<PAGE>
REGISTRATION NO.
------------
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM SB-2
Registration Statement Under The Securities Act of 1933
THE BILTMORE GROUP OF LOUISIANA, L.L.C.
(Name of small business issuer in its charter)
<TABLE>
<S> <C> <C>
Louisiana 8261 72-1423893
- --------------- --------------- --------------
(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. [x]
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
- ---------- ---------- --------- ---------- ----------
Co-First $9,900,000 100% $9,900,000 $3,000.00
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 , 1999
-------------
$9,900,000.00
THE BILTMORE GROUP OF LOUISIANA, L.L.C.
Co-First Mortgage Bonds Consisting of:
$1,800,000 Co-First Mortgage Bonds, Series 1999-I (the "Minden Project")
$2,700,000 Co-First Mortgage Bonds, Series 1999-II (the "Oak Creek Project")
$1,800,000 Co-First Mortgage Bonds, Series 1999-III (the "Bastrop Project")
$1,800,000 Co-First Mortgage Bonds, Series 1999-IV (the "Farmerville Project")
$1,800,000 Co-First Mortgage Bonds, Series 1999-V (the "Natchitoches Project")
The Biltmore Group of Louisiana, L.L.C. (the "Company") is a newly
formed Louisiana limited liability company that will develop, acquire and
operate retirement and assisted living facilities in certain cities primarily
in the State of Louisiana and in one city in the State of Arizona. The
Company will conduct business as Arbor Retirement Community in Louisiana. In
Arizona, the Company will conduct business as The Biltmore of Oak Creek. The
Company is offering $9,900,000.00 of co-first mortgage bonds (herein
collectively referred to as the "Bonds") in five series, with the proceeds
from each series being used for a particular project as set forth above.
Herein, the Company's five 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, 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
an Escrow 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 the Series
1999-I, III, IV and V Bonds will accrue from their respective dates of issue
whether or not the respective minimum offering amounts have been reached.
Interest on the Series 1999-II Bonds will accrue from the date payment for
the Series 1999-II Bonds is received in the office of MMR Investment Bankers,
Inc. (the "Underwriter") whether or not the minimum offering amount for this
series of bonds has been reached. 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.
THE BONDS ARE NOT RATED BY ANY RECOGNIZED RATING AGENCY.
<TABLE>
<CAPTION>
Series (1) Price to Underwriting Proceeds to
Public (2) Discounts and Company
Commissions (3)
<S> <C> <C> <C>
Series 1999-I . . . 100% 6% 94%
Series 1999-II . . . 100% 6% 94%
Series 1999-III. . . 100% 6% 94%
Series 1999-IV . . . 100% 6% 94%
Series 1999-V. . . . 100% 6% 94%
Total. . . . . . . . 100% 6% 94%
</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 1999-I Bonds are subject to the sale of a minimum of
$400,000 in principal amount of Bonds. The Series 1999-II are
subject to the sale of a minimum of $600,000 in principal amount of
Bonds. The Series 1999-III Bonds are subject to the sale of a
minimum of $400,000 in principal amount of Bonds. The Series
1999-IV Bonds are subject to the sale of a minimum of $400,000 in
principal amount of Bonds. The Series 1999-V Bonds are subject to
the sale of a minimum of $400,000 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 $594,000. See
"Underwriting." The Company, the Company's affiliates, the
Underwriter and the Underwriter's affiliates may purchase Bonds in
order to reach the minimum offering amounts for any series of the
Bonds. These parties will not be restricted to the amount of Bonds
that they may purchase. 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
$250,000, including an investment banking fee in the amount of
$128,700 paid to the Underwriter for its technical assistance in
connection with the Offering, $60,000 to be paid by the Trustee to
the Underwriter over the terms of the Bonds and miscellaneous
expenses estimated to be $61,300 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 OF 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.
(Artist rendering of a facility of the Company and Company's logo will
go in this space)
The Company intends to furnish annual reports containing audited financial
statements to its bondholders.
2
<PAGE>
MATURITY SCHEDULES
<TABLE>
<CAPTION>
Series 1999-I Bonds
Maturity Type Interest Principal
Date (1) Rates Retired (2)
<S> <C> <C> <C>
10/01/00 S 7.00% $21,000
04/01/01 S 7.50% $21,500
10/01/01 S 7.50% $24,000
04/01/02 S 8.00% $25,000
10/01/02 S 8.00% $29,500
04/01/03 S 8.50% $30,250
10/01/03 C 8.50% $21,750
04/01/04 S 9.00% $31,500
10/01/04 C 9.00% $20,500
04/01/05 S 9.25% $33,000
10/01/05 C 9.25% $19,250
04/01/06 S 9.50% $34,750
10/01/06 S 9.50% $36,250
10/01/06 S 9.50% $1,451,750
</TABLE>
<TABLE>
<CAPTION>
Series 1999-II Bonds
Maturity Type Interest Principal
Date (1) Rate Retired (2)
<S> <C> <C> <C>
05/01/04 S 9.00% $2,700,000
</TABLE>
<TABLE>
<CAPTION>
Series 1999-III Bonds
Maturity Type Interest Principal
Date (1) Rate Retired (2)
<S> <C> <C> <C>
11/01/99 C 6.50% $77,000
05/01/00 C 7.00% $74,500
11/01/00 C 7.00% $81,000
05/01/01 C 7.50% $77,750
11/01/01 C 7.50% $83,500
05/01/02 C 8.00% $79,500
11/01/02 C 8.00% $84,500
05/01/03 C 8.50% $79,500
11/01/03 C 8.50% $76,500
05/01/04 C 9.00% $71,500
11/01/04 C 9.00% $68,500
05/01/05 C 9.25% $64,500
11/01/05 C 9.25% $62,000
05/01/06 C 9.50% $58,000
11/01/06 C 9.50% $55,500
11/01/06 C 9.50% $706,250
</TABLE>
<TABLE>
<CAPTION>
Series 1999-IV Bonds
Maturity Type Interest Principal
Date (1) Rate Retired (2)
<S> <C> <C> <C>
12/01/00 S 7.00% $17,250
06/01/01 S 7.50% $18,000
12/01/01 C 7.50% $23,000
06/01/02 S 8.00% $27,750
12/01/02 C 8.00% $30,000
06/01/03 S 8.50% $39,500
12/01/03 C 8.50% $28,250
06/01/04 S 9.00% $41,250
06/01/04 S 9.00% $1,575,000
</TABLE>
<TABLE>
<CAPTION>
Series 1999-V Bonds
Maturity Type Interest Principal
Date (1) Rate Retired (2)
<S> <C> <C> <C>
01/01/01 S 7.00% $17,250
07/01/01 S 7.50% $18,000
01/01/02 C 7.50% $23,000
07/01/02 S 8.00% $27,750
01/01/03 C 8.00% $30,000
07/01/03 S 8.50% $39,500
01/01/04 C 8.50% $28,250
07/01/04 S 9.00% $41,250
07/01/04 S 9.00% $1,575,000
</TABLE>
Note 1: S = Simple Interest Bonds; interest payable semiannually until
maturity. C = Compound Interest Bonds; interest compounded semiannually and
payable at maturity.
Note 2: The Series 1999-I Bond Issue has a balloon payment of $1,451,750 due
on September 30, 2006. The Series 1999-II Bond Issue has a balloon payment of
$2,700,000 due on April 30, 2004. The Series 1999-III Bond Issue has a
balloon payment of $1,416,771 due on October 31, 2006 consisting of $706,250
in principal and $710,521 in accrued interest. The Series 1999-IV and Series
1999-V Bond Issues each have balloon payments of $1,575,000 due on May 31,
2004 and June 30, 2004, respectively.
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
The Biltmore Group of Louisiana, L.L.C. is a development stage limited
liability company formed under the laws of the State of Louisiana for the
purpose of developing, acquiring and operating retirement and assisted living
facilities in four locations in Louisiana and one location in Arizona. 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 $9,900,000.00 of co-first
mortgage bonds in five series, with the proceeds
from each series being used for a particular
project. 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. See "Description of
Bonds - Description of Liens" and "Description of
Bonds - General."
The Series 1999-I Bonds will be dated April 1, 1999,
and are subject to the sale of a minimum of $400,000
in principal amount of Bonds. The aggregate
principal amount of the Series 1999-I Bonds is
$1,800,000 and is comprised of bonds in the
principal amount of $1,738,500 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 $61,500 that will mature serially and
bear interest compounded semiannually each
October 1 and April 1 that is payable at maturity.
The Series 1999-II Bonds will be dated May 1, 1999,
and are subject to the sale of a minimum of
$600,000 in principal amount of Bonds. The
aggregate principal amount of the Series 1999-II
Bonds is $2,700,000. The Series 1999-II 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 1999-III Bonds will be dated May 1, 1999,
and are subject to the sale of a minimum of $400,000
in principal amount of Bonds. The aggregate
principal amount of the Series 1999-III Bonds is
$1,800,000. The Series 1999-III Bonds will
mature serially and bear interest compounded
semiannually each November 1 and May 1 that is
payable at maturity.
The Series 1999-IV Bonds will be dated June 1, 1999,
and are subject to the sale of a minimum of $400,000
in principal amount of Bonds. The aggregate
principal amount of the Series 1999-IV Bonds is
$1,800,000 and is comprised of bonds in the
principal amount of $1,718,750 that will mature
serially and bear simple interest payable by check
mailed to the registered owners each December 1
and June 1 until maturity and bonds in the
principal amount of $81,250 that will mature
serially and bear interest compounded semiannually
each December 1 and June 1 that is payable at
maturity.
4
<PAGE>
The Series 1999-V Bonds will be dated July 1, 1999,
and are subject to the sale of a minimum of $400,000
in principal amount of Bonds. The aggregate
principal amount of the Series 1999-VI Bonds is
$1,800,000 and is comprised of bonds in the
principal amount of $1,718,750 that will mature
serially and bear simple interest payable by check
mailed to the registered owners each January 1 and
July 1 until maturity and bonds in the principal
amount of $81,250 that will mature serially and
bear interest compounded semiannually each
January 1 and July 1 that is payable at maturity.
Interest on the Bonds is included 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.
Subscription for Bonds . . Each person who wishes to purchase a Bond must
execute a subscription agreement covering the
Bond(s) being purchased. The subscription
argeement is generated by the Underwriter upon
receiving verbal indication from a subscriber for
the Bond(s) the subscriber has selected from the
available maturities. Subscribers may purchase
any of the series of Bonds. Prior to executing the
subscription agreement, the subscriber will be
provided a Prospectus by the Underwriter. See
"Underwriting - Subscription for Bonds."
Operating Funds. . . . . . Under the Trust Indenture, the Company must
establish an operating fund account for each of the
five 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."
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 material men's liens that may become
payable. 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. Also, the Company has obtained a key
employee insurance policy covering the life of the
Managing Member of the Company in the amount of
$500,000 payable to the Company and $1,000,000
assignable to the Trustee for the benefit of the
Bondholders. 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 the Series 1999-I, III, IV and V 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 $537,000. The Bond Reserve Account will remain
in place for a period of 7 1/2 years from May 1,
1999. At the end of the 7 1/2 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."
5
<PAGE>
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 assurety 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 Minden, Bastrop and Farmerville and
Natchitoches and Sedona, Arizona. 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."
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 interim/construction financing on the
Facilities. See "Sources and Uses of Proceeds."
Risk Factors . . . . . . An investment in the Bonds are 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 not be sufficient to retire the
interim/construction loans; and the Company will
be required to make substantial balloon payments
at the final maturities of the Bonds. Potential
investors should carefully consider the factors
set forth under "Risk Factors."
Financial Summary
As of December 31, 1998, the Company had total assets of $3,953,961,
total liabilities of $2,174,025 and total members equity of $1,088,646. The
members of the Company have contributed a total of $1,112,762.50 in capital
to the Company. Since the Company's inception on July 1, 1998 through
December 31,1998, the Company has generated no revenues and has incurred
cumulative expenses of $24,117. See "Financial Statements" beginning on page
F-1 of the Prospectus.
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 sells 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 Uses 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 has obtained and will obtain interim/construction loans
(the "Interim Loans") with The First Republic Bank of Monroe, Louisiana
("FRB") and Church Loans and Investments Trust of Amarillo, Texas ("CLT"),
hereinafter collectively referred to as the Interim Lenders, for the
construction and acquisition of the Company's Facilities. The Company
obtained the construction loan for the Minden Project ("Minden Construction
Loan") on October 2, 1998 in the amount of $1,358,520 from FRB. The Company
obtained the interim loan for the Oak Creek Project ("Oak Creek Interim
Loan") on October 20, 1998 in the amount of $2,174,025 from CLT. The Company
obtained the construction loan for the Bastrop Project ("Bastrop Construction
Loan") on November 24, 1998 in the amount of $1,220,000 from CLT. The Company
agreed to the terms of a construction loan commitment issued by CLT for the
construction financing of the Farmerville Project ("Farmerville Construction
Loan") on February 1, 1999. The Farmerville Construction Loan will be in the
amount of $1,330,000 and will be due 12 months after the initial funding of
the loan. The Company agreed to the terms of a construction loan commitment
issued by CLT for the construction financing of the Natchitoches Project
("Natchitoches Construction Loan") on February 1, 1999. The Natchitoches
Construction Loan will be in the amount of $1,450,000 and will be due 12
months after the initial funding of the loan.
Each interim/construction loan is secured by a Co-First Mortgage on the
corresponding project that will be constructed or has been construction (the
Oak Creek Project) from the proceeds of the respective interim/construction
loan. If any of the loans go into default, the lender may exercise it rights,
including Lender's right under the mortgage and the applicable Lienholder
Agreement to accelerate the defaulted interim/construction loan and the
applicable bonds and, if not paid, then foreclose the subject property
securing the applicable interim/construction loan. There is no assurance
that the Company would be able to secure alternative financing to replace the
interim/construction loan(s) on a timely basis. Notwithstanding the fact
that the security for each of the Facilities is in parity with its respective
interim/construction loan, there can be no assurance that the proceeds
arising from any sale of any of the Facilities, even though the construction
has been fully completed, would be sufficient to fully repay the respective
interim/construction loan and the then outstanding Bonds. Under the terms of
the Lienholder Agreements, all receipts from collection and foreclosure are
to be allocated between the interim/construction loan and the corresponding
series of Bonds in proportion to the respective principal balances outstanding.
See "Description of Property - Financing of the Company's Facilities",
"Description of Bonds - Escrow and Disbursement of Bond Proceeds", "Sources
and Uses of Proceeds" and "The Company's Plan of Operation."
7
<PAGE>
Substantial Balloon Payment Requirements for the Bonds
In order to retire all of the Bonds, the Company is required to make a
substantial balloon payment on the final maturity for each series of bonds.
See "Maturity Schedules." The Company is required to make a one-time payment
of $1,451,750 on September 30, 2006, to pay principal due at that time on the
remaining outstanding Series 1999-I Bonds. The Company is required to make a
one time payment of $2,700,000 on April 30, 2004, to pay principal due at
that time on the remaining outstanding Series 1999-II Bonds. The Company is
required to make a one time payment of $1,416,771 on October 31, 2006, to pay
principal and interest due at that time on the remaining outstanding Series
1999-III Bonds. The Company is required to make a one time payment of
$1,575,000 on May 31, 2004, to pay principal due at that time on the
remaining outstanding Series 1999-II Bonds. The Company is required to make
a one time payment of $1,575,000 on June 30, 2004, to pay principal due at
that time on the remaining outstanding Series 1999-II 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 Bonds then due. There is also no
assurance the Company will be able to refinance an amount sufficient to
retire all of the 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 initially be 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 five series of bonds in amounts
approximately equivalent to 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 be 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 7 1/2 years from May 1, 1999.
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 7 1/2 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 7 1/2 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.
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
8
<PAGE>
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.
Limitations of the Trust Indenture
The Bonds will be issued 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"). The Company is not required to qualify the
Trust Indenture under The Trust Indenture Act of 1939 as amended (the "Act").
Thus, the Company has elected not to qualify the Trust Indenture under the
Act. Although the Trust Indenture utilized by this Company does not conform
entirely to the required provisions to the Trust Indenture Act of 1939, the
overall agreement of the Trust Indenture does incorporate the essential
provisions for the protection of bondholders. See "Description of Bonds."
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. See
"Description of Bonds" and "The Company's Plan of Operation."
9
<PAGE>
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.
Early Redemption of Bonds
The Bonds are subject to redemption, in whole or in part, prior to
maturity as more particularly set forth 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 and Related Experience
The Company is newly formed and was organized on July 13, 1998.
Renovations of the Oak Creek Project were completed in January 1999, and the
Oak Creek Project commenced operations in January 1999. Construction of the
Minden Project commenced in November 1998 and is scheduled to be completed
and open for business in June 1999. Construction of the Bastrop Project
commenced in December 1998 and is scheduled to be completed and open for
business in July 1999. Construction of the Farmerville Project will commence
in February 1999 and is scheduled to be completed and open for business in
August 1999. Construction of the Natchitoches Project will commence in March
1999 and is scheduled to be completed and open for business in August 1999.
Therefore, the Company has no substantial operating history. However,
the Managing Member of the Company has gained previous experience in the
development and operation of similar retirement, assisted living and memory
disorder facilities in West Monroe, Ruston, Bossier City and Shreveport,
Louisiana. The West Monroe Facility commenced operations in November of 1997.
The Ruston Facility commenced operation in November 1998. The Shreveport
Facility commenced operations in January 1999, and the Bossier City Facility
will commence operations in February 1999. See "Management" and "Prior
Performance of Affiliates of the Company." There is no assurance, that once
open, the Company's Facilities will generate income sufficient to service the
Bonds.
Lack of Independent Feasibility Studies
Independent feasibility studies have not been performed for the Company
for its intended operations of the Facilities. The Company has relied upon
market research conducted by the Company and the past experience of its
Managing Member in analyzing the business opportunities of the Company. The
Company has secured independent appraisals of the Facilities partly as a
result of requests of the Underwriter and for its own purposes. See
"Description of Property - Appraisals" and "Business - Competition."
Risks Arising from Operations
Any business entity which operates retirement and assisted living
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.
10
<PAGE>
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 their 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 the 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, tornadoes or other
natural disasters.
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 from 1998 through 1999, except for the Oak Creek Project in which
no environmental assessment has been conducted. Research and visual
observation undertaken from the environmental assessments did not reveal any
former or current environmental conditions, problems or situations impacting
the sites.
Reliance on Technology - Year 2000 Risks
The Company relies on computer hardware, software and related technology,
together with data, in the operation of its business. In addition, the
Company is dependent on the same type of technology and data generated by
financial institutions, the Federal Government such as the Social Security
Administration, the State of Louisiana, investment bankers, the Trustee,
interim lenders and utility companies. The Company has initiated an
enterprise wide program to prepare for the year 2000. The Company has
created a year 2000 program office reporting to the Managing Member to
coordinate and oversee the Company's year 2000 program. All of the Company's
computer systems have been cleared to meet the year 2000 requirements by
contacting the manufacturer of the equipment and receiving written notice of
compliance. The computer software necessary for the accounting function has
also been cleared for the year 2000 requirements in writing from the developer
of the accounting software. The Company has discussed the year 2000 with
all of the above set forth companies and agencies and have been assured either
in writing or verbally that each anticipates compliance for the year 2000.
As a result of the Company's own operations already being in compliance with
the year 2000, it is dependent upon outside forces to also be in compliance.
It is impossible for the Company to be sure that all governmental agencies,
utilities, financial institutions and others with whom it does business will
also be in compliance. The failure of some or all of the above stated
agencies being in compliance with the year 2000 could adversely affect the
Company's ability to operate.
11
<PAGE>
Construction Risks
Renovations to the Oak Creek Project are complete, and this facility
commenced operations in January 1999. Construction of the Company's other
four Facilities is not completed, and delays are common in the construction
industry. The Company anticipates the construction of its Facilities to be
completed by August 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."
Acquisition Risk - Oak Creek Project Operations
The Oak Creek Project was acquired in October 1998. The property was
previously used as a cancer treatment center. The Company's studies
indicated the highest and best use for the facility is that of a senior
independent living facility. After the Company completed renovations in
January 1999, the Oak Creek Project commenced operations. The facility has
not been in operation for a sufficient time to evaluate its success. See
"General Risks in Property Ownership," "Competition" and "Rental Risk."
Dependence on Management - Management Agreement
The success of the Company's business will be highly dependent upon the
services of Joanne M. Caldwell-Bayles, Managing Member of the Company. The
loss of her services to 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., has entered 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 and assisted living 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 ten employees at each facility. During the
construction and operation of the Facilities, the Company depends on The
Forsythe Group, Inc. ("Forsythe"), for support staff and office facilities.
There is no assurance that the Company or Forsythe 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 or Forsythe in the future. See
"Business - Management Agreement."
Lack of Company Member's Liability
Under the Louisiana Limited Liability Company Act, all members and
managers of a limited liability company have limited liability without
regard to their participation in the management in the Company's business.
A member is only liable for his contribution and improper return of capital.
Accordingly, in the event of default in the payment of principal and interest
on the Bonds occurs, in all likelihood, the bondholders could look only to the
assets of the Company for satisfaction of such indebtedness.
Conflicts of Interest
The members of the Company, individually and/or through their ownership
of affiliated companies have or will receive fees and compensation from the
Company. These related transactions are critical to the development and
operation of the Company's Facilities. See "Certain Transactions."
Furthermore, the Managing Member of the Company has or will be negotiating
and executing agreements on behalf of the Company. The Managing Member also
has the authority to negotiate and execute agreements with entities with which
she is affiliated. This presents a conflict of interest in the fact that
affiliates
12
<PAGE>
may realize benefits at the expense and detriment of the Company. However,
the Company intends for the terms of each of these agreements to be no less
favorable than those that might generally be obtained from third parties
providing similar services. The Company acknowledges that the conflicts of
interest are real and ongoing, and there is no assurance that the best
interest of the Company will prevail.
Government Regulations
At present there are no applicable federal regulations affecting the
operation of the Company's Facilities. The Oak Creek Project is not required
to be licenced by the State of Arizona for Senior Independent Living
Facilities. The Company's facilities that are being constructed in
Louisiana will be built to conform to 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 at the present time.
However, the facilities that are being constructed in Louisiana 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 a temporary license upon completion of construction of each facility
and a final license within 90 days after the issuance of the temporary
license. In the Company's opinion, the facilities that are being constructed
in Louisiana and these facilities' 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. See "Business -
Government Regulation."
(This space is intentionally left blank)
13
<PAGE>
SOURCES AND USES OF PROCEEDS
The sources and anticipated uses of proceeds available after the issuance
of the Series 1999-I, 1999-II, 1999-III, 1999-IV and 1999-V Bonds are set
forth below. See "Description of Property - Financing of Facilities" and
"Certain Transactions."
<TABLE>
<CAPTION>
Series 1999-I Bonds Series 1999-II Bonds
Minden Project (1) Oak Creek Project (1)
Source of Proceeds: Minimum Maximum Minimum Maximum
<S> <C> <C> <C> <C>
Gross Offering Proceeds $400,000 $1,800,000 $600,000 $2,700,000
Less Underwriting
Concessions (2) (24,000) (108,000) (36,000) (162,000)
Less Other Offering
Costs (3) (35,000) (35,000) (50,000) (50,000)
-------- ---------- -------- ----------
Net Offering Proceeds 341,000 1,657,000 514,000 2,488,000
======== ========== ======== ==========
Use of Proceeds:
Fund Initial Operating
Fund Payments 90,000 90,000 125,000 125,000
Retire Interim Loans (4) 251,000 1,358,520 452,500 2,174,025
Fund Remaining
Construction Costs 0 0 0 0
Fund Pre-Opening Costs 0 68,480 0 0
Retire Line of Credit (5) 0 0 0 188,975
Fund Bond Reserve Account 0 140,000 0 0
-------- ---------- -------- ----------
Total Use of Proceeds 341,000 1,657,000 514,000 2,488,000
======== ========== ======== ==========
</TABLE>
<TABLE>
<CAPTION>
Series 1999-III Bonds Series 1999-IV Bonds
Bastrop Project (1) Farmerville Project (1)
Source of Proceeds: Minimum Maximum Minimum Maximum
<S> <C> <C> <C> <C>
Gross Offering Proceeds $400,000 $1,800,000 $400,000 $1,800,000
Less Underwriting
Concessions (2) (24,000) (108,000) (24,000) (108,000)
Less Other Offering
Costs (3) (35,000) (35,000) (35,000) (35,000)
-------- ---------- -------- ----------
Net Offering Proceeds 341,000 1,657,000 341,000 1,657,000
======== ========== ======== ==========
Use of Proceeds:
Fund Initial Operating 90,000 90,000 90,000 90,000
Fund Payments
Retire Interim Loans (4) 251,000 1,220,000 251,000 1,330,000
Fund Remaining
Construction Costs 0 132,000 0 22,000
Fund Pre-Opening Costs 0 75,000 0 75,000
Retire Line of Credit (5) 0 0 0 0
Fund Bond Reserve Account 0 140,000 0 140,000
-------- ---------- -------- ----------
Total Use of Proceeds 341,000 1,657,000 341,000 1,657,000
======== ========== ======== ==========
</TABLE>
<TABLE>
<CAPTION>
Series 1998-V Bonds
Natchitoches Project (1)
Source of Proceeds: Minimum Maximum
<S> <C> <C>
Gross Offering Proceeds $400,000 $1,800,000
Less Underwriting
Concessions (2) (24,000) (108,000)
Less Other Offering
Costs (3) (35,000) (35,000)
-------- ----------
Net Offering Proceeds 341,000 1,657,000
======== ==========
Use of Proceeds:
Fund Initial Operating
Fund Payments 90,000 90,000
Retire Interim Loans (4) 251,000 1,450,000
Fund Remaining
Construction Costs 0 0
Fund Pre-Opening Costs 0 0
Fund Bond Reserve Account 0 117,000
-------- ----------
Total Use of Proceeds 341,000 1,657,000
======== ==========
</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 1999-I Bonds will be disbursed in the
following order and preference (based upon the sale of all of the
Series 1999-I Bonds): (1) to pay the Underwriter's concessions up to
$108,000 and related
14
<PAGE>
financing costs estimated at $35,000; (2) to fund the initial six
month sinking fund payments up to $90,000; (3) to retire the interim
loan in the amount of $1,358,520; (4) to fund pre-opening costs in the
amount of $68,480; and (5) to fund the Bond Reserve Account in the
amount of $140,000. 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 6% 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 $190,000 and are allocated among the five series of bonds.
Offering expenses include an investment banking fee in the amount of
$128,700 paid to the underwriter for its technical assistance offered
in connection with the Offering and $61,300 paid by the Company for
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 interim loan provided by FRB bears interest at a fixed rate of
9.20% per annum. The construction loans provided by CLT bear
interest at a variable rate which is equivalent to 2.00% 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." Each interim/construction loan is
secured by a Co-First Mortgage on the corresponding project that has
been acquired or that will be built from the proceeds of the
respective interim/construction loan. See "Description of
Property - Financing of the Company's Facilities."
Note 5: The line of credit provided by FRB for the renovation of the Oak Creek
Project bears interest at a fixed rate of 9.75% per annum. A
portion of the proceeds from the sale of the Series 1999-II Bonds
will be used to retire this line of credit and accrued interest in
an amount up to $188,975. See "Description of Property - Financing
of the Company's Facilities."
BUSINESS
The Company
The concept for the Company and its affiliates began over ten years ago.
Joanne Caldwell-Bayles, Managing Member 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. In 1998, Mrs Caldwell-Bayles began
the development of three additional facilities in Ruston, Bossier City and
Shreveport, Louisiana under the legal entity of Senior Retirement Communities,
Inc. See "Prior Performance of Affiliates of the Company".
Mrs. Caldwell-Bayles started to consider the expansion into other areas
in Northern Louisiana and Central Arizona prior to the opening of the
facilities in Ruston, Bossier City and Shreveport, Louisiana. She decided to
build additional locations in Northern Louisiana at Minden, Bastrop,
Farmerville and Natchitoches as well as acquire a facility in Sedona, Arizona.
Accordingly, the Company was organized on July 13, 1998 as a Louisiana limited
liability company for the purpose of developing, acquiring and operating
retirement and assisted living facilities in Northern Louisiana and Central
Arizona. The
15
<PAGE>
Company will conduct business as Arbor Retirement Community in Louisiana.
In Arizona, the Company will conduct business as The Biltmore of Oak Creek.
A limited liability company is a relatively new form of business
organization designed to allow its owners, known as members, to allocate,
participate and account for the profits, losses, and items of credit and
deduction as if the business were a partnership, but which also provides its
owners with the limited liability protection comparable to that enjoyed by
the shareholders of a corporation. The members of the Company are not
personally liable for the debts of the Company, absent their execution of a
personal guaranty of those debts, nor can the members of the Company be held
liable for the negligent actions of the Company. The responsibility for
overseeing the operations of the Company is vested in the Managing Member.
Business Concept and Clientele
The Company's business concept is based on providing elderly residents
in Northern Louisiana and Central Arizona with a broad range of cost-effective
health care and personal support services, including assisted living and
retirement living 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. 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. Residents for independent living are usually seniors
who maintain an independent lifestyle, but desire no longer to have the
responsibility of ownership and maintenance of a family residence. Residents
usually desire one or more meals which are provided by the facility.
Activity programs are provided for residents, including water aerobics,
exercise programs and other activities which foster good health. Most
residents, if not all, will continue to own and operate their own automobiles.
They will also continue to provide their own 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.
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. 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
living units will include meals, laundry, housekeeping and physical
assistance. Preventive health care programs, transportation, organized social
activities and 24-hour security will also be provided. Medication monitoring
and skilled nursing care will not be provided for the residents of the
Company's independent living units.
Expenses of operating the Company's Facilities will be made up of a fixed
costs and/or variable cost basis. 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
16
<PAGE>
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 $1,375 to $3,500 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. The residents may realize additional costs 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 $500 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 five locations of the Company's Facilities. This information was
gathered through market research that was conducted by the Company.
Summary of Existing Competition
<TABLE>
<CAPTION>
Existing Existing
Existing Private-Pay Existing Memory
1996-1997 Assisted Retirement Nursing Care Disorder
Location Population Living Units Living Units Units Units
<S> <C> <C> <C> <C> <C>
Minden, LA
Market Area 42,181 0 0 528 0
Bastrop, LA
Market Area 32,056 0 0 614 0
Farmerville,
LA Market
Area 21,541 0 20 455 0
Natchitoches,
LA Market
Area 36,689 0 0 318 22
Sedona, AZ
Market Area 16,000 42 102 N/A 20
</TABLE>
Management Agreement
On August 27, 1998, 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 Managing Member and principal
owner of the Company. The Management Agreement extends to each of the
Facilities to be financed as a result of the sale
17
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 has five full time employees. Prior to the
commencement of operations of each facility, the Manager intends to employ an
average of 10 employees at each facility. There is no assurance that the
Manager 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 Regulation
Currently, retirement and assisted living residences are not specifically
regulated as such by the federal government. 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 ("LDSS") prior to the commencement of
operations of the Facilities. The Company will apply for licenses with LDSS
and anticipates getting a temporary license upon completion of construction
of each facility and a final license within 90 days after the issuance of the
temporary license. The process for applying and obtaining a license with the
LDSS requires that upon completion of construction of a facility, the State
of Louisiana Fire Marshall conducts an inspection of the facility examining
the safety issues and compliance with the Americans With Disabilities Act
("ADA"). In general, the ADA requires businesses to accommodate the special
needs of persons with certain types of disabilities. If the facility passes
the inspection by the Fire Marshall, than a temporary license is granted that
is effective for 90 days. Shortly after the Fire Marshall's inspection and
the issuance of the temporary license, the LDSS conducts an inspection of the
facility and reviews the administration procedures governing the operation of
the facility. In addition to LDSS inspection, the Department of Health and
Hospitals ("DHH") inspects the facility for sanitation code compliance
shortly after the Fire Marshall's inspection. Any deficiencies found during
the LDSS or DHH inspection must be resolved prior to the final license being
granted by LDSS. After the final license is granted, the facility may be
subject to quarterly inspections by the DHH and annual inspections by LDSS.
The renewal of the license is granted by LDSS upon receipt of the $75 annual
licensing fee and satisfactory results from the aforementioned periodic
inspections. The Oak Creek Project is not required to be licenced by the
State of Arizona for Senior Independent Living Facilities.
In the Company's opinion, the facilities that are being constructed in
Louisiana and these facilities' management practices and operations will meet
or exceed all residential care for the elderly regulations of the State of
Louisiana. Failure
18
<PAGE>
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. 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 from 1998 through 1999, except for the Oak Creek Project
in which no environmental assessment has been conducted. Research and visual
observation undertaken from the environmental assessments did not reveal any
former or current environmental conditions, problems or situations impacting
the sites.
DESCRIPTION OF PROPERTY
The Company's Proposed and Existing Facilities
The Company has acquired land in Northern Louisiana and a building in
Sedona, Arizona. The Company has converted the improvements on the Arizona
property to an independent living facility. The Company intends to construct
assisted living facilities on the properties located in Northern Louisiana.
Additional information about the Company's properties is listed below.
The Minden Project. The Minden Project will be located on 5.72 acres of
land on the North side of Germantown Road just South of Country Club Drive
within the City of Minden, Louisiana. Selection of the site of the Minden
Project was based upon a location that was within an affluent residential
neighborhood with limited assisted living and retirement living services.
The Minden Project will be a 25 unit assisted living facility. The facility
will contain 22,217 square feet including 21 one bedroom units, 4 efficiency
units, one manager's apartment, common area amenities, a full service kitchen,
dining area, activity area, office, 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 Series 1999-I Bonds in parity with the Minden Construction Loan are
secured by a co-first mortgage on the Minden 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 5.72 acres of land insuring good and marketable title to the property.
During construction of the Minden Project, builder's risk, general liability
and workers' compensation insurance is being provided by the general
contractor, The Forsythe Group, Inc. Upon completion of the Minden Project,
the Company will obtain fire and extended coverage insurance to insure
against loss by fire, windstorm, explosion and various other losses in an
amount equal to the outstanding balance of the Series 1999-I Bonds. The
Company will also obtain general liability and workers' compensation
insurance upon completion of the Minden Project. In the Company's opinion,
the Minden Project is adequately covered by insurance. The Company has
received the proper zoning for the project.
19
<PAGE>
The Oak Creek Project. The Company has acquired 2.8 acres of land and
an existing building located at 78 Canyon Diablo Road just outside the City
of Sedona, Arizona and within the Village of Oak Creek. The Company acquired
the property for $2,174,025 in October 1998. The property was previously
used as a cancer treatment center. The Oak Creek Project was renovated by
the Company and opened for operations on January 17, 1999. Selection of the
property was based upon the location of the land and building and the needs
of the community for an additional independent living facility in the area.
The Oak Creek Project consists of 28 units designed and renovated as
independent living apartments. The facility contains 22,235 square feet
including common area amenities, a full service kitchen, dining area,
activity area, office and reception area, bathrooms, storage areas and an
indoor heated swimming pool. Each of the independent living units have one
or two bedrooms, small kitchenettes, private bathroom, closet and sitting
areas.
The Series 1999-II Bonds in parity with the Oak Creek Interim Loan are
secured by a co-first mortgage on the Oak Creek 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 2.8 acres of land insuring good and marketable title to the
property. During renovation of the Oak Creek Project, builder's risk,
general liability and workers' compensation insurance were provided by the
general contractor, The Forsythe Group, Inc. Upon completion of renovation
of the Oak Creek Project, the Company obtained fire and extended coverage
insurance to insure against loss by fire, windstorm, explosion and various
other losses in an amount equal to the outstanding balance of the Series
1999-II Bonds. The Company also obtained general liability and workers'
compensation insurance upon completion of the Oak Creek Project. In the
Company's opinion, the Oak Creek Project is adequately covered by insurance.
The Company has received the proper zoning for the project.
The Bastrop Project. The Bastrop Project will be located on 3.35 acres
of land at 10280 Boswell Drive outside the city limits of Bastrop,Louisiana.
Selection of the site of the Bastrop Project was based upon a location that
was within an affluent residential neighborhood with limited assisted living
units. The Bastrop Project will be a 25 unit assisted living facility. The
facility will contain 22,217 square feet including 21 one bedroom units, 4
efficiency units, one manager's apartment, common area amenities, a full
service kitchen, dining area, activity area, office, 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 Series 1999-III Bonds in parity with the Bastrop Construction Loan
are secured by a co-first mortgage on the Bastrop 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 3.35 acres of land insuring good and marketable title to
the property. During construction of the Bastrop Project, builder's risk,
general liability and workers' compensation insurance will be provided by
the general contractor, The Forsythe Group, Inc. Upon completion of the
Bastrop Project, the Company will obtain fire and extended coverage insurance
to insure against loss by fire, windstorm, explosion and various other losses
in an amount equal to the outstanding balance of the Series 1999-III Bonds.
The Company will also obtain general liability and workers' compensation
insurance upon completion of the Bastrop Project. In the Company's opinion,
the Bastrop Project is adequately covered by insurance. The Bastrop Project
conforms to the zoning ordinances of Bastrop, Louisiana.
The Farmerville Project. The Farmerville Project will be located on
approximately 4 acres of land on the West side of LA Highway 33 just outside
the city limits of Farmerville, Louisiana. Selection of the site of the
Farmerville Project was based upon a location that is near a hospital with no
assisted living units. The Farmerville Project will be a 25 unit assisted
living facility. The facility will contain 22,217 square feet including
21 one bedroom units, 4 efficiency units, one manager's apartment, common
area amenities, a full service kitchen, dining area, activity area, office,
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 Series 1999-IV Bonds in parity with the Farmerville Construction
Loan are secured by a co-first mortgage on the Farmerville 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 4 acres of land insuring good and marketable title to the
property. During construction of the Farmerville Project, builder's risk,
general liability and workers' compensation insurance will be provided by the
general contractor, The Forsythe Group, Inc. Upon completion of the
Farmerville Project, the Company will obtain fire and extended coverage
insurance to insure against loss by fire, windstorm, explosion and
20
<PAGE>
various other losses in an amount equal to the outstanding balance of the
Series 1999-IV Bonds. The Company will also obtain general liability and
workers' compensation insurance upon completion of the Farmerville Project.
In the Company's opinion, the Farmerville Project is adequately covered by
insurance. The Farmerville Project is located in Union Parish which has no
zoning requirements.
The Natchitoches Project. The Natchitoches Project will be located on
approximately 4 acres of land on the East side of LA Highway 1 just outside
the city limits of Natchitoches, Louisiana. Selection of the site of the
Natchitoches Project was based upon a location that was within a growing
community with no existing assisted living units. The Natchitoches Project
will be a 27 unit assisted living facility. The facility will contain 22,216
square feet including 22 one bedroom units, 5 efficiency units, common area
amenities, a full service kitchen, dining area, activity area, office,
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 Series 1999-V Bonds in parity with the Natchitoches Construction Loan
are secured by a co- first mortgage on the Natchitoches 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 4 acres of land insuring good and marketable title to the
property. During construction of the Natchitoches Project, builder's risk,
general liability and workers' compensation insurance will be provided by the
general contractor, The Forsythe Group, Inc. Upon completion of the
Natchitoches Project, the Company will obtain fire and extended coverage
insurance to insure against loss by fire, windstorm, explosion, and various
other losses in an amount equal to the outstanding balance of the Series
1999-V Bonds. The Company will also obtain general liability and workers'
compensation insurance upon completion of the Natchitoches Project. In the
Company's opinion, the Natchitoches Project is adequately covered by
insurance. The Natchitoches Project conforms to the zoning ordinances of the
City of Natchitoches, Louisiana.
Appraisals
Robert M. McSherry, MAI 3760 Chelsea Drive, Baton Rouge, Louisiana 70809
(the "Appraiser"), estimated market values for each of the Company's
Facilities (the "Appraisals"). Listed below are these appraised values.
Appraised Value of the Minden Project . . . . . . $2,100,000
Appraised Value of the Oak Creek Project. . . . . $3,170,000
Appraised Value of the Bastrop Project . . . . . $2,100,000
Appraised Value of the Farmerville Project. . . . $2,030,000
Appraised Value of the Natchitoches Project . . . $2,255,000
The Appraiser, who is independent of the Company, used various appraisal
approaches, but gave the most weight to the income approach in his
reconciliation and final value estimates. 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.
The Appraiser also estimated values for each of the Company's Facilities
based on the cost approach. Listed below are these appraised values.
Appraised Value of the Minden Project (cost approach) . . . . . .$2,255,000
Appraised Value of the Oak Creek Project (cost approach). . . . .$4,085,000
Appraised Value of the Bastrop Project (cost approach). . . . . .$2,140,000
21
<PAGE>
Appraised Value of the Farmerville Project (cost approach). . . .$2,110,000
Appraised Value of the Natchitoches Project (cost approach) . . .$2,310,000
In contrast to the income approach, the cost approach estimates the
replacement cost of the improvements. The cost approach reflects the value of
the fee simple estate in the real estate; whereas the income approach reflects
the "going concern" value, which would most likely not exist in a default
situation.
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 are the proposed construction schedules and
development/construction costs of the Company's Facilities. The dates and
numbers as indicated below are estimates only.
<TABLE>
<CAPTION>
Approximate Costs of
Construction Anticipated Opening Development and
Location Start Date Date (2) Construction (3)
<S> <C> <C> <C>
Minden Project November 1998 July 1999 $2,150,000
Bastrop Project December 1998 August 1999 $2,100,000
Farmerville Project February 1999 August 1999 $2,050,000
Natchitoches Project February 1999 August 1999 $2,200,000
Oak Creek Project (1) November 1998 January 1999 $2,750,000
</TABLE>
(1) The Company acquired an existing building at the Oak Creek location and
renovated this property. See "Description of Property - The Company's
Proposed and Existing Facilities- The Oak Creek Project."
(2) Delays are common in the construction industry, and unforeseen events may
adversely affect the cost and completion time of the Company's
Facilities.
(3) The amounts shown for the Minden, Bastrop, Farmerville and Natchitoches
Projects include land, construction and service costs; architectural and
engineering costs; furniture, fixtures and equipment. The amount shown
for the Oak Creek Project includes the acquisition and service costs;
architectural and engineering costs; renovation costs; furniture,
fixtures and equipment.
Financing of the Company's Facilities
Construction and Acquisition Financing. The Company has obtained and
will obtain interim/construction loans (the "Interim Loans") with The First
Republic Bank of Monroe, Louisiana ("FRB") and Church Loans and Investments
Trust of Amarillo, Texas ("CLT"), collectively referred to as the Interim
Lenders, for the construction and acquisition of the Company's Facilities.
Each Interim Loan will be secured by a Co-First Mortgage on the corresponding
project that will be acquired/built from the proceeds of the respective
interim/construction loan. The Interim Loans are guaranteed by The Forsythe
Group, Inc., an affiliate and member of the Company, in the amount of $500,000
for each interim/construction loan. The Trustee and holders of the Bonds
will not benefit, directly or indirectly, from the guarantees of The Forsythe
Group, Inc.
22
<PAGE>
The Company obtained the construction loan for the Minden Project
("Minden Construction Loan") in the amount of $1,358,520 from FRB. The
Minden Construction Loan closed on October 2, 1998, and the mortgage and
security agreement setting forth the terms of the Minden Construction Loan
have been filed of record. The Minden Construction Loan bears interest at
the rate of 9.20% per annum and is due September 28, 1999. The Minden
Construction Loan is secured by a Co-First Mortgage on the Minden Project
(both real and personal property) in parity with the Series 1999-I Bonds.
The Company obtained the interim loan for the acquisition of the Oak
Creek Project ("Oak Creek Interim Loan") in the amount of $2,174,025 from
CLT. The Oak Creek Interim Loan closed on October 20, 1998, and the mortgage
and security agreement setting forth the terms of the Oak Creek Interim Loan
have been filed of record. The Oak Creek Interim Loan bears interest at a
variable rate equivalent to 0.5% per annum in excess of the lowest rate
designated as the "Prime Rate" of interest as published by the Wall Street
Journal under the heading "Money Rates." The Oak Creek Interim Loan is due
May 20, 1999, unless the Company exercises its option of renewing and
extending this loan. The Oak Creek Interim Loan is secured by a Co-First
Mortgage on the Oak Creek Project (both real and personal property) in parity
with the Series 1999-II Bonds.
The Company obtained the construction loan for the Bastrop Project
("Bastrop Construction Loan") in the amount of $1,220,000 from CLT. The
Bastrop Construction Loan closed on November 24, 1998, and the mortgage and
security agreement setting forth the terms of the Bastrop Construction Loan
have been filed of record. The Bastrop Construction Loan bears interest at
a variable rate equivalent to 2.0% per annum in excess of the lowest rate
designated as the "Prime Rate" of interest as published by the Wall Street
Journal under the heading "Money Rates." The Bastrop Construction Loan is due
November 24, 1999, unless the Company exercises its option of renewing and
extending this loan. The Bastrop Construction Loan is secured by a Co-First
Mortgage on the Bastrop Project (both real and personal property) in parity
with the Series 1999-III Bonds.
The Company agreed to the terms of a construction loan commitment issued
by CLT for the construction financing of the Farmerville Project
("Farmerville Construction Loan") on February 1, 1999. The Farmerville
Construction Loan will be in the amount of $1,330,000 and will be due 12
months after the initial funding of the loan, unless the Company exercises
its option of renewing and extending this loan. The Farmerville Construction
Loan will bear interest at a variable rate equivalent to 1.5% per annum in
excess of the lowest rate designated as the "Prime Rate" of interest as
published by the Wall Street Journal under the heading "Money Rates." The
Farmerville Construction Loan will be secured by a Co-First Mortgage on the
Farmerville Project (both real and personal property) in parity with the
Series 1999-IV Bonds.
The Company agreed to the terms of a construction loan commitment issued
by CLT for the construction financing of the Natchitoches Project
("Natchitoches Construction Loan") on February 1, 1999. The Natchitoches
Construction Loan will be in the amount of $1,450,000 and will be due 12
months after the initial funding of the loan, unless the Company exercises its
option of renewing and extending this loan. The Natchitoches Construction
Loan will bear interest at a variable rate equivalent to 1.5% per annum in
excess of the lowest rate designated as the "Prime Rate" of interest as
published by the Wall Street Journal under the heading "Money Rates." The
Natchitoches Construction Loan will be secured by a Co-First Mortgage on the
Natchitoches Project (both real and personal property) in parity with the
Series 1999-V Bonds.
If the proceeds from the sale of the Series 1999-I Bonds are insufficient
to retire the Minden Construction Loan at its maturity, then The Forsythe
Group, Inc. has agreed to purchase the Minden Construction Loan, giving the
Company the option of renewing and extending the Minden Construction Loan
into a permanent loan amortized over thirteen years subject to the Company
being current on all its outstanding debt obligations. If the proceeds from
the sale of the Series 1999-II, III, IV and V Bonds are insufficient to
retire the Oak Creek Interim Loan, Bastrop Construction Loan, Farmerville
Construction Loan and Natchitoches Construction Loan at their respective
maturities, then CLT has given the Company the option of initially renewing
and extending the term of these loans for an additional one year subject to
the Company being current on all its outstanding debt obligations. If any of
these loans are extended and any of the renewed loans have not been retired
by their extended maturity dates, then CLT has given the Company the option of
renewing and extending the loan(s) into permanent loan(s) amortized over
thirteen years subject to the Company being current on all its outstanding
debt obligations.
Colonial Trust Company (acting as Trustee on behalf of holders of the
Bonds) and the Interim Lenders have entered into certain Agreements Between
Lienholders with regard to each of the interim/construction loans.
Hereinafter, the three Agreements Between Lienholders collectively will be
referred to as the "Lienholders Agreements."
The Lienholders Agreements state, among other things, (i) that the
mortgage, security agreement and other collateral documents covering each of
the Company's Facilities shall name both the respective Interim Lender and
the Trustee as lienholder and shall secure ratably as provided in the
Lienholders Agreements each interim/construction loan and the
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corresponding series of Bonds, and (ii) that proceeds of each series of Bonds
will be used, subject to the Trust Indenture, to pay down or retire the
Interim Loans. The Lienholders Agreements also state that in the event of a
default, if either the Interim 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 was to
default, the Lienholders Agreements provide that the respective Interim
Lender and the Trustee will conduct collection and foreclosure actions and
proceedings jointly to the extent possible. In the event the Interim Lender
and the Trustee are unable to agree, however, the Interim 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 respective project in default and enforcement of the terms of the
mortgage and security agreement. The Interim Lender may cause the defaulted
project to be sold in its then current condition or may make renovations to,
or complete construction of the defaulted project. The Interim Lender is not
required to advance any funds except by its agreement, but in the event the
Interim Lender elects to advance funds, proceeds of foreclosure will be
applied first to reimburse any such funds advanced. Either the Interim
Lender or the Trustee may purchase the defaulted project at any foreclosure
sale free and clear of the claims of the other. If any of the Company's
Facilities are sold or otherwise disposed of at foreclosure, the Lienholders
Agreements provide that the proceeds of disposition, after reimbursement of
the Interim Lender's fees and expenses as provided above, be applied to the
respective interim/construction loan in default and the payment of the
corresponding series of Bonds on a pro-rata basis. The "pro-rata"
distribution of funds mean that after reimbursement of the Interim Lender's
fees and expenses as provided above, the Interim Lender and the series of
Bonds associated with the defaulted interim/construction loan will each
receive funds from any disposal on foreclosure of the defaulted project
according to their respective percentage of the total principal balance
(including both the respective interim/construction loan in default and the
corresponding series of 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 defaulted project,
whichever is lesser.
In addition to requiring the timely payment of the Interim Loans and the
Bond payments required under the terms of the Trust Indenture, the mortgages
obligate the Company to maintain proper books and records, and refrain from
certain activities (such as altering the premises) without prior written
consent. The mortgages also dictate, in part, the permitted financial
relationships between the Company and the residents.
Lines of Credit Financing. The Company has obtained two lines of credit
from FRB. The lines of credit are secured by certificate of deposits, land
and residences owned by Joanne Caldwell-Bayles and The Forsythe Group, Inc.,
and the lines of credit are personally guaranteed by Joanne Caldwell-Bayles.
One line of credit is in the amount of $75,500 bearing interest at the rate
of 9.995% per annum. This line of credit was made available to the Company
on August 21, 1998 and is due on August 21, 1999. The Company obtained this
line of credit to help fund the initial construction of its Facilities. The
second line of credit is in the amount of $176,755 bearing interest at the
rate of 9.75% per annum. This second line of credit was made available to the
Company on November 30, 1998 and is due November 30, 1999. Proceeds from the
Series 1999-II Bonds will be used in part to retire this line of credit. See
"Sources and Uses of Proceeds." The Company obtained this line of credit for
the purpose of renovating the Oak Creek Project.
Permanent Financing. The Company has chosen to issue the Bonds to
provide the permanent financing for the Facilities. The first revenues of
the Company have been pledged to repay the principal and interest on the Bonds.
See "Sources and Uses of Proceeds" and "Description of Bonds."
MANAGEMENT
Managing Member
The day to day operation of the Company will be performed by the
Managing Member of the Company, Joanne M. Caldwell-Bayles. Pursuant to the
terms of the Operating Agreement, the Managing Member will be the chief
executive officer of the Company responsible for the general overall
supervision of the business and affairs of the Company. Mrs. Caldwell-Bayles
shall serve as the Managing Member of the Company until her resignation or
until she is removed by
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majority vote of all the members of the Company. Upon the resignation of the
Managing Member, a successor shall be elected by a vote of the members.
Joanne M. Caldwell-Bayles, 39 years old, has been the Managing Member for
the Company since its inception in July 1998. Mrs. Caldwell-Bayles has
senior executive experience in the development and operation of assisted
living, retirement and memory disorder facilities in West Monroe, Ruston,
Bossier City and Shreveport, Louisiana where she presently serves as the
Operating Manager of The Arbor Group, L.L.C. ("Arbor") and President of
Senior Retirement Communities, Inc. ("SRC"). 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, Arbor and SRC, 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, SRC and The Forsythe Group, Inc., she served as the
President of Oak Development Corporation (a hotel management firm) and the
general manager of Ramada Hotel in Alexandria, 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 Parish,
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 administration and/or
gerontology. 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. Mrs. Caldwell-Bayles will
also recruit all other employees. The Company anticipates that the
Management Company will employ an average of 10 employees to work at each
facility with a total of approximately 50 employees working for the Company
upon completion of the Minden, Oak Creek, Bastrop, Farmerville, and
Natchitoches Projects. Mrs. Caldwell-Bayles will devote approximately 30% of
her time to the affairs of the Companybut is willing to devote additional
time if necessary.
Executive Compensation
Joanne M. Caldwell-Bayles, Managing Member of the Company, may receive
the following compensation: (1) an annual salary in the amount of $30,000 per
year beginning when the Company's first facility is opened for business and
(2) reimbursement for reasonable costs incurred by 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 membership interests in the Company as of
December 31, 1998.
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<TABLE>
<CAPTION>
Name & Address of Percent of
Beneficial Owner Title of Class Units Class Owned
<S> <C> <C> <C>
Joanne M. Caldwell Bayles Membership Interest 578,239 52%
507 Trenton Street
West Monroe, LA 71291
The Forsythe Group, Inc. (1) Membership Interest 532,524 48%
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.
THE COMPANY'S PLAN OF OPERATION
The primary plan of operation of the Company is to establish a local,
regional and national network of retirement and assisted living facilities
that will operate profitably. The Company has completed the renovation of
its facility in Sedona, Arizona and intends to complete construction of four
facilities in Northern Louisiana by September 1999. The Company's four
facilities in Louisiana are located in Minden, Bastrop, Farmerville and
Natchitoches. The Series 1999-I, II, III, IV and V Bonds will be secured by
the Minden, Oak Creek, Bastrop, Farmerville and Natchitoches Projects,
respectively. The Company intends to employ an average of 10 employees per
completed facility with a total of approximately 50 employees working for the
Company by September 1999. Based upon market research of the assisted living,
retirement living and memory disorder care industries within the Facilities'
market areas, the Company expects to reach stabilized occupancy within 12
months upon completion of each facility. Also, the Company's expected
occupancy stabilization period is based upon the historical operating results
of The Arbor Group, L.L.C. ("Arbor"), an affiliate of the Company. However,
actual results of the Facilities' stabilization time frames may differ from
the projected time frames due to changes in local and national market
conditions.
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.
Senior Retirement Communities, Inc. ("SRC"), another affiliate of the Company,
has completed construction of two facilities in late 1998 and has a third
facility under construction. SRC's facilities are similar to those to be
built by the Company and are operating under the name of The Arbor Retirement
Community and The Terrace. Arbor and SRC are managed by the same
organization, The Forsythe Group, Inc., which will manage the Company's
properties. While the Company is newly formed, it will also operate its
properties in Northern Louisiana under the name of The Arbor Retirement
Community. The Arbor Retirement Community has established name recognition
in portions of Northern Louisiana through the operations of Arbor and SRC's
facilities. The Company is in the process of increasing name recognition in
the proposed communities in which the Company's Facilities will be located.
The Company's facility located in Arizona is being operated under the name of
The Biltmore of Oak Creek.
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
$500,000 will be needed for operation during the first 12 months, above and
beyond the expenses as set forth in "Sources and Uses of Funds." Currently,
the Company has 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, Inc., the 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.
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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 limited liability company 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 4, 1997. The year 1998 was the first full year of operations for
this facility. Mrs. Caldwell-Bayles serves as the Operating Manager of The
Arbor Group, L.L.C.
The Arbor Group's gross revenues for the year ending December 31, 1998
were $738,415. The Arbor Group's expenses for the same period, including
depreciation and debt service, were $1,108,836. For the one month period
ending January 31, 1999, The Arbor Group's gross revenues were $101,197. The
Arbor Group's expenses for this same period were $104,905 including
depreciation and debt service. These amounts were provided by the
management of The Arbor Group and are not audited. As of January 31, 1999,
the occupancy rate of The Arbor Group's assisted living and memory disorder
facility was 85%.
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.
Senior Retirement Communities, Inc., an affiliate of the Company,
has completed construction of a 48-unit assisted living facility in Ruston,
Louisiana and a 24-unit memory disorder facility in Shreveport, Louisiana.
These facilities were completed in the fourth quarter of 1998. SRC has a
third facility under construction in Bossier City, Louisiana. These facilities
are similar to those to be built by the Company. These properties operate
under the name of The Arbor Retirement Community and The Terrace; they are
all located in Northern Louisiana, thereby helping to increase The Arbor
Retirement Communities' name recognition in the area.
SRC's assisted living and memory disorder facilities are being financed
by the issuance of bonds in the amount of $9,000,000 under terms similar to
that of the Offering. The bonds for SRC are being offered and sold by the
Underwriter with approximately 94% of the bonds having been subscribed for as
of February 1, 1999. The operating results of SRC can be found in their
10-QSB dated September 30, 1998 and additional reports as required, which are
filed with the Securities and Exchange Commission, Washington, D.C. 20549.
CERTAIN TRANSACTIONS
Joanne M. Caldwell-Bayles and The Forsythe Group, Inc., the members 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 October 2, 1998, the Company acquired 5.72 acres of land at the
Minden location from Senior Retirement Communities, Inc., an affiliate of the
Company. The sales price for the land was $203,739. This transaction
resulted in a gain to SRC of $86,059.
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<PAGE>
Construction Contracts
On November 18, 1998, the Company entered into a design/builder contract
in the amount of $1,777,000 with The Forsythe Group, Inc., one of the
Company's members, to construct the Minden Project. The contract calls for
the cash payments of $1,352,000 during the building of the Minden Project as
approved by the contract engineer and the issuance of additional units of
membership interests valued at $425,000. As of December 31, 1998, $345,245
had been paid on this contract and $174,000 of membership interests had been
issued for services rendered in connection with the project. The remainder of
the $251,000 due to be paid through the issuance of membership interests will
be issued at the completion of this project.
On November 18, 1998, the Company entered into a design/builder contract
in the amount of $1,777,000 with The Forsythe Group, Inc. to construct the
Bastrop Project. The contract calls for the cash payments of $1,352,000
during the building of the Bastrop Project as approved by the contract
engineer and the issuance of additional units of membership interests valued
at $425,000. As of December 31, 1998, $36,560 had been paid on this contract
and $175,000 of membership interests had been issued for services rendered in
connection with the project. The remainder of the $250,000 due to be paid
through the issuance of membership interest will be issued at the completion
of the project.
On November 18, 1998, the Company entered into a design/builder contract
in the amount of $1,777,000 with The Forsythe Group, Inc. to construct the
Farmerville Project. The contract calls for the cash payments of $1,352,000
during the building of the Farmerville Project as approved by the contract
engineer and the issuance of additional units membership interests valued at
$425,000. As of December 31, 1998, $0 had been paid on this contract and
$135,000 of membership interests had been issued for services rendered in
connection with the project. The remainder of the $290,000 due to be paid
through the issuance of membership interests will be issued at the completion
of this project.
On November 18, 1998, the Company entered into a design/builder contract
in the amount of $1,777,000 with The Forsythe Group, Inc. to construct the
Natchitoches Project. The contract calls for the cash payments of $1,352,000
during the building of the Natchitoches Project as approved by the contract
engineer and the issuance of additional units of membership interests valued
at $425,000. As of December 31, 1998, $0 had been paid on this contract and
$135,000 of membership interests had been issued for services rendered in
connection with the project. The remainder of the $290,000 due to be paid
through the issuance of membership interests will be issued at the completion
of this project.
Management Contract
On August 27, 1998, The Forsythe Group, Inc. entered into a Management
Agreement with the Company for the management of the Company's Facilities.
The Management Agreement extends to the year 2010, with compensation based
on each facility, paying the Manager $1,500 per month or 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 Transactions
On August 20, 1998, the Company issued 265,000 units of membership
interests to The Forsythe Group, Inc. for $91,000 cash and services rendered
in connection with developing the plans for construction, obtaining State
Fire Marshall approval of the plans and getting approval of the proper zoning
of the Minden Project.
On September 30, 1998, the Company issued 21,500 units of membership
interests to Joanne M. Caldwell-Bayles for $2,000 cash and services rendered
in connection with the formation of the Company.
On October 19, 1998, the Company issued 85,000 units of membership
interests to Joanne M. Caldwell-Bayles for services rendered in connection
with the interior design of the Facilities and market research studies for
the Facilities.
On November 10, 1998, the Company issued 203,739 units of membership
interests to Joanne M. Caldwell-Bayles for $203,739 in cash.
On November 10, 1998, the Company issued 270,000 units of membership
interests to Joanne M. Caldwell-Bayles for services rendered in connection
with selecting the location and purchasing of the land on which the Bastrop
and Farmerville Projects are to be built, developing the plans for
construction, obtaining State Fire Marshall approval of the plans and
getting approval of the proper zoning of the Bastrop and Farmerville
Projects.
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<PAGE>
On November 10, 1998, the Company issued 267,523.50 units of membership
interests to the Forsythe Group, Inc. for $132,523.50 in cash and services
rendered in connection with selecting the location and purchasing of the land
on which the Natchitoches Project is to be built, developing the plans for
construction, obtaining State Fire Marshall approval of the plans and getting
approval of the proper zoning of the Natchitoches Project.
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"). The Company is not required to qualify the
Trust Indenture under the Trust Indenture Act of 1939 as amended (the "Act").
Thus, the Company has elected not to qualify the Trust Indenture under the
Act. Although the Trust Indenture utilized by this Company does not conform
entirely to the required provisions to the Trust Indenture Act of 1939,
the overall agreement of the Trust Indenture does incorporate the essential
provisions for the protection of bondholders. 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 as follows: (1) the
Series 1999-I Bonds in the amount of $1,800,000 will be secured by the
property comprising the Minden, Louisiana facility; (2) the Series 1999-II
Bonds in the amount of $2,700,000 will be secured by the property comprising
the Sedona, Arizona facility; (3) the Series 1999-III Bonds in the amount
of $1,800,000 will be secured by the property comprising the Bastrop,
Louisiana facility; (4) the Series 1999-IV Bonds in the amount of $1,800,000
will be secured by the property comprising the Farmerville, Louisiana
facility; and (5) the Series 1999-V Bonds in the amount of $1,800,000 will be
secured by the property comprising the Natchitoches, Louisiana facility.
Notwithstanding the aforementioned, the Bonds will be issued on parity, and
the provisions regarding any default on the bonds is set forth in
"Description of Bonds - Remedies of Default" in this Prospectus.
General
The Company is offering $9,900,000 of co-first mortgage bonds in five
series, with the proceeds from each series being used for the construction or
acquisition of a particular project. See "Sources and Uses of Proceeds."
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 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 1999-I Bonds will be dated April 1, 1999, and are subject to
the sale of a minimum of $400,000 in principal amount of Bonds. The
aggregate principal amount of the Series 1999-I Bonds is $1,800,000 and is
comprised of bonds in the principal amount of $1,738,500 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 $61,500 that will mature
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<PAGE>
serially and bear interest compounded semiannually each October 1 and
April 1 that is payable at maturity. The Series 1999-I Bonds will begin
accruing interest as of April 1, 1999, whether or not they have been
purchased and whether or not the minimum offering amount has been reached.
If any of the Series 1999-I Bonds are purchased after April 1, 1999, the
purchaser will be entitled to receive interest on the Bond from April 1, 1999.
The Series 1999-II Bonds will be dated May 1, 1999, and the Series
1999-II are subject to the sale of a minimum of $600,000 in principal amount
of Bonds. The aggregate principal amount of the Series 1999-II Bonds is
$2,700,000. The Series 1999-II 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 Series 1999-II Bonds will accrue
from the date payment for the Series 1999-II Bonds is received in the office
of the Underwriter whether or not the minimum offering amount for this series
of bonds has been reached.
The Series 1999-III Bonds will be dated May 1, 1999, and the Series
1999-III Bonds are subject to the sale of a minimum of $400,000 in principal
amount of Bonds. The aggregate principal amount of the Series 1999-III Bonds
is $1,800,000 . The Series 1999-III Bonds will mature serially and bear
interest compounded semiannually each November 1 and May 1 that is payable at
maturity. The Series 1999-III Bonds will begin accruing interest as of
May 1, 1999, whether or not they have been purchased and whether or not the
minimum offering amount has been reached. If any of the Series 1999-III Bonds
are purchased after May 1, 1999, the purchaser will be entitled to receive
interest on the Bond from May 1, 1999.
The Series 1999-IV Bonds will be dated June 1, 1999, and the Series
1999-IV Bonds are subject to the sale of a minimum of $400,000 in principal
amount of Bonds. The aggregate principal amount of the Series 1999-IV Bonds
is $1,800,000 and is comprised of bonds in the principal amount of $1,718,750
that will mature serially and bear simple interest payable by check mailed to
the registered owners each December 1 and June 1 until maturity and bonds in
the principal amount of $81,250 that will mature serially and bear interest
compounded semiannually each December 1 and June 1 that is payable at
maturity. The Series 1999-IV Bonds will begin accruing interest as of June 1,
1999, whether or not they have been purchased and whether or not the minimum
offering amount has been reached. If any of the Series 1999-IV Bonds are
purchased after June 1, 1999, the purchaser will be entitled to receive
interest on the Bond from June 1, 1999.
The Series 1999-V Bonds will be dated July 1, 1999, and the Series 1999-V
Bonds are subject to the sale of a minimum of $400,000 in principal amount
of Bonds. The aggregate principal amount of the Series 1999-V Bonds is
$1,800,000 and is comprised of bonds in the principal amount of $1,718,750
that will mature serially and bear simple interest payable by check mailed to
the registered owners each January 1 and July 1 until maturity and bonds in
the principal amount of $81,250 that will mature serially and bear interest
compounded semiannually each January 1 and July 1 that is payable at maturity.
The Series 1999-V Bonds will begin accruing interest as of July 1, 1999,
whether or not they have been purchased and whether or not the minimum
offering amount has been reached. If any of the Series 1999-V Bonds are
purchased after July 1, 1999, the purchaser will be entitled to receive
interest on the Bond from July 1, 1999.
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.
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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.
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 for a period
of 30 days, 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. Notwithstanding the
aforementioned, in the event that the Company 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 Company is in default in the timely
payment of the installments to the Operating 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 30 days, and as a result thereof, the
Trustee has declared to be immediately due and payable the principal balance
and accrued interest of only the unpaid Bonds in the series in default
and if the Company then fails to pay said amount, then the Trustee may
proceed to foreclose the lien against the property applicable to the
defaulted series of Bonds. 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 Company pursuant to the Trust Indenture. If the Company then fails to
pay said amount, the Trustee then may proceed to exercise any remedy provided
for in the Trust Indenture, including a foreclosure of the lien securing the
then accelerated and unpaid Bonds.
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 material men's liens that may become
payable.
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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 should 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 parity with all 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 plus the additional
bonds shall not exceed 100% of the capitalized cost of the Property,
inclusive of any new construction or improvements thereon, to secure
the payment of the Bonds.
Substitution of Collateral
If the Company is not then in default, the Trustee may execute partial
releases or accept substitution of collateral; 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:
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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.
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. The Series 1999-I,
II, III, IV and V Bonds will be secured by a co-first mortgage on the Minden,
Oak Creek, Bastrop, Farmerville and Natchitoches Projects, respectively.
Notwithstanding the aforementioned, the Bonds will be issued on parity, and
the provisions regarding any default on the bonds is set forth in
"Description of Bonds - Remedies of Default" in this Prospectus.
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 1999-I ($1,800,000)
$14,010.01 per month for one year (12 Payments) beginning April 1, 1999
$17,450.02 per month for one year (12 Payments) beginning April 1, 2000
$17,750.02 per month for one years (12 Payments) beginning April 1, 2001
$18,270.02 per month for four and one half years (54 Payments) beginning
April 1, 2002 with a final balloon payment of $1,451,750 due on
September 30, 2006
Payments include the Paying Agent fee of $450 per month.
Series 1999-II ($2,700,000)
$20,925.01 per month for five years (60 Payments) beginning May 1, 1999
with a final balloon payment of $2,700,000 due on April 30, 2004
Payments include the Paying Agent fee of $675 per month.
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Series 1999-III ($1,800,000)
$13,727.99 per month for one year (12 Payments) beginning May 1, 1999
$15,442.00 per month for one year (12 Payments) beginning May 1, 2000
$17,223.00 per month for one year (12 Payments) beginning May 1, 2001
$18,970.03 per month for four and one half years (54 Payments) beginning
May 1, 2002 with a final balloon payment of $1,416,771 due on
October 31, 2006
Payments include the Paying Agent fee of $450 per month.
Series 1999-IV ($1,800,000)
$13,270.00 per month for one year (12 Payments) beginning June 1, 1999
$16,119.99 per month for one year (12 Payments) beginning June 1, 2000
$17,651.00 per month for one years (12 Payments) beginning June 1, 2001
$19,434.99 per month for two years (24 Payments) beginning June 1, 2002
with a final balloon payment of $1,575,000 due on May 31, 2004
Payments include the Paying Agent fee of $450 per month.
Series 1999-V ($1,800,000)
$13,270.00 per month for one year (12 Payments) beginning July 1, 1999
$16,119.99 per month for one year (12 Payments) beginning July 1, 2000
$17,651.00 per month for one years (12 Payments) beginning July 1, 2001
$19,434.99 per month for two years (24 Payments) beginning July 1, 2002
with a final balloon payment of $1,575,000 due on June 30, 2004
Payments include the Paying Agent fee of $450 per month.
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 $90,000, $125,000,
$90,000, $90,000 and $90,000 will be funded from the proceeds of the sale of
the Series 1999-I, II, III, IV and V 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 five 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."
Bond Reserve Account
The Company has agreed to establish a Bond Reserve Account which will be
funded by four of the five series of bonds as follows: $140,000 from the
Series 1999-I Bonds, $140,000 from the Series 1999-III Bonds, $140,000 from
the Series 1999-IV Bonds and $117,000 from the Series 1999-V Bonds. If all
the Bonds are sold, the Bond Reserve Account will be funded in the amount of
$537,000. 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 seven and one half years from May 1, 1999.
At the end of the seven and one half year period, any funds remaining in the
Bond Reserve Account must first be
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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 seven and one half 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 1999-I Bonds, Series 1999-II Bonds,
Series 1999-III Bonds, Series 1999-IV Bonds and Series 1999-V Bonds are
$400,000 , $600,000, $400,000, $400,000 and $400,000, 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 purpose 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. The Company, the Company's affiliates, the Underwriter and
the Underwriter's affiliates may purchase Bonds in order to reach the minimum
offering amounts for any series of the Bonds. These parties will not be
restricted to the amount of Bonds that they may purchase.
If $400,000 has not been deposited in the escrow account from the sale of
the Series 1999-I Bonds by October 1, 1999, the subscribers to the Series
1999-I Bonds will receive the return of their subscription amount plus
interest. In the event that the minimum offering amount for the Series
1999-I Bonds is not met by October 1, 1999, 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, 1999 through October 1, 1999 at the
rate attributable to the Series 1999-I Bonds subscribed.
If $600,000 has not been deposited in the escrow account from the sale of
the Series 1999-II Bonds by November 1, 1999, the subscribers to the
Series 1999-II Bonds will receive the return of their subscription amount
plus interest. In the event that the minimum offering amount for the
Series 1999-II Bonds is not met by November 1, 1999, 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 the date payment for the Series
1999-II Bonds is received in the office of the Underwriter through
November 1, 1999 at the rate attributable to the Series 1999-II Bonds
subscribed.
If $400,000 has not been deposited in the escrow account from the sale
of the Series 1999-III Bonds by November 1, 1999, the subscribers to the
Series 1999-III Bonds will receive the return of their subscription amount
plus interest. In the event that the minimum offering amount for the
Series 1999-III Bonds is not met by November 1, 1999, 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, 1999 through
November 1, 1999 at the rate attributable to the Series 1999-III Bonds
subscribed.
If $400,000 has not been deposited in the escrow account from the sale
of the Series 1999-IV Bonds by December 1, 1999, the subscribers to the
Series 1999-IV Bonds will receive the return of their subscription amount
plus interest. In the event that the minimum offering amount for the
Series 1999-IV Bonds is not met by December 1, 1999, 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 June 1, 1999 through
December 1, 1999 at the rate attributable to the Series 1999-IV Bonds
subscribed.
If $400,000 has not been deposited in the escrow account from the sale
of the Series 1999-V Bonds by January 1, 2000, the subscribers to the Series
1999-V Bonds will receive the return of their subscription amount plus
interest. In the event that the minimum offering amount for the
Series 1999-V Bonds is not met by January 1, 2000, 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 July 1, 1999 through
January 1, 2000 at the rate attributable to the Series 1999-V Bonds
subscribed.
Subject to the sale of the minimum offering amount for the Series 1999-I
Bonds, the Company and Trustee will use available funds from the sale of the
Series 1999-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
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connection with the Series 1999-I Bonds; (2) to fund an amount approximately
equivalent to the first six month operating fund payments for the Series
1999-I Bonds; (3) to retire the Minden Construction Loan; (4) to fund
pre-opening costs of the Minden Project; and (5) to fund the Series 1999-I
portion of the Bond Reserve Account. After the above has been accomplished,
any remaining funds in the Bond Proceeds Account related to the Series
1999-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
1999-II Bonds, the Company and Trustee will use available funds from the
sale of the Series 1999-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 1999-II Bonds; (2) to fund an amount approximately
equivalent to the first six month operating fund payments for the Series
1999-II Bonds; (3) to retire the Oak Creek Interim Loan; and (4) to retire
the line of credit used for the renovation of the Oak Creek Project. After
the above has been accomplished, any remaining funds in the Bond Proceeds
Account related to the Series 1999-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
1999-III Bonds, the Company and Trustee will use available funds from the
sale of the Series 1999-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 1999-III Bonds; (2) to fund an amount approximately
equivalent to the first six month operating fund payments for the Series
1999-III Bonds; (3) to retire the Bastrop Construction Loan; (4) to fund the
remaining construction costs on the Bastrop Project; (5) to fund pre-opening
costs of the Bastrop Project; and (6) to fund the Series 1999-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 1999-III
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 1999-IV
Bonds, the Company and Trustee will use available funds from the sale of the
Series 1999-IV 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 1999-IV Bonds; (2) to fund an amount approximately equivalent to the
first six month operating fund payments for the Series 1999-IV Bonds; (3) to
retire the Farmerville Construction Loan; (4) to fund the remaining
construction costs on the Farmerville Project; (5) to fund pre-opening costs
of the Farmerville Project; and (6) to fund the Series 1999-IV portion of
the Bond Reserve Account. After the above has been accomplished, any
remaining funds in the Bond Proceeds Account related to the Series
1999-IV 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 1999-V
Bonds, the Company and Trustee will use available funds from the sale of the
Series 1999-V 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 1999-V Bonds; (2) to fund an amount approximately equivalent to the
first six month operating fund payments for the Series 1999-V Bonds; (3) to
retire the Natchitoches Construction Loan; and (5) to fund the Series 1999-V
portion of the Bond Reserve Account. After the above has been accomplished,
any remaining funds in the Bond Proceeds Account related to the Series 1999-V
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 $60,000 to be paid in installments over
the terms of the Bond Issues from the Trustee for its technical
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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 whom 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.
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 five 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
interest 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 6.0% of the face amount of each Bond sold by
another NASD member firm through a selling group agreement with the
Underwriter and may re-allow the full 6% to the NASD member firms
participating in this Offering; (2) the Underwriter will receive a concession
of 5.0% of the face amount of each
37
<PAGE>
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
or its assigns will also receive a fee not to exceed $60,000 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 an investment banking fee in the amount of $128,700
for the Underwriter's technical assistance in connection with this Offering.
In the event the Offering is terminated prior to the issuance of Bonds, the
Company shall be liable to the Underwriter only for the Underwriter's
out-of-pocket expenses for services rendered. 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.
Subscription for Bonds
Each person who wishes to purchase a Bond must execute a subscription
agreement covering the Bond(s) being purchased. The subscription agreement is
generated by the Underwriter upon receiving verbal indication from a
subscriber for the Bond(s) the subscriber has selected from the available
maturities. Subscribers may purchase any of the series of Bonds. Prior to
executing the subscription agreement, the subscriber will be provided a
Prospectus by the Underwriter.
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. 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. Subject to the sale of minimum funds for each series of Bonds,
the Registrar will register and deliver the bonds in book-entry form or
provide those registered owners who request a printed bond certificate with
the Bonds within thirty (30) days from the date subscriptions for the Bonds
are received.
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.
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.
38
<PAGE>
LEGAL MATTERS
The Company's counsel, Bobby L. Culpepper, Esq., 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 neither 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 appraisals of the Facilities. William R.
Hulsey, CPA, of Monroe, Louisiana, has audited the financial statements dated
December 31, 1998.
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)
39
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Page
Auditor's Report . . . . . . . . . . . . . . . . . . . . . . . . . F-2
Balance Sheet at December 31, 1998 . . . . . . . . . . . . . . . . F-3
Statement of Income from July 1, 1998 until December 31, 1998. . . F-4
Statement of Members' Equity (Deficit) from July 1, 1998
until December 31, 1998 . . . . . . . . . . . . . . . . . . . . . F-5
Statement of Cash Flows from July 1, 1998 until
December 31, 1998. . . . . . . . . . . . . . . . . . . . . . . . . F-6
Notes to Financial Statements. . . . . . . . . . . . . . . . . . . F-7
F-1
<PAGE>
WILLLIAM R. HULSEY
CERTIFIED PUBLIC ACCOUNTANT
2117 FORSYTHE AVENUE
MEMBER MONROE, LOUISIANA MAILING ADDRESS
AMERICAN INSTITUTE OF P. 0. BOX 2253
CERTIFIED PUBLIC ACCOUNTANTS MONROE, LOUISIANA 71207
SOCIETY OF LOUISIANA (318) 362-9900
CERTIFIED PUBIIC ACCOUNTANTS FAX (318) 362-9993
The Biltmore Group of Louisiana. L.L.C.
507 Trenton Street
West Monroe, Louisiana
I have audited the accompanying balance sheet of The Biltmore Group of
Louisiana, L.L.C. as December 31, 1998 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 The Biltmore Group
of Louisiana, L.L.C. at December 31, 1998 and the results of its operations
and its cash flows for the period then ended in conformity with generally
accepted accounting principles.
January 21, 1999
/S/WILLIAM R HULSEY
William R. Hulsey
Certified Public Accountant
F-2
<PAGE>
The Biltmore Group of Louisiana, L.L.C.
( A Development Stage Company )
Balance Sheet
December 31, 1998
ASSETS
Current assets:
Cash $ 21,318
Prepaid expenses 4,918
----------
Total current assets 26,236
----------
Property, plant and equipment
Building construction in progress 2,878,986
Land 938,739
----------
Total property, plant and equipment 3,817,725
----------
Other assets:
Deferred charges 110,000
----------
$ 3,953,961
----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accrued payroll taxes payable $ 1,383
Notes payable 689,907
----------
Total current liabilities 691,290
----------
Long-term debt 2,174,025
----------
Members' equity 1,088,646
----------
$ 3,953,961
----------
The notes to financial statements are an integral
part of this financial statement.
F-3
<PAGE>
The Biltmore Group of Louisiana, L.L.C.
( A Development Stage Company )
Statement of Income
Period from July 1, 1998 until December 31, 1998
Revenues $ 0
----------
Operating expenses
Activities 685
Advertising 2,231
Bank charges 30
Dues and subscriptions 1,167
Education 498
Equipment rental 231
Housekeeping 439
Licenses 35
Miscellaneous 596
Office 21
Office supplies 869
Payroll expense 5,202
Postage 635
Printing 1,263
Promotion 15
Telephone 347
Travel and entertainment 9,389
Uniforms 7
Utilities 457
----------
Total operating expenses 24,117
----------
Net income (loss) (24,117)
----------
The notes to financial statements are an integral
part of this financial statement.
F-4
<PAGE>
The Biltmore Group of Louisiana, L.L.C.
( A Development Stage Company )
Statement of Members' Equity
Period from July 1, 1998 until December 31, 1998
Beginning members' equity $ 0
Members, contributions 1,112,763
Net income (loss) (24,117)
----------
Ending members' equity $ 1,088,646
----------
The notes to financial statements are an integral
part of this financial statement.
F-5
<PAGE>
The Biltmore Group of Louisiana, L.L.C.
( A Development Stage Company )
Statement of Cash Flows
Period from July 1, 1998 until December 31, 1998
Cash flows from operating activities:
Net loss $ (24,117)
Adjustments to reconcile net income to
cash used by operations:
Increase in prepaid expenses (4,918)
Increase in accrued payroll taxes 1,383
----------
Net cash used by operating activities (27,652)
----------
Cash flows from investing activities
Acquisitions land (938,739)
Payments towards construction in progress (2,878,986)
Payment of deferred charges (110,000)
----------
Net cash provided by (applied to) investing (3,927,725)
----------
Cash flows from financing activities
Contribution of membership equity 1,112,763
Interim construction loans 689,907
Land and real estate loans 2,174,025
----------
Net cash provided by (applied to) financing 3,976,695
----------
Net increase in cash 21,318
Cash at the beginning of the period 0
Cash at the end of the period $ 21,318
----------
The notes to financial statements are an integral
part of this financial statement.
F-6
<PAGE>
The Biltmore Group of Louisiana, L.L.C.
( A Development Stage Company )
Notes to Financial Statements
Note 1 - Summary of Significant Accounting Policies
Nature of Business
The company is a Louisiana limited liability company established to
develop an assisted living center and dementia facility for the housing
and care of senior citizens in Bastrop, Farmerville, Minden, and
Natchitoches in Louisiana and in Sedona, Arizona.
Basis of Accounting
The company uses the accrual basis of accounting and will utilize the
calendar year for all reporting purposes.
Income Taxes
The company is treated as a partnership for federal income tax purposes.
Consequently, federal income taxes are not payable by, or provided for,
the Company. Members are taxed individually on their share of the
Company's earnings. The Company's income or loss is allocated among the
members in accordance with the operating agreement of the Company. The
financial statements do not reflect a provision for income taxes.
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.
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-7
<PAGE>
The Biltmore Group of Louisiana, L.L.C.
( 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 has entered into a design/builder contract in the amount of
$ 1,777,000 with The Forsythe Group, one of its members, to construct the
Bastrop facility. The contract calls for the cash payments of
$ 1,352,000 during the building of the facility as approved by the
contract engineer and the balance of $ 425,000 through the issuance of
certificates of membership equity. As of December 31, 1998, $ 36,560
has been paid on this contract and $ 175,000 of membership equity had
been issued for services rendered in connection with the project. The
remainder of the $ 250,000 due to be paid through the issuance of equity
certificates, which will be issued at the completion of the project.
The Company has entered into a design/builder contract in the amount of
$ 1,777,000 with The Forsythe Group, one of its members, to construct the
Farmerville facility. The contract calls for the cash payments of
$ 1,352,000 during the building of the facility as approved by the
contract engineer and the balance of $ 425,000 through the issuance of
certificates of membership equity. As of December 31, 1998, there have
been no cash payments on this contract and $ 135,000 of membership equity
had been issued for services rendered in connection with the project. The
remainder of the $ 290,000 due to be paid through the issuance of equity
certificates, which will be issued at the completion of the project.
The Company has entered into a design/builder contract in the amount of
$ 1,777,000 with The Forsythe Group, one of its members, to construct
the Minden facility. The contract calls for the cash payments of
$ 1,352,000 during the building of the facility as approved by the
contract engineer and the balance of $ 425,000 through the issuance of
certificates of membership equity. As of December 31, 1998, $ 348,245
has been paid on this contract and $ 174,000 of membership equity had
been issued for services rendered in connection with the project.
F-8
<PAGE>
The Biltmore Group of Louisiana, L.L.C.
( A Development Stage Company )
Notes to Financial Statements
Note 2 - Related Party Transactions-(continued)
The remainder of the $ 251,000 due to be paid through the issuance of
equity certificates, which will be issued at the completion of the
project.
The Company has entered into a design/builder contract in the amount of
$ 1,777,000 with The Forsythe Group, one of its members, to construct
the Bastrop facility. The contract calls for the cash payments of
$ 1,352,000 during the building of the facility as approved by the
contract engineer and the balance of $ 425,000 through the issuance of
certificates of membership equity. As of December 31, 1998, there have
been no payments on this contract and $ 135,000 of membership equity had
been issued for services rendered in connection with the project. The
remainder of the $ 250,000 due to be paid through the issuance of equity
certificates, which will be issued at the completion of the project.
Note 3 - Deferred Charges
Deferred charges are summarized as follows:
Loan fees $ 110,000
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 - Notes Payable
Notes payable at December 31, 1998 consist of a note to Church Loans
which is to provide the funding for the construction of the Bastrop
location. The loan is to be repaid from the permanent financing of the
project through the proposed issuance of bonds. This note calls for the
payment of interest at a rate of prime ( as published in the Wall Street
Journal plus two per cent but in no case shall the rate be less than ten
and one-half per cent per annum. The lender shall maintain a first
mortgage position on the Bastrop location until such time as the bonds
are sold. At that time Church Loans will maintain a co-first mortgage
position for any amounts which are not liquidated by the bond proceeds.
As of December 31, 1998, the balance on this loan is $ 196,116.
F-10
<PAGE>
The Biltmore Group of Louisiana, L.L.C.
( A Development Stage Company )
Notes to Financial Statements
Note 4 - Notes Payable-(continued)
Notes payable at December 31, 1998 consist of a note to First Republic
Bank to provide a credit line for the funding for the construction of
the various locations. The loan is to be repaid from the permanent
financing of the project through the proposed issuance of bonds. This
note calls for the payment of interest at a rate of 9.995 per cent. As
of December 31, 1998, the balance on this loan is $ 70,500.
Notes payable at December 31, 1998 consist of a note to First Republic
Bank to provide the funding for the construction of the Minden location.
The loan is to be repaid from the permanent financing of the project
through the proposed issuance of bonds. This note calls for the monthly
payment of interest at a rate of 9.20 per cent. The lender shall
maintain a first mortgage position on the Minden location until such
time as the bonds are sold. As of December 31, 1998, the balance on
this loan is $ 351,536.
Notes payable at December 31, 1998 consist of a note to First Republic
Bank to provide the funding for the remodeling and upgrading of the Sedona
location. This note calls for the monthly payment of interest at a rate
of 9.75 per cent. The note is secured by a mortgage position on certain
real estate owned by on e of the members. As of December 31, 1998, the
balance on this loan is $ 71,755.
Note 5 - Contributions of Members' Equity
The Company has issued members' equity certificates totalling $ 1,112,763
in exchange for $ 683,500 of services and $ 429,263 of cash.
Note 6 - Development Stage Operations
The Company has begun construction of the Minden and Bastrop facilities
which have an estimated completion date of late 1999. The Company has
completed the purchase of the Sedona, Arizona facility and is in the
process of upgrading and remodeling the facility which has as estimated
completion date of early 1999. The expenditures related to these
projects are reflected as building construction in progress on the
balance sheet.
F-11
<PAGE>
The Biltmore Group of Louisiana, L.L.C.
( A Development Stage Company )
Notes to Financial Statements
Note 7 - Long-Term Debt
Long-term debt at December 31, 1998 consist of a note to Church Loans
which is to provided the funding for the purchase of the Sedona location.
The loan is to be repaid from the permanent financing of the project
through the proposed issuance of bonds. This note calls for the payment
of interest at a rate of prime ( as published in the Wall Street Journal
plus two per cent but in no case shall the rate be less than ten and
one-half per cent per annum. The lender shall maintain a first mortgage
position on the Sedona location until such time as the bonds are sold.
At that time Church Loans will maintain a co-first mortgage position for
any amounts which are not liquidated by the bond proceeds. As of
December 31, 1998, the balance on this loan is $ 2,174,025.
F-12
<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. . . . . . . . . . . . . . . . . . . 14
Business . . . . . . . . . . . . . . . . . . . . . . 15
Description of Property. . . . . . . . . . . . . . . 19
Management . . . . . . . . . . . . . . . . . . . . . 24
Principal Owners of the Company. . . . . . . . . . . 25
The Company's Plan of Operation. . . . . . . . . . . 26
Prior Performance of Affiliates of the Company . . . 27
Certain Transactions . . . . . . . . . . . . . . . . 27
Description of Bonds . . . . . . . . . . . . . . . . 29
Underwriting . . . . . . . . . . . . . . . . . . . . 37
Legal Matters. . . . . . . . . . . . . . . . . . . . 39
Experts. . . . . . . . . . . . . . . . . . . . . . . 39
Additional Information . . . . . . . . . . . . . . . 39
Index to Financial Statements. . . . . . . . . . . . F-1
Until _____________, 1999 (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.
$9,900,000
Co-First Mortgage Bonds
(Company logo here)
THE BILTMORE GROUP
OF LOUISIANA, L.L.C.
-----------------------
PROSPECTUS
-----------------------
MMR INVESTMENT BANKERS, INC.
[MMR LOGO] [SIPC LOGO]
________________, 1999
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers
The Louisiana Limited Liability Company law (La. R. S. 12:1314 and 1315)
confers broad powers upon limited liability companies organized in Louisiana
with respect to limitations of liability and indemnification of any person
against liabilities incurred by reason of the fact that such person is or was
a member, manager, employee or agent of a limited liability company, or is or
was serving at the request of the company as a manager, employee or agent of
another company or other business entity. The provisions of La. R.S. 12:1314
are not exclusive of any other rights to which those seeking indemnification
may be entitled under any articles of organization or written operating
agreement as allowed pursuant to La. R.S. 12:1315.
The Operating Agreement of the Company contain a provision regarding the
limits of liability of members and managers 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. . . . . . . . . . . . . . . . . . . . . . . . . . $3,000
NASD Registration Fee . . . . . . . . . . . . . . . . . . . . . . . . . $1,490
Blue Sky Qualification Fees and Expenses. . . . . . . . . . . . . . . . $3,150
CUSIP Registration Fees . . . . . . . . . . . . . . . . . . . . . . . . $1,000
Legal Fees and Expenses . . . . . . . . . . . . . . . . . . . . . . . .$20,000
Accounting Fees and Expenses. . . . . . . . . . . . . . . . . . . . . .$20,000
Transfer Agent, Escrow Agent, Paying Agent, Registrar & Trustee Fees. . $9,900
Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,760
-------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .$61,300
=======
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.
These securities were sold as a private placement to the original members,
each of which is an accredited investor as defined under the Securities Act
of 1933, as amended.
<PAGE>
<TABLE>
<CAPTION>
Date Title Identity
of Sale of Securities Amount Sold of Purchaser Consideration
<S> <C> <C> <C> <C>
08/20/98 Membership 265,000 Units The Forsythe Issued in exchange
Interest Group for services
rendered in
connection with
developing plans for
construction,
obtaining State Fire
Marshall approval of
the plans and getting
approval of the proper
zoning of the Project
and $91,000 in cash
09/30/98 Membership 21,500 Units Joanne Issued in exchange
Interest Caldwell- for services rendered
Bayles in connection with the
formation of the
Company and $2,000 in
cash
10/19/98 Memership 85,000 Units Joanne Issued in exchange
Interest Caldwell- for services rendered
Bayles in connection with the
interior design of the
Facilities and market
research studies for
the Facilities
11/10/98 Membership 203,739 Units Joanne Issued in exchange for
Interest Caldwell- $203,739 in cash
Bayles
11/10/98 Membership 270,000 Units Joanne Issued in exchange for
Interest Caldwell- services rendered in
Bayles connection with
selecting the location
and purchasing of the
land on which the
Bastrop and Farmerville
Projects are to be
built, developing the
plans for construction,
obtaining State Fire
Marshall approval of
the plans and getting
approval of the proper
zoning of the Bastrop
and Farmerville
Projects
11/10/98 Membership 267,523.5 Units The Forsythe Issued in exchange for
Interest Group services rendered in
connection with
selecting the location
and purchasing of the
land on which the
Natchitoches Project
is to be built,
developing the plans
for construction,
obtaining Sate Fire
Marshall approval of
the plans and getting
approval of the proper
zoning of the
Natchitoches Project
and $132,523.50 in
cash
</TABLE>
<PAGE>
Item 27. Exhibits
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 Organization
3(b) Operating Agreement
4(a) Specimen of Bond Certificate
4(b) Form of Trust Indenture
4(c) Form of Lienholders Agreements
5(a) Opinion of Bobby L. Culpepper, Esq.
10(a) Construction Management Contract - Minden Facility
10(b) Construction Management Contract - Bastrop Facility
10(c) Construction Management Contract - Farmerville Facility
10(d) Construction Management Contract - Natchitoches Facility
10(e) Construction Loan Agreement - Minden
10(f) Interim Loan Agreement - Oak Creek
10(g) Construction Loan Agreement - Bastrop
10(h) Construction Loan Agreement - Farmerville
10(i) Construction Loan Agreement - Natchitoches
10(j) Form of Management Agreements
23(a) Consent of William R. Hulsey, CPA
23(b) Consent of Bobby L. Culpepper, Esq.
23(c) Consent of Appraiser - Minden
23(d) Consent of Appraiser - Oak Creek
23(e) Consent of Appraiser - Bastrop
23(f) Consent of Appraiser - Farmerville
23(g) Consent of Appraiser - Natchitoches
99(a) Appraisal - Minden
99(b) Appraisal - Oak Creek
99(c) Appraisal - Bastrop
99(d) Appraisal - Farmerville
99(e) Appraisal - Natchitoches
99(f) Environmental Report - Minden
99(g) Environmental Report - Bastrop
99(h) Environmental Report - Farmerville
99(i) Environmental Report - Natchitoches
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:
<PAGE>
(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.
(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.
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant, The Biltmore Group of Louisiana, 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 12th day of February , 1999.
------- ------------------
The Biltmore Group of Louisiana, L.L.C.
By: /s/JOANNE M CALDWELL-BAYLES
-----------------------------------
Joanne. M. Caldwell-Bayles
Managing Member
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 February 12 , 1999.
----------------
Signature Title
/S/JOANNE M CALDWELL-BAYLES Managing Member (Chief Executive Officer
- ------------------------------ and Chief Financial Officer)
Joanne M. Caldwell-Bayles
<PAGE>
UNDERWRITING AGREEMENT
between
THE BILTMORE GROUP OF LOUISIANA, L.L.C. ("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 $9,900,000.00 and
shall be designated as follows:
Series 1999-I (Minden Project) $1,800,000.00 Co-First Mortgage
Series 1999-II (Oak Creek Project) $2,700,000.00 Co-First Mortgage
Series 1999-III (Bastrop Project) $1,800,000.00 Co-First Mortgage
Series 1999-IV (Farmerville Project) $1,800,000.00 Co-First Mortgage
Series 1999-V (Natchitoches Project) $1,800,000.00 Co-First Mortgage
SECURITY
The addresses of the properties securing the Series 1999-I, II, III,
IV and V Bonds are as follows:
Series 1999-I The Minden Project will be located on 5.72 acres of land
on the North side of Germantown Road just South of Country
Club Drive within the City of Minden, Louisiana.
Series 1999-II The Oak Creek Project is located on 2.8 acres of land at
78 Canyon Diablo Road just outside the City of Sedona,
Arizona and within the Village of Oak Creek.
<PAGE>
Series 1999-III The Bastrop Project will be located on 3.35 acres of land
at 10280 Boswell Drive just outside the city limits of
Bastrop, Louisiana.
Series 1999-IV The Farmerville Project will be located on approximately 4
acres of land on the West side of Louisiana Highway 33 just
outside the city limits of Farmerville, Louisiana.
Series 1999-V The Natchitoches Project will be located on approximately
4 acres of land on the East side of Louisiana Highway
1 just oustide the city limits of Natchitoches, Louisiana.
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
Organization, its Operating Agreement, 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 appraisals of its properties and improvements to the
Underwriter. The Underwriter may require MAI appraisals. The
Issuer agrees to pay all expenses of the appraisals.
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 properties or in a co-first mortgage
position with the interim/construction lenders.
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.
<PAGE>
10. The Issuer is responsible to begin making Sinking Fund Payments
the week of the Issue Date for each Series of Bonds.
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 seven and one half (7 1/2)
years from the date of issue of the Series 1999-III Bonds, and at
the end of the seven and one half (7 1/2) 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 theproper 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.
<PAGE>
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
Properties that secures the Bonds for a period not to exceed three years from
date of issue on the first Series of Bonds.
FEES
The Issuer agrees to pay the Underwriter an investment banking fee of
1.3% of the aggregate amount of the bond issue ($128,700.00). The
investment banking fee is due in full prior to filing the bond issue with the
regulatory agencies.
In the event the issue is canceled prior to the issuance of the Bonds,
the Underwriter shall be entitled to the above fee only to the extent of its
actual, accountable out-of-pocket expenses, upon submission to the Issuer a
listing of these expenses. These expenses may include, but are not limited to
legal fees, travel, telephone, photo copies, postage and printing. If the
Issuer terminates this Agreement for any reason not enumerated in the section
entitled "Termination", such action shall be considered a material breach of
this Agreement and the Issuer shall be liable to the Underwriter for the
amount of the investment banking fee for out-of-pocket expenses for services
rendered and not as a penalty.
In addition to the investment banking fee, 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 6% 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.
<PAGE>
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
<PAGE>
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
<PAGE>
such registration or exemption from registration. If the Issuer terminates
this Agreement for any reason not enumerated in the section entitled
"Termination", such action shall be considered a material breach of this
Agreement and the Issuer shall be liable to the Underwriter for the amount of
the investment banking fee for out-of-pocket expenses for services rendered
and not as a penalty.
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: 2-10-1999
------------------
/S/JOANNE CALDWELL-BAYLES
- ------------------------------------------
Signed by Managing Member
Issuer's Name: The Biltmore Group of Louisiana
Address: 507 Trenton Street
West Monroe, LA 71291
Phone: (318) 323-2115
/S/JERRY MARTIN
- ------------------------------------------------
Approved by MMR Investment 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.
<PAGE>
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:
----------------------------------
By:
----------------------------------
Address:
-----------------------------------
-----------------------------------
Phone:
------------------------
Date:
-------------------------
<PAGE>
EXHIBIT I
ISSUER CONCESSION(1) LOCATION STATES FILED/QUALIFIED(2)
PROCEEDS ESCROW AGREEMENT
Agreement entered on the day of 1999 by
------------ ---------------
and among THE 'BILTMORE GROUP OF LOUISIANA, L.L.C., a Louisiana limited
liability company, ("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 $9,900,000 aggregate principal amount of its First Mortgage
Bonds (collectively, the "Bonds") to be issued in five series (1999-I,
1999-II, 1999-III, 1999-IV, and 1999-V) 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 four
separate particular assisted living center projects: one in Minden, Louisiana,
one in Bastrop, Louisiana, one in Farmerville, Louisiana,and one in
Natchitoches, Louisiana; and to purchase one assited living center in Sedona,
Arizona; all 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.
<PAGE>
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 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 1999-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 $400,000.00, or more, or (ii) the date of October 1, 1999, at
which time the Series 1999-1 escrow account will terminate;
(b) Series 1999-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 November 1, 1999, at
which time the Series 1999-II escrow account will terminate;
(c) Series 1999-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 $400,000.00, or more, or (ii) the date of November 1, 1999, at
which time the Series 1999-III escrow account will terminate.
(d) Series 1999-IV 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 $400,000.00, or more, or (ii) the date of December 1, 1999, at
which time the Series 1999-IV escrow account will terminate.
(e) Series 1999-V Bonds:
GGM\F:\COLONIAL\SENIOR.ESC -2-
<PAGE>
(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 $400,000.00, or more, or (ii) the date of January 1, 2000, at
which time the Series 1999-V escrow account will terminate.
Notwithstanding the above, the proceeds from the sale of each series
of bonds shall be held by the Escrow Agent until the Escrow Agent
shall have received a written consent to release such proceeds from
the Kansas Securities Commissioner, pursuant to K.A.R. 81-7-1(e).
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 and the required consent of
the Kansas Securities Commissioner has been received 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 or the required consent of the
Kansas Securities Commissioner has not been received within such period. In
the event of the return of the escrow to the subscribers, then the subscribers
shall be paid interest as provided in paragraph 5 hereof.
5. The Issuer agrees that in the event the minimum amount of the
applicable series of Bonds have not been sold or the required consent of the
Kansas Securities Commissioner has not been received within the time 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 hereinafter set forth
through the escrow termination date at the rate attributable to the
applicable series of Bonds subscribed:
(a)Series 1999-I Bonds: April 1, 1999;
(b)Series 1999-II Bonds: Date of receipt by MMR of the payment of the
purchase price for the bonds;
(c)Series 1999-III Bonds: May 1, 1999;
(d)Series 1999-IV Bonds: June 1, 1999; and
(e)Series 1999-V Bonds: July 1, 1999.
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
GGM\F:\COLONIAL\SENIOR.ESC -3-
<PAGE>
all funds relative to the series of Bonds for which the registration
has been revoked to the respective subscribers, in accordance with the
above set forth provisions.
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 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
GGM\F:\COLONIAL\SENIOR.ESC -4-
<PAGE>
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.
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: THE BILTMORE GROUP OF
LOUISIANA, L.L.C.
By:
-------------------------
Managing Member
Date:
-----------------------
GGM\F:\COLONIAL\SENIOR.ESC -5-
<PAGE>
ESCROW AGENT: COLONIAL TRUST COMPANY
Phoenix, Arizona
By:
-------------------------
Susan D. Carlisle,
Vice-President
Date:
-----------------------
escroagr.ctC
GGM\F:\COLONIAL\SENIOR.ESC -6-
<PAGE>
FOX MCKEITHEN
Secretary of State
ARTICLES OF ORGANIZATION OF Received & Filed
The Biltmore Group, L.L.C. DATE July 13 1998
-------------
The Biltmore Group, L.L.C., a Louisiana Limited Liability Company, organized
under Louisiana's Limited Liability Law, as contained in La. R.S. 12:1301,
et seq., appearing herein through its undersigned members, who constitute
all of the members of the Limited Liability Company, and who are authorized
to act herein by the written unanimous consent of all members, attached
hereto, does hereby certify that:
FIRST: The date the Limited Liability Company came into existence is
July 8, 1998.
Second: By unanimous written consent of all members of the Limited
Liability Company, which written unanimous consent was given on July 8, 1988
the members of the Limited Liability Company authorized these Articles of
Organization.
THIRD:The Articles of Organization of the Limited Liability Company
are as follows:
I. NAME - The name of the Limited Liability Company shall be The
Biltmore Group, L.L.C., sometimes hereinafter called "the company"
II. PURPOSES - The company's purpose is to engage in any lawful
activity for which Limited Liability Companies may be formed under
Chamber 22 of Title 12 of the Louisiana Revised Statutes.
III. MANAGEMENT - The company shall be managed by the members as provided
in the Operating Agreement of the Limited Liability
<PAGE>
Company, or in the absence of such, at law.
IV. RESTRICTIONS - No member may bind the company, other than the
manager who may be a member as provided by the Operating Agreement.
V. LIABILITY WAVIER AND INDEMNIFICATION - No member or Manager shall
have any liability for damages for any duty breached or activity
performed in connection with the management of the company.
Further, each member and Manager shall be fully indemnified by the
company for any judgments, settlements, penalties, fines or expenses
incurred because he or she is or was a member or Manager of the
company. It is the intention of this provision to afford members
and Managers of the company the most complete elimination of
liability as the fullest rights to indemnification possible
under the laws of the State of Louisiana and particularly Title 12,
Section 1315 of the Revised Statutes of Louisiana and this
provision shall be so construed.
VI. OPERATING AGREEMENT; STATUTORY APPLICATION - The company shall be
operated in accordance with the provisions of the Operating
Agreement enacted by the members, provided, however, that any
questions for which provision is not made in the Operating Agreement
shall be governed by the laws of the State Of Louisiana, and
particularly Title 12, Section 1301, et seq., of the revised
Statutes of Louisiana.
VII. Unless and until an amendment to these articles by
<PAGE>
authentic act providing otherwise are filed in the office of the
Louisiana Secretary of State and in each parish in which The
Biltmore Group, L.L.C. owns immovable property any person dealing
with The Biltmore Group, L.L.C., may rely upon a certificate of the
Manager to:
(A) establish the membership of any member of the company
(B) establish the authenticity of any records of the company
or
(C) establish the authority of any person to act on behalf of
The Biltmore Group, L.L.C., including but not limited to
the authority to take actions referred to in Louisiana
Revised Statutes Title 12, Section 1318(B), which actions
include:
(1) The dissolution and winding up of the company,
(2) The sale, exchange, lease, mortgage, pledge, or
other transfers of all or substantially all of the
assets of the company,
(3) The merger or consolidation of the company,
(4) The incurrence of indebtedness by the company other
than in the ordinary course of its business.
(5) The alienation, lease or encumbrance of
<PAGE>
any immovables of the company, and
(6) An amendment to the articles of organization.
VIII.DURATION - Unless continued beyond its scheduled termination by
the consent of a majority in interest of the remaining members, the company
shall terminate on the earlier of:
(A) July 8, 2020
(B) The consent of the majority of the members.
IX. TRANSFER AND ASSIGNMENT OF MEMBERS' INTEREST - The assignment or
transfer of a member's interest is subject to restrictions as set forth in
the Operating Agreement.
These Articles of Organization of The Biltmore Group, L.L.C. are thus
done and signed on this 8th day of July in the presence of the undersigned
competent witnesses and me, Notary Public, by the undersigned members
of the limited Liability Company, constituting all of the members thereof
as of this date.
WITNESSES: The Biltmore Group, L.L.C.
/S/FRED M BAYLES By: /S/JOANNE M CALDWELL
- --------------------- -----------------------------
Joanne M. Caldwell
Member
- ---------------------
/S/WILLIAM M CRAWFORD
------------------------
NOTARY PUBLIC
<PAGE>
AMENDMENT TO ARTICLES OF LIMITED LIABILITY COMPANY
THE BILTMORE GROUP, L.L.C.
Each of the undersigned members of the Biltmore Group, L.L.C. does hereby
certify that the following amendment to the articles of the Limited liability
company of the Company was duly adopted pursuant to LSA-R.S. art. 12:31
et seq., by unanimous written consent of the members of the company dated
October 12, 1998. Pursuant to such unanimous written consent, they hereby
execute this Amendment to Articles of the limited liability company of
the company to read in its entirety as follows:
PARAGRAPH THIRD-I
Name -The name of the Limited Liability Company shall be The Biltmore
Group, of Louisiana, L.L.C.
Dated:October 13, 1998
The Biltmore Group, L.L.C.
By: /S/JOANNE M CALDWELL
------------------------
Joanne M. Caldwell
Member
FOX MCKEITHEN
Secretary Of State
Received & Filed
DATE OCT 14 1998
-----------
<PAGE>
OPERATING AGREEMENT OF
THE BILTMORE OF LOUISIANA GROUP L.L.C.
ARTICLE I. OFFICES
1.1 Principal Office
1.2 Registered Office
ARTICLE II. MEETINGS
2.1 Annual Meeting
2.2 Regular Meetings
2.3 Special Meetings
2.4 Notice of Meeting
2.5 Quorum
2.6 Proxies
2.7 Voting
2.7.1 Voting by Members
2.7.2 Voting by Certain Members
2.8 Manner of Acting
2.8.1 Formal action by Members.
2.8.2 Procedure
2.8.3 Presumption of Assent
2.8.4 Informal Action of Members
2.9 Order of Business
2.10 Telephonic Meeting
ARTICLE III FISCAL MATTERS
3.1 Fiscal Year
3.2 Deposits
3.3 Checks, Drafts, Etc.
3.4 Loans
3.5 Contracts
3.6 Accountant
3.7 Legal Counsel
ARTICLE IV. MANAGEMENT CERTIFICATES AND THEIR TRANSFER
4.1 Certificates
4.2 Certificate Register
4.3 Capital contributions
4.4 Transfers of Shares
ARTICLE V. BOOKS AND RECORDS
5.1 Books and Records
5.2 Right of Inspection
5.3 Financial Records
ARTICLE VI. DISTRIBUTION OF PROFITS
ARTICLE VII. OFFICERS
7.1 Operating Manager
<PAGE>
7.2 Other Officers
7.3 Election and Tenure
7.4 Resignations and Removal
7.5 Vacancies
7.6 Salaries
ARTICLE VIII. MISCELLANEOUS
8.1 Notice
8.2 Waiver of Notice
8.3 Indemnification By Company
8.4 Indemnification Funding
8.5 Duality of Interest Transactions
8.6 Anticipated Transactions
8.7 Gender and Number
8.8 Articles and other Headings
8.9 Reimbursement of Officers and Members
ARTICLE IX. AMENDMENTS
9.1 Amendments
RATIFICATION and EXECUTION
<PAGE>
Operating Agreement
Of
THE BILTMORE GROUP L.L.C.
AUGUST 1998
ARTICLE I.
OFFICES
1.1 Principal Office. The principal office of the Company in the State
of Louisiana will be located at 507 Trenton Street, West Monroe, Louisiana
71291. The Company may have other offices, either within or without the
state of Louisiana as the Members may designate or as the business of
the Company may from time to time require.
1.2 Registered Office. The registered office of the Company, required
by the Louisiana Limited Liability Company Act to be maintained in the
State of Louisiana, may, but need not, be identical with the Principal
Office in the State of Louisiana. The address of the initial registered
office of the Company is 507 Trenton Street, West Monroe, Louisiana 71291,
and the initial registered agent at that address is Joanne M. Caldwell-Bayles.
The registered office and the registered agent may be changed from time
to time by action of the Members and by filing the prescribed form with
the Louisiana Secretary of State.
ARTICLE II.
MEETINGS
2.1 Annual Meeting. The annual meeting of the Members will be
held the first Tuesday in the month of January in each year, beginning
with the year 1997 at the hour of 10:00 o'clock a.m., for the purpose
of electing an Operating Manager and for the transaction of other business
as may come before the meeting. If the day fixed for the annual meeting
is a legal holiday, the meeting will be held on the next succeeding business
day. If the election is not held on the day designated in this Agreement
for the annual meeting of the Members, or at any adjournment of the meeting,
the Members will cause the election to be held at a special meeting of
the Members as soon afterward as it may conveniently be held.
2.2 Regular Meetings. The Members may prescribe the time and place
for the holding of regular meetings and may provide that the adoption
of the resolution will constitute notice of the regular meetings. If
the Members do not prescribe the time and place for the holding of regular
meetings, regular meetings will be held at the time and place specified
by the Operating Manager in the notice of each regular meeting.
2.3 Special Meetings. Special meetings of the Members, for any purpose
or purposes, unless otherwise prescribed by statute, may be called by
the Operating Manager or by any two Members.
2.4 Notice of Meeting. Written or telephonic notice stating the place,
day and hour of the meeting and, in case of a special meeting, the purposes
for which the meeting is called, must be delivered not less than fifteen
(15) days before the date of the meeting, either personally or by mail,
by or at the direction of the Operating Manager, to each Member of record
entitled to vote at the meeting. If mailed, the notice will be deemed
to be delivered when deposited in
<PAGE>
the United States mail, addressed to the Member at his address as it
appears on the books of the Company, with postage prepaid. When all the
Members of the Company are present at any meeting, or if those not present
sign in writing a waiver of notice of the meeting, or subsequently ratify
all the proceedings of the meeting, the transactions of the meeting are
as valid as if a meeting were formally called and notice had been given.
2.5 Quorum. At any meeting of the Members, a majority of the
equity interests, as determined from the capital contribution of each
Member as reflected by the books of the Company, represented in person
or by proxy, will constitute a quorum at a meeting of Members. If less
than a majority of the equity interests are represented at a meeting,
a majority of the interests so represented may adjourn the meeting from
time to time without further notice. At an adjourned meeting at which
a quorum is present or represented, any business may be transacted which
might have been transacted at the meeting as originally notified. The
Members present at a duly organized meeting may continue to transact business
until adjournment, notwithstanding the withdrawal of enough Members to
leave less than a quorum.
2.6 Proxies. At all meetings of Members, a Member may vote by proxy
executed in writing by the Member or by his duly authorized attorney-in-fact.
The proxy must be filed with the Operating Manager of the Company before
or at the time of the meeting. No proxy may be valid after three months
from date of execution, unless otherwise provided in the proxy.
Management Certificates standing in the name of a corporation, partnership
or company may be voted by the officer, partner, agent or proxy as the
Bylaws of the entity may prescribe or, in the absence of such provision,
as the Board of Directors of the entity may determine. Certificates held
by a trustee, personal representative, administrator, executor, guardian
or conservator may be voted by him, either in person or by proxy, without
a transfer of the certificates into his name.
2.7. Voting.
2.7.1. Each Member will have one vote for each one (1) dollar
in Equity interest, as reflected on the book and records of
the company
2.7.2 Voting by Certain Members. Management Certificates
standing in the name of a corporation, partnership or company
may be voted by the officer, partner, agent or proxy as the
Bylaws of the entity may prescribe or, in the absence of such
provision, as the Board of Directors of the entity may
determine. Certificates held by a trustee, personal
representative, administrator, excitor, guardian or
conservator may be vote by him, either in person or by proxy,
without a transfer of the certificates into his name.
2.8 Manner of Acting.
2.8.1 Formal action by Members. Ordinarily, the act of a
majority of the Members present at a meeting at which a
quorum is present will be the act of the Members. On demand
of any Member, voting on a
<PAGE>
particular issue may be in accordance with percentage of
equity ownership in the company.
2.8.2 Procedure. The Operating Manager of the Company will
preside at meetings of the Members, may move or second any
item of business but may not vote on any matter when there is
an even number of Members present and the Members are evenly
divided as to an issue. A record must be maintained of the
meetings of the Members. The Members may adopt their own
rules of procedure which may not be inconsistent with this
Operating Agreement.
2.8.3 Presumption of Assent. A Member of the Company who is
present at a meeting of the Members at which action on any
matter is taken will be presumed to have assented to the action
taken, unless his dissent is entered in the minutes of the
meeting or unless he files his written dissent to the action
with the person acting as the secretary of the meeting before
the adjournment of the meeting or forwards his/her dissent by
certified mail to the secretary of the meeting immediately
after the adjournment of the meeting. The right to dissent
will not apply to a Member who voted in favor of the action.
2.8.4 Informal Action of Members. Unless otherwise provided by
law, any action required to be taken at a meeting of the
Members, or any other action which may be taken at a meeting
of the Members, may be taken without a meeting if a consent in
writing, setting forth the action so taken, is signed by all
the Members entitled to vote with respect to the subject
letter thereof.
2.9 Order of Business. The order of business at all meetings of the
Members shall be as follows:
1. Roll Call.
2. Proof of notice of meeting or waiver of notice.
3. Reading of minutes of preceding meeting.
4. Report of the Operating Manager.
5. Reports of Committees.
6. Unfinished Business.
7. New Business.
2.10 Telephonic Meeting. Members of the Company may participate in any
meeting of the Members by means of conference telephone or similar
communication if all persons participating in the meeting can hear one
another for the entire discussion of the matter(s) to be voted on.
Participating in a meeting pursuant to this Section will constitute presence
in person at the meeting.
ARTICLE III
FISCAL MATTERS
3.1 Fiscal Year. The fiscal year of the Limited Liability Company will
begin on the first day of January and end on the last day of December
each year, unless otherwise determined by resolution of the Members.
<PAGE>
3.2 Deposits. All funds of the Limited Liability Company will be
deposited from time to time to the credit of the Limited Liability Company
in the banks, trust companies or other depositories as the Members may select.
3.3 Checks, Drafts, Etc. All checks, drafts or other orders for the
payment of money, and all notes or other evidences of indebtedness issued
in the name of the Company will be signed by the Operating Manager.
3.4 Loans. No loans may be contracted on behalf of the Limited Liability
Company or no evidences of indebtedness may be issued in its name unless
authorized by a resolution of the Members. The authority may be general
or confined to specific instances.
3.5 Contracts. The Members may authorize any Member or agent of the
Company, in addition to the Operating Manager, to enter into any contract
or execute any instrument in the name of and on behalf of the Company,
and such authority may be general or confined to specific instances.
3.6 Accountant. An Accountant may be selected from time to time by the
Members to perform such tax and accounting services as may be required
from time to time. The accountant may be removed by the members without
assigning any cause.
3.7 Legal Counsel. One or more Attorney(s) at Law may be selected
from time to time by the Members to review the legal affairs of the
Company and to perform other services as may be required and to report
to the Members with respect to those services. The Legal Counsel may
be removed by the Members without assigning any cause.
ARTICLE IV.
MANAGEMENT CERTIFICATES AND THEIR TRANSFER
4.1 Certificates. Management Certificates representing equity interest
in the Company will be in the form determined by the Members. Management
Certificates must be signed by the operating Manager and by all other
Members. All Management Certificates must be consecutively numbered or
otherwise identified. The name and address of the person to whom the
Management Certificates are issued, with the Capital Contribution and
the rate of issue, must be entered in the Certificate Register of the
Company. In case of a lost, destroyed or mutilated management Certificate,
a new one may be issued on the terms and indemnity to the Company as the
Members may prescribe.
4.2 Certificate Register. The stated capital contribution and
proportionate equity interest is reflected in the books and records of the
company which are prepared and kept in the Certificate Register in accordance
with the articles of organization and all operating agreements which may be
in force from time to time.
4.3 Capital contributions. The total capital contribution by the members
is to be ONE MILLION AND N0/100 ($1,000,000.00) DOLLARS. After the capital
contribution by existing members or any new member(s) totaling One Million
and no/100 ($1,000,000.00) have be made or subscribed to, any and all changes
in Members or the amount of Capital contribution must be approved by a
majority of the existing members. Each member(s) will have the right to
acquire an amount of any increase in capital in a percentage equal the
percentage of all
<PAGE>
capital contribution being held by the member at the time of any increase in
capital contribution approved by the majority of the members.
4.4 Transfers of Shares. Any Member proposing a transfer or assignment
of his Certificate must first notify the Company, in writing, of all the
details and consideration for the proposed transfer or assignment. The
company, for the benefit of the remaining Members, will have the first
right to acquire the equity by cancellation of the Certificate under the
same terms and conditions as provided in the formal Articles of Organization
as filed with the Wyoming Secretary of State for Members who are deceased,
retired, resigned, expelled, or dissolved.
If the company declines to elect this option, the remaining Members who
desire to participate may proportionately (or in the proportions as the
remaining Members may agree) purchase the interest under the same terms
and conditions first proposed by the withdrawing Member.
If the transfer or assignment is made as originally proposed and the
other Members fail to approve the transfer or assignment by unanimous
written consent, the transferee or assignee will have no right to participate
in the management of the business and affairs of the Limited Liability
Company or to become a Member. The transferee or assignee will only be
entitled to receive the share of the profit or other compensation by way
of income and the return of contributions to which that Member would otherwise
be entitled.
ARTICLE V.
BOOKS AND RECORDS
5.1 Books and Records. The books and records of the company must be
kept at the principal office of the company or at other places, within
or without the state of Louisiana, as the Members from time to time determine.
5.2 Right of Inspection. Any Member of record will have the right to
examine and make copies, at any reasonable time or times for all purpose,
the books and records of account, minutes and records of Members. The
inspection may be made by any agent or attorney of the Member. On the
written request of any Member, the Company must mail to such Member its
most recent financial statements, showing in reasonable detail its assets
and liabilities and the results of its operations.
5.3 Financial Records. All financial records will be maintained and
reported based on generally acceptable accounting practices.
ARTICLE VI.
DISTRIBUTION OF PROFITS
6.0 Method of distribution. In the absence of a unanimous agreement
otherwise, all profits shall be distributed annually prior to the close
of the fiscal year, less and except an amount to be retained for the
cash needs of the company's business. Unless
<PAGE>
otherwise provided retained profits shall be deemed an increase in capital
contributions of the Company.
ARTICLE VII.
OFFICERS
7.1 Operating Manager. The Operating Manager will be the chief executive
officer of the Company responsible for the general overall supervision
of the business and affairs of the Company. When present, he will preside
at all meetings of the Members. The operating Manager may sign, on behalf
of the Company, deeds, mortgages, bonds, contracts or other instruments
which have been appropriately authorized to be executed, by the Members
except in cases where the signing or execution is expressly delegated
by the Members or by this operating agreement or by Statute to some other
Officer or Agent of the company; and, in general, he will perform all
duties as may be prescribed by the Board from time to time.
The specific authority and responsibility of the operating manager will
also include the following:
(1) The Operating Manager will effectuate this Operating Agreement and
the Regulations and decisions of the Members.
(2) The Operating Manager will direct and supervise the operations of
the Company.
(3)The Operating Manager, within parameters as may be set by the Members,
will establish charges for services and products of the Limited
Liability Company as may be necessary to provide adequate income for the
efficient operation of the Company.
(4) The Operating Manager, within the budget established by the Members,
will set and adjust wages and rates of pay for all personnel of the
Company and will appoint, hire and dismiss all personnel and regulate
their hours of work.
(5) The Operating Manager will keep the Members advised in all matters
pertaining to the operation of the Company, services rendered, operating
income and expense, financial position, and, to this end, will prepare
and submit a report to the Members at each regular meeting and at
other tines as may be directed by the Members.
7.2 Other Officers. The Company, at the discretion of the Members, may
have additional Officers including, without limitation, one or more
Vice-Operating Managers, one or more Secretaries and one or more Treasurers.
Officers need not be selected from among the Members. One person may hold two
or more offices, except one person may not hold both the office of Operating
Manager and the office of Secretary. When the incumbent of an office,
as determined by the incumbent himself or by the Members, is unable to
perform the duties of his office, or when there is no incumbent of an
office (both such situations referred to hereafter as the "absence"
of the Officer), the duties of the office shall be performed by the person
specified by the Members.
7.3 Election and Tenure. The Officers of the Company will be elected
annually by the Members at the annual meeting. Each Officer
<PAGE>
will hold office from the date of his election until the next annual
meeting and until his successor has been elected, unless he sooner resigns
or is removed.
7.4 Resignations and Removal. Any Officer may resign at any time by
giving written notice to the Operating Manager or to all of the Members
and, unless otherwise specified therein, the acceptance of the resignation
will not be necessary to make it effective. Any Officer may be removed
at any time by the Members with or without cause.
7.5 Vacancies. A vacancy in any office may be filled for the unexpired
portion of the term by the Members.
7.6 Salaries. The salaries of the officers will be fixed from time to
time by the Members and no officer may be prevented from receiving such
salary by reason of the fact that he is also a Member of the Company.
ARTICLE VIII.
MISCELLANEOUS
8.1. Notice. Any notice required or permitted to be given pursuant
to the provisions of the Statute, the Articles of Organization of the
Limited Liability Company or this Operating Agreement will be effective
as of the date personally delivered, or if sent by mail, on the date deposited
with United States Postal Service, prepaid and addressed to the intended
receiver at his last known address as shown in the records of the Limited
Liability Company.
8.2 Waiver of Notice. Whenever any notice is required to be given
pursuant to the provisions of the Statute, the Articles of Organization of
the Limited Liability Company or this Operating Agreement, a waiver of the
notice, in writing, signed by the persons entitled to the notice, whether
before or after the time stated therein, will be deemed equivalent to
the giving of the notice.
8.3 Indemnification By Company. The Limited Liability Company may
indemnify any person who was or is a party defendant or is threatened to be
made a party defendant to any threatened, pending or completed action, suit
or proceeding, whether civil, criminal, administrative, or investigative
(other than an action by or in the right of the Limited Liability Company)
by reason of the fact that he is or was a Member of the Company, Officer,
employee or agent of the Company, or is or was serving at the request
of the Company, against expenses (including attorney's fees), judgments,
fines and amounts paid in settlement actually and reasonably incurred
by him in connection with the action, suit or proceeding if the Members
determine that he acted in good faith and in a manner he reasonably believed
to be in or not opposed to the best interest of the Limited Liability
Company, and with respect to any criminal action or proceeding, has no
reasonable cause to believe his conduct was unlawful. The termination
of any action, suit, or proceeding by judgment, order, settlement, conviction,
or on a plea of nolo contendere or its equivalent, will not in itself create
a presumption that the person did or did not act in good faith and in
a manner which he reasonably believed to be in the best interest of the
Limited Liability Company, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that his conduct was unlawful.
<PAGE>
8.4 Indemnification Funding. The Company will fund the indemnification
obligations provided by Section 8.3 in the manner and to the extent the
Members may from time to time deem proper.
8.5 Duality of Interest Transactions. Members of this Company have a
duty of undivided loyalty to this Company in all matters affecting this
Company's interests.
8.6 Anticipated Transactions. Notwithstanding the provision of Section
8.5, it is anticipated that the Members and Officers will have other legal
and financial relationships. Representatives of this Company, along with
representatives of other entities, from time to time may participate in
the joint development of contracts and transactions designed to be fair
and reasonable to each participant and to afford an aggregate benefit
to all participants. Therefore, it is anticipated that this Company will
desire to participate in these contracts and transactions and, after ordinary
review for reasonableness, that the participation of the Company in these
contracts and transactions may be authorized by the Members.
8.7 Gender and Number. Whenever the context requires, the gender of
all words used this Agreement will include the masculine, feminine and
neuter, and the number of all words will include the singular and plural.
8.8 Articles and other Headings. The Articles and other headings
contained in this Operating Agreement are for reference purposes only and
will not affect the meaning or interpretation.
8.9 Reimbursement of Officers and Members. Officers and members will
receive reimbursement for expenses reasonably incurred in the performance
of their duties.
ARTICLE IX.
AMENDMENTS
9.0 Amendments. This Operating Agreement may be altered, amended,
restated, or repealed and a new Operating Agreement may be adopted by majority
action of all of the Members, after notice and opportunity for discussion of
the proposed alteration, amendment, restatement, or repeal.
CERTIFICATION
THE UNDERSIGNED, being all of the Members of THE BILTMORE GROUP OF
LOUISIANA L.L.C. , A Louisiana Limited Liability Company, evidence their
adoption and ratification of the foregoing Operating Agreement of the Company.
EXECUTED by each Member on this the 11th day of August, 1998.
/S/JOANNE M CALDWELL-BAYLES /S/JOANNE M CALDWELL-BAYLES
- ---------------------------------- -----------------------------
The Forsythe Group, Inc. Joanne M. Caldwell-Bayles
By: 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
-------------------------------------------------------------
(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
THE BILTMORE GROUP OF LOUISIANA, L.L.C.
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 . . . . . . . . . . . . . . . 3
IV. Disbursement of Bond Proceeds . . . . . . . . . . . . . . . . . . 3
A. Bond Proceeds Account . . . . . . . . . . . . . . . . . . . 3
B. Preference of Payments Out of Bond
Proceeds Account . . . . . . . . . . . . . . . . . . . . . 4
C. Construction Draws . . . . . . . . . . . . . . . . . . . . 8
D. Surplus Bond Proceeds . . . . . . . . . . . . . . . . . . . 10
E. Overpayments . . . . . . . . . . . . . . . . . . . . . . . 10
F. Abandonment of Project . . . . . . . . . . . . . . . . . . 11
V. Payment of Bonds . . . . . . . . . . . . . . . . . . . . . . . . 11
A. Priorities of Issuer's Payments . . . . . . . . . . . . . . 11
B. Priority of Charges against Sinking Fund . . . . . . . . . 12
C. Method of Payments into Sinking Fund . . . . . . . . . . . 12
D. Expenses of Default . . . . . . . . . . . . . . . . . . . . 13
E. Issuer's Payment Secured by its Revenues . . . . . . . . . 13
F. When Sinking Fund Balance May Be Paid
to Issuer . . . . . . . . . . . . . . . . . . . . . . . . . 13
G. Bond Reserve Account . . . . . . . . . . . . . . . . . . . 13
H. First Six Month Operating Fund Reserve Account . . . . . . 15
VI. Bondholders' Failure to Surrender Matured
Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
A. No Interest After Maturity . . . . . . . . . . . . . . . . 16
B. Escheat After Three Years . . . . . . . . . . . . . . . . . 16
VII. Issuer's Covenants . . . . . . . . . . . . . . . . . . . . . . . 17
A. Issuer Shall Maintain and Insure the
Property . . . . . . . . . . . . . . . . . . . . . . . . . 17
B. Trustee May Cure . . . . . . . . . . . . . . . . . . . . . 18
C. Issuer May Not Merge . . . . . . . . . . . . . . . . . . . 18
D. Issuer's . . . . . . . . . . . . . . . . . . . . . . . . . 19
VIII. Defaults and Remedies . . . . . . . . . . . . . . . . . . . . . . 19
A. Events of Default Defined . . . . . . . . . . . . . . . . . 19
B. Waiver of Notice by Issuer; Trustee's
Remedies . . . . . . . . . . . . . . . . . . . . . . . . . 20
C. Legal Ownership of Rights to Prosecution
and Enforcement in Trustee Alone . . . . . . . . . . . . . 24
i
<PAGE>
D. Trustee's Discretion to Advise Bond-
holders of Default . . . . . . . . . . . . . . . . . . . . 24
E. Bondholders' Rights in Event of
Trustee's Failure to Act . . . . . . . . . . . . . . . . . 24
F. Trustee's Right to Stop Payment on
Outstanding Checks . . . . . . . . . . . . . . . . . . . . 25
G. Penalty Interest . . . . . . . . . . . . . . . . . . . . . 25
H. Trustee Has No Duty to Cure; Trustee's
Rights in Event of Overdraft or
Overpayment . . . . . . . . . . . . . . . . . . . . . . . . 25
I. Application of Sinking Fund Balances
Upon Default . . . . . . . . . . . . . . . . . . . . . . . 26
IX. Issuer's Prepayment Privileges . . . . . . . . . . . . . . . . . 28
A. Entire Series in Full or Partial at
Random . . . . . . . . . . . . . . . . . . . . . . . . . . 28
B. No Pre-Payment Penalty; Additional
Trustee's Fee . . . . . . . . . . . . . . . . . . . . . . . 28
C. Disposition of Unpresented Bonds . . . . . . . . . . . . . 28
D. Over- and Under-Deposit of Funds . . . . . . . . . . . . . 28
E. Trustee's Release of Lien . . . . . . . . . . . . . . . . . 29
X. Replacement of Bonds . . . . . . . . . . . . . . . . . . . . . . 29
A. Exchange of Mutilated or Defaced Bonds . . . . . . . . . . 29
B. Lost, Stolen or Destroyed Bonds . . . . . . . . . . . . . . 29
C. Remedies are Exclusive . . . . . . . . . . . . . . . . . . 29
XI. Additional Parity Bonds . . . . . . . . . . . . . . . . . . . . . 30
A. Conditions for Issuance . . . . . . . . . . . . . . . . . . 30
B. Right of First Refusal . . . . . . . . . . . . . . . . . . 31
XII. Sale of Property . . . . . . . . . . . . . . . . . . . . . . . . 31
A. For Fair Market Value Only . . . . . . . . . . . . . . . . 31
B. Application of Sale Proceeds . . . . . . . . . . . . . . . 32
C. Value of Pledged Property to be
Sufficient to Secure Bonds Then
Outstanding . . . . . . . . . . . . . . . . . . . . . . . . 32
XIII. Substitution of Collateral . . . . . . . . . . . . . . . . . . . 32
A. For Fair Market Value Only . . . . . . . . . . . . . . . . 33
B. Must Become Part of the Lien . . . . . . . . . . . . . . . 33
XIV. Condemnation of Property . . . . . . . . . . . . . . . . . . . . 33
A. Condemnation of All the Property . . . . . . . . . . . . . 33
B. Condemnation of a Portion of the Property . . . . . . . . . 33
<PAGE>
XV. Duties of Trustee, Paying Agent and Registrar . . . . . . . . . . 34
A. Trustee's Administrative Duties . . . . . . . . . . . . . . 34
B. Paying Agent's Duties . . . . . . . . . . . . . . . . . . . 35
C. Registrart's Duties . . . . . . . . . . . . . . . . . . . 36
XVI. Limitation of Trustee's Liability . . . . . . . . . . . . . . . . 36
XVII. Ancillary/Co-Trustee; Resignation and Removal;
Successor Trustee . . . . . . . . . . . . . . . . . . . . . . . . 39
A. Trustee May Appoint Ancillary and
Co-Trustees . . . . . . . . . . . . . . . . . . . . . . . . 39
B. Voluntary Resignation and Involuntary
Removal of Trustee . . . . . . . . . . . . . . . . . . . . 39
XVIII. Illegal Interest . . . . . . . . . . . . . . . . . . . . . . . . 42
XIX. Release of the Lien . . . . . . . . . . . . . . . . . . . . . . . 43
XX. Investment of Funds; Trustee's Fees . . . . . . . . . . . . . . . 43
A. Permitted Investments . . . . . . . . . . . . . . . . . . . 43
B. Base Fees of Trustee, Paying Agent and
Registrar . . . . . . . . . . . . . . . . . . . . . . . . . 43
C. Additional Fees to be Charged for
Extraordinary Services . . . . . . . . . . . . . . . . . . 43
XXI. Supplemental Indentures . . . . . . . . . . . . . . . . . . . . . 44
A. Not Requiring Bondholder Consent . . . . . . . . . . . . . 44
B. Requiring Bondholder Consent . . . . . . . . . . . . . . . 44
C. Requisites of Notice to Bondholders . . . . . . . . . . . . 45
D. Only Substantial Consent Required . . . . . . . . . . . . . 46
XXII. Bondholder Lists and Reports; Evidence
of Rights of Bondholders . . . . . . . . . . . . . . . . . . . . 46
A. Form of Bondholder Action . . . . . . . . . . . . . . . . . 46
B. Issuer Owned or Controlled Bonds to be
Disregarded . . . . . . . . . . . . . . . . . . . . . . . . 47
C. Third-Party Communiques to Bondholders . . . . . . . . . . 47
D. Bondholder Identities Not to be
Disclosed . . . . . . . . . . . . . . . . . . . . . . . . . 48
XXIII. Miscellaneous Provisions . . . . . . . . . . . . . . . . . . . . 48
iii
<PAGE>
TRUST INDENTURE
STATE OF ARIZONA
COUNTY OF MARICOPA
THIS TRUST INDENTURE made and entered into between THE BILTMORE
GROUP OF LOUISIANA, L.L.C., a Louisiana limited liability company, 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 5336 North 19th Avenue, Phoenix, Arizona
85015, 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 $9,900,000.00, hereinafter called the
"Bonds," secured, in accordance with the terms and provisions of this Trust
Indenture by a deed of trust(s) or mortgage(s) and security agreement(s),
hereinafter called the "Lien," recorded in the proper State and County or
Parish or other recording office, on and covering properties of Issuer more
Trust Indenture
Page 1 of 51
<PAGE>
described in such mortgage(s) or deed(s) of trust executed or 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 following projects:
(A)The Minden, Louisiana Project;
(B)The Sedona, Arizona Project;
(C)The Bastrop, Louisiana Project;
(D)The Natchitoches, Louisiana Project; and
(E)The Farmerville, Louisiana Project.
The Mortgage(s) and/or Deeds of Trust relative to each of the above-mentioned
projects as originally executed and as amended or modified, from time
to time, are incorporated herein by reference and made a part 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 pursuant to 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) The Bonds will be secured by a lien upon the property and
facility acquired with the proceeds of the bonds, as follows:
(1) Series 1999-I bonds in the amount of $1,800,000.00 will be
secured by the property comprising the Minden, Louisiana
facility;
(2) Series 1999-II bonds in the amount of $2,700,000.00 will be
secure by the property comprising the Sedona, Arizona
facility;
Trust Indenture
Page 2 of 51
<PAGE>
(3) Series 1999-III bonds in the amount of $1,800,000.00 will
be secured by the property comprising the Bastrop,
Louisiana facility;
(4) Series 1999-IV bonds in the amount of $1,800,000.00 will
be secured by the property comprising the Natchitoches,
Louisiana facility; and
(5) Series 1999-V bonds in the amount of $1,800,000.00 will be
secured by the property comprising the Farmerville,
Louisiana facility.
Notwithstanding the above, the Bonds are cross-collateralized to the
extent and at the option of Trustee as provided in Paragraph VIII(B) (5)
hereof.
(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 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.
Trust Indenture
Page 3 of 51
(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 1999-I Bonds (being used for the Minden,
Louisiana project) as follows:
(a) The Dealer's fee, commissions and related financing
costs 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 including attorney's fees incurred 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 $90,000.00 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 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.
(f) To reimburse Issuer pre-opening costs not to exceed
$75,000.00.
(g) To the Bond Reserve Account in the amount of
$140,000.00 for a period of time as disclosed in the offering circular
pursuant to which the bonds were sold.
(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
Trust Indenture
Page 4 of 51
<PAGE>
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 1999-II Bonds (being used for the Sedona,
Arizona as follows:
(a) The Dealer's fee, commissions and related financing
costs 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, including attorney's fees incurred 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 $125,000.00 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 loan secured by an equal parity
lien with the bonds owing to Church Loans & Investments Trust. Upon payment
of such obligations, Trustee shall be subrogated to the rights of the
prior owners thereof.
(e) The payment of a line of credit in the amount of
$189,000.00 used for interim loan interest costs and renovations.
(f) 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 1999-III Bonds (being used for the Bastrop,
Louisiana project) as follows:
Trust Indenture
Page 5 of 51
<PAGE>
(a) The Dealer's fee, commissions and related financing
costs 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, including attorney's fees incurred 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 $90,000.00 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 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.
(f) To reimburse Issuer pre-opening costs not to exceed
$75,000.00.
(g) To the Bond Reserve Account in the amount of
$140,000.00 for a period of time as disclosed in the offering circular
pursuant to which the bonds were sold.
(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.
(4) The Series 1999-IV bonds (being used for the Natchitoches,
Louisiana Project) as follows:
Trust Indenture
Page 6 of 51
<PAGE>
(a) The Dealer's fee, commissions and related financing
costs 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, including attorney's fees incurred 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 $90,000.00 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 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.
(f) To reimburse Issuer pre-opening costs not to exceed
$75,000.00.
(g) To the Bond Reserve Account in the amount of
$140,000.00 for a period of time as disclosed in the offering circular
pursuant to which the bonds were sold.
(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.
(5) The Series 1999-V bonds (being used for the Farmerville,
Louisiana Project) as follows:
Trust Indenture
Page 7 of 51
<PAGE>
(a) The Dealer's fee, commissions and related financing
costs 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, including attorney's fees incurred 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 $90,000.00 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 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.
(f) To reimburse Issuer pre-opening costs not to exceed
$75,000.00.
(g) To the Bond Reserve Account in the amount of
$140,000.00 for a period of time as disclosed in the offering circular
pursuant to which the bonds were sold.
(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:
Trust Indenture
Page 8 of 51
<PAGE>
(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 with all or any portion of the Net Bond Proceeds, Issuer shall
file with 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.
(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
Trust Indenture
Page 9 of 51
<PAGE>
be due for such labor performed or materials furnshed 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 therfor 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.
(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:
Trust Indenture
Page 10 of 51
<PAGE>
(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 or any series of Bonds:
(1) Before any disbursements are made by Trustee therefrom,
Issuer shall be obligated to pay and agrees promptly to pay all dealer's fees
due and expenses the broker/dealer assisting Issuer in the sale of the bonds
and any expenses incurred by the Trustee, including attorney's fees, in
regard to the offering, and Trustee shall return the gross bond proceeds to
the holders of such Bonds in full payment and redemption thereof.
(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 indemnities 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:
Trust Indenture
Page 11 of 51
(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;
(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
Trust Indenture
Page 12 of 51
<PAGE>
(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.
(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) In regard to the Series 1999-I, 1999-III, 1999-IV and 1999-V
offerings, Issuer agrees to maintain with the Trustee a
Trust Indenture
Page 13 of 51
Bond Reserve account funded in the amounts set forth above for the periods
disclosed in the offering circular pursuant to which the bonds were
sold, 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 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.
(3) In the event that there are not sufficient funds in the
Reserve Account to remedy any existing default in the payment of the sinking
fund payments required to pay the bonds and as a result, the total amount
owing on the bonds or a series of bonds has been accelerated, then the funds
held in the Reserve Account shall be held, administered and distributed for
the benefit of all bondholders whose bonds have been accelerated 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
Trust Indenture
Page 14 of 51
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 four series of bonds issued, the Trustee may
use any amount toward the payment of maturities of any of the five 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,
Trust Indenture
Page 15 of 51
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 or a series of bonds has been accelerated,
then the funds held in such accounts shall be held, administered and
distributed for the benefit of all bondholders where bonds have been
accelerated 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 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.
Trust Indenture
Page 16 of 51
<PAGE>
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 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
Trust Indenture
Page 17 of 51
<PAGE>
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. Notwithstanding anything herein to the contrary, n
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 withdraw
funds from any reserve account held in regard to the applicable facility
or the Trustee may 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 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
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<PAGE>
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;
(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.
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<PAGE>
(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 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
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<PAGE>
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 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
Trust Indenture
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<PAGE>
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, and as a result thereof, the Trustee has declared to be immediately
due and payable the principal balance and accrued interest of only the
unpaid Bonds in the Series in default and if the Issuer then fails to
pay said amount, then the Trustee may proceed to foreclose 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.
The rights contained herein, however, shall not prohibit the Trustee
from releasing any lien against any property upon the full payment of
the series of bonds secured by said property.
(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
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<PAGE>
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 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
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<PAGE>
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, 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
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<PAGE>
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 provisions) 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 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
Trust Indenture
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<PAGE>
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 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
Trust Indenture
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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 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).
Trust Indenture
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<PAGE>
IX.
PREPAYMENT PRIVILEGES
(A) If Issuer is not in default and upon thirty (30) days written
notice from the Issuer to the Trustee, accompanied by payment in full of all
moneys required to effect the redemption, the Bonds shall be subject to
redemption at any time in whole or in part (in such manner as the Trustee
deems appropriate) at the redemption price of 100% of the principal amount
redeemed plus accrued interest to the redemption date. Provided that
the Issuer has made available moneys to effect the redemption, the Trustee
shall give notice to the bondholders by first class mail at least fifteen
(15) days prior to the redemption date. After the redemption date, no
interest shall accrue on the Bonds. The Trustee shall pay the principal
and accrued interest on the Bonds to the holders thereof as soon as practical,
such payment to be made by check mailed by first class mail. All expenses
of redemption shall be paid by the Issuer.
(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) 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.
(D) Should Issuer deposit funds for the prepayment of outstanding
bonds in an amount which Trustee ultimately determines
Trust Indenture
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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 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.
(E) 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,
Trust Indenture
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<PAGE>
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.
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 of the
applicable original series, 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, bond, series or issue shall constitute
a default as to any and all other notes, bonds, 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
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<PAGE>
of the applicable lien and any applicable mortgage or deed of trust upon
the Property securing the series of bonds related to the offering of Additional
Bonds, 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
(c) The ratio of the total Outstanding series of Bonds
plus the Additional Bonds related thereto shall not exceed one hundred
percent (100%) of the capitalized cost of the applicable Property, inclusive
of any new construction or improvements thereon, to secure the payment of
the Bonds.
(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
purchase/or build the five projects referred to herein and any such interim
construction loans shall be secured in parity with lien securing the
applicable series of 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) Any consideration received other than cash for such conveyance
must be equal to or greater than the fair market value of the property
conveyed at the time of sale and becomes 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
Trust Indenture
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<PAGE>
prior to the Lien other than as agreed upon in writing between Issuer
and Trustee, or is applied as in (B);
(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
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such releases, partial releases and other legal documents as may be necessary
to do so, provided that:
(A) The fair market value of the substituted property shall 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 comprising a project, 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 comprising a project, 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
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<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, Issuer's organizational
documents, trust indenture, escrow instructions and agreement (if applicable),
commitment(s) for title insurance, policy(s) of title insurance or attorney's
title opinion, opinion(s) of counsel (if applicable), current fire and
extended coverage insurance policy(s), builder's risk insurance policy(s)
(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.
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<PAGE>
(3) Provide Issuer an amortization schedule(s) 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(s).
(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.
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<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)
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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.
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<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.
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<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.
(0) 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.
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(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,
individuals 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
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<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.
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(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
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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 and/or the offering circular to
retire a Series of Bonds, Trustee is authorized to execute a release of
the lien securing the series of bonds so retired 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
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<PAGE>
or Registrar be required to perform extraordinary services, it 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
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<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
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<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.
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(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 47 of 51
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 48 of 51
(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 49 of 51
<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 2nd day of October, 1998.
ISSUER:
THE BILTMORE GROUP OF LOUISIANA, L.L.C.
By:
------------------------------
JoAnne M. Caldwell-Bayles,
Managing Member
Colonial:
COLONIAL TRUST COMPANY, TRUSTEE
By:
------------------------------
Its Vice-President
Trust Indenture
Page 50 of 51
<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, Managing Member of The Biltmore Group
-----
of Louisiana, L.L.C., a Louisiana limited liability company.
----------------------------------
Notary Public, State of Louisiana
----------------------------------
Notary's Name, Printed or Typed
Trust Indenture
Page 51 of 51
EXHIBIT "A"
TRUSTEE, PAYING AGENT & BOND REGISTRAR/TRANSFER AGENT
SCHEDULE OF FEES
<PAGE>
AGREEMENT BETWEEN LIENHOLDERS
THIS AGREEMENT is made [DATE] , by and between [LENDING INSTITUTION]
------------ -------------------------
(hereinafter "Lender"), having a notice address at
- ------- -----------------
, COLONIAL TRUST COMPANY, as Trustee for the benefit
- -----------------------
of the Bondholders of The Biltmore Group of Louisiana, L.L.C. (hereinafter
"Trustee"), having a notice address at 5336 North 19th Avenue, Phoenix,
Maricopa County, Arizona 85015, and THE BILTMORE GROUP of Louisiana, L.L.C.
of 507 Trenton Street, West Monroe, Ouachita Parish, Louisiana 71291
(hereinafter "Borrower").
WHEREAS, Lender has committed to loan and intends to loan to Borrower
the sum of 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 located in or on the property described on Exhibit "A", 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 additional projects.
WHEREAS, the purpose of the Note is to provide interim financing for
the purposes of construction of the facility commonly referred to as
; and the Note is to be paid
- -------------------------------------
off from part of the proceeds of Borrower's Series offering of
--------
bonds relative to the project in the amount of $ ,
----------------- ------------
a bond offering in the
<PAGE>
total amount of $9,900,000.00 ("the bonds") to be made by Borrower through
MMR Investment Bankers, Inc. (hereinafter "MMR") and for which Trustee
has agreed to serve as the Indenture Trustee pursuant to a Trust Indenture
dated October 2, 1998' ("the Trust Indenture").
WHEREAS, pursuant to the Trust Indenture Borrower intends to issue a
total of $9,900,000.00 of first mortgage bonds of which Series
---------
in the amount of $ shall be used in regard to the
-------------- -------------
project, the balance of the bond proceeds of the $9,900,000.00
- ----------
offering are to be used for construction of the
-----------------------------
- ----------------------------------------------------------------------------
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, and such liens securing the bonds are also to be a first
lien of equal position and parity as the liens securing the Note;
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
-2-
<PAGE>
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 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 (10th) day of each
calendar month during the term hereof, or more often at the Trustee's
election, Trustee will deliver to Lender, via bank wire, 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 (6 months) not
to exceed $ , 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 $ . Borrower understands and agrees
-----------
that proceeds of the bonds 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
-3-
<PAGE>
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 unon 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 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
-4-
<PAGE>
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, 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.
-5-
<PAGE>
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 $ . In the event
-------------
that the total advances on the Note by Lender to Borrower for purposes of
Borrower's project does exceed $ , then such
---------------- -------------
advances made in excess of $ shall be second in priority to the
------------
first lien securing the bonds and the first $ 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
-6-
<PAGE>
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:
----------------
[NAME OF LENDER]
----------------------------
----------------------------
By:
-------------------------
COLONIAL TRUST COMPANY, as
Trustee for the benefit of the
Bondholders of The Biltmore
Group of Louisiana, L.L.C.
By:
-------------------------
Susan D. Carlisle, Vice President
THE BILTMORE GROUP OF LOUISIANA,
L.L.C., a Louisiana limited
liability Company
By:
-------------------------
JoAnne. M. Caldwell-BayleS,
Managing Member
The State of )
--------------------
)
County of )
----------------------
This instrument was acknowledged before me on the day of
-------
By Of
- ----------------- ------------------------- -------------------------
---------------------------------
Notary Public State of
-----------
-7-
<PAGE>
The State of Arizona )
)
County of Maricopa )
This instrument was acknowledged before me on the day of ,
------ -----------
by Susan D. Carlisle, Vice President of Colonial Trust Company, as Trustee
for the benefit of the Bondholders of The Biltmore Group of Lousisana, L.L.C.
------------------------------
Notary Public, State of Arizona
State of Louisiana )
)
Parish of )
----------
This instrument was acknowledged before me on the day of ,
------ ------------
by JoAnne M. Caldwell-Bayles, Managing Member of THE BILTMORE GROUP OF
LOUISIANA, L.L.C.
-----------------------------------
Notary Public, State of Louisiana
<PAGE>
EXHIBIT "A"
[LEGAL DESCRIPTON OF PROPERTY]
<PAGE>
BOBBY L. CULPEPPER
& ASSOCIATES
A PROFESSIONAL LAW CORPORATION 205 WEST ALABAMA
BOBBY L. CULPEPPER 525 EAST COURT AVENUE RUSTON, LA 71270
JONESBORO, LOUISIANA 71251-3497 318-251-0701
TERESA CULPEPPER CARROLL 318/259-4184
J. CLAY CARROLL FAX #318/259-6278 233 SOUTH GRAND
MONROE, LA 71201
PLEASE REFER ALL CORRESPONDENCE 318/325-3884
TO THE JONESBORO OFFICE
File# January 26, 1999
MMR Investment Bankers
550 North 159th Street East
P.0. Box 781440
Wichita, Kansas 67278-1440
Re: Authorization of $9,900,000.00 First Mortgage Bond Issue
Gentlemen:
The Biltmore Group of Louisiana L.L.C. (hereinafter called "company"),
is a duly organized and existing limited liability company 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 The Biltmore Group of Louisiana L.L.C.
Effective as of October 21, 1998, the members of the company signed
resolutions authorizing the issuance of up to $9,900,000.00 of first mortgage
bonds and the execution of certain instruments in connection with the bond
issue by Joanne Caldwell-Bayles, as manager.
I have duly examined the Articles of Organization and Operating Agreement
of the company and find that the resolutions passed effective October
21, 1998, 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,
Operating Agreement 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 $9,900,000.00 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 a lien on the company'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 Operating Agreement of the company:
<PAGE>
MMR Investment Bankers
Page 2
January 26, 1999
Name: Joanne Caldwell-Bayles
Title: Manager
I further certify that when the first mortgage bonds have been paid for
by the purchaser and signed by the manager, the first mortgage bonds will
be a legal and binding indebtedness of the company.
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 Operating Agreement 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 the 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: The Biltmore Group of Louisiana L.L.C.
THE AMERICAN INSTITUTE OF ARCHITECTS
[AIA LOGO]
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 TWENTY FIFTH day of AUGUST in the year of Nineteen
Hundred and NINETY-EIGHT
BETWEEN the Owner: THE BILTMORE GROUP, L.L.C.
(Name and address) 507 TRENTON STREET
WEST MONROE, LA 71291
and the Design/Builder:
(Name and address)
THE FORSYTHE GROUP, INC. SCENICLAND CONSTRUCTION, CO.
507 TRENTON STREET 131 SUNSET DR.
WEST MONROE, LA 71291 WEST MONROE, LA 71291
For the following Project:
(Include Project name, location and detailed description of scope.)
THE ARBOR RETIREMENT- 619 GERMANTOWN ROAD, MINDEN, LA. DESIGN AND COMPLETE
CONSTRUCTION ACCORDING TO PLANS AND SPECIFICATIONS DESIGNED BY THE FORSYTHE
GROUP, INC.; WITH ASSISTANCE OF ENGINEER FIRM; TAYLOR-WALLACE:CIVIC ENGINEER
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) Taylor-Wallace Designs, Inc.
Downsville, LA 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-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 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
Project and 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 lt 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
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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 l4 as part of Basic
Services, Basic Compensation shall be as follows:
FOUR HUNDRED TWENTY FIVE THOUSAND AND NO/100 (425,000.00) DOLLARS, WHICH
HAS BEEN PAID BY THE ISSUANCE OF LIMITED INTEREST IN THE BILTMORE GROUP,
L.L.C.
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:
CONSTRUCTION OF THE ARBOR RETIREMENT COMMUNITY LOCATED AT 619 GERMANTOWN ROAD,
MINDEN, LOUISIANA FOR THE FIXED SUM OF ONE MILLION, THREE HUNDRED, FIFTY
THOUSAND AND NO/100 (1,350,000). ANY AND ALL CHANGE ORDERS WILL BE IN WRITING.
13.2.2 FOR REIMBURSABLE EXPENSES, compensation shall be a multiple of N/A
( ) times the amounts expended.
13.3 INTEREST PAYMENTS
13.3.1 The rate of interest for past due payments shall be as follows: N/A
(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 AIA DOCUMENT A191, PART 2 OWNER-DESIGN/BUILDER AGREEMENT
PART 2-PAGE 10 FIRST EDITION AIA (c)1985 THE AMERICAN INSITITUTE 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 SEPTEMBER 15,
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:
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 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.)
PAYMENT OF BANK LEGAL INSPECTION FEES NOT TO EXCEED $3000.00.
This Part 2 entered into as of the day and year first written above.
OWNER DESIGN/BUILDER
THE BILTMORE GROUP L.L.C. THE FORSYTHE GROUP, INC.
- ----------------------------- ---------------------------------
BY:/S/JOANNE CALDWELL BAYLES BY /S/SONYA KILE, V.P.
- ----------------------------- ---------------------------------
MANAGING MEMBER SCENICLAND CONSTRUCTION, CO.
- ----------------------------- ---------------------------------
BY BY /S/FRED M BAYLES
--------------------------- -------------------------------
*APPLICATION FOR PAYMENT, APPROVED BY KARL MIKE WALLACE, P.E. ARE DUE AND
PAYABLE ON OR BEFORE THE 1ST DAY OF THE MONTH FOLLOWING.
AIA DOCUMENT A191, PART 2 OWNER-DESIGN/BUILDER AGREEMENT A191-1985
FIRST EDITION AIA 1985 THE AMERICAN INSTITUTE OF PART 2-PAGE 11
ARCHITECTS, 1735 NEW YORK AVENUE, N.W., WASHINGTON, D.C. 20006
THE AMERICAN INSTITUTE OF ARCHITECTS
[AIA LOGO]
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 ELEVENTH day Of NOVEMBER in the year of Nineteen
Hundred and NINETY-EIGHT.
BETWEEN the Owner: THE BILTMORE GROUP OF LOUISIANA, L.L.C.
(Name and address) 507 TRENTON STREET
WEST MONROE, LA 71291
and the Design/Builder:
(Name and address)
THE FORSYTHE GROUP, INC. SCENICLAND CONSTRUCTION, CO.
507 TRENTON STREET 131 SUNSET DR
WEST MONROE, LA 71291 WEST MONROE, LA 71291
For the following Project
(Include Project name, location and detailed description of scope.)
THE ARBOR RETIREMENT COMMUNITY IN BASTROP, LA (EXHIBIT A)
DESIGN AND COMPLETE CONSTRUCTION ACCORDING TO PLANS AND SPECIFICATIONS DESIGNED
BY THE FORSYTHE GROUP, INC.; WITH ASSISTANCE OF ENGINEER FIRM:
TAYLOR-WALLACE:CIVIC ENGINEER
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) Taylor-Wallace Designs, Inc.
Downsville, LA 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-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 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
Project and 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 lt 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
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YORK AVENUE, N.W. WASHINCTON, D.C. 20006
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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
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.
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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-
AIA DOCUMENT A191,Part 2, OWNER-DESIGN/BUILDER AGREEMENT A191-1985
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D.C. 20006
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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
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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 l4 as part of Basic
Services, Basic Compensation shall be as follows:
FOUR HUNDRED TWENTY FIVE THOUSAND AND NO/100 (425,000.00) DOLLARS, WHICH
HAS BEEN PAID BY THE ISSUANCE OF LIMITED INTEREST IN THE BILTMORE GROUP,
OF LOUISIANA L.L.C.
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:
CONSTRUCTION OF THE ARBOR RETIREMENT COMMUNITY LOCATED AT:
FOR THE FIXED SUM OF ONE MILLION, THREE HUNDRED FIFTY TWO
THOUSAND AND NO/100 (1,352,000.00). ANY AND ALL, CHANGE(S) ORDERS WILL BE IN
WRITING.
13.2.2 FOR REIMBURSABLE EXPENSES, compensation shall be a multiple of N/A
( ) times the amounts expended.
13.3 INTEREST PAYMENTS
13.3.1 The rate of interest for past due payments shall be as follows: N/A
(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 AIA DOCUMENT A191, PART 2 OWNER-DESIGN/BUILDER AGREEMENT
PART 2-PAGE 10 FIRST EDITION AIA (c)1985 THE AMERICAN INSITITUTE 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
and, subject to authorized adjustments and to delays not caused
by the Design/Builder, Substantial Completion shall be achieved in
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 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.)
This Part 2 entered into as of the day and year first written above.
OWNER DESIGN/BUILDER
THE BILTMORE GROUP OF LOUISIANA L.L.C. THE FORSYTHE GROUP, INC.
- ------------------------------------- --------------------------------
/S/SONYA KILE, V.P.
- ------------------------------------- --------------------------------
SCENICLAND CONSTRUCTION, CO.
- ------------------------------------- --------------------------------
BY /S/SUNSHINE GANTT BY /S/FRED M BAYLES
----------------------------- -----------------------------
*APPLICATION FOR PAYMENT, APPROVED BY KARL MIKE WALLACE, P.E. ARE DUE AND
PAYABLE BEFORE THE 1ST DAY OF THE MONTH FOLLOWING.
AIA DOCUMENT A191, PART 2 OWNER-DESIGN/BUILDER AGREEMENT A191-1985
FIRST EDITION AIA 1985 THE AMERICAN INSTITUTE OF PART 2-PAGE 11
ARCHITECTS, 1735 NEW YORK AVENUE, N.W., WASHINGTON, D.C. 20006
THE AMERICAN INSTITUTE OF ARCHITECTS
[AIA LOGO]
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 ELEVENTH day of NOVEMBER in the year of Nineteen
Hundred and NINETY-EIGHT.
BETWEEN the Owner: THE BILTMORE GROUP OF LOUISIANA, L.L.C.
(Name and address) 507 TRENTON STREET
WEST MONROE, LA 71291
and the Design/Builder:
(Name and address)
THE FORSYTHE GROUP, INC. SCENICLAND CONSTRUCTION, CO.
507 TRENTON STREET 131 SUNSET DR.
WEST MONROE, LA 71291 WEST MONROE, LA 71291
For the following Project:
(Include Project name, location and detailed description of scope.)
THE ARBOR RETIREMENT COMMUNITY IN FARMERVILLE, LA (EXHIBIT A)
DESIGN AND COMPLETE CONSTRUCTION ACCORDING TO PLANS AND SPECIFICATIONS DESIGNED
BY THE FORSYTHE GROUP, INC.; WITH ASSISTANCE OF ENGINEER FIRM:
TAYLOR-WALLACE-CIVIC ENGINEER.
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) Taylor-Wallace Designs, Inc.
Downsville, LA 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-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 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
Project and 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 lt 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-
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
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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
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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 l4 as part of Basic
Services, Basic Compensation shall be as follows:
FOUR HUNDRED TWENTY FIVE THOUSAND AND NO/100 (425,000.00) DOLLARS, WHICH
HAS BEEN PAID BY THE ISSUANCE OF LIMITED INTEREST IN THE BILTMORE GROUP,
OF LOUISANA L.L.C.
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:
CONTRUSTION OF THE ARBOR RETIREMENT COMMUNITY LOCATED AT:
FOR THE FIXED SUM OF ONE MILLION, THREE HUNDRED FIFTY TWO
THOUSAND AND NO/100 (1,352,000). ANY AND ALL CHANGE(S) ORDERS WILL BE IN
WRITING.
13.2.2 FOR REIMBURSABLE EXPENSES, compensation shall be a multiple of N/A
( ) times the amounts expended.
13.3 INTEREST PAYMENTS
13.3.1 The rate of interest for past due payments shall be as follows: N/A
(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 AIA DOCUMENT A191, PART 2 OWNER-DESIGN/BUILDER AGREEMENT
PART 2-PAGE 10 FIRST EDITION AIA (c)1985 THE AMERICAN INSITITUTE 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
and, subject to authorized adjustments and to delays not caused
by the Design/Builder, Substantial Completion shall be achieved in
( ) 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 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.)
This Part 2 entered into as of the day and year first written above.
OWNER DESIGN/BUILDER
THE BILTMORE GROUP OF LOUISIANA L.L.C. THE FORSYTHE GROUP, INC.
- ------------------------------------- --------------------------------
BY /S/SONYA KILE, V.P.
- ------------------------------------- --------------------------------
SCENICLAND CONSTRUCTION, CO.
- ------------------------------------- --------------------------------
BY /S/SUNSHINE GANTT BY /S/FRED M BAYLES
--------------------------- ------------------------------
*APPLICATION FOR PAYMENT, APPROVED BY KARL MIKE WALLACE, P.E. ARE DUE AND
PAYABLE ON OR BEFORE THE 1ST DAY OF THE MONTH FOLLOWING.
AIA DOCUMENT A191, PART 2 OWNER-DESIGN/BUILDER AGREEMENT A191-1985
FIRST EDITION AIA 1985 THE AMERICAN INSTITUTE OF PART 2-PAGE 11
ARCHITECTS, 1735 NEW YORK AVENUE, N.W., WASHINGTON, D.C. 20006
THE AMERICAN INSTITUTE OF ARCHITECTS
[AIA LOGO]
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 ELEVENTH day of NOVEMBER in the year of Nineteen
Hundred and NINETY-EIGHT.
BETWEEN the Owner: THE BILTMORE GROUP OF LOUISIANA, L.L.C.
(Name and address) 507 TRENTON ST.
WEST MONROE, LA 71291
and the Design/Builder:
(Name and address)
THE FORSYTHE GROUP, INC. SCENICLAND CONSTRUCTION, CO.
507 TRENTON ST. 131 SUNSET DR
WEST MONROE, LA 71291 WEST MONROE, LA 71291
For the following Project:
(Include Project name, location and detailed description of scope.)
THE ARBOR RETIREMENT COMMUNITY IN NATCHITOCHES, LA. (EXHIBIT A)
DESIGN AND COMPLETE CONSTRUCTION ACCORDING TO PLANS AND SPECIFICATIONS
DESIGNED BY THE FORSYTHE GROUP, INC.; WITH ASSISTANCE OF ENGINEER FIRM:
TAYLOR-WALLACE-CIVIC ENGINEER
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) Taylor-Wallace Designs, Inc.
Downsville, LA 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-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 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
Project and 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 lt 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
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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
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.
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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.
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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
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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 l4 as part of Basic
Services, Basic Compensation shall be as follows:
FOUR HUNDRED TWENTY FIVE THOUSAND AND NO/100 (425,000.00) DOLLARS, WHICH
HAS BEEN PAID BY THE ISSUANCE OF LIMITED INTEREST IN THE BILTMORE GROUP OF,
LOUISIANA L.L.C.
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:
CONTRUCTION OF THE ARBOR RETIREMENT COMMUNITY LOCATED AT
FOR THE FIXED SUM OF ONE MILLION, THREE HUNDRED FIFTY TWO THOUSAND AND
NO/100 (1,352,000). ANY AND ALL CHANGE(S) ORDERS WILL BE IN WRITING.
13.2.2 FOR REIMBURSABLE EXPENSES, compensation shall be a multiple of N/A
( ) times the amounts expended.
13.3 INTEREST PAYMENTS
13.3.1 The rate of interest for past due payments shall be as follows: N/A
(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 AIA DOCUMENT A191, PART 2 OWNER-DESIGN/BUILDER AGREEMENT
PART 2-PAGE 10 FIRST EDITION AIA (c)1985 THE AMERICAN INSITITUTE 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
and, subject to authorized adjustments and to delays not caused
by the Design/Builder, Substantial Completion shall be achieved in
( ) 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 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.)
This Part 2 entered into as of the day and year first written above.
OWNER DESIGN/BUILDER
THE BILTMORE GROUP OF LOUISIANA L.L.C. THE FORSYTHE GROUP, INC.
- --------------------------------------- ---------------------------------
BY /S/SONYA KILE, V.P.
- --------------------------------------- ---------------------------------
SCENICLAND CONSTRUCTION, CO.
- --------------------------------------- ---------------------------------
BY /S/SUNSHINE GANTT BY /S/FRED M BAYLES
------------------------------------- -------------------------------
*APPLICATION FOR PAYMENT, APPROVED BY KARL MIKE WALLACE, P.E. ARE DUE AND
PAYABLE ON OR BEFORE THE 1ST DAY OF THE MONTH FOLLOWING.
AIA DOCUMENT A191, PART 2 OWNER-DESIGN/BUILDER AGREEMENT A191-1985
FIRST EDITION AIA 1985 THE AMERICAN INSTITUTE OF PART 2-PAGE 11
ARCHITECTS, 1735 NEW YORK AVENUE, N.W., WASHINGTON, D.C. 20006
POST OFFICE BOX 2066
[LOGO OF FIRST REPUBLIC BANK] M0NROE, LOUISIANA 71207-2066
318-388-3990
1220 NORTH 18TH STREET
September 16, 1998
Mr. & Mrs. Fred Bayles
The Biltmore Group, L.L.C.
507 Trenton Street
West Monroe, LA 71291
Dear Joanne and Fred:
The attached draft Business Loan Agreement and Construction Loan Agreement will
serve as the basis for First Republic Bank's (FRB) construction loan on the
Biltmore's Minden project. Other terms or lending conditions not specifically
described in these agreements are as follows:
1. Loan Maturity will be one year from the date of closing
2. A variable interest rate at 1.45% over Wall Street Journal Prime
will be charged. If closed today, the initial rate would be 9.95%.
Interest is to be paid monthly.
3. An origination fee of $13,520 plus closing cost up to $3,000 for a
total of $16,520 are included in the loan amount of $1,368,520.
4. The initial disbursement will be used to payoff FRB loan #3009653
with a current principal balance of $202,000. This loan was
originally incurred for the purchase of the Minden site and start
up costs involving the Biltmore projects.
5. A limited guarantee of $500,000 each will be required from Joanne
Caldwell Bayles and The Forsythe Group, Inc.
6. An assignment of life insurance of $500,000 each from Fred Bayles
and Joanne Caldwell Bayles to FRB will be required.
7. A performance bond of $1,350,000 is in place through Patterson
Insurance Company of Shreveport for this construction project.
8. Title insurance in the amount of the loan is required.
9. Acceptable inter-creditor agreements are to be worked our among
First Republic Bank, The Biltmore Group, L.L.C., MMR Investment
Bankers, and Colonial Trust Company. Our legal representative is
Tom Allen, telephone number 318-322-9499, and he has been asked to
contact Mr. Morgan and Mr. Carroll.
10. FRB will hold a co-first lien on 5.72 acres in Webster Parish, LA with
Colonial Trust Company, as trustee for the benefit of the bondholders
of The Biltmore Group, LLC. FRB will retain as separate collateral
the 4.28 acres remaining on the Minden site along with other
security previously pledged by the Bayles' entities. It is not
anticipated that any title work or new recordings will be required
with this latter described category of collateral.
OFFICES LOCATED IN RAYVILLE - MONROE - WEST MONROE - RUSTON
MEMBER F.D.I.C. [EEO LENDER LOGO]
<PAGE>
The Biltmore Group, L.L.C.
Page 2
11. Borrower shall enter into, prior to closing, a Standard Owner's Fixed
Price Contract for the Minden Project, which is satisfactory to FRB.
12. FRB is agreeing to finance the Minden project to the extent noted in
these documents. It is recognized that Church Loan and Investments
will likely be the construction lender on the next three or four
projects involving the $9.9 million bond offering through MMR
The bank shall be furnished with any other such loan documentation as
it deems necessary for its protection and in order to document the loan
and to create and perfect the FRB's security interest in the collateral
for the loan. All such loan documentation is subject to review and acceptance
by bank's counsel.
This type financing is a new step for FRB and we look forward to working with
all the groups involved to successfully accomplish this undertaking. Please
contact me at 1-800-388-5510 if additional information is needed.
Sincerely,
/S/BILL CRAWFORD
William M. CRAWFORD
Executive Vice President
WMC/el
Enclosures
Copy to: Mr. Tom Allen
Mr. Jerry Martin
Mr. Gerald Morgan
Mr. Clay Carroll
<PAGE>
The Forsythe Group, Inc.
TO WHOM IT MAY CONCERN
In the event the proceeds from the sale of the Bonds for the Minden,
Louisiana Arbor, owned by The Biltmore Group, L.L.C. are insufficient
to retire the Construction Loan at their maturities, then The Forsythe
Group, Inc., will purchase the Construction Lender's loan and will give
the Company the option of renewing and extending the Construction Loan
into permanent loan amortized over thirteen years subject to the Company
being current on all its outstanding debt obligations.
Joanne M. Caldwell-Bayles
President
/s/JOANNE M CALDWELL-BAYLES
------------------------------
2-5-99
507 Trenton Street West Monroe, Louisiana 71291 (318) 323-2115
Fax (318) 323-6281
<PAGE>
CHURCH LOANS & INVESTMENTS TRUST
(A Real Estate Investment Trust)
October 26, 1998
The Biltmore Group of Louisiana, L.L.C.
507 Trenton
W. Monroe, LA 71291
Re: $1,220,000 Interim Loan (Bastrop, LA)
Gentlemen:
This will constitute the commitment of Church Loans & Investments Trust
("Church Loans") to loan to The Biltmore Group, W. Monroe, LA ("Borrower")
the sum of $1,220,000, 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 1.5% 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.
The loan will be repaid from the first bond proceeds subject only to
the payment of various broker/dealer fees.
Funds advanced upon this loan will be used to construct an assisted care
facility located on the north side of Cooper Lake Rd, at intersection of Boswell
and Nancy, Bastrop Louisiana.
5305 I-40 West PO Box 8203 Amarillo, TX 79114-8203
(806)358-3666 (800)692-1111 Fax (806)358-1430
<PAGE>
The Biltmore Group, L.L.C.
W. Monroe, LA
October 26, 1998
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% (two
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. $12,200.00) 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 $2,500.00 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>
The Biltmore Group, L.L.C.
W. Monroe, LA
October 26, 1998
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 $1,800,000 of which the first proceeds after
the payment of the expenses of the offering and an initial sinking
fund reserve of $90,000.00 shall be used to retire 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 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.
10. That the loan be closed on or before sixty days from the date hereof.
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.
13. That a representative of Church Loans conduct an on-site inspection
of the property to be given by the Borrower to secure the loan.
The expense of this inspection shall be borne by the Borrower.
3
<PAGE>
The Biltmore Group, L.L.C.
W. Monroe, LA
October 26, 1998
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 $1,260,000. No changes
or modifications will be made to this contract without the expressed
written consent of Church Loans. Construction draws will be
processed once each month using normal and customary AIA Construction
Progress Draw forms.
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>
The Biltmore Group, L.L.C.
W. Monroe, LA
October 26, 1998
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 December 26, 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 Biltmore Group of Louisiana, L.L.C., W. Monroe, LA.
Date: 11-9-98
----------
The Biltmore Group of Louisiana L.L.C.
- ---------------------------------- -------------------------------------
by /S/Joanne Caldwell-Bayles
- ---------------------------------- -------------------------------------
Managing Member
- ---------------------------------- -------------------------------------
5
<PAGE>
CHURCH LOANS & INVESTMENTS TRUST
(Real Estate Investment Trust)
January 27, 1999
The Biltmore, Group of Louisiana, LLC
Attn: Joanne Caldwell-Bayles
507 Trenton St
West Monroe, LA 71291
Re: Bastrop, LA Project
Dear Mrs. Caldwell-Bayles:
Reference is made to the loan agreement made by Church Loans & Investments
Trust ("Church Loans") to The Biltmore Group of Louisiana, LLC ("Borrower")
FBO: Bastrop, LA dated November 24, 1998. This will serve as an addendum
to that original loan agreement.
The addendum is as follows:
1. That should the proceeds from the sale of the bonds through MMR
Investment Bankers ("MMR") and other participating broker/dealers,
after the payment of the expenses associated with the bond offering
and the establishment of the first six months sinking fund
reserve, be insufficient to pay the unpaid principal and interest
upon the loan committed herein at its maturity, at the option of
the Borrower the term of said loan shall be renewed and extended by
Church Loans as follows:
(a) The term of the loan shall be initially renewed and
extended for an additional period of one (1) year upon the
following terms and conditions:
(1) The Borrower shall be current upon all of its
outstanding debt obligations, to include, but not
necessarily restricted to all sinking fund payments
payable to the trustee in correction with the bonds
to be offered through MMR and other participating
broker/dealers, and all interest payments upon the
loan to be made by Church Loans to the Borrower
under the terms of this commitment.
5305 1-40 West PO Box 8203 Amarillo, TX 79114-8203
(806)358-3666 (800)682-1111 Fax (806)358-1430
<PAGE>
The Biltmore Group of Louisiana, LLC
Attn: Joanne Caldwell-Bayles
West Monroe, LA
January 27, 1999
Page 2
(2) The amount of the loan to be renewed and extended
shall be the lesser of (i) the unpaid principal upon
the loan committed herein at maturity, or (ii) the
unpaid principal amount of all unsold bonds offered
through MMR and other participating broker/dealers
described above. Any principal amount of the loan
in excess of the amount of the unsold bonds must be
paid in full by Borrower.
(3) The interest rate upon the loan shall be at a
variable rate equal to 2% per annum in excess of the
"Prime Rate" of interest published by the Wall Street
Journal under the heading "Money Rates".
(4) The interest upon the unpaid principal balance of
the loan shall be payable monthly.
(5) The principal upon the loan shall be paid on or
before one year from date.
(6) The Borrower shall pay Church Loans a loan extension
fee equal to 2% (2 points) of the principal amount
of the loan.
(7) The total amount of the loan extended and the sold
bonds shall not exceed 66 2/3% of the appraised
market value of the collateral.
(b) If on the maturity of the one year extension, November 1,
2000, should the proceeds from the sale of the bonds to be
offered by the Borrower through MMR and other participating
broker/dealers be insufficient to pay the unpaid principal
and interest upon the loan, then, at the option of the
Borrower, the principal amount of the loan extended in
regard to the Bastrop issue, shall be renewed and extended
by Church Loans into a permanent loan upon the following
terms and conditions:
(1) The Borrower shall be current upon all of its
outstanding debt obligations, to include, but not
necessarily restricted to all sinking fund payments
payable to the trustee in connection with the bonds
to be offered through MMR and other participating
broker/dealers, and all interest payments upon the
loan to be made by Church Loans to the Borrower
under the terms of this commitment.
<PAGE>
The Biltmore Group of Louisiana, LLC
Attn: Joanne Caldwell-Bayles
West Monroe, LA
January 27, 1999
Page 3
(2) The permanent loan shall bear interest at the same
rate as described in paragraph (a) (3) above.
(3) The amount of the permanent loan shall be payable in
equal, or as equal as possible due to the variable
rate of interest on the loan, monthly installments of
principal and interest over a period of thirteen
years, however, the loan shall be due and payable in
full, with interest, at the date of the final
maturity of the bonds. Borrower shall have the right
of the Borrower to prepay the loan at any time
without penalty.
(4) The Borrower shall pay to Church Loans an additional
loan renewal fee equal to 5% (5 points) of the
principal amount of the permanent loan.
(5) The loan shall continue to be secured on an equal
basis with the outstanding bonds to be issued by the
Borrower through MMR and other participating
broker/dealers upon all property to be given by the
Borrower to secure the loan committed herein.
(6) The total amount of the loan and sold bonds shall
not exceed 66 2/3% of the appraised market value of
the property.
(c) Until such time as the loans committed herein are paid in
full, the Borrower shall not further encumber the property
securing the payment of said loans, either by placing
additional mortgages or deeds of trust upon said property,
or by increasing the indebtedness of the Borrower under any
Trust Indenture, mortgage or deed of trust or other security
documents associated with the sale of bonds secured by
said property, Should the Borrower additionally encumber
the property securing the loans committed hereby prior to
their payment in full, Church Loans shall have the right
to declare the unpaid principal and interest upon said loans
immediately due and payable upon thirty days notice to the
Borrower.
(d) The term "bonds" as used herein shall mean and refer to the
series of bonds dedicated to the Bastrop, Louisiana project.
<PAGE>
The Biltmore Group of Louisiana, LLC
Attn: Joanne Caldwell-Bayles
West Monroe, LA
January 27, 1999
Page 4
The acceptance of this addendum must be indicated by the Borrower's signing
and returning the original copy of this letter within fifteen (15) days
from the date hereof.
Sincerely yours,
/S/KELLY ARCHER
Kelly Archer
Manager of Operations
The above addendum has been agreed to and accepted by the undersigned
Managing Member of The Biltmore Group of Louisiana, LLC.
Date:
----------------
- ------------------------------- -------------------------------
- ------------------------------- -------------------------------
<PAGE>
Church Loans & Investments Trust
(A Real Estate Investment Trust)
January 27, 1999
The Biltmore Group of Louisiana, LLC
FBO: Farmerville, LA
507 Trenton St
W. Monroe, LA 71291
Re: $1,330,000 Interim Loan
Gentlemen:
This will constitute the commitment of Church Loans & Investments Trust
("Church Loans") to loan to The Biltmore Group of Lousiana, LLC FBO:
Farmerville, LA ("the Borrower") the sum of $1,330,000, or any amount less
than that amount as the Borrower may need, less any legal fees, 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 at a variable
rate which would be equal to 1.5% per annum in excess of the "Prime
Rate" of interest published by the Wall Street Journal under the heading
"Money Rates". Interest upon the unpaid principal shall be paid monthly
upon the first day of each month during the term of the loan. Both principal
and interest upon the unpaid principal of the loan will be due at maturity.
The loan will be repaid from the first bond proceeds subject only to
(1) the payment of various broker/dealer fees and (2) an initial sinking
fund reserve of $90,000.
Funds advanced upon this loan would be used to construct an assisted
care facility located on the west side of Louisiana Highway 33, Farmerville,
LA.
5305 I-40 West PO Box 8203 Amarillo TX 79114-8203
(806)358-3666 (800)692-1111 Fax (806)358-1430
<PAGE>
The Biltmore Group of Louisiana, LLC
FBO: Farmerville, LA
January 27, 1999
Page 2
This commitment shall be subject to the following conditions:
1. That the Borrower pay to Church Loans upon the acceptance of the
commitment 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. $16,625.00) 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 letter 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 in 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 $2,500.00 which are the
legal fees to be incurred by Church Loans in connection with the
loan. This amount should be remitted with this signed commitment
letter.
4. That the loan shall be secured by a first mortgage lien upon all
the Borrower's existing buildings and facilities.
<PAGE>
The Biltmore Group of Louisiana, LLC
FBO: Farmerville, LA
January 27, 1999
Page 3
5. 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 designated by 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 2 above.
6. 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
must 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.
7. 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 of not less than $1,800,000 of which the first proceeds
after the payment of the expenses of the offering and an initial
sinking fund reserve of $90,000 shall be used to retire 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.
8. 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.
9. That the loan be closed on or before sixty days from the date
hereof.
10. 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.
<PAGE>
The Biltmore Group of Louisiana, LLC
FBO: Farmerville, LA
January 27, 1999
Page 4
11. That Church Loans must review and approve all legal documents prior
to closing.
12. That a representative of Church Loans conduct an on-site inspection
of the property to be given by the Borrower to secure the loan.
The expense of this inspection shall be borne by the Borrower.
13. That the Borrower enter into a loan agreement incorporating the
terms and conditions of this commitment as well as other normal
terms of the Church Loans loan agreement.
14. That should the proceeds from the sale of the bonds through MMR and
other participating broker/dealers, after the payment of the expenses
associated with the bond offering and the establishment of the
first six months sinking fund reserve, be insufficient to pay the
unpaid principal and interest upon the loan committed herein at its
maturity, at the option of the Borrower the term of said loan shall
be renewed and extended by Church Loans as follows:
(a) The term of the loan shall be initially renewed and extended
for an additional period of one (1) year upon the following
terms and conditions:
(1) The Borrower shall be current upon all of its
outstanding debt obligations, to include, but not
necessarily restricted to all sinking fund payments
payable to the trustee in connection with the bonds to
be offered through MMR, and all interest payments upon
the loan to be made by Church Loans to the Borrower
under the terms of this commitment.
(2) The amount of the loan to be renewed and extended shall
be the lesser of (i) the unpaid principal upon the loan
committed herein at maturity, or (ii) the unpaid
principal amount of all unsold bonds offered through
MMR described above.
(3) The interest rate upon the loan shall be at a variable
rate equal to 1.5% per annum in excess
<PAGE>
The Biltmore Group of Louisiana, LLC
FBO: Farmerville, LA
January 27, 1999
Page 5
of the "Prime Rate" of interest published by the Wall
Street Journal under the heading "Money Rates".
(4) The interest upon the unpaid principal balance of the
loan shall be payable monthly.
(5) The principal upon the loan shall be paid on or before
one year from date.
(6) The Borrower shall pay Church Loans a loan extension
fee equal to 2.5% (two and one-half percent) of the
principal amount of the loan.
(b) If on the maturity of the loan described in paragraph 11 (a)
above, less than all of the bonds to be offered by the
Borrower through MMR have been sold, at the option of the
Borrower, the principal amount of all unsold bonds shall be
renewed and extended by Church Loans into a permanent loan
upon the following terms and conditions;
(1) The Borrower shall be current upon all of its
outstanding debt obligations, to include, but not
necessarily restricted to all sinking fund payments
payable to the trustee in connection with the bonds to
be offered through MMR, and all interest payments upon
the loan to be made by Church Loans to the Borrower
under the terms of this commitment.
(2) The permanent loan shall bear interest at the same rate
as described in paragraph 11 (a) above.
(3) The amount of the permanent loan shall be payable in
equal, or as equal as possible due to the variable rate
of interest on the loan, monthly installments of
principal and interest over a period of thirteen years,
however, the loan shall be due and payable in full,
with interest, at the date of the final maturity of the
bonds. Borrower shall have the right of the Borrower to
prepay the loan at any time without penalty.
<PAGE>
The Biltmore Group of Louisiana, LLC
FBO: Farmerville, LA
January 27, 1999
Page 6
(4) The Borrower shall pay to Church Loans an additional
loan renewal fee equal to 5% (5 points) of the
principal amount of the permanent loan.
(5) The loan shall continue to be secured on an equal basis
with the outstanding bonds to he issued by the Borrower
through MMR upon all property to be given by the
Borrower to secure the loan committed herein.
(c) Until such time as the loans committed herein are paid in
full, the Borrower shall not further encumber the property
securing the payment of said loans, either by placing
additional mortgages or deeds of trust upon said property, or
by increasing the indebtedness of the Borrower under any
Trust Indenture, mortgage or deed of trust or other security
documents associated with the sale of bonds secured by said
property. Should the Borrower additionally encumber the
property securing the loans committed hereby prior to their
payment in full, Church Loans shall have the right to declare
the unpaid principal and interest upon said loans immediately
due and payable upon thirty days notice to the Borrower.
(d) The term "bonds" as used herein shall mean and refer to the
series of bonds dedicated to the Farmerville, Louisiana
project.
The acceptance of this commitment must be indicated by the Borrower's
signing and returning the original of this commitment letter within ten
(10) 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 legal fees, premiums for the purchase of title
insurance, appraisal costs and other closing costs which are to he paid
which are associated with the loan. This commitment is conditioned upon
the loan being closed on or before March 27, 1999. Any extension of this
commitment will be subject to terms which may he mutually agreed upon
at the time of extension.
<PAGE>
The Biltmore Group of Louisiana, LLC
FBO: Farmerville, LA
January 27, 1999
Page 7
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
Managing Member of The Biltmore Group of Louisiana, LLC.
Date:
------------------
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- ----------------------------- -----------------------------
<PAGE>
Church Loans & Investment Trust
(A Real Estate Investment Trust)
January 27, 1999
The Biltmore Group of Louisiana, LLC
FBO: Natchitoches, LA
507 Trenton St
W. Monroe, LA 71291
Re: $1,450,000 Interim Loan
Gentlemen:
This will constitute the commitment of Church Loans & Investments Trust
("Church Loans") to loan to The Biltmore Group of Louisiana, LLC FBO:
Natchitoches, LA ("the Borrower") the sum of $1,450,000, or any amount
less than that amount as the Borrower may need, less any legal fees, 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 at a variable
rate which would be equal to 1.5% per annum in excess of the "Prime Rate"
of interest published by the Wall Street Journal under the heading "Money
Rates". Interest upon the unpaid principal shall be paid monthly upon
the first day of each month during the term of the loan. Both principal
and interest upon the unpaid principal of the loan will be due at maturity.
The loan will be repaid from the first bond proceeds subject only to
(1)the payment of various broker/dealer fees and (2)an initial sinking
fund reserve of $90,000.
Funds advanced upon this loan would be used to construct an assisted
care facility on 4 acres located on Louisiana Highway 1 Bypass, Natchitoches,
LA.
5305 I-40 West PO Box 8203 Amarillo TX 79114-8203
(806)358-3666 (800)692-1111 Fax (806)358-1430
<PAGE>
The Biltmore Group of Louisiana, LLC
FBO: Natchitoches, LA
January 27, 1999
Page 2
This commitment shall be subject to the following conditions:
1. That the Borrower pay to Church Loans upon the acceptance of the
commitment 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 for (ie. $18,125.00) 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 letter 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 in 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 $2,500.00 which are the
legal fees to be incurred by Church Loans in connection with the
loan. This amount should be remitted with this signed commitment
letter.
4. That the loan shall be secured by a first mortgage lien upon all
the Borrower's existing buildings and facilities.
<PAGE>
The Biltmore Group of Louisiana, LLC
FBO: Natchitoches, LA
January 27, 1999
Page 3
5. 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 designated by 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 2 above.
6. 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
must 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.
7. 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 of not less than $1,800,000 of which the first proceeds
after the payment of the expenses of the offering and an initial
sinking fund reserve of $90,000 shall be used to retire 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.
8. 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.
9. That the loan be closed on or before sixty days from the date
hereof.
10. 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.
<PAGE>
The Biltmore Group of Louisiana, LLC
FBO: Natchitoches, LA
January 27, 1999
Page 4
11. That Church Loans must review and approve all legal documents
prior to closing.
12. That a representative of Church Loans conduct an on-site
inspection of the property to be given by the Borrower to
secure the loan. The expense of this inspection shall be
borne by the Borrower.
13. That the Borrower enter into a loan agreement incorporating the
terms and conditions of this commitment as well as other normal
terms of the Church Loans loan agreement.
14. That should the proceeds from the sale of the bonds through MMR
and other participating broker/dealers, after the payment of the
expenses associated with the bond offering and the establishment
of the first six months sinking fund reserve, be insufficient to
pay the unpaid principal and interest upon the loan committed
herein at its maturity, at the option of the Borrower the term
of said loan shall be renewed and extended by Church Loans as
follows:
(a) The term of the loan shall he initially renewed and extended
for an additional period of one (1) year upon the following
terms and conditions:
(1) The Borrower shall be current upon all of its outstanding
debt obligations, to include, but not necessarily
restricted to all sinking fund payments payable to the
trustee in connection with the bonds to be offered
through MMR, and all interest payments upon the loan to
be made by Church Loans to the Borrower under the terms
of this commitment.
(2) The amount of the loan to be renewed and extended shall
be the lesser of (i) the unpaid principal upon the loan
committed herein at maturity, or (ii) the unpaid
principal amount of all unsold bonds offered through
MMR described above.
(3) The interest rate upon the loan shall be at a variable
rate equal to 1.5% per annum in excess of the "Prime
Rate" of interest published by
<PAGE>
The Biltmore Group of Louisiana, LLC
PBO: Natchitoches, LA
January 27, 1999
Page 5
the Wall Street Journal under the heading "Money Rates".
(4) The interest upon the unpaid principal balance of the
loan shall be payable monthly.
(5) The principal upon the loan shall be paid on or before
one year from date.
(6) The Borrower shall pay Church Loans a loan extension fee
equal to 2.5% (two and one-half percent) of the principal
amount of the loan.
(b) If on the maturity of the loan described in paragraph 11 (a)
above, less than all of the bonds to be offered by the
Borrower through MMR have been sold, at the option of the
Borrower, the principal amount of all unsold bonds shall be
renewed and extended by Church Loans into a permanent loan
upon the following terms and conditions;
(1) The Borrower shall be current upon all of its outstanding
debt obligations, to include, but not necessarily
restricted to all Sinking fund payments payable to the
trustee in connection with the bonds to be offered
through MMR, and all interest payments upon the loan to
be made by Church Loans to the Borrower under the terms
of this commitment.
(2) The permanent loan shall bear interest at the same rate
as described in paragraph 11 (a) above.
(3) The amount of the permanent loan shall be payable in
equal, or as equal as possible due to the variable rate
of interest on the loan, monthly installments of
principal and interest over a period of thirteen years,
however, the loan shall be due and payable in full, with
interest, at the date of the final maturity of the bonds.
Borrower shall have the right of the Borrower to prepay
the loan at any time without penalty.
<PAGE>
The Biltmore Group of Louisiana, LLC
FBO: Natchitoches, LA
January 27, 1999
Page 6
(4) The Borrower shall pay to Church Loans an additional loan
renewal fee equal to 5% (5 points) of the principal
amount of the permanent loan.
(5) The loan shall continue to be secured on an equal basis
with the outstanding bonds to be issued by the Borrower
through MMR upon all property to be given by the
Borrower to secure the loan committed herein.
(c) Until such time as the loans committed herein are paid in
full, the Borrower shall not further encumber the property
securing the payment of said loans, either by placing
additional mortgages or deeds of trust upon said property,
or by increasing the indebtedness of the Borrower under any
Trust Indenture, mortgage or deed of trust or other security
documents associated with the sale of bonds secured by said
property. Should the Borrower additionally encumber the
property securing the loans committed hereby prior to their
payment in full, Church Loans shall have the right to declare
the unpaid principal and interest upon said loans immediately
due and payable upon thirty days notice to the Borrower.
(d) The term "bonds" as used herein shall mean and refer to the
series of bonds dedicated to the Natchitoches, Louisiana
project.
The acceptance of this commitment must be indicated by the Borrower's
signing and returning the original of this commitment letter within ten
(10) 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 legal fees, 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 March 27, 1999. Any extension of this
commitment will be subject to terms which may be mutually agreed upon
at the time of extension.
<PAGE>
The Biltmore Group of Louisiana, LLC
FBO: Natchitoches, LA
January 27, 1999
Page 7
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
Managing Member of The Biltmore Group of Louisiana, LLC.
Date:
-----------------
- ----------------------------- -----------------------------
- ----------------------------- -----------------------------
<PAGE>
Church Loans & Investments Trust
(A Real Estate Investment Trust)
January 27, 1999
The Biltmore Group of Louisiana, LLC
Attn: Joanne Caldwell-Bayles
507 Trenton St
West Monroe, LA 71291
Re: Sedona, AZ Project
Dear Mrs. Caldwell-Bayles:
Reference is made to the loan agreement made between Church Loans & Investments
Trust ("Church Loans") and The Biltmore Group of Louisiana, LLC ("Borrower")
FBO: Sedona, AZ dated October 16, 1998, This will serve as an addendum
to that loan agreement.
The addendum is as follows:
1. That should the proceeds from the sale of the bonds through MMR
Investment Bankers ("MMR") and other participating broker/dealers,
after the payment of the expenses associated with the bond offering
and the establishment of the first six months sinking fimd reserve,
be insufficient to pay the unpaid principal and interest upon the
loan committed herein at its maturity, at the option of the
Borrower the term of said loan shall be renewed and extended by
Church Loans as follows:
(a) The term of the loan shall be initially renewed and
extended for an additional period of one (1) year upon the
following terms and conditions:
(1) The Borrower shall be current upon all of its
outstanding debt obligations, to include, but not
necessarily restricted to all sinking fund payments
payable to the trustee in connection with the bonds
to be offered through MMR and other participating
broker/dealers, and all interest payments upon the
loan to be made by Church Loans to the Borrower under
the terms of this commitment.
5305 1-40 West PO Box 8203 Amarillo,TX 79114-8203
(806)358-3666 (800)692-1111 Fax (806)358-1430
<PAGE>
The Biltmore Group of Louisiana, LLC
Attn: Joanne Caldwell-Bayles
West Monroe, LA
January 27, 1999
Page 2
(2) The amount of the loan to be renewed and extended
shall be the lesser of (i) the unpaid principal upon
the loan committed herein at maturity, or (ii) the
unpaid principal amount of all unsold bonds offered
through MMR and other participating broker/dealers
described above. Any principal amount of the loan
in excess of the amount of the unsold bonds must be
paid in full by Borrower.
(3) The interest rate upon the loan shall be at a
variable rate equal to 2% per annum in excess of the
"Prime Rate" of interest published by the Wall Street
Journal under the heading "Money Rates".
(4) The interest upon the unpaid principal balance of
the loan shall be payable monthly.
(5) The principal upon the loan shall be paid on or
before one year from date.
(6) The Borrower shall pay Church Loans a loan extension
fee equal to 2% (2 points) of the principal amount of
the loan.
(7) The total amount of the loan extended and the sold
bonds shall not exceed 66 2/3% of the appraised
market value of the collateral.
(b) If on the maturity of the one year extension, May 1, 2000,
should the proceeds from the sale of the bonds to be
offered by the Borrower through MMR and other participating
broker/dealers be insufficient to pay the unpaid principal
and interest upon the loan, then, at the option of the
Borrower, the principal amount of the loan extended in
regard to the Sedona issue, shall be renewed and extended
by Church Loans into a permanent loan upon the following
terms and conditions:
(1) The Borrower shall be current upon all of its
outstanding debt obligations, to include, but not
necessarily restricted to all sinking fund payments
payable to the trustee in connection with the bonds
to be offered through MMR and other participating
broker/dealers, and all interest payments upon the
loan to be made by Church Loans to the Borrower
under the terms of this commitment.
<PAGE>
The Biltmore Group of Louisiana, LLC
Attn: Joanne Caldwell-Bayles
West Monroe, LA
January 27, 1999
Page 3
(2) The permanent loan shall bear interest at the same
rate as described in paragraph (a) (3) above.
(3) The amount of the permanent loan shall be payable
in equal, or as equal as possible due to the
variable rate of interest on the loan, monthly
installments of principal and interest over a
period of thirteen years, however, the loan shall
be due and payable in full, with interest, at the
date of the final maturity of the bonds. Borrower
shall have the right of the Borrower to prepay the
loan at any time without penalty.
(4) The Borrower shall pay to Church Loans an additional
loan renewal fee equal to 5% (5 points) of the
principal amount of the permanent loan.
(5) The loan shall continue to be secured on an equal
basis with the outstanding bonds to be issued by the
Borrower through MMR and other participating
broker/dealers upon all property to be given by the
Borrower to secure the loan committed herein.
(6) The total amount of the loan and sold bonds shall
not exceed 66 2/3% of the appraised market value of
the property.
(c) Until such time as the loans committed herein are paid in
full, the Borrower shall not further encumber the property
securing the payment of said loans, either by placing
additional mortgages or deeds of trust upon said property,
or by increasing the indebtedness of the Borrower under any
Trust Indenture, mortgage or deed of trust or other security
documents associated with the sale of bonds secured by
said property. Should the Borrower additionally encumber
the property securing the loans committed hereby prior to
their payment in full, Church Loans shall have the right to
declare the unpaid principal and interest upon said loans
immediately due and payable upon thirty days notice to the
Borrower.
(d) The term "bonds" as used herein shall mean and refer to the
series of bonds dedicated to the Sedona, Arizona project.
<PAGE>
The Biltmore Group of Louisiana, LLC
Attn: Joanne Caldwell-Bayles
West Monroe, LA
January 27, 1999
Page 4
The acceptance of this addendum must be indicated by the Borrower's signing
and returning the original copy of this letter within fifteen (15) days
from the date hereof.
Sincerely yours,
/S/KELLY ARCHER
Kelly Archer
Manager of Operations
The above addendum has been agreed to and accepted by the undersigned
Managing Member of The Biltmore Group of Louisiana, LLC.
Date:
-----------------
- ----------------------------- -----------------------------
- ----------------------------- -----------------------------
<PAGE>
MANAGEMENT AGREEMENT
This agreement is entered into this th day of , between
--- --------------
(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
--------------------------------------------
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
Located in :
---------------------------------------------------------------
- ----------------------------------------------------------------------------
In consideration of the terms conditions and covenants hereinafter set
forth, the Owner and the Agent mutually agree as follows:
SECTION 101 DEFINITIONS:
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...
---------------
-------------------------------------------------------------------
101.2 "Gross Collections" shall mean all amounts actually collected by
the Agent, as tenant rents, income from commercial space, community
fees and other miscellaneous charges, but excluding
(i) 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 said 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, and the Agent hereby accepts appointments,
on the terms and conditions hereinafter
<PAGE>
provided, as exclusive management agent of the Project.
SECTION 301 LEFT BLANK ON PURPOSE
SECTION 401 CONFER WITH OWNER, LENDER
The Agent agrees to keep itself informed on the applicable lender policies and
requirements, and, notwithstanding the authority given to the Agent in this
agreement, to confer fully and freely with the Owner, and the lender in the
performance of its duties hereunder.
SECTION 501 MEETING WITH OWNER AND THE AGENT
The Agent agrees to cause an officer of the Agent to attend meetings with the
Owner at any time or times requested by the Owner.
SECTION 601 PERSONNEL OF 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 for the services of all on-site
employees, including the Director, shall be included as operating
expenses of the Project.
The Agent shall develop a staffing plan which is sensitive to tenant
occupancy and the level of service to be provided. The Agent will be
responsible for developing and implementing orientation and training
for all on-site employees.
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.
<PAGE>
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 procedures 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,
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. (e.g., maintenance,
preventive maintenance, 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 protecting inventory
<PAGE>
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 generate timely
information regarding cash flow, as well as 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.
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 electrical, 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
<PAGE>
written procedures and schedules. The Agent shall develop a
preventive maintenance schedule including, but not limited to
periodic inspections 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, operation and maintenance of the Project, including
any damage or destruction of the Project and 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 and to receive and give receipt for
notices and demands. A notice containing such information shall
be posted in a conspicuous place on the premises.
701.09 Service Requests of Tenants. The Agent shall maintain businesslike
relations with Residents whose service requests shall be received,
<PAGE>
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 thorough
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 (1Oth) 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
<PAGE>
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;
(iii) all remaining operating expenses of the Project including
administrative, operational, franchise fees, maintenance
and utility expenses and vendor payables;
(iv) the fees of The Forsythe Group 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 required
to avoid the suspension of any 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
<PAGE>
receipt, notify the Owner in writing of all such orders and notices
of requirements.
701.15 Utility Service and Purchases. Subject to the approval of the
Owner, the Agent shall make contracts for garbage and trash removal,
snow removal, and other necessary contracted maintenance services.
The Agent shall secure such equipment, tools, appliances, materials
and supplies as are necessary to maintain and repair the Project
properly. Payment for costs associated with these said activities
and purchases will be included in the Project operating budget.
The Agent shall act at all times in the best interest of the
Owner and shall be under duty to secure for and credit to the
Owner any discounts, commissions or rebates obtainable as a result
of the purchase.
701.16 Records and Reports.
(i) The Agent shall establish and maintain a comprehensive
system of records, books and accounts in a manner
satisfactory to the Owner. All records, books and accounts
will be subject to examination at reasonable hours by any
authorized representative of the Owner, lender or insurer.
(ii) With respect to each fiscal year ending during the term of
this Agreement, the Agent shall cooperate with the Owner to
have an annual financial report prepared by an independent
Certified Public Accountant, Non-audited, based upon the
preparer's examination of the books and records of the
Owner and the Agent. Compensation for the preparer's
services will be considered an operating expense of the
Project.
(iii) The Agent will prepare a semi-annual income statement which
compares actual and budgeted income and expenses for the six
(6) month period and for the "year to date", and will submit
each statement to the Owner within fifteen (15) days after
the end of each six (6) month period ending June and
December.
(vi) The Agent will furnish such information (including
occupancy reports) as may be requested by the Owner or
the lender from time to time with respect to the financial,
physical or operational condition of the
<PAGE>
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
schedule af 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 required by law in
connection with the employment of personnel, including
unemployment 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
<PAGE>
advertisement;
(vi) hiring, training and supervision of employed staff and
contract labor;
(vii) informing the Owner of problems requiring adjustment to
the marketing plan or goals;
(viii) maintenance of marketing effort to stabilize occupancy once
the Project is full.
Marketing activities shall be coordinated with on-going
operations once the Project is operational. Activities
shall reflect a broad based effort including 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 counsel 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
maximum 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 counsel
designated by the Owner to bring actions for eviction and to
execute notices to vacate and to commence appropriate
judicial proceedings; provided, however, that the Agent
shall
<PAGE>
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 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; recreational
facilities and activities; 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
<PAGE>
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 liability or
obligation for the account of the Owner without assurance that the necessary
funds for the 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 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 as safe storage for appropriate personal
belongings and staff dining space furnished with tables 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 of 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 receive 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 on 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.
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 to terminate this
Agreement to the lender at least sixty (60) days prior
to the date specified for 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
the provisions hereof, the Owner shall notify the Agent, the lender
and the insurer of the Owners intent to terminate this Agreement by
delivering to the Agent
<PAGE>
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 it, 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
creditors; 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 propertied
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 (10) 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:
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
<PAGE>
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 unenforceable 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:
OWNER:
---------------------------------------
AGENT:
---------------------------------------
SECTION 2101 EXECUTION OF AGREEMENT
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement the
day and year first above written.
AGENT: The Forsythe Group, Inc. OWNER: Biltmore Group of Louisianan LLC
------------------------ ---------------------------------
BY: By:
--------------------------- ------------------------------------
Agent President
AND
By: Joanne M Caldwell-Bayles
------------------------------------
Owner
------------------------------------
<PAGE>
WILLIAM R. HULSEY
CERTIFIED PUBLIC ACCOUNTANT
2117 FORSYTHE AVENUE
MEMBER MONROE, LOUISIANA 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
January 25, 1999
MMR Investment Bankers, Inc.
5SO N. 159th East, Suite 300
P.O. Box 781440
Wichita, Kansas 67278-1440
Dear Sirs:
I, William R. Hulsey serve as the accountant for The Biltmore Group of
Louisiana, L.L.C. and do hereby give permission to use my name and/or
values concerning the audited financial statements dated December 31,
1998 in the offering circular for the Bond Issue(s) of The Biltmore Group
of Louisiana, L.L.C.
Respectively Submitted,
/S/WILLIAM R HULSEY
William R. Hulsey
Certified Public Accountant
<PAGE>
BOBBY L. CULPEPPER
& ASSOCIATES
A PROFESSIONAL LAW CORPORATION 205 WEST ALABAMA
BOBBY L. CULPEPPER 525 EAST COURT AVENUE RUSTON, LA 71270
JONESBORO, LOUISIANA 71251-3497 318-251-0701
TERESA CULPEPPER CARROLL 318/259-4184
J. CLAY CARROLL FAX #318/259-6278 233 SOUTH GRAND
MONROE, LA 71201
PLEASE REFER ALL CORRESPONDENCE 318/325-3884
TO THE JONESBORO OFFICE
File# January 26, 1999
MMR Investment Bankers
550 North 159th Street East
P.0. Box 781440
Wichita, Kansas 67278-1440
Gentlemen:
Bobby L. Culpepper & Associates, a PLC, serves as the attorney for The
Biltmore Group of Louisiana, L.L.C., 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 $9,900,000.00 and the issuance
of first mortgage bonds in connection with development, construction and
purchase of property in Louisiana and Arizona, in the Prospectus for Bond
Issue of The Biltmore Group of Louisiana, L.L.C.
With kindest personal regards, I remain
Yours very truly,
/S/J CLAY CARROLL
J. Clay Carroll
JCC:bb
Cc: The Biltmore Group of Louisiana, L.L.C.
<PAGE>
ROBERT M. MC SHERRY, MAI
Administrative Services
3760 Chelsea Drive
Baton Rouge, Louisiana 70809
Phone (504)924-8093
November 25, 1998
Mr. Bill Martin, III
MMR Investment Bankers
P.0. Box 781440
Wichita, Kansas 67278-1440
RE: Biltmore Group, L.L.C.
Dear Mr. Martin:
This letter is to acknowledge permission for Biltmore Group, L.L.C. and
MMR Investment Bankers to copy or reproduce the Summary Appraisal Report
of the proposed 21 assisted care units and 4 efficiency unit assisted
care facility and to be constructed on Germantown Road within the corporate
limits of Minden, Webster Parish, Louisiana, dated September 8, 1998,
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
January 22, 1999
Mr. Bill Martin, III
MMR Investment Bankers
P.O. Box 781440
Wichita, Kansas 67278-1440
RE: Biltmore Group of Louisiana, LLC
Dear Mr. Martin:
This letter is to acknowledge permission for Biltmore Group of Louisiana,
L.L.C. and MMR Investment Bankers to copy or reproduce the Summary
Appraisal Report of the existing 28 independent living units located at
78 Canyon Diable, Sedona, Arizona, dated January 10, 1999, 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. MC SHERRY, MAI
Administrative Services
3760 Chelsea Drive
Baton Rouge, Lousisana 70809
Phone (504)924-8093
November 25, 1998
Mr. Bill Martin, III
MMR Investment Bankers
P.0. Box 781440
Wichita, Kansas 67278-1440
RE: Biltmore Group, L.L.C.
Dear Mr. Martin:
This letter is to acknowledge permission for Biltmore Group, L.L.C. and
MMR, Investment Bankers to copy or reproduce the Summary Appraisal Report
of the proposed 21 assisted care units and 4 efficiency unit assisted
care facility and to be constructed on Cooper Lake Road within the corporate
limits of Bastrop, Morehouse Parish, Louisiana, dated September 20, 1998,
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. MC SHERRY, MAI
Administrative Services
3760 Chelsea Drive
Baton Rouge, Louisiana 70809
Phone (504)924-8093
October 28, 1998
Mr. Bill Martin, III
MMR Investment Bankers
P.O. Box 781440
Wichita, Kansas 67278-1440
RE: Biltmore Group, L.L.C.
Dear Mr. Martin:
This letter is to acknowledge permission for Biltmore Group, L.L.C. and
MMR Investment Bankers to copy or reproduce the Summary Appraisal Report
of the proposed 21 assisted care units and 4 efficiency unit assisted
care facility and to be constructed on LA Highway 33 just outside the
corporate limits of Farmerville, Union Parish, Louisiana, dated
October 20, 1998, 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.
Repectfully,
/S/ROBERT M MCSHERRY
Robert M. McSherry, MAI
RMM:je
ROBERT M. MC SHERRY, MAI
Administrative Services
3760 Chelsea Drive
Baton Rouge, Louisiana 70809
Phone (504)924-8093
January 15, 1999
Mr. Bill Martin, III
MMR Investment Bankers
P.O. Box 781440
Wichita, Kansas 67278-1440
RE: Biltmore Group, L.L.C.
Dear Mr. Martin:
This letter is to acknowledge permission for Biltmore Group, L.L.C. and
MMR Investment Bankers to copy or reproduce the Summary Appraisal Report
of the proposed 22 assisted care units and 5 efficiency unit assisted
care facility and to be constructed on LA Highway 1 Bypass within the
corporate limits of Natchitoches, Natchitoches Parish, Louisiana, dated
January 10, 1999, 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 Self-Contained Real Estate
Appraisal Report of
A Proposed 21 Unit Assisted Care Facility, Resident Manager's
Apartment and 4 Efficiency Assisted Care Units all
Located on the Northside of Germantown Road
Just South of Country Club Road
at Municipal Number 619 Germantown Road
Within the Corporate Limits of
Minden, Webster Parish, Louisiana
For
First Republic Bank
Attn: Mr. David Knight, MAI
1220 North 18th Street
Post Office Box 2066
Monroe, Louisiana 71207
As Of
September 8, 1998
Prepared by
Robert M. McSherry, MAI
Louisiana State Certified General Real Estate Appraiser No. G0891
3760 Chelsea Drive
Baton Rouge, Louisiana 70809
<PAGE>
ROBERT M. MC SHERRY, MAI
3760 Chelsea Drive
Baton Rouge, Louisiana 70809
Phone (504)924-8093
September 8, 1998
First Republic Bank
Attn: Mr. David Knight, MAI
1220 North 18th Street
Post Office Box 2066
Monroe, Louisiana 71207
RE: A proposed 21 unit assisted care facility, resident manager's apartment
and 4 efficiency assisted care units all located on the north side of
Germantown Road just south of Country Club Road at municipal address 619
Germantown Road, within the corporate limits of Minden, Webster 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 21 unit Assisted Care Facility, Resident Manager's
Apartment and 4 Efficiency Assisted Care Units all located within the
corporate limits of Minden, Webster 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;
Robert M. McSherry, MAI
<PAGE>
Page Two
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
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
21 Unit Assisted Care Facility, Resident Manager's Apartment and 4 Efficiency
Assisted Care Units all located at 619 Germantown Road within the corporate
limits of Minden, Webster Parish, Louisiana, was estimated to have a Market
Value based on Stabilized Net Operating Income, as of September 8, 1998,
of:
TWO MILLION ONE HUNDRED THOUSAND DOLLARS
($2,100,000.00)
Robert M. McSherry, MAI
<PAGE>
Page Three
Allocated:
LAND: $ 140,000.00
IMPROVEMENTS: $1,885,000.00
FURNITURE, FIXTURES & EQUIPMENT: $ 75,000.00
GOODWILL OF GOING CONCERN -0-
The "As Is" Value of the property, derived by the utilization of the
Discounted Cash Flow Methodology, is estimated to be, as of September
8, 1998, but subject to completion of the property in accordance with
submitted plans and specifications within a reasonable period of time,
of:
TWO MILLION FORTY THOUSAND DOLLARS
($2,040,000.00)
The subject property is proposed at the present time and this appraiser
has been provided plans and specifications for the property. The herein
contained Estimate of Market Value is conditioned upon 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.
This appraisal report was prepared in accordance with and compliance
of the Uniform Standards of Professional Appraisal Practice promulgated
by the Appraisal Foundation and the Guide Notes to the Standards of
Professional Practice adopted by the Appraisal Institute. These standards
contain binding requirements and specific guidelines that deal with the
procedures to be followed in developing an appraisal, analysis, or opinion.
These uniform standards also set the requirements to communicate the
appraiser's analysis, opinions, and conclusions in a manner that will be
meaningful and not misleading in the marketplace, accordingly, the Departure
Provision does not apply.
Robert M. McSherry, MAI
<PAGE>
Page Four
A complete set of plans and specifications have been provided First Republic
Bank and delivered under separate cover.
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. McSerry, MAI
Louisiana State Certified General
Real Estate Appraiser No. G0891
Robert M. McSherry, MAI
<PAGE>
[Area Location Map of Surrounding Cities]
<PAGE>
EXECUTIVE SUMMARY
Location: Northside of Germantown Road just south of
Country Club Drive within the Corporate
Limits of Minden, Webster Parish,
Louisiana
Interest Appraised: Fee Simple Interest
Site: 5.72 Acres or 249,163 Square Feet, more
or less
Building Description: The property will include twenty-one (21)
assisted care living units, a resident
manager's apartment and 4 efficiency
assisted care units all located within a
single, T-shaped building. 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 as well as storage areas
and other required additions to render the
subject property a functional assisted
care facility catering to 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.
The property is considered to be a
most functional assisted living facility
and is considered a most attractive
property and should be well accepted
by the local market.
Robert M. McSherry, MAI
<PAGE>
Highest and Best Use: Assisted care facility including all
required amenities.
Cost Approach to Value $2,255,000.00
Market Approach to Value $2,150,000.00
Income Approach to Value:
Stabilized Net Income: $2,100,000.00
Discounted Cash Flow Value: $2,040,000.00
Final Value Estimate:
Stabilized Net Income: $2,100,000.00
"As Is" Value: $2,040,000.00
Allocated:
Land $ 140,000.00
Improvements $1,885,000.00
Furniture, Fixtures
and Equipment $ 75,000.00
Goodwill of Going
Concern -0-
Robert M. McSherry, MAI
<PAGE>
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 four 4 acre tract of land which will be basically a rectangular in
shape and having frontage along the north side of Germantown Road and
located within the corporate limits of Minden, Webster Parish, Louisiana.
The property is located in portions of Section 14, T9N-R9W, Webster Parish,
Louisiana and, as a condition of this appraisal report, a complete legal
description and a metes and bounds survey of the subject site will be
required to ascertain the assumptions utilized within this appraisal report
have been fulfilled.
The subject site is the "heart" of a larger ten (10) acre parcel with
the subject site encompassing the vast majority of the usable land area
contained within the total site area.
"A 5.72 acre, more or less, tract of land situated in Section 14,
Township 19 North, Range 9 West, Minden, Webster Parish, Louisiana being
more particularly described as follows:"
"Beginning at a point of the West right-of-way of Germantown Road 347.85
feet West and 1,063.61 feet South of the Northeast corner of the
Southwest Quarter of the Northwest Quarter of said Section 14; thence South
31 degrees 18 minutes West along the West right-of-way of Germantown Road
86.57 feet to the point of beginning; thence run South 31 degrees 18
minutes West along the West right-of-way of Germantown Road 634.44 feet;
thence run North 86 degrees 00 minutes West 393.09
Robert M. McSherry, MAI
<PAGE>
feet; thence North 4 degrees 00 minutes East 124.64 feet; thence run
North 34 degrees 18 minutes East 469.61 feet; thence run South 88 degrees
40 minutes East 469.20 feet to the point of beginning. Containing 5.72
acres, more or less."
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 21 assisted care facility
and 4 efficiency assisted care units all located on the north side of
Germantown Road, Minden, Louisiana.
OBJECTIVE OF THE APPRAISAL
The objective and function 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 First Republic Bank in order to provide long
term financing of the subject property for the Biltmore Group, 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 effective date of this appraisal is September 8, 1998. 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>
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
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
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 was partitioned was
under the ownership of Luther Moore and Donald Hinton Trust and was conveyed
to Senior Retirement Center of Minden, LLC. The 5.57 acre tract which
is the subject of this appraisal report is located on the north side of
Germantown Road just south of Country Club Road within the corporate limits
of Minden, Webster Parish, Louisiana. The subject site is to be surveyed
and a complete metes and bounds description provided this appraiser as
a condition of this appraisal report. The subject is a portion of a larger
ten (10) acre tract which was purchased for $150,000.00 on April 30,
1998.
Although the original site purchased for the construction of the subject
improvements encompassed a total of ten (10) acres of gross land area,
the usable portion of this site was substantially less and estimated to
be between six (6) and seven (7) acres. The remaining three plus (3+)
acres of the original site is considered unusable land due to it's steep
topography but can be used in conjunction with the cut and fill operation
which will be necessary in the
Robert M. McSherry, MAI
<PAGE>
development and preparation of the actual subject site prior to the
construction of the improvements.
It is noted that the indicated price per acre for the total tract purchased
on April 3, 1998, was $15,000 per acre. When the usable land is utilized
in the calculation, the indicated price per acre increased to approximately
$25,000.00 per acre prior to other costs which were incurred during the
acquisition of the site. These costs include the addition of a separate
Real Estate Commission in the amount of approximately $10,000.00 as well
as interest expense during the approximate eight (8) month holding period
from the time the subject property was optioned, the rezoning process
completed and the actual purchase consummated. The 5.57 acre tract which
is the subject of this appraisal report is considered to be the "heart"
of the subject property and due to it's superior location within the site,
superior topography as well as smaller size, a substantial increase in
the per acre value is estimated for this portion of the property.
The subject property had been owned by the prior owners for a period
in excess of five years and no speculative transactions have affected
the subject property according to records found in the Webster Parish
Clerk of Court's Office. The site will require considerable preparation
prior to construction and it's anticipated sales price is considered slightly
below it's true market value.
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.
Robert M. McSherry, MAI
<PAGE>
CITY/AREA DATA
The Minden and the Webster Parish areas are considered one and the same
with the population trends for both being very similar with the following
population trends noted:
Population
<TABLE>
<CAPTION>
Present
1970 1980 1990 Estimate
<S> <C> <C> <C> <C>
City 13,966 15,074 13,661 14,000
Parish 39,939 43,631 41,989 43,000
State 3,641,306 4,205,900 4,219,973 4,219,973
</TABLE>
The City of Minden provides numerous municipal services including public
water, public sewer, electricity is provided by the City of Minden which
is served by Swepco with natural gas provided by ARKLA Gas. Telephone
service is provided by BellSouth and all services and utilities including
police and fire protection are considered adequate.
The educational requirements of the area are provided by four elementary
schools, one middle school, one junior high school and one high school
as well as one private facility. The higher educational requirements
are fulfilled by Northwest Technical Institute in Minden, Louisiana State
University, Southern University and Centenary Colleges all located in
Shreveport, approximately 30 miles distance with Louisiana Tech University
and Grambling State University also located within 30 miles of the City
of Minden.
Transportation requirements are provided by Interstate 20, the major
east-west interstate highway through the southern United States as well
as U.S. Highways 79 and 80, Louisiana Highway 371, 159 and 3008. Greyhound
Bus Lines
Robert M. McSherry, MAI
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provides bus service to the area with rail service provided by Kansas
City Southern.
The health requirements in the area are provided by one hospital with
a total of 21 beds as well as two nursing homes with a total of 374 beds
and two medical clinics. There are seventeen medical doctors, twelve
dentists and two DVM's servicing the area.
Recreational requirements are fulfilled by public facilities including
four tennis courts, three swimming pools and nine city parks. Although
the city does not provide a golf course, there is a country club available
in the area.
The major employers found in the Minden Webster Parish area are as follows:
Major Area Employers
<TABLE>
<CAPTION>
Company Name Location Product Employees
<S> <C> <C> <C>
Fibrebond Minden Portable Comm Bldgs 550
Mister Twister Minden Fishing Tackle 100
Ruskin Minden Industrial Air 135
Inland Container Minden Corrugated Boxes 137
Clement Industries Minden Trailers 150
Reynolds Contractors Minden Metal Fabrication 160
McInnis Construction Minden Construction 120
Minden Medical Center Minden Health Care 305
Town and Country
Nursing Home Minden Nursing Care 130
IHS of Minden Minden Nursing Care 225
</TABLE>
In summary, the Minden and Webster Parish area is one of stability and
moderate growth. The major employers in the area have been in existence
for an extended period of time and are gradually expanding their employee
base
Robert M. McSherry, MAI
<PAGE>
and this trend will continue over the foreseeable future. A large number
of the residents living in the Minden area work within the major metropolitan
area of Shreveport/Bossier City and this is also considered a positive
factor as Minden is considered to be somewhat of a bedroom community for
this larger metropolitan area. All indications indicate a positive and
stable future for both Minden and the Webster Parish area.
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.
Neighborhood Boundaries
The neighborhood in which the subject property is located is considered
to be that area lying in the northern portion of the City of Minden.
The main arterial roadway through the neighborhood is considered to be
Germantown Road, a dual laned, asphalt, municipally maintained roadway
which provides access into the downtown area of Minden as well as the
outlying areas of northern Webster Parish.
Trends in the neighborhood tend to be for construction of either multi-family
apartment complexes or the Azalea Terrace Housing for the Elderly which
is a subsidized housing complex for the elderly. This property was financed
by bonds issued by the Louisiana Public Finance Authority and requires
a certain percentage of the residents to be under the median income level
of the parish as a whole. Both the apartment complex identified as Rose
Hill and the housing complex for the elderly identified as Azalea Terrace
are fairly new construction and have been well maintained and are both
considered positive influences in the subject neighborhood.
Robert M. McSherry, MAI
<PAGE>
There is a public elementary school located directly across Germantown
Road from the subject site and is also not considered detrimental to the
area. Other land uses include primarily detached single family dwellings
which range in value from a low of $40,000.00 to a high of $200,000.00.
The area is also the location of the majority of the vacant developable
land located within the corporate limits of Minden. The trends in the
area are considered most positive as access is well provided and the overall
location of the neighborhood is considered to be in the path of growth
for the City of Minden. No adverse physical characteristics were noted
during the inspection of the area.
It is noted that a large number of the residents of Minden are employed
in the metropolitan area of Shreveport/Bossier City. This trend of persons
utilizing smaller municipalities as their residential base and commuting
to the larger metropolitan areas should continue over the foreseeable
future and is considered a positive factor in the continued development
and growth of Minden and Webster Parish.
Robert M. McSherry, MAI
<PAGE>
OVERVIEW OF ASSISTED LIVING INDUSTRY
In anticipation that more elderly Americans will live in assisted living
homes than nursing homes in the near future, consumer industry groups
are saying it is time to put some minimum standards into law. One of
the most important things for the industry is to try not to admit residents
it cannot provide quality care for. Many assisted living homes charge
additional fees for personal services residents may come to need as they
grow older. Some will help residents if they get sick by permitting periodic
visits from nurses, for example, or providing supervision for people with
Alzheimer's Disease.
In order to minimize residents need to move, the consumer or trade groups
say assisted living facilities should be required to offer at least some
help with the dozen daily activities including meals, using the bathroom,
taking medication and shopping. Those facilities which accept people
with Alzheimer's or other types of dementia would also be required to
provide 24 hour awake staff and special training for those workers.
Assisted living has become the hottest new housing option for older people
by promising to provide a happy medium between their homes and a full
nursing home facility. Industry estimates show that the number of elderly
Americans living in settings that could be described as assisted living
has probably doubled from 560,000 in 1990 to as many as 1,000,000 in 1997.
By early next century, experts predict assisted living homes will care
for more elderly Americans than nursing homes.
Robert M. McSherry, MAI
<PAGE>
Although numbers are inexact, assisted living facilities ranging from
luxury apartment buildings to modest group homes provide housing along
with personal services and some health care. Residents may be too frail
to live alone but too healthy to need the 24 hour medical attention of
nursing homes. Assisted living can be less expensive than nursing homes.
A 1997 survey by the National Center for Assisted Living found that 52%
costs $1,001.00 to $2,000.00 per month and 24% cost less than $1,000.00
per month. In contrast, monthly nursing home fees average above $3,000.00.
Assisted living's affordability has attracted the attention of law makers
worried about how the nation will ensure elderly care for the huge baby
boom generation now middle aged.
Medicaid programs for the poor in 28 states have begun to cover some
assisted living services and the Department of Health and Human Services
is conducting a fact finding survey.
Unlike nursing homes, assisted living homes are not regulated by the
Federal Government. Fewer than half of the states require licensing before
it opens. That allows for flexibility and partly explains assisted living's
popularity.
In summary, the assisted living facilities currently expanding throughout
the United States are the most popular and desirable alternative living
situation for those elderly which require some minimal level of care but
not the extensive level required by nursing home patients. As the population
continues to grow older but maintain better health, the appeal thus
desirability of assisted living facilities will continue to be enhanced.
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. 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 facility which is demand with respect
to providing long term assisted living care.
Robert M. McSherry, MAI
<PAGE>
DESCRIPTION OF THE PROPERTY
Site Data
Size, Shape and Topography
The subject site will be a 5.72 acre parcel of land which will be basically
rectangular in shape and lying along the north side of Germantown Road,
a two laned, asphalt street which provides access to the downtown area
of Minden, Louisiana. The topography of the property is rolling and will
require substantial grading and site preparation prior to construction.
This is not considered truly detrimental. 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.
The 5.72 acre parcel which is the subject site is a portion of a larger
10 acre tract of land which was purchased in April of 1998. This tract
contains approximately three (3) to four (4) acres of unusable land located
at the rear and along the northern side of the tract which features extremely
rough topography, ravines and is, for the most part, unbuildable. This
portion of the property can be used in connection with the cut and fill
operation necessary to prepare the actual building site for construction
with an estimated site preparation expense of $60,000.00 projected by
area dirt contractors.
Utilities
The subject property is located inside the corporate limits of Minden,
Webster Parish, Louisiana and is provided with all city utilities and
services available to properties within the corporate limits of Minden
including electrical service, police and fire protection, public water,
sewerage disposal, and refuge disposal.
Robert M. McSherry, MAI
<PAGE>
Telephone 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 Germantown Road along the southern boundary of the site. Germantown
Road is a dual laned, asphalt, municipally maintained traffic artery servicing
primarily local traffic and provides access into the downtown area of
Minden to the south and the outlying areas of Webster Parish to the north.
There exists an intersection with Interstate 20 in the southern portion
of the City of Minden, Interstate 20 being the major east-west interstate
highway through the southern United States with I-20 providing access
into the metropolitan area of Shreveport/Bossier City, approximately 30
miles to the west.
Numerous other municipal traffic arteries dissect the area and provide
adequate access to the subject site from all areas of Minden and Webster
Parish.
Zoning
Review of the zoning map found in the Minden City Hall indicates the
subject property to be currently zoned "R-4", Multi-Family Residential.
The proposed utilization of the site as a site for an assisted living
facility requires the site to be zoned "R-4" and this zoning will result
in the proposed utilization being a legal conforming use.
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
<PAGE>
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 Minden 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. 220237-0005-D with an effective date of March 3,
1992. A copy of this map is contained in the Addenda of this report.
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 Webster Parish tax rolls 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.
The 1998 millage rates applicable to the subject property are as follows:
Robert M. McSherry, MAI
<PAGE>
City 8.87 Mills
Parish 72.28 Mills
Total 81.15 Mills
Assisted living facilities such as the subject are assessed at 10% of
Market Value and conversations with representatives of the Webster Parish
Tax Assessor's Office indicate an estimated Market Value for tax purposes
will be approximately 20% less than actual Market Value. Thus:
Estimated Value of Subject $2,100,000.00
Estimated Assessed Value $1,680,000.00
10% - Assessed Value $ 168,000.00
$168,000.00 X 81.15 Mills = Estimated Tax Liability $13,633.20
Robert M. McSherry, MAI
<PAGE>
LOCATION MAP
Robert M. McSherry, MAI
<PAGE>
DESCRIPTION OF THE IMPROVEMENTS
Assisted Living Facility
The proposed facility containing the assisted living units will be constructed
within a single T-shaped building but a building comprised of different
component sections housing the assisted living units in two wings with
the public areas located in the center or core of the building. The building
is a modified T-shape and encompasses a total of 22,217 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 while the
efficiency units will contain approximately 200 square feet of area.
The gross building area was calculated by Mr. Mike Wallace, the preparer
of the plans and specifications for the property.
Construction characteristics for this 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 of the assisted care units having their own central HVAC
unit with the common areas utilizing central, zoned units.
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
well as an apartment for the resident managing couple.
As previously noted, the total gross area contained within this portion
of the subject property is 22,217 square feet. Within this total, 21
assisted living units, 4 efficiency assisted units, the manager's apartment
and remaining common areas will be contained. 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.
Each assisted living unit will include a toilet, lavatory and tub/shower
unit, through wall air conditioning unit with heat strip, drop-in over/range
unit with vent hood as well as adequate closet and cabinet space.
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.
As noted, the subject is proposed construction and this appraisal is
conditioned upon the completion utilizing quality materials and workmanship
with a final inspection by the appraiser required to ascertain the preliminary
plans and specifications provided this appraiser were correct.
Robert M. McSherry, MAI
<PAGE>
[Subject Property Location Map Indicating the Subject Property]
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 "R-4".
This is the required zoning for the development of the site to it's proposed
utilization as an assisted care facility and, accordingly, this use is
a legal, conforming, permissible 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 which is currently applicable to the subject property does
allow for an assisted care facility to be constructed on the site as well
as other types of multi-family construction. This zoning classification
will allow the property to be developed as proposed within this appraisal
report and this is considered the most highly probable use to which the
subject property could be put.
In the final analysis, the proposed utilization of the subject property
is considered to constitute one of it's Highest and Best Uses.
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: September 12, 1988
Location: Westside of Germantown Road south of
Country Club Drive, Minden, Webster
Parish, Louisiana
Brief Legal Description: Tract in located in the SW 1/4 of the NE
1/4 of the SE 1/4 of Section 15,
T19N-R9W, Webster Parish, Louisiana
Recordation Data: CB 704, Page 695, Webster Parish,
Louisiana
Grantor: R.D. Hinton
Grantee: Rose Hill Estates, Limited Partnership
Sales Price: $37,500.00
Terms of Sale: Cash
Cash Equivalency Price: $37,500.00
Site Size: 2.5 acres or 108,900 square feet
Indicated Price/Acre: $15,000.OO/Acre
Indicated Price/Sq. Ft.: $.34/Square Foot
Utilities: All available
Flood Zone: N/A
Zoning: "R-4"
Confirmation: Deed Records
Robert M. McSherry, MAI
<PAGE>
COMPARABLE LAND SALE 2
Date of Sale: July 14, 1994
Location: Westside of Germantown Road south of
Country Club Drive, Minden, Webster
Parish, Louisiana
Brief Legal Description: Tract located on portions of Sections
14 and 15, T19N-R9W, Minden,
Webster Parish, Louisiana
Recordation Data: CB 804, Page 93, Webster Parish,
Louisiana
Grantor: Luther Moore and Donald Hinton
Trust
Grantee: Azalea Terrace Apartments, Limited
Partnership
Sales Price: $57,000.00
Terms of Sale: Cash
Cash Equivalency Price: $57,000.00
Site Size: 2.82 acres or 122,839 square feet
Indicated Price/Acre: $20,212.00/Acre
Indicated Price/Sq. Ft.: $.46/Square Foot
Utilities: All available
Flood Zone: N/A
Zoning: "B-4"
Confirmation: Deed Records
Robert M. McSherry, MAI
<PAGE>
ANALYSIS OF COMPARABLE LAND SALES
The two vacant comparable land sales contained within this appraisal
report and utilized for analysis purposes are sales of two sites located
either adjacent to or directly to the south of the subject property.
Vacant Land Sale 1 was developed with a small multi-family complex and,
although somewhat dated, is considered to be reflective of attitudes in
the area. This property is somewhat smaller in size requiring a slight
upward adjustment but was similar in physical characteristics at the time
of sale requiring no adjustment for the physical characteristics or for
location.
Vacant Comparable Land Sale 2 is located south of and adjacent to the
subject property and again it is somewhat smaller requiring a slight upward
adjustment. This property has been developed with a housing complex for
the elderly which utilizes low interest financing which requires a certain
number of units to be rented to persons having less than the per capita
income in the parish and this complex is not considered truly competitive
with the subject property. Again, this property required substantial
site preparation prior to development, similar to the subject, and requires
no adjustment for physical characteristics or location.
Analysis of these two sales indicates an adjustment for the time differential
to be required. The analysis of these paired sales indicates an annual
increase in value of 5% and, accordingly, both of these sales have been
adjusted accordingly for the time differential between the date of this
appraisal report and the date of the comparable sales conveyance.
Robert M. McSherry, MAI
<PAGE>
This appraiser conducted a thorough and in-depth review of vacant and
comparable land sales transactions in the Minden, Louisiana area. Although
a number of sales are found which have occurred in the immediate proximity
of Interstate 20, the location of these sales and the Highest and Best
Use are decidedly different than those for the subject site and were not
felt appropriate to this appraisal assignment.
The subject property was originally a 10 acre tract purchased in April
of 1998. However, the actual contract to purchase the property was executed
approximately seven (7) months prior to this date with additional costs
accumulated with respect to the purchase price of the site including a
real estate commission, legal work required for the rezoning of the subject
property as well as carrying costs of the money borrowed for the deposit
paid on the site during this holding period. In addition, of the total
10 acres, approximately six (6) to seven (7) acres are considered usable
land with the remaining acreage considered unusable without extensive
and cost prohibitive site preparation. However, this unusable portion
of the site can be used to provide fill for the primary site which will
be needed in the preparation of the primary site for the construction
of the improvements. Thus, the effective price paid for the subject property
based on usable acreage only is somewhat in excess of the $15,000.00 per
acre indicated by the deed when all the appropriate additional expenses
are added and only the usable land area is considered in the calculations.
It is also important to note that the 5.72 acre site has been taken from
what is considered the "heart" of the site and is the best land thus
indicating an additional adjustment.
Robert M. McSherry, MAI
<PAGE>
In the final analysis, after each of the sales have been carefully analyzed
and adjusted for dissimilarities, it is our opinion that the available
market data indicates a market value of the subject property as if vacant
but prior to site preparation for construction of $25,000.00 per acre.
Therefore, the Estimated Value of the subject property, as if vacant,
is thus summarized:
5.72 acres @ $25,000.00/acre = $143,000.00
INDICATED VALUE OF SITE,
AS IF VACANT, BUT PRIOR TO
SITE PREPARATION (R/T) $140,000.00
Robert M. McSherry, MAI
<PAGE>
VACANT LAND SALES ADJUSTMENT CHART
<TABLE>
<CAPTION>
Sale Number Subject 1 2
<S> <C> <C> <C>
Property Rights Appraised Leased Fee Leased Fee Leased Fee
Financing Terms Cash Equivalent Cash Equivalent Cash Equivalent
Condition of Sale Arms Length Arms Length Arms Length
Sale Date Current September 1, 1998 July, 1994
Size/Acres 5.72 2.50 2.82
Effective Price/Acre N/A $15,000.00 $20,212.00
Market Condition Current +50% +20%
Location -0- -0-
Size +10% +10%
Physical Characteristics -0- -0-
Adjusted Price/Acre $24,000.00 $26,275.00
Gross Income Multiplier 7.9 8.5
</TABLE>
<PAGE>
[COMPARABLE LAND SALES MAP INDICATING COMPARABLE LAND SALES LOCATIONS]
<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
Cost Source: Marshall-Swift Cost Manual and
Actual Costs Provided by Fred Bayles
Direct Costs:
Primary Structure
22,217 sq. ft. @ $59.70/sq. ft. $1,326,354.00
Total Direct Costs: Improvements $1,326,354.00
Indirect Costs:
Plans, Specifications, Inspection Included in Direct Costs
Contractor's Overhead/Profit $170,000.00
Interim Interest $ 65,250.00
Legal, Audit, Appraisal $ 60,400.00
Financing Fees - Construction $ 30,000.00
Misc. Expenses $ 50,000.00
Financing Fees - Long Term $162,500.00
Total Indirect Costs $ 538,150.00
Total Replacement Costs New: Improvements $1,864,504.00
Less:Accrued Depreciation
Physical Curable -0-
Physical Incurable -0-
Functional Obsolescence -0-
Economic Obsolescence -0-
Total Accrued Depreciation -0-
Depreciated Replacement Costs: Improvements $1,864,504.00
Add: Land Value
5.57 acres @ $25,000.00/acre $ 140,000.00
Add: Site Preparation $ 60,000.00
Add: Furniture, Fixtures and Equipment $ 75,000.00
Add: Parking, Walks, Landscaping, Porches $ 25,000.00
Robert M. McSherry, MAI
<PAGE>
Add: Entrepreneurial Profit @ 5% $ 93,200.00
Total All Costs and Value Components $2,257,704.00
INDICATED VALUE OF SUBJECT FROM
COST APPROACH (R/T) $2,255,000.00
Note: Cost of Furniture, Fixture and Equipment based on costs association
with actual costs experienced by Southside Garden Assisted Care
Facility and Arbor House of West Monroe, Louisiana.
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.
The appraiser has carefully perused the Louisiana market with respect
to sales of properties considered similar to the subject property and
none were found. However, available data from other appraisers has revealed
the sale of three similar type properties in other areas of the United
States and these are included merely for analysis purposes as follows:
Robert M. McSherry, MAI
<PAGE>
IMPROVED PROPERTY SALE 1
VENDOR: American Retirement, Inc.
VENDOR: Horizon Retirement, Inc.
LOCATION: 2601 Chimney Rock Road,
Hendersonville, North Carolina
RECORDATION: N/A
DATE: February, 1993
CONSIDERATION: $6,480,000.00
TERMS: $2,224,000.00 cash, assumption of a
mortgage balance of $4,316,000.00.
terms are considered to be cash
equivalent.
SITE SIZE: N/A
IMPROVEMENTS: This is a 110 unit senior living
community constructed in 1988. The
units are housed in a three-story
building of wood frame construction.
Construction quality is considered to be
average; condition at the time of sale
was good. The gross building area is
approximately 96,058 square feet with
an average unit size of 873 square feet.
ESTIMATED GROSS INCOME: $1,706,255.00
ESTIMATED EXPENSE RATIO: Approximately 56 percent
NET OPERATING INCOME: Approximately $751,844.00
UNIT INDICATORS: SP/Unit = $58,909.00
SP/SF = $ 67.46
SP/GI = 3.80 GIM
NOI/SP = 0.1160 OAR
Robert M. McSherry, MAI
<PAGE>
IMPROVED PROPERTY SALE 2
VENDOR: American Retirement, Inc.
VENDOR: Emeritus Corporation
LOCATION: 2601 Chimney Rock Road,
Hendersonville, North Carolina
RECORDATION: N/A
DATE: September, 1995
CONSIDERATION: $9,483,523.00
TERMS: Cash
SITE SIZE: N/A
IMPROVEMENTS: This is a 110 unit senior living
community constructed in 1988. The
units are housed in a three-story
building of wood frame construction.
Construction quality is considered to be
average; condition at the time of sale
was good. The gross building area is
approximately 96,058 square feet with
an average unit size of 873 square feet.
ESTIMATED GROSS INCOME: Approximately $2,175,000.00
ESTIMATED EXPENSE RATIO: Approximately 56 percent
NET OPERATING INCOME: Approximately $957,000.00
UNIT INDICATORS: SP/Unit = $86,214.00
SP/SF = $ 98.73
SP/GI = 4.36 GIM
NOI/SP = 0.1009 OAR
Robert M. McSherry, MAI
<PAGE>
IMPROVED PROPERTY SALE 3
VENDOR: ABD Investments, Inc.
VENDOR: Merrill Associates, LP
LOCATION: 6725 Inglewood Avenue, Stockton,
California
RECORDATION: N/A
DATE: July, 1994
CONSIDERATION: $4,200,000.00
TERMS: Cash
SITE SIZE: N/A
IMPROVEMENTS: This is a 74 unit senior living community
constructed in 1989. The units are
housed in two-story buildings of wood
frame construction. Construction quality
is considered to be average; condition
at the time of sale was good. The gross
building area is approximately 63,730
square feet with an average unit size of
861 square feet.
ESTIMATED GROSS INCOME: Approximately $1,395,000.00
ESTIMATED EXPENSE RATIO: Approximately 70 percent
NET OPERATING INCOME: Approximately $418,500.00
UNIT INDICATORS: SP/Unit = $56,757.00
SP/SF = $ 65.90
SP/GI = 3.01 GIM
NOI/SP = 0.0996 OAR
Robert M. McSherry, MAI
<PAGE>
[Improved Property Sales 1 & 2 Map Indicating the Suject Property]
<PAGE>
[Improved Property Sale 3 Map Indicating the Subject Property]
<PAGE>
SUMMARY
<TABLE>
<CAPTION>
Sale One Sale Two Sale Three
<S> <C> <C> <C>
Indicated OAR 11.6% 10.09% 9.96%
Price/Unit $58,909.00 $86,214.00 $56,757.00
Gross Income Multiplier 3.80 4.36 3.01
Estimated Expense Ratio 56% 56% 70%
</TABLE>
The three Improved Property Sales included within this report have been
provided this appraiser by knowledgeable sources and other appraisers
and are deemed accurate as they were verified by knowledgeable and ethical
persons. The appraiser has conducted an in-depth review of conveyances
of similar type assisted living or congregate care facilities in the State
of Louisiana and none were found which were considered to be reflective
of true arms-length transactions between willing buyers and willing sellers
with no undue duress being experienced. These three Improved Property
Sales have been included for the purpose of deriving an indicated Overall
Capitalization Rate, an indicated price per unit and an indicated Gross
Income Multiplier for utilization in the analysis process with respect
primarily to the Income Approach to Value. The level of services provided
by these facilities are similar to those to be provided by the subject
property which would include three (3) meals per day, utilities, maid
service one (1) day a week, flat linen service one (1) day a week, various
assistance with respect to bathing, exercise, and transportation to various
off-site functions as well as on-site recreational functions, counseling,
with other services provided on a more extensive basis for additional
expense paid by the guest or resident of the facility. It is acknowledged
that a large number of the residents residing in the assisted care facilities
are requiring increased levels of
Robert M. McSherry, MAI
<PAGE>
care and these additional expenses are being passed directly to the tenant
as they upset the economies of an assisted care facility having to provide
this extraordinary level of care without additional remuneration.
The price per unit indicated by Improved Property Sale 2 is considered
the best available and has been accorded the greatest credence. Accordingly:
25 Units @ $86,000.00/Unit $2,150,000.00
INDICATED VALUE OF SUBJECT FROM
THE MARKET DATA OR DIRECT SALES
COMPARISON APPROACH (R/T) $2,150,000.00
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 lndustry 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 21 assisted care units and 4 efficiency assisted
care units all located in a single T-shaped building which will also contain
a resident manager's apartment and common areas for the operation of the
facility. The services provided the assisted living units include all
utilities, maid service, three meals a day, transportation, activities
with additional laundry and maid service available at additional expense.
Normal day to day medical treatments are also
Robert M. McSherry, MAI
<PAGE>
available for the various tenants with any extraordinary medical expense
passed directly to the tenant.
This appraiser has had the opportunity to appraise a number of assisted
care facilities in both Louisiana and Mississippi over the last several
years and has 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 a number of assisted care,
private pay facilities located in the Baton Rouge, Louisiana area as well
as a single facility located in West Monroe, Louisiana in order to arrive
at an estimated economic rental rate for the subject property based on
the level of services provided. The assisted care market is still a
relatively new market and the majority of the facilities have been
constructed in larger metropolitan areas such as Baton Rouge. The rental
rates commanded in these larger areas are above those which can be commanded
in smaller or more rural communities in North Louisiana and appropriate
adjustments have been made. The most comparable property is the Arbor House
of West Monroe, which was completed in December of 1997 and has experienced
stabilized occupancy with respect to the assisted care units within a six (6)
month period. These units lease for $1,725.00 per month for the basic rate
with expenses including utilities, three (3) meals a day, maid service
once a week, laundry service once a week, assistance in bathing,
transportation to shopping, church and other functions as well as in-house
recreational activities.
Robert M. McSherry, MAI
<PAGE>
This appraiser has also recently completed an appraisal of a 33 unit
assisted care facility located in Baton Rouge, Louisiana which is very
typical with respect to the subject property. However, the monthly rate
provided by this facility is slightly higher than those in rural areas
with the base monthly rate being $1,850.00 per month. The same services
are provided including utilities, three (3) meals per day, assistance
with daily living activities including bathing, grooming, weekly bed linen
and towel service, weekly house keeping, transportation to medical and
dental appointments, worship service, planned activities as well as other
assistance required.
Based on this appraiser's personal inspection of these two facilities
and adjustment, it is our opinion that a $1,775.00 per month with services
including electricity, three (3) meals per day, maid service, transportation,
activities, assistance in the normal living activities as well as normal
day to day medical treatment being provided.
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 $1,775.00 per month and $1,100.00 per month for the efficiency
units with the rates remaining stable over the two year projection period.
The projected rate includes the herein listed services being provided.
Robert M. McSherry, MAI
<PAGE>
Inflation will impact expense projections as well as increased occupancy
and these anticipated increases have also been utilized in the Income
Approach to Value.
In order to accurately project appropriate expenses for the subject property,
the appraiser has reviewed the current publication Trends On the Health
Care Industry with respect to historical operating expenses for assisted
care facilities. In addition, this appraiser has been provided itemized
comparable expense data with respect to three separate properties located
in the State of Louisiana but, due to confidentiality requirements, the
names of these properties are retained in the appraiser's file at the
request of the property owners. However, the following summary chart
is included for the benefit of the reader of this appraisal report and
it also provides support for the expense projections for the subject property.
The Income Approach to Value as it applies to the property being appraised
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>
ITEMIZED COMPARABLE EXPENSE DATA
<TABLE>
<CAPTION>
Property 1 Property 2 Property 3
<S> <C> <C> <C>
Administrative $249,610.00 $417,960.00 $461,530.00
Dietary $186,938.00 $251,184.00 $204,983.00
Maintenance $156,914.00 $275,424.00 $193,530.00
Housekeeping/Janitorial $ 51,340.00 $ 55,512.00 $ 52,322.00
Taxes/Insurance $ 82,000.00 $110,560.00 $ 66,738.00
Utilities $ 91,328.00 $ 24,360.00 $ 65,678.00
Nursing/Other -0- $ 9,458.00 $ 10,664.00
Per Unit Expenses $ 9,522.00 $ 9,458.00 $ 10,664.00
</TABLE>
Robert M. McSherry, MAI
<PAGE>
INCOME APPROACH TO VALUE
Year One
Gross Annual Potential Income:
21 - Assisted Living Units @ $1,775.00/month $ 447,300.00
4 - Efficiency Units @ $1,100.00/month $ 52,800.00
Total Gross Annual Potential Income $ 500,100.00
Less:Vacancy and Collection Losses
Assisted Living Units (25%) $ 111,825.00
Total Vacancy and Collection Loss $ 111,825.00
Effective Gross Annual Potential Income $ 388,275.00
Expenses:
Administrative $53,500.00
Plant Operations $37,400.00
Dietary $45,625.00
Housekeeping $12,500.00
Aides $41,000.00
Activities $15,000.00
Reserves for Replacement $ 7,500.00
Total Expenses $ 212,525.00
Net Operating Income $ 175,750.00
Note: Management fee included in Administrative Expense.
Robert M. McSherry, MAI
<PAGE>
INCOME APPROACH TO VALUE
Year Two
Gross Annual Potential Income:
21 - Assisted Living Units @ $1,775.00/month $ 447,300.00
4 - Efficiency Units @ $1,100.00/month $ 52,800.00
Total Gross Annual Potential Income $ 500,100.00
Less:Vacancy and Collection Losses
Assisted Living Units (10%) $ 44,730.00
Total Vacancy and Collection Loss $ 44,730.00
Effective Gross Annual Potential Income $ 455,370.00
Expenses:
Administrative $53,500.00
Plant Operations $44,550.00
Dietary $54,200.00
Housekeeping $13,750.00
Aides $45,100.00
Activities $16,500.00
Reserves for Replacement $ 7,500.00
Total Expenses $ 235,100.00
Net Operating Income $ 220,270.00
Note: Management Fee included in Administrative Expense.
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.
In order to ascertain the appropriate equity dividend or "cash-on-cash"
rate, the appraiser has reviewed money rates for other alternate investments
as of September 8, 1998. The results of this analysis of comparable and
alternative money rates are as follows:
Certificates of Deposit 30 Day 4.68%
90 Day 4.96%
180 Day 5.04%
Treasury Bill Rates 3 Months 4.79%
6 Months 4.79%
52 Weeks 5.00%
30 Year Treasury Bond Rate 5.36%
Merrill-Lynch Ready Assets 30 Day 5.03% (Average Yield)
Robert M. McSherry, MAI
<PAGE>
As can be reflected by the above alternate investment vehicles. Current
rates for both short and long term yields is between the high 4.00% to
the low 5.00% range. The projected 9.00% equity yield or "cash-on-cash"
return projected for the subject property provides an excellent return
on the investor's cash, approximately 3.00% in excess of other alternate
investment vehicles. Accordingly, the 9.00% equity dividend rate is
considered appropriate when the overall risk and competitive rates are
considered.
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
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
Robert M. McSherry, MAI
<PAGE>
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
Review of the three (3) improved property sales contained within this
report have indicated an Overall Capitalization Rate from a low of 9.96%
to a high of 11.6%. These indicated Overall Capitalization Rates which
have been derived from available market data indicates the rate chosen
for the capitalization of the net income into an indication of value based
upon stabilized income of 10.5% is reflective of current industry attitudes
and is considered appropriate with respect to this particular appraisal
assignment.
Robert M. McSherry, MAI
<PAGE>
Conclusion
Based on the available information we have concluded that a 10.5% is
the most appropriate capitalization rate which is derived from the actual
band of investments method and supported by the Underwriter's Method and
available market data. The location of the subject has also been considered.
Thus:
NET OPERATING INCOME
-------------------- = VALUE
OVERALL CAPITALIZATION RATE
$220,270.00
-------------------- = $2,097,809.00
.105
INDICATED VALUE OF SUBJECT FROM
INCOME APPROACH (R/T) $2,100,000.00
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 11% 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: $175,750.00 x .900901 = $ 158,333.00
Year Two: $220,270.00 x .811622 = $ 178,775.00
Total Present Value of Income Stream $ 337,108.00
Present Worth of Reversion
$2,100,000.00 x .811622 $1,704,406.00
Summation:
Present Worth of Income Stream $ 337,108.00
Present Worth/Reversion $1,704,406.00
Total $2,041,514.00
INDICATED VALUE OF SUBJECT FROM
INCOME APPROACH/DISCOUNTED
CASH FLOW $2,040,000.00
Robert M. McSherry, MAI
<PAGE>
RECONCILIATION AND FINAL VALUE
The three approaches to value have indicated the following value estimates
of the property being appraised:
COST APPROACH TO VALUE $2,255,000.00
MARKET APPROACH TO VALUE $2,150,000.00
INCOME APPROACH TO VALUE
OVERALL CAPITALIZATION RATE $2,100,000.00
DISCOUNTED CASH FLOW
ANALYSIS $2,040,000.00
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 21 Unit Assisted Care and 4 Unit
Efficiency Assisted Care Facility all located on Germantown Road within
the corporate limits of Minden, Webster Parish, Louisiana was estimated
to have a Market Value, as of September 8, 1998, 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, and based upon Stabilized Net Operating Income, of:
TWO MILLION ONE HUNDRED THOUSAND DOLLARS
($2,100,000.00)
Allocated:
Land $ 140,000.00
Improvements: $1,885,000.00
Furniture, Fixtures and Equipment $ 75,000.00
Goodwill of Going Concern -0-
The estimated "as is" value is estimated to be, as of September 8, 1998
and subject to completion within a reasonable period of time, is:
TWO MILLION FORTY THOUSAND DOLLARS
($2,040,000.00)
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 upon the reporting of a predetermined
value or direction in value that favors the cause of the client, the
amount of the value estimate, the attainment of a stipulated result, or
the occurrence of a subsequent event.
(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 and all rent comparables.
(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 Appraisal
Institute 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: /S/ROBERT M MCSHERRY
$2,100,000.00 ----------------------------
Robert M. McSherry, MAI
LA State Certified General Real Estate
Appraiser No. G0891
Allocated:
Land $ 140,000.00
Improvements $1,885,000.00
Furniture, Fixtures and
Equipment $ 75,000.00
Goodwill of Going
Concern -0-
As Of: September 8, 1998
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
"Advanced Level Finance I & II", 1997
"Risk Management/Ethics/Fair Housing", 1997
"How to Value Louisiana Timberland", 1997
"Uniform Standards of Professional Appraisal Practice" Seminar, 1997
PROFESSIONAL EXPERIENCE
Real Estate Broker, State of Louisiana (1971)
Monroe Redevelopment Agency, Monroe, Louisiana (1971)
Robert M. McSherry, MAI
<PAGE>
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)
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>
[PHOTO OF SUBJECT PROPERTY]
[PHOTO OF SUBJECT PROPERTY]
Robert M. McSherry, MAI
<PAGE>
[PHOTO OF SUBJECT PROPERTY]
Robert M. McSherry, MAI
<PAGE>
[PHOTO OF SUBJECT PROPERTY LOOKING NORTH DOWN GERMANTOWN ROAD]
[PHOTO OF SUBJECT PROPERTY LOOKING SOUTHWEST DOWN GERMANTOWN ROAD]
Robert M. McSherry, MAI
<PAGE>
[Letter of Engagement and Appraisal Ckeck List]
<PAGE>
[FIRST REPUBLIC BANK'S LOGO HERE]
Date: September 8, 1998
Appraiser's Name: Robert M. McSherry, MAI
Address: 3760 Chelsea Drive
Baton Rouge, LA 70809
Re: Proposed Assisted Living Facility (26 Units)
TBA Germantown Road
Minden, LA
Access/Information Contact: Mr. Fred Bales
Report Due Date: On or before Septernber 15, 1998
Dear Mr, McSherry:
This letter is to confirm your engagement by First Rcpublic Bank, to
perforrn a "complete appraisal" (self-contained report), of the above
referenced real property within the agreed upon time frame and for the
agreed upon fee. Please ensure that your appraisal report is addressed to
First Republic Bank.
The purpose of the appraisal is to estimate the market value. The
property interest to be appraised is the fee simple interest, unless
the subject is encumbered by a legally bindinig lease. If this is the
case, then the leased fee interest should also be appraised,
In order to be acceptable to First Republic Bank, your appraisal report
must comply with the following:
FIRREA STANDARDS
1. Conform to generally accepted appraisal standards as evidenced by the
Uniform Standards of Professional Appraisal Practice (USPAP).
2. Be written and contain sufficient information and analysis to support
the bank;s decision to engage in the loan transaction.
3. Analyze and report appropriate deductions and discounts for proposed
construction or renovations, partailly leased buildings, non-market
lease terms and tract developments with unsold units.
4. Be performed by sate licensed or state certified appraiser(s).
5. Be based upon the definition of market value and this definition will
be included in your report.
[FIRST REPUBLIC BANK LOGO HERE]
<PAGE>
Mr. Robert McSherry, MAI
September 8. 1998
RE: Proposed Assisted Living facility
Germantown Road
Minden, LA
Page 2
Market Value is defined by the United States Treasury Dep@ent, Comptroller
of the Currency, as:
The most probable price which a property should bring in a competitive
and open market under all conditions requisite to a fair sale, the buyer
and seller each acting prudently and knowledgeably, and assuming the
price is not affected by undue stimulus. Implicit in this definition
is the consummation of a sale as of a specified date and the passing
of title from seller to burner under conditions whereby:
1. Buver and seller are typically motivated.
2. Both parties are well informed or well advised, and acting in what
they consider their best interests.
3. A reasonable time is allowed for exposure in the open market.
4. Payment is made in terms of cash, in United States dollars or in
terms of financial arrangements comparable thereto.
5. The price represents the normal consideration for the property
sold unaffected bv special or creative financing or sales
concessions granted anyone associated with the sale.
First Republic Bank Appraisal Standards
1. All value estimates will be reported based on the "as is" physical
condition of the real estate. Exceptions to this standard are allowed
on appraisals for construction loans, renovation loans and development
loans. In these instances, the value is reported ander the assumption
that all proposed improvements are completed and available for sale, rent
or use on the date of the appraisal; absorplion period and any and all
holding costs must also be taken into consideration for the "as is" value.
2. All appraisals of owner-occupied properties will reflect the value
of the property, assuming that the owner-occupied space is vacant and
available for absorption. If it is partially owner-occupied, the portion
occupied by the owner should be considered vacant for appraisal purposes
and all appropriate deductions for leasing commissions, tenant
improvement, rent loss, capital costs, etc. must be incorporated into
your Income Approach, if the Income Approach is applicable to your
appraisal.
3. All assumptions in the appraisal will bc reasonable.
4. The appraisal report will contain a certification stating that the
appraiser engaged by the bank inspected the suject property and all
comparable data.
5. The appraisal report will contain a statement regarding investigation
and observation of environmental hazards.
6. All information sources will be disclosed in the appraisal report.
7. The appraisal report will contain a disclosure of any previous appraisals
or real estate related financial transactions by the appraiser associated
with the subject property.
<PAGE>
Mr. Robert M. McSherry, MAI
September 8, 1998
RE: Proposed Assisted Living Facility
Germantown Road
Minden, LA
Page 3
First Republic Bank Appraisal Standards (con't)
8. A copy of the legal description (as per deed) will be included in the
appraisal report.
9. All appraisal Rrports will cortain location maps of comparable data
and the subject property.
10. A copy of the site survey will be included in the appraisal report,
if available.
11. A copy of the subject's flood map will be included in the appraisal
report.
12. Current tax information on the subject property will be included
in the appraisal report (excludirg single-family residences). If the
improvements are proposed, the tax burden upon completion should be
estimated.
13. Sufficient description of existing (or proposed) improvements and
adequate photographs of the subject property will be included.
14. Copies of operating statements, rent rolls and lease summaries will
be included in all appraisals of exsting income producing properties.
If proposed, includes pro-formas of anticipated performance.
15. Detailed information on comparable sales and rentals is required.
16. All adjustments to comparable sales and rentals will be discussed.
17. Capitalization and discount rates will be adequately supported.
18. A discounted cash flow analysis (DCF) will be included in each
appraisal report of a multiple tenant, income producing property less
adequate explanation is given for its omission. A DCF will be included
in appraisals of leasehold and leased fee valuations. All assumptions
and projections used in DCF's will be clearlv stated and adequately
supported.
19. Residential properties (1-4 units) require a complete appraisal,
summary report (URAR or appropriate form), or a complete appraisal,
narrative self-contained report.
20. Non-residential properties require a complete appraisal, self-contained
report,
21. A signed copy of the appraiser engagement letter, including the
appraisil checklist (completed), will be included in the appraisal
report
22. Three (3) signed original appraisal reports are required.
<PAGE>
Mr. Robert M. McSherry, MAI
September 8, 1998
RE: Proposed Assisted Living Facility
Germantown Road
Minden, LA
Page 4
The following items are enclosed with this letter:
Appraiser to obtain all other necessary information from contact
Please notify me immediately of any problems in obtaining access or necessary
information that mav delay completion of the report by the agreed upon
date.
Sincerely,
FIRST REPUBLIC BANK
/S/DAVID M KNIGHT
David M. Knight, MAI
Vice President
Credit Administration
Enclosures
Your appraisal report will be owned by First Republic Bank, which is
entitled to retain the report, photocopy the report, and disclose all
or any portion, of the report information therein to any third party
within First Republic Bank as deemed appropriate.
The above stated conditions are hereby acknowledged and accepted. I
also understand that First Republic Bank is the client in this appraisal
assignment and any matters relating to value estimates will not be divulged
to any third party without the written approval of First Republic Bank.
In addition, any information furnished by First Rcpublic Bank which is
not considered to be public record, including but not limited to, financial
statements, operating statements, income statements, cost estimates.
construction contracts and property leases may not be divulged to any third
party without the witten approval of First Republic Bank.
APPRAISER'S SIGNATURE: /S/ROBERT M MCSHERRY
--------------------------
DATE: 9/8/98
--------------------------
<PAGE>
Mr. Robert McSherry, MAI
September 8, 1999
RE: Proposed Assisted Living Facility
Germantown Road
Minden, LA
Page 5
APPRAISAL CHECKLIST
Please review each item on this checklist and note the page number where
the information can be located within the report when possible. If the
question is not applicable to the subject property type being appraised,
please answer with N/A (Statements in Italic - not applicable to residential
form reports)
Page No.
X Definition of Market Value
- -------
X Statement of compliance with USPAP and also indicate that the
- ------- Departure Provision does not apply
X Legal description of subject property as per deed
- -------
X Prior sales history of subject preceding the date of the appraisal
- ------- (1 year for 1-4 famiiv residential properties, and 3 years for all
other property types)
X Approoriate, deductions and discounts are analyzed and reported for
- ------- any proposed construction, or any completed properties that are
panially leased or leased at other than market rents as of the date
of the appraisal, or any tract developments with unsold units
X Subject location map
- -------
X Site Survey and/or Subdivision plat Copy of subject Flood Zone Map
- -------
X Statement regarding investigation of enviromental hazards
- -------
X Current Tax information on subject/Past due taxes/Tax estimate if
- ------- actual is different from market
X Detailed information and photograph(s) on comparable sales & rentals
- ------- (address, lot & square, recordation information, vendor & vendee,
lessor & lessee [if partnership/corporation list names of principals],
site description, sales data, sales price, and listed days an market
prior to sale),
X Specific land and improved sales adjustments are discussed - a
- ------- matched pairs analysis is the preferred method to estimate the amount
of adjustments in the Sales Comparison Approach
X Land sales adjustment grid included
- -------
X Comparable land sales location map
- -------
X Comparable improved sales location map
- -------
X Comparable rental location map
- -------
X Capitalization rate is derived from, or supported by, comparable sales
- ------- data or other market derived data
X Discounted Cash Flow analysis is presented, or reason for its
- ------- exclusion is discussed
X Letter of transmittal identifies First Republic Bank as the client
- ------- 3 original, signed appraisal reports are provided to First Republic
Bank
X An Original engagement letter is signed and included as an addendum
- ------- to the appraisal report
X Copy of this checklist is completed and included as an addendum to
- ------- the appraisal report
X A certification statement that you personally inspected the subject
- ------- property and all comparable is included in the report
X Report was completed within specified time - or any extension beyond
- ------- the required time frame was explained in the report, and approved by
First Republic Bank
<PAGE>
Flood Map
<PAGE>
[FLOOD MAP INDICATING THE SUBJECT PROPERTY]
<PAGE>
Plat of Subject Site
<PAGE>
[PLAT OF SUBJECT SITE]
<PAGE>
Rent Comparable One Location Map
<PAGE>
[MAP INDICATING LOCATION OF RENT COMPARABLE 1]
<PAGE>
Rent Comparable Two Location Map
<PAGE>
[MAP INDICATING LOCATION OF RENT COMPARABLE 2]
<PAGE>
A Self-Contained Real Estate
Appraisal Report of
A Existing 28 Unit Independent Living Facility
Located at 78 Canyon Diablo
Just Outside the Corporate Limits of Sedona, Arizona and
Within the Village of Oak Creek
For
MMR Investment Bank
Post Office Box 781440
Witchita, Kansas 67278-1440
As Of
January 10, 1999
Prepared by
Robert M. McSherry, MAI
Louisiana State Certified General Real Estate Appraiser No. G0891
3760 Chelsea Drive
Baton Rouge, Louisiana 70809
<PAGE>
A Self-Contained Real Estate
Appraisal Report of
A Existing 28 Unit Independent Living Facility
Located at 78 Canyon Diablo
Just Outside the Corporate Limits of Sedona, Arizona and
Within the Village of Oak Creek
For
Colonial Trust Company
5336 North 19th Avenue
Phoenix, Arizona 85015
As Of
January 10, 1999
Prepared by
Robert M. McSherry, MAI
Louisiana State Certified General Real Estate Appraiser No. G0891
3760 Chelsea Drive
Baton Rouge, Louisiana 70809
Robert M. McSherry, MAI
<PAGE>
A Self-Contained Real Estate
Appraisal Report of
A Existing 28 Unit Independent Living Facility
Located at 78 Canyon Diablo
Just Outside the Corporate Limits of Sedona, Arizona and
Within the Village of Oak Creek
For
Church Loans and Investments
5305 1-40 West
Post Office Box 8203
Amarillo, Texas 79114-8203
As Of
January 10, 1999
Prepared by
Robert M. McSherry, MAI
Louisiana State Certified General Real Estate Appraiser No. G0891
3760 Chelsea Drive
Baton Rouge, Louisiana 70809
Robert M. McSherry, MAI
<PAGE>
ROBERT M. MC SHERRY, MAI
3760 Chelsea Drive
Baton Rouge, Louisiana 70809
Phone (504)924-8093
January 11, 1999
MMR Investment Bank
Post Office Box 781440
Witchita, Kansas 67278-1440
RE: An existing 28 unit independent living facility located at 78 Canyon
Diablo Road, just outside the corporate limits of Sedona, Arizona and
within the Village of Oak Creek.
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 an existing 28 unit Independent Living Facility located
at 78 Canyon Diablo, Sedona, Arizona, we have personally inspected the
subject site and reviewed the submitted plans and specifications for the
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,
Robert M. McSherry, MAI
<PAGE>
ROBERT M. MC SHERRY, MAI
3760 Chelsea Drive
Baton Rouge, Louisiana 70809
Phone (504)924-8093
October 20, 1998
Colonial Trust Company
5336 North 19th Avenue
Phoenix, Arizona 85015
RE: An existing 28 unit independent living facility located at 78 Canyon
Diablo Road, just outside the corporate limits of Sedona, Arizona and
within the Village of Oak Creek.
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 an existing 28 unit Independent Living Facility located
at 78 Canyon Diablo, Sedona, Arizona, we have personally inspected the
subject site and reviewed the submitted plans and specifications for the
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,
Robert M. McSherry, MAI
<PAGE>
ROBERT M. MC SHERRY, MAI
3760 Chelsea Drive
Baton Rouge, Louisiana 70809
Phone (504)924-8093
October 20, 1998
Church Loans and Investments
5305 1-40 West
Post Office Box 8203
Amarillo, Texas 79114-8203
RE: An existing 28 unit independent living facility located at 78 Canyon
Diablo Road, just outside the corporate limits of Sedona, Arizona and
within the Village of Oak Creek.
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 an existing 28 unit Independent Living Facility located
at 78 Canyon Diablo, Sedona, Arizona, we have personally inspected the
subject site and reviewed the submitted plans and specifications for the
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;
Robert M. McSherry, MAI
<PAGE>
Page Two
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
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 existing
28 Unit Independent Living Facility located at 78 Canyon Diablo Road,
just outside the corporate limits of Sedona, Arizona and within the Village
of Oak Creek, was estimated to have a Market Value based on Stabilized
Net Operating Income, as of January 10, 1999, of:
Robert M. McSherry, MAI
<PAGE>
Page Three
THREE MILLION ONE HUNDRED SEVENTY THOUSAND DOLLARS
($3,170,000.00)
Allocated:
LAND: $ 780,000.00
IMPROVEMENTS: $2,350,000.00
FURNITURE, FIXTURES & EQUIPMENT: $ 40,000.00
GOODWILL OF GOING CONCERN -0-
The "As Is" Value of the property, derived by the utilization of the
Discounted Cash Flow Methodology, is estimated to be, as of January 10,
1999, but subject to completion of the property in accordance with submitted
plans and specifications within a reasonable period of time, of:
TWO MILLION NINE HUNDRED TWENTY-FIVE THOUSAND DOLLARS
($2,925,000.00)
The subject property is proposed at the present time and this appraiser
has been provided plans and specifications for the property. The herein
contained Estimate of Market Value is conditioned upon 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.
This appraisal report was prepared in accordance with and compliance
of the Uniform Standards of Professional Appraisal Practice promulgated
by the Appraisal Foundation and the Guide Notes to the Standards of
Professional Practice adopted by the Appraisal Institute. These standards
contain binding requirements and specific guidelines that deal with the
procedures to be followed in developing an appraisal, analysis, or opinion.
These uniform
Robert M. McSherry, MAI
<PAGE>
Page Four
standards also set the requirements to communicate the appraiser's analysis,
opinions, and conclusions in a manner that will be meaningful and not
misleading in the marketplace, accordingly, the Departure Provision does
not apply.
If we may be of further service to you in regard to this property or
in any other manner, please sitate to contact us at your earliest convenience.
Respectfully Submitted,
/S/ROBERT M MCSHERRY
Robert M McSherry, MAI
Louisiana State Certified General
Real Estate Appraiser No. G0891
Robert M. McSherry, MAI
<PAGE>
EXECUTIVE SUMMARY
Location: 78 Canyon Diablo, Sedona, Arizona
Interest Appraised: Fee Simple Interest
Site: 2.78 Acres or 121,097 Square Feet, more or less
Building Description: The property will include twenty-eight (28)
independent living units all located within a
single, T-shaped building. 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
and other required additions to render the
subject property a functional assisted care
facility catering to those desiring independent
living.
Construction characteristics include a
reinforced poured concrete foundation, wood
framing, with a combination of stucco and siding
exterior walls with the roof being built-up.
The property is considered to be a most
functional assisted living facility and is
considered a most attractive property and
should be well accepted by the local market.
Highest and Best Use: Independent Living Facility including all
required amenities
Cost Approach to Value $4,085,000.00
Market Approach to Value $2,520,000.00
Income Approach to Value:
Stabilized Net Income: $3,170,000.00
Robert M. McSherry, MAI
<PAGE>
Discounted Cash Flow Value: $2,925,000.00
Final Value Estimate-
Stabilized Net Income: $3,170,000.00
"As Is" Value: $2,925,000.00
Allocated:
Land $ 780,000.00
Improvements $2,350,000.00
Furniture, Fixtures
and Equipment $ 40,000.00
Goodwill of Going
Concern -0-
Robert M. McSherry, MAI
<PAGE>
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 2.78 acre tract of land which is irregular in shape having frontage
along the Canyon Diablo within the village of Oak Creek which lies just
outside the corporate limits of Sedona,Arizona.
The subject property has been developed as an independent living and/or
assisted living facility for several years and has recently been transferred
to the Biltmore Group of Louisiana, LLC.
The legal description of the property being appraised is described as
follows:
"A tract of land located in the north half of Section 18, T16N-R6E,
G&SRB&M, Yavapai County, more fully described as follows: Tract A and
J of Village Plaza, Section 18, T16N-R6E, G&SRB&M, Yavapai County,
Arizona, containing 121,097 square feet or 2.78 acres, more or less."
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 an existing 28 unit independent
living facility located at 78 Canyon Diablo just outside the corporate
limits of Sedona, Arizona.
OBJECTIVE OF THE APPRAISAL
The objective and function 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 MMR Investment Bank in order to provide long
term financing of the subject property for the Biltmore Group of Louisiana,
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 existing construction, no
final inspection of the property will be required by the appraiser with
the property having recently undergone total renovation and is now considered
an excellent quality independent living facility utilizing quality workmanship
and materials throughout.
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 an existing 28 unit independent
living facility located at 78 Canyon Diablo, Sedona, Arizona.
OBJECTIVE OF THE APPRAISAL
The objective and function 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 Colonial Trust Company in order to provide
long term financing of the subject property for the Biltmore Group of
Louisiana, 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>
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 an existing 28 unit independent
living facility located at 78 Canyon Diablo just outside the corporate
limits of Sedona, Arizona.
OBJECTIVE OF THE APPRAISAL
The objective and function 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 Church Loans and Investments in order to provide
long term financing of the subject property for the Biltmore Group of
Louisiana, 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 effective date of this appraisal is January 10, 1999. The subject
property was personally inspected by this appraiser both before and after
this date.
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
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
Robert M. McSherry, MAI
<PAGE>
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.
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 was previously owned by Church Loans and Investment
Trust and Colonial Trust Company and had been acquired by these two entities
through the foreclosure of the property by the previous owner. The property
was conveyed to the Biltmore Group of Louisiana, LLC on October 16, 1998,
for a combined consideration of $2,176,000.00 for the real property, an
additional $350,000.00 was provided by the sellers for the renovation
of the property and $174,000.00 for overhead, lease up and operating capital
for the first year of operation indicating a total consideration of
$2,700,000.00.
The total consideration paid for the property and which was
financed by Church Loans and Investment Trust and Colonial Trust Company is
$2,700,000.00 which is considered to be below the Market Value of the subject
property once stabilized occupancy and stabilized income is achieved.
Robert M. McSherry, MAI
<PAGE>
As the property has been involved in numerous legal actions in the recent
past, numerous transactions affect the property but the transaction between
Church Loans and Investment Trust and Colonial Trust Company as sellers
and the Biltmore Group of Louisiana, LLC as buyers is considered an arms-length
transaction.
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
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codes, etc., can be assumed without provision of specific professional
or governmental inspections.
17. This appraisal is not based on a requested minimum valuation, a specific
valuation or the approval of the loan.
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SEDONA AREA DATA
Sedona is one of Arizona's premier tourism, recreation, resort, retirement
and art centers. It's location at the mouth of scenic Oak Creek Canyon
and at the center of the state's legendary Red Rock Country affords
breath-taking panoramas, a mild climate, plenty of sunshine and clean, fresh
air. The area is the second most visited site in the state after the Grand
Canyon.
Established in 1902 and incorporated in 1988, the community was named
for Sedona Schnebly, an elderly settler. Sedona spreads across the
boundaries of two north central Arizona counties, Coconico and Yavapai. It
sits at an elevation of 4,500 feet, 3,200 feet higher than Phoenix which is
120 miles south, and 2,600 feet lower than the rim country of Flagstaff, 30
miles to the north.
The average daily temperature in January is 55 degrees, April 72 degrees,
July 95 degrees and October 78 degrees. The average annual participation
is 17.15 inches, snowfall - 8.8 inches.
The population in Sedona for 1996 was 9,235, while the population of
Coconino County was 113,475 and Yavapai County 134,600. The City of Sedona
has growth rapidly over the past decade and may exceed 15,00 by the year
2010.
There are 6 financial institutions, 1 medical center, 2 health care clinics
and the population is served by 7 physicians, 3 dentists and 7 other health
care specialists.
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There are 12 Protestant churches and 2 Catholic churches serving the
area.
Recreational facilities include parks, a library, golf courses, motion
picture theaters, art museums and a live theater.
There are 2 elementary schools, 1 high school as well as several private
schools in the area.
The population base of the City of Sedona is largely comprised of the
age group which is either retired or near retirement. About 48 percent
of the population is 55 years of age or older.
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OVERVIEW OF ASSISTED AND INDEPENDENT LIVING INDUSTRY
In anticipation that more elderly Americans will live in assisted living
homes than nursing homes in the near future, consumer industry groups
are saying it is time to put some minimum standards into law. One of
the most important things for the industry is to try not to admit residents
it cannot provide quality care for. Many assisted living homes charge
additional fees for personal services residents may come to need as they
grow older. Some will help residents if they get sick by permitting periodic
visits from nurses, for example, or providing supervision for people with
Alzheimer's Disease.
In order to minimize residents need to move, the consumer or trade groups
say assisted living facilities should be required to offer at least some
help with the dozen daily activities including meals, using the bathroom,
taking medication and shopping. Those facilities which accept people
with Alzheimer's or other types of dementia would also be required to
provide 24 hour awake staff and special training for those workers.
Assisted living has become the hottest new housing option for older people
by promising to provide a happy medium between their homes and a full
nursing home facility. Industry estimates show that the number of elderly
Americans living in settings that could be described as assisted living
has probably doubled from 560,000 in 1990 to as many as 1,000,000 in 1997.
By early next century, experts predict assisted living homes will care
for more elderly Americans than nursing homes.
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Although numbers are inexact, assisted living facilities ranging from
luxury apartment buildings to modest group homes provide housing along
with personal services and some health care. Residents may be too frail
to live alone but too healthy to need the 24 hour medical attention of
nursing homes. Assisted living can be less expensive than nursing homes.
A 1997 survey by the National Center for Assisted Living found that 52%
costs $1,001.00 to $2,000.00 per month and 24% cost less than $1,000.00
per month. In contrast, monthly nursing home fees average above $3,000.00.
Assisted living's affordability has attracted the attention of law makers
worried about how the nation will ensure elderly care for the huge baby
boom generation now middle aged.
Medicaid programs for the poor in 28 states have begun to cover some
assisted living services and the Department of Health and Human Services
is conducting a fact finding survey.
Unlike nursing homes, assisted living homes are not regulated by the
Federal Government. Fewer than half of the states require licensing before
it opens. That allows for flexibility and partly explains assisted living's
popularity.
In summary, the assisted living facilities currently expanding throughout
the United States are the most popular and desirable alternative living
situation for those elderly which require some minimal level of care but
not the extensive
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level required by nursing home patients. As the population continues
to grow older but maintain better health, the appeal thus desirability
of assisted living facilities will continue to be enhanced.
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
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no income or expense history, it is considered to be a functional facility
and a facility which is demand with respect to providing long term assisted
living care.
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DESCRIPTION OF THE PROPERTY
Site Data
Size, Shape and Topography
The subject site is a 2.78 acre or 121,097 square foot site which is
slightly irregular in shape having approximately 465 feet of frontage
along the east side of Canyon Diablo Road and 212 feet of frontage along
the south side of Horse Canyon Road all within the Village of Oak Creek
which is located just outside the incorporated areas of Sedona, Arizona.
The property is located just off State Highway 179 "Rimrock-Sedona Highway"
and is within approximately 10 minutes drive of the Interstate Highway
System.
The subject property is level to gently rolling due to extensive site
preparation and the entire site is either improved with the improvements,
asphalt parking areas, landscape areas consisting of creek washed rocks,
lava rocks or sodded grass and the site is considered an excellent site
having all the amenities required to be developed as an above average
quality independent living facility.
Utilities
The subject property is located within the Village of Oak Creek and is
provided with all available utilities and services available to properties
in the area including electrical service, police and fire protection,
public water, sewerage disposal and refuge pick-up. Telephone service
and natural gas service is provided by local utility companies serving
the area with natural gas being
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primarily propane and all services and utilities are considered adequate
to provide for the requirements of the subject property.
Access
Access to the subject property is provided as the result of frontage
along Canyon Diablo Road, a dual-lane, municipally maintained traffic
artery which is asphalt in nature and provides a connection with Arizona
Highway 179 approximately 200 feet from the subject property.
Arizona Highway 179 provides assess to the Interstate Highway System
as well as to the incorporated areas of Sedona, Arizona and, overall,
access from all areas of the Village of Oak Creek and Sedona, Arizona
as well as the other inhabited areas within this portion of Arizona is
well provided.
Zoning
Conversations with representatives in the local Zoning and Planning Office
indicated that the current zoning for the subject site is "R2-3" Multiple
Dwelling District with a special use permit for food services and other
health services. Land uses are also controlled by deed restrictions or
other restrictive covenants which run with the land and, although this
appraiser has not conducted an in-depth review of the abstract to the
subject site, no deed restrictions or other restrictive covenants are
assumed to exist which would affect the utilization of the subject site
as a site of an assisted living facility.
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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.
Drainage
Review of Flood Hazard Maps found in the local Community Office indicated
the subject property to be located in a Flood Zone "C" according to Flood
Map No. 040093-0880 having an effective date of August 19, 1995. This
indicates no flood insurance is required for the subject property.
Tax Data
The subject property is currently accessed as Parcel 13-405-41-065A-1
with the land accessed at $420,000.00 and the improvements at $1,083,599.00
for a total of $1,503,599.00 which is the estimated depreciated replacement
costs estimate for the property.
Conversations with representatives in the County Treasurer's Office indicated
the subject property to be affected by two different millage rates and
two separate accessed values as follows:
Millage 6.3091 Mills
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Assessed Value $141,730.00
Millage 3.8712
Assessed Value $150,060.00
Total Taxes Due - 1998 $13,777.36
Note: These taxes were paid in 1998.
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LOCATION MAP
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DESCRIPTION OF THE IMPROVEMENTS
Independent Living Facility
The existing facility containing the 28 independent living units is
constructed within a somewhat modified T-shaped building but with the indoor
swimming pool and activity building being separate from the primary structure
containing the 28 independent living units and common areas. Construction
characteristics include a reinforced poured concrete foundation, wood frame
exterior walls with a stucco exterior and roof being a commercial tar and
gravel built-up roof. Gutters and downspouts are in place at strategic
locations, windows are horizontal slide doubled paned insulated windows with
screens and exterior doors are metal insulated doors. The building is totally
sprinklered for fire protection, has emergency lighting in place and an
emergency call system which connects each individual guest room to a central
control console.
The property includes 16 efficiency units containing 401 square feet
each, 8 one bedroom/one bath units containing 490 square feet each and
4 two bedroom/one bath units containing also 490 square feet each. The
common area includes a full service kitchen and serving area, foyer, 2
administrative offices, large hallways, a combination living/dining activities
area which features a hand laid stone fireplace with gas fire logs are
contained within the main building and encompass approximately 9,930 square
feet. The enclosed swimming pool and activities building encompasses
approximately 2,100 square feet for a total of 24,332 square feet of heating
and cooled area within the subject property.
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Each of the individual guest rooms features a combination of carpet and
glazed tile flooring, painted sheet rock interior walls and ceilings with
the kitchen including a small microwave unit and a small refrigerator.
All units are sprinklered for fire protection, provide a 24 hours intercom
system which is monitored at a central console and feature a very efficient
functional design. The bathroom found within these units features a large
open shower which is also of glazed tile construction with respect to
the floor and surrounding walls and these showers are accessible to handicap
and wheelchair patients as well as normal persons. Each of these units
is heated and cooled by an individual HVAC system which is on a separate
meter and has an individual thermostat in each of the rooms.
The common areas feature a large institutional kitchen which contains
all of the typical kitchen equipment necessary for operating a facility
such as the subject. This equipment is all in working order, of stainless
steel construction and of the highest quality and is adequate to provide
functional food service for the subject property. The remaining common
areas include large open corridors with skylight ceilings which house
individual group seating areas and feature carpet flooring and painted
shetrock walls and a vaulted ceiling again with skylights. The two
administrative offices feature carpet flooring, painted sheetrock walls and
are of adequate size to render them functional.
The major common area is the combination living/dining and activities
area which features carpet flooring, painted sheetrock walls with wallpaper
and a large amount of open glass viewing areas of the picturesque scenery
facing the
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rear of the subject property. This picturesque scenery is such as to
generate additional income from the rooms enjoying this view with the
rooms facing the front of the structure enjoy slightly less view amenities.
The living area is improved with a hand laid stone fireplace with gas
logs with lighting provided by ceiling fans, recessed fixtures and chandeliers
and this area is most functional and livable.
The separate activities building contains the heated 4 foot deep gunite
pool features a concrete apron around the pool, wood walls and ceiling
which have been painted with a hand painted Muriel painted by a local
artist and is climate controlled. The activities room is located just
off the pool and is separated by a small partition and features carpet
flooring and painted sheetrock walls and an adequate area for exercise
classes and various excercise equipment.
As noted, the entire property contains a total of 24,322 square feet
of gross building area and it contains 28 efficiency, one bedroom and
two bedroom living units as well as the common areas and all required
amenities to make this a functional, very desirable development.
Although the property is existing construction, approximately $350,000.00
worth of renovation expense has been incurred since October, 1998 and
thus all deferred maintenance has been cured in the property. It's effective
age is effectively 0-1 year with a total economic life of 40 years and
no functional obsolescence was found within the layout or design or any
economic obsolescence throughout the neighborhood.
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The property being appraised is considered to be a most functional independent
living facility containing the required amenities to make it a success
in this particular retirement community market.
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
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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 zoned "R-2-3" Multiple
Dwelling District with Special Use Exception granted for food and medical
services to be provided. This zoning classification allows a large number
of residential uses to be permitted for this classification and considering
the overall condition and design of the subject, it's location within
a combination residential/commercial area, the access provided the property
and other pertinent factors indicate the present utilization as an independent
living facility with certain amenities including medical and food services
to be one of the better is not the best permissible use of the site and
would be a legal, conforming permissible 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 which is currently applicable to the subject property does
allow for an assisted care facility to be constructed on the site as well
as other types of multi-family construction. This zoning classification
will allow the property to be developed as proposed within this appraisal
report and this is considered the most likely probable use to which the
subject property could be put.
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In the final analysis, the proposed utilization of the subject property
is considered to constitute one of it's Highest and Best Uses.
Robert M. McSherry, MAI
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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.
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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 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
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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 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.
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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
as
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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 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
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cost of the work." The property is existing but has had all the deferred
maintenance cured thus no deferred maintenance exists.
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
existing but has an effective age of 1 year and a total economic life
of 40 years thus no physical incurable deterioration is present.
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.
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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.
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:
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COMPARABLE LAND SALE 1
Date of Sale: January 31, 1997
Recordation: Conveyance Book 3351, Page 598,
Sedona,Arizona
Vendor: Frederick Coleman, III
Vendee: IDNANI Investment Group, LLC
Size: 1.09 Acres or 47,480 Square Feet
Consideration: $450,000.00
Indicated Price/Acre: $412,844.009/acre
Indicated Price/Square Foot: $9.47/square foot
Brief Legal Description: The north 300 feet of Tract C, Lake
Plaza, in Section 18, T16N-R6E
Financing: Typical
Site Utilities: Public
Terrain: Relatively Level
Access: Adequate
Zoning: "C2-A"
Highest and Best Use: Commercial or Motel
Confirmation: Public Records
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COMPARABLE LAND SALE 2
Date of Sale: August 25, 1997
Recordation: Conveyance Book 3465, Page 256,
Sedona,Arizona
Vendor: 6th Avenue Apartments
Vendee: Sedona Fore District
Size: 1.63 Acres or 71,002 Square Feet
Consideration: $680,9070.00
Indicated Price/Acre: $417,773/acre
Indicated Price/Square Foot: $9.59/square foot
Brief Legal Description: Part of Trach H, Village Square
amended, Section 13, T16N-R5E
Financing: Typical
Site Utilities: Public
Terrain: Relatively Level
Access: Adequate
Zoning: "C2-2"
Highest and Best Use: Commercial
Confirmation: Public Records
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COMPARABLE LAND SALE 3
Date of Sale: November 6, 1996
Recordation: Conveyance Book 3307, Page 211,
Sedona,Arizona
Vendor: Dale Scott
Vendee: Gene Baccola
Size: .17 Acres or 7,500 Square Feet
Consideration: $77,000.00
Indicated Price/Acre: $447,674.00/acre
Indicated Price/Square Foot: $10.26/square foot
Brief Legal Description: Lot 7, Village Square Amended
Financing: Typical
Site Utilities: Public
Terrain: Relatively Level
Access: Adequate
Zoning: "C2-2"
Highest and Best Use: Commercial
Confirmation: Public Records
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COMPARABLE LAND SALES SUMMARY CHART
<TABLE>
<CAPTION>
Date Size/Usable Price/Acre Location
<S> <S> <S> <S> <S>
Sale 1 1/97 1.09 Acres $412,844.00 Sedona,AZ
Sale 2 8/97 1.63 Acres $417,773.00 Sedona,AZ
Sale 3 11/96 .17 Acres $447,674.00 Sedona,AZ
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ANALYSIS OF COMPARABLE LAND SALES
Analysis of the three vacant comparable land sales indicated all sales
to be current with respect to date of sale and the appraiser discovered
several additional small square footage sales similar to Comparable Sale
3 but have not included them in the actual report but utilized them for
analysis purposes.
Vacant Comparable Land Sale 2 and 3 are both of nearly the same size
as the subject, feature a similar location but a slightly superior zoning
classification requiring a downward adjustment of these sales. All physical
characteristics are considered similar requiring no adjustment and no
adjustment is required for the date of sale.
Vacant Land Sale 3 is significantly smaller than the subject requiring
a downward adjustment for this factor as well as a downward adjustment
for it's superior zoning classification. All other physical characteristics
are similar requiring no adjustment nor does this property require adjustments
for the time differential.
In the final analysis, Vacant Comparable Land Sale 1 is considered to
be the best available indicator as it is located almost adjacent to the
subject site and this sale has been accorded the greatest credence. However,
considerable weight has been accorded Vacant Land Sale 2 in the analysis
process.
Robert M. McSherry, MAI
<PAGE>
In the final analysis, after each of these various vacant land sales
have been carefully inspected and adjusted by the appraiser for dissimilarity
between the comparable sale and the subject, it is our opinion that the
available market data indicates a per square foot value for the subject
site, as if vacant and in it's present condition, of $6.50 per square
foot and is indicative of current attitudes in this particular market
when the location and zoning of the subject site are considered.
Therefore, the estimated value of the subject, as if vacant, is thus
derived:
121,097 square feet @ $6.50/square foot $787,130.00
INDICATED VALUE OF THE SUBJECT SITE,
AS IF VACANT (R/T) $780,000.00
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.
Robert M. McSherry, MAI
<PAGE>
The insurance costs indicated are limited to construction-period coverage
including the builder's risk.
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
Cost Source: Marshall-Swift Cost Manual and
Contractor Cost Data
Direct Costs:
Primary Structure
24,332 sq. ft. @ $93.15/sq. ft. $2,266,525.00
Total Direct Costs: Improvements $2,266,525.00
Indirect Costs:
Plans, Specifications, Inspection Included in Direct Costs
Contractor's Overhead/Profit $248,540.00
Interim Interest $104,000.00
Legal, Audit, Appraisal $ 82,000.00
Financing Fees - Construction $ 41,400.00
Misc. Expenses $ 50,000.00
Financing Fees - Long Term $248,000.00
Total Indirect Costs $ 773,940.00
Total Replacement Costs New: Improvements $3,040,465.00
Less:Accrued Depreciation
Physical Curable -0-
Physical Incurable -0-
Functional Obsolescence -0-
Economic Obsolescence -0-
Total Accrued Depreciation -0-
Depreciated Replacement Costs: Improvements $3,040,465.00
Add: Land Value
2.78 acres @ $45,000.00/acre $ 780,000.00
Add: Site Improvements
Including Landscaping, Parking, Lighting,
Walks, Patio, Porches $ 60,000.00
Robert M. McSherry, MAI
<PAGE>
Add: Contributing Value of Pool $ 25,000.00
Add: Furniture, Fixtures and Equipment $ 40,000.00
Add: Entrepreneurial Profit @ 5% $ 140,000.00
Total All Costs and Value Components $4,085,465.00
INDICATED VALUE OF SUBJECT FROM
COST APPROACH (R/T) $4,085,000.00
Note: Cost of Furniture, Fixture and Equipment based on costs association
with actual costs experienced by other comparable facilities.
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.
The appraiser has carefully perused the area market with respect to sales
of properties considered similar to the subject property and none were
found. However, available data from other appraisers has revealed the
sale of three similar type properties in other areas of the United States
and these are included merely for analysis purposes as follows:
Robert M. McSherry, MAI
<PAGE>
IMPROVED PROPERTY SALE 1
VENDOR: American Retirement, Inc.
VENDOR: Horizon Retirement, Inc.
LOCATION: 2601 Chimney Rock Road,
Hendersonville, North Carolina
RECORDATION: N/A
DATE: February, 1993
CONSIDERATION: $6,480,000.00
TERMS: $2,224,000.00 cash, assumption of a
mortgage balance of $4,316,000.00.
terms are considered to be cash
equivalent.
SITE SIZE: N/A
IMPROVEMENTS: This is a 110 unit senior living
community constructed in 1988. The
units are housed in a three-story
building of wood frame construction.
Construction quality is considered to
be average; condition at the time of
sale was good. The gross building area
is approximately 96,058 square feet with
an average unit size of 873 square feet.
ESTIMATED GROSS INCOME: $1,706,255.00
ESTIMATED EXPENSE RATIO: Approximately 56 percent
NET OPERATING INCOME: Approximately $751,844.00
UNIT INDICATORS: SP/Unit = $58,909.00
SP/SF = $ 67.46
SP/GI = 3.80 GIM
NOI/SP = .1160 OAR
Robert M. McSherry, MAI
<PAGE>
IMPROVED PROPERTY SALE 2
VENDOR: American Retirement, Inc.
VENDOR: Emeritus Corporation
LOCATION: 2601 Chimney Rock Road,
Hendersonville, North Carolina
RECORDATION: N/A
DATE: September, 1995
CONSIDERATION: $9,483,523.00
TERMS: Cash
SITE SIZE: N/A
IMPROVEMENTS: This is a 110 unit senior living
community constructed in 1988. The
units are housed in a three-story
building of wood frame construction.
Construction quality is considered
to be average; condition at the time
of sale was good. The gross building
area is approximately 96,058 square
feet with an average unit size of
873 square feet.
ESTIMATED GROSS INCOME: Approximately $2,175,000.00
ESTIMATED EXPENSE RATIO: Approximately 56 percent
NET OPERATING INCOME: Approximately $957,000.00
UNIT INDICATORS: SP/Unit = $86,214.00
SP/SF = $ 98.73
SP/GI = 4.36 GIM
NOI/SP = 0.1009 OAR
Robert M. McSherry, MAI
<PAGE>
IMPROVED PROPERTY SALE 3
VENDOR: ABD Investments, Inc.
VENDOR: Merrill Associates, LP
LOCATION: 6725 Inglewood Avenue, Stockton,
California
RECORDATION: N/A
DATE: July, 1994
CONSIDERATION: $4,200,000.00
TERMS: Cash
SITE SIZE: N/A
IMPROVEMENTS: This is a 74 unit senior living
community constructed in 1989. The
units are housed in two-story buildings
of wood frame construction. Construction
quality is considered to be average;
condition at the time of sale was good.
The gross building area is approximately
63,730 square feet with an average unit
size of 861 square feet.
ESTIMATED GROSS INCOME: Approximately $1,395,000.00
ESTIMATED EXPENSE RATIO: Approximately 70 percent
NET OPERATING INCOME: Approximately $418,500.00
UNIT INDICATORS: SP/Unit = $56,757.00
SP/SF = $ 65.90
SP/GI = 3.01 GIM
NOI/SP = 0.0996 OAR
Robert M. McSherry, MAI
<PAGE>
SUMMARY
</TABLE>
<TABLE>
<CAPTION>
Sale One Sale Two Sale Three
<S> <C> <C> <C>
Indicated OAR 11.6% 10.09% 9.96%
Price/Unit $58,909.00 $86,214.00 $56,757.00
Gross Income Multiplier 3.80 4.36 3.01
Estimated Expense Ratio 56% 56% 70%
</TABLE>
The three Improved Property Sales included within this report have been
provided this appraiser by knowledgeable sources and other appraisers
and are deemed accurate as they were verified by knowledgeable and ethical
persons. The appraiser has conducted an in-depth review of conveyances
of similar type assisted living or congregate care facilities in the Sedona,
Arizona area and none were found which were considered to be reflective
of true arms-length transactions between willing buyers and willing sellers
with no undue duress being experienced. These three Improved Property
Sales have been included for the purpose of deriving an indicated Overall
Capitalization Rate, an indicated price per unit and an indicated Gross
Income Multiplier for utilization in the analysis process with respect
primarily to the Income Approach to Value. The level of services provided
by these facilities are similar to those to be provided by the subject
property which would include three (3) meals per day, utilities, maid
service one (1) day a week, flat linen service one (1) day a week, various
assistance with respect to bathing, exercise, and transportation to various
off-site functions as well as on-site recreational functions, counseling,
with other services provided on a more extensive basis for additional
expense paid by the
Robert M. McSherry, MAI
<PAGE>
guest or resident of the facility. It is acknowledged that a large number
of the residents residing in the independent living facilities are requiring
increased levels of care and these additional expenses are being passed
directly to the tenant as they upset the economies of an assisted care
facility having to provide this extraordinary level of care without additional
remuneration.
The price per unit indicated by Improved Property Sale 2 is considered
the best available and has been accorded the greatest credence. Accordingly:
28 Units @ $90,000.00/Unit $2,520,000.00
INDICATED VALUE OF SUBJECT FROM
THE MARKET DATA OR DIRECT SALES
COMPARISON APPROACH (R/T) $2,520,000.00
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.
Independent living 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 existing at the present time but has not been
operated as an independent living facility in the past and thus no historical
income or expense data is available for the property.
The subject property will contain 28 independent living units including
16 efficiencies, 8 one bedroom and 4 two bedroom units with half of the
units facing the front of the building and half facing the rear. The
units facing the rear of the
Robert M. McSherry, MAI
<PAGE>
building enjoy the picturesque view amenity of the mountains and other
view amenities and should generate slightly additional income than those
facing the front of the building.
In the processing of arriving at a projected economic rental rate for
the subject units, the only competing facility in the Sedona, Arizona
area has been surveyed by the appraiser. This development is identified as
the Ktria Kachi Point Retirement Community which contains not only
independent living units but also assisted care units,a nursing home unit and
dementia units. The units include one and two bedroom units ranging in size
from 400 square foot to a high of 963 square feet with the one bedroom units
leasing from a low of $2,000.00 to a high of $2,600.00 per unit while the two
bedrooms lease from a low of $2,600.00 to a high of $3,100.00 per unit.
These rents include utilities with the exception of a telephone and cable
television but only one meal per day, weekly housekeeping and a limited
amount of other services. The services provided by this comparable property
are vastly inferior to the services projected to be provided by the subject
and this has been taken into consideration when projecting economic rental
rates for the subject units.
Based on our analysis, it is felt that the efficiency units facing the
view amenity will lease for $2,400.00 each while the units facing the
front of the building will lease for $2,200.00. The one bedroom units
enjoying the view amenity will lease for $2,800.00 while the units facing
the front will be $2,600.00 each. The two bedroom units facing the view
amenity will lease for $3,200.00 with the two bedroom units facing the
front of the building leasing for $3,000.00. These rents
Robert M. McSherry, MAI
<PAGE>
will include all utility services including cable TV, valet service,
24 hour security, three complete meals chosen from a menu, town car and
van transportation for shopping and doctor's appointments, a private club
with heated pool and spa, turndown bed service nightly, a library/computer
area, activities area, extensive wellness programs including mind, body
and spirit, 24 hour staffing, daily freshening of apartments with intensive
weekly housekeeping and weekly laundry service.
As noted, the amenity package enjoyed by the subject property is vastly
superior to that enjoyed by the only comparable in the area and the actual
units are vastly superior to these comparable units.
The appraiser has had the opportunity to appraise a number of assisted
and independent living facilities throughout the southeast over the last
several years and has relied on data provided by these facilities, various
industry publications and data provided by various health care facilities
and groups and experts in arriving at the estimated monthly rental rates
and expenses including fixed expenses, operating expenses, staffing, dietary,
reserves for replacement and other appropriate expenses.
The level of care and the amenities offered by the subject property are
greatly in excess of these typically offered an assisted unit facility.
However, this appraiser has reviewed per unit expenses associated with
similar design assisted living facilities throughout the southeast and
adjusted these expenses to allow for the provision of the various amenities
to be provided by the subject.
Robert M. McSherry, MAI
<PAGE>
Based on the projected economic rental rates for the subject property
as quoted in this appraisal report and our estimated expenses associated
with the operation of the subject property, the Income Approach to Value
is as follows. It is appropriate to note that the appraiser has reviewed
the current publication Trends in the Health Care Industry with respect
to historical operating expenses for independent living units in arriving
at our estimates of the appropriate expenses.
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 with rental rates anticipated to increase 10% between
year two and three are completed as follows:
Robert M. McSherry, MAI
<PAGE>
INCOME APPROACH TO VALUE
Year One
Gross Annual Potential Income:
8 - Efficiency Units @ $2,200.00/month $ 211,200.00
8 - Efficiency Units @ $2,400.00/month $ 230,400.00
4 - One Bedroom Units @ $2,600.00/month $ 124,800.00
4 - One Bedroom Units @ $2,800.00/month $ 134,400.00
2 - Two Bedroom Units @ $3,000.00/month $ 72,000.00
2 - Two Bedroom Units @ 3,200.00/month $ 76,800.00
Total Gross Annual Potential Income $ 849,600.00
Less: Vacancy and Collection Losses (25%) $ 212,400.00
Total Vacancy and Collection Loss $ 212,400.00
Effective Gross Annual Potential Income $ 637,200.00
Expenses:
Administrative $158,000.00
Plant Operations $ 71,400.00
Dietary $ 91,200.00
Housekeeping $ 25,000.00
Aides $ 76,500.00
Activities $ 30,000.00
Reserves for Replacement $ 15,000.00
Total Expenses $ 467,100.00
Net Operating Income $ 170,100.00
Note: Management fee included in Administrative Expense.
Robert M. McSherry, MAI
<PAGE>
INCOME APPROACH TO VALUE
Year Two
Gross Annual Potential Income:
Gross Annual Potential Income:
8 - Efficiency Units @ $2,200.00/month $ 211,200.00
8 - Efficiency Units @ $2,400.00/month $ 230,400.00
4 - One Bedroom Units @ $2,600.00/month $ 124,800.00
4 - One Bedroom Units @ $2,800.00/month $ 134,400.00
2 - Two Bedroom Units @ $3,000.00/month $ 72,000.00
2 - Two Bedroom Units @ 3,200.00/month $ 76,800.00
Total Gross Annual Potential Income $ 849,600.00
Less: Vacancy and Collection Losses (10%) $ 84,960.00
Total Vacancy and Collection Loss $ 84,960.00
Effective Gross Annual Potential Income $ 764,640.00
Expenses:
Administrative $158,000.00
Plant Operations $ 84,000.00
Dietary $107,310.00
Housekeeping $ 25,000.00
Aides $ 90,000.00
Activities $ 30,000.00
Reserves for Replacement $ 15,000.00
Total Expenses $ 509,310.00
Net Operating Income $ 255,330.00
Note: Management Fee included in Administrative Expense.
Robert M. McSherry, MAI
<PAGE>
INCOME APPROACH TO VALUE
Year Three
Gross Annual Potential Income:
Gross Annual Potential Income:
8 - Efficiency Units @ $2,420.00/month $ 232,320.00
8 - Efficiency Units @ $2,640.00/month $ 253,440.00
4 - One Bedroom Units @ $2,800.00/month $ 137,280.00
4 - One Bedroom Units @ $3,080.00/month $ 147,840.00
2 - Two Bedroom Units @ $3,300.00/month $ 79,200.00
2 - Two Bedroom Units @ 3,520.00/month $ 84,480.00
Total Gross Annual Potential Income $ 934,560.00
Less- Vacancy and Collection Losses (5%) $ 46,728.00
Total Vacancy and Collection Loss $ 46,728.00
Effective Gross Annual Potential Income $ 887,832.00
Expenses:
Administrative $180,000.00
Plant Operations $ 90,000.00
Dietary $115,000.00
Housekeeping $ 25,000.00
Aides $ 98,000.00
Activities $ 30,000.00
Reserves for Replacement $ 15,000.00
Total Expenses $ 553,000.00
Net Operating Income $ 334,832.00
Note: Management Fee included in Administrative Expense.
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.
In order to ascertain the appropriate equity dividend or "cash-on-cash"
rate, the appraiser has reviewed money rates for other alternate investments
as of January 10, 1999. The results of this analysis of comparable and
alternative money rates are as follows:
Certificates of Deposit 30 Day 4.29%
90 Day 4.51%
180 Day 4.67%
Treasury Bill Rates 3 Months 4.39%
6 Months 4.40%
52 Weeks 4.33%
Robert M. McSherry, MAI
<PAGE>
30 Year Treasury Bond Rate 5.21%
Merrill-Lynch Ready Assets 30 Day 54.65 (Average Yield)
As can be reflected by the above alternate investment vehicles. Current
rates for both short and long term yields is between the high 4.00% to
the low 5.00% range. The projected 9.00% equity yield or "cash-on-cash"
return projected for the subject property provides an excellent return
on the investor's cash, approximately 3.00% in excess of other alternate
investment vehicles. Accordingly, the 9.00% equity dividend rate is considered
appropriate when the overall risk and competitive rates are considered.
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 . 1 079671 = .0809
.25 x .09 = .0225
Total = .10340
Rounded to .103
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
Robert M. McSherry, MAI
<PAGE>
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. 1 079671 X.75
RO =.0971
R/T = .097
Review of the three (3) improved property sales contained within this
report have indicated an Overall Capitalization Rate from a low of 9.96%
to a high of 11.6%. These indicated Overall Capitalization Rates which
have been derived from available market data indicates the rate chosen
for the capitalization of the net
Robert M. McSherry, MAI
<PAGE>
income into an indication of value based upon stabilized income of 10.5%
is reflective of current industry attitudes and is considered appropriate
with respect to this particular appraisal assignment.
Conclusion
Based on the available information we have concluded that a 10.5% is
the most appropriate capitalization rate which is derived from the actual
band of investments method and supported by the Underwriter's Method and
available market data. The location of the subject has also been considered.
Thus:
NET OPERATING INCOME
------------------------ = VALUE
OVERALL CAPITALIZATION RATE
$334,832.00
--------------- = $3,188,876.00
.105
INDICATED VALUE OF SUBJECT FROM
INCOME APPROACH (R/T) $3,170,000.00
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 11% 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: $170,100.00x.900901 = $ 153,243.00
Year Two: $255,330.00 x.811622 = $ 207,231.00
Year Three: $334,832.00 x.731191 $ 244,826.00
Total Present Value of Income Stream $ 605,300.00
Present Worth of Reversion
$3,170,000.00 x.731191 $2,317,875.00
Summation:
Present Worth of Income Stream $ 605,300.00
Present Worth/Reversion $2,923,175.00
Total $2,923,175.00
INDICATED VALUE OF SUBJECT FROM
INCOME APPROACH/DISCOUNTED
CASH FLOW $2,925,000.00
Robert M. McSherry, MAI
<PAGE>
RECONCILIATION AND FINAL VALUE
The three approaches to value have indicated the following value estimates
of the property being appraised:
COST APPROACH TO VALUE $4,085,000.00
MARKET APPROACH TO VALUE $2,520,000.00
INCOME APPROACH TO VALUE
OVERALL CAPITALIZATION RATE $3,170,000.00
DISCOUNTED CASH FLOW
ANALYSIS $2,925,000.00
The subject property is existing 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 existing property identified as the 28 Unit Independent Living Facility
located at 78 Canyon Diablo, within the corporate limits of Sedona, Arizona
was estimated to have a Market Value, as of January 10, 1999, and based
upon Stabilized Net Operating Income, of:
THREE MILLION ONE HUNDRED SEVENTY THOUSAND DOLLARS
($3,170,000.00)
Allocated:
Land $ 780,000.00
Improvements: $2,350,000.00
Furniture, Fixtures and Equipment $ 40,000.00
Goodwill of Going Concern -0-
The estimated "as is" value is estimated to be, as of January 10, 1999
and subject to completion within a reasonable period of time, is:
TWO MILLION NINE HUNDRED TWENTY-FIVE THOUSAND DOLLARS
($2,925,000.00)
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 upon the reporting of a predetermined
value or direction in value that favors the cause of the client, the amount
of the value estimate, the attainment of a stipulated result, or the
occurrence of a subsequent event.
(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 and all rent comparables.
(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 Appraisal
Institute 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 authorized
representatives.
Estimated Market Value: /S/ROBERT M MCSHERRY
$3,170,000.00 ---------------------------
Robert M. McSherry, MAI
LA State Certified General Estate
Appraiser No. G0891
Allocated:
Land $ 780,000.00
Improvements $2,350,000.00
Furniture, Fixtures and
Equipment $ 40,000.00
Goodwill of Going
Concern -0-
As Of: January 10, 1999
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
"Advanced Level Finance I & II", 1997
"Risk Management/Ethics/Fair Housing", 1997
"How to Value Louisiana Timberland", 1997
"Uniform Standards of Professional Appraisal Practice" Seminar, 1997
PROFESSIONAL EXPERIENCE
Real Estate Broker, State of Louisiana (1971)
Robert M. McSherry, MAI
<PAGE>
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)
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>
[PHOTO OF FRONT ENTRANCE]
[PHOTO OF FRONT ENTRANCE]
Robert M. McSherry, MAI
<PAGE>
[PHOTO OF SURROUNDING AREA]
[PHOTO OF FACILTIY]
Robert M. McSherry, MAI
<PAGE>
[PHOTO OF INTERIOR HALLWAY]
[PHOTO OF SHOWER]
Robert M. McSherry, MAI
<PAGE>
[PHOTO OF UNIT KITCHEN]
[PHOTO OF UNIT LIVING ROOM]
Robert M. McSherry, MAI
<PAGE>
[PHOTO OF INTERIOR HALLWAY]
[PHOTO OF REAR ENTRANCE]
Robert M. McSherry, MAI
<PAGE>
[PHOTO OF FACILTIY]
[PHOTO OF FACILITY]
Robert M. McSherry, MAI
<PAGE>
[PHOTO OF FACITLITY EXTERIOR]
[PHOTO OF FACITLITY EXTERIOR]
Robert M. McSherry, MAI
<PAGE>
[PHOTO OF SWIMMING POOL]
[PHOTO OF COMMON AREA]
Robert M. McSherry, MAI
<PAGE>
[PHOTO OF COMMON AREA]
[PHOTO OF FACILITY EXTERIOR]
Robert M. McSherry, MAI
<PAGE>
FLOOR PLAN
Robert M. McSherry, MAI
<PAGE>
[FLOOR PLAN OF STANDARD UNIT]
Robert M. McSherry, MAI
<PAGE>
[FLOOR PLAN OF 1 BEDROOM UNIT]
Robert M. McSherry, MAI
<PAGE>
[FLOOR PLAN OF 2 BEDROOM UNIT]
Robert M. McSherry, MAI
<PAGE>
[SITE PLAN]
Robert M. McSherry, MAI
<PAGE>
A Self-Contained Real Estate
Appraisal Report of
A Proposed 21 Unit Assisted Care Facility, Resident Manager's
Apartment and 4 Efficiency Assisted Care Units all
Located on the South Side of Cooper Lake Road
Just East of the Intersection with Orion Drive
Within the Corporate Limits of
Bastrop, Morehouse Parish, Louisiana
For
MMR Investment Bank
Post Office Box 781440
Witchita, Kansas 67278-1440
As Of
September 20, 1998
Prepared by
Robert M. McSherry, MAI
Louisiana State Certified General Real Estate Appraiser No. G0891
3760 Chelsea Drive
Baton Rouge, Louisiana 70809
<PAGE>
A Self-Contained Real Estate
Appraisal Report of
A Proposed 21 Unit Assisted Care Facility, Resident Manager's
Apartment and 4 Efficiency Assisted Care Units all
Located on the South Side of Cooper Lake Road
Just East of the Intersection with Orion Drive
Within the Corporate Limits of
Bastrop, Morehouse Parish, Louisiana
For
Colonial Trust Company
5336 North 19th Avenue
Phoenix, Arizona 85015
As Of
September 20, 1998
Prepared by
Robert M. McSherry, MAI
Louisiana State Certified General Real Estate Appraiser No. G0891
3760 Chelsea Drive
Baton Rouge, Louisiana 70809
Robert M. McSherry, MAI
<PAGE>
A Self-Contained Real Estate
Appraisal Report of
A Proposed 21 Unit Assisted Care Facility, Resident Manager's
Apartment and 4 Efficiency Assisted Care Units all
Located on the South Side of Cooper Lake Road
Just East of the Intersection with Orion Drive
Within the Corporate Limits of
Bastrop, Morehouse Parish, Louisiana
For
Church Loans and Investments
5305 I-40 West
Post Office Box 8203
Amarillo, Texas 79114-8203
As Of
September 20, 1998
Prepared by
Robert M. McSherry, MAI
Louisiana State Certified General Real Estate Appraiser No. G0891
3760 Chelsea Drive
Baton Rouge, Louisiana 70809
Robert M. McSherry, MAI
<PAGE>
ROBERT M. MC SHERRY, MAI
3760 Chelsea Drive
Baton Rouge, Louisiana 70809
Phone (504)924-8093
September 20, 1998
MMR Investment Bank
Post Office Box 781440
Witchita, Kansas 67278-1440
RE: A proposed 21 unit assisted care facility, resident manager's apartment
and 4 efficiency assisted care units all located on the south side of
Cooper Lake Road just east of the Intersection with Orion Drive within
the corporate limits of Bastrop, Morehouse 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 21 unit Assisted Care Facility, Resident Manager's
Apartment and 4 Efficiency Assisted Care Units all located within the
corporate limits of Bastrop, Morehouse 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;
Robert M. McSherry, MAI
<PAGE>
ROBERT M. MC SHERRY, MAI
3760 Chelsea Drive
Baton Rouge, Louisiana 70809
Phone (504)924-8093
September 20, 1998
Colonial Trust Company
5336 North 19th Avenue
Phoenix, Arizona 85015
RE: A proposed 21 unit assisted care facility, resident manager's apartment
and 4 efficiency assisted care units all located on the south side of
Cooper Lake Road just east of the Intersection with Orion Drive within
the corporate limits of Bastrop, Morehouse 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 21 unit Assisted Care Facility, Resident Manager's
Apartment and 4 Efficiency Assisted Care Units all located within the
corporate limits of Bastrop, Morehouse 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;
Robert M. McSherry, MAI
<PAGE>
ROBERT M. MC SHERRY, MAI
3760 Chelsea Drive
Baton Rouge, Louisiana 70809
Phone (504)924-8093
September 20, 1998
Church Loans and Investments
5305 I-40 West
Post Office Box 8203
Amarillo, Texas 79114-8203
RE: A proposed 21 unit assisted care facility, resident manager's apartment
and 4 efficiency assisted care units all located on the south side of
Cooper Lake Road just east of the Intersection with Orion Drive within
the corporate limits of Bastrop, Morehouse 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 21 unit Assisted Care Facility, Resident Manager's
Apartment and 4 Efficiency Assisted Care Units all located within the
corporate limits of Bastrop, Morehouse 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 2 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
21 Unit Assisted Care Facility, Resident Manager's Apartment and 4 Efficiency
Assisted Care Units all located on the south side of Cooper Lake Road
within the corporate limits of Bastrop, Morehouse Parish, Louisiana, was
estimated to have a Market Value based on Stabilized Net Operating Income,
as of September 20, 1998, of:
TWO MILLION ONE HUNDRED THOUSAND DOLLARS
($2,100,000.00)
Robert M. McSherry, MAI
<PAGE>
Page Three
Allocated:
LAND: $ 50,000.00
IMPROVEMENTS: $1,975,000.00
FURNITURE, FIXTURES & EQUIPMENT: $ 75,000.00
GOODWILL OF GOING CONCERN -0-
The "As Is" Value of the property, derived by the utilization of the
Discounted Cash Flow Methodology, is estimated to be, as of September
20, 1998, but subject to completion of the property in accordance with
submitted plans and specifications within a reasonable period of time,
of:
TWO MILLION FORTY THOUSAND DOLLARS
($2,040,000.00)
The subject property is proposed at the present time and this appraiser
has been provided plans and specifications for the property. The herein
contained Estimate of Market Value is conditioned upon 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.
This appraisal report was prepared in accordance with and compliance
of the Uniform Standards of Professional Appraisal Practice promulgated
by the Appraisal Foundation and the Guide Notes to the Standards of
Professional Practice adopted by the Appraisal Institute. These standards
contain binding requirements and specific guidelines that deal with the
procedures to be followed in developing an appraisal, analysis, or opinion.
These uniform standards also set the requirements to communicate the
appraiser's analysis, opinions, and conclusions in a manner that will be
meaningful and not misleading in the marketplace, accordingly, the Departure
Provision does not apply.
Robert M. McSherry, MAI
<PAGE>
Page Four
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. Mc Sherry, MAI
Louisiana State Certified General
Real Estate Appraiser No. G0891
Robert M. McSherry, MAI
<PAGE>
EXECUTIVE SUMMARY
Location: South side of Cooper Lake Road just east of
Orion Drive within the Corporate Limits
of Bastrop, Morehouse Parish, Louisiana
Interest Appraised: Fee Simple Interest
Site: 3.35 Acres or 145,926 Square Feet, more or
less
Building Description: The property will include twenty-one (21)
assisted care living units, a resident
manager's apartment and 4 efficiency assisted
care units all located within a single,
T-shaped building. 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 as well as
storage areas and other required additions to
render the subject property a functional
assisted care facility catering to 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.
The property is considered to be a most
functional assisted living facility and is
considered a most attractive property and
should be well accepted by the local market.
Robert M. McSherry, MAI
<PAGE>
Highest and Best Use: Assisted care facility
including all required amenities.
Cost Approach to Value $2,140,000.00
Market Approach to Value $2,150,000.00
Income Approach to Value:
Stabilized Net Income: $2,100,000.00
Discounted Cash Flow Value: $2,040,000.00
Final Value Estimate:
Stabilized Net Income: $2,100,000.00
"As Is" Value: $2,040,000.00
Allocated:
Land $ 50,000.00
Improvements $1,975,000.00
Furniture, Fixtures
and Equipment $ 75,000.00
Goodwill of Going
Concern -0-
Robert M. McSherry, MAI
<PAGE>
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 3.35 acre tract of land which will be basically rectangular in shape
and having approximately 475 feet of frontage along the south side of
Cooper Lake Road, a depth of 307 feet and is located within the corporate
limits of Bastrop, Morehouse Parish, Louisiana. The subject site is a
portion of a larger tract of land which is to be purchased from Woodrow
Wilson by Bittmore, LLC for a verified consideration of $100,000.00 for
this total 6.70 acre tract of land. The total tract of land of which
the subject property will constitute one-half is as follows:
"All of that portion of Section 19, 20, 29 and 30, Township 21 North,
Range 6 East, Morehouse Parish, Louisiana beginning at Cooper Lake Road
and the back of Lots 1-3, 6-13 and 15-18 of the Space Estates Number 5
per plat found in Plat Book 6, Page 13 of the Records of Morehouse
Parish, Louisiana.
The total property contains 6.7 acres of gross land area, more or less.
As noted, the subject property will constitute one-half of the above
described tract of land with a complete metes and bounds survey and complete
legal description to be provided this appraiser as a condition of this
appraisal report.
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 21 assisted care facility
and 4 efficiency assisted care units all located on the south side of
Cooper Lake Road, Bastrop, Louisiana.
OBJECTIVE OF THE APPRAISAL
The objective and function 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 MMR Investment Bank in order to provide long
term financing of the subject property for the Biltmore Group, 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>
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 21 assisted care facility
and 4 efficiency assisted care units all located on the south side of
Cooper Lake Road, Bastrop, Louisiana.
OBJECTIVE OF THE APPRAISAL
The objective and function 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 Colonial Trust Company in order to provide
long term financing of the subject property for the Biltmore Group, 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>
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 21 assisted care facility
and 4 efficiency assisted care units all located on the south side of
Cooper Lake Road, Bastrop, Louisiana.
OBJECTIVE OF THE APPRAISAL
The objective and function 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 Church Loans and Investments in order to provide
long term financing of the subject property for the Biltmore Group, 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 effective date of this appraisal is September 20, 1998. 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>
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
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
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 Woodrow Wilson and has been under this ownership
for a period in excess of five (5) years. The property will be purchased
by Biltmore, LLC for a total consideration of $100,000.00 for the 6.70
acre tract which indicates a purchase price of $14,925.00 per acre or
$.34 per square foot.
The property has been owned by the current owner, Woodrow Wilson, for
a period in excess of five (5) years and no there are no speculative
transactions affecting the subject property according to the records found
in the Morehouse Parish Clerk of Court's Office.
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.
Robert M. McSherry, MAI
<PAGE>
MOREHOUSE PARISH AND BASTROP CITY DATA
Bastrop is located in the extreme northeastern corner of Louisiana
approximately 124 miles northeast of Shreveport, Louisiana and 129 miles
northwest of Jackson, Mississippi. The population as of 1993 for the City
of Bastrop was 14,019 while the population of Morehouse Parish was 31,818.
There are 19 local public and private schools that service Bastrop while
Northeast Louisiana University lies within 24 miles of the City.
The local utilities and services include Louisiana Power and Light, natural
gas is supplied by Louisiana Gas Service and water is supplied by Peoples
Water Company. There is a local Police Department and Fire Department
for personal protection. Local telephone service is provided by South
Central Bell.
The community enjoys 64 local churches which are either Protestant, Catholic
or Other Denomination. There are 26 doctors servicing one local hospital.
Highways serving the area are US Highway 165, LA Highway 139 and LA Highway
2.; local railroads are UP-MP and AL&M, the Bastrop Municipal Local is
the area airport, the bus service, Trailways and the local waterway is
the Oauchita River.
There are 3 daily newspapers, 2 local radio stations, one television
station and cable television is available.
Robert M. McSherry, MAI
<PAGE>
The major employer in the area is International Paper with approximately
1,100 union employees with Ditto of California-Apparel (800 employees),
Morehouse Parish School Board (784 employees), Morehouse General Hospital
(350 employees) with Wal-Mart and the City of Bastrop following with 225
employees and 180 employees respectively.
Robert M. McSherry, MAI
<PAGE>
OVERVIEW OF ASSISTED LIVING INDUSTRY
In anticipation that more elderly Americans will live in assisted living
homes than nursing homes in the near future, consumer industry groups
are saying it is time to put some minimum standards into law. One of
the most important things for the industry is to try not to admit residents
it cannot provide quality care for. Many assisted living homes charge
additional fees for personal services residents may come to need as they
grow older. Some will help residents if they get sick by permitting periodic
visits from nurses, for example, or providing supervision for people with
Alzheimer's Disease.
In order to minimize residents need to move, the consumer or trade groups
say assisted living facilities should be required to offer at least some
help with the dozen daily activities including meals, using the bathroom,
taking medication and shopping. Those facilities which accept people
with Alzheimer's or other types of dementia would also be required to
provide 24 hour awake staff and special training for those workers.
Assisted living has become the hottest new housing option for older people
by promising to provide a happy medium between their homes and a full
nursing home facility. Industry estimates show that the number of elderly
Americans living in settings that could be described as assisted living
has probably doubled from 560,000 in 1990 to as many as 1,000,000 in 1997.
By early next century, experts predict assisted living homes will care
for more elderly Americans than nursing homes.
Robert M. McSherry, MAI
<PAGE>
Although numbers are inexact, assisted living facilities ranging from
luxury apartment buildings to modest group homes provide housing along
with personal services and some health care. Residents may be too frail
to live alone but too healthy to need the 24 hour medical attention of
nursing homes. Assisted living can be less expensive than nursing homes.
A 1997 survey by the National Center for Assisted Living found that 52%
costs $1,001.00 to $2,000.00 per month and 24% cost less than $1,000.00
per month. In contrast, monthly nursing home fees average above $3,000.00.
Assisted living's affordability has attracted the attention of law makers
worried about how the nation will ensure elderly care for the huge baby
boom generation now middle aged.
Medicaid programs for the poor in 28 states have begun to cover some
assisted living services and the Department of Health and Human Services
is conducting a fact finding survey.
Unlike nursing homes, assisted living homes are not regulated by the
Federal Government. Fewer than half of the states require licensing before
it opens. That allows for flexibility and partly explains assisted living's
popularity.
In summary, the assisted living facilities currently expanding throughout
the United States are the most popular and desirable alternative living
situation for those elderly which require some minimal level of care but
not the extensive level required by nursing home patients. As the population
continues to grow
Robert M. McSherry, MAI
<PAGE>
older but maintain better health, the appeal thus desirability of assisted
living facilities will continue to be enhanced.
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. 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 facility which is demand with respect
to providing long term assisted living care.
Robert M. McSherry, MAI
<PAGE>
DESCRIPTION OF THE PROPERTY
Site Data
Size, Shape and Topography
The subject site will be a 3.35 acre rectangular shaped parcel of land
having approximately 475 feet of frontage along the south side of Cooper
Lake Road, a depth of 307 feet thus encompassing 3.35 acres or 145,926
square feet, more or less. The property is located, as noted, along the
south side of Cooper Lake Road which is a dual-land, asphalt, municipally
maintained traffic artery serving local vehicular traffic. The topography
of the property is rolling to gently rolling and will require limited
site preparation prior to construction. Inspection of the site did not
reveal any detrimental physical characteristics which would adversely
affect the development of the subject property to it's highest and Best
Use as an assisted living facility.
Utilities
The subject property is located inside the corporate limits of Bastrop,
Morehouse Parish, Louisiana and is provided with all city utilities and
services available to properties within the corporate limits of Bastrop
including electrical service, police and fire protection, public water,
sewerage disposal, and refuge disposal. Telephone service and natural
gas service is provided by the local utility companies servicing the area.
Access
Access to the subject development will be provided as the result of the
location of Cooper Lake Road along the northern boundary of the site.
Cooper Lake Road is a dual laned, asphalt, municipally maintained traffic
artery servicing
Robert M. McSherry, MAI
<PAGE>
primarily local vehicular traffic and provides access into the downtown
area of Bastrop as well as to the outlying areas of Bastrop and Morehouse
Parish. There exists an intersection with US Hwy 165 in the immediate
proximity of the subject site with US Hwy 165 being the major traffic
artery through Bastrop and Morehouse Parish.
Overall, access to the subject site from all areas of both the City of
Bastrop or the outlying areas of Morehouse Parish is adequately provided.
Zoning
Conversations with representatives in the Bastrop City Hall indicated
that no zoning currently affects the City of Bastrop. Land uses are
controlled by deed restrictions or other restrictive covenants which run
with the land and, although this appraiser has not conducted an in-depth
review of the abstract to the subject site, no deed restrictions or other
restrictive covenants are assumed to exist which would affect the utilization
of the subject site as a site of an assisted living facility.
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 Morehouse Parish Community Office
indicated the subject property to be located in a Flood Zone "C" according
to Flood Map No. 220127-002-B having an effective date of December 16,
1980. This indicates no flood insurance is required for the subject property.
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 Morehouse Parish tax rolls the year after it is completed and at
that time will be assessed and the tax liability can be assigned. For
the purposes of this appraisal report and for the utilization in the Income
Approach, taxes have been projected but are subject to change once the
property is completed and placed on the tax rolls.
The 1997 millage rates applicable to the subject property are as follows:
City 40.70 Mills
Parish 65.15 Mills
Total 105.85 Mills
Assisted living facilities such as the subject are assessed at 10% of
Market Value and conversations with representatives of the Morehouse Parish
Tax Assessor's Office indicate an estimated Market Value for tax purposes
will be approximately 30% less than actual Market Value. Thus:
Robert M. McSherry, MAI
<PAGE>
Estimated Value of Subject $2,100,000.00
Estimated Assessed Value $1,470,000.00
10% - Assessed Value $ 147,000.00
$147,000.00 X 105.85 Mills = Estimated Tax Liability $ 15,559.95
Robert M. McSherry, MAI
<PAGE>
[Subject Site Location Map Indicating Subject Property]
<PAGE>
DESCRIPTION OF THE IMPROVEMENTS
Assisted Living Facility
The proposed facility containing the assisted living units will be constructed
within a single T-shaped building but a building comprised of different
component sections housing the assisted living units in two wings with
the public areas located in the center or core of the building. The building
is a modified T-shape and encompasses a total of 22,217 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 while the
efficiency units will contain approximately 200 square feet of area.
The gross building area was calculated by Mr. Mike Wallace, the preparer
of the plans and specifications for the property.
Construction characteristics for this 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 of the assisted care units having their own central HVAC
unit with the common areas utilizing central, zoned units.
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
well as an apartment for the resident managing couple.
As previously noted, the total gross area contained within this portion
of the subject property is 22,217 square feet. Within this total, 21
assisted living units, 4 efficiency assisted units, the manager's apartment
and remaining common areas will be contained. 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.
Each assisted living unit will include a toilet, lavatory and tub/shower
unit, through wall air conditioning unit with heat strip, drop-in over/range
unit with vent hood as well as adequate closet and cabinet space.
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.
As noted, the subject is proposed construction and this appraisal is
conditioned upon the completion utilizing quality materials and workmanship
with a final inspection by the appraiser required to ascertain the preliminary
plans and specifications provided this appraiser were correct.
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 not affected by City
or Parish zoning with land uses controlled by deed restrictions or other
restrictive covenants. The lack of zoning allows a large number of
permissible uses to be considered for the subject property but it's location
within a primarily residential area, the access provided by a dual-laned
municipal traffic artery and other factors indicate the proposed utilization
as an assisted care facility to be one of the better if not the best
permissible uses of the site and would be a legal, conforming, permissible
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 which is currently applicable to the subject property
does allow for an assisted care facility to be constructed on the site
as well as other types of multi-family construction. This lack of zoning
classification will allow the property to be developed as proposed within
this appraisal report and this is considered the most likely probable
use to which the subject property could be put.
In the final analysis, the proposed utilization of the subject property
is considered to constitute one of it's Highest and Best Uses.
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
Robert M. McSherry, MAI
<PAGE>
economic rentals for this type property within the area less an allowance
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
Robert M. McSherry, MAI
<PAGE>
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 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
Robert M. McSherry, MAI
<PAGE>
equivalent to the building being appraised but built with modern materials
and 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
Robert M. McSherry, MAI
<PAGE>
the site date, there are no undesirable external influences and, thus,
there is no loss to the subject improvements due to economic obsolescence.
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: September 4, 1998
Vendor: John Kaffenberger
Vendee: Sibley Century Development, LLC
Size: 9.1 Acres
Consideration: $80,000.00
Location: East side of Holt Street, Bastrop,
Louisiana
Indicated Price/Acre: $8,791.00 per Acre
Brief Legal Description: Tract or parcel of land located in the
southeast quarter of the northeast
quarter of Section 30, T21N-R6E,
Morehouse Parish, Louisiana.
Financing: Cash
Condition of Sale: Market
Site Utilities: Public
Terrain: Gently Sloping
Access: Public Asphalt Road
Highest and Best Use: Commercial or Multi-Family
Comments: Of this total acreage only approximately
7 acres are considered useable land.
Comfirmation: John Sibley
Robert M. McSherry, MAI
<PAGE>
COMPARABLE LAND SALE 2
Date of Sale: June 21, 1995
Recordation: Conveyance Book 487, Page 713,
Morehouse Parish, Louisiana
Vendor: John S. Cereen, et al
Vendee: Douglas Jones
Size: 9.37 Acres
Consideration: $55,000.00
Location: 6197 Mer Rouge Road, Bastrop,
Louisiana
Indicated Price/Acre: $5,870.00 per Acre
Brief Legal Description: A certain 9.37 acre tract of land in the
southwest quarter of Section 28,
T21N-R6E, Morehouse Parish,
Louisiana.
Financing: Cash
Condition of Sale: Market
Site Utilities: Public
Terrain: Level
Access: Public Road
Highest and Best Use: Commercial
Confirmation: John Sibley
Robert M. McSherry, MAI
<PAGE>
COMPARABLE LAND SALE 3
Date of Sale: March 17, 1997
Vendor: Sandra Lockwood
Vendee: Northwood Apartment, LLC
Size: 4.688 Acres
Consideration: $60,000.00
Location: 1801 North Washington Street, Bastrop,
Louisiana
Indicated Price/Acre: $12,799.00 per Acre
Brief Legal Description: Tract or parcel of land located in the
southeast quarter of the northwest
quarter of Section 24, T21N-R5E,
Morehouse Parish, Louisiana.
Financing: Cash
Condition of Sale: Market
Site Utilities: Public
Terrain: Slightly Rolling
Access: Public Road
Highest and Best Use: Commercial
Confirmation: John Sibley
Robert M. McSherry, MAI
<PAGE>
COMPARABLE LAND SALE 4
Date of Sale: June 19, 1996
Recordation: Document No. 140922
Vendor: Woodrow Wilson, et al
Vendee: Benny Evans, et al
Size: 6.484 Acres
Consideration: $100,000.00
Location: Southeast corner of US Hwy 425
(Crossett Road) and McCreight Street,
Bastrop, Louisiana
Indicated Price/Acre: $15,422.58 per Acre
Brief Legal Description: Tract situated in the southwest quarter
of the southwest quarter of Section 18,
T21N-R6E, Morehouse Parish,
Louisiana.
Financing: Cash
Condition of Sale: Market
Site Utilities: Public
Terrain: Slightly Sloping
Access: Public Highway
Highest and Best Use: Commercial or Light Industrial
Confirmation: John Sibley
Robert M. McSherry, MAI
<PAGE>
COMPARABLE LAND SALE 5
Date of Sale: July 6, 1994
Recordation: Conveyance Book 479, Page 667,
Morehosue Parish, Louisiana
Vendor: Kathrine Buford, et al
Vendee: Larry Greenwood, et al
Size: 3.3 Acres
Consideration: $50,000.00
Location: McCreight Street at Todd Street,
Bastrop, Louisiana
Indicated Price/Acre: $15,052.00 per Acre
Brief Legal Description: Tract on the northeast quarter of the
northeast quarter of Section 25,
T21N-R6E, Morehouse Parish,
Louisiana.
Financing: Cash
Condition of Sale: Market
Type Utilities: Public
Terrain: Level to Gently Rolling
Access: Public Road
Highest and Best Use: Multi-Family
Confirmation: John Sibley
Robert M. McSherry, MAI
<PAGE>
[Comparable Sales Location Map Indicating Comparable Property Locations]
<PAGE>
COMPARABLE LAND SALES SUMMARY CHART
<TABLE>
<CAPTION>
Date Size/Usable Price/Acre Location
<S> <C> <C> <C> <C>
Sale 1 9/98 7.00 Acres $11,428.00 Holt Street
Sale 2 6/95 9.37 Acres $ 5,870.00 Mer Rouge Road
Sale 3 3/97 4.68 Acres $12,799.00 North Washington
Sale 4 6/96 6.48 Acres $15,422.00 Crossett Road
Sale 5 7/94 3.30 Acres $15,152.00 McCreight Street
</TABLE>
Robert M. McSherry, MAI
<PAGE>
ANALYSIS OF COMPARABLE LAND SALES
The five vacant comparable land sales contained within this appraisal
report and utilized for analysis purposes are sales of sites located either
within the corporate limits of Bastrop, Louisiana. All sites are considered
current with respect to the date of sale with the exception of Comparable
Sale 5 which occurred in July of 1994 with all sales requiring an upward
adjustment for the time differential for all sales occurring prior to
1998. The size of these sales are similar to the subject property with
the size of Sales 3 and 5 being the closest to that of the subject and
analysis of compared sales does indicate an adjustment required for the
size differential. However, location is considered important and the
locational dissimilarities between the comparable properties and the subject
site has been considered and adjusted accordingly.
Physical characteristics are also important factors in the desirability
of the vacant developmental site and the physical characteristics associated
with each of these comparable sales have been analyzed, compared to the
subject property and the proper adjustments made.
The following land sales adjustment grid has been utilized to reflect
the appraiser's opinion of the required adjustment of these comparable
sales which results in an indicated value of the subject site, as if vacant,
and in it's current condition.
Robert M. McSherry, MAI
<PAGE>
After this adjustment grid has been carefully completed, it is our opinion
that the subject site is estimated to have a Market Value, As If Vacant
and prior to site preparation, of $15,000.00 per acre.
Therefore, the Estimated Value of the Subject Site, As If Vacant, is
thus derrived:
3.35 Acres @ $15,000.00/ Acre = $50,250.00
INDICATED VALUE OF THE SUBJECT SITE,
AS IF VACANT (R/T) $50,000.00
Robert M. McSherry, MAI
<PAGE>
VACANT LAND SALES ADJUSTMENT CHART
<TABLE>
<CAPTION>
Sale Number Subject 1 2
<S> <C> <C> <C>
Property Rights Appraised Leased Fee Leased Fee Leased Fee
Financing Terms Cash Equivalent Cash Equivalent Cash Equivalent
Condition of Sale Arms Length Arms Length Arms Length
Sale Date Current September, 1998 June, 1995
Size-Gross Area/Acres 3.35 9.1 9.37
Effective Price/Square Foot N/A $8,791.00 $5,870.00
Market Time Current -0- +10%
Zoning -0- -0-
Size +20% +20%
Physical +25% +25%
Adjusted Price/Square Foot $12,746.00 $9,098.00
</TABLE>
VACANT LAND SALES ADJUSTMENT CHART
<TABLE>
<CAPTION>
Sale Number 3 4 5
<S> <C> <C> <C>
Property Rights Appraised Leased Fee Leased Fee Leased Fee
Financing Terms Cash Equivalent Cash Equivalent Cash Equivalent
Condition of Sale Arms Length Arms Length Arms Length
Sale Date March, 1997 June, 1996 June, 1994
Size-Gross Area/Acres 4.6 6.4 3.3
Effective Price/Square Foot $12,799.00 $15,522.00 $15,052.00
Market Time +5% +10% +20%
Zoning -0- -0- -0-
Size -0- -0- -0-
Physical +10% -10% -20%
Adjusted Price/Square Foot $14,718.00 $15,422.00 $15,052.00
</TABLE>
<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
Cost Source: Marshall-Swift Cost Manual and
Actual Costs Provided by Fred Bayles
Direct Costs:
Primary Structure
22,217 sq. ft. @ $59.70/sq. ft. $1,326,354.00
Total Direct Costs: Improvements $1,326,354.00
Indirect Costs:
Plans, Specifications, Inspection Included in Direct Costs
Contractor's Overhead/Profit $170,000.00
Interim Interest $ 65,250.00
Legal, Audit, Appraisal $ 60,400.00
Financing Fees - Construction $ 30,000.00
Misc. Expenses $ 50,000.00
Financing Fees - Long Term $162,500.00
Total Indirect Costs $ 538,150.00
Total Replacement Costs New: Improvements $1,864,504.00
Less: Accrued Depreciation
Physical Curable -0-
Physical Incurable -0-
Functional Obsolescence -0-
Economic Obsolescence -0-
Total Accrued Depreciation -0-
Depreciated Replacement Costs: Improvements $1,864,504.00
Add: Land Value
3.35 acres @ $15,000.00/acre $ 50,000.00
Add: Site Preparation $ 30,000.00
Add: Furniture, Fixtures and Equipment $ 75,000.00
Robert M. McSherry, MAI
<PAGE>
Add: Parking, Walks, Landscaping, Porches $ 25,000.00
Add: Entrepreneurial Profit @ 5% $ 93,200.00
Total All Costs and Value Components $2,137,704.00
INDICATED VALUE OF SUBJECT FROM
COST APPROACH (R/T) $2,140,000.00
Note: Cost of Furniture, Fixture and Equipment based on costs association
with actual costs experienced by Southside Garden Assisted Care
Facility and Arbor House of West Monroe, Louisiana.
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.
The appraiser has carefully perused the Louisiana market with respect
to sales of properties considered similar to the subject property and
none were found. However, available data from other appraisers has revealed
the sale of three similar type properties in other areas of the United
States and these are included merely for analysis purposes as follows:
Robert M. McSherry, MAI
<PAGE>
IMPROVED PROPERTY SALE 1
VENDOR: American Retirement, Inc.
VENDOR: Horizon Retirement, Inc.
LOCATION: 2601 Chimney Rock Road,
Hendersonville, North Carolina
RECORDATION: N/A
DATE: February, 1993
CONSIDERATION: $6,480,000.00
TERMS: $2,224,000.00 cash, assumption of a
mortgage balance of $4,316,000.00.
terms are considered to be cash
equivalent.
SITE SIZE: N/A
IMPROVEMENTS: This is a 110 unit senior living
community constructed in 1988. The
units are housed in a three-story
building of wood frame construction.
Construction quality is considered to be
average; condition at the time of sale
was good. The gross building area is
approximately 96,058 square feet with
an average unit size of 873 square feet.
ESTIMATED GROSS INCOME: $1,706,255.00
ESTIMATED EXPENSE RATIO: Approximately 56 percent
NET OPERATING INCOME: Approximately $751,844.00
UNIT INDICATORS: SP/Unit = $58,909.00
SP/SF = $67.46
SP/GI = 3.80 GIM
NOI/SP = 0.1160 OAR
Robert M. McSherry, MAI
<PAGE>
IMPROVED PROPERTY SALE 2
VENDOR: American Retirement, Inc.
VENDOR: Emeritus Corporation
LOCATION: 2601 Chimney Rock Road,
Hendersonville, North Carolina
RECORDATION: N/A
DATE: September, 1995
CONSIDERATION: $9,483,523.00
TERMS: Cash
SITE SIZE: N/A
IMPROVEMENTS: This is a 110 unit senior living
community constructed in 1988. The
units are housed in a three-story
building of wood frame construction.
Construction quality is considered to be
average; condition at the time of sale
was good. The gross building area is
approximately 96,058 square feet with
an average unit size of 873 square feet.
ESTIMATED GROSS INCOME: Approximately $2,175,000.00
ESTIMATED EXPENSE RATIO: Approximately 56 percent
NET OPERATING INCOME: Approximately $957,000.00
UNIT INDICATORS: SP/Unit = $86,214.00
SP/SF = $98.73
SP/GI = 4.36 GIM
NOI/SP = 0.1009 OAR
Robert M. McSherry, MAI
<PAGE>
SUMMARY
<TABLE>
<CAPTION>
Sale One Sale Two Sale Three
<S> <C> <C> <C>
Indicated OAR 11.6% 10.09% 9.96%
Price/Unit $58,909.00 $86,214.00 $56,757.00
Gross Income Multiplier 3.80 4.36 3.01
Estimated Expense Ratio 56% 56% 70%
</TABLE>
The three Improved Property Sales included within this report have been
provided this appraiser by knowledgeable sources and other appraisers
and are deemed accurate as they were verified by knowledgeable and ethical
persons. The appraiser has conducted an in-depth review of conveyances
of similar type assisted living or congregate care facilities in the State
of Louisiana and none were found which were considered to be reflective
of true arms-length transactions between willing buyers and willing sellers
with no undue duress being experienced. These three Improved Property
Sales have been included for the purpose of deriving an indicated Overall
Capitalization Rate, an indicated price per unit and an indicated Gross
Income Multiplier for utilization in the analysis process with respect
primarily to the Income Approach to Value. The level of services provided
by these facilities are similar to those to be provided by the subject
property which would include three (3) meals per day, utilities, maid
service one (1) day a week, flat linen service one (1) day a week, various
assistance with respect to bathing, exercise, and transportation to various
off-site functions as well as on-site recreational functions, counseling,
with other services provided on a more extensive basis for additional
expense paid by the guest or resident of the facility. It is acknowledged
that a large number of the
Robert M. McSherry, MAI
<PAGE>
residents residing in the assisted care facilities are requiring increased
levels of care and these additional expenses are being passed directly
to the tenant as they upset the economies of an assisted care facility
having to provide this extraordinary level of care without additional
remuneration.
The price per unit indicated by Improved Property Sale 2 is considered
the best available and has been accorded the greatest credence. Accordingly:
25 Units @ $86,000.00/Unit $2,150,000.00
INDICATED VALUE OF SUBJECT FROM
THE MARKET DATA OR DIRECT SALES
COMPARISON APPROACH (R/T) $2,150,000.00
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 21 assisted care units and 4 efficiency assisted
care units all located in a single T-shaped building which will also contain
a resident manager's apartment and common areas for the operation of the
facility. The services provided the assisted living units include all
utilities, maid service, three meals a day, transportation, activities
with additional laundry and maid service
Robert M. McSherry, MAI
<PAGE>
available at additional expense. Normal day to day medical treatments
are also available for the various tenants with any extraordinary medical
expense passed directly to the tenant.
This appraiser has had the opportunity to appraise a number of assisted
care facilities in both Louisiana and Mississippi over the last several
years and has 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 a number of assisted care,
private pay facilities located in the Baton Rouge, Louisiana area as well
as a single facility located in West Monroe, Louisiana in order to arrive
at an estimated economic rental rate for the subject property based on
the level of services provided. The assisted care market is still a relatively
new market and the majority of the facilities have been constructed in
larger metropolitan areas such as Baton Rouge. The rental rates commanded
in these larger areas are above those which can be commanded in smaller
or more rural communities in North Louisiana and appropriate adjustments
have been made. The most comparable property is the Arbor House of West
Monroe, which was completed in December of 1997 and has experienced stabilized
occupancy with respect to the assisted care units within a six (6) month
period. These units lease for $1,725.00 per month for the basic rate
with expenses including utilities, three (3) meals a day, maid service
once a week, laundry service once a week,
Robert M. McSherry, MAI
<PAGE>
assistance in bathing, transportation to shopping, church and other functions
as well as in-house recreational activities.
This appraiser has also recently completed an appraisal of a 33 unit
assisted care facility located in Baton Rouge, Louisiana which is very
typical with respect to the subject property. However, the monthly rate
provided by this facility is slightly higher than those in rural areas
with the base monthly rate being $1,850.00 per month. The same services
are provided including utilities, three (3) meals per day, assistance
with daily living activities including bathing, grooming, weekly bed linen
and towel service, weekly house keeping, transportation to medical and
dental appointments, worship service, planned activities as well as other
assistance required.
Based on this appraiser's personal inspection of these two facilities
and adjustment, it is our opinion that a $1,775.00 per month with services
including electricity, three (3) meals per day, maid service, transportation,
activities, assistance in the normal living activities as well as normal
day to day medical treatment being provided.
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 $1,775.00 per month and $1,100.00 per month for the efficiency
units with the
Robert M. McSherry, MAI
<PAGE>
rates remaining stable over the two year projection period. The projected
rate includes the herein listed services being provided.
Inflation will impact expense projections as well as increased occupancy
and these anticipated increases have also been utilized in the Income
Approach to Value.
In order to accurately project appropriate expenses for the subject property,
the appraiser has reviewed the current publication Trends in the Health
Care Industry with respect to historical operating expenses for assisted
care facilities. In addition, this appraiser has been provided itemized
comparable expense data with respect to three separate properties located
in the State of Louisiana but, due to confidentiality requirements, the
names of these properties are retained in the appraiser's file at the
request of the property owners. However, the following summary chart
is included for the benefit of the reader of this appraisal report and
it also provides support for the expense projections for the subject property.
The Income Approach to Value as it applies to the property being appraised
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>
ITEMIZED COMPARABLE EXPENSE DATA
<TABLE>
<CAPTION>
Property 1 Property 2 Property 3
<S> <C> <C> <C>
Administrative $249,610.00 $417,960.00 $461,530.00
Dietary $186,938.00 $251,184.00 $204,983.00
Maintenance $156,914.00 $275,424.00 $193,530.00
Housekeeping/Janitorial $ 51,340.00 $ 55,512.00 $ 52,322.00
Taxes/insurance $ 82,000.00 $110,560.00 $ 66,738.00
Utilities $ 91,328.00 $ 24,360.00 $ 65,678.00
Nursing/Other -0- $ 9,458.00 $ 10,664.00
Per Unit Expenses $ 9,522.00 $ 9,458.00 $ 10,664.00
</TABLE>
Robert M. McSherry, MAI
<PAGE>
INCOME APPROACH TO VALUE
Year One
Gross Annual Potential Income:
21 - Assisted Living Units @ $1,775.00/month $ 447,300.00
4 - Efficiency Units @ $1,100.00/month $ 52,800.00
Total Gross Annual Potential Income $ 500,100.00
Less: Vacancy and Collection Losses
Assisted Living Units (25%) $ 111,825.00
Total Vacancy and Collection Loss $ 111,825.00
Effective Gross Annual Potential Income $ 388,275.00
Expenses:
Administrative $53,500.00
Plant Operations $37,400.00
Dietary $45,625.00
Housekeeping $12,500.00
Aides $41,000.00
Activities $15,000.00
Reserves for Replacement $ 7,500.00
Total Expenses $ 212,525.00
Net Operating Income $ 175,750.00
Note: Management Fee included in Administrative Expense.
Robert M. McSherry, MAI
<PAGE>
INCOME APPROACH TO VALUE
Year Two
Gross Annual Potential Income:
21 - Assisted Living Units @ $1,775.00/month $ 447,300.00
4 - Efficiency Units @ $1,100.00/month $ 52,800.00
Total Gross Annual Potential Income $ 500,100.00
Less: Vacancy and Collection Losses
Assisted Living Units (10%) $ 44,730.00
Total Vacancy and Collection Loss $ 44,730.00
Effective Gross Annual Potential Income $ 455,370.00
Expenses:
Administrative $53,500.00
Plant Operations $44,550.00
Dietary $54,200.00
Housekeeping $13,750.00
Aides $45,100.00
Activities $16,500.00
Reserves for Replacement $ 7,500.00
Total Expenses $ 235,100.00
Net Operating Income $ 220,270.00
Note: Management Fee included in Administrative Expense.
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.
In order to ascertain the appropriate equity dividend or "cash-on-cash"
rate, the appraiser has reviewed money rates for other alternate investments
as of September 8, 1998. The results of this analysis of comparable and
alternative money rates are as follows:
Certificates of Deposit 30 Day 4.68%
90 Day 4.96%
180 Day 5.04%
Treasury Bill Rates 3 Months 4.79%
6 Months 4.79%
52 Weeks 5.00%
30 Year Treasury Bond Rate 5.36%
Merrill-Lynch Ready Assets 30 Day 5.03% (Average Yield)
Robert M. McSherry, MAI
<PAGE>
As can be reflected by the above alternate investment vehicles. Current
rates for both short and long term yields is between the high 4.00% to
the low 5.00% range. The projected 9.00% equity yield or "cash-on-cash"
return projected for the subject property provides an excellent return
on the investor's cash, approximately 3.00% in excess of other alternate
investment vehicles. Accordingly, the 9.00% equity dividend rate is
considered appropriate when the overall risk and competitive rates are
considered.
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
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
Robert M. McSherry, MAI
<PAGE>
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
Review of the three (3) improved property sales contained within this
report have indicated an Overall Capitalization Rate from a low of 9.96%
to a high of 11.6%. These indicated Overall Capitalization Rates which
have been derived from available market data indicates the rate chosen
for the capitalization of the net income into an indication of value based
upon stabilized income of 10.5% is reflective of current industry attitudes
and is considered appropriate with respect to this particular appraisal
assignment.
Robert M. McSherry, MAI
<PAGE>
Conclusion
Based on the available information we have concluded that a 10.5% is
the most appropriate capitalization rate which is derived from the actual
band of investments method and supported by the Underwriter's Method and
available market data. The location of the subject has also been considered.
Thus:
NET OPERATING INCOME
-------------------- = VALUE
OVERALL CAPITALIZATION RATE
$220,270.00
-------------------- = $2,097,809.00
.105
INDICATED VALUE OF SUBJECT FROM
INCOME APPROACH (R/T) $2,100,000.00
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 11 % 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: $175,750.00 x .900901 = $ 158,333.00
Year Two: $220,270.00 x .811622 = $ 178,775.00
Total Present Value of Income Stream $ 337,108.00
Present Worth of Reversion
$2,100,000.00 x .811622 $1,704,406.00
Summation:
Present Worth of Income Stream $ 337,108.00
Present Worth/Reversion $1,704,406.00
Total $2,041,514.00
INDICATED VALUE OF SUBJECT FROM
INCOME APPROACH/DISCOUNTED
CASH FLOW $2,040,000.00
Robert M. McSherry, MAI
<PAGE>
RECONCILIATION AND FINAL VALUE
The three approaches to value have indicated the following value estimates
of the property being appraised:
COST APPROACH TO VALUE $2,140,000.00
MARKET APPROACH TO VALUE $2,150,000.00
INCOME APPROACH TO VALUE
OVERALL CAPITALIZATION RATE $2,100,000.00
DISCOUNTED CASH FLOW
ANALYSIS $2,040,000.00
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 21 Unit Assisted Care and 4 Unit
Efficiency Assisted Care Facility all located on Germantown Road within
the corporate limits of Minden, Webster Parish, Louisiana was estimated
to have a Market Value, as of September 8, 1998, 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, and based upon Stabilized Net Operating Income, of:
TWO MILLION ONE HUNDRED THOUSAND DOLLARS
($2,100,000.00)
Allocated:
Land $ 50,000.00
Improvements: $1,975,000.00
Furniture, Fixtures and Equipment $ 75,000.00
Goodwill of Going Concern -0-
The estimated "as is" value is estimated to be, as of September 20, 1998
and subject to completion within a reasonable period of time, is:
TWO MILLION FORTY THOUSAND DOLLARS
($2,040,000.00)
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 upon the reporting of a predetermined
value or direction in value that favors the cause of the client, the
amount of the value estimate, the attainment of a stipulated result, or
the occurrence of a subsequent event.
(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 and all rent comparables.
(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 Appraisal
Institute 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: /S/ROBERT M MCSHERRY
$2,100,000.00 ------------------------
Robert M, McSherry, MAI
LA State Certified General Real Estate
Appraiser No. G0891
Allocated:
Land $ 50,000.00
Improvements $1,975,000.00
Furniture, Fixtures and
Equipment $ 75,000.00
Goodwill of Going
Concern -0-
As Of: September 2O, l998
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
"Advanced Level Finance I & II", 1997
"Risk Management/Ethics/Fair Housing", 1997
"How to Value Louisiana Timberland", 1997
"Uniform Standards of Professional Appraisal Practice" Seminar, 1997
PROFESSIONAL EXPERIENCE
Real Estate Broker, State of Louisiana (1971)
Monroe Redevelopment Agency, Monroe, Louisiana (1971)
Robert M. McSherry, MAI
<PAGE>
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)
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>
[PHOTOGRAPH VIEW LOOKING EAST DOWN COOPER LAKE ROAD]
[PHOTOGRAPH VIEW LOOKING WEST DOWN COOPER LAKE ROAD]
<PAGE>
[PHOTOGRAPH OF SUBJECT PROPERTY]
[PHOTOGRAPH OF SUBJECT PROPERTY]
<PAGE>
[PHOTOGRAPH OF SUBJECT PROPERTY]
<PAGE>
Floor Plans
<PAGE>
[FLOOR PLAN OF THE BASTROP FACILTY]
<PAGE>
A Self-Contained Real Estate
Appraisal Report of
A Proposed 21 Unit Assisted Care Facility, Resident Manager's
Apartment and 4 Efficiency Assisted Care Units all
Located on the West Side of Louisiana Highway 33
Just Outside the Corporate Limits of
Farmerville, Union Parish, Louisiana
For
MMR Investment Bank
Post Office Box 781440
Witchita, Kansas 67278-1440
As Of
October 20, 1998
Prepared by
Robert M. McSherry, MAI
Louisiana State Certified General Real Estate Appraiser No. G0891
3760 Chelsea Drive
Baton Rouge, Louisiana 70809
<PAGE>
A Self-Contained Real Estate
Appraisal Report of
A Proposed 21 Unit Assisted Care Facility, Resident Manager's
Apartment and 4 Efficiency Assisted Care Units all
Located on the West Side of Louisiana Highway 33
Just Outside the Corporate Limits of
Farmerville, Union Parish, Louisiana
For
Colonial Trust Company
5336 North 19th Avenue
Phoenix, Arizona 85015
As Of
October 20, 1998
Prepared by
Robert M. McSherry, MAI
Louisiana State Certified General Real Estate Appraiser No. G0891
3760 Chelsea Drive
Baton Rouge, Louisiana 70809
Robert M. McSherry, MAI
<PAGE>
A Self-Contained Real Estate
Appraisal Report of
A Proposed 21 Unit Assisted Care Facility, Resident Manager's
Apartment and 4 Efficiency Assisted Care Units all
Located on the West Side of Louisiana Highway 33
Just Outside the Corporate Limits of
Farmerville, Union Parish, Louisiana
For
Church Loans and Investments
5305 I-40 West
Post Office Box 8203
Amarillo, Texas 79114-8203
As Of
October 20, 1998
Prepared by
Robert M. McSherry, MAI
Louisiana State Certified General Real Estate Appraiser No. G0891
3760 Chelsea Drive
Baton Rouge, Louisiana 70809
Robert M. McSherry, MAI
<PAGE>
ROBERT M. MC SHERRY, MAI
3760 Chelsea Drive
Baton Rouge, Louisiana 70809
Phone (504)924-8093
October 20, 1998
MMR Investment Bank
Post Office Box 781440
Witchita, Kansas 67278-1440
RE: A proposed 21 unit assisted care facility, resident manager's apartment
and 4 efficiency assisted care units all located on the west side of
Louisiana Highway 33, just outside the corporate limits of Farmerville,
Union 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 21 unit Assisted Care Facility, Resident Manager's
Apartment and 4 Efficiency Assisted Care Units all located just outside
the corporate limits of Farmerville, Union 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;
Robert M. McSherry, MAI
<PAGE>
ROBERT M. MC SHERRY, MAI
3760 Chelsea Drive
Baton Rouge, Louisiana 70809
Phone (504)924-8093
October 20, 1998
Colonial Trust Company
5336 North 19th Avenue
Phoenix, Arizona 85015
RE: A proposed 21 unit assisted care facility, resident manager's apartment
and 4 efficiency assisted care units all located on the west side of
Louisiana Highway 33, just outside the corporate limits of Farmerville,
Union 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 21 unit Assisted Care Facility, Resident Manager's
Apartment and 4 Efficiency Assisted Care Units all located just outside
the corporate limits of Farmerville, Union 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;
Robert M. McSherry, MAI
<PAGE>
ROBERT M. MC SHERRY, MAI
3760 Chelsea Drive
Baton Rouge, Louisiana 70809
Phone (504)924-8093
October 20, 1998
Church Loans and Investments
5305 I-40 West
Post Office Box 8203
Amarillo, Texas 79114-8203
RE: A proposed 21 unit assisted care facility, resident manager's apartment
and 4 efficiency assisted care units all located on the west side of
Louisiana Highway 33, just outside the corporate limits of Farmerville,
Union 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 21 unit Assisted Care Facility, Resident Manager's
Apartment and 4 Efficiency Assisted Care Units all located just outside
the corporate limits of Farmerville, Union 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;
Robert M. McSherry, MAI
<PAGE>
Page Two
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
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
21 Unit Assisted Care Facility, Resident Manager's Apartment and 4 Efficiency
Assisted Care Units all located on the west side of Louisiana Highway
33 just outside the corporate limits of Farmerville, Union Parish, Louisiana,
was estimated to have a Market Value based on Stabilized Net Operating
Income, as of October 20, 1998, of:
Robert M. MeSherry, MAI
<PAGE>
Page Three
TWO MILLION THIRTY THOUSAND DOLLARS
($2,030,000.00)
Allocated:
LAND: $ 20,000.00
IMPROVEMENTS: $1,935,000.00
FURNITURE, FIXTURES & EQUIPMENT: $ 75,000.00
GOODWILL OF GOING CONCERN -0-
The "As Is" Value of the property, derived by the utilization of the
Discounted Cash Flow Methodology, is estimated to be, as of October 20,
1998, but subject to completion of the property in accordance with submitted
plans and specifications within a reasonable period of time, of:
ONE MILLION NINE HUNDRED FIFTY-FIVE THOUSAND DOLLARS
($1,955,000.00)
The subject property is proposed at the present time and this appraiser
has been provided plans and specifications for the property. The herein
contained Estimate of Market Value is conditioned upon 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.
This appraisal report was prepared in accordance with and compliance
of the Uniform Standards of Professional Appraisal Practice promulgated
by the Appraisal Foundation and the Guide Notes to the Standards of
Professional Practice adopted by the Appraisal Institute. These standards
contain binding requirements and specific guidelines that deal with the
procedures to be followed in developing an appraisal, analysis, or opinion.
These uniform
Robert M. McSherry, MAI
<PAGE>
Page Four
standards also set the requirements to communicate the appraiser's analysis,
opinions, and conclusions in a manner that will be meaningful and not
misleading in the marketplace, accordingly, the Departure Provision does
not apply.
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 State Certified General
Real Estate No. G0891
Robert M. McSherry, MAI
<PAGE>
EXECUTIVE SUMMARY
Location: West side of LA Highway 33 just outside the
Corporate Limits of Farmerville, Union
Parish, Louisiana
Interest Appraised: Fee Simple Interest
Site: 4.00 Acres or 174,240 Square Feet, more or
less
Building Description: The property will include twenty-one (21)
assisted care living units, a resident
manager's apartment and 4 efficiency assisted
care units all located within a single,
T-shaped building. 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 as well as
storage areas and other required additions to
render the subject property a functional
assisted care facility catering to 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.
The property is considered to be a most
functional assisted living facility and is
Robert M. McSherry, MAI
<PAGE>
considered a most attractive property and
should be well accepted by the local market.
Highest and Best Use: Assisted care facility including all required
amenities.
Cost Approach to Value $2,110,000.00
Market Approach to Value $2,075,000.00
Income Approach to Value:
Stabilized Net Income: $2,030,000.00
Discounted Cash Flow Value: $1,955,000.00
Final Value Estimate:
Stabilized Net Income: $2,030,000.00
"As Is" Value: $1,955,000.00
Allocated:
Land $ 20,000.00
Improvements $1,935,000.00
Furniture, Fixtures
and Equipment $ 75,000.00
Goodwill of Going
Concern -0-
Robert M. McSherry, MAI
<PAGE>
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 4.0 acre tract of land which will be basically rectangular in shape
with no direct frontage along the west side of LA Highway 33 with access
provided to the site from the right-of-way of this State maintained highway
by a right-of-way of a minimum width of 50 feet which will be a dedicated
right-of-way providing perpetual access to the subject site from the state
highway. The subject site is a portion of a larger tract of land which
is to be purchased from Lejoe Long by Biltmore, LLC for a total consideration
of $32,000.00 for a 16 acre tract. The property features a somewhat sloping
topography and the 4.0 acres which are the subject of this appraisal report
are considered the "heart" of the property providing an excellent view
of an existing man made lake located to the southeast of the site and
the surrounding terrain.
The property has not been purchased as of the date of this appraisal
with the closing date set to be within two weeks of the date of the appraisal
and, at that time, a complete legal description including metes and bounds
survey of the property including the access right-of-way will be provided
this appraiser to ascertain the assumptions utilized within this report
have been fulfilled. This is a condition of this appraisal report.
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 21 assisted care facility
and 4 efficiency assisted care units all located on the west side of LA
Highway 33, Farmerville, Louisiana.
OBJECTIVE OF THE APPRAISAL
The objective and function 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 MMR Investment Bank in order to provide long
term financing of the subject property for the Biltmore Group, 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>
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 21 assisted care facility
and 4 efficiency assisted care units all located on the west side of LA
Highway 33, Farmerville, Louisiana.
OBJECTIVE OF THE APPRAISAL
The objective and function 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 Colonial Trust Company in order to provide
long term financing of the subject property for the Biltmore Group, 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>
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 21 assisted care facility
and 4 efficiency assisted care units all located on the west side of LA
Highway 33, Farmerville, Louisiana.
OBJECTIVE OF THE APPRAISAL
The objective and function 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 Church Loans and Investments in order to provide
long term financing of the subject property for the Biltmore Group, 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 effective date of this appraisal is October 20, 1998. 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>
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
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
Robert M. McSherry, MAI
<PAGE>
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.
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 Lejoe Long and has been under this ownership
for a period in excess of five (5) years. The property will be purchased
by Biltmore, LLC for a total consideration of $32,000.00 for the 16 acre
tract which indicates a purchase price of $4,000.00 per acre.
The portion of the property which is the subject of this appraisal report
will be the 4.0 acre "heart" of this property located in the very center
of the tract which will afford the site a view of an existing man made
lake and the surrounding terrain and will be most conducive to the overall
environment which is intended to be developed in conjunction with the
subject property.
The property, as noted, is located at the center of the larger tract
and a minimum 50 foot right-of-way must be dedicated into perpetuity providing
access to LA Highway 33 to the subject site. This is a condition of this
appraisal report.
Robert M. McSherry, MAI
<PAGE>
The property has been owned by the current owner, Lejoe Long, for a period
in excess of five (5) years and there are no speculative transactions
affecting the subject property according to the records found in the Union
Parish Clerk of Court's Office other than those of normal business
transactions.
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
Robert M. McSherry, MAI
<PAGE>
codes, etc., can be assumed without provision of specific professional
or governmental inspections.
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.
Robert M. McSherry, MAI
<PAGE>
UNION PARISH AND FARMERVILLE CITY DATA
Farmerville is located in the extreme northeastern corner of Louisiana
approximately 124 miles northeast of Shreveport, Louisiana and 129 miles
northwest of Jackson, Mississippi. The population as of 1993 for the
City of Farmerville was 3,010 while the population of Union Parish was
21,116.
There are 14 local public and private schools that service Farmerville
while Northeast Louisiana University lies within 24 miles of the City.
The local utilities and services include Louisiana Power and Light, natural
gas is supplied by Louisiana Gas Service and water is supplied by Peoples
Water Company. There is a local Police Department and Fire Department
for personal protection. Local telephone service is provided by South
Central Bell.
The community enjoys 64 local churches which are either Protestant, Catholic
or Other Denomination. There are 26 doctors servicing one local hospital.
Highways serving the area are US Highway 165, LA Highway 33 and LA Highway
2 and the local waterway is the Oauchita River.
There are 3 daily newspapers, 2 local radio stations, one television
station and cable television is available.
Robert M. McSherry, MAI
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The major employer in the area is International Paper with approximately
1,100 union employees, Union Parish School Board (784 employees), Morehouse
General Hospital (350190 employees) with Wal-Mart and the City of Farmerville
and Union Parish following with 190 employees and 1680 employees respectively.
Robert M. McSherry, MAI
<PAGE>
[Area Location Map Indicating Subject Property]
<PAGE>
OVERVIEW OF ASSISTED LIVING INDUSTRY
In anticipation that more elderly Americans will live in assisted living
homes than nursing homes in the near future, consumer industry groups
are saying it is time to put some minimum standards into law. One of
the most important things for the industry is to try not to admit residents
it cannot provide quality care for. Many assisted living homes charge
additional fees for personal services residents may come to need as they
grow older. Some will help residents if they get sick by permitting periodic
visits from nurses, for example, or providing supervision for people with
Alzheimer's Disease.
In order to minimize residents need to move, the consumer or trade groups
say assisted living facilities should be required to offer at least some
help with the dozen daily activities including meals, using the bathroom,
taking medication and shopping. Those facilities which accept people
with Alzheimer's or other types of dementia would also be required to
provide 24 hour awake staff and special training for those workers.
Assisted living has become the hottest new housing option for older people
by promising to provide a happy medium between their homes and a full
nursing home facility. Industry estimates show that the number of elderly
Americans living in settings that could be described as assisted living
has probably doubled from 560,000 in 1990 to as many as 1,000,000 in 1997.
By early next century, experts predict assisted living homes will care
for more elderly Americans than nursing homes.
Robert M. McSherry, MAI
<PAGE>
Although numbers are inexact, assisted living facilities ranging from
luxury apartment buildings to modest group homes provide housing along
with personal services and some health care. Residents may be too frail
to live alone but too healthy to need the 24 hour medical attention of
nursing homes. Assisted living can be less expensive than nursing homes.
A 1997 survey by the National Center for Assisted Living found that 52%
costs $1,001.00 to $2,000.00 per month and 24% cost less than $1,000.00
per month. In contrast, monthly nursing home fees average above $3,000.00.
Assisted living's affordability has attracted the attention of law makers
worried about how the nation will ensure elderly care for the huge baby
boom generation now middle aged.
Medicaid programs for the poor in 28 states have begun to cover some
assisted living services and the Department of Health and Human Services
is conducting a fact finding survey.
Unlike nursing homes, assisted living homes are not regulated by the
Federal Government. Fewer than half of the states require licensing before
it opens. That allows for flexibility and partly explains assisted living's
popularity.
In summary, the assisted living facilities currently expanding throughout
the United States are the most popular and desirable alternative living
situation for those elderly which require some minimal level of care but
not the extensive
Robert M. McSherry, MAI
<PAGE>
level required by nursing home patients. As the population continues
to grow older but maintain better health, the appeal thus desirability
of assisted living facilities will continue to be enhanced.
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. 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
Robert M. McSherry, MAI
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no income or expense history, it is considered to be a functional facility
and a facility which is demand with respect to providing long term assisted
living care.
Robert M. McSherry, MAI
<PAGE>
DESCRIPTION OF THE PROPERTY
Site Data
Size, Shape and Topography
The subject site will be a 4.0 acre rectangular shaped parcel of land
having no direct frontage along the right-of-way of LA Highway 33 with
access to be provided by a minimum 50 foot wide right-of-way which will
be dedicated into perpetuity which will provide an access road for the
subject property.
The subject property is located just west of LA Highway 33 which is a
dual-lane, asphalt, State maintained traffic artery serving local and
Parish wide vehicular traffic. The topography is rolling and will require
site preparation prior to construction. The 4.0 acre tract which is the
subject is considered to be the "heart" of the property and will feature
a level topography with an excellent view amenity including that of a
large man made lake to the southeast and the surrounding wooded topography
when site preparations are complete.
Utilities
The subject property is located just outside the corporate limits of
Farmerville, Union Parish, Louisiana but will be provided with all city
utilities and services available to properties within the corporate limits
of Farmerville including electrical service, police and fire protection,
public water, sewerage disposal, and refuge disposal. Telephone service
and natural gas service is provided by the local utility companies servicing
the area and all services and utilities are considered adequate to provide
the requirements of the subject property.
Robert M. McSherry, MAI
<PAGE>
Access
Access to the subject development will be provided as the result of an
access road leading from the west right-of-way of LA Highway 33 to the
4.0 acre subject site. The access road will exit LA Highway 33, a dual-lane,
asphalt, State maintained traffic artery which services both local and
Parish wide vehicular traffic and provides direct access to the downtown
areas of Farmerville as well as to the outlying areas of Farmerville and
Union Parish. There exists several other State maintained highways including
LA Highway 2 which traverse the area and provide adequate access to the
subject site from all areas of both Farmerville and Union Parish.
Zoning
Conversations with representatives on the Farmerville City Hall indicated
that no current zoning is applicable to areas in the unincorporated areas
of Farmerville, Louisiana. Land uses are controlled by deed restrictions
or other restrictive covenants which run with the land and, although this
appraiser has not conducted an in-depth review of the abstract to the
subject site, no deed restrictions or other restrictive covenants are
assumed to exist which would affect the utilization of the subject site
as a site of an assisted living facility.
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 Union Parish Community Office
indicated the subject property to be located in a Flood Zone "X" according
to Flood Map No. 220359-007-A having an effective date of September 13,
1997. This indicates no flood insurance is required for the subject property.
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 Union Parish tax rolls the year after it is completed and at that
time will be assessed and the tax liability can be assigned. For the
purposes of this appraisal report and for the utilization in the Income
Approach, taxes have been projected but are subject to change once the
property is completed and placed on the tax rolls.
The 1997 millage rates applicable to the subject property are as follows:
Forestry .08 Mills
Parish 45.04 Mills
Total 45.12 Mills
Assisted living facilities such as the subject are assessed at 10% of
Market Value and conversations with representatives of the Union Parish
Tax Assessor's Office indicate an estimated Market Value for tax purposes
will be approximately 30% less than actual Market Value. Thus:
Robert M. McSherry, MAI
<PAGE>
Estimated Value of Subject $2,030,000.00
Estimated Assessed Value $1,470,000.00
10% - Assessed Value $ 147,000.00
$147,000.00 X 45.12 Mills = Estimated Tax Liability $ 6,632.64
Robert M. McSherry, MAI
<PAGE>
LOCATION MAP
Robert M. McSherry, MAI
<PAGE>
[Subject Property Location Map Indicating Subject Property]
<PAGE>
DESCRIPTION OF THE IMPROVEMENTS
Assisted Living Facility
The proposed facility containing the assisted living units will be constructed
within a single T-shaped building but a building comprised of different
component sections housing the assisted living units in two wings with
the public areas located in the center or core of the building. The building
is a modified T-shape and encompasses a total of 22,217 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 while the
efficiency units will contain approximately 200 square feet of area.
The gross building area was calculated by Mr. Mike Wallace, the preparer
of the plans and specifications for the property.
Construction characteristics for this 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 of the assisted care units having their own central HVAC
unit with the common areas utilizing central, zoned units.
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
well as an apartment for the resident managing couple.
As previously noted, the total gross area contained within this portion
of the subject property is 22,217 square feet. Within this total, 21
assisted living units, 4 efficiency assisted units, the manager's apartment
and remaining common areas will be contained. 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.
Each assisted living unit will include a toilet, lavatory and tub/shower
unit, through wall air conditioning unit with heat strip, drop-in over/range
unit with vent hood as well as adequate closet and cabinet space.
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.
As noted, the subject is proposed construction and this appraisal is
conditioned upon the completion utilizing quality materials and workmanship
with a final
Robert M. McSherry, MAI
<PAGE>
inspection by the appraiser required to ascertain the preliminary plans
and specifications provided this appraiser were correct.
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 not affected by City
or Parish zoning with land uses controlled by deed restrictions or other
restrictive covenants. The lack of zoning allows a large number of
permissible uses to be considered for the subject property but it's location
within a primarily residential area, the access provided by a dual-laned
municipal traffic artery and other factors indicate the proposed utilization
as an assisted care facility to be one of the better if not the best
permissible uses of the site and would be a legal, conforming, permissible
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 which is currently applicable to the subject property
does allow for an assisted care facility to be constructed on the site
as well as other types of multi-family construction. This lack of zoning
classification will allow the property to be developed as proposed within
this appraisal report and this is considered the most likely probable
use to which the subject property could be put.
Robert M. McSherry, MAI
<PAGE>
In the final analysis, the proposed utilization of the subject property
is considered to constitute one of it's Highest and Best Uses.
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.
Robert M. McSherry, MAI
<PAGE>
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 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
Robert M. McSherry. MAI
<PAGE>
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 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
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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 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
Robert M. McSherry, MAI
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cost of the work." The property is proposed thus no deferred maintenance
is present.
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
Robert M. McSherry, MAI
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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.
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: January 27, 1998
Recordation: Conveyance Book 1020, Page 198,
Union Parish, Louisiana.
Vendor: Donald Hinton
Vendee: Jo Ann Stoy
Size: 2.82 Acres
Consideration: $6,000.00
Indicated Price/Acre: $2,127.00 per Acre
Brief Legal Description: Tract or parcel of land located in the
northeast quarter of the northwest
quarter of Section 28 and the southeast
quarter of the southwest quarter of
Section 21, T21 N-Rl E, Union Parish,
Louisiana.
Financing: Cash
Condition of Sale: Market
Site Utilities: Public
Terrain: Gently Sloping
Access: Public Asphalt Road
Highest and Best Use: Commercial or Multi-Family
Confirmation: Union Parish Tax Assessors Office
Robert M. McSherry, MAI
<PAGE>
COMPARABLE LAND SALE 2
Date of Sale: January 31, 1998
Recordation: Conveyance Book 1021, Page 107,
Union Parish, Louisiana
Vendor: Ernest St. John, Jr.
Vendee: Hayes Caldwin
Size: 24.0 Acres
Consideration: $50,600.00
Indicated Price/Acre: $2,108.00 per Acre
Brief Legal Description: A tract or parcel of land located in the
northeast quarter of the southwest
quarter of Section 6, T21N-ReW, Union
Parish, Louisiana.
Financing: Cash
Condition of Sale: Market
Site Utilities: Public
Terrain: Level
Access: Public Road
Highest and Best Use: Commercial
Confirmation: Union Parish Tax Assessor's Office
Robert M. McSherry, MAI
<PAGE>
COMPARABLE LAND SALE 3
Date of Sale: May 7, 1998
Recordation: Conveyance Book 1029, Page 76,
Union Parish, Louisiana.
Vendor: Ruth Kennedy
Vendee: Bobby Patrick
Size: 11.262 Acres
Consideration: $37,158.00
Indicated Price/Acre: $3,299.00 per Acre
Brief Legal Description: Tract or parcel of land located in the
southeast quarter of the southeast
quarter of Section 2 and the northeast
quarter of the northeast quarter of
Section 11, T21N-R1E, Union Parish,
Louisiana.
Financing: Cash
Condition of Sale: Market
Site Utilities: Public
Terrain: Slightly Rolling
Access: Public Road
Highest and Best Use: Commercial
Confirmation: Union Parish Tax Assessor's Office
Robert M. McSherry, MAI
<PAGE>
COMPARABLE LAND SALE 4
Date of Sale: August 17, 1998
Recordation: Conveyance Book 1034, Page 239,
Union Parish, Louisiana.
Vendor: Jerry Rugg
Vendee: Jose Romany, M.D
Size: 15.03 Acres
Consideration: $34,000.00
Indicated Price/Acre: $2,262.00 per Acre
Brief Legal Description: Tract or parcel of land located in the
south half of the northwest quarter of
Section 18, T21N-R1E, Union Parish,
Louisiana.
Financing: Cash
Condition of Sale: Market
Site Utilities: Public
Terrain: Slightly Sloping
Access: Public Highway
Highest and Best Use: Commercial or Light Industrial
Confirmation: Union Parish Tax Assessor's Office
Robert M. McSherry, MAI
<PAGE>
COMPARABLE LAND SALES SUMMARY CHART
<TABLE>
<CAPTION>
Date Size/Usable Price/Acre Location
<S> <C> <C> <C> <C>
Sale 1 1/98 2.820 Acres $2,127.00 Union Parish, LA
Sale 2 1/98 24.000 Acres $2,108.00 Union Parish, LA
Sale 3 5/98 11.262 Acres $3,299.00 Union Parish, LA
Sale 4 8/98 15.030 Acres $2,262.00 Union Parish, LA
</TABLE>
Robert M. McSherry, MAI
<PAGE>
ANALYSIS OF COMPARABLE LAND SALES
The four vacant comparable land sales contained within this appraisal
report and utilized for analysis purposes are sales of sites located either
in the immediate proximity of the subject or other comparable areas of
Farmerville, Louisiana. All sites are considered current with respect
to date of sale as all sales have been sold within the calendar year of
1998 thus requiring no adjustment for the time differential. The size
of the sales are similar with respect to the subject property with the
exception of Sale 2 which is somewhat larger but analysis of paired sales
did not indicate any adjustment required for this somewhat minimal size
differential. However, the location of all sales is considered inferior
to that of the subject property requiring an upward adjustment for this
locational dissimilarity between the subject property and the comparable
sale and this sale has been adjusted accordingly.
Physical characteristics are also important factors in the desirability
of the vacant developmental site and the physical characteristics associated
with each of these comparable sales have been analyzed, compared to the
subject property and the proper adjustments made.
The following land sales adjustment grid has been utilized to reflect
the appraiser's opinion of the required adjustment of these comparable
sales which results in an indicated value of the subject site, as if vacant,
and in it's current condition.
Robert M. McSherry, MAI
<PAGE>
After this adjustment grid has been carefully completed, it is our opinion
that the subject site is estimated to have a Market Value, As If Vacant
and prior to site preparation, of $5,000.00 per acre.
Therefore, the Estimated Value of the Subject Site, As If Vacant, is
thus derived:
4.0 Acres @ $5,000.OO/Acre = $20,000.00
INDICATED VALUE OF THE SUBJECT SITE,
AS IF VACANT (R/T) $20,000.00
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.
Robert M. McSherry, MAI
<PAGE>
The insurance costs indicated are limited to construction-period coverage
including the builder's risk.
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
Cost Source: Marshall-Swift Cost Manual and
Actual Costs Provided by Fred Bayles
Direct Costs:
Primary Structure
22,217 sq. ft. @ $59.70/sq. ft. $1,326,354.00
Total Direct Costs: Improvements $1,326,354.00
Indirect Costs:
Plans, Specifications, Inspection Included in Direct Costs
Contractor's Overhead/Profit $170,000.00
Interim Interest $ 65,250.00
Legal, Audit, Appraisal $ 60,400.00
Financing Fees - Construction $ 30,000.00
Misc. Expenses $ 50,000.00
Financing Fees - Long Term $162,500.00
Total Indirect Costs $ 538,150.00
Total Replacement Costs New: Improvements $1,864,504.00
Less: Accrued Depreciation
Physical Curable -0-
Physical Incurable -0-
Functional Obsolescence -0-
Economic Obsolescence -0-
Total Accrued Depreciation -0-
Depreciated Replacement Costs: Improvements $1,864,504.00
Add: Land Value
4.0 acres @ $5,000.00/acre $ 20,000.00
Add: Site Preparation $ 30,000.00
Add: Furniture, Fixtures and Equipment $ 75,000.00
Robert M. McSherry, MAI
<PAGE>
Add: Parking, Walks, Landscaping, Porches $ 25,000.00
Add: Entrepreneurial Profit @ 5% $ 93,200.00
Total All Costs and Value Components $2,107,704.00
INDICATED VALUE OF SUBJECT FROM
COST APPROACH (R/T) $2,110,000.00
Note: Cost of Furniture, Fixture and Equipment based on costs association
with actual costs experienced by Southside Garden Assisted Care
Facility and Arbor House of West Monroe, Louisiana.
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.
The appraiser has carefully perused the Louisiana market with respect
to sales of properties considered similar to the subject property and
none were found. However, available data from other appraisers has revealed
the sale of three similar type properties in other areas of the United
States and these are included merely for analysis purposes as follows:
Robert M. McSherry, MAI
<PAGE>
IMPROVED PROPERTY SALE 1
VENDOR: American Retirement, Inc.
VENDOR: Horizon Retirement, Inc.
LOCATION: 2601 Chimney Rock Road,
Hendersonville, North Carolina
RECORDATION: N/A
DATE: February, 1993
CONSIDERATION: $6,480,000.00
TERMS: $2,224,000.00 cash, assumption of a
mortgage balance of $4,316,000.00.
terms are considered to be cash
equivalent.
SITE SIZE: N/A
IMPROVEMENTS: This is a 110 unit senior living
community constructed in 1988. The
units are housed in a three-story
building of wood frame construction.
Construction quality is considered to be
average; condition at the time of sale
was good. The gross building area is
approximately 96,058 square feet with
an average unit size of 873 square feet.
ESTIMATED GROSS INCOME: $1,706,255.00
ESTIMATED EXPENSE RATIO: Approximately 56 percent
NET OPERATING INCOME: Approximately $751,844.00
UNIT INDICATORS:
SP/Unit = $58,909.00
SP/SF = $ 67.46
SP/GI = 3.80 GIM
NOI/SP = 0.1160 OAR
Robert M. McSherry, MAI
<PAGE>
IMPROVED PROPERTY SALE 2
VENDOR: American Retirement, Inc.
VENDOR: Emeritus Corporation
LOCATION: 2601 Chimney Rock Road,
Hendersonville, North Carolina
RECORDATION: N/A
DATE: September, 1995
CONSIDERATION: $9,483,523.00
TERMS: Cash
SITE SIZE: N/A
IMPROVEMENTS: This is a 110 unit senior living
community constructed in 1988. The
units are housed in a three-story
building of wood frame construction.
Construction quality is considered to be
average; condition at the time of sale
was good. The gross building area is
approximately 96,058 square feet with
an average unit size of 873 square feet
ESTIMATED GROSS INCOME: Approximately $2,175,000.00
ESTIMATED EXPENSE RATIO: Approximately 56 percent
NET OPERATING INCOME: Approximately $957,000.00
UNIT INDICATORS: SP/Unit = $86,214.00
SP/SF = $ 98.73
SP/GI = 4.36 GIM
NOI/SP = 0.1009 OAR
Robert M. McSherry, MAI
<PAGE>
IMPROVED PROPERTY SALE 3
VENDOR: ABD Investments, Inc.
VENDOR: Merrill Associates, LP
LOCATION: 6725 Inglewood Avenue, Stockton,
California
RECORDATION: N/A
DATE: July, 1994
CONSIDERATION: $4,200,000.00
TERMS: Cash
SITE SIZE: N/A
IMPROVEMENTS: This is a 74 unit senior living community
constructed in 1989. The units are
housed in two-story buildings of wood
frame construction. Construction quality
is considered to be average, condition
at the time of sale was good. The gross
building area is approximately 63,730
square feet with an average unit size of
861 square feet.
ESTIMATED GROSS INCOME: Approximately $1,395,000.00
ESTIMATED EXPENSE RATIO: Approximately 70 percent
NET OPERATING INCOME: Approximately $418,500.00
UNIT INDICATORS: SP/Unit = $56,757.00
SP/SF = $65.90
SP/GI = 3.01 GIM
NOI/SP = 0.0996 OAR
Robert M. McSherry, MAI
<PAGE>
SUMMARY
<TABLE>
<CAPTION>
Sale One Sale Two Sale Three
<C> <C> <C> <C>
Indicated OAR 11.6% 10.09% 9.96%
Price/Unit $58,909.00 $86,214.00 $56,757.00
Gross Income Multiplier 3.80 4.36 3.01
Estimated Expense Ratio 56% 56% 70%
</TABLE>
The three Improved Property Sales included within this report have been
provided this appraiser by knowledgeable sources and other appraisers
and are deemed accurate as they were verified by knowledgeable and ethical
persons. The appraiser has conducted an in-depth review of conveyances
of similar type assisted living or congregate care facilities in the State
of Louisiana and none were found which were considered to be reflective
of true arms-length transactions between willing buyers and willing sellers
with no undue duress being experienced. These three Improved Property
Sales have been included for the purpose of deriving an indicated Overall
Capitalization Rate, an indicated price per unit and an indicated Gross
Income Multiplier for utilization in the analysis process with respect
primarily to the Income Approach to Value. The level of services provided
by these facilities are similar to, those to be provided by the subject
property which would include three (3) meals per day, utilities, maid
service one (1) day a week, flat linen service one (1) day a week, various
assistance with respect to bathing, exercise, and transportation to various
off-site functions as well as on-site recreational functions, counseling,
with other services provided on a more extensive basis for additional
expense paid by the
Robert M. McSherry, MAI
<PAGE>
guest or resident of the facility. It is acknowledged that a large number
of the residents residing in the assisted care facilities are requiring
increased levels of care and these additional expenses are being passed
directly to the tenant as they upset the economies of an assisted care
facility having to provide this extraordinary level of care without additional
remuneration.
The price per unit indicated by Improved Property Sale 2 is considered
the best available and has been accorded the greatest credence. Accordingly:
25 Units @ $83,000.00/Unit $2,075,000.00
INDICATED VALUE OF SUBJECT FROM
THE MARKET DATA OR DIRECT SALES
COMPARISON APPROACH (R/T) $2,075,000.00
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 21 assisted care units and 4 efficiency assisted
care units all located in a single T-shaped building which will also contain
a resident manager's apartment and common areas for the operation of the
facility. The services provided the assisted living units include all
utilities, maid service, three
Robert M. McSherry, MAI
<PAGE>
meals a day, transportation, activities with additional laundry and maid
service available at additional expense. Normal day to day medical treatments
are also available for the various tenants with any extraordinary medical
expense passed directly to the tenant.
This appraiser has had the opportunity to appraise a number of assisted
care facilities in both Louisiana and Mississippi over the last several
years and has 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 a number of assisted care,
private pay facilities located in the Baton Rouge, Louisiana area as well
as a single facility located in West Monroe, Louisiana in order to arrive
at an estimated economic rental rate for the subject property based on
the level of services provided. The assisted care market is still a
relatively new market and the majority of the facilities have been constructed
in larger metropolitan areas such as Baton Rouge. The rental rates commanded
in these larger areas are above those which can be commanded in smaller
or more rural communities in North Louisiana and appropriate adjustments
have been made. The most comparable property is the Arbor House of West
Monroe, which was completed in December of 1997 and has experienced stabilized
occupancy with respect to the assisted care units within a six (6) month
period. These units lease for $1,725.00 per month for the basic rate
with expenses including utilities, three (3)
Robert M. McSherry, MAI
<PAGE>
meals a day, maid service once a week, laundry service once a week, assistance
in bathing, transportation to shopping, church and other functions as
well as in-house recreational activities.
This appraiser has also recently completed an appraisal of a 33 unit
assisted care facility located in Baton Rouge, Louisiana which is very
typical with respect to the subject property. However, the monthly rate
provided by this facility is slightly higher than those in rural areas
with the base monthly rate being $1,850.00 per month. The same services
are provided including utilities, three (3) meals per day, assistance
with daily living activities including bathing, grooming, weekly bed linen
and towel service, weekly house keeping, transportation to medical and
dental appointments, worship service, planned activities as well as other
assistance required.
Based on this appraiser's personal inspection of these two facilities
and adjustment, it is our opinion that a $1,775.00 per month with services
including electricity, three (3) meals per day, maid service, transportation,
activities, assistance in the normal living activities as well as normal
day to day medical treatment being provided.
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.
Robert M. McSherry, MAI
<PAGE>
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 $1,775.00 per month and $1,100.00 per month for the efficiency
units with the rates remaining stable over the two year projection period.
The projected rate includes the herein listed services being provided.
Inflation will impact expense projections as well as increased occupancy
and these anticipated increases have also been utilized in the Income
Approach to Value.
In order to accurately project appropriate expenses for the subject property,
the appraiser has reviewed the current publication Trends in the Health
Care Industry with respect to historical operating expenses for assisted
care facilities. In addition, this appraiser has been provided itemized
comparable expense data with respect to three separate properties located
in the State of Louisiana but, due to confidentiality requirements, the
names of these properties are retained in the appraiser's file at the
request of the property owners. However, the following summary chart
is included for the benefit of the reader of this appraisal report and
it also provides support for the expense projections for the subject property.
The Income Approach to Value as it applies to the property being appraised
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>
ITEMIZED COMPARABLE EXPENSE DATA
<TABLE>
<CAPTION>
Property 1 Property 2 Property 3
<S> <C> <C> <C>
Administrative $249,610.00 $417,960.00 $461,530.00
Dietary $186,938.00 $251,184.00 $204,983.00
Maintenance $156,914.00 $275,424.00 $193,530.00
Housekeeping/Janitorial $ 51,340.00 $ 55,512.00 $ 52,322.00
Taxes/insurance $ 82,000.00 $110,560.00 $ 66,738.00
Utilities $ 91,328.00 $ 24,360.00 $ 65,678.00
Nursing/Other -0- $ 9,458.00 $ 10,664.00
Per Unit Expenses $ 9,522.00 $ 9,458.00 $ 10,664.00
</TABLE>
Robert M. McSherry, MAI
<PAGE>
INCOME APPROACH TO VALUE
Year One
Gross Annual Potential Income:
21 - Assisted Living Units @ $1,6775.00/month $ 422,300.00
4 - Efficiency Units @ $1,000.00/month $ 48,000.00
Total Gross Annual Potential Income $ 470,100.00
Less: Vacancy and Collection Losses
Assisted Living Units (25%) $ 105,525.00
Total Vacancy and Collection Loss $ 105,525.00
Effective Gross Annual Potential Income $ 364,575.00
Expenses:
Administrative $48,500.00
Plant Operations $35,400.00
Dietary $45,625.00
Housekeeping $12,500.00
Aides $41,000.00
Activities $15,000.00
Reserves for Replacement $ 7,500.00
Total Expenses $ 205,525.00
Net Operating Income $ 159,050.00
Note: Management fee included in Administrative Expense.
Robert M. McSherry, MAI
<PAGE>
INCOME APPROACH TO VALUE
Year Two
Gross Annual Potential Income:
21 - Assisted Living Units @ $1,675.00/month $ 422,100.00
4 - Efficiency Units @ $1,000.00/month $ 48,000.00
Total Gross Annual Potential Income $ 470,100.00
Less: Vacancy and Collection Losses
Assisted Living Units (10%) $ 42,210.00
Total Vacancy and Collection Loss $ 42,210.00
Effective Gross Annual Potential Income $ 427,890.00
Expenses:
Administrative $48,500.00
Plant Operations $39,550.00
Dietary $54,200.00
Housekeeping $13,750.00
Aides $45,100.00
Activities $16,500.00
Reserves for Replacement $ 7,500.00
Total Expenses $ 225,100.00
Net Operating Income $ 202,790.00
Note: Management Fee included in Administrative Expense.
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.
In order to ascertain the appropriate equity dividend or "cash-on-cash"
rate, the appraiser has reviewed money rates for other alternate investments
as of September 8, 1998. The results of this analysis of comparable and
alternative money rates are as follows:
Certificates of Deposit 30 Day 4.68%
90 Day 4.96%
180 Day 5.04%
Treasury Bill Rates 3 Months 4.79%
6 Months 4.79%
52 Weeks 5.00%
Robert M. McSherry, MAI
<PAGE>
30 Year Treasury Bond Rate 5.36%
Merrill-Lynch Ready Assets 30 Day 5.03% (Average Yield)
As can be reflected by the above alternate investment vehicles. Current
rates for both short and long term yields is between the high 4.00% to
the low 5.00% range. The projected 9.00% equity yield or "cash-on-cash"
return projected for the subject property provides an excellent return
on the investor's cash, approximately 3.00% in excess of other alternate
investment vehicles. Accordingly, the 9.00% equity dividend rate is
considered appropriate when the overall risk and competitive rates are
considered. 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
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
Robert M. McSherry, MAI
<PAGE>
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
Review of the three (3) improved property sales contained within this
report have indicated an Overall Capitalization Rate from a low of 9.96%
to a high of 11.6%. These indicated Overall Capitalization Rates which
have been derived from available market data indicates the rate chosen
for the capitalization of the net
Robert M. McSherry, MAI
<PAGE>
income into an indication of value based upon stabilized income of 10.5%
is reflective of current industry attitudes and is considered appropriate
with respect to this particular appraisal assignment.
Conclusion
Based on the available information we have concluded that a 10.5% is
the most appropriate capitalization rate which is derived from the actual
band of investments method and supported by the Underwriter's Method and
available market data. The location of the subject has also been considered.
Thus:
NET OPERATING INCOME = VALUE
--------------------
OVERALL CAPITALIZATION RATE
$202,790.00 = $2,027,900.00
--------------------
.10
INDICATED VALUE OF SUBJECT FROM
INCOME APPROACH (R/T) $2,030,000.00
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 11% 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- $159,050.00 x .900901 = $ 143,288.00
Year Two- $202,290.00 x .811622 = $ 164,588.00
Total Present Value of Income Stream $ 307,876.00
Present Worth of Reversion
$2,030,000.00 x .811622 $1,647,592.00
Summation:
Present Worth of Income Stream $ 307,876.00
Present Worth/Reversion $1,647,592.00
Total $1,955,468.00
INDICATED VALUE OF SUBJECT FROM
INCOME APPROACH/DISCOUNTED
CASH FLOW $1,955,000.00
Robert M. McSherry, MAI
<PAGE>
RECONCILIATION AND FINAL VALUE
The three approaches to value have indicated the following value estimates
of the property being appraised:
COST APPROACH TO VALUE $2,110,000.00
MARKET APPROACH TO VALUE $2,150,000.00
INCOME APPROACH TO VALUE
OVERALL CAPITALIZATION RATE $2,075,000.00
DISCOUNTED CASH FLOW
ANALYSIS $1,955,000.00
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 21 Unit Assisted Care and 4 Unit
Efficiency Assisted Care Facility all located on Louisiana Highway 33
just outside the corporate limits of Farmerville, Union Parish, Louisiana
was estimated to have a Market Value, as of October 20, 1998, 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, and based upon Stabilized Net Operating
Income, of:
TWO MILLION THIRTY THOUSAND DOLLARS
($2,030,000.00)
Allocated:
Land $ 20,000.00
Improvements: $1,935,000.00
Furniture, Fixtures and Equipment $ 75,000.00
Goodwill of Going Concern -0-
The estimated "as is" value is estimated to be, as of September 20, 1998
and subject to completion within a reasonable period of time, is:
Robert M. McSherry, MAI
<PAGE>
ONE MILLION NINE HUNDRED NINETY-FIVE THOUSAND DOLLARS
($1,955,000.00)
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 upon the reporting of a
predetermined value or direction in value that favors the cause of
the client, the amount of the value estimate, the attainment of a
stipulated result, or the occurrence of a subsequent event.
(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 and all rent comparables.
(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 Appraisal
Institute 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 requirements of
the Appraisal Institute relating to review by its duly authorized
representatives.
Estimated Market Value: /S/ROBERT M MCSHERRY
----------------------------
$2,030,000.00 Robert M. McSherry MAI
LA State Certified Real Estate
Appraiser No. G0891
Allocated:
Land $ 20,000.00
Improvements $1,935,000.00
Furniture, Fixtures and
Equipment $ 75,000.00
Goodwill of Going
Concern -0-
As Of: October 20, 1998
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
"Advanced Level Finance I & II", 1997
"Risk Management/Ethics/Fair Housing", 1997
"How to Value Louisiana Timberland", 1997
"Uniform Standards of Professional Appraisal Practice" Seminar, 1997
PROFESSIONAL EXPERIENCE
Real Estate Broker, State of Louisiana (1971)
Robert M. McSherry, MAI
<PAGE>
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)
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]
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A Self-Contained Real Estate
Appraisal Report of
A Proposed 22 Unit Assisted Care Facility
and 5 Efficiency Assisted Care Units all
Located on the Louisiana Highway 1 Bypass
Within the Corporate Limits of
Natchitoches, Natchitoches Parish, Louisiana
For
MMR Investment Bank
Post Office Box 781440
Witchita, Kansas 67278-1440
As Of
January 10, 1999
Prepared by
Robert M. McSherry, MAI
Louisiana State Certified General Real Estate Appraiser No. G0891
3760 Chelsea Drive
Baton Rouge, Louisiana 70809
<PAGE>
ROBERT M. MC SHERRY, MAI
3760 Chelsea Drive
Baton Rouge, Louisiana 70809
Phone (504)924-8093
January 11, 1999
MMR Investment Bank
Post Office Box 781440
Witchita, Kansas 67278-1440
RE: A proposed 22 unit assisted care facility and 5 efficiency assisted
care units all located on the Louisiana Highway 1 Bypass, within the
corporate limits of Natchitoches, Natchitoches 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 22 unit Assisted Care Facility and 5 Efficiency
Assisted Care Units all located within the corporate limits of Natchitoches,
Natchitoches 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;
Robert M. McSherry, MAI
<PAGE>
Page Two
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
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
22 Unit Assisted Care Facility and 5 Efficiency Assisted Care Units all
located on the Louisiana Highway 1 Bypass within the corporate limits
of Natchitoches, Natchitoches Parish, Louisiana, was estimated to have
a Market Value based on Stabilized Net Operating Income, as of January
10, 1999, of:
Robert M. McSherry, MAI
<PAGE>
Page Three
TWO MILLION TWO HUNDRED FIFTY-FIVE THOUSAND DOLLARS
($2,255,000.00)
Allocated:
LAND: $ 175,000.00
IMPROVEMENTS: $2,005,000.00
FURNITURE, FIXTURES & EQUIPMENT: $ 75,000.00
GOODWILL OF GOING CONCERN -0-
The "As Is" Value of the property, derived by the utilization of the
Discounted Cash Flow Methodology, is estimated to be, as of January 10,
1999, but subject to completion of the property in accordance with submitted
plans and specifications within a reasonable period of time, of:
TWO MILLION ONE HUNDRED SEVENTY THOUSAND DOLLARS
($2,170,000.00)
The subject property is proposed at the present time and this appraiser
has been provided plans and specifications for the property. The herein
contained Estimate of Market Value is conditioned upon 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.
This appraisal report was prepared in accordance with and compliance
of the Uniform Standards of Professional Appraisal Practice promulgated
by the Appraisal Foundation and the Guide Notes to the Standards of
Professional Practice adopted by the Appraisal Institute. These standards
contain binding requirements and specific guidelines that deal with the
procedures to be followed in developing an appraisal, analysis, or opinion.
These uniform
Robert M. McSherry, MAI
<PAGE>
Page Four
standards also set the requirements to communicate the appraiser's analysis,
opinions, and conclusions in a manner that will be meaningful and not
misleading in the marketplace, accordingly, the Departure Provision does
not apply.
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 State certified General
Real Estate Appraiser No. G0891
Robert M. McSherry, MAI
<PAGE>
EXECUTIVE SUMMARY
Location: East side of LA Highway 1 Bypass within the
Corporate Limits of Natchitoches, Natchitoches
Parish, Louisiana
Interest Appraised: Fee Simple Interest
Site: 4.00 Acres or 174,240 Square Feet, more or less
Building Description: The property will include twenty-two (22)
assisted care living units and 5 efficiency
assisted care units all located within a single,
T-shaped building. 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 as well as storage
areas and other required additions to render
the subject property a functional assisted care
facility catering to 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.
The property is considered to be a most functional
assisted living facility and is
Robert M. McSherry, MAI
<PAGE>
considered a most attractive property and should
be well accepted by the local market.
Highest and Best Use: Assisted care facility including all required
amenities.
Cost Approach to Value $2,310,000.00
Market Approach to Value $2,240,000.00
Income Approach to Value:
Stabilized Net Income: $2,255,000.00
Discounted Cash Flow Value: $2,170,000.00
Final Value Estimate:
Stabilized Net Income: $2,255,000.00
"As Is" Value: $2,170,000.00
Allocated:
Land $ 175,000.00
Improvements $2,005,000.00
Furniture, Fixtures
and Equipment $ 75,000.00
Goodwill of Going
Concern -0-
Robert M. McSherry, MAI
<PAGE>
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 4.0 acre tract of land which will be basically rectangular in shape
with no direct frontage along the east side of LA Highway 1 Bypass within
the corporate limits of Natchitoches, Louisiana. The subject site is
a portion of a larger tract of land which is to be purchased from Farm
Burear Insurance by Biltmore, LLC for a total consideration of $175,000.00.
The property has not been purchased as of the date of this appraisal
with the closing date set to be within two weeks of the date of the appraisal
and, at that time, a complete legal description including metes and bounds
survey of the property will be provided this appraiser to ascertain the
assumptions utilized within this report have been fulfilled. This is
a condition of this appraisal report.
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 22 assisted care facility
and 5 efficiency assisted care units all located on the west side of LA
Highway 1 Bypass, Natchitoches, Louisiana.
OBJECTIVE OF THE APPRAISAL
The objective and function 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 MMR Investment Bank in order to provide long
term financing of the subject property for the Biltmore Group, 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>
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 22 assisted care facility
and 5 efficiency assisted care units all located on the west side of LA
Highway 1 Bypass, Natchitoches, Louisiana.
OBJECTIVE OF THE APPRAISAL
The objective and function 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 Colonial Trust Company in order to provide
long term financing of the subject property for the Biltmore Group, 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>
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 22 assisted care facility
and 5 efficiency assisted care units all located on the west side of LA
Highway 1 Bypass, Natchitoches, Louisiana.
OBJECTIVE OF THE APPRAISAL
The objective and function 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 Church Loans and Investments in order to provide
long term financing of the subject property for the Biltmore Group, 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 effective date of this appraisal is January 10, 1999. 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>
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
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
Robert M. McSherry, MAI
<PAGE>
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.
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 Farm Bureau Insurance and has been under this
ownership for a period in excess of three (3) years. The property will
be purchased by Biltmore, LLC for a total consideration of $175,000.00
for the 4 acre tract which indicates a purchase price of $43,750.00 per
acre.
The property has been owned by the current owner, Farm Bureau Insurance,
for a period in excess of three (3) years and there are no speculative
transactions affecting the subject property according to the records found
in the Natchitoches Parish Clerk of Court's Office other than those of
normal business transactions.
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
Robert M. McSherry, MAI
<PAGE>
codes, etc., can be assumed without provision of specific professional
or governmental inspections.
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.
Robert M. McSherry, MAI
<PAGE>
NACHITOCHES AREA DATA
Natchitoches was founded in 1714 by Louis de St. Denis when he traveled
up the Mississippi River into the Red River and built Fort St. Jean Baptiste
near a village of an Indian tribe of the Caddo family, the Natchitoches.
The Red River began changing courses in 1825 leaving Natchitoches without
transportation advantages. During the 20th century the river to Natchitoches
was dammed creating the serene Cane River that meanders peacefully through
the center of this historic city and into Plantation Country.
Natchitoches is known as the "City of Lights" in honor of the world famous
Christmas Festival of Lights, a fairyland of multi-colored lights created
by 170,000 Christmas bulbs strung along city streets and along the Cane
River Lake. The lights reflect in the waters below and stretch along
the historic downtown area. This festival, always held the first Saturday
in December, attracts over 150,000 people to the day long festivities.
This festival has been consistently listed as "Top 100 Events in North
America" by the American Bus Association and one of the "Top 20 Events
in December by the Southeast Tourism Bureau.
The City also gained fame when in 1988 the popular movie "Steel Magnolias"
was filmed there.
Robert M. McSherry, MAI
<PAGE>
Natchitoches continues to retain it's magic, charm and heritage while
maintaining a perfect balance with progressive industries. Coupled with
scenic beauty and friendly hospitality, the quality of life makes Natchitoches
a retirement haven. In this old-world, modern city and parish, both visitor
and citizen can seek their hearts desire. Most recently the City of
Natchitoches has been named on of the top six U.S. communities to retire to
as published by the Klinger's Personal Finance Adviser. Diverse recreation
opportunities, cost of living, low taxes, weather and cultural offering
attract retirees to the area.
Thirty-three blocks in the downtown area are in the National Historic
Landmark District, which overlooks the picturesque Cane River Lake. Points
of interest include the first French Settlement, Fort St. Jean Baptiste
State Commemorative Area, the American Cemetery, the Louisiana Sports
Hall of Fame and the National Fish Hatchery and Aquarium.
In the country side along the winding Cane River are some of the earliest
plantations in the state including Bayou Folk Museum, Beau Fort, Magnolia,
Oaklawn and Landmark Plantation which is the home of the St. Augustine
Church and Cemetery.
Kisatchie National Forest and freshwater lakes offer recreational opportunities
to fishermen, hunters, campers and hikers.
Natchitoches Parish is located in West Central Louisiana and is one of
the larger political subdivisions of the state. The parish consists of
1,264 square miles on
Robert M. McSherry, MAI
<PAGE>
803,388 acres. Winn, Bienville, Vernon, Grant, Rapides, Sabine and DeSoto
Parishes, as well as the Red River, create the parish boundaries.
The Natchitoches Parish School System includes 5 preschool, 13 elementary
and 3 high schools. There also exists two church affiliated private schools
serving the community.
The Louisiana School of Math, Science and the Arts provide high quality
education for the state's most gifted high school students.
Higher education is provided by Northwestern State University as well
as vocational training provided by the Louisiana Technical College and
Natchitoches Central Area Vocational Technical School.
Within two hour's drive of Natchitoches are 12 colleges or universities
in which 5 of these institutions offer doctoral degrees in the arts, sciences,
engineering, medical and legal fields.
Police protection is provided by the Natchitoches Police Department and
the Natchitoches Parish Sheriff's Department which handles the entire
criminal, civil and tax division operations for the parish.
Fire protection, rescue and emergency services are provided by the Natchitoches
Fire Department.
Robert M. McSherry, MAI
<PAGE>
The Natchitoches Parish Hospital serving Natchitoches Parish is an integral
part of the community. The Natchitoches Parish Hospital is an 84 bed
hospital and 112 bed long term care unit providing medical and surgical
acute care. Regional medical centers with the very latest medical technology
are available in the Alexandria/Pineville area, 50 miles south.
There are 8 voluntary health agencies and 1 parish health unit, the
Natchitoches Parish Health Unit, in the parish. Natchitoches also has a
kidney dialysis center and a rehabilitation center. The city is served by
25 physicians, 126 nurses, 9 dentists and 1 skilled nursing staff.
There are 8 financial institutions serving the area and the 7 top providers
of employment are as follows:
<TABLE>
<CAPTION>
Name Product/Service # Employees
<S> <C> <C>
Natchitoches Parish
School Board Public Education 1,025
Con Agra Frozen Foods Food Manufacturing 900
Northwestern State
University Higher Education 634
Marco Plywood 520
Natchitoches Parish
Hospital Health Care 425
Willamette Industries, Inc. Linerboard Paper 374
City of Natchitoches Municipal Government 250
</TABLE>
Robert M. McSherry, MAI
<PAGE>
Area Location Map
[MAP OF SURROUNDING AREA]
Robert M. McSherry, MAI
<PAGE>
OVERVIEW OF ASSISTED LIVING INDUSTRY
In anticipation that more elderly Americans will live in assisted living
homes than nursing homes in the near future, consumer industry groups
are saying it is time to put some minimum standards into law. One of
the most important things for the industry is to try not to admit residents
it cannot provide quality care for. Many assisted living homes charge
additional fees for personal services residents may come to need as they
grow older. Some will help residents if they get sick by permitting periodic
visits from nurses, for example, or providing supervision for people with
Alzheimer's Disease.
In order to minimize residents need to move, the consumer or trade groups
say assisted living facilities should be required to offer at least some
help with the dozen daily activities including meals, using the bathroom,
taking medication and shopping. Those facilities which accept people
with Alzheimer's or other types of dementia would also be required to
provide 24 hour awake staff and special training for those workers.
Assisted living has become the hottest new housing option for older people
by promising to provide a happy medium between their homes and a full
nursing home facility. Industry estimates show that the number of elderly
Americans living in settings that could be described as assisted living
has probably doubled from 560,000 in 1990 to as many as 1,000,000 in 1997.
By early next century, experts predict assisted living homes will care
for more elderly Americans than nursing homes.
Robert M. McSherry, MAI
<PAGE>
Although numbers are inexact, assisted living facilities ranging from
luxury apartment buildings to modest group homes provide housing along
with personal services and some health care. Residents may be too frail
to live alone but too healthy to need the 24 hour medical attention of
nursing homes. Assisted living can be less expensive than nursing homes.
A 1997 survey by the National Center for Assisted Living found that 52%
costs $1,001.00 to $2,000.00 per month and 24% cost less than $1,000.00
per month. In contrast, monthly nursing home fees average above $3,000.00.
Assisted living's affordability has attracted the attention of law makers
worried about how the nation will ensure elderly care for the huge baby
boom generation now middle aged.
Medicaid programs for the poor in 28 states have begun to cover some
assisted living services and the Department of Health and Human Services
is conducting a fact finding survey.
Unlike nursing homes, assisted living homes are not regulated by the
Federal Government. Fewer than half of the states require licensing before
it opens. That allows for flexibility and partly explains assisted living's
popularity.
In summary, the assisted living facilities currently expanding throughout
the United States are the most popular and desirable alternative living
situation for those elderly which require some minimal level of care but
not the extensive
Robert M. McSherry, MAI
<PAGE>
level required by nursing home patients. As the population continues
to grow older but maintain better health, the appeal thus desirability
of assisted living facilities will continue to be enhanced.
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. 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
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no income or expense history, it is considered to be a functional facility
and a facility which is demand with respect to providing long term assisted
living care.
Robert M. McSherry, MAI
<PAGE>
DESCRIPTION OF THE PROPERTY
Site Data
Size, Shape and Topography
The subject site will be a 4.0 acre rectangular shaped parcel of land
having direct frontage along the right-of-way of LA Highway 1 Bypass.
The subject property is located on the east side of LA Highway 1 Bypass
which is a dual-lane, asphalt, State maintained traffic artery serving
local and Parish wide vehicular traffic. The topography is level to rolling
and will require site preparation prior to construction.
Utilities
The subject property is located within the corporate limits of Natchitoches,
Natchitoches Parish, Louisiana and will be provided with all city utilities
and services available to properties within the corporate limits of
Natchitoches including electrical service, police and fire protection,
public water, sewerage disposal, and refuge disposal. Telephone service
and natural gas service is provided by the local utility companies servicing
the area and all services and utilities are considered adequate to provide
the requirements of the subject property.
Access
Access to the subject development will be provided as the result of frontage
along the east right-of-way of LA Highway 1 Bypass. This bypass provides
a
Robert M. McSherry, MAI
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connection to not only I-49 via LA Highway 6 but also to the downtown
area of Natchitoches, major shopping areas as well as the other areas
of the parish. Overall, access to the site is considered above average.
Zoning
Conversations with representatives on the Natchitoches City Hall indicated
that the current zoning applicable to this area of the incorporated areas
of Natchitoches, Louisiana is "B-3". Land uses are also controlled by
deed restrictions or other restrictive covenants which run with the land
and, although this appraiser has not conducted an in-depth review of the
abstract to the subject site, no deed restrictions or other restrictive
covenants are assumed to exist which would affect the utilization of the
subject site as a site of an assisted living facility.
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.
Drainage
Review of Flood Hazard Maps found in the Natchitoches Community Office
indicated the subject property to be located in a Flood Zone "X" according
to
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Flood Map No. 220131-0003-C having an effective date of September 18,
1987. This indicates no flood insurance is required for the subject property.
However, the flood map indicates a flood zone "AE" to be in the area
and the exact flood zone status must be determined by an 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 Natchitoches Parish tax rolls the year after it is completed and
at that time will be assessed and the tax liability can be assigned.
For the purposes of this appraisal report and for the utilization in the
Income Approach, taxes have been projected but are subject to change once
the property is completed and placed on the tax rolls.
The 1998 millage rates applicable to the subject property are as follows:
City 17.03
Parish 105.82
Total 122.85
Assisted living facilities such as the subject are assessed at 10% of
Market Value and conversations with representatives of the Natchitoches
Parish Tax Assessor's Office indicate an estimated Market Value for tax
purposes will be approximately 30% less than actual Market Value. Thus:
Robert M. McSherry, MAI
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Estimated Value of Subject $2,255,000.00
Estimated Assessed Value $1,578,500.00
10% - Assessed Value $ 157,850.00
$157,850.00 X 122.85 Mills = Estimated Tax Liability $19,391.87
Robert M. McSherry, MAI
<PAGE>
Subject Property Location Map
[STREET MAP OF NATCHITOCHES INDICATING SUBJECT PROPERTY]
Robert M. McSherry, MAI
<PAGE>
DESCRIPTION OF THE IMPROVEMENTS
Assisted Living Facility
The proposed facility containing the assisted living units will be constructed
within a single T-shaped building but a building comprised of different
component sections housing the assisted living units in two wings with
the public areas located in the center or core of the building. The building
is a modified T-shape and encompasses a total of 22.216 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 while the
efficiency units will contain approximately 200 square feet of area.
The gross building area was calculated by Mr. Mike Wallace, the preparer
of the plans and specifications for the property.
Construction characteristics for this 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 of the assisted care units having their own central HVAC
unit with the common areas utilizing central, zoned units.
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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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
well as an apartment for the resident managing couple.
As previously noted, the total gross area contained within this portion
of the subject property is 22.216 square feet. Within this total, 22
assisted living units, 5 efficiency assisted units and remaining common
areas will be contained. 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.
Each assisted living unit will include a toilet, lavatory and tub/shower
unit, through wall air conditioning unit with heat strip, drop-in over/range
unit with vent hood as well as adequate closet and cabinet space.
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.
As noted, the subject is proposed construction and this appraisal is
conditioned upon the completion utilizing quality materials and workmanship
with a final
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inspection by the appraiser required to ascertain the preliminary plans
and specifications provided this appraiser were correct.
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 not affected by City
zoning with the subject site zoned "B-3". The zoning classification allows
a large number of permissible uses to be considered for the subject property
but it's location within a combination residential and commercial area,
the access provided by a dual-laned traffic artery and other factors indicate
the proposed utilization as an assisted care facility to be one of the
better if not the best permissible uses of the site and would be a legal,
conforming, permissible 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 which is currently applicable to the subject property does
allow for an assisted care facility to be constructed on the site as well
as other types of multi-family construction. This zoning classification
will allow the property to be developed as proposed within this appraisal
report and this is considered the most likely probable use to which the
subject property could be put.
In the final analysis, the proposed utilization of the subject property
is considered to constitute one of it's Highest and Best Uses.
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.
Robert M. McSherry, MAI
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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 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
Robert M. McSherry, MAI
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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 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
Robert M. McSherry, MAI
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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 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
Robert M. McSherry, MAI
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cost of the work." The property is proposed thus no deferred maintenance
is present.
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
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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.
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: July 10, 1997
Recordation: Conveyance Book 522, Page 858,
Nachitoches Parish, Louisiana
Vendor: Nelkin, et al
Vendee: J&K Properties, LLC
Size: 4.02 Acres
Consideration: $55,000.00
Indicated Price/Acre: $13,681.59 per Acre
Brief Legal Description: Located in Section 83, T9N-R7W,
Nachitoches Parish, Louisiana
Financing: Typical
Site Utilities: Public
Terrain: Relatively Level
Access: Two-lane Asphalt
Zoning: "R-1" to be Changes to "R-3"
Highest and Best Use: Commercial or Multi-Family
Confirmation: Vendee
Comments: Proposed site of Magnolia Place
Apartments, 1 48 unit complex
Robert M. McSherry, MAI
<PAGE>
COMPARABLE LAND SALE 2
Date of Sale: May 27, 1997
Recordation: Conveyance Book 521, Page 806,
Nachitoches Parish, Louisiana
Vendor: A.J. Brouillette
Vendee: Kenneth Sparks
Size: 1.2 Acres +
Consideration: $40,000.00
Indicated Price/Acre: $33,333.00 per Acre
Brief Legal Description: Lots 18 and 19 in Tract 2 of S. Nelkin
Estate, Natchitoches, Louisiana
Financing: Typical
Site Utilities: Public
Terrain: Relatively Level
Access: Two-lane Concrete
Zoning: "C-1" Commercial
Highest and Best Use: Commercial
Confirmation: Public Records
Comments: Site of newly constructed USDA
Complex
Robert M. McSherry, MAI
<PAGE>
COMPARABLE LAND SALE 3
Date of Sale: May 21, 1998
Recordation: Conveyance Book 530, Page 442,
Natchitoches Parish, Louisiana
Vendor: Ferguson Realty, Inc.
Vendee: Kenneth Starks
Size: 2.065 Acres
Consideration: $80,000.00
Indicated Price/Acre: $38,740.00 per Acre
Brief Legal Description: Tract or Parcel located in Section 86,
T9N-R7W, Natchitoches Parish,
Louisiana
Financing: Typical
Site Utilities: Public
Terrain: Relatively Level
Access: Two-lane Asphalt
Zoning: "C-1" Commercial
Highest and Best Use: Commercial
Confirmation: Public Records
Robert M. McSherry, MAI
<PAGE>
COMPARABLE LAND SALE 4
Date of Sale: June 30, 1997
Recordation: Conveyance Book 522, Page 702,
Natchitoches Parish, Louisiana
Vendor: E.W. Robertson, et ux
Vendee: First Church of Christ
Size: 3.01 Acres
Consideration: $50,000.00
Indicated Price/Acre: $16,611.00 per Acre
Brief Legal Description: Tract or Parcel located in a portion of
Section 83 and 86, T9N-R7W,
Natchitoches Parish, Louisiana
Financing: Typical
Site Utilities: Public
Terrain: Relatively Level
Access: Two-lane Asphalt
Zoning: "R-1" Residential
Highest and Best Use: Commercial
Confirmation: Public Records
Robert M. McSherry, MAI
<PAGE>
COMPARABLE LAND SALES SUMMARY CHART
<TABLE>
<CAPTION>
Date Size/Usable Price/Acre Location
<S> <C> <C> <C> <C>
Sale 1 7/97 4.02 Acres $13,681.00 Natchitoches Ph., LA
Sale 2 5/97 1.20 Acres $33,338.00 Natchitoches Ph., LA
Sale 3 5/98 2.065 Acres $38,740.00 Natchitoches Ph., LA
Sale 4 6/97 3.01 Acres $16,611.00 Natchitoches Ph., LA
</TABLE>
Robert M. McSherry, MAI
<PAGE>
Land Sales Location Map
[STREET MAP OF NATCHITOCHES INDICATING COMPARABLE LAND SALES 1,2,3 & 4]
<PAGE>
ANALYSIS OF COMPARABLE LAND SALES
The four vacant comparable land sales contained within this appraisal
report and utilized for analysis purposes are sales of sites located either
in the immediate proximity of the Louisiana Highway 1 Bypass or in other
very comparable areas of Natchitoches, Louisiana. All sites thus sales
are considered current with respect to date and all sales have been sold
within either 1997 or 1998 thus requiring only minimal adjustment for
the time differential. The size of the sales is similar with respect
to the subject property with the major adjustment criteria required for
that of location with Sales 1 and 4 located some distance away from direct
highway frontage with Sales 2 and 3 having highway frontage.
However, the location of all sales are considered slightly inferior to
that of the subject property requiring an upward adjustment for this
locational dissimilarity between the subject property and the comparable
sales and these sales have been adjusted accordingly.
Adjustments for zoning differential between the comparable sales and
the subject property is also required with respect to Sale 2.
After this adjustment grid has been completed, it is our opinion that
the subject site is estimated to have a Market Value, as if vacant and
after site preparation, of $43,750.00 per acre.
Robert M. McSherry, MAI
<PAGE>
Therefore, the estimated Market Value of the subject site, as if vacant,
is thus derived:
4.0 Acres @ $43,750.00/ Acre $175,000.00
INDICATED VALUE OF THE SUBJECT SITE,
AS IF VACANT (R/T) $175,000.00
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.
Robert M. McSherry, MAI
<PAGE>
The insurance costs indicated are limited to construction-period coverage
including the builder's risk.
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
Cost Source: Marshall-Swift Cost Manual and
Contractor Cost Data
Direct Costs:
Residential Living Units
15,681 sq. ft. @ $61.70/sq. ft. $ 967,518.00
Common Area Core
6,535 sq. ft. @ $59.70/sq. ft. $ 390,140.00
Total Direct Costs: Improvements $1,357,658.00
Indirect Costs:
Plans, Specifications, Inspection Included in Direct Costs
Contractor's Overhead/Profit $176,900.00
Interim Interest $ 67,800.00
Legal, Audit, Appraisal $ 55,000.00
Financing Fees - Construction $ 27,100.00
Misc. Expenses $ 50,000.00
Financing Fees - Long Term $162,800.00
Total Indirect Costs $ 539,600.00
Total Replacement Costs New: Improvements $1,897,258.00
Less: Accrued Depreciation
Physical Curable -0-
Physical Incurable -0-
Functional Obsolescence -0-
Economic Obsolescence -0-
Total Accrued Depreciation -0-
Depreciated Replacement Costs: Improvements $1,897,258.00
Add: Land Value
4.0 acres @ $43,750.00/acre $ 175,000.00
Robert M. McSherry, MAI
<PAGE>
Add: Site Preparation $ 35,000.00
Add: Furniture, Fixtures and Equipment $ 80,000.00
Add: Parking, Walks, Landscaping, Porches $ 25,000.00
Add: Entrepreneurial Profit @ 5% $ 94,850.00
Total All Costs and Value Components $2,307,108.00
INDICATED VALUE OF SUBJECT FROM
COST APPROACH (R/T) $2,310,000.00
Note: Cost of Furniture, Fixture and Equipment based on costs association
with actual costs experienced by Southside Garden Assisted Care
Facility and Arbor House of West Monroe, Louisiana.
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.
The appraiser has carefully perused the Louisiana market with respect
to sales of properties considered similar to the subject property and
none were found. However, available data from other appraisers has revealed
the sale of three similar type properties in other areas of the United
States and these are included merely for analysis purposes as follows:
Robert M. McSherry, MAI
<PAGE>
IMPROVED PROPERTY SALE 1
VENDOR: American Retirement, Inc.
VENDOR: Horizon Retirement, Inc.
LOCATION: 2601 Chimney Rock Road,
Hendersonville, North Carolina
RECORDATION: N/A
DATE: February, 1993
CONSIDERATION: $6,480,000.00
TERMS: $2,224,000.00 cash, assumption of a
mortgage balance of $4,316,000.00.
terms are considered to be cash
equivalent.
SITE SIZE: N/A
IMPROVEMENTS: This is a 110 unit senior living
community constructed in 1988. The
units are housed in a three-story
building of wood frame construction.
Construction quality is considered to
be average; condition at the time of
sale was good. The gross building area
is approximately 96,058 square feet
with an average unit size of 873 square
feet.
ESTIMATED GROSS INCOME: $1,706,255.00
ESTIMATED EXPENSE RATIO: Approximately 56 percent
NET OPERATING INCOME: Approximately $751,844.00
UNIT INDICATORS: SP/Unit = $58,909.00
SP/SF = $ 67.46
SP/GI = 3.80 GIM
NOI/SP = 0.1160 OAR
Robert M. McSherry, MAI
<PAGE>
IMPROVED PROPERTY SALE 2
VENDOR: American Retirement, Inc.
VENDOR: Emeritus Corporation
LOCATION: 2601 Chimney Rock Road,
Hendersonville, North Carolina
RECORDATION: N/A
DATE: September, 1995
CONSIDERATION: $9,483,523.00
TERMS: Cash
SITE SIZE: N/A
IMPROVEMENTS: This is a 110 unit senior living
community constructed in 1988. The
units are housed in a three-story
building of wood frame construction.
Construction quality is considered to
be average; condition at the time of
sale was good. The gross building area
is approximately 96,058 square feet
with an average unit size of 873 square
feet
ESTIMATED GROSS INCOME: Approximately $2,175,000.00
ESTIMATED EXPENSE RATIO: Approximately 56 percent
NET OPERATING INCOME: Approximately $957,000.00
UNIT INDICATORS: SP/Unit = $86,214.00
SP/SF = $ 98.73
SP/GI = 4.36 GIM
NOI/SP = 0.1009 OAR
Robert M. McSherry, MAI
<PAGE>
IMPROVED PROPERTY SALE 3
VENDOR: ABD Investments, Inc.
VENDOR: Merrill Associates, LP
LOCATION: 6725 Inglewood Avenue, Stockton,
California
RECORDATION: N/A
DATE: July, 1994
CONSIDERATION: $4,200,000.00
TERMS: Cash
SITE SIZE: N/A
IMPROVEMENTS: This is a 74 unit senior living
community constructed in 1989. The
units are housed in two-story
buildings of wood frame construction.
Construction quality is considered to
be average; condition at the time of
sale was good. The gross building area
is approximately 63,730 square feet
with an average unit size of 861 square
feet.
ESTIMATED GROSS INCOME: Approximately $1,395,000.00
ESTIMATED EXPENSE RATIO: Approximately 70 percent
NET OPERATING INCOME: Approximately $418,500.00
UNIT INDICATORS: SP/Unit = $56,757.00
SP/SF = $ 65.90
SP/GI = 3.01 GIM
NOI/SP = 0.0996 OAR
Robert M. McSherry, MAI
<PAGE>
SUMMARY
<TABLE>
<CAPTION>
Sale One Sale Two Sale Three
<S> <C> <C> <C>
Indicated OAR 11.6% 10.09% 9.96%
Price/Unit $58,909.00 $86,214.00 $56,757.00
Gross Income Multiplier 3.80 4.36 3.01
Estimated Expense Ratio 56% 56% 70%
</TABLE>
The three Improved Property Sales included within this report have been
provided this appraiser by knowledgeable sources and other appraisers
and are deemed accurate as they were verified by knowledgeable and ethical
persons. The appraiser has conducted an in-depth review of conveyances
of similar type assisted living or congregate care facilities in the State
of Louisiana and none were found which were considered to be reflective
of true arms-length transactions between willing buyers and willing sellers
with no undue duress being experienced. These three Improved Property
Sales have been included for the purpose of deriving an indicated Overall
Capitalization Rate, an indicated price per unit and an indicated Gross
Income Multiplier for utilization in the analysis process with respect
primarily to the Income Approach to Value. The level of services provided
by these facilities are similar to those to be provided by the subject
property which would include three (3) meals per day, utilities, maid
service one (1) day a week, flat linen service one (1) day a week, various
assistance with respect to bathing, exercise, and transportation to various
off-site functions as well as on-site recreational functions, counseling,
with other services provided on a more extensive basis for additional
expense paid by the
Robert M. McSherry, MAI
<PAGE>
guest or resident of the facility. It is acknowledged that a large number
of the residents residing in the assisted care facilities are requiring
increased levels of care and these additional expenses are being passed
directly to the tenant as they upset the economies of an assisted care
facility having to provide this extraordinary level of care without additional
remuneration.
The price per unit indicated by Improved Property Sale 2 is considered
the best available and has been accorded the greatest credence. Accordingly:
27 Units @ $83,000.00/Unit $2,241,000.00
INDICATED VALUE OF SUBJECT FROM
THE MARKET DATA OR DIRECT SALES
COMPARISON APPROACH (R/T) $2,240,000.00
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 22 assisted care units and 5 efficiency assisted
care units all located in a single T-shaped building which will also contain
common areas for the operation of the facility. The services provided
the assisted living units include all utilities, maid service, three meals
a day, transportation,
Robert M. McSherry, MAI
<PAGE>
activities with additional laundry and maid service available at additional
expense. Normal day to day medical treatments are also available for
the various tenants with any extraordinary medical expense passed directly
to the tenant.
This appraiser has had the opportunity to appraise a number of assisted
care facilities in both Louisiana and Mississippi over the last several
years and has 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 a number of assisted care,
private pay facilities located in the Baton Rouge, Louisiana area as well
as facilities located in West Monroe, Shreveport and Alexandria, Louisiana
in order to arrive at an estimated economic rental rate for the subject
property based on the level of services provided. The assisted care market
is still a relatively new market and the majority of the facilities have
been constructed in larger metropolitan areas such as Baton Rouge. The
rental rates commanded in these larger areas are above those which can
be commanded in smaller or more rural communities in North Louisiana and
appropriate adjustments have been made. The most comparable property
is the Arbor House of West Monroe, which was completed in December of
1997 and has experienced stabilized occupancy with respect to the assisted
care units within a six (6) month period. These units lease for $1,850.00
per month for the basic rate with expenses including utilities,
Robert M. McSherry, MAI
<PAGE>
three (3) meals a day, maid service once a week, laundry service once
a week, assistance in bathing, transportation to shopping, church and
other functions as well as in-house recreational activities.
This appraiser has also recently completed an appraisal of a 33 unit
assisted care facility located in Baton Rouge, Louisiana which is very
typical with respect to the subject property. However, the monthly rate
provided by this facility is slightly higher than those in rural areas
with the base monthly rate being $1,850.00 per month. The same services
are provided including utilities, three (3) meals per day, assistance
with daily living activities including bathing, grooming, weekly bed linen
and towel service, weekly house keeping, transportation to medical and
dental appointments, worship service, planned activities as well as other
assistance required. Both rent comparables require upward adjustment
for time and location.
Based on this appraiser's personal inspection of these two facilities
and adjustment, it is our opinion that a $2,000.00 per month stabilized
rent with services including electricity, three (3) meals per day, maid
service, transportation, activities, assistance in the normal living activities
as well as normal day to day medical treatment being provided is economic
rent.
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.
Robert M. McSherry, MAI
<PAGE>
income into an indication of value based upon stabilized income of 10.5%
is reflective of current industry attitudes and is considered appropriate
with respect to this particular appraisal assignment.
Conclusion
Based on the available information we have concluded that a 10.5% is
the most appropriate capitalization rate which is derived from the actual
band of investments method and supported by the Underwriter's Method and
available market data. The location of the subject has also been considered.
Thus:
NET OPERATING INCOME
------------------------ = VALUE
OVERALL CAPITALIZATION RATE
$236,770.00
----------------- = $2,254,952.00
.105
INDICATED VALUE OF SUBJECT FROM
INCOME APPROACH (R/T) $2,255,000.00
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 11% 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: $164,970.00 x .900901 = $ 148,621.00
Year Two: $236,770.00 x .811622 = $ 192,167.00
Total Present Value of Income Stream $ 340,788.00
Present Worth of Reversion
$2,255,000.00 x .811622 $1,830,207.00
Summation:
Present Worth of Income Stream $ 340,788.00
Present Worth/Reversion $1,830,207.00
Total $2,170,995.00
INDICATED VALUE OF SUBJECT FROM
INCOME APPROACH/DISCOUNTED
CASH FLOW $2,170,000.00
Robert M. McSherry, MAI
<PAGE>
RECONCILIATION AND FINAL VALUE
The three approaches to value have indicated the following value estimates
of the property being appraised:
COST APPROACH TO VALUE $2,310,000.00
MARKET APPROACH TO VALUE $2,240,000.00
INCOME APPROACH TO VALUE
OVERALL CAPITALIZATION RATE $2,255,000.00
DISCOUNTED CASH FLOW
ANALYSIS $2,170,000.00
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>
30 Year Treasury Bond Rate 5.21%
Merrill-Lynch Ready Assets 30 Day 54.65 (Average Yield)
As can be reflected by the above alternate investment vehicles. Current
rates for both short and long term yields is between the high 4.00% to
the low 5.00% range. The projected 9.00% equity yield or "cash-on-cash"
return projected for the subject property provides an excellent return
on the investor's cash, approximately 3.00% in excess of other alternate
investment vehicles. Accordingly, the 9.00% equity dividend rate is considered
appropriate when the overall risk and competitive rates are considered.
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
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
Robert M. McSherry, MAI
<PAGE>
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
Review of the three (3) improved property sales contained within this
report have indicated an Overall Capitalization Rate from a low of 9.96%
to a high of 11.6%. These indicated Overall Capitalization Rates which
have been derived from available market data indicates the rate chosen
for the capitalization of the net
Robert M. McSherry, MAI
<PAGE>
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 $2,000.00 per month and $1,550.00 per month for the efficiency
units with the rates remaining stable over the two year projection period.
The projected rate includes the herein listed services being provided.
Inflation will impact expense projections as well as increased occupancy
and these anticipated increases have also been utilized in the Income
Approach to Value.
In order to accurately project appropriate expenses for the subject property,
the appraiser has reviewed the current publication Trends in the Health
Care Industry with respect to historical operating expenses for assisted
care facilities. In addition, this appraiser has been provided itemized
comparable expense data with respect to three separate properties located
in the State of Louisiana but, due to confidentiality requirements, the
names of these properties are retained in the appraiser's file at the
request of the property owners. However, the following summary chart
is included for the benefit of the reader of this appraisal report and
it also provides support for the expense projections for the subject property.
The Income Approach to Value as it applies to the property being appraised
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>
ITEMIZED COMPARABLE EXPENSE DATA
<TABLE>
<CAPTION>
Property 1 Property 2 Property 3
<S> <C> <C> <C>
Administrative $249,610.00 $417,960.00 $461,530.00
Dietary $186,938.00 $251,184.00 $204,983.00
Maintenance $156,914.00 $275,424.00 $193,530.00
Housekeeping/Janitorial $ 51,340.00 $ 55,512.00 $ 52,322.00
Taxes/Insurance $ 82,000.00 $110,560.00 $ 66,738.00
Utilities $ 91,328.00 $ 24,360.00 $ 65,678.00
Nursing/Other -0- $ 9,458.00 $ 10,664.00
Per Unit Expenses $ 9,522.00 $ 9,458.00 $ 10,664.00
</TABLE>
Robert M. McSherry, MAI
<PAGE>
INCOME APPROACH TO VALUE
Year One
Gross Annual Potential Income:
22 - Assisted Living Units @ $2,000.00/month $ 528,000.00
5 - Efficiency Units @ $1,550.00/month $ 93,000.00
Total Gross Annual Potential Income $ 621,000.00
Less: Vacancy and Collection Losses
Assisted Living Units (35%) $ 184,800.00
Total Vacancy and Collection Loss $ 184,800.00
Effective Gross Annual Potential Income $ 436,200.00
Expenses:
Administrative $80,430.00
Plant Operations $43,600.00
Dietary $56,700.00
Housekeeping $17,500.00
Aides $48,000.00
Activities $17,500.00
Reserves for Replacement $ 7,500.00
Total Expenses $ 271,230.00
Net Operating Income $ 164,970.00
Note: Management fee included in Administrative Expense.
Robert M. McSherry, MAI
<PAGE>
INCOME APPROACH TO VALUE
Year Two
Gross Annual Potential Income:
22 -Assisted Living Units @ $2,000.00/month $ 528,100.00
5 - Efficiency Units @ $1,550.00/month $ 93,000.00
Total Gross Annual Potential Income $ 621,000.00
Less:Vacancy and Collection Losses
Assisted Living Units (10%) $ 52,800.00
Total Vacancy and Collection Loss $ 52,800.00
Effective Gross Annual Potential Income $ 568,200.00
Expenses:
Administrative $85,230.00
Plant Operations $56,800.00
Dietary $74,000.00
Housekeeping $22,700.00
Aides $62,500.00
Activities $22,700.00
Reserves for Replacement $ 7,500.00
Total Expenses $ 331,430.00
Net Operating Income $ 236,770.00
Note: Management Fee included in Administrative Expense.
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.
In order to ascertain the appropriate equity dividend or "cash-on-cash"
rate, the appraiser has reviewed money rates for other alternate investments
as of January 10, 1999. The results of this analysis of comparable and
alternative money rates are as follows:
Certificates of Deposit 30 Day 4.29%
90 Day 4.51%
180 Day 4.67%
Treasury Bill Rates 3 Months 4.39%
6 Months 4.40%
52 Weeks 4.33%
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 22 Unit Assisted Care and 5 Unit
Efficiency Assisted Care Facility all located on Louisiana Highway 1 Bypass
within the corporate limits of Natchitoches, Natchitoches Parish, Louisiana
was estimated to have a Market Value, as of January 10, 1999, 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, and based upon Stabilized Net Operating
Income, of:
TWO MILLION TWO HUNDRED FIFTY-FIVE THOUSAND DOLLARS
($2,255,000.00)
Allocated:
Land $ 175,000.00
Improvements: $2,005,000.00
Furniture, Fixtures and Equipment $ 75,000.00
Goodwill of Going Concern -0-
The estimated "as is" value is estimated to be, as of January 10, 1999
and subject to completion within a reasonable period of time, is:
Robert M. McSherry, MAI
<PAGE>
TWO MILLION ONE HUNDRED SEVENTY THOUSAND DOLLARS
($2,170,000.00)
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 upon the reporting of a predetermined
value or direction in value that favors the cause of the client, the
amount of the value estimate, the attainment of a stipulated result, or
the occurrence of a subsequent event.
(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 and all rent comparables.
(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 Appraisal
Institute 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: /S/ROBERT M MCSHERRY
$2,255,000.00 --------------------------
Robert M. McSherry, MAI
LA State Certified General Real Estate
Appraiser No. G0891
Allocated:
Land $ 175,000.00
Improvements $2,005,000.00
Furniture, Fixtures and
Equipment $ 75,000.00
Goodwill of Going
Concern -0-
As Of: January 10, 1999
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
"Advanced Level Finance I & II", 1997
"Risk Management/Ethics/Fair Housing", 1997
"How to Value Louisiana Timberland", 1997
"Uniform Standards of Professional Appraisal Practice" Seminar, 1997
PROFESSIONAL EXPERIENCE
Real Estate Broker, State of Louisiana (1971)
Robert M. McSherry, MAI
<PAGE>
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)
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
<PAGE>
FLOOR PLAN
<PAGE>
[FLOOR PLAN OF ENTIRE FACILITY]
<PAGE>
[FLOOR PLAN OF DINING AND ADMINISTRATION]
<PAGE>
[ENLARGED FLOOR PLAN OF APT UNITS]
<PAGE>
INVESTIGATION AND REPORT
ON
PHASE I ENVIRONMENTAL RISK AUDIT (ERA)
THE ARBOR OF MINDEN
A PROPOSED ASSISTED LIVING CENTER
GERMANTOWN ROAD
MINDEN, LOUISIANA
FOR:
MRS. JOANNE M. CALDWELL
507 TRENTON ST.
West Monroe, LA 71291
(318) 325-5462
BY:
KARL M. WALLACE, P.E.
ENVIRONMENTAL ENGINEER
POINT PLACE ROAD
ROUTE 2 BOX 163B
DOWNSVILLE, LA 71234
(318)-396-2197
August 27, 1998
<PAGE>
KARL M. WALLACE, P.E.
ENVIRONMENTAL ENGINEER
ROUTE 2 BOX 163B
DOWNSVILLE, LA 71234
(318)-396-2197
August 27, 1998
Mrs. Joanne M. Caldwell
507 Trenton St.
West Monroe, LA 71291
Re: Phase I Environmental Risk Audit (ERA)
The Arbor of Minden
Germantown Road
Minden, LA
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
West side of Germantown Road, directly across the street from Harper School,
and consists of a 9.72 acre Tract (See Exhibit A for legal description)..
B. REFERENCES:
B.1 ASTM Standards on Environmental Site Assessments for Commercial
Real Estate, E 1527-97 and E 1528-96.
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 vegetation consisting of a few trees with grass cover. The
grass appeared to be cut at some interval for hay.
C.2 Information relative to the ERA is as follows:
C.2.1 Location: The site investigated is more specifically described
in the attached Plat. (See Attachment #1).
C.2.2 Visual Site Reconnaissance: A visual inspection was performed at
the site on August 27, 1998.
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 Webster
Parish Courthouse.
C.2.4 Review of Past and Present Land Use: A review was made of aerial
photos owned by the Webster Parish Natural Resource Conservation Service
Office, United States Department of Agriculture. Mr. Robert Austin,
USDA, was interviewed for this report.
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 with records showing the Hinton Dairy a occupant.
The sloping site was used primarily as a grazing pasture for dairy
animals. 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 a high sand content
soil with more than 3 percent slopes. This soil has minor potential
for cultivated crops and has many limitations for this use. It has
average potential for most urban uses; average strength, and low
shrink-swell potential. It is very likely that the site was used for
minor 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 analyses on soil and groundwater samples at this
site. The ERA concludes there is no reasonable 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
enclos.
<PAGE>
EXHIBIT A
Perimeter Description of 9.72 Acre Tract
A 9.72 acre more or less,tract of land situated in Section 14. Township 19
North. Range 9 West: Minden, Webster Parish, Louisiana being more particularly
described as follows:
Begin at a point on the West right-of-way of Germantown Road 347.85 feet
West and 1063.61 feet South of the Northeast corner of the Southweset Quarter
of the Northwest Quarter, said Section 14, for the point of beginning:thence run
South 31 degrees 18 minutes West along the West right-of-way of Germantown
Road 721.02 feet;thence run North 86 degrees 00 minutes West 393.09 feet;
thence North 4 degrees 00 minutes East 124.64 feet; thence run North 86
degrees 00 minutes West 146 feet; thence run North 475.16 feet to the center
line of L.P.& L. right-of-way; thence run South 88 degrees 40 minutes East
along said center line 903.74 feet to the point of beginning. Containing
9.72 acres, more or less.
<PAGE>
[TOPICGRAHICAL MAP INDICATING PROPERTY SITE]
<PAGE>
INVESTIGATION AND REPORT
ON
PHASE I ENVIRONMENTAL RISK AUDIT (ERA)
THE ARBOR OF BASTROP
A PROPOSED ASSISTED LIVING CENTER
NANCY STREET @ BOSWELL STREET
BASTROP, LOUISIANA
FOR:
MRS. JOANNE M. CALDWELL
507 TRENTON ST.
West Monroe, LA 71291
(318) 325-5462
BY:
KARL M. WALLACE, P.E.
ENVIRONMENTAL ENGINEER
441 POINT PLACE ROAD
DOWNSVILLE, LA 71234
(318)-396-2197
November 25, 1998
<PAGE>
KARL M. WALLACE, P.E.
ENVIRONMENTAL ENGINEER
441 POINT PLACE ROAD
DOWNSVILLE, LA 71234
(318)-396-2197
November 25, 1998
Mrs. Joanne M. Caldwell
507 Trenton St.
West Monroe, LA 71291
Re: Phase I Environmental Risk Audit (ERA)
The Arbor of Bastrop
Nancy Street @ Boswell Street
Bastrop, LA
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 in the
Southeast corner of the intersection of Nancy Street and Boswell Street
and consists of a 6.00 acre Tract (See Exhibit A for legal description)..
B. REFERENCES:
B.1 ASTM Standards on Environmental Site Assessments for Commercial
Real Estate, E 1527-97 and E 1528-96.
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 vegetation consisting of trees with grass cover. The site
slopes gently to the South.
C.2 Information relative to the ERA is as follows:
C.2.1 Location: The site investigated is more specifically described
in the attached Plat. (See Attachment # 1).
C.2.2 Visual Site Reconnaissance: A visual inspection was performed at
the site on November 25, 1998.
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
Morehouse Parish Courthouse.
C.2.4 Review of Past and Present Land Use: A review was made of aerial
photos owned by the Morehouse Parish Natural Resource Conservation
Service Office, United States Department of Agriculture. USDA
employees were interviewed for this report.
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 no major
agricultural use with records showing woodsland as the primary 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 a high acid content
silt loam soil with up to 5 percent slopes. This soil can be used for
cultivated crops but has many limitations for this use. It has
moderate wetness and is moderately well suited for most urban uses; it
has slight erosion hazard, and low shrink-swell potential. It should
be noted that slow permeability and a seasonal high water table due to
a perched water table above the fragipan will require site drainage for
winter construction. It is very likely that the site was used only for
woodsland. 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 analyses on soil and groundwater
samples at this site. The ERA concludes there is no reasonable
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
KARL M. WALLACE, P.E.
Consulting Engineer
enclos.
<PAGE>
[TOPOGRAPHIC DRAWING OF SUBJECT PROPERTY SHOWING SITE PLAN]
<PAGE>
INVESTIGATION AND REPORT
ON
PHASE I ENVIRONMENTAL RISK AUDIT (ERA)
THE ARBOR OF FARMERVILLE
A PROPOSED ASSISTED LIVING CENTER
RAILROAD STREET
FARMERVILLE, LOUISIANA
FOR:
MRS. JOANNE M. CALDWELL
507 TRENTON ST.
West Monroe, LA 71291
(318) 325-5462
BY:
KARL M. WALLACE, P.E.
ENVIRONMENTAL ENGINEER
441 POINT PLACE ROAD
DOWNSVILLE, LA 71234
(318)-396-2197
November 25, 1998
<PAGE>
KARL M. WALLACE, P.E.
ENVIRONMENTAL ENGINEER
441 POINT PLACE ROAD
DOWNSVILLE, LA 71234
(318)-396-2197
November 25, 1998
Mrs. Joanne M. Caldwell
507 Trenton St.
West Monroe, LA 71291
Re: Phase I Environmental Risk Audit (ERA)
The Arbor of Farmerville
Railroad Street
Farmerville, LA
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
West side of Railroad Street and consists of a 15.00 acre Tract (See Exhibit
A for legal description)..
B. REFERENCES:
B.1 ASTM Standards on Environmental Site Assessments for Commercial
Real Estate, E 1527-97 and E 1528-96.
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 vegetation consisting of small trees with grass cover. The
site slopes gently to the South.
C.2 Information relative to the ERA is as follows:
C.2.1 Location: The site investigated is more specifically described
in the attached Plat. (See Attachment #1).
C.2.2 Visual Site Reconnaissance: A visual inspection was performed at
the site on November 25, 1998.
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 Union
Parish Courthouse.
C.2.4 Review of Past and Present Land Use: A review was made of aerial
photos owned by the Union Parish Natural Resource Conservation Service
Office, United States Department of Agriculture. USDA employees were
interviewed for this report.
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 no major
agricultural use with records showing pasture land as the primary 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 "Darley" gravelly
fine sandy loam soil with up to 12 percent slopes. This soil can be
used for cultivated crops but has many limitations for this use. It
has moderate fertility and high levels of exchangeable aluminum that
are potentially toxic to crops. The construction use is considered
severe for most urban uses due to extreme slopes; it has severe
erosion hazard, and low shrink-swell potential. It is very likely
that the site was used only for pasture and woodsland. 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 analyses on soil and groundwater
samples at this site. The ERA concludes there is no reasonable
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
KARL M. WALLACE, P.E.
Consulting Engineer
enclos.
<PAGE>
[TOGOGRAPHICAL MAP OF SUBJECT PROPERTY INDICATING SITE PLAN]
<PAGE>
INVESTIGATION AND REPORT
ON
PHASE I ENVIRONMENTAL RISK AUDIT (ERA)
THE ARBOR OF NATCHITOCHES
A PROPOSED ASSISTED LIVING CENTER
LOUISIANA HWY #1
NATCHITOCHES, LOUISIANA
FOR:
MRS. JOANNE M. CALDWELL
507 TRENTON ST.
West Monroe, LA 71291
(318) 325-5462
BY:
KARL M. WALLACE, P.E.
ENVIRONMENTAL ENGINEER
441 POINT PLACE ROAD
DOWNSVILLE, LA 71234
(318)-396-2197
February 4, 1999
<PAGE>
KARL M. WALLACE, P.E.
ENVIRONMENTAL ENGINEER
441 POINT PLACE ROAD
DOWNSVILLE, LA 71234
(318)-396-2197
February 4, 1999
Mrs. Joanne M. Caldwell
507 Trenton St.
West Monroe, LA 71291
Re: Phase I Environmental Risk Audit (ERA)
The Arbor of Natchitoches
LA HWY #1
Natchitoches, LA
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 LA HWY #1 and consists of a 8.72 acre Tract (See Exhibit A
for legal description)..
B. REFERENCES:
B.1 ASTM Standards on Environmental Site Assessments for Commercial
Real Estate, E 1527-97 and E 1528-96.
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 vegetation consisting of a few trees with grass cover. The
site slopes gently to the East.
C.2 Information relative to the ERA is as follows:
C.2.1 Location: The site investigated is more specifically described in the
attached Plat. (See Attachment #1).
C.2.2 Visual Site Reconnaissance: A visual inspection was performed at the
site on February 4, 1999.
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
Natchitoches Parish Courthouse.
C.2.4 Review of Past and Present Land Use: A review was made of aerial
photos owned by the Natchitoches Parish Natural Resource Conservation
Service Office, United States Department of Agriculture. USDA employees
were interviewed for this report.
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 no major
agricultural use with records showing pasture land as the primary 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
environmental hazards existed on the site.
D.1.3 Soil Suitability for Farming: The site contains "Latanier" clay soil to
a depth of 22". This soil can be used for cultivated crops but has many
limitations for this use. It has moderate fertility and low permeability.
The construction use is considered severe for most urban uses due to
high shrink-swell potential. It is very likely that the site was used
only for pasture and woodsland. 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 analyses on soil and groundwater samples at this
site. The ERA concludes there is no reasonable 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
enclos.
<PAGE>
[CERTIFICATE OF SURVEY]
<PAGE>
