION OF VALUES
1. MARKET VALUE
"Market value" means 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 and knowledgeably, and assuming the price
is not affected by undue stimulus. Implicit 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 own 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.(2)
"MARKET VALUE AS IS" on the appraisal date means an estimate of the market value
of a property in the condition observed upon inspection and as it physically and
legally exists without hypothetical conditions, assumptions, or qualifications
as of the date the appraisal is prepared.(3)
2. RETROSPECTIVE VALUE ESTIMATE
An estimate of the value that is likely to have applied as of a specified
historic date. A retrospective value estimate is most frequently sought in
connection with appraisals for estate tax, condemnation, inheritance tax, and
similar purposes.(4)
G. SCOPE AND METHODOLOGY OF THE APPRAISAL
The scope of the appraisal included an inspection of the subject property and
its immediate area, and analysis of the hotel and conference center market as it
relates to the subject and an estimation of the subject's market value using the
Subdivision Development, Ground Rent Capitalization and Sales Comparison
Approaches to valuation.
- --------------------------
(2) Federal Register, Vol. 55, 165, Friday, August 24, 1990, Rules and
Regulations, 12 CFR Part 34.42(F)
(3) Appraisal Policies and Practices of Insured Institutions and Services
Corporation Federal Home Loan Bank Board, "Final Rule", 12 CFR Parts 563
and 571, December 31, 1987
(4) Appraisal Institute, The Dictionary of Real Estate Appraisal, 3rd ed
(Chicago: Appraisal Institute, 1993) pg 308
- -------------------------------------------------------------------------------
4
<PAGE>
INTRODUCTION
- -------------------------------------------------------------------------------
Sources of information for the appraisal included interviews with management
personnel of competitive and comparable hotel and conference facilities,
representatives of local government and community agencies, industry
professionals, and local realtors and brokers. Our research, methodology,
analyses and conclusions are presented in the following abbreviated or summary
report.
- -------------------------------------------------------------------------------
5
<PAGE>
AREA AND NEIGHBORHOOD REVIEW
- -------------------------------------------------------------------------------
A. INTRODUCTION
In commercial real estate valuation, it is generally recognized that property
values are influenced by factors that can be broadly categorized as economic,
governmental, social and environmental. It is therefore necessary to evaluate
the dynamics of these factors within a market to understand their effect on
property value.
The Mori Point site is located within the city limits of Pacifica in
northwestern San Mateo County, west of Highway 1 and directly on the ocean.
This unique location is approximately 6 miles south of San Francisco's city
limits, 7.5 miles west of the San Francisco Airport, and 18 miles north of Half
Moon Bay. Pacifica is also approximately 30 minutes from the prospering high-
tech area of the Silicon Valley. All of the referenced areas are within the San
Francisco Bay Area.
Presented in the following paragraphs is an overview of the San Francisco Bay
Area, San Mateo County and Pacifica, including the economic and social factors
affecting the subject site. Governmental and environmental issues are primarily
discussed in the Property Description Section. The map on the following page
highlights the subject property's location in relation to the surrounding
region.
B. AREA REVIEW
1. SAN FRANCISCO BAY AREA
The Bay Area has enjoyed an economic boom for the last few years and it is on
the cutting edge of the emerging knowledge-based economy in the U.S. All
indicators are showing that this growth will continue, a good sign for the
hospitality and service industries. This discussion will briefly talk about the
economic growth in the general Bay Area, the financial growth in the Silicon
Valley and downtown San Francisco and the increase in tourism in San Francisco.
The Bay Area's economic base has been expanding rapidly. According to The Bay
Area Economic Forum, the Bay Area not only has an unemployment rate of 5.5
percent which is below the national average of 5.6 percent, it also has a
growing Gross Regional Product (GRP). From 1994-1995 the real growth rate of
GRP was 4 percent, 1.5 percent higher than the national average and
substantially higher than the growth rate in the Bay Area between 1990-1993,
which was effectively zero. In addition, the median household income in the Bay
Area is $42,293, the fourth highest in the country. Finally, the Bay Area has
more fast-growing private companies than any comparative region and attracts 35
percent of the venture capital invested in the U.S., although it represents only
2 percent of the population.
- -------------------------------------------------------------------------------
6
<PAGE>
[MAP]
- -------------------------------------------------------------------------------
7
<PAGE>
AREA AND NEIGHBORHOOD REVIEW
- -------------------------------------------------------------------------------
One area contributing significantly to the Bay Area's economic success is the
growing number of high-tech companies in the Silicon Valley. The high-tech
industry has evolved from its historic base of hardware manufacturing to more
information technology and multimedia applications. Additionally, the
concentration of the high tech industry has spawned ancillary and supporting
businesses such as law firms, financial services and consulting. With world-
class educational systems led by Stanford University, this area continues to
develop a highly educated population base to feed the growing demand from small
companies.
Of the "100 Fastest Growing Companies in America" according to FORBES Magazine,
38 are high-tech firms in the Silicon Valley. Also, out of the top 150
companies in the Bay Area, 50 percent are in the Silicon Valley. Two of the
largest revenue producing companies in the Silicon Valley are Hewlett-Packard in
Palo Alto and Intel in Santa Clara, producing $33 and $16.2 billion in 1996,
respectively. Because the Silicon Valley is within a half hour of the subject,
its economic prosperity would have a positive impact on occupancy for the
proposed conference center. In addition, many corporate headquarters are
located in the Silicon Valley which would draw employees worldwide for education
and training. The Mori Point Conference Center would be a suitable facility to
host these meetings.
In addition, San Francisco is a major financial center for the west coast. For
example, out of the 150 top firms in the Bay Area, twenty are located in
downtown San Francisco with 10 being their headquarters. Of the largest,
BankAmerica produced $19 billion in revenues in 1996 and McKesson Corporation
generated $13.6 billion. A further example of the strength of the financial
market in San Francisco is that the Pacific Stock Exchange is currently
searching for a larger building. The proposed conference center can be expected
to benefit from the outpour of this financial growth.
San Francisco is also a favorite destination for both tourists and
conventioneers; it is well liked for is scenery, restaurants, mild climate,
and varied types of entertainment. The City has approximately 30,000 hotel
rooms (all classifications) and 2,000 restaurants. It is estimated that in
1996, 3.5 million tourists and conventioneers stayed in San Francisco's
hotels and motels. This was a 7 percent gain from 1995 which was the biggest
year-to-year increase in more than a decade. Although 1996 figures are not
available yet, it is estimated that San Francisco had 16.4 million total
visitors in 1995 who spent $4.9 billion. According to the Moscone Convention
Center, annual attendance has increased at a compound annual rate of 10.6
percent over the past four fiscal years (July 1991 through June 1996), from
approximately 1.66 million attendees in fiscal year 1991/1992 to
approximately 2.48 million attendees in fiscal year 1995/1996.
- -------------------------------------------------------------------------------
8
<PAGE>
AREA AND NEIGHBORHOOD REVIEW
- -------------------------------------------------------------------------------
Economists are predicting that this recent prosperity will continue to grow.
According to the Bay Area Economic Forum, the Bay Area's strong business
performance in knowledge-intensive industries leads to high personal income and
quality of life. This in turn allows for the retention of human and financial
capital and, therefore, further investment and growth in the region.
2. SAN MATEO COUNTY
San Mateo County has developed a diverse economic base which is supported by an
extensive transportation system, proximity to both San Francisco to the north
and Silicon Valley to the south, and a highly educated workforce. The county's
economic activity is primarily related to trade, finance, and business services,
which are particularly linked to the biotechnology, instruments, printing, and
electronics industries.
San Mateo County is generally referred to as the Peninsula, or the Northern
Peninsula locally. A coastal mountain range, running north and south, divides
the lightly populated western region of the county from the heavily populated
eastern corridor, stretching from San Francisco to the Silicon Valley.
The western portion of the county is composed primarily of agricultural,
park, and watershed land. San Mateo county encompasses 449 square miles and
includes 20 incorporated communities with a combined population of
approximately 700,000. Between 1992 and 1996, San Mateo County's population
has grown by a compound annual growth rate (CAGR) of approximately 1.0
percent. Total employment in the county was approximately 320,000 in 1995
and projected to increase by roughly 12 percent to 356,000 in the year 2000.
The following chart lists the ten top employers in San Mateo County who would
potentially bring business to the proposed conference center.
-----------------------------------------------------------------------
-----------------------------------------------------------------------
TOP TEN COMPANIES IN SAN MATEO COUNTY
-----------------------------------------------------------------------
COMPANY NAME NUMBER OF EMPLOYEES
-----------------------------------------------------------------------
1. Oracle 4,300
-----------------------------------------------------------------------
2. Raychem Corp. 2,749
-----------------------------------------------------------------------
3. Genentech, Inc. 2,600
-----------------------------------------------------------------------
4. Franklin Templeton Group of Funds 2,410
-----------------------------------------------------------------------
5. Kaiser Permanente 2,280
-----------------------------------------------------------------------
6. SRI International 1,940
-----------------------------------------------------------------------
7. Intuit, Inc. 1,600
-----------------------------------------------------------------------
8. Safeway, Inc. 1,184
-----------------------------------------------------------------------
9. Perkin Elmer/Applied Biosystems 1,000
-----------------------------------------------------------------------
10. SEGA 900
-----------------------------------------------------------------------
-----------------------------------------------------------------------
- -------------------------------------------------------------------------------
9
<PAGE>
AREA AND NEIGHBORHOOD REVIEW
- -------------------------------------------------------------------------------
Preliminary plans exist for a $525 million sports and retail complex to be
located at Candlestick Point, approximately eight miles northeast of the subject
site. Plans include a 75,000 seat football stadium for the San Francisco Forty
Niners and an entertainment-retail mall that would be known as Candlestick
Mills.
In 1996, approximately 39 million passengers traveled through the San Francisco
International Airport (SFO), an increase of 8.3 percent over 1995, and a CAGR of
5.2 percent over 1992. The following table outlines the increase in passenger
counts from 1992.
--------------------------------------------------
--------------------------------------------------
San Francisco International Airport
Passenger Count
1992-1996
--------------------------------------------------
PERCENT INCREASE
YEAR PASSENGER COUNT FROM PREVIOUS YEAR
--------------------------------------------------
--------------------------------------------------
1996 39,251,942 8.2%
--------------------------------------------------
1995 36,262,745 4.7%
--------------------------------------------------
1994 34,647,614 5.7%
--------------------------------------------------
1993 32,770,280 .5%
--------------------------------------------------
1992 32,609,765 2.6%
--------------------------------------------------
--------------------------------------------------
This significant increase is attributable to both a resurgence of business and
leisure travel, combined with six additional airlines providing service into San
Francisco. SFO is currently undergoing a $2.4 billion expansion consisting of a
new international terminal, a $400 million monorail network, and a new rental
car garage. It is forecasted that this expansion will increase passenger
traffic by 20 million travelers annually. The SFO expansion project is expected
to be completed by 2001.
3. PACIFICA
Pacifica, meaning "peaceful," was incorporated in 1957 and covers 8,000 acres in
total. It is located 400 miles north of Los Angeles and 15 miles south of San
Francisco. Pacifica is located on the ocean coast of the San Francisco
Peninsula 7.5 miles west of the San Francisco International Airport.
Pacifica has a population of approximately 39,080 inhabitants. It is a youthful
community (median age 28 years) where 72 percent of the families own their own
homes. Pacifica has a median household income of $47,533 which is nearly $1,000
higher than that of San Mateo County. Approximately 87 percent of Pacificans
work outside of Pacifica. Pacifica's largest employers are Jefferson Union High
School District, Laguna Salada School District, City of Pacifica and Safeway.
Skyline college, one of the three colleges in the San Mateo County Community
College District, is located in Pacifica and offers vocational training in many
fields.
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10
<PAGE>
AREA AND NEIGHBORHOOD REVIEW
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Pacifica's main industries are tourism and recreation. Popular local
activities are shopping and dining on Palmetto Avenue and in Rockaway Beach,
sightseeing at Sanchez Adobe and hiking in San Pedro Park. Pacifica draws
visitors mainly from the Bay Area. Visitors who fly in from out of town to
drive along the Pacific Coast Highway may stop in Pacifica because of its
proximity to the airport. Pacifica as a tourist destination is not as well
known throughout the country as, for example, Carmel or Monterey.
C. NEIGHBORHOOD ANALYSIS
The subject site is located just west of Fairway Park, a modest single family
housing complex, and south of Sharp Park Golf Course, owned and operated by the
City and County of San Francisco. There are very few existing retail stores or
services within walking distance of the site.
One exit south on Highway 1, approximately one-half a mile, is Rockaway Beach
which serves as Pacifica's tourist center. The map on the following page
identifies the site location within the City of Pacifica.
D. CONCLUSION
The economy of the San Francisco Bay Area is diverse and demonstrating strong
growth. This growth has led to strong hotel market performance from San
Francisco down through San Jose. A lodging facility in Pacifica, being located
proximate to San Francisco , SFO, and the Silicon Valley could attract demand
given the appropriate mix of facilities. The proposed project, being a
conference-oriented development, would be well positioned to attract demand from
the many nearby corporations, as well as national companies flying through SFO.
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11
<PAGE>
[MAP]
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12
<PAGE>
PROPERTY DESCRIPTION
- -------------------------------------------------------------------------------
A. SITE DESCRIPTION
1. LOCATION, ACCESS, AND VISIBILITY
The subject site is located west of Highway 1 with direct ocean frontage in the
City of Pacifica, County of San Mateo, State of California. The subject site is
approximately 6 miles south of the San Francisco city limits, 7.5 miles west of
the San Francisco Airport, and 18 miles north of Half Moon Bay. Travel time to
the airport is approximately 15 minutes, and 20 minutes to downtown San
Francisco.
North of the subject site are single-family, modest residential homes in the
Fairway Park complex. Further north of Fairway Park is the Sharp Park Municipal
Golf Course, owned and operated by the City and the County of San Francisco.
On the western side of the golf course is an important habitat for the San
Francisco garter snake. South of the subject site is Rockaway Beach, a
commercial and visitor hub in Pacifica.
Improvements are proposed to create one or more access roads to the subject
site. These roadways would improve commercial access by providing an
alternative access to and from the Coast Highway. Alternatives such as a local
roadway on an overpass of Highway 1 at the Mori Point cut as well as a frontage
road extending from Clarendon Road have been proposed. Each alternative needs
more study.
Access to the site is available off of Highway 1 from Mori Point road, currently
an unimproved private road. This exit is between the Rockaway Beach and Sharp
Park exits. Improving this road and the Highway 1 intersection is one possible
way of providing direct access to the proposed hotel. There is also discussion
of creating a frontage road which would be accessible from Clarendon Road, along
the levy between Sharp Park Golf Course and the ocean.
Access to the site from the surrounding area is considered very good due to its
proximity to both SFO and downtown San Francisco. Direct access from the road
is not ideal considering that this particular section of Highway 1 is a two lane
highway. In this area, the highway is now at capacity during commuter's peak-use
hours.
Because of its prominent elevation, Mori Point has excellent visibility for
travelers driving both north and south on Highway 1.
2. TOPOGRAPHY, SHAPE AND SIZE
The subject's land area is approximately 4,572,924 sq. ft., or 104.98 acres.
The site has a roughly rectangular shape with a smaller rectangular component
extending from the center of the northern section of the parcel. According
to the plat map the site has frontage of approximately 1,360 feet along the
ocean, 1,100 on Highway 1 and 3,100 feet on both the south and north end of
the parcel. The smaller protrusion has
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13
<PAGE>
PROPERTY DESCRIPTION
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dimensions of approximately 650 feet by 450 feet. The topography of the site
consists of highly visible steep slopes and a striking ridgeline. The
highest point of the site is on the northwest tip, just south of where the
proposed hotel/conference center would be located. The view of the ocean is
spectacular from Mori Point.
The plat map detailing the dimensions of the subject site is presented on the
following page.
3. CLIMATE
The weather in Pacifica is generally cool with mild winds and a large amount
of fog. According to "Pacifica's Natural World" on the Internet, the average
temperature ranges from approximately 50 degrees in the winter months
(November -January) to 65 degrees in the summer months (July - October). The
average rainfall is 25.22 inches a year with the average wind velocity of 9
miles an hour. The predominant fog season is July and August where the fog
usually lingers for three or four days at a time before disappearing until
the next cycle moves in, a day or two later. Fog usually burns off in the
morning and returns late afternoon. In the winter, when inland valleys are
fog-filled, Pacifica enjoys clear bright days.
4. ZONING AND OTHER GOVERNMENTAL REGULATIONS
The subject site is legally identified as A.P. No. 016-430-010 and 018-150-010
and zoned to P-D (planned development). This site was previously zoned for A/B-
5 (Agriculture) and C-R (Commercial Recreation) but in 1984, was re-zoned
through a public referendum (City of Pacifica, Measure C) in which the city's
voters approved the proposed Development Plan. The proposed development plan
consisted of 60 residential units to be located on the northern section of the
property, an equestrian complex to be located at the eastern end of the property
and a hotel/conference center with two restaurants and retail space to be
located at the western end of the property. The ridgeline area and marsh area
are restricted to open space which shall either be dedicated to a public agency
or, if not accepted by a public agency, restricted to privately owned and
maintained open space.
Following a draft Environment Impact Report in 1984, the plan received approval
by the city and the Coastal Commission for a 275 room hotel/conference center
and two restaurants. The 60 detached single family dwellings could not be
approved until the hotel was constructed.
On February 9, 1988, there were amendments made to the Mori Point Land Use
Plan. They have been approved by the city council but have not yet been
submitted to the Coastal Commission for approval. The following paragraphs
outline some of the important elements of these amendments.
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14
<PAGE>
[MAP]
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15
<PAGE>
PROPERTY DESCRIPTION
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a. MORI POINT DESIGNATED AS A SPECIAL AREA
Because of human abuse, Mori Point is now designated as a Special Area to
promote integrated, planned and well designed use of the site. This
designation means that any development should be planned as a unit,
considering geotechnical, slope and environmental limitations of the site as
well as to preserve the scenic qualities of the natural landform. The
visitor-serving uses proposed on the west end of the site should be designed
to be subordinate to the landform and not sited on a prominent ridgeline. No
development should occur on slopes in excess of 35 percent or on the
prominent ridgeline. In addition, this plan requires that a minimum of 30
percent of the total developable area should be in commercial uses, unless it
is determined through geotechnical and environmental studies that the west
portion of the site is not suitable for development. In that case, less than
30 percent of the developable area may be in commercial uses. Beach access
and beach parking are not appropriate because of the potential impacts on the
adjacent habitat of the San Francisco garter snake.
b. BIOLOGICAL AND ENVIRONMENTAL STUDY NEEDED
Because portions of this site may include primary or secondary habitat of the
San Francisco garter snake, extensive biological and geotechnical study
should precede any development in this area. Development will be permitted
only if it can be demonstrated that impacts from the use and access road on
the adjacent SF garter snake habitat can be adequately mitigated. Proposed
mitigation for impacts on the San Francisco garter snake habitat must be
reviewed and approved by the Department of Fish and Game before approval of a
project.
Following a series of extensions, the approvals for the site expired in 1992.
On August 31, 1992, National Investors Financial, on behalf of its investors,
took title to the property through foreclosure, with the intent to pursue the
conference center development. National will now have to go through similar
processes in order for a new plan to be approved. Review by the Planning
Commission will be required and will include consideration of a new
Environmental Impact Report, a Specific Plan, the Tentative Map, development
and phasing schedule, and, if necessary, a variance from the land coverage
control standards of the Hillside Preservation District (HDP) Ordinance.
In the course of our research, we spoke with Mr. Malcolm Carpenter, A.I.C.P
and Mr. Tim Molinare, Community and Economic Development Director for the
City of Pacifica. These individuals are knowledgeable of the history of the
development and the process required to proceed with the development. Based
on our discussions, it is clear that the City of Pacifica is interested in
fostering new lodging development, and considers the Mori Point project a
major priority for future economic growth. Our understanding from these
parties is that the zoning allowing for the hotel development, as passed by
public vote, cannot be changed except as a result of another vote or court
action.
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16
<PAGE>
PROPERTY DESCRIPTION
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While it is anticipated that there will be some opposition to the project
based on environmental issues, the developers appear to be taking every
precaution to ensure that the key issues of endangered species and soil
erosion are being addressed properly. It is a stated assumption of this
report that the appraised value assumes that the project will receive all
necessary approvals and will therefore be able to be developed.
5. EASEMENTS AND COVENANTS
Included in the Addenda to this report is a copy of the Policy of Title
Insurance issued by Commonwealth Land Title Insurance Company, dated April
30, 1990. The title policy refers to a non-exclusive easement and right of
way for ingress and egress. We are not aware of any easements or covenants
which would adversely affect the value of the property.
6. UTILITIES
All utilities are available and connected to the site. Utility services to
the building are provided by the following agencies:
-----------------------------------------------------------
-----------------------------------------------------------
Electricity Pacific Gas and Electric Company
Natural Gas Pacific Gas and Electric Company
Water North Coast County Water District
Sewer City of Pacifica
Telephone Pacific Telephone Company
-----------------------------------------------------------
-----------------------------------------------------------
7. ASSESSED VALUE AND PROPERTY TAXES
The subject site is assessed by the County of San Mateo on a tax year commencing
July 1 of every year. Under the provisions of Article 13-A of the State of
California, properties are assessed based upon their fair market value as of the
change of ownership date. The assessed value can be increased a maximum of two
percent per year until such date as the property is subsequently sold,
substantial new construction take place, or the use of the property is
substantially changed.
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17
<PAGE>
PROPERTY DESCRIPTION
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The current assessed value of the property is as follows:
--------------------------------
--------------------------------
APN# 018-150-010
--------------------------------
Land Value $3,250,796
Improvements 0
Personal Property 0
Net Taxable Value $3,250,796
--------------------------------
APN # 016-430-010
--------------------------------
Land Value $433,091
Improvements 0
Personal Property 0
Net Taxable Value $433,091
--------------------------------
--------------------------------
The indicated tax rate is 1.0701%. Total taxes are $43,687.94, of which
$4,266.68 are direct assessments.
As of April 2, 1997, there are no outstanding taxes on the property. The
next installment of $21,843.97 will be due on November 1, 1997.
8. SOIL CONDITIONS AND HAZARDOUS MATERIALS
The steep slopes, covered with coastal vegetation, have only a thin layer of
soil and are subject to serious erosion. Also, emergency access to this area
is difficult. According to the amendments to the land use plan, the steep
slopes and upper ridgeline have been designated Open Space Residential and
Prominent Ridgeline. These designations will preclude any development unless
it is shown that the public's safety can be assured, no geotechnical problems
will result and there is no other place on the site to develop. Currently,
there are several geotechnical firms being interviewed to conduct a study of
the land.
We have no knowledge of any hazardous materials present in the soil. It is
assumed that the soil and improvements do not contain any toxic or hazardous
materials.
9. FLOOD, WETLANDS, AND EARTHQUAKE ZONES
According to the Flood Insurance Rate Map Community Panel Number 060323-0004D
of the Federal Emergency Management Agency, dated February 19, 1987, the
subject property is zoned "C", an area determined to be outside the 500-year
flood plain. This area has been identified in the community flood insurance
study as having a moderate or minimal hazard from the principal source of
flood, and flood insurance is not mandatory.
Flood control is by a drainage plan of storm drains and adheres to city
codes. Federal Flood Insurance is available but not mandatory.
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18
<PAGE>
PROPERTY DESCRIPTION
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According to a representative of the California State Department of Mines and
Geology, the subject is not in an Earthquake Fault Zone. However, the entire
Northern California area is considered to be a seismically active region.
B. PROPOSED DEVELOPMENT PLAN
1. THE CONFERENCE CENTER CONCEPT
This introduction to conference centers is provided as an overview to this
specialized type of hospitality industry facility. These generalized
comments are intended to provide guidance to understanding this industry and
how the different types of properties function, highlighting the general
characteristics of the conference center industry's to major segments of
demand.
According to the International Association of Conference Centers (IACC), a
conference center is defined as "a facility whose primary purpose is to
accommodate small to medium-sized meetings." A fully dedicated conference
center differs from a hotel or resort that has meeting space in that the
primary purpose of a conference center is to satisfy and accommodate groups
by offering a self-contained, full-service meeting environment. It is
dedicated to accommodating small-to-medium sized groups, and meetings usually
comprise at least 60 percent of a facility's overall business. Due to this
dedication to meetings, conference centers tailor their facilities and
services primarily to the needs of the meeting planner by providing all
necessary arrangements for the complete schedule of activities from arrival
to departure. The pricing structure for a conference is often a single,
uniform per person rate - a package that includes lodging, meals, coffee
breaks, meeting services, and equipment fees, called a Complete Meeting
Package (CMP), or the Full American Plan (FAP). Meeting rooms are designed
and used only for meetings and do not double as banquet rooms or exhibition
space. Meal functions are held in a central dining area. The IACC defines
five types of conference centers, one of which, the Executive or Dedicated
Conference center, we feel suits the Mori Point site the best.
At an EXECUTIVE (DEDICATED) CONFERENCE CENTER groups are typically composed
of corporations, associations, and other organizations that emphasize quality
of accommodations and services over price. This type of facility was
developed primarily to satisfy upper-level management meetings and
education/training seminars. Facilities usually include sophisticated
equipment and are staffed with professional conference coordinators. Because
of its proximity to San Francisco and the Silicon Valley, we consider that
the Mori Point Conference Center would be positioned within this category of
facilities. The table on the following page highlights the clarification
criteria for an executive conference center:
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19
<PAGE>
PROPERTY DESCRIPTION
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CLASSIFICATION CRITERIA
EXECUTIVE CONFERENCE CENTER
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- --------------------------------------------------------------------------------
PRIMARY CRITERIA
MUST QUALIFY IN ALL OF THE NINE.
- --------------------------------------------------------------------------------
1) Facility does not meet the RESORT Conference Center criteria.
- --------------------------------------------------------------------------------
2) Facility offers on-site lodging, dedicated conference space, and dining room
accommodations.
- --------------------------------------------------------------------------------
3) Conference room design incorporates the following:
- Majority of conference setups are upholstered armchairs (minimum
rating - six hours).
- Majority of conference setups use tables designed for meetings
providing a hard writing surface.
- Appropriate light (30-50 foot candles at tabletop, adjustable).
- Climate-controlled conference rooms.
- Wall surfaces suitable for tacking or other mounting of
flipchart-type sheets.
- Appropriate acoustics for conference communication.
- Adequate electrical, A/V and telephone outlets.
- Unobstructed interior views.
- --------------------------------------------------------------------------------
4) A minimum of 70% (based on net area) of meeting space is dedicated single-
purpose conference space.
- --------------------------------------------------------------------------------
5) A minimum of 60% of occupied room nights is generated by conferences.
- --------------------------------------------------------------------------------
6) Facility is owned by a FOR-PROFIT entity.
- --------------------------------------------------------------------------------
7) Less than 51 % of the business and less than 51% of the occupancy is
generated by the owning entity.
- --------------------------------------------------------------------------------
8) Facility offers a package plan which includes conference rooms, guest rooms,
three meals, coffee breaks, conference services and basic A/V.
- --------------------------------------------------------------------------------
9) Facility is not ANCILLARY to a larger hospitality entity.
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- --------------------------------------------------------------------------------
SECONDARY CRITERIA
MUST QUALIFY IN EIGHT OF ELEVEN.
- --------------------------------------------------------------------------------
1) Minimum ratio of conference space to guest rooms is 50 net square feet.
- --------------------------------------------------------------------------------
2) Separate conference and dining facilities with at least one dining room
available specifically for the convenience of conference groups.
- --------------------------------------------------------------------------------
3) Dining facilities designed to accommodate groups on a flexible meeting
schedule (at convenience of group), at least for breakfast and lunch.
- --------------------------------------------------------------------------------
4) Minimum number of dining seats to accommodate the capacity of the conference
facility for lunch in two seatings of one hour each.
- --------------------------------------------------------------------------------
5) Conference Services Department which is staffed with skilled professionals
who can service the special needs of conference planners.
- --------------------------------------------------------------------------------
6) Basic A/V capabilities on site with staff capable of providing A/V program
consultation, equipment setup, equipment operation.
- --------------------------------------------------------------------------------
7) Guest room design to include adequate and separate work space for each bed,
adequate reading/work lighting and comfortable seating.
- --------------------------------------------------------------------------------
8) Conference rooms available to clients on a 24-hour basis (for storage of
materials, etc.).
- --------------------------------------------------------------------------------
9) Maximum number guest rooms - 300.
- --------------------------------------------------------------------------------
10) Average group size - 45 people or less.
- --------------------------------------------------------------------------------
11) Location where surroundings do not distract from learning process.
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- --------------------------------------------------------------------------------
Source: INTERNATIONAL ASSOCIATION OF CONFERENCE CENTERS (IACC)
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2. PROPERTY DESIGN AND CONFIGURATION
The current property owner will be engaging a new architect to design a new plan
to submit for approval. It is our understanding that as long as the overall
development program remains the same, they will have the ability to make minor
alterations to the design. At this time, however, detailed plans are not
available.
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20
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PROPERTY DESCRIPTION
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As we do not have detailed plans, we have therefore used the foregoing
criteria for an executive conference center as the basis for our estimates of
the space requirements for the Mori Point Conference Center. It is important
to design sufficient meeting space in relation to the number of guest rooms
and enough food and beverage outlet seats to accommodate both the in-house
guests and meeting attendees. The following table summarizes our estimates
of the space for the individual components and the total project, which we
have used in our estimate of the development cost (presented in the following
section).
---------------------------------------------------
---------------------------------------------------
MORI POINT CONFERENCE CENTER
ESTIMATED DEVELOPMENT PROGRAM
---------------------------------------------------
---------------------------------------------------
Number of Rooms 275
---------------------------------------------------
Square Feet Per Room 400
---------------------------------------------------
Circulation 30.0%
---------------------------------------------------
Total Guest Room Square Footage 143,000
---------------------------------------------------
Meeting Space 27,500
---------------------------------------------------
Pre-Function/Circulation 6,875
---------------------------------------------------
Lobby 5,000
---------------------------------------------------
Restaurant Space 9,000
---------------------------------------------------
Lounge 2,000
---------------------------------------------------
Recreation 3,000
---------------------------------------------------
Back-of-House 17,000
---------------------------------------------------
Total Square Feet 213,375
---------------------------------------------------
Square Feet Per Room (Gross) 776
---------------------------------------------------
Parking Spaces Per Hotel Room 1.5
---------------------------------------------------
Parking Spaces 412
---------------------------------------------------
---------------------------------------------------
The management and affiliation of the proposed conference center has not yet
been identified.
2. DEVELOPMENT TIMELINE
Two obstacles in the development of the Mori Point project are the issues of
endangered species and land erosion. The first step for the developer is to
determine if the San Francisco garter snake still exists and if there are any
other endangered or threatened animals (possibly the California red-legged
frog) on the subject site. Currently, a biological assessment is being done
by Dr. Sam McGinnis which should be completed within approximately three
months. Should this study prove there are endangered species in the Mori
Point area, a Habitat Conservation Plan will need to be completed and a 10A
Permit processed. It may be possible to create a 200 foot wide snake
corridor on the voter-approved Mori Point Development Plan designated "open
space." In addition, a study by a geotechnical firm to determine if there is
any erosion or cliff retreat is needed. Finally, a new architect will be
selected to re-plan this development.
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21
<PAGE>
PROPERTY DESCRIPTION
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Another hurdle in the development process is to build adequate infrastructure
to support a conference center in an efficient and safe manner. Whether the
developer decides to create a frontage road along the ocean, an overpass over
Highway 1, or a four-way signaled intersection, the process will be time
consuming and expensive. More study of potential infrastructure changes will
need to be done.
The process for submitting and obtaining a new Environmental Impact Report
will take approximately 18 months. This will include the biological
assessment currently being conducted by Dr. McGinnis, a report completed by
the selected geotechnical firm, and the application and submission of a
Habitat Conservation Plan, and a new Specific Plan. The design and approval
for a new architectural plan is estimated to be another six months. We are
then allotting 18 months for construction.
Given this estimated pre-development and development timeline, we have
projected that the Mori Point Conference Center would be open by January 1,
2001.
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22
<PAGE>
MARKET ANALYSIS AND HIGHEST AND BEST USE
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A. INTRODUCTION
The subject property is expected to be developed with a 275-room conference
center hotel. As such, a determination of the value includes an analysis of the
market in which such a property would operate. This market analysis will result
in the estimates of operating performance for the conference center used to
derive the income stream, which in turn determines the value of the project as
completed.
In our analysis of the market, we have included a discussion of the conference
center market, the market for coastal properties in northern California, and
selected properties in the nearby San Francisco Airport area.
B. THE MEETINGS MARKET
M&C - MEETINGS & CONVENTIONS MAGAZINE, along with the Reed Travel Group, has
been conducting a survey every two years of meeting planners since 1974. The
survey provides the travel industry with data on the number of meetings,
expenditures, attendees, and the characteristics of meeting planners. The
following was reported in the most recent report published in 1996.
Corporate and association subscribers to M&C - MEETINGS AND CONVENTIONS MAGAZINE
were involved in planning a total of 983,600 meetings in 1995. Close to eight
out of ten (81 percent) of those meetings were corporate-oriented meetings.
Association meetings, in turn, were 18 percent and conventions 1 percent of the
total number of meetings planned nationwide. Attendance at these meetings was
77.7 million in total. These figures do, however, represent a decline from
those reported in the 1993 survey. Yet, as will be discussed later in this
section, among the different types of conference centers, executive conference
centers have been able to achieve the highest levels of occupancy, revenues
measured on a per occupied room basis, and operating profits.
From 1985 to 1995 the meetings market increased 9 percent, from 903,700 meetings
in 1985 to 983,600 in 1995. The number of corporate meetings increased 13.0
percent from its level ten years ago. In 1985 there were 706,100 corporate
meetings compared to 797,100 in 1995. In total, however, the number of meetings
has been decreasing since 1989 when it reached a peak of 1,066,000 meetings.
Corporate meetings grew at an annual rate of 1.4 percent from 1985 through 1995
(latest available data). Association meetings decreased at a rate of (0.6)
percent per year. As shown in the following table, corporate meetings still
out-number association meetings by a substantial margin. The average attendance
per corporate meeting increased to 62 in 1995 from 56 in 1985, while attendance
at association meetings declined slightly to 86 in 1995 from 98 in 1985.
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23
<PAGE>
MARKET ANALYSIS AND HIGHEST AND BEST USE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
TRENDS IN CORPORATE AND ASSOCIATION MEETINGS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AVERAGE ANNUAL
PERCENT CHANGE
SEGMENT 1985 1995 1985-1995
- --------------------------------------------------------------------------------
CORPORATE MEETINGS
No. of Meetings 706,100 797,100 1.4%
Attendance 39,800,000 49,325,000 2.4%
Average Attendance Per Meeting 56 62 -
- --------------------------------------------------------------------------------
ASSOCIATION MEETINGS
No. of meetings 185,400 175,600 (0.6)%
Attendance 18,200,000 15,120,500 (2.0)%
Average Attendance Per Meeting 98 86 -
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Source: THE MEETINGS MARKET 1996, REED TRAVEL GROUP; AND PKF CONSULTING
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Corporate meetings can be divided by several principle categories including
training seminars, management meetings, professional or technical meetings,
sales-related meetings and other miscellaneous activities. The percentage of
meeting demand and average attendance and length of stay for the different
types of corporate meetings is shown in the following table. Training
seminars are the largest category and comprise 23.0 percent of corporate
meetings. Management meetings comprise approximately 10.0 percent of the
corporate meeting demand and have one of the lowest average attendance at 36
attendees. Sales related meetings comprise a total of 40.0 percent of
corporate meeting demand and include regional and national sales meetings and
incentive trips to destination resorts. On average, corporate meetings are
2.8 days which means there are typically four days on site with a three night
stay-over.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
CHARACTERISTICS OF CORPORATE MEETINGS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PERCENT AVERAGE AVERAGE
TYPE OF MEETING OF TOTAL ATTENDANCE NO. OF DAYS
- --------------------------------------------------------------------------------
Training Seminars 23% 53 2.7
Management Meetings 10% 36 2.4
Professional/Technical Meetings 10% 68 2.7
Sales Related
REGIONAL AND NATIONAL MEETINGS 22% 36 2.4
INCENTIVE TRIPS 18% 95 3.9
New Product Introductions 6% 95 2.3
Stockholder Meetings 1% 33 1.7
Other Meetings 10% 87 3.2
- --------------------------------------------------------------------------------
Total/Average 100% 62 2.8
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- --------------------------------------------------------------------------------
Source: THE MEETINGS MARKET 1996, REED TRAVEL GROUP; AND PKF CONSULTING
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
A listing of facility selection criteria for corporate and association meetings
in shown in the following table. These criteria are categorized as service-
related and facility-related. The cost of the facility/hotel was rated as the
most important factor for corporate and association meetings. Other service-
related factors included support services, billing and check-in/check-out
procedures, the availability of dedicated conference service staff and
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24
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MARKET ANALYSIS AND HIGHEST AND BEST USE
- --------------------------------------------------------------------------------
previous experience. Under facility-related factors, the number, size and
quality of meetings rooms was rated first followed by the number, size and
quality of the sleeping rooms. On-site recreational facilities such as golf,
swimming, or tennis did not rank high for corporate meetings and was
relatively insignificant for association meetings.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FACILITY SELECTION CRITERIA
CONSIDERED "VERY IMPORTANT" BY
CORPORATE AND ASSOCIATION MEETING PLANNERS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
CORPORATE ASSOCIATION
SELECTED FACTORS CONSIDERED "VERY IMPORTANT" MEETINGS MEETINGS
- --------------------------------------------------------------------------------
SERVICE RELATED
- --------------------------------------------------------------------------------
Cost of Facility/Hotel 73% 75%
Quality of Food Service 71% 66%
Meeting Support Services and Equipment 53% 44%
Efficiency of Billing Procedures 56% 52%
Efficiency of Check In/Out Procedures 52% 40%
Previous Experience with Staff and Facility 41% 38%
- --------------------------------------------------------------------------------
FACILITY RELATED
- --------------------------------------------------------------------------------
Number, Size and Quality of Meeting Rooms 72% 62%
Number, Size and Quality of Sleeping Rooms 55% 41%
On-Site Recreational Facilities (Golf, Swimming, Tennis) 24% 9%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTE: Base = Those answering for each item.
Source: THE MEETINGS MARKET 1996, REED TRAVEL GROUP; AND PKF CONSULTING
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
In summary, the meetings market is a large and very diverse configuration of
events. We believe that given the characteristics of the site and the
existing market and economic base in the San Francisco peninsula, a facility,
if developed, should concentrate on the corporate conference market. Such a
facility can target meetings with under 100 attendees, the majority of
corporate and, in fact, all meetings held.
C. THE PERFORMANCE OF EXECUTIVE CONFERENCE CENTERS
The International Association of Conference Centers (IACC) and PKF Consulting
have recently completed the biennial CONFERENCE CENTER INDUSTRY, A
STATISTICAL AND FINANCIAL PROFILE - NORTH AMERICA 1996 report. In the
following paragraphs we present an overview of this report's findings, with a
focus on executive conference centers, the category in which the proposed
subject would be positioned.
Since the recession in 1991 to year-end 1995, U.S. conference centers have
achieved a 27.2 percent increase in occupancy. This compares to an 8.3
percent increase in occupancy for the overall lodging industry during the
same period. Except for resort conference centers, all types of conference
facilities have enjoyed double-digit increases in occupancy since 1991.
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25
<PAGE>
MARKET ANALYSIS AND HIGHEST AND BEST USE
- --------------------------------------------------------------------------------
Total revenue, measured on a per occupied room basis (POR) has grown
approximately 20.0 percent for resort and executive conference centers since
1991. For comparative purposes, cumulative inflation during the same period
was 11.9 percent and the total revenue for U.S. hotels grew only 10.4
percent. Corporate and college/university conference centers were limited in
their ability to participate in the increased dollars being spent by outside
groups because of their apparent need to accommodate a greater percentage of
in-house and academic meetings.
The net result for the average U.S. conference center has been a 174 percent
improvement in the bottom line. The average operating profit before fixed
charges, measured on a per available room basis (PAR), grew from $4,367 in
1991 to $11,969 in 1995. With PAR revenues growing only 17.0 percent during
the same period, it appears that the growth in profits is attributable mostly
to management's ability to control operating expenses.
Given that their primary target market is corporate executive meetings, it
appears that executive conference centers are best able to take advantage of
the recent improvements in the national economy and corporate profits, as
reflected in the strong stock market. Among the different types of
conference centers, executive conference centers achieve the highest levels
of occupancy, revenues POR, and operating profits. Discussions with
corporate meeting planners reveal that, when the budget allows, executive
conference centers are preferred over traditional hotels. The quality of the
facilities, their adaptability to the latest presentation technologies, and
the wealth of experienced conference planners and service managers are the
reasons cited most often for this preference.
The following summarizes the market performance and operating characteristics
of executive conference centers as researched by the IACC and PKF Consulting.
- An independent executive conference center located near an
airport enjoys the highest occupancy rate, at approximately 70
percent;
- Median Complete Meeting Package (CMP) rates for conferees are
highest among executive conference centers, at $239;
- Between 1985 and 1995, executive conference centers were leaders
in occupancy growth, experiencing a 15.3 percentage point
increase (from 50 percent to 65.3 percent average occupancy);
- In 1995, executive conference centers achieved an average
occupancy rate of 65 percent;
- Between 1985 and 1995, executive conference centers were ranked
second after resort centers in terms of average daily rate
growth. Executive centers' average daily rates increased at a
compound average annual growth of 4.3 percent;
- --------------------------------------------------------------------------------
26
<PAGE>
MARKET ANALYSIS AND HIGHEST AND BEST USE
- --------------------------------------------------------------------------------
- In 1995, executive conference centers achieved an average daily
rate of $121; and,
- Of all types of conference centers, executive conference centers
achieve the highest income before fixed charges, averaging
approximately 26 percent nationwide.
In sum, our research has indicated that the overall national meeting market
is a broad and important sector within the national hospitality industry,
with the corporate segment being the largest. Moreover, executive conference
centers are the most successful type within the corporate segment as
evidenced by the growth in occupancy levels, average daily rates, and overall
income ratios.
D. THE COMPETITIVE LODGING MARKET
The competitive market for the proposed conference center at Mori Point is
derived from comparable hotels located within both the coastal and the San
Francisco Airport sub-markets. Presented in the following text is a brief
analysis of the proposed subject's competitive hotel market.
The primary competitive lodging market for the proposed conference center at
Mori Point is comprised of four hotels with a total of 508 rooms. The
selection of the competitive supply was based on location, facilities and
amenities, room rate structure, and market orientation. These hotels are all
full-service hotels and conference centers, which cater to group and leisure
demand emanating primarily from the Bay Area, but with a secondary component
of national business attracted to their coastal locations. The secondary
competitive lodging market is comprised of three group-oriented airport
properties with 1,865 guest rooms, rendering the total to 2,373 rooms.
A table summarizing key information for each of the primary competitive
hotels is presented below. A map detailing the location of each of these
properties in relation to the subject is presented on the following page,
followed by a brief discussion of each property.
- --------------------------------------------------------------------------------
27
<PAGE>
MARKET ANALYSIS AND HIGHEST AND BEST USE
- --------------------------------------------------------------------------------
[MAP]
- -------------------------------------------------------------------------------
28
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PROPOSED CONFERENCE CENTER - MORI POINT
CENSUS OF COMPETITION
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PUBLISHED ROOM
RATES BY SEASON/
DAY OF WEEK
NUMBER ----------------- AAA
PROPERTY OF ROOMS LOW HIGH AMENITIES RATING
- --------------------------------------------------------------------------------
PRIMARY COMPETITION
Seascape Resort - Aptos 164 $165 $180 A,B,C,D - - -
Chaminade Conference Center -
Santa Cruz 152 $129 $129 A,C - - -
Lighthouse Inn - Pacifica 95 $99 $99 A,B,C -
Half Moon Bay Lodge 81 $145 $135 - - - -
FRI./SAT. SUN.-THU.
SECONDARY COMPETITION
Hyatt Regency 791 $139 $179 A,B,C,D - - - -
Marriott 684 $109 $149 A,B,C,D - - - -
Westin 330 $180 $220 A,B,C,D - - -
- --------------------------------------------------------------------------------
Total 2,373
- --------------------------------------------------------------------------------
AMENITIES CODES AAA RATING
A - Restaurant - - - - - - Renowned; exceptional property recognized for
marked superiority of facilities and service
B - Meeting Rooms - - - - - Exceptional; offers luxurious accommodations
as well as extra amenities
C - Swimming Pool - - - - Offers very comfortable and attractive
accommodations
D - Exercise Room - - - Exceeds AAA minimum requirements in some
physical and operational categories
- - Meets AAA basic requirements for
recommendation
N/R - Not rated by AAA
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Source: AMERICAN AUTOMOBILE ASSOCIATION (AAA) 1997 CALIFORNIA/NEVADA TOUR BOOK
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
1. PRIMARY COMPETITION
The SEASCAPE RESORT is located in Aptos, approximately 60 miles south of the
subject. This project has been completed in phases, commencing in 1991.
Development is ongoing, and the property currently has 191 units open; when
completed the project will have 290 units. The property sits on a high ridge
overlooking an excellent beach in Aptos, which is near Santa Cruz. The
Seascape Resort has been developed as condominiums which are sold to
individuals, who then put the units in a rental pool. The owners have a
90-day use restriction annually, meaning that they can never be fully
occupied as residential units. The guest rooms are a mixture of studio, one
and two bedroom units. The resort has a restaurant, lounge, and
approximately 14,000 square feet of meeting space, which allows it to attract
a high percentage of conference business. Additionally, the resort has an
arrangement to provide preferential tee times at the nearby Seascape Golf
Course. Given its site attributes, size and facilities, we consider this to
be the closest competitor to the proposed subject.
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29
<PAGE>
MARKET ANALYSIS AND HIGHEST AND BEST USE
- --------------------------------------------------------------------------------
The CHAMINADE CONFERENCE CENTER is a 152-room dedicated conference center
located in Santa Cruz. While situated in the hills and not located directly
on the ocean, Santa Cruz is a popular seaside destination and is proximate to
the Silicon Valley. Chaminade therefore attracts a significant level of
high-tech conference demand, a market which the subject will be seeking to
attract. Chaminade has two dining facilities, 12 meeting rooms with a total
of 11,733 square feet of meeting space, and a variety of recreational
activities for groups to participate in. Although a fully dedicated
conference center with suitable facilities and amenities, Chaminade was
originally a Catholic school, and the quality level is therefore below that
of a newly-developed project.
The LIGHTHOUSE INN is the only property in Pacifica which we have included in
the competitive supply. This property was originally developed in 1986, with
95 rooms. The property has recently gone through foreclosure and has been
under new management since April, 1996. The Lighthouse is currently
undergoing a renovation, with a total of $1.3 million being spent on new
furnishings for the lobby, guest rooms and corridors. The hotel includes the
Moonraker Restaurant, and approximately 6,500 square feet of meeting space.
The Lighthouse Inn is located in Rockaway Beach, a central commercial and
tourist area approximately one-half mile south of Mori Point. The property
attracts tourist business on the weekends and in the summer season, and
transient business emanating from the airport area. While the Lighthouse Inn
is the largest and highest profile of the existing hotels in Pacifica, the
subject property is anticipated to be of significantly higher quality level.
The HALF MOON BAY LODGE is located approximately 15 miles south of the
subject in Half Moon Bay. The property has 81 guest rooms in a two-story,
Spanish-style building. The Lodge is located adjacent to the Half Moon Bay
Golf Links, and while not under common ownership the hotel can arrange tee
times for individual guests and groups. The property offers six meeting
rooms accommodating from 15 to 55 people classroom-style.
The secondary competition for the subject is expected to include the major
group-oriented hotels at SFO. We have therefore included the HYATT REGENCY,
MARRIOTT AND WESTIN hotels as these are the most upscale and cater to a
significant level of group meetings business, in addition to corporate and
leisure travelers.
2. ADDITIONS TO SUPPLY
In addition to the existing properties, we have reviewed information on other
properties which could enter the market and potentially offer additional
competition to the subject. We have identified the following potential
additions:
- The Beach House, with 54 rooms, opened in April in El Granada,
just north of Half Moon Bay. This property is upscale in nature,
but with limited meeting space is geared primarily to the
individual leisure and commercial markets.
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30
<PAGE>
MARKET ANALYSIS AND HIGHEST AND BEST USE
- --------------------------------------------------------------------------------
- Three small properties with 38, 55 and 60 units respectively are
approved in the City of Pacifica; a fourth hotel with 120 rooms
is being evaluated by a prospective developer. The land is
currently in escrow (see comparable sales discussion) but nothing
formal has been filed with the City. If built, this would be a
chain-affiliated, commercial oriented property.
- The Days Inn in Pacifica has applied for permits for a 12-room
expansion.
- Numerous smaller commercial hotels are being discussed in the
airport area.
We are of the opinion that none of these developments, including the further
expansion of the Seascape Resort, would create a significant impact on the
potential performance of the proposed subject due to its conference center
orientation.
3. MARKET PERFORMANCE OF THE COMPETITIVE PROPERTIES
The estimated year-end 1996 occupancy level for the overall competitive
supply was 80.3 percent with a corresponding ADR of $117.43. The primary
competitive market's occupancy was 68.7 percent, with an ADR of $134.59; the
secondary competitive market's performance was at a higher occupancy level of
83.3 percent, but with a correspondingly lower rate of $113.69. The range of
occupancy levels within the overall competitive supply was from approximately
68 percent to 85 percent. The ADRs ranged between approximately $70 and $180.
With the strong occupancies in the competitive market as well as the Bay Area
overall, rates increased significantly in 1996 and are expected to rise even
further in 1997. The competitive market average daily rate increased from
approximately $104 in 1995 to $117 in 1996, a 12.5 percent jump. The
increase in 1997 is expected to be of the same magnitude, given Bay Area
lodging indicators through the first quarter.
4. ROOMS DEMAND FOR THE COMPETITIVE MARKET
Rooms demand for the overall competitive market is derived from three major
market segments: commercial, group, and leisure. For 1996, we estimate that
the overall competitive market received one of its highest shares of business
from group demand (38.0 percent), with the commercial segment representing
34.0 percent, and the leisure segment representing 28.0 percent. The
primary competitive market is even more oriented towards group business, with
50.0 percent of its demand derived from the group segment. The following
summarizes the market mix for 1996 for the overall competitive market.
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31
<PAGE>
MARKET ANALYSIS AND HIGHEST AND BEST USE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------
- --------------------------------------------------------------
HISTORICAL PERFORMANCE
BY MARKET SEGMENT
1996
- --------------------------------------------------------------
- --------------------------------------------------------------
COMPETITIVE MARKET
----------------------------------
ROOMS PERCENT
MARKET SEGMENT OCCUPIED OF TOTAL
- --------------------------------------------------------------
Group 260,200 38%
Commercial 237,700 34%
Leisure 192,800 28%
- --------------------------------------------------------------
Total 690,700 100%
- --------------------------------------------------------------
Figures may not foot due to rounding.
Source: PKF CONSULTING
- --------------------------------------------------------------
- --------------------------------------------------------------
5. CONCLUSIONS ON MARKET DEMAND
In forecasting the proposed subject's performance, we have taken into account
the following variables which have been derived from our analysis of the
competitive market:
- The competitive market experienced very strong occupancies and
room rates in 1996, with 1997 performance expected to be
equivalent or stronger;
- The group/meeting market segment generates the highest percentage
of room nights, currently at approximately 50.0 percent of demand
for the primary competitors;
- The market performance of the primary competitive properties is
generally at par with that achieved by national executive
conference centers; and,
- While there are potential additions to supply, no other large,
full-service conference center properties are planned on the
coast in the near future, providing a market opportunity for the
subject.
Based on these observations, we believe there is sufficient market demand in the
San Francisco Bay Area to support a high quality conference center similar to
that proposed in Pacifica.
Based on all of the information on the local competitive market as well as the
performance of executive conference centers nationally, we estimate the subject
property will achieve a stabilized occupancy level of 68 percent, with an
average daily room rate of $145 in current value (1997) dollars. The following
table summarizes our conclusion of the subject's occupancy and average room rate
for its first ten years of operation.
- --------------------------------------------------------------------------------
32
<PAGE>
MARKET ANALYSIS AND HIGHEST AND BEST USE
- --------------------------------------------------------------------------------
- -----------------------------------
- -----------------------------------
MORI POINT CONFERENCE CENTER
ESTIMATED OCCUPANCY AND ADR
- -----------------------------------
- -----------------------------------
YEAR OCCUPANCY ROOM RATE
- -----------------------------------
2001 60.0% $163
2002 64.0% $168
2003 68.0% $173
2004 68.0% $178
2005 68.0% $184
2006 68.0% $189
2007 68.0% $195
2008 68.0% $201
2009 68.0% $207
2010 68.0% $213
- -----------------------------------
- -----------------------------------
Source:
- -----------------------------------
- -----------------------------------
The subject property would be expected to derive approximately 60 percent of
its demand from conferences. The remainder of its business would be from
leisure travelers seeking coastal accommodations, primarily on the weekends
and in the summer, and overflow commercial demand from the airport market.
E. HIGHEST AND BEST USE
The appraisal of real estate always includes a determination of highest and best
use. According to the Appraisal Institute in the DICTIONARY OF REAL ESTATE
APPRAISAL (3rd Edition) highest and best use is defined as:
THE REASONABLY PROBABLE AND LEGAL USE OF VACANT LAND OR AN IMPROVED
PROPERTY, WHICH IS PHYSICALLY POSSIBLE, APPROPRIATELY SUPPORTED,
FINANCIALLY FEASIBLE, AND THAT RESULTS IN THE HIGHEST VALUE. THE FOUR
CRITERIA THE HIGHEST AND BEST USE MUST MEET ARE LEGAL PERMISSIBILITY,
PHYSICAL POSSIBILITY, FINANCIAL FEASIBILITY, AND MAXIMUM
PROFITABILITY.
In determining highest and best use, there are essentially four criteria that
must be considered. Each of these criteria must be satisfied sequentially in
order to arrive at a highest and best use conclusion.
1. LEGALLY PERMISSIBLE: The use of a site can be limited by various
private and public restrictions including zoning and building
codes, environmental regulations, and deed or lease restrictions,
among other things.
- --------------------------------------------------------------------------------
33
<PAGE>
MARKET ANALYSIS AND HIGHEST AND BEST USE
- --------------------------------------------------------------------------------
2. PHYSICALLY POSSIBLE: Use is restricted by the physical
characteristics of the site. Characteristics include, but are
not limited to size, shape, terrain, soil composition, and
accessibility of utilities.
3. ECONOMICALLY FEASIBLE: The ability of a project or an enterprise
to meet defined investment objectives; an investment's ability to
produce sufficient revenue to pay all expenses and charges and to
provide a reasonable return on and recapture of money invested.
4. MAXIMALLY PRODUCTIVE: This item refers to that use that produces
the highest price, or value, consistent with the rate of return
warranted by the market.
1. HIGHEST AND BEST USE AS IF VACANT
a. LEGALLY PERMISSIBLE
As discussed in the property section, the site has been zoned for a 275-room
conference hotel, as well as some residential units and an equestrian center,
through a public referendum. To obtain a further change in the permitted use
for the site would require a new vote, which would be costly and time consuming.
Additionally, given the City's stated interest in promoting new lodging
development, there would be considerable opposition to changing the designated
use.
b. PHYSICALLY POSSIBLE
The second constraint imposed on the possible use of the site is dictated by the
physical aspects of the site itself, such as size, frontage, topography, and
accessibility. The size and location within a given block are the most
important determents of value. In general, the larger the site, the greater its
potential to achieve economies of scale and flexibility in development.
The subject site encompasses a total of approximately 107 acres of land in a
steeply sloping parcel. Therefore, a large portion of the site is unusable for
development. The primary building site, the flat portion at the top, is not
suitable to most commercial uses due to its distance from the highway. But with
appropriate grading, the proposed conference center would be accommodated, and
the views provided by this location would serve the operators of a lodging
facility well.
2. FINANCIALLY FEASIBLE AND MAXIMALLY PRODUCTIVE
Financial feasibility is based on whether the proposed project will attain a
cash flow to sufficient quantity, quality, and duration to allow investors to
recover the capital invested and achieve the necessary and expected rate of
return. Factors to be considered are the timing or inflows and outflows of
cash, revenues, costs, debt service, and the proceeds of a sale or refinancing.
- --------------------------------------------------------------------------------
34
<PAGE>
MARKET ANALYSIS AND HIGHEST AND BEST USE
- --------------------------------------------------------------------------------
In analyzing the subject property, principal reliance was placed on growth
trends in the area, present occupancy of competitive properties and proposed
development.
As discussed previously, the occupancy and average daily room rates of hotels in
the competitive market area have been very strong in the past two years. Based
upon our analysis of market conditions, including an assessment of executive
conference center performance, there is a substantiated need for additional
conference center facilities to satisfy the growing demand in the market.
As will be shown in the following section, the construction costs of the
proposed conference center are in line with the indicated value based upon its
prospective net income potential in the near term, further supporting its
feasibility.
Based on our analysis of the existing market conditions within the immediate
area, it is our opinion that the highest and best use of the property as vacant
would be to develop an executive conference center hotel such as the proposed.
- --------------------------------------------------------------------------------
35
<PAGE>
VALUATION
- --------------------------------------------------------------------------------
A. INTRODUCTION
According to THE APPRAISAL OF REAL ESTATE (Eleventh Edition), there are six
procedures which can be utilized to value land:
1. SALES COMPARISON;
2. ALLOCATION;
3. EXTRACTION;
4. LAND RESIDUAL;
5. GROUND RENT CAPITALIZATION; AND,
6. SUBDIVISION DEVELOPMENT (DISCOUNTED CASH FLOW ANALYSIS).
All six procedures are derived from the three basic approaches to value. Sales
Comparison and Income Capitalization (i.e. ground rent capitalization) can be
directly applied to land valuation. Allocation and extraction procedures
reflect the influence of the Sales Comparison and Cost Approaches. The land
residual technique is based on the Income Capitalization and Cost Approaches.
Subdivision development draws on elements of all three approaches to value.
Based on our analysis of the subject, we are of the opinion that three of the
above six procedures, a "Subdivision" Development Analysis, Ground Rent
Capitalization, and the Sales Comparison Approach are appropriate methods to
value the subject site. These three procedures are discussed in the following
text.
B. SUBDIVISION DEVELOPMENT (DISCOUNTED CASH FLOW ANALYSIS)
1. INTRODUCTION
A discounted cash flow (subdivision development) analysis is used to value
vacant land that has the potential for development for a use (such as a hotel)
when that use represents the likely highest and best use of the land.
As outlined in the prior sections, the subject has city approval to develop a
275-room hotel and conference center, and based on our analysis, this use
represents the highest and best use of the site.
In order to develop an estimate of the value of the subject using this approach,
we have performed the following tasks.
1. Based on our market analysis and recommended development program
outlined in the prior sections, we developed a ten year statement
of estimated annual operating results (net operating income) for
a 275-room hotel/conference center.
- --------------------------------------------------------------------------------
36
<PAGE>
VALUATION
- --------------------------------------------------------------------------------
2. Using a yield capitalization (discounted cash flow) analysis, we
developed an estimate of the prospective market value of the
conference center upon completion of development (assumed to be
January 1, 2001).
3. From this prospective market value, we then deducted the
estimated cost to develop the conference center, as well as an
appropriate entrepreneurial or developer profit. The resulting
residual value represents what a prudent and knowledgeable
investor would presumably pay for the subject property under this
development scenario ("as is" value).
Presented in the following text is a discussion of our findings and conclusion
as to the value of the subject using a development approach.
2. PROJECTED MARKET POSITION OF THE SUBJECT PROPERTY
As stated in the market analysis section of this report, we are of the opinion
that there would be considerable market support for a conference center at the
subject location. Given the expected growth in the market in the years 1997
forward and typical conference center performance, we have estimated that the
property would stabilize at 68.0 percent occupancy by the year 2003, the third
year of operation for the conference center. In terms of average daily room
rate, we are of the opinion that a rate equivalent to $145 in 1997 dollars would
be achievable.
Presented in the following table is our estimate of the potential occupancy
levels and average room rates the subject could achieve over its first ten years
of operation.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PROPOSED MORI POINT CONFERENCE CENTER
PROJECTED OCCUPANCY LEVELS AND AVERAGE ROOM RATE
(2001 TO 2010)
- --------------------------------------------------------------------------------
ANNUAL AVERAGE DAILY PERCENT
YEAR OCCUPANCY ROOM RATE CHANGE
- --------------------------------------------------------------------------------
Stabilized Year(1) 68.0% $145.00 -
2001 60.0% $163.00 -
2002 64.0% $168.00 3.0%
2003 68.0% $173.00 3.0%
2004 68.0% $178.00 3.0%
2005 68.0% $184.00 3.0%
2006 68.0% $189.00 3.0%
2007 68.0% $195.00 3.0%
2008 68.0% $201.00 3.0%
2009 68.0% $207.00 3.0%
2010 68.0% $213.00 3.0%
- --------------------------------------------------------------------------------
(1) Stated in 1997 value dollars.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
37
<PAGE>
VALUATION
- --------------------------------------------------------------------------------
3. CASH FLOW PROJECTIONS
Our approach to develop a cash flow forecast for the subject conference center
upon completion was to first prepare an estimate of the net operating income
(NOI) of the conference center for a typical or stabilized year of operation
stated in current value (1997) dollars. The performance of the property in a
stabilized year reflects the normal level of operation of the conference center
at its stabilized occupancy (68 percent in the case of the subject), unaffected
by temporary non-recurring expenses such as extraordinary start-up marketing,
administrative and operational costs which can occur in the initial years of
operation of a conference center or upon repositioning of the facility.
From this stabilized year estimate, we then develop a cash flow forecast over a
typical holding period (here assumed to be ten years). This forecast over a
holding period reflects the impact of such factors as changes in room rates,
occupancy, inflation and the fixed and variable components of each revenue and
expense item.
4. OPERATING STATISTICS ON COMPARABLE CONFERENCE CENTERS
The UNIFORM SYSTEM OF ACCOUNTS FOR CONFERENCE CENTERS, developed by the IACC and
PKF Consulting, has been used in the classification of income and expenses in
this report. In conformity with this system of account classification, only
direct operating expenses are charged to operating departments of the conference
center. The general overhead items which are applicable to operations as a
whole are classified as deductions from income and include administrative and
general expenses, a franchise fee, marketing, property operations and
maintenance, and energy costs.
To portray price level changes during the analysis period, we have assumed a 3.0
percent annual inflation rate. This rate reflects the current long-term outlook
for the future movement of prices projected by leading economists in the market,
which is for the continuation of the prevailing low rates. It should be noted
that inflation is caused by many factors, and unanticipated events and
circumstances will affect the anticipated rate. Therefore, the operating
results computed over the analysis period will vary from actual results, and the
variations may be material.
To estimate the future operating results of the proposed conference center at
Mori Point in Pacifica, we began with the analysis of the operating performance
of five national conference centers. This information is primarily obtained from
confidential information submitted in compilation of the 1996 edition of THE
CONFERENCE CENTER INDUSTRY - A STATISTICAL AND FINANCIAL PROFILE published
cooperatively by the IACC and PKF Consulting.
Our composite is made up of five conference centers considered comparable with
the subject due to their size and market orientation. These conference centers,
located in various states and none with a national chain affiliation, range in
size from 100 to 300
- --------------------------------------------------------------------------------
38
<PAGE>
VALUATION
- --------------------------------------------------------------------------------
guest rooms with an average of 226 rooms. Financial statements for these
comparable facilities follow in the next three pages. For reasons of
confidentiality, we are unable to disclose the identity of the comparables.
This composite reflects actual year-end 1995 operating results.
Based on our evaluation of these comparable properties, as well as the overall
industry averages, we were able to develop a statement of estimated annual
operating results for the subject property. Supporting rationale behind each
line item is presented in the paragraphs which follow.
- --------------------------------------------------------------------------------
39
<PAGE>
PROPOSED CONFERENCE CENTER AT MORI POINT
OPERATING STATISTICS OF COMPARABLE CONFERENCE CENTERS
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------
Conference Center A Conference Center B Conference Center C
------------------------------------------------------------------------------------------------
% PAR(1) POR(2) % PAR(1) POR(2) % PAR(1) POR(2)
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Average Annual Occupancy 71.5% 68.6% 42.2%
Average Daily Room Rate $139.38 $121.51 $165.05
REVPAR $99.61 $83.41 $69.58
REVENUES
Rooms 42.9% $ 36,359 $ 139.38 40.7% $ 30,443 $121.51 45.2% $23,396 $165.08
Food 25.6% 21,701 83.19 29.3% 21,933 87.54 36.8% 20,691 134.48
Beverage 7.4% 6,271 24.04 6.9% 5,194 20.73 9.3% 5,208 33.85
Telephone 2.2% 1,907 7.31 1.5% 1,094 4.37 2.1% 1,182 7.68
Conference Services 18.4% 15,628 59.91 13.5% 10,078 40.22 2.3% 1,275 8.28
Other Operated Departments 3.5% 2,980 11.42 2.3% 1,735 6.93 0.5% 281 1.83
Rentals and Other Income - - - 5.8% 4,367 17.43 3.8% 2,124 13.81
--------- --------- --------- ---------- --------- -------- ---------- --------- --------
TOTAL REVENUES 100.0% 84,846 325.25 100.0% 74,844 298.73 100.0% 56,456 364.97
DEPARTMENTAL EXPENSES(3)
Rooms 15.1% 5,506 21.11 25.2% 7,658 30.57 21.4% 5,444 35.38
Food and Beverage 65.3% 18,277 70.06 71.6% 19,415 77.49 65.1% 16,867 109.63
Telephone 55.8% 1,064 4.08 61.3% 671 2.68 56.3% 666 4.33
Conference Services 46.7% 7,291 27.95 45.9% 4,628 18.47 53.6% 683 4.44
Other Operated Departments 96.7% 2,882 11.05 101.0% 1,753 7.00 187.0% 526 3.42
--------- --------- --------- ---------- --------- -------- ---------- --------- --------
TOTAL DEPARTMENTAL
EXPENSES 41.3% 35,021 134.25 45.6% 34,125 136.21 43.1% 24,185 157.18
--------- --------- --------- ---------- --------- -------- ---------- --------- --------
DEPARTMENTAL PROFIT 58.7% 49,825 190.99 54.4% 40,719 162.52 56.9% 31,971 207.79
--------- --------- --------- ---------- --------- -------- ---------- --------- --------
UNDISTRIBUTED EXPENSES
Administrative and General 8.0% 6,806 26.09 9.8% 7,305 29.16 8.8% 4,933 32.06
Marketing 6.1% 5,140 19.70 6.1% 4,531 18.09 7.3% 4,089 26.58
Property Operations and
Maintenance 4.9% 4,134 15.85 5.4% 4,007 15.99 4.3% 2,440 15.86
Energy and Utilities 2.8% 2,405 9.72 4.7% 3,536 14.12 5.1% 2,865 18.62
--------- --------- --------- ---------- --------- -------- ---------- --------- --------
TOTAL UNDISTRIBUTED
EXPENSES 21.8% 18,484 70.86 25.9% 19,379 77.35 25.5% 14,328 93.12
--------- --------- --------- ---------- --------- -------- ---------- --------- --------
GROSS OPERATING
PROFIT (4) 36.9% 31,341 120.14 28.5% 21,340 85.17 31.4% 17,643 114.67
--------- --------- --------- ---------- --------- -------- ---------- --------- --------
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTES: (1) PAR - PER AVAILABLE ROOM.
(2) POR - PER OCCUPIED ROOM.
(3) DEPARTMENTAL EXPENSE RATIOS ARE BASED ON THE RESPECTIVE
DEPARTMENT'S REVENUE, NOT TOTAL REVENUE.
(4) GROSS OPERATING PROFIT BEFORE FIXED CHARGES
ALL FIGURES ARE BASED ON ACTUAL OPERATING STATEMENTS FOR 1995.
NUMBERS MAY NOT FOOT DUE TO ROUNDING.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Source: PKF CONSULTING
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
40
<PAGE>
PROPOSED CONFERENCE CENTER AT MORI POINT
OPERATING STATISTICS OF COMPARABLE CONFERENCE CENTERS
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------
Conference Center D Conference Center E Weighted Average
------------------------------------------------------------------------------------------------
% PAR(1) POR(2) % PAR(1) POR(2) % PAR(1) POR(2)
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Average Annual Occupancy 70.1% 67.6% 64.6%
Average Daily Room Rate $123.57 $125.10 $131.72
REVPAR $86.62 $84.57 $85.06
REVENUES
Rooms 46.7% $ 31,618 $ 123.57 30.8% $ 30,868 $125.13 39.6% $31,046 $131.72
Food 32.3% 21,880 85.51 24.5% 24,534 99.46 28.5% 22,346 94.81
Beverage 5.4% 3,652 14.27 7.2% 7,273 29.51 7.1% 5,578 23.67
Telephone 1.8% 1,243 4.86 1.3% 1,274 5.16 1.7% 1,344 5.70
Conference Services 10.1% 6,846 26.75 24.4% 24,477 99.20 16.1% 12,593 53.43
Other Operated Departments 1.9% 1,318 5.15 7.8% 7,871 31.93 4.1% 3,232 13.71
Rentals and Other Income 1.7% 1,160 4.53 4.0% 4,039 16.37 3.7% 2,309 9.80
--------- --------- --------- ---------- --------- -------- ---------- --------- --------
TOTAL REVENUES 100.0% 67,715 264.65 100.0% 100,356 406.68 100.0% 78,448 331.83
DEPARTMENTAL EXPENSES(3)
Rooms 19.5% 6.155 24.06 23.5% 7,243 29.39 20.6% 6,400 27.15
Food and Beverage 40.8% 10,417 40.71 71.1% 22,605 91.65 62.5% 17,452 74.05
Telephone 24.2% 300 1.17 39.8% 507 2.06 45.5% 612 2.59
Conference Services 53.3% 3,648 14.26 23.3% 5,711 23.15 35.6% 4,481 19.01
Other Operated Departments 242.9% 3,201 12.51 118.4% 9,318 37.79 126.6% 4,091 17.36
--------- --------- --------- ---------- --------- -------- ---------- --------- --------
TOTAL DEPARTMENTAL
EXPENSES 35.0% 23,720 92.71 45.2% 45,385 183.97 42.1% 33,035 140.16
--------- --------- --------- ---------- --------- -------- ---------- --------- --------
DEPARTMENTAL PROFIT 65.0% 43,995 171.95 54.8% 54,952 222.74 57.9% 45,413 192.68
--------- --------- --------- ---------- --------- -------- ---------- --------- --------
UNDISTRIBUTED EXPENSES
Administrative and General 11.1% 7,550 29.51 5.7% 5,750 23.33 8.2% 6,442 27.33
Marketing 8.4% 5,659 22.12 6.1% 6,110 24.79 6.7% 5,253 22.29
Property Operations and
Maintenance 6.0% 4,073 15.92 3.3% 3,278 13.32 4.6% 3,578 15.18
Energy and Utilities 7.3% 4,961 19.39 2.4% 2,441 9.92 4.2% 3,258 13.82
--------- --------- --------- ---------- --------- -------- ---------- --------- --------
TOTAL UNDISTRIBUTED
EXPENSES 32.8% 22,243 86.93 17.5% 17,579 71.28 23.6% 18,530 78.62
--------- --------- --------- ---------- --------- -------- ---------- --------- --------
GROSS OPERATING
PROFIT (4) 32.1% 21,751 85.01 37.1% 37,372 151.49 34.3% 26,883 114.06
--------- --------- --------- ---------- --------- -------- ---------- --------- --------
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTES: (1) PAR - PER AVAILABLE ROOM.
(2) POR - PER OCCUPIED ROOM.
(3) DEPARTMENTAL EXPENSE RATIOS ARE BASED ON THE RESPECTIVE
DEPARTMENT'S REVENUE, NOT TOTAL REVENUE.
(4) GROSS OPERATING PROFIT BEFORE FIXED CHARGES
ALL FIGURES ARE BASED ON ACTUAL OPERATING STATEMENTS FOR 1995.
NUMBERS MAY NOT FOOT DUE TO ROUNDING.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Source: PKF CONSULTING
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
41
<PAGE>
VALUATION
- --------------------------------------------------------------------------------
5. STABILIZED YEAR ESTIMATE
As indicated previously, we have estimated the performance of the subject for a
representative, stabilized year of operation. This estimate is primarily based
on the operating performance of other comparable facilities. The basis for our
stabilized year estimate is detailed in the following paragraphs and is stated
in 1997 value dollars.
a. DEPARTMENTAL REVENUES AND EXPENSES
In the UNIFORM SYSTEM OF ACCOUNTS FOR CONFERENCE CENTERS, revenues to the
facility are categorized by the department from which they are derived. In the
case of the proposed subject, these include income from sleeping rooms, food and
beverage, telephone, conference services, and other operated departments. In
the UNIFORM SYSTEM OF ACCOUNTS FOR CONFERENCE CENTERS, only operating expenses
associated with each department are charged to the operating departments.
General overhead items which are applicable to the overall operation of the
facility are classified as undistributed operating expenses. Departmental
revenues are presented on a per occupied room (POR) basis.
i. ROOMS REVENUE AND EXPENSES
ROOMS REVENUES are based on the number of occupied sleeping rooms multiplied by
the average daily room rate (ADR) for each respective year as presented in this
report. As indicated in our previous analyses, we estimate that the stabilized
occupancy rate of the subject will be 68 percent with an ADR of $145 (in 1997
value dollars).
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
275 Rooms x 365 Days x 68% Occupancy x $145 Room Rate = $9,897,000 (Rounded)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Rooms expenses consist of salaries and wages, employee benefits, commissions,
contract cleaning, guest transportation, laundry and dry cleaning, linen,
operating supplies, reservations costs, continental breakfast, uniforms, and
other items related to the sleeping rooms department.
ROOMS DEPARTMENTAL EXPENSES for a representative year have been estimated at
approximately 21 percent of rooms revenues. The comparable properties' rooms
departmental expenses ranged from $21.11 to $35.38 POR, with a weighted average
of $27.15 POR in 1995 value dollars. We have used an estimate of approximately
$30 POR for these expenses in 1997 value dollars, which equates to 21 percent at
the estimated occupancy of 68 percent and ADR of $145.
- --------------------------------------------------------------------------------
42
<PAGE>
VALUATION
- --------------------------------------------------------------------------------
ii. FOOD AND BEVERAGE REVENUE AND EXPENSE
FOOD REVENUE for the stabilized year is based on projected sales to guests of
the proposed subject and demand from outside sources, such as weddings, social
catering functions, and banquet sales.
Each outlet is reflected separately for proper tracking of usage and costs. All
sales are net of adjustments. Meals from the Complete Meeting Package (CMP)
allocation are recorded in the outlet where the food is consumed. Any credit
for non-consumed meal allocation is shown as "package breakage." Coffee break
revenue is the allocation from the CMP. Other income includes miscellaneous
revenues such as carving fees, cover charges, centerpieces, set-up fees, etc.
The comparable conference centers reported food revenues of $83.19 to $134.48
POR, with a weighted average of $94.81. Following our analysis of the
comparable conference centers and industry norms, we have estimated
approximately $70.00 POR for in-house food sales with local market food sales of
$2,000,000 at a stabilized operating level for the subject property. These
figures total $6,778,000 in food sales in 1997 value dollars, or approximately
$99 POR.
BEVERAGE REVENUE is generated by the sale of soft drinks, liquor, beer and wine
from the conference center's restaurant, as well as from room service, banquet
sales, and social catering events. Beverage revenues are often viewed as a
percentage of food sales. All beverage sales are net of adjustments. Each
outlet is recorded separately for tracking of usage and costs. Other income
includes miscellaneous revenues such as bartender fees, cover charges, corkage,
etc.
The comparable properties reported beverage revenues of $14.27 to $33.85 POR,
with a weighted average of $23.67. Total beverage revenues are estimated to be
25 percent of food sales, or $1,695,000, resulting in approximately $25 POR in a
stabilized year of operation.
FOOD AND BEVERAGE EXPENSE includes product costs, payroll and related expenses
and other items such as laundry and linen, china, glassware and silverware,
uniform costs, supplies and other miscellaneous items. Cost is calculated after
inventory adjustment and is net of all transfers and credits except employee
meals, which is reflected as a separate line item. Food cost is stated as a
percentage of those outlets incurring costs and should not include such items as
breakage, house gratuity or miscellaneous income. Beverage cost is also
calculated after inventory adjustment and net of all transfers and credits.
Expenses at the comparable conference centers ranged from 40.8 to 71.6 percent,
averaging 62.5 percent. In a typical year, we estimate these expenses will be
in the order of 70 percent for the subject.
- --------------------------------------------------------------------------------
43
<PAGE>
VALUATION
- --------------------------------------------------------------------------------
iii. TELEPHONE REVENUES AND EXPENSES
TELEPHONE REVENUE includes any charges for local calls, long distance carrier
access, long distance toll calls, facsimile recipient or out-going fees and
guest equipment rental charges such as additional lines or "Ad Line" charges.
Additionally, any rebates from long distance carriers and pay phone commissions
should be accounted for in this category.
The comparable properties reported telephone revenues of $4.37 to $7.68 POR,
with a weighted average of $5.70. Based on our analysis of the comparable
conference centers, telephone revenues are estimated to be $6.00 POR in a
stabilized year of operation in 1997 value dollars.
TELEPHONE EXPENSES include the cost of calls and any telephone service charges.
In a stabilized year, we estimate this expense to be at approximately 50
percent, based on the comparable properties, which ranged from 24.2 to 61.3
percent and averaged 45.5 percent. With a technologically advanced telephone
system in place, a property today should be able to keep expenses at 50 percent
or below.
iv. CONFERENCE SERVICES REVENUES AND EXPENSES
CONFERENCE SERVICES REVENUES include income allocated to the conference
department from the Complete Meeting Package (CMP). Revenues include audio
visual rentals, room rental, day-guest charges, and business center services.
Conference services revenue at the comparable properties ranged from $8.28 POR
to $99.20 POR, with a weighted average of $43.43. Following the analysis of the
five conference centers, coupled with the dynamics of the Bay Area meetings
market, we estimate that conference services revenue would be approximately $50
POR in a stabilized year of operation.
CONFERENCE SERVICES EXPENSES includes the payroll and benefits costs for the
conference director and assistants, business center, audio visual technicians,
and set-up house-men. Other operating expenses include such items as audio
visual supplies, equipment rental, decorations, and the china, glass, silver,
and linen used by the conference department.
Conference service expenses at the comparables averaged 35.6 percent, with a
range between 23.3 percent and 53.6 percent of conference services revenue. We
estimate that the proposed subject would have a conference services departmental
cost ratio of 50 percent in a stabilized year of operation.
- --------------------------------------------------------------------------------
44
<PAGE>
VALUATION
- --------------------------------------------------------------------------------
v. OTHER OPERATED DEPARTMENTS REVENUES AND EXPENSES
This revenue and expense category includes all minor revenue producing
activities that are operated by property management which are not significant
enough to warrant a separate departmental schedule. Examples of items to be
included here are property operated parking facilities, guest transportation,
and recreation. Typically within the departmental level detail for this
category, revenue and expenses would contain sufficient explanation to determine
profitability or loss associated with each activity. If these operations are
leased or contracted out they would be classified as a net amount in the rentals
and other income category. In summary, property operated minor departments that
generate both a revenue and expense should be presented as other operated
departments.
OTHER OPERATED DEPARTMENTS REVENUE at the proposed subject is estimated to be
derived primarily from guest transportation. This category of revenue at the
comparable properties ranged from $1.83 POR to $31.93 POR, with a weighted
average of $13.71. Following our study of the five conference centers, and
using the facilities to be offered at the subject as a basis, we estimate that
other operated departments revenue would be approximately $5 POR in a stabilized
year of operation.
Based on our analysis and the experience of the other properties, we estimate
EXPENSES FOR THE OTHER OPERATED DEPARTMENTS to be 100 percent of departmental
revenues.
vi. RENTALS AND OTHER INCOME
RENTALS AND OTHER INCOME includes net income from sources such as retail space
rentals, concessions (movie rentals, vending/game machines, flowers), and
salvage sales. CMP cancellation charges and canceled group contracts are also
included in this category.
Rentals and other income at the comparable properties ranged from $4.53 POR to
$17.43 POR, with a weighted average of $9.80. Following our analysis of the
comparable conference centers, we estimate that rentals and other income would
be approximately $10 POR in a stabilized year of operation in 1997 value
dollars.
b. UNDISTRIBUTED OPERATING EXPENSES
Operating expenses that are not chargeable to a particular operating department
are presented as undistributed operating expenses, in accordance with the
UNIFORM SYSTEM OF ACCOUNTS FOR CONFERENCE CENTERS. These expenses include
administrative and general, marketing, franchise fees, property operations and
maintenance, and energy and utilities. These expenses are relatively unaffected
by fluctuations in occupancies
- --------------------------------------------------------------------------------
45
<PAGE>
VALUATION
- --------------------------------------------------------------------------------
and sleeping room rates. Excluding management and franchise fees, which are
a fixed percentage based on actual or assumed contractual agreements, these
expenses are analyzed primarily on a dollar amount per available room basis
(PAR).
i. ADMINISTRATIVE AND GENERAL DEPARTMENTAL EXPENSES
ADMINISTRATIVE AND GENERAL DEPARTMENTAL EXPENSES includes the payroll and
benefits costs for the general manager, accounting, human resources, and
security. Other operating expenses include such items as bad debt, credit
card commissions, liability insurance, professional fees, and office supplies.
We estimate administrative and general expenses at approximately $6,500 per
available room in 1997 value dollars, or 7.7 percent of total revenues. This
amount includes 1.5 percent of total revenues to account for variable
administrative expenses, primarily credit card commissions. The comparable
properties ranged from $4,933 to $7,550 PAR, with an average of $6,442 in
1995 value dollars.
ii. MARKETING DEPARTMENTAL EXPENSES
MARKETING DEPARTMENTAL EXPENSES includes the payroll and benefits costs for
the entire sales staff. Other operating expenses include such items as
advertising, travel, brochures, central marketing fees, and franchise fees
when applicable.
Marketing Expenses at the comparable properties ranged from $4,089 to $6,110
PAR in 1995, with a weighted average of $5,253 in 1995. We have assumed
that in a stabilized year, this expense will equal approximately $1,633,000
or approximately $5,900 PAR. We have used a relatively high amount for
marketing expenses as we believe that a strong market penetration effort will
be vital to establish a presence in the San Francisco Bay Area meetings and
conference market. In order to reflect the competitive situation in the early
years, we have assumed an increase in marketing expenditures of 10 percent in
the first year and 5 percent in the second year.
iii. PROPERTY OPERATIONS AND MAINTENANCE EXPENSES
PROPERTY OPERATIONS AND MAINTENANCE DEPARTMENTAL EXPENSES includes the
payroll and benefits costs for the entire maintenance staff. Other operating
expenses include such items as electrical/mechanical equipment, grounds and
landscaping (not associated with recreation), HVAC, kitchen equipment,
uniforms, tools and supplies, waste removal, and the non-capital replacement
of furniture, fixtures, and equipment.
The comparable properties ranged from $2,440 to $4,134 PAR, averaging $3,578
in 1995. We estimate this expense at $3,600 PAR at a stabilized operating
level.
- --------------------------------------------------------------------------------
46
<PAGE>
VALUATION
- --------------------------------------------------------------------------------
iv. ENERGY EXPENSES
ENERGY EXPENSES are the costs of electricity, fuel, water, steam, and sewer
incurred by the property. The comparable properties ranged from $2,405 to
$4,961 PAR, averaging $3,258 in 1995. A relatively low expense of $2,500 PAR in
the representative year is estimated for the subject property, which assumes
new, energy-efficient construction and also takes into account the mild
temperatures in Pacifica.
c. FIXED CHARGES AND MANAGEMENT FEES
MANAGEMENT FEE. We have assumed that the developer of the property would engage
the services of a professional management company, and we have reflected a
management fee of 3.0 percent of net revenues as the estimated management fee
for a stabilized year of operation. This fee is in-line with current industry
standards.
PROPERTY TAXES are estimated based on the market value of the property. The
subject property is in the real estate taxing jurisdiction of the San Mateo
County Tax Assessor's Office. Our estimate of the property taxes for the
subject is based on the provisions of Proposition 13. Proposition 13 limits
property taxes to 1.0 percent of the assessed value plus assessments for city,
special district, and county bonds. Assessed values are limited to a 2.0
percent increase per year, except upon sale or major alteration of a property.
The current weighted tax rate for the land and improvements is 1.0701 percent.
This appraisal assumes a sale of the subject property on the effective date of
the appraisal, which will initiate a reassessment of the real estate for tax
purposes. For the purpose of this analysis, the reassessment is based on the
market value estimate of the fee simple estate interest in the subject property
as determined using the income capitalization approach to value. Based on the
estimated value of the hotel, a tax rate of 1.05 per $100 of assessed value is
utilized, resulting in real estate taxes of $551,000, rounded, in the
representative or stabilized year of operation.
INSURANCE costs are estimated at $220,000 annually for a stabilized year based
on the operating performance of hotels in northern California.
RESERVE FOR REPLACEMENT is estimated at 4.0 percent annually, in keeping with
current industry standards.
6. ESTIMATED OPERATING RESULTS FOR A STABILIZED YEAR
Based on the previous analysis, presented on the following page is an estimate
of the proposed conference center's stabilized year operating results expressed
in current value 1997 dollars.
- --------------------------------------------------------------------------------
47
<PAGE>
MORI POINT CONFERENCE CENTER
REPRESENTATIVE YEAR OPERATING RESULTS (1997 $)
<TABLE>
Total Ratios Per Room Per ORN
-------------------------------------------
<S> <C> <C> <C> <C>
REVENUES
Rooms $9,897,000 42.6% $35,989 $145.00
Food 6,778,000 29.2% 24,647 99.30
Beverage 1,695,000 7.3% 6,164 24.83
Telephone 410,000 1.8% 1,491 6.01
Conference Services 3,413,000 14.7% 12,411 50.00
Other Departments 341,000 1.5% 1,240 5.00
Rentals and Other Income 683,000 2.9% 2,484 10.01
-------------------------------------------
Total Revenues 23,217,000 100.0% 84,425 340.15
-------------------------------------------
DEPARTMENTAL EXPENSES(1)
Rooms 2,078,000 21.0% 7,556 30.44
Food and Beverage 5,931,000 70.0% 21,567 86.89
Telephone 205,000 50.0% 745 3.00
Conference Services 1,706,000 50.0% 6,204 24.99
Other Departments 341,000 100.0% 1,240 5.00
-------------------------------------------
Total Departmental Expenses 10,261,000 44.2% 37,373 150.33
-------------------------------------------
DEPARTMENTAL INCOME 12,956,000 55.8% 47,113 189.82
-------------------------------------------
UNDISTRIBUTED OPERATING EXPENSES
Administrative and General 1,792,000 7.7% 6,516 26.25
Marketing 1,633,000 7.0% 5,938 23.92
Property Maintenance 990,000 4.3% 3,600 14.50
Energy and Utilities 688,000 3.0% 2,502 10.08
-------------------------------------------
Total Undistributed Expenses 5,103,000 22.0% 18,556 74.76
-------------------------------------------
INCOME BEFORE FIXED CHARGES 7,853,000 33.8% 28,556 115.05
-------------------------------------------
MANAGEMENT FEES AND FIXED CHARGES
Management Fees 697,000 3.0% 2,535 10.21
Property Taxes 550,000 2.4% 2,000 8.06
Insurance 220,000 0.9% 800 3.22
-------------------------------------------
Total 1,497,000 6.3% 5,335 21.49
-------------------------------------------
INCOME BEFORE RESERVE 6,386,000 27.5% 23,222 93.56
-------------------------------------------
Reserve for Replacement 929,000 4.0% 3,378 13.61
-------------------------------------------
INCOME BEFORE OTHER CHARGES(2) $5,457,000 23.5% $19,844 $79.95
-------------------------------------------
-------------------------------------------
Number of Rooms 275
Room Occupancy 68%
Average Room Rate $145.00
- -----------------------------------------------------------------------------
Notes: (1)Departmental expense ratios are based on
the respective department's revenue, not
total revenue.
(2)Income before amortization,
depreciation, and income taxes.
Numbers may not foot due to rounding.
Source: PKF CONSULTING
</TABLE>
- --------------------------------------------------------------------------------
48
<PAGE>
VALUATION
- -------------------------------------------------------------------------------
7. ESTIMATED ANNUAL OPERATING RESULTS FOR THE HOLDING PERIOD
The previous analysis provided for the income and expenses incurred in the
operation of the subject in a stabilized year of operation. In the following
analysis, we provide estimated income and expenses for the subject during each
year of the holding period anticipated by a typical investor. The estimate of
the performance for the subject in the stabilized year is used as a basis for
our analysis, adjusted to reflect the effects of inflation, business
development, and variations in occupancy.
a. HOLDING PERIOD
In the upcoming 1997 issue of the PKF Consulting publication HOSPITALITY
INVESTMENT SURVEY, the average holding period for investors interviewed for
full-service hotels is 7.0 years, with a range of between 3 and 30 years. In
the Fall 1996 edition of the Landauer Hotel Group's HOTEL INVESTMENT OUTLOOK,
the average holding period was 6.03 years with a range of between 3 and 10
years. Based on the foregoing, we have utilized a 10-year holding period,
representing the period from January 1, 2001 to December 31, 2010.
b. INFLATION
To portray price level changes during the holding period, we have assumed an
inflation rate of 3.0 percent throughout the projection period. This rate
reflects the consensus of several well-recognized economists for the current
long-term outlook for the future movement of prices and is consistent with the
inflation rates experienced in recent years. Property taxes are projected to
increase at a rate of 2.0 percent per year as required by law.
It should be noted that inflation is caused by many factors, and unanticipated
events and circumstances can affect the forecasted rate. Therefore, the
estimated operating results computed over the projection period will vary from
the actual operating results, and the variations may be material. Our
assumption of an annual 3.0 percent inflation factor portrays an expected long-
term trend in price movements over the projection period rather than a point in
time. This level of inflation is comparable to the CAGR in the Consumer Price
Index (CPI) for San Francisco-Oakland-San Jose since 1990, as shown in the
following table.
- -------------------------------------------------------------------------------
49
<PAGE>
VALUATION
- -------------------------------------------------------------------------------
SAN FRANCISCO-OAKLAND-SAN JOSE
AVERAGE INCREASE IN CPI
1990 TO 1996
-----------------------------------------
CONSUMER
YEAR PRICE INDEX
-----------------------------------------
1990 6.0%
1991 3.5%
1992 3.2%
1993 1.8%
1994 1.6%
1995 1.8%
1996 2.6%
-----------------------------------------
CAGR 2.4%
-----------------------------------------
Source: 1990 - 1996 U.S. DEPARTMENT OF LABOR
-----------------------------------------
c. OPERATING REVENUES AND EXPENSES DURING THE HOLDING PERIOD
Operating revenues and expenses for the subject are projected using the computer
model developed by PKF Consulting especially for use in hotel appraisal
analysis. The estimated operating revenues and expenses are based on the same
assumptions used to develop the stabilized year projection. Each item, however,
is adjusted to reflect the varying impact of the fixed and variable component of
each, i.e., the proportion of each that is affected by variations in occupancy.
In addition, each item is adjusted for inflation as previously discussed.
d. STATEMENT OF ESTIMATED ANNUAL OPERATING RESULTS DURING THE
HOLDING PERIOD
The estimated annual operating results for the proposed conference center at
Mori Point for the 10-year holding period beginning January 1, 2001 is presented
on the two following pages.
Page 1
Page 2
- -------------------------------------------------------------------------------
50
<PAGE>
<TABLE>
<CAPTION>
MORI POINT CONFERENCE CENTER
PROJECTED OPERATING RESULTS
--------------------------------------------------------------------------------------------
2001 2002 2003 2004 2005 2006 2007
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
REVENUES
Rooms $9,817,000 $10,792,000 $11,808,000 $12,139,000 $12,559,000 $12,900,000 $13,310,000
Food 6,996,000 7,532,000 8,093,000 8,436,000 8,586,000 8,844,000 9,109,000
Beverage 1,749,000 1,883,000 2,023,000 2,084,000 2,147,000 2,211,000 2,277,000
Telephone 407,000 447,000 489,000 504,000 519,000 534,000 550,000
Conference Services 3,389,000 3,724,000 4,075,000 4,197,000 4,323,000 4,453,000 4,586,000
Other Departments 339,000 372,000 408,000 420,000 432,000 445,000 459,000
Rentals and Other Income 678,000 745,000 815,000 839,000 865,000 891,000 917,000
--------------------------------------------------------------------------------------------
Total Revenues 23,375,000 25,495,000 27,711,000 28,529,000 29,431,000 30,278,000 31,208,000
--------------------------------------------------------------------------------------------
DEPARTMENTAL EXPENSES(1)
Rooms 2,202,000 2,339,000 2,482,000 2,556,000 2,633,000 2,712,000 2,793,000
Food and Beverage 6,343,000 6,705,000 7,082,000 7,294,000 7,513,000 7,739,000 7,970,000
Telephone 203,000 223,000 245,000 252,000 259,000 267,000 275,000
Conference Services 1,695,000 1,862,000 2,038,000 2,099,000 2,162,000 2,226,000 2,293,000
Other Departments 339,000 372,000 408,000 420,000 432,000 445,000 459,000
--------------------------------------------------------------------------------------------
Total Deparmental Expenses 10,782,000 11,501,000 12,255,000 12,621,000 12,999,000 13,389,000 13,790,000
--------------------------------------------------------------------------------------------
DEPARTMENTAL INCOME 12,593,000 13,994,000 15,456,000 15,908,000 16,432,000 16,889,000 17,418,000
--------------------------------------------------------------------------------------------
UNDISTRIBUTED OPERATING EXPENSES
Administrative and General 1,976,000 2,056,000 2,140,000 2,204,000 2,270,000 2,338,000 2,408,000
Marketing 1,964,000 1,960,000 1,950,000 2,008,000 2,070,000 2,131,000 2,195,000
Property Maintenance 1,114,000 1,148,000 1,182,000 1,218,000 1,254,000 1,292,000 1,330,000
Energy and Utilities 774,000 797,000 821,000 846,000 871,000 897,000 924,000
--------------------------------------------------------------------------------------------
Total Undistributed Expenses 5,828,000 5,961,000 6,093,000 6,276,000 6,465,000 6,658,000 6,857,000
--------------------------------------------------------------------------------------------
INCOME BEFORE FIXED CHARGES 6,765,000 8,033,000 9,363,000 9,632,000 9,967,000 10,231,000 10,561,000
--------------------------------------------------------------------------------------------
MANAGEMENT FEES AND FIXED CHARGES
Management Fees 701,000 765,000 831,000 856,000 883,000 908,000 936,000
Property Taxes 595,000 607,000 620,000 632,000 645,000 657,000 671,000
Insurance 248,000 255,000 263,000 271,000 279,000 287,000 296,000
--------------------------------------------------------------------------------------------
Total 1,544,000 1,627,000 1,714,000 1,759,000 1,807,000 1,852,000 1,903,000
--------------------------------------------------------------------------------------------
INCOME BEFORE RESERVE 5,221,000 6,406,000 7,649,000 7,873,000 8,160,000 8,379,000 8,658,000
--------------------------------------------------------------------------------------------
Reserve for Replacement 935,000 1,020,000 1,108,000 1,141,000 1,177,000 1,211,000 1,248,000
--------------------------------------------------------------------------------------------
INCOME BEFORE OTHER CHARGES(2) $4,286,000 $5,386,000 $6,541,000 $6,732,000 $6,983,000 $7,168,000 $7,410,000
--------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------
Number of Rooms 275 275 275 275 275 275 275
Room Occupancy 60% 64% 68% 68% 68% 68% 68%
Average Room Rate $163.00 $168.00 $173.00 $178.00 $184.00 $189.00 $195.00
<CAPTION>
--------------------------------------
2008 2009 2010
--------------------------------------
<S> <C> <C> <C>
REVENUES
Rooms $13,719,000 $14,129,000 $14,538,000
Food 9,382,000 9,664,000 9,954,000
Beverage 2,346,000 2,416,000 2,489,000
Telephone 567,000 584,000 601,000
Conference Services 4,724,000 4,866,000 5,012,000
Other Departments 472,000 487,000 501,000
Rentals and Other Income 945,000 973,000 1,002,000
-------------------------------------
Total Revenues 32,155,000 33,119,000 34,097,000
-------------------------------------
DEPARTMENTAL EXPENSES(1)
Rooms 2,877,000 2,963,000 3,052,000
Food and Beverage 8,210,000 8,456,000 8,710,000
Telephone 283,000 292,000 301,000
Conference Services 2,362,000 2,433,000 2,506,000
Other Departments 472,000 487,000 501,000
-------------------------------------
Total Deparmental Expenses 14,204,000 14,631,000 15,070,000
-------------------------------------
DEPARTMENTAL INCOME 17,951,000 18,488,000 19,027,000
-------------------------------------
UNDISTRIBUTED OPERATING EXPENSES
Administrative and General 2,481,000 2,555,000 2,632,000
Marketing 2,262,000 2,330,000 2,399,000
Property Maintenance 1,370,000 1,412,000 1,454,000
Energy and Utilities 952,000 980,000 1,010,000
-------------------------------------
Total Undistributed Expenses 7,065,000 7,277,000 7,495,000
-------------------------------------
INCOME BEFORE FIXED CHARGES 10,886,000 11,211,000 11,532,000
-------------------------------------
MANAGEMENT FEES AND FIXED CHARGES
Management Fees 965,000 994,000 1,023,000
Property Taxes 684,000 698,000 712,000
Insurance 305,000 314,000 323,000
-------------------------------------
Total 1,954,000 2,006,000 2,058,000
-------------------------------------
INCOME BEFORE RESERVE 8,913,000 9,205,000 9,474,000
-------------------------------------
Reserve for Replacement 1,286,000 1,325,000 1,364,000
-------------------------------------
INCOME BEFORE OTHER CHARGES(2) $7,646,000 $7,880,000 $8,110,000
-------------------------------------
-------------------------------------
Number of Rooms 275 275 275
Room Occupancy 68% 68% 68%
Average Room Rate $201.00 $207.00 $213.00
- -----------------------------------------------------------------------------------------------------------------------------------
NOTES 1 Departmental expense ratios are based on the respective department's revenue, not total revenue
2 Income before amortization, depreciation and income taxes
Numbers may not foot due to rounding
Source PKF Consulting
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- -------------------------------------------------------------------------------
51
<PAGE>
MORI POINT CONFERENCE CENTER
Ratios to Revenue
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
REVENUES
Rooms 42.0% 42.3% 42.6% 42.6% 42.7% 42.6% 42.6% 42.7% 42.7% 42.6%
Food 29.9% 29.5% 29.2% 29.2% 29.2% 29.2% 29.2% 29.2% 29.2% 29.2%
Beverage 7.5% 7.4% 7.3% 7.3% 7.3% 7.3% 7.3% 7.3% 7.3% 7.3%
Telephone 1.7% 1.8% 1.8% 1.8% 1.8% 1.8% 1.8% 1.8% 1.8% 1.8%
Conference Services 14.5% 14.6% 14.7% 14.7% 14.7% 14.7% 14.7% 14.7% 14.7% 14.7%
Other Departments 1.5% 1.5% 1.5% 1.5% 1.5% 1.5% 1.5% 1.5% 1.5% 1.5%
Rentals and Other Income 2.9% 2.9% 2.9% 2.9% 2.9% 2.9% 2.9% 2.9% 2.9% 2.9%
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total Revenues 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
DEPARTMENTAL EXPENSES(1)
Rooms 22.4% 21.7% 21.0% 21.0% 21.0% 21.0% 21.0% 21.0% 21.0% 21.0%
Food and Beverage 72.5% 71.2% 70.0% 70.0% 70.0% 70.0% 70.0% 70.0% 70.0% 70.0%
Telephone 49.9% 49.9% 50.1% 50.0% 49.9% 50.0% 50.0% 49.9% 50.0% 50.1%
Conference Services 50.0% 50.0% 50.0% 50.0% 50.0% 50.0% 50.0% 50.0% 50.0% 50.0%
Other Departments 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total Departmental Expenses 46.1% 45.1% 44.2% 44.2% 44.2% 44.2% 44.2% 44.2% 44.2% 44.2%
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
DEPARTMENTAL INCOME 53.9% 54.9% 55.8% 55.8% 55.8% 55.8% 55.8% 55.8% 55.8% 55.8%
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
UNDISTRIBUTED OPERATING EXPENSES
Administrative and General 8.5% 8.1% 7.7% 7.7% 7.7% 7.7% 7.7% 7.7% 7.7% 7.7%
Marketing 8.4% 7.7% 7.0% 7.0% 7.0% 7.0% 7.0% 7.0% 7.0% 7.0%
Property Maintenance 4.8% 4.5% 4.3% 4.3% 4.3% 4.3% 4.3% 4.3% 4.3% 4.3%
Energy and Utilities 3.3% 3.1% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0%
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total Undistributed Expenses 24.9% 23.4% 22.0% 22.0% 22.0% 22.0% 22.0% 22.0% 22.0% 22.0%
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
INCOME BEFORE FIXED CHARGES 28.9% 31.5% 33.8% 33.8% 33.9% 33.8% 33.8% 33.9% 33.9% 33.8%
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
MANAGEMENT FEES AND FIXED CHARGES
Management Fees 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0%
Property Taxes 2.5% 2.4% 2.2% 2.2% 2.2% 2.2% 2.2% 2.1% 2.1% 2.1%
Insurance 1.1% 1.0% 0.9% 0.9% 0.9% 0.9% 0.9% 0.9% 0.9% 0.9%
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total 6.6% 6.4% 6.2% 6.2% 6.1% 6.1% 6.1% 6.1% 6.1% 6.0%
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
INCOME BEFORE RESERVE 22.3% 25.1% 27.6% 27.6% 27.7% 27.7% 27.7% 27.8% 27.8% 27.8%
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Reserve for Replacement 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% 4.0%
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
INCOME BEFORE OTHER CHARGES(2) 18.3% 21.1% 23.6% 23.6% 23.7% 23.7% 23.7% 23.8% 23.8% 23.8%
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Number of Rooms 275 275 275 275 275 275 275 275 275 275
Room Occupancy 60% 64% 68% 68% 68% 68% 68% 68% 68% 68%
Average Room Rate $163.00 $168.00 $171.00 $178.00 $184.00 $189.00 $195.00 $201.00 $207.00 $233.00
- ----------------------------------------------------------------------------------------------------------------------------------
Notes (1) Departmental expense rates are based on the respective department's revenue, not total revenue
(2) Income before amortization, depreciation, and income taxes
Numbers may not foot due to rounding
Source P&E CONSULTING
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- -------------------------------------------------------------------------------
52
<PAGE>
VALUATION
- -------------------------------------------------------------------------------
8. DISCOUNTED CASH FLOW ANALYSIS
To estimate the value of the subject using a discounted cash flow analysis, it
is assumed that the property will be sold at the end of the tenth year of a
typical ten-year holding period. The value of the property at that time is
estimated by capitalizing the expected or anticipated net operating income of
the property in the eleventh year.
We have researched several recent investment surveys which collect data on
current going-in capitalization rates for hotels and resorts. The results are
summarized as follows.
-------------------------------------------------------------------
Source Range Average
-------------------------------------------------------------------
PKF Consulting
HOSPITALITY INVESTMENT SURVEY 8.3% to 15.0% 10.90%
1997*
-------------------------------------------------------------------
Peter F. Korpacz & Associates, Inc.
REAL ESTATE INVESTOR SURVEY 6.0% - 15.0% 10.29%
Second Quarter 1996
-------------------------------------------------------------------
Landauer Hotel Group
HOTEL INVESTMENT OUTLOOK 7.0% to 13.0% 9.75%
First Half 1996
-------------------------------------------------------------------
Real Estate Research Corporation 10.0% to 12.0% 10.60%
REAL ESTATE REPORT
Third Quarter 1996
-------------------------------------------------------------------
* Preliminary - not yet released
Full-service Capitalization Rates
-------------------------------------------------------------------
The indicated range of going-in capitalization rates from the preceding surveys
ranged between 6.0 and 15.0 percent, with an average of between 9.75 and 10.60
percent. Based on an analysis using the published surveys, it is our opinion
that an overall capitalization rate of 11.0 percent would be warranted for the
proposed conference center if sold as of its opening. This rate is adjusted to
11.5 percent, 50 basis points higher than the current overall rate for the
terminal rate upon reversion. The higher terminal rate reflects the increased
age of the improvements at the end of the tenth year, as well as the added
uncertainty of the projecting operating performance of the subject ten years
hence.
a. NET PROCEEDS UPON SALE (REVERSION)
To estimate the reversionary value of the subject at the termination of the
holding period, we have capitalized the net operating income for the property
for the year of operation immediately following the sale (in this case, the net
operating income in 2011). To obtain the net proceeds upon sale, we then deduct
from this indicated value a charge for sales commissions and other costs of sale
of 3.0 percent.
- -------------------------------------------------------------------------------
53
<PAGE>
VALUATION
- -------------------------------------------------------------------------------
To estimate the net operating income in 2011, we first add back property taxes
to the 10th year cash flow, then assume an escalation equal to the 3.0 percent
inflation rate. This calculation yields an estimated pretax operating income of
$9,087,000 (($8,110,000 + $712,000) x 1.03).
We then capitalize this net income by an adjusted terminal capitalization rate
which is the sum of the 11.5 percent reversionary rate and the tax rate (11.5% +
1.05% = 12.55%). This equates to a reversionary value of $72,406,000 as
calculated below.
-----------------------------------------------------------------
Estimated 11th Year Pre-Tax Net Operating Income $9,087,000
-----------------------------------------------------------------
Capitalization Rate 11.50%
Effective Levy Rate 1.05%
Reversionary Capitalization Rate 12.55%
-----------------------------------------------------------------
Reversionary Value $72,406,000
-----------------------------------------------------------------
To estimate the net proceeds upon sale, it is necessary to deduct a sales
commission from the indicated value upon sale as calculated below:
---------------------------------------------
Indicated Value in 2010 Less: $72,406,000
Sales Commission at 3% (2,172,000)
---------------------------------------------
Net Proceeds Upon Sale $70,234,000
---------------------------------------------
b. DISCOUNT RATE
The discount rate reflects the overall rate of return expected by the investor,
weighing the relative riskiness of the investment in relation to other
investment vehicles and the perceived risk of each component in the operation of
the facility. In order to estimate an appropriate discount rate for the
subject, several investor surveys were reviewed that report both capitalization
and discount rates for hotel investments. The results are presented in the
following table.
- -------------------------------------------------------------------------------
54
<PAGE>
VALUATION
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
CAPITALIZATION AND DISCOUNT RATE RESULTS
- -----------------------------------------------------------------------------------------------------
Average Overall Average Overall
Capitalization Rate Discount Rate
-------------------------------------------------- Average
Average Range Average Range Spread
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PKF Consulting
HOSPITALITY INVESTMENT SURVEY 10.9% 8.3% to 15.0% 15.1% 13.9%-18.0% 4.2%
1997*
- -----------------------------------------------------------------------------------------------------
Peter F. Korpacz & Associates, Inc.
REAL ESTATE INVESTOR SURVEY 12.5% 9.0%-17.0% 15.5% 12.0%-20.0% 3.0%
Second Quarter 1996
- -----------------------------------------------------------------------------------------------------
Real Estate Research Corporation
REAL ESTATE REPORT 10.6% 10.0%-11.5% 13.2% 12.0%-15.0% 2.6%
Second Quarter 1995
- -----------------------------------------------------------------------------------------------------
Landauer Hotel Group
HOTEL INVESTOR OUTLOOK 11.5% 10.0%-14.0% 14.2% 10.0%-20.0% 2.7%
First Half 1996
- -----------------------------------------------------------------------------------------------------
Valuation International, Ltd.
Viewpoint 1996 10.9% 8.5%-13.0% 13.2% 9.0%-16.0% 2.2%
1995 Overall
- -----------------------------------------------------------------------------------------------------
CB Commercial
NATIONAL INVESTOR SURVEY 11.3% 10.0%-14.0% 13.3% 13.0%-13.5% 2.0%
Third Quarter 1995
- -----------------------------------------------------------------------------------------------------
* Preliminary - not yet released
Full-service Capitalization Rates
- -----------------------------------------------------------------------------------------------------
</TABLE>
As can be noted, the discount rates for hotels based on these surveys ranged
between 9.0 and 20.0 percent, with an average of between 13.2 and 15.5 percent.
In addition, the "spread" between the going-in overall capitalization rates and
the discount rates ranged between 2.0 to 4.2 percent, which is consistent with
our overall growth rate assumption of 3.0 percent used for most income and
expense items. This spread would indicate an appropriate discount rate to value
the subject of between 13.0 and 15.2 percent, based on the 11.0 percent going-in
overall rate. Based on these results, we have used a 14.0 percent discount
rate, or 3.0 percent above our assumed capitalization rate, and within the
reviewed survey ranges.
c. VALUATION CALCULATION - DISCOUNTED CASH FLOW ANALYSIS
Presented in the following table is the present value of the projected net
operating income of the subject for the ten year holding period beginning
January 1, 2001, along with the present value of the reversion deriving a
prospective value estimate.
- -------------------------------------------------------------------------------
55
<PAGE>
VALUATION
- -------------------------------------------------------------------------------
----------------------------------------------------------------------
PROPOSED CONFERENCE CENTER AT MORI POINT
DISCOUNTED CASH FLOW ANALYSIS
----------------------------------------------------------------------
CASH FLOW FROM PRESENT VALUE PRESENT VALUE
YEAR OPERATIONS FACTOR @ 14.0%
---------------------------------------------------------------------
2001 $4,286,000 0.8772 $3,759,649
2002 $5,386,000 0.7695 $4,144,352
2003 $6,541,000 0.6750 $4,414,989
2004 $6,732,000 0.5921 $3,985,884
2005 $6,983,000 0.5194 $3,626,751
2006 $7,168,000 0.4556 $3,265,644
2007 $7,410,000 0.3996 $2,961,313
2008 $7,646,000 0.3506 $2,680,375
2009 $7,880,000 0.3075 $2,423,163
2010 $8,110,000 0.2697 $2,187,622
----------------------------------------------------------------------
Reversion $70,234,000 0.2697 $18,945,187
----------------------------------------------------------------------
Net Present Value $52,394,929
----------------------------------------------------------------------
Value, Rounded $52,400,000
----------------------------------------------------------------------
SOURCE: PKF CONSULTING
----------------------------------------------------------------------
Thus, based on the income generated from the hotel's operations and its value
upon sale, the prospective market value of the fee simple estate in the subject
conference center as of January 1, 2001, based on a discounted cash flow
analysis is $52,400,000 or $191,000 per available room.
9. DEDUCTION FOR THE COSTS TO OPEN THE CONFERENCE CENTER
In order to estimate the "as is" value of the subject under this development
scenario, the costs for the construction of the proposed conference center must
be deducted from the estimated prospective market value. As described in the
Property Description section, the subject property is expected to have a total
of 213,375 square feet, which includes the guest rooms, meeting space,
restaurants, other public space, back-of-the house and mechanical space, and
circulation. This is equivalent to 776 square feet per guest room.
The development cost for the subject improvements was derived by application of
current cost factors from a nationally recognized costing index providing cost
data on similar-type properties.
The cost estimates includes all hard and some soft construction costs,
including:
1. Average architects' and engineers' fees, including plans,
building permits, and surveys to establish building lines and grades;
2. Normal interest on building funds during periods of construction
and associated processing fees or service charges;
- -------------------------------------------------------------------------------
56
<PAGE>
VALUATION
- -------------------------------------------------------------------------------
3. Sales taxes on materials;
4. Normal site preparation, including excavation for foundation and
back fill;
5. Utilities from the structure to lot line figured for typical
setback; and,
6. Contractors' overhead and profit, including job supervision,
workmen's compensation, fire and liability insurance, and
unemployment insurance.
a. BUILDING IMPROVEMENTS
In estimating the development cost of the subject, we utilized Marshall &
Swift's MARSHALL VALUATION SERVICE.
In the system utilized by MARSHALL VALUATION SERVICE, the subject is expected to
be classified as a good condition, Class B hotel structure. The fully indexed
cost for a facility of this type is approximately $119.70 per square foot. The
resulting value of the improvements in current value, 1997 value dollars is
approximately $25,541,000, based on the total of 213,375 square feet. This
amount takes into account the subject's assumed construction type and mechanical
systems. Added to this is our estimated cost of $433,000 for parking. The
total cost of the building and site improvements is $25,974,000 (rounded) in
current value (1997) dollars.
b. PERSONAL PROPERTY
Personal property, more commonly known as furniture, fixtures, and equipment
(FF&E), are generally considered to be a part of the hotel property and are
typically sold with the building. They are therefore considered to be a part of
the property's total value. FF&E includes the hotel's guest room and public
area furnishings, kitchen equipment, service/maintenance equipment and other
machinery. Based on our review of the FF&E cost for typical full service
hotels, resorts, and conference centers, we have estimated the value of the
FF&E to be approximately $20,000 per room, or a total value of $5,500,000.
c. INFRASTRUCTURE/PRE-DEVELOPMENT
As discussed previously, while the property has been zoned for the proposed use,
through a public vote in 1984, all of the required approvals have expired.
Therefore, the development process will include several necessary steps
including the endangered species evaluation, environmental impact report, etc.
Additionally, the infrastructure needed to provide access and services to the
project, including the road, utilities, and sewage, are expected to be
significant. While no specific estimates of these costs have been provided, we
have made estimates based on Marshall & Swift's
- -------------------------------------------------------------------------------
57
<PAGE>
VALUATION
- -------------------------------------------------------------------------------
costs for road and utility improvements, and assumptions regarding the costs
of the special studies needed. In total, we have estimated $1,500,000 for
infrastructure and pre-development costs.
d. INDIRECT COSTS
In addition to the foregoing direct costs, there are indirect costs associated
with the development of a hotel. Typical indirect costs include legal title and
escrow fees, real estate taxes, financing costs, and working capital.
a) LEGAL, TITLE, AND ESCROW FEES represents the costs in each of
these areas to complete the development of the property. We
estimate it will cost 1.0 percent of the cost of building
improvements, which amounts to (rounded) $268,000.
b) REAL ESTATE TAXES represent the amount of property tax associated
with the land and improvements of the project incurred during the
development period, estimated to be 3 1/2 years. After the
purchase, the property tax would be assessed on the full value of
the land. Based on the estimated value of the land and the
current tax rate, plus the special assessments, we estimate a
total real estate tax of $473,000 for the subject while under
development.
c) PRE-OPENING COSTS include pre-opening marketing, training, and
administrative expenditures. Our review of these costs for
typical hotels indicates a cost of $3,800 per room, or
$1,045,000. Based on our experience, we are of the opinion that
this level of expense is appropriate for the subject conference
center.
d) FINANCING COSTS represent the costs associated with obtaining
construction and permanent financing for the subject. This cost
is primarily composed of "points" associated with these loans.
Construction period interest is already included in Marshall &
Swifts' base cost estimates. Based on discussions with
representatives of several major financial institutions, the
typical fee for a loan for a property such as the subject would
be 1.75 percent based on a 65 percent loan-to-value ratio,
including land. We have applied the 1.75 percent to the full
value of the development cost net of contingency, operating
reserve, and land. Based on this total development cost of
approximately $35,000,000, this would result in a financing cost
of approximately $600,000.
e) A CONTINGENCY equal to 4.0 percent of the hard construction costs
has been included to account for cost overruns.
- -------------------------------------------------------------------------------
58
<PAGE>
VALUATION
- -------------------------------------------------------------------------------
f) OPERATING RESERVE is a working capital reserve to maintain
adequate cash flow until the hotel achieves a break-even point.
We have estimated that 4.0 percent of building improvement costs,
or $1,022,000, would be adequate for this purpose. This also
equates to approximately 5.6 percent of operating expenses for
the first year.
g) ENTREPRENEURIAL PROFIT is not an estimate of the general
contractor's profit, which has already been accounted for, but is
an additional profit to the developer for combining the factors
of production in the development of a property. Entrepreneurial
profit varies from developer to developer, from development to
development, and market to market. Furthermore, desired risks,
as well as independent capital return criteria influence the
level of the profit margin. Entrepreneurial profit typically
ranges from 10 to 20 percent of total costs (including land) in
developments such as the subject property. Given the time it
will take to go through the approval and pre-development process,
and the risk of the project potentially being slowed down or even
denied altogether due to environmental concerns, It is our
opinion that a 20 percent level of entrepreneurial profit is
appropriate for the subject property, which equates to
$7,473,000, rounded (20% x $37,363,000).
e. DEVELOPMENT TIME ADJUSTMENT
As discussed in the Property Description, section we have estimated the project
would be open by January 1, 2001. This indicates approximately 3.5 years from
the current date (the date of valuation) to the prospective opening date. We
have therefore made an adjustment for the time required to complete the
development.
In the estimates of future cash flow for the subject, we have assumed a 3.0
percent inflation rate for income and expenses, based on historical and
projected CPI increases. For the development costs, some of the costs have been
estimated through the overall time line, such as the pre-development costs and
the real estate taxes. Furthermore, the costs will be incurred progressively
throughout the 3.5 year development period. Therefore, we have used a 5.0
percent adjustment for all of the costs to reflect increases between now and the
projected date of opening.
10. DEVELOPMENT COST SUMMARY
The following table presents a summary of the estimated development cost for the
subject property.
- -------------------------------------------------------------------------------
59
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PROPOSED CONFERENCE CENTER AT MORI POINT
ESTIMATED DEVELOPMENT COST
- --------------------------------------------------------------------------------
PER PERCENT
TOTAL ROOM OF TOTAL
-------------------------------------
CONSTRUCTION - BASE $26,818,000 $97,520 57.0%
CONSTRUCTION - PARKING 433,000 1,575 0.9%
FF&E/TI 5,775,000 21,000 12.3%
INFRASTRUCTURE/PRE-DEVELOPMENT 1,575,000 5,727 3.3%
LEGAL, TITLE, AND ESCROW 268,000 975 0.6%
REAL ESTATE TAXES 473,000 1,720 1.0%
PRE-OPENING EXPENSES 1,097,000 3,989 2.3%
CONTINGENCY 1,090,000 3,964 2.3%
FINANCE COSTS 630,000 2,291 1.3%
OPERATING RESERVE 1,073,000 3,902 2.3%
-------------------------------------
SUBTOTAL 39,232,000 142,662 83.3%
-------------------------------------
ENTREPRENEURIAL PROFIT $7,847,000 28,535 16.7%
TOTAL PROJECT COST $47,079,000 $171,196 100.0%
-------------------------------------
-------------------------------------
ROUNDED $47,100,000 $171,000
- --------------------------------------------------------------------------------
Source: PKF CONSULTING, MARSHALL & SWIFT
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
60
<PAGE>
VALUATION
- -------------------------------------------------------------------------------
11. ESTIMATED "AS IS" VALUE OF THE SUBJECT
From our estimate of the prospective market value derived from the Discounted
Cash Flow Analysis, $52,400,000, we then deduct the costs to develop the
proposed conference center. This calculation is shown in the following table.
-----------------------------------------------------------
Market Value, Discounted Cash Flow Analysis $52,400,000
-----------------------------------------------------------
Less: Total Project Costs $47,100,000
-----------------------------------------------------------
Market Value, Rounded $ 5,300,000
-----------------------------------------------------------
Therefore, our conclusion as to the market value "as is" of the fee simple
estate interest in the subject using the Subdivision Development (Discounted
Cash Flow) Analysis, as of May 1, 1997, is:
-------------------------------------------
FIVE MILLION THREE HUNDRED THOUSAND DOLLARS
-------------------------------------------
$5,300,000
-------------------------------------------
C. GROUND RENT CAPITALIZATION
Ground rent can be capitalized at an appropriate rate to indicate the market
value of a site. Ground rent is defined as the amount paid for the right to use
and occupy the land according to the terms of a ground lease. It corresponds to
the value of the land owner's interest in the land, the lease fee interest.
As previously discussed, the subject is owned in fee simple estate and not
encumbered with a ground lease. However, the market value of the subject site
can be estimated using this approach by estimating an appropriate "hypothetical"
ground rent for the subject. This ground rent would be then converted into a
value estimate by applying a market derived ground rent capitalization rate.
The use of this approach is particularly appropriate for special use properties
such as hotels, where there is not a sufficient number of truly comparable land
sales to accurately estimate the value of the site using the Sales Comparison
Approach. If the estimated rent corresponds to market rent, the value
indication obtained by applying a market capitalization rate will be equivalent
to the market value of the fee simple interest in the land.
The first step in valuing the subject site using this method is to estimate the
market rent for the site. Ground rent for hotels are typically calculated as
percentage of revenues. Our research in the local market indicates that the
typical ground rent for a full-service
- -------------------------------------------------------------------------------
61
<PAGE>
VALUATION
- -------------------------------------------------------------------------------
hotel approximates 4.0 percent of total sales. Based on this hypothetical
ground rent, the rent expense for a 275-room hotel/conference center based on
the stabilized year revenues projected in the prior section (page 47), would
be $929,000, as detailed below.
------------------------------------------------
ESTIMATED TOTAL PERCENTAGE RENT
REVENUES RENTAL EXPENSES
------------------------------------------------
$23,217,000 4.0% $929,000
------------------------------------------------
Based on our discussions with persons familiar with ground lease transactions,
we have been informed that most land owners typically would require an 8.0 to
10.0 percent return on the value of a site in the San Francisco Bay Area.
Based on a 10.0 percent capitalization rate, the calculated market value of the
subject's underlying land utilizing this approach is as follows.
---------------------------------------------
Projected Stabilized Ground Rent $929,000
Ground Rent Capitalization Rate 10.0%
Estimated Value of the Site $9,290,000
---------------------------------------------
Rounded To $9,300,000
---------------------------------------------
As can be noted, we estimate that the value of the subject utilizing the ground
rent capitalization approach is approximately $9.3 million, or $33,818 per room.
However, this reflects the value of the site assuming that the development of
the hotel is completed and the property is available for occupancy. In order to
estimate the current value of the site a discount to this value must be applied
to reflect the risks associated with obtaining the required approvals. In
addition, a discount must also be applied to reflect the opportunity cost of
holding the site until the hotel is available for development.
While there are no specific guidelines for this type of discount, based on our
discussions with persons knowledgeable in the development of hotels, we were
informed that a downward adjustment of between 30.0 and 40.0 percent from the
value of the site assuming the hotel is ready for construction is appropriate.
Based on an adjustment or discount of 35.0 percent, the "as is" value of the
Mori Point site is estimated to approximate $6.0 million using this approach.
- --------------------------------------------------------------------------------
Value of Site if Hotel is Operational $9,300,000
Less: Discount for Development Risk and Opportunity Cost (35.0%) ($3,300,000)
- --------------------------------------------------------------------------------
Estimated "As Is" Value of Site $6,000,000
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
62
<PAGE>
VALUATION
- -------------------------------------------------------------------------------
D. SALES COMPARISON APPROACH
1. INTRODUCTION
The Sales Comparison Approach is generally the most common technique valuing
land and it is the preferred method when comparable sales are available. To
apply this method, sales of similar parcels of land are analyzed, compared,
and adjusted to provide a value indication for the land being appraised. In
the comparison process, the similarity or dissimilarity of the parcel is
considered.
Elements of comparison include property rights, financing terms, conditions
of sale (motivation), market conditions (sale date), location, physical
characteristics, available utilities, and zoning. Physical characteristics
of the site include its size and shape, frontage, topography, location, and
view. Unit prices may be expressed as price per square foot, front foot, lot
developable unit, or other unit used in the market. For a hotel/conference
center development site such as the subject, the typical unit of comparison
is price per guest room.
It should be noted that land should be valued based on its highest and best
use. This is required in order to value the site under its optimal potential
use. For the subject, as previously discussed, this would be for the
development of a hotel/conference center.
In performing our valuation of the subject using the Sales Comparison
Approach , it is therefore necessary that the highest and best use of any
comparable sales be the same or similar to that of the subject. Accordingly,
we have performed an extensive search for coastal oriented sites zoned for
the development of a lodging facility.
We first attempted to identify only sales which have occurred during the past
12 to 18 months. However, due to the limited number of transactions during
this period, we were required to broaden this time period. From a geographic
standpoint, we primarily focused on transactions which have occurred along
Monterey Bay, Half Moon Bay, and in Pacifica. Based on this search we were
able to identify eight transactions involving sites zoned and approved for
the development of a hotel, motel, or resort. These eight sales are
summarized in the following table.
- -------------------------------------------------------------------------------
63
<PAGE>
VALUATION
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
SUMMARY OF COMPARABLE LAND SALES
- -----------------------------------------------------------------------------------------------------------------------------------
SALE SITE SALES
NO. AREA TYPE OF LODGING SALE PRICE
LOCATION DATE OF SALE (ACRES) PRICE PER
GUEST
ROOM
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Subject Mori Point, Pacifica N/A 104.98 275-room conference hotel N/A N/A
- -----------------------------------------------------------------------------------------------------------------------------------
1 Ocean Blvd. inland from In Escrow 4.43 120-room limited-service hotel $1,250,000 $10,417
Hwy. 1 in Pacifica Closing in 60 days
- -----------------------------------------------------------------------------------------------------------------------------------
2 Off Hwy. 1 in Half Moon Bay In Escrow 1.15 40-room motel $585,000 $14,625
- -----------------------------------------------------------------------------------------------------------------------------------
3 4100 N. Cabrillo Hwy., El Grande 4/19/96 1.567 54-room Beach House inn $2,020,000 $37,407
(Beach House inn)
- -----------------------------------------------------------------------------------------------------------------------------------
4 Adjacent to New Brighton State 12/1/93 72.5 Zoned for 105 rooms. Purchased $3,580,000 $34,095
Beach by State to preserve open space.
- -----------------------------------------------------------------------------------------------------------------------------------
5 4200 N. Cabrillo Hwy., El Granada 2/21/93 .618 Approved for a 21-unit motel $527,000 $25,095
- -----------------------------------------------------------------------------------------------------------------------------------
6 Seascape Resort, Aptos 10/1/89 80.0 Seascape Resort approved for 290 $8,450,000 $29,137
units
- -----------------------------------------------------------------------------------------------------------------------------------
7 Main & Purissima Streets, north of 6/1/90 1.14 Proposed 40-room hotel $698,000 $17,450
Mills in Half Moon Bay
- -----------------------------------------------------------------------------------------------------------------------------------
8 Lighthouse Inn, Pacifica 4/85 1.7 Approved for a 93- unit hotel - $2,325,000 $25,000
subsequently developed as the
Lighthouse Inn
- -----------------------------------------------------------------------------------------------------------------------------------
Source: PKF CONSULTING AND COMPS INFOSYSTEMS, INC.
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
2. ANALYSIS OF SALES
As can be noted, the above eight sales range in size from less than one acre to
approximately 80 acres. The number of hotel rooms approved for each site ranged
from 20 to a high of 290 units, with the resulting value per room ranging from a
low of $10,417 for an inland parcel (Sale No. 1) to a high of $37,407 for the
April, 1996 sale of the site for the Beach House Inn located in El Granada (Sale
No. 3).
Of these eight transactions, we are of the opinion that the subject is most
comparable to Sales No. 3, 4, 5 and 6. These four sales are discussed in more
detail in the following paragraphs.
SALE NO. 3 is the April, 1996 transfer of a 1.567 acre parcel in El
Granada. The site was fully entitled and architectural plans completed for
the development of a 54-unit motel. The sales price was $2,020,000, or
$37,407 per room. Construction on the hotel began immediately, with the
property available for occupancy in April of this year. The hotel, which
was named the Beach House Inn, is structured a condominium facility, with
individual units available for sale to investors. Although this site is
much smaller than the subject, it has direct ocean views.
- -------------------------------------------------------------------------------
64
<PAGE>
VALUATION
- -------------------------------------------------------------------------------
SALE NO. 4 is a December, 1993 transfer of 72.5 acres located next to
Brighton State Beach in Santa Cruz. Although the site was zoned for the
development of 105 units, the property was purchased by the State to
preserve open space. In comparison to the subject, we are of the opinion
that the property is somewhat superior given its location in Santa Cruz, a
more established beach destination.
SALE NO. 5 is the transfer of a small .618 acre parcel located next to Sale
No. 4 in El Granada. This sale, which occurred in February of 1993, was
approved for the development of a 21-unit motel. The sales price was
$527,000, or $25,095 per unit. To date, no development activity has
occurred on this site.
SALE NO. 6 is the 1989 sale of an 80 acre parcel on which the Sea Scape
Resort was subsequently developed. The developer, Holcomb Construction,
entered into an option to acquire the property subject to planning
approval. The developer incurred expenses totaling $1,300,000 prior to
exercising the option. The development was subsequently entitled for 290
units, with 191 units developed to date. The project is structured as a
hotel/condominium development, with a maximum owner occupancy of 90 days
per year, making it effectively a lodging facility. In addition to the
condominium units, a public facility of 35,000 square feet was developed,
which included the lobby, restaurant, and 14,000 square feet of conference
space. Although only 34 acres of the site is buildable, the density based
on 80 acres is 3.5 units per acre. The purchase price of the land only was
$7,119,000, or $24,548 per unit. However, the out-of-pocket expenses
associated with gaining approval bring the total price of the site, as
available for development, to $8,450,000, or $29,137 per unit. Although
this sale is very dated, we are of the opinion that it is illustrative of
the value per room that can be economically supported by a hotel/conference
center.
As noted, the sale prices for the above four sales ranged from a low of $25,095
to a high of $37,407 per room, with a mean of $31,933 per room. Based on our
evaluation of each of these sites in comparison to the subject, we are of the
opinion that an appropriate value for the subject, ASSUMING ALL ENTITLEMENTS AND
APPROVALS ARE IN PLACE, AND THE PROPERTY IS READY FOR DEVELOPMENT, is
approximately $30,000 per room. Based on 275 rooms, this would equate to
$8,250,000 as shown below.
--------------------------------------------------------------------
Number of Rooms Land Value Per Room Total Land Value
--------------------------------------------------------------------
275 x $30,000 = $8,250,000
--------------------------------------------------------------------
- -------------------------------------------------------------------------------
65
<PAGE>
VALUATION
- -------------------------------------------------------------------------------
As with our Ground Rent Capitalization analysis, a discount must be applied to
the above value to reflect the risks and costs associated with obtaining all the
required approvals to develop the site, as well as the opportunity cost of
holding the site until the hotel is developed. As previously discussed, we have
estimated this discount to approximate 35.0 percent of the value of the site as
ready for development. Applying this discount to our above value estimate
results in an "as is" value of the subject of approximately $5.4 million as
shown below.
-----------------------------------------------------------------------------
Value of Site as if Ready for Development $8,250,000
Less: Discount for Development Risk and Opportunity Cost 35.0%) ($2,887,000)
-----------------------------------------------------------------------------
Estimated "As Is" Value of Site $5,363,000
-----------------------------------------------------------------------------
Rounded To $5,400,000
-----------------------------------------------------------------------------
The above value of $5.4 million equates to $3.94 per square foot based on an
estimated developable area of approximately 31.5 acres (30 percent of the total
area), or 1,371,879 square feet. As an additional test of reasonableness, we
compared this value to the March 15, 1996 sale of the 28.8 acre "quarry" site
located immediately south of the subject. This property was sold for $4.5
million, or $3.59 per square foot to the City of Pacifica for the development of
a waste water treatment plant. Although this sale is not directly comparable to
the subject as it is zoned for general commercial use, the resulting sale price
per developable area is supportive of our value conclusion.
E. RECONCILIATION AND FINAL ESTIMATE OF VALUE
The reconciliation involves the correlation of the conclusions reached from the
three valuation methodologies applied, considering the property type and the
requirements of the appraisal assignment. This process depends on the
appropriateness and reliability of each approach, and of the quality and
reliability of the data obtained. The results from the three approaches are as
follows.
-------------------------------------------
Subdivision Approach $5,300,000
-------------------------------------------
Ground Rent Capitalization $6,000,000
-------------------------------------------
Sales Comparison Approach $5,400,000
-------------------------------------------
Typically, the Sales Comparison Approach is the most common technique for
valuing land. However, this approach is most useful when the sales are similar
to the subject. While the eight sales identified in our analysis were all
approved for the development of hotels, they differed from the subject in terms
of size, development potential (density), and location. In addition, the sales
extended over in excess of seven years, making direct comparisons difficult due
to changes in market conditions. Finally,
- -------------------------------------------------------------------------------
66
<PAGE>
VALUATION
- -------------------------------------------------------------------------------
none of these sites have the same entitlement requirements as the subject,
making a direct comparison of value further difficult. As a result of the
foregoing, this approach was given secondary consideration in our analysis.
The use of the Subdivision Development (discounted cash flow) Analysis and
Ground Rent Capitalization Approaches are most applicable in cases where sales
data from vacant land sales are inadequate, but market data is available on the
demand for the property. As discussed, we had good market support for the
potential cash flow and development cost of this potential project.
Accordingly, greatest reliance was placed on the Subdivision Development
Approach, with the Ground Rent Capitalization method primarily used as a test of
reasonableness.
Based on the work undertaken and our experience as real estate analysts and
appraisers, we are of the opinion that the "as is" market value of the fee
simple estate in the 104.98 acre Mori Point parcel, as of May 1, 1997, is:
------------------------------------------------
FIVE MILLION FIVE HUNDRED THOUSAND DOLLARS
------------------------------------------------
$5,500,000
------------------------------------------------
F. RETROSPECTIVE VALUE OF THE SITE AS OF AUGUST 31, 1992
In developing an estimate of the subject site as of August 31, 1992, it is
important to take into consideration the local and regional market conditions at
that time. It is well documented that during this period, both the State of
California as a whole, as well as the local San Francisco/San Jose market areas
were impacted by a severe regional recession. This recession particularly
impacted the market for lodging facilities, making the developing of nearly any
hotel facility within the region unfeasible. As a result, an investor in a
hotel site such as the subject would have purchased the property solely as a
speculative investment, with the vision of either selling or developing the
parcel at a latter date when market conditions improved.
Based on our preceding analysis as to the current value of the subject site,
together with our evaluation of the holding and opportunity costs a potential
investor would have incurred in holding the property to date, we estimate that
the retrospective value of the subject as of August 31, 1992, is:
------------------------------------------------
FOUR MILLION ONE HUNDRED THOUSAND DOLLARS
------------------------------------------------
$4,100,000
------------------------------------------------
- -------------------------------------------------------------------------------
67
<PAGE>
ADDENDA
<PAGE>
ADDENDA
A. CERTIFICATION OF THE APPRAISERS
B. STATEMENT OF ASSUMPTIONS AND LIMITING CONDITIONS
C. QUALIFICATIONS OF THE APPRAISERS
D. LEGAL DESCRIPTION
E. TITLE REPORT
<PAGE>
ADDENDUM A
CERTIFICATION OF THE APPRAISERS
<PAGE>
CERTIFICATION OF THE APPRAISERS
I, Thomas E. Callahan, MAI, certify that, to the best of our knowledge and
belief:
- - The statements of fact contained in this report are true and correct.
- - The reported analyses, opinions, and conclusions are limited only by
the reported assumptions and limiting conditions, and are our
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 personal 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.
- - 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.
- - Corey Limbach and Shelley Halloran provided significant professional
assistance to the persons signing this report.
- - This appraisal engagement was not based on a requested minimum
valuation, specific valuation or the approval of a loan.
- - This appraisal engagement was not based on a requested minimum
valuation, specific valuation or the approval of a loan.
- - The reported analyses, opinions and conclusions were developed, and
this report has been prepared, in conformity with the requirements of
the Code of Professional Ethics and the Standards of Professional
Appraisal Practice of the Appraisal Institute.
- - The use of this report is subject to the requirements of the Appraisal
Institute relating to review by its duly authorized representatives.
- - Thomas E. Callahan, CPA, CRE, MAI, is a Certified General Real Estate
Appraiser in the State of California.
<PAGE>
- - As of the date of this report, Thomas E. Callahan, CPA, CRE, MAI, has
completed the requirements of the continuing education program of the
Appraisal Institute.
Based on the work undertaken and our experience as real estate analysts and
appraisers, we are of the opinion that the market value "as is" of the fee
simple estate in the 104.98 acre Mori Point parcel, as of May 1, 1997, is:
------------------------------------------
FIVE MILLION FIVE HUNDRED THOUSAND DOLLARS
------------------------------------------
$5,500,000
------------------------------------------
Further, we are of the opinion that the retrospective value of the subject
parcel as of August 31, 1992, was:
-----------------------------------------
FOUR MILLION ONE HUNDRED THOUSAND DOLLARS
-----------------------------------------
$4,100,000
-----------------------------------------
PKF Consulting appreciates this opportunity to be of service to you. Should you
have any questions, or if we can be of further assistance, please do not
hesitate to contact me.
Respectfully submitted,
/s/ THOMAS E. CALLAHAN
- ---------------------------------
Thomas E. Callahan, CPA, CRE, MAI
Executive Vice President
California Certified General Appraiser #AG9618
<PAGE>
ADDENDUM B
STATEMENT OF ASSUMPTIONS AND LIMITING CONDITIONS
<PAGE>
STATEMENT OF ASSUMPTIONS AND LIMITING CONDITIONS
DATE OF VALUE - The conclusions and opinions expressed in this report apply
to the date of value set forth in the letter of transmittal accompanying this
report. The dollar amount of any value opinion or conclusion rendered or
expressed in this report is based upon the purchasing power of the American
dollar existing in the date of value.
ECONOMIC AND SOCIAL TRENDS - The appraiser assumes no responsibility for
economic, physical or demographic factors which may affect or alter the opinions
in this report if said economic, physical or demographic factors were not
present as of the date of the letter of transmittal accompanying this report.
The appraiser is not obligated to predict future political, economic or social
trends.
INFORMATION FURNISHED BY OTHERS - In preparing the report, the appraiser was
required to rely on information furnished by other individuals or found in
previously existing records and/or documents. Unless otherwise indicated, such
information is presumed to be reliable. However, no warranty, either express or
implied, is given by the appraiser for the accuracy of such information and the
appraiser assumes no responsibility for information relied upon later found to
have been inaccurate. The appraiser reserves the right to make such adjustments
to the analyses, opinions and conclusions set forth in this report as may be
required by consideration of additional data or more reliable data that may
become available.
TITLE - No opinion as to the title of the subject property is rendered. Data
related to ownership and legal description was obtained from the attached title
report records and is considered reliable. Title is assumed to be marketable
and free and clear of all liens, encumbrances, easements and restrictions except
those specifically discussed in the report. The property is appraised assuming
it to be under responsible ownership and competent management, and available for
its highest and best use.
HIDDEN CONDITIONS - The appraiser assumes no responsibility for hidden or
unapparent conditions of the property, subsoil, ground water or structures that
render the subject property more or less valuable. No responsibility is assumed
for arranging for engineering, geologic or environmental studies that may be
required to discover such hidden or unapparent conditions.
HAZARDOUS MATERIALS - The appraiser has not been provided any information
regarding the presence of any material or substance on or in any portion of the
subject property or improvements thereon, which material or substance possesses
or may possess toxic, hazardous and/or other harmful and/or dangerous
characteristics. Unless otherwise stated in the report, the appraiser did not
become aware of the presence of any such material or substance during the
appraiser's inspection of the subject property. However, the appraiser is not
qualified to investigate or test for the presence of such materials or
substances. The presence of such materials or substances may adversely affect
the value of the subject property. The value estimated in this report is
predicted on the assumption that no such material or substance is present on or
in the subject property or in such proximity thereto that it would cause a loss
in value. The appraiser assumes no responsibility for the presence of any such
substance or material on or in the subject property, nor for any expertise or
engineering knowledge required to discover the presence of such substance or
material. Unless otherwise stated, this report assumes the subject property is
in compliance with all federal, state and local environmental laws, regulations
and rules.
ZONING AND LAND USE - Unless otherwise stated, the subject property is appraised
assuming it to be in full compliance with all applicable zoning and land use
regulations and restrictions.
LICENSES AND PERMITS - Unless otherwise stated, the property is appraised
assuming that all required licenses, permits, certificates, consents or other
legislative and/or administrative authority from any local, state or national
government or private entity or organization have been or can be obtained or
renewed for any use on which the value estimate contained in this report is
based.
<PAGE>
STATEMENT OF ASSUMPTIONS AND LIMITING CONDITIONS
(Continued)
ENGINEERING SURVEY - No engineering survey has been made by the appraiser.
Except as specifically stated, data relative to size and area of the subject
property was taken from sources considered reliable and no encroachment of the
subject property is considered to exist.
SUBSURFACE RIGHTS - No opinion is expressed as to the value of subsurface oil,
gas or mineral rights or whether the property is subject to surface entry for
the exploration or removal of such materials, except as is expressly stated.
MAPS, PLATS AND EXHIBITS - Maps, plats and exhibits included in this report are
for illustration only to serve as an aid in visualizing matters discussed within
the report. They should not be considered as surveys or relied upon for any
other purpose, nor should they be removed from, reproduced or used apart from
the report.
LEGAL MATTERS - No opinion is intended to be expressed for matters which require
legal expertise or specialized investigation or knowledge beyond that
customarily employed by real estate appraisers.
ALLOCATION BETWEEN LAND AND IMPROVEMENTS - The distribution, if any, of the
total valuation in this report between land and improvements applies only under
the stated program of utilization. The separate allocations for land and
improvements must not be used in conjunction with any other appraisal and are
invalid if so used.
RIGHT OF PUBLICATION - Possession of this report, or a copy of it, does not
carry with it the right of publication. Without the written consent of the
appraiser, this report may not be used for any purpose by any person other than
the party to whom it is addressed. In any event, this report may be used only
with properly written qualification and only in its entirety for its stated
purpose.
TESTIMONY IN COURT - Testimony or attendance in court or at any other hearing is
not required by reason of rendering this appraisal, unless such arrangements are
made a reasonable time in advance of said hearing. Further, unless otherwise
indicated, separate arrangements shall be made concerning compensation for the
appraiser's time to prepare for and attend any such hearing.
STRUCTURAL DEFICIENCIES - The appraiser has personally inspected the subject
property, and except as noted in this report, finds no obvious evidence of
structural deficiencies in any improvements located on the subject property.
However, the appraiser assumes no responsibility for hidden defects or non-
conformity with specific governmental requirements, such as fire, building and
safety, earthquake or occupancy codes, unless inspections by qualified
independent professionals or governmental agencies were provided to the
appraiser. Further, the appraiser is not a licensed engineer or architect and
assumes no responsibility for structural deficiencies not apparent to the
appraiser at the time of this inspection.
TERMITE/PEST INFESTATION - No termite or pest infestation report was made
available to the appraiser. It is assumed that there is no significant termite
or pest damage or infestation, unless otherwise stated.
INCOME DATA PROVIDED BY THIRD PARTY - Income and expense data related to the
property being appraised was provided by the client and is assumed, but not
warranted, to be accurate.
ASBESTOS - The appraiser is not aware of the existence of asbestos in any
improvements on the subject property. However, the appraiser is not trained to
discover the presence of asbestos and assumes no responsibility should asbestos
be found in or at the subject property. For the purposes of this report, the
appraiser assumes the subject property is free of asbestos and that the subject
property meets all federal, state and local laws regarding asbestos abatement.
<PAGE>
STATEMENT OF ASSUMPTIONS AND LIMITING CONDITIONS
(Continued)
ARCHEOLOGICAL SIGNIFICANCE - No investigation has been made by the appraiser and
no information has been provided to the appraiser regarding potential
archeological significance of the subject property or any portion thereof. This
report assumes no portion of the subject property has archeological
significance.
COMPLIANCE WITH THE AMERICANS WITH DISABILITIES ACT - The Americans with
Disabilities Act ("ADA") became effective January 26, 1992. We have not made a
specific compliance survey and analysis of this property to determine whether or
not it is in conformity with the various detailed requirements of the ADA. It
is possible that a compliance survey of the property, together with a detailed
analysis of the requirements of the ADA could reveal that the property is not in
compliance with one or more of the requirements of the Act. If so, this fact
could have a negative effect upon the value of the property. Since we have no
direct evidence relating to this issue, we did not consider possible non-
compliance with the requirements of ADA in estimating the value of the property.
DEFINITIONS AND ASSUMPTIONS - The definitions and assumptions upon which our
analyses, opinions and conclusions are based are set forth in appropriate
sections of this report and are to be part of these general assumptions as if
included here in their entirety.
UTILIZATION OF THE LAND AND/OR IMPROVEMENTS - It is assumed that the utilization
of the land and/or improvements is within the boundaries or property described
herein and that there is no encroachment or trespass.
ENCROACHMENTS - It is assumed that the utilization of the land and/or
improvements is within the boundaries or property described herein and that
there is no encroachment or trespass.
DISSEMINATION OF MATERIAL - Use and disclosure of the contents of this report is
governed by the bylaws and regulations of the Appraisal Institute. Neither all
or any part of the contents of this report (especially the conclusions as to
value, the identity of the appraiser or the firm with which they are connected,
or any reference to the Appraisal Institute or to the MAI or RM designations)
shall be disseminated to the general public through advertising or sales media,
public relations media, new media or other public means of communication without
the prior written consent and approval of the appraiser(s).
DISTRIBUTION AND LIABILITY TO THIRD PARTIES - The party of whom this appraisal
report was prepared may distribute copies of this appraisal report only in its
entirety to such third parties as may be selected by the party for whom this
appraisal report was prepared; however, portions of this appraisal report shall
not be given to third parties without our written consent. Liability to third
parties will not be accepted.
USE IN OFFERING MATERIALS - This appraisal report, including all cash flow
forecasts, market surveys and related data, conclusions, exhibits and supporting
documentation may not be reproduced or references made to the report or to PKF
Consulting in any sale offering, prospectus, public or private placement
memorandum, proxy statement or other document ("Offering Material") in
connection with a merger, liquidation or other corporate transaction unless PKF
Consulting has approved in writing the text of any such reference or
reproduction prior to the distribution and filing thereof.
LIMITS TO LIABILITY - PKF Consulting cannot be held liable in any cause of
action resulting in litigation for any dollar amount which exceeds the total
fees collected from this individual engagement.
LEGAL EXPENSES - Any legal expenses incurred in defending or representing
ourselves concerning this assignment will be the responsibility of the client.
<PAGE>
ADDENDUM C
QUALIFICATIONS OF THE APPRAISERS
<PAGE>
QUALIFICATIONS OF
THOMAS E. CALLAHAN, CPA, CRE, MAI
EXECUTIVE VICE PRESIDENT
PROFESSIONAL HISTORY
PRESENT Executive Vice President, PKF Consulting
San Francisco, California
PRIOR Pannell Kerr Forster, Boston and Los Angeles
Partner-in-Charge
Pannell Kerr Forster, Dallas and Houston
Partner
AREAS OF EXPERTISE Economic, financial, operational, management and
valuation consulting for the real estate, hospitality and
related service industries.
REPRESENTATIVE
PROJECTS Numerous market and economic feasibility studies for
hotels, motor hotels, and resorts in the United States,
Europe, the Pacific, and Southeast Asia.
Acquisition studies and development planning for
numerous hotels and motor hotels.
Appraisal of the market value of all types of income
producing properties including: hotels, restaurants, ski
resorts, office buildings, golf courses, mixed-use and
retail developments.
Market and economic feasibility studies for retirement and
long-term health care facilities located in Texas and
California.
Preparation of master plan studies for the development of
multi-use real estate projects in the Republic of China,
Singapore, and the United States. These studies include
highest and best use analyses for the proposed site,
market and financial feasibility analyses, economic
valuations and development of the management structure
for project implementation.
Development of reorganization plans and expert testimony
in court for bankruptcy proceedings associated with all
types of hotels and resorts.
<PAGE>
QUALIFICATIONS OF
THOMAS E. CALLAHAN, CPA, CRE, MAI
REPRESENTATIVE
PROJECTS Evaluation of the organization structure, financial
controls and management information systems of the
Armed Forces Recreation Center located in the Federal
Republic of Germany.
Operational reviews, financial analyses, management
evaluations and systems analyses for hotels, resorts,
restaurants, and clubs.
Valuation of large, complex real estate and business
holdings, including the Aspen Skiing Company, Aspen
Colorado; Angel Fire Ski Company, Angel Fire, New Mexico;
and the Embarcadero Center, San Francisco, California.
Preparation of cash flow and return on investment
calculations for proposed, operating and distressed
hotels, resorts, restaurants, and clubs.
Appraisal of the market value of large real estate
portfolios, including all Trusthouse Forte, Inc. hotel
properties; all company owned Hilton Hotels; all Vagabond
Inns; all Western 6 Motels; and all of the holdings of
Hotel Investors Trust.
Operational analysis, financial review and long-range
development for hotels and resorts.
Market and economic feasibility study for a proposed
major international class hotel to be located in Bandar
Seri Begawan, Brunei.
Long-range budgeting, economic feasibility and economic
impact analysis for the Industry Hills Civic Recreation
Center located in the City of Industry, California.
Market and economic feasibility analysis for numerous
convention and exhibit centers including the Los Angeles
Convention Center and the Taipei World Trade Center.
Development of the organizational structure and job
descriptions and requirements for a multi-use facility,
which includes a hotel, convention center and numerous
recreational facilities.
<PAGE>
QUALIFICATIONS OF
THOMAS E. CALLAHAN, CPA, CRE, MAI
REPRESENTATIVE
PROJECTS
(CONTINUED) Development of procedural manuals for the operation
of major hotels.
Accounting system, internal control procedures and
management information system design and implementation
for hotel, club, and restaurant operations.
EDUCATION WASHINGTON STATE UNIVERSITY
Bachelor of Arts in Business Administration
APPRAISAL INSTITUTE
Completed All Courses Required for Membership
PROFESSIONAL
QUALIFICATIONS Certified Public Accountant in Massachusetts, California
and Texas
Certified General Real Estate Appraiser - State of
California
PROFESSIONAL
AFFILIATIONS Member of the Appraisal Institute (MAI)
American Society of Real Estate Counselors (CRE)
International Society of Hospitality Consultants (ISHC)
American Institute of Certified Public Accountants
California Society of Certified Public Accountants
Texas Society of Certified Public Accountants
Massachusetts Society of Certified Public Accountants
American Hotel & Motel Association - Research Committee
American Institute of Certified Public Accountants - MAS
Executive Committee Member
PROFESSIONAL
ACTIVITIES Guest speaker at various industry seminars
EXPERT
TESTIMONY Admitted as an expert in both State and Federal courts
located in Massachusetts, Illinois, California, Texas
and New Mexico
<PAGE>
ADDENDUM D
LEGAL DESCRIPTION
<PAGE>
No.
Page 2
DESCRIPTION
All that certain real property situate in the County of San Mateo, State of
California, described as follows:
City of Pacifica
PARCEL I:
Portion of "Part 1" as shown on that certain map entitled "PORTION OF THE
RANCHO SAN PEDRO, THE PROPERTY OF DAVID MAHONEY, RICHARD AND ROBERT TOBIN",
filed in the office of the County Recorder of San Mateo County, State of
California on November 19, 1875 in Book 1 of Maps at page 24, and also
portion of the lands shown upon the survey of 398.284 acre tract, filed
August 17, 1943 in Book 1 of Licensed Land Surveyors Maps at page 78, more
particularly described as a whole as follows:
BEGINNING at the point of intersection of the Westerly line of said "Part 1"
with the Northerly line of the lands described in judgment in the Superior
Court of the State of California in and for the County of San Mateo, Case
No. 129595, entitled, "IDEAL CEMENT COMPANY, A CORPORATION, Plaintiff vs. ALL
PERSONS CLAIMING ANY INTEREST IN OR LIEN UPON THE REAL PROPERTY HEREIN
DESCRIBED, OR ANY PART THEREOF, Defendants", filed on September 25, 1967 in
Book 5368 at page 246 as Document No. 93131-AA of Official Records; thence
from said point of beginning along the exterior lines of said "PART 1",
according to the calls set forth on the above named licensed survey North 5
DEG. 30' West 1265.44 feet to a Northwesterly corner of said "Part 1"; thence
South 88 DEG. 38' East 1310.01 feet; North 7 Deg. 30' West 749.62 feet and
South 88 DEG. East 534.27 feet to the Northwest corner of property conveyed
by deed from Herbert A. Cleaves and wife, to Perry Liebman and wife, recorded
July 1, 1954 in Book 2609 at page 385 of Official Records; thence along the
Westerly and Southerly boundary of lands so conveyed to Liebman the following
six courses and distances: South 2 DEG. 00' West 632.15 feet, South 75 DEG.
16' 30" East 135.00 feet, South 80 DEG. 37' 30" East 328.08 feet, South
76 DEG. 11' 30" East 516.70 feet, North 89 DEG. 49' East 232.87 feet and
South 79 DEG. 16' 30" East 307.45 feet to the Southwesterly boundary of lands
conveyed to Marion Delaney by deed dated January 20, 1951 and recorded
February 2, 1951 in Book 2017 at page 544 of Official Records; thence along
said Southwesterly boundary South 38 DEG. 37' East 328.49 feet and South 54
DEG. 07' East 48.86 feet to the Northerly boundary of property conveyed to
State of California by the above mentioned deed; thence along said Northerly
boundary North 88 DEG. 07' 30" West (called North 88 DEG. 24' West in said
highway deed) 18.16 feet to an angle point in the Westerly line of said
highway; thence continuing Southeasterly along the Westerly line of said
highway on the arc of a curve to the right having a radius of 525 feet and a
central angle of 13 DEG. 42' 25" an arc distance of 125.60 feet; thence
continuing along the Westerly line of said highway (using highways bearings)
South 1 DEG. 36' West 231.46 feet, South 21 DEG. 58' West 244.24 feet and
South 3 DEG. 35' 05" East 150 feet, more or less, to a point on the Easterly
prolongation, said Northerly line of the lands described in said judgment
first above mentioned; thence along said prolongation and along said
Northerly line North 88 DEG. 01' 51" West 3301.12 feet to the point of
beginning.
-continued-
<PAGE>
No.
Page 3
EXCEPTING therefrom so much of the above described property that lies below
the mean high tide line of the Pacific Ocean.
ALSO excepting therefrom the lands described in the deed from Title Insurance
and Trust Company, a corporation to the State of California dated January 29,
1964 and recorded March 13, 1964 in Book 4666 at page 168 of Official Records.
PARCEL II:
All lands lying Westerly of the above described Parcel I, Easterly of the
ordinary high tide of the Pacific Ocean under natural conditions, Northerly
of the Westerly extension of the Southerly line of said Parcel I and
Southerly of the Westerly extension of the course given in the description in
said Parcel I as "South 88 DEG. 38' East 1310.01 feet".
PARCEL III:
Portion of that certain 19.59 acre tract allotted to Saturino Correa by
decree of partition dated December 16, 1870 in action entitled "James Regan
vs. Owen McMahon, et al", in 12th District Court, San Francisco County, a
certified copy of which decree was recorded December 22, 1905 in Book 126 of
Deeds at page 23, Records of San Mateo County, California, described as
follows:
BEGINNING at the Southeasterly corner of said 19.59 acre tract; running
thence along the Easterly boundary of said 19.59 acre tract North 8 DEG. 30'
West 206.18 feet, more or less, to point distant South 8 DEG. 30' East 456.46
feet from the Northeast corner of said 19.59 acre tract; thence departing
from boundary of said tract and running along a partition line North 75 DEG.
33' West 937.77 feet; thence South 39 DEG. 39' West 33.75 feet; thence South
29 DEG. 03' West 147.37 feet; thence South 77 DEG. 51' West 101.99 feet;
thence North 78 DEG. 49' 30" West 53.75 feet; thence South 89 DEG. 53' 30"
West 44.84 feet to a point on the Westerly boundary of said 19.59 acre tract
on shore of Pacific Ocean; thence along said shore South 61 DEG. 30' West
163.39 feet and South 7 DEG. East 198 feet to the Southwesterly corner of
said 19.59 acre tract; thence along the Southerly boundary of said 19.59 acre
tract Easterly 1347.06 feet to the point of beginning.
PARCEL IV:
A non-exclusive easement and right of way for ingress and egress as an
appurtenance to the lands described in Parcel I herein and more particularly
described as follows:
A strip of land 20 feet in width lying 10 feet on each side and parallel with
the following described center line:
BEGINNING at a point on the Westerly right of way line of State Highway
Route 56, Division 4, Section E, San Mateo County, California, Division of
Highways distant thereon South 1 DEG. 52' 30" East 33.83 feet from a
California state highway concrete monument set on said Westerly line of said
highway at Engineers' Station 57+63.68; and running thence from said actual
point of beginning North 77 DEG. 30' 40" West 87.07 feet; thence North
39 DEG. 27' 41" West 382.25 feet to a point, said point being the point of
beginning described in that certain 20 foot wide easement filed in Book 1022
at page 333 of Official Records; and
-continued-
<PAGE>
No.
Page 4
BEGINNING at a point in the county road distant thereon North 88 DEG. 24'
West 102.02 feet and North 39 DEG. 22' West 356.63 feet from a California
state highway concrete monument set on the Westerly line of the state highway
right of way at Station 57+63.68 Dist. 4, San Mateo Route 56, Section E;
running thence from said point of beginning North 80 DEG. 21' West 299.00 feet,
South 84 DEG. 43' West 173.44 feet, North 76 DEG. 09' West 523.53 feet, North
78 DEG. 27' West 173.90 feet, North 84 DEG. 37' West 219.28 feet, North
74 DEG. 16' West 362.12 feet and North 77 DEG. 22' West 100 feet, more or
less, to the Easterly line of the lands of Mori.
APN. No. 018-150-010 JPN. No. 018-015-150-01A
016-430-010 016-043-430-01A
<PAGE>
ADDENDUM E
TITLE REPORT
<PAGE>
[LOGO]
<PAGE>
[LETTERHEAD]
November 22, 1996
Mr. David G. Lasker
President
National Investors Financial, Inc.
4675 MacArthur Court, Suite 930
Newport Beach, California 92660
Attention: Mr. Lasker:
At your request, we have inspected and appraised the resort project known as the
Ahwahnee Resort and Country Club. This project consists of several distinct
property holdings which encompass the total of 1,640 acres. Approximately 11
lots have been sold within the Ahwahnee Country Club Estates, leaving a gross
acreage of approximately 1,599.44 acres.
The project includes several distinct areas which are used for the golf course,
the recreational vehicle area, future timeshare areas and ranch estate lots.
These areas are allocated as follows for valuation purposes:
Gross Acres
-----------
Ahwahnee Country Club Estates
Phase I (45 Lots Remaining) 83.86
Excess Land
--------------
Phase II, III, & IV (160 lots), 483.50
Golf Course, RV Park, Condo Sites
Ranch Estates & Conservation Easement 1,032.08
------------
Total 1,599.44
Existing development consists of Phase I (45 remaining lots out of 58 original
lots); and the golf course development. Due to the lackluster performance of
the golf course operations and current depressed market, we have valued this
development as excess land, along with the RV Park, Condo Sites, Ranch Estates
and Conservation Easement. This will be explained in the Highest and Best Use
Section of this report.
<PAGE>
National Investors Financial, Inc.
November 22, 1996
The Ahwahnee Resort and Country Club is located near Oakhurst, in Eastern Madera
County. We were requested to appraise the "as is" market value of the overall
project, in conjunction with a separate financial valuation of the project.
Factors and trends in the local real estate market with respect to competitive
residential subdivisions, golf courses, RV parks, condominium and ranch estate
projects are utilized.
These overall property holdings consist of an unencumbered fee simple interest
owned by National Investors Financial, Inc., a corporation organized pursuant to
the laws of the State of California.
As further detailed in this report, the properties are all contiguous. They
comprise a landholding of approximately 1,599.44 acres on the north side of
Highway 49, just west of Highway 41. There are several tax parcels that
encompass this tract (summarized in the Assessments and Taxes Section) and are
too numerous to mention.
The property has experienced difficulty in development since it was acquired and
development started in 1978. Based upon planning meetings, a master plan was
approved and subsequently expired. If any future development is planned,
planning hearings will have to be resumed. Due to legal ramifications, it is
not known what these hearings will produce in terms of any developmental
potential. Several years have passed since these original hearings. Based upon
meetings with the planning authorities, all government approvals would not be
possible in a reasonably short period of time. Therefore, an "as is" value is
determined. Much of this planning work would involve legal considerations about
which we cannot opine. At a minimum, their resolution could involve extensive
time periods.
For purposes of this report, it is assumed that there will be significant
difficulties, as well as some local opposition, to any of the development plans
formerly proposed. The exception is the existing golf course and the existing
Phase I (45 lots).
The use of this report is for internal planning by National Investors Financial,
Inc., a California corporation. Its use for any other purpose or valuation date
may invalidate the appraisal.
<PAGE>
National Investors Financial, Inc.
November 22, 1996
The purpose of this appraisal is to express our opinion of the fee simple
interest in each of the two property types, subject to the definition of value,
Assumptions and Limiting Conditions, and Certification contained in the attached
report.
The golf course site currently includes some irrigation equipment and personal
property associated with the continued, ongoing operation of the golf course.
These items were excluded.
There are no current plans for development with respect to Phase II, III and IV,
the condominium tracts or the Ranch Estates. There has been some limited
grading on the RV tract.
Based on the data and conclusions presented in the attached report, it is our
opinion that as of October 10, 1996, the market value of the two respective
property sites, assuming a one year marketing time, were as follows:
Remaining 45 Lot Subdivision:
FIVE HUNDRED AND THIRTY THOUSAND DOLLARS
$530,000
--------
--------
Excess Land:
THREE MILLION FOUR HUNDRED AND SIXTY THOUSAND DOLLARS
$3,460,000
----------
----------
TOTAL VALUE (SAY):
FOUR MILLION DOLLARS
$4,000,000
----------
----------
The Mentor Group, Inc. has performed the subject appraisal based upon our
understanding of the requirements and policies of the Uniform Standards of
Professional Appraisal Practice adopted by the Appraisal Standards Board of
the Appraisal Foundation. More particularly, this appraisal report is
intended to comply with Standards Rule 2-2 (b) of a complete or limited
appraisal report performed under Standard 1.
Descriptions of the property appraised, together with explanations of the
appraisal procedures used and departure provisions, if any, are presented in the
report.
<PAGE>
National Investors Financial, Inc.
November 22, 1996
A copy of this report and the field data from which it was prepared will be
retained in our files and are available for review upon request.
Very truly yours,
/s/Mark S. Justmann /s/Davis R. Blaine
- ------------------------- -------------------------
Mark S. Justmann, MAI Davis R. Blaine
Senior Appraiser Chairman
The Mentor Group, Inc. The Mentor Group, Inc.
<PAGE>
- --------------------------------------------------------------------------------
APPRAISAL
OF THE
AHWAHNEE RESORT & COUNTRY CLUB
LOCATED AT
THE NORTH SIDE OF HIGHWAY 49 JUST WEST OF HIGHWAY 41
OAKHURST, MADERA COUNTY, CALIFORNIA
OWNED BY
NATIONAL INVESTORS FINANCIAL, INC.
(A CALIFORNIA CORPORATION)
APPRAISED BY
MARK S. JUSTMANN, MAI
VALUATION DATE
OCTOBER 10, 1996
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
SUMMARY OF SALIENT FACTS AND CONCLUSIONS
LOCATION The north side of Highway 49, just west of
Highway 41, Oakhurst, Madera County,
California
PROPERTY RIGHTS APPRAISED Fee simple interest
OWNERSHIP National Investors Financial, Inc. a
California Corporation
PROPERTY TYPE The property includes primarily an existing
subdivision consisting of 45 remaining lots
and complete infrastructure, with an existing
golf course, RV park and excess land. Total
gross acreage includes useable land,
consisting of the 45 lots, covering 83.86
acres. The balance of the entire tract is
considered excess land for valuation
purposes. The excess land is estimated at
1,515.58 acres. The existing 18 hole golf
course includes a completed clubhouse, with
two small sheds. The RV park includes an
existing office with 6 park model units.
ZONING Excess Land = RM (Residential Medium Density
and OS Open Space and Residential Land (45
Lots) RRS/MHA or RRS-2/MHA or RRS-2 1/2 /MHA
Residential Zoning
LAND AREA Residential Land (45 lots) = 83.86 acres.
Excess Land = 1,515.58 acres
Total Acres: say 1,599.44
PRINCIPAL IMPROVEMENTS Vacant, undeveloped raw land, primarily open
space. Includes an existing golf course and
clubhouse, several shed-like maintenance
structures and irrigation system on the
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
SUMMARY OF SALIENT FACTS AND CONCLUSIONS
golf course land, as well as other
improvements associated with the RV park.
These improvements include a small office and
6 park models. The 45 lot subdivision
includes an infrastructure system complete
with roads and utilities.
HIGHEST AND BEST USE Hold for future Master Plan
MARKET VALUE $4,000,000
Allocation:
AHWAHNEE COUNTRY CLUB ESTATES $ 530,000
EXCESS LAND $3,460,000
TOTAL VALUE (SAY) $4,000,000
INSPECTION DATE October 10, 1996
VALUATION DATE October 10, 1996
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<PAGE>
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TABLE OF CONTENTS
LETTER OF TRANSMITTAL
TITLE PAGE
SUMMARY OF IMPORTANT DATA AND CONCLUSIONS
SUBJECT PHOTOGRAPHS
TABLE OF CONTENTS
INTRODUCTION
Identification of the Property. . . . . . . . . . . . . . . . . . . . . . 1
Purpose of the Appraisal. . . . . . . . . . . . . . . . . . . . . . . . . 1
Inspection Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Function of the Appraisal . . . . . . . . . . . . . . . . . . . . . . . . 1
Environmental Issues. . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Scope of the Appraisal. . . . . . . . . . . . . . . . . . . . . . . . . . 2
Appraisal Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Property History. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Assumptions and Limiting Conditions . . . . . . . . . . . . . . . . . . . 7
DESCRIPTIVE SECTION
Regional Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . .11
Area/Neighborhood Analysis. . . . . . . . . . . . . . . . . . . . . . . .21
Site Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .28
Assessment and Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . .36
Zoning. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .36
Improvement Data. . . . . . . . . . . . . . . . . . . . . . . . . . . . .36
Highest and Best Use. . . . . . . . . . . . . . . . . . . . . . . . . . .38
VALUATION SECTION
Appraisal Procedures. . . . . . . . . . . . . . . . . . . . . . . . . . .43
Sales Comparison Approach . . . . . . . . . . . . . . . . . . . . . . . .48
Land Valuation . . . . . . . . . . . . . . . . . . . . . . . . . . .49
Cost Approach . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .46
Income Approach . . . . . . . . . . . . . . . . . . . . . . . . . . . . .58
Reconciliation of Value . . . . . . . . . . . . . . . . . . . . . . . . .60
Appraiser Certification . . . . . . . . . . . . . . . . . . . . . . . . .62
ADDENDA
Land Comparable Map . . . . . . . . . . . . . . . . . . . . . . . . . . . .
CC & R's. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Zoning Regulations. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Profession Qualifications . . . . . . . . . . . . . . . . . . . . . . . . .
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<PAGE>
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IDENTIFICATION OF THE PROPERTY
We have been supplied with a prior appraisal of the subject property, conducted
by Arnold and Associates dated September 20, 1992. According to this appraisal,
the legal description of the subject property appraised is identified as the
Ahwahnee Country Club Estates Subdivision Tract #221, Book 33, Pages 30 through
38, Madera County Records.
This property is an unencumbered fee simple interest owned by National Investors
Financial Inc., a California Corporation. We have not been furnished with a
complete legal description for the property.
PURPOSE OF THE APPRAISAL
The purpose of the appraisal is to express our opinion of the market value of
the fee simple interest in the real property, as of October 10, 1996.
INSPECTION DATE
The property was inspected by Mark S. Justmann MAI., on October 10, 1996. He
also took the photographs on that date and was unaccompanied.
FUNCTION OF THE APPRAISAL
It is our understanding that this appraisal report is to be used as a guide for
possible corporate planning and reorganization. Thus, it may be invalid for any
other purpose or valuation date.
The appraiser has performed the subject appraisal under the requirements and
policies based on our understanding of the requirements and policies of the
Uniform Standards of Professional Appraisal Practice adopted by the Appraisal
Standards Board of the Appraisal Foundation. More particularly, this appraisal
report is intended to comply with Standards Rule 2-2 (b) of a complete or
limited appraisal report performed under Standard 1. It is our practice to
adhere to the Uniform Standards of Professional Appraisal Practice, adopted by
the Appraisal Standards Board of the Appraisal Foundation. In addition, we have
followed the implementation rules of the Office of the Comptroller of the
Currency and the Federal Reserve Board.
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1
<PAGE>
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ENVIRONMENTAL ISSUES
An environmental assessment of the subject property exceeded the scope of this
report and our contract with the client. Any reference to environmental issues
indicates our research into the environmental matters affecting the market; such
reference shall not be construed as an opinion on specific issues concerning the
subject property unless otherwise noted in this report.
An environmental site inspection and government reports were not provided for
the subject property.
In addition, we were told of no significant environmental problems associated
with the property. We have not investigated this problem. At the time of the
inspection, no other negatively impacting environmental issues were noted. A
current soils report and an engineering analysis of the subject soil or subsoil
was not provided. It is assumed that the subject will support the identified
Highest and Best Use. No subsoil slippage was noted nor were toxic contaminants
noted.
SCOPE OF THE APPRAISAL
The scope of the appraisal required collecting primary and secondary data
relative to the subject property. The depth of the analysis was intended to be
appropriate in relation to the significance of the appraisal problem. These
data have been analyzed and confirmed, whenever possible, leading to the value
conclusions set forth in this report. We make physical inspections of the
subject property and the comparables, which included driving around the property
and regional areas for comparable inspections. The valuation process involved
utilizing all techniques and procedures considered appropriate to the
assignment. Detail drawings available on specific development of the tract are
included in the site description and improvement sections.
This appraisal report is intended to be a FIRREA type "appraisal assignment," as
defined by the Uniform Standards of Professional Appraisal Practice (USPAP) of
the Appraisal Foundation. The appraisal service is to be performed in such a
manner that the results of the analysis, opinions, or conclusions are those of a
disinterested third party.
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2
<PAGE>
- --------------------------------------------------------------------------------
Accordingly, the appraisal has been completed under those assumptions and
limiting conditions contained in this report.
The appraiser performing this valuation has the required competency requisite
for this assignment. Marketing time for this particular property is expected to
be about 12 months, based on discussions with brokers familiar with the area.
APPRAISAL DEFINITIONS
The following definitions pertain to this report:
MARKET VALUE (APPRAISAL FOUNDATION). 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 and knowledgeably, and assuming the price is not affected by
undue stimulus. Implicit 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.(1)
Market value is synonymous with the legal term "fair market value."
- --------------------
(1)FEDERAL REGISTER, Vol. 55, No. 163, August 22, 1990, pp. 34228-34229.
- --------------------------------------------------------------------------------
3
<PAGE>
- --------------------------------------------------------------------------------
FEE SIMPLE INTEREST. Absolute ownership unencumbered by any other interest
or estate subject only to the four powers of government.(2)
- --------------------
THE DICTIONARY OF REAL ESTATE APPRAISAL, 2d ed. (Chicago: American Institute of
Real Estate Appraisers, 1989), p. 120.
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4
<PAGE>
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PROPERTY HISTORY
The subject property was acquired in 1978 by Alan Thomas, et al for
approximately $1,333 per acre for the entire site. At this time, the entire
parcel was approved for 690 single-family lots and a golf course. A series of
changes in the master plan commenced in 1985. Finally, in 1989, the plan was
approved resulting in the current complex as permitted and described herein.
Six water wells are now constructed on the property, yielding approximately 400
gallons per minute. In addition, there is a 500,000 gallon storage tank and
2,500 gallon transfer tank. Harmony Lane, a road which leads from the
intersection of Highway 49, has been completed. All main-line roads are
completed and water, electrical, cable, and telephone utilities are in the main
road, Opah Drive. These were completed at a cost of $1,750,000. The guard
house is complete; but it appears to have been vandalized. The 60' wide access
road between Harmony Lane and the subject is an easement owned by Stewart-
Thomas. It was offered for Dedication to Madera County by Instrument #91-16284.
A homeowners association was formed to oversee the operations of the project and
particularly to enforce the CC&R's which are included in the addenda. The
water system has been dedicated to Madera County and Maintenance District #46.
Cost at this point is approximately $100 per year. The District will maintain
the water system. The main roads were offered for dedication to Madera County
by instrument #16284. As part if the mitigation process, some 300 acres has
been devoted to wildlife habitat. This document was recorded March 20, 1991
(#6911).
In 1993, the existing owners, Stewert-Thomas Development L.P., defaulted. In
the spring of 1995, National Investors Financial, Inc. foreclosed. The company
now owns the property, and has been marketing it for eight months.
In summary, the subject is a master planned community with a mix of residential
and recreational uses. The golf course and county club have lost money every
year of operation. There has been an approval for a timeshare resort (RV
timeshares); approvals for timeshare condominiums (none currently exist); and,
approvals for additional lot sales (none have been sold recently within the past
several years). Therefore, we divided the property for appraisal purposes into
the 45 lot subdivision which is being marketed currently and the balance of the
tract (excess land).
Since acquisition, there has been a significant developmental concept to improve
the property into a destination type resort. However, the demographics of the
area has never allowed the property to progress as planned. This developmental
process apparently began even before the parcel was acquired in 1978. A current
title report was not provided for this appraisal.
- --------------------------------------------------------------------------------
5
<PAGE>
- --------------------------------------------------------------------------------
The subject site is now improved with an operating, existing golf course, which
has never experienced increasing rounds played since it was opened. The balance
of the property is now considered basically raw land, which will require
extensive and time consuming planning matters.
It is beyond the scope of this real estate appraisal to analyze the project
feasibility. That analysis is part of a separate study regarding the financial
viability in years ahead.
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6
<PAGE>
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ASSUMPTIONS AND LIMITING CONDITIONS
TITLE TO REAL ESTATE
No investigation of legal title was made, and we render no opinion as to
ownership of the property or condition of the title. We assume the following:
1. The title to the property is marketable.
2. Unless otherwise indicated in this report, the property is free and
clear of all liens, encumbrances, easements, and restrictions.
3. The property does not exist in violation of any applicable codes,
ordinances, statutes, or other government regulations.
4. The property is under responsible ownership and competent management
and is available for its highest and best use.
SKETCHES AND MAPS
Sketches and maps in this report are presented to aid the reader in visualizing
the property and are based on field investigations made by the appraiser.
Dimensions and descriptions are based on public records and information
furnished by others and are not meant for use as references in matters of
survey. We were not supplied with a plat plan of the property.
INFORMATION AND DATA
Information supplied by others, which was considered in this valuation, came
from sources believed to be reliable. We assume no further responsibility for
its accuracy. We reserve the right to adjust the valuation herein reported by
consideration of additional or more reliable data that may become available.
UNEXPECTED CONDITIONS
We assume no hidden or unexpected conditions of the property exist which would
adversely affect value.
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ASSUMPTIONS AND LIMITING CONDITIONS
DATE OF VALUE
We assume no responsibility for economic or physical factors occurring after the
date of value which may affect the opinions reported.
INSPECTION
The property appraised was inspected by Mark S. Justmann, MAI.
LEGAL OR SPECIALIZED EXPERTISE
No opinion is intended to be expressed for matters that require legal or
specialized expertise, investigation, or knowledge beyond that customarily
employed by appraisers. This report addresses no issues of law, engineering,
code conformance, insect or rodent infestation, or toxic contamination or
discharge, unless specifically identified in the body of the report.
SALE OR PURCHASE
Our opinion of value presented herein reflects The Mentor Group's considered
opinion based on the facts and data in the report. We assume no responsibility
for changes in market conditions, or for the inability of the owner to locate a
purchaser at the appraised value. We also assume no responsibility for a lack
of a financing commitment on the property, if applicable.
COURT TESTIMONY
Testimony or attendance in court or taxing authorities by reason of this
appraisal shall not be required unless arrangements for such services have
previously been made.
MINERAL RIGHTS
The value of mineral rights, if any, was not considered in this appraisal unless
otherwise noted.
STRUCTURAL DEFICIENCIES
We found no obvious evidence of structural deficiencies unless otherwise stated.
However, no responsibility for structural soundness or conformity to city,
county, or state building and safety codes can be assumed without an independent
structural engineering report.
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ASSUMPTIONS AND LIMITING CONDITIONS
SOIL CONDITIONS
Detailed soil studies of the subject property were available to us. Statements
herein on soil qualities or conditions shall not be considered conclusive due to
the lack of our engineering expertise. However, they were considered consistent
with information available to us.
ENVIRONMENTAL CONDITIONS
We have been informed that the property may be subject to some environmental
conditions that are considered beyond the scope of this assignment. Clients are
typically recommended to retain an expert in this field, if desired.
CONFIDENTIALITY/ADVERTISING
This report and supporting notes are confidential. Neither any part nor the
whole of this appraisal shall be copied or disclosed to any party or conveyed to
the public in spoken or written form through advertising, public relations,
news, sales, or any other means without the prior written consent and approval
of both The Mentor Group and its client.
HAZARDOUS SUBSTANCES
Hazardous substances, if present in a facility, can introduce an actual or
potential liability that will adversely affect the marketability and value of
the facility. Such liability may take the form of immediate recognition of
existing hazardous conditions. Future liability could stem from the release of
currently nonhazardous contaminants, such as asbestos fibers or toxic vapors
from urea formaldehyde foam insulation, through aging or building renovations.
In the development of our opinion of value, no consideration has been given to
such liability or its impact on value. The Mentor Group is not qualified to
investigate the possible presence of toxic materials requiring either immediate
or future correction; and, we were not authorized to make such a study.
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ASSUMPTIONS AND LIMITING CONDITIONS
The Americans With Disabilities Act (ADA)
This act became effective January 6, 1992. We have not made a specific
compliance survey and analysis of this property to determine whether or not it
is in conformity with the various detailed requirements of the ADA. It is
possible that a compliance survey of the property, together with a detailed
analysis of the requirements of the ADA, could reveal that the property is not
in compliance with one or more of the requirements of the act. If so, this fact
could have a negative effect upon the value of the property. Since we have no
direct evidence relating to this issue, we did not consider possible
noncompliance with the requirements of ADA in estimating the value of the
property, unless specifically mentioned in this report.
EASEMENTS
No responsibility is assumed for their possible effect on individual properties
unless detailed title and mapping reports are made available to us. The overall
site does contain various utility easements, as well encumbering the larger
landholdings, which are assumed not to adversely affect the utilization of the
subject land.
CONSTRUCTION COST ESTIMATES
Construction cost estimates furnished by the client are assumed reasonable and
no attempt was made to determine if these independent reports were reasonably
accurate, fair or reliable.
GOVERNMENTAL APPROVALS
All governmental approvals necessary to permit development for the proposed
residential, RV timeshare area are assumed available as per actual discussions
with the Madera County planner. However, no preliminary site plans showing the
proposed development were submitted.
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REGIONAL ANALYSIS
COUNTY AND CITY DATA:
Madera County contains the geographic center of the State of California. The
western third of the county lies in the San Joaquin Valley, with the Chowchilla
River and the San Joaquin River forming the northern and southern county
boundaries, respectively. Eastern Madera County extends from the foothills
easterly to the national forests and wilderness areas of the Sierra-Nevada
Mountains. Oakhurst and Coarsegold are the principal unincorporated communities
in the eastern part of the county. Madera and Chowchilla are the only
incorporated cities in Madera County. They are the trade centers for the
surrounding diversified agricultural lands on the valley floor. Straddling
State Highway 99, the city of Madera is 166 miles southwest of San Francisco and
240 miles northeast of Los Angeles. Highway 145 connects Madera with Kerman to
the south, and provides access to Yosemite National Park, Bass Lake and other
recreational areas to the east and north.
According to the 1990 Census, the population in Madera County was 88,090, an
increase of 24,974 residents from the 1980 Census. This represents an increase
of 39.5% over the decade, or an annual increase of 3.4% compounded. The State
Department of Finance estimates a 1994 population in Madera County of 105,700,
an increase of 17,610 residents or 20% from 1990.
Population within selected regions of the county has grown at varying rates. In
Madera County, there are only two incorporated communities: Madera, the county
seat and Chowchilla, a small city about 15 miles north of Madera. Residents of
these two cities accounted for 38.4% (40,611 people) of the county's total 1994
population. The remaining county residents live in rural areas in the valley
floor and in foothill or lower mountain elevations in the easterly section of
the county.
Below is a chart comparing the rates of population growth over the last two
decades in the city of Madera, the unincorporated area and the county:
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REGIONAL ANALYSIS
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
AREAS 1970 1980 1970-90 1990 1980-90
Change Change
# / % # / %
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Madera City 16,044 21,732 5,688/35.4% 29,281 7,549/34.7%
- -----------------------------------------------------------------------------------------------------------------------------
Unincorporated Areas 21,126 36,262 15,136/71.6% 53,240 16,978/46.8%
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County Total 41,519 62,100 20,584/49.6% 88,090 25,990/41.9%
- -----------------------------------------------------------------------------------------------------------------------------
The County total includes the
incorporated city of Chowchilla
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</TABLE>
In the 1980's, the population in the unincorporated areas grew by about 17,000
residents, which accounted for 65% of the county's total growth. Madera City's
increase of 7,549 residents accounted for 29% of the county's total growth.
People have been attracted to the less urbanized lifestyle found in some of the
small unincorporated communities in the foothills and lower mountain regions of
the county, such as North Fork, Bass Lake, Coarsegold and Oakhurst.
Traditionally, these areas have attracted sports people and retirees, who are
drawn to these areas because of the scenic attributes. More recently, however,
there are increasing numbers of people arriving from the metropolitan areas
around Los Angeles and San Francisco who are leaving these congested areas for
the more rural Madera County.
Between 1990 and 1994, the city of Madera grew from 28,675 to 33,911 residents,
representing a compounded annual growth of 4.28%. This increase in population
was attributed to the increased commercial development, city annexation policies
and the somewhat less expensive housing than the larger Fresno market.
The city of Madera is expected to continue at a steady population growth over
the near future. It is anticipated that this growth will be 3% to 4%, which is
consistent
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REGIONAL ANALYSIS
with historical growth patterns and is consistent with the economic conditions
of the Madera area.
The economic base of Madera County is agricultural and agricultural related
industries. Agriculture is concentrated in the western third of the county,
while forestry and tourism have traditionally been the most important industries
in the eastern two-thirds. While agriculture accounted for 31.7% of the 20,200
jobs in 1990, government accounted for 16.4%. Other major employment sectors in
1990 were manufacturing at 14.8% and retail trade and services at 13.3% each.
Similar to most other agriculturally oriented counties, Madera's annual
unemployment is strongly influenced by the agricultural economy, and tends to
vary with seasonal farming activity.
Recently completed construction of the new $160 million, 2,000 bed women's
prison is located along Avenue 24 near the small community of Fairmead, north of
Madera. This is a near duplicate of its companion 2,000 inmate prison that
opened in October of 1990. The new prison will provide jobs for about 700 at
its capacity of 2,000 inmates. The 1990 facility has a staff of 818. While the
prison complex will cover approximately 300 acres, a total of 1,200 acres were
acquired in connection with the agricultural programs to be conducted at the
site.
Within the last five years, the City as well as the County of Madera have
aggressively pursued a program to expand the economic base of the area by
attracting new industrial development as well as retail and commercial
businesses to this region. The potential for economic expansion in Madera has
been aided by the approval of Madera as a state enterprise zone, which allows
businesses to qualify for tax credit for expansion or locating within one of
these zones. Specific developments within the Madera Airport Industrial Park at
Freeway 99 include the 425,000 square foot Gottschalk's distribution facility.
Another manufacturing firm from the Bay Area recently constructed a 140,000
square foot industrial structure within the same area.
The other city developed industrial park, known as the Madera Industrial Park
and located south of Howard Road, has also been the seen of recent industrial
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REGIONAL ANALYSIS
construction. Several large manufacturing or distribution firms have built
facilities within this park or within the adjacent Will Gill Industrial Park.
The majority of this building activity involves owner/occupants who develop the
improvements for their own specific use. Vacancy rates within the several
industrial parks and areas within Madera reflect a low level.
Retail development has been at the forefront of commercial construction within
the city of Madera. A 60,000 square foot Mervyn's department store opened in
October of 1990 followed a short time later by a 93,500 square foot K-Mart
store. In addition to these two tenants, there is another 8,000 square feet of
in-line shop space in this center, which is situated adjacent to the existing
Country Club Shopping Center at the intersection of Cleveland Avenue on the east
side of Freeway 99 in northeast Madera. Madera Marketplace is a new 304,000
square foot community center on a 29-acre site west of Freeway 99 and along the
north side of Cleveland Avenue. The major tenant is Wal-mart, who has
constructed a 117,500 square foot store and has an additional 30,000 square
approved for possible expansion. Other occupants of this center include Pak
N'Save with an 85,000 square foot store and J.C. Penny's with a 33,800 square
foot store.
The general pattern of growth within the city limits of Madera for both
commercial and residential development has been to the west and northeast.
Northeast Madera, which is generally defined as that area east of Freeway 99 and
north of the Fresno River, is characterized as a moderate-to low-priced
residential district with values for existing homes ranging from $40,000 to
$65,000. Much residential development occurred in the area north of Cleveland
Avenue during the early and mid-1980's. In the last two years, a few entry
level subdivisions have been developed with product in the $65,000 to $85,000
range. Western Madera, which is defined as that area west of Highway 99 north
of Howard Road, has developed over the last 25 years into a strong residential
district. The neighborhoods in the area are more stable with better quality and
higher priced housing. Values generally range from $80,000 to $130,000 with
some neighborhoods having more expensive housing priced above $175,000. New
development in west Madera has continued at a very moderate pace during the
early-to mid-1980's. Within the last three to four years, however, activity in
the area significantly increased with
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REGIONAL ANALYSIS
approximately 1,100 single family lots having been developed and another 400
lots in various stages of planning. New home prices in western Madera generally
range form $100,000 to $175,000.
The north pattern of growth in Madera extends beyond the city limits.
Approximately five to ten miles north and northeast of the city limits, in the
vicinity of the Madera Country Club, are two large subdivisions known as Madera
Acres and Madera Highlands. These two projects, developed 25 years ago to rural
densities with lots of 2.5 to 5 acres in size, were sparsely settled until the
last 10 years or so. Lately more and more households were attracted to this
rural setting. Oakhurst median household income is listed at $30,742. The cost
of a three-bedroom house, another affordability criterion is listed at $137,500.
Other qualifications were that 17% or more of its residents were employed in
executive, professional, managerial or technical jobs. To weed out towns with
large populations of rich retirees, places were only considered if at least 44%
of all household heads were 45 years or younger, the national average. Many of
the residents own their own businesses, and fall into the category of home-based
companies that Money magazine identified as where the jobs are in Oakhurst. The
other major sources are Yosemite Resorts and a medical center.
About 140 people are employed at Community Hospitals of Central California,
which opened a 24-hour urgent care facility in Oakhurst last year.
Priority Health Services affiliated with Saint Agnes Medical Center has recently
completed a 16,000 square foot medical facility. Kaiser Permanente has under
construction a 8,910 square foot medical clinic.
The bread and butter for towns like Oakhurst is tourism. Oakhurst has 700 hotel
rooms; only three hotels operate outside the eastern county location. From 1991
to 1994, the amount spent at hotels, motels and bed and breakfast inns in the
county went from 29 million to 44 million. Total destination spending for the
same time increased from 134 million to 199 million. For the same period, jobs
generated by travel spending increased by more than 600, to 2,680.
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REGIONAL ANALYSIS
The Oakhurst area is considered to be one of the most dynamic rural mountain
communities along the westerly Sierra Nevada Mountain Range, within the Fresno
and Madera County areas. It has experienced a strong residential and commercial
growth over the past ten years. This trend is expected to continue, as more
people discover the area. There continues to be new construction of smaller,
commercial buildings along Highway 41 and a number of older structures being
remodeled to economically compete with newer facilities. Thus, there appears to
be a continued investment of capital into real properties within the Oakhurst
area, indicating the underlying strength and continued growth of the community.
It is the appraiser's opinion that this trend should continue into the
foreseeable future.
1995 POPULATION DATA
--------------------
ESTIMATED
---------
USING OAKHURST AS THE CENTER
----------------------------
5 Mile Radius 10,468
10 Mile Radius 16,835
25 Mile Radius 42,273
RAINFALL: Total rainfall ranges between 20 to 45 inches per year.
PREVAILING WINDS: Direction: Upslope during the day and downslope at night.
Speed: Low in November; maximum in June
* Information Provided by Eastern Madera County Chamber of Commerce, 49074
Civic Center, Oakhurst, California 93644
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REGIONAL ANALYSIS
AREA DEMOGRAPHICS NOVEMBER, 1992
--------------------------------
prepared by Maas, Rao, Taylor, & Associates, Riverside, California
OAKHURST AREA DEMOGRAPHICS
POPULATION 1990
Location Zip Code Population
Ahwahnee 9360 11,680
Bass Lake 93604 2,195
Coarsegold 93614 7,280
Fish Camp 93623 277
North Fork 93643 3,892
Oakhurst 93644 *12,787
O'Neals 93645 434
Raymond 93653 683
Wishon 93669 350
Total 29,578
(*current 1996 population of Oakhurst is 13,300)
ANALYSIS BY HOUSEHOLD TYPE
Household Number %
Families 4,611 15
Married-Couple 4,304 14
Male/no wife 7,070 23
Female/no husband 8,300 27
One person 6,455 21
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REGIONAL ANALYSIS
ANALYSIS BY RACE
Race Number %
White 28,713 94.5
Black 92 .3
American Indian 922 3.0
Asian/PI 263 .8
Other Race 461 1.5
*Information provided by Eastern Madera County Chamber of Commerce, 49074 Civic
Center, Oakhurst, California 93644
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REGIONAL ANALYSIS
The tiny mountain community of Oakhurst is in the money, in more ways than one.
The April issue of "Money" magazine rates Oakhurst among the top small boomtowns
in the country. The unincorporated eastern Madera County community ranked sixth
among 50 towns that offer great jobs.
"We're third for a resort town, right behind one in Hawaii and one in Colorado,"
said Noreen McDonald, executive director of the Eastern Madera County Chamber of
Commerce. "That's outstanding."
Oakhurst, at the threshold of Yosemite National Park, is a major contributor to
the 27 percent increase in destination spending for Madera County between 1991
and 1994, the last year for which information was available.
"Money" ranked the top 50 small towns by population growth or what it called "a
proxy for economic vitality." Only two other California towns - Hollister and
Paso Robles - cracked the elite list.
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NEIGHBORHOOD DATA
A neighborhood is defined as a portion of a larger community, or an entire
community, in which there is a homogeneous group of inhabitants, buildings, or
business enterprises.
The subject is located on the northeasterly side of Highway 49, about 4 miles
west of Highway 41, just west of the city of Oakhurst. The property has access
via a road stemming from Highway 49 named Harmony Lane, which traverses to the
northeast. The distance between Highway 49 and the subject is approximately one
mile.
The area is largely very mountainous, rolling acreage with elevations from 100
up to approximately 1,600 feet. Harmony Lane is very circuitous and rolling,
and leads to the subject main access street which is Oprah Lane. Oprah Lane is
a very winding, circuitous 60' right-of-way with no curbs, gutters or walkways.
It does have hydrant protection throughout the subject parcel. The mountains
of this Yosemite National Park are visible throughout the subject property. The
boundary line for the National Park basically abuts the subject property on the
north.
The project is located five miles due west of Oakhurst, California and 46 miles
from Fresno. It is approximately a 2 1/2 hour drive from Modesto/Stockton,
five hours from the San Francisco Bay area and 5 1/2 hours from the LA/Orange
County area. The project was started approximately 15 years ago as a mixed use
development. Currently, there is an operating 18-hole golf course with
clubhouse, a potential hotel site, and entitlements for home sites,
RV/membership campgrounds and timeshare.
National Investors Financial, has approximately $22 million invested in the
project inclusive of accrued interest. The current objective is to maximize the
value to the investors through the accelerated development of RV and/or
timeshare projects or through whatever other means make the most sense,
including sale of the hotel site for development.
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NEIGHBORHOOD DATA
I. EXECUTIVE SUMMARY OF SUBJECT PROPERTY
Consisting of 1,599.44 acres at an elevation of 2,200 to 3,200 feet and located
close to the southern entrance of Yosemite National Park, Yosemite Woods Family
Resort is planned as an "open space" community. The focus is a system of parks,
lakes, preserved natural open space, and landscape recreational areas. It is a
comprehensively planned and designed mixed-use vacation ownership resort,
consisting of timeshare resort ownership units ranging from large to small;
recreational vehicle membership resort; undivided interest family outdoor resort
ownership (UDI); and a modular vacation home resort. In addition, various
amenities and facilities are planned, including a village center; a health,
wellness and longevity center; golf course and pro shop; lake; trails; club
house; sports arena; and restaurants.
Yosemite Woods Family Resort will offer significant amentities and a unique
family vacation experience. The activities planned will be coupled with
instruction at all levels and retail equipment sales for every sport or
activity. This type of vacation is on trend with what is happening today.
The design concepts and visual perspective have produced the ultimate mixed use
family oriented community. The image is consistent with the natural setting and
outdoor orientation of the community, while maintaining a feeling that is
sufficiently contemporary to satisfy the evolving tastes of its owners, members,
guests and visitors for decades to come. The concept is long ranged and broad
based.
By taking advantage of the trends impacting travel in America today, Yosemite
Woods Family Resort is well positioned to become an extremely successful
destination resort area. Using a variety of marketing approaches, but initially
relying predominantly on direct mail, field marketing and owner referrals as the
prime sources of prospect generation, it is projected that Yosemite Woods Family
Resort could generate over $80 million in pre-tax cash flow by the year 2012.
To minimize risk and ensure all development remains market oriented, a phased
development process is planned for each of the vacation ownership products.
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NEIGHBORHOOD DATA
General Location
Yosemite Woods Family Resort is located in the central part of California at the
foothills of the Sierra Nevada Mountains, 2 miles due west of Oakhurst,
California and 40 miles northwest of Fresno, California which is the fifth
largest city in the state. It is strategically located 13 miles south of the
southern entrance to California's most popular, scenic attraction, Yosemite
National Park. Over the past three years Yosemite National park has averaged an
annual visitor rate of 4.1 million people. A National Park Service market study
conducted four years ago determine that the average visitor group is
approximately 3.3 people. Of this number, they report that 48 percent are
families or groups whose household income exceeds $50,000 per year. Of that
number approximately 288,000 families or groups with household incomes of
$50,000 or more per year enter through the south entrance to the park. Yosemite
studies also verify that the overwhelming majority of visitors to the park are
from California.
Yosemite National Park
To truly appreciate the natural beauty and potential of Yosemite Woods Family
Resort, one has understand the awesome and spectacular geographic area proximate
to its location, Yosemite National Park.
Yosemite Woods Family Resort is located near the southern entrance to a national
treasure. Yosemite National Park contains magnificent valleys, great granite
dome and peaks, waterfalls, giant sequoias, and spectacular high country.
Comprising about 1,170 square miles of Sierra Nevada splendor, Yosemite National
Park was established by an act of Congress on October 1, 1980. Since then it
has since become one of the best known parks in the world. Initially set aside
by President Abraham Lincoln in 1864 as a California State Park, Yosemite Valley
and the Mariposa Grove of Giant Sequoias were to be "held for public use,
resort, and recreation....inalienable for the time."
The park is roughly oval in shape and includes 263 miles of roads, 840 miles of
hiking trails, about 240 species of birds, 80 species of mammals, and 1,400
species of flowering plants, 37 of which are trees. Elevations inside the park
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NEIGHBORHOOD DATA
range from 2,000 feet to more than 13,000 feet. It is largely undeveloped -
94.5 percent of the park is officially designated as wilderness.
Five distinct areas attract some 4.1 million visitors each year to Yosemite:
YOSEMITE VALLEY, 7 miles long and 1 mile across at its widest point, is
the most visited section of the park. The walls of the valley are draped
with waterfalls that usually run in the spring, while the valley enjoys
fields of flowers in spring and summer, a show of colors in the fall, and
brilliant mountain light in the winter.
WAWONA is the historical center of the park. Native Americans called the
nearby giant sequoias WAWONA, the sound of the call of the owl (the
guardian of the big trees). This area is home to the Wawona Hotel and the
Pioneer Yosemite History Center, as well as the Mariposa Grove of Giant
Sequoias, Yosemite's largest stand of giant sequoias and home of the
world's largest trees, the Grizzly Giant.
HETCH HETCHY, once a valley on the Tuolumne River, is now a reservoir
created by O'Shaughnessy Dam completed in 1923. The dam was built to
store water and generate hydroelectric power for the city of San
Francisco.
The HIGH COUNTRY provides much of the magnificent and breathtaking scenery
of the area with its numerous meadows, brilliant blue lakes, huge granite
domes, and an extensive network of hiking trails.
TUOLUMNE MEADOWS is the heart of the high country. At 8,575 feet, it is
the largest sub-alpine meadow in the Sierra Nevada and a popular spot for
walks and hikes.
The sights and experience of Yosemite National Park are abundant. Some of the
more famous sights include Bridalveil Fall, Yosemite Falls, El Capitan, Half
Dome, Sentinel Rock, Vernal Fall, Nevada Fall, The Mist Trail, Four-Mile Trail,
Panorama Trails, Valley View Turnout, Tunnel View, Glacier Point and Happy
Isles, to name
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NEIGHBORHOOD DATA
a few. In short, the Park offers some of the richest and most breathtaking
natural wonders and sights of the world. It is truly a magical place and within
minutes of of the subject property.
The subject project is bordered on the west, north, and east by rolling,
mountainous acreage with many types of trees, primarily oaks and other schrub
vegetation. The southerly areas include some scattered remote housing
developments, including two distinctive single-family subdivision developments
named Miami Highlands and River Creek Estates. Miami Highlands is basically
located next to the subject and River Creek Estates is located about two miles
to the southwest. Both of these subdivisions, as well as the subject
subdivision, provided the basis for our analysis on the subject property. We
also analyzed two other remote subdivisions in the area considerably further
south along the Highway 41 corridor.
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NEIGHBORHOOD DATA
The nearest commercial development is located several miles to the east and is
located on the fringes of the city of Oakhurst. There are no other nearby
influencing developments nearby the subject with the exception of a new church
under construction just west of Harmony Lane on the north side of Highway 49.
Access to the subject neighborhood is provided by Highway 49, which stems from
Highway 41 to the east. Highway 41 provides access to the greater Fresno area
which is located about 30 miles to the south. This is a very modern highway
providing good access to Fresno and the southern California areas. Access is
somewhat circuitous to the subject. It is necessary to first drive through the
town of Oakhurst about 5 miles to the east. Highway 49 is a rather old, two
laned, asphalt paved road.
The subject has very little other neighborhood influences nearby, other than
some scattered single family developments to the west of the subject. The
immediate subject area is largely scattered trees which average about 50 to 70
feet in height, with some rolling meadows.
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SITE DATA
As shown on the following maps, the subject property consists of several
contiguous key parcels. The following maps demonstrate the overall tax assessor
parcels that included several types of land, specified on the map. This overall
tract consists of Phase I, (58 lots originally, now 45 lots), and other
residential areas, as well as the golf course. This site also includes a small
lake which is part of the golf course tract. While this land was formerly
master planned, it is now considered basically raw zoned RM, residential land
and OS open space land (see zoning parcel map). The overall site is generally
very irregular in shape and very rolling topography overall. The outer boundary
is quite irregular. According to the tax key maps, it includes approximately
1.92 miles of northerly boundary land; approximately 2 miles of easterly
circuitous boundary line and a circuitous westerly property line of
approximately 1.5 miles. We have retained no actual master plan map which has
exact linear distances. The other other map consists of an official plat parcel
map which shows the majority of the property site. Per the tax map keys
published by the taxing authorities in Madera County, the site consists of
several assessor sites totaling approximately 1,640 acres, or 2.56 square miles.
Since there has been 11 lots sales, the acreage remaining is approximately
1,599.44 acres. As shown, the site is divided by several roadway frontages.
The overall site contains some water lines, utility lines, as well as some
irrigation lines primarily for the golf course. Most of the overall parcel site
has water and some sort of waste management system.
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SITE DATA
On inspection, the site appeared to have adequate soil load-bearing capability.
There were no soils report available as to the adequacy of the soil.
The tract was inspected and much of this tract was previously compacted.
Based upon a physical inspection, there appear to be no easements that would
materially affect the function or salability of the subject development. At the
time of the inspection, there appeared to be no negatively impacting toxic
environmental issues. It was noted by the owner that there have apparently been
no environmental problems or Fish and Game problems. We are not experts in
this field and cannot comment on the issue. Ingress and egress to the subject
site are considered adequate.
The subject site is not situated in a Flood Insurance Rate Map hazard area. The
subject's community is not required to purchase flood hazard insurance. The
property is not considered to have any significant natural, cultural,
recreational, or scientific value.
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27
<PAGE>
- --------------------------------------------------------------------------------
SITE DATA
PROPOSED DEVELOPMENT
As mentioned, the subject has previously been master planned. Applications for
the amendment of the development plan and rezoning of the subject area still
exist, and have been amended to include the proposed timeshare development.
This timeshare aspect is not considered to be real property and is appraised
separately in another financial valuation. It is assumed that future approvals
will be subject to a lengthy hearing.
EXISTING GOLF COURSE
Outlot A (see map) is improved with an existing golf course, 13,000 square foot
club house, pool, sheds, tennis courts, access road and parking lot. The
acreage also includes a small lake.
The large club house was recently constructed and is in good condition.
Construction consists of wood framing on a poured concrete slab, developed on a
rectangular footprint of about 13,000 sq. ft.. The building has a 10 foot
ceiling and a stucco exterior. Floor covering consists of vinyl and carpeting,
with gypsum board wall system and drywall tile ceilings complete with
incandescent lighting and ceiling fans and a complete sprinklering system.
There are several bathrooms, a small pro shop at the course, a large dining room
and bar and only port-o-poddys on the course which restricts use somewhat.
The course was apparently constructed by the original owner in two different
time perids (1987 = front side, 1990 = back side). The course was never
constructed to PGA standards and has had a history of flooding problems,
irrigation problems and drainage problems. There have recently been some
perforated pipes (french drains) installed to prevent future drainage problems
as well as 40 tons of gravel cart paths. The majority of the cart paths are
still dirt. Only about 20% of the course is irrigated property and requires
approximately $600,000 in additional expenditures for a proper irrigation
system.
The course has been rated by the Northern California Golf Association as 71.7.
The blue course plays 6,474 and the white course plays 6,068 yards. The course
was proposed to be used by only members of the golf club, but the memberships to
date total only about 70 and there were none sold last year. There were no
- --------------------------------------------------------------------------------
28
<PAGE>
- --------------------------------------------------------------------------------
SITE DATA
operational statements supplied by the management and apparently there were only
approximately 12,000 rounds played last year. New tee boxes were just put in
and there are projections for more rounds to be played.
There are offerings of new trial memberships but to date none have been sold.
Given that the golf course business is very expensive to run, that additional
expenditures of $600,000 are needed to bring the course into playable condition;
that the rounds played are very limited and membership sales have been non-
existent, we have concluded the course to be basically not worth the
expenditure. Furthermore, the course has reportedly always lost money and is
not a profitable venture. Therefore, we have elected to include this acreage as
excess land to be valued with the balance of the rest of the acreage. The cost
of the improvements will be included in the cost approach, with the exception of
the golf course itself. The following score card indicates the holes and
yardage for the course.
- --------------------------------------------------------------------------------
29
<PAGE>
SITE DATA
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
HOLES 1 2 3 4 5 6 7 8 9 OUT
- --------------------------------------------------------------------------------
BLUE YARDAGE 383 430 429 380 172 395 384 178 536 3300
- --------------------------------------------------------------------------------
WHITE YARDAGE 324 430 394 350 161 369 355 150 511 3100
- --------------------------------------------------------------------------------
PAR 4 5 4 4 3 4 4 3 5 36
- --------------------------------------------------------------------------------
STROKE HOLES 13 1 5 7 9 15 3 17 11
- --------------------------------------------------------------------------------
PLAYER HDCP.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
RED YARDAGE 289 379 295 326 107 286 344 122 476 2836
- --------------------------------------------------------------------------------
LADIES' PAR 4 5 4 4 3 4 4 3 5 36
- --------------------------------------------------------------------------------
LADIES' STROKE HOLES 15 1 9 5 13 11 3 17 7
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
HOLES 10 11 12 13 14 15 16 17 18 IN TOTAL HANDICAP NET ADJ
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BLUE YARDAGE 328 408 544 320 189 245 394 186 560 3174
- -----------------------------------------------------------------------------------------------------------------------------
WHITE YARDAGE 313 383 496 295 160 272 358 156 535 2968
- -----------------------------------------------------------------------------------------------------------------------------
PAR 4 4 5 4 3 4 4 3 5 36
- -----------------------------------------------------------------------------------------------------------------------------
STROKE HOLES 14 4 8 10 12 16 2 18 6
- -----------------------------------------------------------------------------------------------------------------------------
PLAYER HDCP.
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
RED YARDAGE 260 335 340 273 90 173 321 116 508
- ---------------------------------------------------------------------------
LADIES' PAR 4 4 5 4 3 4 4 3 5 36
- ---------------------------------------------------------------------------
LADIES' STROKE HOLES 10 6 12 8 14 18 4 18 2
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
DATE
SCORER ATTEST
SCORE CARD
- -------------------------------------------------------------------------------
30
<PAGE>
- --------------------------------------------------------------------------------
ASSESSMENT AND TAXES
According to records at the tax assessor's office, the current (1995-96)
assessed value for the subject property is $3,853,313 for the remaining lot
parcels. This breaks down to an average of $8,155 per lot for 47 remaining lots
which are available. The balance of the tract is assessed $3,390,292 for land
and $2,262,180 for improvements. The total taxes due for both tracts are
$89,315.20. Tax records also indicate that no structures are as yet assessed on
the subdivision land. The records were too numerous to mention in this report
and are retained in our files.
The assessor's opinion of market value does not reflect actual market value of a
property, nor are they considered valid indicators of actual market value. The
excess land portion of the property appears to be significantly overassessed
while the subdivision land appears to be significantly underassessed.
ZONING
The overall site is classified as RM- Residential Medium Density for the balance
of the excess land and OS Open Space on the southerly portions of the site. The
residential land is RRS/MHA or RRS-2/MHA or RRS-2 1/2 /MHA Residential Zoning.
As mentioned in the property history section, the subject site has been through
the master plan process and several amendments, starting as far back as 1978.
A copy of the current RRS/MHA zoning regulations was available and is located in
the addenda data. Based on a review of the zoning regulations and an
examination of the subject property, it is our opinion that the subject master
plan development conforms to the current code.
The following zoning map designates the overall subject tract into the
respective zones.
- --------------------------------------------------------------------------------
31
<PAGE>
- --------------------------------------------------------------------------------
HIGHEST AND BEST USE
The tenth edition of THE APPRAISAL OF REAL ESTATE, published by the Appraisal
Institute, defines highest and best use thus:
the reasonably probable and legal use of vacant land or an improved
property, which is physically possible, appropriately supported,
financially feasible, and that results in the highest value.(3)
The highest and best use of the land if vacant and available for use may differ
from the highest and best use of the improved property; this will hold true when
the improvements, though not an appropriate use, still contribute to the total
property value in excess of the value of the site. Because the presence of
improvements can limit the use of land, highest and best use is determined
separately for the land or site as though vacant and available to be put to its
highest and best use and for the property as improved.
Estimating highest and best use essentially involves four stages of analysis:
1. LEGALLY PERMISSIBLE. Which use is permitted by zoning and deed
restrictions on the site in question?
2. PHYSICALLY POSSIBLE. To which use is it physically possible to put
the site in question?
3. FINANCIALLY FEASIBLE. Which permissible and possible use will
produce ANY net return to the owner of the site?
4. MAXIMALLY PRODUCTIVE. Among the feasible uses, which use will
produce the HIGHEST net return or the highest present worth?
The following paragraphs describe how we applied these tests to the vacant and
improved property.
- --------------------
(3)The Appraisal of Real Estate, p. 275.
- --------------------------------------------------------------------------------
32
<PAGE>
- --------------------------------------------------------------------------------
HIGHEST AND BEST USE
LEGALLY PERMISSIBLE
The use must be legal. Moreover, it must be probable, not speculative or
conjectural. A profitable demand for such use must exist, and it must return to
land the highest net return for the longest period of time.
Two types of legal restrictions apply to the subject property: private
restrictions (deed restrictions and/or easements) and public restrictions
(zoning). No information on private restrictions affecting the title was
provided. We have assumed that only common restrictions, such as utility
easements, etc., would apply and that they would not affect the development of
the site.
As mentioned in the zoning section, considerable public restrictions now affect
the use of the site. The subject site consists of two distinct properties: the
single-family subdivision and the excess land, which includes the golf course
and RV locations. Much of this property is either currently zoned RM or OS and
is basically open to many developmental scenarios. Much of the property already
has been taken to the tentative stages of development and platting of single-
family lots. However, lot sales to date have been very lackluster. It is
currently unknown how the current agencies will ultimately decide the fate of
the project in terms of the timeshare considerations; to answer this question
may require a considerable amount of time and money.
It is assumed that the proposed master plan timeshare development will
ultimately represent the Highest and Best Use for the entire property. The
market is very slow in terms of any large acreage developments and very sparse
in sale comparables. It is also assumed that the balance of the site (excess
land) would be used for the benefit of the remaining subdivision. Only time and
a good marketing program will benefit the subject proposed timeshare plans.
PHYSICALLY POSSIBLE
The second constraint on the Highest and Best Use of the property is that
dictated by the physical aspects of the site itself. Size, location, and
allowable density are the most important determinants in value. In general, the
larger the site, the
- --------------------------------------------------------------------------------
33
<PAGE>
- --------------------------------------------------------------------------------
HIGHEST AND BEST USE
greater the potential for achieving economies of scale and flexibility in
development.
The size of the lot, when considered within the provisions of the zoning,
considerably influences the ultimate development. The permitted size determines
how the site is developed.
The subject site consist of one large contiguous but independent tract. The
subdivision lots have already been subject to developmental plans that are
assumed to be physically possible and finalized. Yet they have not sold any
lots in the past two years. The size and shape of the lot allows for maximum
flexibility and development. We did not note any negatively impacting
environmental issues affecting the subject property. Therefore, the site's
physical aspects do not impose constraints upon its development to its highest
and best use.
FINANCIALLY FEASIBLE
Feasibility of a real estate project normally relates to its probable economic
potential. According to the tenth edition of THE APPRAISAL OF REAL ESTATE, all
uses expected to produce a positive return are regarded as financially feasible.
Therefore, in this stage, the appraiser further analyzes the legally permissible
and physically possible uses to identify financially feasible alternatives.
To analyze the financial feasibility of all potential uses that pass the tests
of legal permissibility and physical possibility, the appraiser must first
analyze area growth trends, accessibility to the neighborhood, present occupancy
levels, and proposed development of potential competition.
There has been limited new development in the subject's market area. The
proposed uses already have been quantified through a thorough planning process
and several general plan amendments. However, the feasibility of these uses is,
beyond the scope of this assignment due to the constraints imposed by
governmental authority, and, the lack of knowledge of final plans for the
balance of the acreage.
- --------------------------------------------------------------------------------
34
<PAGE>
- --------------------------------------------------------------------------------
HIGHEST AND BEST USE
The zoning regulations and possible alternative uses indicate that several
developmental scenarios would be ultimately feasible, depending on allowable use
by the city and governmental authorities. As mentioned, the subject property is
located near an established resort area, Yosemite National Park. However, many
resort projects have met with untimely financial disaster. Whether or not the
subject project can be financially viable really cannot be answered without a
complete feasibility study. Even then, it becomes a matter of how much risk a
firm can or wants to undertake.
Based on our observation and discussions with the local planning managers, this
type of master plan development and demand for this use in the subject's area
appears relatively limited and very unique.
Based upon the foregoing analysis, there are still several legally allowable use
requirements still to be fulfilled. The current proposed development is too
tentative in nature to be considered, or to be regarded as financially feasible.
Therefore, the Highest and Best Use is to hold the project for future study or
project implementation and perfection of the tentative process, until such time
as the project is determined to be feasible.
- --------------------------------------------------------------------------------
35
<PAGE>
- --------------------------------------------------------------------------------
V A L U A T I O N
-----------------
S E C T I O N
-------------
- --------------------------------------------------------------------------------
36
<PAGE>
- --------------------------------------------------------------------------------
APPRAISAL PROCEDURES
Developing a reasonable opinion of value on any type of property involves
several steps, depending on what type of real estate is being valued. The value
of the real property is generally arrived at via the following three appraisal
techniques, which are generally considered when valuing an improved piece of
real estate:
The COST APPROACH considers the current cost of reproducing or
replacing a property, less accrued depreciation in the property. A
summation of the market value of the land assumed vacant and the
depreciated reproduction cost new (RCN) of the improvements provides
an indication of the total value of the property.
The INCOME CAPITALIZATION APPROACH is based on an estimate of the subject
property's possible net operating income. The net operating income is
capitalized to arrive at an indication of value from the standpoint of an
investment. This method measures the present worth of anticipated future
benefits (net income) derived from the property.
The SALES COMPARISON APPROACH produces an estimate of value by
comparing the sales and/or listings of similar properties in the same
area as the subject property or in competing areas. This technique is
used to indicate the value established by informed buyers and sellers
in the market.
The cost approach is an excellent indicator of value for new or nearly new
improvements. The subject development is improved with a newer 18-hole golf
course facility, which has been operational since 1978, albeit unprofitable.
This facility was intended to be the cornerstone of the entire project. A
depreciated cost approach is ineffective in this analysis, primarily due to the
fact that the depreciation estimates are too subjective and basically tied to
the financial valuation. The course earnings (based upon the last five years of
actual income and expenses) are not sufficient enough to justify the cost to
build the facility. An analysis of the locational obsolescence depreciation
factor is very difficult at best. Locational obsolescence is caused by external
factors, such as general economic conditions in the nearby area, availability or
lack of financing, or inharmonious property uses. The project had a total
reported cost of $20 million, but has lost money for the last several years.
- --------------------------------------------------------------------------------
37
<PAGE>
- --------------------------------------------------------------------------------
APPRAISAL PROCEDURES
Therefore, any attempt at depreciating the assets via the cost approach is based
upon the earnings approach, which at present is inadequate. We will attempt to
utilize a cost approach in this instance which will also utilize the sales
comparison approach to determine underlying land value. This will be explained
later in the analysis.
The income capitalization approach is the only reliable/applicable indicator in
terms of the golf course. However, the course is not projected to make any
profit in the near future. This is coupled with the fact that the course needs
considerable expenditures to get it operational. These expenditures, time
frames involved and the lackluster market all adds to the uncertainty. Land
alone is generally not purchased for generating income. The value produced by
the potential timeshare operations is treated as part of the financial business
valuation.
The sales comparison approach is not given any consideration (except in the cost
approach) when determining the market value of the balance of the subject parcel
(excess land). In this instance, there are basically no sales of any golf
course resorts which can be compared to the subject even on a regional basis.
Therefore, we will therefore invoke the departure provision of the USPAP
Standards. This approach cannot accurately project the value of the subject
property. In addition, the respective values of the residential lots are
difficult to determine, especially when considering the difficulty determining
the costs of on and off-site development, administrative expenses, marketing and
sales expenses, holding costs such as property taxes, finance fees on
construction loans, legal and other professional fees, and a developer's profit.
Typically, a discounted cash flow analysis would be applied to indicate the
present value of the projected cash flow, indicating the amount that a developer
could pay for the undeveloped land in its current stage. This land residual
analysis was not applied in this valuation study, since the assumptions
regarding the balance of the site, improvement costs, future plans, and other
considerations were difficult to accurately estimate and outside the scope of
this assignment.
We did give some consideration to the existing single-family subdivision but
treated the balance of the tract as excess land. This primarily was due to the
fact
- --------------------------------------------------------------------------------
38
<PAGE>
- --------------------------------------------------------------------------------
APPRAISAL PROCEDURES
that sales data for large acreage tracts in the Madera County area was very
limited at best.
After the previous approaches are applied, the appraiser critically examines and
weighs the value indications to reconcile them before reaching and presenting a
final conclusion of value.
The following sections further discuss the application of the Cost Approach and
Income Approach with respect to subject.
- --------------------------------------------------------------------------------
39
<PAGE>
- --------------------------------------------------------------------------------
COST APPROACH
The next step in the appraisal process involves estimating the subject
property's market value by comparing it to similar, recently sold or currently
available properties. This approach postulates that the market value of a
property directly relates to the prices of comparable properties. The
reliability of the approach depends on (A) the degree of comparability of the
property appraised with each sale or listing, (B) the length of time since the
sale, (C) the accuracy of the sale data, and (D) the absence of unusual
conditions affecting the sale.
Characteristics and elements of comparison considered in this approach follow:
REAL PROPERTY RIGHTS CONVEYED. A transaction price is always
predicated on the real property interest conveyed. Many types of real
estate, particularly income-producing property, are sold subject to
existing leases. The revenue-generating potential of a property is
often fixed or limited by the terms of existing leases. In the
valuation process adjustments must be made to reflect the difference
between properties leased at market rent and those leased at rent
either below or above market levels.(4)
FINANCING TERMS. The transaction price of one property may differ from
that of an identical property due to different financing arrangements...
A financing adjustment may or may not include an adjustment for
conditions of sale.(5)
CONDITIONS OF SALE. Adjustments for conditions of sale usually reflect
the motivations of the buyer and the seller. In many situations the
conditions of sale significantly affect transaction prices. For
example, a developer may pay more than market value for lots needed in
a site assemblage because of the anticipated incremental value, or
plottage value, resulting from the greater utility of a larger site. A
sale may be transacted at a below-market price if the seller needs cash
in a hurry. A financial, business, or family relationship between the
parties to a sale may also affect the price of property.
- ------------------------------
(4)Ibid., p. 374.
(5)Ibid., p. 376.
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40
<PAGE>
- --------------------------------------------------------------------------------
COST APPROACH
When nonmarket conditions of sale are detected in a transaction, the sale
can be used as a comparable only with great care. The circumstances of the
sale must be thoroughly researched before an adjustment is made...(6)
MARKET CONDITIONS (TIME ADJUSTMENT). Comparable sales that occurred under
different market conditions than those applicable to the subject on the
effective date of the value estimate require adjustment for any differences
that affect their values. A common adjustment for market conditions is
made for differences occurring since the date of sale....
Although the adjustment for market conditions is often referred to as a
"time" adjustment, time is not the cause of the adjustment. Market
conditions which shift over time create the need for an adjustment, not
time itself. If market conditions have not changed, no adjustment is
required even though considerable time may have elapsed.(7)
LOCATION. An adjustment for location may be required when the locational
characteristics of a comparable property are different from those of the
subject property.... Location adjustments are usually expressed as
percentages that reflect the increase or decrease in value attributable to
the property's location or neighborhood.(8)
PHYSICAL CHARACTERISTICS. If the physical characteristics of a comparable
property and the subject property differ in many ways, each of these
differences may require comparison and adjustment. Physical differences
may include differences in building size, quality of construction,
architectural style, building materials, age, condition, functional
utility, site size, attractiveness, and amenities. Onsite environmental
conditions are also considered.(9)
ECONOMIC CHARACTERISTICS. Economic characteristics include all the
attributes of a property that affect its net operating income. This
element of comparison is usually applied to income-producing properties.
Characteristics that affect a property's net operating
- ------------------------------
(6)Ibid., pp. 380-381.
(7)Ibid.
(8)Ibid., p. 382.
(9)Ibid., p. 383.
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41
<PAGE>
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income include operating expenses, quality of management, tenant mix, rent
concessions, lease terms, lease expiration dates, renewal options, and
lease provisions such as expense recovery clauses. Investigation of these
characteristics is critical to proper analysis of the comparables and to
the final value estimate.(10)
USE. An appraiser must address any difference in the use or the highest
and best use of a potential comparable and the subject property. The
appraiser must recognize this difference and determine whether the sale is
an appropriate comparable and whether an adjustment is required. In most
cases the buyer or his or her agent must confirm the ultimate use for which
the comparable was purchased.(11)
NON-REALTY COMPONENTS OF VALUE. Non-realty components of value include
personalty, business concerns, or other items that do not constitute real
property but are included in the sale price of either the comparable or the
subject property. These components should be analyzed separately from the
realty.(12)
The sales comparison approach draws heavily on the principle of substitution,
which states that a prudent investor will pay no more for any particular
property than it would cost to acquire an equally desirable alternative
property. The process involves making adjustments between the subject property
and the comparable properties, with the subject property as a standard; the
appraiser adjusts the sale price of the comparable property to arrive at an
indication of market value for the subject. Reflecting a weakness of this
approach, the marketplace may contain data inadequate to justify the use of the
approach. Since it depends on historical conditions rather than future
expectations and conditions, the comparability may not closely conform to the
subject property. Conversely, as its main strength, the approach reflects the
actual market behavior of typical purchasers under current market conditions.
- ------------------------------
(10)Ibid.
(11)Ibid., p. 384.
(12)Ibid.
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42
<PAGE>
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COST APPROACH
LAND VALUATION
The sales comparison approach--the most common way of developing a market value
estimate for land involves collecting and analyzing sales and listings of vacant
land comparable to the subject property: Such sales and listings are commonly
called COMPARABLES or COMPS. The appraiser adjusts prices to some common unit
of comparison, such as price per acre, and then adjusts the prices for market
conditions, location, physical characteristics, available utilities, zoning,
Highest and Best Use, and other relevant variations. Finally, the appraiser
analyzes this information and derives a unit value applicable to the subject
property. When applied to the appropriate unit measure, this value yields an
estimate of the market value of the land, as if vacant.
An investigation of land comparables in the subject's vicinity disclosed few
large acreage sales that were useful in our analysis. Sales and askings for
this type of property were not very prevalent and no sales of any independent
golf courses were available. We have therefore attempted to compare the
excess land portion of the subject with the larger sale comparables we were
able to locate. Larger transactions are not found too frequently in the
marketplace, especially in a market that is below normal prices and activity.
These comparables are on the following pages, along with a land location map in
the addenda.
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43
<PAGE>
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COST APPROACH
- ---------------------
SUMMARY OF COMPARABLE LAND SALES AND ASKINGS
----------------------------------------------
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
NO LOCATION- LAND TYPE OF DATE PLANS SALE
# CITY- AREA ACREAGE OF FOR PRICE
ACRES SALE DEVEL- $/PER
+/- OPMENT ACRE
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1. SECTION 7 & 12, T8S, R21E 561.10 ROLLING 11/21/94 UNKNOWN $320,770
COARSEGOLD MEADOWS
MOUNTAINS $571.78/
NO UTILITIES ACRE
LIMITED
ACCESS
- -----------------------------------------------------------------------------------------------------------------------------
2. SOUTH HIGHWAY 41, 1/4 MILE E/O ROAD 622.16 BLACKHAWK 1/26/96 DEVEL- $475,000
201 MOUNTAIN OPMENT
COURSEGOLD RANCH; GREAT HOME- $763.47/
VIEWS SITES ACRE
MEADOWS
STREAMS
PONDS
LOW TAXES
- -----------------------------------------------------------------------------------------------------------------------------
3. N/S ROAD 200, 2 MILES 740.40 ROLLING 1/96 DEVELOPMENT $411,500
E/O HIGHWAY 41 MEADOWS HOME-
COURSEGOLD WITH OAK TREES, SITES $555.78/
DIRT ROAD ACRE
ACCESS, NO
UTILITIES
- -----------------------------------------------------------------------------------------------------------------------------
4. HIGHWAY 417, E/O HIGHWAY 41 998.00 GRAVEL/ 2/96 DEVELOPMENT $1,636,200
COURSEGOLD DIRT RD HOME-
ACCESS SITES $1,639.48/
ROLLING ACRE
MEADOWS
OAKS, NO
UTILITIES
- -----------------------------------------------------------------------------------------------------------------------------
5. W/S HIGHWAY 41, 1.7 53.00 A 10,000 SF CURRENT BROKEN $530,000
MILES N/O COURSEGOLD REST'RANT BUILD ASKING BIT
COURSEGOLD 1980'S REST'RNT $10,000/
WITH ON MARKET NOW ACRE
MOUNTAIN FOR 10 YEARS VACANT
SIDE SLOPE
- -----------------------------------------------------------------------------------------------------------------------------
SUBJECT EXCESS GOLF NA NA NA
OAKHURST LAND COURSE,
1,515.58 RV PARK,
ACRES SFR LOTS
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
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44
<PAGE>
- --------------------------------------------------------------------------------
COST APPROACH
ANALYSIS (EXCESS LAND):
COMPARABLE 1 includes two sites located nearby one another near Coursegold. The
tract included rolling meadows, some mountainous areas, and access through the
National Forest. The property did not include any utilities. This property
requires a downward adjustment for it's smaller size, as smaller sites tend to
sell for considerably higher prices per acre. It also requires an upward
adjustment for it's inferior location and access. Topography is considered
similar.
COMPARABLE 2 is a relatively small tract for which the developers expected to
eventually obtain approvals for single family custom developed homes. The
property is currently utilized for a ranch. The land is further south nearby
Coursegold. The tract has some fantastic views and includes meadows, streams
and ponds and is located in what is known as the Williamson Act which lowers
existing taxes. This tract would require an upward adjustment for location; a
downward adjustment for size and an upward adjustment for it's inferior access.
COMPARABLE 3 is a smaller site located nearby Coursegold in an inferior
location. The tract includes mostly dirt road access and rolling meadows with
oak trees. This site requires an upward adjustment for location and access.
COMPARABLE 4 is considered to be similar in size. The site was acquired by a
residential developer who intends to develop the site into a subdivision. It
includes gravel and dirt road access and no utilities. The site includes
rolling hills, meadows and lots of oak trees. The property is not in the
Williamson Act which allows a lower tax base while development plans progress.
This is probably the best comparable in terms of overall size. It is a recent
sale relatively nearby in an area to the south considered inferior in location.
All other features are considered similar. As compared to the subject excess
land, this comparable would require necessary expenditures for roads, utilities
and infrastructure which the subject already has. Therefore, a considerable
upward adjustment would be warranted.
COMPARABLE 5 is also located to the south of the subject. It is north of the
Coursegold area and includes a small tract which would require a considerable
downward adjustment. Due to this comparables small base figure, it requires
some significant adjustments. This property includes a 10,000 square foot
restaurant with additional acreage. This property has been on the market for
about 10 years according to the broker and is an indication of how long a good
property takes to sell in this area. It is also an indication of locational
obsolescence. The site would probably need a dramatic downward adjustment for
size difference, for the existing improvements, for it's asking status and for
the topography of the site which is very inferior as compared to the subject.
Overall a dramatic downward adjustment is felt necessary.
- --------------------------------------------------------------------------------
45
<PAGE>
- --------------------------------------------------------------------------------
COST APPROACH
SALES COMPS ADJUSTMENT GRID
<TABLE>
<CAPTION>
COMP 1 COMP 2 COMP 3 COMP 4
- ------------------------------------
<S> <C> <C> <C> <C>
Sale Price/Acre $571.78 $839.82 $555.78 $1,639.48
Property Rights 0% 0% 0% 0%
Price After Adjustment $571.78 $839.82 $555.78 $1,639.48
Financing Terms 0% 0% 0% 0%
Price After Adjustment $571.78 $839.42 $555.78 $1,639.48
Condition of Sale 0% 0% 0% 0%
Price After Adjustment $571.78 $839.42 $555.78 $1,639.48
Market Conditions 0% 0% 0% 0%
Price After Adjustment $571.78 $839.42 $555.78 $1,639.48
Other Adjustments
Size -10% -10% -10% 0%
Location +10% +10% +10% +10%
Zoning -0- 0% -0- -0-
Develp. Restrict./Topog. +20% +10% +30% +20-
Soil Conditions 0% 0% 0% 0%
--- --- --- ---
Total Other Adjustments +20% +10% +30% +30%
Sale Price After Adjust'tsents $686.14 $839.82 $722.51 $2,131.32
- -----------------------------------------------------------------
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</TABLE>
SALES COMPS ADJUSTMENT GRID
COMP 5
- ------------------------------------
Sale Price/Acre $10,000
Property Rights 0%
Price After Adjustment $10,000
Financing Terms 0%
Price After Adjustment $10,000
Condition of Sale 0%
Price After Adjustment $10,000
Market Conditions -15%
Price After Adjustment $8,500
Other Adjustments
Size -50%
Location 0%
Zoning -0-
Develp. Restrict./Topog. -15%
Soil Conditions -15%
----
Total Other Adjustments -80%
Sale Price After Adjust'ts $1,700
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46
<PAGE>
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COST APPROACH
The analysis of comparable land sales required consideration of size, location
and developmental restrictions/topography. Both zoning and soil conditions were
not given much consideration relative to the subject property.
Consideration for adjustments were also made in regard to the water and utility
availability as well as infrastructure. The per unit indicators fell into a
relatively tight range from $686.14 to $2,131.32 per acre with a mean of
$1,215.96 per acre. Due to the lackluster economy and other considerations,
these sales were the most comparable overall indicators of value. According to
reliable brokers consulted, the market is quite slow for this type of asset with
marketing times often exceeding one year. There has been only limited activity
county and regionally with respect to these larger land tracts.
The comparables considered most similar were Comparable 4, which was a recent
sale. Comparables 1, 2 and 3 were given some consideration, since they were
nearby but smaller. However, the neighborhood area is inferior. Comparable 5
was given almost no weight because of its smaller size and type of improvements
on the site. This sale had some improvement value but it is very difficult to
determine what it is. Overall, a conservative conclusion was selected.
Based on the subject's characteristics and the foregoing analysis of the
comparables, our opinion of the market value of the Parcel A land is:
1,515.58 Acres x $1,250 per Acre = $1,894,475
----------
----------
Rounded $1,895,000
----------
----------
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47
<PAGE>
COST APPROACH
SUMMARY OF COST APPROACH
- ------------------------
Clubhouse
Building Improvements
- ---------------------
Unit Cost $48.34 Section 11, Page 18
Cost Multiplier 1.01 Class D Avg
Clubhouse Bldg
Local Multiplier 1.16 Marshall Valuation
----
$56.64
Building Area 13,000 Square Feet
Building RCN $736,256
Miscellaneous Land Imps. $ 40,000
--------
Total Building Cost $776,256
Indirect Costs and Profit
- -------------------------
Total Building Cost $776,256
Indirect Costs (10%) 77,626
Subtotal $853,882
Developer's Profit (10%) 85,388
Total $939,270
Depreciation Estimate
- ---------------------
Actual Age 5 yrs.
Effective Age 5 yrs.
Estimated Useful Life 40 yrs.
Estimated Physical Depreciation 5/40 .13%
Estimated Locational Depreciation 30%
Total Building Cost $939,270
Less: Estimated Depreciation .13
---
Total Depreciation $122,105
Locational Obsolescence 30% $245,150
Remaining Building Value $572,016
ROUNDED $570,000
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48
<PAGE>
- --------------------------------------------------------------------------------
COST APPROACH
RV OFFICE & STORE
Building Improvements
- ---------------------
Unit Cost $49.87 Section 15, Page 10
Cost Multiplier 1.01 Class D Avg
Office/Store
Local Multiplier 1.16 Marshall Valuation
----
$58.43
Building Area 8,000 Square Feet
Building RCN $467,421
Miscellaneous Land Imps. $ 30,000
Park Models (at cost) 6 each $120,000
--------
Total Building Cost $617,421
Indirect Costs and Profit
- -------------------------
Total Building Cost $617,421
Indirect Costs (10%) 61,742
Subtotal $679,163
Developer's Profit (10%) 67,916
Total $747,079
Depreciation Estimate
- ---------------------
Actual Age 5 yrs.
Effective Age 5 yrs.
Estimated Useful Life 40 yrs.
Estimated Physical Depreciation 5/40 .13%
Estimated Locational Depreciation 30%
Total Building Cost $747,079
Less: Estimated Depreciation .13
---
Total Depreciation $ 97,120
Locational Obsolescence 30% $194,987
Remaining Building Value $454,971
ROUNDED $455,000
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49
<PAGE>
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COST APPROACH
Miscellaneous Land Improvements
Roads 5 miles x 5,280 L.F. = 26,400 L.F. x $45 L.F. = $1,188,000
Less: Depreciation (Observed) 60% = $712,800
Remaining Value Less Depreciation = $475,200
Asphalt Pavement 30,000 sq. ft. x $1.75 psf = $ 52,500
Less: Depreciation (Observed) 60% = $31,500
Remaining Value Less Depreciation = $21,000
Tennis Courts and Pool = $30,000
Wells (6) @ $2,500 each = $15,000
Golf Course (included in land cost)
TOTAL ESTIMATED VALUE
VIA COST APPROACH
LAND $1,895,000
BUILDING $1,025,000
LAND IMPROVEMENTS $ 541,200
----------
TOTAL $3,461,200
TOTAL (ROUNDED) $3,460,000
ANALYSIS (RESIDENTIAL SUBDIVISION)
The subject site also included some residential lots. This value was included
in our income approach, since it involves discounting net lot sales to present
value.
PROSPECTS FOR DEVELOPMENT
The golf course operations have been negatively impacted by the relatively
remote location, the former recession and other considerations. Therefore, past
and future operating performance of the subject property is often reflective of
specific locational advantages/disadvantages and management ability. Also
influencing the subject property are negative economic conditions existing in
both regional and local market areas. This has slowed growth. In addition, the
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50
<PAGE>
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COST APPROACH
previously mentioned considerations have acted to impede the operational
performance of most courses and provided for much investor insecurity.
High levels of residential development and corresponding population growth are
not likely to occur in the local market area. This has dramatically reduced the
demand of undeveloped land. It will be many years before nearby residential
development reaches the area of the subject property. In conversations with
existing government personnel regarding entitlements and zoning issues,
developmental capital is necessary to correct basic infrastructure problems
within the regional area.
CONCLUSION
The existence of a functioning golf course is seen as a positive benefit, which
may attract development to the surrounding property and maintain values
measurably higher than without the course. Development will occur much sooner
than would otherwise be anticipated. However, regional and demographic trends
do not indicate a strong infrastructure to handle any existing demand.
Therefore, in terms of estimating the performance of this particular golf
course, we have not analyzed existing golf course demand and locational
influences.
The income approach will not be utilized in the classical sense in this
analysis. Instead this approach will value the existing remaining single-family
lots and estimate lot value, sell off periods and costs of sales and then
discount the value of the annual net sums in order to arrive at a present value
calculation for the land.
An investigation of land lot comparables in the subject's vicinity disclosed
several lot sales in nearby competitive locations that were useful in our
analysis. Sales for this type of property were very prevalent. We have
summarized a few typical lot sales on the following pages.
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51
<PAGE>
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INCOME APPROACH
SUMMARY OF COMPARABLE LOT SALES
-------------------------------
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
NO LOCATION- LOT TYPE OF LOT DATE COMMENTS LOT SALE
# SUBDIVISION AREA OF PRICE
ACRES SALE
+/- $/PER
ACRE
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1. LOT 18 2.39 PAVED ROADS 5/23/96 CURBS, $30,000
MIAMI CREEK ESTATES UNDERGRND GUTTERS
OAKHURST UTILITIES
WATER SEWER $12,556/
ACRE
- ----------------------------------------------------------------------------------------------------------------------------------
2. LOT 11 6.00 PAVED 5/20/96 CURBS, $42,500
MIAMI CREEK ESTATES ROADS GUTTERS
OAKHURST UNDERGRND $7,083/
UTILITIES ACRE
WATER
SEWER
- ----------------------------------------------------------------------------------------------------------------------------------
3. LOT 17 2.21 PAVED 6/4/96 CURBS $47,000
MIAMI CREEK ESTATES OAKHURST ROADS GUTTERS
UNDERGND $21,267/
UTILITIES ACRE
WATER
SEWER
- ----------------------------------------------------------------------------------------------------------------------------------
4. LOT 8 3.24 PAVED 1/25/95 CURBS $55,000
MIAMI CREEK ESTATES ROADS GUTTERS
OAKHURST UNDERGRD $12,125/
UTILITIES ACRE
WATER
SEWER
- ----------------------------------------------------------------------------------------------------------------------------------
5. LOT 13 2.95 PAVED 5/4/95 CURBS $55,000
MIAMI CREEK ESTATES ROADS GUTTERS
OAKHURST UNDERGRND $18,644/
UTILITIES ACRE
WATER
SEWER
- ----------------------------------------------------------------------------------------------------------------------------------
6. LOT 20 2.74 PAVED 9/12/94 CURBS $63,500
MIAMI CREEK ESTATES ROADS GUTTERS
OAKHURST UNDERGRND $23,175/
UTILITIES ACRE
WATER
SEWER
- ----------------------------------------------------------------------------------------------------------------------------------
7. LOT 15 2.06 PAVED 5/11/95 HAS VIEW $63,500
MIAMI CREEK ESTATES ROADS CURBS
OAKHURST UNDERGRND GUTTERS $30,825/
UTILITIES ACRE
WATER
SEWER
- ----------------------------------------------------------------------------------------------------------------------------------
SUBJECT LOTS ACRES GOLF NA NA NA
OAKHURST COURSE, RV
PARK, SFR LOTS
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
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52
<PAGE>
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INCOME APPROACH
ANALYSIS (SUBDIVISION LAND):
These lot sales provide a cross section of competitive, adjacent lot sales. It
was reported that three lot sale occurred this year. This development consisted
of Phase I which included 9 sales of lots in the first year, 8 sales in year 2
and 3 sales in year 3. River Creek, a very competitive nearby subdivision had
zero lot sales this year and only 2 last year. The subject subdivision had no
lot sales this year.
An average price per acre was $17,953. Therefore, a reasonable price per acre
per lot is say $20,000 per acre. The subject includes 45 lots remaining for a
total acreage of 83.86 acres. Total aggregate value would be 83.86 acres x
$20,000 per acre, or say $1,675,000. It would appear that an average lot sale
expectancy would be approximately 3 lots per year. A total of 45 lots would
therefore take an average sell off period 15 years assuming 3 lots per year.
An average of 20% marketing and administration expense is deducted from these
average lot sales. If the average lot is 1.86 acres (83.86 acres / 45 lots),
the average sale price would therefore be $37,271 per lot x 3 per year, or say
$110,000 less 20% for marketing and administration. This equates to $88,000 in
net sales per year.
Based upon an average net sum of $88,000 per year for 15 years, the resulting
present value is $528,709, or say $530,000.
An appropriate discount rate of 18% appears reasonable, based upon the risk
involved for this type of real property asset. Therefore, the present value of
an annual net annuity of $88,000 discounted at 18% for x 15 years is as
follows:
FIVE HUNDRED AND THIRTY THOUSAND DOLLARS
----------------------------------------
$530,000
--------
Therefore, this total, is the present value of the remaining 45 lots within the
subject subdivision. It is necessary to add this sum to the Cost Approach,
which represents the value of the balance of the subject property.
Therefore, the total value of the Cost Approach ($3,460,000) plus the remaining
subdivision would be $3990,000, or say:
FOUR MILLION DOLLARS
--------------------
$4,000,000
----------
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53
<PAGE>
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RECONCILIATION OF VALUE
The three approaches to value applied in the subject analysis yielded these
conclusions:
Cost Approach $4,000,000
Income Capitalization Approach (Subdivision Only) $530,000
Sales Comparison Approach Not Applicable
Depending on the circumstances of an appraisal, the three approaches to value
apply to various degrees. The cost approach usually receives the most weight
when the improvements are new or nearly new and when they are fully utilized.
This approach was most applicable in this instance due to the lack of any
meaningful sales activity. The income approach was utilized only with respect
to the remaining lot sales which value was necessary to add to the Cost
Approach.
The income capitalization approach indicates the amount at which a prudent
investor might be interested in leasing the property. This approach was not
pertinent because large sites like the subject do not typically lease for
returns commensurate with other investment grade properties. This approach was
used to determine the present value of the remaining net lot proceeds.
The sales comparison approach reflects demand and reasonable selling price
expectancy, as evidenced by sales and listings of similar properties.
In the reconciliation, we reviewed each approach to value: (a) to ascertain the
reliability of the data and (b) to weight the approach that best represented the
actions of typical users and investors in the marketplace.
The sales comparison approach uses a number of value indicators, both physical
and economic, including investors' strategies and attitudes reflected in
documented market transactions. The principle of substitution--the basis of
this approach--states that a prudent investor will pay no more to buy a property
than the cost to buy a comparable substitute property. In the valuation of the
subject property, the sales comparison approach was not considered a reliable
indicator.
- --------------------------------------------------------------------------------
54
<PAGE>
- --------------------------------------------------------------------------------
RECONCILIATION OF VALUE
In our opinion, the cost approach is the strongest indicator of value for the
subject. The small investor will typically rely upon this approach in purchase
considerations.
Based upon the preceding discussion and placing greatest emphasis on the cost
approach, our opinion of the market value of the subject property, as of October
10, 1996, was:
Remaining Subdivision:
FIVE HUNDRED AND THIRTY THOUSAND DOLLARS
$530,000
--------
Excess Land:
THREE MILLION FOUR HUNDRED AND SIXTY THOUSAND DOLLARS
$3,460,000
----------
TOTAL VALUE (SAY):
FOUR MILLION DOLLARS
$4,000,000
----------
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55
<PAGE>
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APPRAISER CERTIFICATE
I certify that, to the best of my knowledge and belief:
- The statements of fact in this report are true and correct.
- The reported analyses, opinions, and conclusions are limited only by
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 personal interest or bias with
respect to the parties involved.
- My compensation is not contingent on 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.
- To the best of my knowledge and belief, the reported analyses,
opinions, and conclusions were developed and this report was prepared
in conformity with the Uniform Standards of Professional Appraisal
Practice of the Appraisal Foundation, the Code of Professional Ethics,
and the Standards of Professional Practice of the Appraisal Institute.
- The use of this report is subject to the requirements of the Appraisal
Institute relating to review by its duly authorized representatives.
- 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.
/s/Mark S. Justmann
- -----------------------------------
Mark S. Justmann, MAI
California Certificate #AG002802
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56
<PAGE>
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A D D E N D A
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57
<PAGE>
LAND SALES MAP
--------------
<PAGE>
MENTOR PQS
JUSTMANN PQ.
<PAGE>
REPRESENTATIVE CLIENTS
AT&T
Amoco Oil
Bank of America
Cannon Films
Coca-Cola
Gibson, Duan & Crutcher
Goldman Sachs
Goodyear
Japan Airlines
Kolberg, Kravis & Roberts
Kraft Inc.
Latham & Watkins
MGM
Mitsui Inc.
Mobil Inc.
Nestles
Paul, Hasting, Janosky & Walker
Penn Central
Sears, Roebuck & Co.
Tramell Crow
Twenieth Century Fox
MARK S. JUSTMANN, MAI
Mr. Justmann is a Senior Real Estate Appraiser with THE MENTOR GROUP. His
experience spans multi-state and international appraisals for all types of
commercial, industrial, multi-family, vacant land, and special purpose
facilities. Most of his appraisals have involved the Western U.S. -
California, Nevada, Utah and Colorado.
Specific properties include offices, warehouses, factories, medical
facilities, restaurants, refineries, service stations, theaters, apartments,
ranches, plantations, gravel pits and quarries, nursing homes and hospitals,
truck terminals, banks, casinos, cemeteries, recording studios, golf
courses, subdivisions, schools, universities, and all types of procession
plants. Mr. Justmann has provided expert testimony in numerous state and
federal courts. He has developed specific computer applications to appraise
real estate, including a matrix to perform market comparable adjustments.
He has also applied these systems in real estate feasibility engagements.
Mr. Justmann is an independent fee appraiser with THE MENTOR GROUP. Prior
employment was as senior appraiser for Marshall & Stevens and American
Appraisal Company.
EDUCATION
BS, Real Estate and Business, Florida State
Numerous real estate and expert testimony courses
PROFESSIONAL AFFILIATIONS
American Institute of Real Estate Appraiser (MAI)
Licensed Real Estate Broker
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<PAGE>
COMPANY PROFILE
The Mentor Group is focused on appraisal, valuation, and related consulting
activities. Our senior professionals are experienced and expert in valuing
nearly every type of business, as well as the tangible and intangible assets for
virtually any purpose. We specialize in the valuation of complex buyouts of
businesses; identifiable intangible assets, a most difficult type of assignment;
and every type of real property and machinery and equipment.
The Mentor Group provides counsel for virtually every valuation purpose. Among
these are:
- Mergers, acquisitions, and divestitures
- Estate planning and tax
- ESOPs and incentive stock options
- Federal, state, and local tax support
- Cost segregation and property tax consulting
- Litigation consulting/expert witness testimony
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- Corporate planning
- Going public or private
- Leasing/sale - leaseback
- Bankruptcy, reorganization, and recapitalization
- Minority and partner buyouts
- Inter-company arm's length dealing (e.g. Section 482 pricing)
- Property insurance
Salient facts about The Mentor Group are the following:
- Offices and strategic alliances throughout the U.S., with national and
international capability to staff real estate, financial, and
machinery and equipment projects.
- Senior staff, with appraisal and related experience in all industries,
businesses, and types of real estate.
- Technically proficient while applying sound business judgment.
- Licensed/certified in all 50 states, including MAI credentials for
complex real estate projects and many advanced designations, J.D.,
Ph.D./Economist, ASA, CFA, CPA, CMI, etc.
- Experienced expert witness testimony and litigation consulting.
- Service small, middle market and Fortune 500 companies.
- Develop clear understanding of client objectives and listen to client
needs.
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