<PAGE>
REGISTRATION NO.
------------
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM SB-2
Registration Statement Under The Securities Act of 1933
SENIOR RETIREMENT COMMUNITIES, INC.
(Name of small business issuer in its charter)
<TABLE>
<S> <C> <C>
Louisiana 8261 72-1394159
- --------------- --------------- --------------
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Identification Number)
incorporation or Classification Code
organization) Number)
</TABLE>
507 Trenton Street
West Monroe, Louisiana 71291
(318) 323-2115
-----------------------
(Address and telephone number
of principal executive offices)
507 Trenton Street
West Monroe, Louisiana 71291
-----------------------
(Address of principal place of business
or intended principal place of business)
Joanne M. Caldwell-Bayles
507 Trenton Street
West Monroe, Louisiana 71291
(318) 323-2115
-----------------------
(Name, address and telephone
number of agent for service)
Copies of communications to:
Clay Carroll, Esq.
525 East Court Avenue
Jonesboro, Louisiana 71251
(318) 259-4184
Michael G. Quinn, Esq.
154 North Topeka Street
Wichita, Kansas 67202
(316) 267-0377
William Martin
MMR Investment Bankers, Inc.
550 North 159th Street East
Suite 300
Wichita, Kansas 67230
(316) 733-5081
-----------------------
<PAGE>
Approximate date of commencement of proposed sale to the public: As soon
as practicable after this Registration Statement becomes effective.
If this Form is filed to register additional securities for an offering
pusuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securitis Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, check the following box. [_]
If this Form is a post-effective amendment filed purusant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
CALCULATION OF REGISTRATION FEE
==============================================================================
<TABLE>
<S> <C> <C> <C> <C>
Proposed Proposed
Title of Dollar maximum maximum
securities amount offering aggregate
being to be price per offering Amount of
registered registered unit price (1) registration fee
- ---------- ---------- --------- ---------- ----------
First $9,000,000 100% $9,000,000 $2,727.27
Mortgage
Bonds
</TABLE>
==============================================================================
(1) The securities to be offered may be purchased in amounts of $250 or more.
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 THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
==============================================================================
<PAGE>
SENIOR RETIREMENT COMMUNITIES, INC.
CROSS-REFERENCE SHEET PURSUANT TO PART I OF FORM SB-2
<TABLE>
<CAPTION>
FORM SB-2 ITEM PROSPECTUS CAPTION
--------------- ------------------
<S> <C>
1. Front of Registration Statement Front of Registration Statement;
and Outside Front Cover Page of Outside Front Cover Page
Prospectus. . . . . . . . . . . .
2. Inside Front and Outside Back Inside Front and Outside Back Cover
Cover Pages of Prospectus . . . . Pages
3. Summary Information and Risk Prospectus Summary; Risk Factors
Factors . . . . . . . . . . . . .
4. Use of Proceeds . . . . . . . . . Prospectus Summary; Sources and Uses
of Proceeds
5. Determination of Offering Price Not Applicable
6. Dilution. . . . . . . . . . . . . Not Applicable
7. Selling Security Holders. . . . . Not Applicable
8. Plan of Distribution. . . . . . . Prospectus Summary; Underwriting
9. Legal Proceedings . . . . . . . . Legal Proceedings
10. Directors, Executive Officers, Management
Promoters and Control Persons . .
11. Security Ownership of Certain Principal Owners of the Company
Beneficial Owners and Management
12. Description of Securities . . . . Description of Bonds
13. Interest of Named Experts and Legal Matters; Experts
Counsel . . . . . . . . . . . . .
14. Disclosure of Commission Not Applicable
Position on Indemnification for
Securities Act Liabilities. . . .
15. Organization within Last Five Not Applicable
Years . . . . . . . . . . . . . .
16. Description of Business . . . . . Prospectus Summary; Risk Factors;
Sources and Uses of Proceeds;
Business; Management; Certain
Transactions; Principal Owners of the
Company; The Company's Plan of
Operation; Financial Statements
17. Management's Discussion and
Analysis of Plan of Operation . . The Company's Plan of Operation
18. Description of Property . . . . . Description of Property
19. Certain Relationships and Certain Transactions
Related Transactions. . . . . . .
20. Market for Common Equity and Not Applicable
Related Stockholder Matters . . .
21. Executive Compensation. . . . . . Management - Executive Compensation
22. Financial Statements. . . . . . . Financial Statements
23. Changes in and Disagreements Not Applicable
with Accountants on Accounting
and Financial Disclosure . .
</TABLE>
================================================================================
<PAGE>
PROSPECTUS Dated ______, 1998
$9,000,000.00
SENIOR RETIREMENT COMMUNITIES, INC.
First Mortgage Bonds Consisting of:
$3,685,000 Co-First Mortgage Bonds, Series 1998-I (the "Ruston Project")
$3,470,000 First Mortgage Bonds, Series 1998-II (the "Bossier City Project")
$1,845,000 First Mortgage Bonds, Series 1998-III (the "Shreveport Project")
Senior Retirement Communities, Inc. (the "Company") is a newly formed
Louisiana corporation which will develop and operate retirement, assisted
living and memory disorder facilities in certain cities in the State of
Louisiana. The Company will conduct business doing business as the Arbor
Retirement Community. The Company is offering $9,000,000 of first mortgage
bonds (herein collectively referred to as the "Bonds") in three series, with
the proceeds from each series being used for a particular project located in
a city in the State of Louisiana. Herein, the Company's three projects are
collectively referred to as the "Facilities". The issue and sale of each
series of bonds is not contingent on the issue and sale of the other series
of bonds, and will be separately offered and sold and subject to minimum
proceeds prior to the issuance thereof. Pending receipt of minimum proceeds
for each series of bonds, the proceeds for the subscriptions thereto will be
held in escrow pursuant to anEscrow Agreement between the Company and Colonial
Trust Company (the "Trustee").
The Bonds are issued as fully registered bonds in denominations of $250 or
any integral multiple thereof. All Bonds will be issued in book-entry form
unless the purchaser requests a printed bond. Payments of principal and
interest thereunder will be paid by the Trustee, as paying agent and
registrar of the Bonds. A portion of the Bonds bear simple interest payable
semiannually, and some of the Bonds bear compound interest payable at maturity.
See "Maturity Schedules". Interest on each series of the bonds will accrue
from its respective dates of issue. The Bonds are secured by a pledge of
land and buildings constituting the Facilities and a pledge of gross income
of the Company pursuant to the terms of the Trust Indenture (the "Trust
Indenture") between the Company and the Trustee. The Bonds are subject to
redemption prior to the respective maturities, in whole or in part, as more
fully described herein. See "Description of Bonds".
THE BONDS INVOLVE A HIGH DEGREE OF RISK. PROSPECTIVE INVESTORS SHOULD
CAREFULLY CONSIDER THE SECTION ENTITLED "RISK FACTORS" BEGINNING ON PAGE 7 OF
THIS PROSPECTUS CONCERNING THE COMPANY AND THIS OFFERING.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE BONDS ARE NOT GUARANTEED OR INSURED BY ANY GOVERNMENTAL AGENCY.
<TABLE>
<CAPTION>
Underwriting
Price to Discounts and Proceeds to
Series (1) Public (2) Commissions (3) Company
<S> <C> <C> <C>
Series 1998-I 100% 7% 93%
Series 1998-II 100% 7% 93%
Series 1998-III 100% 7% 93%
Total 100% 7% 93%
</TABLE>
(Notes continued on next page)
MMR INVESTMENT BANKERS, INC.
The Bonds are offered by MMR Investment Bankers, Inc. (the "Underwriter")
on a best efforts basis as agent for the Company. The Bonds are offered
subject to prior sale. The offering of the Bonds (the "Offering") will
continue until the sale of all Bonds or for a period of one year from the
date of this Prospectus. It is expected that the Bonds will be delivered in
book-entry form, subject to the sale of minimum funds for each series of
Bonds, through the facilities of the Trustee within thirty (30) days from the
date subscriptions for the Bonds are received.
<PAGE>
(Notes continued from the front page)
(1) The Series 1998-I Bonds are subject to the sale of a minimum of
$600,000 in principal amount of Bonds. The Series 1998-II are subject to the
sale of a minimum of $600,000 in principal amount of Bonds. The Series
1998-III Bonds are subject to the sale of a minimum of $300,000 in principal
amount of Bonds. Subject to the sale of all Bonds and any adjustments, the
Underwriter will receive an aggregate maximum sales commission of $630,000.
See "Underwriting". The Company has agreed to indemnify the Underwriter
against certain liabilities, including liabilities under the Securities Act
of 1933, as amended (the "Securities Act").
(2) The Bonds are issued as fully registered bonds in denominations of $250
or any integral multiple thereof.
(3) Before deducting expenses payable by the Company estimated at $567,000,
including $117,000 paid to the Underwriter for its non-accountable expenses
associated with the Offering, $100,000 to be paid by the Trustee to the
Underwriter over the terms of the Bonds and miscellaneous expenses estimated
to be $350,000 for registration fees, legal fees, accounting fees and other
costs associated with the Offering.
THESE SECURITIES ARE OFFERED FOR SALE IN THE STATES OF COLORADO, KANSAS,
LOUISIANA AND WYOMING PURSUANT TO A PERMISSIVE REGISTRATION WITH THE
SECURITIES COMMISSIONERS OF THESE STATES. THESE SECURITIES ARE ALSO OFFERED
FOR SALE IN THE STATES PENNSYLVANIA AND TEXAS PURSUANT TO EXEMPTIONS FROM
REGISTRATION UNDER THESE STATES' SECURITIES ACTS. THE REGISTRATIONS AND
EXEMPTIONS FROM REGISTRATION DO NOT CONSTITUTE A RECOMMENDATION OR
ENDORSEMENT BY THE COMMISSIONERS NOR DOES THE REGISTRATIONS OR EXEMPTIONS
FROM REGISTRATION SIGNIFY THAT THE COMMISSIONERS HAVE APPROVED OR PASSED UPON
THE INVESTMENT MERIT OF SUCH SECURITIES. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
PENNSYLVANIA RESIDENTS/INVESTORS
EACH PERSON WHO ACCEPTS AN OFFER TO PURCHASE SECURITIES EXEMPTED FROM
REGISTRATION BY SECTION 203(d), DIRECTLY FROM THE ISSUER OR AFFILIATE OF THE
ISSUER, SHALL HAVE THE RIGHT TO WITHDRAW HIS ACCEPTANCE WITHOUT INCURRING ANY
LIABILITY TO THE SELLER, UNDERWRITER (IF ANY) OR ANY OTHER PERSON WITHIN
2 BUSINESS DAYS FROM THE DATE OF RECEIPT BY THE ISSUER OF HIS WRITTEN BINDING
CONTRACT OF PURCHASE, OR, IN THE CASE OF A TRANSACTION IN WHICH THERE IS NO
BINDING CONTRACT OF PURCHASE, WITHIN 2 BUSINESS DAYS AFTER HE MAKES THE
INITIAL PAYMENT FOR THE SECURITIES BEING OFFERED.
TEXAS RESIDENTS/INVESTORS
THESE SECURITIES ARE OFFERED FOR SALE ONLY TO FINANCIAL INSTITUTIONS,
INSTITUTIONAL INVESTORS AND ACCREDITED INVESTORS AS DEFINED IN SECTION 109.3
OF THE TEXAS SECURITIES ACT.
[Place picture of facilities here] [SRC logo here]
The Company intends to furnish annual reports containing audited financial
statements to its bondholders.
<PAGE>
MATURITY SCHEDULES
<TABLE>
<CAPTION>
Series 1998-I Bonds
Maturity Type Interest Principal
Date (1) Rate Retired
<S> <C> <C> <C>
10/01/98 S 7.50% $85,000
04/01/99 S 7.50% $88,250
10/01/99 S 8.00% $107,750
04/01/00 S 8.00% $112,250
10/01/00 C 8.50% $109,000
04/01/01 S 8.50% $135,000
10/01/01 S 9.00% $156,500
04/01/02 S 9.00% $163,750
10/01/02 C 9.25% $114,000
04/01/03 S 9.25% $171,000
10/01/03 S 9.50% $179,000
04/01/04 S 9.50% $187,500
10/01/04 C 9.75% $105,500
04/01/05 S 9.75% $196,000
10/01/05 S 10.00% $206,500
04/01/06 S 10.00% $216,000
10/01/06 C 10.00% $99,250
04/01/07 C 10.00% 94,250
10/01/07 C 10.00% 89,750
04/01/08 C 10.00% 85,750
10/01/08 C 10.25% 79,500
04/01/09 C 10.25% 75,500
10/01/09 C 10.25% 72,000
04/01/10 C 10.25% 68,250
10/01/10 C 10.25% 65,250
04/01/11 C 10.50% 60,000
10/01/11 C 10.50% 57,000
04/01/12 C 10.50% 54,250
10/01/12 C 10.50% 51,500
04/01/13 C 10.50% 48,750
10/01/13 C 10.75% 44,750
04/01/14 C 10.75% 42,500
10/01/14 C 10.75% 40,250
04/01/15 C 10.75% 38,250
10/01/15 C 10.75% 36,500
04/01/16 C 11.00% 33,000
10/01/16 C 11.00% 31,250
04/01/17 C 11.00% 29,750
10/01/17 C 11.00% 28,250
04/01/18 C 11.00% 26,500
</TABLE>
<TABLE>
<CAPTION>
Series 1998-II Bonds
Maturity Type Interest Principal
Date (1) Rate Retired
<S> <C> <C> <C>
11/01/98 C 7.50% $154,750
05/01/99 C 7.50% $149,250
11/01/99 C 8.00% $159,750
05/01/00 C 8.00% $153,750
11/01/00 C 8.50% $161,750
05/01/01 C 8.50% $155,000
11/01/01 C 9.00% $160,500
05/01/02 C 9.00% $153,250
11/01/02 C 9.25% $145,500
05/01/03 C 9.25% $138,750
11/01/03 C 9.50% $131,000
05/01/04 C 9.50% $125,250
11/01/04 C 9.75% $117,500
05/01/05 C 9.75% $112,000
11/01/05 C 10.00% $1,452,000
</TABLE>
<TABLE>
<CAPTION>
Series 1998-III Bonds
Maturity Type Interest Principal
Date (1) Rate Retired
<S> <C> <C> <C>
11/01/99 S 8.00% $10,500
05/01/00 S 8.00% $11,000
11/01/00 S 8.50% $22,250
05/01/01 S 8.50% $23,000
11/01/01 S 9.00% $34,500
05/01/02 S 9.00% $36,250
11/01/02 S 9.25% $37,750
05/01/03 S 9.50% $1,669,750
</TABLE>
Note 1:
S = Simple Interest Bonds; interest payable
semiannually until maturity.
C = Compound Interest Bonds; interest
compounded semiannually and payable at maturity.
3
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information, including risk factors, financial statements and notes thereto
appearing elsewhere in this Prospectus.
The Company
Senior Retirement Communities, Inc. is a development stage corporation
formed under the laws of the State of Louisiana for the purpose of developing
and operating retirement, assisted living and memory disorder facilities in
Northern Louisiana. The Company's executive offices are located at 507
Trenton Street, West Monroe, Louisiana, and the Company's telephone number is
(318) 323-2115. See "Business".
The Offering
Bonds Offered. . . . . . The Company is offering $9,000,000 of first mortgage
bonds in three series, with the proceeds from each series being used for a
particular project located in a city in the State of Louisiana. The issue and
sale of each series of bonds is not contingent on the issue and sale of the
other series of bonds, and will be separately offered and sold and subject to
minimum proceeds prior to the issuance thereof. The Bonds are secured by a
pledge of land and buildings constituting the Facilities and a pledge of
gross income of the Company pursuant to the terms of the Trust Indenture
between the Company and the Trustee.
The Series 1998-I Bonds will be dated April 1, 1998, and are subject to the
sale of a minimum of $600,000 in principal amount of Bonds. The aggregate
principal amount of the Series 1998-I Bonds is $3,685,000 and is comprised of
bonds in the principal amount of $2,004,500 that will mature serially and bear
simple interest payable by check mailed to the registered owners each October
1 and April 1 until maturity and bonds in the principal amount of $1,680,500
that will mature serially and bear interest compounded semiannually each
October 1 and April 1 that is payable at maturity.
The Series 1998-II Bonds will be dated May 1, 1998, and the Series 1998-II
are subject to the sale of a minimum of $600,000 in principal amount of Bonds.
The aggregate principal amount of the Series 1998-II Bonds is $3,470,000.
The Series 1998-II Bonds will mature serially and bear interest compounded
semiannually each November 1 and May 1 that is payable at maturity.
The Series 1998-III Bonds will be dated May 1, 1998, and the Series 1998-III
Bonds are subject to the sale of a minimum of $300,000 in principal amount of
Bonds. The aggregate principal amount of the Series 1998-III Bonds is
$1,845,000. The Series 1998-III Bonds will mature serially and bear simple
interest payable by check mailed to the registered owners each November 1
and May 1 until maturity.
Interest on the Bonds is includable in gross income for federal tax purposes.
See "Description of Bonds".
Denominations. . . . . . $250 or integral multiples thereof.
Maturity . . . . . . . . See Maturity Schedules on page 3 hereof.
Operating Funds. . . . . Under the Trust Indenture, the Company must establish
an operating fund account for each of the three series of bonds. The Company
will make monthly deposits into the operating fund accounts in amounts
predetermined to be sufficient at all times to pay the principal and interest
of the Bonds. See "Description of Bonds - Operating Fund Requirements".
4
<PAGE>
Redemption . . . . . . . The Company has reserved the right to redeem all or
a portion of the Bonds prior to their stated maturity. The Bonds are subject
to redemption without premium at the principal amount thereof plus accrued
interest. See "Description of Bonds - Prepayment".
Covenants. . . . . . . . In addition to its obligation to remit the principal
and interest payments when due, the Company has agreed to at its own cost and
expense, maintain the properties in good repair and condition and pay or
discharge all taxes, assessments and any mechanic's or materialmen's liens
that may become payable. Furthermore, the Company covenants to keep all
property pledged under this Bond issue properly insured against loss by fire,
windstorm and explosion in an amount equal to the outstanding balance of the
Bonds. See "Description of Bonds".
Bond Reserve Fund. . . . The Company has agreed to establish a bond reserve
account ("Bond Reserve Account") which will be funded by each of the three
series of bonds. See "Sources and Uses of Proceeds". The purpose of the
Bond Reserve Account is that in the event the Company has not deposited the
necessary funds to pay the principal and interest due on any semiannual
payment date, the Trustee may apply available funds to the principal and
interest due on the Bonds. If all the Bonds are sold, the Bond Reserve
Account will be funded in the amount of $620,000. The Bond Reserve Account
will remain in place for a period of ten years from April 1, 1998. At the
end of the ten year period said reserve funds will be used to call any
outstanding Bonds, provided the Company is current on all operating fund
payments. See "Description of Bonds - Bond Reserve Account".
Trustee. . . . . . . . . Colonial Trust Company of Phoenix, Arizona, has
agreed to serve as Trustee for the Bonds pursuant to the Trust Indenture
entered into between the Company and the Trustee. The Trustee has also
agreed to serve as Paying Agent, Registrar, Disbursing Agent and Escrow
Agent. The Trustee is not a guarantor or surety, does not in any way
guarantee or act as surety for payment of the Bonds and may not be held
liable under any conditions, except for its own negligence. See "Description
of Bonds".
Trust Indenture. . . . . The Company pledges, transfers and assigns to the
Trustee, in trust, to secure the payment of the Bonds, all of its rights,
title and interest to the first receipts of any and all revenues of the
Facilities, the real property of the Company and the furnishings and
equipment of the Company and all monies and securities held by the Trustee
under the terms of the Trust Indenture. The Bonds are secured by a pledge of
land and buildings constituting the Facilities and a pledge of gross income of
the Company. The properties securing the Bonds are located in the Northern
Louisiana communities of Ruston, Bossier City and Shreveport. Pursuant to
the Trust Indenture, each bond will be issued on parity with the other Bonds.
See "Description of Bonds".
Proceeds Escrow. . . . . All proceeds from the sale of Bonds will be deposited
with Colonial Trust Company as "Escrow Agent" pursuant to an Escrow Agreement
entered into between the Company and the Escrow Agent. Pursuant to the terms
of the Escrow Agreement, all proceeds from the sale of the Bonds will be
deposited with the Escrow Agent, subject to the sale of minimum funds for any
series of Bonds, as set forth herein. In the event minimum funds for any
series of Bonds is not received within the time set forth herein, the Company
will promptly pay to the Escrow Agent such sum of money as will be necessary,
if any, when added to the sums held in escrow, including interest earned
thereon, to pay to the subscribers the principal amount of their
subscription together with the interest from the date of issue through the
escrow termination date at the rate attributable to the Bonds subscribed to
by the subscriber. During the escrow period, the subscriber will not have
access to funds held in the Escrow Account. See "Description of Bonds -
Escrow and Disbursement of Bond Proceeds".
5
<PAGE>
Use of Proceeds. . . . . Subject to the sale of minimum funds for each series
of Bonds, the net proceeds will be used to fund a small portion of the
operating fund payments on the Bonds, fund a reserve account, provide financing
for the construction, furnishing and equipping of the Company's Facilities and
payoff construction financing on the Facilities. See "Sources and Uses of
Proceeds".
Risk Factors . . . . . . An investment in the Bonds is speculative and
involves a high degree of risk. Among such risks are the following: no
assurance of sale of any series of the Bonds; sale of the Minimum Offerings
will only pay expenses and reserves associated with the Offering; and if
sufficient Bonds are not sold to repay a construction loan, there is a risk
of foreclosure. Potential investors should carefully consider the factors set
forth under "Risk Factors".
Financial Summary
As of November 30, 1997, the Company had total assets of $1,445,761,
total liabilities of $232,500 and total stockholders' equity of $1,213,261.
The stockholders of the Company have contributed a total of $1,213,820 in
capital to the Company. Since the Company's inception on September 10, 1997
through November 30, 1997, the Company has generated no revenues and has
incurred cumulative expenses of $559. See "Financial Statements" beginning
on page F-1 of the Prospectus.
(This space is intentionally left blank)
6
<PAGE>
RISK FACTORS
In addition to the other information in this Prospectus, the following
factors should be considered carefully in evaluating an investment in the
Bonds offered by this Prospectus. An investment in the Bonds is speculative
and involves a high degree of risk. Certain of these risks are set forth
below and should be considered by investors, among others, as a part of their
overall evaluation before making a decision to purchase Bonds.
No Commitment to Purchase Bonds; Deposit of Subscriptions
The Underwriter, in selling the Bonds, is acting as agent of the Company
on a "best efforts" basis. The Underwriter is only obligated to use its best
efforts to sell the Bonds, and the Company will not receive any proceeds of
any series of the Bonds unless the Underwriter sell Bonds equal to the
minimum amount of bonds applicable to a series of Bonds. During the offering
period, the Underwriter will deposit all subscriptions from the sale of the
Bonds with the Escrow agent, which funds will be held until the minimum
offering for a series of Bonds is met. Thereafter, such funds shall be
disbursed to the Company and applied for the purposes set forth herein. See
"Sources and Use of Proceeds". If the minimum offering for any series of
Bonds is not sold, potential investors will loose the use of their funds
during the offering period, and any extension thereof, although the Company
has agreed to promptly pay to the Escrow Agent such sum of money as shall be
necessary, if any, when added to funds held in escrow, including interest
earned thereon, to pay to the subscribers of the bonds the principal amount
of such subscriptions together with the interest applicable to such Bonds
through the escrow termination date. See "Description of Bonds - Escrow and
Disbursement of Bond Proceeds".
Risk Associated with Bonds - Co-First Mortgage
The Company obtained a construction loan (the "Construction Loan") on
December 1, 1997 with Church Loans and Investments Trust of Amarillo, Texas
(the "Construction Lender") in the amount of $2,700,000. The Construction
Loan is secured by a Co-First Mortgage on the Ruston Project. The
Construction Loan is due December 1, 1998 (the "Maturity Date"), unless
mutually extended by the Construction Lender and the Company. As
indicated under "Description of Bonds - Escrow and Disbursement of Bond
Proceeds" and "Sources and Uses of Proceeds", offering costs, concessions and
the initial operating reserve are paid from the Series 1998-I Bond proceeds
prior to the retirement of the Construction Loan. Accordingly, if
approximately 87.6% of the Series 1998-I Bonds ($3,226,000) are not sold by
the Maturity Date, the Construction Loan may go into default and the
Construction Lender may exercise its rights, including the Construction
Lender's right under the Mortgage to sell the Ruston Project without the
necessity of complying with a formal foreclosure proceeding. There is no
assurance that the Company would be able to secure alternative financing to
replace the Construction Loan on a timely basis. Notwithstanding the fact
that the security for the Ruston Project is in parity with the Construction
Loan, there can be no assurance that the proceeds arising from any sale of
the Ruston Project, even though the construction has been fully completed,
would be sufficient to fully repay the Construction Loan and the then
outstanding Bonds. Under the terms of a certain Lienholders Agreement, all
receipts from collection and foreclosure are to be allocated between the
Construction Loan and the Series 1998-I Bonds in proportion to the respective
principal balances outstanding. The Company also has reserved the right
pursuant to the Trust Indenture to obtain additional construction loans for
the Bossier City and Shreveport Projects if the construction loans are secured
on parity with the respective Project. See "Description of Property -
Financing of the Company's Facilities," "Description of Bonds - Escrow and
Disbursement of Bond Proceeds," "Use of Proceeds" and "The Company's
Plan of Operation".
Risk Associated with Bonds - Construction Financing
In the event the Company does not obtain construction loans for the
Bossier City and Shreveport Projects, then the Series 1998-II and III Bonds
will be used in part to finance the construction of these projects. The
Minimum Offering amounts for the Series 1998-II and III Bonds are not
sufficient amounts to complete the construction of the Bossier City and
Shreveport Projects. Approximately 89.5% of the Series 1998-II Bonds
($3,104,500) need to be sold in order to have sufficient funds to
complete construction of the Bossier City Project. Approximately 86.7% of
the Series 1998-III Bonds ($1,597,750) need to be sold in order to have
sufficient funds to complete construction of the Shreveport Project. Should
the Underwriter fail to sell these amounts, then any replacement funds will
have to be obtained from other sources. If such replacement funds are not
available, the completion of these projects may have to be delayed until such
time as funds are available.
7
<PAGE>
Substantial Balloon Payment Requirements for the Series 1998-II and
Series 1998-III Bonds
The Company is required to make a one time payment of $2,800,000 on
October 31, 2005, to pay principal and interest due at that time on the
remaining outstanding Series 1998-II Bonds. Additionally, the Company is
required to make a one time payment of $1,630,000 on April 30, 2003, to pay
principal and interest due at that time on the remaining outstanding Series
1998-III Bonds. There is no assurance the Company will have sufficient funds
to do so, and, if not, may have to refinance the balance of the Series 1998-II
and Series 1998-III Bonds then due. There is also no assurance the Company
will be able to refinance an amount sufficient to retire all of the Series
1998-II and Series 1998-III Bonds then outstanding.
Presence of Debt
The Company is newly formed and without any operating history. The
financing activities of the Company will be made primarily through the
issuance of debt. As a result, the Company will be highly leveraged. Moreover,
the Company will initiallybe highly dependent upon the proceeds received as a
result of the issuance of the Bonds in order to service the debt incurred
under the Bonds and, thereafter, the payment of debt will be based upon income
from the Company's operation of the Facilities. There is no assurance that
such operations will be successful. Other than a pledge of the land and
buildings constituting the Facilities and a pledge of the gross income for
the benefit of the Bonds, there are no other credit enhancements to secure the
payment of the Bonds such as personal guarantees of members, letters of credit
or other additional forms of security for the Bonds. The obligations for the
payment of principal and interest of the Bonds are entirely the obligation of
the Company. Such obligations are without recourse to the stockholders of the
Company.
No Assurance of Operating Fund Payments
Proceeds of this Offering, in part, will be used to fund the first
monthly operating fund payments on all three series of bonds in amounts
equivalent to slightly more than the first six month operating fund payments
assuming all of the Bonds are sold. There is no assurance that the Company
will have sufficient funds to pay the operating fund payments after the
initial operating fund payments (that are to be funded from bond proceeds)
have been expended. Failure of the Company to make the operating fund
payments constitutes an event of default upon which the Trustee may
accelerate the Bonds. See "Description of Bonds - Initial Operating Fund
Payments", "Description of Bonds - Events of Default" and "Description of
Bonds - Remedies of Default."
Proceeds of this Offering also will used to fund the Bond Reserve Account
to be applied by the Trustee to pay the principal and interest due on the
Bonds only in an event of default. The Trustee will maintain the Bond
Reserve Account and will be in effect for ten years from April 1, 1998.
Should the Company fail to make the required deposits into the operating fund
account necessary to pay the principal and interest due on the payment dates,
and should the Bond Reserve Account be entirely expended for said purposes,
there may not be sufficient funds available to repay bondholders in a timely
manner. At the end of the ten year period, any funds remaining in the Bond
Reserve Account must first be used to call any outstanding Bonds, provided
the Company is current on all operating fund payments. If all of the Bonds
have been retired prior to the end of the ten year period, then the Bond
Reserve Account will be released to the Company. See "Description of
Bonds - Bond Reserve Accounts".
If only a portion of the Bonds are sold, the operating fund payments may
be adjusted to correspond with the principal and interest then outstanding,
but at no time be less than the required amount to pay any principal and/or
interest that would be due on any interest computation date.
Experience of the Underwriter
The Underwriter does not have substantial experience in acting as a lead
underwriter in an initial public offering. The Underwriter's experience has
primarily been in the underwriting of nonprofit debt securities, intrastate
debt offerings and debt offerings offered pursuant to Regulation A of the
Securities Act of 1933, as amended, as an exemption from the registration
requirements under the Act. There can be no assurance that the Underwriter's
lack of experience will not adversely affect the Offering. See "Underwriting".
8
<PAGE>
Possible Withdrawal of Underwriter
The Underwriter is subject to civil litigation brought by the Securities
Commissioner of Kansas on behalf of the State of Kansas. This case stems
from the Underwriter's participation in a series of church bond offerings of a
single church located in Wichita, Kansas. The Securities Commissioner of
Kansas seeks a permanent injunction restraining and enjoining the Underwriter,
its control persons and others from directly or indirectly employing any
device, scheme, or artifice to defraud; engaging in an act, practice or
course of business which would operate as a fraud or deceit upon any person;
and/or making any untrue statements of material fact and/or omitting to state
material facts necessary in order to make other statements made not misleading,
and, seeking restitution jointly and/or severely in the amount of
$4,825,665.24, which is the amount in default on the last two issues of church
bonds issued on behalf of the church. It is likely that during the offering
of the Bonds, that this matter may be adjudicated, settled, or otherwise,
and the authority of the Underwriter to engage in the securities business may
be suspended, revoked or limited. Currently, this litigation is in its
discovery stage, and the Underwriter has determined to vigorously defend the
case. However, in the event the Underwriter is unable to continue its
business as a broker dealer of securities, it will have to withdraw from its
participation in this Offering and, in all likelihood, the Offering will be
terminated unless and until the Company is successful in finding another
Underwriter willing to participate in the sale of the Bonds.
Lack of Secondary Market
The Underwriter does not intend to make a market in the Bonds. There is
no quoted market for the Bonds and there is no assurance a market will
develop. There is no guarantee that all or a substantial portion of the
Bonds will be sold. The marketability of the Bonds may also be influenced by
other general market conditions, such as the overall strength of the bond
market, which is influenced by a number of factors, such as changes in
prevailing interest rates which may have an adverse effect on the price of
the Bonds upon their sale and which are beyond the control of the Company.
In addition, the Bonds have not received any credit rating by a Nationally
Recognized Statistical Rating Organization. The absence of any such rating
could adversely affect the ability of an investor to sell the Bonds or the
price at which the Bonds are sold. Therefore, the likelihood of a market
developing may be remote at best. A decision to purchase Bonds should be
made with the understanding the Bonds most likely will have to be held until
maturity, as there is no quoted secondary market for the Bonds, nor is there
the likelihood one will develop. Purchasers of the Bonds should consider
their ownership of the Bonds as an illiquid investment.
Enforcement of Trust Indenture
The enforceability of the terms of the trust Indenture is qualified to
the extent that enforcement of the rights and remedies created by it is subject
to bankruptcy, fraudulent conveyance, moratorium, insolvency, reorganization,
and similar laws of general application affecting the rights and remedies of
creditors and secured parties. The remedy of specific enforcement or of
injunctive relief is subject to the discretion of the court for which any
proceedings may be brought. To the extent the enforceability of the Trust
Indenture is affected by such bankruptcy, insolvency, reorganization or
similar laws, the rights of the Trustee or the Bondholders, and their ability
to make recovery, in whole or in part, could be adversely affected.
Additional Bonds
The terms of the Trust Indenture enable the Company to further encumber
the Facilities securing the Bonds by permitting the issuance of additional
bonds at a future date. To the extent any additional bonds are issued, these
additional bonds would be issued on parity with the Bonds and would, in turn,
share proportionately with the Bonds in any proceeds that might arise from a
foreclosure or similar proceeding following a default by the Company, thereby
diminishing the proceeds available for repayment of the Bonds. The
Company intends to issue additional bonds on parity with the Bonds to finance
the construction of other retirement, assisted living and memory disorder
facilities in the State of Louisiana. See "Description of Bonds" and "The
Company's Plan of Operation".
Notification of Bonds Maturing
Semiannual notifications of Bond maturity may not be forwarded; each
Bondholder who has received a printed bond certificate is responsible to
present his/her Bonds for redemption at maturity. No interest will accrue or
be payable from or after the respective payment date upon any matured
installment of principal or interest. Further, the failure to present any
Bond within three years of its maturity may result in the principal and
interest due being subject to the laws of escheat in particular states.
9
<PAGE>
Early Redemption of Bonds
The Bonds are subject to redemption, in whole or in part, prior to
maturity as more particularly set for herein. If the Bonds are redeemed
prior to maturity, the owners thereof will not receive the yield to maturity
indicated, and, if so redeemed, the owners may not be able to reinvest the
proceeds thereof at comparable rates.
Lack of Operating History
The Company is newly formed and was organized in September of 1997.
Construction of the Company's first facility located in Ruston, Louisiana
commenced on December 1, 1997 and is not scheduled to be completed and open
for business until August of 1998. Construction of the Company's other
proposed retirement, assisted living and memory disorder facilities have
not commenced. Therefore, the Company has no substantial operating history.
However, the Company's President, Joanne Caldwell-Bayles has previous
experience in the development and operation of a similar assisted
living/memory disorder facility in West Monroe, Louisiana. There is no
assurance, that once open, the Companies facilities will generate income
sufficient to service the Bonds.
Risks Arising from Operations
Any business entity which operates retirement, assisted living and
memory disorder residences may be affected by adverse changes in general or
local economic and market conditions, increased costs of labor or energy,
competition from other similar businesses, poor management, limited
alternative uses for the building and improvements, changing consumer tasks
and habits, changing demographics, and other factors. The Company's
facilities will be subject to various requirements, restrictions, and
regulations imposed by governmental authorities affecting the frail and
elderly housing and care industry, the violation or claimed violation of
which could have a material adverse impact upon the Company's ability to meet
its business and financial obligations. More specifically, these risks
include the following:
General Economic Conditions: The financial success of the Company's
operations may be sensitive to adverse changes in general economic conditions,
such as inflation and unemployment. These changes could cause the cost of
the Facilities' operations to increase in a manner that would create serious
economic hardship. These changing conditions could also restrict the amount
of income which potential customers have available for funding housing and
care requirements such as residing at the Company's Facilities. The Company
and its management have no control over any of these changes.
General Risks in Property Ownership: The Company will be subject to
risks generally applicable to the ownership of real estate, including changes
in (i) general economic conditions; (ii) supply of, or demand for, similar or
competing properties; (iii) interest rates and the availability of permanent
mortgage funds which may render the refinancing of their facilities difficult
or unattractive; and (iv) tax, real estate, environmental and zoning laws.
Competition: The Company will experience competition from other elderly
housing and care providers. The Company will compete principally on the
basis of perceived quality and service, ambiance and price-value relationship.
While the Company believes that Facilities will be distinctive in design and
operating concept, it is aware of other companies with similar or competitive
concepts. The long-term care industry is highly competitive and the Company
expects it will become more competitive in the future. The Company competes
with numerous other companies providing similar long-term care alternatives,
such as home health agencies, life care at home, community-based service
programs, retirement communities and convalescent centers. Nursing facilities
that provide long-term care services are also a potential source of
competition to the Company. See "Business - Competition."
Rental Risk: One of the principal risks being taken by the Company is
the possibility that Facilities will not generate sufficient cash flow to
cover operating expenses and debt service payments, and the Company may be
unable to meet its obligations. The cash flow derived from the Facilities
may be affected by a variety of factors, including but not limited to, the
following: (i) a reduction in rental income due to the Facilities' inability
to maintain high occupancy levels at favorable rates; (ii) adverse changes in
local market conditions, such as over building, reduced employment
opportunities, population shifts due to demographic changes, adverse changes
in the residential quality of the surrounding neighborhood, or unfavorable
zoning law changes; (iii) rent control legislation; and (iv) the destruction
of part or all of the Facilities due to fire, flooding, tornados or other
natural disasters.
10
<PAGE>
Environmental Considerations: Certain Federal and state laws impose
liability on a landowner for the presence on the premises of improperly
disposed of hazardous substances. This liability is without regard to fault
for, or knowledge of, the presence of such substances and may be imposed
jointly or severally upon all succeeding landowners from the date of the
first improper disposal. While state law is less onerous, the practical
consequences may be the same. If in the future it is ever determined that
hazardous substances are present, the Company could be required to pay all
costs of any necessary clean up work, although under certain circumstances
claims against other responsible parties could be made by the Company. Phase
one environmental assessments were conducted on the Company's properties in
1997. Research and visual observation undertaken did not reveal any former
or current environmental conditions, problems or situations impacting the sites.
Construction Risks
Construction of the Facilities are not completed, and delays are common
in the construction industry. The Company anticipates the construction of its
Facilities to be completed by March 1999. Disruptive events may include
shortages of, or inability to obtain, labor or materials, the inability of
the general contractor or subcontractors to perform under their contracts,
strikes, adverse weather conditions, changes in Federal, state or local laws
or regulations, and other factors or circumstances presently unknown to or
unanticipated by the Company. The Company may have little control over such
events, and such events may adversely affect the cost and completion time of
the Facilities. See "Business - Construction of the Facilities".
Dependence on Management - Management Agreement
The success of the Company's business will be highly dependent upon the
services of Joanne M. Caldwell-Bayles, President of the Company. The loss of
her services of the Company would adversely affect the Company's business
operations. The Company has obtained a key employee insurance policy covering
the life of Mrs. Caldwell-Bayles in the amount of $500,000 payable to the
Company and $1,000,000 assignable to the Trustee for the benefit of the
Bondholders. Mrs. Caldwell-Bayles, through a company owned by her, The
Forsythe Group, Inc., will enter into a Management Agreement for the
management of the Company's Facilities. See "Business - Management Agreement".
The Management Agreement extends to the day-to-day operations of the
retirement, assisted living and memory disorder facilities of the Company.
The Management Agreement extends to the year 2010 and may be terminated by
the mutual agreement of the parties, bankruptcy or for cause. See "Business
- - Facilities Operations".
Employees
Prior to the commencement of operations of each facility, the Company
intends to employ an average of 35 employees at each facility. There is no
assurance that the Company will be able to obtain and maintain an adequate
number of competent personnel, including entry-level and skilled positions,
or that a shortage of operating personnel will not present a serious problem
to the Company in the future.
Government Regulations
At present there are no applicable federal regulations affecting the
operation of the Company's Facilities. The Facilities will be built to
conform with state regulations governing residential care for the elderly in
the State of Louisiana. The management is confident all state regulations
regarding the size of the Facilities, health care and environment will be met.
The Company's Facilities will be designed for full compliance with the
Americans with Disabilities Act, including, but not limited to areas such as
parking, ramps, entrances, door and corridor widths, and public toilet
facilities. The Facilities will not be required to be licensed as a nursing
home, due to the fact that no 24-hour skilled medical care will be provided
to residents by the staff. However, the Facilities will be required to be
licensed by the Louisiana Department of Social Services prior to the
commencement of operations of each facility. The Company will apply for
licenses with the Louisiana Department Social Services and anticipates
getting the licenses upon completion of construction of each facility. In the
Company's opinion, the Facilities and management practices and operations
will meet or exceed all residential care for the elderly regulations of the
State of Louisiana. Failure of the Company to receive and maintain the
required licensing would have a material adverse effect on the Company's
financial condition and its ability to repay the Company's debt.
11
<PAGE>
SOURCES AND USES OF PROCEEDS
The sources and anticipated uses of proceeds available after the
issuance of the Series 1998-I, 1998-II and 1998-III Bonds are set forth
below. See"Description of Property - Financing of Facilities" and "Certain
Transactions".
<TABLE>
<CAPTION>
Series 1998-I Bonds Series 1998-II Bonds
Ruston Project (1) Bossier City Project (1)
Source of Proceeds: Minimum Maximum Minimum Maximum
<S> <C> <C> <C> <C>
Gross Offering Proceeds $600,000 $3,685,000 $600,000 $3,470,000
Less Underwriting
Concessions (2) (42,000) (257,950) (42,000) (242,900)
Less Other Offering
Costs (3) (100,000) (100,000) (125,000) (125,000)
------- ---------- -------- ----------
Net Offering Proceeds 458,000 3,327,050 433,000 3,102,100
Use of Proceeds:
Fund Initial Operating
Fund Payments 200,000 200,000 185,000 185,000
Retire Construction
Loan (4) 258,000 2,700,000 0 0
Fund Construction
Costs (5) 0 0 248,000 2,577,100
Fund Remaining
Construction Costs 0 77,050 0 0
Fund Pre-Opening Costs 0 100,000 0 100,000
Fund Bond Reserve
Account 0 250,000 0 240,000
------- ---------- -------- ----------
Total Use of Proceeds 458,000 3,327,050 433,000 3,102,100
</TABLE>
<TABLE>
<CAPTION>
Series 1998-III Bonds
Shreveport Project (1)
Source of Proceeds: Minimum Maximum
<S> <C> <C>
Gross Offering Proceeds $300,000 $1,845,000
Less Underwriting
Concessions (2) (21,000) (129,150)
Less Other Offering
Costs (3) (125,000) (125,000)
-------- ----------
Net Offering Proceeds 154,000 1,590,850
Use of Proceeds:
Fund Initial Operating
Fund Payments 100,000 100,000
Retire Construction
Loan (4) 0 0
Fund Construction
Costs (5) 54,000 1,260,850
Fund Remaining
Construction Costs 0 0
Fund Pre-Opening Costs 0 100,000
Fund Bond Reserve
Account 0 130,000
------- ----------
Total Use of Proceeds 154,000 1,590,850
</TABLE>
Note 1: The issue and sale of each series of bonds is not contingent on the
issue and sale of the other series of bonds, and will be separately offered
and sold and subject to minimum proceeds prior to the issuance thereof. The
order in which the proceeds will be disbursed from each series appears above
in descending order. For example, the net proceeds from the Series 1998-I
Bonds will be disbursed in the following order and preference (based upon the
sale of all of the Series 1998-I Bonds): (1) to fund the initial operating
fund payments in the amount of $200,000; (2) to retire the Construction Loan
in the amount of $2,700,000; (3) to fund any remaining construction costs up
to $77,050; (4) to fund pre-opening costs in the amount of $100,000; and (5)
to fund the Bond Reserve Account in the amount of $250,000. See "Description
of Bonds - Escrow and Disbursement of Bond Proceeds"
Note 2: Subject to the sale of the minimum offering amounts, the Underwriter
will receive concession from the sale of the Bonds as follows: (1) the
Underwriter will receive a concession of 7% on all bonds sold through a
selling group agreement with another NASD member firm; (2) the Underwriter
will receive a concession of 5% on all bonds sold to clients of the
Underwriter; and (3) the Underwriter will receive a processing fee of 1% of
the face amount of each bond purchased by any person or entity who is
currently not a client of the Underwriter, but is affiliated with the Company
or referred to the Underwriter by the Company. See "Underwriting".
Note 3: Other offering expenses payable by the Company are estimated at a
total of $350,000 and are allocated among the three series of bonds. Offering
expenses include legal fees, accounting fees, appraisal fees, recording fees,
mortgage taxes, Trustee's fees and other similar fees incurred in connection
with this Offering.
Note 4: The Construction Loan (secured by a Co-First Mortgage on the Ruston
Project) bears interest at a variable rate which is equivalent to 2% per
annum in excess of the lowest rate designated as the "Prime Rate" of interest
published by the Wall Street Journal (North Edition) under the heading
"Money Rates". The Construction Loan matures on December 1, 1998, unless
mutually extended by the Construction Lender and the Company. There are not
sufficient funds from the minimum offering for the Series 1998-I Bonds to
retire the Construction Loan in its entirety. Approximately 87.6% of the
Series 1998-I Bonds ($3,226,000) must be sold by the Maturity Date in order
to prevent the Construction Loan from going into default. See "Description of
Property - Financing of the Company's Facilities".
12
<PAGE>
Note 5: The Company intends to finance the construction of the Bossier City
and Shreveport Projects without obtaining construction loans. However, the
Company has reserved the right to obtain additional construction loans
pursuant to the Trust Indenture if the loans are secured on parity with the
Bonds. In the event the Company does not obtain construction loans for the
Bossier City and Shreveport Projects, then the Series 1998-II and III Bonds
will be used in part to finance the construction of these projects. The
minimum offering amounts for the Series 1998-II and III Bonds are not
sufficient amounts to complete the construction of the Bossier City and
Shreveport Projects. Approximately 89.5% of the Series 1998-II Bonds
($3,104,500) need to be sold in order to have sufficient funds to complete
construction of the Bossier City Project. Approximately 86.7% of the Series
1998-III Bonds ($1,597,750) need to be sold in order to have sufficient funds
to complete construction of the Shreveport Project. See "Description
of Property - Financing of the Company's Facilities".
BUSINESS
The Company
The concept for the Company began over ten years ago. Joanne
Caldwell-Bayles, President of the Company, visited her grandmother in a
facility in Arizona which provided the same basic services as an assisted
living center. Upon returning to Louisiana, Mrs. Caldwell-Bayles began the
study of senior care, as it related to the care provided in assisted living
facilities. At the time Mrs. Caldwell-Bayles started her studies, the
demographics were not at a point in Northern Louisiana in which assisted
living centers were a viable idea. As time passed, the aging population
began to reach the stage in which assisted living centers would be necessary
in the region. In 1994, Mrs. Caldwell-Bayles began the development of the
first assisted living facility in West Monroe, Louisiana under the legal
entity of The Arbor Group, L.L.C. See "Prior Performance of Affiliates of
the Company".
Mrs. Caldwell-Bayles started to consider the expansion into other areas in
Northern Louisiana prior to the opening of the West Monroe facility. She and
the founding stockholders of the Company decided to develop additional
locations along Interstate 20 between Shreveport and West Monroe, Louisiana.
Accordingly, the Company was organized on September 1, 1997 as a Louisiana
corporation formed for the purpose of developing and operating retirement,
assisted living and memory disorder facilities in Northern Louisiana. The
Company will conduct business doing business as the Arbor Retirement
Community.
Business Concept and Clientele
The Company's business concept is based on providing elderly residents in
North Louisiana with a broad range of cost-effective health care and personal
support services, including assisted living, retirement living and memory
disorder units.
Assisted Living. Assisted living care is an emerging segment of the
long-term care industry serving the rapidly growing elderly population who
may require assistance with the activities of daily living ("ADLs"), such as
dressing, bathing and eating. In addition to providing assistance with ADLs,
the Company will also offer a range of routine and skilled nursing services
(as permitted by government regulation). The Company's assisted living
facilities are intended to provide privacy and companionship in a comfortable,
secure, non-institutional living environments which are also designed to
promote interdependence between the facilities' staff and the residents, all
with the intent of providing a more positive lifestyle environment than that
which has been historically available from other congregate care providers.
Specifically, the Company's assisted living facilities are designed to house
elderly persons who do not require 24-hour skilled nursing care. For example,
typical residents might include persons suffering from occasional memory loss,
poor diet habits, arthritis, or other infirmities by reason of which they
would benefit from daily assistance and supervision.
Retirement Living - Independent Cottages. Residents for independent
cottages are usually seniors who maintain an independent lifestyle, but
desire no longer to have the responsibility of ownership and maintenance
of a family residence. Most residents, if not all, will continue to own
and operate their own automobiles. They will also continue to provide
their own house cleaning, medical and medication maintenance, shopping and
other activities which are expected of seniors who maintain good health.
Some residents may wish to travel extensively while maintaining a secure home
base in which their possessions are protected while they are away.
13
<PAGE>
Memory Disorder. Memory disorder units are specifically designed to
assist individuals suffering from Dementia. Dementia includes multi infact
(mini-strokes), Parkinson disease, Lou Gehrig disease, Alzheimer's and
several other similar disorders. Of these disorders, Alzheimer's is the most
common. Memory disorder units provide a secure, protected living environment
for individuals suffering from these types of disorders. Memory disorder
units provide attention with one care giver for no more than five residents
during the day. Night care giver requirements depend on the needs or each
individual resident. The Company's memory disorder units are designed to
provide as much freedom of movement and activity as the progression
of the disorder will allow. Each living unit is designed with memory
disorders in mind.
Operation of the Company's Facilities
Format. The services provided to residents of the Company's assisted
living facilities will include meals, laundry, housekeeping and physical
assistance. In addition, preventive health care programs, transportation,
organized social activities, 24-hour security and medication monitoring will
also be provided as well as the services of a registered nurse who is
available on an "on call" basis. The residents will be responsible for
their own personal purchases such as toothpaste, medical prescriptions, etc.
Unlike nursing homes, however, contemplated services do not include
around-the-clock skilled nursing care. The assisted living facilities will
also provide limited social activities for residents. The services provided
for the residents of the Company's independent cottages will include all
utilities, building and lawn maintenance, 15 meals each month, security,
emergency call systems and housekeeping once each week. The services provided
to the residents of the Company's memory disorder units will include 24-hour
care, three meals each day, medication monitoring, therapeutic activities,
bathing, personal grooming and secure outdoor activities. Expenses of
operating the Company's Facilities will be made up of "fixed" costs and
"variable" costs. "Fixed" costs will include debt service, management and
core staff, essential utilities, insurance, and taxes. "Variable" costs will
include food costs, staffing, utilities and supplies to a small extent. The
Facilities will be able to handle emergencies only to the extent of calling a
doctor or hospital in behalf of the resident. Should a resident require
health care beyond that which the Facilities can reasonably provide or assist,
then a resident may be forced to move from the Facilities.
Cost of Living. The Company's Facilities will have living units priced in
a range of $900 to $2,450 per month based on the type of accommodations and
services provided. Residents are billed monthly for the services rendered.
Medicare/Medicaid will not pay for a resident's stay at the Facilities.
Additional costs may be realized by the residents if they require certain
health supervision/services and meals for visitors. As the cost of living may
increase, charges to the residents may also need to be adjusted.
Resident's Lease Requirements. The residents will be required to pay a one
time entrance fee of approximately $1,475 to reserve their unit or apartment.
The lease of the apartments by the residents will be on a month-to-month basis.
Residents will be required to pay only for the months in which they are
residents of the facility.
Competition
The Company will experience competition from other elderly housing and care
providers. The Company will compete principally on the basis of perceived
quality and service, ambiance and price-value relationship. While the Company
believes that the Facilities will be distinctive in design and operating
concept, it is aware of other companies with similar or competitive concepts.
The long-term care industry is highly competitive and the Company expects
that it will become more competitive in the future. The Company competes
with numerous other companies providing similar long-term care alternatives,
such as home health agencies, life care at home, community-based service
programs, retirement communities and convalescent centers. Nursing facilities
that provide long-term care services are also a potential source of
competition to the Company. There is no assurance that the Company will not
encounter increased competition in the future which could limit its ability to
attract residents and could have a material adverse effect on the Company's
financial condition, results of operations and prospects.
The following table indicates the number of units of existing competition
in assisted living, retirement living, nursing home care and memory disorder
for the three locations of the Company's Facilities. This information was
gathered by Essential Decisions Inc. for the Company.
14
<PAGE>
<TABLE>
<CAPTION>
Summary of Existing Competition
Existing
Existing Private-Pay
Location 1996 Assisted Retirement
Population Living Units Living Units
<S> <C> <C> <C>
Ruston, Louisiana 46,040 0 0
Bossier City, Louisiana (1) 91,309 0 59
Shreveport, Louisiana 235,933 204 241
</TABLE>
<TABLE>
<CAPTION>
Summary of Existing Competition...CONT
Memory
Existing Existing
Nursing Care Disorder
Units Units
<S> <C> <C>
Ruston, Louisiana 425 20
Bossier City, Louisiana (1) 818 0
Shreveport, Louisiana 2,749 0
</TABLE>
Note 1: The Company discovered that there have been discussions with the
planning commission of Bossier City regarding three proposed assisted living
projects. The first proposed project calls for 96 units of assisted living
and 90 nursing home units. The second project calls for an addition to the a
32 unit assisted living units added to an existing nursing home facility. The
third project has been put on hold, and the size and timing of this project
is unknown. As of January 1998, none of these projects have commenced
construction.
Management Agreement
On September 10, 1997, the Company entered into a management agreement
(the "Management Agreement") with The Forsythe Group, Inc., a company owned and
controlled by Joanne M. Caldwell-Bayles, the President and principal
shareholder of the Company. The Management Agreement extends to each of the
Facilities to be financed as a result of the sale of the Bonds. Pursuant to
the terms of the Management Agreement, The Forsythe Group, Inc. (the "Manager"),
as agent for the Company, will perform all services incidental to the
operation of the Facilities, including the hiring of employees, collection of
payments, the paying of expenses, receiving governmental permits and the
compliance thereof, marketing, preparing budgets, and, in general, all
activities that are associated with the management of the Facilities. The
Manager will account to the Company as its agent for the services rendered.
The Manager will maintain operating receipt and expense accounts which are
approved by the Company. Prior to the opening of any facility, the Manager
will provide the Company with maintenance and operating expense projections,
provide policies and procedure manuals, implement marketing plans, establish
bookkeeping and accounting systems and identify inventory and equipment. The
Manager will participate in final inspections of the facility before occupancy
and will coordinate matters with the architect and contractor for each
facility.
The employees of each facility will be the employees of the Company. The
Manager will have no authority to make any disbursement in excess of $15,000,
unless specifically authorized by the Company, nor may the Manager incur any
liability which would require more than one year of payment.
The Company will pay to the Manager, $1,500 per month or seven percent
(7%) of the gross collections of a facility, whichever is greater. Prior to
the opening date of a facility, the Manager shall be entitled to receive
$1,500 per month. The Management Agreement continues until January 1, 2010,
and may be terminated by the mutual consent of the parties, for cause if the
Manager shall fail to perform any of its duties pursuant to the Management
Agreement, or in the event of the Manager's bankruptcy.
Other than matters regarding the operations of the Facilities, the Manger
has no authority over the conduct of affairs of the Company or its management
and operation. The Company believes that the Management Agreement and terms
and conditions applicable thereto are the same or as similar to other
management agreements generally made for the operation of health care
facilities in the areas where these Facilities will be located.
Employees
Currently, the Company does not have any full time employees. Prior to
the commencement of operations of each facility, the Company intends to employ
an average of 35 employees at each facility. There is no assurance that the
Company will be able to obtain and maintain an adequate number of competent
personnel, including entry-level and skilled positions, or that a shortage of
operating personnel will not present a serious problem to the Company in the
future.
15
<PAGE>
Government Regulation
Currently, retirement, assisted living and memory disorder residences are
not specifically regulated as such by the federal government. However, the
Company's Facilities will be subject to certain state regulations and
licensing requirements. To conform with Louisiana's regulations governing
residential care for the elderly, the Facilities will be required to be
licensed by the Louisiana Department of Social Services prior to the
commencement of operations of the Facilities. The Company will apply for
licenses with the Louisiana Department of Social Services and anticipates
getting the licenses upon completion of construction of each facility. In
the Company's opinion, the Facilities and management practices and operations
will meet or exceed all residential care for the elderly regulations of the
State of Louisiana. Failure of the Company to receive and maintain the
required licensing would have a material adverse effect on the Company's
financial condition and its ability to repay the Company's debt.
The Company is subject to the Fair Labor Standards Act, which governs such
matters as minimum wage, overtime and other working conditions. A portion of
the Company's personnel will be paid at rates related to the federal minimum
wage, and, accordingly, increases in the minimum wage will increase the
Company's labor costs. The Company is also subject to the Americans With
Disabilities Act. In general, this law requires businesses to accommodate
the special needs of persons with certain types of disabilities. As
regulations are promulgated to enforce this law, the Company may be required
in the future to adapt the design and format of the Facilities or otherwise
incur additional capital costs to comply with such law. Such costs could have
an adverse effect on the operation of the Company's facilities and their
ability to function successfully.
Environmental Matters
Federal law imposes liability on a landowner for the presence on the
premises of improperly disposed of hazardous substances. This liability is
without regard to fault for, or knowledge of, the presence of such substances
and may be imposed jointly or severally upon all succeeding landowners from
the date of the first improper disposal. While state law is less onerous,
the practical consequences may be the same. If in the future it is ever
determined that hazardous substances are present, the Company could be
required to pay all costs of any necessary clean up work, although under
certain circumstances claims against other responsible parties could be made
by the Company. Phase one environmental assessments were conducted on the
Company's properties in 1997. Research and visual observation undertaken did
not reveal any former or current environmental conditions, problems or
situations impacting the sites.
DESCRIPTION OF PROPERTY
The Company's Proposed Facilities
The Company has acquired land in Northern Louisiana and intends to
construct retirement, assisted living and memory disorder facilities on these
properties as indicated below.
The Ruston Project. The Ruston Project will be located on 6 acres of
land next to the eastern portion of Ruston, Louisiana north of US Highway 80
and south of Interstate 20. Selection of the site of the Ruston Project was
based upon a location that was within an affluent residential neighborhood
with limited assisted living and retirement living services. The Ruston
Project will include a 48 unit assisted living facility and 12 independent
living cottage units. The assisted living units will contain 483 square feet
each with common area amenities including a full service kitchen, dining area,
activity area, office and reception area, bathrooms and storage areas. Each
of the assisted living units will have one or two bedrooms, small
kitchenettes, private bathroom, closet and sitting areas. The independent
living cottage units are located in separate buildings and include six one
bedroom/one bath units and six two bedroom/one bath units containing 816
square feet and 840 square feet respectively. Each of the cottages will have
full kitchens and washer and dryers.
The Series 1998-I Bonds in parity with the Construction Loan are secured
by a co-first mortgage on the Ruston Project (both real and personal property).
See "Description of Property - Financing of the Company's Facilities" and
"Description of Bonds". The Company has title insurance on this 6 acres of
land insuring good and marketable title to the property. Furthermore, in the
Company's opinion, the Ruston Project is adequately covered by insurance.
The Bossier City Project. The Bossier City Project will be located on 6
acres of land on the southside of Brandon Avenue just east of Industrial
Drive in Bossier City, Louisiana. Selection of the site of the Bossier City
Project was based upon a location that was within an affluent residential
neighborhood with limited assisted living, retirement living and memory
disorder units. The Bossier City Project will include 18 independent living
cottage units, 18 assisted living units
16
<PAGE>
and 24 mental disorder units with common area amenities including a full
service kitchen, dining area, activities area, office/reception area,
bathrooms and storage areas. The building will contain a total of 42,829
square feet of heated area. The assisted living units will each contain
approximately 485 square feet and feature a bedroom, living room, kitchenette
and full bath with shower. The assisted living units will be identical to the
independent living units in all respects. The mental disorder units will
each contain 283 square feet of living area and feature a half bath with a
toilet and lavatory and bedroom area.
The Company has title insurance on this 6 acres of land insuring good
and marketable title to the property. Furthermore, in the Company's opinion,
the Bossier City Project is adequately covered by insurance. See "Description
of Property - Financing of the Company's Facilities" and "Description of
Bonds".
The Shreveport Project. The Shreveport Project will be located on
approximately 3 acres of land on Lot 4, Orleans Square Subdivision, located
on East Kings Highway in Shreveport, Louisiana, or such other location of
equal value in the same area. Selection of the site of the Shreveport Project
was based upon a location that was within an affluent residential neighborhood
with limited memory disorder units. The Shreveport Project will have 24
memory disorder units and contain 11,410 square feet of heated area. Each of
these units will contain 283 square feet of living area and feature a half
bath with a toilet and lavatory and bedroom area.
The Company has title insurance on this 3 acres of land insuring good and
marketable title to the property. Furthermore in the Company's opinion, the
Shreveport Project is adequately covered by insurance. See "Description of
Property - Financing of the Company's Facilities" and "Description of Bonds".
Appraisals
Robert M. McSherry, MAI 3760 Chelsea Drive, Baton Rouge, Louisiana 70809
(the "Appraiser"), estimated values for each of the Company's facilities (the
"Appraisals"). Listed below are these appraised values.
Appraised Value of the Ruston Project. . . . . . . . . $4,955,000
Appraised Value of the Bossier City Project. . . . . . $6,310,000
Appraised Value of the Shreveport Project. . . . . . . $2,415,000
The Appraisals were based upon the "Income Approach/Discounted Cash Flow"
derived from the income approach (highest and best use) and discounted cash
flow procedure for estimating real property values. The income approach is
an analysis which converts anticipated benefits to be derived from the
ownership of property into a value estimated, with consideration given to the
gross income, expense, net income, vacancy rate and capitalization.
Furthermore, the income approach is not, for example, a valuation based upon
the Appraiser's estimate of the price that would be arrived at by a willing
buyer and a willing seller in an arms-length sales transaction. Accordingly,
it is questionable that, in the event of default, the Company's Facilities
could be sold, whether voluntarily or at judicial sale, for the appraised
value.
A decision to invest in the Bonds should not be made based solely on the
Appraisals. Moreover, a purchaser of the Bonds should realize and take into
consideration the fact the Company's Facilities, if they should have to be
sold, may bring less than is necessary to pay principal and interest due on
the Bonds. This could result in the investor losing all or a portion of his
original investment, which the investor should take into consideration before
making the purchase.
Construction of the Company's Facilities
Listed below is the proposed construction schedule and development/
construction costs of the Company's Facilities. The dates and numbers as
indicated below are estimates only.
<TABLE>
<CAPTION>
Approximate
Costs of
Anticipated Anticipated Development
Construction Opening and
Location Start Date Date (1) Construction (2)
<S> <C> <C> <C>
Ruston Project December 1997 October 1998 $3,750,000
Bossier City Project May 1998 March 1999 $3,500,000
Shreveport Project May 1998 January 1999 $1,845,000
</TABLE>
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<PAGE>
(1) Delays are common in the construction industry, and unforseen events may
adversely affect the cost and completion time of the Company's Facilities.
(2) Includes land, construction and service costs; architectural and
engineering costs; furniture, fixtures and equipment.
Financing of the Company's Facilities
The Ruston Project - Construction Financing. The Company has secured a
construction loan (the "Construction Loan"), in the amount of $3,700,000 from
Church Loans & Investments Trust of Amarillo, Texas 79114-8203 ("Construction
Lender") for the construction of the Ruston Project. The Company has paid a
loan origination fee in the amount of $67,500. The loan is due December 1,
1998 (the "Maturity Date"), unless mutually extended by both parties. The
Construction Loan bears interest at a variable rate which is equivalent to 2%
per annum in excess of the lowest rate designated as the "Prime Rate" of
interest published by the Wall Street Journal (North Edition) under the
heading "Money Rates". The minimum rate of interest will be not less than
2.0%. The maximum rate of interest will not exceed 25%. The Construction
Loan was guaranteed by The Forsythe Group, Inc., an affiliate and stockholder
of the Company, in the amount of $500,000. The Trustee and the holders of
the Bonds will not benefit, directly or indirectly, from the guarantee of
The Forsythe Group, Inc. The Construction Loan will be secured by a Co-First
Mortgage with the Series 1998-I Bonds. The Construction Loan closed on
December 1, 1997, and the Mortgage and Security Agreement setting forth the
terms of the Construction Loan have been filed of record. The Construction
Loan is secured by a Co-First Mortgage on the Ruston Project (both real and
personal property) in parity with the Series 1998-I Bonds. Colonial Trust
Company acting as Trustee on behalf of the Series 1998-I bondholders and the
Construction Lender have entered into a certain Agreement Between Lienholders
(the "Lienholder Agreement") dated as of December 1, 1997, with regard to the
Mortgage and Security Agreement, and the rights of the holders of the Bonds
are subject in all respects to the rights of Construction Lender under the
Lienholder Agreement. The Lienholder Agreement states, among other things,
(i) that the Mortgage, Security Agreement and other collateral documents
covering the Ruston Project shall name both the Construction Lender and the
Trustee as lienholder and shall secure ratably as provided in the Lienholder
Agreement the Construction Loan and the indebtedness under the Series 1998-I
Bonds, and (ii) that proceeds of the Series 1998-I Bonds will be used, subject
to the Trust Indenture, to pay down or retire the Construction Loan. The
Lienholder Agreement also states that in the event of a default, if either
the Construction Lender or the Trustee elects to accelerate its loan, the
other party agrees to accelerate its loan to the extent permitted under the
other party's loan documents. In the event the Company were to default, the
Lienholder Agreement provides that the Construction Lender and the Trustee
will conduct collection and foreclosure actions and proceedings jointly to
the extent possible. In the event the Construction Lender and the Trustee
are unable to agree, however, the Construction Lender is given the right, in
its discretion, to direct and make decisions, binding on the Trustee and the
holders of Bonds, concerning maintenance, protection or disposition of the
Ruston Project and enforcement of the terms of the Mortgage and Security
Agreement. The Construction Lender may cause the Ruston Project to be sold
in its then current condition or may make renovations to, or complete
construction of the Ruston Project. The Construction Lender is not required
to advance any funds except by its agreement, but in the event the
Construction Lender elects to advance funds, proceeds of foreclosure will
be applied first to reimburse any such funds advanced. Either the
Construction Lender or the Trustee may purchase the Ruston Project at any
foreclosure sale free and clear of the claims of the other. If the Ruston
Project is sold or otherwise disposed of at foreclosure, the Lienholder
Agreement provides that the proceeds of disposition, after reimbursement of
the Construction Lender's fees and expenses as provided above, be applied to
the Construction Loan and the payment of the Series 1998-I Bonds on a pro-rata
basis. The "pro-rata" distribution of funds mean that after reimbursement of
the Construction Lender's fees and expenses as provided above, the
Construction Lender and the Series 1998-I Bonds will each receive funds from
any disposal on foreclosure of the Ruston Project according to their
respective percentage of the total principal balance (including both the
Construction Loan and Series 1998-I Bonds) on the property. Thus, depending on
the net proceeds from a foreclosure sale, each entity would receive proceeds
from the sale of property equal to the entire amount due them, or any amount
equal to their percentage of the total indebtedness against the Ruston
Project, whichever is lesser. In addition to requiring the timely payment
of the Construction Loan and the Series 1998-I Bond payments required under
the terms of the Trust Indenture, the Mortgage obligates the Company to
maintain proper books and records, and refrain from certain activities (such
as altering the premises) without prior written consent. It also dictates,
in part, the permitted financial relationships between the Company and the
residents.
<18>
<PAGE>
The Ruston Project - Permanent Financing. The Company has chosen to
issue the Series 1998-I Bonds to provide the permanent financing for the
Ruston Project. The first revenues of the Company have been pledged to repay
the principal and interest on the Bonds. See "Use of Proceeds" and
"Description of Bonds".
The Bossier City and Shreveport Projects - Construction and Interim
Financing. The Company has chosen to issue the Series 1998-II and 1998-III
Bonds to provide the construction and interim financing for the Bossier City
Project and Shreveport Project, respectively. However, the Company has
reserved the right to obtain additional construction loans pursuant to the
Trust Indenture if the loans are secured on parity with the Bonds. See "Use
of Proceeds" and "Description of Bonds".
MANAGEMENT
Directors and Executive Officer
The names of the directors and executive officers of the Company, their
respective ages and their positions and office with the Company are as
follows:
Name Age Positions and Offices Held
Joanne M. Caldwell-Bayles 37 Chairperson of the Board, Chief
Executive Office, President and
Director
Raymond L. Nelson 62 Vice President and Director
Jean Gaffney Nelson 60 Director
Joanne M. Caldwell-Bayles has been the President and Chief Executive
Officer of the Company since its inception in September 1997. Mrs.
Caldwell-Bayles has senior executive experience in the development and
operation of an assisted living and memory disorder facility in West
Monroe, Louisiana where she presently serves as the Operating Manager of
The Arbor Group, L.L.C. ("Arbor"). Mrs. Caldwell-Bayles also has senior
executive experience in hotel management, personnel, finance and commercial
and residential development. In addition to her duties with the Company and
Arbor, Mrs. Caldwell-Bayles is the President, Chairperson of the Board of
Directors and sole owner of The Forsythe Group, Inc., the parent corporation
of four subsidiaries. These subsidiaries include: (i) Forsythe Holdings, Inc.
(a commercial and residential lending company); (ii) Format Capital, Corp.
(a commercial development and equipment leasing company); (iii) Lewis
Enterprises, Inc. (a residential development company); and (iv) Northwest
Manufacturing Co., Inc. (a manufacturing company for equipment for the
construction industry). Prior to her duties with the Company, Arbor and the
Forsythe Group, she served as the President of Oak Development Corporation
(a hotel management firm) and the general manager of Ramada Hotel in
Alexandra, Louisiana. She has served on the Board of Directors of the
Alexandria Chamber of Commerce, the Louisiana Restaurant Association and
the Louisiana Hotel/Motel Association. She also has served as President of
the Tourism Commission of Rapides Parrish Louisiana and of the Hotel/Motel
Association of Alexandria, Louisiana. Mrs. Caldwell-Bayles attended Northeast
Louisiana State University in Monroe, Louisiana.
Mrs. Caldwell-Bayles will be the person primarily responsible for
overseeing the actual operation and management of the Company. Accordingly,
the success of the Company will be dependent upon her efforts. Mrs.
Caldwell-Bayles will delegate most of the daily operational responsibilities
of the Company to on-site administrators. The administrators will be
selected from a group of candidates who must have a degree in nursing and
administration. Prior to commencement of operations of each facility, Mrs.
Caldwell-Bayles will hire an administrator whose salary and employee benefits
will be an expense of operation of the Company. All other employees will
also be recruited by Mrs. Caldwell-Bayles. The Company anticipates employing
a total of an average of 35 employees to work at each facility with a total
of approximately 105 employees working for the Company upon completion of
the Ruston, Bossier City and Shreveport Projects. Mrs. Caldwell-Bayles will
devote approximately 65% of her time to the affairs of the Company but is
willing to devote additional time if necessary.
Raymond L. Nelson has served as Vice President and a Director since the
Company's inception. In addition to these duties, Mr. Nelson will be serving
as the Director of Personnel for the Company. Mr. Nelson is the person
primarily responsible for overseeing the management systems and the insurance
needs for the Company. Mr. Nelson attended the
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<PAGE>
University of Houston. He is the President and CEO of Town & Country
Insurance Agency, Inc. He manages 40 employees in three locations in the
Houston-Galveston, Texas metropolitan area. Mr. Nelson is the past President
of the Houston Council of the Navy League of the United States and is
currently a national director. He is a past director of the Independent
Insurance Agency of Houston, Texas. Mr. Nelson is developing the operations
manual and all of the employee benefits and retirement plans for the Company.
Mr. Nelson has devoted and will continue to devote approximately 15% of his
time to the Company. As compensation for performing said duties, Mr. Nelson
shall receive $6,000 annually. He may be reimbursed for reasonable costs
incurred including but not limited to automobile mileage, office rental,
telephone and facsimile machine expenses, expenses associated with computer
and other office equipment usage, clerical expenses and other expenses
related to the Company's business.
Jean Gaffney Nelson has served as a Director since the Company's
inception. Mrs. Nelson also will be the person primarily responsible for
inspection and evaluation of the health care facilities and employees. Mrs.
Nelson has 27 years in management experience in diagnostic and Iterventional
cardiology in a large hospital environment. Mrs. Nelson was employed as
the Manager of Cardiology Services and Nuclear Medicine at the Methodist
Hospital in Houston, Texas. She studied biology and took courses in computer
science, accounting and management at the University of Houston in Houston,
Texas. Mrs. Nelson is registered in adult echocardiography by the American
Registry of Diagnostic Medical Sonographers and is a member of the American
College of Cardiovascular Administrators.
Mrs. Nelson has management experience in environmental, operations,
materials control, finances, human resources, design and construction,
database systems, project development and marketing. Over the term of her
career, she has managed the following specific activities: cardiac
catheterization, cardiac rehabilitation, pacemaker evaluation clinic,
electrophysiology, nuclear cardiology, nuclear medicine, echocardiography,
stress testing, electrocardiography, vascular diagnostics, electrocardiograph,
aeromedical services, admission, observation and discharge units.
Selected professional accomplishments of Mrs. Nelson include managing a
cardiology departments for a large hospital and developing and implementing
this hospital's first aeromedical program to transport critically ill
patients. Mrs. Nelson also was responsible for the design and construction of
the following items at the hospital: cardiac catheterization laboratories, an
electrophysiology suite, an ambulatory diagnostic cardiology center, a
nuclear medicine laboratory, a cardiology non-invasive laboratory, and a
flight center. Mrs. Nelson has authored more than 40 articles and abstracts
related to cardiovascular disease. She was named as manager of the year in
1988 at the Methodist Hospital in Houston, Texas. In July 1997, Mrs. Nelson
retired as a full-time employee of the Methodist Hospital. However, she
continues to perform consulting duties with the hospital.
As compensation for performing said duties, Mrs. Nelson shall
receive $6,000 annually. Mrs. Nelson also may be reimbursed for reasonable
costs including but not limited to automobile mileage, office rental,
telephone and facsimile machine expenses, expenses associated with computer
and other office equipment usage, clerical expenses and other expenses
related to the Company's business.
Executive Compensation
Joanne M. Caldwell-Bayles, President and Chief Executive Officer of the
Company, may receive the following compensation: (1) an annual salary in the
amount of $60,000 per year beginning when the Company's first facility is
opened for business and (2) reimbursement for reasonable costs incurred by
the Mrs. Caldwell-Bayles including but not limited to automobile mileage,
telephone expenses and entertainment expenses associated with the Company's
business.
PRINCIPAL OWNERS OF THE COMPANY
The following table sets forth certain information regarding the
beneficial ownership of the common stock of the Company as of January 26,
1998, (i) by each shareholder who is known by the Company to own beneficially
more than five percent (5%) of the common stock, (ii) by each director, (iii)
by each executive officer named herein under "Management," and (iv) by all
executive officers and directors as a group. Except as otherwise indicated
and except to the extent authority is shared by spouses under applicable law,
each named beneficial owner has sole voting and investment power with respect
to the common stock listed.
20
<PAGE>
<TABLE>
<CAPTION>
Name & Address of Percent of
Beneficial Owner Title of Class Shares Class Owned
<S> <C> <C> <C>
Joanne M. Caldwell Bayles Common Stock 106,313.0 17.5%
507 Trenton Street
West Monroe, LA 71291
Raymond and Jean Nelson Common Stock 57,264.0 9.4%
1075 Katy Freeway, Suite 150
Houston, TX 77024
The Forsythe Group, Inc. (1) Common Stock 322,916.5 53.2%
507 Trenton Street
West Monroe, LA 71291
The Arbor Group, L.L.C. (2) Common Stock 120,416.5 19.9%
507 Trenton Street
West Monroe, LA 71291
</TABLE>
Note 1: Joanne M. Caldwell-Bayles owns 100% of the capital stock of the
Forsythe Group, Inc.
Note 2: Joanne M. Caldwell-Bayles owns 50%, Raymond and Jean Nelson own 40%
and the Forsythe Group, Inc. owns 10% of the capital stock of The
Arbor Group, L.L.C.
The executive officers and directors of the Company as a group are the
beneficial owners of 100% of the common stock of the Company.
THE COMPANY'S PLAN OF OPERATION
The primary plan of operation of the Company is to establish a local and
regional network of retirement, assisted living and memory disorder facilities
that will operate profitably. The Company intends to complete construction of
five facilities along Interstate 20 between West Monroe, Louisiana and
Shreveport, Louisiana by January of 2000. Three of these facilities are
located in Ruston, Bossier City and Shreveport, Louisiana and will be secured
by the Bonds. The Company intends to build two additional facilities in
Minden and West Monroe, Louisiana and finance these facilities with the
issuance of bonds similar to that of this Offering. Beyond these first five
facilities, the Company may continue to expand in Northern Louisiana and
Southern Arkansas, including possible locations of Bastrop and
Homer-Hainsville, Louisiana and Crosset and El Dorado, Arkansas. The Company
intends to employ an average of 35 employees per completed facility with a
total of approximately 105 employees working for the Company upon completion
of the Ruston, Bossier City and Shreveport Projects. The Company expects to
reach stabilized occupancy within 18 months upon completion of each facility.
An affiliate of the Company, The Arbor Group, L.L.C. ("Arbor"), has
completed construction and is now operating a similar assisted living and
memory disorder facility in West Monroe, Louisiana. Arbor has been and will
continue to be a model for the future development of the Company. Also,
Arbor is managed by the same organization, The Forsythe Group, that will
manage the Company's properties. While the Company is newly formed, it will
operate its properties under the name of The Arbor Retirement Community.
Arbor has established name recognition in the community of West Monroe, and
the Company is in the process of establishing name recognition in the
proposed communities in which the Company's units will be located.
In order for the Company to fund all of its objectives of this Offering,
the maximum offering amount must be sold by the termination date of this
Offering, and the Company will need to raise additional operating funds during
the first 12 months of operation. The Company has estimated that $200,000
will be needed for operation during the first 12 months, above and beyond
the expenses as set forth in "Sources and Uses of Funds". The Company has
presently two lines of credit from which the Company can access for the use
of additional operating funds. These lines of credit have been established by
the pledging of collateral not secured by the Bonds; Mrs. Caldwell-Bayles,
The Forsythe Group and Arbor also have pledged other assets to secure the
lines of credit. If additional funds are needed for the Company's operation,
The Forsythe Group, the
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<PAGE>
management company of the Company, has agreed to defer collection of its
management fees. However, the Company believes that it will not be necessary
for the Company to raise additional funds during the next 12 months other than
the use of its credit lines. There is no assurance that the Company will be
able to accomplish any or all of these objectives. The Company's product is
providing living accommodations for seniors who need assistance. As the needs
of the Company's residents change, the Company is willing to modify its
operations to accommodate its residents' needs. The Company is committed to
continue researching the trends of senior citizens' living accommodation
needs.
PRIOR PERFORMANCE OF AFFILIATES OF THE COMPANY
The Arbor Group, L.L.C., an affiliated corporation of the Company, has
prior experience in the development and operation of an assisted living and
memory disorder facility similar to that of the proposed facilities. In
August 1996, Mrs. Caldwell-Bayles, Raymond Nelson and Jean Gaffney Nelson
formed The Arbor Group, L.L.C. for the purpose of developing and operating a
35-unit assisted living facility and a 24-unit memory disorder facility in
West Monroe, Louisiana. The facility was completed and opened for business
in November 1997. Mrs. Caldwell-Bayles serves as the Operating Manager of
The Arbor Group, L.L.C.
The Arbor Group's assisted living and memory disorder facility was
financed by the issuance of bonds in the amount of $3,250,000 under terms
similar to that of the Offering. The bonds for the Arbor Group were offered
and sold by the Underwriter.
CERTAIN TRANSACTIONS
Joanne M. Caldwell-Bayles and Raymond and Jean Nelson, the principal
shareholders of the Company, individually and/or through their ownership of
affiliated companies, have or intend to engage in the following transactions
with the Company. See "Principal Owners of the Company".
Land Acquisition
On September 10, 1997, the Company acquired 6 acres of land at the Ruston
location with an estimated fair market value of $450,000 in a transaction
with The Forsythe Group, Inc. in exchange for 125,000 shares of common stock
of the Company and by assuming a debt of $200,000. This transaction would
have resulted in a gain to The Forsythe Group, Inc. of approximately $95,000
had it not been a tax free exchange. On September 10, 1997, the Company
acquired 20 acres of land at the Ruston location with an estimated fair
market value of $250,000 in a transaction with The Forsythe Group, Inc. in
exchange for 125,000 in shares of common stock. This transaction would have
resulted in a gain to The Forsythe Group, Inc. of approximately $170,000 had
it not been a tax free exchange.
On September 10, 1997 the Company acquired land in West Monroe, Louisiana
with an estimated fair market value of $200,000 in a transaction with The
Arbor Group, L.L.C. in exchange for 100,000 shares of common stock. This
transaction would have resulted in no gain to The Arbor Group, L.L.C. had it
not been a tax free exchange. On January 7, 1998, the Company entered into a
real estate agreement with Patterson Insurance Company ("Patterson")
to purchase approximately six acres of land on which the Bossier City
Project is to be built. The sale and conveyance of this property by
Patterson to the Company will be subject to the following terms: the Company
is to pay Patterson a total consideration of $525,000 for the property by the
issuance of $425,000 in preferred stock of the Company and $100,000 in cash
prior to closing.
Construction Contracts
On November 5, 1997, the Company entered into a construction contract in
the amount of $2,750,000 with The Forsythe Group, Inc. to construct the Ruston
Project. The contract calls for the cash payments of $2,500,000 during the
building of the Ruston Project as approved by the contract engineer and the
issuance of an additional 125,000 shares of common stock at the completion of
the project. Such stock issuance is to be paid to The Forsythe Group, Inc.
as its builder's profit in the project.
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On December 16, 1997, the Company entered into a construction contract in
the amount of $2,200,000 with The Forsythe Group, Inc. to construct the
Bossier City Project. The contract calls for the cash payments of $2,200,000
during the building of the Bossier City Project as approved by the contract
engineer.
On December 16, 1997, the Company entered into a construction contract in
the amount of $1,225,000 with The Forsythe Group, Inc. to construct the
Shreveport Project. The contract calls for the cash payments of $1,225,000
during the building of the Shreveport Project as approved by the contract
engineer.
Management Contract
On September 10, 1997, The Forsythe Group, Inc., entered into a Management
Agreement with the company for the management of the Facilities to be
constructed as a result of the issuance of the Bonds. The Agreement extends
to the year 2010, with compensation based on each facility, paying the
Manager $1,500 per month of seven percent (7%) of the gross collections of a
facility, whichever is greater. The Management Agreement can be terminated
by mutual consent of the parties, bankruptcy or for cause. The Company
anticipates the payments under the Management Agreement to The Forsythe
Group, Inc. will exceed $60,000 per year.
Other Services Rendered
On September 10, 1997, the Company issued 85,896 shares of common stock of
the Company to Joanne M. Caldwell-Bayles in exchange for services rendered in
connection with developing the plans for construction for the Ruston Project
and a deposit on the plans for the Bossier City, Shreveport, Minden and West
Monroe Locations.
On September 10, 1997, the Company issued 57,264 shares of common stock of
the Company to Raymond and Jean Nelson in exchange for services rendered in
connection with developing the plans for construction for the Ruston Project
and a deposit on the plans for the Bossier City, Shreveport, Minden and West
Monroe locations.
The Company has also reserved 252,440 shares of Common Stock to be issued
to Joanne M. Caldwell-Bayles and Raymond and Jean Nelson in exchange for
services rendered in connection with developing the plans for the Bossier City,
Shreveport, Minden and West Monroe locations.
DESCRIPTION OF BONDS
The Bonds will be issued in book-entry form (unless the purchaser requests
a printed bond certificate) pursuant and subject to the provisions of a
certain Trust Indenture (the "Trust Indenture") between the Company and
Colonial Trust Company of Phoenix, Arizona, as Trustee, Bond Registrar and
Paying Agent (the "Trustee"). Copies of the Trust Indenture will be deposited
with the Trustee, the Company and the Underwriter. The following is a
summary of the provisions of the Trust Indenture.
Description of Liens
All of the Bonds will be secured by a mortgage and security agreement,
hereinafter called the "Lien", upon the Facilities, and shall have equal
rights, liens and privileges under the Trust Indenture and the Lien so that
each and every Bond shall be equally and proportionately secured without
preference, priority or distinction as to the lien securing any one Bond over
the lien securing any other Bond or Bonds. The Trustee is authorized
pursuant to the Trust Indenture to modify or amend the mortgage as necessary
to accomplish the purpose of having all bonds issued by the Company in regard
to the Facilities to be secured by a lien on all three of the Projects.
General
The Company is offering $9,000,000 of first mortgage bonds in three
series, with the proceeds from each series being used for a particular project
located in a city in the State of Louisiana. The issue and sale of each
series of bonds is not contingent on the issue and sale of the other series of
bonds, and will be separately offered and sold and subject to minimum proceeds
prior to the issuance thereof. The Bonds are secured by a pledge of land and
buildings constituting the Facilities and a pledge of gross income of the
Company pursuant to the terms of the Trust Indenture between the Company and
the Trustee. The Bonds will be issued in book-entry form (unless the
purchaser requests a printed bond certificate) as registered Bonds without
coupon in denominations of $250 each or any integral multiple thereof. The
Bonds will be issued to mature serially. To "mature serially" means the Bonds
will mature according to predetermined maturity dates, beginning six months
from the issue date of each series of bonds and continuing to mature each six
months thereafter until the final maturity period
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of each of the series of bonds as indicated in the "Maturity Schedules". The
purchaser of a Bond should understand that in the event he/she should need to
sell the bond, the Underwriter does not make a secondary market for the Bonds,
nor is there the likelihood a secondary market will develop. Principal and
interest are payable in lawful money of the United States by the Trustee,
acting in its capacity as Paying Agent. Certain Bonds pay interest by check
semiannually ("Simple Interest Bonds"). Certain other Bonds pay the interest
earned only at the maturity of the Bond ("Compound Interest Bonds"). See
"Maturity Schedules".
The Series 1998-I Bonds will be dated April 1, 1998, and are subject to
the sale of a minimum of $600,000 in principal amount of Bonds. The aggregate
principal amount of the Series 1998-I Bonds is $3,685,000 and is comprised of
bonds in the principal amount of $2,004,500 that will mature serially and bear
simple interest payable by check mailed to the registered owners each October
1 and April 1 until maturity and bonds in the principal amount of $1,680,500
that will mature serially and bear interest compounded semiannually each
October 1 and April 1 that is payable at maturity. The Series 1998-I Bonds
will begin accruing interest as of April 1, 1998, whether or not they have
been purchased. If any of the Series 1998-I Bonds are purchased after April
1, 1998, the purchaser will nevertheless be entitled to receive the accrued
interest on the Bond from April 1, 1998.
The Series 1998-II Bonds will be dated May 1, 1998, and the Series 1998-II
are subject to the sale of a minimum of $600,000 in principal amount of Bonds.
The aggregate principal amount of the Series 1998-II Bonds is $3,470,000.
The Series 1998-II Bonds will mature serially and bear interest compounded
semiannually each November 1 and May 1 that is payable at maturity. The
Series 1998-II Bonds will begin accruing interest as of May 1, 1998, whether
or not they have been purchased. If any of the Series 1998-II Bonds are
purchased after May 1, 1998, the purchaser will nevertheless be entitled to
receive the accrued interest on the Bond from May 1, 1998.
The Series 1998-III Bonds will be dated May 1, 1998, and the Series
1998-III Bonds are subject to the sale of a minimum of $300,000 in principal
amount of Bonds. The aggregate principal amount of the Series 1998-III
Bonds is $1,845,000. The Series 1998-III Bonds will mature serially and bear
simple interest payable by check mailed to the registered owners each November
1 and May 1 until maturity. The Series 1998-III Bonds will begin accruing
interest as of May 1, 1998, whether or not they have been purchased. If any
of the Series 1998-III Bonds are purchased after May 1, 1998, the purchaser
will nevertheless be entitled to receive the accrued interest on the Bond
from May 1, 1998.
Tax Consequences
Interest paid on the Bonds is not exempt from federal or state income
taxes. Interest on Simple Interest Bonds is paid by check semiannually. Each
year the purchaser of a Simple Interest Bond will receive a form 1099 INT
from the Trustee/Paying Agent showing the interest earned on the Bond(s) for
that tax year. While Compound Interest Bonds pay the interest earned only at
the maturity of the Bond, a portion of the interest must be reported as
income each year even though no interest will be paid until maturity. The
interest to be reported each year is the amount of interest accruing on the
Bond that year. Each year the purchaser of a Compound Interest Bond will
receive a form 1099 OID from the Trustee/Paying Agent showing the interest
earned on the Bond(s) for that tax year. For further information concerning
the tax consequences of purchasing or holding the Bonds, the investor should
consult his or her tax advisor.
Trust Funds Established Under the Trust Indenture
The Trust Indenture provides for the creation of the Bond Proceeds Fund,
into which the proceeds from the sale of Bonds will be deposited. The Trust
Indenture also creates the Bond Operating Funds, into which all payments of
the Company are collected prior to payment being made to the Bondholders.
Payment of Bonds
Principal and interest on the Bonds is payable at the office of the
Trustee in lawful currency of the United States of America. Payment of
interest shall be made to the registered owners of the Bonds and paid by
check or draft mailed to the registered owners at the address appearing on
the Bond register of the Trustee. Each holder who has received a printed
bond certificate must send his/her matured Bonds to the Paying Agent in order
to obtain payment of the aggregate principal amount.
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Events of Default
The term "event of default" when used in the Trust Indenture means the
occurrence of any one of the following events:
a) Failure or refusal to pay when due the principal and/or interest on any
Bond;
b) Failure or refusal to timely pay into the Operating Fund Accounts any
installment(s) required;
c) Failure or refusal to pay when due any taxes, assessments, insurance,
claims, liens or encumbrances upon the Facilities, or to maintain the
Facilities in good repair, or to cure the breach of any other covenant
set forth in the Trust Indenture;
d) Failure or refusal to pay when due any loan or advance by or the fees
and expenses of Trustee or of any depository or escrow agent;
e) Failure or refusal, upon written request of the Trustee, (i) to furnish
Trustee with such insurance policies, financial reports and information
concerning the Company as may be reasonably required by Trustee, or
(ii) to grant unto Trustee, its agents, accountants and attorneys
access during normal business hours to Company's offices for the
purpose of examining and, within reasonable limits, photocopying such
records;
f) Making an assignment for the benefit of creditors; or should a
receiver, liquidator, or trustee be appointed to assist in the payment
of Company's debt; or should any petition for bankruptcy,
reorganization, or arrangement of Company be filed; or should Company be
liquidated or dissolved, or its charter expire or be revoked.
Remedies of Default
Upon the occurrence and continuation of an event of default, the Trustee
may accelerate the Bonds and declare the principal of all Bonds outstanding or
any series of Bonds then in default immediately due and payable.
Additionally, upon written request of the holders of not less than 25% of the
Bonds outstanding, the Trustee is obligated to accelerate the maturity of the
Bonds in an event of default.
Additional Covenants
In addition to its obligation to remit the principal and interest
payments when due the Company has agreed to at its own cost and expense,
maintain the properties in good repair and condition and pay or discharge all
taxes, assessments and any mechanic's or materialmen's liens that may become
payable.
Casualty
With respect to insurance, the Company has agreed to maintain in full
force and effect at all times fire and extended coverage insurance insuring
against losses in an amount at least equal to the balance then due on the
outstanding Bonds. The proceeds of any such insurance are to be applied for
the replacement or repair of the property damaged, to purchase additional
property secured by the Trust Indenture as originally acquired with Bond
proceeds, for construction of additional improvements on the Facilities, to
redeem outstanding Bonds, or a combination of the foregoing. If the proceeds
from the sale of the Bonds are to be used to finance the construction of
improvements, the Company agrees to furnish and maintain in full force
builder's risk insurance during the period of construction. In addition, the
Company has agreed to maintain in full force and in effect at all time general
liability insurance in such amount and with such insurers as shall be
approved by the Trustee. The Trustee is authorized to withdraw funds from
the Bond Operating Fund and to apply funds for the account of the Company of
such obligations as aforementioned, and the Company is obligated to
immediately restore the proper balance of the Bond Operating Fund.
Periodic Reporting
The Company has agreed to furnish to the Trustee, at least annually,
audited financial statements, including a balance sheet, statement of
activity and statement of changes in financial position and to permit the
Trustee to examine the books or records of accounts of the Company and the
Facilities at all reasonable times. Audited annual financial statements will
also be supplied to the investors.
Additional Bond Issues/Additional Indebtedness
The Company reserves the right to issue additional parity Bonds or incur
additional debt obligations ("additional Bonds") in any amount for any lawful
purpose, including refunding any outstanding Bonds. Such additional Bonds
along with the Bonds offered hereby shall be deemed "Bonds" for all purposes
and as defined in the Trust Indenture. When issued and delivered the
additional Bonds will be secured under the terms of the Trust Indenture and
shall be on a parity with all
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then outstanding Bonds of the Company offered hereby. The additional Bonds
may be offered in one or more series or issues, in various principal amounts,
bearing interest, maturing, and having such redemption features and other
provisions as may be provided in any supplemental indenture or other
instrument authorizing their issuance. However, no series or issue of
additional Bonds shall be issued unless:
a) Any default or event which would result in default by Company under
the Trust Indenture has been first cured;
b) Any real property acquired from the proceeds of Additional Bonds must
be subjected to and become a part of the lien of the Trust Indenture and any
mortgage or deed of trust upon the Facilities; and
c) The ratio of the total of outstanding Bonds, as compared to the
appraised value of the property securing the payment of the Bonds, must not
exceed 100% of the then appraised market value of the property securing the
payment of the Bonds as derived from the Income Approach Appraisal Method.
Substitution of Collateral
If the Company is not then in default, the Trustee may execute partial
releases, accept substitution of collateral, or subordinate its lien; provided,
however, that in every such instance the Trustee must receive from some
disinterested person a certificate stating that the value of the property to
be substituted is of equal or greater value to the original property.
Successor Trustee
If the Trustee resigns or is removed or dissolved or if any court or
administrative body takes control over the property or affairs of the Trustee
because of insolvency or financial difficulty or for any other reason, the
Company must appoint a Successor Trustee. If the Company fails to make such
an appointment, the majority in principal amount of Bondholders may appoint a
Successor Trustee. The Successor Trustee must then mail notice of its
appointment to the registered owners but no other notice is required.
Modification of Trust Indenture
The Trust Indenture may be amended or supplemented from time to time by
the parties thereto without the consent of or notice to the Bondholders for
any of the following purposes:
a) To cure any ambiguity, omission, formal defect or inconsistency; or
b) To issue additional Bonds within the guidelines described above; or
c) To make any change which, in the judgement of the Trustee in reliance
upon any opinion of counsel does not adversely affect the rights of the
holders of any Bond.
The Trust Indenture may be amended or supplemented for purposes other than
those set forth above with the consent of the holders of 66 2/3% of the Bonds
then outstanding; provided, however, that no such amendment or supplement
without the consent of the holder of any Bond affected thereby shall:
a) Reduce the percentage of the principal amount of Bonds the holders of
which must consent to for any such amendment, supplement or waiver;
b) Reduce the rate or extend the time of payment of interest on any
Bonds; or
c) Reduce the principal or premium, if any, on any Bond or extend the
time or times of payment thereof whether at maturity, upon redemption or
otherwise.
Prepayment
The Company has reserved the right to redeem all or a portion of the
Bonds prior to their stated maturity. The Bonds are subject to redemption
without premium at the principal amount thereof plus accrued interest. The
registered owner will be given written notice of such redemption at the
owner's address as it appears on the Bond Register. It is the owner's
responsibility to notify the Paying Agent of any change of address. Any Bond
not redeemed by its owner within three years after its maturity date is deemed
to have been paid and the funds will escheat to the benefit of the
appropriate state authority.
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Security and Source of Payment for the Bonds
The Bonds will be payable primarily from the first revenues of the
Facilities. These Bonds are an obligation of the Company and will be secured
by a co-first Mortgage on the Ruston Project and a first mortgage on the
Bossier City and Shreveport Projects.
The Company covenants to keep all property pledged under this Bond issue
properly insured against loss by fire, windstorm and explosion in an amount
equal to the outstanding balance of the Bonds. A copy of such policy,
payable jointly to the Company and the Trustee, will be on file with the
Company and the Trustee.
Requirements of the Operating Fund Accounts
Under the Trust Indenture, the Company must establish Operating Fund
Accounts and make monthly deposits into the Operating Fund Accounts in amounts
predetermined to be sufficient at all times to pay the principal and interest
of each series of the Bonds. The required monthly deposits will be as
follows:
Series 1998-I ($3,685,000)
$30,380.00 per month for one year (12 Payments) beginning April 1, 1998
$33,048.98 per month for one years (12 Payments) beginning April 1, 1999
$36,017.01 per month for one years (12 Payments) beginning April 1, 2000
$38,763.00 per month for seventeen years (204 Payments) beginning April 1, 2001
Payments include the Paying Agent fee of $921.25 per month.
Series 1998-II ($3,470,000)
$27,638.32 per month for one year (12 Payments) beginning May 1, 1998
$30,838.24 per month for one year (12 Payments) beginning May 1, 1999
$34,046.78 per month for one year (12 Payments) beginning May 1, 2000
$37,248.31 per month for four and one half years (54 Payments)
beginning May 1, 2001
with a final balloon payment of $2,800,000 due on October 31, 2005
Payments include the Paying Agent fee of $867.50.
Series 1998-III ($1,845,000)
$14,965.56 per month for one year (12 Payments) beginning May 1, 1998
$16,735.15 per month for one year (12 Payments) beginning May 1, 1999
$18,504.75 per month for one year (12 Payments) beginning May 1, 2000
$20,274.34 per month for two years (48 Payments) beginning May 1, 2001
with a final balloon payment of $1,630,000 due on April 30, 2003
Payments include the Paying Agent fee of $461.25.
The Trustee must first draw, from the Operating Fund Accounts, the charges
due for paying agency and trustee services. Thereafter, the amounts in the
Operating Fund Accounts shall be used solely for the payment of interest
coming due or principal coming payable on the Bonds or for the redemption of
Bonds; provided however, that the Trustee may in the event the Company fails
to maintain or insure its properties, apply such funds as may be available in
the Operating Fund Accounts to perform the Company's obligations. The Company
is obligated to immediately replenish such funds so applied.
Initial Operating Fund Payments
Initial operating fund payments in the amounts of $200,000, $185,000 and
$100,000 will be funded from the proceeds of the sale of the Series 1998-I,
II and III Bonds, respectively, and will be used only to make the initial
payments on the respective series of Bonds. These initial operating fund
payment amounts are equivalent to slightly more than the first six month
operating fund payments for the three series of Bonds assuming all of the
Bonds are sold. After the initial operating fund payment amounts have been
expended, the remaining operating fund payments will be payable primarily
from the first revenues of the Facilities. If the Company is unable to make
the required operating fund payments to pay the principal and interest due
on the Bonds, then an event of default will occur. See "Description of
Bonds - Events of Default" and "Description of Bonds - Remedies of
Default."
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Bond Reserve Account
The Company has agreed to establish a Bond Reserve Account which will be
funded by each of the three series of bonds as follows: $250,000 from the
Series 1998-I Bonds, $240,000 from the Series 1998-II Bonds and $130,000 from
the Series 1998-III Bonds. If all the Bonds are sold, the Bond Reserve
Account will be funded in the amount of $620,000. The purpose of the Bond
Reserve Account is that in the event the Company has not deposited the
necessary funds to pay the principal and interest due on any semiannual
payment date of any series of Bonds, the Trustee may apply available funds to
the principal and interest due on the Bonds. In the event that the Trustee
uses funds from the Bond Reserve Account to pay the principal and interest on
the Bonds due at a particular paydate, then the Company shall pay to the
Trustee, within one hundred eighty (180) days from the date of such paydate,
an amount necessary to replenish the Bond Reserve Account. Failure to
replenish the Bond Reserve Account within one hundred eighty (180) day period
shall be an event of default and shall entitle the Trustee to continue
to hold the Bond Reserve Account, in addition to its other remedies. The
Bond Reserve Account will remain in place for a period of ten years from
April 1, 1998. At the end of the ten year period, any funds remaining in the
Bond Reserve Account must first be used to call any outstanding Bonds,
provided the Company is current on all operating fund payments. If all of
the Bonds have been retired prior to the end of the ten year period, then the
Bond Reserve Account will be released to the Company.
Escrow And Disbursement Of Bond Proceeds
All proceeds from the sale of the Bonds shall be payable to and deposited
with Colonial Trust Company of Phoenix, Arizona ("Escrow Agent" and
"Registrar") pursuant to an Escrow Agreement entered into between the Company
and the Escrow Agent. Pursuant to the terms of the Escrow Agreement, all
proceeds from the sale of the Bonds will be deposited with the Escrow Agent,
subject to the sale of minimum funds for any series of Bonds. The minimum
offering amounts for the Series 1998-I Bonds, Series 1998-II Bonds and Series
1998-III Bonds are $600,000, $600,000 and $300,000, respectively. No fees
still due the Underwriter related to the sale of a particular series of Bonds
shall be paid out of the escrow account until the minimum escrow amount for
that particular series of Bonds has been met. The funds shall be used only
for the purposes set forth under "Sources and Uses of Proceeds." During the
escrow period, the subscriber will not have access to funds held in the Escrow
Account.
If $600,000 has not been deposited in the escrow account from the sale of
the Series 1998-I Bonds by October 1, 1998, the subscribers to the Series
1998-I Bonds will receive the return of their subscription amount plus
interest. In the event that the minimum offering amount for the Series 1998-I
Bonds is not met by October 1, 1998, the Company shall promptly pay to
the Escrow Agent such sum of money as shall be necessary, if any, when added
to the amount of the Escrow Property and interest earned thereon to pay to
the subscribers of the Bonds the principal amount of such subscriptions
together with the interest from April 1, 1998 through October 1, 1998 at the
rate attributable to the Series 1998-I Bonds subscribed. If $600,000 has not
been deposited in the escrow account from the sale of the Series 1998-II Bonds
by November 1, 1998, the subscribers to the Series 1998-II Bonds will receive
the return of their subscription amount plus interest. In the event that
the minimum offering amount for the Series 1998-II Bonds is not met by
November 1, 1998, the Company shall promptly pay to the Escrow Agent such sum
of money as shall be necessary, if any, when added to the amount of the
Escrow Property and interest earned thereon to pay to the subscribers of the
Bonds the principal amount of such subscriptions together with the interest
from May 1, 1998 through November 1, 1998 at the rate attributable to the
Series 1998-II Bonds subscribed.
If $300,000 has not been deposited in the escrow account from the sale of
the Series 1998-III Bonds by November 1, 1998, the subscribers to the Series
1998-III Bonds will receive the return of their subscription amount plus
interest. In the event that the minimum offering amount for the Series
1998-III Bonds is not met by November 1, 1998, the Company shall promptly pay
to the Escrow Agent such sum of money as shall be necessary, if any, when
added to the amount of the Escrow Property and interest earned thereon to pay
to the subscribers of the Bonds the principal amount of such subscriptions
together with the interest from May 1, 1998 through November 1, 1998 at the
rate attributable to the Series 1998-III Bonds subscribed.
Subject to the sale of the minimum offering amount for the Series 1998-I
Bonds, the Company and Trustee will use available funds from the sale of the
Series 1998-I Bonds in the following order: (1) to pay expenses of the
Underwriter, attorney, appraiser, recording fees, mortgage taxes, Trustee's
fees, Paying Agent fees and other similar fees incurred in connection with the
Series 1998-I Bonds; (2) to fund an amount approximately equivalent to the
first six month operating fund payments for the Series 1998-I Bonds; (3) to
retire the Construction Loan; (4) to fund the remaining construction costs on
the Ruston Project; (5) to fund pre-opening costs of the Ruston Project; (6)
to fund the Series 1998-I portion of the Bond
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Reserve Account. After the above has been accomplished, any remaining funds
in the Bond Proceeds Account related to the Series 1998-I Bonds will be
released to the Company. See "Sources and Uses of Proceeds".
Subject to the sale of the minimum offering amount for the Series 1998-II
Bonds, the Company and Trustee will use available funds from the sale of the
Series 1998-II Bonds in the following order: (1) to pay expenses of the
Underwriter, attorney, appraiser, recording fees, mortgage taxes, Trustee's
fees, Paying Agent fees and other similar fees incurred in connection with
the Series 1998-II Bonds; (2) to fund an amount approximately equivalent to
the first six month operating fund payments for the Series 1998-II Bonds; (3)
to fund construction costs of the Bossier City Project and/or to retire any
outstanding construction loans relating to the construction of the Bossier
City Project; (4) to fund pre-opening costs of the Bossier City Project; (5)
to fund the Series 1998-II portion of the Bond Reserve Account. After the
above has been accomplished, any remaining funds in the Bond Proceeds Account
related to the Series 1998-II Bonds will be released to the Company. See
"Sources and Uses of Proceeds".
Subject to the sale of the minimum offering amount for the Series 1998-III
Bonds, the Company and Trustee will use available funds from the sale of the
Series 1998-III Bonds in the following order: (1) to pay expenses of the
Underwriter, attorney, appraiser, recording fees, mortgage taxes, Trustee's
fees, Paying Agent fees and other similar fees incurred in connection with
the Series 1998-III Bonds; (2) to fund an amount approximately equivalent to
the first six month operating fund payments for the Series 1998-III Bonds;
(3) to fund construction costs of the Shreveport Project and/or to retire any
outstanding construction loans relating to the construction of the Shreveport
Project; (4) to fund pre-opening costs of the Shreveport Project; (5) to fund
the Series 1998-III portion of the Bond Reserve Account. After the above has
been accomplished, any remaining funds in the Bond Proceeds Account related to
the Series 1998-III Bonds will be released to the Company. See "Sources and
Uses of Proceeds".
Escrow Agent
The Company has appointed Colonial Trust Company of Phoenix, Arizona, as
Escrow Agent. The duties and responsibilities of the Escrow Agent are set
forth in the Escrow Agreement between the Company and the Escrow Agent, the
provisions of which are summarized under "Description of Bonds - Escrow And
Disbursement Of Bond Proceeds."
Trustee
Colonial Trust Company of Phoenix, Arizona, has agreed to serve as Trustee
for the Bonds pursuant to the Trust Indenture entered into between the Company
and the Trustee. The Trustee has also agreed to serve as Paying Agent,
Registrar, Disbursing Agent and Escrow Agent. The Trustee is not a
guarantor or surety, does not in any way guarantee or act as surety for
payment of the Bonds and may not be held liable under any conditions, except
for its own negligence.
The Underwriter and Trustee are separate corporations, organized under the
laws of the states of Kansas and Arizona respectively. The Trustee and
Underwriter share no common officer or directors. The Underwriter will
however receive a fee not to exceed $100,000 to be paid in installments over
the terms of the Bond Issues from the Trustee for its technical assistance
pertaining to the Bond Issues. This assistance normally includes, but is not
limited to, (1) helping ensure that all legal documents are recorded; (2)
making sure that proper documentation is forwarded to the Trustee, including
such documents as the Articles of Organization, appraisal, financial
statements and annual reports; (3) due diligence documentation of the
progress of the project and bond sales; and (4) follow-up with the Company in
the event of delinquent payments. This assistance offered by the Underwriter
presents a conflict of interest, in that the Underwriter has underwritten
other offerings for affiliates of the Company, and therefore may not want to
alienate the Company (and possibly lose future business) by aggressively
pursuing delinquent payments that are due to investors. Dependence by the
Trustee on the Underwriter to provide certain information to the Trustee
restricts the Trustee's ability to function independently as a Trustee.
This assistance offered by the Underwriter, for which it is compensated by
the Trustee, does in no way relieve the Trustee of its duties.
Registrar
The Bonds are being issued as fully registered Bonds in book entry form
(unless the purchaser requests a printed bond certificate). The Trustee is
also acting as Registrar and Transfer Agent for the Bonds. As Bond Registrar,
the Trustee will receive and record all proceeds from the sale of the Bonds,
maintain a permanent bond register, authenticate and mail all Bonds to their
registered holders that have requested a printed Bond, cancel and reissue
Bonds which are transferred by the original holders, and replace lost, stolen
and mutilated bond certificates. All Bonds will be registered in the owner's
name. Upon registration, a bond confirmation certificate or, if the purchaser
requests, a printed Bond will be mailed directly to it's owner.
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Paying Agent
The Company has also appointed the Trustee to act as Paying Agent for the
Bonds. As paying agent the Trustee will receive and hold all payments
remitted by the Company into the Operating Fund Accounts and will disburse
therefrom all payments of principal or interest on the Bonds, Trustees fees
and such other sums as provided in the Trust Indenture. The Paying Agent
holds the funds in trust, commingled with similar operating funds of other
companies, but must maintain detailed records to reflect the balances
attributable to each Company. The Paying Agent may invest the funds in any
form of account or deposit insured by depository insurance or in interest
bearing obligations issued by the United States Government or any
political subdivision thereof, or any funds comprised of the same.
As Paying Agent, the Trustee is required to furnish periodic statements to
the Company and to the Underwriter reflecting all receipts and disbursements
from the Operating Fund Accounts.
UNDERWRITING
Underwriting Agreement
Subject to the terms and conditions of the Underwriting Agreement (the
"Underwriting Agreement"), a copy of which is filed as an exhibit to the
Registration Statement of which this Prospectus is a part, between the
Company and MMR Investment Bankers, Inc. (the "Underwriter"), the Company
has retained the services of the Underwriter to offer and sell the Bonds
offered hereby on a "best efforts" basis at the public offering price of
$250 per Bond or integral multiples thereof. The Bonds will be issued in
three series, as identified herein, and each series is subject to the sale of
a minimum offering amount as indicated under "Description of Bonds - Escrow
and Disbursement of Bond Proceeds". All proceeds from the sale of the
Bonds will be transmitted promptly to an escrow account with Colonial Trust
Company as Escrow Agent. In the event minimum funds for any series of Bonds
is not received within the time set forth herein, the Company will promptly
pay to the Escrow Agent such sum of money as will be necessary, if any, when
added to the sums held in escrow, including interest earned thereon,
to pay to the subscribers the principal amount of their subscription together
with the interest form the date of issue through the escrow termination date
at the rate attributable to the Bonds subscribed to by the subscriber. The
Company expects that the Bonds will be delivered in book-entry form, subject
to the sale of minimum funds for each series of Bonds, through the facilities
of the Trustee within thirty (30) days from the date subscriptions for the
Bonds are received.
Contingent upon the sale of the minimum principal amount of a series of
the Bonds, the Company will pay the Underwriter a concession as follows: (1)
the Underwriter will receive 7.0% of the face amount of each Bond sold by
another NASD member firm through a selling group agreement with the
Underwriter; (2) the Underwriter will receive a concession of 5.0% of the
face amount of each bond sold by the Underwriter to clients of the
Underwriter; or (3) the Underwriter will receive a processing fee of 1.0% of
the face amount of each Bond sold to a purchaser referred to the Underwriter
by the Company, provided such investors are not currently a client of the
Underwriter. The Underwriter will also receive a fee not to exceed $100,000
to be paid in installments over the term of the Bond Issues from the Trustee
for services rendered to the Trustee including the review of the financial
and operating condition of the Company on a continuing basis. In addition,
the Company has paid to the Underwriter $117,000 as a non-refundable and
non-accountable expense allowance. The Company has agreed to pay all
expenses in connection with qualifying the Bonds for sale under such
jurisdictions as the Underwriter may designate. The Underwriting Agreement
provides for reciprocal agreements of indemnity between the Company and the
Underwriter as to certain civil liabilities, including liabilities under the
Securities Act of 1933, as amended.
The sale of the Bonds will be for a period of one year from the date of
this Prospectus. All offerings are subject to prior sale. The Underwriter
has the first right of refusal on any other financing needs of the Company
involving the Facilities for the next three years following the offering.
Additionally, the Underwriter has advised the Company that it does not intend
to make a market in the Bonds.
Pursuant to terms of the Underwriting Agreement, the Company may not
contact any person listed in the records of the Underwriter as a customer of
the Underwriter for any reason whatsoever without obtaining the prior written
consent of the Underwriter. However, this provision is not to be construed
to prohibit the Company from providing any reports or notifications to
bondholders that may be mandated by any federal or state laws or regulations.
Each person who wishes to purchase a Bond must execute a subscription
agreement covering the Bond(s) being purchased. Checks should be made payable
to Colonial Trust Company as Escrow Agent and Registrar. Completion of the
subscription agreement, including proper signature thereon is essential prior
to any sale of the Bonds to potential investors.
30
<PAGE>
However, the Company and Underwriter reserve the right to reject any
subscription for any reason whatsoever, in which event all monies will then
be refunded to the prospective investor without interest, deduction or credit
thereon.
Determination of Offering Price
Prior to this Offering, there has been no public market for the Bonds of
the Company. Consequently, the initial public offering price for the Bonds
has been determined arbitrarily between the Company and the Underwriter.
Experience of the Underwriter
The Underwriter has not acted as a principal underwriter of debt
securities such as the Bonds offered hereby. During the last twelve years,
the Underwriter's experience has primarily been in the underwriting of
nonprofit debt securities, intrastate debt offerings and debt offerings
offered pursuant to Regulation A of the Securities Act of 1933, as amended,
as an exemption from the registration requirements under the Act..
Possible Withdrawal of Underwriter
In June 1997, the Securities Commissioner of the State of Kansas filed a
Petition in the District Court of Shawnee County, Kansas, Case No. 97-CU-755,
styled State of Kansas, ex. rel. David R. Brant, Securities Commission of the
State of Kansas v. William Gerald Martin, Thomas Gene Trimble, and MMR
Investment Bankers, Inc. This case stems from the Underwriter's participation
in a series of church bond offerings of a single church located in Wichita,
Kansas. The Securities Commissioner of Kansas seeks a permanent injunction
restraining and enjoining each of the defendants from directly or indirectly
employing any device, scheme, or artifice to defraud; engaging in an act,
practice or course of business which would operate as a fraud or deceit upon
any person; and/or making any untrue statements of material fact and/or
omitting to state material facts necessary in order to make other statements
made not misleading, and, seeking restitution jointly and/or severely from
each of the defendants in the amount of $4,825,665.24, which is the amount in
default on the last two issues of church bonds issued on behalf of the church.
It is likely that during the offering of the Bonds, that this matter may be
adjudicated, settled, or otherwise, and the authority of the Underwriter to
engage in the securities business may be suspended, revoked or limited.
Currently, this litigation is in its discovery stage, and the Underwriter has
determined to vigorously defend the case. However, in the event the
Underwriter is unable to continue its business as a broker dealer of
securities, it will have to withdraw from its participation in this offering
and, in all likelihood, the offering will be terminated unless and until the
Company is successful in finding another Underwriter willing to participate
in the sale of the Bonds.
LEGAL MATTERS
The Company's counsel, Bobby L. Culpepper, Esq., of Jonesboro, Louisiana,
has opined upon certain legal matters pertaining to the Bonds. Certain legal
matters have been passed upon for the Underwriter by Michael G. Quinn, Esq.,
Wichita, Kansas.
To the best knowledge of the Company, there are no pending legal
proceedings nor any known to be threatened or contemplated to which the
Company is a party or to which any of its property may be subject.
EXPERTS
The following experts have consented to their names and to references to
their reports appearing in this Prospectus: Robert M. McSherry, MAI, of
Baton Rouge, Louisiana, has provided an appraisal of the Facilities. The
financial statements dated November 30, 1997 have been audited by William R.
Hulsey, CPA, of Monroe, Louisiana.
(This space is intentionally left blank)
31
<PAGE>
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission"), Washington, D.C. 20549, a Registration Statement (which term
shall include all amendments, exhibits and schedules thereto) on Form SB-2
under the Securities Act with respect to the Bonds offered hereby. This
Prospectus, which constitutes a part of the Registration Statement, omits
certain of the information contained in the Registration Statement and the
exhibits and financial schedules thereto. Reference is hereby made to the
Registration Statement and related exhibits and schedules for further
information with respect to the Company and the Bonds offered hereby. Any
statements contained herein concerning the provisions of any document
are not necessarily complete, and in each such instance reference is made to
the copy of such document filed as an exhibit to the Registration Statement.
Each such statement is qualified in its entirety by such reference. For
further information with respect to the Company and the Bonds, reference is
made to the Registration Statement and such exhibits and schedules, copies
of which may be examined or copied at the Public Reference Section of the
Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549,
and at the regional offices of the Commission located at 7 World Trade Center,
Suite 1300, New York New York 10048 and at CitiCorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661-2511.
(This space is intentionally left blank)
32
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Page
Auditor's Report . . . . . . . . . . . . . . . . . . . . . . . . . . . F-2
Balance Sheet at November 30, 1997 . . . . . . . . . . . . . . . . . . F-3
Statement of Income from September 10, 1997 until
November 30, 1997. . . . . . . . . . . . . . . . . . . . . . . . . . F-4
Statement of Retained Earnings (Deficit) from
September 10, 1997 until November 30, 1997 . . . . . . . . . . . . . F-5
Statement of Cash Flows from September 10, 1997
until November 30, 1997. . . . . . . . . . . . . . . . . . . . . . . F-6
Notes to Financial Statements. . . . . . . . . . . . . . . . . . . . . F-8
(This space is intentionally left blank)
F-1
<PAGE>
WILLLIAM R. HULSEY
CERTIFIED PUBIIC ACCOUNTANT
2117 FORSYTHE AVENUE
MONROE, LOUISIANA
MEMBER MAILING ADDRESS
AMERICAN INSTITUTE OF P. 0. BOX 2253
CERTIFIED PUBLIC ACCOUNTANTS MONROE, LOUISIANA 71207
SOCIETY OF LOUISIANA (318) 362-9900
CERTIFIED PUBLIC ACCOUNTANTS FAX (318) 362-9993
Senior Retirement Communities, Inc.
507 Trenton Street
West Monroe, Louisiana
I have audited the accompanying balance sheet of Senior Retirement
Communities, Inc. as November 30, 1997 and the related statements of income,
retained earnings and cash flows for the period then ended. These financial
statements are the responsibility of the Company's management. My
responsibility is to express an opinion on these financial statements based
on my audit.
I conducted my audit in accordance with generally accepted auditing
standards. Those standards require that I plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. I believe that my audit provides a
reasonable basis for my opinion.
In my opinion, the financial statements referred to above present fairly in
all material respects, the financial position of Senior Retirement
Communities, Inc. at November 30, 1997 and the results of its operations and
its cash flows for the period then ended in conformity with generally
accepted accounting principles.
December 19, 1997
/S/WILLIAM R HULSEY
William R. Hulsey
Certified Public Accountant
F-2
<PAGE>
Senior Retirement Communities, Inc. -2-
(A Development Stage Company)
Balance Sheet
November 30, 1997
ASSETS
Current assets:
Cash $ 11,304
------------
Property, plant and equipment
Building construction in progress 412,457
Land 900,000
------------
Total property, plant and equipment 1,312,457
------------
Other assets:
Deposits 2,000
Deferred charges 120,000
------------
Total other assets 122,000
------------
$ 1,445,761
------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Other liabilities:
Due to stockholders and affiliates $ 232,500
------------
Deferred taxes 103,350
------------
Stockholders' Equity
Common stock, $ 2 par value, 1,500,000
shares authorized, 606,910 shares issued
and outstanding 1,213,820
Retained earnings ( deficit ) accumulated
during the development stage (103,909)
------------
$ 1,109,911
------------
$ 1,445,761
------------
The notes to financial statements are an integral
part of this financial statement.
F-3
<PAGE>
Senior Retirement Communities, Inc. -3-
(A Development Stage Company)
Statement of Income
Period from September 10, 1997 until November 30, 1997
Revenues $ 0
------------
Operating expenses
Bank charges 69
Casual labor 380
Printing 110
------------
Total operating expenses 559
------------
Net income (loss) before taxes (559)
Income taxes
Deferrred taxes 103,350
Net income (loss) $ (103,909)
------------
The notes to financial statements are an integral
part of this financial statement.
F-4
<PAGE>
Senior Retirement Communities, Inc. -4-
( A Development Stage Company )
Statement of Retained Earnings ( Deficit )
Period from September 10, 1997 until November 30, 1997
Beginning retained earnings $ 0
Net loss (103,909)
------------
Ending retained earnings ( deficit ) $ (103,909)
------------
The notes to financial statements are an integral
part of this financial statement.
F-5
<PAGE>
Senior Retirement Communities, Inc. -5-
(A Development Stage Company)
Statement of Cash Flows
Period from September 10, 1997 until November 30, 1997
Cash flows from operating activities:
Cash paid to suppliers and employees $ (559)
------------
Net cash provided (used) by operations (559)
------------
Cash flows from investing activities
Purchases of land (900,000)
Payments towards construction in progress (412,457)
Payments of deposits (2,000)
Payment of deferred charges (120,000)
------------
Net cash provided by (applied to) investing (1,434,457)
------------
Cash flows from financing activities
Issuance of common stock 1,213,820
Loans from stockholders and affiliates 232,500
------------
Net cash provided by (applied to) financing 1,446,320
------------
Net increase (decrease) in cash 11,304
Cash at the beginning of the period 0
------------
Cash at the end of the period $ 11,304
------------
The notes to financial statements are an integral
part of this financial statement.
F-6
<PAGE>
Senior Retirement Communities, Inc. -6-
(A Development Stage Company)
Statement of Cash Flows
Period from September 10, 1997 until November 30, 1997
Reconciliation of net income to net cash provided by operations:
Net income $ (103,909)
Adjustments to reconcile net income to cash
provided by operations
Deferred taxes 103,350
------------
Net cash provided (used) by operations $ (559)
------------
The notes to financial statements are an integral
part of this financial statement.
F-7
<PAGE>
Senior Retirement Communities, Inc. -7-
(A Development Stage Company)
Notes to Financial Statements
Note 1 - Summary of Significant Accounting Policies
Nature of Business
The Company is a Louisiana corporation established to develop assisted
living center and dementia facilities for the housing and care of senior
citizens in Ruston, Bossier City, Shreveport, Minden and West Monroe,
Louisiana.
Basis of Accounting
The Company uses the accrual basis of accounting.
Income Taxes
The company is treated as a corporation for federal income tax purposes.
Property, Buildings, Equipment and Depreciation
Buildings and equipment are stated at cost and are to be depreciated by
the straight-line method over their estimated economic lives. Buildings
shall include capitalized construction period interest which will be
treated as a component cost of the building and depreciated over the
same economic life as the building. Land was acquired in a a series of
tax free exchange in return for shares of the Company's common stock
( Note 4 ). Consequently, the Company's tax basis in the property for
income tax purposes is the stockholder's basis, increased by the amount
of gain recognized by the stockholder in the exchange.
Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect certain reported amounts and disclosures.
Accordingly, actual results could differ from those estimates.
Advertising
The Company follows the policy of charging the costs of advertising to
expense as incurred.
F-8
<PAGE>
Senior Retirement Communities, Inc. -8-
(A Development Stage Company)
Notes to Financial Statements
Note 1 - Summary of Significant Accounting Policies-(continued)
Deferred Charges
Deferred charges represents the costs associated with obtaining
long-term financing for the care facilities of the Company. These
costs are to amortized over the life of the bonds using the effective
interest rate method.
Note 2 - Related Party Transactions
The company acquired 6 acres of land at the Ruston location with an
estimated fair market value of $ 450,000 in a transaction with one of
its stockholders in exchange for 125,000 shares of common stock and by
assuming a debt of $ 200,000, which is reflected as a due to
stockholders and affiliates. This transaction would have resulted in a
gain to the transferring shareholder of approximately $ 95,000 had it
not been a tax free exchange.
The company acquired 20 acres of land at the Ruston location with an
estimated fair market value of $ 250,000 in a transaction with one of
its stockholders in exchange for 125,000 shares of common stock. This
transaction would have resulted in a gain to the transferring
shareholder of approximately $ 170,000 had it not been a tax free
exchange.
The company acquired land at the West Monroe location with an estimated
fair market value of $ 200,000 in a transaction with one of its
stockholders in exchange for 100,000 shares of common stock. This
transaction would have resulted no gain to the transferring shareholder
had it not been a tax free exchange.
The Company has entered into a construction contract in the amount of
$2,750,000 with one of the shareholders to construct the Ruston facility.
The contract calls for the cash payments of $ 2,500,000 during the
building of the facility as approved by the contract engineer and the
issuance of an additional 125,000 shares of common stock at the
completion of the project, such stock issuance to represent the builders
profit in the project.
Due to stockholders and affiliates consist of amounts funded by The
Arbor Group, L. L. C. relative to the purchase of land which was
transferred to the Company as part of a stock issue as described above.
The Arbor Group L. L. C. is owned by shareholders of the Company in
approximately the same percentages
F-9
<PAGE>
Senior Retirement Communities, Inc. -9-
(A Development Stage Company)
Notes to Financial Statements
Note 2 - Related Party Transactions-(continued)
of ownership. This amount was paid on December 1, 1997 from the
proceeds of an interim construction loan which was implemented to fund
the construction of the Ruston facility.
Note 3 - Deferred Charges
Deferred charges are summarized as follows:
Loan fees $ 120,000
The loan fees are to be amortized as interest expense over the life of
the related loan by use of the interest method.
Note 4 - Issuances of Common Stock
The Company was formed September 10, 1997. The Company has issued
common stock totalling 606,910 shares of $ 2.00 par value in exchange
for property and cash as follows:
Description Shares Amount
1. Certificate number 1 issued in 20,417 $ 40,834
exchange for cash
2. Certificate number 2 issued in 85,896 171,792
exchange for services rendered
in connection with developing the
plans for construction for the Ruston
location and a deposit on the plans
for the Bossier City, Shreveport,
Minden, and West Monroe locations
3. Certificate number 3 issued in 20,417 40,834
exchange for cash
4. Certificate number 4 issued in 125,000 250,000
exchange for the equity in 20.4
acres of land at the Ruston location.
5. Certificate number 5 issued in 125,000 250,000
exchange for 6 acres of land at
the Ruston location.
F-10
<PAGE>
Senior Retirement Communities, Inc. -10-
(A Development Stage Company)
Notes to Financial Statements
Note 4 -Issuances of Common Stock-(continued)
6. Certificate number 6 issued in 57,264 114,528
exchange for services rendered
in connection with developing the
plans for construction for the Ruston
Location and a deposit on the plans
for the Bossier City, Shreveport,
Minden, and West Monroe locations
7. Certificate number 7 issued in 20,416 40,832
exchange for cash
8. Certificate number 8 issued in 100,000 200,000
exchange for land at the West
Monroe location.
9. Certificate number 9 issued in 52,500 105,000
exchange for cash -------- ---------
Totals 606,910 $1,213,820
======== =========
The Company has also reserved 252,440 shares of Common Stock to be
issued at the completion of the services described above relative to
certificates 2 and 6.
Note 5 - Development Stage Operations
The Company has begun construction of the Ruston facility which has an
estimated completion date of late 1998. The expenditures related to
this project are reflected as building construction in progress on the
balance sheet.
Note 6 - Income Taxes
As discussed in notes 2 and 4, the Company was incorporated and
capitalized during the period from September 10, 1997 to November 30,
1997. The deferred tax liability related to temporary differences at
the time of the issuances of the stock in the tax free exchanges and
was established through a charge of $ 103,350 to the income tax
provision for the period.
F-11
<PAGE>
(This page is intentionally left blank)
<PAGE>
No person has been authorized in connection with the Offering made hereby
to give any information or to make any representation not contained in this
Prospectus and, if given or made, such information or representation must not
be relied upon as having been authorized by the Company or any Underwriter.
This Prospectus does not constitute an offer to sell or a solicitation of any
offer to buy any of the securities offered hereby to any person or by anyone
in any jurisdiction in which it is unlawful to make such offer or
solicitation. Neither the delivery of this Prospectus nor any sale made
hereunder shall, under any circumstances, create any implication that the
information contained herein is correct as of any date subsequent to the date
hereof.
TABLE OF CONTENTS
Maturity Schedules . . . . . . . . . . . . . . . . . . . 3
Prospectus Summary . . . . . . . . . . . . . . . . . . . 4
Risk Factors . . . . . . . . . . . . . . . . . . . . . . 7
Use of Proceeds. . . . . . . . . . . . . . . . . . . . . 12
Business . . . . . . . . . . . . . . . . . . . . . . . . 13
Description of Property. . . . . . . . . . . . . . . . . 16
Management . . . . . . . . . . . . . . . . . . . . . . . 19
Principal Owners of the Company. . . . . . . . . . . . . 20
The Company's Plan of Operation. . . . . . . . . . . . . 21
Prior Performance of Affiliates of the Company . . . . . 22
Certain Transactions . . . . . . . . . . . . . . . . . . 22
Description of Bonds . . . . . . . . . . . . . . . . . . 23
Underwriting . . . . . . . . . . . . . . . . . . . . . . 30
Legal Matters. . . . . . . . . . . . . . . . . . . . . . 31
Experts. . . . . . . . . . . . . . . . . . . . . . . . . 31
Additional Information . . . . . . . . . . . . . . . . . 32
Index to Financial Statements. . . . . . . . . . . . . . F-1
Until _____________, 1998 (90 days after the date of this Prospectus),
all dealers effecting transactions in the Bonds offered hereby, whether or
not participating in this distribution, may be required to deliver a
Prospectus. This is in addition to the obligation of dealers to deliver a
Prospectus when acting as Underwriters and with respect to their unsold
allotments or subscriptions.
$9,000,000
First Mortgage Bonds
[SRC LOGO HERE]
SENIOR RETIREMENT
COMMUNITIES, INC.
(d/b/a the Arbor Retirement Community)
----------
PROSPECTUS
----------
MMR INVESTMENT BANKERS, INC.
[MMR LOGO HERE] [SIPC LOGO HERE]
________________, 1998
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers
The Louisiana General Corporation Code (La. R. S. 12:24C (1968), as
amended 1987) confers broad powers upon corporations incorporated in Louisiana
with respect to indemnification of any person against liabilities incurred 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 reequest of the
corporation as a director, officer, employee or agent of another corporation
or other business entity. These provisions are not exclusive of any other
rights to which those seeking indemnification may be entitled under any
by-law, agreement, or otherwise.
The Articles of Incorporation of the Company contain a provision regarding
the limits of liability of incorporators, offcer and directors of the Company
to the fullest extent allowed by law.
The Underwriting Agreement, filed as Exhibit 1(a) to this Registration
Statement, provides for the indemnification by the Company of the Underwriter
and each person, if any, who controls the Underwriter against certain
liabilities and expenses, as stated therein, which may include liabilities
under the Securities Act of 1933, as amended. The Underwriting Agreement
also provides that the Underwriter similarly indemnify the Company, it
directors, officers and controlling persons, as set forth therein.
Item 25. Other Expenses of Issuance and Distribution
The following is a list of the estimated expenses in connection with the
issuance and distribution of securities being registered, other than
underwriting discounts and commissions, all of which is to be paid by the
Registrant:
SEC Registration Fee. . . . . . . . . . . . . . . . . . $2,727.27
NASD Registration Fee . . . . . . . . . . . . . . . . . $1,400.00
Blue Sky Qualification Fees and Expenses. . . . . . . . . . . . *
CUSIP Registration Fees . . . . . . . . . . . . . . . . . . . . *
Legal Fees and Expenses . . . . . . . . . . . . . . . . . . . . *
Accounting Fees and Expenses. . . . . . . . . . . . . . . . . . *
Transfer Agent, Escrow Agent, Paying Agent,
Registrar & Trustee Fees. . . . . . . . . . . . . . . . . . . *
Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . *
-
Total. . . . . . . . . . . . . . . . . . . . . . . . . $*
* To be filed by amendment.
Item 26. Recent Sale of Unregistered Securities
The following table sets forth the Company's sales of unregistered
securities in the last three years. No underwriters were involved in any of
such sales nor were any commissions or similar fees paid by the Registrant
with respect thereto. The Company claims exemption from registration for
these issuances under Section 4(2) of the Securities Act of 1933, as amended.
II-1
<PAGE>
<TABLE>
<CAPTION>
Date of Title of Identity of
Sale Securities Amount Sold Purchaser Consideration
<S> <C> <C> <C> <C>
09/10/97 Common Stock 20,417 Shares Joanne $40,834 in cash
Caldwell-Bayles
09/10/97 Common Stock 85,896 Shares Joanne Issued in exchange
Caldwell-Bayles for services
rendered in
connection with
developing the plans
for construction for
the Ruston Project
and a deposit on the
plans for the
Bossier City,
Shreveport, Minden
and West Monroe
locations
09/10/97 Common Stock 20,417 Shares The Forsythe Group $40,834 in cash
09/10/97 Common Stock 125,000 Shares The Forsythe Group Issued in exchange
for 20 acres of
land at the Ruston
location
09/10/97 Common Stock 125,000 Shares The Forsythe Group Issued in exchange
for 6 acres of land
at the Ruston
location
09/10/97 Common Stock 57,264 Shares Raymond & Jean
Nelson Issued in exchange
for services
rendered in
connection with
developing the plans
for construction
for the Ruston
Project and a
deposit
on the plans for the
Bossier City,
Shreveport, Minden
and West Monroe
locations
09/10/97 Common Stock 20,416 Shares The Arbor Group $40,832 in cash
09/10/97 Common Stock 100,000 Shares The Arbor Group Issued in exchange
for land at the
West Monroe location
09/10/97 Common Stock 52,500 Shares The Forsythe Group $105,000 in cash
</TABLE>
II-2
Item 27. Exhibits
The following exhibits are filed herewith:
Exhibit
Number Description
1(a) Form of Underwriting Agreement
1(b) Form of Selling Group Agreement
1(c) Form of Proceeds Escrow Agreement
3(a) Articles of Incorporation
3(b) Constitution and By-Laws
4(a) Specimen of Bond Certificate
4(b) Form of Trust Indenture
4(c) Lienholders Agreement
5(a) Opinion of Bobby L. Culpepper, Esq.
10(a) Construction Management Contract - Ruston Facility
10(b) Construction Management Contract - Bossier City Facility
10(c) Construction Management Contract - Shreveport Facility
10(d) Construction Loan Agreement
10(e) Management Agreement
23(a) Consent of William R. Hulsey, CPA
23(b) Consent of Bobby L. Culpepper, Esq.
23(c) Consent of Appraiser - Ruston
23(d) Consent of Appraiser - Bossier City
23(e) Consent of Appraiser - Shreveport
99(a) Appraisal - Ruston
99(b) Appraisal - Bossier City
99(c) Appraisal - Shreveport
99(e) Environmental Report - Ruston
99(f) Environmental Report - Bossier City
99(g) Environmental Report - Shreveport
Item 28. Undertakings
Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended (the "Act"), may be permitted to directors, officers
and controlling persons of the Registrant pursuant to the foregoing
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 Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other
than the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant 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
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
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.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4)
or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
II-3
<PAGE>
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
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 initial bona fide offering thereof.
(3) It will file, during any period in which it offers or sells
securities, a post-effective amendment to this registration statement to:
(i) Include any prospectus required by section 10(a)(3) of the Act;
(ii) Reflect in the prospectus any facts or events which, individually or
together, represent a fundamental change in the information in the
registration statement;
(iii) Include any additional or changed material information on the plan of
distribution.
(4) File a post-effective amendment to remove from registration any of
the securities that remain unsold at the end of the offering.
II-4
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant, Senior Retirement Communities, Inc., certifies that it has
reasonable grounds to believe that it meets all of the requirements of filing
on Form SB-2 and authorized this Registration Statement to be signed on its
behalf by the undersigned, in the City of West Monroe, State of Louisiana, on
this 30th day of January , 1998.
_______ __________________
Senior Retirement Communities, Inc.
By: /S/ JOANNE M CALDWELL-BAYLES
___________________________________
Joanne. M. Caldwell-Bayles
Chief Executive Officer
In accordance with the requirement of the Securities Act of 1933, this
Registration Statement was signed by the following persons in the capacities
indicated on January 30th , 1998.
________________
Signature Title
/S/JOANNE M CALDWELL-BAYLES
__________________________________ President, Chief Executive Officer,
Joanne M. Caldwell-Bayles Chief Financial Officer and Chairman of
the Board
/S/RAYMOND L NELSON
__________________________________ Vice-President and Director
Raymond L. Nelson
/S/JEAN GAFFNEY NELSON
__________________________________ Director
Jean Gaffney Nelson
UNDERWRITING AGREEMENT
between
SENIOR RETIREMENT COMMUNITIES (Issuer)
507 Trenton St.
West Monroe, LA 71291
and
MMR INVESTMENT BANKERS, INC. (Underwriter)
550 N. 159th East, Suite 300
P.O. Box 781440
Wichita, Kansas 67278-1440
(316) 733-5081
Toll Free 1-800-825-2663
INTRODUCTION
The Underwriter will provide professional and technical services in preparing
a bond issue for the Issuer.
AMOUNT
The Bond Issue shall be in the aggregate amount of $9,000,000.00 and shall be
designated as follows:
Series 1998-I (Ruston, LA) $3,685,000.00 First Mortgage
Series 1998-II (Bossier City, LA) $3,470,000.00 First Mortgage
Series 1998-III (Shreveport, LA) $1,845,000.00 First Mortgage
SECURITY
The addresses of the properties securing this Bond Issue are:
Series 1998-I 6 acres on the north side of U.S. Highway 80
approximately 1/4 mile east of the corporate limits of
Ruston, Lincoln Parrish, LA
Series 1998-II 6 acres on the south side of Brandon Avenue just east
of Industrial Drive within the corporate limits of
Bossier City, Bossier Parrish, LA
Series 1998-III Lot 4, Orleans Square Subdivision located on East Kings
Highway located on approximately 3 acres within the
corporate limits of Shreveport, Caddo Parrish, LA,
or such other location of equal value in the same area.
ISSUER'S RESPONSIBILITIES
The Issuer agrees to:
1. The Issuer shall complete the prospectus information forms, and
provide any other information requested by the Underwriter. An independent
audit performed by a Certified Public Accountant will be required.
2. Engage an attorney to prepare a legal debt letter, secure a title
insurance policy in the amount of the Bond Issue and to review the necessary
legal documents, including, but not limited to, the Resolution authorizing the
Bond Issue and the Trust Indenture. This work shall be completed in a manner
and within a time period satisfactory to the Underwriter. The Issuer shall
pay the attorney's fees.
3. Furnish to the Underwriter a certified copy of its Articles of
Incorporation, its Constitution and/or By-Laws, and any other forms required
by the Underwriter and the Securities Commission of its state or any other
state in which it wishes to sell the bonds.
4. Furnish an appraisal of its property and improvements to the
Underwriter. The Underwriter may require an MAI appraisal. The Issuer
agrees to pay all expenses of the appraisal.
5. Engage a paying agent, registrar, and independent trustee, selected
by the Underwriter. The Issuer agrees to pay any expenses pertaining to
these services.
6. Prior to the delivery of the bonds, execute the Trust Indenture and
cause it to be recorded in all places required by law and as may be
agreed upon by the Underwriter and the Issuer. The Issuer shall take such
steps as necessary to make the Indenture a valid obligation of the Issuer and
a lien on and security interest in the property owned by the Issuer and
included in the lien of the Indenture. The Issuer agrees that the Bonds will
be secured by a first mortgage on the property or in a co-first mortgage
position with the construction lender.
7. The Issuer shall pay the expenses of furnishing the title insurance,
the filing and recording fees, the Attorney's fees, the Appraiser's fees,
the Accountant's fees (if any), all Trustee's fees, any registration,
recording or mortgage taxes levied on bonds by either state or federal
government bodies and any registration and licensing fees required by any
regulatory body, any state or the federal government.
8. Furnish the Underwriter copies of the architectural and construction
contracts, final plans and specifications, and detail of all bids.
9. The Issuer shall pay all expenses related to all local Investment
Seminars.
10. The Issuer is responsible to begin making Sinking Fund Payments the
week of Issue Date.
11. The Issuer agrees to set up a Bond Reserve Account in an amount
equivalent to six months of Sinking Fund Payments of each Series of Bonds to
be controlled and used by the Trustee to pay principal and interest due on
the bonds, should the Issuer ever be in an event of default on the bond issue.
This Bond Reserve Account shall be in effect for a period of ten (10) years
from the date of issue, and at the end of the ten (10) years, the Bond
Reserve Account will be used to call bonds provided the Issuer is current on
all Sinking Fund payments. The Issuer will establish the Bond Reserve
Account from sale of the bonds. In addition, the first six months of the
Initial Operating Fund Payments will be funded from the initial proceeds from
the sale of the bonds.
12. The Issuer agrees that it shall not contact any person listed in the
records of the Underwriter as a Customer of the Underwriter for any reason
whatsoever. This provision shall not be construed to prohibit the Issuer
from providing any reports or notification to securities holders that may be
mandated by any federal or state laws or regulations.
UNDERWRITER'S RESPONSIBILITIES
The Underwriter agrees to:
1. Furnish the preliminary organizational material to the Issuer.
2. Set the interest rates and calculate the maturity schedule just
prior to filing the issue with the proper regulatory bodies.
3. Furnish a printed prospectus prepared from the information provided
by the Issuer.
4. Process all information sent to the Underwriter by the Issuer.
5. Make appropriate filings with all regulatory bodies on behalf of the
Issuer. The Issuer agrees to pay all costs of these filings.
6. Will offer and sell the Bonds on a "best efforts" basis at the
public offering price of $250 per Bond, or integral multiples thereof.
DEPOSIT OF PROCEEDS FROM BOND SALES
The Issuer agrees to deposit proceeds from the sale of the bonds pursuant to
the Trust Indenture. Any funds received by the Underwriter subject to the
terms of the Trust Indenture will be delivered to the bond proceeds account
no later than 12:00 noon the next business day following receipt. The
Underwriter shall instruct investors to make their checks payable to the
Registrar. If there is an escrow, then the Underwriter will instruct
investors to make their checks payable to the Escrow Agent.
FUTURE BOND ISSUES
In accordance with the Trust Indenture, additional bonds may be issued from
time to time on a par and equality basis with the same underlying security,
(plus improvements), provided the proceeds are used to enhance the existing
project, to make additional improvements, to purchase more land, or to
refinance indebtedness. The Underwriter shall have the first right of
refusal for any additional financing and/or refinancing for the Issuer
involving the Property that secures the Bonds for a period not to exceed
three years from date of issue.
FEES
The Issuer agrees to pay the Underwriter a non-accountable expense allowance
of 1.3% of the aggregate amount of the bond issue ($117,000.00).
The non-accountable expense allowance is due in the following manner:
$63,000.00 at the time of signing of the Underwriting Agreement.
The remaining balance of the non-accountable expense allowance ($54,000.00)
is due prior to filing the bond issue with the regulatory agencies.
In the event the issue is canceled prior to qualification with certain
regulatory agencies, the Underwriter shall be entitled to all of the
non-accountable expense allowance.
In addition to the non-accountable expense allowance, the Issuer agrees to
pay the Underwriter one of the following concessions:
Processing fee of 1% of the face amount of each bond sold to the
Constituents of the Issuer;
Concession of 5% of the face amount of each bond sold to clients of
the Broker;
Concession of 7% of the face amount of each bond sold through
certain selected members of the National Association of Securities Dealers,
Inc. through a Selling Group Agreement.
All bond sales are on a best efforts basis. The concession shall be deducted
from the sale price of each bond by the Registrar and forwarded to the
Underwriter.
The Custodian of the Bond Proceeds Account is authorized to pay MMR Investment
Bankers, Inc. any fees and/or brokerage concessions due them according to the
priority of disbursements as set forth in the Trust Indenture and Prospectus.
In the event the issue is canceled, the Underwriter shall be entitled to the
above fee to the extent of its costs, including due diligence and consulting
costs incurred by the Registered Representative, and costs paid on behalf of
the Issuer, upon submission to the Issuer of a listing of these costs.
SYNDICATION
The Underwriter may offer these bonds for sale to and through certain selected
members of the National Association of Securities Dealers, Inc.
INDEMNIFICATION
The Issuer will indemnify and hold harmless the Underwriter, its agents and
each person, if any, who controls the Underwriter within the meaning of the
Securities Act of 1933 (the "Act") against any losses, claims, damages or
liabilities, joint or several, to which they may become subject, under
the Act or otherwise, insofar as such losses, claims, damages or liabilities
(or actions in respect thereof) arise out of or are based upon any drawings,
pictures, opinions of counsel or appraisals furnished by the Issuer to the
Underwriter or caused by the failure or refusal of the Issuer to furnish such
information to the Underwriter, any untrue statement or alleged untrue
statement of any material fact contained in the Registration Statement, the
Prospectus, or any amendment or supplement thereto or any related preliminary
prospectus, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading; and will reimburse
the Underwriter and each such controlling person for any legal or other
expenses reasonably incurred by the Underwriter or such controlling person
in connection with investigating or defending any such loss, claim, damage,
liabilities or action; provided, however, that the Issuer will not be liable
in any such case to the extent that any such loss, claim, damage or liability
arises out of or is based upon an untrue statement or omission made in
any of such documents in reliance upon and in conformity with written
information furnished to the Issuer by the Underwriter specifically for use
therein; provided, however, that the indemnification contained in this
paragraph with respect to any preliminary prospectus shall not inure to the
benefit of the Underwriter (or of any person controlling the Underwriter) on
account of any such losses, claims, damages, liabilities or expenses
arising from the sale of the Bonds by the Underwriter to any person if a
copy of the Prospectus (as amended or supplemented if any amendments
or supplements thereto shall have been furnished to such Underwriter prior
to the written confirmation of the sales involved) shall not have been
given or sent to such person, if required by law, by or on behalf of the
Underwriter with or prior to the written confirmation of the sale involved,
and the untrue statement or omission of a material fact contained in such
preliminary prospectus was corrected in the Prospectus (as amended or
supplemented if amended or supplemented as aforesaid). This indemnity
agreement will be in addition to any liability which the Issuer may
otherwise have.
The Underwriter will indemnify and hold harmless the Issuer, each of its
directors, each of its officers who has signed the Registration Statement
and each person, if any, who controls the Issuer within the meaning of the
Act, against any losses, claims, damages or liabilities to which the Issuer
or any such director, officer or controlling person may become subject, under
the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon
any untrue statement or alleged untrue statement of any material fact
contained in the Registration Statement, the Prospectus or any amendment or
supplement thereto, or any related preliminary prospectus, or arise out of
or are based upon the omission or the alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, in each case to the extent, but only to the extent,
that such untrue statement or alleged untrue statement or omission or alleged
omission was made in reliance upon and in conformity with written information
furnished to the Issuer by the Underwriter specifically for use therein; and
will reimburse any legal or other expenses reasonably incurred by the Issuer
or any such director, officer or controlling person in connection with
investigating or defending any such loss, claim, damage, liability or action.
This indemnity agreement will be in addition to any liability with the
Underwriter may otherwise have.
Promptly after receipt by an indemnified party under this Section of notice
of the commencement of any action, such indemnified party will, if a claim in
respect thereof is to be made against the indemnifying party under this
Section, notify the indemnifying party of the commencement thereof, but
the omission so to notify the indemnifying party will not relieve it from any
liability which it may have to any indemnified party otherwise than under
this Section. In case any such action is brought against any indemnified
party, and it notifies the indemnifying party of the commencement thereof,
the indemnifying party will be entitled to participate therein and, to the
extent that it may wish, jointly with any other indemnifying party similarly
notified, to assume the defense thereof, the indemnifying party will not be
liable to such indemnified party under this Section for any legal or other
expenses subsequently incurred by such indemnified party in connection with
the defense thereof other than reasonable costs of investigation. The
indemnified party shall have the right to employ its counsel in any such
action, but the fees and expenses of such counsel shall be at the expense
of such indemnified party unless (i) the employment of the counsel by such
indemnified party has been authorized by the indemnifying party, (ii)
the indemnified party shall have reasonably concluded that there may be
conflict of interest between the indemnifying party and the indemnified
party in the conduct of the defense of such action (in which case the
indemnifying party shall not have the right to direct the defense of such
action on behalf of the indemnified party) or (iii) the indemnifying party
shall not in fact have employed counsel to assume the defense of such action, in
each of which cases the fees and expenses of such counsel shall be at the
expense of the indemnifying party. An indemnifying party shall not be
liable for any settlement of any action or claim effected without its consent.
TERMINATION
This agreement may be terminated by the Underwriter without liability to the
Underwriter if, prior to the time of delivery of any bonds any substantial
change in the financial position of the Issuer or in the existing operating,
political, international, economic or market conditions shall have taken
place, which in the judgment of the Underwriter makes it impractical to
market the bonds. The Underwriter may also terminate this agreement if
the Issuer becomes one month delinquent in any Sinking Fund Payment, or
fails to comply with any of the provisions of this agreement.
This agreement may be terminated by the Underwriter or the Issuer without
liability if, after the date of this agreement the Issuer sustains a
substantial loss on account of fire, accident or other act of God, or in the
case of war or other national emergency makes it impractical in the judgment
of the Underwriter or the Issuer to sell the bonds. The Underwriter or the
Issuer may also terminate this agreement without liability if registration or
exemption from registration from any state or regulatory body is finally
denied after a good faith effort on the part of the Issuer and the Underwriter
to obtain such registration or exemption from registration. In the event of
any such termination, the Issuer shall be liable to the Underwriter for the
aggregate amount of the non-accountable expense allowance.
It is understood that no agreements will exist between MMR Investment Bankers,
Inc., its officers, agents, employees, and/or registered representatives and
the Issuer other than that which is in written form, signed by the authorized
signatories of the Issuer and MMR Investment Bankers, Inc.
This agreement must be approved by an officer of the Underwriter. Prior to
signing by an officer, there will be an analysis of the Issuer's ability to
perform the proposed contract by the loan committee of the Underwriter. This
agreement constitutes a binding contract. Please read it carefully
before signing.
CONCLUSION AND VENUE
This written agreement represents the entire agreement and understanding
between the Underwriter and the Issuer. This agreement, and any legal
action brought to enforce its provisions shall be governed by the laws of
the State of Kansas. The parties mutually agree that venue for any legal
action on this agreement shall be in El Dorado, Butler County, Kansas.
Date: 1-29-98 /S/JOANNE CALDWELL-BAYLES-PRES
____________________________ ______________________________
Signed by Officer -- Title
Issuer's Name: Senior Retirement Communities
Address: 507 Trenton Street
West Monroe, LA 71291
Phone: (318) 323-2115
/S/JERRY MARTIN-CEO /S/M. DAUNE FREED
----------------------------- ----------------------------
Approved by MMR Investment MMR Registered Representative
Bankers, Inc. Officer
This agreement must be approved by an officer of MMR. Prior to signing by an
officer, there will be an analysis of the Issuer's ability to perform
the proposed contract by the loan committee of MMR. This agreement
constitutes a binding contract. Please read it carefully before signing.
SELLING GROUP AGREEMENT
- -----------------------------------:
As principal underwriter for the Issuers on Exhibit I, which is made a part of
this agreement, we invite you to participate in the distribution of any or all
such bonds subject to the following terms:
1. You are to offer and sell such bonds only at the public offering price,
in accordance with the terms of the then current prospectus. You shall not have
authority to act as agent of the Issuer, for us, or for any other dealer in any
respect. All orders are subject to acceptance by us and become effective only
upon confirmation by us.
Sales may be made only in those states where the bonds have been
qualified for sale and where your firm and its registered representatives are
licensed to sell. Should your firm wish to offer the securities in a state where
they are not qualified for sale, it shall be the responsibility of your firm to
pay for qualification of the securities in those states. MMR will help with the
actual qualification process.
2. MMR Investment Bankers, Inc. ("MMR") will process all orders and provide
with the order a prospectus at no cost to your firm.
MMR will instruct your customers to make their checks payable to the
Escrow agent. Upon receipt of payment, MMR will promptly transmit the checks and
Subscription Agreement by noon of the next business day to the Escrow Agent.
The Escrow Agent will notify MMR when the minimum contingency has been met. MMR
will then notify your firm.
If there is no minimum contingency, or if the minimum contingency has
been met, MMR will instruct your customers to make their checks payable to the
Registrar. Upon receipt, MMR will promptly transmit the checks and Subscription
Agreements by noon of the next business day to the Registrar. When the escrow
amount is met, the Registrar will mail the bonds or confirmations to your
customers. If there is no escrow, the Registrar will mail the bonds or
confirmations to your customers within four weeks of receipt of the check. The
procedure for the handling of orders shall be subject to instructions which we
shall forward from time to time to all members of the Selling Group. We shall
not accept any order from you which is placed on a conditional basis or subject
to any delay or contingency prior to execution.
3. You will receive a concession of __________% of the face amount of each
bond sold. Occasionally, MMR may be willing to negotiate a bonus if your firm
would be willing to commit to selling a large block of bonds during a specified
period of time. If there is an escrow amount to be met, your concession will be
paid after escrow is met. If there is no escrow, your concession will be
forwarded in a timely manner once it is received by us.
4. We shall furnish you without charge a "copy ready" Prospectus, with any
supplements currently in effect, and "copy ready" sales materials issued by us
from time to time. In the
<PAGE>
purchase of bonds through us, you are entitled to rely only on the information
contained in the offering Prospectus. You may not publish any advertisement or
distribute sales literature or other written material to the public which makes
reference to us or any of the Issuers (except material which we furnish to you)
without prior written approval. It will be the responsibility of your firm to
make sure all sales literature used by your firm is in compliance with state and
national regulatory agencies.
5. This agreement is in all respects subject to statements regarding the
sale of bonds made in the offering Prospectuses of the respective Issuers, and
to the Rules of Fair Practice of the National Association of Securities Dealers,
Inc., which shall control and override any provision to the contrary in this
Agreement.
6. In accordance with Article III, Section 24 of the Rules of Fair Practice
of the National Association of Securities Dealers, Inc., you represent that you
are a properly registered or licensed broker or dealer under applicable federal
and state securities laws and regulations and a member in good standing of the
National Association of Securities Dealers, Inc., and agree to notify us
immediately if you cease to be so registered or licensed or a member in good
standing of that Association. You agree to comply with the NASD Rules of Fair
Practice including but not limited to Sections 8, 24, 36 and 25.
7. Either of us may cancel this Agreement at any time by written notice to
the other. The right to sell shall cease upon receipt of written notice.
8. MMR shall notify you periodically of offerings available for sale.
Notification will also be given when an issue is no longer available for sale by
your firm.
9. All communications to us should be sent to the above address. Any notice
to you shall be duly given if mailed or telegraphed to you at the address
specified by you below.
This agreement should be executed in duplicate and one of the duplicate
originals should be returned to us for our file.
Accepted:
MMR INVESTMENT BANKERS, INC.
By:
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By:
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Address:
-----------------------------------
-----------------------------------
Phone:
------------------------
Date:
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<PAGE>
EXHIBIT I
ISSUER CONCESSION(1) LOCATION STATES FILED/QUALIFIED(2)
PROCEEDS ESCROW AGREEMENT
Agreement entered on the day of ,19 by and among SENIOR
RETIREMENT COMMUNITIES, INC.,("Issuer"), MMR INVESTMENT BANKERS, INC.,
("Dealer"), and Colonial Trust Company, an Arizona Trust Company and bank,
as defined by Section 3 (a) (6) of the Securities and Exchange Act of 1934,
(the "Escrow Agent").
WHEREAS, with the assistance of Dealer, the Issuer proposes to offer
and sell up to $9,000,000 aggregate principal amount of its First Mortgage
Bonds (collectively, the "Bonds") to be issued in three series (1998-I,
1998-II and 1998-III) and to be issued pursuant to a Trust Indenture between
the Issuer and Colonial Trust Company Trustee (the "Trustee").
WHEREAS, the proceeds from each series are to be used to construct a
separate particular project: one in Rutson, Louisiana, one in Bossier City,
Louisiana and one in Shreveport, Louisiana, as more particularly set forth
and described in the Offering Circular applicable to the Bonds; and
WHEREAS, each issue of a series of the Bonds has its own escrow minimum
requirement and the issue and sale of each series of the Bonds is not
contingent on the issue and sale of any other series of the Bonds;
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. The Escrow Agent agrees to act as escrow agent in connection with
the offering and sale of each series of Bonds and, as such, to establish
appropriate accounts and to receive the proceeds from the sale of the Bonds
for deposit in the applicable account until the earlier of the termination of
this Agreement or the termination of the offering and sale of the applicable
series of Bonds (the "Applicable Termination Date").
2. Checks or other items for the payment of all or a part of the
purchase price of Bonds (all Such items together with all proceeds thereof,
the "Escrowed Property") shall be payable to Escrow Agent, or endorsed by the
Dealer or Issuer to Colonial Trust company and delivered daily to Escrow
Agent. The Escrow Agent will credit the proceeds to the applicable escrow
cash account (such accounts being collectively referred to herein as the
"Escrow Account") to be held by it under the terms of this Agreement subject
to Rule 15c2-4 under the Securities Act of 1934. All subscribers' checks or
other items for the payment of the purchase price of Bonds shall be
transmitted by Dealer to the Escrow Agent by noon of the next business day
upon receipt by Dealer.
The Escrow Agent shall invest such collected funds deposited in the
Escrow Account in short term investments to the extent permitted by the
Arizona Department of Banking in accordance
<PAGE>
with the Arizona Revised Statutes, provided however, that any such funds held
subject to any minimum escrow contingency shall be invested subject to rule
l5c2-4. The Escrow Agent shall in no event be liable for any loss resulting
from any change in interest rates applicable to funds so invested.
Interest on funds invested pursuant to this Section shall accrue
from the date of investment of such funds until such funds are released from
escrow pursuant to paragraph 4.
3. The Escrowed Property, together with all interest earned thereon,
shall be held by the Escrow Agent until the earlier of the following dates as
applicable to each of the series of the Bonds:
(a) Series 1998-I Bonds:
(i) the date that the Escrow Agent has received proceeds from the
sale of such series of the Bonds in the aggregate principal amount
of $600,000.00, or more, or (ii) the date of October 1, 1998, at
which time the Series 1998-I escrow account will terminate;
(b) Series 1998-II Bonds:
(i) the date that the Escrow Agent has received proceeds from the
sale of such series of the Bonds in the aggregate principal amount
of $600,000.00, or more, or (ii) the date of January 1, 1999, at
which time the Series 1998-II escrow account will terminate;
(c) Series 1998-III Bonds:
(i) the date that the Escrow Agent has received proceeds from the
sale of such series of the Bonds in the aggregate principal amount
of $300,000.00, or more, or (ii) the date of January 1, 1999, at
which time the Series 1998-III escrow account will terminate.
4. Upon termination of the escrow, the Escrow Agent shall release the
applicable Escrowed Property, together with all interest earned thereon to
be distributed to either (a) the Issuer, or such other party or parties, as
required to carry out the purpose of the Bond offering if the minimum amount
of the applicable series of Bonds have been sold within the required time
period described above, or (b) the subscribers if the minimum amount of the
applicable series of Bonds have not been sold within such period.
5. The Issuer agrees that in the event the minimum amount of the
applicable series of bonds have not been sold within the time
-2-
<PAGE>
period described above, therefore necessitating the distribution by the
Escrow Agent of the applicable Escrow Property and the interest earned
thereon to the subscribers, Issuer shall promptly pay to the Escrow Agent
such sum of money as shall be necessary, if any, when added to the amount of
the applicable Escrow Property and interest earned thereon to pay to the
subscribers of the applicable series of Bonds the principal amount of such
subscriptions together with the interest from the date of authentication
through the escrow termination date at the rate attributable to the
applicable series of Bonds subscribed.
6. If at any time prior to the completion of this escrow said Escrow
Agent is advised by the appropriate securities or state agency that the
registration to sell said Bonds or any series thereof has been revoked, said
Escrow Agent shall thereupon return all funds relative to the series of Bonds
for which the registration has been revoked to the respective subscribers.
7. Escrow Agent shall hold the Escrowed Property in trust, commingled
with similar funds of other issuers, but shall maintain detailed records to
reflect the share thereof attributable to each Issuer. Escrow Agent shall
furnish periodic statements to Issuer reflecting all receipts and
disbursements from the Escrow Account.
8. The Escrow Agent's and Dealer's obligations and duties in
connections herewith are confined to those specifically enumerated in this
Agreement. The Escrow Agent and Dealer shall not be in any manner liable or
responsible for the sufficiency, correctness, genuineness or validity of any
instruments received by or deposited with them or with reference to the form
of execution thereof, or the identity, authority or rights of any person
executing, delivering, or depositing same, and neither the Escrow Agent nor
the Dealer shall be liable for any loss that may occur by reason of forgery,
false representation or the exercise of their discretion in any particular
manner or for any other reason, except for their own gross negligence or
willful misconduct.
9. Escrow Agent shall receive compensation for its services as set
forth in the separate schedule of fees as made a part hereof by reference.
10. The Escrow Agent may act pursuant to the written advice of counsel
with respect to any matter relating to this Escrow Agreement and shall not be
liable for any action taken or omitted in accordance with such advice.
11. The Escrow Agent (and any other successor escrow agent) may at any
time resign as such by delivering all of the Escrowed Property to the
successor escrow agent jointly designated by the other parties hereto in
writing, or to any court of competent jurisdiction, whereupon the Escrow
Agent shall be discharged of and from any and all further obligations arising
in connection with
-3-
<PAGE>
this Escrow Agreement. The resignation of the Escrow Agent will take effect
on the earlier of (a) the appointment of a successor (including a court of
competent jurisdiction), or (b) the day which is thirty (30) days after the
date of delivery of its written notice of resignation to the other parties
hereto. If at that time the Escrow Agent has not received a designation of a
successor escrow agent, the Escrow Agent's sole responsibility after that
time shall be to safekeep the Escrowed Property until receipt of a
designation of successor escrow agent or a written disposition instruction by
the issuer and Dealer or a final order of a court of competent jurisdiction.
12. If any controversy arises between the parties hereto or with any
third person, the Escrow Agent shall not be required to determine the same or
to take any action but may await the settlement of any such controversy by
final appropriate legal proceeding, or otherwise as the Escrow Agent may
require, or the Escrow Agent may, in its discretion, institute such
appropriate interpleader or other proceedings in connection therewith as it
may deem proper, notwithstanding anything in this Agreement to the contrary.
In any such event, the Escrow Agent shall not be liable for interest or
damages to the issuer or subscribers. In the event Escrow Agent should
institute, or be named as a party in, any legal proceedings to determine the
lawful owner of the Escrowed Property, Escrow Agent shall be entitled to
recover from the contending parties to said legal proceedings, reasonable
attorney's fees and expenses which shall be incurred by Escrow Agent in said
proceedings.
13. This Escrow Agreement shall be binding upon and inure solely to the
benefit of the parties hereto and their respective successors and assigns,
heirs, administrators, and representatives and shall not be enforceable by or
inure to the benefit of any third party except as provided in Section 10 with
respect to a resignation by the Escrow Agent. No party may assign any of its
rights or obligations under this Escrow Agreement without the written consent
of the other parties. This Escrow Agreement shall be construed in accordance
with and governed by the laws of the State of Arizona without regard to
conflict of law principals.
14. This Escrow Agreement may only be modified in writing signed by all
of the parties hereto, and no waiver hereunder shall be effective unless in
writing signed by the party to be charged.
-4-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this agreement as
of the day and year first above written.
DEALER: MMR INVESTMENT BANKERS, INC.
BY:
--------------------------
Date:
------------------------
ISSUER: SENIOR RETIREMENT COMMUNITIES,
INC.
By:
--------------------------
President
By:
--------------------------
Secretary
Date:
------------------------
ESCROW AGENT: COLONIAL TRUST COMPANY
Phoenix, Arizona
By:
--------------------------
Date:
------------------------
-5-
<PAGE>
ARTICLES OF INCORPORATION OF UNITED STATES OF AMERICA
SENIOR RETIREMENT COMMUNITIES, INC. STATE OF LOUISIANA
PARISH OF OUACHITA
Be it known, that on the 1st day of September, 1997, before me, the
undersigned notary public, duly commissioned and qualified according to law,
and in the presence of the undersigned competent witnesses, personally came
and appeared the person whose name is here unto subscribed, who declared
that, availing himself of the benefits and provision of the constitution and
laws of Louisiana, and particularly R.S. 12:1 To 178, he does, by these
presents, contract, agree, bind and obligate himself to form, organize and
constitute himself, as well as all such other persons who may hereafter join
or become associated with himself or his successors, into a business
corporation, for the objects and purposes and under the conditions,
covenants, stipulations and agreements of the articles following, to-wit:
ARTICLE I. Name and powers
The name and title of this corporation shall be Senior Retirement
Communities, Inc. and under and by said name, unless sooner dissolved in
accordance with law, it shall exist and continue, and shall have and enjoy
corporate existence and succession in perpetuity, or such maximum period
as may be authorized by the laws of Louisiana, during which time it shall
have and possess all the powers, rights, privileges and immunities which
corporations are and may hereafter be authorized to have and possess under
the constitution and laws of Louisiana.
ARTICLE II. Purpose
The object and purposes for which this corporation is formed and the nature
of the business to be carried on by it are hereby declared to be as follows:
To enter into any lawful business activity in which corporations organized
under R.S. 12:1 Et seq., may engage, either for its own account, or for
others as agent.
ARTICLE III. Stock
The total authorized capital stock of this corporation shall be one million
five hundred thousand (1,500,000) shares of common stock having a par value
of ten cents ($.10) Per share.
ARTICLE IV. Capital
The amount of paid in capital with which this corporation may begin business
is hereby fixed at five thousand ($5,000.00) Dollars which has been duly
paid.
STATE OF LOUISIANA
Office of the Secretary of State
I hereby certify that this is a true and correct copy.
as taken from the original on file in this office.
/S/FOX MCKELTHEN
Fox McKelthen
Secretary of State
Dated: 9-10-97clo
<PAGE>
ARTICLE V. Directors
The business and affairs of this corporation shall be managed, and all the
corporate powers thereof shall be vested in and exercised by a board of not
less than one, nor more than five directors.
The number of directors may be increased or decreased within the said limits
by a majority vote of the directors.
The board of directors shall have authority to make and alter by-laws, fix
their own qualifications, classifications or terms of office and fix or
increase their compensation, subject to the power of the shareholders to
change or repeal the by-laws so made.
The board of directors shall have such power and authority with respect to
capital, surplus and dividends, including allocations, increases, reduction,
utilization, distribution and payment, as is permitted and provided by R.S.
12:61, 62 and 63 or other applicable law.
The board of directors shall have full authority to exercise other powers and
to perform such other lawful activities in which the corporation and/or its
shareholders may engage, unless prohibited form doing so by law or this
corporation's charter or by-laws.
Until otherwise provided in the by-laws, any director absent from a meeting
may be represented by any other director or shareholder, who may cast the
vote of the absent director according to his written instructions.
Upon the written request of shareholders holding fifty-one percent (51%) of
this corporation's issued and outstanding voting stock, any director may be
replaced, even though his term of office may not have expired.
ARTICLE VI. Stock transfer
No transfer of any shares shall be binding upon this corporation unless made
in accordance with these articles of corporation and the by-laws of this
corporation and recorded on the books of this corporation.
ARTICLE VII. Issuance of stock
The shares of stock of this corporation shall be issued only for cash paid or
for other consideration of the character and value determined by the board of
directors or determined by the shareholders at any annual meeting or at any
special meeting duly called and held for that purpose.
<PAGE>
ARTICLE VIII. Annual meetings
The general annual meeting of the shareholders for the election of directors
shall be held at the registered office of the corporation, and shall take
place on the second Thursday of December of each year, beginning with the
year 1997 or the first day thereafter when such day is a legal holiday,
unless or until otherwise provided by the by-laws, for the purpose of
electing directors for the ensuing year. Said election of directors, each
shareholder of record shall have the right to cast one vote for each share of
stock standing in his name on the books of the corporation, and a plurality of
votes shall be sufficient to elect.
A failure or any cause whatsoever to hold said annual election for a failure
to elect directors on the day above specified shall not impede the operation
of the corporation, but the directors and officers then in office shall
remain in office until their successors are elected, qualified and installed.
ARTICLE IX. Incorporators
The names and post office address of the incorporator is as follows:
Joanne M. Caldwell-Bayles
507 Trenton Street
West Monroe, Louisiana 71291
ARTICLE X. Limits of liability
The incorporator, officers and directors of this corporation claim the
benefits of limitation of liability of the provisions of La. R.S. 12:24C
(1968, as amended 1987) to the fullest extent allowed by law as fully and
completely as though said provision were recited herein in full.
Thus done and signed in the city of West Monroe, Parish of Ouachita, State of
Louisiana, in the presence of the undersigned competent witnesses, who sign
as such, together with appearers and me, notary, on the date first herein
written.
Witnesses:
/S/ Carolyn Cato /S/Joanne M. Caldwell-Bayles
- -------------------- ----------------------------
/S/Heather O'Neal Joanne M. Caldwell-Bayles
- --------------------
/S/ D.L. Walsertt
-------------------
Notary Public
<PAGE>
UNITED STATES OF AMERICA
STATE OF LOUISIANA
Fox McKeithen
SECRETARY OF STATE
As Secretary of State, of the State of Louisiana, I do hereby Certify that
a copy of the Articles of Incorporation and Initial Report of
SENIOR RETIREMENT COMMUNITIES, INC.
Domiciled at WEST MONROE, LOUISIANA,
Was filed and recorded in this Office on September 10, 1997,
And all fees having been paid as required by law, the corporation is
authorized to transact business in this State, subject to the restrictions
imposed by law, including the provisions of R.S. Title 12, Chapter 1.
In testimony whereof, I have hereunto set my hand and caused the Seal of my
Office to be affixed at the City of Baton Rouge on,
September 10, 1997
/S/Fox McKeithen
CLO [SEAL OF THE STATE OF LOUISIANA]
Secretary of State
CERTIFICATE SS 102 S (R-3/88)
<PAGE>
STATE OF LOUISIANA
Office of the Secretary of State
I hereby certify that this is a true and correct copy, as taken from the
original on file in this office.
/S/Fox McKeithen
Secretary of State
AMENDMENT OF CHARTER OF SENIOR RETIREMENT COMMUNITIES, INC.
STATE OF LOUISIANA
PARISH OF OUACHITA
BE IT KNOWN, that on this the 5th day of November, 1997, before
me, the undersigned Notary, in and for said parish and state aforesaid, and
in the presence of the witnesses hereinafter named and undersigned:
PERSONALLY CAME AND APPEARED: JOANNE M. CALDWELL, herein appearing and acting
for Senior Retirement Communities, Inc., a corporation organized under the
laws of Louisiana, by act before D.L. Walsworth, Notary Public for the Parish
of Ouachita, duly recorded in the corporate records of Ouachita Parish,
Louisiana, and in the Records of the Secretary of State of Louisiana,
domiciled and having its principal place of business in the Parish of
Ouachita, who declared that pursuant to the Unanimous Consent of
Shareholders of the corporation of date November 4, 1997, a complete copy of
the minutes of the meeting of said shareholders on said date, certified by
the secretary thereof being attached hereto, he now appears for the purpose
of executing this Act of Amendment and putting into authentic form the
amendment so agreed to and authorized by unanimous vote of the shareholders
of said corporation. And said appearer further declared that, by Unanimous
Consent of Shareholders adopted by said shareholders, it was authorized and
consented that article III of the Charter of Senior Retirement
Communities, Inc. Be amended so that said Article shall henceforth read as
follows:
<PAGE>
ARTICLE III
The total authorized stock of this corporation shall be
one million five hundred thousand (1,500,000) shares of
common stock having a par value of ten cents ($.10) per
share and four hundred twenty five thousand (425,000)
share of Preferred Stock having no par value.
The total number of shares of the corporation may be
increased or decreased by the Board of Directors, by
complying with the provisions of the Constitution and
Laws of the State of Louisiana.
And said appearer having requested me, Notary, to note said Amendment
in authentic form, I do, by these presents, receive said Amendment in the
form of this public act to the end that said amendment may be promulgated and
recorded and thus read into the original record of Senior Retirement
Communities, Inc. As above set forth.
THUS DONE AND PASSED in my office in West Monroe, Ouachita Parish, Louisiana,
on the day, month and year hereinabove written in the presence of the
undersigned legal and competent witnesses, who hereunto sign their names
with said appearer and me, Notary, after reading of the whole.
SENIOR RETIREMENT COMMUNITIES, INC.
WITNESSES:
/S/Carolyn Cato By: /S/Joanne M. Caldwell
- ----------------- --------------------------
/S/ L McBagh Joanne M. Caldwell
- ----------------- President
/S/Judy H Cole
----------------
NOTARY PUBLIC
Commission expires at death
<PAGE>
UNITED STATES OF AMERICA
STATE OF LOUISIANA
Fox McKeithen
SECRETARY OF STATE
As Secretary of State, of the State of Louisiana, I do hereby Certify that
a copy of an Amendment to the Articles of Incorporation of
SENIOR RETIREMENT COMMUNITIES,INC.
Domiciled at WEST MONROE, LOUISIANA,
was filed and recorded in this Office on November 6, 1997.
In testimony whereof, I have hereunto set my hand and caused the Seal of my
Office to be affixed at the City of Baton Rouge on, November 6, 1997
/S/Fox McKeithen
MWA [SEAL OF THE STATE OF LOUISIANA]
Secretary of State
CERTIFICATE SS 102 S
<PAGE>
BY-LAWS
OF
SENIOR RETIREMENT COMMUNITIES, INC.
ARTICLE I. OFFICERS
Section 1. The officers of Senior Retirement Communities, Inc. shall be
President and Chief Executive Officer; Vice-President; Secretary, and
Treasurer.
The officers shall be elected annually by the Board of Directors of its
first meeting following the annual meeting. Officers may by members of the
Board of Directors and vice-versa. An individual may hold more than one
(1) office as elected by the Board of Directors.
The duties of the officers shall be as follows:
President and Chief Executive Officer: The President and Chief Executive
Office of this corporation shall preside at all meetings of the stockholders
and directors. The President and CEO shall have general and active
management of the business of the Corporation, and shall see that all orders
and resolutions of the board are carried into effect. He shall execute notes,
bonds, mortgages and other contracts requiring a seal, under the seal of the
corporation. He shall have the general powers and duties of supervision and
management usually vested in the office of President and CEO of a
corporation.
Vice-President:In the absence of the President and Chief Executive
Officer, his duties shall devolve upon the Vice-President. In the absence of
the Secretary or Treasurer, the duties of the latter shall devolve upon the
Vice-President in his capacity as Assistant Secretary or Treasurer.
Treasurer:The Treasurer shall have charge of all funds of the
corporation and of its disbursements under the direction of the Board of
Directors. She shall keep a record of
<PAGE>
all monies received and paid out, making a report of same to the Board of
directors at each regular meeting thereof and whenever requested so to do.
The Treasurer shall attend all meetings of the corporation and of the Board
of Directors. She shall further be charged with the performance of such
services in behalf of the corporation as may, from time to tome, be
determined by the Board of Director.
The Secretary: The Secretary shall attend all meetings of the Board and
all meetings of the stockholders and record all votes and the minutes of all
proceedings in a book to be kept for that purpose and shall perform like
duties for the standing committees when required. She shall give, or cause
to be given, notice of all meetings of the stockholders and of the Board of
Directors, and shall perform such other duties as may be prescribed by the
Board of Directors under whose supervision she shall be. She shall keep in
safe custody the seal of the corporation, and when authorized by the Board,
affix the same to any instrument requiring it, and when so affixed it shall
be attested by her signature. She shall be sworn to the faithful discharge
of her duty.
Section 2. The compensation of all officers shall be fixed by the Board
of Directors.
Section 3. The Board may appoint such other officers and agents as it
shall deem necessary, who shall hold their offices for such terms and shall
exercise such powers and perform such duties as shall be determined from time
to time by the Board.
Section 4. The officers of the corporation shall hold office until their
successors are chosen and qualify in their stead. Any officer elected or
appointed by the Board of Directors may be removed at any time by the
affirmative vote of a majority of the whole Board of Directors. If the
office of any officer or officers becomes vacant for any reason, the vacancy
shall be filled by the affirmative vote of a majority of the whole Board of
Directors.
<PAGE>
Section 5. In the case of the absence of any officer of the corporation,
or for any other reason that the Board may deem sufficient, the Board may
delegate, for the time being, the powers or duties, or any of them, of such
officer to any other officer, or to any directors, provided a majority of the
entire Board concurs therein.
ARTICLE II. BOARD OF DIRECTORS
Section 1. The Board of Directors shall be composed of not less than one
(1), nor more than five (5) directors who shall be elected annually as
provided in the Charter. The number of directors to serve for the following
year shall be established by majority vote of the directors at each annual
meeting. The number of directors authorized may not be increased or
decreased at any time other than at an annual meeting.
Section 2. The Board of Directors shall be charged with the management
of all of the affairs of the corporation, subject to the provisions of its
Charter and By-Laws.
Section 3. For the purpose of transacting the business of this
corporation during the intervals between the meetings of the Board of
Directors, the President and CEO and the Secretary-Treasurer shall
constitute the Executive Committee, with full authority to act.
Section 4. Regular meetings of the board of Directors shall be held
monthly at such time and place as the directors may determine. Special
meetings of the Board may be called by the President and CEO or
Secretary-Treasurer on one day's notice to each director, either personally
or by mail or by telegram.
<PAGE>
Section 5. A quorum of the Board shall be determined by the number of
directors. If there is only one (1) director, one (1) shall constitute a
quorum; if two (2) directors, one (1) shall constitute a quorum; if three (3)
or four (4) directors, two (2) shall constitute a quorum; and if five (5)
directors, three (3) shall constitute a quorum.
Section 6. In addition to the powers and authorities by these By-Laws
expressly conferred upon it, the Board of Directors may exercise all such
powers of the corporation and do all such lawful acts and things as are not
by statute or by the Articles of Incorporation of by these By-Laws directed
or required to be exercised or done by the stockholders.
Section 7. Indemnity. The corporation shall indemnify and hold
harmless each director and officer now or thereafter serving the corporation
from and against any and all claims and liabilities to which he may be or
become subject by reason of his now or hereafter being or having heretofore
been a director or officer of the corporation and/or by reason of his alleged
acts or omissions as such director or officer, whether or not he continues to
be such officer or director at the time when any such claim or liability is
asserted, and shall reimburse each such director and officer for all legal
and other expenses reasonably incurred by him in connection with defending
any or all such claims or liabilities, including amounts paid or agreed to be
paid in connection with reasonable settlements made before final adjudication
with the approval of the Board of Directors, whether or not he continues to
be such director or officer at the time such expenses are incurred; provided,
however, that no director or officer shall be indemnified against any claim
or liability arising out of his own negligence or wilful misconduct or shall
be indemnified against or reimbursed for any expenses incurred in defending
any or all such claims
<PAGE>
or liability or in settling the same unless in the judgment of the directors
of the corporation the director or officer against whom such claim or
liability is asserted has not been guilty of negligence or wilful misconduct.
The foregoing right of indemnification shall not be exclusive of other rights
to which any director or officer may be entitled as a matter of law.
ARTICLE III. COMMITTEES
Section 1. The President and CEO may appoint such committees as he deems
necessary, subject to the approval of the Board of Directors. Whenever the
Board of Directors is not in session, the committees appointed by the
President and CEO may be either approved or disapproved.
Section 2. The Chairman of each committee shall make a written report to
the Board of Directors whenever requested by the Board.
ARTICLE IV. STOCKHOLDERS' MEETINGS
Section 1. The annual meeting of the corporation shall be held as
provided in the Charter.
Section 2. Special meetings of the corporation may be called at any time
by the President and CEO, or on the request, in writing to the President and
CEO of a majority of the Board of Directors.
Section 3. Immediately following the adjournment of the annual meeting
of the
<PAGE>
corporation, the newly-elected directors shall hold a meeting for the purpose
of organization, and the transaction of any other business.
Section 4. Not less than five days prior to any meeting of the
corporation, a notice of such meeting shall be mailed to each shareholder at
his last known post office address. The notice for any special meeting shall
state the purpose of the meeting. All meetings of the corporation may,
however, be called without notice, by written waiver of the right to such
notice, by each person entitled thereto.
Section 5. At any meeting of the stockholders, every stockholder having
the right to vote shall be entitled to vote in person, or by proxy appointed
by an instrument in writing subscribed by such stockholder and witnessed by
one witness. Each stockholder shall have one vote for each share of stock
having voting power, registered in his name on the books of the corporation,
except where the transfer books of the corporation shall have been closed or
a date shall have been fixed as a date of record for the determination of its
stockholders entitled to vote.
Section 6. Written notice of the annual meeting shall be mailed to each
stockholder entitled to vote thereat at such address as appears on the stock
book of the corporation, at lease five days prior the meeting.
Section 7. A complete list of all stockholders entitled to vote at the
ensuing election, arranged in alphabetical order, with the address of each,
and the number of voting shares held by each, shall be prepared by the
Secretary and filed in the office where the election is to be held, at
<PAGE>
least ten days before every election, and shall at all time, during the usual
hours of business and during the whole time of said election, be open to the
examination of any stockholder.
Section 8. Special meetings of the stockholder, for any purpose, or
purposes, unless otherwise prescribed by statute, may be called by the
President and CEO aor Secretary-Treasurer at the request in writing of a
majority of the Board of Directors, or at the requests in writing of
stockholders owning a majority in amount of the entire capital stock of the
corporation issued and outstanding, and entitled to vote. Such requests
shall state the purpose or purposes of the proposed meeting.
Section 9. Business transacted at all special meetings shall be confined
to the objects stated in the call.
Section 10. Written notice of a special meeting of stockholders, stating
the time and place and object thereof shall be mailed, postage prepaid, at
least five days before such meeting, to each stockholder entitled to vote
thereat at such address as appears on the books of the corporation.
Section 11. Order of Business of Stockholders' Meetings. At all
meetings of stockholders, the order of business shall be, as far as
applicable and practicable, as follows:
1.Proof of quorum.
2.Proof of proper notice.
3.Reading and action on all approved minutes.
4.Reports of officers and committees.
5.Election of directors.
<PAGE>
6.Unfinished business.
7.New business.
8.Adjournment.
ARTICLE V. CERTIFICATES OF STOCK
The Certificates of Stock of the corporation shall be numbered and
shall be entered in the books of the corporation as they are issued. They
shall exhibit the holder's name and number of shares and shall be signed by
the President and CEO and the Secretary-Treasurer.
ARTICLE VI. REGISTERED STOCKHOLDERS
The corporation shall be entitled to treat the holder of record of any
share or shares of stock as the holder in fact thereof, and accordingly,
shall not be bound to recognize any equitable or other claim to or interest
in such share on the part of any other person, whether or not it shall have
express or other notice thereof, save as expressly provided by the laws of
Louisiana.
ARTICLE VII. LOSS OF CERTIFICATE
Any person claiming a Certificate of Stock to be lost or destroyed,
shall make an affidavit or affirmation of that fact, and the Board of
Directors may, in its discretion require the owner of the lost or destroyed
Certificate or his legal representative, to give the corporation a bond, in
such sum as the Board of Directors of the corporation may require to
indemnify the corporation against any claim that may be made against it on
account of the alleged loss of any such certificate; a new certificate of the
same tenor and for the same number of shares as the one alleged to be lost or
destroyed, may be issued without requiring any bond when, in the judgment
<PAGE>
of the directors. it is proper to do so.
ARTICLE VIII. CHECKS
All checks, drafts and notes Of the corporation shall be signed by such
officer or officers or such other person or persons as the Board of Directors
may from time to time designate.
ARTICLE IX. DIVIDENDS
Dividends upon the capital stock of the corporation, subject to the
provisions of the Articles of Incorporation if any, may be declared by the
Board of Directors at any regular or special meetings, pursuant to law.
ARTICLE X. AMENDMENTS
These By-Laws may be altered or amended or repealed by the affirmative
vote of a majority of the stock issued and outstanding and entitled to vote
thereat, at a regular or special meeting of the stockholders called for that
purpose, or by the affirmative vote of a majority of the Board of Directors
at any regular or special meeting of the Board called for that purpose,
provided, however, that no change of the time or place for the election of
directors shall be made within sixty days preceding the date on which such
election is to be held, and that in case of any change of such time or place,
notice thereof shall be given to each stockholder in person or by letter
mailed to his last known post office address, at least twenty days before
the election is held.
<PAGE>
We, the undersigned, being all of the Board of Directors of Senior
Retirement Communities, Inc., do hereby assent to the foregoing By-Laws,
adopt the same, and evidence our approval thereof by the affixing of our
signatures hereto at Monroe, Louisiana, on this 10th day of September 1997.
/S/DIANA M CALDWELL
---------------------------
/S/Joanne M.Caldwell-Bayles
----------------------------
Joanne M.Caldwell-Bayles
<PAGE>
BOND
STATED INTEREST PRINCIPAL
ACCOUNT NO. ISSUE DATE MATURITY RATE INTEREST PAYABLE AMOUNT
999-99-9999 5/01/90 5/01/95 11.00 SEMI-ANNUALLY $8,000
ON 05/01 AND 11/01
XYZ, INC.
2406 BROADWAY
AUSTIN TX TRUST NO.
119
BOND NO.
(herein referred to as 'Issuer') 10001-00
ISSUED JOHN DOE AND
TO: MARY JANE DOE
4215 MESA CIRCLE
PHOENIX, AZ 85012
Issuer, for value received, hereby promises to pay to the Registered Owner
shown above, or registered assigns, the Principal Amount shown above on the
Stated Maturity shown above, in such coin or currency of the United States of
America as at the time of payment shall be legal tender for the payment of
public or private debts, and to pay interest upon the Principal Amount from and
after the Authentication Date, at the per annum Interest Rate shown above, in
like coin or currency, the interest to be payable as follows: either (a)
semi-annually, quarterly or monthly upon the Interest Payable dates until the
Principal Amount has been paid (to be designated under Interest Payable above as
'Semi-annually", 'Quarterly" or "Monthly" followed by the designated interest
payment dates), or, (b) upon the Stated Maturity date, with interest to be
compounded semi-annually beginning with the first semi-annual date (six months
following the Issue Date and each six months thereafter) following the
Authentication Date, and semi-annually thereafter until the Principal Amount has
been paid (to be designated under Interest Payable above as "At Maturity"). The
Principal Amount and Interest payable upon this Bond. pursuant to the provisions
of a Trust Indenture entered into between Issuer and Colonial Trust Company
("Colonial"), shall be paid to the person whose name this Bond is registered in
at the close of business on the Interest Payable and Stated Maturity dates and
shall be paid by check drawn upon the account of Colonial and mailed to the
registered address of such person.
Reference is here made to further provisions of this Bond set forth on the
reverse hereof which further provisions are incorporated herein for all
purposes. This bond shall not be valid or become obligatory for any purpose
until it shall have been authenticated by either the manual or facsimile
signature of the proper officer of Colonial.
IN WITNESS WHEREOF, Issuer has caused this instrument to be duly issued and
authenticated.
Authentication:
COLONIAL TRUST COMPANY
CANCELLED
COLONIAL TRUST COMPANY
P.O. BOX 33487
PHOENIX, ARIZONA
85067-3487
/S/Sample Bond
- ------------------------------------
Authorized Signature
5/01/90
- ------------------------------------
Authentication Date
INTEREST DOES NOT ACCRUE AFTER MATURITY DATE
<PAGE>
[REVERSE SIDE OF SAMPLE BOND]
ADDITIONAL PROVISIONS
This Bond is one of the duly authorized Issue of Bonds to be issued by Issuer
pursuant to the terms of a Trust Indenture (herein called the "Indenture")
between Issuer and Colonial Trust Company (herein called "Colonial") to which
Indenture reference is here made for a statement of the respective rights
thereunder of Issuer, Colonial and the holders of the Bonds.
If an event of default, as defined in the Indenture, shall have occurred and be
continuing, the principal hereof may be declared due and payable in the manner
and with the effect provided in the Indenture. As provided in the Indenture and
subject to certain limitations therein set forth, this Bond is transferable on
the bond register of Issuer (as maintained by Colonial) upon surrender of this
Bond for transfer at the office of Colonial, duly endorsed by, or accompanied by
a written instrument of transfer in form satisfactory to Colonial duly executed
by the registered holder hereof or his attorney duly authorized in writing, and
thereupon a new Bond in the same principal amount, interest rate and maturity
date, will be issued to the designated transferee or transferees.
This Bond is issued only as a registered Bond, without coupons.
A reasonable service charge may be required to be paid to Colonial for any
transfer or exchange of the Bond.
This Bond may be subject to redemption by Issuer prior to its Stated Maturity.
No assignment or transfer of this Bond shall be effective unless such
assignment or transfer is recorded on the records of Issuer and/or Colonial as
provided in the Indenture. Neither Issuer nor Colonial shall be responsible for
the payment of the principal Amount or Interest Payable upon this Bond except to
the person in whose name this Bond is registered at the time of such payment.
FOR VALUE RECEIVED hereby
----------------------------------------------
Name of Current Owner
sells, assigns and transfers unto
--------------------------------------------
Name of New Owner
- ------------------------------------------------------------------------------
Address City State Zip Social Security Number
the within Bond, and does hereby irrevocably constitute and appoint the
Secretary of the Colonial Trust Company, Attorney to transfer the Bond on the
books of the within named Issuer with full power of substitution in the
premises. The name, mailing address and social security number of the new owner
must be provided before transfer can be completed.
DATED
--------------------------------- ------------------------------------
Current Owner
In presence of
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(Signature must be guaranteed by Officer of State or National
Bank-Include Officer's Title)
(Bank is requested to use their "guarantee" Stamp or Seal)
Under penalties of perjury, I certify (1) that the number shown on this form is
my correct taxpayer identification number; and 2) that I am not subject to
backup withholding because (a) I have-not been notified that I am subject to
backup withholding as a result of a failure to report all interest or dividends,
or (b) the Internal Revenue Service has notified me that I am no longer subject
to backup withholding.
DATED
--------------------------------- ------------------------------------
New Owner
INSTRUCTIONS
All interest will be paid when due and will be mailed to your registered
address by the Colonial Trust Company (herein called "Colonial"). Upon maturity
the Bond must be surrendered to Colonial for redemption. Upon redemption, a
check in the principal amount of the Bond will be forwarded by Colonial to you
at your registered address.
Should your address change prior to the maturity of the Bond, a written
statement of this fact and your new address should be forwarded to Colonial as
soon as possible in order that future payments of principal and interest upon
the Bond may be properly paid to you.
Should you sell or transfer the Bond to another party it will be necessary for
you to complete the assignment appearing above. All registered owners must sign
the assignment in the presence of an officer of a State or National Bank. Each
signature must be guaranteed by the bank officer. The Bond, along with the
applicable transfer agent fees, must be forwarded to Colonial to be reissued in
the name of the assignee.
COLONIAL TRUST COMPANY
P.O. BOX 33487
PHOENIX, ARIZONA
85067-3487
TRUST INDENTURE
SENIOR RETIREMENT COMMUNITIES, INC.
Name of Issuer
--------------
Trust Number
COLONIAL TRUST COMPANY
As Trustee
<PAGE>
TABLE OF CONTENTS
PAGE
I. Capacities of Colonial 1
II. Issue of Bonds and Security 1
III. Description of Bonds and Liens 2
A. Registration of Bonds and Liens 2
B. Bondholders' Pro Rata Lien 2
C. Trustee's Reimbursement Lien 2
IV. Disbursement of Bond Proceeds 3
A. Bond Proceeds Account 3
B. Preference of Payments Out of Bond
Proceeds Account 3
C. Construction Draws 6
D. Surplus Bond Proceeds 8
E. Overpayments 8
F. Abandonment of Project 8
V. Payment of Bonds 9
A. Priorities of Issuer's Payments 9
B. Priority of Charges against Sinking Fund 9
C. Method of Payments into Sinking Fund 10
D. Expenses of Default 10
E. Issuer's Payment Secured by its Revenues 10
F. When Sinking Fund Balance May Be Paid
to Issuer 11
VI. Bondholders' Failure to Surrender Matured Bonds 13
A. No Interest After Maturity 14
B. Escheat After Three Years 14
VII. Issuer's Covenants 14
A. Issuer Shall Maintain and Insure the
Property 14
B. Trustee May Cure 15
C. Issuer May Not Merge 16
D. Issuer's 16
VIII. Defaults and Remedies 16
A. Events of Default Defined 16
B. Waiver of Notice by Issuer; Trustee's
Remedies 17
C. Legal Ownership of Rights to Prosecution
and Enforcement in Trustee Alone 21
D. Trustee's Discretion to Advise Bond-
holders of Default 21
i
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E. Bondholders' Rights in Event of
Trustee's Failure to Act 22
F. Trustee's Right to Stop Payment on
Outstanding Checks 22
G. Penalty Interest 22
H. Trustee Has No Duty to Cure; Trustee's
Rights in Event of Overdraft or
Overpayment 23
I. Application of Sinking Fund Balances
Upon Default 23
IX. Issuer's Prepayment Privileges 25
A. Entire Series in Full or Partial at
Random 25
B. No Pre-Payment Penalty; Additional
Trustee's Fee 25
C. Pre-Payment Funds to be on Deposit in
Advance 25
D. Prior Notice to Trustee and to Bond-
holders Required 26
E. Disposition of Unpresented Bonds 26
F. Over- and Under-Deposit of Funds 26
G. Trustee's Release of Lien 27
X. Replacement of Bonds 27
A. Exchange of Mutilated or Defaced Bonds 27
B. Lost, Stolen or Destroyed Bonds 27
C. Remedies are Exclusive 27
XI. Additional Parity Bonds 28
A. Conditions 28
B. Right of First Refusal 29
XII. Sale of Property 29
A. For Fair Value Only 29
B. Application of Sale Proceeds 30
C. Value of Pledged Property to be
Sufficient to Secure Bonds Then
Outstanding 30
XIII. Substitution of Collateral 30
A. For Fair Value Only 31
B. Must Become Part of the Lien 31
XIV. Condemnation of Property 31
XV. Duties of Trustee, Paying Agent and Registrar 32
A. Trustee's Administrative Duties 32
B. Paying Agent's Duties 33
C. Registrar's Duties 34
ii
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XVI. Limitation of Trustee's Liability 34
XVII. Ancillary/Co-Trustee; Resignation and Removal;
Successor Trustee 37
A. Trustee May Appoint Ancillary and
Co-Trustees 37
B. Voluntary Resignation and Involuntary
Removal of Trustee 37
XVIII. Illegal Interest 40
XIX. Release of the Lien 41
XX. Investment of Funds; Trustee's Fees 41
A. Permitted Investments 41
B. Base Fees of Trustee, Paying Agent and
Registrar 41
C. Additional Fees to be Charged for
Extraordinary Services 41
XXI. Supplemental Indentures 42
A. Not Requiring Bondholder Consent 42
B. Requiring Bondholder Consent 42
C. Requisites of Notice to Bondholders 43
D. Only Substantial Consent Required 44
XXII. Bondholder Lists and Reports; Evidence
of Rights of Bondholders 44
A. Form of Bondholder Action 44
B. Issuer Owned or Controlled Bonds to be
Disregarded 45
C. Third-Party Communiques to Bondholders 45
D. Bondholder Identities Not to be
Disclosed 46
XXIII. Miscellaneous Provisions 46
iii
<PAGE>
TRUST INDENTURE
STATE OF ARIZONA
COUNTY OF MARICOPA
THIS TRUST INDENTURE made and entered into between
SENIOR RETIREMENT COMMUNITIES, INC., a Louisiana corporation,
c/o Arbor Group, L.L.C., 507 Trenton Street, West Monroe, Louisiana
71291, acting through its duly authorized agents and
representatives,hereinafter called "Issuer," and COLONIAL TRUST
COMPANY, a trust company organized under the laws of the state of
Arizona, having its principal office and post office address
respectively at 2510 West Dunlap, Suite 232, Phoenix, Arizona
85021, and P.O. Box 33487, Phoenix, Maricopa County, Arizona
85067-3487, hereinafter called either "Colonial" or "Trustee,"
WITNESSETH:
I.
CAPACITIES OF COLONIAL
Colonial will serve in the multiple capacities of Trustee for the
benefit of the Bondholders (hereinafter called "Trustee"), Registrar with
respect to the transfer of the Bonds and maintenance of the Bond Register
(hereinafter called "Registrar"), and Paying Agent with respect to
distribution of interest and principal payments to or for the Bondholders
(hereinafter called "Paying Agent"). The duties and responsibilities of
Colonial for its service in each of such capacities, as well as the
compensation to be paid to Colonial therefor, are hereinafter set forth;
provided that, unless the context otherwise requires, all such terms are
used interchangeably and collectively, the term for one capacity including
as well the other two terms and capacities.
II.
ISSUE OF BONDS AND SECURITY
Issuer has agreed and does hereby agree to issue Bonds of serial
maturities in the total amount of $9,000,000.00, hereinafter called the
"Bonds," secured, in accordance with the terms and provisions of this Trust
Indenture by a deed of trust or mortgage and security agreement, hereinafter
called the "Lien," recorded in the proper State and Parish or other recording
office, on and
Trust Indenture
Page 1 of 48
<PAGE>
covering property of Issuer more described in a mortgage(s) to be executed
by Issuer and filed of record to secure the Bond Issue governed by this Trust
Indenture (hereinafter called the "Property"), and incorporated herein by
reference. The Property shall include the Ruston, Louisiana project (the
legal description of which is attached to the Mortgage executed this date),
the Shreveport, Louisiana project and the Bossier City, Louisiana
project. The Mortgage as originally executed and as amended or
modified, from time to time, is incorporated herein by reference
and made apart hereof. All moneys received and maintained by the
Trustee hereunder shall be trust funds held for the benefit of the
Bondholders and shall not be subject to lien or attachment of any creditor
of Issuer or Trustee.
III.
DESCRIPTION OF BONDS AND LIENS
(A) All of the Bonds shall be issued on the "Authentication Date"
defined in the prospectus or offering circular in the names of the holders
thereof as registered on the books and records of the Registrar. No
principal or interest payable upon the Bonds shall be paid to any persons
other than the registered holders. Payments of principal and/or interest
upon the Bonds shall be made by check drawn upon the Sinking Fund Account to
be maintained by Trustee, which check shall be mailed, postage prepaid, to
the registered holders of the Bonds at their registered addresses.
(B) All of the Bonds will be secured by the Lien upon the Property
(including all three of the subject projects referred to above) of Issuer,
and shall have equal rights, liens and privileges under this Trust Indenture
and the Lien so that each and every Bond shall be equally and proportionately
secured without preference, priority or distinction as to the lien securing
any one Bond over the lien securing any other Bond or Bonds. The Trustee is
hereby authorized to modify or amend the mortgage as is necessary to
accomplish this purpose of having all bonds issued by Issuer in regard to the
three subject projects secured by a lien on all three of the projects.
(C) Hereinafter the phrase "Reimbursement Lien" will be used to
identify a lien against the Property in favor of Trustee securing Trustee's
right to reimbursement for its own or borrowed funds advanced or expended,
said Reimbursement Lien being likewise secured by the Property but being
superior to the Lien securing the Bondholders until such funds advanced or
expended are repaid in
Trust Indenture
Page 2 of 48
<PAGE>
full. All such advances and expenditures secured by the Reimbursement Lien
shall, subject to Article XVIII, bear interest at the rate equal to two (2%)
percent per annum in excess of the "Prime Rate" quoted daily in the money
rate column of the Wall Street Journal as said note may from day to day in
Trustee's sole discretion be adjusted upward and downward. All such
principal and interest accrued and/or collected by Trustee in reimbursement
from Issuer shall be Trustee's sole property.
IV.
DISBURSEMENT OF BOND PROCEEDS
(A) As the Bonds are sold (or if the Bond proceeds are placed in an
escrow account to be released to Trustee only after the conditions of the
escrow agreement have been met), the proceeds from the sale of the Bonds
shall be delivered to Trustee to be deposited into a Bond Proceeds Account
in the name and under the exclusive control of Trustee in a depository
selected by Trustee, including its own commercial banking division. Trustee
shall disburse the Bond proceeds in accordance with the provisions of
paragraph (B) below.
(B) Out of the proceeds from the sale of the Bonds, Trustee shall first
pay the following items in the order and preference listed:
(1) The Series 1998-I Bonds (being used for the Ruston, Louisiana
project) as follows:
(a) The Dealer's fee due the broker/dealer assisting Issuer
in the sale of the Bonds (hereinafter called "Broker") under the terms of a
written agreement between Issuer and Broker.
(b) The reimbursement to Trustee of any expenses incurred by
Trustee in the examination by its legal counsel of all documents required to
issue the Bonds.
(c) The establishment of a First Six Month Operating Fund
Payments Reserve in the amount of $200,000.00 to be used to pay the sinking
fund payments during the first six months of the project.
(d) The principal and interest payable by Issuer upon
promissory notes or other obligations of Issuer or others secured by existing
liens upon the Property, including any
Trust Indenture
Page 3 of 48
<PAGE>
interim construction loans secured by an equal parity lien with the
bonds. Upon payment of such obligations, Trustee shall be
subrogated to the rights of the prior owners thereof.
(e) The payment of remaining costs of construction in an
amount not to exceed $77,050.00.
(f) To reimburse Issuer pre-opening costs not to exceed
$100,000.00.
(g) To the Ten Year Bond Reserve Account in the amount of
$250,000.00.
(h) After the payment of the foregoing, the Trustee shall,
subject to statutory retainage, disburse the funds remaining in Issuer's
Bond Proceeds Account (hereinafter called the "Net Bond Proceeds") for the
remaining purposes of the Bond offering as set forth and described in the
prospectus or offering circular used in connection with the Bond offering,
if any, and the balance to the Issuer; provided, that in the event of any
conflict in this regard between the terms of said prospectus or offering
circular and this Trust Indenture, this Trust Indenture shall be deemed to
control.
(2) The Series 1998-II Bonds (being used for the Bossier City,
Louisiana project) as follows:
(a) The Dealer's fee due the broker/dealer assisting Issuer
in the sale of the Bonds (hereinafter called "Broker") under the terms of a
written agreement between Issuer and Broker.
(b) The reimbursement to Trustee of any expenses incurred by
Trustee in the examination by its legal counsel of all documents required to
issue the Bonds.
(c) The establishment of a First Six Month Operating Fund
Payments Reserve in the amount of $185,000.00 to be used to pay the sinking
fund payments during the first six months of the project.
(d) To the payment of a portion of the land acquisition of
the project not to exceed $100,000.00.
(e) The principal and interest payable by Issuer upon
promissory notes or other obligations of Issuer or
Trust Indenture
Page 4 of 48
<PAGE>
others secured by existing liens upon the Property, including any interim
construction loans secured by an equal parity lien with the
bonds. Upon payment of such obligations, Trustee shall be
subrogated to the rights of the prior owners thereof.
(f) The payment of remaining costs of construction in an
amount not to exceed $277,100.00.
(g) To reimburse Issuer pre-opening costs not to exceed
$100,000.00.
(h) To the Three Year Bond Reserve Account in the amount of
$240,000.00.
(i) After the payment of the foregoing, the Trustee shall,
subject to statutory retainage, disburse the funds remaining in Issuer's
Bond Proceeds Account (hereinafter called the "Net Bond Proceeds") for the
remaining purposes of the Bond offering as set forth and described in the
prospectus or offering circular used in connection with the Bond offering,
if any, and the balance to the Issuer; provided, that in the event of any
conflict in this regard between the terms of said prospectus or offering
circular and this Trust Indenture, this Trust Indenture shall be deemed to
control.
(3) The Series 1998-III Bonds (being used for the Shreveport,
Louisiana project) as follows:
(a) The Dealer's fee due the broker/dealer assisting Issuer
in the sale of the Bonds (hereinafter called "Broker") under the terms of a
written agreement between Issuer and Broker.
(b) The reimbursement to Trustee of any expenses incurred by
Trustee in the examination by its legal counsel of all documents required to
issue the Bonds.
(c) The establishment of a First Six Month Operating Fund
Payments Reserve in the amount of $100,000.00 to be used to pay the sinking
fund payments during the first six months of the project.
(d) The principal and interest payable by Issuer upon
promissory notes or other obligations of Issuer or others secured by existing
liens upon the Property, including any interim construction loans secured by
an equal parity lien with the
Trust Indenture
Page 5 of 48
bonds. Upon payment of such obligations, Trustee shall be
subrogated to the rights of the prior owners thereof.
(e) The payment of remaining costs of construction and the
purchase of furniture, fixtures and equipment in an amount not to exceed
$35,850.00.
(f) To reimburse Issuer pre-opening costs not to exceed
$100,000.00.
(g) To the Ten Year Bond Reserve Account in the amount of
$130,000.00.
(h) After the payment of the foregoing, the Trustee shall,
subject to statutory retainage, disburse the funds remaining in Issuer's
Bond Proceeds Account (hereinafter called the "Net Bond Proceeds") for the
remaining purposes of the Bond offering as set forth and described in the
prospectus or offering circular used in connection with the Bond offering,
if any, and the balance to the Issuer; provided, that in the event of any
conflict in this regard between the terms of said prospectus or offering
circular and this Trust Indenture, this Trust Indenture shall be deemed to
control.
(C) The disbursement by Trustee of the Net Bond Proceeds from Issuer's
Bond Proceeds Account shall be subject to and in accordance with the
following provisions:
(1) Issuer shall furnish to Trustee at Issuer's expense and
Trustee's election an attorney's title opinion or a mortgagee's title policy
in favor of Trustee reflecting that Trustee holds the Lien on the Property as
trustee for the benefit of the Bondholders, subject to no prior liens or
encumbrances other than those agreed upon in writing between Issuer and
Trustee.
(2) If Issuer is remodeling and/or constructing new
improvements withall or any portion of the Net Bond Proceeds,
Issuer shall filewith Trustee a written estimate of the cost of
such construction, and Issuer shall provide builder's risk insurance during
the period of construction with loss payable clause in favor of Trustee.
(a) If Issuer enters into a contract for such construction
which provides for (or if Issuer later determines such construction will
actually result in) a total cost greater than the Net Bond Proceeds, Issuer
will promptly notify Trustee of such fact.
Trust Indenture
Page 6 of 48
<PAGE>
(b) Should Trustee be so advised or determine in its sole
discretion that the Net Bond Proceeds will be insufficient to complete the
contemplated use thereof, Trustee shall not be required to disburse any funds
from Issuer's Bond Proceeds Account until such time as Issuer demonstrates
to Trustee's satisfaction that the amount necessary for completion of the
project as originally contemplated is equal to or less than the Net Bond
Proceeds.
(c) Provided that, notwithstanding the foregoing, Trustee may
make such construction and/or purchase disbursements from the Net Bond
Proceeds as it deems in its sole discretion to be in the best collective
interest of the Bondholders.
(3) Together with such supporting photographs and contractor's
and architect's affidavits and other information and material as Trustee may
from time to time require, Trustee shall be furnished an affidavit which
shall be signed and approved by an authorized representative of Issuer,
showing the estimate of the improvements completed in accordance with the
plans and specifications up to the date of such affidavit.
(a) Such affidavit shall be accompanied by Issuer's duly
executed written request for Trustee to make a construction payment,
whereupon Trustee is authorized to pay out of Issuer's Bond Proceeds Account
the amount of the estimate shown to be due for such labor performed or
materials furnished or such other percentage of such estimate, less any
applicable retainage.
(b) When the representative of Issuer certifies that all
improvements have been completed in accordance with the plans and
specifications therefor and have been accepted by Issuer, Trustee is
authorized to pay out of Issuer's Bond Proceeds Account the final balance
shown by the affidavit to be due and owing.
(c) Disbursements may be made to the contractor and/or Issuer,
as Trustee may determine to be in the best interest of the Bondholders.
(4) Trustee shall be subrogated to the rights of all laborers',
materialmen's and contractors' liens which it may reduce or discharge by
such payments, and the acceptance of any such payments shall be binding and
conclusive upon the recipients and Issuer as to such rights of Trustee.
Trust Indenture
Page 7 of 48
<PAGE>
(5) If Issuer is purchasing real property with all or any portion
of the proceeds from the sale of such Bonds, Trustee shall, upon like
certification, disburse such funds as are necessary to close such purchase,
provided that such purchased real property shall be subjected to and become
a part of the Lien and any mortgage or deed of trust upon the Property, as
evidenced at Trustee's election and at Issuer's sole expense by an
attorney's title opinion or a mortgagee's title policy in favor of Trustee
reflecting no liens or encumbrances prior to the Lien other than as agreed
upon in writing between Issuer and Trustee.
(D) Any funds remaining in Issuer's Bond Proceeds Account after all the
aforesaid payments, if not usable in further improvement of the Property,
shall in the sole discretion of Trustee be distributed to Issuer, or may be
retained by Trustee in the Bond Proceeds Account until so usable or until
such remaining funds, together with any additional funds delivered to Trustee
under the provisions of Article IX hereof, are used to redeem Bonds.
(E) If for any reason other than the gross negligence or willful
misconduct of Trustee, more funds are disbursed from the Bond Proceeds
Account for the items listed in this Article IV than are deposited into said
Account:
(1) Trustee shall promptly upon discovery thereof notify Issuer of
such fact by furnishing a statement showing how said overexpenditure
occurred;
(2) Within thirty (30) days of the receipt of such notice,
Issuer shall remit to Trustee funds sufficient to cover the overexpenditure;
and
(3) Until such time, Trustee shall have its Reimbursement Lien
therefor.
(F) If after receipt by Trustee of the proceeds from the sale of all or
any portion of Issuer's Bonds, Issuer abandons or for any reason is legally
restrained or prohibited from undertaking or proceeding with the purposes for
which such Bonds were issued:
(1) Before any disbursements are made by Trustee therefrom, Issuer
shall be obligated to pay and agrees promptly to pay the charges listed in
subparagraphs IV(B) (1) and (2) above, and Trustee shall return the gross
bond proceeds to the holders of such Bonds in full payment and redemption
thereof.
Trust Indenture
Page 8 of 48
<PAGE>
(2) After any disbursements have been made therefrom in good faith
by Trustee, the provisions of subparagraphs IV (B), (C), (D), (E) and this
subparagraph (F) shall then be applicable to the disbursement and return of
the excess funds remaining, if any.
In neither event shall the Bondholders be entitled, in addition to
the principal so returned after payment of such costs and expenses, to
interest on such principal. Return of such principal to the Bondholders, net
of any applicable expenses, shall operate as a complete discharge of the
Trustee; and Issuer hereby indemnifies and agrees to hold Trustee from any
and all claims therefor, including all costs of maintaining a legal defense.
V.
PAYMENT OF BONDS
(A) Issuer shall pay directly and in the order and preference listed:
(1) All expenses incurred by Broker and any escrow agent in
connection with the escrowing of the Bond proceeds;
(2) The charges of any depository bank selected by Trustee;
(3) The service charges and fees of Trustee described in
Article XX; and
(4) The Sinking Fund Account maintained by Trustee for payment of
the principal and interest on the Bonds as such indebtedness matures on
successive Bondholder payment dates.
(B) Issuer shall remit to Trustee amounts (hereinafter collectively
referred to as "Sinking Fund Payments") as set forth in the Schedule of
Payments set forth in the Offering Circular pursuant to which the bonds were
sold and a copy of which said schedule may also be attached hereto, and if
so, as EXHIBIT "C", which said amounts, if timely paid, will accumulate to be
sufficient on each Bondholder payment date to pay the following in the order
and preference listed:
(1) Any unpaid charges of the depository bank;
Trust Indenture
Page 9 of 48
<PAGE>
(2) Any unpaid Trustee, Registrar and Paying Agent fees and
charges and any other compensation, repayment or reimbursement payable to
Trustee hereunder; and
(3) The installments of principal and interest on all Bonds then
due for payment.
(C) Issuer shall deliver to Trustee its required Sinking Fund Payments
to be deposited into a Sinking Fund Account in the name of and under the
exclusive control of Trustee in a depository or depositories selected by
Trustee, including its own commercial banking division. Trustee shall cause
disbursement of the sinking funds for the purpose of paying the items
described above and such other items as are expressly provided to be paid
from the Sinking Fund Account by other provisions of this Trust Indenture.
Issuer shall remit the Sinking Fund Payments to Trustee by one of the
following exclusive methods:
(1) Monthly installments to be transmitted electronically through
the Automated Clearing House ("ACH") network; or
(2) Monthly installments to be paid by check or bank draft.
(D) In the event Issuer defaults in the payment of the
principal and/or interest upon any outstanding Bond(s) issued hereunder or
any of the other requirements of this Trust Indenture, and Trustee
consequently resorts to its remedies, Issuer hereby agrees to pay the
reasonable costs of cure, collection and/or foreclosure upon the Property,
including without limitation court costs, the fees of attorneys, legal
stenographers, expert witnesses, appraisers, surveyors and realtors, the
travel expenses of such persons and Trustee's own personnel and the costs of
preserving, maintaining, insuring and paying taxes on the Property; and
Trustee shall have its Reimbursement Lien therefor.
(E) Issuer agrees to pay the required installments into the Sinking
Fund Account as required herein before it disburses funds for any other
purposes whatsoever.
(1) To further secure the timely payment of the sinking fund
installments and Issuer's other obligations hereunder, Issuer hereby
unconditionally assigns, sets over, and pledges its first revenues from any
and all sources.
Trust Indenture
Page 10 of 48
<PAGE>
(2) So long as the sinking fund installments and other
expenditures required of Issuer are promptly and properly made, the first
revenues received by Issuer shall be handled by Issuer without any
interference by Trustee; but should Issuer fail to make the required sinking
fund installments, then Trustee may elect to demand payment to it of Issuer's
first revenues; and after receipt of such written demand Issuer shall,
promptly and without contest, deliver all of its receipts directly to Trustee
until the Sinking Fund Account delinquency is remedied, after which Issuer
may again deal with its receipts as before such default.
(F) Any balance remaining in the Sinking Fund Account shall be paid to
Issuer whenever (i) all matured principal and interest (including any
unforgiven penalty interest) on the Bonds has been paid in full or provision
for such payment satisfactory to Trustee has been made, (ii) all obligations,
expenses, fees, costs and charges of Trustee, Paying Agent, Registrar and all
depositories incurred hereunder have been paid, and (iii) Issuer is current
in its installments required to be paid into the Sinking Fund Account.
(G) Issuer agrees to maintain with the Trustee a Ten Year Bond Reserve
account funded in the amounts set forth above which shall be for the purpose
of providing for, in part, the debt service requirements to pay the principal
and interest due on any semiannual payment date of the bonds herein
authorized. Such account shall be held, administered and distributed as
follows:
(1) The Issuer shall fund from the proceeds of the sale of the
bonds and the Trustee will accept and maintain in the Ten Year Bond Reserve
Account (hereinafter referred to as the "Reserve Account") the applicable
amounts as set forth above in Article IV pursuant to the terms and conditions
hereof.
(2) During the applicable period of the Reserve Account, the
Reserve Account shall be applied only to the payment of principal and
interest on the bonds in the event that as of a semiannual payment date the
Issuer has failed to deposit with the Trustee in the Sinking Fund Account
sufficient sums to enable the Trustee to pay the principal and interest due
as of such payment date. In the event that as of a certain semiannual
payment date the Issuer has not deposited sufficient sums with the Trustee to
pay the principal and interest then due, as defined in the Trust Indenture,
but the total bonds owing have not been accelerated, then Trustee shall
apply, to the extent available, funds from the Reserve Account to the payment
of the principal and interest then owing on the bonds as of such payment
date.
Trust Indenture
Page 11 of 48
<PAGE>
(3) In the event that the total amount owing on the bonds has been
accelerated, then the funds held in the Reserve Account shall be held,
administered and distributed for the benefit of all bondholders as part of
the proceeds from the collateral. No portion of the Reserve Account shall
inure to or benefit any interim note holder who is in a co-first mortgage
position with the Trustee, unless and except that the Issuer and the Trustee
may agree to use funds available in the Reserve Account to pay off any such
interim lender.
(4) Any interest earned on the Reserve Account shall be retained
in the Reserve Account.
(5) Provided that the Issuer is current in the payment of its
sinking fund obligation, all funds on hand in the Reserve Account after the
term provided for in the Prospectus for the maintaining of the applicable
Reserve Account ("the term of the Reserve") shall be transferred by the
Trustee into the Sinking Fund Account to be used to pay off existing bonds.
In the event that the Issuer is not current in its sinking fund payments as
of the date of the termination of the term of a Reserve Account, then the
Trustee shall continue to hold the funds in the Reserve Account pursuant to
the terms and conditions hereof until the Issuer is current in its sinking
fund payments and maintains a current status for six (6) consecutive months.
(6) In the event that the Trustee uses funds from the Reserve
Account to pay the principal and interest on the bonds due at a particular
paydate, then the Issuer shall pay to the Trustee, within one hundred
eighty (180) days from the date of such paydate, an amount necessary to
replenish such Reserve Account. Failure to replenish such Reserve Account
within such one hundred eighty (180) day period shall be an event of default
hereunder and shall entitle the Trustee to continue to hold such Reserve
Account, in addition to its other remedies.
(7) In addition to the payment of the principal and interest due
the bondholders, Trustee may pay from the Reserve Account before transferring
a Reserve Account to the Sinking Fund Account any and all late charges,
trustees fees, collection charges, attorney's fees and other out-of-pocket
expenses due and owing to the Trustee or incurred by the Trustee in regard
to this issue.
(8) Although the Reserve Account is funded by a specific amount
from the proceeds of the three series of bonds
Trust Indenture
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<PAGE>
issued, the Trustee may use any amount toward the payment of maturities of
any of the three offerings.
(H) Issuer agrees to maintain with the Trustee the First Six Month
Operating Fund reserve accounts in the amounts set forth in Article IV above
which shall be for the purpose of providing for the debt service requirements
to pay the principal and interest due on the first semiannual payment date of
the bonds herein authorized. During the applicable period of such reserve
accounts, monies from such applicable accounts shall be applied only to the
payment of principal and interest on the bonds in the event that as of the
first semiannual payment date the Issuer has failed to deposit with the
Trustee in the Sinking Fund Account sufficient sums to enable the Trustee to
pay the principal and interest due as of such first payment date. In the
event that as of the first semiannual payment date the Issuer has not
deposited sufficient sums with the Trustee to pay the principal and interest
then due, as defined in the Trust Indenture, but the total bonds owing have
not been accelerated, then Trustee shall apply, to the extent available,
funds from the applicable account to the payment of the principal and
interest then owing on the bonds as of such payment date. In the event that
the total amount owing on the bonds has been accelerated, then the funds held
in such accounts shall be held, administered and distributed for the benefit
of all bondholders as part of the proceeds from the collateral. No portion
of the accounts shall inure to or benefit any interim note holder who is in a
co-first mortgage position with the Trustee, unless and except that the
Issuer and the Trustee may agree to use funds available in the accounts to
pay off any such interim lender.
Any interest earned on the accounts shall be retained in the accounts.
Provided that the Issuer is current in the payment of its sinking fund
obligation, all funds on hand in these accounts after the first six month
payment date shall be disbursed by the Trustee for the purposes and in the
order set forth for the disbursement of bond proceeds as provided in the
appropriate provision of Article IV above.
VI.
FAILURE TO SURRENDER MATURED BONDS FOR PAYMENT
As to checks representing payments of principal and/or
interest mailed by Paying Agent to the registered holders of the
Bonds which are not thereafter presented for payment, Trustee shall
Trust Indenture
Page 13 of 48
set aside and retain in a separate account a sum equal to such maturing
installment of principal or interest.
(A) No interest shall accrue or be payable from or after such payment
date either upon such matured installment or such funds in said separate
account.
(B) After three (3) years from such separation of funds, any separated
funds remaining unclaimed shall be escheated and delivered by Trustee to the
appropriate state which delivery shall operate as a complete discharge of
Trustee; and Issuer hereby indemnifies and agrees to hold Trustee harmless
from any and all subsequent claims therefor or resulting therefrom asserted
by any Bondholder(s) and/or governmental agency or agencies, including all
costs of maintaining a legal defense.
VII.
ISSUER'S COVENANTS REGARDING
MAINTENANCE OF PROPERTY
AND STATUS
(A) At its own cost and expense, Issuer shall:
(1) Obtain and maintain certification from all applicable
authorities, federal, state and local, of Issuer's corporate existence and
exemptions from income tax and from ad valorem taxes on all eligible property,
provide same to Trustee upon request and promptly notify Trustee of any
cancellation or revocation thereof, and pay all license or other fees and
timely make all returns and reports necessary for that purpose;
(2) Maintain the Property in good repair and condition;
(3) Pay or discharge all taxes and assessments and any mechanics'
and materialmen's lien indebtedness that are or may become payable with
respect to the Property as same become due and payable under any law,
ordinance or regulation; and
(4) Secure from a reputable insurance company or companies
acceptable to Trustee, and maintain in full force and effect at all times
while any of said Bonds are outstanding, fire and extended coverage insuring
the Property against such losses in an amount at least equal to the balance
outstanding on the outstanding Bonds hereunder, including accrued interest,
and in no event less than eighty (80%) percent of the fair market value of
the improvements located thereon, which policy or policies shall
Trust Indenture
Page 14 of 48
<PAGE>
contain a loss payable clause in favor of Trustee and shall be delivered to
Trustee to be kept by it until the Bonds are paid in full.
(a) In the event of any losses, the proceeds of insurance
paid to Trustee shall be applied: (i) for the replacement and/or repair of
the improvements damaged; (ii) toward the purchase of additional property,
subjected to and become a part of the Lien and any mortgage or deed of trust
upon the Property, as evidenced at Trustee's election and at Issuer's sole
expense by an attorney's title opinion or a mortgagee's title policy in
favor of Trustee reflecting no liens or encumbrances prior to the Lien other
than as agreed upon in writing between Issuer and Trustee; (iii) for the
construction of additional improvements on the Property; and/or (iv) to call
and repay outstanding Bonds in the same manner as partial prepayments are to
be applied under the provisions of Article IX without prepayment penalty.
(b) Subject to the approval of Trustee, Issuer has the
right to select which of these alternatives it desires to exercise and shall
notify Trustee in writing in advance as to the alternatives selected.
(B) In the event that Issuer defaults in its performance
of any of the undertakings set out in paragraph VII(A) above:
(1) Trustee is hereby authorized to withdraw funds from Issuer's
Sinking Fund Account and to apply same in curing such default for the account
of Issuer. In the event there are no funds in Issuer's Sinking Fund Account
or same are insufficient for such purpose, Trustee may in its sole discretion
borrow for and/or advance into the Sinking Fund Account such amounts as are
required for compliance, secure such loan with or be secured for such advance
by the Reimbursement Lien, and repay such withdrawal, loan or advance,
together with interest accruing thereon at the Reimbursement Lien rate, from
future payments made into Issuer's Sinking Fund Account; provided, that
Trustee shall never, under any circumstances whatsoever, be obligated to
borrow for or advance funds to or for Issuer's account.
(2) Issuer shall be obligated to immediately restore the proper
balance of its Sinking Fund Account by prompt payment of the amount so
withdrawn and expended.
(3) The time, amount and nature of such withdrawal and expenditure
by Trustee shall be fully established by a written
Trust Indenture
Page 15 of 48
<PAGE>
notice from Trustee to Issuer of such actions by Trustee. The exercise of
this right of withdrawal and expenditure by Trustee, however, shall not be
considered or constitute a waiver of Trustee's cumulative right hereinafter
set out to declare the entire indebtedness represented by such Bonds to be
and become due and payable at once by reason of such default on the part of
Issuer.
(C) Issuer covenants that it will not merge or consolidate with or into
any other organization or corporation unless Issuer is the surviving
corporation or the surviving corporation assumes all obligations of Issuer
under this Indenture. So long as any Bonds are outstanding, Issuer shall not
merge or consolidate with any other organization without the prior written
consent of Trustee. Issuer further covenants that it will not sell, lease or
otherwise dispose of all or substantially all of its properties as an
entirety.
(D) Issuer covenants that so long as any Bonds are outstanding and
unpaid to the extent of its financial dealings or transactions in relation
to its business and the revenues derived therefrom, Issuer will keep or
cause to be kept proper books of record and account. Such books shall at all
times be open to the inspection of such accountants or other agencies as
Trustee may from time to time designate. In addition, Issuer shall provide
Trustee upon request with financial statements within ninety (90) days of
the close of Issuer's fiscal year.
VIII.
DEFAULT AND REMEDIES
(A) For purposes hereof, any one or more of the following by Issuer
shall constitute an event of default:
(1) Failure or refusal to pay when due the principal and/or
interest on any of the Bonds;
(2) Failure or refusal to timely pay into the Sinking Fund Account
any installments required to pay any of the Bonds;
(3) Failure or refusal to pay when due any taxes, assessments,
insurance, claims, liens or encumbrances upon the Property, or to maintain
the Property in good repair; or to cure the breach of any other covenant set
forth in Article VII;
Trust Indenture
Page 16 of 48
<PAGE>
(4) Failure or refusal to pay when due any loan or advance by or
the fees and expenses of Trustee or of any depository or escrow agent;
(5) Failure or refusal, upon any written request of Trustee, (i)
to furnish Trustee with such insurance policies, financial reports and
information concerning Issuer as may be reasonably required by Trustee, or
(ii) to grant unto Trustee, its agents, accountants and attorneys access
during normal business hours to Issuer's offices for the purpose of
examining and, within reasonable limits, photocopying such records.
(6) Making an assignment for the benefit of creditors; or should a
receiver, liquidator, or trustee be appointed to assist in the payment of
Issuer's debt; or should any petition for the bankruptcy, reorganization, or
arrangement of Issuer be filed; or should Issuer be liquidated or dissolved,
or its charter expire or be revoked;
(B) Should an event of default occur, Issuer expressly hereby waives:
demand and presentment for payment, notice of default and of intent to
accelerate and of acceleration, and protest, notice of protest, presentment
and notice of dishonor. Trustee shall be entitled to exercise the following
remedies which shall be cumulative and not exclusive; and the waiver or
forbearance by Trustee, whether mandatory or discretionary, as to any one or
more events of default shall not under any circumstances be deemed or
construed as: (i) a waiver or estoppel as to any subsequent event of default,
(ii) impairing any rights or remedies consequent thereon, or (iii)
establishing a course of dealing with Issuer:
(1) Should the default continue for a period of thirty (30) days,
Trustee may, or Trustee shall upon the receipt of (i) written request from
the registered holders of twenty-five (25%) percent in principal amount of
the Bonds then outstanding and unpaid and (ii) satisfactory proof of
indemnity, declare to be immediately due and payable the principal balance
of all unpaid Bonds together with all accrued interest thereon and all such
loans, advances, taxes, assessments and insurance monies unpaid. This
provision, however, is subject to the condition that if at any time after
the principal of said Bonds shall have been so declared due and payable, and
before any sale of the Property shall have been made, all defaults under
this Trust Indenture have been cured and all expenses incurred by Trustee in
any attempted correction of such default and acceleration of such
indebtedness have been fully
Trust Indenture
Page 17 of 48
<PAGE>
paid or reimbursed by Issuer, then Trustee shall waive such default and its
consequences.
(2) Should the default continue for a period of thirty (30) days,
upon demand of Trustee, Issuer shall forthwith peaceably surrender the
Property to Trustee, and it shall be lawful for Trustee by such officers,
agents, servants and employees as it may appoint, (i) to take possession of
the Property (with the relevant books, papers and accounts of Issuer), to
lock-out Issuer's employees and agents and/or to hold, operate and manage
the Property, any or all without having thereby committed trespass or
violated any statute otherwise applicable (which claim(s) Issuer expressly
hereby waives), (ii) to pay taxes, insurance and assessments thereon, (iii)
to make such repairs, alterations, additions, and improvements thereto as
Trustee in its sole discretion deems necessary; and (iv) to receive the
rents, income, issues and profits therefrom and out of them to pay all
proper costs and expenses of so taking, holding and managing such Property,
including without limitation reasonable compensation to and expenses of
Trustee, its agents, employees and counsel, for which Trustee shall have its
Reimbursement Lien. The remainder of the monies so received by Trustee, if
any, shall be utilized to pay interest and principal on the Bonds.
Provided, however, that it shall not be obligatory upon Trustee to take such
possession in the event of default.
(3) Should the default continue for a period of thirty (30) days,
Trustee may, or Trustee shall upon receipt of (i) written request from the
registered holders of twenty-five (25%) percent in principal amount of the
Bonds outstanding and unpaid and (ii) satisfactory proof of indemnity,
proceed to sell the Property, in one or more parcels, as provided by law
for foreclosure under the terms and provisions of the Lien. Anyone may bid
and/or purchase at such sale, including Trustee or any Bondholder.
(4) Should the default continue for a period of thirty (30) days,
Trustee may, with or without entry upon the Property as hereinbefore
provided, proceed by suit or suits at law or in equity or by any other
appropriate remedy:
(a) To recover all payments of principal, interest and other
sums which are due but have not been paid;
(b) To recover the entire principal sum of all Bonds then
outstanding together with all accrued interest thereon (irrespective of
whether the principal and/or interest of the Bonds shall then be due and
payable as therein expressed and irrespective
Trust Indenture
Page 18 of 48
<PAGE>
of whether Trustee shall have made any demand on Issuer for the payment of
overdue principal and/or interest;
(c) To enforce payment of the Bonds; and/or
(d) To foreclose the Lien and to sell the Property under the
judgment or decree of a court or courts of competent jurisdiction.
It shall be obligatory upon Trustee to take action either by such proceedings
or by the exercise of its powers with respect to entry or sale as it in its
sole discretion may determine, upon being requested so to do in writing by
the holders of twenty-five (25%) percent in principal amount of the Bonds
then outstanding and unpaid and upon receipt of satisfactory indemnity.
(5) Notwithstanding the above, in the event that the Issuer is in
default in the payment of the principal and/or interest on one or more series
of the Bonds, but not all of the series of the Bonds, or the Issuer is in
default in the timely payment of the installments to the Sinking Fund Account
required on one or more series of the Bonds, but not all of the series of
the Bonds and should such default continue for a period of thirty (30) days,
then the Trustee may, at Trustee's option, either declare to be immediately
due and payable the principal balance and accrued interest of only the
unpaid Bonds in the Series in default or the Trustee may declare to be
immediately due and payable the principal balance due and accrued interest
of all of the unpaid Bonds of all Series issued by the Issuer pursuant to
this Trust Indenture and any supplement hereto. Should the Trustee elect
to accelerate only the unpaid principal balance and accrued interest in
regard to the Series of Bonds then in default and if the Issuer then fails
to pay said amount and the Trustee then proceeds to foreclose the lien
securing the Bonds, the Trustee may first foreclose only the lien against
the property applicable to the defaulted Series of Bonds and if there
remains a deficiency in the payment of the Series of Bonds in default, then
the Trustee may declare to be immediately due and payable the principal
balance due and accrued interest of any or all of the unpaid Bonds of any or
all of the remaining Series issued by the Issuer pursuant to this Trust
Indenture and any supplement hereto and if the Issuer then fails to pay said
amount, the Trustee then may proceed to exercise any remedy provided for
herein or in the mortgage securing the Bonds, including a foreclosure of the
lien securing the then accelerated and unpaid Bonds.
Trust Indenture
Page 19 of 48
<PAGE>
(6) Trustee may in good faith, if it deems such to be in the best
collective interest of the Bondholders, agree with Issuer upon a
temporarily reduced level of performance and/or payments into the Sinking
Fund Account, during which time Trustee will forbear from resorting to other
remedies even though Issuer continues in formal default; provided that such
forbearance agreement shall immediately be terminated upon Trustee's receipt
of written request from the registered holders of twenty-five percent (25%)
in principal amount of the Bonds then outstanding and unpaid directing
Trustee to resort to any other remedy.
(7) Upon a filing of a bill in equity or other commencement of
judicial proceedings to enforce the rights of Trustee on behalf of the
Bondholders, Trustee, as a matter of right and without regard to the
sufficiency of the security, shall be entitled at its sole election to the
appointment (immediately and without notice to Issuer, which is hereby
waived) of a receiver of the Property and of the income, rents, issues and
profits thereof pending such proceedings, with such powers as may be
required to protect the interest of the Bondholders as the court making such
appointment shall confer.
(8) In case of the pendency of any receivership, insolvency,
liquidation, bankruptcy, reorganization, arrangement, adjustment, composition
or other judicial proceeding relative to Issuer, or of any other obligor upon
the Bonds or the Property or of such other obligor or their creditors,
Trustee (irrespective of whether the principal and/or interest of the Bonds
shall then be due and payable as therein expressed or by declaration or
otherwise, and irrespective of whether Trustee shall have made any demand
on Issuer for the payment of overdue principal and/or interest) shall be
entitled and empowered, by intervention in such proceeding or otherwise: (i)
to represent the interests of the Bondholders as a class in any such judicial
proceedings; (ii) to file and prove a claim for the whole amount of principal
and interest owing and unpaid in respect of the Bonds and to file such other
papers or documents as may be necessary or advisable in order to have the
claims of Trustee (including any claim for the reasonable compensation,
expenses, disbursements and advances of Trustee, its agents, employees and
counsel) and of the Bondholders allowed in such judicial proceedings; and
(iii) to collect and receive monies or other property payable or deliverable
on any such claims and to distribute the same. Any receiver, assignee,
trustee, liquidator, sequestrator (or other similar official) in any such
judicial proceeding is hereby authorized by each Bondholder to make such
payments to Trustee, and in the event that Trustee shall consent to the
making of such payments directly to
Trust Indenture
Page 20 of 48
<PAGE>
the Bondholders, to pay to Trustee any amount due to it for the reasonable
compensation, expenses, disbursements and advances due Trustee, its agents,
employees and counsel, and any other amount due Trustee hereunder. Nothing
herein contained shall be deemed to authorize Trustee to authorize or consent
to or accept or adopt on behalf of any Bondholder any plan of reorganization,
arrangement, adjustment or compensation affecting the Bonds or the rights of
any Bondholder thereof, or to authorize Trustee to vote in respect of the
claim of any Bondholder in any such proceeding.
(9) In the event Trustee determines in good faith that Issuer and
any other actual or potential obligor(s) upon the Bonds (e.g., obligor's
personnel and members of its governing body in the event of defalcation,
fraud or other malfeasance) have no other material assets worth more than the
costs and expenses of obtaining and executing upon any judgment which might
result from a foreclosure sale of the Property and/or a suit for damages,
each Bondholder hereby expressly authorizes Trustee to bid on the Property at
any foreclosure sale the total amount of indebtedness then secured by the
Lien, in full and complete discharge of the liability of Issuer and any such
obligor(s) upon the Bonds; and Trustee shall thereby be relieved of any duty
whatsoever to pursue a deficiency against Issuer or any person. This clause
shall under no circumstances be construed as limiting the liability of Issuer
and/or its principals or sureties to the collateral or otherwise waiving
personal recourse against such persons should Trustee elect to pursue same.
(C) It is the intention of Issuer, the Bondholders and Trustee to
create hereby an express trust as defined by the Arizona Trust Statutes and
to which said Arizona Trust Statutes are applicable as they now exists or
may hereafter be amended; and to that end legal ownership of the collective
rights and choses in action created hereunder is vested in Trustee for the
equitable benefit of the Bondholders, including the rights to repayment and
to proceed against any and all collateral securing same and any and all
persons liable therefor, of which the bonds are only an indicia of each
individual Bondholder's equitable ownership. All rights of action and claims
under this Trust Indenture or the Bonds may be prosecuted and enforced by
Trustee as legal owner thereof without the possession of any of the Bonds or
the production thereof in any proceeding relating thereto; and any such
proceeding instituted by Trustee shall be brought in its own name as Trustee
of this express trust.
(D) After the occurrence of any event of default hereunder of which
Trustee has knowledge or is required to notice,
Trust Indenture
Page 21 of 48
<PAGE>
Trustee may, but shall not be obligated to, transmit by mail to all
Bondholders, as their names and addresses appear in the Bond register, notice
of such default and Trustee's intentions with respect thereto. Trustee
shall be protected in withholding such notice so long as Trustee in good
faith determines that the withholding of such notice is in the best
collective interest of the Bondholders.
(E) No bondholder individually or as part of group may institute any
proceeding (judicial or otherwise) with respect to the Bonds and/or the
Indenture or seek any remedy thereunder, unless: (i) such Bondholder(s) has
notified Trustee of an event of default continuing thirty (30) days or more,
(ii) the Bondholders of at least twenty-five (25%) percent in principal
amount of the Bonds then outstanding and unpaid have given written notice to
Trustee to institute proceedings in respect of such event of default, (iii)
such Bondholder in subparagraph (i) and/or Bondholders in subparagraph (ii)
have offered in writing and demonstrated to Trustee's satisfaction the
ability to indemnify Trustee against the costs Trustee may incur in
complying with such request, and (iv) during the sixty (60) day period
following Trustee's receipt of the notice in subparagraphs (i) - (iii),
Trustee fails to institute a proceeding or take action as permitted hereunder
in respect to such event of default.
(F) If, at any Bondholder payment date, Issuer has failed to make the
sinking fund installments required to pay all of the principal and/or
interest maturing on said date, Trustee shall have the right, among other
remedies, to authorize and direct the depository bank to stop payment on any
and all checks therefor which may have been issued by Trustee to the
Bondholders and which are outstanding at such time even though the funds
which are on deposit are sufficient to pay some of those checks. When
Issuer has deposited with Trustee sums sufficient to permit payment in full
of all such Bondholders, Trustee's compensation and any reimbursement then
due, and any charges of the depository bank, Trustee may revoke its stop
payment instructions and authorize said bank to proceed to honor any checks
drawn upon such Sinking Fund Account.
(G) Notwithstanding any provision(s) of the Bonds to the contrary,
should Issuer fail for any reason to timely pay the principal and/or interest
upon the Bonds at the time such payment becomes due, and should Trustee elect
not to loan or advance the requisite funds and secure same with its
Reimbursement Lien, Issuer shall pay as a penalty for the benefit of the
Bondholders additional interest upon the past due principal and/or interest
of
Trust Indenture
Page 22 of 48
<PAGE>
said Bonds at the rate, subject to Article XVIII, equal to two (2%) percent
per annum in excess of the highest rate of interest payable by said Issuer
upon the Bonds from and after the date that said indebtedness becomes due
and payable until such time as said indebtedness is paid in full; provided
that Trustee may waive such penalty interest for additional consideration or
if Trustee otherwise determines in its sole discretion that to do so is in
the best collective interest of the Bondholders.
(H) Trustee shall have no duty, obligation or liability under
any circumstances whatsoever to pay any principal and/or interest upon the
Bonds issued hereunder nor to correct or cure any default. Should Trustee,
however, for any reason pay any principal and/or interest upon said Bonds,
whether intentionally or inadvertently (excluding only overpayment), or
in its sole discretion incur any expenses, including without limitation
attorney fees and other legal costs, in attempting to correct or cure such
default or collect any delinquent payment or foreclose upon the Lien,
Trustee shall have its Reimbursement Lien to secure the repayment of such
sum advanced or expended to be repayable by Issuer and otherwise from
Issuer's Sinking Fund Account and, to the extent then necessary, from
Issuer's Bond Proceeds Account, anything to the contrary herein
notwithstanding. In the event of an overpayment to a Bondholder(s), Trustee
shall look to the Bondholder(s) and not Issuer for repayment, but shall have
the right of offset against other funds at any time held for distribution to
such individual overpaid Bondholder(s).
(I) All moneys received by Trustee pursuant to any right given or
action taken under the provisions of this Article in respect of an event of
default shall, after payment of the costs and expenses of the proceedings
resulting in the collection of such moneys and of the fees, expenses,
liabilities and advances incurred or made by Trustee or at its discretion,
be deposited into the Sinking Fund Account; and all moneys in the Sinking
Fund Account (other than moneys for the payment of Bonds which have matured
or otherwise become payable prior to such event of default, which moneys
shall be applied to such payment) shall during the continuance of an event of
default be applied as follows:
(1) Unless the principal of all the bonds shall have become or
shall have been declared due and payable, all such moneys shall be applied:
FIRST -- To the payment in full of all series of interest
payments then due on the Bonds, in order of maturity, and if
the amount available
Trust Indenture
Page 23 of 48
<PAGE>
shall not be sufficient to pay in full the eligible series
having the most recent maturity, then to the ratable payment
of such series, without other discrimination or privilege;
and
SECOND -- To the payment in full of all series of principal
payments then due on the Bonds, in order of maturity, and if
the amount available shall not be sufficient to pay in full
the latest series having the most recent maturity, then to
the ratable payment of such series, without other
discrimination or privilege.
(2) If the principal of all the Bonds shall have become due or
shall have been declared due and payable, all such moneys shall be applied to
the payment of the principal and interest then accrued and unpaid upon all
unpaid Bonds, without preference or priority of principal over interest or
of interest over principal, or of any series or maturity over any other
series or maturity, or of any bond over any other bond, whether simple or
compound, ratably, according to the combined amount respectively due thereon
for both principal and interest, to the persons entitled thereto without any
discrimination or privilege.
Whenever moneys are to be applied pursuant to the provisions of this
paragraph (I), such moneys may be applied at such times and from time to
time, as Trustee may determine in its sole discretion, having due regard to
the amount of such moneys available for such application and the likelihood
of additional moneys becoming available for such application in the future.
Whenever Trustee so applies funds, it shall fix the date (which shall be a
principal and/or interest payment date unless Trustee in its sole discretion
deems another date more suitable) upon which such application is to be made,
and upon such date interest on the amounts of principal and interest to be
paid on such dates shall cease to accrue. Trustee may give such notice as
it deems appropriate of the deposit with it of any such moneys and of the
fixing of any such date, and Trustee shall not be required to make payment
to the holder of any unpaid Bond until such Bond shall be presented to
Trustee for appropriate endorsement or cancellation.
Notwithstanding anything herein to the contrary, in the event that a
Bondholder paydate distribution shall not have been made because of
insufficient funds in Issuer's Sinking Fund Account, should funds
thereafter accumulate in the Sinking Fund
Trust Indenture
Page 24 of 48
<PAGE>
Account sufficient to meet such prior Bondholder payment in whole or in part,
Trustee may nonetheless continue to hold such funds until it is able to make
a good faith determination, based in its sole discretion upon its
negotiations with Issuer and its perception of Issuer's ability to meet
Issuer's future obligations hereunder: (i) to disburse such funds pursuant to
subparagraph (I)(1), or (ii) to accelerate the entire indebtedness effective
as of either the date of the event of default or the Bondholder payment date,
as Trustee elects, and later disburse such funds along with other proceeds
pursuant to subparagraph (I)(2).
IX.
PREPAYMENT PRIVILEGES
(A) If Issuer is not in default:
(1) If there is only one series of Bonds outstanding hereunder,
Issuer shall have the privilege of prepaying all of the Bonds of said series
in full before maturity; provided that said prepayment shall be made only on
a principal and/or interest payment date. If there are two or more series of
Bonds outstanding hereunder, Issuer shall have the privilege of prepaying in
full before maturity, on a principal and/or interest payment date only, all
of the Bonds of one or more of such series, which series Issuer may in its
sole discretion select.
(2) Issuer shall also have the privilege of peremptory partial
prepayment, i.e., prepayment in full before maturity of one or more randomly
selected Bonds from any one outstanding series, but not all the Bonds thereof,
to be made only on a principal and/or interest payment date. Issuer shall
notify Trustee of both the amount to be prepaid and the series designated,
and Trustee shall randomly by lot, in such manner as it may determine,
select from such series individual Bonds in the requisite amount for
prepayment.
(B) Except as may be otherwise provided in the prospectus, offering
circular and/or Bonds themselves, there shall be no penalty for prepayment of
all or any portion of the Bonds, but Issuer may be charged a reasonable fee
therefor in addition to and notwithstanding those fees set forth in Article
XX.
(C) Issuer will pay to Trustee not less than two (2) full working days
before the date fixed by Issuer for such prepayment as provided in paragraph
(D) next following, a sum sufficient to pay the principal of the Bonds being
called for
Trust Indenture
Page 25 of 48
<PAGE>
prepayment together with all interest accrued thereon as of the prepayment
date, together with Trustee's fee. Upon the prepayment date, or as
soon thereafter as shall be practicable, Trustee shall pay to the holders of
the Bonds being called for prepayment the principal and accrued interest
upon said Bonds as of the prepayment date. Payment of the principal and
accrued interest upon said Bonds shall be by check drawn upon the Sinking
Fund Account mailed, postage prepaid, to the registered Bondholder at his
registered address.
(D) Issuer shall give Trustee written notice of its election to call
and prepay such Bonds at least thirty (30) days prior to the date fixed by
Issuer for such call and prepayment. Trustee shall, at the expense of Issuer,
then give written notice of the proposed prepayment to each of the
registered Bondholders of the Bonds selected at least fifteen (15) days
prior to the date fixed by Issuer for such prepayment.
(E) As to any Bonds called for prepayment which are not presented to
Trustee for payment, Trustee shall set aside and retain in a separate account
a sum equal to the unpaid principal and accrued interest thereof.
(1) No interest shall accrue or be payable from or after such
payment date either upon such called Bonds or such funds in said separate
account.
(2) After three (3) years from such separation of funds, any
separated funds remaining unclaimed shall be escheated and delivered by
Trustee to the State of Arizona; such delivery shall operate as a complete
discharge of Trustee as between the Bondholders and Issuer; and Issuer
hereby indemnifies and agrees to hold Trustee harmless from any and all
subsequent claims therefor or resulting therefrom asserted by any
Bondholder(s) or governmental agency or agencies, including all costs
of maintaining a legal defense.
(F) Should Issuer deposit funds for the prepayment of outstanding bonds
in an amount which Trustee ultimately determines to be in excess of the
funds actually required to effect said prepayment, then Trustee, immediately
upon discovering this fact, shall remit such excess payment to Issuer or to
such other persons or firms to whom Issuer is obligated with respect thereto.
Should Issuer deposit funds for such prepayment which are insufficient to
accomplish same, Issuer shall immediately remit to Trustee such additional
funds as may be required to complete the prepayment, even if such
underpayment was the result of the reliance by Issuer
Trust Indenture
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<PAGE>
on prepayment calculations furnished it by Trustee. In the event that
Issuer does not promptly remit such additional funds, then Trustee may, at
its option, stop payment on the checks given by it to pay the principal and
interest upon said Bonds which have not been paid, or it may borrow and/or
advance such additional funds as will permit said Bonds to be prepaid. In
the latter event Issuer agrees to promptly reimburse Trustee, and Trustee
shall have its Reimbursement Lien therefor.
(G) Trustee is authorized to execute a release of the Lien in the event
of complete prepayment of all Bonds issued pursuant to this Trust Indenture.
Such release will be prepared by or on behalf of Issuer at its expense and
submitted to Trustee for execution.
X.
REPLACEMENT OF BONDS
(A) In the event any Bond shall become mutilated or defaced, Registrar
in its discretion may, upon presentment and cancellation thereof, issue a new
Bond of like kind, maturity and date in exchange and in substitution therefor.
(B) In the event any Bond is destroyed, lost or stolen, Registrar in
its discretion may issue, in lieu of and in substitution therefor, a new Bond
of like kind, maturity and date upon the registered holder of such Bond (i)
filing with Registrar evidence satisfactory to it that he is the true owner
of same and that such Bond has in fact been destroyed, lost or stolen; and
(ii) indemnifying through a reputable surety and holding harmless both Issuer
and Registrar and Paying Agent against any loss resulting, directly or
indirectly, from issuance of the substitute Bond.
(C) All Bonds issued under this Trust Indenture shall be held and
owned upon the express condition that the provisions of this Article are
exclusive in respect to the replacement and payment of mutilated, defaced,
destroyed, lost or stolen Bonds, and shall preclude any and all other rights
and remedies, notwithstanding any law or statute now existing or hereafter
enacted to the contrary respecting such replacement or payment of bonds,
notes, negotiable instruments or other securities without their surrender.
Trust Indenture
Page 27 of 48
<PAGE>
XI.
ADDITIONAL PARITY BONDS
AND OTHER BORROWINGS
(A) Subject to the following, Issuer reserves the right to issue
additional parity bonds or to incur additional debt obligations
(hereinafter collectively called "Additional Bonds" even though such debt
obligations are not in bond form) for any lawful purpose, including without
limitation refunding or prepaying any outstanding Bonds, construction of
improvements and/or the acquisition of additional real property. Such
Additional Bonds, along with the original Bonds issued under this Indenture,
shall be deemed "Bonds" for all purposes as defined in this Indenture unless
the context otherwise requires. Once issued and delivered, such Additional
Bonds and the interest thereon shall be payable from the sources described
in this Indenture and secured by the Indenture and the Lien to the same
extent and priority as, and on a parity with, all then Outstanding Bonds,
regardless of the date and order of recording of the deed(s) of trust or
mortgage(s), as if such Additional Bonds had been part of the original
offering. Such Additional Bonds may be made or issued in one or more
obligations, series or issues, in various principal amounts, bearing
interest, maturing, and having such redemption features and other provisions
as may be provided in any supplemental indenture or other instrument
authorizing their making or issuance. As to such Additional Bonds, whether
a debt obligation such as a note or a series or a separate issue of bonds,
and whether governed by a note or supplement to the Indenture or a separate
indenture, a default as to any one note, series or issue shall constitute a
default as to any and all other notes, series and/or issues totally or
partially secured by such a parity lien on the same collateral.
(1) Provided, no such note or series or issue of Additional Bonds
shall be made or issued unless:
(a) Any default or event which would result in default by
Issuer under the Indenture has been first cured;
(b) Any real property acquired from the proceeds of
Additional Bonds shall be subjected to and become a part of the Lien and any
mortgage or deed of trust upon the Property, as evidenced at Trustee's
election and at Issuer's sole expense by an attorney's title opinion or a
mortgagee's title policy in favor of Trustee reflecting no liens or
encumbrances prior to the Lien other than as agreed upon in writing between
Issuer and Trustee; and
Trust Indenture
Page 28 of 48
(c) The ratio of the total Outstanding Bonds plus the
Additional Bonds shall not exceed one hundred percent (100%) of the appraised
fair market value of the Property then to secure the payment of the Bonds as
derived from the income Approach Appraisal Method.
(2) Further provided that for a period of three years from the
effective date of the offering, MMR Investment Bankers, Inc. shall have a
first right of refusal to provide investment banking services for any
additional borrowings of issuer relative to the subject property or any
refinancing of this indebtedness.
(B) Furthermore, notwithstanding anything herein to the contrary,
Issuer has the right to obtain interim construction loans in order to build
the Shreveport, Louisiana and Bossier City, Louisiana projects and any such
interim construction loans shall be secured in parity with lien securing the
bonds.
In such event, the Trustee is authorized to execute and deliver such
instruments and documents as is necessary to effect in any such interim
construction lender a lien of equal parity to the lien securing the bonds.
XII.
SALE OF PROPERTY
Should Issuer desire to convey all or any portion of the Property,
Trustee is authorized in its sole discretion to execute a release or partial
release thereof, provided that:
(A) The consideration for such conveyance is equal to or greater than
the fair market value of the property conveyed at the time of sale and either
becomes subject to and a part of the Lien, as evidenced at Trustee's election
and at Issuer's sole expense by an attorney's title opinion or a mortgagee's
title policy in favor of Trustee reflecting no liens or encumbrances prior to
the Lien other than as agreed upon in writing between Issuer and Trustee, or
is applied as in (B);
Trust Indenture
Page 29 of 48
<PAGE>
(B) Any cash proceeds derived from such conveyance shall be delivered
to Trustee to be applied either:
(1) To call and prepay outstanding Bonds in the same manner as
partial prepayments are to be applied under the provisions of Article IX; or
(2) Paid into a trust or escrow account in a depository designated
by Trustee, to be applied:
(a) To purchase additional property subjected to and becoming
a part of the Lien and any mortgage or deed of trust upon the Property, as
evidenced at Trustee's election and at Issuer's sole expense by an attorney's
title opinion or a mortgagee's title policy in favor of Trustee reflecting
no liens or encumbrances prior to the Lien other than as agreed upon in
writing between Issuer and Trustee;
(b) To construct additional improvements on the property
remaining under the Lien; and/or
(c) To reduce any other lien indebtedness existing against
the Property.
Issuer, subject to the approval of Trustee, has the right to select from the
foregoing alternatives, and shall notify Trustee in writing and in advance
which alternatives it has selected and the respective amounts.
(C) The value of the remaining property covered by the Lien is
sufficient, in the opinion of Trustee, to secure the outstanding Bonds after
application of the sale proceeds as in (B) above.
Trustee shall not be liable for mistakes of judgment made in good faith in
reliance upon any appraisals or other information furnished which forms a
reasonable basis for Trustee's decision.
XIII.
SUBSTITUTION OF COLLATERAL
Should Issuer desire to substitute the Property, in whole or in part,
Trustee is authorized in its sole discretion to execute such releases,
partial releases and other legal documents as may be necessary to do so,
provided that:
Trust Indenture
Page 30 of 48
<PAGE>
(A) The net fair market value of the substituted property after
subtracting therefrom its potential exposure to any superior lienshall be
equal to or greater than the fair market value of the Property released from
the Lien at the time of substitution; and
(B) The Property substituted shall be subjected to and become a part of
the Lien and any mortgage or deed of trust upon the Property, as evidenced at
Trustee's election and at Issuer's sole expense by an attorney's title
opinion or a mortgagee's title policy in favor of Trustee reflecting no liens
or encumbrances prior to the Lien other than as agreed upon in writing
between Issuer and Trustee.
Trustee shall not be liable for mistakes of judgment made in good faith in
reliance upon any appraisals or other information furnished which forms a
reasonable basis for Trustee's decision.
XIV.
CONDEMNATION OF PROPERTY
(A) Should any governmental agency undertake to acquire by eminent
domain all of the Property, Trustee is authorized to join with Issuer in
negotiating with such governmental agency, and to execute any and all
instruments necessary or required to convey said Property to such
governmental agency, without requiring formal condemnation; provided, that
the sums received for such condemnation shall be at least sufficient to pay
the principal balance of the Bonds and accrued interest to date of pay-off.
Trustee is not authorized to agree to any non-judicial total condemnation
which will not provide funds sufficient to pay all of the Bonds then
outstanding, with accrued interest thereon.
(B) Should any governmental agency undertake to acquire by eminent
domain a portion of the Property, Trustee is authorized to join with Issuer
in negotiating with such governmental agency and to execute such documents
as may be necessary or required to transfer title of such portion to such
governmental agency without requiring formal condemnation; provided, that
any cash proceeds derived from such acquisition shall be delivered to Trustee
to be applied either:
(1) To call and prepay outstanding Bonds in the same manner as
partial prepayments are to be applied under the provisions of paragraph
IX(B); or
Trust Indenture
Page 31 of 48
<PAGE>
(2) To be paid into a trust account maintained by Trustee to be
applied:
(a) For the purchase of additional property which shall be
subjected to and become a part of the Lien and any mortgage or deed of trust
upon the Property, as evidenced at Trustee's election and at Issuer's sole
expense by an attorney's title opinion or a mortgagee's title policy in favor
of Trustee reflecting no liens or encumbrances prior to the Lien other than
as agreed upon in writing between Issuer and Trustee;
(b) To construct additional improvements on the property
remaining under the Lien; and/or
(c) To reduce any other lien indebtedness existing against
the Property.
Issuer, subject to the approval of Trustee, has the right to select which of
the foregoing alternatives it desires to exercise, and shall notify Trustee
in writing and in advance which alternative is selected by Issuer.
XV.
DUTIES OF TRUSTEE, PAYING AGENT AND REGISTRAR
The following services will be provided for the benefit of Issuer and
the Bondholders:
(A) Trustee shall:
(1) Maintain the legal file containing Issuer's application for
financing, resolution for financing, appraisal, articles of incorporation,
bylaws, trust indenture, escrow instructions and agreement (if applicable),
commitment for title insurance, policy of title insurance or attorney's title
opinion, opinion of counsel (if applicable), current fire and extended
coverage insurance policy, builder's risk insurance policy (if applicable),
and any other written agreements that may be entered into between Issuer and
Trustee simultaneously with or after execution hereof.
(2) Hold for the benefit of the Bondholders their legal rights to
repayment and in and under the Lien; and in the event of default by Issuer,
Trustee may (or shall when required) pursue in its name on their collective
behalf all lawful remedies.
Trust Indenture
Page 32 of 48
<PAGE>
(3) Provide Issuer an amortization schedule for the payment of the
Bonds. If electronic banking is available, Trustee will provide Issuer
instructions for its use. If electronic banking is not available, Trustee
will provide Issuer a sinking fund installment book.
(4) Monitor all sinking fund installments and if Issuer is in
arrears, give written and/or oral notification of the delinquency.
(5) Disburse all Bond proceeds to Issuer at such time as all the
legal requirements have been met.
(6) Endorse insurance settlement checks, if any, for damages to
the insured Property when satisfied that the proceeds will be used as
required herein.
(7) Execute a release of the Lien when all Bonds have been paid or
canceled under the terms and provisions hereof.
(B) Paying Agent shall:
(1) Record all proceeds received from the sale of Bonds.
(2) Provide Issuer after the final project disbursement from the
Bond Proceeds Account with an accounting showing the deposits to and charges
against the Bond Proceeds Account.
(3) Receive and record weekly or monthly sinking fund installments
from Issuer.
(4) Provide Issuer semi-annual statements showing the deposits to
and charges against the Sinking Fund Account.
(5) Prepare and mail as required interest checks to the registered
owners of simple-interest Bonds.
(6) Prepare and mail principal checks to the registered owners of
simple-interest Bonds at maturity.
(7) Prepare and mail principal and interest checks to the
registered owners of compound-interest Bonds at maturity.
Trust Indenture
Page 33 of 48
<PAGE>
(8) Provide Issuer with information and forms for notification of
the Bond owners in the event of a prepayment of all or a portion of the
outstanding Bonds.
(9) Prepare and mail principal and interest checks to the
registered Bond owners of Bonds that are called for prepayment prior to
maturity
(10) Prepare and mail Internal Revenue Service Form 1099's to
inform each registered owner of the Bonds of the respective amount of
interest earned and required to be reported by Trustee to the Internal
Revenue Service for that taxable year (which may be different figures from
those applicable to and reportable for income tax purposes by individual
Bondholders).
(11) Prepare and forward to applicable taxing authorities all
required information pertaining to the interest income of Bondholders.
(C) Registrar shall:
(1) Upon receipt by the Trustee of all documentation which is
prerequisite, print, issue, authenticate and mail all Bonds to the registered
owners.
(2) Record and reissue Bonds subsequently transferred to a new
owner.
(3) Maintain a permanent Bond register which reflects the serial
or other identification number, maturity date, face value, interest rate,
name and address of owner, date bought, and price reported paid (if any) for
each Bond issued.
(4) Reissue mutilated, defaced, destroyed, lost and stolen Bonds
if prior to maturity, and if matured, direct the payment of the principal and
accrued interest to the registered Bond owners, subject to all terms and
conditions hereof.
XVI.
LIMITATION OF LIABILITY
Trustee, Paying Agent and Registrar (for purposes of this Article
jointly and severally called "Trustee") accept their respective duties and
responsibilities as set forth under the terms of this Trust Indenture upon
the express conditions (to which Issuer and the Bondholders by the acceptance
of the Bonds agree)
Trust Indenture
Page 34 of 48
<PAGE>
that Trustee shall not be responsible for any act or omission hereunder
unless due to its own gross negligence or willful default; and no implied
covenants, obligations or warranties whatsoever shall be read into this
debenture against Trustee. Without limiting the generality of the foregoing:
(A) Trustee shall not be responsible or liable for any recitals,
statements or representations whatsoever in any prospectus or offering
circular used in connection with the sale of the Bonds. Trustee makes no
representation or warranty whatsoever, express or implied, (i) that the
terms, conditions or provisions of this Trust Indenture are, will remain or
will become in compliance with any state or federal statute or regulations
applicable or relating to this Indenture or the transactions contemplated
herein or related hereto, or (ii) regarding any individual Bondholder's
reportable amount of income from the Bonds, his tax liability thereon or
the tax consequences of any transaction relating to the Bonds, their
repayment and/or the collection thereof pursuant to Issuer's default whether
through a forbearance agreement, a court-ordered or bondholder-approved
restructure of the debt, or foreclosure and sale of the Property.
(B) Trustee shall have no liability for any losses resulting from its
reliance upon any instrument, writing or communication believed by it in good
faith to be genuine and properly authorized, nor for forgery of any bond or
unauthorized delivery by Issuer of any Bond. Trustee shall be under no duty
to investigate or inquire into any statements contained or matters referred
to in any such item.
(C) Trustee shall not be liable upon the Bonds for the payment of the
principal and/or interest due thereon.
(D) Notwithstanding any applicable statutes or regulations relating to
registered Bonds, Trustee shall have no duty to recognize any person as
a Bondholder unless such person is shown as the registered Bondholder on the
books and records of Trustee.
(E) Trustee may accept as correct any written statement made to it by
the person or persons who sign this Trust Indenture for and on behalf of
Issuer or by such other representatives of Issuer as may be from time to
time designated by Issuer to act for it, and Trustee will be fully protected
in acting upon and in conformity with such opinion.
Trust Indenture
Page 35 of 48
<PAGE>
(F) Trustee may request and act upon the opinion or advice of its
counsel. If Trustee acts on an opinion of counsel concerning matters
relating hereto and its duties hereunder, it shall be relieved of all
liability in connection with the matters referenced herein and its duties
hereunder when acting in conformity therewith.
(G) If an event of default has occurred and is continuing, Trustee
shall, in exercising its rights and powers hereunder, use the same degree of
care and skill as a prudent person would exercise or use under the
circumstances in the conduct of his own affairs.
(H) Trustee shall not be bound to ascertain or inquire into the
performance or observances of any covenants, conditions, or agreements of
Issuer hereunder. However, Trustee may require of Issuer full information
and advice about such performance or observance.
(I) Trustee need not consider the ability to respond in damages when
selecting or approving any person or entity to render opinions, advice and/or
services pertaining hereto.
(J) Trustee shall not be responsible for recording or re-recording or
filing or re-filing this Indenture, for the validity of the execution by
Issuer of this Indenture, for the sufficiency or maintenance of the security
for the Bonds, or for the validity or enforceability of this Indenture, the
Lien or any security rights or remedies granted to Trustee or the Bondholders
hereunder or in any other Bond document. Trustee shall have no obligation to
perform any of the duties of Issuer under the Indenture.
(K) Moneys and securities held by Trustee in trust need not be
segregated from other assets except to the extent required by law or this
Indenture. Trustee shall not be liable for interest on any moneys received
by it hereunder. Trustee shall not be accountable for the use or application
of funds from Issuer's Bonds Proceeds Account after same have been disbursed
in accordance herewith.
(L) Notwithstanding anything to the contrary, if in the sole judgment
of Trustee any action it desires or is requested or demanded to take
hereunder may tend to involve liability, loss or expense, Trustee shall not
be obligated to so act unless and until it is furnished with indemnity
satisfactory to it.
Trust Indenture
Page 36 of 48
<PAGE>
(M) The permissive right of Trustee to do certain things, whether
express or implied, shall not be construed as a duty or obligation to take
such action.
(N) Trustee shall not be required to give any bond or security in
respect hereof.
(O) Upon delivery of an executed release of the Lien to Issuer pursuant
to Article IX(G) or upon restructure of the debt or foreclosure and final
distribution of the net proceeds therefrom to the Bondholders, Trustee shall
have thereby discharged in full all its liabilities and obligations hereunder,
and this trust shall terminate along with any further duties, obligations or
liabilities of Trustee hereunder.
(P) Should liability for any of the foregoing nonetheless be
unsuccessfully judicially asserted against Trustee, it shall be reimbursed
and have the Reimbursement Lien for costs and expenses incurred in defending
itself, including without limitation attorney, stenographer and witness fees
and travel expense and court costs.
(Q) By purchasing and accepting delivery of the Bonds, each Bondholder
shall hold same subject to all terms of this Trust Indenture.
XVII.
ANCILLARY/CO-TRUSTEE; RESIGNATION AND REMOVAL;
SUCCESSOR TRUSTEES
(A) Trustee may in its sole discretion appoint an additional individual
or institution as a Co-Trustee or a separate ancillary Trustee hereunder.
Trustee will so notify Issuer of such appointment, as well as any applicable
regulatory authority. Each power or right vested in Trustee hereunder shall
be exercisable by and vest in such Co-Trustee or separate ancillary Trustee
to the extent necessary or desirable to enable it to exercise the powers and
rights necessary to carry out the purposes of this Indenture. Provided, such
Co-Trustee or ancillary Trustee may not be Issuer, Broker nor an affiliate of
either.
(B) No resignation or removal of the Trustee and no appointment of a
successor Trustee pursuant to this Article shall become effective until the
acceptance of such appointment in writing by such successor Trustee as
hereinafter provided.
Trust Indenture
Page 37 of 48
<PAGE>
(1) Subject to the foregoing, the Trustee may, at its election,
resign at any time by either:
(a) Giving to Issuer written notice thereof; or
(b) Petitioning a court of competent jurisdiction for both
(i) the permission to resign and (ii) the appointment of a qualified
successor trustee.
Provided:(i) if the Trustee shall elect to resign while Issuer
is in default hereunder, the Trustee must so petition a court as set forth in
(b) above, as Issuer may not in such event select the successor Trustee; and
provided further, no successor Trustee shall in any event be the Broker or
Issuer, or a subsidiary, affiliate or under the control of either; and (ii)
every successor Trustee appointed or succeeding pursuant to any of the
foregoing provisions shall be either a trust company or a national or state
bank with trust powers, in good standing and having combined capital, surplus
and undivided profits of at least $500,000, or a corporation, individual(s)
or mixture approved by a court of competent jurisdiction.
(2) If at any time (i) the Trustee shall be adjudged a bankrupt,
(ii) a receiver shall be appointed therefor by a court of competent
jurisdiction, or (iii) an authorized regulatory agency shall take charge or
control thereof, Issuer may, if not in default hereunder, appoint a qualified
successor Trustee.
(3) If at any time the Trustee shall become incapable of acting or
ineligible to act under any state or federal law or this Indenture, it shall
tender its resignation as in subparagraph (2) above, failing which Issuer
may, if not in default, petition a court of competent jurisdiction for both
(i) the removal of the Trustee and (ii) the appointment of a qualified
successor Trustee.
(4) In the event Issuer shall be disqualified by its default from
exercising its rights under subparagraphs (B)(2) or (3) above, or shall fail
to exercise such rights within thirty (30) days from occurrence of the event
giving rise to such rights, such rights shall devolve upon:
(a) Under subparagraph (B) (2), such bankruptcy Trustee,
receiver or government agency; and
Trust Indenture
Page 38 of 48
<PAGE>
(b) Under subparagraph (B) (3), any Bondholder as set forth
in subparagraph (5) below.
(5) If, in a proper case, a successor Trustee has not been
appointed pursuant to the foregoing provisions within six months after the
resignation or removal of Trustee, any Bondholder may apply to any District
Court in and for Maricopa County, Arizona or to any succeeding court of
competent jurisdiction to appoint a successor Trustee. Such Court may
thereupon, after such notice, if any, as it may be deem proper, appoint a
successor Trustee.
(6) Any Trustee may be removed at any time by an instrument
appointing a successor Trustee executed by the holders of not less than a
majority in aggregate principal amount of all Bonds then outstanding.
(7) All provisions of this Article which refer to the "Trustee"
shall likewise always include the positions of Paying Agent and Bond
Registrar, except that the Trustee, acting voluntarily pursuant to
subparagraph (2) above, may resign as Trustee while retaining its
appointments and continuing as Paying Agent and/or Bond Registrar; or vice
versa.
(8) Issuer shall give notice or cause notice to be given of each
resignation and each removal of the Trustee and each appointment of a
successor Trustee, Paying Agent and/or Registrar by mailing written notice
of such event by first-class mail, postage prepaid, to the Registered
Holders of Bonds as their names and addresses appear in the Bond Register.
Each notice shall include the name of the successor Trustee, Paying Agent
and/or Registrar, as the case may be, and its principal address.
(9) Should Trustee change its name, or voluntarily merge or
consolidate with or its business be taken over by another corporation
chartered to exercise trust powers and legally competent to perform such
duties, then such other corporation shall succeed to all of the powers and
duties of Trustee as herein set out, without any further act.
(10) Any successor Trustee appointed hereunder shall execute and
deliver to Issuer or the Court, whichever is applicable, an instrument
accepting such appointment. Thereupon such successor Trustee, without any
further act, shall become duly vested with all of the trust estate and the
rights, powers, trusts, duties and obligations of its predecessor.
Trust Indenture
Page 39 of 48
<PAGE>
(11) The name of any duly appointed and qualified successor trustee
shall be substituted wherever "Trustee" is used throughout this Indenture.
XVIII.
ILLEGAL INTEREST
It is the intention of the parties hereto to comply With applicable
usury laws; notwithstanding any provisions herein to the contrary or in any
of the documents securing payment or otherwise relating to the Bonds, in no
event shall this Trust Indenture, including provisions relating to penalty
interest in the event of default or to the Reimbursement Lien rate, the Bonds
or such documents require the payment or permit the collection of interest
in excess of the maximum amount permitted by such laws.
(A) If any such excess of interest is contracted for, charged or
received under the Bonds or under any of the instruments securing payment
thereof or otherwise relating thereto, including this Trust Indenture or in
the event the maturity of the indebtedness evidenced by the Bonds is
accelerated in whole or in part, or in the event that all or part of the
principal or interest of the Bonds shall be prepaid, so that under any of
such circumstances the amount of interest contracted for, charged or received
therefrom or under any of the instruments securing payment thereof or
otherwise relating thereto, on the amount of principal actually outstanding
from time to time under the Bonds, shall exceed the maximum amount of
interest permitted by applicable usury laws, then in any such event: (i) the
provisions of this Article shall govern and control; (ii) neither Issuer nor
any other person or entity now or hereafter liable for the payment of the
Bonds shall be obligated to pay the amount of such interest to the extent
that it is in excess of the maximum amount of interest permitted by
applicable usury laws; (iii) any such excess which may have been charged
and/or collected shall be either applied as of the date charged or collected
as a credit against the then unpaid principal amount of the Bonds or
refunded to Issuer, at Issuer's option, and (iv) the effective rate of
interest shall be automatically, immediately and retroactively reduced to
the maximum lawful contract rate allowed under applicable usury laws as now
or hereafter construed by the courts having jurisdiction thereof.
(B) Without limiting the foregoing, all calculations of the rate of
interest contracted for, charged upon or received from the Bonds or under
such other documents, which calculations are made for the purpose of
determining whether such rate exceeds the
Trust Indenture
Page 40 of 48
<PAGE>
maximum lawful contract rate, shall be made, to the extent permitted by
applicable laws, by amortizing, prorating, allocating and spreading in equal
parts during the period of the full stated term of the respective
indebtedness, all interest at any time contracted for, charged or received
by Trustee from Issuer or otherwise.
XIX.
RELEASE OF THE LIEN
When Issuer has duly made all of the payments required to be made under
the provisions of this Trust Indenture, Trustee is authorized to execute a
release of the Lien even if there are checks issued for the payment of the
principal and/or interest upon the Bonds which are still uncashed; provided,
that Trustee shall first satisfy itself that the funds remaining on deposit
in the Sinking Fund Account are sufficient to pay such outstanding checks
upon presentment.
XX.
INVESTMENT OF BOND PROCEEDS AND
SINKING FUND ACCOUNT FUNDS;
FEES OF TRUSTEE, ET. AL.
(A) Upon the receipt by Trustee of the proceeds from the sale of Bonds,
and upon receipt of the sinking fund installments required of Issuer, it is
expressly agreed by Issuer that Trustee may invest all or part of such funds
in United States government and government agency obligations, federally
insured time and/or demand deposits of banks and savings and loan
associations mutual and/or money market funds which invests only in the
foregoing instruments; and an investment in any such instruments and/or
fund(s) shall be deemed prudent. All moneys required to be deposited with
or paid to Trustee under any provision of the Indenture, until disbursed or
directed as permitted by the Indenture, shall be held by Trustee in trust and
may be commingled with other trust funds held by the Trustee.
(B) The fees of Trustee, Paying Agent and Registrar, the payment of
which is secured by the Reimbursement Lien and to which Issuer has agreed,
are set forth on EXHIBIT "A" attached hereto.
(C) Notwithstanding the amount of fees to be paid to Trustee as set
forth on EXHIBIT "A", should Trustee, Paying Agent or Registrar be required
to perform extraordinary services, it
Trust Indenture
Page 41 of 48
<PAGE>
shall have the right to assess reasonable charges against Issuer for said
extraordinary services in addition to the service charges otherwise described
on EXHIBIT "A". Such services occasioned by Issuer's prepayment under Article
IX or default shall by definition be extraordinary. Without limiting the
foregoing, Trustee shall have the right to be reimbursed by Issuer for any
fees or expenses incurred for any unusual services required of Trustee,
either in the event of prepayment, default or otherwise, and shall
specifically have the right of reimbursement and the Reimbursement Lien for
any fees, compensation or documented travel expenses paid by Trustee to or
for licensed attorneys, accountants, appraisers, realtors, surveyors, court
stenographers, Trustee's own personnel or any other persons whose services
are necessary or required in order to perform such extraordinary services.
The hourly compensation of Trustee's personnel shall be computed as
base annual salary divided by two thousand (2,000) hours.
XXI.
SUPPLEMENTAL INDENTURES
(A) Issuer and Trustee, without the consent of the Bondholders, from
time to time may enter into one or more indentures supplemental hereto for
any of the following purposes:
(1) To add to the covenants of Issuer for the benefit of the
Bondholders, or to surrender any right or power herein conferred upon Issuer;
(2) To cure any vagueness or ambiguity or to correct or supplement
any inconsistent or defective provision contained herein or in any
supplemental indenture; provided, such action shall not adversely affect the
interest of the Bondholders; or
(3) To make any change which, in the judgment of Trustee in
reliance upon opinion of counsel, does not adversely affect the rights of any
Bondholder.
(B) With the foregoing limited exceptions which permit modification of
the Trust Indenture by Issuer and Trustee alone, the Trust Indenture, the
rights and obligations of Issuer, and the rights and obligations of the
Bondholders may be modified by Issuer with the consent of the respective
holders of not less than sixty-six and two-thirds percent (66 2/3%) in
principal of the Bonds then outstanding; provided that no such modification
may be made without
Trust Indenture
Page 42 of 48
<PAGE>
the consent of the holders of each Bond affected if such modification would:
(1) Change the stated maturity date of the principal or of any
installment of interest on any Bond; or
(2) Reduce the principal amount or rate of interest on any Bond;
or
(3) Impair the right as herein set out to institute suit for the
enforcement of payment on or with respect to the Bonds; or
(4) Reduce the percentage and principal amount of the Bonds of
which the holders' collective consent is required for any such supplemental
indenture;
(5) Except as permitted under this Indenture, permit the creation
of any lien ranking prior to or on a parity with the Lien; or
(6) Modify any of the provisions of this Article.
(C) Whenever the consent of Bondholders is required for any proposed
change, modification, addition, elimination or subordination of the Trust
Indenture or otherwise, Trustee may cause a notice specifying the action
proposed to be mailed, first-class, postage prepaid, to the owner of each
outstanding Bond at the address shown on the Bond Register maintained by the
Registrar. Trustee shall be entitled to treat the failure of any Bondholder
to respond within thirty (30) days after completion of the mailing of
such notice as either a consent or a rejection, as indicated in the notice,
of the proposed action specified in the notice.
(1) Except as hereinafter provided in Article XXII(B), Trustee
shall be the sole judge of the validity and regularity of all consents filed
under this paragraph, and may require evidence satisfactory to it that the
signer of such consent is lawfully entitled to execute the same.
(2) Any required action or consent of Bondholders may also be
obtained by a vote of Bondholders representing the requisite percentage of
principal then outstanding who are present or represented by proxy at a
meeting called by Trustee for such purpose to be held at Trustee's principal
offices at a time and
Trust Indenture
Page 43 of 48
<PAGE>
date specified in a notice mailed to the Bondholders as above not less than
thirty (30) days prior to such meeting.
(D) It shall not be necessary for any consent of Bondholders to
approve the particular form of any proposed supplemental indenture; rather,
it shall be sufficient if such consent approves the substance thereof.
XXII.
BONDHOLDER LISTS AND REPORTS
EVIDENCE OF RIGHTS OF BONDHOLDERS
(A) Any request, consent or other instrument which the Indenture may
require or permit to be signed and executed by the Bondholders may be in any
number of concurrent instruments of similar tenor, and may be signed or
executed by such Bondholders in person or by an attorney appointed in
writing or by a committee constituted by an agreement to which any portion
of the Bonds shall have been made subject by deposit or otherwise. Proof
of the execution of any such request or other instrument or of a writing
appointing any such agent or the holder of the Bonds shall be sufficient for
any purpose of the Indenture, if made in the following manner:
(1) The fact and date of the execution by any person of such
request in writing may be provided by any of the following documents in form
satisfactory to Trustee:
(a) The certificate under his official seal of any notary
public or other officer in any jurisdiction who by the laws thereof has
power to take acknowledgements of documents to be recorded within such
jurisdiction, that the person signing such request or other instrument
acknowledged to him the execution thereof;
(b) An affidavit of a witness of such execution; or
(c) The certification or guarantee of the authenticity of
such signature by an officer of any duly chartered trust company or
commercial bank.
(2) The ownership of registered Bonds shall be proved by the Bond
Register as hereinbefore provided.
Trust Indenture
Page 44 of 48
<PAGE>
(3) Trustee may, nevertheless, in its discretion,(i) accept other
proof in cases where it deems such other proof sufficient or (ii) require
further proof in cases where it deems further proof desirable.
The foregoing provisions of this paragraph shall not be construed
to abrogate, modify or affect any of the exemptions or rights of Trustee set
out in Article XVI of this Indenture.
(B) For the purposes of this Indenture, in determining whether the
holders of the required percentage of the principal amount of Bonds have
concurred in any directive, amendment, modification, consent, waiver or
other action, Bonds deemed by Trustee to be owned by Issuer, or under direct
or indirect common control of Issuer or by an officer, director, trustee,
eider or member thereof, shall be disregarded, except that for the purpose
of determining whether Trustee shall be protected in relying upon any such
directive, amendment, modification, consent, waiver or other action, only
Bonds as to which Trustee has actual knowledge of such ownership or control
must be so disregarded.
(C) If either (i) Issuer or (ii) three or more Bondholders
(hereinafter referred to as "Applicant(s)") apply in writing to Trustee, and,
exclusive of Issuer, furnish to Trustee reasonable proof that each such
Applicant has owned a Bond for a period of at least six (6) months preceding
the date of such application, and such application further states that the
Applicant(s) desire to communicate with all Bondholders with respect to
their rights under this Indenture or under the Bonds and is accompanied by a
copy of the form of proxy or other communication which such Applicant(s)
propose to transmit, then Trustee shall, within ten (10) business days after
the receipt of such application, at its election, either:
(1) Afford such Applicant(s) access to such information;
(2) Inform such Applicant(s) as to the approximate number of
registered Bondholders and as to the approximate cost of mailing to such
Bondholders the form of proxy or other communication, if any, specified in
such application, in which latter event Trustee shall further elect either:
(a) Within ten (10) days after tender to Trustee of the
material to be mailed and of payment of the reasonable expenses of mailing,
to mail to such Applicants, together with a return of the material to have
been mailed to the
Trust Indenture
Page 45 of 48
<PAGE>
Bondholders, a written statement to the effect that, in the opinion of
Trustee, such mailing would be contrary to the best collective interest of
the Bondholders or would be in violation of applicable law, such written
statement specifying the basis of such opinion; or
(b) Mail, with reasonable promptness, to each registered
Bondholder a copy of the form of proxy or other communication which is
specified in such request.
(D) Issuer, Broker, and each and every holder of the Bonds by receiving
and holding the same, agrees with Trustee and Registrar that:
(1) Each Bondholder's identity is privileged information not
subject to disclosure and such Bondholder may receive communications from
Issuer, other Bondholders or any third party only in accordance with this
Article; and
(2) Neither Trustee nor Registrar shall be held accountable by
reason of mailing any material pursuant to a request made pursuant to this
Article which Trustee in its sole discretion determines to grant.
XXIII.
MISCELLANEOUS PROVISIONS
(A) When the context requires, the singular includes the plural, the
masculine includes the female and neuter, and vice versa. Except within a
series, the conjunctive includes the disjunctive and vice versa.
(B) The headings contained in the Table of Contents and body hereof are
for convenience only and shall in no manner be construed as a part of this
Indenture.
(C) All notices required hereby as between Issuer and Trustee, Paying
Agent and/or Registrar shall be sufficient if such notices are in writing
and mailed by either registered or certified mail, return receipt requested,
postage prepaid, or by delivering in person or causing the delivery thereof
by commercial courier to such party at the address shown on the last page or
at such other address as either party may hereafter furnish in writing to
the other.
Trust Indenture
Page 46 of 48
<PAGE>
(D) This Indenture constitutes the entire agreement between the
parties and supersedes any and all other prior agreements or understandings,
if any, whether oral or in writing, relating to the rights and liabilities
arising out of the subject matter hereof.
(E) This agreement may be amended or modified only in accordance with
the terms of this Indenture by a written instrument of even or subsequent
date hereto signed by both parties.
(F) Neither the waiver of any provision or breach hereof nor the
forbearance, failure or delay, whether intentional or inadvertent, in
exercising any right or remedy hereunder, nor the partial exercise thereof,
by either party shall be deemed a waiver of any other provision or breach or
of the subsequent or further exercise of such right or remedy or as
establishing a course of dealing.
(G) If any provision of this Trust Indenture is held to be illegal or
unenforceable, the remaining provisions shall nevertheless remain in full
force and effect. In addition, the illegal or unenforceable provisions shall
be modified so as to conform, to the greatest extent legally permissible, to
the original intent of such provision.
(H) This agreement will be binding upon and will inure to the benefit
of each party's respective successors and assigns.
(I) Each person signing below represents and warrants that he is
authorized to act in the capacity stated.
(J) ISSUER AND TRUSTEE EACH ACKNOWLEDGES AND AGREES THAT ITS
REPRESENTATIVES AND ATTORNEYS HAVE HAD THE OPPORTUNITY TO PARTICIPATE IN THE
DRAFTING AND CONSTRUCTION OF THIS INDENTURE AND THAT THE PROVISIONS HEREOF
SHALL NOT BE CONSTRUED AGAINST OR IN FAVOR OF EITHER PARTY.
(K) This Indenture shall be construed in accordance with and governed
by the laws of Arizona, with the exception of the terms and conditions
pertaining to the foreclosure of the Property set forth in Article VIII
which shall be construed in accordance with and governed by the laws of the
State in which the Property is located.
(L) As used throughout, the words or phrases "legal costs," "collection
costs," "collection expenses, "costs of maintaining a legal defense,"
"Reimbursement Lien" and words and
Trust Indenture
Page 47 of 48
<PAGE>
phrases of like import shall be liberally construed to include all costs and
expenses reasonably incurred by Trustee, directly or indirectly, as
compensation or reimbursement to its own personnel, licensed legal counsel,
accountants, surveyors, appraisers, court reporters and other experts,
including their fees or other compensation and travel expenses, in carrying
out the purposes of this Indenture and holding Trustee harmless from such
costs and expenses.
IN TESTIMONY WHEREOF, Issuer and Trustee have caused this instrument to
be signed in duplicate originals by their duly authorized agents and
representatives this 1st day of December, 1997.
ISSUER:
SENIOR RETIREMENT COMMUNITIES, INC.
By:
--------------------------------
JoAnne M. Caldwell-Bayles,
President
Colonial:
COLONIAL TRUST COMPANY, TRUSTEE
By:
--------------------------------
Its President
Trust Indenture
Page 48 of 48
<PAGE>
STATE OF ARIZONA )
)
COUNTY OF MARICOPA )
This instrument was acknowledged before me on the day of , 19 , by
John Johnson, President of COLONIAL TRUST COMPANY, an Arizona corporation
with trust powers.
----------------------------------
Notary Public, State of Arizona
----------------------------------
Notary's Name, Printed or Typed
STATE OF )
)
PARISH OF )
This instrument was acknowledged before me on the day of , 19 , by
JoAnne M. Caldwell-Bayles, President of Senior Retirement Communities, Inc.,
a Louisiana corporation.
----------------------------------
Notary Public, State of Louisiana
----------------------------------
Notary's Name, Printed or Typed
Trust Indenture
Page 49 of 48
<PAGE>
EXHIBIT "A"
TRUSTEE, PAYING AGENT & BOND REGISTRAR/TRANSFER AGENT
SCHEDULE OF FEES
<PAGE>
AGREEMENT BETWEEN LIENHOLDERS
THIS AGREEMENT is made December 1, 1997, by and between Church Loans &
Investments Trust (hereinafter "Lender"), having a notice address at 5305
I-40 West, Amarillo, Texas 79106, Colonial Trust Company, as Trustee for
the benefit of the Bondholders of Senior Retirement Communities, Inc.
(hereinafter "Trustee"), having a notice address at 5336 North 19th Avenue,
Phoenix, Maricopa County, Arizona 85015, and SENIOR RETIREMENT COMMUNITIES,
INC. of c/o The Arbor Group, L.L.C., 507 Trenton Street, West Monroe, Parish
of Ouachita, Louisiana 71291 (hereinafter "Borrower").
WHEREAS, Lender has committed to loan and intends to loan to Borrower
the sum of $2,700,000.00 to be evidenced by a promissory note ("the Note")
executed by Borrower payable to Lender and secured by a first lien mortgage
against the real property of Borrower described on EXHIBIT "A" attached, as
well as a security interest in and to certain personal property of Borrower,
all of such real and personal property to be collateral for such loan and
hereinafter collectively referred to as "the collateral;"
WHEREAS, Lender may also make an interim construction loan to Borrower
for two additional projects; one in Bossier City, Louisiana and one in
Shreveport, Louisiana;
WHEREAS, the purpose of the present note is to provide interim financing
for the purposes of construction of the facility commonly referred to as
Senior Retirement Communities, Inc., Ruston, Louisiana to be located on U.S.
Highway 80, 1/4 mile east of Ruston, Louisiana; and the Note is to be paid
off from part of the proceeds of a bond offering in the total amount of
$9,000,000.00 ("the bonds") to be made by Borrower through MMR Investment
<PAGE>
Bankers, Inc. (hereinafter "MMR") and for which Trustee has agreed to serve
as the Indenture Trustee pursuant to a Trust Indenture dated December 1, 1997
("the Trust Indenture").
WHEREAS, the balance of the bond proceeds are to be used for
construction of the Bossier City, Louisiana and Shreveport, Louisiana
projects or to payoff interim construction loans regarding such projects;
WHEREAS, the bonds are to be secured by the same collateral as that
securing the Note, as well as any other loan made by Lender to Borrower
regarding the Bossier City, Louisiana and Shreveport, Louisiana projects and
such liens securing the bonds are also to be a first lien of equal position
and parity as the liens securing the Note as well as any future interim
construction loans on the above mentioned projects;
NOW, THEREFORE, IN CONSIDERATION of the mutual covenants and agreements
herein contained, Lender, Trustee and Borrower do hereby agree as follows:
1. Equity of Liens. The parties do hereby agree that Borrower shall
execute one deed of trust or mortgage and security agreement and other
collateral documents as may be required by Lender or Trustee for the benefit
of both Lender and Trustee and that such collateral documents shall equally
secure both the Note and the bonds. The Note and the bonds shall both be
secured by first liens of equal position and parity and shall be governed by
the provisions of the deed of trust, mortgage, security agreement,
or other documents or instruments creating the same, as well as, the
provisions of this Agreement as hereinafter set forth.
2. Definition of Indebtedness. The indebtedness or loan as
-2-
<PAGE>
hereinafter referred to shall consist of both (i) the Note, and (ii) the
bonds. The interest of Lender and Trustee in the indebtedness shall vary as
their respective interests therein may from time to time appear.
3. Application of Payments. The parties agree that the proceeds of the
bonds will be used to pay the principal balance and accrued interest, to the
extent available, of the Note. On the tenth (l0th) day of each calendar
month during the term hereof, or more often at the Trustee's election,
Trustee will deliver to Lender, for payment on the Note, all proceeds
received from the sale of bonds, less brokerage fees and Trustee's fees,
attorney's fees related hereto, other expenses related to the bond offering,
and a sinking fund reserve not to exceed $250,000.00, until the Note is paid
in full. Lender acknowledges that Lender is aware of and consents to the
establishment of the sinking fund reserve in the amount of $250,000.00.
Borrower understands and agrees that bond proceeds may not be used for other
projects until the Note is paid in full. In the event that the Prospectus
pursuant to which the bonds are to be issued is inconsistent herewith, the
Trustee shall give notice of same to Lender and Borrower and all payments and
disbursement of bond proceeds to any person shall be withheld until such
inconsistency is resolved by the parties or court of law having appropriate
jurisdiction of same.
4. Procedures upon Default. Notwithstanding any provisions to the
contrary set forth or contained in (i) the Note, in (ii) the bonds, in (iii)
the Trust Indenture, or in (iv) the mortgage, security agreement or other
security instrument or document securing the payment of the indebtedness, in
the event of a default
-3-
<PAGE>
by Borrower under any of the terms and provisions of the instruments or
legal documents described above, at the election of either Lender or
Trustee all of the indebtedness, both the Note and the bonds, shall become
immediately due and payable in full. In the event of a default under either
portion of the loan, the party holding such defaulted portion of the loan
will give written notice to the other party within ten (10) days after
learning of such event of default. If either Trustee or Lender elects to
accelerate its portion of the loan as a result of any default, such party
shall likewise give written notice to the other party of such election prior
to taking any action thereon and, in such event, both Trustee and Lender
agree to accelerate their respective portion of the loan on such election by
either Trustee or Lender. In such event, all collection and foreclosure
actions or proceedings shall be conducted jointly by Lender and Trustee. All
legal fees, court costs and related expenses and all receipts from collection
and foreclosure hereunder shall be shared proportionately between Lender and
Trustee in the same proportion that the unpaid principal balance of each
party's portion of the loan bears to the unpaid principal balance of the
total loan; provided that, if the parties retain separate legal counsel to
assist in collection or foreclosure or if a party retains legal counsel in
addition to jointly-obtained counsel, then the party retaining such separate
or additional legal counsel shall pay the fees and expenses thereof. In the
event of a default under either portions of the loan, the Trustee and Lender
hereto agree to work together in good faith in attempting to make joint
decisions regarding such matters as collection attempts, foreclosure,
-4-
<PAGE>
selection of counsel, and maintenance and disposition of the collateral. In
the event of receipt of proceeds from the collateral, any such proceeds shall
be divided between Lender and Trustee based upon the unpaid principal balance
of each party' s portion of the loan bears to the unpaid principal balance of
the total loan.
5. Term. This Agreement shall continue until the earliest to
occur of: (a) payment in full of the Note and transfer of Lender's interest
in the collateral documents to Trustee; (b) a final, nonappealable judgement
has been entered foreclosing the collateral documents and the sale of the
collateral has been made and confirmed as required by law and the proceeds
from such sale disbursed to Lender and Trustee according to the terms hereof;
or (c) the mutual written agreement of the parties to terminate this
Agreement.
6. Enforcement. In any action brought to enforce or defend any of the
provisions of this Agreement, the prevailing party or parties shall be
entitled to recover its reasonable attorney's fees and expenses from any
other party in addition to other relief awarded.
7. Construction. This Agreement does not make any party the employee,
agent, partner or legal representative of any other party for any purpose
whatsoever. No party is granted any right or authority to assume or create
any obligation or responsibility, express or implied, on behalf of or in the
name of any other party.
8. Limitation on Advances By Lender. Lender agrees that the total
advances on its Note to Borrower shall not exceed $2,700,000.00. In the event
that the total advances on the Note by
-5-
<PAGE>
Lender to Borrower for purposes of Borrower's Ruston, Louisiana project does
exceed $2,700,000.00, then such advances made in excess of $2,700,000.00
shall be second in priority to the first lien securing the bonds and the
first $2,700,000.00 advanced pursuant to the Note.
9. Borrower's Indemnity. Borrower enters into this agreement hereby
agreeing to the arrangement between Lender and Trustee set forth herein in
all respects. Furthermore, Borrower does hereby agree to indemnify and hold
harmless the Trustee of and from any loss, expense, damages, costs,
attorney's fees or other liability incurred as a result of this agreement and
the transactions contemplated hereby, and does hereby release Trustee from
any liability or duty to inquire as to the validity of the Note owing to
Lender, the proper use of the proceeds of the Note or the adequacy of funding
documentation.
IN WITNESS WHEREOF, the parties have executed this instrument effective
the date first above written.
DATED December 1, 1997.
CHURCH LOANS & INVESTMENTS TRUST,
a Real Estate Investment Trust
BY: /S/KELLY ARCHER
------------------------------
M. Kelly Archer, Manager of
operations and Chief Financial
Officer
Colonial Trust Company, as Trustee
for the benefit of the Bondholders
of Senior Retirement Communities,
Inc.
By: /S/SUSAN D CARLISLE
--------------------------------
Susan D. Carlisle, Vice President
-6-
<PAGE>
SENIOR RETIREMENT COMMUNITIES, INC.
BY: /S/JOANNE M CALDWELL-BAYLES
---------------------------------
JoAnne M. Caldwell-Bayles,
President
The State of Texas )
)
County of Potter )
This instrument was acknowledged before me on the 25 day of December, 1997
by M. Kelly Archer, Manager of Operations and Chief Financial Officer of
Church Loans & Investments Trust.
/S/CHARMONE BEDNARZ
----------------------------
Notary Public, State of Texas
The State of Arizona ) CHARMONE BEDNARZ
Notary Public,
County of Maricopa ) STATE OF TEXAS
My Commission Expires 4-14-2001
This instrument was acknowledged before me on the 19th day of December, 1997,
by Susan D. Carlisle, Vice President of Colonial Trust Company, as Trustee
for the benefit of the Bondholders of Senior Retirement Communities, Inc.
OFFICIAL SEAL
BAHIA OLIVER-MAYS /S/BAHIA OLIVER-MAYS
NOTARY PUBLIC - STATE OF ARIZONA -----------------------------
MARICOPA COUNTY Notary Public, State ot Arizona
My Comm. Explres 9-20-98
State of Louisiana )
)
Parish of Lincoln )
This instrument was acknowledged before me on the 1st day of December, 1997,
by JoAnne M. Caldwell-Bayles, President of SENIOR RETIREMENT COMMUNITIES,
INC.
/S/J CLAY CARROLL
--------------------------------
Notary Public, State of Louisiana
J. CLAY CARROLL, NOTARY PUBLIC
JACKSON PARISH, LOUISIANA
MY COMMISSION IS FOR LIFE
-7-
<PAGE>
EXHIBIT "A"
TOWNSHIP 18 NORTH RANGE 2 WEST
SECTION 20 Starting at the NW corner of the NE 1/4 of NW 1/4 and run East
for a distance of 660.00 feet, thence South to the North
Right-of-Way of U.S. Highway No. 80 a distance of 1850.50 feet,
thence along the North Right of Way of U.S. Highway No. 80 a
distance of 257.04 feet to the POINT OF BEGINNING, thence
North 00 degrees, 37 minutes, 40 Seconds West a distance of
200.01 feet; Thence South 83 Degrees, 16 Minutes, 18 Seconds
East, a distance of 150.00 feet; Thence North 00 Degrees, 37
Minutes, 40 Seconds West a distance of 532.00 feet; Thence North
83 Degrees, 16 Minutes, 18 Seconds, West a distance of 451.24
feet; Thence South 00 Degrees, 37 Minutes, 40 Seconds, East, a
distance 532.00 feet; Thence South 83 Degrees, 16 Minutes, 18
Seconds, East a distance of 150.00 feet; Thence South 00 Degrees
37 Minutes, 40 Seconds East a distance of 200.01 feet to the
North Right-of-Way Of U.S. Highway 80; Thence South 83 Degrees,
16 Minutes, 18 Seconds, East a distance of 151.04 feet to the
POINT OF BEGINNING, containing 6.2 acres more or less.
Exhibit A
<PAGE>
BOBBY L. CULPEPPER
& ASSOCIATES
A PROFESSIONAL LAW CORPORATION
525 EAST COURT AVENUE
JONESBORO, LOUISIANA 71251-3497
BOBBY L CULPEPPER 318/259-418 4210 WEST ALABAMA
TERESA CULPEPPER CARROLL FAX #318/259-6278 RUSTON, LA 71270
J. CLAY CARROLL 318-251-0701
223 SOUTH GRAND
MONROE, LA 71201
318-325-3884
PLEASE REFER ALL CORRESPONDENCE
TO THE JONESBORO OFFICE
File# 97-18,379 November 21, 1997
MMR Investment 5ankers
550 North 159th Street E
P.0. Box 781440
Wichita, Kansas 67278-1440
Re: Authorization of $9,000,000.00 First Mortgage Bond Issue
Gentlemen:
Senior Retirement Communities, Inc. (hereinafter called "company"), is a duly
organized and existing corporation organized under the laws of the State of
Louisiana and authorized to do business therein. The correct name to be used
on the first mortgage bonds and all legal instruments is Senior Retirement
Communities, Inc.
Effective as of November 14, 1997, the directors of the corporation passed
resolutions authorizing the issuance of up to $9,000,000.00 of first mortgage
bonds and the execution of certain instruments in connection with the bond
issue by Joanne M. Caldwell, as President.
I have duly examined the Articles or Organization and By-Laws of the company
and find that the resolutions passed effective November 14, 1997, a copy of
which is attached hereto as Exhibit A and made a part of this opinion, were
passed in accordance with the Articles of Organization, By-Laws and the laws
of the State of Louisiana, and I do hereby certify that said resolutions
constitute a valid and legal authorization for the issuance of up to
$9,000,000.00 of first mortgage bonds for the purposes set out in said
resolutions and for the execution of a trust indenture, setting out the
terms and conditions of the bond issue and placing lien on the corporation's
real property in order to secure payment of the first mortgage bonds. I
further certify the following person is the proper person to sign the trust
indenture in accordance with the Articles of Organization and By-Laws of the
corporation:
<PAGE>
MMR Investment Bankers
Page 2
November 21, 1997
Name: Joanne M. Caldwell
Title: President
I further certify that when the first mortgage bonds have been paid for by
the purchaser and signed by the President, the first mortgage bonds will be
a legal and binding indebtedness of the Corporation.
The opinions expressed above are subject in their entirety to (I) the effect
of any applicable bankruptcy, insolvency, reorganization or similar laws
affecting creditors' rights generally; and (ii) the rights of the United
States government under the Federal Tax Lien Act of 1966, as amended; and
(iii) the discretionary power of the courts to make available remedies of
specific performance, injunctive relief or other equitable remedies. This
opinion is limited to the matters stated herein, and no opinions may be
implied or inferred beyond the matters stated.
In giving this opinion we have assumed the authenticity of all signatures to
the Articles of Organization, By-Laws and the resolutions and that those
persons signing on behalf of a corporate or other entity that is not an
individual have the requisite authority.
This opinion is solely for the benefit of MMR Investment Bankers and its
counsel and may not be quoted, circulated or published in whole or in part,
without our express prior written consent.
With kindest personal regards, I remain
Yours very truly,
/S/J CLAY CARROLL
J. Clay Carroll
JCC:bb
cc: Senior Retirement Communities, Inc.
<PAGE>
THE AMERICAN INSTITUTE OF ARCHITECTS
AIA Document A191
Standard Form of Agreement Between
Owner and Design/Builder
1985 EDITION
THIS DOCUMENT HAS IMPORTANT LEGAL CONSEQUENCES,
CONSULTATION WITH AN ATTORNEY IS ENCOURAGED.
This Document comprises two separate Agreements: Part 1 Agreement-Preliminary
Design and Budgeting and Part 2 Agreement-Final Design and Construction.
Hereinafter, the Part 1 Agreement is referred to as Part 1 and the Part 2
Agreement is referred to as Part 2.
PART 2 AGREEMENT-FINAL DESIGN AND CONSTRUCTION
AGREEMENT
made as of the fifth day of November in the year of Nineteen
Hundred and ninety-seven
BETWEEN the Owner:
(Name and address) SENIOR Retirement Communities, Inc.
507 Trenton St
W. Monroe, LA 71291
and the Design/Builder:
(Name and address) The Forsythe Group, Inc.
507 Trenton St
W. Monroe, LA 71291
Scenicland Construction Co.
131 Sunset Dr.
W. Monroe, LA 71291
For the following Project:
(Include Project name, location and detailed description of scope.)
THE ARBOR RETIREMENT COMMUNITY
U.S. Hwy 80 East
Ruston, LA
Complete Construction according to plans and specifications designed by the
Forsythe Group with assistance of Engineer Firm of Mike Wallace, Civil
Engineer date Novemeber 4, 1997.
The architectural services described in Article 2 will be provided by the
following person or entity who is lawfully licensed to practice architecture:
(Name and address) Karl M. Wallace, Civil Engineer, Route 2 Box 163B
Downsville, Louisiana 71234
The Owner and the Design/Builder agree as set forth below.
Copyright (c) 1985 by The American Institute of Architects, 1735 New York
Avenue, N.W., Washington, D.C. 20006. Reproduction of the material herein or
substantial quotation of its provisions without written permission of the AIA
violates the copyright laws of the United States and will be subject to legal
prosecution.
AIA DOCUMENT A191, Part 2 . OWNER-DESIGNER/BUILDER AGREEMENT . FIRST EDITION
. AIA* . (c) 1985 . THE AMERICAN INSTITUTE OF ARCHITECTS, 1735 NEW YORK
AVENUE, N.W., WASHINGTON, D.C. 2O006
A191-1985
PART 2-PAGE I
<PAGE>
Terms and Conditions-Part 2 Agreement
ARTICLE I
GENERAL PROVISIONS
1.1 BASIC DEFINITIONS
1.1.1 The Contract Documents consist of the Design/ Builder's Proposal
identified in Article 14, this Part 2, the Construction Documents approved by
the Owner in accordance with Subparagraph 2.2.2 below and Modifications
issued after execution of Part 2. A Modification is a Change Order or a
written amendment to Part 2 signed by both parties. These form the Contract,
and are as fully a part of the Contract as if attached to this Part 2 or
repeated herein.
1.1.2 The Project is the total design and construction for which the
Design/Builder is responsible under Part 2, including all professional
design services and all labor, materials and equipment used or incorporated
in such design and construction.
1.1.3 The Work comprises the completed construction designed under the
Projectand includes labor necessary to produce such construction, and
materials and equipment incorporated or to be incorporated in such
construction.
1.2 EXECUTION, CORRELATION AND INTENT
1.2.1 This Part 2 shall be signed in not less than duplicate
by the Owner and Design/Builder.
1.2.2 It is the intent of the Owner and Design/Builder that
the Contract Documents include all items necessary for proper execution and
completion of the Work. The Contract Documents are complementary, and what
is required by anyone shall be as binding as if required by all. Work not
covered in the Contract Documents will not be required unless it is
consistent with and is reasonably inferable from the Contract Documents as
being necessary to produce the intended results. Words and abbreviations
which have well-known technical or trade meanings are used in the Contract
Documents in accordance with such recognized meanings.
1.3 OWNERSHIP AND USE OF DOCUMENTS
1.3.1 The drawings, specifications and other documents furnished by the
Design/Builder are instruments of service and shall not become the property
of the Owner whether or not the Project for which they are made is commenced.
Drawings, specifications and other documents furnished by the Design/Builder
shall not be used by the Owner on other projects, for additions to this
Project or, unless the Design/Builder is in default under Part 2, for
completion of this Project by others, except by written agreement relating to
use, liability and compensation.
1.3.2 Submission or distribution of documents to meet official regulatory
requirements or for other purposes in connection with the Project is not to
be construed as publication in derogation of the Design/Builder's or the
Architect's common law copyrights or other reserved rights. The Owner shall
own neither the documents nor the copyrights.
ARTICLE 2
DESIGN/BUILDER
2.1 SERVICES AND RESPONSIBILITIES
2.1.1 Design services shall be performed by qualified architects, engineers
and other professionals selected and paid by the Design/Builder. The
professional obligations of such persons shall be undertaken and performed in
the interest of the Design/Builder. Construction services shall be performed
by qualified construction contractors and suppliers, selected and paid by the
Design/Builder and acting in the interest of the Design/Builder. Nothing
contained in Part 2 shall create any professional obligation or contractual
relationship between such persons and the Owner.
2.2 BASIC SERVICES
2.2.1 The Design/Builder's Basic Services are described below and in
Article 14.
2.2.2 Based on the Design/Builder's Proposal, the Design/Builder shall
submit Construction Documents for review and approval by the Owner.
Construction Documents shall include technical drawings, schedules, diagrams
and specifications, setting forth in detail the requirements for construction
of the Work, and shall:
.1 develop the intent of the Design/Builder's Proposal in greater
detail;
.2 provide information customarily necessary for the use of those in
the building trades; and
.3 include documents customarily required for regulatory agency
approvals.
2.2.3 The Design/Builder shall assist the Owner in filing documents
required to obtain necessary approvals of governmental authorities having
jurisdiction over the Project.
2.2.4 Unless otherwise provided in the Contract Documents, the
Design/Builder shall provide or cause to be provided and shall pay for design
services, labor, materials, equipment, tools, construction equipment and
machinery, water, heat, utilities, transportation and other facilities and
services necessary for proper execution and completion of the Work, whether
temporary or permanent and whether or not incorporated or to be incorporated
in the Work.
2.2.5 The Design/Builder shall be responsible for and shall coordinate all
construction means, methods, techniques, sequences and procedures.
2.2.6 The Design/Builder shall keep the Owner informed of the progress and
quality of the Work.
2.2.7 If requested in writing by the Owner, the Design/ Builder, with
reasonable promptness and in accordance with time limits agreed upon, shall
interpret the requirements of the Contract Documents and initially shall
decide, subject to demand for arbitration, claims, disputes and other matters
in question relating to performance thereunder by both Owner and
Design/Builder. Such interpretations and decisions shall be in writing,
shall not be presumed to be correct and shall be given such weight as the
arbitrators or the court shall determine.
A191-1985 A191,Part2 OWNER-DESIGN/BUILDER ACREEMENT, FIRST EDITION
PART 2-PAGE 2 AIA* (c)1985, THE AMERICAN INSTITUTE OF ARCHITECTS, 1735 NEW
YORK AVENUE, N.W. WASHINCTON, D.C. 20006
<PAGE>
2.2.8 The Design/Builder shall correct Work which does not conform to the
Construction Documents.
2.2.9 The Design/Builder warrants to the Owner that materials and equipment
incorporated in the Work will be new unless otherwise specified, and that the
Work will be of good quality, free from faults and defects, and in
conformance with the Contract Documents. Work not conforming to these
requirements shall be corrected in accordance with Article 9.
2.2.10 The Design/Builder shall pay all sales, consumer, use and similar
taxes which were in effect at the time the Design/Builder's Proposal was
first submitted to the Owner, and shall secure and pay for building and other
permits and governmental fees, licenses and inspections necessary for the
proper execution and completion of the Work which are either customarily
secured after execution of Part 2 or are legally required at the time the
Design/Builder's Proposal was first submitted to the Owner.
2.2.11 The Design/Builder shall give notices and comply with laws,
ordinances, rules, regulations and lawful orders of public authorities
relating to the Project.
2.2.12 The Design/Builder shall pay royalties and license fees. The
Design/Builder shall defend suits or claims for infringement of patent rights
and shall save the Owner harmless from loss on account thereof, except that
the Owner shall be responsible for such loss when a particular design,
process or product of a particular manufacturer is required by the Owner.
However, if the Design/Builder has reason to believe the use of a required
design, process or product is an infringement of a patent, the Design/Builder
shall be responsible for such loss unless such information is promptly given
to the Owner.
2.2.13 The Design/Builder shall be responsible to the Owner for acts and
omissions of the Design/Builder's employees and parties in privily of
contract with the Design/ Builder to perform a portion of the Work, including
their agents and employees.
2.2.14 The Design/Builder shall keep the premises free from accumulation of
waste materials or rubbish caused by the Design/Builder's operations. At the
completion of the Work, the Design/Builder shall remove from and about the
Project the Design/Builder's tools, construction equipment, machinery,
surplus materials, waste materials and rubbish.
2.2.15 The Design/Builder shall prepare Change Orders for the Owner's
approval and execution in accordance with Part 2 and shall have authority to
make minor changes in the design and construction consistent with the intent
of Part 2 not involving an adjustment in the contract sum or an extension of
the contract time. The Design/Builder shall promptly inform the Owner, in
writing, of minor changes in the design and construction. 2.2.16 The
Design/Builder shall notify the Owner when the Work or an agreed upon portion
thereof is substantially completed by issuing a Certificate of Substantial
Completion which shall establish the Date of Substantial Completion, shall
state the responsibility of each party for security, maintenance, heat,
utilities, damage to the Work and insurance, shall include a list of items to
be completed or corrected and shall fix the time within which the
Design/Builder shall complete items listed therein. Disputes between the
Owner and Design/Builder regarding the Certificate of Substantial Completion
shall be resolved by arbitration.
2.2.17 The Design/Builder shall maintain in good order at the site one
record copy of the drawings, specifications, product data, samples, shop
drawings, Change Orders and other Modifications, marked currently to record
changes made during construction. These shall be delivered to the Owner upon
completion of the design and construction and prior to final payment.
ARTICLE 3
OWNER
3.1 The Owner shall designate a representative authorized to act on the
Owner's behalf with respect to the Project. The Owner or such authorized
representative shall examine documents submitted by the Design/Builder and
shall promptly render decisions pertaining thereto to avoid delay in the
orderly progress of the Work.
3.2 The Owner may appoint an on-site project representative to observe
the Work and to have such other responsibilities as the Owner and
Design/Builder agree in writing prior to execution of Part 2.
3.3 The Owner shall cooperate with the Design/Builder in securing
building and other permits, licenses and inspections, and shall pay the fees
for such permits, licenses and inspections if the cost of such fees is not
identified as being included in the Design/Builder's Proposal.
3.4 The Owner shall furnish services by land surveyors, geotechnical
engineers and other consultants for subsoil, air and water conditions, in
addition to those provided under Part 1 when such services are deemed
necessary by the Design/Builder to carry out properly the design services
under this Part 2.
3.5 The Owner shall furnish structural, mechanical, chemical,
geotechnical and other laboratory or on-site tests, inspections and reports
as required by law or the Contract Documents.
3.6 The services, information, surveys and reports required by Paragraphs
3.4 and 3.5 shall be furnished at the Owner's expense, and the Design/Builder
shall be entitled to rely upon their accuracy and completeness.
3.7 If the Owner observes or otherwise becomes aware of a fault or defect
in the Work or nonconformity with the Design or Construction Documents, the
Owner shall give prompt written notice thereof to the Design/Builder.
3.8 The Owner shall furnish required information and services and shall
promptly render decisions pertaining thereto to avoid delay in the orderly
progress of the design and construction.
3.9 The Owner shall, at the request of the Design/Builder and upon
execution of Part 2, provide a certified or notarized statement of funds
available for the Project and their source.
3.10 The Owner shall communicate with contractors only through the
Design/Builder.
ARTICLE 4
TIME
4.1 The Design/Builder shall provide services as expeditiously as is
consistent with reasonable skill and care and the orderly progress of design
and construction.
4.2 Time limits stated in the Contract Documents are of the essence of
Part 2. The Work to be performed under Part
AIA DOCUMENT A191,Part 2, OWNER-DESIGN/BUILDER AGREEMENT A191-1985
FIRST EDITION AIA* (c)1985 * THE AMERICAN INSTITUTE OF PART 2-PAGE 3
ARCHITECTS 1735 NEW YORK AVENUE N.W., WASHINGTON,
D.C. 20006
<PAGE>
2 shall commence upon execution of a notice to proceed unless otherwise
agreed and, subject to authorized Modifications, Substantial Completion shall
be achieved as indicated in Article 14.
4.3 The Date of Substantial Completion of the Work or an agreed upon
portion thereof is the date when construction or an agreed upon portion
thereof is sufficiently complete so the Owner can occupy and utilize the Work
or agreed upon portion thereof for its intended use.
4.4 The schedule provided in the Design/Builder's Proposal shall include
a construction schedule consistent with Paragraph 4.2 above.
4.3 If the Design/Builder is delayed in the progress of the Project by
acts or neglect of the Owner, Owner's employees, separate contractors
employed by the Owner, changes ordered in the Work not caused by the fault of
the Design/Builder, labor disputes, fire, unusual delay in transportation,
adverse weather conditions not reasonably anticipatable, unavoidable
casualties, or other causes beyond the Design/Builder's control, or by delay
authorized by the Owner's pending arbitration or another cause which the
Owner and Design/Builder agree is justifiable, the contract time shall be
reasonably extended by Change Order.
ARTICLE 5
PAYMENTS
5.1 PROGRESS PAYMENTS
5.1.1 The Design/Builder shall deliver to the Owner itemized Applications
for Payment in such detail as indicated in Article 14.
5.1.2 Within ten days of the Owner's receipt of a properly submitted and
correct Application for Payment, the Owner shall make payment to the
Design/Builder.
5.1.3 The Application for Payment shall constitute are presentation by the
Design/Builder to the Owner that, to the best of the Design/Builder's
knowledge, information and belief, the design and construction have
progressed to the point indicated; the quality of the Work covered by the
application is in accordance with the Contract Documents; and the
Design/Builder is entitled to payment in the amount requested.
5.1.4 The Design/Builder shall pay each contractor, upon receiptof payment
from the Owner, out of the amount paid to the Design/Builder on account of
such contractor's work, the amount to which said contractor is entitled in
accordance with the terms of the Design/Builder's contract with such
contractor. The Design/Builder shall, by appropriate agreement with each
contractor, require each contractor to make payments to subcontractors in
similar manner.
5.1.5 The Owner shall have no obligation to pay or to be responsible in any
way for payment to a contractor of the Design/Builder except as may otherwise
be required by law.
5.1.6 No progress payment or partial or entire use or occupancy of the
Project by the Owner shall constitute an acceptance of Work not in accordance
with the Contract Documents.
5.1.7 The Design/Builder warrants that: (1) title to Work, materials and
equipment covered by an Application for Payment will pass to the Owner either
by incorporation in construction or upon receipt of payment by the
Design/Builder, whichever occurs first; (2) Work, materials and equipment
covered by previous Applications for Payment are free and clear of liens,
claims, security interests or encumbrances, hereinafter referred to as
"liens"; and (3) no Work, materials or equipment covered by an Application
for Payment will have been acquired by the Design/ Builder, or any other
person performing work at the site or furnishing materials or equipment for
the Project, subject to an agreement under which an interest therein or an
encumbrance thereon is retained by the seller or otherwise imposed by the
Design/Builder or such other person.
5.1.8 If the Contract provides for retainage, then at the date of
Substantial Completion or occupancy of the Work or any agreed upon portion
thereof by the Owner, whichever occurs first, the Design/Builder may apply
for and the Owner, if the Design/Builder has satisfied the requirements of
Paragraph 5.2.1 and any other requirements of the Contract relating to
retainage, shall pay the Design/Builder the amount retained, if any, for the
Work or for the portion completed or occupied, less the reasonable value of
incorrect or incomplete Work. Final payment of such withheld sum shall be
made upon correction or completion of such Work.
5.2 FINAL PAYMENT
5.2.1 Neither final payment nor amounts retained,if any, shall become due
until the Design/Builder submits to the Owner (1) an affidavit that payrolls,
bills for materials and equipment, and other indebtedness connected with the
Project for which the Owner or Owner's property might be liable have been
paid or otherwise satisfied, (2) consent of surety, if any, to final payment,
(3) a certificate that insurance required by the Contract Documents is in
force following completion of the Work, and (4) if required by the Owner,
other data establishing payment or satisfaction of obligations, such as
receipts, releases and waivers of liens arising out of Part 2, to the extent
and in such form as may be designated by the Owner. If a contractor refuses
to furnish a release or waiver required by the Owner, the Design/Builder may
furnish a bond satisfactory to the Owner to indemnify the Owner against such
lien. If such lien remains unsatisfied after payments are made, the
Design/Builder shall reimburse the Owner for moneys the latter may be
compelled to pay in discharging such lien, including all costs and reasonable
attorneys' fees.
5.2.2 Final payment constituting the entire unpaid balance due shall be
paid by the Owner to the Design/Builder upon the Owner's receipt of the
Design/Builder's final Application for Payment when the Work has been
completed and the Contract fully performed except for those responsibilities
of the Design/Builder which survive final payment.
5.2.3 The making of final payment shall constitute a waiver of all claims
by the Ownerexcept those arising from:
.1 unsettled liens;
.2 faulty or defective Work appearing after Substantial Completion;
.3 failure of the Work to comply with requirements of the Contract
Documents; or
.4 terms of special warranties required by the Contract Documents.
5.2.4 Acceptance of final payment shall constitute a waiver of all claims
by the Design/Builder except those previously made in writing and identified
by the Design/Builder as unsettled at the time of final Application for
Payment.
A191-1985 A191,Part2 OWNER-DESIGN/BUILDER ACREEMENT, FIRST EDITION
PART 2-PAGE 4 AIA* (c)1985, THE AMERICAN INSTITUTE OF ARCHITECTS, 1735 NEW
YORK AVENUE, N.W. WASHINCTON, D.C. 20006
<PAGE>
5.3 INTEREST PAYMENTS
5.3.1 Payments due the Design/Builder under Part2 which are not paid when
due shall bear interest from the date due at the rate specified in Article
13, or in the absence of a specified rate, at the legal rate prevailing where
the principal improvements are to be located.
ARTICLE 6
PROTECTION OF PERSONS AND PROPERTY
6.1 The Design/Builder shall be responsible for initiating, maintaining
and providing Supervision of safety precautions and programs in connection
with the Work.
6.2 The Design/Builder shall take reasonable precautions for safety of,
and shall provide reasonable protection to prevent damage, injury or loss to:
(1) employees on the Work and other persons who may be affected thereby; (2)
the Work and materials and equipment to be incorporated therein; and (3)
other property at or adjacent to the site.
6.3 The Design/Builder shall give notices and comply with applicable
laws, ordinances, rules, regulations and orders of public authorities bearing
on the safety of persons and property and their protection from damage,
injury or loss.
6.4 The Design/Builder shall be liable for damage or loss (other than
damage or loss to property insured under the property insurance provided or
required by the Contract Documents to be provided by the Owner) to property
at the site caused in whole or in part by the Design/Builder, a contractor of
the Design/Builder or anyone directly or indirectly employed by either of
them, or by anyone for whose acts they may be liable, except damage or loss
attributable to the acts or omissions of the Owner, the Owner's separate
contractors or anyone directly or indirectly employed by them or by anyone
for whose acts they may be liable and not attributable to the fault or
negligence of the Design/ Builder.
ARTICLE 7
INSURANCE AND BONDS
7.1 DESIGN/BUILDER'S LIABILITY INSURANCE
7.1.1 The Design/Builder shall purchase and maintainin a company or
companies authorized to do business in the state in which the Work is located
such insurance as will protect the Design/Builder from claims set forth below
which may arise out of or result from operations under the Contract by the
Design/Builder or by a contractor of the Design/Builder, or by anyone
directly or indirectly employed by any of them, or by anyone for whose acts
they may be liable:
.1 claims under workers' or workmen's compensation, disability
benefit and other similar employee benefit laws which are
applicable to the Work to be performed;
.2 claims for damages because of bodily injury, occupational
sickness or disease, or death of the Design/Builder's employees
under any applicable employer's liability law;
.3 claims for damages because of bodily injury, sickness or
disease, or death of persons other than the Design/Builder's
employees;
.4 claims for damages covered by usual personal injury liability
coverage which are sustained (1) by a person as a result of an
offense directly or indirectly related to employment of such
person by the Design/Builder or (2) by another person;
.5 claims for damages, other than to the Work at the site, because
of injury to or destruction of tangible property, including loss
of use; and
.6 claims for damages for bodily injury or death of a person or
property damage arising out of ownership, maintenance or use of
a motor vehicle.
7.1.2 The insurance required by the above Subparagraph
7.1.1 shall be written for not less than limits of liability specified in
the Contract Documents or required by law, whichever are greater.
7.1.3 The Design/Builder's liability insurance shall include contractual
liability insurance applicable to the Design/Builder's obligations under
Paragraph 11.7.
7.1.4 Certificates of Insurance, and copies of policies if requested,
acceptable to the Owner shall be delivered to the Owner prior to commencement
of design and construction. These Certificates as well as insurance policies
required by this Paragraph shall contain a provision that coverage will not
be cancelled or allowed to expire until at least thirty days' prior written
notice has been given to the Owner. If any of the foregoing insurance
coverages are required to remain in force after final payment, an additional
certificate evidencing continuation of such coverage shall be submitted along
with the application for final payment.
7.2 OWNER'S LIABILITY INSURANCE
7.2.1 The Owner shall be responsible for purchasing and maintaining, in a
company or companies authorized to do business in the state in which the
principal improvements are to be located, Owner's liability insurance to
protect the Owner against claims which may arise from operations under this
Project.
7.3 PROPERTY INSURANCE
7.3.1 Unless otherwise provided under this Part 2, the Owner shall purchase
and maintain, in a company or companies authorized to do business in the
state in which the principal improvements are to be located, property
insurance upon the Work at the site to the full insurable value thereof.
Property insurance shall include interests of the Owner, the Design/Builder,
and their respective contractors and subcontractors in the Work. It shall
insure against perils of fire and extended coverage and shall include all
risk insurance for physical loss or damage including, without duplication of
coverage, theft, vandalism and malicious mischief. If the Owner does not
intend to purchase such insurance for the full insurable value of the entire
Work, the Owner shall inform the Design/Builder in writing prior to
commencement of the Work. The Design/Builder may then effect insurance for
the Work at the site which will protect the interests of the Design/Builder
and the Design/Builder's contractors and subcontractors, and by appropriate
Change Order the cost thereof shall be charged to the Owner. If the
Design/Builder is damaged by failure of the Owner to purchase or maintain
such insurance without notice to the Design/Builder, then the Owner shall
bear all reasonable costs properly attributable thereto. if not covered under
the all risk insurance or not otherwise provided in the Contract Documents,
the Design/Builder shall effect and maintain similar property insurance on
portions of the Work stored off-site or in transit when such portions of the
Work are to be included in an Application for Payment.
AIA DOCUMENT A191,Part 2, OWNER-DESIGN/BUILDER AGREEMENT A191-1985
FIRST EDITION AIA* (c)1985 * THE AMERICAN INSTITUTE OF PART 2-PAGE 5
ARCHITECTS 1735 NEW YORK AVENUE N.W., WASHINGTON,
D.C. 20006
<PAGE>
7.3.2 Unless otherwise provided under this Part 2, the Owner shall purchase
and maintain such boiler and machinery insurance as may be required by the
Contract Documents or by law and which shall specifically cover such insured
objects during installation and until final acceptance by the Owner. This
insurance shall cover interests of the Owner, the Design/Builder, and the
Design/Builder's contractors and subcontractors in the Work.
7.3.3 A loss insured under Owner's property insurance is to be adjusted
with the Owner and made payable to the Owner as trustee for the insureds, as
their interests may appear, subject to requirements of any applicable
mortgagee clause and of Subparagraph 7.3.8. The Design/ Builder shall pay
contractors their shares of insurance proceeds received by the
Design/Builder, and by appropriate agreement, written where legally required
for validity, shall require contractors to make payments to their
subcontractors in similar manner.
7.3.4 Before an exposure to loss may occur, the Owner shall file with the
Design/Builder a copy of each policy required by this Paragraph 7.3. Each
policy shall contain only those endorsements specifically related to this
Project. Each policy shall contain a provision that the policy will not be
cancelled or allowed to expire until at least thirty days' prior written
notice has been given the Design/ Builder.
7.3.5 If the Design/Builder requests in writing that insurance for risks
other than those described herein or for other special hazards be included
in the property insurance policy, the Owner shall, if possible, obtain such
insurance, and the cost thereof shall be charged to the Design/Builder by
appropriate Change Order.
7.3.6 The Owner and Design/Builder waive all rights against each other and
the contractors, subcontractors, agents and employees, each of the other,
for damages caused by fire or other perils to the extent covered by property
insurance obtained pursuant to this Paragraph 7.3 or other property insurance
applicable to the Work, except such rights as they may have to proceeds of
such insurance held by the Owner as trustee. The Owner or Design/Builder, as
appropriate, shall require from contractors and subcontractors by appropriate
agreements, written where legally required for validity, similar waivers each
in favor of other parties enumerated in this Paragraph 7.3. The policies
shall be endorsed to include such waivers of subrogation.
7.3.7 If required in writing by a party in interest, the Owner as trustee
shall provide, upon occurrence of an insured loss, a bond for proper
performance of the Owner's duties. The cost of required bonds shall be
charged against proceeds received as trustee. The Owner shall deposit
proceeds so received in a separate account and shall distribute them in
accordance with such agreement as the parties in interest may reach, or in
accordance with an arbitration award in which case the procedure shall be as
provided in Article 10. If after such loss no other special agreement is
made, replacement of damaged Work shall be covered by appropriate Change
Order.
7.3.8 The Owner, as trustee, shall have power to adjust and settle a loss
with insurers unless one of the parties in interest shall object, in writing,
within ten days after occurrence of loss, to the Owner's exercise of this
power. If such objection be made, the Owner as trustee shall make settlement
with the insurers in accordance with the decision of arbitration as provided
in Article 10. If distribution of insurance proceeds by arbitration is
required, the arbitrators will direct such distribution.
7.3.9 If the Owner finds it necessary to occupy or use a portion or
portions of the Work before Substantial Completion, such occupancy or use
shall not commence prior to a time agreed to by the Owner and Design/Builder
and to which the insurance company or companies providing property insurance
have consented by endorsement to the policy or policies. The property
insurance shall not lapse or be cancelled on account of such partial
occupancy or use. Consent of the Design/Builder and of the insurance company
or companies to such occupancy or use shall not be unreasonably withheld.
7.4 LOSS OF USE INSURANCE
7.4.1 The Owner, at the Owner's option, may purchase and maintain such
insurance as will insure the Owner against loss of use of the Owner's
property due to fire or other hazards, however caused. The Owner waives all
rights of action against the Design/Builder, and its contractors and their
agents and employees, for loss of use of the Owner's property, including
consequential losses due to fire or other hazards, however caused, to the
extent covered by insurance under this Paragraph 7.4.
7.5 PERFORMANCE BOND AND PAYMENT BOND
7.5.1 The Owner shall have the right to require the Design/Builder to
furnish bonds covering the faithful performance of the Contract and the
payment of all obligations arising thereunder if and as required in the
Contract Documents or in Article 14.
ARTICLE 8
CHANGES IN THE WORK
8.1 CHANGE ORDERS
8.1.1 A Change Order is a written order signed by the Owner and
Design/Builder, and issued after execution of Part 2, authorizing a change in
the Work or adjustment in the contract sum or contract time. The contract
sum and contract time may be changed only by Change Order.
8.1.2 The Owner, without invalidating Part 2, may order changes in the Work
within the general scope of Part 2 consisting of additions, deletions or
other revisions, and the contract sum and contract time shall be adjusted
accordingly. Such changes in the Work shall be authorized by Change Order,
and shall be performed under applicable conditions of the Contract Documents.
8.1.3 If the Owner requests the Design/Builder to submit a proposal for a
change in the Work and then elects not to proceed with the change, a Change
Order shall be issued to reimburse the Design/Builder for any costs incurred
for Design Services or proposed revisions to the Contract Documents.
8.1.4 Cost or credit to the Owner resulting from a change in the Work shall
be determined in one or more of the following ways:
.1 by mutual acceptance of a lump sum properly itemized and supported
by sufficient substantiating data to permit evaluation;
.2 by unit prices stated in the Contract Documents or subsequently
agreed upon;
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.3 by cost to be determined in a manner agreed upon by the parties and
a mutually acceptable fixed or percentage fee; or
.4 by the method provided below.
8.1.5 If none of the methods set forth in Clauses 8.1.4.1, 8.1.4.2 or
8.1.4.3 is agreed upon, the Design/Builder, provided a written order signed
by the Owner is received, shall promptly proceed with the Work involved.
The cost of such Work shall then be determined on the basis of reasonable
expenditures and savings of those performing the Work attributable to the
change, including the expenditures for design services and revisions to the
Contract Documents. In case of an increase in the contract sum, the cost
shall include a reasonable allowance for overhead and profit. In case of the
methods set forth in Clauses 8.1.4.3 and 8.1.4.4, the Design/Builder shall
keep and present an itemized accounting together with appropriate supporting
data for inclusion in a Change Order. Unless otherwise provided in the
Contract Documents, cost shall be limited to the following: cost of
materials, including sales tax and cost of delivery; cost of labor, including
social security, old age and unemployment insurance, and fringe benefits
required by agreement or custom; workers' or workmen's compensation
insurance; bond premiums; rental value of equipment and machinery; additional
costs of supervision and field office personnel directly attributable to the
change; and fees paid to architects, engineers and other professionals.
Pending final determination of cost to the Owner, payments on account shall
be made on the Application for Payment. The amount of credit to be allowed
by the Design/ Builder to the Owner for deletion or change which results in a
net decrease in the contract sum will be actual net cost. When both
additions and credits covering related Work or substitutions are involved in
a change, the allowance for overhead and profit shall be figured on the
basis of the net increase, if any, with respect to that change.
8.1.6 If unit prices are stated in the Contract Documents or subsequently
agreed upon, and if quantities originally contemplated are so changed in a
proposed Change Order that application of agreed unit prices to quantities
proposed will cause substantial inequity to the Owner or Design/Builder,
applicable unit prices shall be equitably adjusted.
8.2 CONCEALED CONDITIONS
8.2.1 If concealed or unknown conditions of an unusual nature that affect
the performance of the Work and vary from those indicated by the Contract
Documents are encountered below ground or in an existing structure other than
the Work, which conditions are not ordinarily found to exist or which differ
materially from those generally recognized as inherent in work of the
character provided for in this Part 2, notice by the observing party shall
be given promptly to the other party and, if possible, before conditions are
disturbed and in no event later than twenty-one days after first observance
of the conditions. The contract sum shall be equitably adjusted for such
concealed or unknown conditions by Change Order upon claim by either party
made within twenty-one days after the claimant becomes aware of the
conditions.
8.3 REGULATORY CHANGES
8.3.1 The Design/Builder shall be compensated for changes in the Work
necessitated by the enactment or revision of codes, laws or regulations
subsequent to the submission of the Design/Builder's Proposal under Part 1.
ARTICLE 9
CORRECTION OF WORK
9.1 The Design/Builder shall promptly correct Work rejected by the Owner
or known by the Design/Builder to be defective or failing to conform to the
Construction Documents, whether observed before or after Substantial
Completion and whether or not fabricated, installed or completed, and shall
correct Work under this Part 2 found to be defective or nonconforming within
a period of one year from the date of Substantial Completion of the Work or
designated portion thereof, or within such longer period provided by any
applicable special warranty in the Contract Documents.
9.2 Nothing contained in this Article 9 shall be construed to establish a
period of limitation with respect to other obligations of the Design/Builder
under this Part 2. Paragraph 9.1 relates only to the specific obligation of
the Design/Builder to correct the Work, and has no relationship to the time
within which the obligation to comply with the Contract Documents may be
sought to be enforced, nor to the time within which proceedings may be
commenced to establish the Design/Builder's liability with respect to the
Design/Builder's obligations other than correction of the Work.
9.3 If the Design/Builder fails to correct defective Work as required or
persistently fails to carry out Work in accordance with the Contract
Documents, the Owner, by written order signed personally or by an agent
specifically so empowered by the Owner in writing, may order the
Design/Builder to stop the Work, or any portion thereof, until the cause for
such order has been eliminated; however, the Owner's right to stop the Work
shall not give rise to a duty on the part of the Owner to exercise the right
for benefit of the Design/Builder or other persons or entities.
9.4 If the Design/Builder defaults or neglects to carry out the Work in
accordance with the Contract Documents and fails within seven days after
receipt of written notice from the Owner to commence and continue correction
of such default or neglect with diligence and promptness, the Owner may give
a second written notice to the Design/ Builder and, seven days following
receipt by the Design/ Builder of that second written notice and without
prejudice to other remedies the Owner may have, correct such deficiencies.
In such case an appropriate Change Order shall be issued deducting from
payments then or thereafter due the Design/Builder costs of correcting such
deficiencies. If the payments then or thereafter due the Design/Builder are
not sufficient to cover the amount of the deduction, the Design/Builder shall
pay the difference to the Owner. Such action by the Owner shall be subject
to arbitration.
ARTICLE 10
ARBITRATION
10.1 Claims, disputes and other matters in question between the parties to
this Part 2 arising out of or relating to Part 2 shall be decided by
arbitration in accordance with the Construction Industry Arbitration Rules of
the American Arbitration Association then in effect unless the parties agree
otherwise. No arbitration arising out of or relat-
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ing to this Part 2 shall include, by consolidation or joinder or in any other
manner, an additional person not a party to Part I except by written consent
containing specific reference to Part 2 and signed by the Owner,
Design/Builder and any other person sought to be joined. Consent to
arbitration involving an additional person or persons shall not constitute
consent to arbitration of a dispute not described or with a person not named
therein. This provision shall be specifically enforceable in any court of
competent jurisdiction.
10.2 Notice of demand for arbitration shall be filed in writing with the
other party to this Part 2 and with the American Arbitration Association.
The demand shall be made within a reasonable time after the claim, dispute or
other matter in question has arisen. In no event shall the demand for
arbitration be made after the date when the applicable statute of limitations
would bar institution of a legal or equitable proceeding based on such claim,
dispute or other matter in question.
10.3 The award rendered by arbitrators shall be final, and judgment may be
entered upon it in accordance with applicable law in any court having
jurisdiction.
10.4 Unless otherwise agreed in writing, the Design/Builder shall carry on
the Work and maintain its progress during any arbitration proceedings, and
the Owner shall continue to make payments to the Design/Builder in accordance
with the Contract Documents.
10.5 This Article 1O shall survive completion or termination of Part 2.
ARTICLE 11
MISCELLANEOUS PROVISIONS
11.1 This Part 2 shall be governed by the law of the place where the Work
is located.
11.2 The table of contents and the headings of articles and paragraphs are
for convenience only and shall not modify rights and obligations created by
this Part 2.
11.3 In case a provision of Part 2 is held to be invalid, illegal or
unenforceable, the validity, legality and enforceability of the remaining
provisions shall not be affected.
11.4 SUBCONTRACTS
11.4.1 The Design/Builder, as soon as practicable after execution of Part 2,
shall furnish to the Owner in writing the names of the persons or entities
the Design/Builder will engage as contractors for the Project.
11.4.2 Nothing contained in the Design/Builder Contract Documents shall
create a professional obligation or contractual relationship between the
Owner and any third party.
11.5 WORK BY OWNER OR OWNER'S CONTRACTORS
11.5.1 The Owner reserves the right to perform work related to, but not part
of, the Project and to award separate contracts in connection with other work
at the site. If the Design/Builder claims that delay or additional cost is
involved because of such action by the Owner, the Design/ Builder shall make
such claims as provided in Subparagraph 11.6.
11.5.2 The Design/Builder shall afford the Owner's separate contractors
reasonable opportunity for introduction and storage of their materials and
equipment for execution of their work. The Design/Builder shall incorporate
and coordinate the Design/Builder's Work with work of the Owner's separate
contractors as required by the Contract Documents.
11.5.3 Costs caused by defective or ill-timed work shall be borne by the
party responsible.
11.6 CLAIMS FOR DAMAGES
11.6.1 Should either party to Part2 suffer injury or damage to person or
property because of an act or omission of the other party, the other party's
employees or agents, or another for whose acts the other party is legally
liable, claim shall be made in writing to the other party within a reasonable
time after such injury or damage is or should have been first observed.
11.7 INDEMNIFICATION
11.7.1 To the fullest extent permitted by law, the Design/Builder shall
indemnify and hold harmless the Owner and the Owner's consultants and
separate contractors, any of their subcontractors, sub-subcontractors,
agents and employees from and against claims, damages, losses and expenses,
including but not limited to attorneys' fees, arising out of or resulting
from performance of the Work. These indemnification obligations shall be
limited to claims, damages, losses or expenses (1) that are attributable to
bodily injury, sickness, disease or death, or to injury to or destruction of
tangible property (other than the Work itself) including loss of use
resulting therefrom, and (2) to the extent such claims, damages, losses or
expenses are caused in whole or in part by negligent acts or omissions of the
Design/Builder, the Design/Builder's contractors, anyone directly or
indirectly employed by either or anyone for whose acts either may be liable,
regardless of whether or not they are caused in part by a party indemnified
hereunder. Such obligation shall not be construed to negate, abridge or
otherwise reduce other rights or obligations of indemnity which would
otherwise exist as to a party or person described in this Paragraph 11.7.
11.7.2 ln claims against the Owner or its consultants and its contractors,
any of their subcontractors, sub-subcontractors, agents or employees by an
employee of the Design/Builder, its contractors, anyone directly or
indirectly employed by them or anyone for whose acts they may be liable,
the indemnification obligation under this Paragraph 11.7 shall not be limited
by a limitation on amount or type of damages, compensation or benefits
payable by or for the Design/Builder, or a Design/Builder's contractor, under
workers' or workmen's compensation acts, disability benefit acts or other
employee benefit acts.
11.8 SUCCESSORS AND ASSIGNS
11.8.1 This Part2 shall be binding on successors, assigns, and legal
representatives of and persons in privity of contract with the Owner or
Design/Builder. Neither party shall assign, sublet or transfer an interest
in Part 2 without the written consent of the other.
11.8.2 This Paragraph 11.8 shall survive completion or termination of
Part 2.
11.9 In case of termination of the Architect, the Design/Builder shall
provide the services of another lawfully licensed person or entity against
whom the Owner makes no reasonable objection.
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11.10 EXTENT OF AGREEMENT
11.10.1 Part 2 represents the entire agreement between the Owner and
Design/Builder and supersedes Part 1 and prior negotiations, representations
or agreements. Part 2 may be amended only by written instrument signed by
both Owner and Design/Builder.
ARTICLE 12
TERMINATION OF THE AGREEMENT
12.1 TERMINATION BY THE OWNER
12.1.1 This Part 2 may be terminated by the Owner upon fourteen days'
written notice to the Design/Builder in the event that the Project is
abandoned. If such termination occurs, the Owner shall pay the
Design/Builder for Work completed and for proven loss sustained upon
materials, equipment, tools, and construction equipment and machinery,
including reasonable profit and applicable damages.
12.1.2 lf the Design/Builder defaults or persistently fails or neglects to
carry out the Work in accordance with the Contract Documents or fails to
perform the provisions of Part 2, the Owner may give written notice that the
Owner intends to terminate Part 2. If the Design/Builder fails to correct the
defaults, failure or neglect within seven days after being given notice, the
Owner may then give a second written notice and, after an additional seven
days, the Owner may without prejudice to any other remedy make good such
deficiencies and may deduct the cost thereof from the payment due the
Design/Builder or at the Owner's option, may terminate the employment of the
Design/Builder and take possession of the site and of all materials,
equipment, tools and construction equipment and machinery thereon owned by
the Design/Builder and finish the Work by whatever method the Owner may deem
expedient. If the unpaid balance of the contract sum exceeds the expense of
finishing the Work, the excess shall be paid to the Design/Builder, but if
the expense exceeds the unpaid balance, the Design/Builder shall pay the
difference to the Owner.
12.2 TERMINATION BY THE DESIGN/BUILDER
12.2.1 If the Owner fails to make payment when due, the Design/Builder may
give written notice of the Design/Builder's intention to terminate Part 2.
If the Design/Builder fails to receive payment within seven days after
receipt of such notice by the Owner, the Design/Builder may give a second
written notice and, seven days after receipt of such second written notice by
the Owner, may terminate Part 2 and recover from the Owner payment for Work
executed and for proven losses sustained upon materials, equipment, tools,
and construction equipment and machinery, including reasonable profit and
applicable damages.
AIA DOCUMENT A191,Part 2, OWNER-DESIGN/BUILDER AGREEMENT A191-1985
FIRST EDITION AIA* (c)1985 * THE AMERICAN INSTITUTE OF PART 2-PAGE 9
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D.C. 20006
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ARTICLE 13
BASIS OF COMPENSATION
The Owner shall compensate the Design/Builder in accordance with Article 5,
Payments, and the other provisions of this Part 2 as described below.
13.1 COMPENSATION
13.1.1 FOR BASIC SERVICES, as described in Paragraphs 2.2.2 through 2.2.17,
and for any other services included in Article 14 as part of Basic Services,
Basic Compensation shall be as follows:
Two million seven hundred fifty thousand and NO/100 ($2,750,000.00) Dollars
less two hundred fifty thousand ($250,000.00) dollars, which is being paid
for builder's profit by issuance of two hundred fifty thousand (250,000)
shares of common stock of owner. The first payment is to be when
Design/Builder is given notice to start construction. The total amount of
the first payment will be one hundred fifty thousand and no/100 ($150,000.00)
dollars. Thereafter, payment will be made in accordance with requirements of
Paragraph 14.3, within ten (IO) days thereafter, as approved by Karl M.
Wallace, Civil Engineer.
13.2 REIMBURSABLE EXPENSES
13.2.1 Reimbursable Expenses are in addition to the compensation for
Basic and Additional Services and include actual expenditures made by the
Design/Builder in the interest of the Project for the expenses listed as
follows:
Any and all expenses are to be approved by the Owner, in advance of any
expenditure and to be paid with the next draw as set forth in paragraph
13.1.1.
13.2.2 FOR REIMBURSABLE EXPENSES, compensation shall be a multiple of 1.25
to 1 (125%) times the amounts expended.
13.3 INTEREST PAYMENTS
13.3.1 The rate of interest for past due payments shall be as follows:
(Usury laws and requirements under the Federal Truth in Lending Act, similar
state and local consumer credit laws and other regulations at the Owner's
and Design/Builder's principal places of business, at the location of the
Project and elsewhere may affect the validity of this provision. Specific
legal advice should be obtained with respect to deletion, modification or other
requirements, such as written disclosures or waivers.)
A191-1985 A191,Part2 OWNER-DESIGN/BUILDER ACREEMENT, FIRST EDITION
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ARTICLE 14
OTHER PROVISIONS
14.1 The Basic Services to be performed shall be commenced on or before
January 1, 1998 and subject to authorized adjustments and to delays not
caused by the Design/Builder, Substantial Completion shall be achieved
in (300 ) calendar days.
14.2 The Basic Services beyond those described in Article 2 are:
NONE
14.3 The Design/Builder shall submit an Application for Payment on the
25th day of each month.
14.4 The Design/Builder's Proposal includes:
(List below: this Part2, Supplementary and other Conditions, the drawings,
the specificatons, and Modifications, showing page or sheet numbers in all
cases and dates where applicable to define the scope of Work.)
Complete the construction of THE ARBOR RETIREMENT COMMUNITY, of U. S. Hwy 80
East, Ruston, LA in accordance with the plans and specifications prepared by
Karl Mike Wallace, Civil Engineer, dated November 4, 1997.
This Part 2 entered into as of the day and year first written above.
OWNER Senior Retirement Communities, Inc.
507 Trenton St
W. Monroe, LA 71291
BY /S/JOANNE CALDWELL BAYLES PRES.
-----------------------------------
DESIGN/BUILDER The Forsythe Group, Inc./Scenicland Contruction Co.
131 Sunset Dr.
W. Monroe, LA 71291
BY /S/DIANA M CALDWELL
------------------------------------
LA BUIDLING CONTRUCTION LICENSE # 9395
AIA DOCUMENT A191, Part 2 . OWNER-DESIGN/BUILDER AGREEMENT . FIRST EDITION
. AIA* . (c)1985 . THE AMERICAN INSTITUTE OF ARCHITECTS, 1735 NEW YORK AVENUE,
N.W. WASHINGTON, D.C. 20006
A191-1985
PART 2-PAGE 11
<PAGE>
THE AMERICAN INSTITUTE OF ARCHITECTS
AIA Document A191
Standard Form of Agreement Between
Owner and Design/Builder
1985 EDITION
THIS DOCUMENT HAS IMPORTANT LEGAL CONSEQUENCES;
CONSULTATION WITH AN ATTORNEY IS ENCOURAGED.
This Document comprises two separate Agreements: Part 1 Agreement-Preliminary
Design and Budgeting and Part 2 Agreement-Final Design and Construction.
Hereinafter, the Part 1 Agreement is referred to as Part 1 and the Part 2
Agreement is referred to as Part 2.
PART 2 AGREEMENT-FINAL DESIGN AND CONSTRUCTION
AGREEMENT
made as of the SIXTEENTH day of DECEMBER in the year of Nineteen
Hundred and NINETY SEVEN
BETWEEN the Owner: SENIOR RETIREMent COMMUNITIES, INC.
(Name and address)507 TRENTON STREET, WEST MONROE, LA 71291
and the Design/Builder:
(Name and address)DESIGNER, THE FORSYTHE GROUP, INC.
BUILDER, SCENICLAND CONSTRUCTION, CO.
507 TRENTON STREET, WEST MONROE, LA 71291
For the following Project
(include Project name, location and detailed description of scope.)
THIRTY-SIX ASSISTED LIVING UNITS AND TWENTY-FOUR MEMORY DISORDER UNITS IN
BOSSIER BOSSIER CITY LOUISIANA LOCATED AT SWAN LAKE ROAD AND BRANDON BLVD.
The architectural services described in Article 2 will be provided by the
following person or entity who is lawfully licensed to practice CIVIL
ENGINEER.
(Name and address)
KARL M. WALLACE DOWNSVILLE, LA
The Owner and the Design/Builder agree as set forth below.
Copyright (C) 1985 by The American Institute of Architects, 1735 New York
Avenue, N.W., Washington, D.C. 20006. Reproduction of the material herein or
substantial quotation of its provisions without written permission of the AIA
violates the copyright laws of the United States and will be subject to legal
prosecution.
AIA DOCUMENT A191, Part 2 . OWNER-DESIGN/BUILDER ACREEMENT . FIRST EDITION
AIA* . (c) 1985 . THE AMERICAN INSTITUTE OF ARCHITECTS, 1735 NEW YORK AVENUE,
N.W., WASHINGTON, D.C. 20006
A191-1985
PART 2-PAGE 1
<PAGE>
Terms and Conditions-Part 2 Agreement
ARTICLE I
GENERAL PROVISIONS
1.1 BASIC DEFINITIONS
1.1.1 The Contract Documents consist of the Design/ Builder's Proposal
identified in Article 14, this Part 2, the Construction Documents approved by
the Owner in accordance with Subparagraph 2.2.2 below and Modifications
issued after execution of Part 2. A Modification is a Change Order or a
written amendment to Part 2 signed by both parties. These form the Contract,
and are as fully a part of the Contract as if attached to this Part 2 or
repeated herein.
1.1.2 The Project is the total design and construction for which the
Design/Builder is responsible under Part 2, including all professional
design services and all labor, materials and equipment used or incorporated
in such design and construction.
1.1.3 The Work comprises the completed construction designed under the
Projectand includes labor necessary to produce such construction, and
materials and equipment incorporated or to be incorporated in such
construction.
1.2 EXECUTION, CORRELATION AND INTENT
1.2.1 This Part 2 shall be signed in not less than duplicate
by the Owner and Design/Builder.
1.2.2 It is the intent of the Owner and Design/Builder that
the Contract Documents include all items necessary for proper execution and
completion of the Work. The Contract Documents are complementary, and what
is required by anyone shall be as binding as if required by all. Work not
covered in the Contract Documents will not be required unless it is
consistent with and is reasonably inferable from the Contract Documents as
being necessary to produce the intended results. Words and abbreviations
which have well-known technical or trade meanings are used in the Contract
Documents in accordance with such recognized meanings.
1.3 OWNERSHIP AND USE OF DOCUMENTS
1.3.1 The drawings, specifications and other documents furnished by the
Design/Builder are instruments of service and shall not become the property
of the Owner whether or not the Project for which they are made is commenced.
Drawings, specifications and other documents furnished by the Design/Builder
shall not be used by the Owner on other projects, for additions to this
Project or, unless the Design/Builder is in default under Part 2, for
completion of this Project by others, except by written agreement relating to
use, liability and compensation.
1.3.2 Submission or distribution of documents to meet official regulatory
requirements or for other purposes in connection with the Project is not to
be construed as publication in derogation of the Design/Builder's or the
Architect's common law copyrights or other reserved rights. The Owner shall
own neither the documents nor the copyrights.
ARTICLE 2
DESIGN/BUILDER
2.1 SERVICES AND RESPONSIBILITIES
2.1.1 Design services shall be performed by qualified architects, engineers
and other professionals selected and paid by the Design/Builder. The
professional obligations of such persons shall be undertaken and performed in
the interest of the Design/Builder. Construction services shall be performed
by qualified construction contractors and suppliers, selected and paid by the
Design/Builder and acting in the interest of the Design/Builder. Nothing
contained in Part 2 shall create any professional obligation or contractual
relationship between such persons and the Owner.
2.2 BASIC SERVICES
2.2.1 The Design/Builder's Basic Services are described below and in
Article 14.
2.2.2 Based on the Design/Builder's Proposal, the Design/Builder shall
submit Construction Documents for review and approval by the Owner.
Construction Documents shall include technical drawings, schedules, diagrams
and specifications, setting forth in detail the requirements for construction
of the Work, and shall:
.1 develop the intent of the Design/Builder's Proposal in greater
detail;
.2 provide information customarily necessary for the use of those in
the building trades; and
.3 include documents customarily required for regulatory agency
approvals.
2.2.3 The Design/Builder shall assist the Owner in filing documents
required to obtain necessary approvals of governmental authorities having
jurisdiction over the Project.
2.2.4 Unless otherwise provided in the Contract Documents, the
Design/Builder shall provide or cause to be provided and shall pay for design
services, labor, materials, equipment, tools, construction equipment and
machinery, water, heat, utilities, transportation and other facilities and
services necessary for proper execution and completion of the Work, whether
temporary or permanent and whether or not incorporated or to be incorporated
in the Work.
2.2.5 The Design/Builder shall be responsible for and shall coordinate all
construction means, methods, techniques, sequences and procedures.
2.2.6 The Design/Builder shall keep the Owner informed of the progress and
quality of the Work.
2.2.7 If requested in writing by the Owner, the Design/ Builder, with
reasonable promptness and in accordance with time limits agreed upon, shall
interpret the requirements of the Contract Documents and initially shall
decide, subject to demand for arbitration, claims, disputes and other matters
in question relating to performance thereunder by both Owner and
Design/Builder. Such interpretations and decisions shall be in writing,
shall not be presumed to be correct and shall be given such weight as the
arbitrators or the court shall determine.
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2.2.8 The Design/Builder shall correct Work which does not conform to the
Construction Documents.
2.2.9 The Design/Builder warrants to the Owner that materials and equipment
incorporated in the Work will be new unless otherwise specified, and that the
Work will be of good quality, free from faults and defects, and in
conformance with the Contract Documents. Work not conforming to these
requirements shall be corrected in accordance with Article 9.
2.2.10 The Design/Builder shall pay all sales, consumer, use and similar
taxes which were in effect at the time the Design/Builder's Proposal was
first submitted to the Owner, and shall secure and pay for building and other
permits and governmental fees, licenses and inspections necessary for the
proper execution and completion of the Work which are either customarily
secured after execution of Part 2 or are legally required at the time the
Design/Builder's Proposal was first submitted to the Owner.
2.2.11 The Design/Builder shall give notices and comply with laws,
ordinances, rules, regulations and lawful orders of public authorities
relating to the Project.
2.2.12 The Design/Builder shall pay royalties and license fees. The
Design/Builder shall defend suits or claims for infringement of patent rights
and shall save the Owner harmless from loss on account thereof, except that
the Owner shall be responsible for such loss when a particular design,
process or product of a particular manufacturer is required by the Owner.
However, if the Design/Builder has reason to believe the use of a required
design, process or product is an infringement of a patent, the Design/Builder
shall be responsible for such loss unless such information is promptly given
to the Owner.
2.2.13 The Design/Builder shall be responsible to the Owner for acts and
omissions of the Design/Builder's employees and parties in privily of
contract with the Design/ Builder to perform a portion of the Work, including
their agents and employees.
2.2.14 The Design/Builder shall keep the premises free from accumulation of
waste materials or rubbish caused by the Design/Builder's operations. At the
completion of the Work, the Design/Builder shall remove from and about the
Project the Design/Builder's tools, construction equipment, machinery,
surplus materials, waste materials and rubbish.
2.2.15 The Design/Builder shall prepare Change Orders for the Owner's
approval and execution in accordance with Part 2 and shall have authority to
make minor changes in the design and construction consistent with the intent
of Part 2 not involving an adjustment in the contract sum or an extension of
the contract time. The Design/Builder shall promptly inform the Owner, in
writing, of minor changes in the design and construction. 2.2.16 The
Design/Builder shall notify the Owner when the Work or an agreed upon portion
thereof is substantially completed by issuing a Certificate of Substantial
Completion which shall establish the Date of Substantial Completion, shall
state the responsibility of each party for security, maintenance, heat,
utilities, damage to the Work and insurance, shall include a list of items to
be completed or corrected and shall fix the time within which the
Design/Builder shall complete items listed therein. Disputes between the
Owner and Design/Builder regarding the Certificate of Substantial Completion
shall be resolved by arbitration.
2.2.17 The Design/Builder shall maintain in good order at the site one
record copy of the drawings, specifications, product data, samples, shop
drawings, Change Orders and other Modifications, marked currently to record
changes made during construction. These shall be delivered to the Owner upon
completion of the design and construction and prior to final payment.
ARTICLE 3
OWNER
3.1 The Owner shall designate a representative authorized to act on the
Owner's behalf with respect to the Project. The Owner or such authorized
representative shall examine documents submitted by the Design/Builder and
shall promptly render decisions pertaining thereto to avoid delay in the
orderly progress of the Work.
3.2 The Owner may appoint an on-site project representative to observe
the Work and to have such other responsibilities as the Owner and
Design/Builder agree in writing prior to execution of Part 2.
3.3 The Owner shall cooperate with the Design/Builder in securing
building and other permits, licenses and inspections, and shall pay the fees
for such permits, licenses and inspections if the cost of such fees is not
identified as being included in the Design/Builder's Proposal.
3.4 The Owner shall furnish services by land surveyors, geotechnical
engineers and other consultants for subsoil, air and water conditions, in
addition to those provided under Part 1 when such services are deemed
necessary by the Design/Builder to carry out properly the design services
under this Part 2.
3.5 The Owner shall furnish structural, mechanical, chemical,
geotechnical and other laboratory or on-site tests, inspections and reports
as required by law or the Contract Documents.
3.6 The services, information, surveys and reports required by Paragraphs
3.4 and 3.5 shall be furnished at the Owner's expense, and the Design/Builder
shall be entitled to rely upon their accuracy and completeness.
3.7 If the Owner observes or otherwise becomes aware of a fault or defect
in the Work or nonconformity with the Design or Construction Documents, the
Owner shall give prompt written notice thereof to the Design/Builder.
3.8 The Owner shall furnish required information and services and shall
promptly render decisions pertaining thereto to avoid delay in the orderly
progress of the design and construction.
3.9 The Owner shall, at the request of the Design/Builder and upon
execution of Part 2, provide a certified or notarized statement of funds
available for the Project and their source.
3.10 The Owner shall communicate with contractors only through the
Design/Builder.
ARTICLE 4
TIME
4.1 The Design/Builder shall provide services as expeditiously as is
consistent with reasonable skill and care and the orderly progress of design
and construction.
4.2 Time limits stated in the Contract Documents are of the essence of
Part 2. The Work to be performed under Part
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2 shall commence upon execution of a notice to proceed unless otherwise
agreed and, subject to authorized Modifications, Substantial Completion shall
be achieved as indicated in Article 14.
4.3 The Date of Substantial Completion of the Work or an agreed upon
portion thereof is the date when construction or an agreed upon portion
thereof is sufficiently complete so the Owner can occupy and utilize the Work
or agreed upon portion thereof for its intended use.
4.4 The schedule provided in the Design/Builder's Proposal shall include
a construction schedule consistent with Paragraph 4.2 above.
4.3 If the Design/Builder is delayed in the progress of the Project by
acts or neglect of the Owner, Owner's employees, separate contractors
employed by the Owner, changes ordered in the Work not caused by the fault of
the Design/Builder, labor disputes, fire, unusual delay in transportation,
adverse weather conditions not reasonably anticipatable, unavoidable
casualties, or other causes beyond the Design/Builder's control, or by delay
authorized by the Owner's pending arbitration or another cause which the
Owner and Design/Builder agree is justifiable, the contract time shall be
reasonably extended by Change Order.
ARTICLE 5
PAYMENTS
5.1 PROGRESS PAYMENTS
5.1.1 The Design/Builder shall deliver to the Owner itemized Applications
for Payment in such detail as indicated in Article 14.
5.1.2 Within ten days of the Owner's receipt of a properly submitted and
correct Application for Payment, the Owner shall make payment to the
Design/Builder.
5.1.3 The Application for Payment shall constitute are presentation by the
Design/Builder to the Owner that, to the best of the Design/Builder's
knowledge, information and belief, the design and construction have
progressed to the point indicated; the quality of the Work covered by the
application is in accordance with the Contract Documents; and the
Design/Builder is entitled to payment in the amount requested.
5.1.4 The Design/Builder shall pay each contractor, upon receiptof payment
from the Owner, out of the amount paid to the Design/Builder on account of
such contractor's work, the amount to which said contractor is entitled in
accordance with the terms of the Design/Builder's contract with such
contractor. The Design/Builder shall, by appropriate agreement with each
contractor, require each contractor to make payments to subcontractors in
similar manner.
5.1.5 The Owner shall have no obligation to pay or to be responsible in any
way for payment to a contractor of the Design/Builder except as may otherwise
be required by law.
5.1.6 No progress payment or partial or entire use or occupancy of the
Project by the Owner shall constitute an acceptance of Work not in accordance
with the Contract Documents.
5.1.7 The Design/Builder warrants that: (1) title to Work, materials and
equipment covered by an Application for Payment will pass to the Owner either
by incorporation in construction or upon receipt of payment by the
Design/Builder, whichever occurs first; (2) Work, materials and equipment
covered by previous Applications for Payment are free and clear of liens,
claims, security interests or encumbrances, hereinafter referred to as
"liens"; and (3) no Work, materials or equipment covered by an Application
for Payment will have been acquired by the Design/ Builder, or any other
person performing work at the site or furnishing materials or equipment for
the Project, subject to an agreement under which an interest therein or an
encumbrance thereon is retained by the seller or otherwise imposed by the
Design/Builder or such other person.
5.1.8 If the Contract provides for retainage, then at the date of
Substantial Completion or occupancy of the Work or any agreed upon portion
thereof by the Owner, whichever occurs first, the Design/Builder may apply
for and the Owner, if the Design/Builder has satisfied the requirements of
Paragraph 5.2.1 and any other requirements of the Contract relating to
retainage, shall pay the Design/Builder the amount retained, if any, for the
Work or for the portion completed or occupied, less the reasonable value of
incorrect or incomplete Work. Final payment of such withheld sum shall be
made upon correction or completion of such Work.
5.2 FINAL PAYMENT
5.2.1 Neither final payment nor amounts retained,if any, shall become due
until the Design/Builder submits to the Owner (1) an affidavit that payrolls,
bills for materials and equipment, and other indebtedness connected with the
Project for which the Owner or Owner's property might be liable have been
paid or otherwise satisfied, (2) consent of surety, if any, to final payment,
(3) a certificate that insurance required by the Contract Documents is in
force following completion of the Work, and (4) if required by the Owner,
other data establishing payment or satisfaction of obligations, such as
receipts, releases and waivers of liens arising out of Part 2, to the extent
and in such form as may be designated by the Owner. If a contractor refuses
to furnish a release or waiver required by the Owner, the Design/Builder may
furnish a bond satisfactory to the Owner to indemnify the Owner against such
lien. If such lien remains unsatisfied after payments are made, the
Design/Builder shall reimburse the Owner for moneys the latter may be
compelled to pay in discharging such lien, including all costs and reasonable
attorneys' fees.
5.2.2 Final payment constituting the entire unpaid balance due shall be
paid by the Owner to the Design/Builder upon the Owner's receipt of the
Design/Builder's final Application for Payment when the Work has been
completed and the Contract fully performed except for those responsibilities
of the Design/Builder which survive final payment.
5.2.3 The making of final payment shall constitute a waiver of all claims
by the Ownerexcept those arising from:
.1 unsettled liens;
.2 faulty or defective Work appearing after Substantial Completion;
.3 failure of the Work to comply with requirements of the Contract
Documents; or
.4 terms of special warranties required by the Contract Documents.
5.2.4 Acceptance of final payment shall constitute a waiver of all claims
by the Design/Builder except those previously made in writing and identified
by the Design/Builder as unsettled at the time of final Application for
Payment.
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5.3 INTEREST PAYMENTS
5.3.1 Payments due the Design/Builder under Part2 which are not paid when
due shall bear interest from the date due at the rate specified in Article
13, or in the absence of a specified rate, at the legal rate prevailing where
the principal improvements are to be located.
ARTICLE 6
PROTECTION OF PERSONS AND PROPERTY
6.1 The Design/Builder shall be responsible for initiating, maintaining
and providing Supervision of safety precautions and programs in connection
with the Work.
6.2 The Design/Builder shall take reasonable precautions for safety of,
and shall provide reasonable protection to prevent damage, injury or loss to:
(1) employees on the Work and other persons who may be affected thereby; (2)
the Work and materials and equipment to be incorporated therein; and (3)
other property at or adjacent to the site.
6.3 The Design/Builder shall give notices and comply with applicable
laws, ordinances, rules, regulations and orders of public authorities bearing
on the safety of persons and property and their protection from damage,
injury or loss.
6.4 The Design/Builder shall be liable for damage or loss (other than
damage or loss to property insured under the property insurance provided or
required by the Contract Documents to be provided by the Owner) to property
at the site caused in whole or in part by the Design/Builder, a contractor of
the Design/Builder or anyone directly or indirectly employed by either of
them, or by anyone for whose acts they may be liable, except damage or loss
attributable to the acts or omissions of the Owner, the Owner's separate
contractors or anyone directly or indirectly employed by them or by anyone
for whose acts they may be liable and not attributable to the fault or
negligence of the Design/ Builder.
ARTICLE 7
INSURANCE AND BONDS
7.1 DESIGN/BUILDER'S LIABILITY INSURANCE
7.1.1 The Design/Builder shall purchase and maintainin a company or
companies authorized to do business in the state in which the Work is located
such insurance as will protect the Design/Builder from claims set forth below
which may arise out of or result from operations under the Contract by the
Design/Builder or by a contractor of the Design/Builder, or by anyone
directly or indirectly employed by any of them, or by anyone for whose acts
they may be liable:
.1 claims under workers' or workmen's compensation, disability
benefit and other similar employee benefit laws which are
applicable to the Work to be performed;
.2 claims for damages because of bodily injury, occupational
sickness or disease, or death of the Design/Builder's employees
under any applicable employer's liability law;
.3 claims for damages because of bodily injury, sickness or
disease, or death of persons other than the Design/Builder's
employees;
.4 claims for damages covered by usual personal injury liability
coverage which are sustained (1) by a person as a result of an
offense directly or indirectly related to employment of such
person by the Design/Builder or (2) by another person;
.5 claims for damages, other than to the Work at the site, because
of injury to or destruction of tangible property, including loss
of use; and
.6 claims for damages for bodily injury or death of a person or
property damage arising out of ownership, maintenance or use of
a motor vehicle.
7.1.2 The insurance required by the above Subparagraph
7.1.1 shall be written for not less than limits of liability specified in
the Contract Documents or required by law, whichever are greater.
7.1.3 The Design/Builder's liability insurance shall include contractual
liability insurance applicable to the Design/Builder's obligations under
Paragraph 11.7.
7.1.4 Certificates of Insurance, and copies of policies if requested,
acceptable to the Owner shall be delivered to the Owner prior to commencement
of design and construction. These Certificates as well as insurance policies
required by this Paragraph shall contain a provision that coverage will not
be cancelled or allowed to expire until at least thirty days' prior written
notice has been given to the Owner. If any of the foregoing insurance
coverages are required to remain in force after final payment, an additional
certificate evidencing continuation of such coverage shall be submitted along
with the application for final payment.
7.2 OWNER'S LIABILITY INSURANCE
7.2.1 The Owner shall be responsible for purchasing and maintaining, in a
company or companies authorized to do business in the state in which the
principal improvements are to be located, Owner's liability insurance to
protect the Owner against claims which may arise from operations under this
Project.
7.3 PROPERTY INSURANCE
7.3.1 Unless otherwise provided under this Part 2, the Owner shall purchase
and maintain, in a company or companies authorized to do business in the
state in which the principal improvements are to be located, property
insurance upon the Work at the site to the full insurable value thereof.
Property insurance shall include interests of the Owner, the Design/Builder,
and their respective contractors and subcontractors in the Work. It shall
insure against perils of fire and extended coverage and shall include all
risk insurance for physical loss or damage including, without duplication of
coverage, theft, vandalism and malicious mischief. If the Owner does not
intend to purchase such insurance for the full insurable value of the entire
Work, the Owner shall inform the Design/Builder in writing prior to
commencement of the Work. The Design/Builder may then effect insurance for
the Work at the site which will protect the interests of the Design/Builder
and the Design/Builder's contractors and subcontractors, and by appropriate
Change Order the cost thereof shall be charged to the Owner. If the
Design/Builder is damaged by failure of the Owner to purchase or maintain
such insurance without notice to the Design/Builder, then the Owner shall
bear all reasonable costs properly attributable thereto. if not covered under
the all risk insurance or not otherwise provided in the Contract Documents,
the Design/Builder shall effect and maintain similar property insurance on
portions of the Work stored off-site or in transit when such portions of the
Work are to be included in an Application for Payment.
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7.3.2 Unless otherwise provided under this Part 2, the Owner shall purchase
and maintain such boiler and machinery insurance as may be required by the
Contract Documents or by law and which shall specifically cover such insured
objects during installation and until final acceptance by the Owner. This
insurance shall cover interests of the Owner, the Design/Builder, and the
Design/Builder's contractors and subcontractors in the Work.
7.3.3 A loss insured under Owner's property insurance is to be adjusted
with the Owner and made payable to the Owner as trustee for the insureds, as
their interests may appear, subject to requirements of any applicable
mortgagee clause and of Subparagraph 7.3.8. The Design/ Builder shall pay
contractors their shares of insurance proceeds received by the
Design/Builder, and by appropriate agreement, written where legally required
for validity, shall require contractors to make payments to their
subcontractors in similar manner.
7.3.4 Before an exposure to loss may occur, the Owner shall file with the
Design/Builder a copy of each policy required by this Paragraph 7.3. Each
policy shall contain only those endorsements specifically related to this
Project. Each policy shall contain a provision that the policy will not be
cancelled or allowed to expire until at least thirty days' prior written
notice has been given the Design/ Builder.
7.3.5 If the Design/Builder requests in writing that insurance for risks
other than those described herein or for other special hazards be included
in the property insurance policy, the Owner shall, if possible, obtain such
insurance, and the cost thereof shall be charged to the Design/Builder by
appropriate Change Order.
7.3.6 The Owner and Design/Builder waive all rights against each other and
the contractors, subcontractors, agents and employees, each of the other,
for damages caused by fire or other perils to the extent covered by property
insurance obtained pursuant to this Paragraph 7.3 or other property insurance
applicable to the Work, except such rights as they may have to proceeds of
such insurance held by the Owner as trustee. The Owner or Design/Builder, as
appropriate, shall require from contractors and subcontractors by appropriate
agreements, written where legally required for validity, similar waivers each
in favor of other parties enumerated in this Paragraph 7.3. The policies
shall be endorsed to include such waivers of subrogation.
7.3.7 If required in writing by a party in interest, the Owner as trustee
shall provide, upon occurrence of an insured loss, a bond for proper
performance of the Owner's duties. The cost of required bonds shall be
charged against proceeds received as trustee. The Owner shall deposit
proceeds so received in a separate account and shall distribute them in
accordance with such agreement as the parties in interest may reach, or in
accordance with an arbitration award in which case the procedure shall be as
provided in Article 10. If after such loss no other special agreement is
made, replacement of damaged Work shall be covered by appropriate Change
Order.
7.3.8 The Owner, as trustee, shall have power to adjust and settle a loss
with insurers unless one of the parties in interest shall object, in writing,
within ten days after occurrence of loss, to the Owner's exercise of this
power. If such objection be made, the Owner as trustee shall make settlement
with the insurers in accordance with the decision of arbitration as provided
in Article 10. If distribution of insurance proceeds by arbitration is
required, the arbitrators will direct such distribution.
7.3.9 If the Owner finds it necessary to occupy or use a portion or
portions of the Work before Substantial Completion, such occupancy or use
shall not commence prior to a time agreed to by the Owner and Design/Builder
and to which the insurance company or companies providing property insurance
have consented by endorsement to the policy or policies. The property
insurance shall not lapse or be cancelled on account of such partial
occupancy or use. Consent of the Design/Builder and of the insurance company
or companies to such occupancy or use shall not be unreasonably withheld.
7.4 LOSS OF USE INSURANCE
7.4.1 The Owner, at the Owner's option, may purchase and maintain such
insurance as will insure the Owner against loss of use of the Owner's
property due to fire or other hazards, however caused. The Owner waives all
rights of action against the Design/Builder, and its contractors and their
agents and employees, for loss of use of the Owner's property, including
consequential losses due to fire or other hazards, however caused, to the
extent covered by insurance under this Paragraph 7.4.
7.5 PERFORMANCE BOND AND PAYMENT BOND
7.5.1 The Owner shall have the right to require the Design/Builder to
furnish bonds covering the faithful performance of the Contract and the
payment of all obligations arising thereunder if and as required in the
Contract Documents or in Article 14.
ARTICLE 8
CHANGES IN THE WORK
8.1 CHANGE ORDERS
8.1.1 A Change Order is a written order signed by the Owner and
Design/Builder, and issued after execution of Part 2, authorizing a change in
the Work or adjustment in the contract sum or contract time. The contract
sum and contract time may be changed only by Change Order.
8.1.2 The Owner, without invalidating Part 2, may order changes in the Work
within the general scope of Part 2 consisting of additions, deletions or
other revisions, and the contract sum and contract time shall be adjusted
accordingly. Such changes in the Work shall be authorized by Change Order,
and shall be performed under applicable conditions of the Contract Documents.
8.1.3 If the Owner requests the Design/Builder to submit a proposal for a
change in the Work and then elects not to proceed with the change, a Change
Order shall be issued to reimburse the Design/Builder for any costs incurred
for Design Services or proposed revisions to the Contract Documents.
8.1.4 Cost or credit to the Owner resulting from a change in the Work shall
be determined in one or more of the following ways:
.1 by mutual acceptance of a lump sum properly itemized and supported
by sufficient substantiating data to permit evaluation;
.2 by unit prices stated in the Contract Documents or subsequently
agreed upon;
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.3 by cost to be determined in a manner agreed upon by the parties and
a mutually acceptable fixed or percentage fee; or
.4 by the method provided below.
8.1.5 If none of the methods set forth in Clauses 8.1.4.1, 8.1.4.2 or
8.1.4.3 is agreed upon, the Design/Builder, provided a written order signed
by the Owner is received, shall promptly proceed with the Work involved.
The cost of such Work shall then be determined on the basis of reasonable
expenditures and savings of those performing the Work attributable to the
change, including the expenditures for design services and revisions to the
Contract Documents. In case of an increase in the contract sum, the cost
shall include a reasonable allowance for overhead and profit. In case of the
methods set forth in Clauses 8.1.4.3 and 8.1.4.4, the Design/Builder shall
keep and present an itemized accounting together with appropriate supporting
data for inclusion in a Change Order. Unless otherwise provided in the
Contract Documents, cost shall be limited to the following: cost of
materials, including sales tax and cost of delivery; cost of labor, including
social security, old age and unemployment insurance, and fringe benefits
required by agreement or custom; workers' or workmen's compensation
insurance; bond premiums; rental value of equipment and machinery; additional
costs of supervision and field office personnel directly attributable to the
change; and fees paid to architects, engineers and other professionals.
Pending final determination of cost to the Owner, payments on account shall
be made on the Application for Payment. The amount of credit to be allowed
by the Design/ Builder to the Owner for deletion or change which results in a
net decrease in the contract sum will be actual net cost. When both
additions and credits covering related Work or substitutions are involved in
a change, the allowance for overhead and profit shall be figured on the
basis of the net increase, if any, with respect to that change.
8.1.6 If unit prices are stated in the Contract Documents or subsequently
agreed upon, and if quantities originally contemplated are so changed in a
proposed Change Order that application of agreed unit prices to quantities
proposed will cause substantial inequity to the Owner or Design/Builder,
applicable unit prices shall be equitably adjusted.
8.2 CONCEALED CONDITIONS
8.2.1 If concealed or unknown conditions of an unusual nature that affect
the performance of the Work and vary from those indicated by the Contract
Documents are encountered below ground or in an existing structure other than
the Work, which conditions are not ordinarily found to exist or which differ
materially from those generally recognized as inherent in work of the
character provided for in this Part 2, notice by the observing party shall
be given promptly to the other party and, if possible, before conditions are
disturbed and in no event later than twenty-one days after first observance
of the conditions. The contract sum shall be equitably adjusted for such
concealed or unknown conditions by Change Order upon claim by either party
made within twenty-one days after the claimant becomes aware of the
conditions.
8.3 REGULATORY CHANGES
8.3.1 The Design/Builder shall be compensated for changes in the Work
necessitated by the enactment or revision of codes, laws or regulations
subsequent to the submission of the Design/Builder's Proposal under Part 1.
ARTICLE 9
CORRECTION OF WORK
9.1 The Design/Builder shall promptly correct Work rejected by the Owner
or known by the Design/Builder to be defective or failing to conform to the
Construction Documents, whether observed before or after Substantial
Completion and whether or not fabricated, installed or completed, and shall
correct Work under this Part 2 found to be defective or nonconforming within
a period of one year from the date of Substantial Completion of the Work or
designated portion thereof, or within such longer period provided by any
applicable special warranty in the Contract Documents.
9.2 Nothing contained in this Article 9 shall be construed to establish a
period of limitation with respect to other obligations of the Design/Builder
under this Part 2. Paragraph 9.1 relates only to the specific obligation of
the Design/Builder to correct the Work, and has no relationship to the time
within which the obligation to comply with the Contract Documents may be
sought to be enforced, nor to the time within which proceedings may be
commenced to establish the Design/Builder's liability with respect to the
Design/Builder's obligations other than correction of the Work.
9.3 If the Design/Builder fails to correct defective Work as required or
persistently fails to carry out Work in accordance with the Contract
Documents, the Owner, by written order signed personally or by an agent
specifically so empowered by the Owner in writing, may order the
Design/Builder to stop the Work, or any portion thereof, until the cause for
such order has been eliminated; however, the Owner's right to stop the Work
shall not give rise to a duty on the part of the Owner to exercise the right
for benefit of the Design/Builder or other persons or entities.
9.4 If the Design/Builder defaults or neglects to carry out the Work in
accordance with the Contract Documents and fails within seven days after
receipt of written notice from the Owner to commence and continue correction
of such default or neglect with diligence and promptness, the Owner may give
a second written notice to the Design/ Builder and, seven days following
receipt by the Design/ Builder of that second written notice and without
prejudice to other remedies the Owner may have, correct such deficiencies.
In such case an appropriate Change Order shall be issued deducting from
payments then or thereafter due the Design/Builder costs of correcting such
deficiencies. If the payments then or thereafter due the Design/Builder are
not sufficient to cover the amount of the deduction, the Design/Builder shall
pay the difference to the Owner. Such action by the Owner shall be subject
to arbitration.
ARTICLE 10
ARBITRATION
10.1 Claims, disputes and other matters in question between the parties to
this Part 2 arising out of or relating to Part 2 shall be decided by
arbitration in accordance with the Construction Industry Arbitration Rules of
the American Arbitration Association then in effect unless the parties agree
otherwise. No arbitration arising out of or relat-
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ing to this Part 2 shall include, by consolidation or joinder or in any other
manner, an additional person not a party to Part I except by written consent
containing specific reference to Part 2 and signed by the Owner,
Design/Builder and any other person sought to be joined. Consent to
arbitration involving an additional person or persons shall not constitute
consent to arbitration of a dispute not described or with a person not named
therein. This provision shall be specifically enforceable in any court of
competent jurisdiction.
10.2 Notice of demand for arbitration shall be filed in writing with the
other party to this Part 2 and with the American Arbitration Association.
The demand shall be made within a reasonable time after the claim, dispute or
other matter in question has arisen. In no event shall the demand for
arbitration be made after the date when the applicable statute of limitations
would bar institution of a legal or equitable proceeding based on such claim,
dispute or other matter in question.
10.3 The award rendered by arbitrators shall be final, and judgment may be
entered upon it in accordance with applicable law in any court having
jurisdiction.
10.4 Unless otherwise agreed in writing, the Design/Builder shall carry on
the Work and maintain its progress during any arbitration proceedings, and
the Owner shall continue to make payments to the Design/Builder in accordance
with the Contract Documents.
10.5 This Article 1O shall survive completion or termination of Part 2.
ARTICLE 11
MISCELLANEOUS PROVISIONS
11.1 This Part 2 shall be governed by the law of the place where the Work
is located.
11.2 The table of contents and the headings of articles and paragraphs are
for convenience only and shall not modify rights and obligations created by
this Part 2.
11.3 In case a provision of Part 2 is held to be invalid, illegal or
unenforceable, the validity, legality and enforceability of the remaining
provisions shall not be affected.
11.4 SUBCONTRACTS
11.4.1 The Design/Builder, as soon as practicable after execution of Part 2,
shall furnish to the Owner in writing the names of the persons or entities
the Design/Builder will engage as contractors for the Project.
11.4.2 Nothing contained in the Design/Builder Contract Documents shall
create a professional obligation or contractual relationship between the
Owner and any third party.
11.5 WORK BY OWNER OR OWNER'S CONTRACTORS
11.5.1 The Owner reserves the right to perform work related to, but not part
of, the Project and to award separate contracts in connection with other work
at the site. If the Design/Builder claims that delay or additional cost is
involved because of such action by the Owner, the Design/ Builder shall make
such claims as provided in Subparagraph 11.6.
11.5.2 The Design/Builder shall afford the Owner's separate contractors
reasonable opportunity for introduction and storage of their materials and
equipment for execution of their work. The Design/Builder shall incorporate
and coordinate the Design/Builder's Work with work of the Owner's separate
contractors as required by the Contract Documents.
11.5.3 Costs caused by defective or ill-timed work shall be borne by the
party responsible.
11.6 CLAIMS FOR DAMAGES
11.6.1 Should either party to Part2 suffer injury or damage to person or
property because of an act or omission of the other party, the other party's
employees or agents, or another for whose acts the other party is legally
liable, claim shall be made in writing to the other party within a reasonable
time after such injury or damage is or should have been first observed.
11.7 INDEMNIFICATION
11.7.1 To the fullest extent permitted by law, the Design/Builder shall
indemnify and hold harmless the Owner and the Owner's consultants and
separate contractors, any of their subcontractors, sub-subcontractors,
agents and employees from and against claims, damages, losses and expenses,
including but not limited to attorneys' fees, arising out of or resulting
from performance of the Work. These indemnification obligations shall be
limited to claims, damages, losses or expenses (1) that are attributable to
bodily injury, sickness, disease or death, or to injury to or destruction of
tangible property (other than the Work itself) including loss of use
resulting therefrom, and (2) to the extent such claims, damages, losses or
expenses are caused in whole or in part by negligent acts or omissions of the
Design/Builder, the Design/Builder's contractors, anyone directly or
indirectly employed by either or anyone for whose acts either may be liable,
regardless of whether or not they are caused in part by a party indemnified
hereunder. Such obligation shall not be construed to negate, abridge or
otherwise reduce other rights or obligations of indemnity which would
otherwise exist as to a party or person described in this Paragraph 11.7.
11.7.2 ln claims against the Owner or its consultants and its contractors,
any of their subcontractors, sub-subcontractors, agents or employees by an
employee of the Design/Builder, its contractors, anyone directly or
indirectly employed by them or anyone for whose acts they may be liable,
the indemnification obligation under this Paragraph 11.7 shall not be limited
by a limitation on amount or type of damages, compensation or benefits
payable by or for the Design/Builder, or a Design/Builder's contractor, under
workers' or workmen's compensation acts, disability benefit acts or other
employee benefit acts.
11.8 SUCCESSORS AND ASSIGNS
11.8.1 This Part2 shall be binding on successors, assigns, and legal
representatives of and persons in privity of contract with the Owner or
Design/Builder. Neither party shall assign, sublet or transfer an interest
in Part 2 without the written consent of the other.
11.8.2 This Paragraph 11.8 shall survive completion or termination of
Part 2.
11.9 In case of termination of the Architect, the Design/Builder shall
provide the services of another lawfully licensed person or entity against
whom the Owner makes no reasonable objection.
A191-1985 A191,Part2 OWNER-DESIGN/BUILDER ACREEMENT, FIRST EDITION
PART 2-PAGE 8 AIA* (c)1985, THE AMERICAN INSTITUTE OF ARCHITECTS, 1735 NEW
YORK AVENUE, N.W. WASHINCTON, D.C. 20006
<PAGE>
11.10 EXTENT OF AGREEMENT
11.10.1 Part 2 represents the entire agreement between the Owner and
Design/Builder and supersedes Part 1 and prior negotiations, representations
or agreements. Part 2 may be amended only by written instrument signed by
both Owner and Design/Builder.
ARTICLE 12
TERMINATION OF THE AGREEMENT
12.1 TERMINATION BY THE OWNER
12.1.1 This Part 2 may be terminated by the Owner upon fourteen days'
written notice to the Design/Builder in the event that the Project is
abandoned. If such termination occurs, the Owner shall pay the
Design/Builder for Work completed and for proven loss sustained upon
materials, equipment, tools, and construction equipment and machinery,
including reasonable profit and applicable damages.
12.1.2 lf the Design/Builder defaults or persistently fails or neglects to
carry out the Work in accordance with the Contract Documents or fails to
perform the provisions of Part 2, the Owner may give written notice that the
Owner intends to terminate Part 2. If the Design/Builder fails to correct the
defaults, failure or neglect within seven days after being given notice, the
Owner may then give a second written notice and, after an additional seven
days, the Owner may without prejudice to any other remedy make good such
deficiencies and may deduct the cost thereof from the payment due the
Design/Builder or at the Owner's option, may terminate the employment of the
Design/Builder and take possession of the site and of all materials,
equipment, tools and construction equipment and machinery thereon owned by
the Design/Builder and finish the Work by whatever method the Owner may deem
expedient. If the unpaid balance of the contract sum exceeds the expense of
finishing the Work, the excess shall be paid to the Design/Builder, but if
the expense exceeds the unpaid balance, the Design/Builder shall pay the
difference to the Owner.
12.2 TERMINATION BY THE DESIGN/BUILDER
12.2.1 If the Owner fails to make payment when due, the Design/Builder may
give written notice of the Design/Builder's intention to terminate Part 2.
If the Design/Builder fails to receive payment within seven days after
receipt of such notice by the Owner, the Design/Builder may give a second
written notice and, seven days after receipt of such second written notice by
the Owner, may terminate Part 2 and recover from the Owner payment for Work
executed and for proven losses sustained upon materials, equipment, tools,
and construction equipment and machinery, including reasonable profit and
applicable damages.
AIA DOCUMENT A191,Part 2, OWNER-DESIGN/BUILDER AGREEMENT A191-1985
FIRST EDITION AIA* (c)1985 * THE AMERICAN INSTITUTE OF PART 2-PAGE 9
ARCHITECTS 1735 NEW YORK AVENUE N.W., WASHINGTON,
D.C. 20006
<PAGE>
ARTICLE 13
BASIS OF COMPENSATION
The Owner shall compensate the Design/Builder in accordance with Article 5,
Payments, and the other provisions of this Part 2 as described below.
13.1 COMPENSATION
13.1.1 FOR BASIC SERVICES,as described in Paragraphs 2.2.2 through 2.2.17,and
for any other services included in Article 14 as part of Basic Services, Basic
Compensation shall be as follows:
DESIGN AND BUILD THE ARBOR HOUSE FOR OWNER TO BE COMPLETED FOR THE FOLLOWING:
Two Million Two hundred thousand and no/100 ($2,200,000.00). The first
payment is due when Design/Builder is given notice to start construction.
The total amount of the first payment will be $150,000.00. Thereafter
payments will be made in accordance with the requirments of paragraph 14.3,
within ten (10) days thereafter, as approved by Karl M. Wallace, Civil
Engineer.
13.2 REIMBURSABLE EXPENSES
13.2.1 Reimbursable Expenses are in addition to the compensation for Basic
and Additional Services and include actual expenditures made by the
Design/Builder in the interest of the Project for the expenses listed as
follows:
ALL EXPENSES ARE TO BE APPROVED BY OWNER, IN ADVANCE OF ANY EXPENDITURE TO BE
PAID WITH THE NEXT DRAW AS SET FORTH IN PARAGRAPH 13.1.1.
13.2.2 FOR REIMBURSABLE EXPENSES, compensation shall be a multiple of 1.25
(125%) times the amounts expended.
13.3 INTEREST PAYMENTS
13.3.1 The rate of interest for past due payments shall be as follows:
(Usury laws and requirements under the Federal Truth in Lending Act, similar
state and local consumer credit laws and other regulations at the Owner's and
Design/Builder's principal places of business, at the location of the Project
and elsewhere may affect the validity of this provision. Specific legal
advice should be obtained with respect to deletion, modification or other
requirements, such as written disclosures or waivers.)
12%
A191-1985 AIA DOCUMENT A191, Part 2 . OWNER-DESIGN/BUILDER AGREEMENT
PART 2-PAGE 10 FIRST EDITION . AIA* .(c)1985 THE AMERICAN INSTITUTE OF
ARCHITECTS, 1735 NEW YORK AVENUE, N.W., WASHINGTON, D.C.
20006
<PAGE>
ARTICLE 14
OTHER PROVISIONS
14.1 The Basic Services to be performed shall be commenced on MARCH 1, 1998
and, subject to authorized adjustments and to delays not caused by the
Design/Builder, Substantial Completion shall be achieved in THREE HUNDRED
(300) calendar days.
14.2 The Basic Services beyond those described in Article 2 are:
SUPERVISE OPENING OF PROPERTY FOR BUSINESS.
14.3 The Design/Builder shall submit an Application for Payment on the
of each month.
----------
14.4 The Design/Builder's Proposal includes:
(List below: this Part 2, Supplementary and other Conditions, the drawings,
the specifications, and Modifications, showing page or sheet numbers in all
cases and dates where applicable to define the scope of Work.)
A.COMPLETE DESIGN CHANGES AS REQUIRED BY REGULATORY AGENCIES
B.SUPPLY CHANGES IN ANY SPEFICATIONS
C.OBTAIN ALL ZOINING CHANGES IF NEEDED.
D.BUILD PROJECT AND OBTAIN CERTIFICATE OCCUPANCY.
This Part 2 entered into as of the day and year first written above.
OWNER DESIGN/BUILDER
SENIOR RETIREMENT COMMUNITIES, INC. THE FORSYTHE GROUP, DESIGNER
- ----------------------------------- ----------------------------------
507 TRENTON ST BY /S/DIANA M CALDWELL, SEC
- ----------------------------------- ----------------------------------
WEST MONROE, LA 71291 SCENICLAND CONTRUCTION CO. BUILDER
- ----------------------------------- ----------------------------------
BY /S/JOANNE CALDWELL, PRESIDENT BY /S/FRED M BAYLES
-------------------------------- -------------------------------
AlA DOCUMENT A191,Part2 OWNER-DESIGN/BUILDER AGREEMENT A191-1985
FIRST EDITION AIA (c)1985 THE AMERICAN INSTITUTE OF PART 2-PAGE 11
ARCHITECTS,1735 NEW YORK AVENUE,
N.W., WASHINGTON, D.C. 2O006
<PAGE>
THE AMERICAN INSTITUTE OF ARCHITECTS
AIA Document A191
Standard Form of Agreement Between
Owner and Design/Builder
1985 EDITION
THIS DOCUMENT HAS IMPORTANT LEGAL CONSEQUENCES;
CONSULTATION WITH AN ATTORNEY IS ENCOURAGED.
This Document comprises two separate Agreements: Part 1 Agreement-Preliminary
Design and Budgeting and Part 2 Agreement-Final Design and Construction.
Hereinafter, the Part 1 Agreement is referred to as Part 1 and the Part 2
Agreement is referred to as Part 2.
PART 2 AGREEMENT-FINAL DESIGN AND CONSTRUCTION
AGREEMENT
made as of the SIXTEENTH day Of DECEMBER in
the year of Nineteen Hundred and NINETY SEVEN
BETWEEN the Owner: SENIOR RETIREMent COMMUNITIES, INC.
(Name and address)507 TRENTON STREET, WEST MONROE, LA 71291
and the Design/Builder:
(Name and address)DESIGNER, THE FORSYTHE GROUP, INC.
BUILDER, SCENICLAND CONSTRUCTION, CO.
507 TRENTON STREET, WEST MONROE, LA 71291
For the following Project
(Include Project name, location and detailed description of scope.)
Twenty-Four unit memory disorder unit in Shreveport, Louisiana
located on lot 4 of the Orleans Square Subdivision, East Kings Hy.
The architectural services described in Article 2 will be provided by the
following person or entity who is lawfully licensed to practice
CIVIL ENGINEER.
(Name and address)
KARL M. WALLACE DOWNSVILLE, LA
The Owner and the Design/Builder agree as set forth below.
Copyright (c) 1985 by The American Institute of Architects, 1735 New York
Avenue, N.W., Washington, D.C. 20006. Reproduction of the material herein or
substantial quotation of its provisions without written permission of the AIA
violates the copyright laws of the United States and will be subject to legal
prosecution.
AIA DOCUMENT A191 PART2 OWNER-DESIGN/BUILDER AGREEMENT FIRST EDITION
AIA* (C)1985 THE AMERICAS lNSTITUTE OF ARCHITECTS, 1735 NEW YORK AVENUE,
N.W, WASHINGTON, D.C. 20006
A191-1985
PART 2-PAGE I
<PAGE>
Terms and Conditions-Part 2 Agreement
ARTICLE I
GENERAL PROVISIONS
1.1 BASIC DEFINITIONS
1.1.1 The Contract Documents consist of the Design/ Builder's Proposal
identified in Article 14, this Part 2, the Construction Documents approved by
the Owner in accordance with Subparagraph 2.2.2 below and Modifications
issued after execution of Part 2. A Modification is a Change Order or a
written amendment to Part 2 signed by both parties. These form the Contract,
and are as fully a part of the Contract as if attached to this Part 2 or
repeated herein.
1.1.2 The Project is the total design and construction for which the
Design/Builder is responsible under Part 2, including all professional
design services and all labor, materials and equipment used or incorporated
in such design and construction.
1.1.3 The Work comprises the completed construction designed under the
Projectand includes labor necessary to produce such construction, and
materials and equipment incorporated or to be incorporated in such
construction.
1.2 EXECUTION, CORRELATION AND INTENT
1.2.1 This Part 2 shall be signed in not less than duplicate
by the Owner and Design/Builder.
1.2.2 It is the intent of the Owner and Design/Builder that
the Contract Documents include all items necessary for proper execution and
completion of the Work. The Contract Documents are complementary, and what
is required by anyone shall be as binding as if required by all. Work not
covered in the Contract Documents will not be required unless it is
consistent with and is reasonably inferable from the Contract Documents as
being necessary to produce the intended results. Words and abbreviations
which have well-known technical or trade meanings are used in the Contract
Documents in accordance with such recognized meanings.
1.3 OWNERSHIP AND USE OF DOCUMENTS
1.3.1 The drawings, specifications and other documents furnished by the
Design/Builder are instruments of service and shall not become the property
of the Owner whether or not the Project for which they are made is commenced.
Drawings, specifications and other documents furnished by the Design/Builder
shall not be used by the Owner on other projects, for additions to this
Project or, unless the Design/Builder is in default under Part 2, for
completion of this Project by others, except by written agreement relating to
use, liability and compensation.
1.3.2 Submission or distribution of documents to meet official regulatory
requirements or for other purposes in connection with the Project is not to
be construed as publication in derogation of the Design/Builder's or the
Architect's common law copyrights or other reserved rights. The Owner shall
own neither the documents nor the copyrights.
ARTICLE 2
DESIGN/BUILDER
2.1 SERVICES AND RESPONSIBILITIES
2.1.1 Design services shall be performed by qualified architects, engineers
and other professionals selected and paid by the Design/Builder. The
professional obligations of such persons shall be undertaken and performed in
the interest of the Design/Builder. Construction services shall be performed
by qualified construction contractors and suppliers, selected and paid by the
Design/Builder and acting in the interest of the Design/Builder. Nothing
contained in Part 2 shall create any professional obligation or contractual
relationship between such persons and the Owner.
2.2 BASIC SERVICES
2.2.1 The Design/Builder's Basic Services are described below and in
Article 14.
2.2.2 Based on the Design/Builder's Proposal, the Design/Builder shall
submit Construction Documents for review and approval by the Owner.
Construction Documents shall include technical drawings, schedules, diagrams
and specifications, setting forth in detail the requirements for construction
of the Work, and shall:
.1 develop the intent of the Design/Builder's Proposal in greater
detail;
.2 provide information customarily necessary for the use of those in
the building trades; and
.3 include documents customarily required for regulatory agency
approvals.
2.2.3 The Design/Builder shall assist the Owner in filing documents
required to obtain necessary approvals of governmental authorities having
jurisdiction over the Project.
2.2.4 Unless otherwise provided in the Contract Documents, the
Design/Builder shall provide or cause to be provided and shall pay for design
services, labor, materials, equipment, tools, construction equipment and
machinery, water, heat, utilities, transportation and other facilities and
services necessary for proper execution and completion of the Work, whether
temporary or permanent and whether or not incorporated or to be incorporated
in the Work.
2.2.5 The Design/Builder shall be responsible for and shall coordinate all
construction means, methods, techniques, sequences and procedures.
2.2.6 The Design/Builder shall keep the Owner informed of the progress and
quality of the Work.
2.2.7 If requested in writing by the Owner, the Design/ Builder, with
reasonable promptness and in accordance with time limits agreed upon, shall
interpret the requirements of the Contract Documents and initially shall
decide, subject to demand for arbitration, claims, disputes and other matters
in question relating to performance thereunder by both Owner and
Design/Builder. Such interpretations and decisions shall be in writing,
shall not be presumed to be correct and shall be given such weight as the
arbitrators or the court shall determine.
A191-1985 A191,Part2 OWNER-DESIGN/BUILDER ACREEMENT, FIRST EDITION
PART 2-PAGE 2 AIA* (c)1985, THE AMERICAN INSTITUTE OF ARCHITECTS, 1735 NEW
YORK AVENUE, N.W. WASHINCTON, D.C. 20006
<PAGE>
2.2.8 The Design/Builder shall correct Work which does not conform to the
Construction Documents.
2.2.9 The Design/Builder warrants to the Owner that materials and equipment
incorporated in the Work will be new unless otherwise specified, and that the
Work will be of good quality, free from faults and defects, and in
conformance with the Contract Documents. Work not conforming to these
requirements shall be corrected in accordance with Article 9.
2.2.10 The Design/Builder shall pay all sales, consumer, use and similar
taxes which were in effect at the time the Design/Builder's Proposal was
first submitted to the Owner, and shall secure and pay for building and other
permits and governmental fees, licenses and inspections necessary for the
proper execution and completion of the Work which are either customarily
secured after execution of Part 2 or are legally required at the time the
Design/Builder's Proposal was first submitted to the Owner.
2.2.11 The Design/Builder shall give notices and comply with laws,
ordinances, rules, regulations and lawful orders of public authorities
relating to the Project.
2.2.12 The Design/Builder shall pay royalties and license fees. The
Design/Builder shall defend suits or claims for infringement of patent rights
and shall save the Owner harmless from loss on account thereof, except that
the Owner shall be responsible for such loss when a particular design,
process or product of a particular manufacturer is required by the Owner.
However, if the Design/Builder has reason to believe the use of a required
design, process or product is an infringement of a patent, the Design/Builder
shall be responsible for such loss unless such information is promptly given
to the Owner.
2.2.13 The Design/Builder shall be responsible to the Owner for acts and
omissions of the Design/Builder's employees and parties in privily of
contract with the Design/ Builder to perform a portion of the Work, including
their agents and employees.
2.2.14 The Design/Builder shall keep the premises free from accumulation of
waste materials or rubbish caused by the Design/Builder's operations. At the
completion of the Work, the Design/Builder shall remove from and about the
Project the Design/Builder's tools, construction equipment, machinery,
surplus materials, waste materials and rubbish.
2.2.15 The Design/Builder shall prepare Change Orders for the Owner's
approval and execution in accordance with Part 2 and shall have authority to
make minor changes in the design and construction consistent with the intent
of Part 2 not involving an adjustment in the contract sum or an extension of
the contract time. The Design/Builder shall promptly inform the Owner, in
writing, of minor changes in the design and construction. 2.2.16 The
Design/Builder shall notify the Owner when the Work or an agreed upon portion
thereof is substantially completed by issuing a Certificate of Substantial
Completion which shall establish the Date of Substantial Completion, shall
state the responsibility of each party for security, maintenance, heat,
utilities, damage to the Work and insurance, shall include a list of items to
be completed or corrected and shall fix the time within which the
Design/Builder shall complete items listed therein. Disputes between the
Owner and Design/Builder regarding the Certificate of Substantial Completion
shall be resolved by arbitration.
2.2.17 The Design/Builder shall maintain in good order at the site one
record copy of the drawings, specifications, product data, samples, shop
drawings, Change Orders and other Modifications, marked currently to record
changes made during construction. These shall be delivered to the Owner upon
completion of the design and construction and prior to final payment.
ARTICLE 3
OWNER
3.1 The Owner shall designate a representative authorized to act on the
Owner's behalf with respect to the Project. The Owner or such authorized
representative shall examine documents submitted by the Design/Builder and
shall promptly render decisions pertaining thereto to avoid delay in the
orderly progress of the Work.
3.2 The Owner may appoint an on-site project representative to observe
the Work and to have such other responsibilities as the Owner and
Design/Builder agree in writing prior to execution of Part 2.
3.3 The Owner shall cooperate with the Design/Builder in securing
building and other permits, licenses and inspections, and shall pay the fees
for such permits, licenses and inspections if the cost of such fees is not
identified as being included in the Design/Builder's Proposal.
3.4 The Owner shall furnish services by land surveyors, geotechnical
engineers and other consultants for subsoil, air and water conditions, in
addition to those provided under Part 1 when such services are deemed
necessary by the Design/Builder to carry out properly the design services
under this Part 2.
3.5 The Owner shall furnish structural, mechanical, chemical,
geotechnical and other laboratory or on-site tests, inspections and reports
as required by law or the Contract Documents.
3.6 The services, information, surveys and reports required by Paragraphs
3.4 and 3.5 shall be furnished at the Owner's expense, and the Design/Builder
shall be entitled to rely upon their accuracy and completeness.
3.7 If the Owner observes or otherwise becomes aware of a fault or defect
in the Work or nonconformity with the Design or Construction Documents, the
Owner shall give prompt written notice thereof to the Design/Builder.
3.8 The Owner shall furnish required information and services and shall
promptly render decisions pertaining thereto to avoid delay in the orderly
progress of the design and construction.
3.9 The Owner shall, at the request of the Design/Builder and upon
execution of Part 2, provide a certified or notarized statement of funds
available for the Project and their source.
3.10 The Owner shall communicate with contractors only through the
Design/Builder.
ARTICLE 4
TIME
4.1 The Design/Builder shall provide services as expeditiously as is
consistent with reasonable skill and care and the orderly progress of design
and construction.
4.2 Time limits stated in the Contract Documents are of the essence of
Part 2. The Work to be performed under Part
AIA DOCUMENT A191,Part 2, OWNER-DESIGN/BUILDER AGREEMENT A191-1985
FIRST EDITION AIA* (c)1985 * THE AMERICAN INSTITUTE OF PART 2-PAGE 3
ARCHITECTS 1735 NEW YORK AVENUE N.W., WASHINGTON,
D.C. 20006
<PAGE>
2 shall commence upon execution of a notice to proceed unless otherwise
agreed and, subject to authorized Modifications, Substantial Completion shall
be achieved as indicated in Article 14.
4.3 The Date of Substantial Completion of the Work or an agreed upon
portion thereof is the date when construction or an agreed upon portion
thereof is sufficiently complete so the Owner can occupy and utilize the Work
or agreed upon portion thereof for its intended use.
4.4 The schedule provided in the Design/Builder's Proposal shall include
a construction schedule consistent with Paragraph 4.2 above.
4.3 If the Design/Builder is delayed in the progress of the Project by
acts or neglect of the Owner, Owner's employees, separate contractors
employed by the Owner, changes ordered in the Work not caused by the fault of
the Design/Builder, labor disputes, fire, unusual delay in transportation,
adverse weather conditions not reasonably anticipatable, unavoidable
casualties, or other causes beyond the Design/Builder's control, or by delay
authorized by the Owner's pending arbitration or another cause which the
Owner and Design/Builder agree is justifiable, the contract time shall be
reasonably extended by Change Order.
ARTICLE 5
PAYMENTS
5.1 PROGRESS PAYMENTS
5.1.1 The Design/Builder shall deliver to the Owner itemized Applications
for Payment in such detail as indicated in Article 14.
5.1.2 Within ten days of the Owner's receipt of a properly submitted and
correct Application for Payment, the Owner shall make payment to the
Design/Builder.
5.1.3 The Application for Payment shall constitute are presentation by the
Design/Builder to the Owner that, to the best of the Design/Builder's
knowledge, information and belief, the design and construction have
progressed to the point indicated; the quality of the Work covered by the
application is in accordance with the Contract Documents; and the
Design/Builder is entitled to payment in the amount requested.
5.1.4 The Design/Builder shall pay each contractor, upon receiptof payment
from the Owner, out of the amount paid to the Design/Builder on account of
such contractor's work, the amount to which said contractor is entitled in
accordance with the terms of the Design/Builder's contract with such
contractor. The Design/Builder shall, by appropriate agreement with each
contractor, require each contractor to make payments to subcontractors in
similar manner.
5.1.5 The Owner shall have no obligation to pay or to be responsible in any
way for payment to a contractor of the Design/Builder except as may otherwise
be required by law.
5.1.6 No progress payment or partial or entire use or occupancy of the
Project by the Owner shall constitute an acceptance of Work not in accordance
with the Contract Documents.
5.1.7 The Design/Builder warrants that: (1) title to Work, materials and
equipment covered by an Application for Payment will pass to the Owner either
by incorporation in construction or upon receipt of payment by the
Design/Builder, whichever occurs first; (2) Work, materials and equipment
covered by previous Applications for Payment are free and clear of liens,
claims, security interests or encumbrances, hereinafter referred to as
"liens"; and (3) no Work, materials or equipment covered by an Application
for Payment will have been acquired by the Design/ Builder, or any other
person performing work at the site or furnishing materials or equipment for
the Project, subject to an agreement under which an interest therein or an
encumbrance thereon is retained by the seller or otherwise imposed by the
Design/Builder or such other person.
5.1.8 If the Contract provides for retainage, then at the date of
Substantial Completion or occupancy of the Work or any agreed upon portion
thereof by the Owner, whichever occurs first, the Design/Builder may apply
for and the Owner, if the Design/Builder has satisfied the requirements of
Paragraph 5.2.1 and any other requirements of the Contract relating to
retainage, shall pay the Design/Builder the amount retained, if any, for the
Work or for the portion completed or occupied, less the reasonable value of
incorrect or incomplete Work. Final payment of such withheld sum shall be
made upon correction or completion of such Work.
5.2 FINAL PAYMENT
5.2.1 Neither final payment nor amounts retained,if any, shall become due
until the Design/Builder submits to the Owner (1) an affidavit that payrolls,
bills for materials and equipment, and other indebtedness connected with the
Project for which the Owner or Owner's property might be liable have been
paid or otherwise satisfied, (2) consent of surety, if any, to final payment,
(3) a certificate that insurance required by the Contract Documents is in
force following completion of the Work, and (4) if required by the Owner,
other data establishing payment or satisfaction of obligations, such as
receipts, releases and waivers of liens arising out of Part 2, to the extent
and in such form as may be designated by the Owner. If a contractor refuses
to furnish a release or waiver required by the Owner, the Design/Builder may
furnish a bond satisfactory to the Owner to indemnify the Owner against such
lien. If such lien remains unsatisfied after payments are made, the
Design/Builder shall reimburse the Owner for moneys the latter may be
compelled to pay in discharging such lien, including all costs and reasonable
attorneys' fees.
5.2.2 Final payment constituting the entire unpaid balance due shall be
paid by the Owner to the Design/Builder upon the Owner's receipt of the
Design/Builder's final Application for Payment when the Work has been
completed and the Contract fully performed except for those responsibilities
of the Design/Builder which survive final payment.
5.2.3 The making of final payment shall constitute a waiver of all claims
by the Ownerexcept those arising from:
.1 unsettled liens;
.2 faulty or defective Work appearing after Substantial Completion;
.3 failure of the Work to comply with requirements of the Contract
Documents; or
.4 terms of special warranties required by the Contract Documents.
5.2.4 Acceptance of final payment shall constitute a waiver of all claims
by the Design/Builder except those previously made in writing and identified
by the Design/Builder as unsettled at the time of final Application for
Payment.
A191-1985 A191,Part2 OWNER-DESIGN/BUILDER ACREEMENT, FIRST EDITION
PART 2-PAGE 4 AIA* (c)1985, THE AMERICAN INSTITUTE OF ARCHITECTS, 1735 NEW
YORK AVENUE, N.W. WASHINCTON, D.C. 20006
<PAGE>
5.3 INTEREST PAYMENTS
5.3.1 Payments due the Design/Builder under Part2 which are not paid when
due shall bear interest from the date due at the rate specified in Article
13, or in the absence of a specified rate, at the legal rate prevailing where
the principal improvements are to be located.
ARTICLE 6
PROTECTION OF PERSONS AND PROPERTY
6.1 The Design/Builder shall be responsible for initiating, maintaining
and providing Supervision of safety precautions and programs in connection
with the Work.
6.2 The Design/Builder shall take reasonable precautions for safety of,
and shall provide reasonable protection to prevent damage, injury or loss to:
(1) employees on the Work and other persons who may be affected thereby; (2)
the Work and materials and equipment to be incorporated therein; and (3)
other property at or adjacent to the site.
6.3 The Design/Builder shall give notices and comply with applicable
laws, ordinances, rules, regulations and orders of public authorities bearing
on the safety of persons and property and their protection from damage,
injury or loss.
6.4 The Design/Builder shall be liable for damage or loss (other than
damage or loss to property insured under the property insurance provided or
required by the Contract Documents to be provided by the Owner) to property
at the site caused in whole or in part by the Design/Builder, a contractor of
the Design/Builder or anyone directly or indirectly employed by either of
them, or by anyone for whose acts they may be liable, except damage or loss
attributable to the acts or omissions of the Owner, the Owner's separate
contractors or anyone directly or indirectly employed by them or by anyone
for whose acts they may be liable and not attributable to the fault or
negligence of the Design/ Builder.
ARTICLE 7
INSURANCE AND BONDS
7.1 DESIGN/BUILDER'S LIABILITY INSURANCE
7.1.1 The Design/Builder shall purchase and maintainin a company or
companies authorized to do business in the state in which the Work is located
such insurance as will protect the Design/Builder from claims set forth below
which may arise out of or result from operations under the Contract by the
Design/Builder or by a contractor of the Design/Builder, or by anyone
directly or indirectly employed by any of them, or by anyone for whose acts
they may be liable:
.1 claims under workers' or workmen's compensation, disability
benefit and other similar employee benefit laws which are
applicable to the Work to be performed;
.2 claims for damages because of bodily injury, occupational
sickness or disease, or death of the Design/Builder's employees
under any applicable employer's liability law;
.3 claims for damages because of bodily injury, sickness or
disease, or death of persons other than the Design/Builder's
employees;
.4 claims for damages covered by usual personal injury liability
coverage which are sustained (1) by a person as a result of an
offense directly or indirectly related to employment of such
person by the Design/Builder or (2) by another person;
.5 claims for damages, other than to the Work at the site, because
of injury to or destruction of tangible property, including loss
of use; and
.6 claims for damages for bodily injury or death of a person or
property damage arising out of ownership, maintenance or use of
a motor vehicle.
7.1.2 The insurance required by the above Subparagraph
7.1.1 shall be written for not less than limits of liability specified in
the Contract Documents or required by law, whichever are greater.
7.1.3 The Design/Builder's liability insurance shall include contractual
liability insurance applicable to the Design/Builder's obligations under
Paragraph 11.7.
7.1.4 Certificates of Insurance, and copies of policies if requested,
acceptable to the Owner shall be delivered to the Owner prior to commencement
of design and construction. These Certificates as well as insurance policies
required by this Paragraph shall contain a provision that coverage will not
be cancelled or allowed to expire until at least thirty days' prior written
notice has been given to the Owner. If any of the foregoing insurance
coverages are required to remain in force after final payment, an additional
certificate evidencing continuation of such coverage shall be submitted along
with the application for final payment.
7.2 OWNER'S LIABILITY INSURANCE
7.2.1 The Owner shall be responsible for purchasing and maintaining, in a
company or companies authorized to do business in the state in which the
principal improvements are to be located, Owner's liability insurance to
protect the Owner against claims which may arise from operations under this
Project.
7.3 PROPERTY INSURANCE
7.3.1 Unless otherwise provided under this Part 2, the Owner shall purchase
and maintain, in a company or companies authorized to do business in the
state in which the principal improvements are to be located, property
insurance upon the Work at the site to the full insurable value thereof.
Property insurance shall include interests of the Owner, the Design/Builder,
and their respective contractors and subcontractors in the Work. It shall
insure against perils of fire and extended coverage and shall include all
risk insurance for physical loss or damage including, without duplication of
coverage, theft, vandalism and malicious mischief. If the Owner does not
intend to purchase such insurance for the full insurable value of the entire
Work, the Owner shall inform the Design/Builder in writing prior to
commencement of the Work. The Design/Builder may then effect insurance for
the Work at the site which will protect the interests of the Design/Builder
and the Design/Builder's contractors and subcontractors, and by appropriate
Change Order the cost thereof shall be charged to the Owner. If the
Design/Builder is damaged by failure of the Owner to purchase or maintain
such insurance without notice to the Design/Builder, then the Owner shall
bear all reasonable costs properly attributable thereto. if not covered under
the all risk insurance or not otherwise provided in the Contract Documents,
the Design/Builder shall effect and maintain similar property insurance on
portions of the Work stored off-site or in transit when such portions of the
Work are to be included in an Application for Payment.
AIA DOCUMENT A191,Part 2, OWNER-DESIGN/BUILDER AGREEMENT A191-1985
FIRST EDITION AIA* (c)1985 * THE AMERICAN INSTITUTE OF PART 2-PAGE 5
ARCHITECTS 1735 NEW YORK AVENUE N.W., WASHINGTON,
D.C. 20006
<PAGE>
7.3.2 Unless otherwise provided under this Part 2, the Owner shall purchase
and maintain such boiler and machinery insurance as may be required by the
Contract Documents or by law and which shall specifically cover such insured
objects during installation and until final acceptance by the Owner. This
insurance shall cover interests of the Owner, the Design/Builder, and the
Design/Builder's contractors and subcontractors in the Work.
7.3.3 A loss insured under Owner's property insurance is to be adjusted
with the Owner and made payable to the Owner as trustee for the insureds, as
their interests may appear, subject to requirements of any applicable
mortgagee clause and of Subparagraph 7.3.8. The Design/ Builder shall pay
contractors their shares of insurance proceeds received by the
Design/Builder, and by appropriate agreement, written where legally required
for validity, shall require contractors to make payments to their
subcontractors in similar manner.
7.3.4 Before an exposure to loss may occur, the Owner shall file with the
Design/Builder a copy of each policy required by this Paragraph 7.3. Each
policy shall contain only those endorsements specifically related to this
Project. Each policy shall contain a provision that the policy will not be
cancelled or allowed to expire until at least thirty days' prior written
notice has been given the Design/ Builder.
7.3.5 If the Design/Builder requests in writing that insurance for risks
other than those described herein or for other special hazards be included
in the property insurance policy, the Owner shall, if possible, obtain such
insurance, and the cost thereof shall be charged to the Design/Builder by
appropriate Change Order.
7.3.6 The Owner and Design/Builder waive all rights against each other and
the contractors, subcontractors, agents and employees, each of the other,
for damages caused by fire or other perils to the extent covered by property
insurance obtained pursuant to this Paragraph 7.3 or other property insurance
applicable to the Work, except such rights as they may have to proceeds of
such insurance held by the Owner as trustee. The Owner or Design/Builder, as
appropriate, shall require from contractors and subcontractors by appropriate
agreements, written where legally required for validity, similar waivers each
in favor of other parties enumerated in this Paragraph 7.3. The policies
shall be endorsed to include such waivers of subrogation.
7.3.7 If required in writing by a party in interest, the Owner as trustee
shall provide, upon occurrence of an insured loss, a bond for proper
performance of the Owner's duties. The cost of required bonds shall be
charged against proceeds received as trustee. The Owner shall deposit
proceeds so received in a separate account and shall distribute them in
accordance with such agreement as the parties in interest may reach, or in
accordance with an arbitration award in which case the procedure shall be as
provided in Article 10. If after such loss no other special agreement is
made, replacement of damaged Work shall be covered by appropriate Change
Order.
7.3.8 The Owner, as trustee, shall have power to adjust and settle a loss
with insurers unless one of the parties in interest shall object, in writing,
within ten days after occurrence of loss, to the Owner's exercise of this
power. If such objection be made, the Owner as trustee shall make settlement
with the insurers in accordance with the decision of arbitration as provided
in Article 10. If distribution of insurance proceeds by arbitration is
required, the arbitrators will direct such distribution.
7.3.9 If the Owner finds it necessary to occupy or use a portion or
portions of the Work before Substantial Completion, such occupancy or use
shall not commence prior to a time agreed to by the Owner and Design/Builder
and to which the insurance company or companies providing property insurance
have consented by endorsement to the policy or policies. The property
insurance shall not lapse or be cancelled on account of such partial
occupancy or use. Consent of the Design/Builder and of the insurance company
or companies to such occupancy or use shall not be unreasonably withheld.
7.4 LOSS OF USE INSURANCE
7.4.1 The Owner, at the Owner's option, may purchase and maintain such
insurance as will insure the Owner against loss of use of the Owner's
property due to fire or other hazards, however caused. The Owner waives all
rights of action against the Design/Builder, and its contractors and their
agents and employees, for loss of use of the Owner's property, including
consequential losses due to fire or other hazards, however caused, to the
extent covered by insurance under this Paragraph 7.4.
7.5 PERFORMANCE BOND AND PAYMENT BOND
7.5.1 The Owner shall have the right to require the Design/Builder to
furnish bonds covering the faithful performance of the Contract and the
payment of all obligations arising thereunder if and as required in the
Contract Documents or in Article 14.
ARTICLE 8
CHANGES IN THE WORK
8.1 CHANGE ORDERS
8.1.1 A Change Order is a written order signed by the Owner and
Design/Builder, and issued after execution of Part 2, authorizing a change in
the Work or adjustment in the contract sum or contract time. The contract
sum and contract time may be changed only by Change Order.
8.1.2 The Owner, without invalidating Part 2, may order changes in the Work
within the general scope of Part 2 consisting of additions, deletions or
other revisions, and the contract sum and contract time shall be adjusted
accordingly. Such changes in the Work shall be authorized by Change Order,
and shall be performed under applicable conditions of the Contract Documents.
8.1.3 If the Owner requests the Design/Builder to submit a proposal for a
change in the Work and then elects not to proceed with the change, a Change
Order shall be issued to reimburse the Design/Builder for any costs incurred
for Design Services or proposed revisions to the Contract Documents.
8.1.4 Cost or credit to the Owner resulting from a change in the Work shall
be determined in one or more of the following ways:
.1 by mutual acceptance of a lump sum properly itemized and supported
by sufficient substantiating data to permit evaluation;
.2 by unit prices stated in the Contract Documents or subsequently
agreed upon;
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.3 by cost to be determined in a manner agreed upon by the parties and
a mutually acceptable fixed or percentage fee; or
.4 by the method provided below.
8.1.5 If none of the methods set forth in Clauses 8.1.4.1, 8.1.4.2 or
8.1.4.3 is agreed upon, the Design/Builder, provided a written order signed
by the Owner is received, shall promptly proceed with the Work involved.
The cost of such Work shall then be determined on the basis of reasonable
expenditures and savings of those performing the Work attributable to the
change, including the expenditures for design services and revisions to the
Contract Documents. In case of an increase in the contract sum, the cost
shall include a reasonable allowance for overhead and profit. In case of the
methods set forth in Clauses 8.1.4.3 and 8.1.4.4, the Design/Builder shall
keep and present an itemized accounting together with appropriate supporting
data for inclusion in a Change Order. Unless otherwise provided in the
Contract Documents, cost shall be limited to the following: cost of
materials, including sales tax and cost of delivery; cost of labor, including
social security, old age and unemployment insurance, and fringe benefits
required by agreement or custom; workers' or workmen's compensation
insurance; bond premiums; rental value of equipment and machinery; additional
costs of supervision and field office personnel directly attributable to the
change; and fees paid to architects, engineers and other professionals.
Pending final determination of cost to the Owner, payments on account shall
be made on the Application for Payment. The amount of credit to be allowed
by the Design/ Builder to the Owner for deletion or change which results in a
net decrease in the contract sum will be actual net cost. When both
additions and credits covering related Work or substitutions are involved in
a change, the allowance for overhead and profit shall be figured on the
basis of the net increase, if any, with respect to that change.
8.1.6 If unit prices are stated in the Contract Documents or subsequently
agreed upon, and if quantities originally contemplated are so changed in a
proposed Change Order that application of agreed unit prices to quantities
proposed will cause substantial inequity to the Owner or Design/Builder,
applicable unit prices shall be equitably adjusted.
8.2 CONCEALED CONDITIONS
8.2.1 If concealed or unknown conditions of an unusual nature that affect
the performance of the Work and vary from those indicated by the Contract
Documents are encountered below ground or in an existing structure other than
the Work, which conditions are not ordinarily found to exist or which differ
materially from those generally recognized as inherent in work of the
character provided for in this Part 2, notice by the observing party shall
be given promptly to the other party and, if possible, before conditions are
disturbed and in no event later than twenty-one days after first observance
of the conditions. The contract sum shall be equitably adjusted for such
concealed or unknown conditions by Change Order upon claim by either party
made within twenty-one days after the claimant becomes aware of the
conditions.
8.3 REGULATORY CHANGES
8.3.1 The Design/Builder shall be compensated for changes in the Work
necessitated by the enactment or revision of codes, laws or regulations
subsequent to the submission of the Design/Builder's Proposal under Part 1.
ARTICLE 9
CORRECTION OF WORK
9.1 The Design/Builder shall promptly correct Work rejected by the Owner
or known by the Design/Builder to be defective or failing to conform to the
Construction Documents, whether observed before or after Substantial
Completion and whether or not fabricated, installed or completed, and shall
correct Work under this Part 2 found to be defective or nonconforming within
a period of one year from the date of Substantial Completion of the Work or
designated portion thereof, or within such longer period provided by any
applicable special warranty in the Contract Documents.
9.2 Nothing contained in this Article 9 shall be construed to establish a
period of limitation with respect to other obligations of the Design/Builder
under this Part 2. Paragraph 9.1 relates only to the specific obligation of
the Design/Builder to correct the Work, and has no relationship to the time
within which the obligation to comply with the Contract Documents may be
sought to be enforced, nor to the time within which proceedings may be
commenced to establish the Design/Builder's liability with respect to the
Design/Builder's obligations other than correction of the Work.
9.3 If the Design/Builder fails to correct defective Work as required or
persistently fails to carry out Work in accordance with the Contract
Documents, the Owner, by written order signed personally or by an agent
specifically so empowered by the Owner in writing, may order the
Design/Builder to stop the Work, or any portion thereof, until the cause for
such order has been eliminated; however, the Owner's right to stop the Work
shall not give rise to a duty on the part of the Owner to exercise the right
for benefit of the Design/Builder or other persons or entities.
9.4 If the Design/Builder defaults or neglects to carry out the Work in
accordance with the Contract Documents and fails within seven days after
receipt of written notice from the Owner to commence and continue correction
of such default or neglect with diligence and promptness, the Owner may give
a second written notice to the Design/ Builder and, seven days following
receipt by the Design/ Builder of that second written notice and without
prejudice to other remedies the Owner may have, correct such deficiencies.
In such case an appropriate Change Order shall be issued deducting from
payments then or thereafter due the Design/Builder costs of correcting such
deficiencies. If the payments then or thereafter due the Design/Builder are
not sufficient to cover the amount of the deduction, the Design/Builder shall
pay the difference to the Owner. Such action by the Owner shall be subject
to arbitration.
ARTICLE 10
ARBITRATION
10.1 Claims, disputes and other matters in question between the parties to
this Part 2 arising out of or relating to Part 2 shall be decided by
arbitration in accordance with the Construction Industry Arbitration Rules of
the American Arbitration Association then in effect unless the parties agree
otherwise. No arbitration arising out of or relat-
AIA DOCUMENT A191,Part 2, OWNER-DESIGN/BUILDER AGREEMENT A191-1985
FIRST EDITION AIA* (c)1985 * THE AMERICAN INSTITUTE OF PART 2-PAGE 7
ARCHITECTS 1735 NEW YORK AVENUE N.W., WASHINGTON,
D.C. 20006
<PAGE>
ing to this Part 2 shall include, by consolidation or joinder or in any other
manner, an additional person not a party to Part I except by written consent
containing specific reference to Part 2 and signed by the Owner,
Design/Builder and any other person sought to be joined. Consent to
arbitration involving an additional person or persons shall not constitute
consent to arbitration of a dispute not described or with a person not named
therein. This provision shall be specifically enforceable in any court of
competent jurisdiction.
10.2 Notice of demand for arbitration shall be filed in writing with the
other party to this Part 2 and with the American Arbitration Association.
The demand shall be made within a reasonable time after the claim, dispute or
other matter in question has arisen. In no event shall the demand for
arbitration be made after the date when the applicable statute of limitations
would bar institution of a legal or equitable proceeding based on such claim,
dispute or other matter in question.
10.3 The award rendered by arbitrators shall be final, and judgment may be
entered upon it in accordance with applicable law in any court having
jurisdiction.
10.4 Unless otherwise agreed in writing, the Design/Builder shall carry on
the Work and maintain its progress during any arbitration proceedings, and
the Owner shall continue to make payments to the Design/Builder in accordance
with the Contract Documents.
10.5 This Article 1O shall survive completion or termination of Part 2.
ARTICLE 11
MISCELLANEOUS PROVISIONS
11.1 This Part 2 shall be governed by the law of the place where the Work
is located.
11.2 The table of contents and the headings of articles and paragraphs are
for convenience only and shall not modify rights and obligations created by
this Part 2.
11.3 In case a provision of Part 2 is held to be invalid, illegal or
unenforceable, the validity, legality and enforceability of the remaining
provisions shall not be affected.
11.4 SUBCONTRACTS
11.4.1 The Design/Builder, as soon as practicable after execution of Part 2,
shall furnish to the Owner in writing the names of the persons or entities
the Design/Builder will engage as contractors for the Project.
11.4.2 Nothing contained in the Design/Builder Contract Documents shall
create a professional obligation or contractual relationship between the
Owner and any third party.
11.5 WORK BY OWNER OR OWNER'S CONTRACTORS
11.5.1 The Owner reserves the right to perform work related to, but not part
of, the Project and to award separate contracts in connection with other work
at the site. If the Design/Builder claims that delay or additional cost is
involved because of such action by the Owner, the Design/ Builder shall make
such claims as provided in Subparagraph 11.6.
11.5.2 The Design/Builder shall afford the Owner's separate contractors
reasonable opportunity for introduction and storage of their materials and
equipment for execution of their work. The Design/Builder shall incorporate
and coordinate the Design/Builder's Work with work of the Owner's separate
contractors as required by the Contract Documents.
11.5.3 Costs caused by defective or ill-timed work shall be borne by the
party responsible.
11.6 CLAIMS FOR DAMAGES
11.6.1 Should either party to Part2 suffer injury or damage to person or
property because of an act or omission of the other party, the other party's
employees or agents, or another for whose acts the other party is legally
liable, claim shall be made in writing to the other party within a reasonable
time after such injury or damage is or should have been first observed.
11.7 INDEMNIFICATION
11.7.1 To the fullest extent permitted by law, the Design/Builder shall
indemnify and hold harmless the Owner and the Owner's consultants and
separate contractors, any of their subcontractors, sub-subcontractors,
agents and employees from and against claims, damages, losses and expenses,
including but not limited to attorneys' fees, arising out of or resulting
from performance of the Work. These indemnification obligations shall be
limited to claims, damages, losses or expenses (1) that are attributable to
bodily injury, sickness, disease or death, or to injury to or destruction of
tangible property (other than the Work itself) including loss of use
resulting therefrom, and (2) to the extent such claims, damages, losses or
expenses are caused in whole or in part by negligent acts or omissions of the
Design/Builder, the Design/Builder's contractors, anyone directly or
indirectly employed by either or anyone for whose acts either may be liable,
regardless of whether or not they are caused in part by a party indemnified
hereunder. Such obligation shall not be construed to negate, abridge or
otherwise reduce other rights or obligations of indemnity which would
otherwise exist as to a party or person described in this Paragraph 11.7.
11.7.2 ln claims against the Owner or its consultants and its contractors,
any of their subcontractors, sub-subcontractors, agents or employees by an
employee of the Design/Builder, its contractors, anyone directly or
indirectly employed by them or anyone for whose acts they may be liable,
the indemnification obligation under this Paragraph 11.7 shall not be limited
by a limitation on amount or type of damages, compensation or benefits
payable by or for the Design/Builder, or a Design/Builder's contractor, under
workers' or workmen's compensation acts, disability benefit acts or other
employee benefit acts.
11.8 SUCCESSORS AND ASSIGNS
11.8.1 This Part2 shall be binding on successors, assigns, and legal
representatives of and persons in privity of contract with the Owner or
Design/Builder. Neither party shall assign, sublet or transfer an interest
in Part 2 without the written consent of the other.
11.8.2 This Paragraph 11.8 shall survive completion or termination of
Part 2.
11.9 In case of termination of the Architect, the Design/Builder shall
provide the services of another lawfully licensed person or entity against
whom the Owner makes no reasonable objection.
A191-1985 A191,Part2 OWNER-DESIGN/BUILDER ACREEMENT, FIRST EDITION
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<PAGE>
11.10 EXTENT OF AGREEMENT
11.10.1 Part 2 represents the entire agreement between the Owner and
Design/Builder and supersedes Part 1 and prior negotiations, representations
or agreements. Part 2 may be amended only by written instrument signed by
both Owner and Design/Builder.
ARTICLE 12
TERMINATION OF THE AGREEMENT
12.1 TERMINATION BY THE OWNER
12.1.1 This Part 2 may be terminated by the Owner upon fourteen days'
written notice to the Design/Builder in the event that the Project is
abandoned. If such termination occurs, the Owner shall pay the
Design/Builder for Work completed and for proven loss sustained upon
materials, equipment, tools, and construction equipment and machinery,
including reasonable profit and applicable damages.
12.1.2 lf the Design/Builder defaults or persistently fails or neglects to
carry out the Work in accordance with the Contract Documents or fails to
perform the provisions of Part 2, the Owner may give written notice that the
Owner intends to terminate Part 2. If the Design/Builder fails to correct the
defaults, failure or neglect within seven days after being given notice, the
Owner may then give a second written notice and, after an additional seven
days, the Owner may without prejudice to any other remedy make good such
deficiencies and may deduct the cost thereof from the payment due the
Design/Builder or at the Owner's option, may terminate the employment of the
Design/Builder and take possession of the site and of all materials,
equipment, tools and construction equipment and machinery thereon owned by
the Design/Builder and finish the Work by whatever method the Owner may deem
expedient. If the unpaid balance of the contract sum exceeds the expense of
finishing the Work, the excess shall be paid to the Design/Builder, but if
the expense exceeds the unpaid balance, the Design/Builder shall pay the
difference to the Owner.
12.2 TERMINATION BY THE DESIGN/BUILDER
12.2.1 If the Owner fails to make payment when due, the Design/Builder may
give written notice of the Design/Builder's intention to terminate Part 2.
If the Design/Builder fails to receive payment within seven days after
receipt of such notice by the Owner, the Design/Builder may give a second
written notice and, seven days after receipt of such second written notice by
the Owner, may terminate Part 2 and recover from the Owner payment for Work
executed and for proven losses sustained upon materials, equipment, tools,
and construction equipment and machinery, including reasonable profit and
applicable damages.
AIA DOCUMENT A191,Part 2, OWNER-DESIGN/BUILDER AGREEMENT A191-1985
FIRST EDITION AIA* (c)1985 * THE AMERICAN INSTITUTE OF PART 2-PAGE 9
ARCHITECTS 1735 NEW YORK AVENUE N.W., WASHINGTON,
D.C. 20006
<PAGE>
ARTICLE 13
BASIS OF COMPENSATION
The Owner shall compensate the Design/Builder in accordance with Article 5,
Payments, and the other Provisions of this Part 2 as described below.
13.1 COMPENSATION
13.1.1 FOR BASIC SERVICES, as described in Paragraphs 2.2.2 through 2.2.17,
and for any other services included in Article 14 as part of Basic Services,
Basic Compensation shall be as follows:
DESIGN AND BUILD THE ARBOR HOUSE FOR OWNER TO BE COMPLETED FOR THE FOLLOWING:
One Million Two Hundred Twenty Five Thousand and no/100 ($1,225,000.00) The
first payment is due when Design/Builder is given notice to start
construction. The total of the first payment will be $1,000,000.00.
Thereafter payments will be made in accordance with the requirments of
paragraph 14.3, within ten (10) days thereafter, as approved by Karl
M.Wallace Civil Engineer.
13.2 REIMBUSABLE EXPENSES
13.2.1 Reimbursable Expenses are in addition to the compensation for Basic
and Additional Services and include actual expenditures made by the
Design/Builder in the interest of the Project for the expenses listed as
follows:
ALL EXPENSES ARE TO BE APPROVED BY OWNER, IN ADVANCE OF ANY EXPENDITURE TO BE
PAID WITH THE NEXT DRAW AS SET FORTH IN PARAGRAPH 13.1.1.
13.2.2 FOR REIMBURSABLE EXPENSES, compensation shall be a multiple of 1.25
(125%) times the amounts expended.
13.3 INTEREST PAYMENTS
13.3.1 The rate of interest for past due payments shall be as follows:
(Usury laws and requirments under the Truth in Lending Act, similar state and
local consumer credit laws and other regulations at the owners and
Design/Builder's principal Places of business, at the location of the Project
and elsewhere may affect the validity of this provision. Specific legal
advice should be obtained with respect to deletion, modification or other
requirements. such as written disclosures or waivers)
12%
A191-1985 AIA DOCUMENT A191, PART2 OWNER-DESIGN/BUILDER AGREEMENT FIRST
EDITION
PART 2 PAGE 10 AIA* (c)1985 THE AMERICAN INSTITUE OF ARCHITECTS, 1735 NEW
YORK AVENUE N.W., WASHINGTON D.C. 20006
<PAGE>
ARTICLE 14
OTHER PROVISIONS
14.1 The Basic Services to be performed shall be commenced on MARCH 1 1998
and, subject to authorized adjustments and to delays not caused by the
Design/Builder, Substantial Completion shall be achieved in THREE HUNDRED
(300) calendar days.
14.2 The Basic Services beyond those described in Article 2 are:
SUPERVISE OPENING OF PROPERTY FOR BUSINESS.
14.3 The Design/Builder shall submit an Application for Payment on the
of each month.
--------
14.4 The Design/Builder's Proposal includes:
(List below this Part 2, Supplementary and other Conditions the drawings, the
specifications, and Modifications, showing page or sheet numbers in all cases
and all dates where applicable to define the scope of work)
A.COMPLETE DESIGN CHANGES AS REQUIRED BY REGULATORY AGENCIES
B.SUPPLY CHANGES IN ANY SPEFICATIONS
C.OBTAIN ALL ZOINING CHANGES IF NEEDED.
D.BUILD PROJECT AND OBTAIN CERTIFICATE OCCUPANCY.
This Part 2 entered into as of the day and year first written above.
OWNER DESIGN/BUILDER
SENIOR RETIREMENT COMMUNITIES, INC THE FORSYTHE GROUP, DESIGNER
- ---------------------------------- ----------------------------------
507 TRENTON ST BY /S/DIANA M CALDWELL, SEC
- ---------------------------------- ----------------------------------
WEST MONORE, LA 71291 SCENICLAND CONSTRUCTION CO, BUILDER
- ---------------------------------- ----------------------------------
BY /S/JOANNE CALDWELL,PRESIDENT BY /S/FRED M BAYLES
-------------------------------- ----------------------------------
A191-1985 AIA DOCUMENT A191, PART2 OWNER-DESIGN/BUILDER AGREEMENT FIRST
EDITION
PART 2 PAGE 11 AIA* (c)1985 THE AMERICAN INSTITUE OF ARCHITECTS, 1735 NEW
YORK AVENUE N.W., WASHINGTON D.C. 20006
<PAGE>
CHURCH LOANS & INVESTMENTS TRUST
A Real Estate Investment Trust
November 5, 1997
Senior Retirement Communities, Inc., Ruston, LA
C/O The Arbor Group, L.L.C.
507 Trenton St
West Monroe, LA 71291
Re: $2,700,000 Interim Loan
Gentlemen:
This will constitute the commitment of Church Loans & Investments Trust
("Church Loans") to loan to Senior Retirement Communities, Inc., Ruston, LA
("Borrower") the sum of $2,700,000, or any amount less than that amount as
the Borrower may need less any title insurance, appraisal costs, mortgage
registration tax and all other closing costs and expense that may be incurred
by Church Loans in connection with the funding and collection of the loan.
The loan is to be made pending the offering of bonds by the Borrower through
MMR Investment Bankers ("MMR") as provided hereinafter.
The loan will be for a term of one year and will bear interest on the unpaid
principal at a variable rate which would be equal to 2% per annum in excess
of the "Prime Rate" of interest as published by the Wall Street Journal under
the heading "Money Rates". The minimum rate of interest will not be less
than the initial rate of interest. Interest shall be paid monthly upon the
first day of each month during the term of the loan. Both principal and any
unpaid interest on the loan will be due at maturity.
Funds advanced upon this loan will be used to construct the facility commonly
referred to as Senior Retirement Communities, Inc., Ruston, LA to be located
on U.S. Highway 80, 1/4 mile east of Ruston, LA.
5305 I-40 West P. 0. Box 8203 Amarillo, Texas 79114
(806)358-3666 WATS 1-800-692-1111
<PAGE>
Senior Retirement Communities, Inc., Ruston, LA
C/O The Arbor Group, L.L.C.
West Monroe, LA
November 5, 1997
This commitment shall be subject to the following conditions:
1. That the Borrower pay to Church Loans, in addition to the interest
on the loan as described above, a commitment fee equal to 2.5% (two
and one-half percent) of the principal amount of the funds to be
advanced to the Borrower under the terms of this commitment.
One-half of the total commitment fee (ie. $33,750.00) shall be
remitted with this signed commitment letter. Although such
commitment fee is due and payable upon the Borrower's acceptance and
execution of this commitment letter, as a convenience to the
Borrower, Church Loans will allow the balance of the commitment fee
to be paid at closing from the proceeds of the loan. However, in
the event that you decide not to proceed to close this loan for any
reason, the balance of the commitment fee is due and owing by you to
Church Loans and the amount already paid is non-refundable. Such
fee is not interest, but is paid and payable to Church Loans to
induce Church Loans to enter into this loan commitment and to
compensate Church Loans for making available the funds necessary to
fund the entire amount of the committed loan whether or not such
amount is advanced.
2. That the Borrower pay in advance the sum of $250.00 which is the
title insurance cancellation fee in the event the Borrower decides
not to accept the commitment after title work has begun. Upon
closing, this fee will be used to offset other closing expenses.
This sum should be remitted with this signed commitment letter. The
closing of your loan will normally be enhanced if our law firm
orders the title insurance from title companies that have had
experience in dealing with our closings. If possible, we would
recommend that you allow our legal counsel to place the order for
the title insurance. Our legal counsel will order the title
insurance as soon as they have a correct legal description for the
property.
3. That upon acceptance of this commitment the Borrower shall deposit
with Church Loans the additional sum of $3,000.00 which are the
legal fees to be incurred by Church Loans in connection with the
loan. This amount should be remitted with this commitment letter.
4. That the loan shall be secured by a first mortgage lien and security
interest upon all the Borrower's real estate, buildings and
facilities, both existing and to be constructed with the proceeds of
this loan. Such property shall be subject to no prior liens or
encumbrances.
5. That the loan will be made pursuant to a loan agreement entered into
by the Borrower and Church Loans consistent with the terms of this
commitment and such other normal covenants of the Church Loans'
basic loan agreement.
2
<PAGE>
Senior Retirement Communities, Inc., Ruston, LA
C/O The Arbor Group, L.L.C.
West Monroe, LA
November 5, 1997
6. That a mortgage title insurance policy in the face amount of not
less than the total amount of the loan be issued by a title
insurance company acceptable to Church Loans, insuring the fact
that Church Loans is the owner and holder of a good and valid first
lien mortgage upon the real estate securing the loan as described in
paragraph 4 above.
7. That the total loan will not exceed 66 2/3% of the total appraised
value of the real estate given to secure the loan. Such appraisal
will be completed by an appraiser acceptable to Church Loans and
must (a) be a FIRREA-conforming appraisal and (b) be certified to
comply with the standards of Church Loans and be submitted for
approval prior to advancement of any funds. Such appraisal shall be
rendered by an appraiser who, among other things, shall have: (a)
appraised the real estate at not more than the fair market value
thereof; (b) appraised the value of the improvements on the real
estate at not more than the depreciated cost thereof; and (c)
considered in making such appraisal the likelihood of deterioration
of the neighborhood in which the real estate and improvements are
located. The qualifications of the appraiser and references,
preferably banks and insurance companies, should be submitted with
the appraisal.
8. That the Borrower enter into a bond offering agreement with MMR
under the terms of which MMR shall assist the Borrower in the
offering upon a best efforts basis bonds of the Borrower in an
amount not less than $9,000,000 of which the first proceeds after
the payment of the expenses of the offering shall be used to retire
this loan. It is further agreed an additional amount not to exceed
$250,000 may be placed in a so-called sinking fund reserve prior to
the repayment of this loan. The effective date of this bond
offering shall be not more than 90 days after the date of the note
securing this loan. Effective date is the date the bonds are first
offered for sale.
9. That the loan be closed on or before sixty days from the date
hereof.
10. That the promissory note evidencing the loan be guaranteed by the
Forsythe Group, Inc. so that $500,000 of the total amount of the
loan is guaranteed upon guaranty forms furnished by Church Loans.
11. That during the term of the loan the Borrower shall agree to
periodically supply Church Loans with financial statements and
reports as requested by Church Loans.
12. That Church Loans must review and approve all legal documents prior
to closing.
3
<PAGE>
Senior Retirement Communities, Inc., Ruston, LA
C/O The Arbor Group, L.L.C.
West Monroe, LA
November 5, 1997
13. That a representative of Church Loans conduct three on-site
inspections during the construction phase of the property to be
given by the Borrower to secure the loan. The expense of these
inspections shall be borne by the Borrower.
14. That a Phase One environmental site assessment will be completed
prior to closing by an engineering firm acceptable to Church Loans
certifying that the property is free and clear of any environmental
problems and that the property is in compliance with all current
laws and regulations regarding such environmental assessment.
15. That the Borrower require the contractor to furnish to Church Loans
an original policy providing builder's risk coverage in an amount
not less than the amount of this loan. Church Loans is to be listed
as mortgagee. An original copy of the policy evidencing such
coverage must be furnished prior to funding.
16. That the Borrower furnish to Church Loans an original copy of an
insurance policy providing fire & extended coverage on the
Borrower's property in an amount not less than the amount of this
loan. Church Loans is to be listed as mortgagee. The original
policy evidencing such coverage must be furnished prior to funding.
17. That the Borrower secure a fixed-price contract for the new
construction in an amount not to exceed $2,500,000. No changes or
modifications will be made to this contract without the expressed
written consent of Church Loans.
18. Notwithstanding the above, if regulatory approval of the bond
offering requires changes in the bond offering, bond offering
procedures, prospectus, interim loan, repayment of the interim loan
or otherwise, which such changes materially effect the interim loan,
the method and time of repayment of the interim loan or the
likelihood of repayment of the interim loan, in the sole judgment of
Church Loans, then Church Loans may, at its option, revoke this
commitment without liability for same.
19. You also should be aware that once all of our requirements and the
requirements of our legal counsel are met for the closing of the
loan, we must have three business days to deliver the funds to the
closing agent. Once all closing requirements have been met, our
legal counsel will notify our office and the actual closing can be
scheduled in accordance with the above-mentioned time requirements.
4
<PAGE>
Senior Retirement Communities, Inc., Ruston, LA
C/O The Arbor Group, L.L.C.
West Monroe, LA
November 5, 1997
The acceptance of this commitment must be indicated by the Borrower's signing
and returning the original copy of this commitment letter within fifteen (15)
days from the date hereof. The acceptance of this commitment will be the
Borrower's authorization for Church Loans to withhold from the proceeds of
any loan any premiums for the purchase of title insurance, appraisal costs
and other closing costs which are to be paid which are associated with the
loan. This commitment is conditioned upon the loan being closed on or before
January 5, 1998. Any extension of this commitment will be subject to terms
which may be mutually agreed upon at the time of extension. We look forward
to working with you in connection with this transaction.
Sincerely yours,
/S/KELLY ARCHER
Kelly Archer
Manager of Operations
KA/ja
The above commitment has been agreed to and accepted by the undersigned
Officers of the Senior Retirement Communities, Inc., Ruston, LA.
Date: 11-7-97
Senior Retirement Communities, Inc. Ruston, LA
/S/Joanne Caldwell-Bayles /S/Diana M Cadlwell, Secretary
- ------------------------- ----------------------------------
5
<PAGE>
MANAGEMENT AGREEMENT
This agreement is entered into this 10th day of September 1997, between
Senior Retirement Communities, Inc. (Hereafter referred to as "the owner" or
"the sponsor") and The Forsythe Group, Inc. (Hereafter referred to as "the
agent"). This agreement relates to activities to be performed,
responsibilities to be accepted and authority to be exercised with regard to
the properties to be known as The Arbor Retirement Community of Ruston,
Louisiana, The Arbor Retirement Community of Minden, Louisiana, The Arbor
Retirement Community of Bossier City, Louisiana and The Arbor Memory Disorder
Facility of Shreveport, Louisiana.
In consideration of the terms conditions and covenants hereinafter set forth,
the Owner and the Agent mutually agree as follows:
As used in this Agreement the terms below shall have the following
definitions unless context otherwise requires:
101.1 "Project " shall mean the land, improvements, buildings,
appurtenances and equipment thereon described in Exhibit "A" attached
hereto.
101.2 "Gross Collections" shall mean all amounts actually collected by
the Agent, as tenants rents, income from all amounts actually collected by
the Agent, as miscellaneous charges, but excluding (1) income derived from
interest on investments, (ii) discounts and dividends on insurance, and (iii)
security deposits.
101.3 "Lease" shall mean the approved agreement between the Owner and a
Tenant under the terms of which Tenant is entitled to enjoy possession of a
dwelling unit.
101.4 "Rent" shall mean that monthly amount which a Tenant is obligated
to pay the Owner pursuant to the terms of a Lease.
101.5 "Tenant" shall mean a person occupying a dwelling unit in the
Development pursuant to a Lease.
101.6 "Lender" shall mean the financial institution holding the mortgage
for the Project property.
SECTION 201 APPOINTMENT OF AGENT:
The Owner hereby appoints the Agent as the manager of the Projects as set
forth above and the Agent hereby accepts appointment, on the terms and
condition hereinafter provided, as exclusive management agent of the Project.
<PAGE>
SECTION 301 LEFT BLANK ONPURPOSE
SECTION 401 CONSIDER WITH OWNER,LENDER
The Agent agrees to cause an officer of the Agent to attend meeting with the
Owner at any time or times requested by the Owner.
SECTION 501 MEETING WITH OWNER AND THE AGENT
601.1 Employees of agent. The Agent shall hire the Director, who will be
responsible and report directly to the Agent. Said Director will perform
duties on-site and Compensation will be considered an expense of the Project.
The Agent shall hire in the Owner's name the Director and on-site personnel
necessary for the full and efficient performance of the Agent's duties under
this Agreement. Such employees shall be physically present on the Project
site. No less that one responsible person (s) for each twenty tenants
and /or required by licensing regulator shall be physically present at the
Project at such times, and in any event, for not less than 24 hours per day,
seven days per week. Compensation foe the services of all on-site employees,
including the Director, shall be included as operating expenses of the
Project.
601.2 Employment of Residents and Contractors. The Agent shall operate
as an equal opportunity employer in conformity with all related laws and
regulations. Employment practices will not discriminate based upon sex, race,
color, sexual orientation, age creed, religion, or national origin.
SECTION 701. SERVICES OF AGENT:
701.01 Services Prior to Resident Occupancy. Prior to occupancy of the
Project, the Agent shall:
(I) furnish the Owner revised estimates of maintenance and operating
expenses accompanied by documentation including a staffing plan and where
appropriate bids, contracts or comparable for any and all items so requested
by the Owner or lender;
(ii) develop. And establish such policies and produces as are necessary
to carry out the Agent's responsibilities under this Agreement for the
effective and efficient operation of the Project. Such policies and
procedures shall provide the guidelines for on-site staff in the day to day
operation of the Project and shall include but not be limited to aspects of
marketing (e.g., sales practices,
<PAGE>
mail list management, referral contact, affirmative fair housing practices),
administration (e.g., tenant application and move-in, landlord-tenant
relations, rental agreements, bookkeeping, tenant charges, etc.) personnel,
(e.g., job descriptions, hiring, evaluation, discharge, benefits, etc.)
Tenant services(e.g.,housekeeping, laundry, maintenance, food service,
ancillary services, etc.), property management, general repairs, etc.);
(iii) implement marketing plan.
(iv) retain such marketing, maintenance and managerial personnel as
are necessary for the preliminary marketing and sale of units;
(v) provide training opportunities to marketing staff,
(vi) establish a bookkeeping and accounting system in accordance with
requirements specified by the owner and sufficient to document operational
income and expenses of the project covered by the management agreement;
(vii) identify start-up inventory, equipment and supplies and secure
such as approved by the Owner and additionally will develop a system
for ordering and protection inventory against loss and waste;
(viii) provide a system for bookkeeping, including payroll, accounts
payable, accounts receivable, general ledger, and petty cash, such system
being designed to genae timely information necessary for owner's financial
reports.
701.02 Structure and Warranties. the Agent shall obtain from the Owner a
complete set of plans and specifications and copies of all guarantees and
warranties pertinent to construction, fixtures and equipment. With the aid
of this information and inspection by competent personnel. The Agent shall
thoroughly familiarize itself with the character, location, construction,
layout, plan and operation of the Project and especially of the electrical,
heating, plumbing, air conditioning and ventilating systems, and all other
mechanical equipment.
701.03 Inspection of Development. The Agent shall participate in the
final inspection(s) of the Project to certify the readiness of the units for
occupancy and shall (I) inform the Owner, the Architect, the Contractor and
the lender and insurer of all defects in material and workmanship discovered
within the construction warranty period; and (ii) monitor the action taken
by the Contractor to correct the defects; and (iii) participate in any formal
inspection held for the purpose of identifying construction defects.
<PAGE>
701.04 Maintenance and Repairs. The Agent shall cause the general
building interior and grounds of the project to be maintained and repaired
according to standards acceptable to the Owner, lender and insurer. The
Agent shall coordinate with the Owner responsibility for maintaining in good
working order, repairing and replacing the structural aspects of the building,
appurtenances, capital equipment, and the electorial, heating, plumbing, air
conditioning and ventilating systems, and all other mechanical equipment.
The Agent shall report mechanical, structural, electrical, plumbing, heating,
ventilating or air conditioning problems to the owner in a timely manner.
701.05 Preventive Maintenance. The Agent shall coordinate with the Owner
to assure the timely accomplishment of preventive maintenance. The Agent
shall cause the buildings, appurtenances, and equipment of the Project to be
maintained and repaired according to written procedures and schedules. The
Agent shall develop a preventive maintenance schedule including, but not
limited to periodic inspection of the units; residency commencement and
termination check lists; inventory control; common area maintenance;
equipment monitoring; and monitoring of exterior maintenance and landscaping
on a seasonal basis. The Agent will develop a schedule for routine painting
and replacement as well as a budget item to fund redecorating as necessary.
701.06 Property Insurance. The Agent will cause to be placed in force,
all forms of insurance needed to adequately protect the Owner and the Project,
including, comprehensive general liability insurance, fire and extended
coverage insurance, burglary, and theft insurance. The Agent shall promptly
investigate and make a full written report to the Owner within five (5) days
of receiving knowledge of any accident or claim for damage relating to the
ownership, Ooperation and maintenance of the Project, including any damage or
destruction of the estimated cost of repair, and shall cooperate and make any
and all reports required by any insurance company in connection therewith.
701.07 Employees of Owner. On the basis of wage rates previously
approved by the Owner, the Agent shall investigate, hire, pay, supervise and
discharge all administrative and general maintenance personnel.
No less than one responsible person (S) shall be physically present at the
Project not less than 24 hours per day seven days per week.
All personnel shall in every instance be in the Owner's and not in the
Agent's employ,
Compensation for the services of all employees, as evidenced by certified
payroll(s) shall be considered an operating expense of the Project.
701.08 Notice of Authority. In addition to its authority to manage the
premises as specified herein, the Agent is authorized by the Owner to accept
service of process
<PAGE>
and to receive and give receipt for notices and demands. A notice containing
such information shall be posted in a conspicuous place of the premises.
701.09 Service Requests of Tenants. The Agent shall maintain
businesslike relations with Residents whose service requests shall be
received, considered, and recorded on a systematic, written basis to show the
action taken with respect to each such request. Complaints of a serious
nature and all written complaints shall, after though investigation, be
reported to the owner with appropriate recommendations.
The Agent shall make provisions for delivery of services calls from Tenants
on a 24-hour basis.
701.10 Inspection of Units. As part of the continuing program to secure
full performance by the Residents of all obligations and maintenance for
which they are responsible, the Agent shall make an annual inspection of all
dwelling units and report its findings in writing to the Owner.
701.11 Review of 0perations. The Agent shall permit the lender and
insurer to conduct on-site evaluations of the performance of any or all
management services which the Agent has agreed to provide as required by this
Agreement and the Management Plan. An authorized representative of the
Agent shall be available during on-site evaluations. The Agent shall
correct any deficiencies noted in these evaluations within 30 days of the
receipt of the report from the lender.
701.12 Collections and Delinquencies. The Agent shall collect and
deposit in the account established pursuant to Section 1001 hereof all rents
and other charges due from Tenants and all rents or other payments due the
Owner from lessees of other nondwelling areas of the Project. The Agent
agrees, and the Owner hereby authorizes the Agent, to request, demand,
collect, receive, and give receipts for any and all charges or rents which
may at any time be or become payable to the owner. Rents and other charges
shall not be accepted in cash by the Agent. The Agent agrees to take such
action, including legal action, with respect to delinquencies in payments due
the Owner with an itemized list of all Tenants with delinquent accounts as of
the tenth(lOth) day of each month on or before the fifteenth (15th) day of
same month.
701.13 Payments and Expenses. From the funds collected and deposited in
the account established pursuant to Section 1001 hereof, the Agent shall
coordinate with the Owner and cause to be disbursed regularly and punctually
the following:
(I) all of the real estate tax and insurance premium escrow payments
required of the Owner, which payments shall be deemed to be part of the
operating expenses of the Project:
(ii) all of the principal and interest required to be paid to the lender:
<PAGE>
(iii) all remaining operating expenses of the Project including
administrative, operational, franchise fees, maintenance and utility expenses
and vendor payables;
(iv) the fees evolving from the Management Agreement including the fees
of the Agent as provided in Section 1201.
With the exception of payments provided in this section and payments for
utilities services, the Agent shall make no disbursements in excess of
$15,000 unless specifically authorized by the Owner, provided that emergency
repairs, involving manifest danger to life and property, or immediately
necessary for the preservation and safety of the Project, or for the safety
of the Tenants, or necessary services to the Project, may be made by the
Agent without regard to the cost limitation imposed by this Section with the
understanding that the Agent will, if at all possible, confer immediately
with the Owner regarding every such expenditure. The Agent shall not incur
liabilities to the Owner (direct or contingent) which, in the aggregate,
will exceed at any time $15,000 or which require payment more than one year
from the creation thereof, unless specifically authorized by the Owner.
701.14 Governmental Orders. The Agent shall take such action as may be
necessary to comply promptly with any and all orders or requirements affecting
the Project placed thereon by any federal, state, county or municipal
authority or other similar bodies. The Agent shall not take any action
under this Section unless the Owner so directs and shall not take action so
long as the Owner is contesting or had affirmed its intention to contest any
such order or requirement and promptly institutes proceedings contesting any
such order or requirement. The Agent shall promptly, and in no event later
than 48 hours from the time of their Project.
(v) By the fifteenth (15th) day of each month, the Agent will furnish
the Owner with an itemized list of all rent delinquencies as of the tenth
(1Oth) day of the same month.
(vi) By the fifteenth (15th) day of each month, the Agent will furnish
the Owner with a statement of receipts and disbursements during the previous
month, and with a payable and reconciled bank statements for the Account as
of the end of the previous month.
(vii) The Agent shall cooperate with the Owner to, execute and file
all Forms, reports and returns required by law in connection with the
employment of personnel, including unemployment insurance , disability
benefits, social security and other similar insurance, benefits and taxes
now in effect or hereafter imposed.
<PAGE>
701.17 Operating Budget. At least sixty (60) days before the beginning of
each new fiscal year for the Project, the Agent shall prepare and submit to
the Owner budget, setting forth an itemized statement of the anticipated
receipts and disbursements for the Project.
701.18 Marketing Duties. The Agent shall immediately assume
responsibility foe all functions and services as described in the marketing
plan submitted. Such responsibilities shall include but not be limited to:
(I) By the fifteenth (15th) day of each month, the Agent will furnish
the Owner with an itemized list of all rent delinquencies as of the
tenth (1Oth) day of the same month.
(vi) By the fifteenth (15th) day of each month, the Agent will
furnish the Owner with a statement of receipts and disbursements during the
previous month, and with a schedule of accounts receivable and payable, and
reconciled bank statements for the Account as of the end of the previous
month.
(vii) The Agent shall cooperate with the Owner to, execute and file all
forms, reports and returns require by the law in connection with the
employment insurance, worker's compensation insurance, disability benefits,
social security and other similar insurance, benefits and taxes now in effect
or hereafter imposed.
701.17 Operating Budget. At least sixty (60) days before the beginning of
each new fiscal year for the Project,; the Agent shall prepare and submit to
the Owner budget, setting forth an itemized statement of the anticipated
receipts and disbursements for the Project.
701.18 Marketing duties. The Agent shall immediately assume
responsibility for all functions and services as described in the marketing
plan submitted. Such responsibilities shall include but not be limited to:
(I) development of and due diligence of rent-up occupancy goals;
(ii) development of a month-by-month marketing plan;
(iii) development of a budget for all labor and ;;materials;
(iv) development of marketing policies and procedures;
(v) concept development and production coordination for collateral
materials as well as print and broadcast advertisement;
(vi) hiring, training and supervision of employed staff and contract
labor;
(vii) informing the Owner of problems requiring adjustment to ht
marketing plan or goals;
<PAGE>
(viii) maintenance of marketing effort to stabilize occupancy once the
Project's full.
Marketing activities shall be coordinated with on-going operations once the
Project is operational. Activities shall reflect a broad based effort
excluding community networking, media use, and print pieces.
701.19 Compliance of Tenants.
(I) The Agent shall at all times during the term of this Agreement
operate and maintain the Project according to the highest standards
achievable. The Agent shall secure full compliance by the Tenants with the
terms and conditions of their respective leases, rules and regulations.
(ii) Voluntary compliance shall be emphasized, and the
agent shall council tenants and make referrals to social service agencies
in cases of financial hardship or under other circumstances deemed
appropriated by the Agent, so that involuntary terminations of tenancy may
be avoided to the maxim extent consistent with sound management of the
Project. The Agent will not, however, tolerate willful evasion of payment
of rent.
(iii) The Agent may lawfully terminate any tenancy when, in the
Agent's judgement, sufficient cause occurs under the terms of the Tenants's
lease. Statements explaining evictions shall be filed promptly with the
Owner.
(iv) The Agent is authorized to consult with legal council designated
by the Owner to bring action for eviction and execute notices to vacate and
to commence appropriate judicial proceedings; provided, however, that the
Agent shall keep the Owner informed of such actions and shall follow such
instructions as the Owner has prescribed. Subject to the owner's approval,
costs incurred in connection with such actions shall be considered as
operating expenses.
(v) Tenant applications will be reviewed by the Director who will
make the decisions on acceptance, rejection, and relocation to another
facility based upon tenant's physical and emotional condition. Agent will
carry out their directions and judgements.
701.2 Qualification of Tenants. The Agent shall require prospective
private pay tenants to complete a confidential financial statement. As a
condition of tenancy, the Agent shall make use of this and other available
information to determine that the prospective
<PAGE>
tenant has sufficient income and assets to pay the monthly fees associated
with tenancy.
701.21 Services to Tenants. The Agent shall be responsible for the
effective and efficient provision of tenant services, including the
maintenance of safe and clean common areas and grounds; weekly housekeeping
and laundry service; periodic window washing, carpet and drapery cleaning;
provision of three meals per day, seven days per week; maintenance of
twenty-four hour per day security and emergency call system; scheduled
transportation; centrally located mail distribution; and other contracted
services and specified in the Tenant's negotiated service plan.
The Agent shall insure that systems to delivery all tenant services are in
place, staff hired and trained prior to Project opening.
Recognizing the contribution that quality makes to the successful long term
marketing of the Project, the Agent shall provide services of consistently
high quality, acceptable to the Tenants and the Owner.
SECTION 801 OTHER ACTS:
The Agent shall perform such other acts and deeds requested by the Owner as
are reasonable, necessary and proper in the discharge of the Agent's duties
under this Agreement.
SECTION 901 LIABILITY OF AGENT
Everything done by the Agent under the provision of this agreement shall be
done as agent of the Owner, and all obligations or expenses incurred
thereunder shall be for the account of and on behalf of the Owner. The Agent
shall not be obliged to make any advance to, or the account of, the Owner or
to pay any sum, except out of the funds held or provided as aforesaid, nor
shall the Agent be obliged to incur any lability of obligation for the
account of the Owner without assurance that the necessary funds for to
discharge thereof will be provided.
SECTION 1001.1 BANK ACCOUNTS;
1001.1 Operating Receipt and Expenses Account. The Agent shall establish
and maintain, in an account, and which is approved by ;the owner, a separate
account as Agent of the Owner for the deposit of the monies of the Owner,
with authority to draw thereon for any payments to be made by the Agent to
discharge any liabilities or obligations Of the owner incurred in accordance
with this Agreement. This account shall be carried in the name of and
designated of record as "
L. L. C. Operating Receipts and Expense Account". The Agent shall also
establish such other special accounts as may be required by the Owner or
<PAGE>
the lender. Any and all interest which may accrue on deposits contained in
any accounts established in accordance with this paragraph shall be used by
the Agent to discharge any liabilities or obligations of the Owner in the
same manner as the Agent uses other monies of the Owner.
1001.2 Community Fee and Security Deposit Account. The Agent shall
collect, deposit and disburse Tenants' community fee and security deposits
in accordance with the terms of the respective Leases. Tenants' community
fee and security deposit shall be deposited by the agent in an
interest-bearing account, with a bank or other financial institution whose
deposits are insured by the FDIC. This account shall be carried in the name
and be designated of record as"
Security Deposit Account."
SECTION 1101 STAFF FACILITIES AT PROJECT SITE:
The owner shall furnish the director and support staff with suitable office
space and office furniture on the site of the project and with electricity,
heat, water and janitorial service therein. For all operational staff the
Owner shall provide office accommodations as necessary to perform their
assigned functions, as well safe storage foe appropriate personal belongings
and staff dining space furnished with fables and chairs which allow staff
to eat or take breaks in reasonable comfort.
SECTION 1201 COMPENSATION OF AGENT:
The compensation which the agent shall be entitled to receive for all Project
management services ;performed under this agreement shall be $1,500 per month
or 7% of the gross collections of the Project which ever is greater. This
fee shall be computed and paid monthly based upon Gross collections for the
preceding month. Expenses not agreed to be charged to the project and all
o9f the Agent's overhead expenses will be borne by the Agent out of its own
funds and will not be treated as an operating expense of the Project.
The Agent shall receiver compensation for preliminary management and
marketing services at $1,500 per Month prior to the opening date or as
specified in the plan.
SECTION 1301 NONDISCRIMINATION:
In the performance of its obligations under this agreement, the Agent will
comply with the provisions of any federal, state, or local law prohibiting
discrimination in housing of the grounds of race, color, sex, religion, or
national origin as stated in POLICIES & PROCEDURES. This Agreement may be
terminated or suspended, in whole or in part, by the Owner upon the basis of
a finding by the Owner that the Agent has not complied with
nondiscrimination provisions.
<PAGE>
SECTION 1401 EXPIRATION AND TERMINATION
1401.1 Expiration. Unless sooner terminated pursuant to Section 1401.2,
1401.3, 1401.4, 1401.5 or 1401.6 of this Agreement, the Agreement shall be in
effect from the date of execution hereof until January 1, 2010. This
Agreement shall be renewable with the mutual consent of the Owner and the
Agent.
1401.2 Termination by Mutual Consent: This Agreement may be terminated
by the mutual written consent of the Owner and Agent only. Owner and Agent
shall submit their written request sixty (60) days prior to the date
specified foe termination.
1401.3 Termination by Owner for cause. In the event that the Agent shall
fail to perform any of its duties hereunder or comply with any of its
provisions hereof, the Owner shall notify the Agent, shall notify the Agent,
the lender and the insurer of the Owners intent to terminate this Agreement
by delivering to the Agent written notice to remedy such default. If such
default is not remedied within thirty (30) days, from the date of notice to
the Agent, the Owner may, with prior written consent from the lender and the
insurer, terminate this Agreement immediately.
1401.4 Termination Because Of Bankruptcy: In the event that the Owner or
the Agent shall become insolvent, however defined; shall be dissolved; shall
commit an act of bankruptcy under the United States Bankruptcy Act (as now
or hereafter amended); shall file or have filed against if, voluntarily or
involuntarily, a petition in bankruptcy or for reorganization or for the
adoption of an arrangement under the United States Bankruptcy Act ( as now
or hereafter amended); shall make an assignment of the benefit of creators;
shall procure, permit or suffer, voluntarily or involuntarily, the
appointment of a receiver or trustee to take charge of any of the mortgaged
property or any other property owned by the Owner or the Agent, voluntarily
or involuntarily, any act, process or proceeding under any insolvency law or
the statute or law providing for the modification or adjustment of the
rights of creditors, either party hereto may immediately,;terminate this
Agreement without notice to the other party.
1401.5 Accounting Upon Termination. Within ten (1O) days after the
termination of this Agreement, the Owner and Agent shall account to each
other with respect to all matters outstanding as of the date of termination.
The Owner shall furnish the Agent security against any outstanding
obligations or liabilities which the Agent shall turn over to the Owner all
records, documents or other instruments, waiting lists and any and all other
files and papers in its possession pertaining to the Agent's performance
under this Agreement,
SECTION 1501 ASSIGNMENTS:
<PAGE>
This Agreement shall inure to the benefit of any constitute a binding
obligation upon the Owner and the Agent, and their respective successors and
assigns, provided that the Agent cannot assign this Agreement or any of its
duties hereunder without the prior written consent of the Owner and the
lender.
SECTION 1601 AMENDMENT:
This Agreement constitutes the entire agreement between the owner and the
Agent, and no amendment or modification thereto shall be valid and
enforceable except by supplemental agreement is executed in writing and
approved by the Owner, the Agent, the lender and insurer.
SECTION 1701 EXECUTION OF COUNTERPARTS:
For the convenience of the parties, this agreement has been executed in
counterpart copies, which are in all respects similar and each of which
shall be deemed to be complete in itself so that any one may be introduced
in evidence or used for any other purpose without the production of the
other counterparts
SECTION 1801 MISCELLANEOUS:
Wherever used in this Agreement, the singular number shall include the
plural, and the plural shall include the singular; and the use of any
gender shall apply to all genders. The captions and the headings of the
sections of this Agreement are for convenience only and are not to be used
to interpret or define the provisions hereof.
SECTION 1901 WAIVER
No waiver of a breach of any of the agreements or provisions contained in
this Agreement shall be construed to be a waiver of any subsequent breach of
the same or of any other provisions of this Agreement.
SECTION 2001 SEVERABILITY:
If any clauses, sentence, section, paragraph, provision or part of this
Agreement is judged to be invalid or unenforceable, such adjudication shall
not affect or invalidate the remainder of this Agreement, it being
understood and agreed that such invalid or enforceable clause, sentence,
paragraph, provision or part is and shall be severable from the remainder
of ;this Agreement.
2101 NOTICE:
Whenever any notice is required to be given herein, Notice shall be deemed
to have been given when sent by certified mail to this Agreement at the
following addresses:
<PAGE>
OWNER:507 Trenton St., West Monroe, LA 71291
AGENT:507 Trenton St., West Monroe, LA 71291
IN WITNESS WHEREOF, the parties hereto have executed this Agreement the day
and year first above written.
AGENT: OWNER:
THE FORSYTHE GROUP, INC. SENIOR RETIREMENT COMMUNITIES, INC.
BY: /S/DIANA M CALDWELL BY /S/JOANNE CALDWELL
---------------------- -----------------------------
ITS: SECRETARY ITS: PRESIDENT
_____________________ _____________________________
<PAGE>
WILLLAM R. HULSEY
CERTIFIED PUBLIC ACCOUNTANT
2117 FORSYTHE AVENUE
MONROE, LOUISIANA
MEMBER MAILING ADRESS
AMERICAN INSTITUTE OF P.0. BOX 2253
CERTIFIED PUBLIC ACCOUNTANTS MONROE, LOUISIANA 71207
SOCIETY OF LOUISIANA (318)362-9900
CERTIFIED PUBLIC ACCOUNTANTS FAX (318)362-9993
January 7, 1998
MMR Investment Bankers, Inc.
550 N. 159th East, Suite 300
P.O. Box 781440
Wichita, Kansas 67278-1440
Dear Sir:
I, William R. Hulsey serve as the accountant for Senior Retirement
Communities, Inc. and do hereby give permission to use my name and/or
values concerning the audited financial statements dated November 30, 1997
in the offering circular for the Bond Issue(s) of Senior Retirement
Communities, Inc.
Respectively Submitted,
/S/WILLIAM R HULSEY
William R. Hulsey
Certified Public Accountant
<PAGE>
BOBBY L CULPEPPER
& ASSOCIATES
A PROFESSIONAL LAW CORPORATION
525 EAST COURT AVENUE
JONESBORO, LOUISIANA 71251-3497
318/259-4184
FAX #318/259-6278
BOBBY L CULPEPPER 210 WEST ALABAMA
TERESA CULPEPPER CARROLL RUSTON, LA 71270
J. CLAY CARROLL 318-251-0701
223 SOUTH GRAND
PLEASE REFER ALL CORRESPONDENCE MONROE, LA 71201
TO THE JONESBORO OFFICE 318-325-3884
File# 97-18,379 November 21, 1997
MMR Investment Bankers
550 North 159th Street East
P.O. Box 781440
Wichita, Kansas 67278-1440
Gentlemen:
Bobby L. Culpepper & Associates, a PLC, serves as the attorney for Senior
Retirement Communities, Inc., and does hereby give permission to use its
opinion letter hereby furnished to you concerning our client's incurrence of
debt in the principal amount of $9,000,000.00 and the issuance of first
mortgage bonds in connection with development of its Highway 80 property in
Ruston, Louisiana, in Prospectus for Bond Issue of Senior Retirement
Communities, Inc.
With kindest personal regards, I remain
Yours very truly,
J. CLAY CARROLL
JCC:bb
cc:Senior Retirement Communities, Inc.
ROBERT M. MCSHERRY, MAI Administrative Services
3760 Chelsea Drive
Baton Rouge, Louisiana 70809
Phone (504)924-8093
November 11, 1997
Mr. Bill Martin, III
MMR Investment Bankers
P.O. Box 781440
Wichita, Kansas 67278-1440
RE: The Arbor House of Ruston
Dear Mr. Martin:
This letter is to acknowledge permission for Senior Retirement Communities,
Inc. and MMR Investment Bankers to copy or reproduce the Summary Appraisal
Report of the proposed 48 unit assisted care and 12 unit independent living
facility and to be constructed on U.S. Highway 80 and located outside the
corporate limits of Ruston, Lincoln Parish, Louisiana, dated October 15,
1997, for use with investors and in the Registration Statement on form
SB-2 pursuant to Regulation SB.
Please note that this appraisal contains a number of conditions upon which
the value is based and these conditions must be made a part of any
correspondence affecting the subject property.
Respectfully
/S/ROBERT M MCSHERRY
Robert M. McSherry, MAI
RMM:je
ROBERT M. MCSHERRY, MAI Administrative Services
3760 Chelsea Drive
Baton Rouge, Louisiana 70809
Phone (504)924-8093
November 11, 1997
Mr. Bill Martin, III
MMR Investment Bankers
P.O. Box 781440
Wichita, Kansas 67278-1440
RE: The Arbor House of Bossier City
Dear Mr. Martin:
This letter is to acknowledge permission for Senior Retirement Communities,
Inc. and MMR Investment Bankers to copy or reproduce the Summary Appraisal
Report of the proposed 18 unit assisted care and 18 unit independent living
facility, and 24 memory disorder units and to be constructed on Brandon
Boulevard and located within the corporate limits of Bossier City, Bossier
Parish, Louisiana, dated October 15, 1997, for use with investors and in the
Registration Statement on form SB-2 pursuant to Regulation SB.
Please note that this appraisal contains a number of conditions upon which
the value is based and these conditions must be made a part of any
correspondence affecting the subject property.
Respectfully,
/S/ROBERT M MCSHERRY
Robert M. McSherry, MAI
RMM:je
ROBERT M. MCSHERRY, MAI Administrative Services
3760 Chelsea Drive
Baton Rouge, Louisiana 70809
Phone (504)924-8093
November 11, 1997
Mr. Bill Martin, III
MMR Investment Bankers
P.O. Box 781440
Wichita, Kansas 67278-1440
RE: The Arbor House of Shreveport
Dear Mr. Martin:
This letter is to acknowledge permission for Senior Retirement Communities,
Inc. and MMR Investment Bankers to copy or reproduce the Summary Appraisal
Report of the proposed 24 unit memory disorder facility and to be constructed
on Fern Avenue and located within the corporate limits of Shreveport, Caddo
Parish, Louisiana, dated October 15, 1997, for use with investors and in the
Registration Statement on form SB-2 pursuant to Regulation SB.
Please note that this appraisal contains a number of conditions upon which
the value is based and these conditions must be made a part of any
correspondence affecting the subject property.
Respectfully,
/S/ROBERT M MCSHERRY
Robert M. McSherry, MAI
RMM:je
A Full, Narrative
Appraisal Report of
A Proposed 48 Unit Assisted Care and A 12 Unit Independent Living Facility
for a Total of 60 Units and Located on U.S. Highway 80
Just Outside the Corporate Limits of
Ruston, Lincoln Parish, Louisiana
For
Senior Retirement Communities, Inc.
507 Trenton Street
West Monroe, Louisiana
As Of
August 15,1997
Prepared by
Robert M. McSherry, MAI
Louisiana Certified General Appraiser No. 0891
3760 Chelsea Drive
Baton Rouge, Louisiana 70809
<PAGE>
ROBERT M. MC SHERRY, MAI
3760 Chelsea Drive
Baton Rouge, Louisiana 70809
Phone (504)924-8093
August 28, 1997
Senior Retirement Communities, Inc.
507 Trenton Street
West Monroe, Louisiana
RE: A proposed 48 unit Assisted Care and a 12 unit Independent Living
Facility for a total of 60 units and located on U.S. Highway 80, just
outside the corporate limits of Ruston, Lincoln Parish, Louisiana.
Dear Sir:
In accordance with your request to provide an estimate of the Estimated Market
Value of Fee Simple Interest of the Going Concern of the property identified
as a proposed 60 unit facility containing 12 Independent Living units and 48
Assisted Care units and located just outside the corporate limits of Ruston,
Lincoln Parish, Louisiana, we have personally inspected the subject site and
reviewed the submitted plans and specifications for the proposed improvements
and conducted a thorough review and analysis of all matters pertinent for the
Estimate of Market Value herein contained.
Market Value as defined by the Department of the Treasury, Office of the
Comptroller of the Currency, August 24, 1990, 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, 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:
a. buyer and seller are typically motivated;
b. both parties are well informed or well advised, and each acting in what
he considers his own best interest;
c. a reasonable time is allowed for exposure in the open market;
d. payment is made in terms of cash in U.S. dollars or in terms of financial
arrangements comparable thereto; and
Robert M. McSherry, MAI
<PAGE>
Page Two
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.
Fee Simple Interest is defined by the Appraisal Institute as being, "a fee
without limitations to any particular class of heirs or restrictions but
subject to the limitations of eminent domain, escheat, police power and
taxation. An inheritable estate".
Going Concern Value is "the value created by a proven property operation."
It includes the incremental value associated with the business concern, which
is distinct from the value of the real estate only. Going concern value
includes an intangible enhancement of the value of an operating business
enterprise which is produced by the assemblage of the land, building, labor,
equipment, and marketing operation. This process creates an economically
viable business that is expected to continue. Going concern value refers
to the total value of a property, including both real property and intangible
personal property attributed to business value. Special purpose properties
such as the subject are appropriate for only one use or for a very limited
number of uses. The highest and best use of a special purpose property as
improved, is probably the continuation of its current use, if that use
remains viable. Therefore, in the case of special purpose properties a
going concern value is considered appropriate.
In this instance the subject property has an excellent location within a
viable market. As long as quality management is maintained, it's Market
Value would be the same as it's Going Concern Value.
Included is our appraisal report which contains the various exhibits and
data utilized in arriving at the herein contained estimate of Market Value
for the subject property.
It is our opinion that the property herein identified as the proposed 60 unit
Independent and Assisted Care facility identified as The Arbor of Ruston, L.L.C.
and located on U.S. Highway 80 just outside the corporate limits of Ruston,
Lincoln Parish, Louisiana, was estimated to have a Market Value, as of
August 15, 1997, of:
FOUR MILLION NINE HUNDRED FIFTY-FIVE THOUSAND DOLLARS
($4,955,000.00)
Robert M. McSherry, MAI
<PAGE>
Page Three
LAND: $ 450,000.00
IMPROVEMENTS: $3,837,000.00
FURNITURE, FIXTURES & EQUIPMENT: $ 118,000.00
GOODWILL: $ 550,000.00
The subject property is proposed at the present time and this appraiser has
been provided with only preliminary plans and specifications for the property.
The herein contained Estimate of Market Value is conditioned upon receipt of
a complete set of working drawings for the improvements and for the completion
of the improvements in accordance with the plans and specifications utilizing
quality materials and workmanship within a reasonable period of time. A
final inspection by this appraiser will be required to ascertain the assumptions
utilized in preparing this appraisal report have been fulfilled.
If we may be of further service to you in regard to this property or in any
other manner, please do not hesitate to contact us at your earliest convenience.
Respectfully Submitted,
/S/Robert M. McSherry
Robert M. McSherry, MAI
Louisiana Certified General Appraiser No. 0891
Robert M. McSherry, MAI
<PAGE>
EXECUTIVE SUMMARY
Location: North side of U.S. Highway 80 approximately 1/4 mile
east of the corporate limits of Ruston, Lincoln Parish,
Louisiana
Interest Appraised: Fee Simple Interest
Site: 6 Acres or 261,360 Square Feet
Building Description: The property will include twelve (12) independent living
units located in separate buildings and including six
(6) one bedroom/one bath units and six (6) two bedroom/
one bath units containing 816 square feet and 840
square feet respectively. The property will also
include forty-eight (48) assisted care units
containing 483 square feet each with the common area
amenities including a full service kitchen, a dining
area, activity area, office and reception
area, adequate bathrooms which will be fully equipped to
satisfy the needs of the residents of the assisted
care facility, storage areas and other required
additions to render the subject property functional
congregate care facility catering to both those desiring
independent living arrangements and those requiring
assisted care.
Construction characteristics include a reinforced
poured concrete foundation, wood framing, with a
combination of brick veneer and vinyl siding exterior
walls with the roof being of composition shingles.
Although the property is proposed at the present time,
this appraiser is aware of a similar property which
has been constructed by the owners of the subject and
our physical inspection of this existing complex has
been utilized in conjunction with the submitted plans
and specifications.
Robert M. McSherry, MAI
<PAGE>
The property is considered to be a most functional
facility and the independent living units located
away from the assisted care units is considered a
most attractive amenity to the property and should
be well accepted by the local market.
Highest and Best Use: Congregate care facility including both independent
living and assisted care units
Cost Approach to Value $4,405,000.00
Market Approach to Value N/A
Income Approach to Value:
Stabilized Net Income: $4,955,000.00
Discounted Cash Flow Value: $4,590,000.00
Final Value Estimate: $4,955,000.00
Allocated:
Land $ 450,000.00
Improvements $3,837,000.00
Furniture, Fixtures
and Equipment $ 118,000.00
Goodwill $ 550,000.00
Robert M. McSherry, MAI
<PAGE>
PURPOSE OF THE APPRAISAL
The purpose of this report is to communicate, in a narrative format, the data
and reasoning that the appraisers have utilized to form the herein contained
estimate of Market Value of the Fee Simple Interest of the Going Concern for
the property identified as a proposed 68 unit congregate care facility
including 20 independent care units and 48 assisted care units and located on
U.S. Highway 80, Ruston, Lincoln Parish, Louisiana.
OBJECTIVE OF THE APPRAISAL
The objective of this appraisal report is to provide an estimate of the Market
Value of the Fee Simple Interest of the Going Concern of the property for use
by The Arbor Group of Ruston, L.L.C. as well as selective lenders in order to
obtain long term financing of the subject property and for the internal use of
The Arbor Group of Ruston, L.L.C.
The Subject property was personally inspected by this appraiser both before
and after the date of this appraisal and the submitted plans and specifications
reviewed. As the property is proposed construction, a final inspection of the
property will be required by the appraiser to ascertain the assumptions
utilized within this appraisal report have been fulfilled and this appraisal
is also conditioned upon being completed in accordance with the plans and
specifications utilizing quality materials and workmanship throughout. Other
additional conditions are contained in an additional section of this report.
Robert M. McSherry, MAI
<PAGE>
IDENTIFICATION OF THE PROPERTY
The property being inspected and analyzed and for which the Market Value
Estimate of the Fee Simple Interest of the Going Concern is applicable is a
6 acre tract of land which will basically T-shaped having 100 feet of
frontage along the north side of U.S. Highway 80 and extending back 200 feet
with the site then extending both in an easterly and westerly direction with
the rear portion of the property to encompass 241,360 square feet or 5.54 acres.
The property being appraised is a portion of a larger 23 acre tract of land
to be purchased from Frederick Hebert. The property is located in Section 20,
Township 18 North, Range 2 West, Lincoln Parish, Louisiana and this appraisal
is conditioned upon a complete metes and bounds survey and description provided
the appraiser to ascertain the assumptions utilized herein have been fulfilled.
Robert M. McSherry, MAI
<PAGE>
DATE OF THE APPRAISAL
The date of this estimate of Market Value of Fee Simple Interest applies is,
as of August 15, 1997.
Robert M. McSherry, MAI
<PAGE>
DEFINITION OF SIGNIFICANT TERMS
Market Value, as defined by the Department of the Treasury, Office of the
Comptroller of the Currency, August 24, 1990, 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, 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 data 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 each acting in what
he considers his own best interest;
c. a reasonable time is allowed for exposure in the open market;
d. payment is made in terms of cash in U.S. 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.
Fee Simple Interest is defined by the Appraisal Institute as being, "a fee
without limitations to any particular class of heirs or restrictions thetas
subject to the limitations of eminent domain, escheat, police power and
taxation. An inheritable estate".
Going Concern Value is "the value created by a proven property operation."
It includes the incremental value associated with the business concern,
which is distinct from the value of the real estate only. Going concern value
includes an
Robert M. McSherry, MAI
<PAGE>
intangible enhancement of the value of an operating business enterprise which
is produced by the assemblage of the land, building, labor, equipment, and
marketing operation. This process creates an economically viable business
that is expected to continue. Going concern value refers to the total value
of a property, including both real property and intangible personal property
attributed to business value. Special purpose properties such as the subject
are appropriate for only one use or for a very limited number of uses. The
highest and best use of a special purpose property as improved, is probably
the continuation of its current use, if that use remains viable. Therefore,
in the case of special purpose properties a going concern value is considered
appropriate.
Robert M. McSherry, MAI
<PAGE>
ASSUMPTIONS AND LIMITING CONDITIONS
This appraisal report has been made with the following assumptions and
limiting conditions:
1. No responsibility is assumed for the legal description or for matters
including legal or title consideration. Title to the property is assumed to
be good and marketable unless otherwise stated.
2. The property is appraised free and clear of any and all liens or
encumbrances unless otherwise stated.
3. Responsible ownership and competent property management are assumed.
4. The information furnished by others is believed to be reliable. No
warranty, however, is given for its accuracy.
5. All engineering is assumed to be correct. The plot plans and
illustrative material in this report are included only to assist the reader
in visualizing the property.
6. It is assumed that there are no hidden or apparent 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.
7. It is assumed 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.
8. It is assumed 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.
9. It is assumed 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.
Robert M. McSherry, MAI
<PAGE>
10. It is assumed 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.
11. 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.
12. The appraisers herein, by reason of this appraisal, are 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.
13. Possession of this report, or a copy thereof, does not carry with it
the right of publication. It may not be used for any purpose by any person
other than the party to whom it is addressed without the written consent of
the appraisers, and in any event only with proper written qualification and
only in its entirety.
14. Neither all nor any part of the contents of this report (especially
any conclusions as to value, the identity of the appraisers, or the firm with
which the appraisers are connected) shall be disseminated to the public
through advertising, public relations, new, sales, or other media without
the prior written consent and approval of the appraisers.
15. The existence of hazardous materials, which may or may not be
present on the subject property, was not observed by the appraisers. The
appraisers have the knowledge of the existence of such materials on or in the
subject property. However, the appraisers are not qualified to detect such
substances and the presence of potential hazardous materials may affect the
value of the property. This value estimate contained within this report is
predicated on the assumption that no such hazardous materials are present on
or in the property. No responsibility is assumed for any such conditions or
for any expertise or any knowledge required to discover these items. This
should be accomplished by an expert in the field and is a condition of this
appraisal report.
16. That the appraiser has personally inspected the subject property and
finds no obvious evidence of structural deficiencies, except as stated in
this report; however, no responsibility for hidden defects or conformity to
specific governmental requirements, such as the Americans with Disabilities
(ADA) or fire, building and safety, earthquake, or occupancy codes, etc., can
be assumed without provision of specific professional or governmental
inspections.
Robert M. McSherry, MAI
<PAGE>
17. This property is proposed at the present time and the appraisal is
conditioned upon the completion of the subject property in accordance with
the submitted plans and specifications utilizing quality materials and
workmanship throughout. A final inspection by the appraiser would be
required in order to ascertain the assumptions utilized in arriving at the
herein contained Estimate of Market Value have been fulfilled.
18. This appraisal is not based on a requested minimum valuation, a
specific valuation or the approval of the loan.
19. The Forsythe Group or it's successor will provide water and sewer
services to the subject property. An additional condition of this report is
the fulfillment of this commitment prior to the completion of the proposed
improvements and in compliance with all appropriate governmental and other
requirements.
20. The subject property will be a portion of a larger tract and no
complete boundary survey or legal description has been provided this
appraiser. As a condition of this appraisal report, a complete boundary
survey and plat will be required by the appraiser to ascertain the
assumptions utilized within this report have been fulfilled.
Robert M. McSherry, MAI
<PAGE>
PROPERTY RIGHTS APPRAISED
This assignment concerns the appraisal of the Fee Simple Interest with Fee
Simple Interest defined in Real Estate Appraisal Terminology as being, "a
fee without limitations to any particular class of heirs or restrictions but
subject to the limitations of eminent domain, escheat, police power and
taxation. An inheritable estate".
STATEMENT OF OWNERSHIP AND RECENT HISTORY
The subject property is currently owned by Frederick Hebert and is under
contract for purchase to the Forsythe Group for $170,000.00 for the total 23
acres contained within the property. The property has no sewer or water
service at the present time and as a condition of this appraisal report, the
Forsythe Group, prior to the transfer of the property to The Arbor Group of
Ruston, L.L.C. will provide sewer and water service in compliance with all
applicable governmental regulations. The portion of the property to be
transferred from the Forsythe Group to The Arbor of Ruston, L.L.C. will
encompass approximately 6 acres, more or less with the exact consideration
for this transaction undetermined as of the date of this appraisal.
The Frederick Hebert family has owned the subject property for an extended
period of time and no transactions have affected the subject property over
the last five years.
Robert M. McSherry, MAI
<PAGE>
It is pertinent to note that the addition of sewer and water service to the
subject will drastically increase it's desirability as well as value and
this has been considered by the appraiser in the final analysis.
DATE OF THE APPRAISAL
The effective date of this appraisal is August 15, 1997. The subject site was
personally inspected by this appraiser both before and after this date and the
submitted plans and specifications for the proposed improvements were also
reviewed by the appraiser prior to the date of the appraisal.
Robert M. McSherry, MAI
<PAGE>
CITY AND AREA DATA
The subject property is located approximately one mile east of the corporate
limits of Ruston, Louisiana, an unincorporated area of Lincoln Parish,
Louisiana. For all practical purposes, the property is considered to be a
portion of the City of Ruston due to it's proximity.
The City of Ruston has grown at a moderate rate since 1980 with the following
population figures provided: 1980 - 37,763; 1990 - 41,745; and 1995 - 43,042.
The total population of Lincoln Parish is also continuing to grow at a similar
rate as follows: 1980 - 250,974; 1990 - 263,715; and 1995 - 257,460.
The educational requirements of Lincoln Parish are fulfilled by nine
elementary schools, three junior high schools, five high schools and two
private schools as well as the Ruston Technical Institute, and Louisiana Tech
University as well as Grambling State University.
Access to the Ruston area is provided by Interstate 20, U.S. Highway 80 and
U.S. Highway 167 as well as State Highways 33, 146, 150, 306, 544 and 818.
Interstate 20 is the major east-west interstate highway through the southern
portion of the United States and is considered the most positive factor in the
Lincoln Parish economy. Railroad service is provided by Mid-South Rail and
the Kansas City Southern Railroad with five motor freight carrier services in
the area. Although Ruston does not have an airport, the Monroe Regional
Airport is located 32 miles east of Ruston and fulfills this requirement.
Robert M. McSherry, MAI
<PAGE>
The financial requirements of the area are fulfilled by six banks and three
credit unions with total deposits of $382,854.00 and $12,459,068.00
respectively.
Utilities for the City of Ruston are provided by the City of Ruston with
Arkansas-Louisiana Gas Company providing natural gas, AT&T and Bell South
providing the phone service.
The major private employers for the area are as follows:
WalMart, Discount Retailer 670 Employees
Ball Incon Glass Packing, Glass Containers 450 Employees
Willametta Industries, Inc., Plywood 400 Employees
T.L. James Construction Company, Highways
Heavy Construction 350 Employees
Overall, the Ruston and Lincoln Parish area is one of stability having
experienced moderate growth over the last 25 years. All of the required
amenities for a progressive community are available and the future of the
Ruston and Lincoln Parish area is considered as most positive. Included in
an additional section of this appraisal report is a separate analysis of the
available market for the units to be contained within the subject property
which has been utilized in order to determine the feasibility thus the
ultimate Market Value of the property being appraised.
Robert M. McSherry, MAI
<PAGE>
NEIGHBORHOOD DATA
Neighborhood Data
A Neighborhood may be defined as a homogeneous grouping of individuals,
buildings, or business enterprises within a larger community. These groupings
are usually devoted to residential use, trade and service activities, or
cultural and civic activities. Residential neighborhoods tends to reflect
characteristics of their inhabitants, expressing the mutual desires of people
with comparable interests, related traditions, and similar social and economic
status.
Neighborhood Boundaries
The neighborhood in which the subject property is located is considered to
be that area lying within the eastern portion of the City of Ruston. This area
is typified by larger, well maintained single family residences along the
various interior streets as well as light commercial development along U.S.
Highway 80 and State Highway 33. Ruston is typical of the majority of smaller
cities located in Northeast Louisiana as it still has a viable downtown area
primarily housing older, long established tenants with urban growth occurring
to the north of the downtown area, The urban growth includes a number of large
developments including a Super WalMart, Super K-Mart, motels, auto dealerships,
banking facilities and neighborhood shopping centers and a combination of a
prosperous downtown and a growing suburban area provides the necessary
amenities for the various residents in the area.
U.S. Highway 80 is the primary access route from the subject site into the
downtown area of Ruston and this distance is less than five miles. Although
the subject site is located just east of the corporate limits of Ruston, it is
Robert M. McSherry, MAI
<PAGE>
conveniently located with respect to shopping, schools, employment facilities,
churches, banking and all required amenities to fulfill the needs of the
prospective tenants of the subject property.
Overall, the area in which the property is to be located is considered one of
stability with all necessary amenities available and a positive future is
foreseen for the area.
Robert M. McSherry, MAI
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SCOPE OF THE APPRAISAL
The appraiser has personally inspected the subject site and conducted an
in-depth inspection of the neighborhood in which the subject property is
located observing it's trends of development and characteristics.
Vacant land sales utilized in conjunction with the Cost Approach to Value and
in determining the estimated Market Value of the subject site, as if vacant,
and owned in Fee Simple have been inspected by this appraiser and a
combination of data provided by the Marshall Valuation Service Cost Manual
and other available in-file data has been utilized in the process of
estimating the replacement cost new of the subject improvements.
The improved property sales utilized in this appraisal report have also been
verified and all are considered reflective of current attitudes towards
existing retail/commercial condominium facilities of varying qualities in
varying locations.
In the final analysis, the appraiser has utilized and relied upon the
experience of judgment based on the opinion of the quality and quantity of the
data in arriving at the final value estimate of the Fee Simple Interest in the
subject property.
Robert M. McSherry, MAI
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Amenities to be contained within the assisted care portion of the building
include a full service kitchen, dining room, activities area, whirlpool area,
staff laundry, TV rooms, offices and other required amenities.
The total gross living area contained within the one bedroom independent
living cottage is 3,264 square feet with the living area contained within the
two bedroom independent living cottages being 5,040 square feet. As noted,
the total square footage under roof of the assisted living building will be
40,273 square feet and featuring 39,010 square feet of heated area.
Parking will be poured concrete and provide adequate parking spaces at the
front of the building for both the tenant and staff requirements.
Landscaping will be extensive and utilized in conjunction with the natural
topography of the area and should be most pleasing.
As noted, the subject property is proposed construction and this appraiser
has been provided only the most preliminary plans and specifications. A
complete set of working drawings will be provided the appraiser as a
condition of this appraisal to ascertain the assumptions utilized within
this report have been fulfilled. A final inspection by the appraiser will
be required.
Robert M. McSherry, MAI
<PAGE>
DESCRIPTION OF THE PROPERTY
Site Data
Size, Shape and Topography
The subject site will be a 6 acre parcel having 100 feet of frontage along the
north side of U.S. Highway 80 and extending back approximately 200 feet at
which point the property extends both in an easterly and westerly direction
to result in a T-shaped type parcel containing 6 acres, more or less. The
shape, as noted, will be T-shaped and the topography of the site is gently
rolling and typical of the topography of the surrounding areas and does not
present any development problems.
Utilities
The subject property is located just outside the corporate limits of Ruston,
Lincoln Parish, Louisiana and will be provided with sewer and water by the
Forsythe Group or it's successors, the owners of the subject property. The
providing of these two services is a condition of this appraisal report and
must be in compliance with all applicable governmental regulations.
Telephone service is provided by Bell South with the natural gas service
provided by Arkansas-Louisiana Gas Company.
The independent contract carriers provide refuge pick-up and all services are
deemed adequate.
Access
Access to the subject property is provided as a result of frontage along the
north side of U.S. Highway 80, a major east-west traffic artery through
Lincoln Parish. U.S. Highway 80 is a dual laned, asphalt roadway in the
proximity of the subject
Robert M. McSherry, MAI
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but widens to a four-lane highway as it enters the corporate limits of Ruston,
Louisiana. U.S. Highway 80 provides a direct connection into the downtown
area of Ruston and to other municipally maintained streets which provide
access to the interstate system.
Overall, access to the subject property is deemed adequate.
Zoning
The subject property is located in the unincorporated area of Lincoln Parish
and no zoning ordinances are in effect. No deed restriction or other
restrictive covenant was noted by the appraiser but this should be
ascertained by competent legal authority and is a condition of this appraisal
report.
No in-depth review of the abstract to the subject site has been conducted by
this appraiser but no deed restrictions or other restrictive covenants are
assumed to exist which affect the operation of the property to its highest and
best use, ie a congregate housing development.
Drainage
Drainage in the area is provided by open ditch drainage along both sides of
U.S. Highway 80 as well as the natural topography of the area and this type
drainage is typical of the area and provides adequate drainage of the site
under normal rainfall conditions.
Conversations with representatives in the Lincoln Parish Department of Public
Works and Engineering Division indicates the subject property to be located
in a HUD designation flood zone "X" as indicated by Flood Map Panel No.
Robert M. McSherry, MAI
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220347-004C having an effective date of January 19, 1996. The property is not
located in a flood zone.
Tax Data
The subject property is proposed construction at the present time and,
accordingly, has no assessment in the Lincoln Parish Tax Assessor's Office.
The applicable Millage rate for the property, once completed, will be 86.46
mills per thousand dollars assessed value with the property to be assessed at
10% of it's Estimated Market Value upon completion.
An estimate of actual property taxes has been utilized by the appraiser in the
Income Approach to Value but this is subject to change once the property is
completed.
Robert M. McSherry, MAI
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LOCATION MAP
Robert M. McSherry, MAI
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[PICTURE OF CITY MAP INDICATING THE SUBJECT PROPERTY]
<PAGE>
DESCRIPTION OF THE IMPROVEMENTS
The proposed facility would be constructed within one main building which will
house the 48 assisted care units with this building encompassing 39,010 square
feet of heated area and 40,273 square feet under roof. The assisted living
units contained within this facility will contain approximately 483 square
feet of living area and feature a bedroom, a living room, kitchenette and
full bath with shower. The independent living cottages will be contained
within separate buildings containing 6 one bedroom/one bath units and 6 two
bedroom/one bath units. The one bedroom units contain 1,332 square feet of
total area with 816 square feet of heated area, 144 square feet of porches and
72 square feet of storage and 240 square feet of carport. The two bedroom
units contain a total of 1,296 square feet of total area, 840 square feet of
heated area, 144 square feet of porch, 72 square feet of storage and a carport
containing 240 square feet.
Construction characteristics for all buildings include reinforced poured
concrete foundation with adequate grade beams and both interior and perimeter
footings with the exterior being wood framing utilizing a combination of brick
veneer vinyl with the roof being a composition shingle roof over wood decking.
Windows will be insulated, horizontal slide aluminum windows with each unit
in the assisted care section having it's own central HVAC unit as well as the
common areas with zoned units with each of the independent living cottages
also having separate HVAC.
Interior construction will include a combination of vinyl and carpet or
ceramic tile flooring, painted or vinyl covered sheetrock walls with
acoustical ceilings. Lighting will be both standard and fluorescent fixtures.
Robert M. McSherry, MAI
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HIGHEST AND BEST USE
Introduction
The Appraisal Institute defined highest and best use as follows, "that legal
use, at the time of the appraisal, which is the most profitable likely use to
which a property can be put."
There are several basic factors which must be considered in order to make a
proper determination of Highest and Best Use:
1. The use must be legal, that is, legally adaptable regarding zoning and
other restrictions;
2. The use must be probable, not conjectural or speculative;
3. The property must be physically adaptable to use contemplated;
4. There must be a demand for such use;
5. The use must be profitable, the highest return to the land over the
longest period of time.
Highest and best use of the land (or site) if vacant and available for use may
be different from the highest and best use of the improved property. This is
true if the improvement is not an appropriate use, but it makes a contribution
to the total property value in excess of the value of the site.
The above five tests have been applied to the subject property's vacant site.
In arriving at the estimate of highest and best use, the subject site has been
carefully analyzed.
Robert M. McSherry, MAI
<PAGE>
HIGHEST AND BEST USE ASSUMING A VACANT SITE
Permissible Use
An investigation has been conducted in order to determine the zoning
classification that encumbers the subject property. The results of this
investigation has revealed that the subject site is currently not zoned. The
present utilization of the property as a congregate care development will be
a legal, conforming use.
Possible Use
Inspection of the subject property's neighborhood has been made to determine
any physical limitations that might be present. The result of this inspection
has revealed the neighborhood is developed with mix of property types. The
lack of zoning applicable to the subject site allows for a variety of uses
which enables the site to be utilized for the proposed utilization as a
congregate care development.
Robert M. McSherry, MAI
<PAGE>
THE APPRAISAL PROCESS
The real estate appraisal profession typically utilizes three basic approaches
in the process of estimating the value of a parcel of real property. These
approaches include the Cost Approach, the Income Approach and the Market Data
Approach. The Cost Approach utilizes an estimate of reproduction or
replacement costs new of the building and other on-site improvements to be
contained within the subject property less accrued depreciation from all
sources including physical curable and incurable deterioration, functional
obsolescence and economic obsolescence to arrive at an estimate of depreciated
reproduction or replacement costs for the improvements. The estimated value
of the site, as if vacant, and determined by the comparison of the subject
site with other similar parcels in either the immediate proximity of the
subject or in other comparable areas is added to the depreciated reproduction
or replacement cost estimate of the improvements to provide an indication of
value of the property being appraised from the Cost Approach.
The Cost Approach is generally accorded the greatest credence in instances
where the property being appraised is either a proposed property or a new
property having little or no accrued depreciation or instances where the
property being appraised represents a special purpose type property. In these
instances, the Cost Approach is an accurate indication of value for the
property and is accorded considerable credence in the reconciliation process.
The Income Approach to Value utilizes an estimate of gross annual income to
be generated by the property being appraised as determined to be
representative of economic rentals for this type property within the area
less an allowance
Robert M. McSherry. MAI
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considered typical for vacancy and collection losses to arrive at an estimate
of effective gross annual income which is to be generated by the property.
Expenses typically associated with the operation of this type property in
accordance with prevailing lease terms and conditions in the area as well as
data provided by analysis of the operating history of other similar type
properties are projected and deducted from the effective gross annual income
to arrive at an estimate of net operating income before recapture attributable
to the subject. This net operating income is then capitalized by the most
appropriate method available with respect to the subject property in
particular and the appraisal problem in general into an indication of value
for the property being appraised from the Income Approach. Another method of
utilizing the Income Approach is the Gross Income Multiplier technique. This
technique identifies the relationship between the sales price (value) of a
property and its gross annual income earning potential. The Gross Income
Multiplier is derived by dividing the sales price of a property by its gross
potential income and, thus, is an excellent indicator of buyer, seller and
investor attitudes toward the property being analyzed. An effective gross
income multiplier is also excellent as it utilizes the actual gross income
after vacancy to derive the multiplier. use depends upon available data.
The Market Data or Direct Sales Comparison Approach utilize sales of
comparable improved properties in either the immediate proximity of the
subject or in other comparable areas to derive a unit of comparison. Each of
the various comparable sales are carefully reviewed and analyzed by the
appraiser, adjusted for any dissimilarities between the subject property and
the comparable sale in such areas as date of sale, location, design,
condition, and other physical characteristics to result in an adjusted unit
of comparison to be utilized in the
Robert M. McSherry, MAI
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Market Data or Direct Sales Comparison Approach, to provide an indication of
value for the property being appraised.
The reconciliation is the method whereby all data provided by the various
approaches utilized in the appraisal report are carefully analyzed and
accorded weight in varying degrees. The approach which is considered to be
the most representative of current buyer, seller and investor attitudes
towards the subject property is accorded the greatest credence in the final
analysis but all the approaches are interrelated and all data gathered and
utilized in the various approaches must be carefully analyzed in the
reconciliation process and to ignore any available data would be improper.
Robert M. McSherry, MAI
<PAGE>
COST APPROACH TO VALUE
The Cost Approach to Value, like the Sales Comparison and Income Approaches,
is based on comparison. in the Cost Approach, the cost to construct a building
and the value of any existing building are compared. The Cost Approach to
Value reflects market thinking in the recognition that market participants
relate value to cost. Buyers tend to judge the value of an existing structure
by comparing it to the value of a newly constructed building with optimal
functional utility. Moreover, buyers adjust the prices they are willing to
buy by estimating the cost to bring an existing structure to desired levels
of functional utility.
Thus, by applying the Cost Approach, an appraiser attempts to estimate the
difference in worth to a buyer between the property being appraised and a
newly constructed building with optimal utility. An appraiser makes a sound
value estimate by estimating the cost to construct a reproduction of or a
replacement of the existing structure and then deducts all evidence of accrued
depreciation in the property being appraised from the cost of the reproduction
or replacement structure and the resulting figure, plus the value of the land,
plus any entrepreneurial profit provides a value indication through the
application of the Cost Approach.
The decision to utilize reproduction or replacement costs is most pertinent
and the selection plays and important part in contributing to the validity of
the Cost Approach. Replacement cost is defined in Real Estate Appraisal
Terminology as being, "the cost of construction at current prices of a
building having utility equivalent to the building being appraised but built
with modern materials and
Robert M. McSherry, MAI
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according to the current standards, design and layout. The use of the
replacement cost concept presumably eliminates all functional obsolescence and
the only depreciation to be measured is physical deterioration and economic
obsolescence." The appraisers will utilize the replacement cost method supported
by Marshall Valuation Service in conjunction with the construction cost
estimate provided by knowledgeable contractors/engineers or architects.
DEPRECIATION
All types of accrued depreciation affecting the subject improvements were
considered. Accrued depreciation is defined as, "the difference between
reproduction cost new as of the date of the appraisal and the present
contributory value of the improvements." Accrued depreciation is divided into
three basic categories: physical deterioration (which includes curable and
incurable), functional obsolescence (including curable and incurable), and
economic obsolescence (which is always incurable). The following is a
discussion of each type of depreciation and the observed depreciation
applicable to the subject property.
Physical Deterioration, Curable
This type of depreciation is defined as, "the loss in value from cost new
which can be recovered or offset through correction, repair, or replacement
of the defective items causing the loss, providing the resultant value
approximates the cost of the work." The property is proposed thus no deferred
maintenance is present.
Robert M. McSherry, MAI
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Physical Deterioration, Incurable
This type of depreciation is defined as, "the loss from cost new which is
impossible to offset or which would involve an expenditure substantially in
excess of the value increase resulting therefrom." The property is proposed
and has an effective are of 0 years and a total economic life of 30 years.
Functional Obsolescence
Functional obsolescence is defined as, "the loss from cost new as of the date
of the appraisal which is caused by a superadequacy, inadequacy, unattractive
style, poor or inefficient layout or design." Items causing functional
obsolescence can be either curable or incurable; it is curable only when it is
profitable to cure the item. Incurable, functional obsolescence involves
items of initiate which would not be economical to correct because the value
would not increase so much as the cost of correction. Based on my inspection
of the subject improvements, it is my opinion that they are totally adequate
and comparable to similar properties in the same general price range,
therefore, no loss of value from functional obsolescence exists.
Economic Obsolescence
This type of depreciation is defined as, "the loss from cost new as of the
date of the appraisal due to causes external to the property boundaries." To
measure this type of obsolescence the appraiser capitalizes the rent lost due
to the external factor for the prorata share applicable to the building. As
indicated in the site date, there are no undesirable external influences and,
thus, there is no loss to the subject improvements due to economic
obsolescence.
Robert M. McSherry, MAI
<PAGE>
Entrepreneurial Profit
For the Cost Approach to provide a sound indication of value, a market
derived entrepreneurial profit must be added to the direct and indirect costs.
The profit figure is typically expressed as a percentage of total direct and
indirect costs. Entrepreneurial profit is a necessary element in the
motivation to construct the improvements. However, part or all of the profit
may be lost as functional or external obsolescence if the market indicates
that the improvements have a Market Value less than the current reproduction
or replacement cost less physical deterioration.
The results of the investigation and analysis of this market data will appear
as follows:
Robert M. McSherry, MAI
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VACANT LAND SALE l
Location: Farmerville Street at Ruston Airport,
Ruston, Louisiana
Date of Sale: December 13, 1994
Recordation: CB 903, Page 155, Lincoln Parish,
Louisiana
Grantor: City of Ruston
Grantee: Ruston Housing Partnership
Brief Legal Description: Parcel located in the Southwest 1/4 of
the Southwest 1/4 of the Northeast 1/4
of Section 25, Tl8N-R3W, Lincoln
Parish, Louisiana.
Size: 6.3 Acres
Consideration: $135,000.00 - Before Adjustments
Indicated Price/Acre: $21,51O/Acre
Comments: This site was sold by the City of Ruston
for below Market Value to encourage
development. Additionally, an
expenditure of approximately
$200,000.00 was required to demolish
older, existing hangers prior to
development.
Adjusted Price/Acre: $53,253/Acre
Robert M. McSherry, MAI
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VACANT LAND SALE 2
Location: North frontage road of 1-20 at
Farmerville interchange, Ruston,
Louisiana
Date of Sale: June 30, 1995
Recordation: CB 9226, Page 200, Lincoln Parish,
Louisiana
Grantor: Rodney Diggers
Grantee: Karim Dhanani, et al
Brief Legal Description: Parcel located in the Southwest 1/4 of
the Southeast 1/4 of Section 18,
T18N-R2W, Lincoln Parish, Louisiana.
Size: 1.3 Acres, more or less
Consideration: $70,000.00
Indicated Price/Acre: $53,846/Acre
Comments:
Robert M. McSherry, MAI
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VACANT LAND SALES MAP
Robert M. McSherry, MAI
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ANALYSIS AND COMMENTS
The elements of comparison to be considered are financing terms, conditions of
sale, marketing conditions (time), location, physical characteristics, and
zoning.
Financing Terms: The financing arrangements for each of the comparable sales
have been considered and all sales were cash or terms equivalent to cash.
Conditions of Sale: Marketing conditions of the sales have been considered
with all sales considered arms-length transactions requiring no adjustment.
Marketing Conditions (Time): Changed marketing conditions often result from
various causes such as inflation, deflation, changing demand, and changing
supply or changed economies. Paired sales analysis can often be used to
extract this adjustment for market comparable sales. The appraiser has
attempted this technique but differing physical and locational characteristics
between the comparable sales contained within this report has made this type
analysis most difficult. However, this appraiser is aware of the appreciation
due to the improved economy with respect to well located properties,
accordingly, an adjustment for changing market is considered necessary.
Location: A property's location is analyzed in terms of it's relative
time/distance relationship between the sale and all likely destinations and
origins. Usually, the majority of properties within a neighborhood have a
similar locational characteristic. All sales utilized in this analysis are
considered to be within the same influence and exposed to the same economic
and marketing conditions.
Robert M. McSherry, MAI
<PAGE>
Physical Characteristics: Many physical characteristics can exist between
comparable properties and the subject. For vacant land, characteristics such
as size, shape, topography, access, frontage and visibility are usually
considered. The comparable sales required adjustment in an upward fashion.
Final Analysis
Based on the data contained within this appraisal report, other in-file data,
and this appraiser's review and analysis of said data, it is the opinion of
this appraiser that the subject property is estimated to have a Market Value
of $75,000.00 per acre.
Therefore, the estimated Market Value of the subject property, as if vacant,
is thus:
6 Acres @ $75,000.00/Acre = $450,000.00
INDICATED VALUE OF SITE,
AS IF VACANT $450,000.00
Robert M. McSherry, MAI
<PAGE>
DISCUSSION OF COST APPROACH
In the construction of any project, the total cost of development can be
divided into basic categories: direct or hard cost, and indirect or soft
costs. As defined in Real Estate Appraisal Terminology, the definition of
Direct Costs is, "the cost of direct labor and materials devoted specifically
to a unit of work. In construction, these costs are directly related to site
acquisition and construction of the improvements..." Defined in this same text,
Indirect Cost is, "that cost in the development of a property which would not
be included in a general contract for construction or for land acquisition..."
Direct costs include the cost of items such as land acquisition, construction
of the buildings, equipment and fixtures, the builder's profit and overhead,
any temporary buildings for on-the-job usage, power line installation, and the
electrical power used in the construction. As indicated in the Cost Approach
Schedule which follows, direct or hard costs have been broken down into
categories of building area, elevators and other primary building costs.
Indirect, or soft costs, generally include fees, financing costs, and
overhead. As the Cost Approach Schedule indicates, the indirect costs fall
into 8 categories. The permits and fees sections include the estimated costs
of a building permit, an appraisal, a survey and accounting and inspection
charges. Architectural engineering estimates have been based on typical
market charges. The legal expenses includes work done on both interim and
permanent loan packages. The insurance costs indicated are limited to
construction-period coverage including the builder's risk.
Robert M. McSherry, MAI
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The closing cost estimate includes costs of closing both the interim and
permanent loans. The interest expense is based on typical current market
conditions and covers the period of time required to complete the construction
of the project. The loan commitment fees are also based on current typical
market conditions.
The appraiser's have relied upon the Marshall Valuation Service, a publication
of Marshall & Swift, 1617 Beverly Boulevard, Post Office Box 26307, Los
Angeles, California, in estimating the replacement costs new of the subject
property improvements.
The Cost Approach to Value, as it applies to the property being appraised, is
as follows:
Robert M. McSherry, MAI
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COST APPROACH TO VALUE
Direct Costs:
Independent Living Cottages
One Bedroom Units
4,896 sq. ft. @ $65.00/sq. ft. $ 318,240.00
Two Bedroom Units
5,040 sq. ft. @ $65.00/sq. ft. $ 327,600.00
Assisted Living Units
39,010 sq. ft. @ $47.00/sq. ft. $1,833,470.00
--------------
Total Direct Costs: Improvements (New) $2,479,310.00
Indirect Costs:
Plans, Specifications, Inspection $195,000.00
Contractor's Overhead/Profit Included in Direct Costs
Interim Interest $196,500.00
Legal, Audit, Appraisal $ 55,890.00
Financing Fees - Construction $225,000.00
Misc. Expenses $ 40,000.00
Financing Fees - Long Term $425,000.00
Total Indirect Costs $1,137,390.00
Total Replacement Costs New: Improvements $3,616,700.00
Less: Accrued Depreciation
Physical Curable -0-
Physical Incurable -0-
Functional Obsolescence -0-
Economic Obsolescence -0-
Total Accrued Depreciation -0-
Depreciated Replacement Costs $3,616,700.00
Add: Land Value $ 450,000.00
Add: Entrepreneurial Profits (5%) $ 160,000.00
Add: Furniture, Fixtures and Equipment $ 118,000.00
Add: Parking, Walks, Landscaping, Porches $ 60,000.00
Robert M. McSherry, MAI
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Total All Costs and Value Components $4,404,700.00
INDICATED VALUE OF SUBJECT FROM
COST APPROACH (R/T) $4,405,000.00
Robert M. McSherry, MAI
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MARKET DATA APPROACH TO VALUE
Market data is discussed in all the approaches to value. Data analysis is
needed in the Cost Approach to develop a land value indication and to support
costs and depreciation indicators, in the Income Approach to establish rent
levels, vacancy indications, expenses, and capitalization rates; and in the
Direct Sales Comparison Approach to establish comparability.
This appraiser has conducted a thorough and in-depth review in order to
identify sales of similar improved properties through out the state,
Unfortunately, no improved property sales which are considered true arms
length transactions and comparable to the subject have been found and,
accordingly, the Market Data Approach has not been completed for this
particular property.
Robert M. McSherry, MAI
<PAGE>
INCOME APPROACH TO VALUE
Introduction
The Income Approach reflects the subject's income-producing capabilities and
requires an analysis of the project's probable market rent. In the
comparative analysis, we have considered factors that would probably influence
market acceptance of properties in the area. The factors include proximity to
major traffic arteries; location; design; amenities; and the quality of
management.
To develop a supportable estimate of value using the Income Capitalization
Approach, realistic projections of income and expenses must be made.
congregate care facilities are unique forms of real estate with many unusual
characteristics, such as an intensive use of labor, costs of goods sold,
expenses categories, and product identity. Therefore, special care in data
gathering and analysis are required to create an estimate of the future income
for the subject. The appraiser will utilize data provided by the publication,
Trends in the Health Care Industry for supporting data.
The subject property is proposed at the present time and, therefore, has no
historical income and expense data associated with the property.
The subject will contain 6 one bedroom/one bath units and 6 two bedroom/one
bath independent living units within two buildings and 48 assisted care units
within a single building which contains all common area amenities.
Robert M. McSherry, MAI
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Services provided the assisted living units will include all utilities, maid
service once a week, three meals per day, minimum transportation, activities
with additional laundry and maid service available for an additional expense.
This appraiser has had the opportunity to appraise several assisted care
facilities in both Louisiana and Mississippi over the last several years and
have relied on data provided by these facilities, various industry
publications and data provided by various health care consulting groups and
experts in arriving at the estimated monthly rental rates and expenses
including fixed expenses, operating expenses, staffing, dietary, reserves and
other appropriate expenses.
This appraiser has conducted rental surveys of an adequate number of competing
assisted care, private pay facilities to accurately arrive at both an
economic monthly rate as well as stabilized occupancy for the subject. It is
pertinent to note that although one hundred percent occupancy may result for
limited periods of time, the loss of tenants throughout the year due to
various reasons will result in a weighted occupancy level below this one
hundred percent occupancy level which is considered typical of the industry.
The actual income and expense data of various facilities is closely held
information and these individuals have requested confidentiality with respect
to this actual data. Accordingly, this data has been retained in our various
files.
The results of our survey and analysis indicates an economic rental rate for
the assisted care units, based on the herein listed services being provided,
of $1,475.00 per month with a three year period required for stabilized
occupancy
Robert M. McSherry, MAI
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to be obtained. $1,000.00 per month for the one bedroom and $1,300 for the two
bedroom independent living units.
Inflation will impact both income and expense projections, only a slight
increase in rentals has been projected for year three.
The Income Approach to Value as it applies to the property being appraised
based on economic rent is as follows:
Robert M. McSherry, MAI
<PAGE>
INCOME APPROACH TO VALUE
Year One
Gross Annual Potential Income
6 - 1 BR/1BA Independent Living Cottages
@ $1,000.00/Month $ 72,000.00
6 - 2BR/1BA Independent Living Cottages
@ $1,300.00/Month $ 93,600.00
48 - Assisted Living Units
@ $1,475.00/Month $ 849,600.00
Total Gross Annual Potential Income $ 1,015,200.00
Less:Vacancy and Collection Losses
Independent Living Cottages (25%) $ 41,400.00
Assisted Living Units (50%) $ 424,800.00
Total Vacancy and Collection Loss $ 466,200.00
Effective Gross Annual Potential Income $ 549,000.00
Expenses:
Administrative $ 115,000.00
Plant Operations $ 123,000.00
Dietary $ 72,300.00
Housekeeping $ 19,800.00
Aides $ 39,700.00
Activities $ 24,700.00
Reserves for Replacement $ 9,900.00
Total Expenses $ 405,200.00
Net Operating Income $ 143,800.00
Robert M. McSherry, MAI
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INCOME APPROACH TO VALUE
Year Two
Gross Annual Potential Income
6 - 1 BR/1BA Independent Living Cottages
@ $1,000.00/Month $ 72,000.00
6 - 2BR/1BA Independent Living Cottages
@ $1,300.00/Month $ 93,600.00
48 - Assisted Living Units
@ $1,475.00/Month $ 849,600.00
Total Gross Annual Potential Income $ 1,015,200.00
Less:Vacancy and Collection Losses
Independent Living Cottages (10%) $ 16,560.00
Assisted Living Units (30%) $ 254,880.00
Total Vacancy and Collection Loss $ 271,440.00
Effective Gross Annual Potential Income $ 743,760.00
Expenses:
Administrative $ 120,400.00
Plant Operations $ 135,800.00
Dietary $ 94,000.00
Housekeeping $ 20,800.00
Aides $ 41,700.00
Activities $ 25,900.00
Reserves for Replacement $ 9,900.00
Total Expenses $ 448,500.00
Net Operating Income $ 295,260.00
Robert M. McSherry, MAI
<PAGE>
INCOME APPROACH TO VALUE
Year Three
Gross Annual Potential Income
6 - 1 BR/1BA Independent Living Cottages
@ $1,080.00/Month $ 77,760.00
6 - 2BR/1BA Independent Living Cottages
@ $1,400.00/Month $ 100,800.00
48 - Assisted Living Units
@ $1,595.00/Month $ 918,720.00
Total Gross Annual Potential Income $ 1,097,280.00
Less:Vacancy and Collection Losses
Independent Living Cottages (5%) $ 8,928.00
Assisted Living Units (10%) $ 91,872.00
Total Vacancy and Collection Loss $ 109,800.00
Effective Gross Annual Potential Income $ 996,480.00
Expenses:
Administrative $ 126,400.00
Plant Operations $ 149,400.00
Dietary $ 122,200.00
Housekeeping $ 21,900.00
Aides $ 43,800.00
Activities $ 27,300.00
Reserves for Replacement $ 9,900.00
Total Expenses $ 500,900.00
Net Operating Income $ 495,580.00
Robert M. McSherry, MAI
<PAGE>
JUSTIFICATION OF CAPITALIZATION RATE
Direct Capitalization is a method used to convert a single year's income
estimate into a value indication in the Income Capitalization Approach. The
direct capitalization formula using an overall property capitalization rate
is:
Value / Net Operating Income = Overall Capitalization Rate
In this appraisal, the appraisers will employ two different methods to obtain
an overall capitalization rate:
1 )Band of Investment - mortgage and equity components
2)Underwriter's Method (derivation from debt coverage ratio)
Band of Investment
The appraisers contacted local lenders regarding rates and terms of alternate
investments as well as current market rates applicable for this market.
Annual Constant - In developing the mortgage components for the Band of
Investment Method, the appraisers reviewed the National Mortgage Commitment
Survey conducted by the Appraisal Institute Research Department which surveyed
sample lenders in various geographical regions throughout the United States.
The data quoted is based on national averages and do not reflect conditions
inherent in all markets. Therefore, the appraisers contacted local lenders
regarding rates and terms applicable for this market area. Lenders in the
local market are quoting rates at prime plus 1%, terms of 20 years. 75% and a
loan-to-value ratio. The local market closely approximates the national
averages for the subject property type.
Robert M. McSherry, MAI
<PAGE>
The appraisers reviewed available data concerning current national and local
quoted mortgage rates and talked to various lenders in the Louisiana area
which confirm that market rates and terms for loans of the quality of the
subject property are available at 9% interest rate with monthly payments
amortized for a 20 year term, a 75% loan-to-value ratio. Therefore, the
mortgage constant is derived to be .1079671.
Equity Dividend - Current rates of return available from alternative
investment vehicles are reviewed. These alternative investments are more
liquid than an investment in real estate; therefore any potential investor
would expect a higher rate of return. Based on this, we have been able to
conclude that a 9% equity dividend rate is required to attract investment
capital to the subject property's type which is considered to be slightly
more risky than other types of real estate investments.
Derivation of Capitalization Rate - The band of investment (or weighted
average) formula for deriving an overall rate when the mortgage constant and
equity dividend rates is known as:
Mortgage Percent x Mortgage Constant
Plus
Equity Percent x Equity Dividend Rate
Equals
Overall Capitalization Rate
.75 x .1079671 = .0809
.25 x.09 =.0225
Total = . 10340
Rounded to. 103
Robert M. McSherry, MAI
<PAGE>
Underwriter's Method
In making loan decisions, institutional lenders use a debt coverage ratio
(DCR), which is the ratio of net operating income to annual debt service.
This measure of constraint is frequently used by institutional lenders, who
are general fiduciaries. They manage and lend the money of others, including
depositors and policy holders. Because of the fiduciary responsibility,
institutional lenders are particularly sensitive to the safety and profit and
are anxious to avoid default and possible foreclosure. Consequently, when
they underwrite income property loans, institutional lenders try to provide a
cushion so that the borrower will be able to meet the debt service
obligations on the loan even if the building income declines.
The debt coverage ratio may also be used to estimate the overall
capitalization rate by multiplying the ratio by the mortgage loan constant
(RM) and the loan-to-value ratio (M). The debt coverage ratio, mortgage loan
constant, and loan-to-value ratio have already been determined to be 1.20,
.1079671 and .75, respectfully. The formula for derivation of an overall
capitalization rate from debt coverage ratio is as follows:
RO = DCR x RM x M
RO = 1.20 X .1079671 X .75
RO = .0971
R/T = .097
Conclusion
Based on the available information we have concluded that a 10% is the most
appropriate capitalization rate which is derived from the actual band of
Robert M. McSherry, MAI
<PAGE>
investments method and supported by the Underwriter's Method and available
market data. Thus:
NET OPERATING INCOME
---------------------------- = VALUE
OVERALL CAPITALIZATION RATE
$495,580.00
-------------------------- = $4,955,800.00
.10
INDICATED VALUE OF SUBJECT FROM
INCOME APPROACH $4,955,000.00
Robert M. McSherry, MAI
<PAGE>
DISCOUNTED CASH FLOW ANALYSIS
The subject property will require a period in excess of one year to achieve
stabilized net income. In order to provide an estimate of the present value
of the improvements upon completion but prior to achieving stabilized net
operating income, the discounting process is utilized.
The income stream generated by the subject until stabilized income is reached
is discounted into an estimate of present value and the reversionary value of
the improvements as estimated upon achieving a stabilized net income is also
discounted to present worth. The market indicates a discount rate of 9% to be
appropriate to be utilized in discounting the income and reversion and this is
based on current rates of return on alternate investments and the risk
associated with the subject.
Robert M. McSherry, MAI
<PAGE>
Present Worth ofIncome Stream
Year One: $143,800.00 x .917431 = $ 131,926.00
Year Two: $295,260.00 x .841680 = $ 248,514.00
Year Three: $495,580.00 x .772183 = $ 382,678.00
Total Present Value of Income Stream $ 763,118.00
Present Worth/Reversion
$4,955,000.00 x .772183 $3,826,166.00
Summation:
Present Worth of Income Stream $ 763,118.00
Present Worth/Reversion $3,826,166.00
Total $4,589,284.00
INDICATED VALUE OF SUBJECT FROM
INCOME APPROACH/DISCOUNTED
CASH FLOW $4,590,000.00
Robert M. McSherry. MAI
<PAGE>
RECONCILIATION AND FINAL VALUE
The two approaches to value have indicated the following value estimates of
the property being appraised:
COST APPROACH TO VALUE $3,561,000.00
MARKET APPROACH TO VALUE N/A
INCOME APPROACH TO VALUE
OVERALL CAPITALIZATION RATE $4,955,000.00
DISCOUNTED CASH FLOW
ANALYSIS $4,590,000.00
The subject property is proposed construction and only preliminary plans and
specifications have been provided this appraiser in order to complete the Cost
Approach to Value. Costs are extremely difficult to estimate and no two
competent contractors will ever agree on the actual cost to construct a
property. However, this appraiser has utilized reliable sources including the
Marshall Valuation Service Cost Manual as well as actual construction costs
affecting a similar type property in order to complete the Cost Approach to
Value and this approach is considered reflective of the cost new of the
subject property.
The subject property is considered an income producing and has been valued
based on it being a Going Concern. The property is under competent ownership
and will have excellent management in place and the utilization of the Going
Concern concept is considered appropriate with respect to this particular
appraisal problem. Accordingly, the Indicated Value of the Property based on
stabilized net income being generated at the end of the third year is
considered
Robert M. McSherry, MAI
<PAGE>
the best available indicator of it's current Market Value and has been
accorded the greatest credence in the final analysis.
Based on the data contained within this report, other in-file data, and this
appraiser's review and analysis of said data, it is our opinion that the
proposed property identified as The Arbor Group of Ruston, L.L.C. and located
on U.S. Highway 80 just outside the corporate limits of Ruston, Lincoln
Parish, Louisiana was estimated to have a Market Value, as of August 15, 1997,
but subject to completion according to plans and specifications utilizing
quality materials and workmanship throughout and also subject to the other
conditions contained within this report, of:
FOUR MILLION NINE HUNDRED FIFTY-FIVE THOUSAND DOLLARS
($4,955,000.00)
Allocated:
Land $ 450,000.00
Improvements: $3,837,000.00
Furniture, Fixtures and Equipment $ 118,000.00
Goodwill $ 550,000.00
Robert M. McSherry, MAI
<PAGE>
ADDENDA
Robert M. McSherry, MAI
<PAGE>
APPRAISER'S CERTIFICATION
I certify that, to the best of my knowledge and belief,...
(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
report assumptions and limiting conditions, and are my personal, unbiased
professional analyses, opinion 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 compensation is not contingent on an action or event resulting from
the analyses, opinions, or conclusions in, or the use of, this report.
(5) My analyses, opinions, and conclusions were developed, and this report
has been prepared, in conformity with the Uniform Standards of Professional
Appraisal Practice.
(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) 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 Practice of the
American Institute of Real Estate Appraisers.
(9) The use of this report is subject to the requirements of the American
Institute of Real Estate Appraisers relating to review by its duly authorized
representatives.
(10) I am not currently certified under the voluntary continuing education
program of the American Institute of Real Estate Appraisers.
Robert M. McSherry, MAI
<PAGE>
(11) I certify that the use of this report is subject to the requirements of
the Appraisal Institute relating to review by its duly authorized
representatives.
/S/ Robert M. McSherry
Estimated Market Value: -------------------------
$4,955,000.00 Robert M. McSherry, MAI
Certified General Appraiser No. 0891
Allocated:
Land $ 450,000.00
Improvements $3,837,000.00
Furniture, Fixtures and
Equipment $ 118,000.00
Goodwill $ 550,000.00
As Of: August 15, 1997
Robert M. McSherry, MAI
<PAGE>
QUALIFICATIONS OF ROBERT M. MC SHERRY, MAI
EDUCATIONAL BACKGROUND AND TRAINING
Graduate of Louisiana State University, Baton Rouge, Louisiana, Bachelor of
Science Degree in Business Administration with a Major in Finance.
Real Estate Appraisal Course 1-A, Basic Fundamentals, Methods and
Techniques, 1974, AIREA
Real Estate Appraisal Course 1-B, Capitalization. 1975, AIREA
Real Estate Appraisal Course VIII, Single-Family Residential Appraisal,
1974, AIREA
Real Estate Appraisal Course II, Techniques and Application, 1976 and
1980, AIREA
Real Estate Appraisal Course III, Rural Properties, 1979
Real Estate Appraisal "Industrial Valuation" Course, 1984
Seminar: R-41 C - New Orleans, Louisiana, AIREA, 1978
"Standards of Professional Practice" Course, AIREA, 1987
"Capitalization Theory and Techniques, Part A" Course, AIREA, 1987
"Standards of Professional Practice" Course, Appraisal Institute, 1992
PROFESSIONAL EXPERIENCE
Real Estate Broker, State of Louisiana (1971)
Monroe Redevelopment Agency, Monroe, Louisiana (1971)
Ford, Bacon & Drive Construction and Engineering Company, Monroe,
Louisiana (1972)
Mississippi power and Light Company, Jackson, Mississippi (1973-1976)
Cameron-Brown South, Inc., Mortgage Bankers, Baton Rouge, Louisiana
(1976-1977)
Real Estate Appraiser, Monroe, Louisiana (1978-1985)
Robert M. McSherry, MAI
<PAGE>
Real Estate Appraiser, Baton Rouge, Louisiana and Jackson, Mississippi
(1985-Present)
PROFESSIONAL-MEMBERSHIPS:
Residential Member, American Institute of Real Estate Appraisers,
Certification Number 1040
Licensed Real Estate Broker, State of Louisiana
Fee Inspector for the Louisiana Homeowners Warranty Corporation
FNMA Approved Level III Appraiser, Number 1027135
Member, American Institute of Real Estate Appraisers - MAI
Designation (1981), Number 6291
Certified Licensed General Appraiser, State of Louisiana, Number 0891
Robert M. McSherry, MAI
<PAGE>
PHOTOGRAPHS
Robert M. McSherry, MAI
<PAGE>
[PICTURE OF SUBJECT PROPERTY]
[PICTURE OF SUBJECT PROPERTY]
<PAGE>
[PICTURE OF SUBJECT PROPERTY]
[PICTURE OF SUBJECT PROPERTY]
<PAGE>
[PICTURE OF SUBJECT PROPERTY]
[PICTURE OF SUBJECT PROPERTY]
<PAGE>
[FLOOR PLAN OF PROPOSED BUILDING]
<PAGE>
[SITE PLAN OF PROSPOSED LOCATION]
<PAGE>
A Full, Narrative
Appraisal Report of
A Proposed 60 Unit Facility Containing 18 Independent Living Units,
18 Assisted Care Units and 24 Mental Disorder Units
and Located on the Southside of Brandon Avenue
Within the Corporate Limits of
Bossier City, Bossier Parish, Louisiana
For
Senior Retirement Communities, Inc.
507 Trenton Street
West Monroe, Louisiana
As Of
October 15, 1997
Prepared by
Robert M. McSherry, MAI
Louisiana Certified General Appraiser No. 0891
3760 Chelsea Drive
Baton Rouge, Louisiana 70809
<PAGE>
ROBERT M. MC SHERRY, MAI 3760 Chelsea Drive
Baton Rouge, Louisiana 70809
Phone (504)924-8093
October 8, 1997
Senior Retirement Communities, Inc.
507 Trenton Street
West Monroe, Louisiana
RE: A proposed 60 unit facility containing 18 independent living units, 18
assisted care units and 24 mental disorder units and located on the
southside of Brandon Avenue within the corporate limits of Bossier City,
Bossier Parish, Louisiana.
Dear Sir:
In accordance with your request to provide an estimate of the Estimated
Market Value of Fee Simple Interest of the Going Concern of the property
identified as a proposed 60 unit facility containing 18 Independent Care
Units, and 18 Assisted Care Units and 24 Mental Disorder Units and located
within the corporate limits of Bossier City, Bossier Parish, Louisiana, we
have personally inspected the subject site and reviewed the submitted plans
and specifications for the proposed improvements and conducted a thorough
review and analysis of all matters pertinent for the Estimate of Market Value
herein contained.
Market Value as defined by the Department of the Treasury, Office of the
Comptroller of the Currency, August 24, 1990, 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, 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:
a. buyer and seller are typically motivated;
b. both parties are well informed or well advised, and each acting in what
he considers his own best interest;
c. a reasonable time is allowed for exposure in the open market,
d. payment is made in terms of cash in U.S. dollars or in terms of
financial arrangements comparable thereto; and
Robert M. McSherry, MAI
<PAGE>
Page Two
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.
Fee Simple Interest is defined by the Appraisal Institute as being, "a fee
without limitations to any particular class of heirs or restrictions but
subject to the limitations of eminent domain, escheat, police power and
taxation. An inheritable estate".
Going Concern Value is "the value created by a proven property operation." It
includes the incremental value associated with the business concern, which is
distinct from the value of the real estate only. Going concern value
includes an intangible enhancement of the value of an operating business
enterprise which is produced by the assemblage of the land, building, labor,
equipment, and marketing operation. This process creates an economically
viable business that is expected to continue. Going concern value refers to
the total value of a property, including both real property and intangible
personal property attributed to business value. Special purpose properties
such as the subject are appropriate for only one use or for a very limited
number of uses. The highest and best use of a special purpose property as
improved, is probably the continuation of its current use, if that use
remains viable. Therefore, in the case of special purpose properties a
going concern value is considered appropriate.
In this instance the subject property has an excellent location within a
viable market. As long as quality management is maintained, it's Market Value
would be the same as it's Going Concern Value.
Included is our appraisal report which contains the various exhibits and data
utilized in arriving at the herein contained estimate of Market Value for the
subject property.
It is our opinion that the property herein identified as the proposed 60 unit
Independent, Assisted Care and Mental Disorder Care facility identified as
The Arbor of Bossier City, L.L.C. and located on the southside of Brandon
Avenue within the corporate limits of Bossier City, Bossier Parish, Louisiana,
was estimated to have a Market Value, as of October 15, 1997, of:
SIX MILLION THREE HUNDRED TEN THOUSAND DOLLARS
($6,310,000.00)
Robert M. McSherry, MAI
<PAGE>
Allocated:
LAND: $ 525,000.00
IMPROVEMENTS: $2,660,000.00
FURNITURE, FIXTURES & EQUIPMENT: $ 108,000.00
GOODWILL: $2,243,000.00
The subject property is proposed at the present time and this appraiser has
been provided with only preliminary plans and specifications for the property.
The herein contained Estimate of Market Value is conditioned upon receipt of
a complete set of working drawings for the improvements and for the
completion of the improvements in accordance with the plans and specifications
utilizing quality materials and workmanship within a reasonable period of
time. A final inspection by this appraiser will be required to ascertain
the assumptions utilized in preparing this appraisal report have been
fulfilled.
If we may be of further service to you in regard to this property or in any
other manner, please do not hesitate to contact us at your earliest
convenience.
Respectfully submitted,
/S/ROBERT M. MCSHERRY
Robert M. McSherry, MAI
Louisiana Certificated General Appraiser No. 0891
Robert M. McSherry, MAI
<PAGE>
EXECUTIVE SUMMARY
Location: Southside of Brandon Avenue just east of
Industrial Drive within the Corporate
Limits of Bossier City, Bossier Parish,
Louisiana
Interest Appraised: Fee Simple Interest
Site: 6 Acres or 261,360 Square Feet
Building Description: The property will include eighteen (18)
independent care living units, 18
assisted care living units and 24 mental
disorder units all located within a
contiguous building with the common area
amenities including a full service
kitchen, a dining area, activities area,
office/reception area, adequate bathrooms
which would be fully equipped to satisfy
the needs of the residents of the
assisted care facilities and the mental
disorder units as well as storage areas
and other required additions to render
the subject property a functional
congregate care facility catering to both
those who desire independent living
arrangements and those requiring assisted
care as well as mental disorder patients.
Construction characteristics include a
reinforced poured concrete foundation,
wood framing, with a combination of brick
veneer and vinyl siding exterior walls
with the roof being of composition
shingles. Although the property is
proposed at the present time, this
appraiser is aware of a similar property
which has been constructed by the owners
of the subject and our physical
inspection of this existing complex has
been utilized in conjunction with the
submitted plans and specifications.
The property is considered to be a most
functional facility and the independent
living units located away from the
assisted care units
Robert M. McSherry, MAI
<PAGE>
is considered a most attractive amenity
to the property and should be well
accepted by the local market.
Highest and Best Use: Congregate care facility including both
independent living and assisted care
units
Cost Approach to Value $3,290,000.00
Market Approach to Value N/A
Income Approach to Value:
Stabilized Net Income: $6,310,000.00
Discounted Cash Flow Value: $5,940,000.00
Final Value Estimate: $6,310,000.00
Allocated:
Land $ 525,000.00
Improvements $2,660,000.00
Furniture, Fixtures
and Equipment $ 108,000.00
Goodwill $2,243,000.00
Robert M. McSherry, MAI
<PAGE>
IDENTIFICATION OF THE PROPERTY
The property being inspected and analyzed and for which the Market Value
Estimate of the Fee Simple Interest of the Going Concern is applicable is a
6 acre tract of land which will basically rectangular shaped tract of land
having frontage along the southside of Brandon Avenue and located within the
corporate limits of Bossier City, Bossier Parish, Louisiana. The property
being appraised is a portion of a larger 23.46 acre tract of land and the
property has not been officially partitioned as of the date of this appraisal.
The property is located in portions of Sections 23 and 24, Township 18 North,
Range 13 West, Bossier Parish, Louisiana and, as a condition of this appraisal
report, a complete legal description and metes and bounds survey of the
subject site will be required to ascertain the assumptions utilized within
this appraisal report have been fulfilled.
Robert M. McSherry, MAI
<PAGE>
PURPOSE OF THE APPRAISAL
The purpose of this report is to communicate, in a narrative format, the data
and reasoning that the appraisers have utilized to form the herein contained
estimate of Market Value of the Fee Simple Interest of the Going Concern for
the property identified as a proposed 60 unit facility including 18
independent living units, 18 assisted care units and 24 mental disorder units
and located on the southside of Brandon Avenue, Bossier City, Louisiana.
OBJECTIVE OF THE APPRAISAL
The objective of this appraisal report is to provide an estimate of the Market
Value of the Fee Simple Interest of the Going Concern of the property for use
by The Arbor Group of Bossier City, L.L.C. as well as selective lenders in
order to obtain long term financing of the subject property and for the
internal use of The Arbor Group of Bossier City, L.L.C.
The Subject property was personally inspected by this appraiser both before
and after the date of this appraisal and the submitted plans and
specifications reviewed. As the property is proposed construction, a final
inspection of the property will be required by the appraiser to ascertain the
assumptions utilized within this appraisal report have been fulfilled and
this appraisal is also conditioned upon being completed in accordance with the
plans and specifications utilizing quality materials and workmanship
throughout. Other additional conditions are contained in an additional
section of this report.
Robert M. McSherry, MAI
<PAGE>
DATE OF THE APPRAISAL
The date of this estimate of Market Value of Fee Simple Interest applies is,
as of October 15, 1997.
Robert M. McSherry, MAI
<PAGE>
DEFINITION OF SIGNIFICANT TERMS
Market Value, as defined by the Department of the Treasury, Office of the
Comptroller of the Currency, August 24, 1990, 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, 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 data 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 each acting in what
he considers his own best interest;
c. a reasonable time is allowed for exposure in the open market:
d. payment is made in terms of cash in U.S. 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.
Fee Simple Interest is defined by the Appraisal Institute as being, "a fee
without limitations to any particular class of heirs or restrictions thetas
subject to the limitations of eminent domain, escheat, police power and
taxation. An inheritable estate".
Going Concern Value is "the value created by a proven property operation." It
includes the incremental value associated with the business concern, which is
distinct from the value of the real estate only. Going concern value includes
an
Robert M. McSherry, MAI
<PAGE>
intangible enhancement of the value of an operating business enterprise which
is produced by the assemblage of the land, building, labor, equipment, and
marketing operation. This process creates an economically viable business
that is expected to continue. Going concern value refers to the total value
of a property, including both real property and intangible personal property
attributed to business value. Special purpose properties such as the subject
are appropriate for only one use or for a very limited number of uses. The
highest and best use of a special purpose property as improved, is probably
the continuation of its current use, if that use remains viable. Therefore,
in the case of special purpose properties a going concern value is considered
appropriate.
Robert M. McSherry, MAI
<PAGE>
PROPERTY RIGHTS APPRAISED
This assignment concerns the appraisal of the Fee Simple Interest with Fee
Simple Interest defined in Real Estate Appraisal Terminology as being, a fee
without limitations to any particular class of heirs or restrictions but
subject to the limitations of eminent domain, escheat, police power and
taxation An inheritable estate".
STATEMENT OF OWNERSHIP AND RECENT HISTORY
The larger tract from which the subject property will be partitioned is under
the ownership of Patterson Insurance Group, John S. Turner, Ben Thomas, and
Charles Coyle, dba Coyle Engineering in various percentages. The proposed 6
acre tract which is the subject of this appraisal report will be partitioned
from a larger 23.476 acre tract and will be located on the southside of
Brandon Avenue. The subject site will be surveyed and the anticipated sales
price will be $2.00 per square foot or $87,120.00 per acre.
The property has been owned by Patterson Insurance Group, et al in excess of
five years and the transaction in which the subject site will be transferred
to the Arbor Group of Bossier City, LLC is considered representative of
market value of the subject property.
DATE OF THE APPRAISAL
The effective date of this appraisal is October 15, 1997. The subject site
was personally inspected by this appraiser both before and after this date and
the
Robert M. McSherry, MAI
<PAGE>
submitted plans and specifications for the proposed improvements were also
reviewed by the appraiser prior to the date of the appraisal.
Robert M. McSherry, MAI
<PAGE>
ASSUMPTIONS AND LIMITING CONDITIONS
This appraisal report has been made with the following assumptions and
limiting conditions:
1. No responsibility is assumed for the legal description or for matters
including legal or title consideration. Title to the property is
assumed to be good and marketable unless otherwise stated.
2. The property is appraised free and clear of any and all liens or
encumbrances unless otherwise stated.
3. Responsible ownership and competent property management are assumed.
4. The information furnished by others is believed to be reliable. No
warranty, however, is given for its accuracy.
5. All engineering is assumed to be correct. The plot plans and
illustrative material in this report are included only to assist the
reader in visualizing the property.
6. It is assumed that there are no hidden or apparent 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.
7. It is assumed 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.
8. It is assumed 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.
9. It is assumed 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.
Robert M. McSherry, MAI
<PAGE>
10. It is assumed 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.
11. 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.
12. The appraisers herein, by reason of this appraisal, are 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.
13. Possession of this report, or a copy thereof, does not carry with it
the right of publication. It may not be used for any purpose by any
person other than the party to whom it is addressed without the written
consent of the appraisers, and in any event only with proper written
qualification and only in its entirety.
14. Neither all nor any part of the contents of this report (especially
any conclusions as to value, the identity of the appraisers, or the
firm with which the appraisers are connected) shall be disseminated to
the public through advertising, public relations, new, sales, or other
media without the prior written consent and approval of the appraisers.
15. The existence of hazardous materials, which may or may not be present
on the subject property, was not observed by the appraisers. The
appraisers have the knowledge of the existence of such materials on or
in the subject property. However, the appraisers are not qualified to
detect such substances and the presence of potential hazardous
materials may affect the value of the property. This value estimate
contained within this report is predicated on the assumption that no
such hazardous materials are present on or in the property. No
responsibility is assumed for any such conditions or for any expertise
or any knowledge required to discover these items. This should be
accomplished by an expert in the field and is a condition of this
appraisal report.
16. That the appraiser has personally inspected the subject property and
finds no obvious evidence of structural deficiencies, except as stated
in this report; however, no responsibility for hidden defects or
conformity to specific governmental requirements, such as the
Americans with Disabilities (ADA) or fire, building and safety,
earthquake, or occupancy codes, etc., can be assumed without provision
of specific professional or governmental inspections.
Robert M. McSherry, MAI
<PAGE>
17. This property is proposed at the present time and the appraisal is
conditioned upon the completion of the subject property in accordance
with the submitted plans and specifications utilizing quality
materials and workmanship throughout. A final inspection by the
appraiser would be required in order to ascertain the assumptions
utilized in arriving at the herein contained Estimate of Market Value
have been fulfilled.
18. This appraisal is not based on a requested minimum valuation, a
specific valuation or the approval of the loan.
19. The Forsythe Group or it's successor will provide water and sewer
services to the subject property. An additional condition of this
report is the fulfillment of this commitment prior to the completion
of the proposed improvements and in compliance with all appropriate
governmental and other requirements.
20. The subject property will be a portion of a larger tract and no
complete boundary survey or legal description has been provided this
appraiser. As a condition of this appraisal report, a complete
boundary survey and plat will be required by the appraiser to
ascertain the assumptions utilized within this report have been
fulfilled.
Robert M. McSherry, MAI
<PAGE>
SHREVEPORT/BOSSIER CITY DATA
Shreveport, Louisiana is located in the northwest corner of the state and is
the parish seat of Caddo Parish. The city has grown into a metropolitan with
a population estimated at 201,568 (1990 estimate), and continues to
demonstrate a steady and economically sound growth rate while Caddo Parish
has an estimated population of 246,706, according to the 1990 census. The
average annual per capita income for the city as well as the parish are
reflected below:
AVERAGE ANNUAL PER CAPITA INCOME
Year Parish State
1993 $11,349 $10,192
1987 $12,975 $11,482
% Change 14% 13%
Shreveport, as the hub of the Ark-La-Tex, serves the wholesale and retail
needs of the area. Retail sales total over one billion dollars annually in
the metropolitan area. Major manufacturers operating in the area are as
follows:
MAJOR MANUFACTURING
Firm Product Employment
Lycent Technologies Telephones 1,350
General Motors Trucks 2,966
Libbey Glass Table Glassware 1,061
General Electric Transformers 550
Frymaster Electronic Frying Equipment 500
GNB Battery Batteries 386
Atlas Processing Oil Refining 300
Robert M. McSherry, MAI
<PAGE>
Shreveport is rapidly becoming a major educational and medical center with 13
hospitals, 10 universities and colleges, 76 K-12 public schools and 17
private/parochial schools. Medical and health services bring in thousands of
people from the region for consultation and treatment. In the fall of 1969,
LSU's School of Medicine in Shreveport held it's first classes, with the
Confederate Memorial Hospital serving as its teaching hospital. Four year
college programs are offered by LSU-Shreveport, Centenary College, a private,
Methodist Church sponsored liberal arts institution established in 1825; and
by Southern University's branch.
Shreveport is also the major center of entertainment from a cultural, tourist
and recreational standpoint. Art attractions include the Louisiana State
Exhibit Museum; the R.W. Norton Art Gallery; the R.S. Barnwell memorial
Library; Centenary College and LSU-Shreveport Libraries; private art
galleries; and commercial retailers. Musical entertainment is provided by the
Community Concert Association; the Shreveport Symphony and the Shreveport
Civic Opera Society, along with numerous other popular and classical musical
productions. Other entertainment events held during the year are the
Louisiana State Fair, and the Holiday in Dixie Festival.
Rail systems serving the Shreveport/Caddo Parish area include Kansas City
Southern, Union Pacific, and Southern Pacific. Interstate common carriers
also provide service include ABF Freight System, Roadway Express, SAIA Motor
Freight, Yellow Freight Systems, Southwestern Motor Freight, and Woodline
Motor Freight.
Robert M. McSherry, MAI
<PAGE>
Bossier City, Shreveport's sister city on the east side of the Red River, is
home of Barksdale Air Force Base, a 21,000 acre permanent base which is the
home of Headquarters, Eight Air Force, one of the three numbered commands of
S.A.C. Also located at Barksdale is the 2nd Bomb Wing, the organization
responsible for the major missions of the base itself, with its many support
organizations. Other specialized tenant organizations are also based at
Barksdale.
Louisiana Downs, a thoroughbred racetrack, is beginning another racing season,
and is located in Bossier City. The facility, completed in 1974 at a cost of
$10 million, is one of the largest and most modern of its kind in the country.
The current situation as it affects the oil and gas industry indicates
dramatic improvement in the area economy is expected. An improving economy
is expected over the next three to five years from the area unless
extraordinary occurrences affecting oil prices and supplies occur.
River boat gaming has become a significant economic factor in the area
economy with several boats now located in the area. An additional boat is
forthcoming and all boats are adding land based facilities to support their
gaming operation. The Shreveport-Bossier market is one of the best in the
state, primarily due to it's location to East Texas. This economic stimulus
has been a boon to the area and should continue to be an advantage to the
area economy.
Robert M. McSherry, MAI
<PAGE>
NEIGHBORHOOD DATA
A Neighborhood may be defined as a homogeneous grouping of individuals,
buildings, or business enterprises within a larger community. These groupings
are usually devoted to residential use, trade and service activities, or
cultural and civic activities. Residential neighborhoods tends to reflect
characteristics of their inhabitants, expressing the mutual desires of people
with comparable interests, related traditions, and similar social and
economic status.
The neighborhood in which the subject property is located is considered to be
that area lying along either side of Industrial Drive to the South, U.S.
Highway 80 to the north and extending in an easterly/westerly direction along
U.S. Highway 80 for approximately two (2) miles in either direction.
Inspection of this neighborhood revealed the area to feature a mixture of
property types including both new or recently completed structures and some
older, commercial properties including fast food restaurants, and other
commercial and retail type properties.
Trends in the neighborhood tend to be for construction of various fast food
type properties along Industrial Drive as this is considered a primary
arterial roadway providing an access to Interstate 20 in both as easterly and
westerly direction along the southerly boundary of the neighborhood.
Industrial Drive is a four-lane, municipally maintained traffic artery and,
as noted, provides a connection with I-20 to the south and U.S. Highway 80 to
the north.
Inspection of the neighborhood reveals a large amount of vacant land
available for development with an ongoing development identified as Brandon
Square
Robert M. McSherry, MAI
<PAGE>
Subdivision being located in the southeast quadrant of the intersection of
Industrial Drive and U.S. Highway 80. This subject development is the site of
the subject property and has concrete streets and utilities in place at the
present time.
Trends in the neighborhood tend to be for development of interior sites with
either professional office space or other type commercial properties which do
not require heavy exposure to vehicular traffic while the areas along
Industrial Drive, an area exposed to heavy vehicular traffic are being
developed with those type properties requiring this exposure. Trends in the
neighborhood, although having been somewhat stagnant over the past several
years, appear to be improving as the overall economy of the Shreveport and
Bossier City area improves. The excellent access to the Interstate system as
well as the large amount of available land, developed, is considered a
positive factor and should aid in the continuing development and successful
absorption of the various vacant sites contained within the subject's
neighborhood.
Robert M. McSherry, MAI
<PAGE>
SCOPE OF THE APPRAISAL
The appraiser has personally inspected the subject site and conducted an
in-depth inspection of the neighborhood in which the subject property is
located observing it's trends of development and characteristics.
Vacant land sales utilized in conjunction with the Cost Approach to Value and
in determining the estimated Market Value of the subject site, as if vacant,
and owned in Fee Simple have been inspected by this appraiser and
a combination of data provided by the Marshall Valuation Service Cost Manual
and other available in-file data has been utilized in the process of
estimating the replacement cost new of the subject improvements.
In the final analysis, the appraiser has utilized and relied upon the
experience of judgment based on the opinion of the quality and quantity of
the data in arriving at the final value estimate of the Fee Simple Interest
in the subject property.
The Income Approach to Value has been completed utilizing a stabilized net
income capitalized into value and a discounted cash flow method. Economic
rents were determined by rent comparables and current data utilized with
respect to expense projections.
Robert M. McSherry, MAI
<PAGE>
DESCRIPTION OF THE PROPERTY
Site Data
Size, Shape and Topography
The subject site will be a 6 acre parcel of land which will be basically
rectangular in shape and lying along the southside of Brandon Avenue, a two
laned concrete street which exits Industrial Drive. The topography of the
subject property is level and typical of the topography of the surrounding
areas and the elevation of the site is slightly above the elevation of
Brandon Avenue. Inspection of the site did not reveal any detrimental
physical characteristics which would affect the development of the subject
property to it's Highest and Best Use or the proposed utilization of the
property.
Utilities
The subject property is located inside the corporate limits of Bossier City,
Bossier Parish, Louisiana and is provided with all city utilities and
services available to properties within the corporate limits of Bossier City
including police and fire protection, public water, sewerage disposal, and
refuge disposal. Telephone service, electrical service and natural gas
service is provided by the local utility companies servicing the area.
Access
Access to the subject development is provided as a result of the location of
Industrial Drive along the western boundary of the development and U.S.
Highway 80 along the northern boundary of the development. Both U.S. Highway
80 and Industrial Drive are multi-lane, state maintained roadways which are
adequate to handle traffic flow through the area over the foreseeable future.
Robert M. McSherry, MAI
<PAGE>
Interstate 20 is a major east-west interstate highway through this portion of
Louisiana and provides access from the subject property into the downtown
areas of both Bossier City and Shreveport and the location of U.S. Highway 80,
Industrial Drive and the intersections of Industrial Drive and Interstate 20
provides excellent access to the subject property from all areas of Shreveport
and Bossier City.
The I-220 Loop is located in the proximity of the property and also aids in
providing excellent access to the subject from all areas of north Bossier and
Caddo Parishes.
Zoning
Review of the zoning map found in the Bossier City City Hall indicates the
subject property to be currently zoned "B-3" which is Community Central
Business District. This zoning ordinance is reproduced and contained within
the addendum of this appraisal report for the benefit of the reader and this
zoning classification provides a multitude of uses and the estimated Highest
and Best Use of the subject property is for a variety of commercial type
development which is considered to be a legal and conforming use in accordance
with the zoning ordinance.
This appraiser has not conducted an in-depth review with respect to the
abstract to the subject site but no deed restrictions or other restrictive
covenants are assumed to exist which would affect the development of the
subject property to its highest and best use. However, this should be
ascertained by competent legal authority and is a condition of this appraisal
report.
Robert M. McSherry, MAI
<PAGE>
Drainage
Review of Flood Hazard Maps found in the Bossier City Municipal Office
indicated the subject property to be located in a Flood Zone "C" and flood
insurance is not required for the subject property. The applicable flood map
is identified as Map No. 220033-005-C with an effective date of April 4, 1983.
Again it is noted that flood insurance is not required for the subject
property according to available maps but this should be ascertained by
competent surveyor or engineer.
Tax Data
The subject property is proposed construction property and the taxes on the
vacant land only are minimal. The subject property will be placed on the
Bossier Parish tax roles the year after it is completed and at that time will
be assessed and the tax liability can be estimated. For the purposes of this
appraisal report and for the utilization in the Income Approach, taxes have
been projected based on comparable properties but are subject to change once
the property is completed and placed on the tax roles.
Robert M. McSherry, MAI
<PAGE>
LOCATION MAP
Robert M. McSherry, MAI
<PAGE>
[PICTURE OF CITY MAP INDICATING THE SUBJECT PROPERTY]
<PAGE>
DESCRIPTION OF THE IMPROVEMENTS
The proposed facility would be constructed within a single building but a
building comprised of different component sections housing the various types
of units including the independent living, assisted living and mental disorder
units. The building is a modified T-shape and comes to a total of 42,829
square feet of heated area. The assisted living units contained within this
facility will contain approximately 485 square feet of living area and
feature a bedroom, living room, kitchenette and full bath with shower. The
assisted living units will be identical to the independent living units in
all respects. The mental disorder units located in a separate structure at
the rear of the property will contain 283 square feet of living area and
feature a half bath with a toilet and lavatory and bedroom area.
Construction characteristics for all buildings include reinforced poured
concrete foundation with adequate grade beams and both interior and perimeter
footings with the exterior being wood framing utilizing a combination of
brick veneer vinyl with the roof being a composition shingle roof over wood
decking. Windows will be insulated, horizontal slide aluminum windows with
each unit in the assisted care section having it's own central HVAC unit as
well as the common areas with zoned units with each of the independent living
cottages also having separate HVAC.
Interior construction will include a combination of vinyl and carpet or
ceramic tile flooring, painted or vinyl covered sheetrock walls with
acoustical ceilings. Lighting will be both standard and fluorescent fixtures.
Robert M. McSherry, MAI
<PAGE>
Amenities to be contained within the assisted care portion of the building
include a full service kitchen, dining room, activities area, whirlpool area,
staff laundry, TV rooms, offices and other required amenities.
As previously noted, the total gross area contained within the subject
property is 42,829 square feet. Of this total, 10,591 square feet is
contained within the mental disorder wing including the associated common
areas with 7,329 square feet contained within the common area core of the
independent and assisted living units. Parking will be poured concrete and
located at strategic locations around the site and will be adequate to
fulfill the requirements of both the tenants and staff. Landscaping will be
extensive and utilized in conjunction with the natural topography of the area
should be most pleasing.
As noted, the subject property is proposed construction and this appraiser
has been provided only the most preliminary plans and specifications. A
complete set of working drawings will be provided the appraiser as a
condition of this appraisal to ascertain the assumptions utilized within this
report have been fulfilled. A final inspection by the appraiser will be
required.
Robert M. McSherry, MAI
<PAGE>
HIGHEST AND BEST USE
Introduction
The Appraisal Institute defined highest and best use as follows, "that legal
use, at the time of the appraisal, which is the most profitable likely use to
which a property can be put."
There are several basic factors which must be considered in order to make a
proper determination of Highest and Best Use:
1. The use must be legal, that is, legally adaptable regarding zoning and
other restrictions;
2. The use must be probable, not conjectural or speculative;
3. The property must be physically adaptable to use contemplated;
4. There must be a demand for such use;
5. The use must be profitable, the highest return to the land over the
longest period of time.
Highest and best use of the land (or site) if vacant and available for use
may be different from the highest and best use of the improved property. This
is true if the improvement is not an appropriate use, but it makes a
contribution to the total property value in excess of the value of the site.
The above five tests have been applied to the subject property's vacant site.
In arriving at the estimate of highest and best use, the subject site has been
carefully analyzed.
Robert M. McSherry, MAI
<PAGE>
HIGHEST AND BEST USE ASSUMING A VACANT SITE
Permissible Use
An investigation has been conducted in order to determine the zoning
classification that encumbers the subject property. The results of this
investigation has revealed that the subject site is currently zoned "B-3".
The proposed utilization of the property as a congregate care development
will be a legal, conforming use.
Possible Use
Inspection of the subject property's neighborhood has been made to determine
any physical limitations that might be present. The result of this
inspection has revealed the neighborhood is developed with mix of property
types. The zoning applicable to the subject site allows for a variety of
uses which enables the site to be utilized for the proposed utilization as a
congregate care development.
Robert M. McSherry, MAI
<PAGE>
THE APPRAISAL PROCESS
The real estate appraisal profession typically utilizes three basic approaches
in the process of estimating the value of a parcel of real property. These
approaches include the Cost Approach, the Income Approach and the Market Data
Approach. The Cost Approach utilizes an estimate of reproduction or
replacement costs new of the building and other on-site improvements to be
contained within the subject property less accrued depreciation from all
sources including physical curable and incurable deterioration, functional
obsolescence and economic obsolescence to arrive at an estimate of
depreciated reproduction or replacement costs for the improvements. The
estimated value of the site, as if vacant, and determined by the comparison
of the subject site with other similar parcels in either the immediate
proximity of the subject or in other comparable areas is added to the
depreciated reproduction or replacement cost estimate of the improvements to
provide an indication of value of the property being appraised from the Cost
Approach.
The Cost Approach is generally accorded the greatest credence in instances
where the property being appraised is either a proposed property or a new
property having little or no accrued depreciation or instances where the
property being appraised represents a special purpose type property. In
these instances, the Cost Approach is an accurate indication of value for the
property and is accorded considerable credence in the reconciliation process.
The Income Approach to Value utilizes an estimate of gross annual income to
be generated by the property being appraised as determined to be
representative of economic rentals for this type property within the area
less an allowance
Robert M. McSherry, MAI
<PAGE>
considered typical for vacancy and collection losses to arrive at an estimate
of effective gross annual income which is to be generated by the property.
Expenses typically associated with the operation of this type property in
accordance with prevailing lease terms and conditions in the area as well as
data provided by analysis of the operating history of other similar type
properties are projected and deducted from the effective gross annual income
to arrive at an estimate of net operating income before recapture
attributable to the subject. This net operating income is then capitalized
by the most appropriate method available with respect to the subject property
in particular and the appraisal problem in general into an indication of
value for the property being appraised from the Income Approach. Another
method of utilizing the Income Approach is the Gross Income Multiplier
technique. This technique identifies the relationship between the sales
price (value) of a property and its gross annual income earning potential.
The Gross Income Multiplier is derived by dividing the sales price of
a property by its gross potential income and, thus, is an excellent indicator
of buyer, seller and investor attitudes toward the property being analyzed.
An effective gross income multiplier is also excellent as it utilizes the
actual gross income after vacancy to derive the multiplier. use depends upon
available data.
The Market Data or Direct Sales Comparison Approach utilize sales of comparable
improved properties in either the immediate proximity of the subject or in
other comparable areas to derive a unit of comparison. Each of the various
comparable sales are carefully reviewed and analyzed by the appraiser,
adjusted for any dissimilarities between the subject property and the
comparable sale in such areas as date of sale, location, design, condition,
and other physical characteristics to result in an adjusted unit of
comparison to be utilized in the
Robert M. McSherry, MAI
<PAGE>
Market Data or Direct Sales Comparison Approach to provide an indication of
value for the property being appraised.
The reconciliation is the method whereby all data provided by the various
approaches utilized in the appraisal report are carefully analyzed and
accorded weight in varying degrees. The approach which is considered to be
the most representative of current buyer, seller and investor attitudes
towards the subject property is accorded the greatest credence in the final
analysis but all the approaches are interrelated and all data gathered and
utilized in the various approaches must be carefully analyzed in the
reconciliation process and to ignore any available data would be improper.
Robert M. McSherry, MAI
<PAGE>
COST APPROACH TO VALUE
The Cost Approach to Value, like the Sales Comparison and Income Approaches,
is based on comparison. in the Cost Approach, the cost to construct a
building and the value of any existing building are compared. The Cost
Approach to Value reflects market thinking in the recognition that market
participants relate value to cost. Buyers tend to judge the value of an
existing structure by comparing it to the value of a newly constructed
building with optimal functional utility. Moreover, buyers adjust the prices
they are willing to buy by estimating the cost to bring an existing structure
to desired levels of functional utility.
Thus, by applying the Cost Approach, an appraiser attempts to estimate the
difference in worth to a buyer between the property being appraised and a
newly constructed building with optimal utility. An appraiser makes a sound
value estimate by estimating the cost to construct a reproduction of or a
replacement of the existing structure and then deducts all evidence of
accrued depreciation in the property being appraised from the cost of the
reproduction or replacement structure and the resulting figure, plus the
value of the land, plus any entrepreneurial profit provides a value
indication through the application of the Cost Approach.
The decision to utilize reproduction or replacement costs is most pertinent
and the selection plays and important part in contributing to the validity of
the Cost Approach. Replacement cost is defined in Real Estate Appraisal
Terminology as being, "the cost of construction at current prices of a
building having utility equivalent to the building being appraised but built
with modern materials and
Robert M. McSherry, MAI
<PAGE>
according to the current standards, design and layout. The use of the
replacement cost concept presumably eliminates all functional obsolescence
and the only depreciation to be measured is physical deterioration and
economic obsolescence." The appraisers will utilize the replacement cost
method supported by Marshall Valuation Service in conjunction with the
construction cost estimate provided by knowledgeable contractors/engineers or
architects.
DEPRECIATION
All types of accrued depreciation affecting the subject improvements were
considered. Accrued depreciation is defined as, "the difference between
reproduction cost new as of the date of the appraisal and the present
contributory value of the improvements." Accrued depreciation is divided
into three basic categories:physical deterioration (which includes curable
and incurable), functional obsolescence (including curable and incurable),
and economic obsolescence (which is always incurable). The following is a
discussion of each type of depreciation and the observed depreciation
applicable to the subject property.
Physical Deterioration, Curable
This type of depreciation is defined as, "the loss in value from cost new
which can be recovered or offset through correction, repair, or replacement of
the defective items causing the loss, providing the resultant value
approximates the cost of the work." The property is proposed thus no deferred
maintenance is present.
Robert M. McSherry, MAI
<PAGE>
Physical Deterioration, Incurable
This type of depreciation is defined as, "the loss from cost new which is
impossible to offset or which would involve an expenditure substantially in
excess of the value increase resulting therefrom." The property is proposed
and has an effective are of 0 years and a total economic life of 30 years.
Functional Obsolescence
Functional obsolescence is defined as, "the loss from cost new as of the date
of the appraisal which is caused by a superadequacy, inadequacy, unattractive
style, poor or inefficient layout or design." Items causing functional
obsolescence can be either curable or incurable; it is curable only when it
is profitable to cure the item. Incurable, functional obsolescence involves
items of initiate which would not be economical to correct because the value
would not increase so much as the cost of correction. Based on my inspection
of the subject improvements, it is my opinion that they are totally adequate
and comparable to similar properties in the same general price range,
therefore, no loss of value from functional obsolescence exists.
Economic Obsolescence
This type of depreciation is defined as, "the loss from cost new as of the
date of the appraisal due to causes external to the property boundaries." To
measure this type of obsolescence the appraiser capitalizes the rent lost due
to the external factor for the prorata share applicable to the building. As
indicated in the site date, there are no undesirable external influences and,
thus, there is no loss to the subject improvements due to economic
obsolescence.
Robert M. McSherry, MAI
<PAGE>
Entrepreneurial Profit
For the Cost Approach to provide a sound indication of value, a market
derived entrepreneurial profit must be added to the direct and indirect costs.
The profit figure is typically expressed as a percentage of total direct and
indirect costs. Entrepreneurial profit is a necessary element in the
motivation to construct the improvements. However, part or all of the
profit may be lost as functional or external obsolescence if the market
indicates that the improvements have a Market Value less than the current
reproduction or replacement cost less physical deterioration.
The results of the investigation and analysis of this market data will appear
as follows:
Robert M. McSherry, MAI
<PAGE>
COMPARABLE LAND SALE 1
Date of Sale: October 2, 1996
Location: Northwest corner of I-49 at
Industrial Loop, Shreveport, Louisiana
Brief Legal Description: Tract in SE 1/4 of Section 16, T14-Rl,
Caddo Parish, Louisiana
Recordation Data: CB 3141, Page 260, Caddo Parish,
Louisiana
Grantor: Southport Development, LLC
Grantee: Circuit City Stores, Inc.
Sales Price: $1,063,710.00
Terms of Sale: OVC's
Cash Equivalency Price: $1,063,710.00
Site Size: 228,037 square feet; 5.2350 acres
Indicated Price/Acre: $203,192.00
Indicated Price/Sq. Ft.: $4.66
Utilities: All available to be connected
Flood Zone: N/A
Zoning: "B-3"
Confirmation: Bill Sale (Grantor)
Data Files
Robert M. McSherry, MAI
<PAGE>
COMPARABLE LAND SALE 2
Date of Sale: August 19, 1996
Location: Eastside of I-49, SW corner of
Enterprise, Shreveport, Louisiana
Brief Legal Description: Tract in N 1/2 of Section 12, T16-Rl4,
known as Metroplex Business Park.
Caddo Parish, Louisiana
Recordation Data: CB 3132, Page 290, Caddo Parish,
Louisiana
Grantor: John Nelson
Grantee: AMI, NISHA and RAJ, LLC
Sales Price: $413,820.00
Terms of Sale: Cash
Cash Equivalency Price: $413,820.00
Site Size: 87,120 square feet, 2 acres
Indicated Price/Acre: $206,910.00
Indicated Price/Sq. Ft.: $4.75
Utilities: All available
Flood Zone: N/A
Zoning: "B-3"
Confirmation: Jim Dowling
Robert M. McSherry, MAI
<PAGE>
COMPARABLE LAND SALE 3
Date of Sale: October 2, 1996
Location: NW corner of I-49 at Industrial,
Shreveport, Louisiana
Brief Legal Description: Tract in SE 1/4 of Section 16, T14-Rl,
Caddo Parish, Louisiana
Recordation Data: CB 3141, Page 249, Caddo Parish,
Louisiana
Grantor: Susan Buzick
Grantee: Southport Development, LLC
Sales Price: $1,720,500.00
Terms of Sale: Credit Sale
Cash Equivalency Price: $1,720,500.00
Site Size: 1,429,378 square feet; 32.8140 acres
Indicated Price/Acre: $52,431.00
Indicated Price/Sq. Ft.: $1.20
Utilities: All available to be connected
Flood Zone: N/A
Zoning: "B-3"
Confirmation: Bill Sale
Robert M. McSherry, MAI
<PAGE>
COMPARABLE LAND SALE 4
Date of Sale: June 20, 1996
Location: Stevens at Industrial,
Shreveport, Louisiana
Brief Legal Description: Tract Section 12, T16-Rl4, being S 1/2
NE 1/4 and part of SE 1/4 North of
Flournoy-Lucas Road, Caddo Parish,
Louisiana
Recordation Data: CB 3122, Page 6, Caddo Parish,
Louisiana
Grantor: Commercial National Bank
Grantee: Brookwood Baptist Church
Sales Price: $925,000.00
Terms of Sale: Cash
Cash Equivalency Price: $925,000.00
Site Size: 925,258 square feet; 21.241 acres
Indicated Price/Acre: $43,547.00
Indicated Price/Sq. Ft.: $1.00
Utilities: All available
Flood Zone: N/A
Zoning: "R-A"
Confirmation: Data Files
Robert M. McSherry, MAI
<PAGE>
COMPARABLE LAND SALE 5
Date of Sale: January 24, 1997
Location: South of Industrial at SE corner of
I-49, Shreveport, Louisiana
Brief Legal Description: Tract in NE of Section 16, Tl6-Rl4,
Caddo Parish, Louisiana
Recordation Data: CB 3159, Page 343, Caddo Parish,
Louisiana
Grantor: Steve Simon Construction Company,
Inc.
Grantee: Sisters of Charity of the Incarnate Word
Sales Price: $1,118,660.00
Terms of Sale: Cash
Cash Equivalency Price: $1,118,660.00
Site Size: 456,595 square feet; 10.482 acres
Indicated Price/Acre: $106,721.00
Indicated Price/Sq. Ft.: $2.45
Utilities: All available
Flood Zone: N/A
Zoning: Unknown, thought to be "R-A"
Confirmation: Vendee/Data Files
Robert M. McSherry, MAI
<PAGE>
COMPARABLE LAND SALE 6
Date of Sale: August 18,1995
Location: Eastside of Airline Drive, at the
southeast quadrant of I-220, Bossier
City, Louisiana
Brief Legal Description: Tract in Section 16, T18N-Rl3W,
Bossier City, Louisiana
Recordation Data: Instrument #599781, Bossier Parish,
Louisiana
Grantor: Haynesville Mercantile Company et al
Grantee: Wal-Mart Stores, Inc.
Sales Price: $1,892,594.88
Terms of Sale: Cash
Cash Equivalency Price: $1,892,594.88
Site Size: 946,297 square feet; 21.7240 acres
Indicated Price/Acre: $87,120.00/acre
Indicated Price/Sq. Ft.: $2.00
Utilities: All available
Flood Zone: Not Available
Zoning: B-3 Community Business District
Confirmation: Vendor/Data Files
Robert M. McSherry, MAI
<PAGE>
COMPARABLE LAND SALE 7
Date of Sale: April 11, 1995
Location: Westside of Benton Road; at the
northwest quadrant of I-220, Bossier
City, Louisiana
Brief Legal Description: Tract in NE/4 of Section 8,
Tl8N-Rl3W, Bossier Parish, Louisiana
Recordation Data: Instrument #592208, Bossier Parish,
Louisiana
Grantor: Allan J. Kelly
Grantee: A.L. & W. Moore Trucking Company,
Inc.
Sales Price: $200,000.00
Terms of Sale: Cash
Cash Equivalency Price: $200,000.00
Site Size: 83,200 square feet; 1.91 acres
Indicated Price/Acre: $104,712.04acre
Indicated Price/Sq. Ft.: $2.40
Utilities: All available
Flood Zone: Not Available
Zoning: I-1 Light Industrial
Confirmation: Vendor/Data Files
Robert M. McSherry, MAI
<PAGE>
COMPARABLE LAND SALE 8
Date of Sale: December 30, 1994
Location: I-220 Frontage Road north, between
Benton Road and Airline Drive, Bossier
City, Louisiana
Brief Legal Description: Tracts A&B in Sections 9 & 16,
Tl8N-Rl3W, Tract C in Sections 8, 9,
16 & 17, Tl8N-Rl3W, and Tract D in
Section 9, Tl8N-Rl3W, Bossier Parish,
Louisiana
Recordation Data: Instrument #786854, Bossier Parish,
Louisiana
Grantor: Haynesville Mercantile Company et al
Grantee: Willis-Knighton Medical Center
Sales Price: $4,084,664.76
Terms of Sale: Cash
Cash Equivalency Price: $4,084,664.76
Site Size: 1,565,372 square feet; 35.936 acres
Indicated Price/Acre: $113,664.98
Indicated Price/Sq. Ft.: $2.61
Utilities: All available
Flood Zone: Not Available
Zoning: B-3 Community Business District
Confirmation: Deed of Record
Robert M. McSherry, MAI
<PAGE>
COMPARABLE LAND SALES MAP
Robert M. McSherry, MAI
<PAGE>
ANALYSIS OF COMPARABLE LAND SALES
Sale Number Date Size/Acre Price/Acre Price/Sq. Ft.
One October 199 65.2 $203,192.00 $4.66
Two August 1996 2 $206,910.00 $4.75
Three October 1996 32.8 $52,431.00 $1.20
Four June 1996 21.2 $43,547.00 $1.00
Five January 1997 10.4 $106721 $2.40
Six April 1995 21.724 $87,120.00 $2.00
Seven April 199 51.91 $104,712.00 $2.40
Eight December 1994 35.94 $113,664.00 $2.61
This appraisal contains eight sales of what are considered comparable
properties with respect to both the subject property. Analysis of these sales
has led to the following observations and adjustments by the appraiser.
Land Sales 1 and 2 are both smaller acreage tracts which feature vastly
superior locations at the intersection of I-49 and Industrial Loop and
require a downward adjustment for the size differential, but more importantly,
for their superior location with respect to their actual location at the
intersection and their visibility enjoyed by these properties. The physical
characteristics enjoyed by these two sales are also vastly superior to those
of the subject requiring, again, a downward adjustment.
Land Sales 3, 4 and 5 are all located in the immediate proximity of the
I-49-Industrial Loop interchange but away from direct frontage and feature
locations similar to that of the subject. The greatest emphasis has been
placed on Sales 3 and 4 which are considered to be excellent indicators of
current market value of the subject. However, this sale requires a slight
downward adjustment for a superior location and superior physical
characteristics.
Robert M. McSherry, MAI
<PAGE>
Land Sales 6, 7 and 8 are all located along the I-220 Loop in Bossier City,
Louisiana. All sales are considered excellent indicators of current
attitudes with Sale 6 being perhaps the most similar with respect to the
subject.
Sale 8 is also a large acreage tract and features a superior location,
superior access and other superior characteristics again, requiring a slight
downward adjustment for this factor.
Land Sale 7 is considered an excellent indicator of values and, after a
slight downward adjustment for a superior location, is considered an
excellent indicator of value.
After these eight sales contained within this appraisal report have been
personally inspected by the appraiser, analyzed and adjusted for
dissimilarities, as well as other sales contained in our appraisal files have
been also reviewed, it is the opinion of the appraiser that the property
identified as the site containing 6 acres is estimated to have a Market Value,
as if vacant, and in it's current physical state of $2.00 per square foot.
Therefore, the Estimated Value of the subject property is thus summarized:
261,360 square feet @ $2.00/square foot = $522,720.00
INDICATED VALUE OF SITE,
AS IF VACANT (R/T) $525,000.00
Robert M. McSherry, MAI
<PAGE>
DISCUSSION OF COST APPROACH
In the construction of any project, the total cost of development can be
divided into basic categories: direct or hard cost, and indirect or soft
costs. As defined in Real Estate Appraisal Terminology, the definition of
Direct Costs is, "the cost of direct labor and materials devoted specifically
to a unit of work. In construction, these costs are directly related to site
acquisition and construction of the improvements..." Defined in this same
text, Indirect Cost is, "that cost in the development of a property which
would not be included in a general contract for construction or for land
acquisition..."
Direct costs include the cost of items such as land acquisition, construction
of the buildings, equipment and fixtures, the builder's profit and overhead,
any temporary buildings for on-the-job usage, power line installation, and
the electrical power used in the construction. As indicated in the Cost
Approach Schedule which follows, direct or hard costs have been broken down
into categories of building area, elevators and other primary building costs.
Indirect, or soft costs, generally include fees, financing costs, and
overhead. As the Cost Approach Schedule indicates, the indirect costs fall
into 8 categories. The permits and fees sections include the estimated costs
of a building permit, an appraisal, a survey and accounting and inspection
charges. Architectural engineering estimates have been based on typical
market charges. The legal expenses includes work done on both interim and
permanent loan packages. The insurance costs indicated are limited to
construction-period coverage including the builder's risk.
Robert M. McSherry, MAI
<PAGE>
The closing cost estimate includes costs of closing both the interim and
permanent loans. The interest expense is based on typical current market
conditions and covers the period of time required to complete the
construction of the project. The loan commitment fees are also based on
current typical market conditions.
The appraiser's have relied upon the Marshall Valuation Service, a
publication of Marshall & Swift, 1617 Beverly Boulevard, Post Office Box
26307, Los Angeles, California, in estimating the replacement costs new of
the subject property improvements.
The Cost Approach to Value, as it applies to the property being appraised, is
as follows:
Robert M. McSherry, MAI
<PAGE>
COST APPROACH TO VALUE
Direct Costs:
Assisted Living and Independent Living Units
24,909 sq. ft. @ $47.00/sq. ft. $1,170,723.00
Common Area Associated with Assisted and
Independent Living Units
7,329 sq. ft. @ $47.00/sq. ft. $ 344,463.00
Mental Disorder Units Including Common Areas
10,591 sq. ft. @ $65.00/sq. ft. $ 688,415.00
Total Direct Costs: Improvements $2,203,601.00
Indirect Costs:
Plans, Specifications, Inspection Included in Direct Costs
Contractor's Overhead/Profit Included in Direct Costs
Interim Interest Included in Direct Costs
Legal, Audit, Appraisal $ 44,000.00
Financing Fees $176,200.00
Misc. Expenses $ 50,000.00
Total Indirect Costs $ 270,200.00
Total Replacement Costs New: Improvements $2,473,801.00
Less:Accrued Depreciation
Physical Curable -0-
Physical Incurable -0-
Functional Obsolescence -0-
Economic Obsolescence -0-
Total Accrued Depreciation -0-
Depreciated Replacement Costs: Improvements $2,473,001.00
Add: Land Value $ 525,000.00
Add: Entrepreneurial Profits (5%) $ 125,000.00
Add: Furniture, Fixtures and Equipment $ 108,000.00
Add: Parking, Walks, Landscaping, Porches $ 60,000.00
Robert M. McSherry, MAI
<PAGE>
Total All Costs and Value Components $3,291,801.00
INDICATED VALUE OF SUBJECT FROM
COST APPROACH (R/T) $3,290,000.00
Robert M. McSherry, MAI
<PAGE>
MARKET DATA APPROACH TO VALUE
Market data is discussed in all the approaches to value. Data analysis is
needed in the Cost Approach to develop a land value indication and to support
costs and depreciation indicators; in the Income Approach to establish rent
levels, vacancy indications, expenses, and capitalization rates; and in the
Direct Sales Comparison Approach to establish comparability.
This appraiser has conducted a thorough and in-depth review in order to
identify sales of similar improved properties through out the state,
Unfortunately, no improved property sales which are considered true arms
length transactions and comparable to the subject have been found and,
accordingly, the Market Data Approach has not been completed for this
particular property.
Robert M. McSherry, MAI
<PAGE>
INCOME APPROACH TO VALUE
Introduction
The Income Approach reflects the subject's income-producing capabilities and
requires an analysis of the project's probable market rent. In the
comparative analysis, we have considered factors that would probably
influence market acceptance of properties in the area. The factors include
proximity to major traffic arteries; location; design; amenities; and the
quality of management.
To develop a supportable estimate of value using the Income Capitalization
Approach, realistic projections of income and expenses must be made.
congregate care facilities are unique forms of real estate with many unusual
characteristics, such as an intensive use of labor, costs of goods sold,
expenses categories, and product identity. Therefore, special care in data
gathering and analysis are required to create an estimate of the future
income for the subject. The appraiser will utilize data provided by the
publication, Trends in the Health Care Industry for supporting data.
The subject property is proposed at the present time and, therefore, has no
historical income and expense data associated with the property.
The subject will contain 18 independent living units, 18 assisted care units
and 24 mental disorder units located within a single building made up of
four (4) different modular units which contains all the common area amenities
required.
Robert M. McSherry, MAI
<PAGE>
Services provided the assisted living units will include all utilities, maid
service once a week, three meals per day, minimum transportation, activities
with additional laundry and maid service available for an additional expense.
This appraiser has had the opportunity to appraise several assisted care
facilities in both Louisiana and Mississippi over the last several years and
have relied on data provided by these facilities, various industry
publications and data provided by various health care consulting groups and
experts in arriving at the estimated monthly rental rates and expenses
including fixed expenses, operating expenses, staffing, dietary, reserves and
other appropriate expenses.
This appraiser has conducted rental surveys of an adequate number of
competing assisted care, private pay facilities to accurately arrive at both
an economic monthly rate as well as stabilized occupancy for the subject. It
is pertinent to note that although one hundred percent occupancy may result
for limited periods of time, the loss of tenants throughout the year due to
various reasons will result in a weighted occupancy level below this one
hundred percent occupancy level which is considered typical of the industry.
The actual income and expense data of various facilities is closely held
information and these individuals have requested confidentiality with respect
to this actual data. Accordingly, this data has been retained in our various
files.
The results of our survey and analysis indicates an economic rental rate for
the assisted care units, based on the herein listed services being provided,
of $1,625.00 per month for the first two years of operation and increasing to
$1,750.00 per month in the third year, $1,250.00 per month for the first two
years
Robert M. McSherry, MAI
<PAGE>
and increasing to $1,310.00 per month for the third year for the independent
living units and $2,650.00 per month for the first two years, increasing to
$2,780.00 per month in the third year for the mental disorder units. The
three year period will be required to achieve stabilized occupancy thus a
stabilized net operating income for the subject property.
Inflation will impact expense projections as well and these anticipated
increases have also been utilized in the Income Approach to Value.
The Income Approach to Value as it applies to the property being appraised
based on economic rental rates herein quoted and utilizing a three year
period in order to achieve a stabilized net occupancy and thus a stabilized
net operating income is reproduced as follows:
Robert M. McSherry, MAI
<PAGE>
INCOME APPROACH TO VALUE
Year One
Gross Annual Potential Income
18 - Assisted Living Units @ $1,675.00/month $ 361,800.00
18 - Independent Living Units @ $1,250.00/month $ 270,000.00
24 - Mental Disorder Units @ $2,650.00/month $ 763,200.00
Total Gross Annual Potential Income $1,395,000.00
Less:Vacancy and Collection Losses
Independent Living Units (50%) $ 135,000.00
Assisted Living Units (50%) $ 180,900.00
Mental Disorder Units (50%) $ 381,600.00
Total Vacancy and Collection Loss $ 697,500.00
Effective Gross Annual Potential Income $ 697,500.00
Expenses:
Administrative $144,000.00
Plant Operations $125,000.00
Dietary $110,000.00
Housekeeping $ 36,000.00
Aides $110,000.00
Activities $ 45,000.00
Reserves for Replacement $ 9,000.00
Total Expenses $ 579,000.00
Net Operating Income $ 118,500.00
Robert M. McSherry, MAI
<PAGE>
INCOME APPROACH TO VALUE
Year Two
Gross Annual Potential Income
18 - Assisted Living Units @ $1,675.00/month $ 361,800.00
18 - Independent Living Units @ $1,250.00/month $ 270,000.00
24 - Mental Disorder Units @ $2,650.00/month $ 763,200.00
Total Gross Annual Potential Income $1,395,000.00
Less: Vacancy and Collection Losses
Independent Living Units (10%) $ 27,000.00
Assisted Living Units (25%) $ 90,450.00
Mental Disorder Units (10%) $ 76,320.00
Total Vacancy and Collection Loss $ 193,770.00
Effective Gross Annual Potential Income $1,201,230.00
Expenses:
Administrative $151,200.00
Plant Operations $137,500.00
Dietary $143,000.00
Housekeeping $ 37,800.00
Aides $115,500.00
Activities $ 47,250.00
Reserves for Replacement $ 9,000.00
Total Expenses $ 641,250.00
Net Operating Income $ 559,900.00
Robert M. McSherry, MAI
<PAGE>
INCOME APPROACH TO VALUE
Year Three
Gross Annual Potential Income
18 - Assisted Living Units @ $1,750.00/month $ 378,800.00
18 - Independent Living Units @ $1,310.00/month $ 282,960.00
24 - Mental Disorder Units @ $2,780.00/month $ 800,640.00
Total Gross Annual Potential Income $1,461,600.00
Less:Vacancy and Collection Losses
Independent Living Units (5%) $ 14,148.00
Assisted Living Units (5%) $ 18,900.00
Mental Disorder Units (10%) $ 80,064.00
Total Vacancy and Collection Loss $ 113,112.00
Effective Gross Annual Potential Income $1,348,488.00
Expenses:
Administrative $160,000.00
Plant Operations $151,500.00
Dietary $185,900.00
Housekeeping $ 40,000.00
Aides $121,500.00
Activities $ 49,600.00
Reserves for Replacement $ 9,000.00
Total Expenses $ 717,500.00
Net Operating Income $ 630,988.00
Robert M. McSherry, MAI
<PAGE>
JUSTIFICATION OF CAPITALIZATION RATE
Direct Capitalization is a method used to convert a single year's income
estimate into a value indication in the Income Capitalization Approach. The
direct capitalization formula using an overall property capitalization rate
is:
Value / Net Operating Income = Overall Capitalization Rate
In this appraisal, the appraisers will employ two different methods to
obtain an overall capitalization rate:
1) Band of Investment - mortgage and equity components
2) Underwriter's Method (derivation from debt coverage ratio)
Band of Investment
The appraisers contacted local lenders regarding rates and terms of alternate
investments as well as current market rates applicable for this market.
Annual Constant - In developing the mortgage components for the Band of
Investment Method, the appraisers reviewed the National Mortgage Commitment
Survey conducted by the Appraisal Institute Research Department which
surveyed sample lenders in various geographical regions throughout the United
States. The data quoted is based on national averages and do not reflect
conditions inherent in all markets. Therefore, the appraisers contacted
local lenders regarding rates and terms applicable for this market area.
Lenders in the local market are quoting rates at prime plus 1%, terms of 20
years. 75% and a loan-to-value ratio. The local market closely approximates
the national averages for the subject property type.
Robert M. McSherry, MAI
<PAGE>
The appraisers reviewed available data concerning current national and local
quoted mortgage rates and talked to various lenders in the Louisiana area
which confirm that market rates and terms for loans of the quality of the
subject property are available at 9% interest rate with monthly payments
amortized for a 20 year term, a 75% loan-to-value ratio. Therefore, the
mortgage constant is derived to be .1079671.
Equity Dividend - Current rates of return available from alternative
investment vehicles are reviewed. These alternative investments are more
liquid than an investment in real estate; therefore any potential investor
would expect a higher rate of return. Based on this, we have been able to
conclude that a 9% equity dividend rate is required to attract investment
capital to the subject property's type which is considered to be slightly
more risky than other types of real estate investments.
Derivation of Capitalization Rate - The band of investment (or weighted
average) formula for deriving an overall rate when the mortgage constant and
equity dividend rates is known as:
Mortgage Percent x Mortgage Constant
Plus
Equity Percent x Equity Dividend Rate
Equals
Overall Capitalization Rate
.75 x .1079671 = .0809
.25 x .09 = .0225
Total = .10340
Rounded to .103
Robert M. McSherry, MAI
<PAGE>
Underwriter's Method
In making loan decisions, institutional lenders use a debt coverage ratio
(DCR), which is the ratio of net operating income to annual debt service.
This measure of constraint is frequently used by institutional lenders, who
are general fiduciaries. They manage and lend the money of others, including
depositors and policy holders. Because of the fiduciary responsibility,
institutional lenders are particularly sensitive to the safety and profit and
are anxious to avoid default and possible foreclosure. Consequently, when
they underwrite income property loans, institutional lenders try to provide a
cushion so that the borrower will be able to meet the debt service
obligations on the loan even if the building income declines.
The debt coverage ratio may also be used to estimate the overall
capitalization rate by multiplying the ratio by the mortgage loan constant
(RM) and the loan-to-value ratio (M). The debt coverage ratio, mortgage loan
constant, and loan-to-value ratio have already been determined to be 1.20,
.1079671 and .75, respectfully. The formula for derivation of an overall
capitalization rate from debt coverage ratio is as follows:
RO = DCR x RM x M
RO = 1.20 X. 1079671 X .75
RO =.0971
R/T =.097
Conclusion
Based on the available information we have concluded that a 10% is the most
appropriate capitalization rate which is derived from the actual band of
Robert M. McSherry, MAI
<PAGE>
investments method and supported by the Underwriter's Method and available
market data. Thus:
NET OPERATING INCOME
----------------------- = VALUE
OVERALL CAPITALIZATION RATE
$630 988.00
----------- = $6,309,880.00
.10
INDICATED VALUE OF SUBJECT FROM
INCOME APPROACH (R/T) $6,310,000.00
Robert M. McSherry, MAI
<PAGE>
DISCOUNTED CASH FLOW ANALYSIS
The subject property will require a period in excess of one year to achieve
stabilized net income. In order to provide an estimate of the present value
of the improvements upon completion but prior to achieving stabilized net
operating income, the discounting process is utilized.
The income stream generated by the subject until stabilized income is reached
is discounted into an estimate of present value and the revisionary value of
the improvements as estimated upon achieving a stabilized net income is also
discounted to present worth. The market indicates a discount rate of 9% to
be appropriate to be utilized in discounting the income and reversion and
this is based on current rates of return on alternate investments and the
risk associated with the subject.
Robert M. McSherry, MAI
<PAGE>
Present Worth of Income Stream
Year One: $118,500.00 x .917431 = $ 108,715.00
Year Two: $559,980.00 x .841680 = $ 471,323.00
Year Three: $630,988.00 x .772183 = $ 487,276.00
Total Present Value of Income Stream $1,872,474.00
Summation:
Present Worth of Income Stream $1,067,276.00
Present Worth/Reversion $4,872,474.00
Total $5,939,750.00
INDICATED VALUE OF SUBJECT FROM
INCOME APPROACH/DISCOUNTED
CASH FLOW $5,940,000.00
Robert M. McSherry, MAI
<PAGE>
RECONCILIATION AND FINAL VALUE
The two approaches to value have indicated the following value estimates of
the property being appraised:
COST APPROACH TO VALUE $3,290,000.00
MARKET APPROACH TO VALUE N/A
INCOME APPROACH TO VALUE
OVERALL CAPITALIZATION RATE $6,310,000.00
DISCOUNTED CASH FLOW
ANALYSIS $5,940,000.00
FINAL VALUE ESTIMATE $6,310,000.00
The subject property is proposed construction and only preliminary plans and
specifications have been provided this appraiser in order to complete the
Cost Approach to Value. Costs are extremely difficult to estimate and no two
competent contractors will ever agree on the actual cost to construct a
property. However, this appraiser has utilized reliable sources including
the Marshall Valuation Service Cost Manual as well as actual construction
costs affecting a similar type property in order to complete the Cost
Approach to Value and this approach is considered reflective of the cost new
of the subject property.
The subject property is considered an income producing and has been valued
based on it being a Going Concern. The property is under competent ownership
and will have excellent management in place and the utilization of the Going
Concern concept is considered appropriate with respect to this particular
appraisal problem. Accordingly, the Indicated Value of the Property based on
Robert M. McSherry, MAI
<PAGE>
stabilized net income being generated at the end of the third year is
considered the best available indicator of it's current Market Value and has
been accorded the greatest credence in the final analysis.
Based on the data contained within this report, other in-file data, and this
appraiser's review and analysis of said data, it is our opinion that the
proposed property identified as The Arbor Group of Bossier City, L.L.C. and
located on Brandon Avenue within the corporate limits of Bossier City,
Bossier Parish, Louisiana was estimated to have a Market Value, as of October
15, 1997, but subject to completion according to plans and specifications
utilizing quality materials and workmanship throughout and also subject to
the other conditions contained within this report, of:
SIX MILLION THREE HUNDRED TEN THOUSAND DOLLARS
($6,310,000.00)
Allocated:
Land $ 525,000.00
Improvements: $2,660,000.00
Furniture, Fixtures and Equipment $ 108,000.00
Goodwill $2,243,000.00
Robert M. McSherry, MAI
<PAGE>
ADDENDA
Robert M. McSherry, MAI
<PAGE>
APPRAISER'S CERTIFICATION
I certify that, to the best of my knowledge and belief....
(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 report assumptions and limiting conditions, and are my personal,
unbiased professional analyses, opinion 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 compensation is not contingent on an action or event resulting
from the analyses, opinions, or conclusions in, or the use of, this
report.
(5) My analyses, opinions, and conclusions were developed, and this report
has been prepared, in conformity with the Uniform Standards of
Professional Appraisal Practice.
(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) 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
Practice of the American Institute of Real Estate Appraisers.
(9) The use of this report is subject to the requirements of the American
Institute of Real Estate Appraisers relating to review by its duly
authorized representatives.
(10) I am not currently certified under the voluntary continuing education
program of the American Institute of Real Estate Appraisers.
Robert M. McSherry, MAI
<PAGE>
(11) I certify that the use of this report is subject to the requirements
of the Appraisal Institute relating to review by its duly authorized
representatives.
Estimated Market Value: --------------------------
$6,310,000.00 Robert M. McSherry, MAI
Certified General Appraiser No. 0891
Allocated:
Land $ 525,000.00
Improvements $2,660,000.00
Furniture, Fixtures and
Equipment $ 108,000.00
Goodwill $2,243,000.00
As Of: October l5, 1997
Robert M. McSherry, MAI
<PAGE>
QUALIFICATIONS OF ROBERT M. MC SHERRY, MAI
EDUCATIONAL BACKGROUND AND TRAINING:
Graduate of Louisiana State University, Baton Rouge, Louisiana, Bachelor of
Science Degree in Business Administration with a Major in Finance.
Real Estate Appraisal Course 1-A, Basic Fundamentals, Methods and
Techniques, 1974, AIREA
Real Estate Appraisal Course 1-B, Capitalization, 1975, AIREA
Real Estate Appraisal Course VIII, Single-Family Residential Appraisal,
1974, AIREA
Real Estate Appraisal Course II, Techniques and Application, 1976 and
1980, AIREA
Real Estate Appraisal Course III, Rural Properties, 1979
Real Estate Appraisal "Industrial Valuation" Course, 1984
Seminar: R-41C - New Orleans, Louisiana, AIREA, 1978
"Standards of Professional Practice" Course, AIREA, 1987
"Capitalization Theory and Techniques, Part A" Course, AIREA, 1987
"Standards of Professional Practice" Course, Appraisal Institute, 1992
PROFESSIONAL EXPERIENCE
Real Estate Broker, State of Louisiana (1971)
Monroe Redevelopment Agency, Monroe, Louisiana (1971)
Ford, Bacon & Drive Construction and Engineering Company, Monroe,
Louisiana (1972)
Mississippi power and Light Company, Jackson, Mississippi (1973-1976)
Cameron-Brown South, Inc., Mortgage Bankers, Baton Rouge, Louisiana
(1976-1977)
Real Estate Appraiser, Monroe, Louisiana (1978-1985)
Robert M. McSherry, MAI
<PAGE>
Real Estate Appraiser, Baton Rouge, Louisiana and Jackson, Mississippi
(1985-Present)
PROFESSIONAL MEMBERSHIPS:
Residential Member, American Institute of Real Estate Appraisers,
Certification Number 1040
Licensed Real Estate Broker, State of Louisiana
Fee Inspector for the Louisiana Homeowners Warranty Corporation
FNMA Approved Level III Appraiser, Number 1027135
Member, American Institute of Real Estate Appraisers - MAI Designation
(1981), Number 6291
Certified Licensed General Appraiser, State of Louisiana, Number 0891
Robert M. McSherry, MAI
<PAGE>
PHOTOGRAPHS
Robert M. McSherry, MAI
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[PICTURE OF SUBJECT PROPERTY]
[PICTURE OF SUBJECT PROPERTY]
<PAGE>
[PICTURE OF SUBJECT PROPERTY]
<PAGE>
[PICTURE OF SITE PLAN]
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[PICTURE OF FLOOR PLAN]
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A Full, Narrative
Appraisal Report of
A Proposed 24 Unit Memory Disorder Facility
Including Adequate Common Area Improvements and Amenities
and to be Located on a 2.7 Acre Site
Within the Corporate Limits of
Shreveport, Caddo Parish, Louisiana
For
Senior Retirement Communities, Inc.
507 Trenton Street
West Monroe, Louisiana
As Of
October 15,1997
Prepared by
Robert M. McSherry, MAI
Louisiana Certified General Appraiser No. 0891
3760 Chelsea Drive
Baton Rouge, Louisiana 70809
ROBERT M. MC SHERRY, MAI
3760 Chelsea Drive
Baton Rouge, Louisiana 70809
Phone (504)924-8093
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October 15, 1997
Senior Retirement Communities, Inc.
507 Trenton Street
West Monroe, Louisiana
RE: A proposed 24 unit memory disorder facility including adequate common area
improvements and to be located on a 2.7 acre site and within the corporate
limits of Shreveport, Caddo Parish, Louisiana.
Dear Sir:
In accordance with your request to provide an estimate of the Estimated Market
Value of Fee Simple Interest of the Going Concern of the property identified
as a proposed 24 unit memory disorder facility situated on a 2.7 acre tract
and located within the corporate limits of Shreveport, Caddo Parish,
Louisiana, we have personally inspected the subject site and reviewed the
submitted plans and specifications for the proposed improvements and
conducted a thorough review and analysis of all matters pertinent for the
Estimate of Market Value herein contained.
Market Value as defined by the Department of the Treasury, Office of the
Comptroller of the Currency, August 24, 1990, 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, 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:
a. buyer and seller are typically motivated,
b. both parties are well informed or well advised, and each acting in what
he considers his own best interest;
c. a reasonable time is allowed for exposure in the open market;
d. payment is made in terms of cash in U.S. dollars or in terms of
financial arrangements comparable thereto; and
Robert M. MeSherry, MAI
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Page Two
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.
Fee Simple Interest is defined by the Appraisal Institute as being, "a fee
without limitations to any particular class of heirs or restrictions but
subject to the limitations of eminent domain, escheat, police power and
taxation. An inheritable estate".
Going Concern Value is "the value created by a proven property operation." It
includes the incremental value associated with the business concern, which is
distinct from the value of the real estate only. Going concern value includes
an intangible enhancement of the value of an operating business enterprise
which is produced by the assemblage of the land, building, labor, equipment,
and marketing operation. This process creates an economically viable business
that is expected to continue. Going concern value refers to the total value
of a property, including both real property and intangible personal property
attributed to business value. Special purpose properties such as the subject
are appropriate for only one use or for a very limited number of uses. The
highest and best use of a special purpose property as improved, is probably
the continuation of its current use, if that use remains viable. Therefore,
in the case of special purpose properties a going concern value is considered
appropriate.
In this instance the subject property has an excellent location within a
viable market. As long as quality management is maintained, it's Market Value
would be the same as it's Going Concern Value.
Included is our appraisal report which contains the various exhibits and data
utilized in arriving at the herein contained estimate of Market Value for the
subject property.
It is our opinion that the property herein identified as the proposed 24 unit
Memory Disorder Facility identified as The Arbor of Shreveport, L.L.C. and
located at the intersection of Fern Drive and Millicent Way within the
corporate limits of Shreveport, Caddo Parish, Louisiana, was estimated to
have a Market Value, as of October 15, 1997, of:
TWO MILLION FOUR HUNDRED FIFTEEN THOUSAND DOLLARS
($2,415,000.00)
Robert M. MeSherry, MAI
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Allocated:
LAND: $ 350,000.00
IMPROVEMENTS: $1,400,000.00
FURNITURE, FIXTURES & EQUIPMENT: $ 84,000.00
GOODWILL: $ 581,000.00
The subject property is proposed at the present time and this appraiser has
been provided with only preliminary plans and specifications for the property.
The herein contained Estimate of Market Value is conditioned upon receipt of
a complete set of working drawings for the improvements and for the completion
of the improvements in accordance with the plans and specifications utilizing
quality materials and workmanship within a reasonable period of time. A
final inspection by this appraiser will be required to ascertain the
assumptions utilized in preparing this appraisal report have been fulfilled.
If we may be of further service to you in regard to this property or in any
other manner, please do not hesitate to contact us at your earliest
convenience.
Respectfully submitted,
/S/ROBERT M. MCSHERRY
Robert M. McSherry, MAI
Louisiana Certified General Appraiser No. 0891
Robert M. McSherry, MAI
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EXECUTIVE SUMMARY
Location: Southeast corner of the intersection of Fern
Avenue and the proposed Millicent Way within
the corporate limits of Shreveport, Caddo
Parish, Louisiana
Interest Appraised: Fee Simple Interest
Site: 2.7 Acres or 117,612 Square Feet
Building Description: The property which will include twenty-four
(24) memory disorder care units containing
approximately 283 square feet of area and
including the common area amenities including
a kitchen, dining area, activities room,
nursing station, administrative offices,
patient baths with whirlpools, laundry and
other typical common area improvements found
within a facility such as the subject.
Construction characteristics include a
reinforced poured concrete foundation, wood
framing, with a combination of brick veneer
and vinyl siding exterior walls with the roof
being of composition shingles. Although the
property is proposed at the present time,
this appraiser is aware of a similar property
which has been constructed by the owners of
the subject and our physical inspection of
this existing complex has been utilized in
conjunction with the submitted plans and
specifications.
The property is considered to be a most
functional facility and is considered a most
attractive amenity to the property and should
be well accepted by the local market.
Highest and Best Use: Memory Disorder Care Facility
Robert M. McSherry, MAI
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Cost Approach to Value $1,555,000.00
Market Approach to Value N/A
Income Approach to Value:
Stabilized Net Income: $2,415,000.00
Discounted Cash Flow Value: $2,260,000.00
Final Value Estimate: $2,415,000.00
Allocated:
Land $ 350,000.00
Improvements $1,400,000.00
Furniture, Fixtures
and Equipment $ 84,000.00
Goodwill $ 581,000.00
Robert M. McSherry, MAI
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IDENTIFICATION OF THE PROPERTY
The property being inspected, analyzed and for which the Market Value Estimate
of the Fee Simple Interest of the Going Concern is applicable is a 2.7 acre
tract of land which is a basically rectangular shaped tract of land having
frontage along the east side of Fern Avenue and will have frontage along the
proposed extension of Millicent Way and is located within the corporate limits
of Shreveport, Caddo Parish, Louisiana. The property appraised is a portion
of a larger 97.6 acre tract of land identified as Daniels Land Subdivision and
is preliminarily identified as Lot 9 of Daniels Land Subdivision. The large
tract is located in Section 29, Township 17, Range 13, Caddo Parish, Louisiana.
The property has not been conveyed to the Arbor Group of Shreveport at the
present time and, accordingly, no complete legal description or metes and
bounds survey has been provided this appraiser and, as a condition of the
appraisal report, a complete detailed legal description and metes and bounds
survey will be required to ascertain the assumption utilized within this
appraisal report have been fulfilled.
Robert M. McSherry, MAI
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PURPOSE OF THE APPRAISAL
The purpose of this report is to communicate, in a narrative format, the data
and reasoning that the appraisers have utilized to form the herein contained
estimate of Market Value of the Fee Simple Interest of the Going Concern for
the property identified as a proposed 24 unit memory disorder care facility
including common areas and located on the eastside of Fern Avenue within the
corporate limits of Shreveport, Louisiana.
OBJECTIVE OF THE APPRAISAL
The objective of this appraisal report is to provide an estimate of the Market
Value of the Fee Simple Interest of the Going Concern of the property for use
by The Arbor Group of Shreveport, L.L.C. as well as selective lenders in order
to obtain long term financing of the subject property and for the internal use
of The Arbor Group of Shreveport, L.L.C.
The Subject property was personally inspected by this appraiser both before
and after the date of this appraisal and the submitted plans and
specifications reviewed. As the property is proposed construction, a final
inspection of the property will be required by the appraiser to ascertain the
assumptions utilized within this appraisal report have been fulfilled and this
appraisal is also conditioned upon being completed in accordance with the
plans and specifications utilizing quality materials and workmanship
throughout. Other additional conditions are contained in an additional
section of this report.
Robert M. McSherry, MAI
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DATE OF THE APPRAISAL
The date of this estimate of Market Value of Fee Simple Interest applies is,
as of October 15, 1997.
Robert M. McSherry, MAI
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DEFINITION OF SIGNIFICANT TERMS
Market Value, as defined by the Department of the Treasury, Office of the
Comptroller of the Currency, August 24, 1990, 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, 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 data 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 each acting in what
he considers his own best interest;
c. a reasonable time is allowed for exposure in the open market;
d. payment is made in terms of cash in U.S. 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.
Fee Simple Interest is defined by the Appraisal Institute as being, "a fee
without limitations to any particular class of heirs or restrictions thetas
subject to the limitations of eminent domain, escheat, police power and
taxation. An inheritable estate".
Going Concern Value is "the value created by a proven property operation." It
includes the incremental value associated with the business concern, which is
distinct from the value of the real estate only. Going concern value includes
an
Robert M. McSherry, MAI
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intangible enhancement of the value of an operating business enterprise which
is produced by the assemblage of the land, building, labor, equipment, and
marketing operation. This process creates an economically viable business
that is expected to continue. Going concern value refers to the total value
of a property, including both real property and intangible personal property
attributed to business value. Special purpose properties such as the subject
are appropriate for only one use or for a very limited number of uses. The
highest and best use of a special purpose property as improved, is probably
the continuation of its current use, if that use remains viable. Therefore,
in the case of special purpose properties a going concern value is considered
appropriate.
Robert M. McSherry, MAI
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PROPERTY RIGHTS APPRAISED
This assignment concerns the appraisal of the Fee Simple Interest with Fee
Simple Interest defined in Real Estate Appraisal Terminology as being, "a fee
without limitations to any particular class of heirs or restrictions but
subject to the limitations of eminent domain, escheat, police power and
taxation. An inheritable estate".
STATEMENT OF OWNERSHIP AND RECENT HISTORY
The property from which the subject site will be derived is identified as
Daniels Land Subdivision located in Shreveport, Caddo Parish, Louisiana. The
property which is the subject of this appraisal report has not been acquired
as of the date of this appraisal with negotiations still underway with the
current owners of the property with a projected purchase price of the vacant
land indicated to be between $2.75 per square foot and $3.50 per square foot.
As the property has not been acquired as of the date of the appraisal, there
is no recent history which would affect the property.
The property has been owned by it's present owners, Daniels Land Subdivision
for a period in excess of five years with no speculative transactions having
affected the subject property to the knowledge of this appraiser.
Robert M. McSherry, MAI
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DATE OF THE APPRAISAL
The effective date of this appraisal is October 15, 1997. The subject site
was personally inspected by this appraiser both before and after this date
and the submitted plans and specifications for the proposed improvements were
also reviewed by the appraiser prior to the date of the appraisal.
Robert M. McSherry, MAI
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ASSUMPTIONS AND LIMITING CONDITIONS
This appraisal report has been made with the following assumptions and
limiting conditions:
1. No responsibility is assumed for the legal description or for matters
including legal or title consideration. Title to the property is
assumed to be good and marketable unless otherwise stated.
2. The property is appraised free and clear of any and all liens or
encumbrances unless otherwise stated.
3. Responsible ownership and competent property management are assumed.
4. The information furnished by others is believed to be reliable. No
warranty, however, is given for its accuracy.
5. All engineering is assumed to be correct. The plot plans and
illustrative material in this report are included only to assist the
reader in visualizing the property
6. It is assumed that there are no hidden or apparent 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.
7. It is assumed 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.
8. It is assumed 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.
9. It is assumed 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.
Robert M. McSherry, MAI
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10. It is assumed 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.
11. 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.
12. The appraisers herein, by reason of this appraisal, are 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.
13. Possession of this report, or a copy thereof, does not carry with it
the right of publication. It may not be used for any purpose by any
person other than the party to whom it is addressed without the written
consent of the appraisers, and in any event only with proper written
qualification and only in its entirety.
14. Neither all nor any part of the contents of this report (especially any
conclusions as to value, the identity of the appraisers, or the firm
with which the appraisers are connected) shall be disseminated to the
public through advertising, public relations, new, sales, or other
media without the prior written consent and approval of the appraisers.
15. The existence of hazardous materials, which may or may not be present
on the subject property, was not observed by the appraisers. The
appraisers have the knowledge of the existence of such materials on or
in the subject property. However, the appraisers are not qualified to
detect such substances and the presence of potential hazardous
materials may affect the value of the property. This value estimate
contained within this report is predicated on the assumption that no
such hazardous materials are present on or in the property. No
responsibility is assumed for any such conditions or for any expertise
or any knowledge required to discover these items. This should be
accomplished by an expert in the field and is a condition of this
appraisal report.
16. That the appraiser has personally inspected the subject property and
finds no obvious evidence of structural deficiencies, except as stated
in this report; however, no responsibility for hidden defects or
conformity to specific governmental requirements, such as the Americans
with Disabilities (ADA) or fire, building and safety, earthquake, or
occupancy codes, etc., can be assumed without provision of specific
professional or governmental inspections.
Robert M. MeSherry, MAI
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17. This property is proposed at the present time and the appraisal is
conditioned upon the completion of the subject property in accordance
with the submitted plans and specifications utilizing quality materials
and workmanship throughout. A final inspection by the appraiser would
be required in order to ascertain the assumptions utilized in arriving
at the herein contained Estimate of Market Value have been fulfilled.
18. This appraisal is not based on a requested minimum valuation, a
specific valuation or the approval of the loan.
19. The subject property will be a portion of a larger tract and no
complete boundary survey or legal description has been provided this
appraiser. As a condition of this appraisal report, a complete
boundary survey and plat will be required by the appraiser to
ascertain the assumptions utilized within this report have been
fulfilled.
Robert M. MeSherry, MAI
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SHREVEPORT/BOSSIER CITY DATA
Shreveport, Louisiana is located in the northwest corner of the state and is
the parish seat of Caddo Parish. The city has grown into a metropolitan with
a population estimated at 201,568 (1990 estimate), and continues to
demonstrate a steady and economically sound growth rate while Caddo Parish has
an estimated population of 246,706, according to the 1990 census. The average
annual per capita income for the city as well as the parish are reflected
below:
AVERAGE ANNUAL PER CAPITA INCOME
Year Parish State
1993 $11,349 $10,192
1987 $12,975 $11,482
% Change 14% 13%
Shreveport, as the hub of the Ark-La-Tex, serves the wholesale and retail
needs of the area. Retail sales total over one billion dollars annually in the
metropolitan area. Major manufacturers operating in the area are as follows:
MAJOR MANUFACTURING
Firm Product Employment
Lycent Technologies Telephones 1,350
General Motors Trucks 2,966
Libbey Glass Table Glassware 1,061
General Electric Transformers 550
Frymaster Electronic Frying Equipment 500
GNB Battery Batteries 386
Atlas Processing Oil Refining 300
Robert M. McSherry, MAI
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Shreveport is rapidly becoming a major educational and medical center with 13
hospitals, 10 universities and colleges, 76 K-12 public schools and 17
private/parochial schools. Medical and health services bring in thousands of
people from the region for consultation and treatment. In the fall of 1969,
LSU's School of Medicine in Shreveport held it's first classes, with the
Confederate Memorial Hospital serving as its teaching hospital. Four year
college programs are offered by LSU-Shreveport, Centenary College, a private,
Methodist Church sponsored liberal arts institution established in 1825; and
by Southern University's branch.
Shreveport is also the major center of entertainment from a cultural, tourist
and recreational standpoint. Art attractions include the Louisiana State
Exhibit Museum; the R.W. Norton Art Gallery; the R.S. Barnwell memorial
Library; Centenary College and LSU-Shreveport Libraries; private art
galleries; and commercial retailers. Musical entertainment is provided by
the Community Concert Association; the Shreveport Symphony and the Shreveport
Civic Opera Society, along with numerous other popular and classical musical
productions. Other entertainment events held during the year are the
Louisiana State Fair, and the Holiday in Dixie Festival.
Rail systems serving the Shreveport/Caddo Parish area include Kansas City
Southern, Union Pacific, and Southern Pacific. Interstate common carriers
also provide service include ABF Freight System, Roadway Express, SAIA Motor
Freight, Yellow Freight Systems, Southwestern Motor Freight, and Woodline
Motor Freight.
Robert M. McSherry, MAI
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Bossier City, Shreveport's sister city on the east side of the Red River, is
home of Barksdale Air Force Base, a 21,000 acre permanent base which is the
home of Headquarters, Eight Air Force, one of the three numbered commands of
S.A.C. Also located at Barksdale is the 2nd Bomb Wing, the organization
responsible for the major missions of the base itself, with its many support
organizations. Other specialized tenant organizations are also based at
Barksdale.
Louisiana Downs, a thoroughbred racetrack, is beginning another racing season,
and is located in Bossier City. The facility, completed in 1974 at a cost of
$10 million, is one of the largest and most modern of its kind in the country.
The current situation as it affects the oil and gas industry indicates
dramatic improvement in the area economy is expected. An improving economy is
expected over the next three to five years from the area unless extraordinary
occurrences affecting oil prices and supplies occur.
River boat gaming has become a significant economic factor in the area economy
with several boats now located in the area. An additional boat is forthcoming
and all boats are adding land based facilities to support their gaming
operation. The Shreveport-Bossier market is one of the best in the state,
primarily due to it's location to East Texas. This economic stimulus has been
a boon to the area and should continue to be an advantage to the area economy.
Robert M. McSherry, MAI
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NEIGHBORHOOD DATA
A Neighborhood may be defined as a homogeneous grouping of individuals,
buildings, or business enterprises within a larger community. These groupings
are usually devoted to residential use, trade and service activities, or
cultural and civic activities. Residential neighborhoods tends to reflect
characteristics of their inhabitants, expressing the mutual desires of people
with comparable interests, related traditions, and similar social and
economic status.
The neighborhood in which the subject property is located is considered to be
that area lying along either side of Bert Kouns Thruway which is the southerly
traffic loop around Shreveport, Louisiana providing access from Interstate 20
in the western portion of Shreveport and across the Red River to the Bossier
City, Louisiana area. Inspection of the neighborhood revealed the area to be
a mixture of property types including both new or recently completed
construction including a number of automobile dealerships, several large
medical facilities including detached medical office buildings and other
professional office buildings, retail and commercial endeavors, and a large
amount of vacant land. The Bert Kouns Thruway is the major arterial loop
roadway in southern Shreveport and is enjoying tremendous growth along it's
entire route. The area of Bert Kouns and 1-49 which is located approximately
4 miles to the east of the subject property is being developed with a large
number of retail, fast food and other commercial type properties including an
Office Depot, a new medical facility, several small limited service motels, a
Circuit City electronics outlet store and several fast food restaurants
including McDonalds, Burger King and Wendy's. This intersection of 1-49 and
Bert Kouns is perhaps the most desirable
Robert M. McSherry, MAI
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retail and commercial location in southern Shreveport but the amount of
available land left in this immediate Intersection is becoming somewhat
scarce.
The area along Bert Kouns in which the subject property is located is
developed primarily with automobile dealerships and medical facilities in the
immediate proximity of the subject with several large neighborhood strip
shopping centers and other retail and commercial uses occurring further to the
east along Bert Kouns and it's intersection with LA Highway 1.
Trends in the neighborhood tend to be construction of various types of retail
and commercial endeavors currently found with the areas without direct
frontage on Bert Kouns being developed with a combination of multi-family
residential complexes, detached single family dwellings and other residential
uses.
Inspection of the neighborhood reveals a large amount of vacant land available
for development in the areas having both frontage on Bert Kouns and away from
direct frontage. The Trends of the subject neighborhood are extremely
positive and should continue so over the foreseeable future. The proximity of
necessary medical facilities is considered a positive factor when the location
of the subject property is considered and the ease of access to the subject
site from all areas of both Shreveport, Bossier City as well as the out of
parish areas is also considered a most positive factor. Inspection of the
neighborhood revealed no detrimental factors which would affect the future
with respect to a continuing, prosperous development.
Robert M. McSherry, MAI
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SCOPE OF THE APPRAISAL
The appraiser has personally inspected the subject site and conducted an
in-depth inspection of the neighborhood in which the subject property is
located observing it's trends of development and characteristics.
Vacant land sales utilized in conjunction with the Cost Approach to Value and
in determining the estimated Market Value of the subject site, as if vacant,
and owned in Fee Simple have been inspected by this appraiser and a
combination of data provided by the Marshall Valuation Service Cost Manual and
other available in-file data has been utilized in the process of estimating
the replacement cost new of the subject improvements.
In the final analysis, the appraiser has utilized and relied upon the
experience of judgment based on the opinion of the quality and quantity of the
data in arriving at the final value estimate of the Fee Simple Interest in the
subject property.
The Income Approach to Value has been completed utilizing a stabilized net
income capitalized into value and a discounted cash flow method. Economic
rents were determined by rent comparables and current data utilized with
respect to expense projections. Information provided by the publication
"Trends in the Health Care Industry" as well as information provided by other
actual ongoing facilities similar to the subject have been utilized in the
process of estimating the projected expenses which were included in the
Income Approach to Value. Although the subject property is proposed at the
present time and has no income or expense history, it is considered to be a
functional facility and a
Robert M. MeSherry, MAI
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facility which is demand with respect to providing long term care for memory
disorder patients and the Income Approach to Value has been accorded the
greatest credence in the final analysis.
Robert M. McSherry, MAI
<PAGE>
DESCRIPTION OF THE PROPERTY
Site Data
Size, Shape and Topography
The subject site will be a 2.7 acre parcel of land which will basically
rectangular shaped having frontage along the eastside of Fern Avenue and along
the southside of the proposed expansion of Millicent Way within the corporate
limits of Shreveport, Louisiana. The topography of the site is level to
gently sloping and typical of the topography of the surrounding areas and the
elevation of the site is similar to the elevation of Fern Avenue. Inspection
of the site did not reveal any detrimental physical characteristics which
would affect the development of the subject property and it's Highest and Best
Use as a proposed location for a long term care facility for memory disorder
patients.
Utilities
The subject property is located inside the corporate limits of Shreveport,
Caddo Parish, Louisiana and is provided with all city utilities and services
available to properties within the corporate limits of Shreveport including
police and fire protection, public water, sewerage disposal, and refuge
disposal. Telephone service, electrical service and natural gas service is
provided by the local utility companies servicing the area.
Access
Access to the subject development is provided as a result of the location of
Bert Kouns which is the major southern arterial loop for the cities of
Shreveport and Bossier City. Access from Bert Kouns is provided via Park
Drive which intersects Fern Avenue which is the street upon which the subject
property fronts. Both Park Avenue and Fern Avenue are dual laned, municipally
Robert M. MeSherry, MAI
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maintained traffic arteries providing vehicular access for local traffic with
Bert Kouns being a divided, four laned major loop arterial roadway in the
southern portion of Shreveport
Overall, access to the subject site is considered convenient and adequate due
to the location of Bert Kouns Thruway through the center of the neighborhood.
Bert Kouns also provides access to Interstate 20 to the west and 1-49
approximately 4 miles west of the subject property as well as into the
downtown area of Bossier City, Louisiana.
Zoning
Review of the zoning map provided this appraiser by the Metropolitan Zoning
and Planning Commission of Shreveport and Caddo Parish indicates the subject
property to currently be zoned "R-1-D"- This zoning ordinance allows for the
construction of primarily single family or multi-family dwellings and is felt
that a zoning variance or change will be required to allow construction of the
subject improvements. As a condition of this appraisal report, it is
conditioned that the property zoning will be obtained once the subject site is
purchased to allow for the construction of the subject improvements.
Conversations with representatives in the Metropolitan Zoning and Planning
Office indicates this should be no problem and the rezoning is considered a
reasonable and probable occurrence.
This appraiser has not conducted an in-depth review with respect to the
abstract to the subject site but no deed restrictions or other restrictive
covenants are assumed to exist which would affect the development of the
subject property to
Robert M. McSherry, MAI
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its highest and best use. However, this should be ascertained by competent
legal authority and is a condition of this appraisal report.
Drainage
Review of Flood Hazard Maps found in the Shreveport Municipal Office indicated
the subject property to be located in a Flood Zone "C" and flood insurance is
not required for the subject property. However, due to the scale of the flood
maps and the location of the subject site, personnel were somewhat uncertain
as to the exact flood status of the subject site and, as a condition of this
appraisal report, a competent engineer or surveyor must be retained to
ascertain the actual necessity of flood insurance and the required building
elevations for the subject improvements.
Tax Data
The subject property is proposed construction property and the taxes on the
vacant land only are minimal. The subject property will be placed on the
Caddo Parish tax roles the year after it is completed and at that time will
be assessed and the tax liability can be estimated. For the purposes of this
appraisal report and for the utilization in the Income Approach, taxes have
been projected based on comparable properties but are subject to change once
the property is completed and placed on the tax roles.
Robert M. McSherry, MAI
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LOCATION MAP
Robert M. McSherry, MAI
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[PLAT MAP OF SURROUNDING AREA INDICATING SUBJECT PROPERTY]
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DESCRIPTION OF THE IMPROVEMENTS
The proposed facility would be constructed within a single building but a
building comprised of different component sections housing the various type
units including the memory disorder units. The building is a modified T-shape
and encompasses a total of 11,410 square feet of heated area. The memory
disorder units located throughout the structure will contain 283 square feet
of living area and feature a half bath with a toilet and lavatory and bedroom
area.
Construction characteristics for the building include reinforced poured
concrete foundation with adequate grade beams and both interior and perimeter
footings with the exterior being wood framing utilizing a combination of brick
veneer vinyl with the roof being a composition shingle roof over wood decking.
Windows will be insulated, horizontal slide aluminum windows with each unit
in the memory disorder care section having it's own HVAC unit with the common
areas having zoned central units for more economical operation.
Interior construction will include a combination of vinyl and carpet or
ceramic tile flooring, painted or vinyl covered sheetrock walls with
acoustical ceilings. Lighting will be both standard and fluorescent fixtures.
Amenities to be contained within the building include a full service kitchen,
dining room, activities area, whirlpool area, staff laundry, TV rooms, offices
and other required amenities.
As previously noted, the total gross area contained within the subject
property is 11,410 square feet. Parking will be poured concrete and located
at strategic
Robert M. McSherry, MAI
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locations around the site and will be adequate to fulfill the requirements of
both the tenants and staff. Landscaping will be extensive and utilized in
conjunction with the natural topography of the area should be most pleasing.
As noted, the subject property is proposed construction and this appraiser has
been provided only the most preliminary plans and specifications. A complete
set of working drawings will be provided the appraiser as a condition of this
appraisal to ascertain the assumptions utilized within this report have been
fulfilled. A final inspection by the appraiser will be required.
Robert M. MeSherry, MAI
<PAGE>
HIGHEST AND BEST USE
Introduction
The Appraisal Institute defined highest and best use as follows, "that legal
use, at the time of the appraisal, which is the most profitable likely use to
which a property can be put."
There are several basic factors which must be considered in order to make a
proper determination of Highest and Best Use:
1. The use must be legal, that is, legally adaptable regarding zoning and
other restrictions;
2. The use must be probable, not conjectural or speculative;
3. The property must be physically adaptable to use contemplated;
4. There must be a demand for such use;
5. The use must be profitable, the highest return to the land over the
longest period of time.
Highest and best use of the land (or site) if vacant and available for use
may be different from the highest and best use of the improved property. This
is true if the improvement is not an appropriate use, but it makes a
contribution to the total property value in excess of the value of the site.
The above five tests have been applied to the subject property's vacant site.
In arriving at the estimate of highest and best use, the subject site has been
carefully analyzed.
Robert M. McSherry, MAI
<PAGE>
HIGHEST AND BEST USE ASSUMING A VACANT SITE
Permissible Use
An investigation has been conducted in order to determine the zoning
classification that encumbers the subject property. The results of this
investigation has revealed that the subject site is currently zoned "R-1-D".
This zoning classification will not allow the construction of the proposed
improvements and a zoning change will be required in order to develop the site
as proposed. Conversations with representatives in the Metropolitan Zoning
and Planning Office indicate this to be a reasonable and probable assumption
and, accordingly, it is a condition of this appraisal report that the subject
site be rezoned to allow for it's development of the proposed 24 unit memory
disorder care facility.
Possible Use
The subject property's neighborhood is a mixed use neighborhood but the zoning
currently in effect of the subject site is only residential zoning. As
currently zoned, the only possible use is a residential utilization but,
accordingly to representatives of the Metropolitan Zoning and Planning Office,
a zoning change is possible and probable and, accordingly, once the zoning
change is facilitated, a large number of possible uses including the proposed
utilization of the subject site will be permitted. Once the zoning change is
enacted, it is felt that the development of the subject site with a 24 unit
memory disorder care facility will constitute one of the Highest and Best Uses
of the subject site.
Robert M. McSherry, MAI
<PAGE>
THE APPRAISAL PROCESS
The real estate appraisal profession typically utilizes three basic approaches
in the process of estimating the value of a parcel of real property. These
approaches include the Cost Approach, the Income Approach and the Market Data
Approach. The Cost Approach utilizes an estimate of reproduction or
replacement costs new of the building and other on-site improvements to be
contained within the subject property less accrued depreciation from all
sources including physical curable and incurable deterioration, functional
obsolescence and economic obsolescence to arrive at an estimate of depreciated
reproduction or replacement costs for the improvements. The estimated value
of the site, as if vacant, and determined by the comparison of the subject
site with other similar parcels in either the immediate proximity of the
subject or in other comparable areas is added to the depreciated reproduction
or replacement cost estimate of the improvements to provide an indication of
value of the property being appraised from the Cost Approach.
The Cost Approach is generally accorded the greatest credence in instances
where the property being appraised is either a proposed property or a new
property having little or no accrued depreciation or instances where the
property being appraised represents a special purpose type property. In these
instances, the Cost Approach is an accurate indication of value for the
property and is accorded considerable credence in the reconciliation process.
The Income Approach to Value utilizes an estimate of gross annual income to be
generated by the property being appraised as determined to be representative
of economic rentals for this type property within the area less an allowance
Robert M. McSherry, MAI
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considered typical for vacancy and collection losses to arrive at an estimate
of effective gross annual income which is to be generated by the property.
Expenses typically associated with the operation of this type property in
accordance with prevailing lease terms and conditions in the area as well as
data provided by analysis of the operating history of other similar type
properties are projected and deducted from the effective gross annual income
to arrive at an estimate of net operating income before recapture
attributable to the subject. This net operating income is then capitalized by
the most appropriate method available with respect to the subject property
in particular and the appraisal problem in general into an indication of value
for the property being appraised from the Income Approach. Another method of
utilizing the Income Approach is the Gross Income Multiplier technique. This
technique identifies the relationship between the sales price (value) of a
property and its gross annual income earning potential. The Gross Income
Multiplier is derived by dividing the sales price of a property by its gross
potential income and, thus, is an excellent indicator of buyer, seller and
investor attitudes toward the property being analyzed. An effective gross
income multiplier is also excellent as it utilizes the actual gross income
after vacancy to derive the multiplier. use depends upon available data.
The Market Data or Direct Sales Comparison Approach utilize sales of
comparable improved properties in either the immediate proximity of the
subject or in other comparable areas to derive a unit of comparison. Each of
the various comparable sales are carefully reviewed and analyzed by the
appraiser, adjusted for any dissimilarities between the subject property and
the comparable sale in such areas as date of sale, location, design,
condition, and other physical characteristics to result in an adjusted unit
of comparison to be utilized in the
Robert M. McSherry, MAI
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Market Data or Direct Sales Comparison Approach to provide an indication of
value for the property being appraised.
The reconciliation is the method whereby all data provided by the various
approaches utilized in the appraisal report are carefully analyzed and
accorded weight in varying degrees. The approach which is considered to be
the most representative of current buyer, seller and investor attitudes
towards the subject property is accorded the greatest credence in the final
analysis but all the approaches are interrelated and all data gathered and
utilized in the various approaches must be carefully analyzed in the
reconciliation process and to ignore any available data would be improper.
Robert M. McSherry, MAI
<PAGE>
COST APPROACH TO VALUE
The Cost Approach to Value, like the Sales Comparison and Income Approaches,
is based on comparison. in the Cost Approach, the cost to construct a building
and the value of any existing building are compared. The Cost Approach to
Value reflects market thinking in the recognition that market participants
relate value to cost. Buyers tend to judge the value of an existing structure
by comparing it to the value of a newly constructed building with optimal
functional utility. Moreover, buyers adjust the prices they are willing to
buy by estimating the cost to bring an existing structure to desired levels
of functional utility.
Thus, by applying the Cost Approach, an appraiser attempts to estimate the
difference in worth to a buyer between the property being appraised and a
newly constructed building with optimal utility. An appraiser makes a sound
value estimate by estimating the cost to construct a reproduction of or a
replacement of the existing structure and then deducts all evidence of
accrued depreciation in the property being appraised from the cost of the
reproduction or replacement structure and the resulting figure, plus the value
of the land, plus any entrepreneurial profit provides a value indication
through the application of the Cost Approach.
The decision to utilize reproduction or replacement costs is most pertinent
and the selection plays and important part in contributing to the validity of
the Cost Approach. Replacement cost is defined in Real Estate Appraisal
Terminology as being, "the cost of construction at current prices of a
building having utility equivalent to the building being appraised but built
with modern materials and
Robert M. McSherry, MAI
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according to the current standards, design and layout. The use of the
replacement cost concept presumably eliminates all functional obsolescence
and the only depreciation to be measured is physical deterioration and
economic obsolescence." The appraisers will utilize the replacement cost
method supported by Marshall Valuation Service in conjunction with the
construction cost estimate provided by knowledgeable contractors/engineers
or architects.
DEPRECIATION
All types of accrued depreciation affecting the subject improvements were
considered. Accrued depreciation is defined as, "the difference between
reproduction cost new as of the date of the appraisal and the present
contributory value of the improvements." Accrued depreciation is divided into
three basic categories:physical deterioration (which includes curable and
incurable), functional obsolescence (including curable and incurable), and
economic obsolescence (which is always incurable). The following is a
discussion of each type of depreciation and the observed depreciation
applicable to the subject property.
Physical Deterioration, Curable
This type of depreciation is defined as, "the loss in value from cost new
which can be recovered or offset through correction, repair, or replacement
of the defective items causing the loss, providing the resultant value
approximates the cost of the work." The property is proposed thus no deferred
maintenance is present.
Robert M. McSherry, MAI
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Physical Deterioration, Incurable
This type of depreciation is defined as, "the loss from cost new which is
impossible to offset or which would involve an expenditure substantially in
excess of the value increase resulting therefrom." The property is proposed
and has an effective are of 0 years and a total economic life of 30 years.
Functional Obsolescence
Functional obsolescence is defined as, "the loss from cost new as of the
date of the appraisal which is caused by a superadequacy, inadequacy,
unattractive style, poor or inefficient layout or design." Items causing
functional obsolescence can be either curable or incurable; it is curable
only when it is profitable to cure the item. Incurable, functional
obsolescence involves items of initiate which would not be economical to
correct because the value would not increase so much as the cost of
correction. Based on my inspection of the subject improvements, it is my
opinion that they are totally adequate and comparable to similar properties
in the same general price range, therefore, no loss of value from functional
obsolescence exists.
Economic Obsolescence
This type of depreciation is defined as, "the loss from cost new as of the
date of the appraisal due to causes external to the property boundaries." To
measure this type of obsolescence the appraiser capitalizes the rent lost due
to the external factor for the prorata share applicable to the building. As
indicated in the site date, there are no undesirable external influences and,
thus, there is no loss to the subject improvements due to economic
obsolescence,
Robert M. McSherry, MAI
<PAGE>
Entrepreneurial Profit
For the Cost Approach to provide a sound indication of value, a market derived
entrepreneurial profit must be added to the direct and indirect costs. The
profit figure is typically expressed as a percentage of total direct and
indirect costs. Entrepreneurial profit is a necessary element in the
motivation to construct the improvements. However, part or all of the profit
may be lost as functional or external obsolescence if the market indicates
that the improvements have a Market Value less than the current reproduction
or replacement cost less physical deterioration.
The results of the investigation and analysis of this market data will appear
as follows:
Robert M. McSherry, MAI
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COMPARABLE LAND SALE 1
Date of Sale: October 2, 1996
Location: Northwest corner of 1-49 at
Industrial Loop, Shreveport, Louisiana
Brief Legal Description: Tract in SE 1/4 of Section 16, T14-Rl,
Caddo Parish, Louisiana
Recordation Data: CB 3141, Page 260, Caddo Parish,
Louisiana
Grantor: Southport Development, LLC
Grantee: Circuit City Stores, Inc.
Sales Price: $1,063,710.00
Terms of Sale: OVC's
Cash Equivalency Price: $1,063,710.00
Site Size: 228,037 square feet; 5.2350 acres
Indicated Price/Acre: $203,192.00
Indicated Price/Sq. Ft.: $4.66
Utilities: All available to be connected
Flood Zone: N/A
Zoning: "B-3"
Confirmation: Bill Sale (Grantor)
Data Files
Robert M. McSherry, MAI
<PAGE>
COMPARABLE LAND SALE 2
Date of Sale: August 19, 1996
Location: Eastside of 1-49, SW corner of
Enterprise, Shreveport, Louisiana
Brief Legal Description: Tract in N 1/2 of Section 12, T16-Rl4,
known as Metroplex Business Park.
Caddo Parish, Louisiana
Recordation Data: CB 3132, Page 290, Caddo Parish,
Louisiana
Grantor: John Nelson
Grantee: AMI, NISHA and RAJ, LLC
Sales Price: $413,820.00
Terms of Sale: Cash
Cash Equivalency Price: $413,820.00
Site Size: 87,120 square feet; 2 acres
Indicated Price/Acre: $206,910.00
Indicated Price/Sq. Ft.: $4.75
Utilities: All available
Flood Zone: N/A
Zoning: "B-3"
Confirmation: Jim Dowling
Robert M. MeSherry, MAI
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COMPARABLE LAND SALE 3
Date of Sale: October 2, 1996
Location: NW corner of 1-49 at Industrial,
Shreveport, Louisiana
Brief Legal Description: Tract in SE 1/4 of Section 16, T14-Rl,
Caddo Parish, Louisiana
Recordation Data: CB 3141, Page 249, Caddo Parish,
Louisiana
Grantor: Susan Buzick
Grantee: Southport Development, LLC
Sales Price: $1,720,500.00
Terms of Sale: Credit Sale
Cash Equivalency Price: $1,720,500.00
Site Size: 1,429,378 square feet; 32.8140 acres
Indicated Price/Acre: $52,431.00
Indicated Price/Sq. Ft.: $1.20
Utilities: All available to be connected
Flood Zone: N/A
Zoning: "B-3"
Confirmation: Bill Sale
Robert M. McSherry, MAI
<PAGE>
COMPARABLE LAND SALE 4
Date of Sale: June 20, 1996
Location: Stevens at Industrial,
Shreveport, Louisiana
Brief Legal Description: Tract Section 12, T16-Rl4, being S 1/2
NE 1/4 and part of SE 1/4 North of
Flournoy-Lucas Road, Caddo Parish,
Louisiana
Recordation Data: CB 3122, Page 6, Caddo Parish,
Louisiana
Grantor: Commercial National Bank
Grantee: Brookwood Baptist Church
Sales Price: $925,000.00
Terms of Sale: Cash
Cash Equivalency Price: $925,000.00
Site Size: 925,258 square feet, 21.241 acres
Indicated Price/Acre: $43,547.00
Indicated Price/Sq. Ft.: $1.00
Utilities: All available
Flood Zone: N/A
Zoning: "R-A"
Confirmation: Data Files
Robert M. McSherry, MAI
<PAGE>
COMPARABLE LAND SALE 5
Date of Sale: January 24, 1997
Location: South of Industrial at SE corner of
1-49, Shreveport, Louisiana
Brief Legal Description: Tract in NE of Section 16, T16-Rl4,
Caddo Parish, Louisiana
Recordation Data: CB 3159, Page 343, Caddo Parish,
Louisiana
Grantor: Steve Simon Construction Company,
Inc.
Grantee: Sisters of Charity of the Incarnate Word
Sales Price: $1,118,660.00
Terms of Sale: Cash
Cash Equivalency Price: $1,118,660.00
Site Size: 456,595 square feet; 10.482 acres
Indicated Price/Acre: $106,721.00
Indicated Price/Sq. Ft.: $2.45
Utilities: All available
Flood Zone: N/A
Zoning: Unknown, thought to be "R-A"
Confirmation: Vendee/Data Files
Robert M. McSherry, MAI
<PAGE>
COMPARABLE LAND SALE 6
Date of Sale: August 18,1995
Location: Eastside of Airline Drive, at the
southeast quadrant of 1-220, Bossier
City, Louisiana
Brief Legal Description: Tract in Section 16, Tl8N-Rl3W,
Bossier City, Louisiana
Recordation Data: Instrument #599781, Bossier Parish,
Louisiana
Grantor: Haynesville Mercantile Company et al
Grantee: Wal-Mart Stores, Inc.
Sales Price: $1,892,594.88
Terms of Sale: Cash
Cash Equivalency Price: $1,892,594.88
Site Size: 946,297 square feet,- 21.7240 acres
Indicated Price/Acre: $87,120.00/acre
Indicated Price/Sq. Ft.: $2.00
Utilities: All available
Flood Zone: Not Available
Zoning: B-3 Community Business District
Confirmation: Vendor/Data Files
Robert M. McSherry, MAI
<PAGE>
COMPARABLE LAND SALE 7
Date of Sale: April 11, 1995
Location: Westside of Benton Road; at the
northwest quadrant of 1-220, Bossier
City, Louisiana
Brief Legal Description: Tract in NE/4 of Section 8,
Tl8N-Rl3W, Bossier Parish, Louisiana
Recordation Data: Instrument #592208, Bossier Parish,
Louisiana
Grantor: Allan J. Kelly
Grantee: A.L. & W. Moore Trucking Company,
Inc.
Sales Price: $200,000.00
Terms of Sale: Cash
Cash Equivalency Price: $200,000.00
Site Size: 83,200 square feet; 1.91 acres
Indicated Price/Acre: $104,712.04acre
Indicated Price/Sq. Ft.: $2.40
Utilities: All available
Flood Zone: Not Available
Zoning: 1-1 Light Industrial
Confirmation: Vendor/Data Files
Robert M. McSherry, MAI
<PAGE>
COMPARABLE LAND SALE 8
Date of Sale: December 30, 1994
Location: 1-220 Frontage Road north, between
Benton Road and Airline Drive, Bossier
City, Louisiana
Brief Legal Description: Tracts A&B in Sections 9 & 16,
T18N-Rl3W, Tract C in Sections 8, 9,
16 & 17, Tl8N-Rl3W, and Tract D in
Section 9, Tl8N-R13W, Bossier Parish,
Louisiana
Recordation Data: Instrument #786854, Bossier Parish,
Louisiana
Grantor: Haynesville Mercantile Company et al
Grantee: Willis-Knighton Medical Center
Sales Price: $4,084,664.76
Terms of Sale: Cash
Cash Equivalency Price: $4,084,664.76
Site Size: 1,565,372 square feet; 35.936 acres
Indicated Price/Acre: $113,664.98
Indicated Price/Sq. Ft.: $2.61
Utilities: All available
Flood Zone: Not Available
Zoning: B-3 Community Business District
Confirmation: Deed of Record
Robert M. McSherry, MAI
<PAGE>
ANALYSIS OF COMPARABLE LAND SALES
Sale Number Date Size/Acre Price/Acre Price/Sq.Ft.
One October 199 65.2 $203,192.00 $4.66
Two August 1996 2 $206,910.00 $4.75
Three October 1996 32.8 $52,431.00 $1.20
Four June 1996 21.2 $43,547.00 $1.00
Five January 1997 10.4 $106721 $2.40
Six April 1995 21.724 $87,120.00 $2.00
Seven April 1995 1.91 $104,712.00 $2.40
Eight December 1994 35.94 $113,664.00 $2.61
This appraisal contains eight sales of what are considered comparable
properties with respect to both the subject property. Analysis of these sales
has led to the following observations and adjustments by the appraiser.
Land Sales 1 and 2 are both similar sized acreage tracts which feature vastly
superior locations at the intersection of 1-49 and Industrial Loop and require
a downward adjustment for the size differential, but more importantly, for
their superior location with respect to their actual location at the
intersection and their visibility enjoyed by these properties. The physical
characteristics enjoyed by these two sales are also vastly superior to those
of the subject requiring, again, a downward adjustment.
Land Sales 3, 4 and 5 are all located in the immediate proximity of the
1-49-industrial Loop interchange but away from direct frontage and feature
locations similar to that of the subject. The greatest emphasis has been
placed on Sales 3 and 4 which are considered to be excellent indicators of
current market value of the subject. However, this sale requires a slight
downward adjustment for a superior location and superior physical
characteristics.
Robert M. McSherry, MAI
<PAGE>
Land Sales 6, 7 and 8 are all located along the 1-220 Loop in Bossier City,
Louisiana. All sales are considered excellent indicators of current
attitudes with Sale 6 being perhaps the most similar with respect to the
subject.
Sale 8 is also a large acreage tract and features a superior location,
superior access and other superior characteristics again, requiring a slight
downward adjustment for this factor.
Land Sale 7 is considered an excellent indicator of values and, after a
slight downward adjustment for a superior location, is considered an
excellent indicator of value.
After these eight sales contained within this appraisal report have been
personally inspected by the appraiser, analyzed and adjusted for
dissimilarities, as well as other sales contained in our appraisal files have
been also reviewed, it is the opinion of the appraiser that the property
identified as the site containing 2.7 or 117,612 square feet acres is
estimated to have a Market Value, as if vacant, and in it's current physical
state, but subject to rezoning, of $3.00 per square foot.
Therefore, the Estimated Value of the subject property is thus summarized:
117,612 square feet @ $3.00/square foot = $352,863.00
INDICATED VALUE OF SITE,
AS IF VACANT (R/T) $350,000.00
Robert M. McSherry, MAI
<PAGE>
DISCUSSION OF COST APPROACH
In the construction of any project, the total cost of development can be
divided into basic categories: direct or hard cost, and indirect or soft
costs. As defined in Real Estate Appraisal Terminology, the definition of
Direct Costs is, "the cost of direct labor and materials devoted specifically
to a unit of work. In construction, these costs are directly related to site
acquisition and construction of the improvements..." Defined in this same
text, Indirect Cost is, "that cost in the development of a property which
would not be included in a general contract for construction or for land
acquisition..."
Direct costs include the cost of items such as land acquisition, construction
of the buildings, equipment and fixtures, the builder's profit and overhead,
any temporary buildings for on-the-job usage, power line installation, and the
electrical power used in the construction. As indicated in the Cost Approach
Schedule which follows, direct or hard costs have been broken down into
categories of building area, elevators and other primary building costs.
Indirect, or soft costs, generally include fees, financing costs, and
overhead. As the Cost Approach Schedule indicates, the indirect costs fall
into 8 categories. The permits and fees sections include the estimated costs
of a building permit, an appraisal, a survey and accounting and inspection
charges. Architectural engineering estimates have been based on typical
market charges. The legal expenses includes work done on both interim and
permanent loan packages. The insurance costs indicated are limited to
construction-period coverage including the builder's risk.
Robert M. McSherry, MAI
<PAGE>
The closing cost estimate includes costs of closing both the interim and
permanent loans. The interest expense is based on typical current market
conditions and covers the period of time required to complete the construction
of the project. The loan commitment fees are also based on current typical
market conditions.
The appraiser's have relied upon the Marshall Valuation Service, a publication
of Marshall & Swift, 1617 Beverly Boulevard, Post Office Box 26307,
Los Angeles, California, in estimating the replacement costs new of the
subject property improvements.
The Cost Approach to Value, as it applies to the property being appraised, is
as follows:
Robert M. MeSherry, MAI
<PAGE>
COST APPROACH TO VALUE
Direct Costs:
Memory Disorder Facility
11,410 sq. ft. @ $75.00/sq. ft. $ 855,750.00
Covered Canopy
514 sq. ft. @ $24.00/sq. ft. $ 12,336.00
Total Direct Costs: Improvements $ 868,080.00
Indirect Costs:
Plans, Specifications, Inspection Included in Direct Costs
Contractor's Overhead/Profit Included in Direct Costs
Interim Interest Included in Direct Costs
Legal, Audit, Appraisal $ 17,500.00
Financing Fees $ 70,400.00
Misc. Expenses $ 20,000.00
Total Indirect Costs $ 107,900.00
Total Replacement Costs New: Improvements $ 975,986.00
Less: Accrued Depreciation
Physical Curable -0-
Physical Incurable -0-
Functional Obsolescence -0-
Economic Obsolescence -0-
Total Accrued Depreciation -0-
Depreciated Replacement Costs: Improvements $ 975,986.00
Add: Land Value (2.7 acres) $ 350,000.00
Add: Entrepreneurial Profits (10%) $ 97,500.00
Add: Furniture, Fixtures and Equipment $ 84,000.00
Add: Parking, Walks, Landscaping, Porches $ 45,000.00
Total All Costs and Value Components $1,552,486.00
Robert M. McSherry, MAI
<PAGE>
INDICATED VALUE OF SUBJECT FROM
COST APPROACH (R/T) $1,555,000.00
Robert M. McSherry, MAI
<PAGE>
MARKET DATA APPROACH TO VALUE
Market data is discussed in all the approaches to value. Data analysis is
needed in the Cost Approach to develop a land value indication and to support
costs and depreciation indicators; in the Income Approach to establish rent
levels, vacancy indications, expenses, and capitalization rates; and in the
Direct Sales Comparison Approach to establish comparability.
This appraiser has conducted a thorough and in-depth review in order to
identify sales of similar improved properties through out the state,
Unfortunately, no improved property sales which are considered true arms
length transactions and comparable to the subject have been found and,
accordingly, the Market Data Approach has not been completed for this
particular property.
Robert M. McSherry, MAI
<PAGE>
INCOME APPROACH TO VALUE
Introduction
The Income Approach reflects the subject's income-producing capabilities and
requires an analysis of the project's probable market rent. In the
comparative analysis, we have considered factors that would probably influence
market acceptance of properties in the area. The factors include proximity to
major traffic arteries; location; design; amenities; and the quality of
management.
To develop a supportable estimate of value using the Income Capitalization
Approach, realistic projections of income and expenses must be made.
congregate care facilities are unique forms of real estate with many unusual
characteristics, such as an intensive use of labor, costs of goods sold,
expenses categories, and product identity. Therefore, special care in data
gathering and analysis are required to create an estimate of the future income
for the subject. The appraiser will utilize data provided by the publication,
Trends in the Health Care Industry for supporting data.
The subject property is proposed at the present time and, therefore, has no
historical income and expense data associated with the property.
The subject will contain 24 memory disorder care units located within a single
building which will include the necessary common area amenities which will
include the entry area, executive offices, nursing stations, activities room,
dining area, kitchen, patient bath areas including whirlpools, laundry
facilities as well as the 24 patient rooms with each patient room containing
a toilet and lavatory within it's 283 square feet. A copy of the floor plan
of the subject facility as well
Robert M. McSherry, MAI
<PAGE>
as the site plan is contained within the addendum of this appraisal report for
the benefit of the reader.
Services provided the will include all utilities, housekeeping, laundry
service, three meals per day as well as activities and adequate medical staff
services.
This appraiser has had the opportunity to appraise several assisted care
facilities in both Louisiana and Mississippi over the last several years and
have relied on data provided by these facilities, various industry
publications and data provided by various health care consulting groups and
experts in arriving at the estimated monthly rental rates and expenses
including fixed expenses, operating expenses, staffing, dietary, reserves and
other appropriate expenses.
This appraiser has conducted rental surveys of an adequate number of
competing assisted care, private pay facilities to accurately arrive at both
an economic monthly rate as well as stabilized occupancy for the subject. It
is pertinent to note that although one hundred percent occupancy may result
for limited periods of time, the loss of tenants throughout the year due to
various reasons will result in a weighted occupancy level below this one
hundred percent occupancy level which is considered typical of the industry.
The actual income and expense data of various facilities is closely held
information and these individuals have requested confidentiality with respect
to this actual data. Accordingly, this data has been retained in our various
files.
The results of our survey and analysis indicates an economic rental rate for
the memory disorder care units, based on the herein listed services to be
provided,
Robert M. McSherry, MAI
<PAGE>
of $2,700.00 per month to be the indicated economic rental for these units
including all services. It is projected that the second year will see the
property achieve it's stabilized 90% occupancy level with only moderate
increases in expenses occurring between year one and year two due to the
increased patient load and minimal inflation.
The Income Approach to Value as it applies to the subject property and based
on economic rental rates herein quoted and utilizing a two year period in
order to achieve a stabilized net occupancy and thus a stabilized net
operating income is reproduced as follows:
Robert M. McSherry, MAI
<PAGE>
INCOME APPROACH TO VALUE
Year One
Gross Annual Potential Income
24 - Memory Disorder Units
@ $2,700.00/unit/month $ 777,600.00
Total Gross Annual Potential Income $ 777,600.00
Less: Vacancy and Collection Losses (45%) $ 349,920.00
Effective Gross Annual Potential Income $ 427,680.00
Expenses:
Administrative $120,000.00
Plant Operations $ 58,000.00
Dietary $ 56,000.00
Housekeeping $ 24,000.00
Aides $108,000.00
Activities $ 26,000.00
Reserves for Replacement $ 8,400.00
Total Expenses $ 400,400.00
Net Operating Income $ 27,280.00
Robert M. McSherry, MAI
<PAGE>
INCOME APPROACH TO VALUE
Year Two
Gross Annual Potential Income
24 - Memory Disorder Units
@ $2,700.00/unit/month $ 777,600.00
Total Gross Annual Potential Income $ 777,600.00
'
Less: Vacancy and Collection Losses (10%) $ 77,760.00
Effective Gross Annual Potential Income $ 699,840.00
Expenses:
Administrative $132,000.00
Plant Operations $ 75,400.00
Dietary $ 70,000.00
Housekeeping $ 26,500.00
Aides $118,800.00
Activities $ 27,300.00
Reserves for Replacement $ 8,400.00
Total Expenses $ 458,400.00
Net Operating Income $ 241,440.00
Robert M. McSherry, MAI
<PAGE>
JUSTIFICATION OF CAPITALIZATION RATE
Direct Capitalization is a method used to convert a single year's income
estimate into a value indication in the Income Capitalization Approach. The
direct capitalization formula using an overall property capitalization rate
is:
Value / Net Operating Income = Overall Capitalization Rate
In this appraisal, the appraisers will employ two different methods to obtain
an overall capitalization rate:
1) Band of Investment - mortgage and equity components
2) Underwriter's Method (derivation from debt coverage ratio)
Band of Investment
The appraisers contacted local lenders regarding rates and terms of alternate
investments as well as current market rates applicable for this market.
Annual Constant - In developing the mortgage components for the Band of
Investment Method, the appraisers reviewed the National Mortgage Commitment
Survey conducted by the Appraisal Institute Research Department which surveyed
sample lenders in various geographical regions throughout the United States.
The data quoted is based on national averages and do not reflect conditions
inherent in all markets. Therefore, the appraisers contacted local lenders
regarding rates and terms applicable for this market area. Lenders in the
local market are quoting rates at prime plus 1 %, terms of 20 years. 75% and a
loan-to-value ratio. The local market closely approximates the national
averages for the subject property type.
Robert M. McSherry, MAI
<PAGE>
The appraisers reviewed available data concerning current national and local
quoted mortgage rates and talked to various lenders in the Louisiana area
which confirm that market rates and terms for loans of the quality of the
subject property are available at 9% interest rate with monthly payments
amortized for a 20 year term, a 75% loan-to-value ratio. Therefore, the
mortgage constant is derived to be .1079671.
Equity Dividend - Current rates of return available from alternative
investment vehicles are reviewed. These alternative investments are more
liquid than an investment in real estate; therefore any potential investor
would expect a higher rate of return. Based on this, we have been able to
conclude that a 9% equity dividend rate is required to attract investment
capital to the subject property's type which is considered to be slightly
more risky than other types of real estate investments.
Derivation of Capitalization Rate - The band of investment (or weighted
average) formula for deriving an overall rate when the mortgage constant and
equity dividend rates is known as:
Mortgage Percent x Mortgage Constant
Plus
Equity Percent x Equity Dividend Rate
Equals
Overall Capitalization Rate
.75 x .1079671 = .0809
.25 x .09 = .0225
Total =.10340
Rounded to.103
Robert M. McSherry, MAI
<PAGE>
Underwriter's Method
In making loan decisions, institutional lenders use a debt coverage ratio
(DCR), which is the ratio of net operating income to annual debt service.
This measure of constraint is frequently used by institutional lenders, who
are general fiduciaries. They manage and lend the money of others, including
depositors and policy holders. Because of the fiduciary responsibility,
institutional lenders are particularly sensitive to the safety and profit and
are anxious to avoid default and possible foreclosure. Consequently, when
they underwrite income property loans, institutional lenders try to provide a
cushion so that the borrower will be able to meet the debt service obligations
on the loan even if the building income declines.
The debt coverage ratio may also be used to estimate the overall
capitalization rate by multiplying the ratio by the mortgage loan constant
(RM) and the loan-to-value ratio (M). The debt coverage ratio, mortgage loan
constant, and loan-to-value ratio have already been determined to be 1.20,
.1079671 and .75, respectfully. The formula for derivation of an overall
capitalization rate from debt coverage ratio is as follows:
RO = DCR x RM x M
RO = 1.20 X .1079671 X .75
RO =.0971
R/T = .097
Conclusion
Based on the available information we have concluded that a 10% is the most
appropriate capitalization rate which is derived from the actual band of
Robert M. MeSherry, MAI
<PAGE>
investments method and supported by the Underwriter's Method and available
market data. Thus:
NET OPERATING INCOME
------------------------- = VALUE
OVERALL CAPITALIZATION RATE
$241,440.00
------------------------- = $2,414,400.00
.10
INDICATED VALUE OF SUBJECT FROM
INCOME APPROACH (R/T) $2,415,000.00
Robert M. McSherry, MAI
<PAGE>
DISCOUNTED CASH FLOW ANALYSIS
The subject property will require a period in excess of one year to achieve
stabilized net income. In order to provide an estimate of the present value
of the improvements upon completion but prior to achieving stabilized net
operating income, the discounting process is utilized.
The income stream generated by the subject until stabilized income is reached
is discounted into an estimate of present value and the revisionary value of
the improvements as estimated upon achieving a stabilized net income is also
discounted to present worth. The market indicates a discount rate of 9% to be
appropriate to be utilized in discounting the income and reversion and this
is based on current rates of return on alternate investments and the risk
associated with the subject.
Robert M. McSherry, MAI
<PAGE>
Present Worth of Income Stream
Year One: $ 27,280.00 x.917431 = $ 25,027.00
Year Two: $241,440.00 x.841680 = $ 203,215.00
Total Present Value of Income Stream $ 228,242.00
Present Worth of Reversion
$2,415,000.00 x.841680 $2,032,657.00
Summation:
Present Worth of Income Stream $ 228,242.00
Present Worth/Reversion $2,032,657.00
Total $2,260,899.00
INDICATED VALUE OF SUBJECT FROM
INCOME APPROACH/DISCOUNTED
CASH FLOW (R/T) $2,260,000.00
Robert M. McSherry, MAI
<PAGE>
RECONCILIATION AND FINAL VALUE
The two approaches to value have indicated the following value estimates of
the property being appraised:
COST APPROACH TO VALUE $1,555,000.00
MARKET APPROACH TO VALUE N/A
INCOME APPROACH TO VALUE
OVERALL CAPITALIZATION RATE $2,415,000.00
DISCOUNTED CASH FLOW
ANALYSIS $2,260,000.00
The subject property is proposed construction and only preliminary plans and
specifications have been provided this appraiser in order to complete the Cost
Approach to Value. Costs are extremely difficult to estimate and no two
competent contractors will ever agree on the actual cost to construct a
property. However, this appraiser has utilized reliable sources including
the Marshall Valuation Service Cost Manual as well as actual construction
costs affecting a similar type property in order to complete the Cost Approach
to Value and this approach is considered reflective of the cost new of the
subject property.
The subject property is considered an income producing and has been valued
based on it being a Going Concern. The property is under competent ownership
and will have excellent management in place and the utilization of the Going
Concern concept is considered appropriate with respect to this particular
appraisal problem. Accordingly, the Indicated Value of the Property based on
stabilized net income being generated at the end of the second year is
Robert M. McSherry, MAI
<PAGE>
considered the best available indicator of it's current Market Value and has
been accorded the greatest credence in the final analysis.
Based on the data contained within this report, other in-file data, and this
appraiser's review and analysis of said data, it is our opinion that the
proposed property identified as The Arbor Group of Shreveport, L.L.C. and
located on Fern Avenue within the corporate limits of Shreveport, Caddo
Parish, Louisiana was estimated to have a Market Value, as of October 15,
1997, but subject to completion according to plans and specifications
utilizing quality materials and workmanship throughout and also subject to
the other conditions contained within this report, of:
TWO MILLION FOUR HUNDRED FIFTEENTHOUSAND DOLLARS
($2,415,000.00)
Allocated:
Land $ 350,000.00
Improvements: $1,400,000.00
Furniture, Fixtures and Equipment $ 84,000.00
Goodwill $ 581,000.00
Robert M. McSherry, MAI
<PAGE>
ADDENDA
Robert M. McSherry, MAI
<PAGE>
APPRAISER'S CERTIFICATION
I certify that, to the best of my knowledge and belief....
(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 report assumptions and limiting conditions, and are my personal,
unbiased professional analyses, opinion 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 compensation is not contingent on an action or event resulting
from the analyses, opinions, or conclusions in, or the use of, this
report.
(5) My analyses, opinions, and conclusions were developed, and this report
has been prepared, in conformity with the Uniform Standards of
Professional Appraisal Practice.
(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) 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
Practice of the American Institute of Real Estate Appraisers.
(9) The use of this report is subject to the requirements of the American
Institute of Real Estate Appraisers relating to review by its duly
authorized representatives.
(10) I am not currently certified under the voluntary continuing education
program of the American Institute of Real Estate Appraisers.
Robert M. McSherry, MAI
<PAGE>
(11) I certify that the use of this report is subject to the requirements
of the Appraisal Institute relating to review by its duly authorized
representatives.
Estimated Market Value:
$2,415,000.00 ---------------------------
Robert M.McSherry, MAI
LA Certified General Appraiser No. 0891
Allocated:
Land $ 350,000.00
Improvements $1,400,000.00
Furniture, Fixtures and
Equipment $ 84,000.00
Goodwill $ 581,000.00
As Of: October 15,1997
Robert M. McSherry, MAI
<PAGE>
QUALIFICATIONS OF ROBERT M. MC SHERRY, MAI
EDUCATIONAL BACKGROUND AND TRAINING:
Graduate of Louisiana State University, Baton Rouge, Louisiana, Bachelor of
Science Degree in Business Administration with a Major in Finance.
Real Estate Appraisal Course 1-A, Basic Fundamentals, Methods and
Techniques, 1974, AIREA
Real Estate Appraisal Course 1-B, Capitalization, 1975, AIREA
Real Estate Appraisal Course VIII, Single-Family Residential Appraisal,
1974, AIREA
Real Estate Appraisal Course II, Techniques and Application, 1976 and
1980, AIREA
Real Estate Appraisal Course III, Rural Properties, 1979
Real Estate Appraisal "Industrial Valuation" Course, 1984
Seminar: R-41C - New Orleans, Louisiana, AIREA, 1978
"Standards of Professional Practice" Course, AIREA, 1987
"Capitalization Theory and Techniques, Part A" Course, AIREA, 1987
"Standards of Professional Practice" Course, Appraisal Institute, 1992
PROFESSIONAL EXPERIENCE
Real Estate Broker, State of Louisiana (1971)
Monroe Redevelopment Agency, Monroe, Louisiana (1971)
Ford, Bacon & Drive Construction and Engineering Company, Monroe,
Louisiana (1972)
Mississippi power and Light Company, Jackson, Mississippi (1973-1976)
Cameron-Brown South, Inc., Mortgage Bankers, Baton Rouge, Louisiana
(1976-1977)
Real Estate Appraiser, Monroe, Louisiana (1978-1985)
Robert M. McSherry, MAI
<PAGE>
Real Estate Appraiser, Baton Rouge, Louisiana and Jackson, Mississippi
(1985-Present)
PROFESSIONAL MEMBERSHIPS:
Residential Member, American Institute of Real Estate Appraisers,
Certification Number 1040
Licensed Real Estate Broker, State of Louisiana
Fee Inspector for the Louisiana Homeowners Warranty Corporation
FNMA Approved Level III Appraiser, Number 1027135
Member, American Institute of Real Estate Appraisers - MAI Designation
(1981), Number 6291
Certified Licensed General Appraiser, State of Louisiana, Number 0891
Robert M. McSherry, MAI
<PAGE>
PRELIMINARY FRONT ELEVATION, SITE PLAN & FLOOR PLAN
<PAGE>
[PICTURE OF FRONT ELEVATION OF SUBJECT PROPERTY]
<PAGE>
[PICTURE OF SITE PLAN OF SUBJECT PROPERTY]
<PAGE>
[PICTURE OF FLOOR PLAN OF SUBJECT PROPERTY]
<PAGE>
ZONING MAP
(Provided by Shreveport Metropolitan Zoning & Planning Office)
<PAGE>
[PLAT MAP INDICATING SUBJECT PROPERTY]
<PAGE>
INVESTIGATION AND REPORT
ON
PHASE I ENVIRONMENTAL RISK AUIDIT (ERA)
PROPOSED SENIOR RETIREMENT COMMUNITIES, INC., PROPERTY
4590 U.S. HWY 80 E
RUSTON, LOUISIANA
FOR:
MRS. JOANNE M. CALDWELL, PRESIDENT
SENIOR RETIREMENT COMMUNITIES, INC.
507 TRENTON ST.
West Monroe, LA 71291
(318) 325-5462
BY
KARL M. WALLACE, P.E.
ENVIRONMENTAL ENGINEER
ROUTE 2 BOX 163B
DOWNSVELLE, LA 71234
(318)-396-2197
November 4, 1997
<PAGE>
KARL M. WALLACE, P.E.
ENVIRONMENTAL ENGINEER
ROUTE 2 BOX 163B
DOWNSVILLE, LA 71234
(318)-396-2197
November 4, 1997
Mrs. Joanne M. Caldwell, President
Senior Retirement Communities, Inc.
507 Trenton St.
West Monroe, LA 71291
RE: Phase I Environmental Risk Audit (ERA)
Proposed Senior Retirement Communities, Inc., Property
4590 U.S. Hwy 80 E(Section 20-Township 18 North-Range 2 West)
Ruston, LA 71270
A. SCOPE:
The scope of this Environmental Risk Audit (ERA) consists of a general site
inspection, review of the site's history, review of Public Records, and
contacts with people familiar with the site to determine if there is any
environmental problem or liability. The site is located on the North side of
U.S. Hwy 80, 0.25 miles East of, Ruston, La.
B. REFERENCES:
B.1 "Standard Building Code' by Southern Building Code Congress
International, Inc., 1994 edition.
B.2 The following Federal Rules and Regulations:
1. Solid Waste Disposal Act (SWDA) of 1976, as amended.
2. U.S. Environmental Protection Agency (EPA) Implementing Regulations
40 CFR Parts 50, 51, 52 & 61(CAA),Parts 100-149 and Parts 240-265.
3. Federal Water Pollution Control Act of 1972, as amended.
B.3 The following Louisiana Rules and Regulations:
1. La. Administrative Code, Volumes 11 & 12, Air Quality.
2. La. Administrative Code, Volume 13, Hazardous Waste.
3. La. Administrative Code, Volume 14, Solid Waste, Underground
Storage Tanks, Water Resources.
4. La. Administrative Code, Volume 15, Nuclear Energy.
<PAGE>
-2-
C. INVESTIGATION:
C.1 Mrs. Joanne Caldwell retained this firm to conduct a Phase I
Environmental Risk Audit (ERA) of subject property before finalizing
property development. At the date of this investigation, the site
contained heavy vegetative growth consisting of trees and brush in the
all portions of the parcel, and one small Louisana Department of
Agriculture & Forestry building on an improved lot with gravel driveway
in the Southeast portion of the parcel.
C.2 Information relative to the ERA is as follows:
C.2.1 Location: The site investigated is more specifically described as
follows: A 26.40 acre tract lying in Section 20, T18N-R2W, Lincoln
Parish, Louisiana, and numbered 4590 U.S. Hwy 80 E.
C.2.2 Visual Site Reconnaissance: A visual inspection was performed at the
site on November 4, 1997.
C.2.3 Records Search: A records search was conducted on Public Records
contained in the Clerk of Court and Tax Assessors Office in the Lincoln
Parish Courthouse.
C.2.4 Review of Past and Present Land Use: A review was made of aerial photos
owned by the Lincoln Parish Office of the Soil Conservation Service,
United States Department of Agriculture.
C.2.5 Soil Survey: A brief soil survey was conducted on the site to determine
the suitability of this site to have supported extensive agriculture in
it's history.
C.3 Adequate data was obtained to construct a current and historical review
of the site.
D. DISCUSSION:
D.1 General: The Environmental Risk Audit (ERA) is an investigation of the
site to determine if contaminants are present.
D.1.1 Records Search: Detailed ownership history was studied from the public
record including prior use and activities and descriptions of the
property and adjacent pertinent property. Property descriptions and
chain-of-title records were reviewed. The site has had minor
agricultural use and has served as a office site for the LA Deptartment
Agriculture & Forestry. Aerial photographs confirm this use of the site.
Interviews with public employees confirm the same site usage.
D.1.2 Visual Inspection: Attention was given to readily apparent
environmental indicators. Particular concerns were distressed
vegetation, ground stains, trash, landfills, noxious odors, depressions,
and evidence of any below grade tanks or other potential contaminant
sources. None were evident. Contact was made and verification was
given by Officials of the Louisiana Department of Environmental Quality
that no enviromental hazards existed on the site.
D.1.3 Soil Suitability for Farming: The site contains Ruston-Shubuta-Lucy
Association soil, a loamy and clayey acid soil with 1 to 12 percent
slopes. It is strongly acid in the root zone thus limiting crops and
requiring large quantities of lime and fertilizer to have optimum
production. The soils in the site are most suitable for pasture and
woodland and only moderately well suited to cultivated crops with
erosion control needed. It is very unlikely that the site was ever used
for extensive farming nor is there any likelihood of pesticide and
herbicide residues.
<PAGE>
-3-
D.1.4 Check for Specific Contaminants: The specific contaminants of interest
in this report were asbestos, lead-based paint, volatile organic
compounds such as methyl ethyl ketone, semivolatile organic compounds
such as o-Cresol, pesticides/herbicides/PCB's such as toxaphene, and
metals/inorganic compounds such as mercury. No evidence appeared to
require specific tests for these contaminants.
E. CONCLUSION: Based on this investigation, which was performcd according
to generally accepted standards in the profession, the site does not
appear to have any detectible contaminants.
F. RECOMMENDATIONS: It is the recommendation of this report that after
evaluation of all data, there is no need for further soil or
groundwater studies or chemical analysis on soil and groundwater
samples at this site. The ERA concludes there is no resonable evidence
to suggest existing or potential environmental problems.
G. LIABILITY:
G.1 This report is not a certification and in no way implies or envokes any
warranty or guaranty.
G.2 In as much as the visual inspection of a site requires that certain
assumptions be made regarding prior and existing conditions, and
because some of these assumptions cannot be verified without expending
great sums of additional money, or destroying otherwise adequate or
serviceable portions of the site, the Engineer and his agents are not
liable for claims, damages, losses, and expenses including attorney's
fees arising out of or resulting from any subsequent discovery of
contaminants not specifically discussed herein, acts of God, or any
cause not attributable to Professional Design negligence.
END OF REPORT
/S/KARL M WALLACE
KARL M. WALLACE, P.E. KARL M. WALLACE
Consulting Engineer REG No. 8642
REGISTERED
PROFESSIONAL ENGINEER
IN
CIVIL ENGINEERING
INVESTIGATION AND REPORT
ON
PHASE I ENVIRONMENTAL RISK AUDIT (ERA)
PROPOSED SENIOR RETIREMENT COMMUNITIES, INC., PROPERTY
COMMERCIAL SUBD.OWNED BY PATTERSON INSURANCE CO.
BRANDON BLVD.
BOSSIER CITY, LOUISIANA
FOR:
MRS. JOANNE M. CALDWELL, PRESIDENT
SENIOR RETIREMENT COMMUNITIES, INC.
507 TRENTON ST.
West Monroe, LA 71291
(318) 325-5462
BY
KARL M. WALLACE, P.E.
ENVIRONMENTAL ENGINEER
ROUTE 2 BOX 163B
DOWNSVILLE, LA 71234
(318)-396-2197
December 23, 1997
<PAGE>
KARL M. WALLACE, P.E.
ENVIRONMENTAL ENGINEER
ROUTE 2 BOX 163B
DOWNSVILLE, LA 71234
(318)-396-2197
December 23, 1997
Mrs. Joanne M. Caldwell, President
Senior Retirement Communities, Inc.
507 Trenton St.
West Monroe, LA 71291
Re: Phase I Environmental Risk Audit (ERA)
Proposed Senior Retirement Communities, Inc., Property
Commercial Subdivision owned by Patterson Insurance Co.
Brandon Blvd.
Bossier City, LA 71112
A. SCOPE:
The scope of this Environmental Risk Audit (ERA) consists of a general site
inspection, review of the site's history, review of Public Records, and
contacts with people familiar with the site to determine if there is any
environmental problem or liability. The site is located on the South side
of U. S. Highway 80, at the South end of Swan Lake Road as it ends at Brandon
Blvd..
B. REFERENCES:
B.1 "Standard Building Code" by Southern Building Code Congress
International, Inc., 1994 edition.
B.2 The following Federal Rules and Regulations:
1. Solid Waste Disposal Act (SWDA) of 1976, as amended.
2. U. S. Environmental Protection Agency (EPA) Implementing
Regulations 40 CFR Parts 50, 51, 52 & 61(CAA),Parts 100-149 and
Parts 240-265.
3. Federal Water Pollution Control Act of 1972, as amended.
B.3 The following Louisiana Rules and Regulations:
1. La. Administrative Code, Volumes 11 & 12, Air Quality.
2. La. Administrative Code, Volume 13, Hazardous Waste.
3. La. Administrative Code, Volume 14, Solid Waste, Underground
Storage Tanks, Water Resources.
4. La. Administrative Code, Volume 15, Nuclear Energy.
<PAGE>
-2-
C. INVESTIGATION:
C.1 Mrs. Joanne Caldwell retained this firm to conduct a Phase I
Environmental Risk Audit (ERA) of subject property before finalizing
property development. At the date of this investigation, the site
contained a minimum of vegetation with grass cover..
C.2 Information relative to the ERA is as follows:
C.2.1 Location: The site investigated is more specifically described in the
attached legal description (See Attachment #1).
C.2.2 Visual Site Reconnaissance: A visual inspection was performed at the
site on December 23, 1997.
C.2.3 Records Search: A records search was conducted on Public Records
contained in the Clerk of Court and Tax Assessors Office in the Bossier
Parish Courthouse.
C.2.4 Review of Past and Present Land Use: A review was made of aerial photos
owned by the Bossier Parish Office of the Soil Conservation Service,
United States Department of Agriculture.
C.2.5 Soil Survey: A brief soil survey was conducted on the site to determine
the suitability of this site to have supported extensive agriculture in
it's history.
C.3 Adequate data was obtained to construct a current and historical review
of the site.
D. DISCUSSION:
D.1 General: The Environmental Risk Audit (ERA) is an investigation of the
site to determine if contaminants are present.
D.1.1 Records Search: Detailed ownership history was studied from the public
record including prior use and activities and descriptions of the
property and adjacent pertinent property. Property descriptions and
chain-of-title records were reviewed. The site has had minor
agricultural use. Aerial photographs confirm this use of the site.
Interviews with public employees confirm the same site usage.
D.1.2 Visual Inspection: Attention was given to readily apparent
environmental indicators. Particular concerns were distressed
vegetation, ground stains, trash, landfills, noxious odors, depressions,
and evidence of any below grade tanks or other potential contaminant
sources. None were evident. Contact was made and veification was
given by Officials of the Louisiana Department of Environmental Quality
that no enviromental hazards existed on the site.
D.1.3 Soil Suitability for Farming: The site contains Gallion silt loam, a
high silt content soil with less than 3 percent slopes. This soil has
excellent potential for cultivated crops and has only slight
limitations for this use. It has fair potential for most urban uses-,
low strength and shrinkswell potential are minor but correctable
limitations to use. It is very likely that the site was used for
extensive farming. The likelihood of pesticide and herbicide residues
is minor.
<PAGE>
-3-
D.1.4 Check for Specific Contaminants: The specific contaminants of interest
in this report were asbestos, lead-based paint, volatile organic
compounds such as methyl ethyl ketone, semivolatile organic compounds
such as o-Cresol, pesticides/herbicides/PCB's such as toxaphene, and
metals/inorganic compounds such as mercury. No evidence appeared to
require specific tests for these contaminants.
E. CONCLUSION: Based on this investigation, which was performed according
to generally accepted standards in the profession, the site does not
appear to have any detectable contaminants.
F. RECOMMENDATIONS: It is the recommendation of this report that after
evaluation of all data, there is no need for further soil or
groundwater studies or chemical analysis on soil and groundwater
samples at this site. The ERA concludes there is no resonable evidence
to suggest existing or potential environmental impairment
G. LIABILITY:
G.1 This report is not a certification and in no way implies or envokes any
warranty or guaranty.
G.2 In as much as the visual inspection of a site requires that certain
assumptions be made regarding prior and existing conditions, and
because some of these assumptions cannot be verified without expending
great sums of additional money, or destroying otherwise adequate or
serviceable portions of the site, the Engineer and his agents are not
liable for claims, damages, losses, and expenses including attoney's
fees arising out of or resulting from any subsequent discovery of
contaminants not specifically discussed herein, acts of God, or any
cause not attributable to Professional Design negligence.
END OF REPORT
/S/KARL M. WALLACE
KARL M. WALLACE, P.E.
Consulting Engineer
<PAGE>
[PLAT OF SUBJECT PROPERTY]
<PAGE>
[PLAT OF SUBJECT PROPERTY]
<PAGE>
12/31/97
PROPERTY DESCRIPTION
A certain lot or parcel of land lying in and being a portion of Lot 1 of the
Brandon Square Subdivision located in Sections 23 & 24, Township 18 North,
Range 13 West, Bossier Parish, Louisiana containing 6.00 acres, more or less
and being more particularly described as follows:
Commence at the Southwest corner of Lot 2 of said Brandon square Subdivision
and run South 69 degrees 28 minutes 25 seconds West along the South
right-of-way line of Brandon Boulevard for a distance of 64.30 feet to the
POINT OF BEGINNING; thence from said POINT OF BEGINNING run South 00 degrees
32 minutes 59 seconds West parallel with the East line of Lot 1 of said
subdivision for a distance of 321.51 feet; thence run South 69 degrees 28
minutes 25 seconds West parallel with the North side of said Lot 1 for a
distance of 376.33 feet; thence run South 16 degrees 19 minutes 15 seconds
East for a distance of 199.59 feet; thence run South 73 degrees 40 minutes
45 seconds West for a distance of 311.76 feet; thence run due North for a
distance of 165.48 feet; thence run North 19 degrees 21 minutes 49 seconds
East for a distance of 115.11 feet; thence run North 70 degrees 43 minutes 26
seconds West for a distance of 178.16 feet; thence run due North for a
distance of 26.61 feet to a point located on the Easterly right-of-way of
Brandon Boulevard, thence run North 31 degrees 20 minutes 55 seconds East
along the Easterly right-of-way of said Brandon Boulevard for a distance of
152.10 feet; thence run North 69 degrees 28 minutes 25 seconds East along the
Southerly right-of-way of said Brandon Boulevard and along the Northerly side
of said Lot 1 for a distance of 693.53 feet to the POINT OF BEGINNING.
NOTE: This description was prepared from plats furnished me and does not
reflect a survey upon the ground as per date shown hereon.
STATE OF LOUISIANA
LAWSON LEE MASON
REG. No. 4404
REGISTERED
<PAGE>
INVESTIGATION AND REPORT
ON
PHASE I ENVIRONMENTAL RISK AUDIT (ERA)
PROPOSED SENIOR RETIREMENT COMMUNITIES, INC., PROPERTY
LOT 4, ORLEANS SQUARE SUBD.
EAST KINGS HWY.
SHREVEPORT, LOUISIANA
FOR:
MRS. JOANNE M. CALDWELL, PRESIDENT
SENIOR RETIREMENT COMMUNITIES, INC.
507 TRENTON ST.
West Monroe, LA 71291
(318) 325-5462
BY
KARL M. WALLACE, P.E.
ENVIRONMENTAL ENGINEER
ROUTE 2 BOX 163B
DOWNSVILLE, LA 71234
(318)-396-2197
December 23, 1997
<PAGE>
KARL M. WALLACE, P.E.
ENVIRONMENTAL ENGINEER
ROUTE 2 BOX 163B
DOWNSVILLE, LA 71234
(318)-396-2197
December 23, 1997
Mrs. Joanne M. Caldwell, President
Senior Retirement Communities, Inc.
507 Trenton St.
West Monroe, LA 71291
Re: Phase I Environmental Risk Audit (ERA)
Proposed Senior Retirement Connnunities, Inc., Property
Lot 4, Orleans Square Subdivision
East Kings Hwy.
Shreveport, LA 71115
A. SCOPE:
The scope of this Environmental Risk Audit (ERA) consists of a general site
inspection, review of the site's history, review of Public Records, and
contacts with people familiar with the site to determine if there is any
environmental problem or liability. The site is located on the East side of
East Kings Highway, at the Southwest comer of Jackson Square Blvd..
B. REFERENCES:
B.1 "Standard Building Code" by Southern Building Code Congress
International, Inc., 1994 edition.
B.2 The following Federal Rules and Regulations:
1. Solid Waste Disposal Act (SWDA) of 1976, as amended.
2. U.S. Environmental Protection Agency (EPA) Implementing Regulations
40 CFR Parts 50, 51, 52 & 61(CAA),Parts 100-149 and Parts 240-265.
3.Federal Water Pollution Control Act of 1972, as amended.
B.3 The following Louisiana Rules and Regulations:
1. La. Administrative Code, Volumes 11 & 12, Air Quality.
2. La. Administrative Code, Volume 13, Hazardous Waste.
3. La. Administrative Code, Volume 14, Solid Waste, Underground
Storage Tanks, Water Resources.
4. La. Administrative Code, Volume 15, Nuclear Energy.
<PAGE>
-2-
C. INVESTIGATION:
C.1 Mrs. Joanne Caldwell retained this firm to conduct a Phase I
Environmental Risk Audit (ERA) of subject property before finalizing
property development. At the date of this investigation, the site
contained a minimum of vegetation with grass cover..
C.2 Information relative to the ERA is as follows:
C.2.1 Location: The site investigated is more specifically described as
follows: A 3.5 acre tract being a portion of the Grappe Lands located
in Section 20, T17N-Rl3W, Caddo Parish, Louisiana; platted as Lot 4 of
Orleans Square Subdivision.
C.2.2 Visual Site Reconnaissance: A visual inspection was performed at the
site on December 23, 1997.
C.2.3 Records Search: A records search was conducted on Public Records
contained in the Clerk of Court and Tax Assessors Office in the Caddo
Parish Courthouse.
C.2.4 Review of Past and Present Land Use: A review was made of aerial photos
owned by the Caddo Parish Office of the Soil Conservation Service,
United States Department of Agriculture.
C.2.5 Soil Survey: A brief soil survey was conducted on the site to determine
the suitability of this site to have supported extensive agriculture in
it's history.
C.3 Adequate data was obtained to construct a current and historical review
of the site.
D. DISCUSSION:
D.1 General: The Environmental Risk Audit (ERA) is an investigation of the
site to determine if contaminants are present.
D.1.1 Records Search: Detailed ownership history was studied from the public
record including prior use and activities and descriptions of the
property and adjacent pertinent property. Property descriptions and
chain-of-title records were reviewed. The site has had minor
agricultural use. Aerial photographs confirm this use of the site.
Interviews with public employees confirm the same site usage.
D.1.2 Visual Inspection: Attention was given to readily apparent
environmental indicators. Particular concerns were distressed
vegetation, ground stains, trash, landfills, noxious odors, depressions,
and evidence of any below grade tanks or other potential contaminant
sources. None were evident. Contact was made and veification was
given by Officials of the Louisiana Department of Environmental Quality
that no enviromental hazards existed on the site.
D.1.3 Soil Suitability for Farming: The site contains Norwood silt loam, a
high silt content soil with less than I percent slopes. This soil has
excellent potential for cultivated crops and has only slight limitations
for this use. It has good potential for most urban uses. It is very
likely that the site was used for extensive farming. The likelihood of
pesticide and herbicide residues is minor.
<PAGE>
-3-
D.1.4 Check for Specific Contaminants: The specific contaminants of interest
in this report were asbestos, lead-based paint, volatile organic
compounds such as methyl ethyl ketone, semivolatile organic compounds
such as o-Cresol, pesticides/herbicides/PCB's such as toxaphene, and
metals/inorganic compounds such as mercury. No evidence appeared to
require specific tests for these contaminants.
E. CONCLUSION: Based on this investigation, which was performed according
to generally accepted standards in the profession, the site does not
appear to have any detectable contaminants.
F. RECOMMENDATIONS: It is the recommendation of this report that after
evaluation of all data, there is no need for further soil or
groundwater studies or chemical analysis on soil and groundwater samples
at this site. The ERA concludes there is no resonable evidence to
suggest existing or potential environmental impairment,
G. LIABILITY:
G.1 This report is not a certification and in no way implies or envokes any
warranty or guaranty.
G.2 In as much as the visual inspection of a site requires that certain
assumptions be made regarding prior and existing conditions, and because
some of these assumptions cannot be verified without expending great
sums of additional money, or destroying otherwise adequate or
serviceable portions of the site, the Engineer and his agents are not
liable for claims, damages, losses, and expenses including attorney's
fees arising out of or resulting from any subsequent discovery of
contaminants not specifically discussed herein, acts of God, or any
cause not attributable to Professional Design negligence.
END OF REPORT
/S/KARL M WALLACE
KARL M. WALLACE, P.E.
Consulting Engineer
<PAGE>
Legal Description
Lot 4 Orleans Square Subdivision, being a portion of the Grappe
Lands Located in Township 17 North, Range 13 West, Caddo
Parish, LA, Filed and Recorded in Clerk of Court on March 17, 1975
containing 152,316 Square Feet, more or less.
