SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------------------------------------
SCHEDULE TO
Tender Offer Statement under Section 14(d)(1)
of the Securities Exchange Act of 1934
NTS-Properties Plus Ltd.
(Name of Subject Company (issuer))
ORIG, LLC (Offeror and Affiliate of Issuer)
J.D. Nichols (Bidder and Affiliate of Issuer)
Brian F. Lavin (Bidder and Affiliate of Issuer)
(Names of Filing Persons (identifying status as offeror,issuer or other person))
LIMITED PARTNERSHIP INTERESTS
(Title of Class of Securities)
629421108
(CUSIP Number of Class of Securities)
J.D. Nichols, Managing Member
of ORIG, LLC
10172 Linn Station Road
Louisville, Kentucky 40223
(502) 426-4800
(Name, address and telephone number of person authorized
to receive notices and communications on behalf of
filing persons)
Copy to:
Mark R. Borrelli
Shefsky & Froelich Ltd.
444 North Michigan Avenue, Suite 2500
Chicago, Illinois 60611
(312) 836-4014
Calculation of Filing Fee
--------------------------------------------------------------------------------
| Transaction Valuation: $702,955.90 | Amount of Filing Fee |
| 611,266 Limited Partnership Interests | $140.59 (b) |
| at $1.15 per Interest (a) | |
--------------------------------------------------------------------------------
(a) Calculated as the aggregate maximum purchase price for limited
partnership interests.
(b) Calculated as 1/50th of 1% of the Transaction Value.
[ ] Check box if any part of the fee is offset as provided by Rule
0-11(a)(2) and identify the filing with which the offsetting fee was
previously paid. Identify the previous filing by registration statement
number, or the form or Schedule and the date of its filing.
Amount Previously Paid: _______________________ Not Applicable
Form or Registration No.: ______________________ Not Applicable
Filing Party: _________________________________ Not Applicable
Date Filed: ___________________________________ Not Applicable
[ ] Check box if the filing relates solely to preliminary communications
made before the commencement of a tender offer.
Check the appropriate boxes below to designate any transactions to
which the statement relates:
[X] third-party tender offer subject to rule 14d-1.
[ ] issuer tender offer subject to rule 13e-4.
[X] going private transaction subject to Rule 13e-3.
[ ] amendment to Schedule 13D under rule 13d-2.
Check the following box if the filing is a final amendment reporting the results
of the tender offer: [ ]
<PAGE>
This Schedule TO relates to an Offer to Purchase dated November 30, 2000
(the "Offer") by ORIG, LLC, a Kentucky limited liability company and affiliate
of NTS-Properties Plus Ltd. (the "Offeror"), to purchase up to 611,266 limited
partnership interests in NTS-Properties Plus Ltd. ("Interests") that are not
owned by affiliates of NTS-Properties Plus Ltd. or the Offeror. Information in
the Offer to Purchase is incorporated herein by reference in response to all of
the items set forth in this Schedule TO, unless otherwise indicated.
Item 2. Subject Company Information
(a) The name of the subject company is NTS-Properties Plus Ltd., a Florida
limited partnership (the "Partnership"). The Partnership's principal executive
offices are located at 10172 Linn Station Road, Louisville, Kentucky 40223 and
its telephone number is (502) 426-4800.
(b) The subject class of equity securities is the Interests. As of the date
of this Offer, the Partnership had 643,650 outstanding Interests held by 988
holders of record.
(c) There is currently no established trading market for the Interests.
(d) The Partnership has not made any cash distributions in the past two
years.
(e) Not Applicable.
(f) During the past two years, the Offeror purchased 16,866 Interests from
limited partners at $1.00 per Interest.
Item 3. Identity and Background of Filing Persons.
(a) The Filing Persons for this Schedule are the Offeror, J.D. Nichols and
Brian F. Lavin. Mr. Nichols and Mr. Lavin are the managing members of the
Offeror and affiliates of the Partnership, by virtue of the relationship
described in the table below. Each of the Filing Persons are considered Bidders
as that term is defined in Rule 14d-1(g)(2) of the Securities Exchange Act of
1934 (the "Act"), but only the Offeror will purchase Interests pursuant to the
Offer. The following table names each person specified in Instruction C to
Schedule TO. The business address and telephone number of each person specified
in the following table is 10172 Linn Station Road, Louisville, Kentucky 40223,
(502) 426-4800.
Name Position/Relationship to Filing Persons
---- ---------------------------------------
NTS-Properties Plus Associates General Partner of the Partnership
NTS Capital Corporation Corporate General Partner of
NTS-Properties Plus Associates
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NTS Corporation Sole Shareholder of NTS Capital
Corporation
J.D. Nichols Chairman of the Board and Sole Director
of NTS Capital Corporation and NTS
Corporation, Managing General Partner
of NTS-Properties Plus Associates and
Managing Member of the Offeror
Brian F. Lavin President and Chief Operating Officer
of NTS Capital Corporation and NTS
Corporation and Managing Member of the
Offeror
Gregory A. Wells Senior Vice President and Chief
Financial Officer of NTS Capital
Corporation and NTS Corporation
(b) The principal business of the Offeror is to invest in entities that own
commercial and residential real estate. The Offeror is a Kentucky limited
liability company. During the past five years, the Offeror has not been the
subject of any criminal proceedings. During the past five years, the Offeror was
not a party to a judicial or administrative proceeding that resulted in a
judgment, decree or final order enjoining future violations of, or prohibiting
activities subject to, federal or state securities laws or finding any
violations of such laws.
NTS-Properties Plus Associates, a Kentucky limited partnership, is the
general partner of the Partnership (the "General Partner"). During the past five
years, the General Partner has not been the subject of any criminal proceedings.
During the past five years, the General Partner was not a party to a judicial or
administrative proceeding that resulted in a judgment, decree or final order
enjoining future violations of, or prohibiting activities subject to, federal or
state securities laws or finding any violations of such laws.
NTS Capital Corporation, a Kentucky corporation, is the corporate general
partner of the General Partner. During the past five years, NTS Capital
Corporation has not been the subject of any criminal proceedings. During the
past five years, NTS Capital Corporation was not a party to a judicial or
administrative proceeding that resulted in a judgment, decree or final order
enjoining future violations of, or prohibiting activities subject to, federal or
state securities laws or finding any violations of such laws.
NTS Corporation, a Kentucky corporation, is the sole shareholder of NTS
Capital Corporation. During the past five years, NTS Corporation has not been
the subject of any criminal proceedings. During the past five years, NTS
Corporation was not a party to a judicial or administrative proceeding that
resulted in a judgment, decree or final order enjoining future violations of, or
prohibiting activities subject to, federal or state securities laws or finding
any violations of such laws.
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(c) J.D. Nichols:
-------------
(1)-(2) Mr. Nichols is a managing member of the Offeror. During
the past 5 years, Mr. Nichols has served as Chairman of the Board of
Directors of each of the following companies: (i) NTS Development
Company, a real estate development corporation and a wholly-owned
subsidiary of NTS Corporation; (ii) NTS Capital Corporation; (iii) NTS
Corporation; and (iv) BKK Financial, Inc. ("BKK"), an Indiana
corporation and an affiliate of the Partnership. Mr. Nichols serves as
the managing general partner of the General Partner. The address of
NTS-Development Company, NTS Corporation, NTS Capital Corporation, the
General Partner and BKK is 10172 Linn Station Road, Louisville,
Kentucky 40223.
(3) Mr. Nichols has not been the subject of any criminal
proceedings.
(4) During the past five years, Mr. Nichols was not a party to a
judicial or administrative proceeding that resulted in a judgment,
decree or final order enjoining future violations of, or prohibiting
activities subject to, federal or state securities laws or finding any
violations of such laws.
(5) Mr. Nichols is a citizen of the United States.
Brian F. Lavin:
---------------
(1)-(2) Mr. Lavin is a managing member of the Offeror. Since
February, 1999, Mr. Lavin has served as President and Chief Operating
Officer of each of the following companies: (i) NTS Development
Company; (ii) NTS Capital Corporation; and (iii) NTS Corporation. From
July, 1997 through February, 1999, Mr. Lavin served as Executive Vice
President of each of the foregoing companies. The address of NTS
Development Company, NTS Capital Corporation, and NTS Corporation is
10172 Linn Station Road, Louisville, Kentucky 40223. Prior to July,
1997, Mr. Lavin served as the Executive Vice President of Paragon
Group, Inc. The address of Paragon Group, Inc., is 7557 Rambler Road,
Dallas, Texas, 75231.
(3) Mr. Lavin has not been the subject of any criminal
proceedings.
(4) During the past five years, Mr. Lavin was not a party to a
judicial or administrative proceeding that resulted in a judgment,
decree or final order enjoining future violations of, or prohibiting
activities subject to, federal or state securities laws or finding any
violations of such laws.
(5) Mr. Lavin is a citizen of the United States.
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Gregory A. Wells:
-----------------
(1)-(2) Since July, 1999, Mr. Wells has served as Senior Vice
President and Chief Financial Officer of each of the following
companies: (i) NTS Development Company; (ii) NTS Capital Corporation;
and (iii) NTS Corporation. The address of NTS Development Company, NTS
Capital Corporation and NTS Corporation is 10172 Linn Station Road,
Louisville, Kentucky 40223. From May, 1998 through July, 1999, Mr.
Wells served as Chief Financial Officer of Hokanson Companies, Inc.
From January, 1995 until May, 1998, Mr. Wells served as Vice President
and Treasurer of Hokanson Construction. The principal business of
Hokanson Construction is construction of commercial buildings and
residences and the principal business of Hokanson Companies, Inc. is
property management. The address of Hokanson Construction and Hokanson
Companies, Inc. is 107 North Pennsylvania Street, Indianapolis,
Indiana 46204.
(3) Mr. Wells has not been the subject of any criminal
proceedings.
(4) During the past five years, Mr. Wells was not a party to a
judicial or administrative proceeding that resulted in a judgment,
decree or final order enjoining future violations of, or prohibiting
activities subject to, federal or state securities laws or finding any
violations of such laws.
(5) Mr. Wells is a citizen of the United States.
Item 4. Terms of the Transaction.
(b) Securities will not be purchased from officers, director or
affiliates of the subject company.
(c) None.
(d) None.
(e) None.
(f) Not Applicable.
Item 5. Past Contracts, Transactions, Negotiations and Agreements.
(e) The Offeror purchased Interests in the Partnership and also
purchased limited partnership interests in limited partnerships affiliated with
the Partnership pursuant to an Agreement, Bill of Sale and Assignment dated
February, 2000 (the "Purchase Agreement"), by and among the Offeror and Roger M.
Kalar, Martha Kalar, David Warshawsky and Marilyn Warshawsky (the
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"Sellers") for an aggregate purchase price of $900,000. The Offeror paid the
Sellers a premium above the purchase price previously offered for limited
partnership interests pursuant to prior tender offers because this purchase
allowed the Offeror to purchase a substantial number of limited partnership
interests without incurring the significant expenses involved with a tender
offer. Pursuant to the Purchase Agreement, the Offeror purchased the following
Interests in the Partnership and limited partnership interests in limited
partnerships affiliated with the Partnership:
o An aggregate of 2,536 limited partnership interests in the Partnership
from three of the Sellers for total consideration of $2,536, or an
average purchase price of $1.00 per interest.
o An aggregate of 2,251 Interests in NTS-Properties VII, Ltd. from one of
the Sellers for total consideration of $15,082, or an average price of
$6.70 per Interest.
o An aggregate of 135 limited partnership interests in NTS-Properties III
from two of the Sellers for total consideration of $38,676, or an
average price of $286.49 per interest.
o An aggregate of 565 limited partnership interests in NTS-Properties IV
from three of the Sellers for total consideration of $136,629, or an
average price of $241.82 per interest.
o An aggregate of 1,604 limited partnership interests in NTS-Properties V
from three of the Sellers for total consideration of $425,949, or an
average price of $265.55 per interest.
o An aggregate of 675 limited partnership interests in NTS-Properties VI
from two of the Sellers for total consideration of $281,128, or an
average price of $416.49 per interest.
The material provisions of the Purchase Agreement are as follows:
o The Sellers agreed that from and after February, 2000, they shall not
acquire a limited partnership interest in any form whatsoever in any of
the NTS Public Partnerships.
o The Sellers, on behalf of themselves and their respective heirs,
personal representatives, successors and assigns, agreed, with certain
exceptions, from and after February, 2000 to keep the terms of the
Purchase Agreement confidential.
o The Sellers and the Offeror agreed to release any and all claims,
liabilities, actions, law suits and the like, whatsoever, whether
known, unknown, matured, unmatured, contingent or absolute, that each
may have against the other including the Offeror's affiliates and their
officers, directors and employees, except that the obligations of the
Offeror and the Sellers under the Purchase Agreement are not released.
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Item 6. Purposes of the Transaction and Plans or Proposals.
(c)(1) Neither the Partnership, the General Partner, NTS Capital
Corporation, the Offeror, Mr. Nichols nor Mr. Lavin has any plans or proposals
that relate to or would result in an extraordinary corporate transaction, such
as a merger, reorganization or liquidation involving the Partnership.
(c)(2) Neither the Partnership, the General Partner, NTS Capital
Corporation, the Offeror, Mr. Nichols nor Mr. Lavin has any plans, proposals or
negotiations that relate to or would result in an any purchase, sale or transfer
of a material amount of assets of the Partnership.
(c)(3) Neither the Partnership, the General Partner, NTS Capital
Corporation, the Offeror, Mr. Nichols nor Mr. Lavin has any plans, proposals or
negotiations that relate to or would result in any material change in the
present distribution policy or indebtedness or capitalization of the
Partnership.
(c)(4) Neither the Partnership, the General Partner, NTS Capital
Corporation, the Offeror, Mr. Nichols nor Mr. Lavin has any plans or proposals
that relate to or would result in any other material change in the Partnership's
management.
(c)(5) Neither the Partnership, the General Partner, NTS Capital
Corporation, the Offeror, Mr. Nichols nor Mr. Lavin has any plans, proposals or
negotiations that relate to or would result in any other material change in the
Partnership's structure or business.
(c)(6) Item (c)(6) of this Item 6 is not applicable to the Partnership
because its securities are not listed on a national securities exchange and are
not authorized to be quoted on an inter-dealer quotation system of a registered
national securities association.
(c)(7) Neither the Partnership, the General Partner, NTS Capital
Corporation, the Offeror, Mr. Nichols nor Mr. Lavin has any plans, proposals or
negotiations that relate to or would result in a class of equity securities of
the Partnership becoming eligible for termination of registration pursuant to
Section 12(g)(4) of the Securities Exchange Act of 1934 (the "Act").
(c)(8) If, following the expiration of the Offer, Interests are held
by:
(i) less than three hundred Limited Partners; or
(ii) more than 300 Limited Partners but the Offeror consummates
the Proposed Merger described in the Offer to Purchase,
then the Partnership's obligation to file reports under Section 15(d) of the Act
will be suspended.
7
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Item 8. Interest in Securities of the Subject Company.
(a) The Offeror, Mr. Nichols and Mr. Lavin each beneficially own 32,384, or
5.03% of the outstanding Interests, (i) 16,866 of which are owned by the
Offeror, (ii) 15,513 of which are owned by Ocean Ridge, and (iii) five of which
are owned by the General Partner. Mr. Nichols disclaims beneficial ownership of
17,205 of these Interests. Mr. Lavin disclaims beneficial ownership of 30,697 of
these Interests. The Offeror disclaims beneficial ownership of 15,518 of these
Interests. The address of each of these persons is 10172 Linn Station Road,
Louisville, Kentucky 40223.
(b) None.
Item 9. Persons/Assets, Retained, Employed, Compensated or Used.
The Offeror has retained the services of Gemisys Corporation to make
telephone solicitations to limited partners to tender their Interests pursuant
to this Offer. The Offeror will pay Gemisys a solicitation fee of $2.50 for
every telephone solicitation that Gemisys makes to limited partners.
Item 10. Financial Statements.
In light of the fact that the Offeror is not subject to the reporting
requirements of the Act and given the limited scope of the Offeror's operations
and its relatively small size, the costs of preparing audited financial
statements would impose an unreasonable burden on the Offeror. The Offeror,
therefore, did not include audited financial statements in the Offer.
Additionally, the Offeror's existence began in January of 1999 and as a result,
the financial information provided in the Offer to Purchase covers the 1999
fiscal year through the third quarter of 2000.
Item 11. Additional Information.
(a) None.
(b) None.
Item 12. Material to be Filed as Exhibits.
(a)(1)(i) Form of Offer to Purchase dated November 30, 2000
(including financial statements of the Offeror and
the Partnership).
(a)(1)(ii) Form of Letter of Transmittal.
(a)(1)(iii) Form of Affidavit and Indemnification Agreement for
Missing Certificate(s) of Ownership.
(a)(1)(iv) Form of Letter to Limited Partners.
(a)(1)(v) Substitute Form W-9 with Guidelines.
(a)(2) None.
(a)(3) None.
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(a)(4) None.
(a)(5) None.
(b) Loan Agreement dated August 15, 2000, between ORIG, LLC
and Bank of Louisville.
(c)(1) Appraisal Report by Integra Chapman & Bell
dated October 30, 1999.
(c)(2) Appraisal Report by Integra Chapman & Bell
dated November 2, 1999.
(c)(3) Appraisal Report by Integra Chapman & Bell
dated October 20, 2000.
(c)(4) Fairness Opinion of Integra Chapman & Bell
dated October 23, 2000.
(d)(1) Agreement, Bill of Sale and Assignment dated February,
2000 between ORIG, LLC, Roger M. Kalar, Martha Kalar,
David Warshawsky and Marilyn Warshawsky.
(d)(2) Guaranty Agreement dated August 15, 2000 between the Bank
of Louisville and J.D. Nichols.
(d)(3) Guaranty Agreement dated August 15, 2000 between the Bank
of Louisville and Brian F. Lavin.
(f) None.
(g) None.
(h) None.
Item 13. Information Required by Schedule 13E-3.
The information required by Schedule 13E-3 is included in response to the
above items in this Schedule TO.
9
<PAGE>
SIGNATURE
---------
After due inquiry and to the best of my knowledge and belief, I certify
that the information set forth in this statement is true, complete and correct.
Date: November 30, 2000 ORIG, LLC, a Kentucky limited liability
company.
By:/s/ J. D. Nichols
------------------------------------
J.D. Nichols, Managing Member
/s/ J. D. Nichols
------------------------------------
J. D. Nichols, individually
/s/ Brian F. Lavin
------------------------------------
Brian F. Lavin, individually
10
<PAGE>
EXHIBITS
--------
Exhibit
Number Description
------ -----------
(a)(1)(i) Form of Offer to Purchase dated November 30, 2000
(including financial statements of the Offeror and the
Partnership).
(a)(1)(ii) Form of Letter of Transmittal.
(a)(1)(iii) Form of Affidavit and Indemnification Agreement for
Missing Certificate(s) of Ownership.
(a)(1)(iv) Form of Letter to Limited Partners.
(a)(1)(v) Substitute Form W-9 with Guidelines.
(a)(2) None.
(a)(3) None.
(a)(4) None.
(a)(5) None.
(b) Loan Agreement dated August 15, 2000, between
ORIG, LLC and Bank of Louisville.
(c)(1) Appraisal Report by Integra Chapman & Bell
dated October 30, 1999.
(c)(2) Appraisal Report by Integra Chapman & Bell
dated November 2, 1999.
(c)(3) Appraisal Report by Integra Chapman & Bell
dated October 20, 2000.
(c)(4) Fairness Opinion of Integra Chapman & Bell
dated October 23, 2000.
(d)(1) Agreement, Bill of Sale and Assignment dated February,
2000 between ORIG, LLC, Roger M. Kalar, Martha Kalar,
David Warshawsky and Marilyn Warshawsky.
(d)(2) Guaranty Agreement dated August 15, 2000 between the
Bank of Louisville and J.D. Nichols.
(d)(3) Guaranty Agreement dated August 15, 2000 between the
Bank of Louisville and Brian F. Lavin.
(f) None.
(g) None.
(h) None.
<PAGE>
Exhibit (a)(1)(i)
Form of Offer to Purchase dated November 30, 2000
(including financial statements of the Offeror and the Partnership)
<PAGE>
Offer to Purchase for Cash
All Outstanding Limited Partnership Interests
of NTS-Properties Plus Ltd. at
$1.15 per Interest by
ORIG, LLC
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, EASTERN
STANDARD TIME, ON FRIDAY, MARCH 30, 2001, UNLESS THE OFFER IS EXTENDED.
A summary of the principal terms of the offer appears on pages ii
through iv. You should read this entire document carefully before deciding
whether to tender your limited partnership interests.
If you tender all or any portion of your interests you will be subject
to certain risks including:
o The purchase price may be less than the fair market value and
liquidation value of the interests and is less than the amount paid
for interests by third parties.
o As a result of your tender you may suffer negative tax consequences.
o There is a conflict of interest between limited partners who tender
interests in the offer, limited partners who do not tender, and the
general partner of the partnership, which creates a risk that the
purchase price will be less than the fair value of the interests.
If you continue to hold all or any portion of your interests you will
be subject to certain risks including:
o There is no developed market for the interests, which may prevent you
from being able to liquidate your investment or receive fair value for
your investment.
o There are restrictions on your ability to transfer interests. o Cash
distributions have been suspended and may be permanently eliminated.
o The offeror may purchase less than all of the outstanding interests
but still gain control of the partnership.
o The partnership has no current plans to liquidate.
o If tenants occupying some of the partnership's joint venture
properties experience financial difficulties or do not renew their
leases, this could harm the partnership's financial operations.
o There are significant general economic risks associated with
investments in real estate.
o The partnership may continue to incur operating losses and, as a
result, be unable to contribute capital to the partnership's joint
ventures, which creates a risk that the partnership's percentage of
ownership in its joint ventures will decline or that the partnership
will have to liquidate.
See "RISK FACTORS."
Questions and requests for assistance or for additional copies of this
Offer to Purchase, the Letter of Transmittal or any other documents relating to
this Offer may be directed to NTS Investor Services c/o Gemisys at (800)
387-7454.
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE FAIRNESS OR MERITS OF SUCH
TRANSACTION OR UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION CONTAINED IN
THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
The date of this Offer to Purchase is November 30, 2000.
<PAGE>
SUMMARY TERM SHEET
o THE OFFEROR. ORIG, LLC is making this tender offer. We are a Kentucky
limited liability company and an affiliate of your general partner and the
partnership. We have purchased interests in several limited partnerships
affiliated with your general partner and the partnership. See Part I,
Section 1 and Part II, Section 10.
o OUR OFFER. We are offering to purchase all of the partnership's 611,266
outstanding interests that are not owned by affiliates of us or the
partnership. See Part II, Section 2.
o OUR OFFERING PRICE. We will purchase tendered interests in cash for $1.15
per interest. See Part II, Section 2.
o FACTORS IN DETERMINING OUR OFFERING PRICE. In determining the offering
price per interest we considered, among other things, the following:
o The per interest price paid to limited partners in previous
transactions. See Part I, Section 2.
o The per interest price paid to limited partners in secondary market
transactions during the period from January 1, 1997 to February 29,
2000 in which Interests were transferred between limited partners at
prices ranging from $.05 to $1.76 per Interest, including a purchase
of Interests by a third party in January 2000 for $1.76 per Interest
and a purchase of Interests by a third party in February of 2000 for
$1.55 per Interest. See Part I, Section 2.
o The written opinion of Integra Chapman & Bell, an independent real
estate appraisal firm, dated October 23, 2000, which states that the
price of $1.15 per interest which we are offering to pay you for your
interests is fair from a financial point of view. Integra Chapman &
Bell based its opinion on the assumptions, limitations and
qualifications described in the opinion. See Part I, Sections 2 and 3.
o The absence of a trading market for the interests. See Part I, Section
2.
o RECOMMENDATION OF THE GENERAL PARTNER. The general partner of the
partnership, which is an affiliate of ours, believes that the offer is
advisable, fair, and in your best interest. Your general partner recommends
that you accept the offer and tender your shares. Your general partner
based its belief that the offer is fair, in part, on the opinion of Integra
Chapman & Bell attached as an exhibit to the Schedule TO filed with the
Securities and Exchange Commission in connection with this Offer. See Part
I, Section 2.
o CONDITIONS TO OUR OFFER. We are offering to purchase outstanding interests
from all limited partners that are not affiliates of us or the partnership,
and our offer is not generally conditioned on your tendering any minimum
number of your interests. We will not, however, accept your tender if, as a
result of the tender, you would continue to be a limited partner and would
hold fewer than two hundred fifty (250) interests. There are a number of
conditions to our offer, including the absence of certain changes in the
ii
<PAGE>
partnership, the absence of certain changes in the financial markets and
the absence of competing tender offers. See Part II, Sections 2 and 6.
o PURPOSE OF OUR OFFER. The purpose of our offer is to acquire control of the
partnership. If we acquire a majority, but less than all, of the
outstanding interests, we may propose and seek to have the partnership
consummate a merger or similar transaction with another entity or with us.
Entities which we consider to be potential parties to a merger or similar
transaction with the partnership include, but are not limited to, other
limited partnerships that are affiliated with the partnership. If the
partnership completes a merger or similar transaction, it is possible that
the partnership will no longer exist. See Part I, Section 4.
o RIGHT TO EXTEND THE EXPIRATION DATE. The offer expires on Friday, March 30,
2001 at 12:00 Midnight, Eastern Standard Time, but we may extend the
expiration date by providing you with a written notice of the extension.
See Part II, Section 2.
o SUBSEQUENT OFFERING PERIOD. We do not intend to have a subsequent offering
period after the expiration date of the initial offering period, including
any extensions. See Part II, Section 13.
o HOW TO TENDER YOUR INTERESTS. To tender your interests, complete and sign
the accompanying letter of transmittal included in these materials, and
send it to NTS Investor Services c/o Gemisys via mail or facsimile at the
address or facsimile number set forth in Part II, Section 16 of this offer
to purchase by 12:00 Midnight on Friday, March 30, 2001 Eastern Standard
Time. See Part II, Section 3.
o WITHDRAWAL RIGHTS. You can withdraw your interests at any time prior to the
expiration of our offer, including any extensions. In addition, you can
withdraw your interests at any time prior to the expiration date or the
date we pay you for your interests, whichever is later. See Part II,
Section 4.
o HOW TO WITHDRAW. To withdraw your interests, you need to send a notice of
withdrawal to the information agent. This notice must be in writing and
received by NTS Investor Services c/o Gemisys via mail or facsimile at the
address or facsimile number set forth in Part II, Section 16 of this offer
to purchase on or before the expiration date. If you file a notice of
withdrawal it must specify the name of the person withdrawing the tender
and the amount of interests previously tendered that are being withdrawn.
See Part II, Section 4.
o PAYMENT FOR YOUR INTERESTS. If you tender your interests and we accept your
tender, we will pay the price of any of your interests which we purchase by
sending you a check. We will deliver all checks by first class U.S. Mail
deposited in the mailbox within five business days after the expiration
date. See Part II, Section 5.
o TAX CONSEQUENCES. Your sale of interests in this offer will be a taxable
transaction for federal income tax purposes. The consequences to each
limited partner may vary and you should consult your tax advisor on the
precise tax consequences to you. See Part II, Section 11.
iii
<PAGE>
o AVAILABILITY OF FUNDS. We currently have funds available under a line of
credit that are sufficient to enable us to purchase all of the interests
sought in our offer. See Part II, Section 9.
-----------------------------
IMPORTANT
ANY LIMITED PARTNER WISHING TO TENDER ALL OR ANY PORTION OF HIS, HER OR ITS
INTERESTS SHOULD COMPLETE AND SIGN THE ENCLOSED LETTER OF TRANSMITTAL IN
ACCORDANCE WITH THE INSTRUCTIONS IN THE OFFER TO PURCHASE AND LETTER OF
TRANSMITTAL AND DELIVER IT TOGETHER WITH THE CERTIFICATES(S) OF OWNERSHIP FOR
THE INTERESTS BEING TENDERED (OR IF THE CERTIFICATE(S) OF OWNERSHIP FOR THE
INTEREST ARE LOST, STOLEN, MISPLACED OR DESTROYED, THE AFFIDAVIT AND
INDEMNIFICATION AGREEMENT FOR MISSING CERTIFICATE(S) OF OWNERSHIP EXECUTED BY
THE LIMITED PARTNER ATTESTING TO SUCH FACT), THE SUBSTITUTE FORM W-9 AND ANY
OTHER REQUIRED DOCUMENTS TO THE PARTNERSHIP. A LIMITED PARTNER HAVING INTERESTS
REGISTERED IN THE NAME OF A BROKER, DEALER, COMMERCIAL BANK, TRUST COMPANY OR
OTHER NOMINEE MUST CONTACT THAT BROKER, DEALER, COMMERCIAL BANK, TRUST COMPANY
OR OTHER NOMINEE IF HE, SHE OR IT DESIRES TO TENDER SUCH INTERESTS.
LIMITED PARTNERS TENDERING ALL OR ANY PORTION OF THEIR INTERESTS ARE
SUBJECT TO CERTAIN RISKS. SEE "RISK FACTORS" BEGINNING ON PAGE 3.
THE OFFER IS NOT CONDITIONED ON THE TENDER OF ANY MINIMUM NUMBER OF
INTERESTS; PROVIDED, HOWEVER, ORIG, LLC WILL NOT ACCEPT YOUR TENDER IF, AS A
RESULT OF THE TENDER, YOU WOULD CONTINUE TO BE A LIMITED PARTNER AND WOULD HOLD
FEWER THAN TWO HUNDRED AND FIFTY (250) INTERESTS. THE OFFER IS CONDITIONED UPON,
AMONG OTHER THINGS, THE ABSENCE OF CERTAIN CONDITIONS DESCRIBED IN PART II,
SECTION 6 OF THIS OFFER TO PURCHASE.
ORIG, LLC IS NOT MAKING ANY RECOMMENDATION TO YOU REGARDING WHETHER TO
TENDER OR REFRAIN FROM TENDERING YOUR INTERESTS. EACH OF YOU MUST MAKE YOUR OWN
DECISION REGARDING WHETHER TO TENDER INTERESTS, AND, IF SO, HOW MANY OF YOUR
INTERESTS TO TENDER.
-----------------------------
iv
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TABLE OF CONTENTS
SUMMARY TERM SHEET............................................................ii
INTRODUCTION...................................................................1
RISK FACTORS...................................................................3
PART I -- SPECIAL FACTORS.....................................................7
Section 1. Background of Offer.................................................7
Section 2. Determination of the Purchase Price and Fairness of the Offer......11
Section 3. Summary of the Appraisal of the Partnership and Fairness of the
Offer..............................................................12
Section 4. Purpose of the Offer and Structure of the Transactions with
Affiliates.........................................................18
Section 5. Conflicts of Interest and Transactions with Affiliates.............19
Section 6. Financing the Offer................................................25
Section 7. Certain Effects of the Offer on the Market for Interests;
Exchange Act Registration; and Margin Regulations..................25
PART II -- THE OFFER..........................................................26
Section 1. Effect of the Offer on Limited Partners............................26
Section 2. Offer to Purchase and Purchase Price;
Expiration Date; Determination of Purchase Price...................27
Section 3. Procedure for Tendering Interests..................................28
Section 4. Withdrawal Rights..................................................29
Section 5. Purchase of Interests; Payment of Purchase Price...................29
Section 6. Certain Conditions of the Offer....................................30
Section 7. Cash Distribution Policy...........................................32
Section 8. Effects of the Offer...............................................32
Section 9. Source and Amount of Funds.........................................32
Section 10.Information About the Partnership..................................34
Section 11.Certain Federal Income Tax Consequences............................38
Section 12.Transactions and Arrangements Concerning Interests.................40
Section 13.Extensions of Tender Period; Terminations; Amendments..............40
Section 14.Solicitations for Interests........................................41
Section 15.Fees and Expenses..................................................41
Section 16.Address; Miscellaneous.............................................41
Appendix A
The Partnership's Balance Sheets....................................A-1
The Partnership's Statement of Operations...........................A-2
Appendix B
ORIG's Balance Sheets...............................................B-1
ORIG's Statements of Operations.....................................B-2
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To Holders of Limited Partnership Interests of
NTS-Properties Plus Ltd.
INTRODUCTION
ORIG, LLC hereby offers to purchase all of the outstanding limited
partnership interests of NTS-Properties Plus Ltd. (the "Partnership") that are
owned by limited partners who are not affiliates of ORIG, LLC or the Partnership
at a purchase price of $1.15 per Interest (the "Purchase Price"), in cash to the
seller upon the terms and subject to the conditions set forth in this "Offer to
Purchase" and in the related "Letter of Transmittal." Together the "Offer to
Purchase" and "Letters of Transmittal" constitute the "Offer." As used in this
Offer to Purchase, the term "Interest" or "Interests," as the context requires,
refers to the limited partnership interests in the Partnership. As used in this
Offer, the terms "we," "us," or "our," as the context requires, refer to ORIG,
LLC. The General Partner has furnished information to us for inclusion in this
Offer to Purchase.
This Offer is generally not conditioned upon any minimum amount of
Interests being tendered, except as described herein. The Interests are not
traded on any established trading market and are subject to certain restrictions
on transferability described in the Amended and Restated Agreement of Limited
Partnership of NTS-Properties Plus Ltd. (the "Partnership Agreement").
You should not view the Purchase Price as equivalent to the fair market
value or the liquidation value of an Interest. As of September 30, 2000 and
December 31, 1999, the book value of each Interest was approximately $(.92). The
Purchase Price has been determined by us, in our sole discretion, based on:
o a range of value of $(2.13) to $1.45 established by an independent
appraisal of the Interests;
o repurchases of Interests by the Partnership in 1996, 1997, 1998, 1999 and
2000 at a price of $1.00 per Interest;
o purchases of Interests by the Partnership's and our affiliates, Ocean Ridge
Investments, Ltd., a Florida limited liability partnership ("Ocean Ridge"),
and purchases by us in 1998, 1999 and 2000 at a price of $1.00 per
Interest;
o the purchase of Interests from three limited partners by us on February 10,
2000 at a price of $1.00 per Interest;
o secondary market transactions during the period from January 1, 1997 to
February 29, 2000 in which Interests were transferred between limited
partners at prices ranging from $.05 to $1.76 per Interest, including a
purchase of Interests by a third party in January 2000 for $1.76 per
Interest and a purchase of Interests by a third party in February of 2000
for $1.55 per Interest; and
o a tender offer made by an unaffiliated third party in September, 1998 at a
price of $1.15 per Interest.
<PAGE>
Subject to the conditions set forth in the Offer to Purchase, we will
purchase all Interests which are tendered and received by us by, and not
withdrawn prior to, 12:00 Midnight, Eastern Standard Time, on Friday, March 30,
2001, subject to any extension of the Offer by us (the "Expiration Date").
The Offer is conditioned upon the satisfaction of the conditions set
forth in Part II, Section 6 of this Offer to Purchase, any of which may be
waived by us without notice to you. The Offer is not subject to any financing
condition.
As of September 30, 2000, there were 643,650 outstanding Interests. We
and our affiliates currently own 32,384 of these Interests. We are offering to
purchase the 611,266 Interests not owned by us or our affiliates. Accordingly,
we will not be purchasing any Interests from parties affiliated with us or the
Partnership. The purpose of the Offer is to enable us to acquire control of, and
the entire equity interest in, the Partnership. The Offer is intended to
facilitate the acquisition of all the Interests as promptly as practicable. If,
after the Offer, we and our affiliates hold a majority but less than all of the
Interests, we will consider proposing and seeking to have the Partnership
consummate a merger or similar business combination with another entity or with
us. Entities which we consider to be potential parties to a merger or similar
business combination with the Partnership include, but are not limited to, the
limited partnerships that are affiliated with the Partnership. The Florida
Revised Uniform Limited Partnership Act requires the general partner of a
limited partnership to obtain the consent of the limited partners holding a
majority of the outstanding Interests prior to consummating a merger or similar
business combination. The purpose of a merger or similar business combination
would be to enable the Partnership to improve its financial condition and
results of operations.
This Offer does not constitute a solicitation of consents from the
limited partners. Any such solicitation that we may make will be made only
pursuant to separate consent materials complying with the requirements of
Section 14(a) of the Securities Exchange Act of 1934, as amended and the rules
and regulations thereunder (the "Exchange Act").
NTS-Properties Plus Associates, a Kentucky limited partnership, is the
general partner of the Partnership (the "General Partner"). NTS Capital
Corporation, a Kentucky corporation, is the corporate general partner of the
General Partner. The General Partner believes that the Offer is advisable, fair
to, and in the best interests of the limited partners. The General Partner
recommends that limited partners accept the Offer and tender their Interests.
Integra Chapman & Bell, an advisor to the General Partner, has delivered to the
General Partner its written opinion, dated October 23, 2000, to the effect that,
as of that date and based on and subject to the assumptions, limitations and
qualifications set forth in the opinion, the $1.15 per Interest cash
consideration to be received by limited partners in this Offer is fair to the
limited partners from a financial point of view. A complete copy of the Integra
Chapman & Bell opinion, which sets forth the assumptions made, matters
considered and limits of the review by Integra Chapman & Bell in connection with
the opinion, is attached as an exhibit to the Schedule TO filed with the
Securities and Exchange Commission in connection with this Offer. You are urged
to read the opinion carefully in its entirety.
<PAGE>
RISK FACTORS
------------
If You Tender All or Any Portion of Your Interests You Are Subject to Risks
Including the Following:
The purchase price may be less than the fair market value and
liquidation value of the Interests and is less than the amount paid for
Interests by third parties. The Interests are not traded on a recognized stock
exchange or trading market. There is no active, liquid market for the Interests,
and it is unlikely that this type of market will develop in the near future. We
are aware of the following transactions in or offers for Interests:
o secondary market transactions during the period from January 1, 1997
to February 29, 2000 in which Interests were transferred between
limited partners at prices ranging from $.05 to $1.76 per Interest,
including a purchase of Interests by a third party in January 2000 for
$1.76 per Interest and a purchase of Interests by a third party in
February of 2000 for $1.55 per Interest;
o purchases by the Partnership of 42,002 Interests for $1.00 per
Interest during the period from December 1996 to August 1999;
o purchases by us and Ocean Ridge of a total of 32,379 Interests for
$1.00 per Interest during the period from January 1998 to August 2000;
and
o a tender offer made by an unaffiliated third party in September 1998
at a price of $1.15 per Interest.
As of September 30, 2000 and December 31, 1999, the book value of each
Interest was approximately $(.92). On October 20, 2000 the General Partner
obtained an appraisal of the value of the Interests from a private real estate
appraisal firm, Integra Chapman & Bell, which is unaffiliated with the
Partnership. Integra Chapman & Bell estimated a range of values of between
$(2.13) and $1.45 per Interest.
The Purchase Price per Interest in this Offer was determined by us in
part based on the purchase price paid to limited partners in the transactions
described above and in part based on the appraisal described above. The purchase
price per Interest in any of the transactions described above, the valuation
range developed by Integra Chapman & Bell and the Purchase Price in this Offer
may not reflect the value of the Interests. Neither we nor the General Partner
has performed an analysis to determine the liquidation value of the Interests.
If you were to hold your Interests until termination or liquidation of the
Partnership, you could receive greater or lesser value than the Purchase Price
for your Interests.
You may suffer negative tax consequences. If you sell Interests in this
Offer you generally will recognize a gain or loss on the sale of your Interests
for federal and most state income tax purposes. The amount of gain or loss
realized will be, in general, the excess of the amount you realize from selling
your Interests minus your adjusted tax basis in the Interests you sell. The
amount that you realize from the sale of your Interests is generally the sum of
the Purchase Price plus your
3
<PAGE>
share of Partnership liabilities. When you sell Interests which you have held
for more than twelve (12) months, the sale will typically result in long-term
capital gain or loss. Due to the complexity of tax issues, you are advised to
consult your tax advisors with respect to your individual tax situation before
selling your Interests in the Offer. See Part II, Section 11 of this Offer to
Purchase.
There is a conflict of interest between limited partners who tender
Interests in the Offer, limited partners who do not tender, and the General
Partner, which creates a risk that the Purchase Price will be less than the fair
value of the Interests. A conflict of interest exists between limited partners
who tender their Interests and the Partnership, the General Partner and limited
partners who are not tendering their Interests. Limited partners tendering their
Interests would prefer a higher Purchase Price; the Partnership, the General
Partner and limited partners who are not tendering their Interests would prefer
a lower Purchase Price. As a result of these conflicts of interest, there is a
risk that the Purchase Price is less than the fair market value of the
Interests.
If You Do Not Tender All or Any Portion of Your Interests You Are Subject to
Certain Risks Including the Following:
There is no developed market for the Interests, which may prevent you
from being able to liquidate your investment or receive fair value. The Purchase
Price per Interest was determined by us in our sole discretion and may not
reflect the price per Interest if the Interests were listed on an exchange or of
the proceeds that you would receive if the Partnership was liquidated, dissolved
or sold to a third party. Although the Interests are transferable, subject to
certain limitations set forth in the Partnership Agreement, we do not anticipate
that any public market will develop. You may not be able to liquidate your
investment on favorable terms, if at all.
There are Restrictions on your Ability to Transfer Interests. Under the
Partnership agreement, limited partners may transfer or assign interests to
persons who then become "substitute limited partners." The General Partner can
decide to allow or disallow these transfers in its sole discretion, although it
cannot unreasonably withhold its consent to a transfer. Accordingly, if you do
not tender your Interests, there is no guarantee that you will be able to
transfer them in the future.
Cash distributions have been suspended and may be permanently
eliminated. As of April 1, 1991, the Partnership suspended payment of cash
distributions to limited partners due to insufficient cash being generated from
operations. There can be no assurance that the Partnership will ever resume
distributions or be able to fund its future needs or contingencies, which may
harm the Partnership's business or financial condition.
Over the next two years one of the joint ventures in which the
Partnership owns an interest intends to replace the roof on Lakeshore Business
Center Phase I, a building located on one of the Partnership's joint venture
properties, because the roof is nearing the end of its useful life. The joint
venture does not have sufficient working capital to replace the roof
immediately, and there is a risk that damage will occur to the roof before the
replacement can be made. If this damage occurs it could harm the Partnership's
financial condition.
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We may purchase less than all of the outstanding Interests but still
gain control of the Partnership. If some but less than all outstanding Interests
are tendered in the Offer, the percentage of Interests held by persons
controlling, controlled by or under common control with the Partnership will
increase. As of November 30, 2000, the General Partner owns five (5) of the
Partnership's outstanding Interests and we own 16,866 of the Partnership's
outstanding Interests. We, the General Partner and Ocean Ridge beneficially own
a total of 32,384 Interests, representing approximately 5.03% of the
Partnership's 643,650 outstanding Interests.
The Offer is not conditioned on the tender of a minimum number of
Interests. If, however, limited partners tender a total of at least 289,442
Interests pursuant to the Offer, after the Offer, we and our affiliates will own
a majority of the Partnership's outstanding Interests. We would then have the
power to approve certain actions, without the consent of any other limited
partners. Under Florida's limited partnership law, such actions include:
o a proposed merger or similar business combination;
o certain amendments to the Partnership Agreement;
o termination of the Partnership; and
o sales of all or substantially all of the Partnership's assets.
The Partnership has no current plan to liquidate. Under the agreement
of limited partnership, the Partnership is to terminate on December 31, 2063,
unless terminated sooner as allowed under the agreement. The Partnership has no
current plan to sell its assets and to distribute the proceeds to its limited
partners, nor does the Partnership contemplate resuming distributions to the
limited partners. Therefore, if you do not tender your Interests you may not
receive any return on or any distribution relating to your investment in the
Partnership in the foreseeable future.
If tenants occupying some of the Partnership's joint venture properties
experience financial difficulties or do not renew their leases, this could harm
the Partnership's financial operations. The Partnership's financial condition
and ability to fund future cash needs, including its ability to make future cash
distributions, if any, may be harmed by the bankruptcy, insolvency or a downturn
in business of any tenant occupying a significant portion of any joint venture
properties or by a tenant's decision not to renew its lease. For example,
Blankenbaker Business Center 1A, one of the Partnership's joint venture
properties, has a single tenant. This tenant, Sykes Health Plan Services, Inc.,
in 1999 announced plans to build its own facility in Jefferson County, Kentucky.
Sykes Health Plan Services has since been sold, and the Partnership has not
received any indication that Sykes Health Plan Services will not continue to
occupy Blankenbaker Business Center 1A through the duration of the lease.
However, if Sykes Health Plan Services vacated the property before expiration of
the lease, this could eliminate or reduce a major source of the Partnership's
revenues. See Part II, Section 10 of this Offer to Purchase.
There are significant general economic risks associated with
investments in real estate. All real property investments are subject to some
degree of risk. Generally, equity investments in real estate are illiquid and,
therefore, the Partnership's ability to promptly vary its portfolio in response
to changing economic, financial and investment conditions is limited. Real
estate investments are also subject to changes in economic conditions as well as
other factors affecting real estate values, including:
5
<PAGE>
o possible federal, state or local regulations and controls affecting
rents, prices of goods, fuel and energy consumption and prices, water
and environmental restrictions;
o increased labor and material costs; and
o the attractiveness of the property to tenants in the neighborhood.
For a detailed discussion of the risks associated with investments in real
estate, refer to the "Risk Factors" set forth in the Partnership's Prospectus
dated June 24, 1988.
The Partnership may continue to incur operating losses and, as a
result, be unable to contribute capital to the Partnership's joint ventures,
which creates a risk that the Partnership's percentage of ownership in its joint
ventures will decline, or that the Partnership will be liquidated. The
Partnership has incurred losses from operations during recent years and has been
unable to make capital contributions necessary to maintain certain of the
Partnership's joint venture properties. As a result, one of the other limited
partnerships with an ownership interest in one of the Partnership's joint
ventures has, on several occasions, made contributions in excess of the amount
dictated by its percentage of ownership in the joint venture. Due to the
Partnership's inability to make capital contributions to the joint venture on
these occasions, the Partnership's percentage of ownership in the joint venture
has declined. The joint venture expects to make additional capital improvements
to certain of its properties over the next year and anticipates funding these
improvements using cash flow from operations, cash reserves or additional
financing if necessary. The anticipated sources of funding, however, may not be
sufficient to make the necessary improvements. If the cash flow from the joint
venture's operations and cash reserves are not sufficient to fund the
improvements, the joint venture might have to fund the capital improvements with
capital contributions or by incurring additional indebtedness. The Partnership,
however, has very little cash and may not be able to contribute capital to any
joint venture in which it has an ownership interest. If the Partnership is
unable to make capital contributions to its joint ventures, its percentage of
ownership in its joint ventures will decline. If these percentages decline, the
Partnership's revenues will be reduced, and this reduction in revenues might
cause Partnership's losses to increase to the point where the Partnership would
have to be liquidated.
6
<PAGE>
PART I
SPECIAL FACTORS
Section 1. Background of the Offer.
The Partnership owns a 39% interest in a joint venture which itself
owns 100% of a commercial property located in Louisville, Kentucky known as
Blankenbaker Business Center 1A. The Partnership also owns a 7.69% interest in
the Lakeshore/University II Joint Venture which itself owns 100% of three
commercial properties located in Fort Lauderdale, Florida known as Lakeshore
Business Center Phase I, Lakeshore Business Center Phase II, and Lakeshore
Business Center Phase III. For a description of these properties, see Part II,
Section 10 of this Offer to Purchase.
Blankenbaker Business Center 1A has one tenant, Sykes HealthPlan
Services, Inc., which occupies 100% of the Business Center. In 1999, Sykes
HealthPlan Services, Inc. announced its intention to build its own facility in
Jefferson County, Kentucky, which raised a question as to whether it intended to
occupy the Business Center through the expiration of the lease in July 2005. In
June 2000, Sykes HealthPlan Services, Inc. was sold to a New York investment
firm. The Partnership has not yet received any information concerning the effect
that this sale may have on the intention of Sykes HealthPlan Services, Inc. to
occupy the Business Center through the expiration of the lease in July 2005. A
prior owner of Sykes Health Plan Services has guaranteed its obligation under
the lease. However, if Sykes HealthPlan Services, Inc. vacates the Business
Center before expiration of the lease, there is a risk that it may not make all
of the payments required under the lease and we may not be able to collect on
the guaranty or find a replacement tenant.
Lakeshore Business Center Phase I was 74% occupied at September 30,
2000 and December 31, 1999, and 85% occupied at December 31, 1998. Lakeshore
Business Center Phase II was 86% occupied at September 30, 2000 and December 31,
1999, and 79% occupied at December 31, 1998. On December 6, 1999, the
Lakeshore/University II Joint Venture signed an agreement with a contractor
providing for the construction of Lakeshore Business Center Phase III. As of
September 30, 2000, the joint venture had incurred approximately $2,820,000 in
expenses for the construction of Lakeshore Business Center Phase III. The total
estimated cost of construction of Lakeshore Business Center Phase III is
approximately $4,300,000 and will be funded by capital contributions made by
NTS-Properties V in July 1999 and approximately $2,680,000 in debt financing.
For a description of the debt financing arrangement, see Part II, Section 10 of
this Offer to Purchase.
The Partnership has experienced losses from operations in
recent years. In addition, its cash flow has been and will continue to be
impaired by:
o the reliance on Sykes HealthPlan Services as the sole tenant of
Blankenbaker;
o the tenant occupancy at Lakeshore Business Center Phases I and II;
o the funding necessary to construct Lakeshore Business Center Phase
III;
o the funding necessary to cover the costs of improvements, replacements
and/or repairs to all of the Partnership's joint venture properties;
7
<PAGE>
o the large payments on the loans used to purchase and make improvements
to the joint venture properties; and
o the administrative costs associated with being a public partnership.
These operating losses and reduced cash flow have made it difficult for the
Partnership to pay its expenses and as a result the Partnership has:
o requested NTS Development Company, an affiliate of the Partnership and
of us, to defer amounts owed to it by the Partnership for property
management and repair and maintenance fees;
o borrowed funds from a bank to enable it to meet its expenses; and
o failed to make capital contributions to the joint ventures in which it
participates, resulting in a reduction of its percentage ownership in
the joint ventures.
In June of 1999 the General Partner, after evaluating the cash needs of
the Partnership relating to its obligations as a member of the
Lakeshore/University II Joint Venture, determined the Partnership's ability to
continue as a going concern depended upon NTS Development Company's continued
guaranty of the Partnership's indebtedness. Following its determination, the
General Partner identified potential solutions to the Partnership's financial
problems including the following:
(i) a refinancing of the debt on the joint venture properties to
improve cash flow;
(ii) a sale of all of the Partnership's assets, including its joint
venture interests in Blankenbaker Business Center Joint Venture and
Lakeshore/University II Joint Venture, followed by a liquidation of the
Partnership with the proceeds from the sale of the Partnership's assets to
be distributed to the limited partners;
(iii)a merger of the Partnership with us or an entity affiliated with
the Partnership under which we or the affiliate would be the surviving
entity and the Partnership would cease to exist; and
(iv) a third party tender offer made by an entity affiliated with the
Partnership under which the affiliate would offer to purchase all of the
outstanding Interests.
The General Partner decided that it need more information to properly
evaluate the foregoing options. Accordingly, in July of 1999 the General Partner
decided to have a third party conduct an appraisal of the Partnership's joint
venture properties. Following discussions with four financial services firms,
including Integra Chapman & Bell, the General Partner decided to hire Integra
Chapman & Bell to conduct the appraisal. In November of 1999, the General
Partner received the results of the appraisal from Integra Chapman & Bell.
As of December 31, 1999, NTS Development Company, which in the past had
guaranteed the obligations of the Partnership, indicated that it will not
continue to provide this guaranty. In
8
<PAGE>
addition, as of January 1, 2000, NTS Development Company will no longer defer
expenses or advance any additional funds to the Partnership. On March 24, 2000,
independent auditors of the Partnership issued an opinion following an audit of
the Partnership's financial statements questioning the ability of the
Partnership to continue as a going concern. In addition, the General Partner
determined that even if the cash flow from the Partnership's properties
improved, because of increased occupancy rates, the Partnership's share of this
cash flow would not be enough to offset its administrative expenses.
Based on the results of the appraisal of the Partnership's joint
venture properties and an assessment of its general financial condition and
results of operations, the General Partner considered the actions set forth
under items (i)-(iv) above with a view to preventing the additional depletion of
the Partnership's resources and maximizing the value of each limited partner's
investment in the Partnership.
The joint ventures in which the Partnership has ownership interests
determined that a refinancing of the loans on the joint venture properties would
not improve the cash flow of the joint venture properties because it would
involve paying a substantial penalty. In addition, after evaluating the risks
and benefits of selling all of the Partnership's assets, the General Partner
determined that it would be very difficult to receive a fair price for these
assets. The General Partner found that, since the Partnership's joint venture
interests represent minority interests in the particular joint ventures, it
would be very time consuming and costly to effectuate a sale of the joint
venture interests. Minority interests are less desirable than controlling
interests and no market exists for the sale of the Partnership's minority
interests in its joint venture properties. Even if a market did exist there
would be an extremely small number of potential purchasers. In addition, the
General Partner reached the conclusion that the properties do not generate
sufficient cash flow to make the minority interests attractive to a purchaser.
The General Partner concluded that if the Partnership expended the time and
resources necessary to effectuate the sale of its minority interests, the
Partnership might continue to lose money from its operations and that, because
it is a public partnership, its administrative costs would continue to deplete
Partnership resources.
The General Partner found that, even if the Partnership were able to
find a buyer willing to purchase its joint venture interests, there would be no
guarantee that the Partnership would receive a fair price for these interests
despite the fact that the Partnership would probably have to spend a significant
amount of time and money to receive the best price. If the Partnership succeeded
in selling its joint venture interests, it would need to pay a commission of
approximately 3% to a third party to facilitate the sale, which would reduce the
net proceeds. In response to an inquiry from the General Partner, a bank with
whom the General Partner and its affiliates do business has stated that a
proposed purchaser of the minority interests in the joint venture would likely
have difficulty obtaining financing unless the purchaser was willing to pledge
substantial collateral in addition to the joint venture interests themselves.
After evaluating the risks and benefits of consummating a merger of the
Partnership with us or an entity affiliated with the Partnership, the General
Partner determined that the risks to limited partners and the expenses that
would be incurred by the Partnership outweighed the potential benefits of a
merger. For example, in order to obtain the approval of the limited partners,
both the Partnership and the affiliated entity would incur expenses associated
with notifying the limited
9
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partners of the merger and attempting to obtain the limited partners' approval.
In addition, there is no guarantee that a majority of the limited partners would
vote in favor of the merger. If a majority of limited partners voted against the
merger, then those parties voting in favor of the merger would not receive
payment for their Interests. As a result, the Partnership would have incurred
substantial expenses, further depleting the Partnership's resources, without
providing liquidity to any limited partners.
In July of 2000, after considering each of the foregoing actions, the
General Partner reached the conclusion that a third party tender offer for of
all of the outstanding Interests would provide the most expedient and
practicable means by which the General Partner could accomplish its goals of
preventing the costs of being a public company from further depleting of the
Partnership's resources and of maximizing the value of each limited partner's
investment in the Partnership. In a third party tender offer, the Partnership
would not be required to use Partnership resources to fund the purchase of
Interests from limited partners. Additionally, in a third party tender offer,
all limited partners would have an opportunity to receive cash for their
Interests and this opportunity may benefit limited partners in light of the fact
that: (i) there is no established trading market in which limited partners may
liquidate their Interests; and (ii) some limited partners may not wish to
continue to participate in the risks associated with ownership of minority
interests in joint venture commercial real estate, including the risks
associated with the uncertainties in the joint venture properties' markets.
Following its determination, the General Partner discussed a proposed
third party tender offer with its various affiliates. We agreed to make an offer
to purchase all of the outstanding Interests held by limited partners, at a
price of approximately $1.00 per Interest. The General Partner determined that
our Offer presented an opportunity for us to realize an acceptable return on
amounts invested in acquiring the Interests, while simultaneously providing the
limited partners with an opportunity to receive a fair price for their
Interests. In addition, because our Offer is not conditioned on the tender of a
minimum number of Interests, the General Partner determined that it would
provide limited partners with the opportunity to receive liquidity even if we
did not succeed in gaining control of the Partnership.
Upon our proposal to make a tender offer at a price of approximately
$1.00 per Interest, the General Partner engaged Integra Chapman & Bell, a real
estate appraisal company, to prepare a valuation of the Interests. The General
Partner selected Integra Chapman & Bell because the firm was familiar with the
Partnership and had previously performed appraisals of two properties owned by
the two joint ventures in which the Partnership participates. In the past two
years NTS Corporation, the parent company of NTS Capital Corporation, the
corporate general partner of the General Partner, paid Integra Chapman & Bell a
total of approximately $22,500 for services which included the appraisal of
properties and the valuation of interests in private limited partnerships.
In October, 2000, Integra Chapman & Bell gave a preliminary indication
that the value of the Interests would be between a negative number and $1.45. We
subsequently raised the price from $1.00 to $1.15 per Interest. On October 20,
2000, Integra Chapman & Bell issued its valuation report in which it indicated
that the range of values for the Interests was $(2.13) to $1.45. In addition to
the appraisal report, the General Partner requested a separate opinion from
Integra Chapman & Bell regarding the fairness of the transaction to limited
partners. Integra Chapman & Bell issued an
10
<PAGE>
opinion on October 23, 2000 in which it found that the price of $1.15 per
Interest was fair to the limited partners from a financial point of view.
In establishing the Purchase Price, we reviewed certain publicly
available information and certain information made available to us by the
General Partner and its affiliates. Such information included, among other
things: (i) a range of values established by an independent appraisal of the
Interests; (ii) the Partnership Agreement; (iii) the Partnership's annual
reports on Form 10-K for the years ended December 31, 1999 and December 31,
1998; (iv) financial information relating to the Partnership for the first and
second quarters of the Partnership's current fiscal year; (v) mortgages and
associated documents relating to the joint venture properties; (vi) other
information provided by the General Partner and its affiliates regarding
property management and administrative services provided to the Partnership; and
(vii) information concerning repurchases of Interests by the Partnership and
third party transactions involving Interests. Our determination of the Purchase
Price was based on our analysis of the foregoing information and the other
financial information and analyses concerning the Partnership summarized below.
Section 2. Determination of the Purchase Price and Fairness of the Offer.
Determination of the Offer Price. The General Partner obtained an
appraisal of the value of the Interests from the firm of Integra Chapman & Bell,
a real estate appraisal company. We agreed to reimburse the Partnership for the
cost of obtaining this report. The Partnership paid Integra Chapman & Bell a
total of $25,000 in connection with the preparation of this report and the
fairness opinion disclosed below. This valuation was prepared in conformance
with the most recent published information and court rulings relating to
appraisal of minority interests in real estate. In its report dated October 20,
2000, Integra Chapman & Bell estimated the value of each Interest to be between
$(2.13) and $1.45, with the exact Interest price dependent on the motivation of
the buyer and the seller. See Part I, Section 3 of this Offer to Purchase.
Although we believe that any price within such range would be fair to limited
partners, and were motivated to establish the lowest price within such range of
fairness that might be acceptable to limited partners, we recognized the
subjective nature of real estate valuation, and decided to offer $1.15 per
Interest.
Fairness of the Offer. While the Purchase Price is not the result of
arm's-length negotiations between us and the Partnership, the General Partner
believes that the Purchase Price and the other terms of the Offer are fair to
limited partners who tender Interests in response to the Offer In. In evaluating
the Offer, the General Partner based its conclusion on the following factors:
o the fact that the Purchase Price falls within a range of estimated values
for the Interests calculated by an unaffiliated appraiser;
o the fact that the Offer will provide limited partners the opportunity to
receive cash for their Interests within a short period of time, and that
this opportunity may benefit limited partners in light of the fact that (a)
there is no established trading market in which limited partners may
liquidate their Interests and (b) some limited partners may not wish to
continue to participate in the risks associated with ownership of minority
interests in joint venture commercial real estate, including the risks
associated with the uncertainties in the joint venture property's markets;
11
<PAGE>
o the General Partner's belief that the high administrative costs of being a
public partnership are draining the Partnership's resources, including the
cash flows generated by the joint venture properties, and will continue to
do so, unless the company is taken private by means of this Offer;
o the fact that the amount and timing of liquidating distributions to limited
partners in the event of the Partnership's liquidation would be subject to
considerable uncertainties, and would depend upon the then-current markets
for the joint venture properties, as well as upon the amounts that would be
required to be reserved to satisfy contingent liabilities associated with
property sales;
o the fact that the Offer is not subject to a financing contingency, which
increases the likelihood that limited partners who desire to tender their
Interests and realize liquidity will be able to do so;
o the fact that we have not limited the amount of Interests to be purchased
from limited partners, but will purchase all Interests duly tendered
pursuant to the Offer; and
o the fact that the Offer has been evaluated by an unaffiliated third party
who determined that the Offer is fair to limited partners.
The General Partner did not find it practicable to quantify or
otherwise attach relative weights to the specific factors described above.
Section 3. Summary of the Appraisal of Partnership Interests and Fairness
Opinion.
The General Partner obtained a report from Integra Chapman & Bell
estimating the value of the Interests. In addition, the General Partner
requested from Integra Chapman & Bell a separate opinion as to whether the
Purchase Price was fair to limited partners from a financial point of view.
Copies of the appraisal report for the Interests and the fairness opinion are
attached as exhibits to the Schedule TO filed with the Securities and Exchange
Commission in connection with this Offer, which is available for inspection and
copying at the principal executive offices of the Partnership during its regular
business hours by any limited partner or any representative of a limited partner
who has been so designated in writing.
Appraisal of Partnership Interests
----------------------------------
Assumptions Underlying Appraisal of Partnership Interests. In reaching
the conclusion in its appraisal report regarding the valuation of the Interests,
Integra Chapman & Bell assumed, among other things, that:
o The Partnership Agreement was fully in effect as of October 20, 2000, the
date Integra Chapman & Bell issued its report.
o The Partnership has a 7.69% interest in Lakeshore Business Center Phase
III, an office building under construction which is owned directly by a
joint venture in which the
12
<PAGE>
Partnership participates. An appraisal was made by Integra Chapman & Bell
based on construction costs, and the firm did not inspect the property.
o The values of the joint venture properties in the two joint ventures in
which the Partnership participates were not dramatically affected by market
conditions between the effective date of the appraisals and the effective
date of the appraisal report for the Interests.
In addition, in valuing the Interests Integra Chapman & Bell did not make a
provision for federal income taxes.
Sources of Information. In reaching its conclusion regarding the
valuation of the Interests, Integra Chapman & Bell utilized resources including,
but not limited to, the following:
o The Partnership's Forms 10-K for the years ended December 31, 1997, 1998
and 1999;
o The Partnership's Forms 10-Q for the quarters ended March 31 and June 30,
2000;
o The Amended and Restated Agreement of Limited Partnership of the
Partnership;
o Documentation of recent mergers, acquisitions of controlling interests, and
court rulings; and
o Information provided by local broker-dealers, accounting firms, attorneys
and legal experts.
Overview of Procedures for Appraising the Fair Value of the Interests.
Integra Chapman & Bell determined a range of values for the Interests by using
the following three valuation methods, each of which is described in more detail
below:
1. Comparable Public Partnership Analysis - Under this approach,
-----------------------------------------
Integra Chapman & Bell determined how buyers and sellers in the marketplace
value similar real estate limited partnerships in light of their revenues,
earnings and other financial data, and calculated an estimated value for the
Partnership based on its financial data.
2. Comparable Transaction Analysis - Under the Comparable Transaction
--------------------------------
approach, Integra Chapman & Bell determined the premiums which have been paid in
recent years for the acquisition of controlling interests in entities,
particularly in the construction and real estate industries, and determined the
price which would be paid for a controlling interest in the Partnership if these
same premiums applied.
3. Discounted Cash Flow - Under this method, Integra Chapman & Bell
---------------------
calculated an estimated value for the Partnership by analyzing its projected
future cash flows and discounting these cash flows to their present value.
Comparable Public Partnership Analysis. As one means of determining a
range of values for the Interests, Integra Chapman & Bell calculated the ratios
of the prices of other public limited partnerships to their revenues, earnings
and other financial data. The comparable partnerships which were analyzed were
Consolidated Capital Institution Properties /2, Damson/Birtcher Realty Income
13
<PAGE>
Funds I and II, Davidson Growth Plus, L.P. and Krupp Realty Fund III. Integra
Chapman & Bell obtained financial data for these partnerships from public
filings and research reports, and adjusted the data for extraordinary and
non-recurring items.
The first step in the comparable company analysis was to calculate an
estimated market value for the Partnership by applying multiples of earnings
used to value other limited partnerships to the Partnership's earnings. The
earnings measures used by Integra Chapman & Bell were Earnings Before Interest
and Taxes ("EBIT") and Earnings Before Interest, Taxes, Depreciation and
Amortization ("EBITDA"). After calculating the EBIT and EBITDA for the four
entities listed above, Integra Chapman & Bell eliminated Consolidated Capital
Institution Properties from the analysis because it found that the purchasers of
interests in this partnership were highly motivated, resulting in abnormally
high multiples. Using EBIT as the measure of earnings, the partnerships had
price/earnings ratios ranging from 4.66 to 9.56. Using EBITDA as the measure of
earnings, the remaining partnerships had price/earnings ratios ranging from 3.25
to 4.71.
The Partnership had EBIT of approximately $.27 per Interest and EBITDA
of approximately $.44 per Interest in 1999. Using the above price to earnings
multiples, the market value of the Partnership would be $1.43 to $2.07 per
Interest using the multiples of EBITDA, and $1.26 to $2.58 using the multiples
of EBIT. As the EBITDA values fell within the range of the EBIT values, the
overall range of values equaled the EBIT range of $1.26 to $2.58 per Interest.
Multiplying the values per Interest of $1.26 to $2.58 by 643,650, the number of
outstanding Interests, resulted in a total estimated market value range of
$810,996 to $1,660,612. From these figures Integra Chapman & Bell subtracted the
debt of the Partnership and added in the value of the Lakeshore Business Center
Phase III vacant land in determining the "implied equity value" of the
Partnership. The following table illustrates this calculation:
<TABLE>
Total Per Interest
----- ------------
Low High Low High
--- ---- --- ----
<S> <C> <C> <C> <C>
Market Value $ 810,996 $ 1,660,612 $ 1.26 $ 2.58
Less: debt $(2,365,814) $(2,365,814) $(3.68) $(3.68)
Plus: value of Lakeshore Business Center
Phase III land $ 180,715 $ 180,715 $ .28 $ .28
---------- ---------- ----- -----
Implied equity value $(1,374,103) $ (524,487) $(2.13) $ (.81)
Interests outstanding: 643,650
</TABLE>
As the above table indicates, the range of estimated values of the
Interests under the Comparable Public Partnership Analysis is $(2.13) to $(.81).
Comparable Transaction Analysis. Under the second method used by
Integra Chapman & Bell to estimate a range of values for the Interests, it
determined the price which would be paid for the Interests if a "control
premium" similar to that paid to acquire a controlling interest in other
14
<PAGE>
entities were paid to acquire a controlling interest in the Partnership. Integra
Chapman & Bell considered the control premium which was paid for other entities
in a variety of industries and then, more specifically, transactions involving
entities in real estate and construction. In determining the control premiums,
Integra Chapman & Bell used information from The Merger Stats Review, published
by Ulihan, Howard and Ziskin, on 512 purchases of control of companies in
several different industries in 1998, and from a Control Premium Study published
by Merger Stats, Inc. which analyzed transactions from the second quarter of
2000, and which had specific figures for the acquisition of companies in the
construction and real estate industries. The transactions included in the Merger
Stats Review had an average control premium of 32.2%. Those analyzed in the
Control Premium Study exhibited control premiums of 32.8% overall, 29% for
construction and 23% for real estate.
Applying the low end of the range of control premiums, or 25%, to the
recent transaction prices of the Interests of $.95 to $1.10, Integra Chapman &
Bell estimated a range of values of $1.19 to $1.37. Applying the control premium
from the high end of the range, or 32%, yielded a value of $1.25 to $1.45. The
overall range of estimated values under the Comparable Transaction Analysis was
therefore $1.19 to $1.45.
Discounted Cash Flows. The final method used by Integra Chapman & Bell
to determine an approximate range of values for the Interests estimated the
present value of the Partnership's anticipated cash flows. This type of analysis
requires an estimate of future cash flows and of the "discount rate" used to
determine the present value of the cash flows. Integra Chapman & Bell estimated
the Partnership's future cash flows over the next ten years by beginning with
the Partnership's expected net income from the two joint ventures in which the
Partnership participates. These estimated cash flows were calculated by
multiplying the Partnership's percentage interest in the joint ventures by the
anticipated net income of the joint ventures, and adjusting this figure for
Partnership expenses, including interest expenses. The projected cash flows of
the Partnership in the ten-year period beginning in 2000 were $(549,444) over
the first nine years, and $357,916 in the tenth year.
Integra Chapman & Bell determined the appropriate discount rate for the
discounted cash flow analysis by estimating the Partnership's weighted average
cost of capital, which is its average cost of raising funds for both equity and
debt financings. Integra Chapman & Bell used the Capital Asset Pricing Model
("CAPM") to calculate the appropriate weighted average cost of equity capital
for the Partnership. Under the CAPM, the first step in calculating the weighted
average cost of capital is determining the risk-free cost of capital, i.e., the
interest rate on instruments with no risk of default, such as U.S. government
bonds. A "market risk premium," or an additional cost of capital associated with
the risk of the market as a whole, plus a specific investment risk premium, or
an additional cost of capital necessitated by risks particular to a particular
company which may not be present in other companies in the market, are added to
the risk-free cost of capital to arrive at the total cost of equity capital.
Integra Chapman & Bell used the rate on ten-year treasury bonds, or 4.60%, to
estimate the risk-free rate and the difference between the expected rate of
return on the Standard & Poor's index of 100 stocks and the risk-free rate, or
18.77%, as an estimate of the market risk premium. In addition, Integra Chapman
& Bell added a specific investment risk premium of 2.00% based on its assessment
of the risks peculiar to the partnership. Adding the market risk
15
<PAGE>
premium and specific investment risk premium to the risk-free rate yielded a
total cost of equity capital for the Partnership of 25.37%.
For an estimate of the cost of debt financing, Integra Chapman & Bell
used the average interest rate associated with debt incurred recently by the
Partnership, or 9.5%. Integra Chapman & Bell then computed its weighted average
cost of capital under both the Partnership's current percentages of 45% equity
and 55% debt and its anticipated future percentages of 30% equity and 70% debt.
Under each scenario, the 25.37% cost of equity capital was multiplied by the
equity percentage and the 9.5% cost of debt capital was multiplied by the debt
percentage. These calculations resulted in an estimated weighted average cost of
capital range of 14.3% to 18.3%.
The value of the Partnership under the discounted cash flow analysis
was calculated by starting with the sum of the discounted cash flows for Years 1
through 9 and adding the capitalized value of the Year 10 cash flow. The
capitalized value of the year 10 cash flow was calculated by discounting the
estimated cash flow in Year 10 of $357,916 to its present value using the 14.3%
and 18.3% discount rates, and then capitalizing this amount using the same
rates. The value of the vacant Lakeshore Business Center Phase III land was then
added to the resulting figure, and the result was divided by the number of
outstanding Interests to determine the estimated value per Interest. The
following table illustrates this calculation:
<TABLE>
18.3% Discount Rate 14.3% Discount Rate
------------------- -------------------
<S> <C> <C>
Sum of Discounted Cash Flow for Years 1
Through 9 $ (465,788) $ (549,444)
Capitalized Value of Year 10 Cash Flow
$ 364,320 $ 657,632
Value of Lakeshore Business Center Phase III
Building $ 180,715 $ 180,715
Estimated Partnership Value $ 79,247 $ 288,903
Number of Outstanding Interests 643,650 643,650
Per-Interest Value $ .12 $ .45
</TABLE>
As the above table indicates, the range of estimated values of the
Interests under the Discounted Cash Flow Analysis is $.12 to $.45.
16
<PAGE>
Summary of Estimated Values. The following table summarizes the
estimated values for the Interests under each of the three valuation methods.
<TABLE>
Low High
--- ----
<S> <C> <C>
Comparative Public
Partnership Analysis $(2.13) $ (.81)
Comparable Transaction Analysis $ 1.19 $ 1.45
Discounted Cash Flow Analysis $ .12 $ .45
Overall Range $(2.13) $ 1.45
</TABLE>
In its appraisal report, Integra Chapman & Bell indicated that the
value determined by the Control Premium Analysis was a maximum value because it
assumes that the buyer is extremely motivated. It found that the value
determined using the Discounted Cash Flow Analysis was entitled to the greatest
weight because it accounted for changes in future cash flow.
Fairness Opinion
----------------
In its fairness opinion dated October 23, 2000, Integra Chapman & Bell
expressed the opinion that the Purchase Price was fair to limited partners from
a financial point of view. In arriving at this opinion, Integra Chapman & Bell
reviewed the documents filed by the Partnership with the Commission, appraisals
of properties held by joint ventures in which the Partnership holds Interest,
the valuation of the Interest prepared by Integra Chapman & Bell, and other
documents furnished to it by the Partnership. Integra Chapman & Bell relied upon
the appraisals of the real estate to determine the value of real estate assets
held by joint ventures in which the Partnership participates. With regard to
non-real estate assets, Integra Chapman & Bell assumed that the Partnership's
financial statements accurately reflect the financial condition of these assets.
Integra Chapman & Bell physically inspected the properties held by the
Partnership located in Kentucky, but did not inspect the properties located in
Florida.
The opinion of Integra Chapman & Bell is addressed to the General
Partner and should not be considered a recommendation to any limited partner
regarding whether a limited partner should tender interest in the Offer. Integra
Chapman & Bell was not requested by the General Partner to make, nor did it
make, any recommendation as to the amount of the Purchase Price. Integra Chapman
& Bell did not express an opinion with regard to any assets or holdings held by
partnerships or ventures other than the Partnership and the joint ventures in
which it participates. In addition, Integra Chapman & Bell did not express an
opinion as to the availability of funds to us to make the Offer.
17
<PAGE>
Section 4. Purpose of the Offer and Structure of the Transaction.
Purpose. The purpose of the Offer is to enable us to acquire the entire
equity interest in the Partnership. The Offer, as the first step in the
acquisition of the Partnership, is intended to facilitate the acquisition of all
the Interests and to provide cash to limited partners for their Interests as
promptly as practicable. We are considering whether, following completion of the
Offer, to propose and seek to have the Partnership consummate a merger or
similar business combination with another entity or with us. Entities which we
consider to be potential parties to a merger or similar business combination
with the Partnership include, but are not limited to, the limited partnerships
that are affiliated with the Partnership. If the Partnership consummates a
merger or similar business combination, it is possible that the Partnership will
no longer exist.
Under the Partnership Agreement, a limited partner transferring his,
her or its Interests must obtain the consent of the General Partner. Under
Florida's limited partnership law, approval of a merger or similar business
combination requires the written approval of the General Partner and the written
approval of limited partners holding a majority of the outstanding Interests.
The General Partner has advised us that it intends, subject to its fiduciary
duty to the Partnership, to give its written consent to the transfer of any
Interests, pursuant to the Offer, and in connection therewith, to our admission
as a "Substituted Limited Partner" of the Partnership entitled to voting rights
with respect to such Interests, and that it would consider approving a proposed
merger or similar business combination and executing a definitive merger
agreement to effectuate a proposed merger or similar business combination.
Assuming the General Partner takes such actions, if we acquire, through the
Offer or otherwise, at least a majority of the outstanding Interests, we would
have sufficient voting power to approve: (i) a proposed merger or similar
business combination; (ii) certain amendments to the Partnership Agreement;
(iii) termination of the Partnership; and (iv) a sale of all or substantially
all of the Partnership's assets, without the consent of any other limited
partner.
Under Florida limited partnership law, no dissenters' or appraisal
rights are available to limited partners as a result of the Offer. Under
Florida's limited partnership law, however, appraisal rights are available to
limited partners in connection with a merger in the event that there are less
than Five Hundred (500) limited partners of record following completion of the
Offer. We are not offering to pay the expenses of any limited partners who
choose to obtain counsel or appraisal services in connection with this Offer to
Purchase. Limited partners have the right to inspect the books and records of
the Partnership at its offices during regular business hours, but we are not
granting limited partners the right to inspect our books and records.
Although we are considering proposing a merger or similar business
combination involving the Partnership following completion of the Offer, our
decision to do so will depend on a variety of factors, such as:
o the timing and extent of the review of the solicitation documents by the
Commission, and general economic conditions;
o the economic conditions, prospects, asset value and earnings of the
Partnership;
o the number of Interests that we acquire in the Offer or otherwise; and
o the requirements of the Partnership Agreement and Florida's limited
partnership law.
18
<PAGE>
There is no assurance, however, that a merger or similar business combination
involving the Partnership will be proposed or that, if proposed, it will not be
delayed or abandoned. We expressly reserve the right not to propose a merger or
similar business combination involving the Partnership, and our ultimate
decision could be affected by information which we subsequently obtain, changes
in general economic or market conditions or changes in our business, or other
factors. If a merger or similar business combination is consummated, limited
partners at the effective time of such transaction may or may not have appraisal
rights in connection therewith, depending upon the terms of any such
transaction.
We or one of our affiliates may, either immediately following the
consummation or termination of the Offer, or from time to time thereafter, seek
to acquire additional Interests through open market purchases, privately
negotiated transactions, a tender offer or exchange offer or otherwise, upon
terms and at prices that we determine, which may be more or less than the
Purchase Price. Alternatively, we and our affiliates reserve the right to sell
or otherwise dispose of any or all of the Interests acquired in the Offer or
otherwise, upon terms and at prices that we determine.
Plans for the Partnership. If we succeed in acquiring control of the
Partnership through means of this Offer or a subsequent transaction, we intend
to conduct a detailed review of the Partnership and its assets, its structure,
dividend policy, capitalization, operations, properties, policies, management
and personnel and consider what further changes, if any, would be desirable in
light of the circumstances which then exist. Our determinations will depend
upon, among other things, general economic conditions, the conditions of the
real estate markets in which the joint venture properties are located, the
physical condition of the joint venture properties following the acquisition of
control, prepayment penalties associated with each of the respective loan
facilities encumbering the joint venture properties and the terms available to
the Partnership for new financing arrangements. We expressly reserve the right
to make any changes that we deem necessary or appropriate in light of our review
or in light of future developments. Such changes could include changes in the
Partnership's business, structure, organizational documents, capitalization,
management and dividend policy.
Except as described in this Section and elsewhere in this Offer to
Purchase, following the consummation of the Offer, we presently intend to
conduct the business and operations of the Partnership substantially as they are
currently conducted.
Section 5. Conflicts of Interest and Transactions with Affiliates.
Conflicts of Interest with Respect to the Offer. The General Partner is
our affiliate. The General Partner has conflicts of interest with respect to the
Offer, as a result of, among other things, its affiliation with us, including
(i) our desire to maximize the value of our ownership of the Interests,
including our desire to increase our profit by acquiring Interests at a low
price and the potential conflict that may arise in the event we propose a merger
or similar business combination following the successful consummation of the
Offer, which could result in a conflict for the General Partner in attempting to
reconcile our interests with the interests of the limited partners; (ii) the
fact that a sale or liquidation of the Partnership's assets would result in a
decrease or elimination of the distributions received by the General Partner in
respect of its interest in the Partnership and/or the fees paid to its
affiliates in connection with the services provided to the Partnership; and
(iii) the fact
19
<PAGE>
that, if successful, the Offer will place us in a position to control all
Partnership decisions on which limited partners may vote, including removal of
the General Partner and, due to our affiliation with the General Partner, and
its affiliates, we will most likely vote the Interests owned by us in whatever
manner we deem to be in the best interest of the General Partner and our
affiliates but may or may not be in the interest of the limited partners,
including voting against the elimination or a decrease in fees payable to our
affiliates or affiliates of the General Partner.
Our Voting Power. Although the Offer is not contingent upon a minimum
number of Interests being tendered, if, following completion of the Offer, we
own a majority of the Partnership's Interests, then we will have the power to
vote a majority of the Interests. This would give us, subject to certain
conditions, the power to:
o approve a merger or similar business combination involving the Partnership;
o approve certain amendments to the Partnership Agreement;
o terminate the Partnership;
o remove the General Partner; or
o approve or disapprove of the sale of all or substantially all the assets of
the Partnership;
in each case in our sole discretion without the consent of any other limited
partner and, subject to certain limitations, without the consent of the General
Partner. The General Partner has advised us that it presently intends, subject
to its fiduciary duties to the Partnership, to consent to the transfer of
tendered Interests, admitting us as a Substitute Limited Partner and that it
will consider granting its approval and consent to a proposed merger or similar
business combination. See Part I, Section 4 of this Offer to Purchase. Assuming
the General Partner takes such actions, we, as the holder of a majority of the
Interests, will have sufficient voting power to approve the actions described
above, without the consent of any other limited partner.
Transactions with Affiliates. The following describes certain
agreements and transactions between us and our affiliates (including the General
Partner) and the Partnership.
NTS Development Company, an affiliate of the General Partner, directs
the management of the Partnership's properties pursuant to a written agreement
(the "Management Agreement") between NTS Development Company and the
Partnership. Under the Management Agreement, NTS Development Company establishes
rental policies and rates and directs the marketing activity of leasing
personnel. It also coordinates the purchase of equipment and supplies,
maintenance activity and the selection of all vendors, suppliers and independent
contractors.
Under the Management Agreement, the Partnership agreed to pay NTS
Development Company a management fee equal to 5% of gross revenues from
residential properties and 6% of gross revenues from commercial properties. Also
under the Management Agreement, the Partnership agreed to pay NTS Development
Company a repair and maintenance fee equal to 5.9% of costs incurred which
relate to capital improvements. The Partnership paid NTS Development Company
20
<PAGE>
the following fees for the nine months ended September 30, 2000 and for the year
ended December 31, 1999. These charges include items which have been expensed as
operating expenses - affiliated or professional and administrative expenses and
items which have been capitalized as other assets or as land, buildings and
amenities.
<TABLE>
Nine Months Ended Year Ended
09/30/00 12/31/99
-------- --------
<S> <C> <C>
Property Management Fee $25,911 $38,234
Repair and Maintenance Fee 13,267 2,963
------ -----
$39,178 $41,197
======= =======
</TABLE>
The Management Agreement also requires the Partnership to purchase all
insurance relating to the managed properties, to pay the direct out-of-pocket
expenses of NTS Development Company in connection with the operation of the
properties, including the cost of goods and materials used for and on behalf of
the Partnership, and to reimburse NTS Development Company for the salaries,
commissions, fringe benefits, and related employment expenses of on-site
personnel. Under these provisions of the Management Agreement, the Partnership
paid NTS Development Company the following amounts, in addition to the fees
described in the preceding table, for the nine months ended September 30, 2000
and for the year ended December 31, 1999. These charges included items which
have been expensed as operating expenses - affiliated or professional and
administrative expenses and items which have been capitalized as other assets or
as land, building and amenities.
<TABLE>
Nine Months Ended Year Ended
09/30/00 1999
-------- --------
<S> <C> <C>
Leasing $ 5,763 $23,668
Administrative 15,338 56,575
Property Management Costs 14,959 30,721
Other 285 696
------- --------
$36,345 $111,660
======= ========
</TABLE>
The initial term of the Management Agreement was five years, and
thereafter for succeeding one-year periods, unless canceled by either party upon
sixty days written notice. As of November 30, 2000, the Management Agreement is
still in effect.
As of November 30, 2000, we owned 16,866, or 2.62%, of the
Partnership's outstanding Interests. The General Partner owns five Interests.
In connection with the retirement of Richard L. Good, the former Vice
Chairman of NTS Capital Corporation, and under an agreement dated as of January
1, 1999 (the "Retirement
21
<PAGE>
Agreement"), JDN Financial Holdings, LLC, a Delaware limited liability company
owned by J.D. Nichols ("JDN Financial"), acquired the equity interests of
Richard L. Good in various entities affiliated with the Partnership, including
NTS Corporation, NTS-Properties Associates VI, NTS-Properties Associates VII,
NTS-Properties Plus Associates, and interests in private limited partnerships
with ownership interests in real estate. JDN Financial did not purchase
Interests in the Partnership in connection with the Retirement Agreement. In
consideration for his equity interests in the foregoing entities, Richard L.
Good received (i) monetary consideration equal to his salary and bonus in the
amount of approximately $529,000, (ii) various promissory notes in the net
amount of approximately $1,600,000, payable monthly through February 29, 2012 at
the current interest rate of 5.09% per year, and (iii) equity interests in real
and personal property, including 50% of the equity interest in National
Aquatics, Inc. and 70% of the equity interest in NTS/Sabal Office Limited
Partnership.
On February 25, 2000, Mr. Nichols made a capital contribution of
$100,000 to NTS Financial Partnership, a Kentucky general partnership ("NTS
Financial") and an affiliate of the Partnership. In the past two years, Mr.
Nichols has received returns of capital totaling $150,000 from NTS Financial
which Mr. Nichols used to make capital contributions to us.
In the past two years, Mr. Nichols has received returns of capital
totaling $893,170 from NTS Financial which Mr. Nichols used to pay third party
obligations, and returns of capital totaling $2,426,647 from NTS Financial which
Mr. Nichols used to make a capital contribution to us to purchase Interests in
the Partnership and also to purchase limited partnership interests in
partnerships affiliated with the Partnership. In the past two years, Mr. Nichols
also received undistributed profits from private affiliates of NTS Financial
totaling $1,319,500 which Mr. Nichols used to pay taxes.
Since January 1, 1998, Mr. Nichols has personally guaranteed various
loans made to various publicly and privately-held affiliates of the Partnership.
As of September 30, 2000, Mr. Nichols had outstanding personal guaranties
totaling approximately $27,198,000. Mr. Nichols has guaranteed the payment of
approximately $215,000 of notes payable of NTS Corporation. Mr. Nichols has also
guaranteed the payment of approximately $17,700,000 of loans of various
affiliates. In October, 1998, Mr. Nichols and Mr. Lavin each personally
guaranteed $3,250,000 of a loan made to a privately-held affiliate of the
Partnership secured by a property, the book value of which is $10,000,000. Mr.
Nichols also guaranteed, as an indemnitor, that the conditions of certain surety
bonds will be met. The outstanding commitments of the surety bonds aggregated
$3,283,000 at December 31, 1999. In December, 1999, Mr. Nichols and Mr. Lavin
each personally guaranteed a $2,000,000 loan to us from Community Trust Bank,
N.A. in the following amounts: (1) Mr. Nichols guaranteed 75% of all
indebtedness of ours or $1,500,000, whichever is less; and (2) Mr. Lavin
guaranteed 25% of all indebtedness of ours or $500,000, whichever is less. This
loan was repaid using the proceeds of a $6,000,000 loan to us from the Bank of
Louisville. Mr. Nichols and Mr. Lavin each personally guaranteed up to
$6,000,000 of the obligations under the loan from the Bank of Louisville for
which each of them is jointly and severally liable.
In addition to the guaranties described above, on March 31, 1989 NTS
Guaranty Corporation, which is owned 100% by Mr. Nichols and is an affiliate of
the Partnership, guaranteed certain obligations of NTS Mortgage Income Fund,
which is also an affiliate of the Partnership. On September 20, 1988, Mr.
Nichols issued a $10,000,000 demand note to NTS Guaranty Corporation,
22
<PAGE>
which may be used to satisfy the guaranty. The obligations of NTS Guaranty
Corporation under the guaranty are expressly limited to the assets of NTS
Guaranty Corporation, its ability to draw upon the $10,000,000 demand note and
Mr. Nichols' ability to answer the demand.
On June 13, 2000, the Partnership borrowed $232,000 from the Bank of
Louisville. The loan bears interest at a fixed rate of 8.75%, and matures
January 31, 2001. The loan is secured by a certificate of deposit held by NTS
sFinancial and by all of the property owned of NTS Financial.
During the past two years, we have participated in joint tender offers
with limited partnerships that are affiliates of the Partnership to purchase the
limited partnership interests of those partnerships. The following table sets
forth the results of these tender offers:
<TABLE>
Limited
Partnership Limited
Interests Partnership
Purchased by Interests
Price per Total Interests the Subject Purchased
Purchase Date Subject Partnership Interest Purchased Partnership by Us
------------- ------------------- --------- --------- ----------- -----
<S> <C> <C> <C> <C>
December 31, 1998 NTS-Properties III $250 729 500 229
December 8, 1999 NTS-Properties III $250 938 500 438
September 21, 2000 NTS-Properties III $250 Pending Pending Pending
February 19, 1999 NTS-Properties IV $205 1,259 600 659
December 8, 1999 NTS-Properties IV $205 2,245 500 1,745
September 22, 2000 NTS-Properties IV $205 Pending Pending Pending
February 5, 1999 NTS-Properties V $205 2,458 600 1,858
December 31, 1999 NTS-Properties V $230(*) 1,196 250 946
September 22, 2000 NTS-Properties V $230(*) Pending Pending Pending
January 18, 1999 NTS-Properties VI $350 2,103 750 1,353
September 30, 1999 NTS-Properties VI $370 2,801 500 2,301
December 23, 1999 NTS-Properties VI $380 1,085 250 835
August 15, 2000 NTS-Properties VI $380 3,685 100 3,585
March 12, 1999 NTS-Properties VII, $6 25,794 10,000 15,794
Ltd.
November 30, 1999 NTS-Properties VII, $6 41,652 10,000 31,652
Ltd.
August 15, 2000 NTS-Properties VII, $6 39,220 2,500 36,720
Ltd.
</TABLE>
23
<PAGE>
* The original offering price was $215 per interest which was increased to $230
per interest on December 20, 1999.
In addition to the above tender offers involving us, on September 30,
1999, NTS-Properties V purchased 2,523 limited partnership interests in
NTS-Properties V from limited partners for $205 per interest pursuant to an
offer to purchase interests.
Since October 1999, we have purchased 16,866 Interests at a price of
$1.00 per Interest. In addition, since January 1998 Ocean Ridge has purchased
15,513 Interests at a price of $1.00 per Interest. Mr. Nichols wife, Barbara, is
the sole limited partner of Ocean Ridge, and BKK Financial, Inc., an Indiana
corporation which is wholly-owned by Mrs. Nichols and Mr. Nichols' two
majority-age daughters, is the general partner of Ocean Ridge. Mr. Nichols is
the Chairman of the Board of BKK Financial.
We purchased Interests in the Partnership and also purchased limited
partnership interests in limited partnerships that are affiliates of the
Partnership pursuant to an Agreement, Bill of Sale and Assignment dated February
10, 2000, between us and four investors in the Partnership (the "Purchase
Agreement") for an aggregate purchase price of $900,000. We paid these investors
a premium above the purchase price previously offered for limited partnership
interests pursuant to prior tender offers because this purchase allowed us to
purchase a substantial number of limited partnership interests without incurring
the significant expenses involved with a tender offer. Pursuant to the Purchase
Agreement, we purchased the following Interests in the Partnership and limited
partnership interests in limited partnerships that are affiliates of the
Partnership:
o A total of 2,536 Interests from three of the investors for total
consideration of $2,536, or an average purchase price of $1.00 per
interest.
o A total of 135 limited partnership interests in NTS-Properties III from
two of the investors for total consideration of $38,676, or an average
price of $286.49 per interest.
o A total of 565 limited partnership interests in NTS-Properties IV from
three of the investors for total consideration of $136,629, or an
average price of $241.82 per interest.
o A total of 1,604 limited partnership interests in NTS-Properties V from
three of the investors for total consideration of $425,949, or an
average price of $265.55 per interest.
o A total of 675 limited partnership interests in NTS-Properties VI from
two of the investors for total consideration of $281,128, or $416.49
per interest.
o A total of 2,251 Interests in NTS-Properties VII, Ltd. from one of the
investors for total consideration of $15,082, or an average price of
$6.70 per Interest.
24
<PAGE>
Section 6. Financing the Offer.
We expect that approximately $702,956 will be required to purchase all
of the outstanding Interests which are not owned by us or our affiliates, and
that approximately $125,000 will be required to pay related fees and expenses.
See Part II, Section 10 of this Offer to Purchase. We presently anticipate
funding the entire amount of the consideration required to consummate the Offer
and all related expenses through a $6,000,000 revolving line of credit from the
Bank of Louisville. See Part II, Section 9 of this Offer to Purchase.
Section 7. Certain Effects of the Offer on the Market for the
Interests; Exchange Act Registration; and Margin Regulations.
The purchase of Interests in this Offer will reduce the number of
Interests that might otherwise trade publicly and the number of limited
partners, and could adversely affect the liquidity and market value of the
remaining Interests. However, because the Interests are not traded in any
organized market, the purchase of Interests pursuant to the Offer is not
expected to affect the market for the Interests.
The Interests are currently registered under the Exchange Act. Such
registration may be terminated upon application to the Commission if the
Interests are not listed on a national securities exchange and there are fewer
than three hundred (300) limited partners of record. Termination of registration
under the Exchange Act would substantially reduce the information required to be
furnished by the Partnership to its limited partners and to the Commission and
would make inapplicable to the Partnership certain provisions of the Exchange
Act, such as the short-swing profit recovery provisions of Section 16(b), the
requirements to furnish proxy statements in connection with limited partners'
meetings pursuant to Section 14(a), and the requirements of Rule 13e-3 under the
Exchange Act with respect to "going private" transactions. Furthermore, if we
acquire a substantial number of Interests, the ability of "affiliates" of the
Partnership and persons holding "restricted securities" of the Partnership to
dispose of such securities pursuant to Rule 144 or 144A promulgated under the
Securities Act of 1933, as amended, may be impaired or eliminated. We presently
intend to cause the Partnership to apply for termination of registration of the
Interests under the Exchange Act following the consummation of the Offer. If
this registration is terminated, the Partnership will no longer have the
obligation to file periodic reports with the Commission. The General Partner has
advised us that if, as a result of the purchase of the Interests pursuant to the
Offer, the Partnership is no longer required to maintain registration of the
Interests under the Exchange Act, the General Partner presently intends, subject
to its fiduciary duties to the Partnership, to cause the Partnership to apply
for termination of such registration.
The Interests are currently not "margin securities" under the
regulations of the Board of Governors of the Federal Reserve System ("Margin
Securities"). The purchase of Interests pursuant to the Offer will not cause the
Interests to become Margin Securities.
25
<PAGE>
PART II
THE OFFER
Section 1. Effect of the Offer on Limited Partners.
The purpose of the Offer is to enable us to acquire all of the equity
interests in the Partnership and to provide limited partners who desire to
liquidate some or all of their investment in the Partnership with a method for
doing so. With the exception of isolated transactions, no established secondary
trading market for the Interests exists, and under the Partnership Agreement
transfers of Interests are subject to restrictions, including the prior approval
of the General Partner. The General Partner believes that if the Partnership
continues as a public partnership, its administrative expenses will severely
reduce its remaining value. The General Partner also believes that some limited
partners desire immediate liquidity, while other limited partners may not need
or desire liquidity and would prefer the opportunity to retain their Interests.
The General Partner believes that limited partners should be entitled to make a
choice between immediate liquidity and continued ownership and, thus, believes
that this Offer accommodates the differing goals of both groups of limited
partners. Limited partners who tender their Interests in the Offer are, in
effect, exchanging certainty and liquidity for the potentially higher return of
continued ownership of their Interests. The continued ownership of Interests,
however, entails the risk of loss of all or a portion of the current value of
their investment. See Risk Factors - "General Economic Risks Associated with
Investments in Real Estate."
Although we are considering proposing a merger or similar business
combination involving the Partnership following completion of the Offer, neither
we, the Partnership, nor the General Partner has any current plans or proposals
that relate to or would result in:
o a sale or transfer of a material amount of assets of the Partnership;
o any change in the identity of the General Partner or in the management of
the Partnership, including, but not limited to, any plans or proposals to
change the number or term of the General Partner(s), to fill any existing
vacancy for the General Partner, or to change any material term of the
Management Agreement between the General Partner and the Partnership;
o any change to the indebtedness or capitalization of the Partnership;
o any other material change in the structure or business of the Partnership;
or
o any change in the Partnership Agreement or other actions that may impede
the acquisition of control of the Partnership by any person.
The General Partner, however, may explore and pursue any of these options in the
future. As of April 1, 1991, the Partnership suspended payment of cash
distributions to limited partners due to insufficient cash being generated from
operations. See Part II, Section 7 of this Offer to Purchase.
26
<PAGE>
If you do not tender your Interests in this Offer, it will have no
effect on your proportionate interest in the Partnership. If you retain your
Interests you may be subject to increased risks including but not limited to
increased voting control by the affiliates of the General Partner (including us)
and persons controlling the affiliates, which will increase the influence that
affiliates of the General Partner and persons controlling the affiliates have on
certain matters voted on by limited partners, including removal of the General
Partner and termination of the Partnership. See "Risk Factors -- Cash
Distributions have Been Suspended and may be Permanently Eliminated and
Increased Voting Control by Affiliates of the Partnership." The Interests that
we purchase in this Offer will be held by us. Neither the Partnership nor the
General Partner has plans to offer for sale any other additional Interests, but
each reserves the right to do so in the future.
The Offer is our first tender offer for Interests. In the event that
less than all of the Interests subject to the Offer are tendered, we will
consider the desirability of making future tender offers to purchase Interests
following completion of the Offer, but we are not required to make any future
offers.
Section 2. Offer to Purchase and Purchase Price; Expiration
Date; Determination of Purchase Price.
Offer to Purchase and Purchase Price. We will, upon the terms and
-----------------------------------------
subject to the conditions of the Offer described below, purchase a total of
611,266 Interests that are properly tendered by, and not withdrawn prior to, the
Expiration Date at a price equal to $1.15 per Interest; provided however, that
if you decide to tender we will not accept your tender if, as a result of your
tender, you would continue to be a limited partner and would hold fewer than Two
Hundred Fifty (250) Interests.
THIS OFFER IS NOT CONDITIONED ON ANY MINIMUM NUMBER OF INTERESTS BEING
TENDERED; PROVIDED, HOWEVER, WE WILL NOT ACCEPT YOUR TENDER IF, AS A RESULT OF
THE TENDER, YOU WOULD CONTINUE TO BE A LIMITED PARTNER AND WOULD HOLD FEWER THAN
TWO HUNDRED FIFTY (250) INTERESTS.
Expiration Date. The term "Expiration Date" means 12:00 Midnight,
-----------------
Eastern Standard Time, on Friday, March 30, 2001 unless and until we extend the
period of time for which the Offer is open, in which event "Expiration Date"
will mean the latest time and date at which the Offer, as extended by us,
expires. We may extend the Offer, in our sole discretion, by providing you with
written notice of the extension. For a description of how we may extend or
terminate the Offer, see Part II, Section 13 of this Offer to Purchase.
Determination of Purchase Price. The Purchase Price represents the
----------------------------------
price at which we are willing to purchase Interests. Your approval is not
required and was not sought regarding the determination of the Purchase Price.
No special committee of ours or of the limited partners has approved this Offer
and no special committee or independent person has been retained to act on
behalf of us. The General Partner has obtained an opinion from a third party
that the Purchase Price is fair to limited partners from a financial point of
view.
27
<PAGE>
The Purchase Price was determined by us in our sole discretion based
on:
o a range of values of $(2.13) to $1.45 established by an independent
appraisal of the Interests;
o repurchases of Interests by the Partnership in 1996, 1997, 1998 and 1999;
o purchases of Interests by the Partnership's affiliates, Ocean Ridge and us,
in 1998, 1999 and 2000;
o the purchase of Interests from three limited partners by us on February 10,
2000 at a price of $1.00 per Interest; and
o a tender offer made by an unaffiliated third party in September, 1998 at a
price of $1.15 per Interest.
We are aware of certain secondary market transactions by which Interests were
transferred at prices ranging from $.05 to $1.76 per Interest by limited
partners to third parties during the period from January 1, 1997 to February 29,
2000. The Partnership repurchased interests, and we and two other affiliates,
Ocean Ridge and the General Partner, purchased Interests, in secondary market
transactions at a price of $1.00 per Interest during the period from December
1996 to August 2000. The information regarding transactions between limited
partners and third parties is based on our knowledge and may not reflect all
transactions that have taken place during the time periods set forth above. As
of September 30, 2000 and December 31, 1999, the book value of each Interest was
approximately $(.92).
In determining the Purchase Price, we did not estimate or project the
liquidation value per Interest or consider the book value per Interest.
Section 3. Procedure for Tendering Interests. If you wish to tender
Interests in this Offer you must submit a properly completed and duly executed
Letter of Transmittal and Substitute Form W-9, together with the Certificate(s)
of Ownership for the Interests you tender or if your Certificate(s) of Ownership
for the Interests is (are) lost, stolen, misplaced or destroyed, you must
execute and submit the Affidavit and Indemnification Agreement for Missing
Certificate(s) of Ownership attesting to such fact (the "Affidavit"), and any
other required documents to NTS Investor Services c/o Gemisys, at the address
listed in Section 16 of this Offer to Purchase. If your Interests are held in an
IRA/custodial account, all forms should be signed and forwarded to the custodian
to obtain a signature guarantee and the Certificate of Ownership for the
Interests. There are no fees or other charges payable by limited partners who
tender Interests in connection with the Offer.
THE LETTER OF TRANSMITTAL, SUBSTITUTE FORM W-9, AND CERTIFICATE(S) OF OWNERSHIP
FOR THE INTERESTS BEING TENDERED (OR AFFIDAVIT, IF APPLICABLE) AND ANY OTHER
REQUIRED DOCUMENTS MUST BE RECEIVED BY US ON OR BEFORE THE EXPIRATION DATE. WE
WILL NOT ACCEPT INTERESTS RECEIVED BY THE PARTNERSHIP AFTER THE EXPIRATION DATE.
28
<PAGE>
Method of Delivery. YOU ASSUME ANY RISK ASSOCIATED WITH THE METHOD FOR
-------------------
DELIVERING THE LETTER OF TRANSMITTAL, SUBSTITUTE FORM W-9 AND CERTIFICATE(S) OF
OWNERSHIP FOR THE INTERESTS (OR THE AFFIDAVIT). WE RECOMMEND THAT YOU SUBMIT ALL
DOCUMENTS BY REGISTERED MAIL RETURN RECEIPT REQUESTED AND PROPERLY INSURED OR BY
AN OVERNIGHT COURIER SERVICE. YOU MAY CONFIRM RECEIPT OF A LETTER OF TRANSMITTAL
BY CONTACTING NTS INVESTOR SERVICES C/O GEMISYS AT THE ADDRESS AND TELEPHONE
NUMBER LISTED IN PART II, SECTION 16 OF THIS OFFER TO PURCHASE.
Determination of Validity. All questions regarding the validity, form,
--------------------------
eligibility (including time of receipt) and acceptance for payment of any
Interests will be determined by us, in our sole discretion, and our
determination shall be final and binding. We have the absolute right to waive
any of the conditions of the Offer or any defect or irregularity in any tender,
or in the related transmittal documents. Unless waived, any defects or
irregularities must be cured within the time period we establish. In any event,
tenders will not be deemed to have been made until all defects or irregularities
have been cured or waived. We are neither under any duty nor will we incur any
liability for failure to notify you of any defects, irregularities or rejections
contained in your tenders.
Section 10(b) of the Exchange Act and Rule 14e-4 promulgated thereunder
require that a person tendering Interests on his, her or its behalf, own the
Interests tendered. Section 10(b) and Rule 14e-4 provide a similar restriction
applicable to the tender or guarantee of a tender on behalf of another person.
If you tender your Interests pursuant to any of the procedures described in this
Offer to Purchase you accept the terms and conditions of the Offer, and
represent and warrant that (i) you own the Interests being tendered within the
meaning of Rule 14e-4; and (ii) the tender complies with Rule 14e-4.
Section 4. Withdrawal Rights. If you tender Interests in this Offer,
you may withdraw your tender at any time before the Expiration Date or the date
we accept tenders of Interests, whichever is later. For a withdrawal to be
effective, it must be in writing and received by NTS Investor Services c/o
Gemisys via mail or facsimile at the address or facsimile number set forth in
Part II, Section 16 of this Offer to Purchase on or before the Expiration Date.
Any notice of withdrawal must specify your name and the amount of Interests that
you are withdrawing.
All questions as to form and validity of the notice of withdrawal will
be determined by the Partnership, in its sole discretion. All determinations
made by us will be final and binding. Interests properly withdrawn will not
thereafter be deemed to be tendered for purposes of the Offer. However,
withdrawn Interests may be retendered by following the procedures set forth in
Part II, Section 3 of this Offer to Purchase prior to the Expiration Date.
Tenders made pursuant to the Offer which are not otherwise withdrawn in
accordance with this Section 4 will be irrevocable.
Section 5. Purchase of Interests; Payment of Purchase Price. If you
tender Interests under the Offer, upon the terms and subject to the conditions
of the Offer, we will pay you $1.15 per Interest for each Interest you properly
tender. We will pay you the Purchase Price by sending you a check. We will
deliver your check by first class U.S. Mail deposited in the mailbox within five
(5) business days after the Expiration Date. Under no circumstances will we pay
you interest on the Purchase Price, regardless of any extension of the Offer or
any delay in making payment.
29
<PAGE>
Interests will be deemed purchased at the time of acceptance by us, but
in no event earlier than the Expiration Date. Interests that we purchase will be
held by us. Neither the Partnership nor the General Partner has plans to offer
for sale any other additional interests, but each reserves the right to do so in
the future.
Section 6. Certain Conditions of the Offer. Notwithstanding any other
provision of this Offer to Purchase, we will not be required to purchase or pay
for any Interests tendered and may terminate the Offer as provided in Part II,
Section 13 of this Offer to Purchase or may postpone the purchase of, or payment
for, Interests tendered if any of the following events occur prior to the
Expiration Date:
(a) there is a reasonable likelihood that consummation of the Offer
would result in the termination of the Partnership (as a partnership) under
Section 708 of the Code;
(b) there is a reasonable likelihood that consummation of the Offer
would result in termination of the Partnership's status as a partnership
for federal income tax purposes under Section 7704 of the Code;
(c) there shall have been instituted or threatened or shall be pending
any action or proceeding before or by any court or governmental, regulatory
or administrative agency or instrumentality, or by any other person, which:
(i) challenges the making of the Offer or the acquisition by us of
Interests pursuant to the Offer or otherwise directly or indirectly relates
to the Offer; or (ii) in our reasonable judgment (determined within five
(5) business days prior to the Expiration Date), could materially affect
the business, condition (financial or other), income, operations or
prospects of the Partnership, taken as a whole, or otherwise materially
impair in any way the contemplated future conduct of the business of the
Partnership or materially impair the Offer's contemplated benefits to us;
(d) there shall have been any action threatened or taken, or approval
withheld, or any statute, rule or regulation proposed, sought, promulgated,
enacted, entered, amended, enforced or deemed to be applicable to the Offer
or the Partnership or us, by any government or governmental regulatory or
administrative authority or agency or tribunal, domestic or foreign, which,
in our reasonable judgment, would or might directly or indirectly:
(i) delay or restrict our ability, or render us unable, to accept
for payment or pay for some or all of the Interests;
(ii) materially affect the business, condition (financial or
other), income, operations, or prospects of the Partnership or us,
taken as a whole, or otherwise materially impair in any way the
contemplated future conduct of our business or the business of the
Partnership;
(e) there shall have occurred:
(i) the declaration of any banking moratorium or suspension of
payment in respect of banks in the United States;
30
<PAGE>
(ii) any general suspension of trading in, or limitation on
prices for, securities on any United States national securities
exchange or in the over-the-counter market;
(iii) the commencement of war, armed hostilities or any other
national or international crises directly or indirectly involving the
United States;
(iv) any limitation (whether or not mandatory) by any
governmental, regulatory or administrative agency or authority on, or
any event which, in our reasonable judgment, might affect, the
extension of credit by banks or other lending institutions in the
United States;
(v) (A) any significant change, in our reasonable judgment, in
the general level of market prices of equity securities or securities
convertible into or exchangeable for equity securities in the United
States or abroad or (B) any change in the general political, market,
economic, or financial conditions in the United States or abroad that
(1) could have a material adverse effect on the business condition
(financial or other), income, operations or prospects of the
Partnership, or (2) in our reasonable judgment, makes it inadvisable
to proceed with the Offer; or
(vi) in the case of the foregoing existing at the time of the
commencement of the Offer, in our reasonable judgment, a material
acceleration or worsening thereof;
(f) any change shall occur or be threatened in the business, condition
(financial or otherwise), or operations of the Partnership, that, in our
reasonable judgment, is or may be material to the Partnership;
(g) a tender or exchange offer for any or all of the Interests of the
Partnership, or any merger, business combination or other similar
transaction with or involving the Partnership, shall have been proposed,
announced or made by any person;
(h) (i) any entity, "group" (as that term is used in Section 13(d)(3)
of the Exchange Act) or person (other than entities, groups or persons, if
any, who have filed with the Commission on or before November 30, 2000 a
Schedule 13G or a Schedule 13D with respect to any of the Interests) shall
have acquired or proposed to acquire beneficial ownership of more than 5%
of the outstanding Interests; or (ii) such entity, group, or person that
has publicly disclosed any such beneficial ownership of more than 5% of the
Interests prior to such date shall have acquired, or proposed to acquire,
beneficial ownership of additional Interests constituting more than 2% of
the outstanding Interests or shall have been granted any option or right to
acquire beneficial ownership of more than 2% of the outstanding Interests;
or (iii) any person or group shall have filed a Notification and Report
Form under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 or made
a public announcement reflecting an intent to acquire the Partnership or
its assets;
31
<PAGE>
which, in our reasonable judgment, in any such case and regardless of the
circumstances (including any action by us) giving rise to such event, makes it
inadvisable to proceed with the Offer or with such purchase or payment. The
conditions described above are for our sole benefit and may be asserted by us on
our respective behalf regardless of the circumstances giving rise to any such
condition (including any action or inaction by us) or may be waived by us in
whole or in part. Our failure at any time to exercise any of the foregoing
rights shall not be deemed a waiver of any such right and each such right shall
be deemed an ongoing right which may be asserted at any time and from time to
time. Any determination by us concerning the events described in this Section 6
shall be final and binding on all parties. As of the date hereof, we believe
that neither paragraph (a) nor paragraph (b) of this Section 6 will prohibit the
consummation of the Offer.
Section 7. Cash Distribution Policy. The Partnership began operations
in April of 1987 and paid quarterly distributions of $3.77 per Interest from
October 1, 1988 through March 31, 1991, at which point distributions were
suspended due to insufficient cash generated from operations. See Part II,
Section 10 of this Offer to Purchase. The Partnership will evaluate its cash
position on an ongoing basis to determine if resumption of distributions is
appropriate. However, there can be no assurance that the Partnership will make
any distributions in the future to limited partners who continue to own
Interests following completion of the Offer. See Part II, Section 10 of this
Offer to Purchase. In addition, limited partners that tender Interests pursuant
to the Offer will not be entitled to receive cash distributions, if any,
declared after the Expiration Date, on any Interests which are tendered and
accepted by us.
Section 8. Effects of the Offer. In addition to the effects of the
Offer on tendering and non-tendering limited partners and upon the General
Partner as set forth in the "Risk Factors" of this Offer to Purchase, the Offer
will affect us in several other respects:
If the Offer is fully subscribed, we will use approximately $827,956 to
purchase 611,266 Interests and pay costs associated with the Offer. This will
have the effect of reducing the cash available to fund our future needs and
contingencies. If the Offer is fully subscribed, our interest in the net book
value of the Partnership will increase from ($15,547), or 2.62%, to ($579,005),
or 97.59%. Our interest in any net earnings would increase from 2.62% to 97.59%.
The Partnership, however, has not made cash distributions since March 1991.
Upon completion of the Offer, we may consider purchasing any Interests
not purchased in the Offer. Any such purchases may be on the same terms as the
terms of this Offer or on terms which are more favorable or less favorable to
limited partners than the terms of this Offer. Rule 13e-4 promulgated under the
Exchange Act prohibits us from purchasing any Interests, other than pursuant to
the Offer, until at least ten (10) business days after the Expiration Date. Any
possible future purchases by us will depend on many factors, including but not
limited to, the market price of Interests, the results of the Offer, the
Partnership's business and financial position and general economic market
conditions.
Section 9. Source and Amount of Funds. We expect to fund monies
required to complete our purchases and to pay expenses of the Offer out of the
proceeds from the loan described below. The cost of purchasing 611,266
Interests, if the Offer is fully subscribed, would be approximately $702,956. We
anticipate that the expenses of the Offer will be approximately
32
<PAGE>
$125,000, consisting of $70,000 in legal fees; $ 25,000 for the costs of the
appraisal of the Interests and the fairness opinion, for which we agreed to
reimburse the Partnership, and $30,000 for printing, mailing, solicitation and
accounting costs. The Partnership will not pay any of the expenses of this
Offer. However, Neil Mitchell, a Vice President of NTS Capital Corporation, the
corporate general partner of the General Partner, assisted us in the preparation
of this Offer to Purchase.
We may also use the loan proceeds to fund the purchase of limited
partnership interests of limited partnerships that are affiliates of the
Partnership. The loan proceeds could also be used to return capital
contributions previously made by Mr. Nichols and Mr. Lavin to us.
On August 15, 2000, we entered into a Loan Agreement with the Bank of
Louisville, a Kentucky banking corporation, under which the Bank of Louisville
agreed to provide us with a $6,000,000 revolving line of credit evidenced by
three separate promissory notes issued by us in favor of the bank in the
original principal amount of $2,000,000 each (the "Loan Agreement"). The terms
of the three separate notes are described below:
o Revolving Credit Note A bears interest at the prime rate, as announced by
the Bank of Louisville from time to time, plus .25% per year for a term
ending on August 31, 2005. We will pay the interest rate described in
Revolving Credit Note A for any outstanding balance owing under the
revolving line of credit if, and only if, the outstanding balance is
$2,000,000 or less.
o Revolving Credit Note B bears interest at the prime rate, as announced by
the Bank of Louisville from time to time, plus .50% per year for a term
ending on August 31, 2005. We will pay the interest rate described in
Revolving Credit Note B for any outstanding balance owing under the
revolving line of credit if, and only if, the outstanding balance is
greater than $2,000,000 but less than $4,000,000.
o Revolving Credit Note C bears interest at the prime rate, as announced by
the Bank of Louisville from time to time, plus 1% per year for a term
ending on August 31, 2005. We will pay the interest rate described in
Revolving Credit Note C for any outstanding balance owing under the
revolving line of credit if, and only if, the outstanding balance is
greater than $4,000,000.
The line of credit from the Bank of Louisville is secured by:
o Interests of the Partnership which are currently held or subsequently
acquired by us, including any distributions which the Partnership issues to
us with respect to the Interests and any proceeds from the sale of the
Interests held by us;
o limited partnership interests in partnerships affiliated with the
Partnership which are currently held or subsequently acquired by us,
including any distributions which the partnerships issue to us with respect
to the interests held by us and any proceeds from the sale of the interests
held by us; and
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<PAGE>
o the personal guaranties of Mr. Nichols and Mr. Lavin of all of our
indebtedness with respect to the Bank of Louisville under the $6,000,000
line of credit pursuant to two separate Guaranty Agreements, each dated
August 15, 2000 among the Bank of Louisville and each of Mr. Nichols and
Mr. Lavin (the "Guaranty - Agreements"). Mr. Nichols and Mr. Lavin are
jointly and severally liable under each of their respective Guaranty
Agreements.
Under the terms of the Loan Agreement, we will repay the proceeds of
the revolving line of credit as follows:
o On September 1, 2000, we began making consecutive monthly payments of all
accrued and unpaid interest on the outstanding principal balance.
o The entire outstanding principal balance owing under the revolving line of
credit is due and payable on August 31, 2005.
We intend to use funds from cash distributions from the Partnership and
affiliated partnerships and from capital contributions to us by Mr. Nichols and
Mr. Lavin to make these payments.
In addition to using the proceeds of the revolving line of credit to
fund the purchase of Interests and our proportionate share of expenses of the
Offer, Mr. Nichols and Mr. Lavin may fund the purchase of Interests by us and
our proportionate share of the expenses of the Offer from capital contributions
pursuant to the terms of a Capital Contribution Agreement dated as of January
20, 1999 by and between Mr. Nichols and Mr. Lavin.
Section 10. Information About Us and the Partnership.
General Information About Us. We are a Kentucky limited liability
company and were formed in 1999. We are an affiliate of the Partnership and the
General Partner, and have previously purchased Interests in the Partnership and
limited partnership interests in other partnerships affiliated with the
Partnership. Our offices are located at 10172 Linn Station Road, Louisville,
Kentucky 40223. The phone number of our office is (502) 426-4800. Our two
members are Mr. J.D. Nichols, who is also Chairman of the Board of NTS Capital
Corporation, the corporate general partner of the General Partner, and Mr. Brian
F. Lavin, the President and Chief Operating Officer of NTS Capital Corporation.
General Information About the Partnership. The Partnership was formed
in April of 1987 under the laws of the State of Florida. The Partnership's
offices are located at 10172 Linn Station Road, Louisville, Kentucky 40223. The
phone number of the Partnership's office is (502) 426-4800. NTS-Properties Plus
Associates, a Kentucky limited partnership, is the Partnership's General
Partner. NTS Capital Corporation is the corporate general partner of the General
Partner. NTS Capital Corporation is controlled by Mr. J.D. Nichols, its Chairman
of the Board, and Mr. Brian F. Lavin, its President and Chief Operating Officer.
The Partnership's net income or loss and cash distributions are
allocated according to the terms of the Partnership Agreement. Under the
Partnership Agreement, Pre-Termination Date Net
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<PAGE>
Cash Receipts and Interim Net Cash Receipts (each as defined in the Partnership
Agreement) that are made available for distribution are distributed 99% to the
limited partners and 1% to the General Partner. Net Cash Proceeds are
distributed (i) 99% to the limited partners and 1% to the General Partner until
the limited partners have received cash distributions from all sources (except
Pre-Termination Date Net Cash Receipts) equal to their Original Capital (as
defined in the Partnership Agreement); and (ii) the remainder is allocated 80%
to the limited partners and 20% to the General Partner. Net Operating Income (as
defined in the Partnership Agreement) is allocated to the limited partners and
the General Partner in proportion to their respective cash distributions. Net
Operating Income in excess of cash distributions and Net Gains from Sales (as
defined in the Partnership Agreement) are allocated as follows: (i) pro rata to
all partners with a negative capital account in an amount to restore the
negative capital account to zero; (ii) 99% to the limited partners and 1% to the
General Partner until the limited partners have received an amount equal to
their Original Capital less cash distributions; and (iii) the remainder 80% to
the limited partners and 20% to the General Partner. Net Operating Losses (as
defined in the Partnership Agreement) are allocated 99% to the limited partners
and 1% to the General Partner.
The Partnership's Assets. The Partnership's assets consist primarily
of its interests in the following two joint ventures:
1. Blankenbaker Business Center Joint Venture, a joint venture partnership
with NTS-Properties IV, Ltd. ("NTS-Properties IV") and NTS-Properties VII, Ltd.,
each an affiliate of the Partnership, the General Partner and us. Blankenbaker
Business Center Joint Venture owns Blankenbaker Business Center 1A, a business
center with approximately 50,000 net rentable ground floor square feet and
approximately 50,000 net rentable mezzanine square feet located in Louisville,
Kentucky. The Partnership contributed the completed building, which it had
previously acquired from an affiliate, to the joint venture. In 1994,
NTS-Properties IV was admitted as a partner to the joint venture. The
Partnership's percentage interest in the joint venture was 39% at September 30,
2000. As of September 30, 2000, the property was 100% occupied. The joint
venture has a mortgage loan on this property which had a total outstanding
balance of $2,773,739 on September 30, 2000. The Partnership's proportionate
obligation under this mortgage was $1,083,145 on September 30, 2000. The
mortgage is secured by the property, bears interest at a fixed rate of 8.5% and
matures on November 15, 2005.
2. Lakeshore/University II Joint Venture ("L/U II Joint Venture"), a joint
venture partnership with NTS-Properties IV, NTS-Properties V and NTS/Ft.
Lauderdale, Ltd., each an affiliate of the Partnership, the General Partner and
us. The Partnership's percentage interest in the joint venture was 7.69% as of
July 1, 2000. The L/U II Joint Venture owns the following real properties:
(a) Lakeshore Business Center Phase I, a business center with approximately
103,000 net rentable square feet located in Fort Lauderdale, Florida,
acquired complete by the joint venture. As of September 30, 2000, the
property was 74% occupied. The L/U II Joint Venture has a mortgage loan
on this property which had a total outstanding balance of $4,263,901 on
September 30, 2000. The Partnership's proportionate obligation under
this mortgage was $327,894 on September 30, 2000. The mortgage
35
<PAGE>
is secured by the property, bears interest at a fixed rate of 8.125%
and matures on August 1, 2008.
(b) Lakeshore Business Center Phase II, a business center with
approximately 97,000 net rentable square feet located in Fort
Lauderdale, Florida, acquired complete by the joint venture. As of
September 30, 2000, the property was 86% occupied. The L/U II Joint
Venture has a mortgage loan on this property which had a total
outstanding balance of $4,587,503 on September 30, 2000. The
Partnership's proportionate obligation under this mortgage was $352,779
on September 30, 2000. The mortgage is secured by the property, bears
interest at a fixed rate of 8.125% and matures on August 1, 2008.
(c) Lakeshore Business Center Phase III is a business center being
constructed on 3.8 acres of land at the Lakeshore Business Center
development. On September 8, 2000, the L/U II Joint Venture closed a
construction loan transaction for an aggregate principal amount of
$2,680,000. The Partnership's proportionate obligation under this loan
is approximately $206,000. The loan is secured by the property, bears
interest at LIBOR plus 2.3% and matures on September 8, 2003. NTS
Corporation guaranteed the completion of construction of Lakeshore
Business Center Phase III.
The joint ventures in which the Partnership is a partner had a fee title
interest in the above properties. The General Partner believes that the
Partnership's properties are adequately covered by insurance.
Currently, the joint venture's plans for renovations and other major
capital expenditures include tenant improvements at the joint venture properties
as required by lease negotiations. Changes to current tenant finish improvements
are a typical part of any lease negotiation. Improvements generally include a
revision to the current floor plan to accommodate a tenant's needs, new
carpeting and paint and/or wallcovering. The extent and cost of the improvements
are determined by the size of the space being leased and whether the
improvements are for a new tenant or incurred because of a lease renewal. The
tenant finish improvements will be funded by cash flow from operations, cash
reserves or additional financing where necessary.
On July 23, 1999, the L/U II Joint Venture sold 2.4 acres of land
adjacent to the Lakeshore Business Center for the purchase price of $528,405.
The Partnership recorded an approximate $7,900 gain associated with this sale.
On December 6, 1999, the L/U II Joint Venture signed an agreement with a
contractor providing for the construction of a building to be known as Lakeshore
Business Center Phase III on the 3.8 acres of land it owns at the Lakeshore
Business Center development. Site work began in December 1999 and shell
construction began in the first quarter 2000. The construction costs are
currently estimated to be $4,300,000 and will be funded by capital contributions
made by NTS-Properties V in July 1999 and approximately $2,680,000 in debt
financing described under paragraph (c) above. As of September 30, 2000 the L/U
II Joint Venture has a commitment for approximately $48,000 for tenant
improvements on 6,190 square feet at Lakeshore Business Center Phase III. The
Partnership's share of this commitment is approximately $3,700 and will be
funded from debt financing.
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<PAGE>
The Partnership and NTS-Properties IV, which prior to July 1, 1999 had
a 12% and 18% interest respectively in the L/U II Joint Venture, were not in a
position in July 1999 to contribute additional capital required for the
construction of Lakeshore Business Center Phase III. The Partnership, together
with NTS-Properties IV, agreed that NTS-Properties V would make a $1,737,000
capital contribution to the L/U II Joint Venture to fund the costs of
constructing Lakeshore Business Center Phase III and leasing and capital
improvement expenses for Lakeshore Business Center Phases I and II. The
Partnership and NTS-Properties IV agreed that their joint venture interests
would, as a result, decrease to 8.4% and 11.93%, respectively. A $500,000
capital contribution by NTS-Properties V in July 2000 further decreased the
percentage interests of the Partnership and NTS-Properties IV to 7.69% and
10.92%, respectively.
The Partnership considers current occupancy levels adequate to continue
the operations of the Partnership's joint venture properties. The L/U II Joint
Venture, however, plans to replace the roof at Lakeshore Business Center Phase
I, which is near the end of its expected useful life. Although no contract has
been signed concerning replacement of the roof, the Partnership has spent
approximately $8,000 in design fees. The total cost to replace the roof is
expect to be approximately $200,000, $15,380 of which would be paid for by the
Partnership based on its percentage of ownership in the L/U II Joint Venture.
The Partnership intends to fund the replacement through its cash flows from
operations. The Partnership had no other material commitments for renovations or
capital improvements as of September 30, 2000.
The current business of the Partnership is consistent with the original
purpose of the Partnership which was to acquire, directly or by joint venture,
unimproved or partially improved land, to construct and otherwise develop
thereon apartment complexes or commercial properties, and to own and operate the
completed properties. The original purpose also included the ability of the
Partnership to invest in fully improved properties, either directly or by joint
venture. The Partnership's properties are in a condition suitable for their
intended use.
The Partnership intends to hold its properties until such time as sale
or other disposition appears to be advantageous with a view to achieving the
Partnership's investment objectives, or it appears that such objectives will not
be met. In deciding whether to sell a property, the Partnership will consider
factors such as potential capital appreciation, cash flow and federal income tax
considerations, including possible adverse federal income tax consequences to
the limited partners. The General Partner has explored the marketability of its
joint venture interests but because the joint venture interests are minority
interests, such a sale would be difficult. There are no contracts for sale of
any of the Partnership's properties under negotiation at the present time.
The Partnership's ratio of earnings to fixed charges was .95 for the
three months ended September 30, 2000. The Partnership's ratio of earnings to
fixed charges was .93 for the year ended December 31, 1999, and 1.18 for the
year ended December 31, 1998.
For more detailed financial information about the Partnership, see
Appendix A of this Offer to Purchase.
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<PAGE>
Section 11. Certain Federal Income Tax Consequences.
Certain Federal Income Tax Consequences of the Offer. The following is
------------------------------------------------------
a general summary, under currently applicable law, of certain federal income tax
considerations generally applicable to the sale of Interests pursuant to the
Offer. This summary is for general information only. The actual tax treatment of
a tender of Interests may vary depending upon your particular situation. Some
limited partners (including, but not limited to, insurance companies, tax-exempt
entities, financial institutions or broker/dealers, foreign corporations, and
persons who are not citizens or residents of the United States) may be subject
to special rules not discussed below. In addition, the summary does not address
the federal income tax consequences to all categories of Interest holders, nor
does it address the federal income tax consequences to limited partners who do
not hold the Interests as "capital assets," as defined by the Internal Revenue
Code of 1986, as amended (the "Code"). No ruling from the Internal Revenue
Service ("IRS") will be sought with respect to the federal income tax
consequences discussed herein; thus, there can be no assurance that the IRS will
agree with this discussion. We urge you to consult your own tax advisors as to
the particular tax consequences of a tender of your Interests pursuant to the
Offer, including the applicability and effect of any state, local, foreign or
other tax laws, any recent changes in applicable tax laws and any proposed
legislation. The following information is intended as a general statement of
certain tax considerations, and you should not treat this as legal or tax
advice.
Sale of Interests Pursuant to the Offer. The receipt of cash for
--------------------------------------------
Interests pursuant to the Offer will be a taxable transaction for federal income
tax purposes and may also be a taxable transaction under applicable state, local
and other laws. The purchase of Interests pursuant to the Offer will be deemed a
sale of the Interests by limited partners who tender their Interests. If you
tender in the Offer, the payment for your Interests will be in complete
liquidation of that portion of your ownership in the Partnership represented by
the purchased Interests. You or any other recipient of such payments will be
taxed to the extent of any gain recognized in connection with such sale. In
general, and subject to the recapture rules of the Code Section 751 discussed
below, if you tender you will recognize capital gain or loss at the time your
Interests are purchased by us to the extent that the sum of money distributed to
you plus your share of Partnership liabilities exceeds your adjusted basis in
the purchased Interests. Upon the sale of your Interests pursuant to the Offer,
you will be deemed to have received money in the form of any cash payments to
you and to the extent you are relieved from your proportionate share of
Partnership liabilities, if any, to which the Partnership's assets are subject.
You will thus be required to recognize gain upon the sale of your Interests if
the amount of cash you received, plus the amount you are deemed to have received
as a result of being relieved of your proportionate share of Partnership
liabilities (if any), exceeds your adjusted basis in the purchased Interests.
The income taxes payable upon the sale must be determined by you on the basis of
your own particular tax circumstances.
The adjusted basis of your Interests is calculated by your initial
basis and making certain additions and subtractions thereto. Your initial basis
is the amount paid for an Interest ($20 per Interest if you purchased in the
initial offering), increased by your share of liabilities, if any, to which the
Partnership's assets are subject and by the share of Partnership taxable income,
capital gains and other income items allocated to you. Basis is generally
reduced by cash distributions, decreases in your share of liabilities and by the
share of Partnership losses allocated to the Interest.
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<PAGE>
If you tender Interests in the Offer you will be allocated a pro rata
share of the Partnership's taxable income or loss for 2000 with respect to the
Interests sold in accordance with the provisions of the Partnership Agreement
concerning transfers of Interests. This allocation will affect your adjusted tax
basis in your Interests and, therefore, the amount of your taxable gain or loss
upon a sale of Interests pursuant to this Offer.
In determining the tax consequences of accepting the Offer, our
payments for Interests will be deemed to be equal to the $1.15 cash payment per
Interest plus a pro rata share of the Partnership's liabilities (together, the
"Selling Price"). As of September 30, 2000, the Partnership estimates the pro
rata share of the Partnership's liabilities to be $3.61 per Interest. The
taxable gain (or loss) to be incurred as a consequence of accepting the Offer is
determined by subtracting the adjusted basis of the purchased Interest from the
Selling Price.
You must determine your own adjusted tax basis because the basis will
vary depending upon when you purchased the Interests and the amount of
distributions you have received for each Interest, which varies depending upon
the date on which you were admitted to the Partnership.
A taxable gain, if any, on the disposition of Interests must be
allocated between ordinary income, unrecaptured Section 1250 gain and long-term
capital gain. You will realize long term capital gain or loss on such sale, if:
(1) you are not a "dealer" in securities; (2) you have held the Interests for
longer than twelve (12) months; and (3) the Partnership has no Section 751
assets. To the extent that a portion of the gain realized on the sale of an
Interest is attributable to Section 751 assets (i.e., "unrealized receivables"
and "inventory items of the Partnership which have appreciated substantially in
value") you will recognize ordinary income, and not a capital gain, upon the
sale of the Interest. For purposes of Code Section 751, certain depreciation
deductions claimed by the Partnership (generally, depreciation deductions in
excess of straight-line depreciation in the case of real property and all
allowable depreciation to date in the case of other property) constitute
"unrealized receivables." Thus, gain, if any, recognized by limited partners who
sell Interests will be ordinary income in an amount not to exceed your share of
the Partnership's depreciation deductions that are "unrealized receivables." It
is unclear whether, for Interests held for twelve (12) months or longer, with
respect to real property, the amount of gain attributable to depreciation not
taxed as ordinary income is taxed as unrecaptured Section 1250 gain or long-term
capital gain. Furthermore, if the Partnership were deemed to be a "dealer" in
real estate for federal income tax purposes, the property held by the
Partnership might be treated as "inventory items of the Partnership which have
appreciated substantially in value" for purposes of Code Section 751 and limited
partners tendering Interests would recognize ordinary income, in an amount equal
to your share of the appreciation in value of the Partnership's real estate
inventory. The General Partner does not believe it has operated the
Partnership's business in a manner as to make the Partnership a "dealer" for tax
purposes.
Ordinary income recognized in 1999 is taxed at a stated maximum rate of
39.6% for federal income tax purposes. In the case of real property, the amount
of gain not taxed as ordinary income attributable to depreciation, i.e.,
unrecaptured Section 1250 gain, is taxed at a maximum rate of 25%. Net capital
gains are taxed for federal income tax purposes at a stated maximum rate of 20%
for gain from property held longer than twelve (12) months, i.e., long-term
capital gain. The tax rates may actually be somewhat higher, depending on the
taxpayer's personal exemptions and amount of
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<PAGE>
adjusted gross income. A taxable loss, if any, on the disposition of Interests
will be recognized as a capital loss for federal income tax purposes for limited
partners who hold their Interests as capital assets.
Back-up Withholding. To prevent back-up federal income tax withholding
--------------------
equal to 31% of the payments made pursuant to the Offer, each limited partner
(except a foreign limited partner) who does not otherwise establish an exemption
from such withholding must notify the Partnership of his, her or its correct
taxpayer identification number (or certify that such taxpayer is awaiting a
taxpayer identification number) and provide certain other information by
completing a Substitute Form W-9 to the Partnership. For your convenience, a
Substitute Form W-9 is enclosed with this Offer to Purchase. Some limited
partners, including corporations, may not be subject to the withholding and
reporting requirements.
Section 12. Transactions and Arrangements Concerning Interests. Based
upon our records and information provided to us by the General Partner and
affiliates of the General Partner, neither we, the Partnership, the General
Partner, nor to the best of our knowledge, any controlling person of the
Partnership, the General Partner, or us, has effected any transactions in the
Interests during the sixty (60) business days prior to the date hereof.
Section 13. Extensions of Tender Period; Terminations; Amendments. We
have the right at any time and from time to time, to extend the period of time
during which the Offer is open by giving written notice of the extension to each
limited partner. If there is any extension, all Interests previously tendered
and not purchased or withdrawn will remain subject to the Offer and may be
purchased by us, except to the extent that such Interests may be withdrawn as
set forth in Part II, Section 4 of this Offer to Purchase.
For purposes of the Offer, a "business day" means any day other than a
Saturday, Sunday or federal holiday and consists of the time period from 12:01
a.m. through 12:00 Midnight, Eastern Standard Time. We have the right: (i) to
terminate the Offer and not to purchase or pay for any Interests not previously
purchased or paid for upon the occurrence of any of the conditions specified in
Part II, Section 6 of this Offer to Purchase by giving written notice of such
termination to the limited partners and making a public announcement thereof; or
(ii) at any time and from time to time, to amend the Offer in any respect. All
extensions, delays in payment or amendments will be followed by public
announcements thereof, such announcements in the case of an extension to be
issued no later than 9:00 a.m. Eastern Standard Time, on the next business day
after the previously scheduled Expiration Date. Without limiting the manner in
which we may choose to make any public announcement, except as provided by
applicable law (including Rule 13e-4(e)(2) under the Exchange Act), we have no
obligation to publish, advertise or otherwise communicate any such public
announcement, other than by issuing a release to the Dow Jones News Service.
Pursuant to Rule 14d-11 under the Exchange Act, we are permitted to
provide for a subsequent offering period in tender offers for any and all
outstanding Interests. A subsequent offering period is an additional period from
three to twenty business days following the Expiration Date, including any
extensions, in which limited partners may continue to tender Interests not
tendered in the Offer for the Purchase Price. We do not intend to have a
subsequent offering period.
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<PAGE>
Section 14. Solicitations for Interests. We have retained the services
of Gemisys Corporation to make telephone solicitations to limited partners to
tender their Interests pursuant to this Offer. We will pay Gemisys a
solicitation fee of $2.50 for every telephone solicitation that Gemisys makes to
limited partners.
Section 15. Fees and Expenses. We will not pay any fees or commissions
to any broker, dealer or other person for soliciting tenders of Interests
pursuant to the Offer. We will reimburse brokers, dealers, commercial banks and
trust companies for customary handling and mailing expenses incurred in
forwarding the Offer to their customers.
Section 16. Address; Miscellaneous.
Address. All executed copies of the Letter of Transmittal, Substitute
--------
Form W-9 and the Certificate(s) of Ownership for the Interests being tendered
(or the Affidavit) must be sent via mail or overnight courier service to the
address set forth below. Manually signed facsimile copies of the Letter of
Transmittal will not be accepted. The Letter of Transmittal, Substitute Form W-9
and Certificate(s) of Ownership for the Interests being tendered (or the
Affidavit) should be sent or delivered by each limited partner or such limited
partner's broker, dealer, commercial bank, trust company or other nominee as
follows:
By Mail, Hand Delivery or Overnight Mail/Express:
NTS Investor Services
c/o Gemisys
7103 S. Revere Parkway
Englewood, CO 80112
Any questions, requests for assistance, or requests for additional
copies of this Offer to Purchase, the Letter of Transmittal or any other
documents relating to this Offer also may be directed to NTS Investor Services
c/o Gemisys at the above-listed address or at: (800) 387-7454 or by facsimile
at: (303) 705-6171.
Miscellaneous. The Offer is not being made to, nor will tenders be
--------------
accepted from, limited partners in any jurisdiction in which the Offer or its
acceptance would not comply with the securities or Blue Sky laws of such
jurisdiction. We are not aware of any jurisdiction in which the Offer or tenders
pursuant thereto would not be in compliance with the laws of such jurisdiction.
We reserve the right to exclude limited partners in any jurisdiction in which it
is asserted that the Offer cannot lawfully be made. We believe such exclusion is
permissible under applicable laws and regulations, provided that we makes a good
faith effort to comply with any state law deemed applicable to the Offer.
We have filed a Tender Offer Statement under Sections 13(e)(3) and
14(d)(1) of the Securities Exchange Act of 1934 on Schedule TO with the
Commission which includes certain information relating to the Offer summarized
herein. Copies of this statement may be obtained by contacting NTS Investor
Services c/o Gemisys at the address and phone number set forth in this Section
16 of this Offer to Purchase or from the public reference office of the
Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington D.C. 20549.
The Commission also maintains
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a site on the World Wide Web at http://www.sec.gov that contains reports
electronically filed by the Partnership with the Commission.
NTS-Properties Plus Ltd.
November 30, 2000
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Appendix A
The Partnership's Financial Statements
The following are: (i) the audited balance sheets and statements of
operations of the Partnership and contain certain financial information for the
fiscal year ended December 31, 1998 and December 31, 1999 extracted or derived
from the Partnership's most recent Annual Report on Form 10-K; and (ii) the
unaudited comparable first quarter balance sheets and statements of operations
of the Partnership and contain certain financial information for the quarter
ended September 30, 2000 extracted or derived from the Partnership's most recent
Quarterly Report on Form 10-Q. The Annual and Quarterly Reports contain more
comprehensive financial information than the information contained herein and
were filed with the Commission pursuant to the Securities Exchange Act of 1934.
The information extracted from the Annual and Quarterly Reports is qualified in
its entirety by reference to the reports and the financial statements, including
the notes, contained in the reports.
<PAGE>
<TABLE>
NTS-PROPERTIES PLUS LTD.
------------------------
A Florida Limited Partnership
-----------------------------
BALANCE SHEETS
--------------
<CAPTION>
As of As of As of
September 30, December 31, December 31,
2000 1999 1998
------------------ ----------------- -----------------
(UNAUDITED)
ASSETS
------
<S> <C> <C> <C>
Cash and equivalents $37,888 $163,798 $53,634
Cash and equivalents - restricted 43,219 18,719 24,258
Accounts receivable 17,966 3,763 14,857
Land, buildings and amenities, net 1,492,377 1,423,671 2,040,099
Deferred leasing commissions 86,643 88,665 105,802
Other assets 49,159 38,235 58,243
------------------ ------------------ -----------------
TOTAL ASSETS $1,727,252 $1,736,851 $2,296,893
================== ================== =================
LIABILITIES AND PARTNERS' DEFICIT
Mortgages and note payable $2,056,960 $2,160,294 $2,739,066
Accounts payable 175,578 134,091 74,664
Security deposits 13,002 13,091 15,231
Other liabilities 75,016 25,669 35,406
------------------ ------------------ -----------------
TOTAL LIABILITIES 2,320,556 2,333,145 2,864,367
COMMITMENTS AND CONTINGENCIES
PARTNERS' DEFICIT (593,304) (596,294) (567,474)
------------------ ------------------ -----------------
TOTAL LIABILITIES AND PARTNERS' DEFICIT $1,727,252 $1,736,851 $2,296,893
================== ================== =================
</TABLE>
A-1
<PAGE>
<TABLE>
NTS-PROPERTIES PLUS LTD.
------------------------
A Florida Limited Partnership
-----------------------------
STATEMENT OF OPERATIONS
-----------------------
<CAPTION>
For the For the For the
Nine Months Ended Year Ended Year Ended
September 30, December 31, December 31,
2000 1999 1998
------------------- ------------------ ----------------
(UNAUDITED)
REVENUES
--------
<S> <C> <C> <C>
Rental income $434,148 $639,747 $854,180
Gain on sale of assets - 7,925 2,083,049
Interest and other income 4,247 9,107 5,854
---------------- ------------- ---------------
TOTAL REVENUES 438,395 656,779 2,943,083
---------------- ------------- ---------------
EXPENSES
--------
Operating expenses 62,250 89,925 124,500
Operating expenses - affiliated 27,277 55,503 62,881
Loss on disposal of assets 12,515 - -
Interest expense 127,424 206,672 293,936
Management fees 25,911 38,234 52,271
Real estate taxes 42,175 60,160 73,515
Professional and administrative expenses 51,627 69,162 45,201
Professional and administrative expenses - affiliated 15,338 45,098 46,041
Depreciation and amortization 70,888 106,088 109,793
---------------- ------------- ---------------
TOTAL EXPENSES 435,405 670,842 808,138
---------------- ------------- ---------------
Income (loss) before extraordinary item 2,990 (14,063) 2,134,945
Extraordinary item - early extinguishment of debt - - (108,430)
---------------- ------------- ---------------
Net income (loss) $2,990 $(14,063) $2,026,515
================ ============= ===============
Net income (loss) allocated to the Limited Partners:
Income (loss) before extraordinary item $2,960 $(13,922) $2,113,596
Extraordinary item - - (107,346)
---------------- ------------- ---------------
Net income (loss) $2,960 $(13,922) $2,006,250
================ ============= ===============
Net income (loss) per limited partnership unit:
Income (loss) before extraordinary item $0.00 $(0.02) $3.20
Extraordinary item 0.00 0.00 (0.16)
---------------- ------------- ---------------
Net income (loss) $0.00 $(0.02) $3.04
================ ============= ===============
Weighted average number of Limited
Partnership Units 643,645 650,531 660,429
================ ============= ===============
</TABLE>
A-2
<PAGE>
Appendix B
ORIG's Balance Sheets and Statements of Operations
The following are the unaudited balance sheets and statements of income
and expenses of ORIG. The balance sheets and statements of income and expenses
contain certain financial information for the year ended December 31, 1999,
which was its first year of existence, and for the nine months ended September
30, 2000.
<PAGE>
<TABLE>
ORIG, LLC
---------
(UNAUDITED)
-----------
BALANCE SHEETS
--------------
For Year Ended December 31, 1999 and Nine Months Ended September 30, 2000
<CAPTION>
Year Ended Nine Months Ended
ASSETS December 31, 1999 September 30, 2000
------ ----------------- ------------------
<S> <C> <C>
Cash $ 5,574 $ 377
Investments (Stated at Cost)
NTS Properties III 274,500 336,176
NTS Properties IV 492,820 675,369
NTS Properties V 380,890 1,061,679
NTS Properties VI 1,649,620 3,315,848
NTS Properties VII 284,676 521,578
NTS Properties Plus 10,300 16,866
NTS Mortgage Income Fund 0 5,382
--------------- ---------------
Total Investments 3,092,806 5,932,899
Tender Offer Acquisition Costs 119,712 217,548
--------------- ---------------
TOTAL ASSETS $3,218,092 $6,150,823
------------ =============== ===============
LIABILITIES
-----------
Accrued Interest - Bank of Louisville 0 16,459
Notes Payable - Bank of Louisville 0 $2,640,263
EQUITY
------
Equity
Capital Contributions 3,160,675 3,528,375
Retained Earnings - Prior Year 0 57,417
Retained Earnings - Current Year 57,417 (91,691)
--------------- ---------------
3,218,092 3,494,101
TOTAL LIABILITIES AND EQUITY $3,218,092 $6,150,823
---------------------------- =============== ===============
</TABLE>
B-1
<PAGE>
<TABLE>
ORIG, LLC
---------
(UNAUDITED)
-----------
STATEMENT OF INCOME AND EXPENSES
--------------------------------
For Year Ended December 31, 1999 and Nine Months Ended September 30, 2000
<CAPTION>
Year Ended Nine Months Ended
December 31, 1999 September 30, 2000
----------------- ------------------
REVENUES
--------
<S> <C> <C>
Cash Distributions $82,192 $18,639
------ ------
TOTAL REVENUES 82,192 18,639
--------------
EXPENSES
--------
Filing Fees Expense 24,775 37,502
Interest Expense 0 72,828
Legal Fees 0 0
Miscellaneous Expense 0 0
------ ------
24,775 110,330
------ -------
NET PROFIT $57,417 ($91,691)
---------- ====== =======
</TABLE>
B-2
<PAGE>
Exhibit (a)(1)(ii)
Form of Letter of Transmittal
<PAGE>
LETTER OF TRANSMITTAL
Regarding the Interests in
NTS - PROPERTIES PLUS LTD.
Tendered Pursuant to the Offer to Purchase Dated November 30, 2000
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT, AND THIS LETTER OF
TRANSMITTAL MUST BE RECEIVED BY THE PARTNERSHIP BY,
12:00 MIDNIGHT EASTERN STANDARD TIME, ON FRIDAY, MARCH 30, 2001 (THE "EXPIRATION
DATE"), UNLESS THE OFFER IS EXTENDED BY OFFEROR.
[Investor Name] If applicable:
[Address] [Custodian]
[City, State, Zip] [Address]
[Tax I.D. #] [City, State, Zip]
[# of Interests] [Account #]
I am a Limited Partner of NTS-Properties Plus Ltd. I hereby tender my limited
partnership interests or portion thereof, as described and specified below, to
the Offeror upon the terms and conditions set forth in the Offer to Purchase,
dated November 30, 2000 (collectively, the "Offer to Purchase" and "Letter of
Transmittal" constitute the "Offer").
THIS LETTER OF TRANSMITTAL IS SUBJECT TO ALL THE TERMS AND CONDITIONS SET FORTH
IN THE OFFER TO PURCHASE, INCLUDING, BUT NOT LIMITED TO, THE ABSOLUTE RIGHT OF
THE OFFEROR TO REJECT ANY AND ALL TENDERS DETERMINED BY IT, IN ITS SOLE
DISCRETION, NOT TO BE IN THE APPROPRIATE FORM.
I hereby represent and warrant that I have full authority to sell my interests,
or portion thereof, to the Offeror, and that the Offeror will acquire good
title, free and clear of any adverse claim. Upon request, I will execute and
deliver any additional documents necessary to complete the sale of my interests
in accordance with the terms of the Offer. In the event of my death or
incapacity, all authority and obligation shall be placed with my heirs, personal
representatives and successors.
I hereby appoint NTS-Properties Plus Associates (without posting of a bond) as
my attorney-in-fact with respect to my interests, with full power of
substitution (such power of attorney being deemed to be an irrevocable power
coupled with an interest), to: (1) transfer ownership of my interests on the
Partnership's books to the Offeror, (2) change the address of record of my
interests prior to or after completing the transfer, (3) execute and deliver
lost certificate indemnities and all other transfer documents, (4) direct any
custodian or trustee holding record title to the interests to do what is
necessary, including executing and delivering a copy of this Letter of
Transmittal, and (5) upon payment by the Offeror of the purchase price, to
receive all benefits and cash distributions and otherwise exercise all rights of
beneficial ownership of my interests hereby tendered.
(Over)
<PAGE>
INSTRUCTIONS TO TENDER INTERESTS
Please complete the following steps to tender your interests:
o Complete Part 1 by inserting the number of interests you wish to tender.
o Complete Part 2 by providing your telephone number(s).
o Complete Part 3 by providing the appropriate signature(s). (Note: if your
account is held by a Trustee or Custodian, sign below and forward this form
to the Trustee or Custodian at the address noted on the first page of this
Letter of Transmittal to complete the remaining steps). All signatures must
be notarized by a Notary Public.
o Return your original Certificate(s) of Ownership for the interests with
this form. If you are unable to locate your Certificate(s) of Ownership,
complete the Affidavit and Indemnification Agreement for Missing
Certificate(s) of Ownership.
PART 1. NUMBER OF INTERESTS IN THE PARTNERSHIP TO BE TENDERED:
[ ] I tender my entire interest in the Partnership of _________ interests for
a price of $1.15 per interest.
[ ] I tender interests, representing only a portion of my interest in the
Partnership, for a price of $1.15 per interest.
PART 2. TELEPHONE NUMBER(S).
My telephone numbers are: (___)________ [Daytime] and (___)_________ [Evening]
PART 3. SIGNATURE(S).
FOR INDIVIDUALS/JOINT OWNERS:
----------------------------------- --------------------------------
Print Name of limited partner Print Name of joint owner
----------------------------------- --------------------------------
Signature of limited partner Signature of joint owner
Sworn to me this ___ day Sworn to me this ___ day
of __________, 2000. of ____________, 2000.
----------------------------------- --------------------------------
Notary Public Notary Public
FOR CUSTODIAL/TRUSTEE/IRA ACCOUNTS:
----------------------------------- --------------------------------
Print Name of Signatory Signature
Sworn to me this ____ day
of __________, 2000.
----------------------------------- --------------------------------
Title of Signatory Notary Public
Return or Deliver: (1) this Letter of Transmittal; (2) your original
Certificate(s) of Ownership for the interests, or if you are unable to locate
your Certificate(s) of Ownership, the Affidavit and Indemnification Agreement
for Missing Certificate(s) of Ownership; and (3) the Substitute Form W-9 on or
before the Expiration Date to:
NTS INVESTOR SERVICES
C/O GEMISYS
7103 S. REVERE PARKWAY
ENGLEWOOD, CO 80112
For additional information, call: (800) 387-7454.
<PAGE>
Exhibit (a)(1)(iii)
Form of Affidavit and Indemnification Agreement for
Missing Certificate(s) of Ownership
<PAGE>
AFFIDAVIT AND INDEMNIFICATION AGREEMENT
FOR MISSING CERTIFICATE(S) OF OWNERSHIP
State of ______________
County of _____________
_____________________________________
_____________________________________
_____________________________________ (The "Investor")
being duly sworn, deposes and says:
1. The Investor is of legal age and is the true and lawful, present and
sole, record and beneficial owner of _________ (insert number of interests)
limited partnership interests (the "Interests") of NTS-Properties Plus, Ltd.,
(the "Partnership"). The Interests were represented by the following
Certificate(s) of Ownership (the "Certificate(s)") issued to the Investor:
Certificate(s) No. Number of Interests Date Issued
------------------ ------------------- -----------
The Certificate(s) was (were) lost, stolen, destroyed or misplaced under the
following circumstances:
________________________________________________________________________________
________________________________________________________________________________
_____________________________________________________ and after diligent search,
the Certificate(s)could not be found.
2. Neither the Certificate(s) nor any interest therein has at any time
been sold, assigned, endorsed, transferred, pledged, deposited under any
agreement or other disposed of, whether or not for value, by or on behalf of the
investor. Neither the Investor nor anyone acting on the Investor's behalf has at
any time signed any power of attorney, any stock power or other authorization
with respect to the Certificate(s) and no person or entity of any type other
than the Investor has or has asserted any right, title, claim or interest in or
to the Certificate(s) or to the Interests represented thereby.
3. The Investor hereby requests, and this Affidavit and Indemnification
Agreement is made and given in order to induce the Partnership, (i) to refuse to
recognize any person other than the Investor as the owner of the Certificate(s)
and (ii) to refuse to make any payment, transfer, registration, delivery or
exchange called for by the Certificate(s) to any person other than the Investor
and to refuse the Certificates or to make the payment, transfer, registration,
delivery or exchange called for by the Certificate(s) without the surrender
thereof or cancellation.
4. If the Investor or the representative or the assigns of the Investor
should find or recover the Certificate(s), the Investor will immediately
surrender and deliver the same to the Partnership for cancellation without
requiring any consideration thereof.
5. The Investor agrees in consideration of the issuance to the Investor
of a new certificate in substitution for the Certificate(s), to indemnify and
hold harmless the Partnership, each general partner of the Partnership, each
affiliate of the Partnership and any person, firm or corporation now or
hereafter acting as the transfer agent, registrar, trustee, depositary,
redemption, fiscal or paying agent of the Partnership, or in any other capacity
and their respective successors and assigns, from and against any and all
liabilities, losses, damages, costs and expenses of every nature (including
reasonable attorney's fees) in connection with, or arising out of, the lost,
stolen, destroyed or mislaid Certificate(s) without the surrender thereof and,
whether or not: (a) based upon or arising out of the honoring of, or
<PAGE>
refusing to honor, the Certificate(s) when presented to anyone, (b) or based
upon or arising from inadvertence, accident, oversight or neglect on the part of
the Partnership, its affiliates or any general Partner of the Partnership,
agents, clerk, or employee of the Partnership or any general partner of the
Partnership and/or the omission or failure to inquire into contest or litigate
the right of any applicant to receive payment, credit, transfer, registration,
exchange or delivery in respect of the Certificate(s) and/or the new instrument
or instruments issued in lieu thereof, (c) and/or based upon or arising out of
any determination which the Partnership, its affiliates or any general partner
thereof may in fact makes as to the merits of any such claim, right, or title,
(d) and/or based upon or arising out of any fraud or negligence on the part of
the Investor in connection with reporting the loss of the Certificate(s) and the
issuance of new instrument or instruments in lieu thereof, (e) and/or based upon
or arising out of any other matter or thing whatsoever it may be.
6. The Investor agrees that all notices, requests, demands and other
communications under this Affidavit and Indemnification Agreement shall be in
writing and shall be mailed to the party to whom notice is to be given by
certified or registered mail, postage prepaid; if intended for the Partnership
shall be addressed to Gemisys, 7103 S. Revere Pkwy., Englewood, CO 80112 Attn.:
NTS Investor Services, or such other address as the Partnership shall have given
notice to the Investor at the address set forth at the end of this Affidavit and
Indemnification Agreement or at such other address as the Investor shall have
given prior notice to the Partnership in a manner herein provided.
7. No waiver shall be deemed to be made by the Partnership or its
affiliates of any of its rights hereunder unless the same shall be in writing,
and each waiver, if any, shall be a waiver only with respect to the specific
instance involved and shall in no way impair the rights of the Partnership or
its affiliates or the obligations of the Investor in any other respect at any
other time.
8. The provisions of this Affidavit and Indemnification Agreement shall
be binding upon and inure to the benefit of the successors and assigns of the
Partnership and its affiliates and the Investor.
9. This Affidavit and Indemnification Agreement shall be governed by
and construed in accordance with the laws of the State of Florida.
----------------------------------------------------
Investor Signature
(Please sign exactly as name appears on certificate)
----------------------------------------------------
Investor Signature
(if held jointly)
----------------------------------------------------
Name
----------------------------------------------------
Address
Sworn to me this ____ day of
________________, 2000.
Notary Public
My commission expires: / /
---------------------------
<PAGE>
Exhibit (a)(1)(iv)
Form of Letter to Limited Partners
<PAGE>
[ORIG letterhead]
November 30, 2000
Account Name 1
Account Name 2
Address
City, State Zip
To our Limited Partners:
Enclosed for your review is an Offer to Purchase your limited partnership
interests. Please read all of the enclosed material carefully before deciding to
tender your interests.
You currently own ____ interests. ORIG, LLC is offering
to purchase your interests for $1.15 per interest, or a
total of $__________, subject to the terms of the Offer.
Payment will be made within five business days of the
expiration of the Offer.
We invite your attention to the following:
o This Offer is being made to all Limited Partners.
o Up to 611,266 interests may be purchased by ORIG, LLC (the "Offeror").
o The Offer will expire at 12:00 midnight, Eastern Standard Time, on Friday,
March 30, 2001, unless the Offer is extended.
After reading the Offer to Purchase (white), if you wish to tender any or
all of your interests, complete and return to NTS Investor Services c/o Gemisys,
before Friday, March 30, 2001, the following:
(1) the Letter of Transmittal (blue);
(2) the Substitute Form W-9 (green); and
(3) the Certificate(s) of Ownership for the interests or, if you are
unable to locate the Certificate(s) of Ownership, complete the
Affidavit and Indemnification Agreement for Missing
Certificate(s) of Ownership (yellow).
NTS INVESTOR SERVICES
C/O GEMISYS
7103 S. REVERE PARKWAY
ENGLEWOOD, CO 80112
For additional information, call: (800) 387-7454
<PAGE>
Exhibit (a)(1)(v)
Substitute Form W-9 with Guidelines
<PAGE>
Substitute Form W-9
-------------------
o Purpose of the Substitute Form W-9
Each tendering Limited Partner is required to provide to the
Partnership its correct Taxpayer Identification Number ("TIN") on Substitute
Form W-9 which is provided below, and to certify whether the Limited Partner is
subject to backup withholding of federal income tax. If the Partnership is not
provided with the correct TIN, the Limited Partner may be subject to a $500
penalty imposed by the Internal Revenue Service (the "IRS"). In addition,
failure to provide the information on Substitute Form W-9 may subject the
tendering Limited Partner to 31% federal income tax withholding on the payment
of the purchase price of all Interests purchased by the Offerors from the
Limited Partner pursuant to this Offer.
o Instructions for filling out the Substitute Form W-9
Each tendering Limited Partner must fill out the Substitute Form W-9
below by: (1) inserting their TIN; (2) certifying whether the Limited Partner is
subject to backup withholding of federal income tax; and (3) signing the form.
If the tendering Limited Partner is an individual, the TIN is the
Limited Partner's social security number.
If the tendering Limited Partner has been notified by the IRS that the
Limited Partner is subject to backup withholding, the Limited Partner must cross
out item (2) of the "Certification" box of Substitute Form W-9, unless the
Limited Partner has since been notified by the IRS that the Limited Partner is
no longer subject to backup withholding. If backup withholding applies, the
Partnership is required to withhold 31% of any payments made to the Limited
Partner. Backup withholding is not an additional tax. Rather, the tax liability
of persons subject to backup withholding will be reduced by the amount of tax
withheld. If withholding results in an overpayment of taxes, a refund may be
obtained from the IRS.
If the tendering Limited Partner has not been issued a TIN and has
applied for one or intends to apply for one in the near future, the Limited
Partner should write "Applied For" in the space provided for the TIN in Part I
of the Substitute Form W-9, and sign and date the Substitute Form W-9. If
"Applied For" is written in Part I and the Partnership is not provided with a
TIN within 60 days, the Partnership will withhold 31% on all payments of the
purchase price to the Limited Partner until a TIN is provided to the
Partnership.
Certain Limited Partners (including, among others, all corporations and
certain foreign individuals) are not subject to these backup withholding and
reporting requirements. In order for a foreign individual to qualify as an
exempt recipient, the individual must submit an Internal Revenue Form W-8,
signed under penalties of perjury, attesting to such individual's exempt status.
A Form W-8 may be obtained from NTS Investor Services c/o Gemisys at the address
and telephone number provided in Section 15, "Address; Miscellaneous" of the
Offer to Purchase.
For complete instructions on how to fill out Substitute Form W-9, refer
to the Guidelines enclosed.
(OVER)
<PAGE>
________________________________________________________________________________
SUBSTITUTE | Part I -- Taxpayer Identification |
FORM W-9 | Number -- For all accounts, enter | ___________________
| your TIN in the box at right. | Social Security No.
| (For most individuals, this is |
Department of the | your social security number.) |
Treasury | Certify by signing and dating | OR
Internal Revenue | below. |
Service | | ___________________
| | Employer
Payer's Request | | Identification No.
for Taxpayer | |
Identification | |
Number (TIN) | |
| | (If awaiting a TIN
| | write "Applied For"
| | in the space above).
____________________|___________________________________|_______________________
Part II -- For payees exempt from backup withholding, see the enclosed
Guidelines and complete as instructed therein.
________________________________________________________________________________
Certification -- Under penalties of perjury, I certify that:
(1) The number shown on this form is my correct Taxpayer Identification Number
(or I am waiting for a number to be issued to me). and
(2) I am not subject to backup withholding either because (a) I am exempt from
backup withholding, (b) I have not been notified by the Internal Revenue Service
(the "IRS") that I am subject to backup withholding as a result of failure to
report all interest or dividends, or (c) the IRS has notified me that I am no
longer subject to backup withholding.
Certificate Instructions -- You must cross out item (2) above, if you have been
notified by the IRS that you are subject to backup withholding because of under
reporting interest or dividends on your tax return. However, if after being
notified by the IRS that you were subject to backup withholding you received
another notification from the IRS that you are no longer subject to backup
withholding, do not cross out item (2). (Also see instructions in the enclosed
Guidelines.)
________________________________________________________________________________
SIGNATURE __________________________________ DATE _________________ , ________
________________________________________________________________________________
<PAGE>
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
Guidelines for Determining the Proper Identification Number to Give the Payer. -
Social Security numbers have nine digits separated by two hyphens, e.g.,
000-00-0000. Employer identification numbers have nine digits separated by only
one hyphen, e.g., 00-0000000. The table below will help determine the number to
give the payer.
Give the SOCIAL
For this type of account: SECURITY
number of -
------------------------------------ --------------------------
1. An individual's account The individual
2. Two or more individuals The actual owner of
(joint account) the account or, if
combined funds, the
first individual on the
account(1)
3. Husband and wife (joint The actual owner of
account) the account or, if joint
funds, either person(1)
4. Custodian account of a The minor(2)
minor (Uniform Gift to Minors
Act)
5. Adult and minor (joint The adult or, if the
account) minor is the only
contributor, the
minor(1)
6. Account in the name of The ward, minor, or
guardian or committee for a incompetent person(3)
designated ward, minor, or
incompetent person
7. a. A revocable savings trust The grantor-trustee(1)
account (in which grantor
is also trustee)
b. Any "trust" account that The actual owner(1)
is not a legal or valid trust
under State law
Give the EMPLOYER
For this type of account: IDENTIFICATION
number of -
------------------------------------ --------------------------
8. Sole proprietorship account The owner(4)
9. A valid trust, estate, or The legal entity (do
pension trust not furnish the
identifying number of
the personal
representative or
trustee unless the
legal entity itself is not
designated in the
account title)(5)
10. Corporate account The corporation
11. Religious, charitable, or The organization
12. Partnership account held in The partnership
13. Association, club, or other The organization
14. A broker or registered The broker or nominee
15. Account with the Department The public entity
of Agriculture in the name of
a public entity (such as a
State or local government,
school district, or prison) that
receives agricultural program
payments
------------------------------------ --------------------------
(1) List first and circle the name of the person whose number you furnish.
(2) Circle the minor's name and furnish the minor's social security number.
(3) Circle the ward's, minor's or incompetent person's name and furnish such
person's social security number.
(4) Show the name of the owner. If the owner does not have an employer
identification number, furnish the owner's social security number.
(5) List first and circle the name of the legal trust, estate or pension trust.
Note: If no name is circled when there is more than one name, the number will be
considered to be that of the first name listed.
<PAGE>
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
Page 2
Obtaining a Number
If you do not have a taxpayer identification number or you do not know your
number, obtain Form SS-5, Application for a Social Security Number Card (for
individuals), or Form SS-4, Application for Employer Identification Number (for
businesses and all other entities), at an office of the Social Security
Administration or the Internal Revenue Service.
To complete Substitute Form W-9, if you do not have a tax payer identification
number, write "Applied For" in the space for the taxpayer identification number
in Part 1, sign and date the Form, and give it to the requester. Generally, you
will then have 60 days to obtain a taxpayer identification number and furnish it
to the requester. If the requester does not receive your taxpayer identification
number within 60 days, backup withholding, if applicable, will begin and will
continue until you furnish your taxpayer identification number to the requester.
Payees Exempt from Backup Withholding Penalties
Payees specifically exempted from backup withholding on ALL payments include the
following:*
o A corporation.
o A financial institution.
o An organization exempt from tax under section 501(a), or an individual
retirement plan, or a custodial account under section 403(b)(7).
o The United States or any agency or instrumentality thereof.
o A State, the District of Columbia, a possession of the United States,
or any political subdivision or instrumentality thereof.
o A foreign government or a political subdivision, agency or
instrumentality thereof.
o An international organization or any agency or instrumentality
thereof.
o A registered dealer in securities or commodities registered in the
United States or a possession of the United States.
o A real estate investment trust.
o A common trust fund operated by a bank under section 584(a).
o An entity registered at all times during the tax year under the
Investment Company Act of 1940.
o A foreign central bank of issue.
Payments of dividends and patronage dividends not generally subject to backup
withholding include the following:
o Payments to nonresident aliens subject to withholding under section
1441.
o Payments to partnerships not engaged in a trade or business in the
United States and which have at least one nonresident partner.
o Payments of patronage dividends where the amount received is not paid
in money.
----------
* Unless otherwise noted herein, all references below to section numbers or to
regulations are references to the Internal Revenue Code and the regulations
promulgated thereunder.
o Payments made by certain foreign organizations.
o Payments made to a nominee.
Payments of interest not generally subject to backup withholding include the
following:
o Payments of interest on obligations issued by individuals. Note: You
may be subject to backup withholding if (i) this interest is $600 or
more, (ii) the interest is paid in the course of the payer's trade or
business and (iii) you have not provided your correct taxpayer
identification number to the payer.
o Payments of tax-exempt interest (including exempt interest dividends
under section 852).
o Payments described in section 6049(b)(5) to nonresident aliens.
o Payments on tax-free covenant bonds under section 1451.
o Payments made by certain foreign organizations.
o Payments made to a nominee.
Exempt payees described above should file a Substitute Form W-9 to avoid
possible erroneous backup withholding. FILE THIS FORM WITH THE PAYER, FURNISH
YOUR TAXPAYER IDENTIFICATION NUMBER, WRITE "EXEMPT" ON THE FACE OF THE FORM,
SIGN AND DATE THE FORM AND RETURN IT TO THE PAYER.
Certain payments other than interest, dividends, and patronage dividends that
are not subject to information reporting are also not subject to backup
withholding. For details, see the regulations under sections 6041, 6041A(a),
6045, and 6050A.
Privacy Act Notice.- Section 6109 requires most recipients of dividends,
interest, or other payments to give taxpayer identification numbers to payers
who must report the payments to the IRS. The IRS uses the numbers for
identification purposes and to help verify the accuracy of your tax return.
Payers must be given the numbers whether or not recipients are required to file
tax returns. Payers must generally withhold 31% of taxable interest, dividends,
and certain other payments to a payee who does not furnish a taxpayer
identification number to a payer. Certain penalties may also apply.
Penalties
(1) Penalty for Failure to Furnish Taxpayer Identification Number.-If you fail
to furnish your taxpayer identification number to a payer, you are subject to a
penalty of $50 for each such failure unless your failure is due to reasonable
cause and not to willful neglect.
(2) Civil Penalty for False Statements With Respect to Withholding.-If you make
a false statement with no reasonable basis which results in no imposition of
backup withholding, you are subject to a penalty of $500. (3) Criminal
Penalty for Falsifying Information.-If you falsify certifications or
affirmations, you are subject to criminal penalties including fines and/or
imprisonment.
FOR ADDITIONAL INFORMATION
CONTACT YOUR TAX CONSULTANT OR THE
INTERNAL REVENUE SERVICE
<PAGE>
Exhibit (b)
Loan Agreement Dated August 15, 2000,
between ORIG, LLC and Bank of Louisville
<PAGE>
LOAN AGREEMENT
dated as of August 15, 2000
between
BANK OF LOUISVILLE
as the Lender
and
ORIG, LLC
as the Borrower
and joined by
J. D. NICHOLS
and
BRIAN LAVIN
as the Guarantors
<PAGE>
TABLE OF CONTENTS
SECTION I DEFINITIONS..................................................1
SECTION II REVOLVING CREDIT LOAN........................................5
2.01 Amount of Revolving Credit...................................5
2.02 Term of the Revolving Credit.................................5
2.03 Revolving Credit Loans.......................................5
2.04 The Revolving Credit Notes...................................8
2.05 Interest on Revolving Credit Loans...........................8
2.06 Minimum Principal Balance....................................9
2.07 Notation of Disbursements and Payments.......................9
2.08 Principal and Interest Payments..............................9
2.09 Mandatory Prepayments........................................9
2.10 Optional Principal Payments..................................9
2.11 Application of Payments.....................................10
2.12 Application of Principal Payments...........................10
2.13 Purposes of Loans...........................................10
2.14 Certain limitations on Revolving Credit Loan Advances.......10
SECTION III SECURITY FOR THE LOANS......................................11
3.01 Right of Offset.............................................11
3.02 Security Interest in Partnership Interests..................11
3.03 Guaranties..................................................11
SECTION IV CONDITIONS PRECEDENT........................................11
4.01 Conditions Precedent to the first Revolving Credit Loan.....11
4.02 Conditions Preceding to Subsequent Revolving Credit Loans...13
SECTION V GENERAL COVENANTS...........................................13
5.01 Insurance...................................................13
5.02 Taxes and Other Payment Obligations.........................15
5.03 Financial Statements........................................15
5.04 Financial Records...........................................16
5.05 Properties..................................................16
5.06 Existence and Good Standing.................................16
5.07 Notice Requirements.........................................17
5.08 Revolving Credit Notes and Other Borrower Documents.........17
5.09 Compliance with Law.........................................17
5.10 Liens.......................................................17
5.11 Limit on Indebtedness, Guarantees, Etc......................18
5.12 Articles of Organization and Operating Agreement............18
5.13 Mergers, Sales, Transfers and Other Dispositions of Assets..18
5.14 Loans.......................................................19
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<PAGE>
5.15 No Change in Ownership......................................19
5.16 Payment of Distributions....................................19
5.17 ERISA Compliance............................................19
5.18 Joinder of Subsidiaries.....................................20
SECTION VI REPRESENTATIONS AND WARRANTIES..............................20
6.01 Organization and Existence..................................20
6.02 Right to Act................................................20
6.03 No Conflicts................................................21
6.04 Authorization...............................................21
6.05 Enforceable Agreements......................................21
6.06 Contingent Obligations......................................21
6.07 Litigation..................................................21
6.08 Financial Statements........................................21
6.09 Compliance with Contractual Obligations, Laws and Judgments.22
6.10 Investment Company..........................................22
6.11 Tax Returns.................................................22
6.12 No Undisclosed Liabilities or Guaranties....................22
6.13 Title to Properties.........................................22
6.14 Trademarks and Permits......................................22
6.15 No Defaults.................................................23
6.16 Employee Benefit Plans......................................23
6.17 No Material Adverse Conditions..............................23
6.18 Regulations Q and U.........................................23
6.19 Environmental Matters.......................................23
6.20 No Public Utility Holding Company...........................24
6.21 No Subsidiaries.............................................24
6.22 Disclosure..................................................24
SECTION VII EVENTS OF DEFAULT...........................................24
7.01 Failure to Pay..............................................24
7.02 No Notice Required..........................................24
7.03 Notice Required.............................................24
7.04 Falsity of Representation or Warranty.......................25
7.05 Judgments...................................................25
7.06 Adverse Financial Change....................................25
7.07 Other Obligations...........................................25
7.08 Dissolution or Termination of Existence.....................25
7.09 Solvency....................................................25
SECTION VIII REMEDIES UPON DEFAULT.......................................26
8.01 Right to Offset.............................................26
8.02 Enforcement of Rights.......................................26
8.03 Rights Under Security Instruments...........................27
8.04 Cumulative Remedies.........................................27
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<PAGE>
SECTION IX FEES AND EXPENSES...........................................27
9.01 Transaction Expenses........................................27
9.02 Enforcement Expenses........................................27
SECTION X MISCELLANEOUS PROVISIONS....................................28
10.01 Business Days...............................................28
10.02 Term of this Agreement......................................28
10.03 No Waivers..................................................28
10.04 Course of Dealing...........................................28
10.05 Certain Waivers by the Borrower and the Guarantors..........28
10.06 Severability................................................28
10.07 Time of the Essence.........................................28
10.08 Benefit and Binding Effect..................................28
10.09 Further Assurances..........................................29
10.10 Incorporation by Reference..................................29
10.11 Entire Agreement; No Oral Modifications.....................29
10.12 Headings....................................................29
10.13 Governing Law...............................................29
10.14 Assignments.................................................29
10.15 Multiple Counterparts.......................................29
10.16 Notices.....................................................30
10.17 Survival of Covenants.......................................31
10.18. Consent to Jurisdiction.....................................31
10.20 JURY TRIAL WAIVER.........................................31-A
10.21 ACKNOWLEDGMENT............................................31-A
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<PAGE>
LOAN AGREEMENT
--------------
This is a Loan Agreement (this "Agreement") dated as of August 15, 2000, between
BANK OF LOUISVILLE
a Kentucky banking corporation
500 W. Broadway
Louisville, Kentucky 40202 (the "Lender")
and
ORIG, LLC
a Kentucky limited liability company
10172 Linn Station Road 200
Louisville, Kentucky 40223
Attn: Neil Mitchell (the "Borrower")
and joined in by
J. D. NICHOLS
10172 Linn Station Road 200
Louisville, Kentucky 40223 ("Nichols")
and
BRIAN LAVIN
10172 Linn Station Road 200
Louisville, Kentucky 40223 ("Lavin")
Recitals
--------
The Lender intends to provide to the Borrower, and the Borrower would like
to avail itself of the Revolving Credit Loan subject to the terms and conditions
of this Agreement.
NOW, THEREFORE, the parties agree as follows:
SECTION I
---------
Definitions
-----------
As used in this Agreement, the following terms shall have the following
meanings and the meanings assigned to them shall be equally applicable to both
the singular and plural forms of the terms defined:
<PAGE>
"Affiliate" shall mean any Person (a) who directly or indirectly
through one or more intermediaries controls, or is controlled by, or is under
common control with, a Person, or (b) five percent (5%) or more of the equity
interests of whom is beneficially owned or held by such Person or a subsidiary
of such Person. The term "control" means the possession, directly or indirectly,
of the power to direct or cause the direction of the management and policies of
a Person, whether through the ownership of equity interest, by contract or
otherwise.
"Borrower" shall mean ORIG, LLC, together with all existing, as well as
future Subsidiaries of ORIG, LLC.
"Borrower Documents" shall mean, collectively, this Agreement, the
Revolving Credit Notes, the Pledge Agreement, the Guaranty Agreements and any
and all other documents to be executed and/or delivered by the Borrower and/or
the Guarantors which relate to this Agreement.
"Business Day" shall mean any day other than a Saturday or Sunday or
legal holiday on which commercial banks are authorized or required to be closed
for business in the Commonwealth of Kentucky.
"Closing Date" shall mean August 15, 2000.
"Collateral" shall mean any and all of the property of the Borrower in
which the Borrower grants the Lender a security interest.
"CPA Firm" shall mean the Borrower's firm of certified public
accountants which regularly performs accounting services for the Borrower,
provided that such firm is reasonably satisfactory to the Lender in the Lender's
discretion.
"Distribution" shall mean any amount of money or other property
declared or paid, or set apart for the purpose of payment of, any distribution
on or in respect of any capital, income or other interest in the Borrower
(including, without limitation, any "membership interest" or similar interest
under any operating agreement) and/or the purchase, retirement, reacquisition or
redemption of any capital, income, membership or other interest (including,
without limitation, any "membership interest" or similar interest under any
operating agreement) and/or any distribution by way of reduction of capital.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time. Section references to ERISA are to ERISA as in effect
on the date of this Agreement and any subsequent provisions of ERISA amendatory
thereof, supplemental thereto or substituted therefor.
"Event of Default" shall mean any one of the occurrences which are
Events of Default under Section VII of this Agreement.
"GAAP" shall mean generally accepted accounting principles applied on a
basis consistent with prior periods.
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<PAGE>
"Guarantors" shall mean Nichols and Lavin.
"Guaranty Agreements" shall mean, collectively, (a) the Guaranty
Agreement dated as of August 15, 2000 among the Lender, the Borrower, and (b)
the Guaranty Agreement dated as of August 15, 2000, among the Lender, the
Borrower and Lavin. "Guaranty Agreement" shall mean either of the Guaranty
Agreements.
"Indebtedness" shall mean all obligations, contingent or otherwise,
which, in accordance with GAAP, should be classified on the Person's balance
sheet as liabilities.
"Loan" shall mean any Revolving Credit Loan, and "Loans" shall mean all
of the Revolving Credit Loans, collectively.
"Note" shall mean any of the Revolving Credit Notes and any note or
notes delivered in renewal, replacement, substitution extension or novation of
any of them.
"NTS III" shall mean NTS-Properties III, a limited partnership
organized under the laws of the State of Georgia.
"NTS IV" shall mean NTS-Properties IV, a limited partnership organized
under the laws of the Commonwealth of Kentucky.
"NTS V" shall mean NTS-Properties V, a Maryland Limited Partnership, a
limited partnership organized under the laws of the State of Maryland.
"NTS VI" shall mean NTS-Properties VI, a Maryland Limited Partnership,
a limited partnership organized under the laws of the State of Maryland.
"NTS VII" shall mean NTS-Properties VII, Ltd., a limited partnership
organized under the laws of the State of Florida.
"NTS Plus" shall mean NTS-Properties Plus, Ltd., a limited partnership
organized under the laws of the State of Florida.
"Partnership" shall mean any of NTS III, NTS IV, NTS V, NTS VI, NTS
VII, and/or NTS Plus, and "Partnerships" shall mean all of them or any
combination of them.
"Partnership Interests" shall mean all general and/or limited
partnership interest or interests of the Borrower from time to time in any one
or more of the Partnerships to the maximum extent permitted by law, including
Florida Statutes ss. 620.102, Georgia Code Ann. ss. 14-9-101, Kentucky Revised
Statutes ss. 362.401 and Maryland Code Ann. ss. 10-101, and shall include
without limitation the right to profits, distributions, return of capital,
partner loans or advances, and all rights to vote for, consent or otherwise
approve any matter. The Partnership Interests of the Borrower on the date of
this Agreement are described on Schedule 1(P) to this Agreement. Partnership
Interests in one or more of the Partnerships acquired after the date of this
Agreement are not described on Schedule 1(P) (although they may be described in
one or
-3-
<PAGE>
more Supplements to Pledge Agreements), but such failure to be described on
Schedule 1(P) does not derogate from those interests in the Partnerships being
Partnership Interests.
"Partnership Notice and Assignment" shall mean a notice to a
Partnership of the pledge of a Partnership Interest or Partnership Interests,
together with the acknowledgement by the Partnership of that pledge,
satisfactory in all respects to the Lender and generally in the form of Annex E
-------
to this Agreement.
"Prime Rate" shall mean the rate of interest announced by the Lender
from time to time as its Prime Rate, as that Prime Rate may change from time to
time, provided, however, the Prime Rate is not necessarily the best or lowest
rate offered by the Lender to its customers.
"Person" shall mean any individual, partnership, limited liability
company, association, trust, corporation or other entity.
"Plan" or "Plans" means, at any time, an employee pension or benefit
plan which is covered by Title IV of ERISA and is either (a) maintained by the
Borrower, or (b) maintained pursuant to a collective bargaining agreement or
similar arrangement under which more than one employee makes contributions and
to which the Borrower is making and accruing an obligation to make contributions
or has within the preceding five plan years made contributions.
"Pledge Agreement" shall mean the Pledge Agreement dated as of August
15, 2000, between the Borrower and the Lender, satisfactory to the Lender in its
discretion, and substantially in the form attached hereto as Annex B, as it may
be amended from time to time.
"Request for Advance" shall mean a request, written or oral, in such
form and with such information as the Lender may request or require, from the
Borrower for an advance under the Revolving Credit Loan.
"Revolving Credit" shall mean the Revolving Credit made available by
the Lender to the Borrower under Section II of this Agreement.
"Revolving Credit Notes" shall mean collectively the three promissory
notes issued by the Borrower to the order of the Lender with respect to the
Revolving Credit Loan in the face principal amount of Two Million Dollars
($2,000,000.00) each (for a total of Six Million Dollars ($6,000,000.00)), and
substantially in the form of Annexes A-1 though A-3 attached hereto, and all
notes delivered in renewal, replacement, substitution, extension or novation
thereof. "Revolving Credit Note" shall mean any of the Revolving Credit Notes.
"Subsidiary" shall mean, any Person of which the Borrower, directly or
indirectly, through one or more intermediaries, owns a Majority. Without
limiting the foregoing, if a Majority of any Person is owned, directly or
indirectly, by a Subsidiary, such Person is, itself, a Subsidiary. "Majority"
shall mean more than fifty percent (50%) of (a) the voting stock or interests
(by number of votes), and/or (b) the equity in, or equity interests of, such
Person.
-4-
<PAGE>
"Supplement to Pledge Agreement" shall have the meaning given it in the
Pledge Agreement.
"Termination Date" shall mean August 31, 2005.
"Uniform Commercial Code" shall mean the Uniform Commercial Code as in
effect from time to time in the Commonwealth of Kentucky.
"Unmatured Default" shall mean the happening of any material breach
under this Agreement, including but not limited to failure to pay any
installment of principal or interest of the Revolving Credit Note when due, or a
breach of the financial covenants under this Agreement, or other similar
material breach the happening of which, together with the giving of any required
notice or the passage of any required period of time, would constitute an Event
of Default.
SECTION II
----------
Revolving Credit Loan
---------------------
The Lender hereby establishes the Revolving Credit Loan in favor of the
Borrower as follows:
2.01 Amount of Revolving Credit. The total principal amount available
----------------------------
under the Revolving Credit shall be Six Million Dollars and 00/100
($6,000,000.00).
2.02 Term of the Revolving Credit. The Revolving Credit is effective as
-----------------------------
of the date of this Agreement, and shall continue in effect until the
Termination Date, unless the Revolving Credit is sooner extended or terminated
as provided in this Agreement. On the Termination Date, the Revolving Credit
shall terminate and all Revolving Credit Loans shall mature and be payable in
full.
2.03 Revolving Credit Loans.
-----------------------
(a) The Borrower may request and the Lender may advance
Revolving Credit Loans during the term of Revolving Credit. Unless sooner
terminated, advances under the Revolving Credit will be available until the
maturity of the Revolving Credit on the Termination Date, after which the
Borrower shall not be entitled to obtain any additional advances under the
Revolving Credit.
(b) The Lender shall have the right, at its option, in its own
discretion, to terminate the Revolving Credit upon the occurrence of any Event
of Default by giving notice to the Borrower of such termination. Any termination
of the Revolving Credit shall not release the Borrower from its obligations
under this Agreement or any of the other Borrower Documents, nor shall it
terminate this Agreement or any of the other Borrower Documents. The provisions
of this Agreement and the other Borrower Documents shall continue in full force
and effect for the entire term of this Agreement as provided in Section 10.02.
-5-
<PAGE>
(c) Subject to the terms and conditions of this Agreement, so
long as the Revolving Credit remains in effect and is not terminated, and no
Unmatured Default or Event of Default has occurred, the Lender agrees to make
Revolving Credit Loans as the Borrower may request from time to time in
accordance with the provisions of this Agreement generally, and this Section II
in particular, provided that after giving effect to any requested Revolving
Credit Loan, the principal balance of all Revolving Credit Loans outstanding at
any one time shall not exceed the amount of the Revolving Credit as provided in
Section 2.01. Principal borrowed under the Revolving Credit and then repaid may
be reborrowed, subject to the other terms, provisions and conditions of this
Agreement and the other Borrower Documents.
(d) The Lender is under no duty to extend the period of the
Revolving Credit beyond the Termination Date. Before, at or after the
termination of the Revolving Credit, the Lender may (at its discretion, with no
obligation to do so) extend the term of the Revolving Credit, on a basis and
with terms and conditions satisfactory to the Lender. Any such extension must be
done in a writing signed by the Lender and specifically providing for an
extension of the Revolving Credit in order to be binding. If any extension of
the period of the Revolving Credit were to occur, the Pledge Agreement, and the
other Borrower Documents would remain in effect and continue to apply to the
Revolving Credit Notes, as extended (or to renewal or replacement notes for the
Revolving Credit Notes, or their replacement), until those Revolving Credit
Notes, as extended, renewed or replaced, have been paid in full.
(e) Each Revolving Credit Loan shall be subject to the
following terms and conditions, in addition to any other terms and conditions
provided in this Agreement:
(1) Each Revolving Credit Loan shall be in connection
with the acquisition of and payment for specific Partnership Interests, and
shall be in an amount no greater than the actual, out-of-pocket costs to the
Borrower to acquire those specific Partnership Interests.
(2) Before the Borrower enters into a binding contract
to acquire Partnership Interests, it shall (A) advise the Lender of its desire
to do so; (B) provide the Lender with such information as the Lender may desire
with respect to the particular Partnership Interests to be acquired and the
price that the Borrower would pay to acquire those Partnership Interests; and
(C) refrain from entering into a binding contract to acquire those Partnership
Interests until and unless the Lender shall, in its discretion, have approved
the aggregate cost to the Borrower of acquiring those Partnership Interests.
(3) Whenever the Borrower desires to obtain an
Revolving Credit Loan, it shall deliver to the Lender a Request for Advance
either orally or in writing, unless waived by the Lender in writing, on or
before the day on which it wishes to have the advance made available, together
with such other information with respect to that advance and its purpose as the
Lender may request. Without limiting the foregoing, each Request for Advance
shall specify the amount of the advance under the Revolving Credit Loan
requested and the date on which the Borrower desires the advance to be made
available.
-6-
<PAGE>
(4) Together with a Request for Advance, the Borrower
shall deliver to the Lender (A) a Supplement to Pledge Agreement in such form
and such information as the Lender may require to confirm that the Partnership
Interests to be acquired with the proceeds (in whole or in part) of that
Revolving Credit Loan shall become subject to the Pledge Agreement; (B)
Partnership Notices and Assignments with respect to all of the Partnership
Interests to be acquired with the proceeds (in whole or in part) of that
Revolving Credit Loan; (C) UCC-3 Amendments to Financing Statements describing
the Partnership Interests to be acquired (in whole or in part) with proceeds
from the Revolving Credit Loan as additional collateral for the obligations
secured by the Pledge Agreement; and (D) evidence satisfactory to the Lender
that the Partnership Interests to be acquired with proceeds (in whole or in
part) of that Revolving Credit Loan are or will be (upon completion of the
acquisition) owned by the Borrower free from any interest, claim, lien, charge,
encumbrance and/or security interest of any Person other than the Lender.
Without limiting the foregoing clause (D), such evidence shall include, but not
be limited to, (I) in the case of the Borrower's acquisition of Partnership
Interests which, when aggregated with all previous acquisitions of Partnership
Interests from the same Person, directly or indirectly, have an aggregated
acquisition cost of $25,000 or greater, (a) a search or searches of such public
records in the name of the Borrower as the Lender may specify, in its
discretion, disclosing no lien, charge, interest, encumbrance and/or security
interest in favor of any Person, other than the Lender, and (b) a search or
searches of such public records in the name of the Person from whom the Borrower
acquired or would acquire the Partnership Interests as the Lender may specify,
in its discretion, disclosing no lien, charge, interest, encumbrance and/or
security interest in favor of any Person, and (II) in all cases, delivery of any
and all certificates and/or other writings evidencing and/or representing such
Partnership Interests, together with an assignment in blank in form and
substance satisfactory to the Lender and its counsel in their discretion.
(5) The Borrower shall not be entitled to obtain any
Revolving Credit Loan if any Event of Default or Unmatured Default shall exist
or would exist upon the making of the Revolving Credit Loan requested, even if
the Lender does not elect to terminate the Revolving Credit as a result of such
Event of Default or Unmatured Default.
(6) The Borrower shall not be entitled to obtain any
Revolving Credit Loan if immediately after the advance requested were made, the
aggregate of all of the Revolving Credit Loans would exceed the maximum amount
permitted under Section 2.01.
(7) All Revolving Credit Loans shall be made in strict
compliance with the terms and provisions of this Agreement unless the Lender
elects in its discretion to waive any of those terms and conditions (which the
Lender shall not be required to do). The waiver of any terms and/or conditions
with respect to any one advance shall not constitute a course of dealing or a
waiver of the same or any other terms or conditions with respect to any other
requested advance.
(8) Each request by the Borrower for a Revolving Credit
Loan shall constitute the making of the following representations and warranties
by the Borrower and the Guarantors to the Lender:
-7-
<PAGE>
(A) That the Borrower is then, and at
the time the advance will be made will be, entitled under this Agreement to
obtain that Revolving Credit Loan; and
(B) All of the covenants, agreements,
representations and warranties made by the Borrower and the Guarantors in this
Agreement, and in the other Borrower Documents, are true, correct and complete
in all material respects and have been complied with in all material respects as
of such date (subject to only two changes of circumstances which (x) are fully
disclosed by the Borrower to the Lender in writing, describing the changed
circumstances, and (y) do not result in any violation of any condition,
provision, promise and/or covenant of this Agreement, or otherwise result in an
Unmatured Default or an Event of Default).
2.04 The Revolving Credit Notes.
---------------------------
(a) The Revolving Credit Loans shall be evidenced by and
payable in accordance with the terms of the Revolving Credit Notes and on the
terms of this Agreement. In the event of any disagreement between the terms of
the executed Revolving Credit Notes and this Agreement, the terms of the
Revolving Credit Notes shall prevail.
(b) The first Two Million Dollars ($2,000,000) of Revolving
Credit Loans shall be allocated to and evidenced by Revolving Credit Note A. The
principal balance of Revolving Credit Loans will be credited against and
evidenced by Revolving Credit Note B if, but only if, and only to the extent the
aggregate principal balance of all Revolving Credit Loans outstanding at one
time exceeds Two Million Dollars ($2,000,000), but is less than Four Million
Dollars ($4,000,000). The outstanding principal balance of Revolving Credit
Loans shall be credited against and evidenced by Revolving Credit Note C if, but
only if, and only to the extent the aggregate principal balance of all Revolving
Credit Loans outstanding at one time equals or exceeds Four Million Dollars
($4,000,000). Accordingly, the first Two Million Dollars ($2,000,000), or
portion thereof, of Revolving Credit Loans outstanding at any one time shall be
credited against and evidenced by Revolving Credit Note A; at such time as the
outstanding principal balance of the Revolving Credit Loans is greater than Two
Million Dollars ($2,000,000), but less than Four Million Dollars ($4,000,000),
Revolving Credit Loans made at such time shall be credited against and evidenced
by Revolving Credit Note B; and at such time as the outstanding principal
balance of all Revolving Credit Loans outstanding at one time equals or exceeds
Four Million Dollars ($4,000,000), Revolving Credit Loans made at such time
shall be credited against and evidenced by Revolving Credit Note C.
2.05 Interest on Revolving Credit Loans.
-----------------------------------
(a) The principal balance of the Revolving Credit Loans
outstanding from time to time shall bear interest from the date of the Revolving
Credit Notes until all principal and interest on the Revolving Credit Loans
shall have been paid in full.
(b) The outstanding principal balance of Revolving Credit
Loans from time to time evidenced by Revolving Credit Note A shall bear interest
at an annual rate equal to one quarter percent (1/4%), plus the Prime Rate as
that Prime Rate may change from time to time.
-8-
<PAGE>
The outstanding principal balance of Revolving Credit Loans from time to time
evidenced by Revolving Credit Note B shall bear interest at an annual rate equal
to one-half percent (1/2%), plus the Prime Rate as that Prime Rate may change
from time to time. The outstanding principal balance of Revolving Credit Loans
from time to time evidenced by Revolving Credit Note C shall bear interest at an
annual rate equal to one percent (1%), plus the Prime Rate as that Prime Rate
may change from time to time.
(c) All interest on the Revolving Credit Loan shall be
calculated on the basis of the actual number of days elapsed over an assumed
year of three-hundred sixty days (360).
2.06 Minimum Principal Balance. If, for any reason, after the making of
--------------------------
the first Revolving Credit Loan the principal balance of the Revolving Credit
Notes is reduced below one thousand dollars ($1,000.00), then, at the option of
the Lender the Revolving Credit may be terminated by the Lender without
necessity of notice to the Borrower.
2.07 Notation of Disbursements and Payments. Disbursements of, and
-----------------------------------------
payments of principal with respect to, Revolving Credit Loans shall be evidenced
by notations by the Lender on its electronic data processing equipment, showing
the date and amount of each advance and each payment of principal. The principal
amount outstanding under the Revolving Credit Notes from time to time shall also
be recorded by the Lender on that electronic data processing equipment. The
aggregate amount of all disbursements of Revolving Credit Loans made and shown
on the Lender's electronic data processing equipment, over all of the payments
of principal made by the Borrower and recorded on the Lender's electronic data
processing equipment, shall be prima facie evidence of the outstanding principal
balance due under the Revolving Credit Notes.
2.08 Principal and Interest Payments. Commencing on September 1, 2000,
--------------------------------
and continuing on the first (1st) day of each calendar month occurring through
and including August 1, 2005, the Borrower shall pay to the Lender all accrued
and unpaid interest on the Revolving Credit Loans. On the Termination Date, the
Borrower shall pay to the Lender all of the outstanding principal balance of,
and all accrued but unpaid interest on, the Revolving Credit Loans.
2.09 Mandatory Prepayments. If the Borrower sells, transfers or
-----------------------
otherwise disposes of any of the Partnership Interests, then the Borrower shall
make a prepayment of the Revolving Credit Loans in an amount calculated in
accordance with this Section. The amount of the prepayment shall be not less
than the amount of proceeds of the Revolving Credit Loan or Loans which the
Borrower received and applied (in whole or in part) towards the acquisition of
the Partnership Interest or Partnership Interests sold, transferred, or
otherwise disposed of. Mandatory prepayments under this Section shall be applied
in accordance with Section 2.10 of this Agreement.
2.10 Optional Principal Payments. The Borrower may make optional
------------------------------
prepayments of principal of the Revolving Credit Loan from time to time. Each
prepayment shall be accompanied by written statement that it is in prepayment of
the Revolving Credit Loan.
-9-
<PAGE>
2.11 Application of Payments. The Lender shall apply all payments of
-------------------------
Revolving Credit Loans received when no Event of Default has occurred and is
continuing first to any late fees or other charges, then to accrued but unpaid
interest, and then to principal. The Lender may apply all payments of Revolving
Credit Loans received after an Event of Default has occurred and is continuing
among late fees and other charges, interest and principal as the Lender may
determine, in its discretion.
2.12 Application of Principal Payments. Unless otherwise agreed by the
----------------------------------
Lender and the Borrower in writing, all payments of principal, whether mandatory
or optional, received by the Lender when no Event of Default has occurred and is
continuing shall be applied first to the principal of Revolving Credit Loans
evidenced by Revolving Credit Note C until all of the Revolving Credit Loans
evidenced thereby shall have been paid in full, then to the principal of
Revolving Credit Loans evidenced by Revolving Credit Note B, until all of the
Revolving Credit Loans evidenced thereby shall have been paid in full, then to
the principal of Revolving Credit Loans evidenced by Revolving Credit Note A.
All payments of principal on Revolving Credit Loans, whether mandatory or
optional, received by the Lender after an Event of Default has occurred and is
continuing may be applied by the Lender among Revolving Credit Notes A, B and C
as the Lender may determine, in its discretion.
2.13 Purposes of Loans. The Borrower shall use the proceeds of all Loan
------------------
solely to acquire Partnership Interests, provided, that, the Borrower may not
apply any proceeds from any Revolving Credit Loan to the purchase of any
Partnership Interests unless the Borrower shall first have advised the Lender of
the specific Partnership Interests that the Borrower intends to acquire with the
proceeds of that Revolving Credit Loan, and the Lender shall, in its discretion,
have approved the purchase price of those Partnership Interests.
2.14 Certain limitations on Revolving Credit Loan Advances.
------------------------------------------------------
Without limiting Section 2.13,
(a) the Borrower may not use any proceeds of any Revolving
Credit Loan to acquire any Partnership Interest or Partnership Interests from
(1) any Affiliate of the Borrower, (2) either Guarantor, and/or (3) any member
of the family of either of the Guarantors (for purposes of this provision,
"family" means (A) mother or father of the subject Person, (B) any brother or
sister (or brother-in-law or sister-in-law) of such mother or father, (C) any
son or daughter (or son-in-law or daughter-in-law) of any such brother or sister
of such mother or father, and (D) any son or daughter (or son-in-law or
daughter-in-law) and/or grandson or granddaughter (and/or grandson-in-law or
granddaughter-in-law) of such Person).
(b) the Borrower shall not use the proceeds of any Revolving
Credit Loan to pay any interest that has accrued on the Revolving Credit Loans.
-10-
<PAGE>
SECTION III
-----------
Security for the Loans
----------------------
The Revolving Credit Notes and the Revolving Credit Loans evidenced
thereby, as well as all of the Borrower's obligations under all of the Borrower
Documents are and shall be secured by and entitled to the benefits of all of the
following:
3.01 Right of Offset. The right of offset provided in Section VIII
----------------
of this Agreement.
3.02 Security Interest in Partnership Interests. A first priority
-------------------------------------------
perfected security interest in the Partnership Interests pursuant to the Pledge
Agreement.
3.03 Guaranties. The guaranties of the Guarantors pursuant to the
-----------
Guaranty Agreements.
SECTION IV
----------
Conditions Precedent
--------------------
4.01 Conditions Precedent to the first Revolving Credit Loan. The
------------------------------------------------------------
Lender's obligation to provide the Borrower with the Revolving Credit and the
first Revolving Credit Loan shall be conditioned upon the fulfillment of all the
following conditions in form and substance, and in appropriate cases through
documents, in each case satisfactory to the Lender and its counsel in their
discretion:
(a) Resolutions. The Borrower shall have furnished the Lender
------------
with certified copies of appropriate resolutions of the Borrower (1) authorizing
the execution of the following documents: this Agreement, the Revolving Credit
Notes, the Pledge Agreement, financing statements and any other documents,
instruments and agreements referred to herein which are required to be executed
and/or delivered by the Borrower and (2) authorizing consummation of the
transactions contemplated by, and performance of this Agreement.
(b) Articles of Organization and Operating Agreement. The
--------------------------------------------------
Borrower shall have furnished the Lender with a copy of the Borrower's Articles
of Organization and Operating Agreement and all amendments to each.
(c) Certificates of Existence. The Borrower shall have
----------------------------
furnished the Lender with a certificate of existence of recent date issued by
the Secretary of State of the Commonwealth of Kentucky, certifying that it is
duly organized and validly existing under the laws of the Commonwealth of
Kentucky. The Borrower shall also have furnished the Lender with certificates of
existence with respect to the Partnerships from appropriate offices in Georgia,
Kentucky, Maryland and Florida.
-11-
<PAGE>
(d) Opinion of Counsel for the Borrower and the Guarantors.
----------------------------------------------------------
The Borrower and the Guarantors shall have furnished the Lender, at the
Borrower's expense, with the legal opinion of Greenebaum, Doll & McDonald PLLC,
as counsel for the Borrower, addressed to the Lender, dated the date of this
Agreement, addressing the matters set forth in Annex C, and otherwise
satisfactory to the Lender and its counsel.
(e) Certificates of Incumbency of the Borrower. The Borrower
-------------------------------------------
shall have furnished the Lender with a certificate of its secretary certifying
the names of the officers of the Borrower authorized to sign the Borrower
Documents, together with the true signatures of such officers.
(f) Executed Documents. The Borrower shall have duly executed
-------------------
and shall have delivered to the Lender each of the following documents in
subparagraphs (1) through (5), and the Guarantors shall have executed and
delivered to the Lender the documents set forth in paragraphs (1) and (4) below:
(1) this Agreement;
(2) the three Revolving Credit Notes;
(3) the Pledge Agreement;
(4) the Guaranty Agreements; and
(5) such UCC-1 financing statements or other
documents for filing with public officials with respect to the Pledge Agreement
as the Lender may request.
(g) Partnership Notices and Acknowledgements. The Borrower
-------------------------------------------
shall have caused each Partnership to have countersigned and delivered to the
Lender Partnership Notices and Acknowledgements with respect to each, every and
all of the Partnership Interests described on Schedule 1(P) to this Agreement.
(h) Representations and Warranties. Each and every
-----------------------------------
representation and warranty made by or on behalf of the Borrower at the time of
or after the execution of this Agreement relating to the Borrower Documents or
the transactions contemplated thereby shall be true, complete and correct in all
material respects on and as of the date such Loan is to be made.
(i) No Defaults. There shall exist no Event of Default or
-------------
Unmatured Default which has not been cured to the Lender's satisfaction.
(j) No Change in the Borrower's Condition. There shall have
---------------------------------------
been no material adverse change in the condition, financial or otherwise of the
Borrower from that existing on the date of the financial statements described in
Section 6.08 of this Agreement.
-12-
<PAGE>
(k) Recordings and Filings. The Lender shall have received
------------------------
evidence satisfactory to it that all financing statements or other instruments,
as the Lender may reasonably request, have been executed and delivered by the
Borrower and filed or recorded in such public offices as the Lender may request
to perfect and maintain the perfection of the security interests which secure
the Loan, and to release any security interests, financing statements and/or
other liens or encumbrances on any of the Collateral other than such interests,
liens or encumbrances in favor of the Lender.
(l) Counsel Fees. The Borrower shall have paid the Lender's
-------------
counsel fees and expenses in accordance with Section 9.01 of this Agreement.
(m) Results of Records Searches. The Borrower shall have
------------------------------
delivered to the Lender results of searches of the records of such public
offices as the Lender may require with respect to liens, encumbrances or other
interests with respect to all existing Partnership Interests, disclosing no
liens, encumbrances or interests with respect to all existing Partnership
Interests other than those in favor of the Lender.
(n) Evidence of Ownership. The Borrower shall have delivered
----------------------
to the Lender evidence satisfactory to the Lender of the Borrower's ownership of
the Partnership Interests described on Schedule 1(P) to this Agreement. Without
limiting the generality of the preceding sentence, the Borrower shall have
delivered to the Lender any and all certificates and/or other writings
evidencing and/or representing those Partnership Interests, together with
assignments in blank in form and substance satisfactory to the Lender and its
counsel in their discretion.
(o) Compliance with Section 2.03. The Borrower shall have
-------------------------------
complied with Section 2.03 of this Agreement in all respects regarding such
Revolving Credit Loan.
4.02 Conditions Preceding to Subsequent Revolving Credit Loans. The
-------------------------------------------------------------
Lender's obligation to provide the Borrower with Revolving Credit Loans after
the first Revolving Credit Loan shall be conditioned upon the fulfillment of the
conditions in Sections 4.01(g) with respect to the Partnership Interests being
acquired, in whole or in part with the proceeds of such Revolving Credit Loan or
Loans, and upon fulfillment of the conditions in Sections 4.01 (h), (i), (j),
(k), (n) and (o) with respect to such Revolving Credit Loans.
SECTION V
---------
General Covenants
-----------------
During the term of this Agreement, the Borrower shall comply with all
of the following provisions:
5.01 Insurance. The Borrower shall maintain insurance as follows:
----------
(a) Liability Insurance. The Borrower at its own cost and
---------------------
expense, shall procure, maintain and carry in full force and effect general
liability, public liability, workers'
-13-
<PAGE>
compensation liability, environmental hazard liability and property damage
insurance with respect to the actions and operations of the Borrower to such
extent, in such amounts and with such deductibles as are carried by prudent
businesses similarly situated, but in any event not less than the amounts of
coverage per person and per occurrence, and with the deductibles, as are
provided in the Borrower's insurance in effect on the date of this Agreement.
Without limiting the foregoing, such insurance shall insure against any
liability for loss, injury, damage or claims caused by or arising out of or in
connection with the operation of the Borrower's business including injury to or
death of the Borrower's employees, agents or any other persons and damage to or
destruction of public or private property.
(b) Physical Damage Insurance. The Borrower at its own cost
----------------------------
and expense, shall insure all of its insurable properties to such extent,
against such hazards (including, without limitation, environmental hazards), in
the amount of coverage and with such deductibles as are carried by prudent
businesses similarly situated, but in any event insuring against such hazards
and with such coverages and deductibles as are provided in the Borrower's
insurance in effect on the date of this Agreement, and in any event in amounts
of coverage not less than the insurable value of the property insured. Without
limiting the foregoing, such insurance shall name the Lender as an additional
insured and shall provide for payment of the proceeds thereof to the Borrower
and to the Lender as their interests may appear.
(c) General Insurance Requirements.
------------------------------
(1) All insurance which the Borrower is required to
maintain shall be satisfactory to the Lender in form, amount and insurer. Such
insurance shall provide that any loss thereunder shall be payable
notwithstanding any action, inaction, breach of warranty or condition, breach of
declarations, misrepresentation or negligence of the Borrower. Each policy shall
contain an agreement by the insurer that, notwithstanding lapse of a policy for
any reason, or right of cancellation by the insurer or any cancellation by the
Borrower such policy shall continue in full force for the benefit of the Lender
for at least thirty (30) days after written notice thereof to the Lender and the
Borrower, and no alteration in any such policy shall be made except upon thirty
(30) days written notice of such proposed alteration to the Lender and the
Borrower and written approval by the Lender. At or before the making of the
first Loan, the Borrower shall provide the Lender with certificates evidencing
its due compliance with the requirements of this Section.
(2) Prior to the expiration date of any policy of
insurance maintained pursuant to this Agreement, the Borrower shall provide the
Lender with a certificate of insurance evidencing the acquisition of a new
policy, or an extension or renewal of an existing policy, evidencing the
Borrower's due compliance with this Section.
(3) If the Borrower fails to acquire any policy of
insurance required to be maintained pursuant to this Section, or fails to renew
or replace any such policy at least ten (10) days prior to the expiration
thereof, or fails to keep any such policy in full force and effect, the Lender
shall have the option (but not the obligation) to pay the premiums on any such
policy of insurance or to take out new insurance in amount, type, coverage and
terms satisfactory to the Lender, after first notifying the Borrower of the
Lender's intent to pay it. Any amounts paid
-14-
<PAGE>
therefor by the Lender shall be immediately due and payable to the Lender by the
Borrower upon demand. No exercise by the Lender of such option shall in any way
affect the provisions of this Agreement, including the provision that failure by
the Borrower to maintain the prescribed insurance shall constitute an Event of
Default.
5.02 Taxes and Other Payment Obligations.
------------------------------------
(a) The Borrower shall pay and discharge, or cause to be paid
and discharged, before any of them become in arrears, all taxes, assessments,
governmental charges, levies, and claims for labor, materials or supplies which
if unpaid might become a lien or charge upon any of their property, and all of
their other debts, obligations and liabilities.
(b) The Borrower may refrain from paying any amount it would
be required to pay pursuant to subparagraph (a) of this Section 5.02 if the
validity or amount thereof is being contested in good faith by appropriate
proceedings timely instituted which shall operate to prevent the collection or
enforcement of the obligation contested, provided that if the Borrower is
engaged in such a contest, it shall have set aside on its books appropriate
reserves with respect thereto. If the validity or amount of any such obligations
in excess of One Hundred Thousand Dollars ($100,000.00) shall be contested
pursuant to the provisions of this subparagraph, the Borrower shall notify the
Lender immediately upon the institution of the proceedings contesting the
obligation.
5.03 Financial Statements. The Borrower shall deliver to the Lender:
---------------------
(a) Annual Statements of the Borrower. As soon as available,
-----------------------------------
and in any event within one hundred twenty (120) days after the end of each
fiscal year, the Borrower shall furnish to the Lender an audited balance sheet,
income statement, statement of cash flows, for such fiscal year, prepared by the
Borrower or the CPA Firm. Together with such annual financial statements, if the
CPA Firm prepared the annual financial statements, the Borrower shall furnish
the Lender with the CPA Firm's statement that the CPA Firm has reviewed the
provisions of this Agreement and nothing has come to the CPA Firm's attention to
cause it to believe that any Event of Default or Unmatured Default exists as of
the date of the statement, or, if such is not the case, specifying such Event of
Default or Unmatured Default and the nature thereof, and the action the Borrower
has taken or will take to correct it.
(b) Annual Statements of the Guarantors. On or before June 1
-------------------------------------
of each year, each Guarantor shall provide their financial statements to the
Lender as at the preceding December 31, in such form, with such detail and of
such scope as the Lender may determine in its discretion.
(c) Additional Financial Information. The Borrower shall
--------------------------------
deliver to the Lender:
(1) Promptly upon receipt thereof, all detailed
reports, management letters and the like, if any (excluding working drafts),
submitted to the Borrower by the CPA Firm if the CPA Firm audited the books of
the Borrower.
-15-
<PAGE>
(2) Within thirty (30) days after the respective dates
of filing the corporate federal income tax returns of the Borrower for each
year, a written statement signed by the CPA Firm that the firm has prepared or
reviewed the federal income tax returns of the Borrower for such year and in the
firm's opinion the provisions for federal taxes based on the income of the
Borrower, as recorded in the accounts, represents an adequate estimate of the
liability of the Borrower for federal taxes based on income.
(3) Promptly upon their becoming available, copies of
all financial statements, reports, notices of meetings and proxy statements
which the Borrower shall send to its members.
(4) Within thirty (30) days after the filing thereof in
the office of the Secretary of State of the Commonwealth of Kentucky, certified
copies of all amendments to the Borrower's Articles of Organization and
Operating Agreement.
(5) Such additional information with respect to the
Borrower's financial condition (including, without limitation, information
regarding the Collateral) as may be reasonably requested by the Lender from time
to time.
(e) All financial statements required under this Agreement
shall be prepared on a consolidated and consolidating basis (regardless whether
permitted or required under GAAP) for the Borrower and any Subsidiary which the
Borrower acquires or forms at any time.
5.04 Financial Records. The Borrower shall maintain a standard modern
-------------------
system of accounting in which full, true and correct entries shall be made of
all dealings or transactions in relation to its business and affairs in
accordance with GAAP applied on a basis consistent with prior years and, without
limitation, making appropriate accruals for estimated contingent losses and
liabilities.
5.05 Properties. The Borrower shall maintain its plants and other fixed
-----------
assets in good condition, subject only to normal wear and tear, and make all
necessary and proper repairs, renewals and replacements. The Borrower shall
comply with all material leases and other material agreements in order to
prevent loss or forfeiture, unless compliance is being contested in good faith
by appropriate proceedings timely instituted which shall operate to prevent
enforcement of the loss or forfeiture. The Lender shall have the right to
inspect the Borrower's plants and other fixed assets at all reasonable times,
and from time to time.
5.06 Existence and Good Standing. The Borrower shall preserve its
------------------------------
existences in good standing and shall be and remain qualified to do business and
in good standing in all states and countries in which failure to so qualify
would have a material adverse effect upon the Borrower.
-16-
<PAGE>
5.07 Notice Requirements.
--------------------
(a) Default. The Borrower shall cause its chief officer, or in
--------
his absence an officer of the Borrower designated by it, to notify the Lender in
writing within three (3) Business Days, after the Borrower, or any of the
Borrower's members or officers, has notice of any Event of Default or Unmatured
Default or has notice that any representation or warranty made in this
Agreement, or in any related document or instrument, for any reason was not true
and complete and not misleading in any material respect when made. Such notice
shall specify the nature of such Event of Default or Unmatured Default and the
action the Borrower has taken or will take to correct it.
(b) Material Litigation. The Borrower promptly shall notify
---------------------
the Lender in writing of the institution or existence of any litigation or
administrative proceeding to which the Borrower may be or become a party which
might involve any material risk of any judgment or liability which (1) would be
in excess of One Hundred Thousand Dollars ($100,000.00), or (2) would otherwise
result in any material adverse change in the Borrower's business, assets or
condition, financial or otherwise.
(c) Other Information. From time to time, upon request by the
------------------
Lender, the Borrower shall furnish to the Lender such information regarding the
Borrower's business, assets and condition, financial or otherwise, as the Lender
may reasonably request. The Lender shall have the right during reasonable
business hours to examine all of the Borrower's business and financial books and
records and to make notes and abstracts therefrom, to make an independent
examination of the Borrower's books and records for the purpose of verifying the
accuracy of reports delivered by the Borrower and ascertaining compliance with
this Agreement.
5.08 Revolving Credit Notes and Other Borrower Documents. The Borrower
----------------------------------------------------
shall pay the Revolving Credit Notes in accordance with their respective terms,
and the Borrower shall comply with the provisions of the other Borrower
Documents.
5.09 Compliance with Law. The Borrower shall comply in all material
---------------------
respects with (a) all valid and applicable statutes, rules and regulations of
the United States of America, of the States thereof and their counties,
municipalities and other subdivisions and of any other jurisdiction applicable
to the Borrower, including, but not limited to all applicable state and federal
environmental laws and ERISA; (b) the valid and applicable orders, judgments and
decrees of all courts or administrative agencies with jurisdiction over the
Borrower; or its business; and (c) the applicable provisions of licenses issued
to the Borrower except where compliance therewith shall be currently contested
in good faith by appropriate proceedings, timely instituted, which shall operate
to stay any order with respect to such non-compliance.
5.10 Liens. Except for security interests previously granted by the
------
Borrower to the Lender contemporaneously with the execution of this Agreement
(including, without limitation, those permitted in Section 5.02(b) and those
disclosed in Section 6.13 of this Agreement), and except for liens permitted in
this Agreement, the Borrower shall not (a) create or incur or suffer to be
created or incurred or to exist any encumbrance, mortgage, pledge, lien, charge,
restriction or other security interest of any kind upon any of the Collateral,
whether owned or held on the
-17-
<PAGE>
date of this Agreement or acquired thereafter, or upon the proceeds therefrom,
or (b) transfer any Collateral or the proceeds therefrom for the purpose of
subjecting the same to payment of indebtedness or performance of any other
obligation except payments made in accordance with Section 5.02 of this
Agreement or payments made to the Lender in accordance with the terms and
provisions of this Agreement, or (c) acquire, or agree or have an option to
acquire, any Collateral upon conditional sale or other title retention or
purchase money security agreement, device or arrangement, or (d) sell or
transfer, assign, or pledge any Collateral, with or without recourse. The
Borrower may incur or create, or suffer to be incurred or created or to exist,
the following liens without violating the provisions of this Section 5.10:
(1) Statutory liens to secure claims for labor, material or
supplies to the extent that payment thereof shall not at the time be required to
be made in accordance with Section 5.02 of this Agreement.
(2) Deposits or pledges made in connection with, or to secure
payment of, workers' compensation, unemployment insurance, old age pensions or
other social security, or in connection with contests, to the extent that
payment thereof shall not at that time be required to be made in accordance with
Section 5.02 of this Agreement.
(3) Statutory liens for taxes or assessments or governmental
charges or levies if payment shall not at the time be required to be made in
accordance with Section 5.02 of this Agreement.
(4) Statutory liens (and contractual liens that provide to the
secured party no greater rights than equivalent statutory liens) to secure
payment of rent or lease payments with respect to leases of real property to the
extent that such payments shall not at the time be required to be made in
accordance with Section 5.02 of this Agreement.
5.11 Limit on Indebtedness, Guarantees, Etc. The Borrower shall not, in
---------------------------------------
the absence of prior written consent from the Lender, incur, assume, guarantee,
or otherwise be or become liable in respect of any Indebtedness except for those
matters described in Schedule 6.12 to this Agreement, if after giving pro forma
effect to the Indebtedness, the Indebtedness would result in an Unmatured
Default or an Event of Default.
5.12 Articles of Organization and Operating Agreement. Without the
----------------------------------------------------
Lender's prior written consent, which shall not be withheld or delayed
unreasonably, the Borrower shall not make any changes in or amendments to its
Articles of Organization or Operating Agreement.
5.13 Mergers, Sales, Transfers and Other Dispositions of Assets.
-------------------------------------------------------------
Without the Lender's prior written consent, which shall not be withheld
unreasonably, the Borrower shall not:
(a) Be a party to any consolidation, reorganization (including
without limitation those types referred to in Section 368 of the United States
Internal Revenue Code of 1986, as amended), "stock-swap" or merger;
-18-
<PAGE>
(b) Sell or otherwise transfer any material part of either its
tangible or intangible assets (except for assets that are worn out or no longer
used or useful in the Borrower's business), provided that Lender shall not
withhold its consent if Borrower demonstrates to the satisfaction of the Lender,
pursuant to pro forma financial statements and other relevant information based
on assumptions acceptable to the Lender that after giving effect to the proposed
sale or transfer no Event of Default or Unmatured Event of Default shall exist
under this Agreement;
(c) Purchase all or a substantial part of the capital
stock or assets of any corporation or other business enterprise;
(d) Effect any change in its capital structure; or
(e) Liquidate or dissolve or take any corporate action
with a view toward liquidation or dissolution.
5.14 Loans. The Borrower shall not make any loan or advance any funds
------
whatsoever to any business, entity, party or individual, except advances not to
exceed Five Hundred Thousand Dollars ($500,000.00), in the aggregate at any one
time outstanding.
5.15 No Change in Ownership. The Borrower shall not permit the
--------------------------
ownership interest of the Guarantors (and/or any Person who becomes an owner of
an interest in the Borrower upon the death of one of the Guarantors through
bequest or devise) to be reduced to less than one hundred percent (100%) of the
outstanding membership interests of the Borrower.
5.16 Payment of Distributions. In any fiscal year, the Borrower shall
--------------------------
not pay out any Distributions in excess of the Borrower's Net Income for that
fiscal year and in no event shall the Borrower pay out any Distribution while
any Unmatured Default or Event of Default is in existence.
5.17 ERISA Compliance.
-----------------
(a) Relationship of Vested Benefits to Pension Plan Assets.
---------------------------------------------------------
The Borrower will at all times maintain the qualified status of its Plans. The
Borrower will not at any time terminate any Plan unless on the date of such
termination the present value of all employee benefits vested under such Plan
does not exceed the present value of the assets allocable to such vested
benefits.
(b) Valuations. All assumptions and methods used to determine
-----------
the actuarial valuation of vested employee benefits under Plans at any time
maintained by the Borrower and the present value of assets of such Plans shall
be reasonable in the good faith judgment of the Borrower and shall comply with
all requirements of law in all material respects.
(c) Prohibited Actions. Neither the Borrower nor any Plan at
-------------------
any time maintained by the Borrower will:
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<PAGE>
(1) engage in any "prohibited transactions" (as such
term is defined in Section 406 or Section 2003(a) of ERISA);
(2) incur any "accumulated funding deficiency" (as such
term is defined in Section 302 of ERISA) whether or not waived; or
(3) terminate any such Plan in a manner which could
result in the imposition of a Lien on the property of the Borrower pursuant to
Section 4006 of ERISA.
5.18 Joinder of Subsidiaries. If the Borrower creates or acquires any
-------------------------
Subsidiary, the Borrower shall cause such subsidiary to execute and deliver to
the Lender an agreement (a "Joinder Agreement") substantially in the form
attached as Annex D pursuant to which such Subsidiary shall join as a Borrower
hereunder and under each document to which the Borrower is named as a party. The
Borrower shall cause the Joinder Agreement to be delivered to the Lender within
five (5) Business Days after the date of the filing of such Subsidiary's
articles of incorporation if the Subsidiary is a corporation, the date of the
filing of its certificate of limited partnership if it is a limited partnership,
or the date of its organization if it is an entity other than a corporation or a
limited partnership.
SECTION VI
----------
Representations and Warranties
------------------------------
To induce the Lender to enter into this Agreement and the Lender to
make the Revolving Credit Loan, the Borrower and the Guarantors represent and
warrant to the Lender as follows, (which warranties and representations shall be
deemed to be remade and restated in full (subject only to changes of
circumstances which (1) are fully disclosed by the Borrower to the Lender in
writing, describing the changed circumstances, and (2) do not result in any
violation of any condition, provision, promise and/or covenant of this
Agreement, or otherwise result in an Unmatured Default or an Event of Default)
whenever an advance under the Revolving Credit Loan is requested by the
Borrower):
6.01 Organization and Existence. The Borrower is a limited liability
---------------------------
company duly organized, validly existing, and in good standing under the laws of
the Commonwealth of Kentucky. The Borrower has all necessary power and authority
to carry on its business conducted on the date of this Agreement. The Borrower
is qualified to do business as a foreign limited partnership, and is in good
standing, in all states and in all foreign countries in which it owns any
property or carries on substantial activities or is otherwise required to be so
qualified, and is duly authorized, qualified and licensed under all laws,
regulations, ordinances or orders of public authorities to carry on its business
in the places and in the manner conducted on the date of this Agreement.
6.02 Right to Act. No registration with or consent or approval of any
-------------
governmental agency of any kind is required for the execution, delivery,
performance and enforceability of the Borrower Documents. The Borrower has full
power and authority, corporate and otherwise, to execute, deliver and perform
the Borrower Documents.
-20-
<PAGE>
6.03 No Conflicts. The Borrower's execution, delivery and performance
-------------
of the Borrower Documents do not, and will not, (a) violate any existing
provision Articles of Organization or Operating Agreement of the Borrower or any
law, rule, regulation, or judgment, order or decree applicable to the Borrower
or (b) otherwise constitute a default, or result in the imposition of any lien
under (1) any material existing contract or other obligation binding upon the
Borrower or its property, with or without the passage of time or the giving of
notice or both; (2) any law, rule or regulation applicable to the Borrower or
its business; or (3) any judgment, order or decree of any court or
administrative agency applicable to the Borrower or its business.
6.04 Authorization. The execution, delivery and performance by the
--------------
Borrower of the Borrower Documents has been duly authorized, and the Borrower
Documents have been duly executed and delivered.
6.05 Enforceable Agreements. This Agreement and the other Borrower
------------------------
Documents are legally valid and binding obligations of the Borrower, enforceable
against the Borrower in accordance with their respective terms, except as such
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium or other laws relating to or limiting creditors rights or equitable
principals generally.
6.06 Contingent Obligations. The Borrower does not have any material
------------------------
contingent obligations, material liabilities for taxes, material long-term
leases or unusual material forward or long-term commitments, which have not been
disclosed to the Lender.
6.07 Litigation. Except for those matters described in the financial
-----------
statements referenced in Section 6.08 of this Agreement or otherwise disclosed
in writing by the Borrower to Lender, there is no litigation, at law or in
equity, or any proceeding before any federal, state or municipal court, board or
other governmental or administrative agency pending, or to the knowledge of the
Borrower, threatened which is likely to involve any material judgment or
liability against the Borrower or which might otherwise result in any material
adverse change in the Borrower's business, assets or condition, financial or
otherwise. No judgment, decree or order of any federal, state or municipal
court, board or other governmental or administrative agency has been issued
against the Borrower or any of its assets which has, or will likely have, a
material adverse effect on the Borrower's business, assets or condition,
financial or otherwise.
6.08 Financial Statements. The Borrower's financial statements dated
----------------------
April 30, 2000, have been furnished to the Lender. Those financial statements
are true and complete in all material respects, have been prepared in accordance
with GAAP, do not omit reference to any material contingent liabilities of any
kind not otherwise disclosed by Borrower to the Lender in writing, and fairly
present the financial condition of the Borrower as of the date of those
financial statements. Nichols' financial statements dated December 31, 1999, and
Lavin's financial statements dated March 31, 2000, have been furnished to the
Lender. Those financial statements are true and complete in all material
respects, do not omit reference to any material contingent liabilities of any
kind not otherwise disclosed by Borrower to the Lender in writing and fairly
present the financial condition of the Nichols and Lavin, respectively, as of
the date of the financial statements.
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6.09 Compliance with Contractual Obligations, Laws and Judgments.
------------------------------------------------------------
(a) The Borrower is not in default in the payment,
performance, observance or fulfillment of any of the material obligations,
covenants or conditions contained in any lease, indenture, mortgage, deed of
trust, promissory note, agreement or undertaking to which it is a party or by
which its assets are bound.
(b) The Borrower has not violated any applicable statute,
regulation or ordinance of the United States of America or of any state,
municipality or any other subdivision, jurisdiction or agency thereof, in any
respect materially and adversely affecting the Borrower's business, property,
assets, operations or conditions, financial or otherwise.
(c) The Borrower is not in default with respect to any
judgment, order, writ, injunction, decree or demand of any court, arbitrator or
governmental agency or body.
6.10 Investment Company. The Borrower is not an "investment company"
-------------------
or a company "controlled" by an "investment company", within the meaning of the
Investment Company Act of 1940, as amended.
6.11 Tax Returns. The Borrower has filed all tax returns which are
-------------
required to be filed and has paid, or made adequate provision for the payment
of, all taxes which have or may become due pursuant to such returns or pursuant
to assessments received. The Borrower knows of no material additional
assessments for which adequate reserves have not been established, and the
Borrower has made adequate provision for all current taxes.
6.12 No Undisclosed Liabilities or Guaranties. The Borrower does not
-------------------------------------------
have any material liabilities, direct or contingent, except as disclosed or
referred to in the financial statements referred to in Section 5.03 of this
Agreement or otherwise disclosed to Lender in writing or incurred by Borrower
after such date and not prohibited by the express terms of this Agreement, nor
has the Borrower guaranteed, or otherwise become responsible for, the material
obligations of any person, firm or corporation, other than as set out on
Schedule 10.12 of this Agreement or otherwise not in contravention of any of the
Borrower Documents.
6.13 Title to Properties. The Borrower has good and marketable title to
--------------------
all of its property and assets of all character, free and clear of all
mortgages, liens, interests, and encumbrances except (a) encumbrances granted to
the Lender, (b) minor irregularities in title which do not materially interfere
with the use and enjoyment by the Borrower of such properties and assets in the
normal course of business as presently conducted, or materially impair the value
thereof for such business, (c) those encumbrances described on Schedule 6.13 to
this Agreement, and (d) any other encumbrances permitted under the express terms
of the Borrower Documents.
6.14 Trademarks and Permits. The Borrower possesses adequate licenses,
-----------------------
patents, copyrights, trademarks and trade names to conduct their businesses as
now conducted. Neither the Borrower nor any of its officers, directors or
employees has received notice or has knowledge of any claim that the Borrower
has violated any other person's license, patent, copyright,
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trademark or trade name, or that the Borrower's licenses, patents, copyrights,
trademarks or trade names are currently being infringed. The Borrower has all
governmental permits, certificates, consents and franchises necessary to carry
on their businesses as now conducted and to own or lease and operate their
properties as now owned, leased or operated. All such governmental permits,
certificates, consents and franchises are valid, and in effect, and the Borrower
is not in violation thereof, and none of them contains any term, provision,
condition or limitation more burdensome than generally applicable to persons
engaged in the same or similar business.
6.15 No Defaults. The Borrower is not in default in the payment or
-------------
performance of any of its obligations or in the performance of any mortgage,
indenture, lease, contract or other agreement, instrument or undertaking to
which it is a party or by which it or any of its assets may be bound, which
default would have a material adverse effect on the business operations, assets
or condition, financial or otherwise, of the Borrower, taken as a whole. No
Unmatured Default or Event of Default hereunder or under the other Borrower
Documents has occurred and is continuing. The Borrower is not in default under
any order, award or decree of any court, arbitrator or governmental authority
binding upon or affecting it or by which any of its assets may be bound or
affected which default would have a material adverse effect on the business of
such Borrower. The Borrower is not subject to any order, award or decree which
is likely to materially adversely affect the ability of the Borrower to carry on
its business as currently conducted or the ability of the Borrower to perform
its obligations under this Agreement and/or the other Borrower Documents to
which it is a party.
6.16 Employee Benefit Plans. Except as have been otherwise disclosed in
-----------------------
writing to the Lender, any Plans in existence are in substantial compliance with
ERISA, no Plan is insolvent or in reorganization, no Plan has an accumulated or
waived funding deficiency within the meaning of Section 412 of the Code, the
Borrower has not incurred any material liability (including any material
contingent liability) to or on account of a Plan pursuant to Sections 4062,
4063, 4064, 4201 or 4204 of ERISA, no proceedings have been instituted to
terminate any Plan, and no condition exists which presents a material risk to
the Borrower of incurring a liability to or on account of a Plan pursuant to any
of the foregoing sections of ERISA.
6.17 No Material Adverse Conditions. There is no fact known to the
----------------------------------
Borrower (other than matters of a general economic or political nature) which
materially adversely affects the business, property, assets or financial
condition of the Borrower which has not been disclosed to the Lender or set
forth in the other documents, certificates and statements furnished to the
Lender by or on behalf of the Borrower prior to the date hereof in connection
with the transactions contemplated hereby.
6.18 Regulations Q and U. The Borrower is not engaged principally, or
--------------------
as one of the Borrower's important activities, in the business of extending
credit for the purpose of purchasing or carrying margin stock (within the
meaning of Regulation Q of the Board of Governors of the Federal Reserve
System), and will not use the proceeds of the Loans so as to violate Regulation
U as it may be amended or interpreted from time to time by the Board of
Governors of the Federal Reserve System.
6.19 Environmental Matters. Except as otherwise disclosed in
------------------------
writing to the Lender,
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the Borrower fully complies with all federal, state and local environmental
laws, rules, regulations, ordinances and other requirements including, without
limitation, those which relate to the production, storage, disposal or use of
any and all hazardous or toxic wastes, and including, without limitation, the
provisions of 42 U.S.C.ss.ss.9601 et seq. (CERCLA, Super Fund); and 42
U.S.C.ss.ss.6901 et seq. (RCRA). --------
-------
6.20 No Public Utility Holding Company. The Borrower is not a
----------------------------------
"holding company," or a "subsidiary company" of a "holding company," or an
affiliate of either, within the meaning of the Public Utility Holding Company
Act of 1935, as amended.
6.21 No Subsidiaries. The Borrower has no Subsidiaries.
----------------
6.22 Disclosure. Neither this Agreement, nor any agreement, document,
-----------
certificate or statement furnished to the Lender by or on behalf of the Borrower
in connection with the transactions contemplated by this Agreement contains any
untrue statement of any material fact or, except in the case of budgets and
forward financial forecasts, omits to state any material fact necessary to make
the statements contained herein or therein not misleading as of the time the
Borrower makes the statement; provided however, that the Borrower has an
immediate and continuing obligation to supplement any of the foregoing if it
should subsequently contain an untrue statement of any material fact or omits to
state any material fact necessary to make the statements contained herein or
therein not misleading. There is no fact known to the Borrower which materially
and adversely affects, or in the future is likely to materially and adversely
affect, the Borrower's business, operations, affairs or condition, financial or
otherwise, which has not been disclosed to the Lender.
SECTION VII
-----------
Events of Default
-----------------
The occurrence of any one or more of the following shall constitute an
Event of Default under this Agreement (an "Event of Default"):
7.01 Failure to Pay. If the Borrower shall fail to pay in full any
----------------
installment of principal or interest on any of the Notes, or payments required
by this Agreement, within five (5) days after such payment first became due.
7.02 No Notice Required. If the Borrower with respect to the following
-------------------
provisions shall fail to observe, perform or comply with any term, obligation,
covenant, agreement, condition or other provision contained in Sections 5.02,
5.04, 5.07, 5.10, 5.12, 5.13, 5.15, or 5.18 of this Agreement, or any Event of
Default occurs under any of the other Borrower Documents.
7.03 Notice Required. If the Borrower with respect to any term,
-----------------
obligation, covenant, agreement, condition or other provision (other than those
referred to in Sections 9.01 or 9.02 hereof) contained or referred to in any of
the Borrower Documents shall fail to observe, perform or comply with those
provisions, and such failure shall not have been fully corrected within thirty
(30) days after the Lender has given written notice thereof to such obligor.
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<PAGE>
7.04 Falsity of Representation or Warranty. If any representation or
---------------------------------------
warranty or other statement of fact contained in any of the Borrower Documents
or in any writing, certificate, report or statement at any time furnished the
Lender by or on behalf of the Borrower pursuant to or in connection with this
Agreement shall have been false or misleading in any material respect or which
shall omit a material fact, whether or not made with knowledge, at the time it
was made.
7.05 Judgments. If a final judgment or judgments for the payment of
----------
money in excess of the sum of One Hundred Thousand Dollars ($100,000.00), in the
aggregate, or with respect to property with a value in excess of such amount,
shall be rendered against the Borrower and such judgment or judgments shall
remain unsatisfied for a period of thirty (30) consecutive days after the entry
thereof and within that thirty (30) days has not been (a) stayed pending appeal,
or (b) discharged.
7.06 Adverse Financial Change. If there should be any material adverse
--------------------------
change in the financial condition of the Borrower as determined in Lender's
discretion, from its financial condition as shown on the financial statements
referred to in Section 6.08 of this Agreement, and such adverse change is not
fully corrected to Lender's reasonable satisfaction within sixty (60) days after
notice with respect thereto from the Lender.
7.07 Other Obligations. Subject to the exception contained in Section
------------------
5.02(b) of this Agreement, if the Borrower shall fail to observe, perform or
comply with the terms, obligations, covenants, agreements, conditions or other
provisions of any agreement, document or instrument (including leases) other
than this Agreement and the other Borrower Documents which (a) the Lender or any
of its Affiliates has entered into with the Borrower and which involves any
Indebtedness to the Lender and/or any of its Affiliates in any amount or (b) any
other Person has entered into with the Borrower and/or any of its Affiliates
which involves Indebtedness (or in the case of leases, in total lease
obligations under any single lease) in any single instance exceeding Five
Hundred Thousand Dollars ($500,000.00).
7.08 Dissolution or Termination of Existence. If the Borrower, either
----------------------------------------
Guarantor and/or any Affiliate of the Borrower takes any action that is intended
to result in the termination, dissolution or liquidation of the Borrower.
7.09 Solvency.
---------
(a) If the Borrower or either Guarantor shall (1) have an
order of relief entered in any proceeding filed by it under the federal
bankruptcy laws (as in effect on the date of this Agreement or as they may be
amended from time to time); (2) admit its inability to pay its debts generally
as they become due; (3) become insolvent in that its total assets are in the
aggregate worth less than all of its liabilities or it is unable to pay its
debts generally as they become due; (4) make a general assignment for the
benefit of creditors; (5) file a petition, or admit (by answer, default or
otherwise) the material allegations of any petition filed against it, in
bankruptcy under the federal bankruptcy laws (as in effect on the date of this
Agreement or as they may be amended from time to time), or under any other law
for the relief of debtors, or for
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<PAGE>
the discharge, arrangement or compromise of their debts; or (6) consent to the
appointment of a receiver, conservator, trustee or liquidator of all or part of
its assets.
(b) If a petition shall have been filed against the Borrower
or either Guarantor in proceedings under the federal bankruptcy laws (as in
effect on the date of this Agreement, or as they may be amended from time to
time), or under any other laws for the relief of debtors, or for the discharge,
arrangement or compromise of their debts, or an order shall be entered by any
court of competent jurisdiction appointing a receiver, conservator, trustee or
liquidator of all or part of the Borrower's assets, and such petition or order
is not dismissed or stayed within sixty (60) consecutive days after entry
thereof.
SECTION VIII
------------
Remedies Upon Default
---------------------
Notwithstanding anything to the contrary, if any Event of Default
occurs under Section 7.09 of this Agreement, the Revolving Credit shall
automatically terminate (if not previously terminated or expired), and the
entire unpaid balance of all Revolving Credit Loans and Revolving Credit Notes,
and all other obligations of the Borrower under and/or in connection with the
Borrower Documents, shall automatically, without requirement of any presentment,
demand or notice of any kind (all of which are hereby waived by the Borrower),
become immediately due and payable in full. Also notwithstanding any other
provision of this Agreement, if any other Event of Default under this Agreement
occurs, the Lender, in its individual discretion, and without notice to the
Borrower, may terminate the Revolving Credit, in which case the Lender shall be
under no further obligation to grant any Revolving Credit Loans to the Borrower.
In addition, upon the occurrence of any Event of Default, and at any time
thereafter, unless all Events of Default have been waived in a writing signed by
the Lender specifically providing the waiver, the Lender shall have all of the
following rights and remedies and it may exercise one or more of them, singly or
in conjunction with others.
8.01 Right to Offset. The Lender shall have the right to set off
-----------------
against, or appropriate and apply toward the payment of, the obligations of the
Borrower to that Lender, pursuant to this Agreement or as evidenced by the
Revolving Credit Notes whether such obligations shall have matured in due course
or by acceleration, any and all deposit balances and other sums and indebtedness
then held or owed by that Lender to or for the credit or account of the Borrower
and/or either Guarantor. For such purpose the Borrower and each Guarantor hereby
pledges to and grants a security interest in such deposit balances, other sums
and indebtedness of the Lender to secure all of the Borrower's obligations under
this Agreement and the Revolving Credit Notes. Such offsets following an Event
of Default may occur without notice to or demand upon the Borrower, either
Guarantor or any other Person, all of such notices and demands being hereby
waived.
8.02 Enforcement of Rights. The Lender shall have the right, to proceed
----------------------
to protect and enforce its rights by suit in equity, action at law or other
appropriate proceedings either for specific performance of any covenant or
condition contained in any of the Borrower Documents, or in aid of the exercise
of any power granted in any of the Borrower Documents.
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<PAGE>
8.03 Rights Under Security Instruments. The Lender shall also have all
----------------------------------
rights and remedies granted it under the Pledge Agreement, the Guaranty
Agreements and any and all other Borrower Documents securing or intending to
secure the Borrower's obligations under the Revolving Credit Notes, or any other
indebtedness or obligation of the Borrower under the Borrower Documents.
8.04 Cumulative Remedies. All of the rights and remedies of the Lender
--------------------
upon occurrence of an Event of Default shall be cumulative to the greatest
extent permitted by law, may be exercised successively or concurrently, from
time to time, and shall be in addition to all of those rights and remedies
afforded the Lender at law, or in equity, or in bankruptcy. Notwithstanding the
foregoing, the Lender shall be entitled to recover from the cumulative exercise
of all remedies an amount no greater than the sum of (a) the aggregate
outstanding principal amount of the Loan, (b) all accrued but unpaid interest
with respect to the aggregate principal amount of the Loan, (c) any other
amounts that the Borrower is required by this Agreement to pay to the Lender
(for example, and without limitation, the reimbursement of expenses and legal
fees, and late charges), and (d) any costs, expenses or damages which the Lender
is otherwise permitted to recover by the terms of this Agreement. Any exercise
of any right or remedy shall not be deemed to be an election of that right or
remedy to the exclusion of any other right or remedy.
SECTION IX
----------
Fees and Expenses
-----------------
9.01 Transaction Expenses. The Borrower shall pay to the Lender upon
----------------------
demand all out-of-pocket expenses incurred by the Lender in connection with the
transactions contemplated by this Agreement, including, but not limited to the
Lender's reasonable attorneys' fees incurred in preparing, negotiating and
closing the Borrower Documents and any and all costs and fees incurred in
connection with the recording or filing of any documents or instruments, and/or
in searches of, any public office, pursuant to or as a consequence of this
Agreement, or to perfect or protect any security for the Loans. The Borrower
shall also pay to the Lender, promptly following the Lender's request, all
out-of-pocket expenses incurred by the Lender from time to time in the
administration of the Loans, including, without limitation, any out-of-pocket
expenses (including, but not limited to, attorneys' fees) incurred by the Lender
if any of the Borrower Documents should be amended, extended and/or renewed from
time to time, or if additional Borrower Documents are prepared.
9.02 Enforcement Expenses. If any Event of Default shall occur under
----------------------
this Agreement, or any default shall occur under any of the Borrower Documents
or any related documents, the Borrower shall pay to the Lender, to the extent
allowable by applicable law, such amounts as shall be sufficient to reimburse
the Lender fully for all of its costs and expenses incurred in enforcing and/or
protecting its rights and remedies under the Borrower Documents and any related
documents, including without limitation its reasonable attorneys' fees and court
costs. Such amounts shall be deemed to be included in the obligations secured by
the Security Agreement.
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<PAGE>
SECTION X
---------
Miscellaneous Provisions
------------------------
10.01 Business Days. If any provision of this Agreement or any of the
---------------
other Borrower Documents requires that the Borrower make any payment, or
otherwise perform any act, on a day on which the Lender is not open for
business, then that payment or action shall be deemed to be due on the first day
thereafter that the Lender is open for business.
10.02 Term of this Agreement. The term of this Agreement shall commence
-----------------------
as of the date hereof, and continue until all Loans and accrued but unpaid
interest thereon shall have been paid in full and the Borrower shall have paid
or performed all of its obligations hereunder.
10.03 No Waivers. Failure or delay by the Lender in exercising any
------------
rights shall not be deemed to be or operate as a waiver of that right, nor shall
any right be exclusive of any other right referred to in this Agreement, or in
any other related document, or available at law or in equity, by statute or
otherwise. Any single or partial exercise of any right shall not preclude the
further exercise of that right. Every right of the Lender shall continue in full
force and effect until such right is specifically waived in a writing signed by
the Lender.
10.04 Course of Dealing. No course of dealing between the Borrower, the
------------------
Guarantors and the Lender shall operate as a waiver of any of the Lender's
rights under any of the Borrower Documents.
10.05 Certain Waivers by the Borrower and the Guarantors. The Borrower
---------------------------------------------------
and each Guarantor hereby waives, to the extent permitted by applicable law, (a)
all presentments, demands for performances, notices of nonperformance (except to
the extent specifically required by this Agreement or any other of the Borrower
Documents), protests, notices of protest and notices of dishonor in connection
with the Notes (b) any requirement of diligence or promptness on the part of the
Lender in enforcement of rights under the provisions of any of the Borrower
Documents, and (c) any requirement of marshaling assets or proceeding against
persons or assets in any particular order.
10.06 Severability. If any part, term or provision of this Agreement is
-------------
held by any court to be unenforceable or prohibited by any law applicable to
this Agreement, the rights and obligations of the parties shall be construed and
enforced with that part, term or provision limited so as to make it enforceable
to the greatest extent allowed by law, or, if it is totally unenforceable, as if
this Agreement did not contain that particular part, term or provision.
10.07 Time of the Essence. Time shall be of the essence in the
--------------------
performance of all of the Borrower's and the Guarantors' obligations under the
Borrower Documents.
10.08 Benefit and Binding Effect. This Agreement shall inure to the
----------------------------
benefit of the Lender, its successors and assigns, and all obligations of the
Borrower and the Guarantors shall bind their heirs, executors, successors and,
if and to the extent assignment is otherwise permitted by this Agreement,
assigns.
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<PAGE>
10.09 Further Assurances. The Borrower shall sign such financing
--------------------
statements or other documents or instruments as the Lender may request from time
to time more fully to create, perfect, continue, maintain or terminate the
rights and security interests intended to be granted or created pursuant to this
Agreement, the Security Agreement, and any other Borrower Documents.
10.10 Incorporation by Reference. All schedules, annexes or other
-----------------------------
attachments to this Agreement are incorporated into this Agreement as if set out
in full at the first place in this Agreement that reference is made thereto.
10.11 Entire Agreement; No Oral Modifications. This Agreement, the
-------------------------------------------
schedules and annexes hereto, and the documents and instruments referred to
herein constitute the entire agreement of the parties with respect to the
subject matter hereof, and supersede all prior understandings with respect to
the subject matter hereof. No change, modification, addition or termination of
this Agreement or any of the Borrower Documents shall be enforceable unless in
writing and signed by the party against whom enforcement is sought.
10.12 Headings. The headings used in this Agreement are included for
---------
ease of reference only and shall not be considered in the interpretation or
construction of this Agreement.
10.13 Governing Law. This Agreement and the related documents and
---------------
instruments shall be governed by and construed in accordance with the laws of
the Commonwealth of Kentucky without regard to conflicts of laws unless, except
to the extent that the laws of any other state, province or country where the
Collateral is located require that the laws of such other state, province or
country shall govern the creation, perfection or enforcement of the Lender's
rights and security interests in such Collateral.
10.14 Assignments. Neither the Borrower nor either Guarantor may assign
------------
any rights under this Agreement to any other party. Any attempted assignment
shall be a default under this Agreement and shall be null and void.
10.15 Multiple Counterparts.
----------------------
(a) This Agreement may be signed by each party upon a separate
copy, and in such case one counterpart of this Agreement shall consist of enough
of such copies to reflect the signature of each party.
(b) This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, and it shall not be
necessary in making proof of this Agreement or the terms thereof to produce or
account for more than one of such counterparts.
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<PAGE>
10.16 Notices.
--------
(a) Any requirement of the Uniform Commercial Code or other
applicable law of reasonable notice shall be met if such notice is given at
least ten (10) Business Days before the time of sale, disposition or other event
or thing giving rise to the requirement of notice.
(b) Except as provided in subsection (c) below, all notices or
communications under this Agreement shall be in writing and shall be
hand-delivered, sent by courier, or mailed to the parties addressed to the
addresses as follows and any notice so addressed and (1) hand-delivered, shall
be deemed to have been given when so delivered, or (2) mailed by registered or
certified mail, return receipt requested, shall be deemed to have been given
when mailed, or (3) delivered to a recognized small package overnight courier
service to the address of the intended recipient with shipping prepaid, shall be
deemed to have been given when so delivered to such courier. Addresses for
notices are as follows:
(1) If to the Lender: BANK OF LOUISVILLE
500 W. Broadway
Louisville, Kentucky 40202
with a courtesy copy to: BROWN, TODD & HEYBURN PLLC
400 West Market Street, 32nd Floor
Louisville, Kentucky 40202-3363
Attn: Charles R. Keeton, Esq.
(2) If to the Borrower: ORIG, LLC
10172 Linn Station Road 200
Louisville, Kentucky 40223
Attn: Neil Mitchell
with a courtesy copy to: GREENBAUM DOLL & MCDONALD PLLC
3300 National City Tower
Louisville, Kentucky 40202
Attn: Tandy C. Patrick, Esq.
(3) If to the Guarantor: J. D. NICHOLS
10172 Linn Station Road 200
Louisville, Kentucky 40223
with a courtesy copy to: GREENBAUM DOLL & MCDONALD PLLC
3300 National City Tower
Louisville, Kentucky 40202
Attn: Tandy C. Patrick, Esq.
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<PAGE>
(4) If to the Guarantor: BRIAN LAVIN
10172 Linn Station Road 200
Louisville, Kentucky 40223
with a courtesy copy to: GREENBAUM DOLL & MCDONALD PLLC
3300 National City Tower
Louisville, Kentucky 40202
Attn: Tandy C. Patrick, Esq.
(c) The parties may at any time, and from time to time,
change the address or addresses to which notice shall be mailed by written
notice setting forth the changed address or addresses.
10.17 Survival of Covenants. All covenants, agreements, warranties and
----------------------
representations made by the Borrower herein shall survive the making of each
Revolving Credit Loan and the execution and delivery of the Borrower Documents,
and shall be deemed to be remade and restated by the Borrower each time the
Borrower requests a Revolving Credit Loan.
10.18. Consent to Jurisdiction. THE BORROWER AND THE GUARANTORS CONSENT
------------------------
TO ONE OR MORE ACTIONS BEING INSTITUTED AND MAINTAINED IN THE JEFFERSON COUNTY,
KENTUCKY, CIRCUIT COURT AND/OR THE UNITED STATES DISTRICT COURT FOR THE WESTERN
DISTRICT OF KENTUCKY (AT LENDER'S DISCRETION) TO ENFORCE THIS AGREEMENT AND/OR
ONE OR MORE OF THE OTHER BORROWER DOCUMENTS, AND WAIVE ANY OBJECTION TO ANY SUCH
ACTION BASED UPON LACK OF PERSONAL OR SUBJECT MATTER JURISDICTION OR IMPROPER
VENUE. THE PARTIES AGREE THAT ANY PROCESS OR OTHER LEGAL SUMMONS IN CONNECTION
WITH ANY SUCH ACTION OR PROCEEDING MAY BE SERVED BY MAILING A COPY THEREOF BY
CERTIFIED MAIL, OR ANY SUBSTANTIALLY SIMILAR FORM OF MAIL, ADDRESSED TO THE
ADDRESSES PROVIDED IN THE PREAMBLE TO THIS AGREEMENT. THE BORROWER AND THE
GUARANTORS ALSO AGREE THAT NONE OF THEM SHALL COMMENCE OR MAINTAIN ANY ACTION IN
ANY COURT, ADMINISTRATIVE AGENCY OR OTHER TRIBUNAL OTHER THAN THE JEFFERSON
COUNTY, KENTUCKY, CIRCUIT COURT OR THE UNITED STATES DISTRICT COURT FOR THE
WESTERN DISTRICT OF KENTUCKY WITH RESPECT TO THIS AGREEMENT, ANY OTHER OF THE
BORROWER DOCUMENTS, ANY OF THE TRANSACTIONS PROVIDED FOR OR CONTEMPLATED IN ANY
OF THE BORROWER DOCUMENTS, OR ANY CAUSE OF ACTION OR ALLEGED CAUSE OF ACTION
ARISING OUT OF OR IN CONNECTION WITH ANY DEBTOR AND CREDITOR RELATIONSHIP AMONG
THE PARTIES THAT MAY EXIST FROM TIME TO TIME.
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<PAGE>
10.20 JURY TRIAL WAIVER. THE BORROWER AND EACH GUARANTOR HEREBY WAIVES
------------------
ITS RIGHT TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING
OUT OF THIS AGREEMENT, THE REVOLVING CREDIT NOTES, THE PLEDGE AGREEMENT, THE
GUARANTY AGREEMENTS AND/OR ANY OTHER OF THE BORROWER DOCUMENTS. THIS WAIVER IS
INTENDED TO APPLY TO ANY AND ALL DISPUTES THAT MAY BE FILED IN ANY COURT THAT
RELATE TO THE SUBJECT MATTER OF THIS TRANSACTION, INCLUDING, WITHOUT LIMITATION,
CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW
AND STATUTORY CLAIMS. THE BORROWER AND EACH GUARANTOR ACKNOWLEDGES THAT THIS
WAIVER IS A MATERIAL INDUCEMENT FOR THE LENDER TO ENTER INTO A BUSINESS
RELATIONSHIP, AND THAT THE LENDER HAS ALREADY RELIED ON THIS WAIVER IN ITS
DEALINGS WITH THE BORROWER AND THE GUARANTORS. THE BORROWER AND EACH GUARANTOR
FURTHER WARRANTS AND REPRESENTS THAT EACH HAS REVIEWED THIS WAIVER WITH ITS
LEGAL COUNSEL, AND THAT EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL
RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. THIS WAIVER IS IRREVOCABLE,
MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING, AND THIS WAIVER
SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS
OF THIS AGREEMENT, THE REVOLVING CREDIT NOTES, THE PLEDGE AGREEMENT, THE
GUARANTY AGREEMENTS AND/OR THE OTHER BORROWER DOCUMENTS. IN THE EVENT OF
LITIGATION, THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO TRIAL BY THE
COURT.
10.21 ACKNOWLEDGEMENT. THE BORROWER ACKNOWLEDGES THAT IT HAS RECEIVED A
----------------
COPY OF THIS AGREEMENT AND EACH OF THE OTHER BORROWER DOCUMENTS, AS FULLY
EXECUTED BY THE PARTIES THERETO. THE BORROWER ACKNOWLEDGES THAT IT (A) HAS READ
THIS AGREEMENT AND THE OTHER BORROWER DOCUMENTS OR HAS CAUSED SUCH DOCUMENTS TO
BE EXAMINED BY ITS REPRESENTATIVES OR ADVISORS; (B) IS THOROUGHLY FAMILIAR WITH
THE TRANSACTIONS CONTEMPLATED IN THIS AGREEMENT AND THE OTHER BORROWER
DOCUMENTS; AND (C) HAS HAD THE OPPORTUNITY TO ASK SUCH QUESTIONS TO
REPRESENTATIVES OF THE LENDER, AND RECEIVE ANSWERS THERETO, CONCERNING THE TERMS
AND CONDITIONS OF THE TRANSACTIONS CONTEMPLATED IN THIS AGREEMENT AND THE OTHER
BORROWER DOCUMENTS AS IT DEEMS NECESSARY IN CONNECTION WITH THE ITS DECISION TO
ENTER INTO THIS AGREEMENT.
[THIS BALANCE OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
31-A
<PAGE>
IN WITNESS WHEREOF, the parties have signed this Agreement as of the
date set forth in the preamble hereto, but actually on the dates set forth
below.
Lender:
BANK OF LOUISVILLE
By /s/ Richard Bean
----------------------------------------
Richard Bean, Senior Vice President
Date: August 15, 2000
Borrower:
ORIG, LLC
By /s/ J.D. Nichols
----------------------------------------
J. D. Nichols, Manager
Date: August 15, 2000
/s/ J.D. Nichols
------------------------------------------
J. D. NICHOLS
Date: August 15, 2000
/s/ Brian Lavin
------------------------------------------
BRIAN LAVIN
Date: August 15, 2000
-32-
<PAGE>
Annexes
Annexes A-1 - A-3 Forms of Revolving Credit Notes in favor of the
Lender
Annex B Form of Pledge Agreement
Annex C Paragraphs for Opinion of Counsel for the Borrower
and Guarantor
Annex D Form of Joinder Agreement
Annex E Form of Partnership Notice and Acknowledgement
Schedules
Schedule 1(P) Partnership Interests
Schedule 10.12 Permitted Liabilities
Schedule 10.13 Permitted Encumbrances
<PAGE>
Exhibit (c)(1)
Appraisal Report by Integra Chapman & Bell
dated October 30, 1999
<PAGE>
March 31, 2000
Mr. Neil Mitchell
NTS
10172 Linn Station Road
Louisville, Kentucky 40223
Re: Blankenbaker Center 1A
11405 Bluegrass Parkway
Louisville, Kentucky
File #300-047-99 LOU (G)
Dear Mr. Mitchell:
As requested, Integra Chapman & Bell has inspected and appraised the
above-referenced property which is legally described in the accompanying report.
Attached you will find the facts and conclusions used in arriving at
the "as is" market value of the leased fee estate as of October 30, 1999. This
complete appraisal, self- contained report has been prepared to comply with the
Uniform Standards of Professional Appraisal Practice (USPAP)as augmented by the
Office of the Comptroller of the Currency (OCC) and the Office of Thrift
Supervision (OTS).
The value conclusion is based on the following special assumptions:
- Financing is available to a credit-worthy purchaser for the
subject property.
- The subject property is environmentally clean.
- The subject is 100,640 square feet and leased to a single
tenant. This single tenant type design limits the utility of
the building because of market conditions.
<PAGE>
- At the client's request, a market study was not performed. A
review of the current market trends was made and is discussed
within the highest and best use and in Integra Chapman &
Bell's opinion meets the market study USPAP requirement.
- Portions of Integra Chapman & Bell analyses are being copied
and distributed to persons other than our clients. Henceforth,
all information, data, and analyses contained within this
report will be protected by copyright law. Reproduction of any
part without the written permission of Integra Chapman & Bell
is expressly prohibited.
Taking into account all pertinent facts that affect value, the current
"as is" value of the lease fee estate of the subject property, as of October 30,
1999, is:
* * * SIX MILLION EIGHT HUNDRED THOUSAND DOLLARS * * *
$6,800,000
Respectfully submitted,
George M. Chapman, MAI, SRA, CRE
Kentucky Certified General
Real Property Appraiser #614
Mark E. Mitchell, MAI
Kentucky Certified General
Real Property Appraiser #664
GMC/MEM/lat/tbd
Attachment has been retained in Integra Chapman & Bell's files to accommodate
SCC filing.
<PAGE>
APPRAISAL REPORT OF... Blankenbaker Center 1A
11405 Bluegrass Parkway
Louisville, Kentucky
PURPOSE OF APPRAISAL... Estimate the "As Is" Market Value of the
Leased Fee Estate
PREPARED FOR... Mr. Neil Mitchell
NTS
10172 Linn Station Road
Louisville, Kentucky 40223
PREPARED AT THE REQUEST OF... Mr. Neil Mitchell
NTS
10172 Linn Station Road
Louisville, Kentucky 40223
PREPARED BY... Integra Chapman & BELL
3703 Taylorsville Road Suite 205
Louisville, Kentucky 40220
George M. Chapman, MAI, SRA, CRE
Mark E. Mitchell, MAI
<PAGE>
SUMMARY OF SALIENT FACTS AND CONCLUSIONS
Effective Date September 28, 1999
Property Tax Identification Number 2239-60
Owner of Record Blankenbaker Business Center Joint Venture
Land Area 5.23 Acres 227,732 SF
Gross Building Area (GBA) 100,640 SF
Rentable Area (RA) 96,926 SF
Current Occupancy 100%
Development Density 0.44 GBA/SF
Year Built 1988
Zoning Designation PEC
Zoning Name Planned Employment Center
Floodplain Map Panel Number 2111C0095-D
Floodplain Map Date February 2, 1994
Property Rights Appraised Leased Fee
Estimated Marketing Period 12 months
AS IS
Market Value Indication By The
Cost Approach Not Applicable
Sales Comparison Approach $6,500,000
Income Approach
Discounted Cash Flow $6,800,000
Market Value Estimate $6,800,000
<PAGE>
TABLE OF CONTENTS
Page
PURPOSE, USE, AND DATE ................................................. 1
ASSUMPTIONS AND LIMITING CONDITIONS .................................... 1
DEFINITION OF THE VALUE AND INTEREST APPRAISED ......................... 2
PERSONAL PROPERTY ...................................................... 3
SCOPE .................................................................. 3
LEGAL ATTRIBUTES, SALES HISTORY, AND ZONING ............................ 5
TAX AND ASSESSMENT ANALYSIS ............................................ 6
NEIGHBORHOOD AND DISTRICT DESCRIPTION .................................. 6
PHYSICAL ATTRIBUTES .................................................... 11
Site Attributes ............................................... 11
Improvement Attributes ........................................ 13
Exterior ................................................ 14
Interior ................................................ 14
ECONOMIC ATTRIBUTES .................................................... 16
Highest and Best Use As Vacant ................................ 17
Legal Permissibility .................................... 17
Physical Possibility .................................... 17
Financial Feasibility ................................... 18
Maximum Profitability ................................... 18
Highest and Best Use As Improved .............................. 18
Legal Permissibility .................................... 18
Physical Possibility .................................... 19
Financial Feasibility/Maximum Profitability ............. 19
VALUATION ANALYSIS ..................................................... 21
COST APPROACH .......................................................... 22
Land Value .................................................... 22
SALES COMPARISON APPROACH .............................................. 27
<PAGE>
Page
INCOME APPROACH ........................................................ 33
Potential Gross Income ........................................ 33
Expense Reimbursements......................................... 36
Vacancy and Credit ............................................ 37
Expenses ...................................................... 37
Overall Rate and Discount Rate Determination .................. 39
DISCOUNTED CASH FLOW ANALYSIS .......................................... 40
Cash Flow Projections ......................................... 40
DCF EXPLANATIONS ....................................................... 42
Market Rent Growth Rate ....................................... 42
Absorption of Vacant Space .................................... 43
Lease Expirations ............................................. 43
Operating Expense Escalation Rates ............................ 43
Leasing Commissions ........................................... 43
Tenant Improvements and Alterations ........................... 44
Replacement Reserve Allowance ................................. 44
Asphalt Replacement ........................................... 44
Roof Repair ................................................... 44
HVAC .......................................................... 45
Exterior Renovation ........................................... 45
REVERSION CALCULATIONS ................................................. 45
DISCOUNT RATE ANALYSIS ................................................. 46
FINAL CONCLUSION/RECONCILIATION ........................................ 47
EXPOSURE TIME AND MARKETING PERIOD ..................................... 48
CERTIFICATION .......................................................... 51
ADDENDA
EXHIBIT "A"
EXHIBIT "B"
EXHIBIT "C"
EXHIBIT "D"
EXHIBIT "E"
EXHIBIT "F"
QUALIFICATIONS OF APPRAISERS
ASSUMPTIONS AND LIMITING CONDITIONS
<PAGE>
LIST OF FIGURES
Figure 1, Tax Map
Figure 2, Zoning Map
Figure 3, Neighborhood Map
Figure 4, Subdivision Plat
Figure 5, Flood Plain Map
Figure 6, Land Sales Identified and Described and Rating Grid
Figure 7, Improved Sales Identified and Described and Rating Grid
Figure 8, Subject Existing Lease Summary
Figure 9, Comparable Lease and Expense Summary
Figure 10, Comparable Operating/Expense Data
Figure 11, Historic Expenses
Figure 12, Argus Cash Flow
Figure 13, Pro Forma
ADDENDA
Exhibit "A", Legal Description
Exhibit "B", PEC, Planned Employment Center Zoning Regulations
Exhibit "C", Photographs of Subject
Exhibit "D", Land Sales Comparables
Exhibit "E", Improved Sales Comparables
Exhibit "F", Lease-by-Lease Synopsis
<PAGE>
USPAP TABLE OF CONTENTS
AUGMENTED BY OTS AND OCC REGULATIONS
FOR SELF-CONTAINED REPORT
Page
In developing a real property appraisal, an appraiser must identify the problem
to be solved and the scope of work necessary to solve the problem, and correctly
complete research and analysis necessary to produce a credible appraisal.
STANDARDS RULE 1-1 (This Standards Rule contains binding requirements from which
departure is NOT permitted.)
In developing a real property appraisal, an appraiser must:
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1-1 a. be aware of, understand, and correctly employ those RECOGNIZED METHODS AND
TECHNIQUES THAT ARE NECESSARY TO PRODUCE A CREDIBLE APPRAISAL;* .......................................... 21
b. not commit a substantial error of omission or commission that significantly affects an
appraisal;*
c. not render appraisal services in a careless or negligent
manner, such as by making a series of errors that, although
individually might not significantly affect the results of an
appraisal, in the aggregate affect the credibility of those
results.*
STANDARDS RULE 1-2 (This Standards Rule contains binding requirements from which departure is NOT permitted.)
In developing a real property appraisal, an appraiser must:
1-2 a. identify the client (THE CLIENT) and ..................................................................... 1
other INTENDED USERs; .................................................................................... 1
b. identify the INTENDED USE of the appraiser's opinions and conclusions; ............................. 1, 4, 51
c. identify the purpose of the assignment (PURPOSE OF THE APPRAISAL), including the type and ................ 1
DEFINITION OF THE VALUE to be developed; and, if the value opinion to be ................................. 2
developed is MARKET VALUE, ascertain whether the value is to be the ............................. 1, 2, 6, 22
MOST PROBABLE PRICE: .................................................................................... 1, 2
(i) in terms of cash; or
(ii) in terms of financial arrangements equivalent to cash; or
(iii) in other precisely defined terms; and
(iv) if the opinion of value is to be based on submarket financing or
financing with unusual conditions or incentives, the
terms of such financing must be clearly identified
and the appraiser's opinion of their contributions to
or negative influence on value must be developed by
analysis of relevant market data.
d. identify the EFFECTIVE DATE of the appraiser's opinion and conclusions; ........................... 1, 42, 49
e. identify the CHARACTERISTICS OF THE PROPERTY THAT ARE RELEVANT TO THE PURPOSE AND INTENDED USE of
the appraisal, including: ................................................................................ 4
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Page
(i) its location (SUBJECT'S LOCATION) and ........................................................... 5
physical (PHYSICAL ATTRIBUTE), ............................................................... 4, 11
legal (LEGAL ATTRIBUTE), and .................................................................... 5
ECONOMIC ATTRIBUTES; ............................................................................ 16
(ii) the real property interest to be valued (REAL PROPERTY INTEREST APPRAISED); ..................... 3
(iii) any PERSONAL PROPERTY, TRADE FIXTURES, OR INTANGIBLE ITEMS
that are not real property but are included in the appraisal; ................................... 3
(iv) any known EASEMENTS, RESTRICTIONS, ENCUMBRANCES, LEASES,
RESERVATIONS, COVENANTS, CONTRACTS, DECLARATIONS, SPECIAL ASSESSMENTS,
OR ORDINANCES, or other items of a similar nature; and .......................................... 5
(v) whether the subject property is a FRACTIONAL INTEREST, ........................................ 3, 56
PHYSICAL SEGMENT, ............................................................................... 3
or PARTIAL HOLDING .............................................................................. 3
f. identify the SCOPE OF WORK necessary to complete the assignment; ......................................... 3
g. identify any EXTRAORDINARY ASSUMPTIONs necessary in the assignment; ...................................... 1
h. identify any HYPOTHETICAL CONDITIONs necessary in the assignment ......................................... 1
STANDARDS RULE 1-3 (This Standards Rule contains specific requirements from which departure is permitted.)
When the value opinion to be developed is market value, and given the scope of work identified in accordance with Standards Rule
1-2(f), an appraiser must:
1-3 a. identify and analyze the EFFECT ON USE AND VALUE OF EXISTING LAND USE REGULATIONS ........................ 4
The reasonably PROBABLE MODIFICATIONS of such land use regulations, ...................................... DNA
the effect on use and value of ECONOMIC DEMAND, the ...................................................... 21
(effect on use and value of PHYSICAL ADAPTABILITY of the real estate), and ............................... 15
market area trends (MARKET AREA TRENDS IMPACT ON THE USE AND ADAPTABILITY) ............................... DNA
(the MARKET AREA TRENDS IMPACT OF THE SUBJECT USE AND PHYSICAL ADAPTABILITY ON VALUE); ................... DNA
b. develop an OPINION OF THE HIGHEST AND BEST USE OF THE REAL ESTATE ..................................... 18, 21
STANDARDS RULE 1-4 (This Standards Rule contains specific requirements from which departure is permitted.)
In developing a real property appraisal, an appraiser must collect, verify, and analyze all information applicable to the appraisal
problem, given the scope of work identified in accordance with Standards Rule 1-2(f).
1-4 a. when a SALES COMPARISON APPROACH IS APPLICABLE, an appraiser must analyze ................................ 21
such comparable sales data as are available to indicate a value conclusion.
b. when a COST APPROACH IS APPLICABLE, an appraiser must:. .................................................. DNA
(i) develop an OPINION OF SITE value by an appropriate appraisal .................................... DNA
method or technique;
(ii) analyze such COMPARABLE COST DATA as are available to ........................................... DNA
estimate the cost new of the improvements (if any); and
(iii) analyze such comparable data as are available to estimate the
difference between cost new and the present worth of the
improvements (ACCRUED DEPRECIATION) ............................................................. 21
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c. when an INCOME APPROACH IS APPLICABLE, an appraiser must: ................................................ 22
(i) analyze such COMPARABLE RENTAL DATA as are available to ......................................... DNA
estimate the market rental of the property;
(ii) analyze such COMPARABLE OPERATING EXPENSE data as ............................................... 37
are available to estimate the operating expenses of the property;
(iii) analyze such comparable data as are available to
estimate RATES OF CAPITALIZATION and/or ...................................................... 39, 40
estimate RATES OF DISCOUNT and .................................................................. DNA
(iv) base projections of FUTURE RENT and .......................................................... 22, 36
expenses (FUTURE EXPENSES) on reasonably clear and appropriate evidence ...................... 37, 39
d. when developing an opinion of the value of a leased fee estate or a
leasehold estate, an appraiser must analyze the effect on value,
if any, of the TERMS AND CONDITIONS OF THE LEASE(s) ...................................................... 34
e. an appraiser must analyze the effect on value, if any, of the
ASSEMBLAGE OF THE VARIOUS ESTATES or component parts of a property ....................................... DNA
and refrain from valuing the whole solely by adding together the individual
values of the various estates or component parts.
f. an appraiser must analyze the effect on value, if any, of
ANTICIPATED PUBLIC OR PRIVATE IMPROVEMENTS, located on or off the site, to the ........................... 6
extent that market actions reflect such anticipated improvements as of the
effective apprisal date.
g. an appraiser must analyze the effect on value of any
PERSONAL PROPERTY, TRADE FIXTURES, OR INTANGIBLE ITEMS that are not real ................................. 3
property but are included in the appraisal.
h. when appraising proposed improvements, an appraiser must examine
and have available for future examination:
(i) PLANS, SPECIFICATIONS, or other documentation ................................................... DNA
SUFFICIENT TO IDENTIFY THE SCOPE AND CHARACTER OF THE PROPOSED
IMPROVEMENTS; ................................................................................... DNA
(ii) evidence indicating the PROBABLE TIME OF COMPLETION of the ...................................... DNA
proposed improvements; and
(iii) reasonably clear and appropriate evidence supporting
DEVELOPMENT COSTs, .............................................................................. DNA
ANTICIPATED EARNINGs, ........................................................................... DNA
OCCUPANCY PROJECTIONs, and the .................................................................. DNA
ANTICIPATED COMPETITION at the time of completion ............................................... 6
STANDARDS RULE 1-5 (This Standards Rule contains binding requirements from which departure is NOT permitted.)
In developing a real property appraisal, an appraiser must:
a. analyze any current AGREEMENT OF SALE, OPTION, OR LISTING of the property, ............................... 5
if such information is available to the appraiser in the normal course of business;
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Page
<S> <C>
b. analyze any prior sales of the property that occurred within the following
minimum time periods:
(i) one year for one-to-four-family residential property; and
(ii) (TRANSFER IN THE PAST THREE YEARS) three years for all other property types; .................... 5
c. RECONCILE THE QUALITY AND QUANTITY OF DATA available and analyzed within the ............................. 47
approaches used and the APPLICABILITY OR SUITABILITY OF THE APPROACHES used .............................. 47
In reporting the results of a real property appraisal, an appraiser must communicate each analysis, opinion, and conclusion in a
manner that is not misleading.
STANDARDS RULE 2-1 (This Standards Rule contains binding requirements from which departure is NOT permitted.)
Each written or oral real property appraisal report must:
a. clearly and accurately set forth the appraisal in a manner that will not be misleading:
b. contain sufficient information to enable the intended users of the appraisal to
understand the report properly;
c. clearly and accurately disclose any
EXTRAORDINARY ASSUMPTION, ................................................................................ 1
HYPOTHETICAL CONDITION, .................................................................................. 1
or LIMITING CONDITIONS that directly affect the appraisal and indicate its impact on value ........ 1, 51, 53
STANDARDS RULE 2-2 (This Standards Rule contains binding requirements from which
departure is NOT permitted.) Each written real property appraisal report must:
a. (i) state the identity of the client (THE CLIENT) and any ........................................... 1
INTENDED USERs, by name or type; ................................................................ 1
(ii) state the INTENDED USE of the appraisal; ................................................... 1, 4, 51
(iii) describe information sufficient to IDENTIFY THE REAL ESTATE involved ............................ 5
in the appraisal, including the physical (PHYSICAL ATTRIBUTES) and economic ..................... 11
(ECONOMIC ATTRIBUTES) property characteristics relevant to the assignment; ...................... 16
(iv) state the REAL PROPERTY INTEREST APPRAISED; ..................................................... 3
(v) state the PURPOSE OF THE APPRAISAL, including the type and definition of ........................ 1
value (the MARKET VALUE IS DEFINED AS) and its source; .......................................... 2
(vi) state the EFFECTIVE DATE of the appraisal and the ......................................... 1, 42, 49
DATE OF THE REPORT; ............................................................................. 1
(vii) describe sufficient information to disclose to the client and any intended
users of the appraisal the SCOPE of work used to develop the appraisal; ......................... 3
(viii) state all assumptions, HYPOTHETICAL CONDITIONs, and ............................................. 1
LIMITING CONDITIONS that affected the analyses, opinions, and conclusions; ................ 1, 51, 53
(ix) describe the INFORMATION ANALYZED, the .......................................................... 3
APPRAISAL PROCEDURES FOLLOWED, and the .......................................................... 4
REASONING THAT SUPPORTS THE ANALYSES, OPINIONS, AND CONCLUSIONS; ................................ 4
(x) state the use of the real estate existing as of the date of value, and the
use of the real estate reflected in the appraisal; and, when the purpose
of the assignment is market value, describe the support and rationale for
the appraiser's OPINION OF THE HIGHEST AND BEST USE OF THE REAL ESTATE; ...................... 18, 21
(xi) state and EXPLAIN ANY PERMITTED DEPARTURES from specific requirements of ........................ DNA
Standard 1, and the reason for excluding (EXPLAIN AND SUPPORT THE EXCLUSION of) ................. 21
any of the usual valuation approaches;
(xii) include a SIGNED CERTIFICATION in accordance with Standards Rule 2-3 ............................ 52
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STANDARDS RULE 2-3 (This Standards Rule contains binding requirements from which departure is NOT permitted.)
Each written real property appraisal report must contain a signed certification that is similar in content to the following form:
I certify that, to the best of my knowledge and belief:
- the statements of fact contained in this report are true and
correct.
- the reported analyses, opinions, and conclusions are limited
only by the reported assumptions and limiting conditions, and
are my personal, impartial, and unbiased professional
analyses, opinions, and conclusions.
- I have no (or the specified) present or prospective interest
in the property that is the subject of this report, and no (or
the specified) personal interest with respect tot he parties
involved.
- I have no bias with respect to the property that is the
subject of this report or to the parties involved with this
assignment.
- my engagement in this assignment was not contingent upon
developing or reporting predetermined results.
- my compensation for completing this assignment is not
contingent upon the development or reporting of a
predetermined value or direction in value that favors the
cause of the client, the amount of the value opinion, the
attainment of a stipulated result, or the occurrence of a
subsequent event directly related to the intended use of this
appraisal.
- my analyses, opinions, and conclusions were developed, and
this report has been prepared, in conformity with the Uniform
Standards of Professional Appraisal Practice.
- I have (or have not) made a personal inspection of the
property that is the subject of this report. (If more than one
person signs the report, this certification must clearly
specify which individuals did and which individuals did not
make a personal inspection of the appraisal property.)
- no one provided significant professional assistance tot he
person signing this report. (If there are exceptions, the name
of each individual providing significant professional
assistance must be stated.)
STANDARDS RULE 2-4 (This Standards Rule contains specific requirements from which departure is permitted. See DEPARTURE RULE.)
2-4 Deals with oral real property appraisal reports, therefore omitted.
STANDARDS RULE 2-5 (This Standards Rule contains binding requirements from which departure is NOT permitted.)
An appraiser who signs a real property appraisal report prepared by another in any
capacity ACCEPT FULL RESPONSIBILITY for the appraisal and the contents of the ..................................... DNA
appraisal report.
</TABLE>
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Page
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Other specific client requests:
0-1 disclose steps taken to comply with the COMPETENCY Provisions of USPAP; ........................................... 3
0-2 analyze and report a REASONABLE MARKET PERIOD FOR THE SUBJECT PROPERTY; ........................................... 50
0-3 if any information was required for this appraisal, BUT THIS INFORMATION WAS NOT AVAILABLE, ....................... 4
this fact must be disclosed and explained in the appraisal;
0-4 the CURRENT "AS IS" VALUE to be established as required ........................................................... DNA
The 2-2 Standards not outlined here are for the Summary and/or Restricted Use report types. The standards not detailed pertain to
report types not germane to this assignment.
</TABLE>
italics indicate text added for better understanding of requirements.
( ) indicates text added or modified by Chapman & Bell to improve clarity and
understanding of requirements.
*These are the USPAP nondeparture issues.
Revised 6/8/99-TBD
<PAGE>
11405 BLUEGRASS PARKWAY - LOUISVILLE, KENTUCKY Page 1
PURPOSE, USE, AND DATE
----------------------
The PURPOSE OF THE APPRAISAL is to estimate the "as is" market value,
interpreted as the MOST PROBABLE PRICE, of the leased fee estate of the subject
property. The INTENDED USE of this report is for portfolio review by NTS (THE
CLIENT).
There are no other INTENDED USERS of this appraisal to the best of
Integra Chapman & Bell's knowledge. The EFFECTIVE DATE OF THE APPRAISAL is
October 30, 1999. The DATE OF THE REPORT is March 31, 2000.
ASSUMPTIONS AND LIMITING CONDITIONS
-----------------------------------
The special LIMITING CONDITIONS, EXTRAORDINARY ASSUMPTIONS, and/or
HYPOTHETICAL CONDITIONS necessary to complete this assignment and likely to
directly affect the appraisal and conclusions are:
- Financing is available to a credit-worthy purchaser for the
subject property.
- The subject property is environmentally clean.
- The subject is 100,640 square feet and leased to a single
tenant. This single tenant type design limits the utility of
the building because of market conditions.
- At the client's request, a market study was not performed. A
review of the current market trends was made and is discussed
within the highest and best use and in Integra Chapman &
Bell's opinion meets the market study USPAP requirement.
<PAGE>
11405 BLUEGRASS PARKWAY - LOUISVILLE, KENTUCKY Page 2
- Portions of Integra Chapman & Bell analyses are being copied
and distributed to persons other than our clients. Henceforth,
all information, data, and analyses contained within this
report will be protected by copyright law. Reproduction of any
part without the written permission of Integra Chapman & Bell
is expressly prohibited.
USPAP requires Integra Chapman & Bell to IDENTIFY AND EXPLAIN PERMITTED
DEPARTURES FROM THE REQUIREMENTS OF STANDARD 1. A review of the USPAP revealed
no departures.
DEFINITION OF THE VALUE AND INTEREST APPRAISED
----------------------------------------------
The market value is defined as:
The most probable price which a property should bring in a
competitive and open market under all conditions requisite to a fair
sale, the buyer and seller each acting prudently and knowledgeably, and
assuming the price is not affected by undue stimulus. Implicit in this
definition is the consummation of a sale as of a specified date and the
passing of title from seller to buyer under conditions whereby:
1. Buyer and seller are typically motivated;
2. Both parties are well informed or well advised, and acting in
what they consider their own best interests;
3. A reasonable time is allowed for exposure in the open market;
4. Payment is made in terms of cash in U.S. dollars or in terms
of financial arrangements comparable thereto; and
5. The price represents the normal consideration for the property
sold unaffected by special or creative financing or sale
concessions granted by anyone associated with the sale.(1)
--------
(1) The Appraisal Foundation, USPAP, 1999 Edition p. 139.
<PAGE>
11405 BLUEGRASS PARKWAY - LOUISVILLE, KENTUCKY Page 3
The REAL PROPERTY INTEREST APPRAISED is the leased fee estate which is
a PARTIAL HOLDING of a FRACTIONAL INTEREST and is a PARTIAL HOLDING of a
PHYSICAL SEGMENT and is defined as:
An ownership interest held by a landlord with the right of use
and occupancy conveyed by lease to others; the rights of lessor or
leased fee owner and leased fee are specified by contract terms
contained within the lease.(2)
PERSONAL PROPERTY
-----------------
No personal property, trade fixtures, or intangible items are
considered in this valuation.
SCOPE
-----
The SCOPE of work necessary to complete this assignment considers the
EXTENT OF THE DATA COLLECTION PROCESS. For this assignment, the INFORMATION
ANALYZED includes an inspection of the subject property; analysis of the
neighborhood, market area, land comparables, improved comparables, and leased
comparables; and analysis of the highest and best use incorporating economic
factors from the market area and neighborhood that may impact the subject.
Integra Chapman & Bell's COMPETENCY to appraise this type of property is based
on prior experience as revealed to the client as well as the data, analyses, and
conclusions that have been developed in this report.
--------
(2) Appraisal Institute, THE DICTIONARY OF REAL ESTATE APPRAISAL, Third
Edition (Chicago, Illinois, 1993) p. 204.
<PAGE>
11405 BLUEGRASS PARKWAY - LOUISVILLE, KENTUCKY Page 4
The CHARACTERISTICS OF THE PROPERTY THAT ARE RELEVANT TO THE PURPOSE
AND INTENDED USE are described in the site and improvement descriptions of this
report. The relevance of these characteristics to the value sought are focused
upon in the highest and best use and value impact explained in the appropriate
approach to value. The EFFECT ON USE AND VALUE OF EXISTING LAND USE REGULATIONS
to include zoning, overlay studies, and binding elements, are reviewed and
discussed in the site's PHYSICAL ATTRIBUTE section and value impacts explained
in the Cost Approach or land value analysis.
The APPRAISAL PROCEDURES FOLLOWED include two of the three approaches
to value which are the Sales Comparison and Income Approaches. The data utilized
in these approaches is obtained from buyers, sellers, brokers, leasing agents,
property managers, and other parties that may have been involved in
transactions. Integra Chapman & Bell assumes the information received from these
various sources and verification where possible is correct and representative of
the actual transaction. In each of the approaches and the final correlation, the
REASONING THAT SUPPORTS THE ANALYSES, OPINIONS, AND CONCLUSIONS is described.
A number of items were requested and furnished to assist the appraiser.
However, the following items were also requested, BUT THIS INFORMATION WAS NOT
AVAILABLE:
- Detailed Building Plans
- Environmental Report
- ADA Report
- Title Report
- Shared Access and Parking Agreement
LEGAL ATTRIBUTES, SALES HISTORY, AND ZONING
-------------------------------------------
The purpose of this part of the report is to identify the LEGAL
ATTRIBUTES and IDENTIFY THE REAL ESTATE being appraised. This is done through
the address, the
<PAGE>
11405 BLUEGRASS PARKWAY - LOUISVILLE, KENTUCKY Page 5
Jefferson County Property Valuation Administrator's Office (PVA)
identification, and the property legal description. The SUBJECT'S LOCATION is
identified by the Jefferson County PVA as Tax Block 2239, Lot 60 and by Deed
Book 6024, Page 297. The subject is owned by Blankenbaker Business Center Joint
Venture. The subject property legal description was obtained from the client
and is shown in Exhibit "A". A title report and survey were requested from the
client, but a title report was not provided. These sources were used to
IDENTIFY AND DESCRIBE THE REAL ESTATE. Figure 1 is the tax map of the subject.
Based on the Jefferson County PVA's records, the property has not had a
TRANSFER IN THE PAST THREE YEARS, nor is it presently subject to an AGREEMENT OF
SALE, OPTION, OR LISTING, based upon the information available to Integra
Chapman & Bell. The survey and legal description were relied upon as the source
for EASEMENTS, RESTRICTIONS, ENCUMBRANCES, LEASES, RESERVATIONS, COVENANTS,
CONTRACTS, DECLARATIONS, SPECIAL ASSESSMENTS, AND ORDINANCES. No impact on value
was observed using these resources for the restrictions to the bundle of rights.
The subject is zoned PEC, Planned Employment Center District, and is
improved in compliance with the zoning ordinance. Figure 2 is the current zoning
map, and Exhibit "B" in the Addenda is a copy of the PEC, Planned Employment
Center, zoning regulations.
<PAGE>
11405 BLUEGRASS PARKWAY - LOUISVILLE, KENTUCKY Page 6
Figure 1
Tax Map
<PAGE>
11405 BLUEGRASS PARKWAY - LOUISVILLE, KENTUCKY Page 7
Figure 2
Zoning Map
<PAGE>
11405 BLUEGRASS PARKWAY - LOUISVILLE, KENTUCKY Page 8
TAX AND ASSESSMENT ANALYSIS
---------------------------
The subject property is taxed under the jurisdiction of the Jefferson
County PVA's Office and the State of Kentucky at 100 percent of market value.
The PVA's current assessment will be used for determining the tax liability. The
subject property is assessed as follows:
Land $ 324,740
Improvements $ 5,815,900
-----------
Total $ 6,140,640
The taxes are estimated to be $68,161 based upon the current tax rate
of 1.11 per $100 assessment and includes State, County, and City of
Jeffersontown tax. The real estate taxes are passed through to the tenant as a
reimbursement based on the present lease. At the roll over of the present lease,
the future lease terms will include a real estate tax reimbursement.
NEIGHBORHOOD AND DISTRICT DESCRIPTION
-------------------------------------
The MARKET TRENDS IMPACT ON THE USE AND ADAPTABILITY are observed by
Integra Chapman & Bell to be in the immediate Jeffersontown area. This
neighborhood includes the major industrial area of the Bluegrass Industrial
Park. There are no known new additions to this district which are ANTICIPATED
COMPETITION for the proposed subject development. Anticipated public or private
improvements, which may impact the subject, include the widening and expansion
of Hurstbourne Lane and the Interstate 64 off ramp at Hurstbourne Lane.
The subject is located on the northeast corner of Bluegrass Parkway and
Commerce Court in the easterly portion of Jefferson County approximately 12
radial miles east of Louisville's central business district (CBD). The property
is situated within the city limits of Jeffersontown.
The area is bounded on the north by Shelbyville Road, on the east by
Gene
<PAGE>
11405 BLUEGRASS PARKWAY - LOUISVILLE, KENTUCKY Page 9
Snyder Freeway, on the south by Taylorsville Road, and on the west by
Hurstbourne Parkway. Figure 3 is a neighborhood map outlining these boundaries
and locating the subject property in its relationship to Eastern Jefferson
County. The neighborhood area is approximately 80 percent developed. The
estimated land uses within the neighborhood are outlined as follows:
Single-family Residential 30%
Multi-family Apartments/Condominiums 5%
Office 10%
Commercial 10%
Industrial 20%
Institutional 5%
Vacant Land 20%
<PAGE>
11405 BLUEGRASS PARKWAY - LOUISVILLE, KENTUCKY Page 10
Figure 3
Neighborhood Map
<PAGE>
11405 BLUEGRASS PARKWAY - LOUISVILLE, KENTUCKY Page 11
The primary single-family residential developments in the neighborhood
include Forest Hills, Houston Acres and Bluegrass Estates in the southern part
of the neighborhood and Plainview, Plainview Place, Grandin Woods, Douglass Hill
Estates, Woodland Hills, Cross Creek, and Towne Creek north of Interstate 64.
The homes in the southern portion of the neighborhood range in price from
$100,000 to $200,000 and in the northern portion from $150,000 to $400,000.
Homes in this area are well maintained, and the history of resales is good. Most
of the homes range in age from 10 to 30 years and both Plainview Place and
Grandin Woods currently have lots available.
The larger apartment complexes in the neighborhood include Plainview,
Vieux Carre, Hurstbourne Apartments, Charlestown of Douglas Hills, and The
Willows with most of these located off Hurstbourne Parkway. Smaller complexes of
12 to 50 units are more typical in the southern portion of the neighborhood. The
most recent condominium development include patio homes on and off of
Hurstbourne Lane as well as a conversion of an apartment project to East Hampton
Condominiums in the Plainview subdivision with prices ranging from $75,000 to
$110,000.
Office use in the neighborhood is primarily located along Hurstbourne
Parkway and Linn Station Road in the Plainview development. Recently several
smaller office buildings have been constructed along Shelbyville Road and Old
Main Street. Ninety-five percent plus of the for rent office space within the
neighborhood is located north of Interstate 64. Owner occupied space is more
prevalent south of Interstate 64. Currently, the Class "B" office market in
Eastern Jefferson County has occupancy levels near 90 percent. In the immediate
vicinity of the subject, there are a growing number of buildings with Class "B"
office building space and some recently constructed flex space with Class "B"
office space. Several small office buildings and office service (flexspace)
structures (less than 20,000 square feet) have been built in the Blankenbaker
Lane area
<PAGE>
11405 BLUEGRASS PARKWAY - LOUISVILLE, KENTUCKY Page 12
in the past five years. Some of the properties in the immediate area are:
Project Name Rental Rates
----------------------------------------------------------------
Blankenbaker Business Center II $9.00-$10.50(1)
Papa John's Headquarters Owner Occupied
McKendree College Owner Occupied
Sears Communications Long Term Lease
Joseph Building $13.00-$14.00
Accordia Owner Occupied
Kentucky CPA's Owner Occupied
Micro Computer Solutions Owner Occupied
BHM Corporation Owner Occupied
---------------------------------------------------------------
(1)Office only, tenant pays utilities and CAM charges
The industrial parks within the neighborhood include Bluegrass
Industrial Park, Commonwealth Business Park, Holloway Industrial Park,
Jeffersontown Business Park, and Blankenbaker Crossings. All are south of
Interstate 64 and are considered good industrial locations within Jefferson
County.
The subject is located within Blankenbaker Crossings which has zoning
approved areas for corporate campus, industrial parks, retail/hotel/highway
service, and office/showroom sites. On the north side of the Interstate 64
interchange, NTS, the developer of Blankenbaker Crossings, has recently rezoned
several acres to highway service uses. The site has been developed for a
convenience store and hotels.
Development in the area for highway service continues with limited
service hotels and restaurants. Approximately 55 acres of Blankenbaker Crossing
was sold to Alliant for a hospital campus, but is presently being sold off for
commercial office uses. Demand for this site is high based on interviews with
brokers and announcements of new projects.
There are areas of Blankenbaker Crossings relegated to certain
architectural control and planning to include open space, landscaping, and
amenities (lake, jogging trail, etc). The park is one of the most highly
desirable parts of Jefferson County for
<PAGE>
11405 BLUEGRASS PARKWAY - LOUISVILLE, KENTUCKY Page 13
industrial/service use.
Institutional uses include public schools, private schools, and
churches. A Jefferson County Government Center is located on the north side of
Shelbyville Road at Juneau Drive. Elementary schools in the area include Jane
Hite and Middletown. Crosby Middle School is located in the center of Douglass
Hills, and Eastern High School is located on the south side of Shelbyville Road
near Woodland Hills. The parochial school serving the area is St. Margaret Mary
located on Shelbyville Road west of the subject neighborhood across from Oxmoor
Mall. St. Patrick's, a new Catholic church and school, have been completed on
Beckley Station Road just east of the Lake Forest development. Southeast
Christian Church, the largest church in Jefferson County, is building a new
campus at the northwest corner of Blankenbaker Road and Ellingsworth Lane. This
development extends northward to Watterson Trail and encompasses 50 acres.
Vacant land accounts for approximately 20 percent of the neighborhood,
and is primarily located in the east and southeast portions of the area. As
roadways are extended and utilities expanded, these areas will become developed
into commercial and residential uses within the foreseeable future.
Police and fire protection are provided by Jeffersontown and Jefferson
County. The Jeffersontown Fire Department is approximately 1.5 miles south of
the subject property providing ample fire protection to the properties in
the City of Jeffersontown. To the north, the Middletown Volunteer Fire
Department also provides service.
Utilities servicing the area include natural gas and electricity
supplied by Louisville Gas & Electric, water supplied by Louisville Water
Company, telephone provided by Bell South, and sewage disposal by the
Jeffersontown Sewer System and the Metropolitan Sewer District (MSD) as well as
independent sewer plants and septic systems.
Recreational facilities in the area include Midland Trail Golf Course,
Black Acre
<PAGE>
11405 BLUEGRASS PARKWAY - LOUISVILLE, KENTUCKY Page 14
Nature Preserve, Tucker Station Aquatic Club, Plainview Tennis and Swim Club,
Douglass Hills Swim Club, Lake Forest Country Club, and Valhalla, a private
club.
In summary, the neighborhood is well serviced by shopping, school,
office, and recreational facilities. Utilities are reasonably adequate and
available in developed areas. Eastern Jefferson County has demonstrated the most
dynamic growth pattern in Jefferson County, and this neighborhood should
continue to experience growth over the next 10 to 15 years.
<PAGE>
11405 BLUEGRASS PARKWAY - LOUISVILLE, KENTUCKY Page 15
PHYSICAL ATTRIBUTES
-------------------
The PHYSICAL ATTRIBUTES are divided into the site and improvement
descriptions of the property.
SITE ATTRIBUTES
---------------
The subject is a corner site at Bluegrass Parkway and Commerce Court.
The improvements, known as Blankenbaker Center, consist of two tracts known as
1A and 1B. The subject of the appraisal is 1A only. A minor subdivision plat is
included as Figure 4. The two sites have shared parking and access.
Land Area: Approximately 5.228 acres or 227,732 square feet.
Shape: Irregular shaped
Front Feet: Approximately 500 front feet along Bluegrass
Parkway. Approximately 400 feet along Kentucky
Mills Drive.
Topography: Level, on grade with the street.
Drainage: To the north
Flood Zone: According to Flood Insurance
Rate Map (FIRM) Panel #21111C0095-D,
dated February 2, 1994 (Figure 5),
the subject is located in Flood Zone
"X", an area outside the 100-year
flood plain.
Utilities: Water, sewer, electricity, natural gas, and
telephone.
Parking Spaces and Material: 123 spaces asphalt-paved and lined; 4' wide
concrete sidewalks, concrete curbs on
site. The subject shares parking with
adjoining parcels. The overall
parking ratio is considered typical
for neighboring office uses.
Street Improvements: Bluegrass Parkway is a 70' (100' right-of-way) wide
three-lane connector artery to Blankenbaker Parkway
and Hurstbourne Lane. Kentucky Mills Drive is a
secondary access road.
Ingress and Egress: 40-foot wide, two-lane, asphalt-paved curb cuts to
Bluegrass Parkway and service road.
Building/Land Ratio: 0.43 - The building to land
ratio has not considered use of the
adjoining sites. This density is
high, but giving consideration to the
off-site parking, it is within the
market parameters.
<PAGE>
11405 BLUEGRASS PARKWAY - LOUISVILLE, KENTUCKY Page 16
Setbacks and Easements: The subject is 100' set back from Bluegrass Parkway
and Kentucky Mills Drive. Access easements are at
the north side of the site from Kentucky Mills
Drive and southern access drive. Utility easements
are along the northern and southern periphery. The
easements have no negative influence on the site
use.
Miscellaneous Site Parking lot curbing, landscaped islands and
Improvements: landscaping, patio area, exterior building
lighting.
<PAGE>
11405 BLUEGRASS PARKWAY - LOUISVILLE, KENTUCKY Page 17
Figure 4
Site Plan
<PAGE>
11405 BLUEGRASS PARKWAY - LOUISVILLE, KENTUCKY Page 18
Figure 5
Flood Plain Map
<PAGE>
11405 BLUEGRASS PARKWAY - LOUISVILLE, KENTUCKY Page 19
Overall, the subject site has average utility and visibility for its
existing use. The inspection revealed no apparent adverse easements or
encroachments. The parking ratio is 12.1 spaces per 1,000 square feet of gross
building area (GBA) which is sufficient for office use. Additional parking is
adjacent to the site in sufficient quantity. Based upon Integra Chapman & Bell's
inspection, the soils are of suitable load-bearing capacity as evidenced by the
U.S.D.A. soil maps, surrounding properties, and the subject's integrity.
Photographs of the subject are included as Exhibit "C".
IMPROVEMENT ATTRIBUTES
----------------------
A detailed description of the subject's improvement attributes is as
follows and was taken from an inspection of the property.
A detailed description of the subject's improvements was taken from a
physical inspection of the property. The subject is occupied by a single tenant.
The office space is classified as Class "B" finish. The office space is
primarily open "bull pen" space. The space has some executive offices, computer
room with raised floor, cafeteria, and loading dock. The computer room floor
tiles are FF&E and not considered part of the real estate.
<PAGE>
11405 BLUEGRASS PARKWAY - LOUISVILLE, KENTUCKY Page 20
EXTERIOR
--------
Year Built: 1984; Addition in 1994
Gross Building Area: 100,640 square feet based on site drawings
Gross Leasable Area: 96,926 square feet (96 percent) based on interior wall
measurements as a single tenant building.
Efficiency as multi-tenant building is
estimated at 88 percent. The lower efficiency
is because of the common area interior halls,
baths, and elevators (shafts). The multi-tenant
efficiency is within the market parameters.
Foundation: Four inch poured concrete foundation reinforced with
steel drilled piers.
Framing: Steel frame; one-hour fire rated walls in various areas;
average condition.
Walls and Doors: Steel studs, brick, reflective glass exterior. Entry
doors are tinted glass; average condition.
Windows: Tinted double-pane in metal frame.
Roof Structure: Flat roof, with concrete on steel decking with
insulation.
Roof Cover: Rubberized membrane; average condition.
Number of Stories: Two
Stairwells: One at each end of hallway and interior stairwell.
INTERIOR
--------
Walls: Painted drywall, wallpaper/vinyl covering in some areas;
average condition.
Ceiling: Painted drywall, and acoustical tile in metal grid in
office areas; open atrium at entrance; average condition.
Floors: Concrete subfloors in metal pan; tile or carpet in office
and hallway; tile in restrooms; average condition.
Lighting: Incandescent and recessed flourescent panels; average
condition.
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11405 BLUEGRASS PARKWAY - LOUISVILLE, KENTUCKY Page 21
Doors: Glass entry doors in metal frames; solid wood or wood/
glass office entry doors; average condition.
Electric: 1,200 amps, 277/480 volts, 3-wire, 4-phase. Electrical
assumed to be adequate to accommodate the structure;
average condition.
Plumbing: Men and women restrooms on each floor with six fixtures
each. Natural gas-fired water heaters; average condition.
Sprinkler: Dry sprinkler. Computer area is dry sprinkler.
Heating, Ventilation, Central package HVAC with natural gas-fired furnace;
and Air Conditioning: assumed to be of adequate capacity; mechanical/electric
room on each floor; exhaust ducts roof-mounted.
Effective Age: 14 years
Economic Life: 55 years
Miscellaneous: Hydraulic elevator with two cab stops and back up
emergency generators.
As of the date of the inspection, this analysis revealed the following
deferred maintenance:
- Some replacement of carpet and tile flooring
- Minor deferred maintenance, such as painting
These items are minimal and will be deducted as a maintenance and
repair expense in the Income Approach.
The physical incurable depreciation will be dealt with using age/life
method which is a ratio of effective age as observed in the marketplace versus
the sum of the remaining economic life and the effective age.
<PAGE>
11405 BLUEGRASS PARKWAY - LOUISVILLE, KENTUCKY Page 22
To determine the physical adaptability of the property for its future
use, several important property attributes were investigated including the cost
to subdivide the space and the renovation cost. The floor plan will not affect
the economic life or utility of the property. These attributes have been
considered in the approaches to value through adjustments to sales,
depreciation, and rent level, if appropriate.
ECONOMIC ATTRIBUTES
-------------------
The ECONOMIC ATTRIBUTES are discussed under the highest and best use
concept which is the use or the likely use which will create the maximum return
to the land. HIGHEST AND BEST USE OF THE REAL ESTATE gives consideration to the
possible, physical, feasible, legal, and permitted uses which would provide the
highest net return to the owner of the site under all current market conditions.
Highest and best use is defined as:
The reasonably probable and legal use of vacant land or an
improved property, which is physically possible, appropriately
supported, financially feasible, and that results in the highest value.
The four criteria the highest and best use must meet are legal
permissibility, physical possibility, financial feasibility, and
maximum profitability.(3)
The previous definition applies specifically to the highest and best
use of the land. In many cases where a site has existing improvements, the
highest and best use may well be determined to be different from the existing
use. The existing use would continue until the land value exceeds the total
value of the property in its existing use. Due to the age and condition of the
subject's improvements, this is unlikely in the near
--------
(3) Appraisal Institute, THE DICTIONARY OF REAL ESTATE APPRAISAL, Third
Edition (Chicago, Illinois, 1993), p. 171.
<PAGE>
11405 BLUEGRASS PARKWAY - LOUISVILLE, KENTUCKY Page 23
future.
Further implied within the definition of highest and best use is the
recognition of the contribution of the specific use to the community environment
or community development goals. In appraisal practice, the concept of highest
and best use represents the premise upon which value is based.
HIGHEST AND BEST USE AS VACANT
------------------------------
LEGAL PERMISSIBILITY
The subject property is zoned PEC, Planned Employment Center. The
parcel is legally capable to be developed to an array of office uses as
currently exist within the area. As such, the site's possible, physical, and
feasible features carry a higher significance in the highest and best use
analysis of the property than the legally permitted uses.
PHYSICAL POSSIBILITY
The parcel is of significant size and possess good physical and visual
access from Bluegrass Parkway and Interstate 64. All public/private utilities
such as water, sewer, electricity, and telephone are available to the site. The
site is level on grade with the street and drains to the north or to the rear of
the site. The property is outside the 100-year flood zone. General surrounding
uses tend to indicate that the soil type has adequate load- bearing capacity,
but no engineering reports were provided to verify this observation. The site is
not considered to be restricted by potential physical problems. The site's
density is higher than the neighborhood office type properties taking advantage
of the cross parking and access agreement.
<PAGE>
11405 BLUEGRASS PARKWAY - LOUISVILLE, KENTUCKY Page 24
FINANCIAL FEASIBILITY
The financial feasibility is generally believed to be met by the
location of similar uses in the area. Rents in the current market tend to
support a reasonable return on land and building and should continue to show
slight increases over the near forseeable future. Further, given the land value
of the subject and those in the immediate area, development for office or light
industrial is possible.
The subject site is zoned PEC, Planned Employment Center, and is
capable of being utilized as office or light industrial. Considering the site's
size, shape, and interstate exposure, other uses would not be feasible for the
site.
MAXIMUM PROFITABILITY
The site, as if vacant, can be used for any number of zoned industrial,
service, or office uses. However, due to the subject's size, access, exposure,
and neighboring uses, the most likely use for the subject's site is for office
development.
In summary, the opinion of the highest and best use of the real estate
as vacant is the subject property's current use for high industrial or office.
<PAGE>
11405 BLUEGRASS PARKWAY - LOUISVILLE, KENTUCKY Page 25
HIGHEST AND BEST USE AS IMPROVED
--------------------------------
LEGAL PERMISSIBILITY
The improvements conform to zoning, building codes, density, and
setbacks. In addition, the parking, building heights, landscaping, access,
drainage, and other (public or private/deed) restrictions are assumed to have
been met.
PHYSICAL POSSIBILITY
The improvements for a single tenant use have a contributory value;
however, may suffer from functional or economic obsolescence. The building
utility is limited to larger tenants only, because of the layout and design,
such as lack of second floor windows facing courtyard, few common hallways, and
space floor plate. These issues will be addressed in the space absorption and
renovation cost for a multi-tenant building conversion.
To determine the most appropriate redesign of the building to
accommodate multi- tenants, market area office buildings were surveyed and
office brokers interviewed to determine the absorption rate, market rent, and
tenant size. The office market area is classified as Plainview, Hurstbourne, and
Shelbyville Road corridors. The buildings analyzed were of similar class, age,
and market area. The largest space users found in multi-tenant office buildings
are from 20,000 to 30,000 square feet. Larger users will typically occupy single
tenant buildings based a survey of rent rolls. Dividing the largest possible
tenant size into the total square footage, the smallest tenant size and fewest
number of tenants acceptable in the market is four. The probability of another
single tenant user is less likely than a division of the building into four
tenant spaces.
FINANCIAL FEASIBILITY/MAXIMUM PROFITABILITY
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11405 BLUEGRASS PARKWAY - LOUISVILLE, KENTUCKY Page 26
From the Integra Chapman & Bell biannual market survey, the vacancy
rate for subject's market area (Area 3: Eastern Jefferson County - north of
Interstate 64, east of Interstate 264 to Oldham and Shelby County Lines) as of
March 1999 is 6 percent. The total area accounts for approximately 1.6 million
square feet. The estimated space absorption has been approximately 90,000 square
feet per year.
Historic trends in the market indicate less construction in the last
two years of multi- tenant speculative space. Most office buildings less than
100,000 square feet are built-to- suit or have a high percentage of owner
occupancy. Some speculative office space is being constructed or planned in the
general area at Hurstbourne Green Business Park, Blankenbaker Business Center,
and Eastpoint. In-fill buildings are also being constructed near higher density
areas and retail growth areas.
The factors related to financial feasibility were addressed on a
general basis in the Neighborhood Analysis. The direct competitors to the
subject were analyzed to determine the maximum profitability. The buildings in
the submarket are broken down as follows:
<PAGE>
11405 BLUEGRASS PARKWAY - LOUISVILLE, KENTUCKY Page 27
<TABLE>
<CAPTION>
Bluegrass Park - Office Submarket
GLA Number of Average SF
Square Foot Rent $/SF Occupancy Tenants of Tenants
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Blankenbaker Business Center IB 60,080 $ 7.50 100% 6 10,013
Blankenbaker Business Center II 73,500 $ 8.50 55% 7 10,500
Commonwealth Business Center I 81,214 $10.00 100% 6 13,536
Commonwealth Business Center II 66,761 $ 8.50 85% 11 6,069
</TABLE>
Source: Business First and Integra Chapman & Bell 1999 Office Survey
These buildings represent the subject's direct competition by location.
A survey of buildings in Jefferson County shows little demand exists for a
100,000 square foot of office/bull pen type space. The subject is unique because
of the design for the single tenant occupancy. These competitors' typical tenant
spaces are broken down into 2,000 to 25,000 square feet with average tenant size
from 6,069 to 13,536 square feet.
Vacancies for the submarket buildings range from 55 to 100 percent. The
market overall occupancy has seen moderate growth, because of added inventory
with vacancy being created on a short term basis less than 12 months because of
tenant move outs. A survey of brokers indicate market periods of leased space to
be less than 12 months.
Based upon these observations, the opinion of the highest and best use
of the real estate as improved is the current office use.
<PAGE>
11405 BLUEGRASS PARKWAY - LOUISVILLE, KENTUCKY Page 28
VALUATION ANALYSIS
------------------
The appropriate MARKET ANALYSIS and/or economic demand analysis has
been performed to address the demand characteristics from which the value impact
can be determined. The value derived used RECOGNIZED METHODS AND TECHNIQUES THAT
ARE NECESSARY TO PRODUCE A CREDIBLE APPRAISAL. The typical methods considered in
an appraisal analysis are the Cost, Sales Comparison, and Income Approaches to
value.
The Cost Approach has not been analyzed, because of the difficulty in
determining accrued depreciation for the improvements. The Cost Approach is also
not utilized to determine value by market participants. This is deemed adequate
to EXPLAIN AND SUPPORT THE EXCLUSION of the Cost Approach.
The SALES COMPARISON APPROACH IS APPLICABLE and utilizes the dollar
sale-price-per-square foot unit of comparison with adjustments made for
differences between the sales as compared to the subject. This approach
estimates the "as is" leased fee value. An analysis of value using the effective
gross income multiples (EGIM) has also been included in this approach. These
methodologies have been analyzed to support the value derived from the Income
Approach.
The INCOME APPROACH IS APPLICABLE and uses a discounted cash flow
analysis to estimate the leased fee value. Future rent is based on the market
lease. The subject lease has been compared to current economic rent using other
current market area leases. The greatest weight will be given to the Income
Approach with corollary support from the Sales Comparison Approach.
Because the subject will not likely be released by the current tenant,
at the lease termination the space will be absorbed at market rents. It is
unlikely the subject will be leased to a single tenant, therefore, the space has
been subdivided into four spaces of approximately 22,000 square feet. Expenses
and investor capitalization and discount
<PAGE>
11405 BLUEGRASS PARKWAY - LOUISVILLE, KENTUCKY Page 29
rates were determined from comparables and interviews with market area
participants. The indicated value is the "as is" value.
The values were correlated to determine the "as is" leased fee market
value. The subject lease has been considered in the leased fee analysis.
COST APPROACH
-------------
LAND VALUE
----------
The land was valued by the Sales Comparison Approach, as though vacant
and available for its highest and best use. A search resulted in the collection
of six sales, which were verified and analyzed on a dollar-per-square foot
basis. These land sales were primarily developed for office condominiums rather
than speculative office. A higher percentage of potential office sites are being
developed for office condominiums, because of greater demand for owner occupied
units, therefore, land sales are also reflective of this trend. None of the
comparables (unless stated on the sale summary) have resold in the past three
years to the best of Integra Chapman & Bell's knowledge.
A summary of these sales and rating grid is included as Figure 6.
Details of these sales are found in the Addenda as Exhibit "D".
<PAGE>
=
11405 BLUEGRASS PARKWAY - LOUISVILLE, KENTUCKY Page 30
<TABLE>
Figure 6
Land Sales Identified and Described
<CAPTION>
1 2 3 4 5
<S> <C> <C> <C> <C> <C>
Key Number 4577 6297 6005 7364 6066
Name Williamsburg Office
Address Stone Creek Pkwy Wessex Pl 11800-06 Brinley Ave 1701 Alliant Ave 10525 Whetstone Way
City Louisville Louisville Louisville Jeffersontown Louisville
State KY KY KY KY KY
Date of Sale 1-Aug-95 30-Dec-97 11-Sep-97 17-Jun-99 28-Mar-97
Sale Price $453,850 $445,000 $249,900 $170,000 $658,000
Cash Equiv. Amt. $453,850 $445,000 $249,900 $170,000 $658,000
#of SQ FT 78,931 135,036 68,738 56,105 121,968
# of Acres 1.81 3.10 1.58 1.29 2.80
Zoning OR-3 OR-3 OR-3 PEC C-1
Land Use Office Office Office Office Office
Topography Level Level Level to Sloping Level/Sloping Level
Price Per SF $5.75 $3.30 $3.64 #3.03 $5.39
Property Rights Fee Simple Fee Simple Fee Simple Fee Simple Fee Simple
Dollar Adjustment $0.00 $0.00 $0.00 $0.00 $0.00
Percentage Adj. 0.00% 0.00% 0.00% 0.00% 0.00%
Adjusted Price $5.75 $3.30 $3.64 #3.03 $5.39
Financing Terms Market Market Market Market Market
Dollar Adjustment $0.00 $0.00 $0.00 $0.00 $0.00
Percentage Adj. 0.00% 0.00% 0.00% 0.00% 0.00%
Adjusted Price $5.75 $3.30 $3.64 #3.03 $5.39
Conditions of Sale
Dollar Adjustment $0.00 $0.00 $0.00 $0.00 $0.00
Percentage Adj. 0.00% 0.00% 0.00% 0.00% 0.00%
Adjusted Price $5.75 $3.30 $3.64 #3.03 $5.39
Time/Market Condition 16.65% 6.98% 8.19% 1.13% 10.02%
% Adjustment (4.00%)
Time ADJ Price Per SF $6.71 $3.53 $3.94 $0.06 $5.93
</TABLE>
<PAGE>
11405 BLUEGRASS PARKWAY - LOUISVILLE, KENTUCKY Page 31
<TABLE>
<S> <C> <C> <C> <C> <C>
Location Comparable Comparable Comparable Inferior Comparable
Dollar Adjustment $0.00 $0.00 $0.00 $0.46 $0.00
Percentage Adj. 0.00% 0.00% 0.00% 15.00% 0.00%
Adjusted Price $6.71 $3.53 $3.64 $3.03 $5.39
Size Superior Comparable Superior Superior Comparable
Dollar Adjustment ($1.01) $0.00 ($0.59) ($0.53) $0.00
Percentage Adj. -15.00% 0.00% -15.00% -15.00% 0.00%
Adjusted Price $5.70 $3.53 $3.35 $2.99 $5.93
Utility Comparable Inferior Inferior Comparable Comparable
Dollar Adjustment $0.00 $1.94 $0.50 $0.00 $0.00
Percentage Adj. 0.00% 55.00% 15.00% 0.00% 0.00%
Adjusted Price $5.70 $5.47 $3.85 $2.99 $5.93
Net Adjustment ($1.01) $1.94 ($0.09) ($0.07) $0.00
Net Percent Adj. -15.05% 54.96% -2.28% -2.29% 0.00%
Adjusted Price $5.70 $5.47 $3.85 $2.99 $5.93
Market Range Per SF Indicated Land Value
Maximum = $5.93 227,732 SF @
Minimum = $2.99 $4.00 Per SF = $910,928
Mean = $4.79 Rounded to $910,000
</TABLE>
<PAGE>
11405 BLUEGRASS PARKWAY - LOUISVILLE, KENTUCKY Page 32
The comparables selected are briefly summarized as follows:
Comparable 1 is located on Stone Creek Parkway in Louisville, Kentucky
containing 78,931 square feet or 1.81 acres and selling for a confirmed price of
$453,850 in August 1995. The site characteristics include water, sewer,
electricity, natural gas, and telephone with none of the site in the 100-year
flood plain and zoned OR-3, Office. This site was used for office condominiums.
Comparable 2 is located on Wessex Place in Louisville, Kentucky
containing 135,036 square feet or 3.10 acres and selling for a confirmed price
of $445,000 in December 1997. The site characteristics include water, sewer,
electricity, natural gas, and telephone with approximately 50 percent of the
site in the 100-year flood plain and zoned OR-3. This site was used for a
multi-tenant office building.
Comparable 3 is located on Brinley Avenue in Louisville, Kentucky
containing 68,738 square feet or 1.58 acres and selling for a confirmed price of
$249,900 in September 1997. The site characteristics include water, sewer,
electricity, natural gas, and telephone with none of the site in the 100-year
flood plain and zoned OR-3. Approximately 24 percent of the site is unusable due
to a retention basis. This site was used for office condominium development.
Comparable 4 is located on Alliant Way in Louisville, Kentucky
containing 56,105 square feet or 1.29 acres and selling for a confirmed price of
$170,000 in June 1999. The site characteristics include water, sewer,
electricity, natural gas, and telephone with none of the site in the 100-year
flood plain and zoned PEC, Office. This site is to be used for speculative
office space.
Comparable 5 is located on Whetstone Way in Louisville, Kentucky
containing 121,968 square feet or 2.80 acres and selling for a confirmed price
of $658,000 in March 1997. The site characteristics include water, sewer,
electricity, natural gas, and telephone with none of the site in the 100-year
floodplain and zoned C-1, Office.
<PAGE>
11405 BLUEGRASS PARKWAY - LOUISVILLE, KENTUCKY Page 33
Adjustments for interest appraised and condition of sale are not
necessary for the sales selected. The adjustment for market condition (time) is
4 percent, based upon linear regression of the sales included plus other sales
in the market not sufficiently comparable to consider.
A direct comparison of the comparables revealed a size adjustment of 15
percent for sites less than two acres in size.
The location adjustment, when required, was based upon comparison of
sales after time and size adjustments. Comparable 4 was also adjusted 15 percent
due to its secondary access.
A utility adjustment was applied to Comparables 2 and 3 for loss due to
retention basins or flood plain. Comparable 2 was adjusted 55 percent due to 50
percent of the site located within the 100-year flood plain. Comparable 3 was
adjusted 15 percent due to the retention basis, which resulted in a lower
density of the site.
Comparables 4 and 5 were the most similar to the subject due to their
locational characteristics, size, and most recent date of sale. The fee simple
land value is estimated at $910,000.
SALES COMPARISON APPROACH
-------------------------
The Sales Comparison Approach was utilized to value the improvements.
Recent sales of comparables were analyzed on a dollar-per-square foot (GBA)
basis after subtracting the estimated land value at the time of sale using land
sales in the area. There were no single tenant building sales available,
therefore all of the comparables are multi- tenant buildings. To the best of
Integra Chapman & Bell's knowledge, none of the comparables (unless stated on
the sale summary) have resold in the past three years. The Sales Comparison
Approach will be used to determine the "as is" value.
<PAGE>
11405 BLUEGRASS PARKWAY - LOUISVILLE, KENTUCKY Page 34
The future capital expenditures to renovate the subject into a multi-tenant
office building will be discounted at a rate reflective of the real estate risk
to derive a present value of the capital expediters. This will be subtracted
from the derived value as a line item in the adjustment grid. The six sales all
have transpired since 1997. A summary of these sales and a sales rating grid
are included as Figure 7. The details of these comparables are found in Exhibit
"E".
Figure 7
Improved Sales Identified and Described
<TABLE>
<CAPTION>
1 2 3
<S> <C> <C> <C>
Key Number 2472 2617 2682
Name Summit 1 9000 Wessex Place
Address 320 Whittington Pkwy 4350 Brownsboro Rd 9000 Wessex Place
City Louisville Louisville Louisville
State KY KY KY
Date of Sale 25-Feb-97 8-Aug-97 30-Dec-97
Sale Price $1,905,000 $5,115,000 $3,100,000
Cash Equiv. Amt. $1,905,000 $5,115,000 $3,100,000
Rentable Area 29,000 49,986 42,549
Gross Bldg Area 35,840 54,333 42,549
Units
Usable Area
Land Area (sf) 96,355 289,282 131,464
Land Area (acres) 2.21 6.64 3.02
Year Built 1975 1986 1984
EGIM 5.8 6.2 5.9
Ro 10.0% 9.7% 11.0%
Price Per GBA $53.15 $94.14 $72.86
Property Rights Leased Fee Leased Fee Leased Fee
Dollar Adjustment $0.00 $0.00 $0.00
Percentage Adj. 0.00% 0.00% 0.00%
Adjusted Price $53.15 $94.14 $72.86
Financing Terms
Dollar Adjustment $0.00 $0.00 $0.00
Percentage Adj. 0.00% 0.00% 0.00%
Adjusted Price $53.15 $94.14 $72.86
Land Value
Dollar Adjustment ($12.56) ($16.01) ($15.28)
Percentage Adj. -23.63% -17.01% -20.97%
Adjusted Price $40.59 $78.13 $57.58
</TABLE>
<PAGE>
11405 BLUEGRASS PARKWAY - LOUISVILLE, KENTUCKY Page 35
<TABLE>
<CAPTION>
Time/Market Condition
% Adjustment
<S> <C> <C> <C>
Time ADJ Price Per GBA $40.59 $78.13 $57.58
Age/Condition Inferior Inferior Inferior
Dollar Adjustment $9.74 $1.56 $3.45
Percentage Adj. 24.00% 2.00% 6.00%
Adjusted Price $50.33 $79.69 $61.03
Condition Comparable Comparable Comparable
Dollar Adjustment $0.00 $0.00 ($0.59)
Percentage Adj. 0.00% 0.00% 0.00%
Adjusted Price $50.33 $79.69 $61.03
Occupancy Comparable Comparable Comparable
Dollar Adjustment $0.00 $0.00 $0.00
Percentage Adj. 0.00% 0.00% 0.00%
Adjusted Price $50.33 $79.69 $61.03
Capital Expenditures Superior Superior Superior
Dollar Adjustment ($5.32) ($5.32) ($5.32)
Percentage Adjustment -10.57% -6.68% -8.72%
Adjusted Price $45.01 $74.37 $55.71
Land Value Inferior Inferior Inferior
Dollar Adjustment $8.00 $8.00 $8.00
Percentage Adjustment 17.77% 10.76% 14.36%
Net Adjustment $12.42 $4.24 $6.13
Net Percent Adj. 30.60% 5.43% 10.65%
Adjusted Price $53.01 $82.37 $63.71
Market Range Per SF Indicated Subject Value
Maximum = $82.37 100,640 Square Feet @
Minimum = $53.01 $65.00 Per GBA = $6,541,600
Mean = $65.02 Rounded to: $6,500,000
</TABLE>
<PAGE>
11405 BLUEGRASS PARKWAY - LOUISVILLE, KENTUCKY Page 36
Figure 7 (continued)
Improved Sales Identified and Described
<TABLE>
<CAPTION>
4 5 6
<S> <C> <C> <C>
Key Number 2745 2770 2774
Name NCF Williamsburg Plaza Plainview Triad West Triad East Office Building
Address 9400 Williamsburg Plaza 10180 Linn Station Rd 10200 Linn Station Rd
City Louisville Louisville Louisville
State KY KY KY
Date of Sale 22-Jul-98 31-Jul-98 18-Nov-98
Sale Price $2,220,000 $5,284,780 $5,250,000
Cash Equiv. Amt. $2,220,000 $5,284,780 $5,250,000
Rentable Area 28,500 60,000 93,329
Gross Bldg Area 33,600 69,482 101,259
Units
Usable Area
Land Area (sf) 94,133 209,262 260,924
Land Area (acres) 2.16 4.80 5.99
Year Built 1989 1980 1980
EGIM 6.4 6.5 4.7
Ro 10.4% 9.9% 14.0%
Price Per GBA $66.07 $76.06 $51.85
Property Rights Leased Fee Leased Fee Leased Fee
Dollar Adjustment $0.00 $0.00 $0.00
Percentage Adj. 0.00% 0.00% 0.00%
Adjusted Price $66.07 $76.06 $51.85
Financing Terms
Dollar Adjustment $0.00 $0.00 $0.00
Percentage Adj. 0.00% 0.00% 0.00%
Adjusted Price $66.07 $76.06 $51.85
Land Value
Dollar Adjustment ($13.99) ($12.09) ($10.37)
Percentage Adj. -21.17% -15.90% -20.00%
Adjusted Price $52.08 $63.97 $41.48
</TABLE>
<PAGE>
11405 BLUEGRASS PARKWAY - LOUISVILLE, KENTUCKY Page 37
<TABLE>
<CAPTION>
Time/Market Condition
% Adjustment
<S> <C> <C> <C>
Time ADJ Price Per GBA $52.08 $63.97 $41.48
Age/Condition Superior Inferior Inferior
Dollar Adjustment ($1.04) $10.24 $6.64
Percentage Adj. -2.00% 6.00% 16.00%
Adjusted Price $51.04 $74.21 $48.12
Condition Comparable Comparable Inferior
Dollar Adjustment $0.00 $0.00 $9.62
Percentage Adj. 0.00% 0.00% 20.00%
Adjusted Price $51.04 $74.21 $57.74
Occupancy Comparable Comparable Comparable
Dollar Adjustment $0.00 $0.00 $0.00
Percentage Adj. 0.00% 0.00% 0.00%
Adjusted Price $51.04 $74.21 $57.74
Capital Expenditures Superior Superior Superior
Dollar Adjustment ($5.32) ($5.32) ($5.32)
Percentage Adjustment -10.42% -7.17% -9.21%
Adjusted Price $45.72 $68.89 $52.42
Land Value Inferior Inferior Inferior
Dollar Adjustment $8.00 $8.00 $8.00
Percentage Adjustment 17.50% 11.61% 15.26%
Net Adjustment $1.64 $12.92 $18.94
Net Percent Adj. 3.15% 20.20% 45.66%
Adjusted Price $53.72 $76.89 $60.42
Market Range Per SF Indicated Subject Value
Maximum = $82.37 100,640 Square Feet @
Minimum = $53.01 $65.00 Per GBA = $6,541,600
Mean = $65.02 Rounded to: $6,500,000
</TABLE>
<PAGE>
11405 BLUEGRASS PARKWAY - LOUISVILLE, KENTUCKY Page 38
An outline of the pertinent details of the comparables is as follows:
Comparable 1 is located at 320 Whittington Parkway in Louisville,
Kentucky, containing 96,355 square feet and selling for a confirmed price of
$1,905,000 on February 25, 1997. The 35,840-square foot gross building area
improvements, built in 1975, are of brick veneer and steel construction and were
in average condition for both the exterior and interior.
Comparable 2 is located at 4350 Brownsboro Road in Louisville,
Kentucky, containing 289,282 square feet and selling for a confirmed price of
$5,115,000 on August 8, 1997. The 54,333-square foot gross building area
improvements, built in 1986, are of brick veneer and steel construction and were
in average condition for both the exterior and interior. The sale price per
square foot of building area is $102.33 of net rental area.
Comparable 3 is located at 9000 Wessex Place in Louisville, Kentucky,
containing 131,464 square feet and selling for a confirmed price of $3,100,000
on December 30, 1997. The 42,549-square foot gross building area improvements,
built in 1984, are of steel and concrete construction and were in average
condition for both the exterior and interior.
Comparable 4 is located at 9400 Williamsburg Plaza in Louisville,
Kentucky, containing 94,133 square feet and selling for a confirmed price of
$2,220,000 on July 22, 1998. The 33,600-square foot gross building area
improvements, built in 1989, are of brick veneer and concrete construction and
were in average condition for both the exterior and interior.
Comparable 5 is located at 10180 Linn Station Road in Louisville,
Kentucky, containing 209,262 square feet and selling for a confirmed price of
$5,284,780 on July 31, 1998. The 69,482-square foot gross building area
improvements, built in 1980, are
<PAGE>
11405 BLUEGRASS PARKWAY - LOUISVILLE, KENTUCKY Page 39
of metal frame and tinted glass construction and were in average condition for
both the exterior and interior.
Comparable 6 is located at 10200 Linn Station Road in Louisville,
Kentucky, containing 260,924 square feet and selling for a confirmed price of
$5,250,000 on November 18, 1998. The 101,259-square foot gross building area
improvements, built in 1980, are of steel and glass construction and were in
average condition for both the exterior and interior.
Adjustments for property rights, financing terms, and/or condition of
sale are not necessary for the sales selected.
From the improved comparables, land is extracted to derive the
improvement values only. There is no evidence to support a market condition
adjustment. Physical adjustments include age, tenant finish, and land value.
The age adjustment is the effective age of the subject versus the
comparables. The depreciation is 2 percent per year equivalent to a 50-year
economic life. The subject's effective age is 10 years.
The condition adjustment was made for Comparable 6 for future tenant
improvements and common area. The adjustment has been estimated at 20 percent.
The capital expenditure adjustment is for the necessary conversion of
the office space from a single space unit to four tenants in 2006. The cost
estimates are estimated as follows:
Year 8 - 2006
Tenant Improvements $503,820(1)
External Improvements $350,000
<PAGE>
11405 BLUEGRASS PARKWAY - LOUISVILLE, KENTUCKY Page 40
Total Capital Improvements $853,820
PV Factor (2) X 0.6274
--------
$535,697 or $5.32/SF
(1) Estimated at 50% of total capital expenditures for tenant improvements.
(2) PV Factor is Year 8 at an interest rate of 6%. PV Factor = 0.6274.
The land value is derived in the site valuation and is included on a
dollar per square foot of building area. The land value adjustment is:
Land Value $910,000
Divided by Building GBA /110,640 sf
-----------------
Land Value per Building $8.23/sf
GBA
Rounded to... $8.00/sf
<PAGE>
11405 BLUEGRASS PARKWAY - LOUISVILLE, KENTUCKY Page 41
The indicated range from this analysis is $53.01 to $82.37 per square
foot. Giving the greatest consideration to Comparables 3, 4, 5, and 6, Integra
Chapman & Bell has selected $65.00 per square foot for the subject. Mid-range
was selected, because of the subject's physical condition and current real
estate conditions. The value from the dollar per square foot analysis estimated
at $6,500,000, rounded.
INCOME APPROACH
---------------
The Income Approach has utilized a discounted cash flow (DCF) analysis
to determine the "as is" value. From the potential gross income, a vacancy and
credit factor is subtracted to determine the effective gross income. Expenses
are derived from comparable office buildings and the subject's historic
expenses. Typical expenses are categorized as property taxes, management/leasing
commission, insurance, maintenance/repairs, utilities, janitorial, and reserves
for replacement.
To derive a present value indication from the Income Approach, the net
cash flow are discounted capitalized by a rate equal to the current investment
criteria and the last year capitalized less marketing expenses to determine a
reversion value. The overall capitalization rate was determined from comparable
sales in the Sales Comparison Approach and secondary source estimates such as
the band of investment technique. The discounted cash analysis uses the
projected annual net incomes/cash flows and a market
<PAGE>
11405 BLUEGRASS PARKWAY - LOUISVILLE, KENTUCKY Page 42
derived discount rate to determine the net present value. The reversion value
from the end of the holding period projects the subsequent years net income/cash
flow which is capitalized at a reversion capitalization rate.
POTENTIAL GROSS INCOME
----------------------
The market rent is determined from the rent comparables and compared to
the subject's contract rent. The potential gross income (PGI) is the subject's
rent at full occupancy. The current subject's lease is shown in Figure 8 along
with the projected leases. The lease is on a net basis with the expenses being
passed to the tenant.
<PAGE>
11405 BLUEGRASS PARKWAY - LOUISVILLE, KENTUCKY Page 43
Figure 8
Presentation Rent Roll & Current Term Tenant Summary
As of Jan-1999 for 100,640 Square Feet
<TABLE>
<CAPTION>
Description Area Base Rent Rent Adj. & Categories Abatements
Tenant Name Floor SF Rate & Amount Changes On Changes To CPI & Current Months to Percent to
Type & Suite Number Bldg. Share per Year Porters' Wage Abate Abate
Lease Dates & Term per Month Miscellaneous
<S> <C> <C> <C> <C> <C> <C>
SYKES HEALTH PLAN $7.50
Office 100,640 $754,800
Aug - 1994 to Jul-2005 100.00% $0.63
132 Months $62,900
VACANT 1 $11.00
Office 22,392 $246,312
Jan-2006 to Dec-2017 22.25% $0.92
144 Months $20,526
VACANT 2 $11.00
Office 22,392 $246,312
Jul-2006 to Jun-2018 22.25% $0.92
144 Months $20,526
VACANT 3 $11.00
Office 22,392 $246,312
Dec-2006 to Nov-2018 22.25% $0.92
144 Months $20,526
VACANT 4 $11.00
Office 22,392 $246,312
Mar-2007 to Feb-2019 22.25% $0.92
144 Months $20,526
</TABLE>
<PAGE>
11405 BLUEGRASS PARKWAY - LOUISVILLE, KENTUCKY Page 44
Figure 8 (continued)
Presentation Rent Roll & Current Term Tenant Summary
As of Jan-1999 for 100,640 Square Feet
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Description Area Reimbursement Leasing Costs Retail Upon Expiration
Tenant Name Floor SF Description of Improvements Commissions Sales Assumption about
Operating
Type & Suite Number Bldg. Share Expense Rate Amount Rate Amount Breakpoint subsequent terms for this
Lease Dates & Term Reimbursements Overage % tenant
SYKES HEALTH PLAN ReAbsorb
Office 100,640 Net: Pays a full pro-rata See Assumption: MLA 1
Aug - 1994 to Jul-2005 100.00% share of all reimbursable
132 Months expenses.
VACANT 1 $15.00 $3.96 Market
Office 22,392 Net: Pays a full pro-rata 3.00% See Assumption: MLA 1
Jan-2006 to Dec-2017 22.25% share of all reimbursable $335,880 $88,672
144 Months expenses.
VACANT 2 $15.00 $3.96 Market
Office 22,392 Net: Pays a full pro-rata 3.00% See Assumption: MLA 1
Jul-2006 to Jun-2018 22.25% share of all reimbursable $335,880 $88,672
144 Months expenses.
VACANT 3 $15.00 $3.96 Market
Office 22,392 Net: Pays a full pro-rata 3.00% See Assumption: MLA 1
Dec-2006 to Nov-2018 22.25% share of all reimbursable $335,880 $88,672
144 Months expenses.
VACANT 4 $15.00 $3.96 Market
Office 22,392 Net: Pays a full pro-rata 3.00% See Assumption: MLA 1
Mar-2007 to Feb-2019 22.25% share of all reimbursable $335,880 $88,672
144 Months expenses.
</TABLE>
<PAGE>
11405 BLUEGRASS PARKWAY - LOUISVILLE, KENTUCKY Page 45
The tenant is expected to relocate before or at the end of the lease in
July 2005. The probability of a single tenant occupying the subject is not
considered likely. The timing on such a tenant deemed to be a random event. At
the termination of the Sykes lease in FY 2006, the building is assumed to be
vacant. The space has then been divided into four spaces of approximately 22,392
square feet. The tenant size is at the upper end of the range of large tenants
in comparable office buildings, but more widely available in the market then a
single tenant user. The renovation cost for subdivision of the space is
subtracted as a capital expenditure in the pro forma.
A detailed search was made for comparable rental properties within the
subject's market area. Sources of rental information included database,
newspaper classified advertisement, multiple listing service, and signage.
Leases were typically verified by reviewing the lease or interviewing the broker
or owner.
The TERMS AND CONDITIONS OF THE LEASES considered comparable are
summarized in Figure 9. The comparable leases are from multi-tenant Class "B"
office buildings in Eastern Jefferson County. The comparable leases range from a
net lease basis to a gross basis. The subject's present lease is on a net basis
with the lessee responsible for all expenses. The adjusted comparables are the
economic rent for the subject on a net lease with the lessee paying all expenses
either as pass thrus or billed directly for the service.
<PAGE>
11405 BLUEGRASS PARKWAY - LOUISVILLE, KENTUCKY Page 46
<TABLE>
Figure 9
Comparable Lease Summary
<S> <C> <C> <C> <C> <C>
Key 2897-4 2585-1 1007-1 2771-1 2771-2
City, State Lou., KY Lou., KY Lou., KY Lou., KY Lou., KY
Size 12,591 4,900 17,633 26,273 11,000
Date Feb-99 Oct-96 Dec-97 Jan-97 Mar-97
Annual Rent $100,350 $58,800 $221,823 $321,844 $137,500
$/SF $7.97 $12.00 $12.58 $12.25 $12.50
Term 5 5 5 2 6
Lessor Responsibility
Taxes N Y Y Y Y
Insurance N Y Y Y Y
Interior Maintenance N N N N N
Exterior Maintenance N Y Y Y Y
Utilities N N N N N
Janitorial N Y Y Y Y
Miscellaneous N N N N N
Management N Y Y Y Y
Adjustments
Taxes $(1.00) $(1.00) $(1.00) $(1.00)
Insurance $(0.11) $(0.11) $(0.11) $(0.11)
Interior Maintenance
Exterior Maintenance $(0.45) $(0.45) $(0.45) $(0.45)
Utilities
Janitorial $(0.65) $(0.65) $(0.65) $(0.65)
Miscellaneous
Management $(0.65) $(0.65) $(0.65) $(0.65)
Total Adjustments $(2.86) $(2.86) $(2.86) $(2.86)
Adjusted $/SF $7.97 $9.14 $9.72 $9.39 $9.64
Market Condition 0% 6% 4% 4% 4%
Adjusted $/SF $7.97 $9.69 $10.11 $9.77 $10.03
</TABLE>
<PAGE>
11405 BLUEGRASS PARKWAY - LOUISVILLE, KENTUCKY Page 47
<TABLE>
<S> <C> <C> <C> <C> <C>
Physical Adjustments
Location = = = = =
Age = - = = =
Condition + + + + +
Quality = - - - -
Total Physical Adjustments Slightly Inferior Equal Equal Equal Equal
</TABLE>
The unadjusted market comparables range from $7.97 to $12.58 per square
foot. The economic rent is slightly less than the average because of the subject
location between office and industrial uses and non-conformity space. All leases
have been adjusted to a net rental basis. Eliminating the extremes the economic
rent for the subject is estimated at $9.50 per square foot in 1999, which is
slightly below the average comparable economic rent.
The subject lease will expire in 2005. The present economic rent has
been escalated for appreciation of 2 to 3 percent annually to estimate the
future rent. The projected future rents are as follows:
Low High
-------------------
Present Rent - 1999 $ 9.50 $ 9.50
Appreciation Factor - 2005(1) X 1.13 X 1.19
------- -------
Future Rent - 2005 $ 10.73 $ 11.31
(1)Appreciation at 2 and 3 percent for 6 years.
The projected future economic rent on a net basis for the subject is
$11.00 per
<PAGE>
11405 BLUEGRASS PARKWAY - LOUISVILLE, KENTUCKY Page 48
square foot.
EXPENSE REIMBURSEMENTS
Expense reimbursements for the subject include real estate taxes,
insurance, maintenance and repairs, management, advertising and administrative
cost. These expenses are projected at $188,030 in Year 1 as calculated by the
Argus analysis.
VACANCY AND CREDIT
The market overall vacancy is 4 to 6 percent with buildings most
similar to the subject at 0 to 5 percent. Prior to the tenant rollover in FY
2006, no vacancy factor has been subtracted from the gross revenue. Absorption
of the subject is projected to occur over an 18-month period starting in Year 8
- 2006 with the subject reaching 100 percent occupancy by 2007. The absorption
is an estimate based on the submarket absorption and the demand for large space
leases as indicated from broker interviews. The vacancy rate, after the lease
rollover, is estimated at 4 percent at the time of stabilization.
EXPENSES
COMPARABLE OPERATING EXPENSE DATA for office properties which are the
most similar to the subject, along with the subject historic expenses, are
presented in Figure 10. These expenses will provide a basis for the FUTURE
EXPENSES.
<PAGE>
11405 BLUEGRASS PARKWAY - LOUISVILLE, KENTUCKY Page 49
<TABLE>
<CAPTION>
Figure 10
Comparable and Subject Operating Expense Data
1 2 3 4
1999 2741 2742 2738
BOMA
All Suburban 1997 1996 1997 1997 1998
Louisville Confidential Confidential Confidential Subject Subject
Average % Mid-Rise % Mid-Rise(1) % Low-Rise % Expenses Expenses
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Effective Age 10 years 25 years 25 years New
Total Income $15.47 $10.94 100 $11.43 100 $15.83 $9.47 $9.43
($/sf)
Expenses:
Janitorial $0.82 $0.53 $0.52 $0.66 --- ---
Maintenance $0.53 $2.10 $1.72 $0.89 $0.43 $0.48
Utilities $1.54 $1.88 $2.41 $1.10 $0.02 $0.03
Grounds $0.28 --- --- ---
Taxes $0.71 $0.55 $0.55 $0.79 $0.56 $0.56
Management/ $0.94 $0.55 $0.57 $0.65 $0.76 $0.38
Administrative
Insurance $0.07 $0.08 $0.12 $0.08 $0.06 $0.05
Other --- --- --- $0.05 $0.02
----------------------------------------------------------------------------------------------------
Total Expenses $5.22 --- $5.69 52 $5.89 52 $4.17 26 $1.88 $1.52
Adjusted 2%-Yr. to 1998 $4.99 $5.80 $6.13 $4.51 $7.57 $7.91
------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Note: Expense Comparables 1, 2, 3, and 4 are gross basis with lessor responsible
for all expenses. Subject expenses exclude utilities.
(1)Partial year.
Comparable 1 is the average expenses from a survey by BOMA for suburban
office buildings. The average age of this expense comparable improvements is 10
years and the expenses are tabulated under the assumption that the rents are on
a gross basis.
Comparables 2 and 3 are Class "B" suburban mid-rise office buildings.
The
<PAGE>
11405 BLUEGRASS PARKWAY - LOUISVILLE, KENTUCKY Page 50
comparables are in Central Jefferson County and were built in the 1960s. The
improvements are in average condition.
Comparable 4 is a low-rise office building constructed in 1997. The
expenses represent a partial year, but have been annualized for the purpose of
comparison.
The subject is projected to operate on a net lease basis with the
lessee responsible for all pass-thru expenses including real estate taxes,
insurance, maintenance and repairs, janitorial, administration, and management.
This subject's historic expenses are shown in Figure 11.
The subject expenses are $1.52 to $1.88 per square foot. Expense
categories which are omitted relative to the comparables are janitorial and
utilities. These expenses are paid by the lessee. Maintenance is at the lower
end of the range, because interior maintenance is primarily paid by the lessee.
For determining the future expenses the greatest weight has been given to the
historic expenses. The subject expenses for Year 1 are estimated at $188,030 or
$1.87 per square foot as shown in Figure 12.
OVERALL RATE AND DISCOUNT RATE DETERMINATION
--------------------------------------------
The overall rate (R sub 0) is derived from two sources. The first is
from the market comparables which were included in the Sales Comparison Approach
section and shown in Figure 7. From these office building sales, comparable
rates of capitalization from the market range from 9.7 to 14.0 percent.
<PAGE>
11405 BLUEGRASS PARKWAY - LOUISVILLE, KENTUCKY Page 51
Another method of deriving the capitalization rate is by the band of
investment. Mortgage assumptions were based upon current information from
lending institutions. This method derives a weighted-average of the mortgage and
equity components of the investment. Based on interviews with market
participants, and local lenders Integra Chapman & Bell assumptions for the
mortgage and equity components are as follows.
Mortgage/Equity Formula Assumptions
=======================================================================
Loan-to-Value Ratio 70.00%
Interest Rate 7.32%
Amortization Period 20 years
Holding Period 9 years
Mortgage Constant 9.50%
Equity Ratio 30.00%
Equity Dividend Rate 10.00%
-----------------------------------------------------------------------
Mortgage Components 70.00% x 9.50% = 6.65%
Equity Components 30.00% x 10.00% = 3.00%
Overall Capitalization Rate 9.70% rounded to 9.70%
A 9.7 to 14.0 percent overall capitalization rate was indicated from
the market sales. From the Band of Investment, the overall capitalization rate
is estimated at 9.7 percent. An overall capitalization rate of 9.7 percent has
been selected based on the credit-worthiness of the tenant.
<PAGE>
11405 BLUEGRASS PARKWAY - LOUISVILLE, KENTUCKY Page 52
A summary of the RATES OF CAPITALIZATION is as follows:
Market Comparables 9.70% to 14.0%
Mortgage Technique 9.70%
"Going In" Capitalization Rate in Pro forma 9.70%
DISCOUNTED CASH FLOW ANALYSIS
-----------------------------
CASH FLOW PROJECTIONS
---------------------
Integra Chapman & Bell has prepared a 10-year cash flow using a lease
by lease analysis software program ( ARGUS) specifically designed for cash flow
analysis. The assumptions used in preparation of the cash flow analysis are
shown in Figure 12. The discount and reversion capitalization rates are derived
from surveys of investor requirements and alternate investment opportunities.
<PAGE>
11405 BLUEGRASS PARKWAY - LOUISVILLE, KENTUCKY Page 53
Figure 11
Discounted Cash Flow Assumptions and Projections
===============================================================================
Year One 10/99
Projection Period 10 years
-------------------------------------------------------- ---------------------
INCOME
======================================================== =====================
Occupancy Market 2006 97%
Market Rental Rate 2006 $11.00/sf net basis
Growth Rate 2.5%
Average Size Tenant 2006 22,392 sf
Typical Lease Term 120 Months
-------------------------------------------------------- ---------------------
VACANCY
======================================================== =====================
Renewal Probability 70%
Projected Vacancy Between Leases 4 Months
Average Vacancy 4%
General Vacancy and Collection Loss 4%
-------------------------------------------------------- ---------------------
EXPENSES
======================================================== =====================
Operating Expenses (Year 1) $1.86/sf
Operating Expense Escalation Rates Taxes 3%
All other expenses 3%
Management Fee 4% of
EGI
Leasing Commissions New Tenants 3%
Tenant Improvement Allowance New Tenants $15/sf
Escalation of Refurbishment Costs 3%
-------------------------------------------------------- ---------------------
REVERSION
======================================================== =====================
Reversion Year Year 12/2009
Reversion Capitalization Rate 9.75%
Reversion Selling Expenses 4%
Discount Rate 10.0%
Value Conclusion (Rounded) $6,800,000
In Exhibit "F", we have included a synopsis of the lease-by-lease
program, together with the output reports.
<PAGE>
11405 BLUEGRASS PARKWAY - LOUISVILLE, KENTUCKY Page 54
<TABLE>
<CAPTION>
Figure 12
Schedule of Prospective Cash Flow
In Inflated Dollars for the Fiscal Year Beginning 1/1/1999
Year 1 Year 2 Year 3 Year 4 Year 5
<S> <C> <C> <C> <C> <C>
For the Years Ending Dec-1999 Dec-2000 Dec-2001 Dec-2002 Dec-2003
Potential Gross Revenue
Base Rental Revenue $754,800 $754,800 $754,800 $754,800 $754,800
Scheduled Base Rental Revenue 754,800 754,800 754,800 754,800 754,800
Expense Reimbursement Revenue
Insurance 5,450 5,614 5,782 5,955 6,134
Property Taxes 54,000 55,620 57,289 59,007 60,777
Maintenance Fee 1,200 1,236 1,273 1,311 1,351
Water - Irrigation 800 824 849 874 900
Building Renovations 7,200 7,416 7,638 7,868 8,104
Landscaping 7,200 7,416 7,638 7,868 8,104
Trash Removal 6,000 6,180 6,365 6,556 6,753
Window Cleaning 2,500 2,575 2,652 2,732 2,814
Misc. - general building 125 129 133 137 141
Interior Maint - salaries, taxes 5,850 6,026 6,206 6,392 6,584
Heating & A/C 1,220 1,257 1,294 1,333 1,373
Electrical 500 515 530 546 563
Grounds Maintenance 16,800 17,304 17,823 18,358 18,909
Grounds Maint. Salaries, Taxes 7,000 7,210 7,426 7,649 7,879
General Building Repairs 1,000 1,030 1,061 1,093 1,126
Walks & Parking Lots 800 824 849 874 900
Roof Repairs 2,200 2,266 2,334 2,404 2,476
Snow Removal 5,250 5,408 5,570 5,737 5,909
Light Bulbs 800 824 849 874 900
Maintenance Supplies 1,000 1,030 1,061 1,093 1,126
Misc. - Repairs & Maint. 1,000 1,030 1,061 1,093 1,126
Management Fee 56,553 56,805 57,064 57,331 55,162
Salaries 3,500 3,605 3,713 3,825 3,939
Total Reimbursement Revenue 187,948 192,144 196,460 200,910 203,050
</TABLE>
<PAGE>
11405 BLUEGRASS PARKWAY - LOUISVILLE, KENTUCKY Page 55
<TABLE>
<S> <C> <C> <C> <C> <C>
Total Potential Gross Revenue 942,748 946,944 951,260 955,710 957,850
General Vacancy (38,314)
Effective Gross Revenue 942,748 946,944 951,260 955,710 919,536
Operating Expenses
Insurance 5,450 5,614 5,782 5,955 6,134
Property Taxes 54,000 55,620 57,289 59,007 60,777
Maintenance Fee 1,200 1,236 1,273 1,311 1,351
Water - Irrigation 800 824 849 874 900
Building Renovations 7,200 7,416 7,638 7,868 8,104
Landscaping 7,200 7,416 7,638 7,868 8,104
Trash Removal 6,000 6,180 6,365 6,556 6,753
Window Cleaning 2,500 2,575 2,652 2,732 2,814
Misc. - general building 125 129 133 137 141
Interior Maint. Salaries, Taxes 5,850 6,026 6,206 6,392 6,584
Heating & A/C 1,220 1,257 1,294 1,333 1,373
Electrical 500 515 530 546 563
Grounds Maintenance 16,800 17,304 17,823 18,358 18,909
Grounds Maint. - salaries, taxes 7,000 7,210 7,426 7,649 7,879
General Building Repairs 1,000 1,030 1,061 1,093 1,126
Walks & Parking Lots 800 824 849 874 900
Roof Repairs 2,200 2,266 2,334 2,404 2,476
Snow Removal 5,250 5,408 5,570 5,737 5,909
Light Bulbs 800 824 849 874 900
Maintenance Supplies 1,000 1,030 1,061 1,093 1,126
Misc. - Repairs & Maintenance 1,000 1,030 1,061 1,093 1,126
Management Fee 56,565 56,817 57,076 57,343 55,172
Salaries 3,500 3,605 3,713 3,825 3,939
Misc. Office Expenses 70 72 74 76 79
Total Operating Expenses 188,030 192,228 196,546 200,998 203,139
Net Operating Income 754,718 754,716 754,714 754,712 754,712
Lease & Capital Costs
Tenant Improvements
</TABLE>
<PAGE>
11405 BLUEGRASS PARKWAY - LOUISVILLE, KENTUCKY Page 56
<TABLE>
<S> <C> <C> <C> <C> <C>
Leasing Commissions
Asphalt Replacement 40,000
Roof Replacement
HVAC 5,000 5,000 5,000
Exterior Renovation
Total Leasing & Capital Costs 5,000 45,000 5,000
Cash Flow Before Debt Service 754,718 749,716 749,714 709,712 711,397
& Income Tax
</TABLE>
<PAGE>
11405 BLUEGRASS PARKWAY - LOUISVILLE, KENTUCKY Page 57
<TABLE>
Figure 12 (continued)
Schedule of Prospective Cash Flow
In Inflated Dollars for the Fiscal Year Beginning 1/1/1999
<CAPTION>
Year 6 Year 7 Year 8 Year 9 Year 10
<S> <C> <C> <C> <C> <C>
For the Years Ending Dec-2004 Dec-2005 Dec-2006 Dec-2007 Dec-2008
Potential Gross Revenue
Base Rental Revenue $754,800 $440,300 $389,994 $944,196 $985,248
Scheduled Base Rental Revenue $754,800 $440,300 $389,994 $944,196 $985,248
Expense Reimbursement Revenue
Insurance 6,318 3,796 2,361 5,888 6,328
Property Taxes 62,601 37,613 23,396 58,343 62,708
Maintenance Fee 1,391 836 519 1,296 1,392
Water - Irrigation 927 557 346 863 928
Building Renovations 8,347 5,015 3,119 7,778 8,360
Landscaping 8,347 5,015 3,119 7,778 8,360
Trash Removal 6,956 4,179 2,600 6,482 6,968
Window Cleaning 2,898 1,741 1,083 2,702 2,904
Misc. - general building 145 87 54 134 144
Interior Maint - salaries, taxes 6,782 4,075 2,534 6,321 6,792
Heating & A/C 1,414 850 529 1,319 1,416
Electrical 580 348 216 540 580
Grounds Maintenance 19,476 11,702 7,279 18,151 19,508
Grounds Maint. Salaries, Taxes 8,115 4,876 3,033 7,563 8,128
General Building Repairs 1,159 697 434 1,081 1,160
Walks & Parking Lots 927 557 346 863 928
Roof Repairs 2,550 1,532 953 2,377 2,556
Snow Removal 6,086 3,657 2,275 5,673 6,096
Light Bulbs 927 557 346 863 928
Maintenance Supplies 1,159 697 434 1,081 1,160
Misc. - Repairs & Maint. 1,159 697 434 1,081 1,160
Management Fee 55,433 18,490 9,256 56,109 61,472
Salaries 4,057 2,438 1,517 3,780 4,064
Total Reimbursement Revenue 207,754 110,012 66,183 198,066 214,040
</TABLE>
<PAGE>
11405 BLUEGRASS PARKWAY - LOUISVILLE, KENTUCKY Page 58
<TABLE>
<S> <C> <C> <C> <C> <C>
Total Potential Gross Revenue 962,554 550,312 456,177 1,142,262 1,199,288
General Vacancy (38,502) (22,012) (18,247) (45,690) (47,972)
Effective Gross Revenue 924,052 528,300 437,930 1,096,572 1,151,316
Operating Expenses
Insurance 6,318 6,508 6,703 6,904 7,111
Property Taxes 62,601 64,479 66,413 68,406 70,458
Maintenance Fee 1,391 1,433 1,476 1,520 1,566
Water - Irrigation 927 955 984 1,013 1,044
Building Renovations 8,347 8,597 8,855 9,121 9,394
Landscaping 8,347 8,597 8,855 9,121 9,394
Trash Removal 6,956 7,164 7,379 7,601 7,829
Window Cleaning 2,898 2,985 3,075 3,167 3,262
Misc. - general building 145 149 154 158 163
Interior Maint. Salaries, Taxes 6,782 6,985 7,195 7,411 7,633
Heating & A/C 1,414 1,457 1,500 1,545 1,592
Electrical 580 597 615 633 652
Grounds Maintenance 19,476 20,060 20,662 21,282 21,920
Grounds Maint. - salaries, taxes 8,115 8,358 8,609 8,867 9,133
General Building Repairs 1,159 1,194 1,230 1,267 1,305
Walks & Parking Lots 927 955 984 1,013 1,044
Roof Repairs 2,550 2,627 2,706 2,787 2,871
Snow Removal 6,086 6,269 6,457 6,651 6,850
Light Bulbs 927 955 984 1,013 1,044
Maintenance Supplies 1,159 1,194 1,230 1,267 1,305
Misc. - Repairs & Maintenance 1,159 1,194 1,230 1,267 1,305
Management Fee 55,443 31,698 26,276 65,794 69,079
Salaries 4,057 4,179 4,305 4,434 4,567
Misc. Office Expenses 81 84 86 89 91
Total Operating Expenses 207,845 188,673 187,963 232,331 240,612
Net Operating Income 716,207 339,627 249,967 864,241 910,704
Leasing & Capital Costs
Tenant Improvements 1,007,640 335,880
</TABLE>
<PAGE>
11405 BLUEGRASS PARKWAY - LOUISVILLE, KENTUCKY Page 59
<TABLE>
<S> <C> <C> <C> <C> <C>
Leasing Commissions 266,016 88,672
Asphalt Replacement
Roof Replacement 48,000
HVAC 5,000 5,000 5,000 5,000, 5,000
Exterior Renovation 350,000
Total Leasing & Capital Costs 5,000 355,000 1,326,656 429,552 5,000
Cash Flow Before Debt Service $711,207 ($15,373) ($1,076,689) $434,689 $905,704
& Income Tax
</TABLE>
<PAGE>
11405 BLUEGRASS PARKWAY - LOUISVILLE, KENTUCKY Page 60
As reflected in the cash flow projection, the income and expenses for
the subject have been estimated individually over the projection period. Income
and expenses vary non- systematically. The principle of change implies that
neither income nor expenses remain static. These items may fluctuate in terms of
the purchasing power of the dollar and in terms of commodities in exchange.
The income and expenses for the subject have each been estimated over
the projection period. Income and expenses vary non-systematically. In
projecting income and expenses, Furthermore, the projected income expenses are
likely to prove to be higher or lower than the actual operating experience of
the property in the future. These projections reflect current market conditions
and Integra Chapman & Bell perspective as of the effective date of this
appraisal, October 30, 1999. The risk inherent in the projected assumptions is
reflected in the discount (yield) rate applied to cash flow.
DCF EXPLANATIONS
----------------
MARKET RENT GROWTH RATE
-----------------------
The projected market rent growth rate of 3.0 percent per year is
slightly above the recent and projected increases in the consumer price index
(CPI), and it is consistent with typical investor expectations.
<PAGE>
11405 BLUEGRASS PARKWAY - LOUISVILLE, KENTUCKY Page 61
ABSORPTION OF VACANT SPACE
--------------------------
The subject is currently 100 percent occupied as a single tenant user.
The tenant is expected to move out in July 2005. The subject will remain vacant
for 6 months as renovation and conversion is made to subdivide the space into
four tenants. The space will then be absorbed over a 18 month period with the
subject reaching stabilized occupancy in March 2007.
LEASE EXPIRATIONS
-----------------
The expiration schedule for the present lease is in does not indicate
any abnormal risk. Thus, short-term expirations do not appear to be excessive.
OPERATING EXPENSE ESCALATION RATES
----------------------------------
We have projected the increase in real estate taxes at 3.0 percent per
year, which is generally consistent with the consumer price index (CPI). In
addition, we have projected all other operating expenses to increase 3.0 percent
per year, which is consistent with CPI.
LEASING COMMISSIONS
-------------------
Leasing commissions in the area are paid primarily on a percentage
basis, with total commissions typically averaging near 4 percent of the total
base rent of the lease. Commissions on renewals are generally lower, with an
average of approximately 2 to 3 percent considered to be common.
TENANT IMPROVEMENTS AND ALTERATIONS
-----------------------------------
The tenant improvements is typically a negotiable item with allowances
ranging from $5 to $8 per square foot for second generation space. This
allowance will occur in
<PAGE>
11405 BLUEGRASS PARKWAY - LOUISVILLE, KENTUCKY Page 62
2006 and 2007 with turnover of the space. The tenant improvements has been
estimated at a present value of $15 per square foot. The higher tenant
improvements allows for minor subdivision of the space.
REPLACEMENT RESERVE ALLOWANCE
-----------------------------
A reserve and replacement allowance has not been included as a line
item. For items not included in the normal maintenance and repair, and roof
repairs. These items would include items such as asphalt repairs, roof
replacement, HVAC and exterior renovation.
ASPHALT REPLACEMENT
-------------------
The asphalt replacement has been estimated at $40,000 in Year 4. The
asphalt replacement includes the re-paving and re-stripping of the parking lot.
ROOF REPAIR
-----------
The roof repair cost has been estimated at $48,000 in Year 8.
<PAGE>
11405 BLUEGRASS PARKWAY - LOUISVILLE, KENTUCKY Page 63
HVAC
----
The HVAC cost is replacement of roof top units and will be conducted
over a eight year period. The estimated cost is $5,000 per year starting with
Year 3.
EXTERIOR RENOVATION
-------------------
The exterior renovation includes second floor windows on the courtyard
area and exterior entrances of the space subdivision. The cost has been
estimated at $350,000 in Year 7.
REVERSION CALCULATION
---------------------
To estimate the value of the reversion at the end of the 10-year
holding period, we have consulted the Integra Realty Resources Viewpoint 2000,
which indicates "going-in" and "residual" ("reversion") capitalization rates for
suburban office properties at 9.3 and 9.9 percent, respectively. The change in
the subject's income stream is minimal relative to the national trend of 1.8
percent for the cash flow. The subject's income stream is highly cyclical after
year 8 because of the reabsorption of the space. The selected reversion
capitalization rate versus the going in capitalization rate is estimated at 9.75
percent. Based on these factors the reversion capitalization rate is 5 basis
points higher than the going-in overall capitalization rate. This reversion
value is discounted to a present time frame and added to the annual discounted
cash flows to derive a present value estimate. The cash flow from our 10-year
holding period is reflected on the previous cash flow chart shown in Figure 12.
DISCOUNT RATE ANALYSIS
----------------------
<PAGE>
11405 BLUEGRASS PARKWAY - LOUISVILLE, KENTUCKY Page 64
The discount rate considered trends in interest rates, and national,
and was assisted by regional and local market surveys to arrive at an
appropriate rate. The discount rate is also determined by the change in the
value or income stream over the holding period. This discount rate is applied to
the annual cash flows/net incomes and the terminal or reversionary value. To
assist in determining the discount rate alternative yield rates were
investigated. Long-term treasury are currently yielding 6.2 percent (as of
January 2000), and the corporate (B) bonds are yielding 7.6 percent (as of
January 2000). Corporate bonds have a higher return than U.S. Treasury Bonds and
both are lower rate of return than required by real estate investors. The
differential is based upon investor expectations and requirements for the types
of investments. Risk and liquidity are the principal driving factors between
treasuries and real estate. As reported in Viewpoint 2000 discount rates for
national suburban office buildings is 11.4 percent or approximately 3.8 percent
above corporate grade levels.
The subject's going in capitalization rate is 9.7 percent. The change
in the cash flows is stable until the space is reabsorbed after Year 7. The
selected discount rate is 10.0 percent or approximately 0.5 percent greater than
going in capitalization rate.
Figure 13 is the pro forma table which shows the indicated discount
rate. The cash flow projections from Argus and discounted cash flow are shown in
Figure 12.
<PAGE>
11405 BLUEGRASS PARKWAY - LOUISVILLE, KENTUCKY Page 65
<TABLE>
Figure 13
Pro Forma
<CAPTION>
Year 1 Year 2 Year 3 Year 4 Year 5
<S> <C> <C> <C> <C> <C> <C>
Cash Flow $754,718 $754,716 $749,714 $709,712 $711,397
Discount @ 10.00% 0.909091 0.826446 0.751315 0.683013 0.620921
Present Values $686,107 $623,732 $563,271 $484,743 $441,722
Reversionary Value Capitalized at 9.75% $9,289,272
Discounted Reversion $3,939,558
Sum of Discounted Net Incomes $2,875,211
Net Present Value $6,814,769
Rounded to $6,800,000
Net Income $754,718 $754,716 $749,714 $709,712 $711,397
Minus Debt Service $520,674 $520,674 $520,674 $520,674 $520,674
Plus Cash Throw Off
Net Cash Flow $234,044 $234,042 $229,040 $189,038 $190,723
Debt coverage 1.45 1.45 1.44 1.36 1.37
Re 13.74% 13.74% 13.44% 11.10% 11.19%
Internal Rate of Return Ye 13.74%
Footnotes:
Equity 25.00% $1,703,692
Mortgage 75.00% $5,111,077
Mortgage Term Years 20
Interest Rate 8.20%
Holding Period Years 9
Payments Per Years 12
Sale Price $9,289,272
Sales Expense 2.00% ($185,785)
Mortgage Balance ($3,765,333)
Cash Throw Off $5,338,153
</TABLE>
<PAGE>
11405 BLUEGRASS PARKWAY - LOUISVILLE, KENTUCKY Page 66
<TABLE>
Figure 13 (continued)
Pro Forma
<CAPTION>
Year 6 Year 7 Year 8 Year 9 Year 10
<S> <C> <C> <C> <C> <C> <C>
Cash Flow $711,207 ($15,373) ($1,076,689) $434,689 $905,704
Discount @ 10.00% 0.564474 0.513158 0.466507 0.424098
Present Values $401,458 ($7,889) ($502,283) $184,351
Reversionary Value Capitalized at 9.75% $9,289,272
Discounted Reversion $3,939,558
Sum of Discounted Net Incomes $2,875,211
Net Present Value $6,814,769
Rounded to $6,800,000
Net Income $711,207 ($15,373) ($1,076,689) $434,689 $0
Minus Debt Service $520,674 $520,674 $520,674 $520,674
Plus Cash Throw Off $5,338,153
Net Cash Flow
Debt coverage $190,533 ($536,047) ($1,597,363) $5,252,169
Re 1.37 -0.03 -2.07 0.83
11.18% -31.46% -93.76%
Internal Rate of Return Ye 13.74%
Footnotes:
Equity 25.00% $1,703,692
Mortgage 75.00% $5,111,077
Mortgage Term Years 20
Interest Rate 8.20%
Holding Period Years 9
Payments Per Years 12
Sale Price $9,289,272
Sales Expense 2.00% ($185,785)
Mortgage Balance ($3,765,333)
Cash Throw Off $5,338,153
</TABLE>
<PAGE>
11405 BLUEGRASS PARKWAY - LOUISVILLE, KENTUCKY Page 67
FINAL CONCLUSION/RECONCILIATION
-------------------------------
AS IS
Market Value Indication By The
Cost Approach Not Applicable
Sales Comparison Approach $6,500,000
Income Approach
Discount Cash Flow $6,800,000
Market Value Estimate $6,800,000
The purpose herein is to RECONCILE THE QUALITY AND QUANTITY OF DATA.
Also a conclusion is reached as to APPLICABILITY OR SUITABILITY OF THE
APPROACHES used.
The Cost Approach value is derived from the value of the land,
building, and site improvements. The Cost Approach is most accurate when a
property is new and minimal depreciation exists. Based on the subject's age,
this approach has not been considered in the valuation.
The Sales Comparison Approach utilized market office sales. Satisfying
the supply and demand, substitutions, balance, and externalities, sufficient
quality sales were available to determine an "as is" value. Buildings of single
tenant or larger space multi-tenant buildings were not available which may show
the value conclusion. Comparable sales were
<PAGE>
11405 BLUEGRASS PARKWAY - LOUISVILLE, KENTUCKY Page 68
adjusted using appropriate methodology. The comparables were adjusted based on
the physical differences to the subject. The Sales Comparison Approach is
weighted from the quantity and quality of reliable market sales. The Sales
Comparison Approach is given the corollary support in this analysis.
The Income Approach is given the most consideration in determining the
value of the subject property. The potential gross income was projected based on
the current lease in place and projected economic read using comparable leased
data at the termination of the current lease taking into consideration likely
vacancies and renovation costs to again reach a stabilized occupancy. The
vacancy/credit and expenses were estimated based on historic data and
comparables. The overall rate and discount rate was based upon investor criteria
established by sales and/or interviews. This approach used a discounted cash
flow to arrive at the leased fee of this property.
Based on the data and the analyses presented, the CURRENT "AS IS" VALUE
for the leased fee estate of the subject property, as of October 30, 1999, is:
* * * SIX MILLION EIGHT HUNDRED THOUSAND DOLLARS * * *
$6,800,000
<PAGE>
11405 BLUEGRASS PARKWAY - LOUISVILLE, KENTUCKY Page 69
EXPOSURE TIME AND MARKETING PERIOD
----------------------------------
The Appraisal Standards Board of the Appraisal Foundation has issued
advisory opinions on the Uniform Standards of Professional Appraisal Practice
(USPAP) for exposure time and market period. Integra Chapman & Bell will address
the relationship between these periods, discuss factors impacting timing, and
estimate a time period for both exposure and marketing.
Exposure Time is the retrospective occurrences in the market, while
Marketing Period is a prospective view of what is likely to occur in the market.
These two time periods are consistent with the appraisal of most properties,
necessitating the investigation of a retrospective performance and prospective
(future) action of a particular real estate market. Both time periods are
sensitive of price, time, use, the cost and availability of funds.
Resources used to make estimates for the respective time periods are
sales data, days on the market, both listing and sold properties, and interviews
of market participants. Understanding buyers' and sellers' motivations and
financial expectations for a reasonably priced property are key.
Since the time periods are based on similar information, we have
considered the contrast for the time periods, based on changing trends. The
basic profiles for similarity or bases for difference in the time periods:
When the prospective and retrospective market is stable before and
after the effective date of the appraisal, then Exposure Time and
Marketing Period are generally equal.
When the prospective and retrospective market is improving (greater
demand) before and after the effective date of the appraisal, then
Exposure Time is generally longer than Marketing Period.
When the prospective and retrospective market is deteriorating (less
demand) before and after the effective date of the appraisal, then
Exposure Time is generally less than Marketing Period.
<PAGE>
11405 BLUEGRASS PARKWAY - LOUISVILLE, KENTUCKY Page 70
When the retrospective market is improving before the effective date,
and prospective market decreasing or stable after the effective date,
then Exposure Time is generally less than Marketing Period.
When the retrospective market is deteriorating before the effective
date of the appraisal, and prospective market increasing or stable
after the effective date, then Exposure Time is generally longer than
Marketing Period.
The market information used by Integra Chapman & Bell in determination
of Exposure Time and Marketing Period is:
- Mortgage interest rates and key investment returns are at
levels of 9.0 to 10.0 percent.
- The local and regional economy maintains stability with
moderate growth.
- The sales indicate marketing times of 12 to 24 months.
- Interviews with brokers and market participants indicate
marketing of typically 12 months.
Based upon broker interviews, both an Exposure Time and a Marketing
Period of less than 12 months is considered a REASONABLE MARKET PERIOD FOR THE
SUBJECT PROPERTY using the value conclusions found in this report.
<PAGE>
11405 BLUEGRASS PARKWAY - LOUISVILLE, KENTUCKY Page 71
CERTIFICATION
-------------
This Certification is for the Appraisal Report for the property located
at 11405 Bluegrass Parkway in Louisville, Kentucky. The undersigned do hereby
certify that:
1. To the best of their knowledge and belief, the statements of
facts contained in this appraisal report are true and correct.
2. The reported analyses, opinions, and conclusions are limited
only by the reported assumptions and limiting conditions, and
are personal, impartial, and unbiased professional analyses,
opinions, and conclusions.
3. Our engagement in this assignment was not contingent upon
developing or reporting predetermined results.
4. We have no present or prospective interest in the property
that is the subject of this appraisal report, and no personal
interest or bias with respect to the parties involved.
5. Our compensation for completing this assignment is not
contingent upon the development or reporting of a
predetermined value or direction in value that favors the
cause of the client, the amount of the value opinion, the
attainment of a stipulated result, or the occurrence of a
subsequent event directly related to the intended use of this
appraisal.
6. Our analyses, opinions, and conclusions were developed, and
this appraisal report has been prepared, in conformity with
the Uniform Standards of Professional Appraisal Practice and
in conformity with the requirements of the Code of
Professional Ethics and the Standards of Professional Practice
of the Appraisal Institute.
7. The use of this appraisal report is subject to the
requirements of the Appraisal Institute relating to review by
its duly authorized representatives.
<PAGE>
11405 BLUEGRASS PARKWAY - LOUISVILLE, KENTUCKY Page 72
8. George M. Chapman, Lin E. Bell, Charles L. Fore, and Mark E.
Mitchell are currently certified under the continuing
education programs of the Appraisal Institute.
As of the date of this report, I, George M. Chapman, MAI, SRA,
CRE, have completed the requirements under the continuing
education program of the Appraisal Institute (Through December
31, 2002).
As of the date of this report, I, Mark E. Mitchell, MAI, have
completed the requirements under the continuing education
program of the Appraisal Institute (Through December 31,
2001).
9. No one other than the undersigned prepared the analyses,
conclusions, and opinions concerning real estate that are set
forth in this appraisal report.
10. George M. Chapman, MAI, SRA, CRE, and Mark E. Mitchell, MAI
have made a personal inspection of the property that is the
subject of this appraisal report.
11. This appraisal report was prepared by George M. Chapman, MAI,
SRA, CRE, and Mark E. Mitchell, MAI who ACCEPT FULL
RESPONSIBILITY as stated in this SIGNED CERTIFICATION.
--------------------------------------------------------------------------------
George M. Chapman, MAI, SRA, CRE Mark E. Mitchell, MAI
Kentucky Certified General Kentucky Certified General
Real Property Appraiser #614 Real Property Appraiser #664
Date: March 31, 2000
<PAGE>
ASSUMPTIONS AND LIMITING CONDITIONS
-----------------------------------
The accompanying appraisal report regarding the property located at
11405 Bluegrass Parkway in Louisville, Kentucky is subject to the following
assumptions and limiting conditions.
1. The property is assumed to have a clear and marketable title
such as any title company will insure, the rights of which can
be conveyed by deed of the general warranty.
2. No responsibility is assumed for matters legal or engineering
in nature unless otherwise noted. Information provided by the
client is assumed to be accurate.
3. Any legal descriptions, property survey, site plans, site
plats, drawings, and/or sketches contained herein were either
furnished to the appraiser(s) or are based upon data provided
to the appraiser(s). These items are included herein to assist
the reader in visualizing the property. Although to the best
of our knowledge, these items provide an accurate
representation of the property, we have made no survey of the
property, and we assume no responsibility in connection with
such matters.
4. The accompanying appraisal report is to be used as a whole and
no part to be taken as a fraction thereof.
5. Integra Chapman & Bell associates are not required to give
further consultation, to testify in court, or be in attendance
in court regarding this appraisal report unless arrangements
have been set out previously.
6. Neither all nor any part of the contents of this appraisal
report shall be conveyed to the public through advertising,
public relations, news, sales, or other media, without the
written consent and approval of Integra Chapman & Bell,
particularly as to valuation conclusions, the identity of the
appraiser or firm with which he/she is connected, or any
reference to the Appraisal Institute.
<PAGE>
7. Any distribution of the valuation of this appraisal report
between land and improvements applies only under the existing
program of utilization. The separate valuations for land and
building must not be used in conjunction with any other
appraisal or report and are invalid if so used.
8. The appraiser assumes that there are no hidden or unapparent
conditions of the property, subsoil, or structures which would
render it more or less valuable. The appraiser assumes no
responsibility for such conditions or for engineering which
might be required to discover such factors.
9. Responsible ownership is assumed.
10. The appraisal assignment was not based on a requested minimum
valuation, a specific valuation, or the approval of a loan.
11. The property history has been provided by conversations with
various individuals involved with the chain of title
contracts, deeds, leases, and closing statements. We have not
performed a title search, nor do we warrant that the history,
as presented herein, is completely accurate since we have
relied upon the information of others. Any person or entity
contemplating an interest in the subject should rely solely
upon a title search and opinion prepared by a qualified
attorney-at-law.
12. The Americans with Disabilities Act (ADA) became effective
January 29, 1992. Integra Chapman & Bell has not made a
specific compliance survey and analysis of this property to
determine whether or not it is in conformity with the various
detailed requirements of the ADA. It is possible that a
compliance survey of the property together with a detailed
analysis of the requirements of the ADA could reveal that the
property is not in compliance with one or more of the
requirements of the act. If so, this fact could have a
negative effect upon the value of the property. Since Integra
Chapman & Bell has no direct evidence relating to this issue,
we did not consider possible noncompliance with the
requirements of ADA in estimating the value of the property.
<PAGE>
13. Integra Chapman & Bell requested a Level I and/or Level II
environmental study, but it was not provided as of the date of
this appraisal report. Integra Chapman & Bell inspected the
subject property and saw no "red flags" indicating the
evidence of hazardous materials. Integra Chapman & Bell has no
knowledge of the existence of such materials on or in the
property. Integra Chapman & Bell, however, is not qualified to
detect such substances. The presence of substances such as
asbestos, radon, urea-formaldehyde foam insulation, or other
potentially hazardous materials may affect the value of the
property. The value estimate is predicated on the assumption
that there are no such materials on or in the property that
would cause a loss in value. No responsibility is assumed for
any such conditions or for any expertise or engineering
knowledge required to discover them. The client is urged to
retain an expert in this field, if desired. Further, Integra
Chapman & Bell reserves the right to adjust the values
reported herein, based on an engineer's report of the presence
of hazardous materials.
14. The value estimate expressed herein assumes competent and
aggressive management and/or marketing of the subject
property.
15. Unless otherwise noted herein, it is presumed that there are
no encroachments nor any violations of zoning regulations
affecting the subject property.
16. Data included in this appraisal report relative to public
rights-of-way at the property reflects visual evidence that
was apparent during our inspection of the property. Unless
otherwise stated herein, the appraiser(s) is unaware of any
planned or proposed roadway relocations or reconstructions at
and near the property that would adversely affect the
property's access and/or exposure, and the appraiser(s)
assumes no responsibility beyond readily apparent visual
evidence at the date of appraisal.
17. It is assumed that any user of this appraisal report has
obtained and reviewed all architectural data, such as property
survey, building/site plans, and specifications, as well as
all leases, if any.
18. No termite inspection has been made, nor is a termite report
available to the appraiser(s). It is assumed that there is no
termite infestation and that a termite bond supplementing
annual inspections is in effect.
<PAGE>
19. The value estimate expressed herein considers that all phases
of development are under the same ownership. If separate
ownership of any phase occurs, it is assumed that suitable
easements, access, and utility rights are available between
phases, including use of common areas, so that the integral
character of the overall development will not be adversely
affected.
20. If the value estimate expressed herein relates to a
fractional-interest only in the real estate appraised, it is
not necessarily a conclusion of this appraisal report that the
value of this fractional interest (plus the value of all other
fractional interests) equal the value of the fee simple
estate, considered as a sole interest.
21. Certain information contained in this appraisal report has
been furnished by others. The sources and the information are
considered to be reliable but cannot be guaranteed.
<PAGE>
Exhibit (c)(2)
Appraisal Report by Integra Chapman & Bell
dated November 2, 1999
<PAGE>
June 23, 2000
Mr. Neil Mitchell
NTS
10172 Linn Station Road
Louisville, Kentucky 40223
Re: Lakeshore Business Center I and II
5100-5200 Northwest 33rd Avenue
Office building and excess land (2.931 acres)
Fort Lauderdale, Florida
File #300-46-99 LOU (G)
Dear Mr. Mitchell:
As requested, Integra Chapman & Bell has inspected and appraised the
above-referenced property which is legally described in the accompanying
report.
Attached you will find the facts and conclusions used in arriving at
the "as is" market value of the leased fee estate as of November 2, 1999. This
complete appraisal, self- contained report has been prepared to comply with the
Uniform Standards of Professional Appraisal Practice (USPAP)as augmented by the
Office of the Comptroller of the Currency (OCC) and the Office of Thrift
Supervision (OTS).
The value conclusion is based on the following special assumptions:
- Financing is available to a credit-worthy purchaser for the
subject property.
- The subject property is environmentally clean.
- The vacant site is deemed excess land and can accommodate a
(proposed) office building of approximately 35,000 square
feet. All utilities are available to the site in sufficient
capacity for development.
<PAGE>
- At the client's request, a market study was not performed. A
review of the current market trends was made and is discussed
within the highest and best use and in Integra Chapman &
Bell's opinion meets the market study USPAP requirement.
- Portions of Integra Chapman & Bell analyses are being copied
and distributed to persons other than our clients. Henceforth,
all information, data, and analyses contained within this
report will be protected by copyright law. Reproduction of any
part without the written permission of Integra Chapman & Bell
is expressly prohibited.
Taking into account all pertinent facts that affect value, the current
"as is" value of the leased fee estate of Lakeshore I, as of November 2, 1999,
is:
* * *NINE MILLION EIGHT HUNDRED THOUSAND DOLLARS * * *
$9,800,000
Taking into account all pertinent facts that affect value, the current
"as is" value of the leased fee estate of Lakeshore II, property, as of November
2, 1999, is:
* * * NINE MILLION DOLLARS * * *
$9,000,000
<PAGE>
Taking into account all pertinent facts that affect value, the current
"as is" value of the fee simple estate of the 2.931 acres of excess land, as of
November 2, 1999, is:
* * * SEVEN HUNDRED FIFTY THOUSAND DOLLARS * * *
$750,000
Respectfully submitted,
George M. Chapman, MAI, SRA, CRE
Mark E. Mitchell, MAI
Florida Certified General
Real Property Appraiser
Temporary Practice Permit #0001776
GMC/MEM/lat/ls
Attachment has been retained in Integra Chapman & Bell's files to accommodate
SCC filing.
<PAGE>
APPRAISAL REPORT OF... Lakeshore Business Center I and II
5100-5200 Northwest 33rd Avenue
Office building and excess land
Ft. Lauderdale, Florida 33309
PURPOSE OF APPRAISAL... Estimate the "As Is" Market Value of the
Leased Fee Estate for Phases I and II
and the "As Is" Market Value of the Fee
Simple Estate for the Excess Land.
PREPARED FOR... Mr. Neil Mitchell
NTS
10172 Linn Station Road
Louisville, Kentucky 40223
PREPARED AT THE REQUEST OF... Mr. Neil Mitchell
NTS
10172 Linn Station Road
Louisville, Kentucky 40223
PREPARED BY... Integra Chapman & Bell
3703 Taylorsville Road Suite 205
Louisville, Kentucky 40220
George M. Chapman, MAI, SRA, CRE
Mark E. Mitchell, MAI
<PAGE>
SUMMARY OF SALIENT FACTS AND CONCLUSIONS
IDENTIFICATION
--------------
Name of Property: Lakeshore Business Center I and II
Street Address: 5100-5200 Northwest 33rd Avenue
3201 West Commercial Boulevard
Ft. Lauderdale, Florida 33309
Location: Northeast corner of West Commercial
Boulevard and Northwest 33rd Avenue
Property Tax Identification No: Phase I: 19218-16-01000
Phase II: 19218-16-03900
Excess Land: 19218-16-04200
Census Tract No: 602.02 (City of Ft. Lauderdale)
Section/Township/Range 18/49/42
PROJECT DATA
------------
Project Type: Office Facility
Year Built Phase I: 1987
Phase II: 1990
GBA: Phase I: 105,100 sf
Phase II: 100,100 sf
Net Rentable Area: SIZE
----
Phase I: 103,554 sf
Phase II: 97,261 sf
Land Area: Phase I: 320,096 sf (7.35 acres)
Phase II: 291,896 sf (6.70 acres)
Excess Land: 127,683 sf (2.931 acres)
Zoning/Land Use: Phase I: B-3-C "Planned
Warehouse/ Light
Industrial-Controlled" by
City of Ft. Lauderdale
Phase II: B-1-C "Retail Business-
Commercial" by City of
Ft. Lauderdale
Excess Land:
B-1-C "Retail Business-
Commercial" by City of
Ft. Lauderdale
Density (FAR): Phase I: 0.33
Phase II: 0.34
Interest Appraised: Leased Fee
Fee Simple (vacant land)
Highest and Best Use:
<PAGE>
"As Vacant": Development of an office facility with
owner-occupants (single user) and/or a
multi-tenant facility.
"As Improved": Present use.
VALUATION DATA
--------------
Effective Date: November 2, 1999
Marketing Period: 12 months
VALUE INDICATIONS PHASE I PHASE II EXCESS
----------------- ------- ------------ ------
LAND
----
Cost Approach: N/A N/A $750,000
Sales Comparison Approach: $9,500,000 $9,000,000 N/A
Income Capitalization Approach: $9,800,000 $9,000,000 N/A
VALUE CONCLUSIONS
-----------------
"As Is" Value: $9,800,000 $9,000,000 $750,000
TABLE OF CONTENTS
Page
PURPOSE, USE, AND DATE 1
ASSUMPTIONS AND LIMITING CONDITIONS 1
DEFINITION OF THE VALUE AND INTEREST APPRAISED 2
PERSONAL PROPERTY 3
SCOPE 4
LEGAL ATTRIBUTES, SALES HISTORY, AND ZONING 5
TAX AND ASSESSMENT ANALYSIS 6
NEIGHBORHOOD AND DISTRICT DESCRIPTION 7
PHYSICAL ATTRIBUTES 12
Site Attributes 12
Improvement Attributes 20
Exterior 21
Interior 22
ECONOMIC ATTRIBUTES 24
Highest and Best Use As Vacant 25
Legal Permissibility 25
Physical Possibility 25
<PAGE>
Financial Feasibility 26
Maximum Profitability 26
Highest and Best Use As Improved 27
Legal Permissibility 27
Physical Possibility 27
Financial Feasibility/Maximum Profitability 27
VALUATION ANALYSIS 30
COST APPROACH 32
Land Value 32
SALES COMPARISON APPROACH 36
INCOME APPROACH 42
Potential Gross Income 43
Expense Reimbursements and Other Income
Vacancy and Credit 47
Expenses 48
Overall Rate and Discount Rate Determination 51
DISCOUNTED CASH FLOW ANALYSIS 53
Cash Flow Projections 53
DCF EXPLANATIONS 55
Market Rent Growth Rate 55
Absorption of Vacant Space 56
Lease Expirations 56
Operating Expense Escalation Rates 56
Leasing Commissions 57
Tenant Improvements and Alterations 57
Exterior Renovation Allowance 57
Roof Repair 57
HVAC 58
REVERSION CALCULATIONS 58
DISCOUNT RATE ANALYSIS 59
FINAL CONCLUSION/RECONCILIATION 65
EXPOSURE TIME AND MARKETING PERIOD 67
CERTIFICATION 70
<PAGE>
ADDENDA
EXHIBIT "A"
EXHIBIT "B"
EXHIBIT "C"
EXHIBIT "D"
EXHIBIT "E"
QUALIFICATIONS OF APPRAISERS
ASSUMPTIONS AND LIMITING CONDITIONS
<PAGE>
LIST OF FIGURES
Figure 1, Neighborhood Map
Figure 2, Cross Section/Overview Cyprus Creek
Figure 3, Lakeshore I Plat
Figure 4, Lakeshore II Plat
Figure 5, Excess Land Plat
Figure 6, Flood Plain Map
Figure 7, Cyprus Creek Class "B" Office Competitors
Figure 8, Land Sales Identified and Described and Rating Grid
Figure 9, Improved Sales Identified and Described and Rating Grid
Figure 10, Rent Rolls
Figure 11, Comparable Lease Summary
Figure 12, Comparable Operating/Expense Data
Figure 13, Subject Income/Expense Statements
Figure 14, Discounted Cash Flow
Figure 15, Projected ARGUS Cash Flow - Lakeshore I
Figure 16, Pro Forma - Lakeshore I
Figure 17, Projected ARGUS Cash Flow - Lakeshore II
Figure 18, Pro Forma - Lakeshore II
ADDENDA
Exhibit "A", Legal Description
Exhibit "B", Photographs of Subject
Exhibit "C", Land Sales Comparables
Exhibit "D", Improved Sales Comparables
Exhibit "E", Lease-by-Lease Synopsis
USPAP TABLE OF CONTENTS
AUGMENTED BY OTS AND OCC REGULATIONS
FOR SELF-CONTAINED REPORT
Page
In developing a real property appraisal, an appraiser must identify the problem
to be solved and the scope of work necessary to solve the problem, and correctly
complete research and analysis necessary to produce a credible appraisal.
<PAGE>
<TABLE>
<CAPTION>
STANDARDS RULE 1-1 (This Standards Rule contains binding requirements from which
departure is NOT permitted.)
In developing a real property appraisal, an appraiser must:
<S> <C>
1-1 a. be aware of, understand, and correctly employ those RECOGNIZED METHODS AND
TECHNIQUES THAT ARE NECESSARY TO PRODUCE A CREDIBLE APPRAISAL;* 30
b. not commit a substantial error of omission or commission that significantly affects an
appraisal;*
c. not render appraisal services in a careless or negligent
manner, such as by making a series of errors that, although
individually might not significantly affect the results of an
appraisal, in the aggregate affect the credibility of those
results.*
STANDARDS RULE 1-2 (This Standards Rule contains binding requirements from which
departure is NOT permitted.)
In developing a real property appraisal, an appraiser must:
1-2 a. identify the client (THE CLIENT) and 1
other INTENDED USERs; 1
b. identify the INTENDED USE of the appraiser's opinions and conclusions; 1, 4, 70
c. identify the purpose of the assignment (PURPOSE OF THE APPRAISAL), including the type and 1
DEFINITION OF THE VALUE to be developed; and, if the value opinion to be 2
developed is MARKET VALUE, ascertain whether the value is to be the 1, 2, 6, 31
MOST PROBABLE PRICE: 1, 2
(i) in terms of cash; or
(ii) in terms of financial arrangements equivalent to cash; or
(iii) in other precisely defined terms; and
(iv) if the opinion of value is to be based on submarket financing or
financing with unusual conditions or incentives, the
terms of such financing must be clearly identified
and the appraiser's opinion of their contributions to
or negative influence on value must be developed by
analysis of relevant market data.
d. identify the EFFECTIVE DATE of the appraiser's opinion and conclusions; 1, 55, 68
e. identify the CHARACTERISTICS OF THE PROPERTY THAT ARE RELEVANT TO THE PURPOSE AND INTENDED USE of
the appraisal, including: 4
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Page
(i) its location (SUBJECT'S LOCATION) and 5
physical (PHYSICAL ATTRIBUTE), 4, 12
legal (LEGAL ATTRIBUTE), and 5
ECONOMIC ATTRIBUTES; 24
(ii) the real property interest to be valued (REAL PROPERTY INTEREST APPRAISED); 3
(iii) any PERSONAL PROPERTY, TRADE FIXTURES, OR INTANGIBLE ITEMS
that are not real property but are included in the appraisal; 3
(iv) any known EASEMENTS, RESTRICTIONS, ENCUMBRANCES, LEASES,
RESERVATIONS, COVENANTS, CONTRACTS, DECLARATIONS, SPECIAL ASSESSMENTS,
OR ORDINANCES, or other items of a similar nature; and 6
(v) whether the subject property is a FRACTIONAL INTEREST, 3, 75
PHYSICAL SEGMENT, DNA
or PARTIAL HOLDING 3
f. identify the SCOPE OF WORK necessary to complete the assignment; 4
g. identify any EXTRAORDINARY ASSUMPTIONs necessary in the assignment; 1
h. identify any HYPOTHETICAL CONDITIONs necessary in the assignment 1
STANDARDS RULE 1-3 (This Standards Rule contains specific requirements from
which departure is permitted.)
When the value opinion to be developed is market value, and given the scope of
work identified in accordance with Standards Rule 1-2(f), an appraiser must:
1-3 a. identify and analyze the EFFECT ON USE AND VALUE OF EXISTING LAND USE REGULATIONS 4
The reasonably PROBABLE MODIFICATIONS of such land use regulations, DNA
the effect on use and value of ECONOMIC DEMAND, the 30
(effect on use and value of PHYSICAL ADAPTABILITY of the real estate), and 23, 24
market area trends (MARKET AREA TRENDS IMPACT ON THE USE AND ADAPTABILITY) DNA
(the MARKET AREA TRENDS IMPACT OF THE SUBJECT USE AND PHYSICAL ADAPTABILITY ON VALUE); 24
b. develop an OPINION OF THE HIGHEST AND BEST USE OF THE REAL ESTATE 26, 30
STANDARDS RULE 1-4 (This Standards Rule contains specific requirements from
which departure is permitted.)
In developing a real property appraisal, an appraiser must collect, verify, and
analyze all information applicable to the appraisal problem, given the scope of
work identified in accordance with Standards Rule 1-2(f).
1-4 a. when a SALES COMPARISON APPROACH IS APPLICABLE, an appraiser must analyze 31
such comparable sales data as are available to indicate a value conclusion.
b. when a COST APPROACH IS APPLICABLE, an appraiser must: DNA
(i) develop an OPINION OF SITE value by an appropriate appraisal DNA
method or technique;
(ii) analyze such COMPARABLE COST DATA as are available to DNA
estimate the cost new of the improvements (if any); and
(iii) analyze such comparable data as are available to estimate the
difference between cost new and the present worth of the
improvements (ACCRUED DEPRECIATION) 30
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Page
c. when an INCOME APPROACH IS APPLICABLE, an appraiser must: 31
(i) analyze such COMPARABLE RENTAL DATA as are available to DNA
estimate the market rental of the property;
(ii) analyze such COMPARABLE OPERATING EXPENSE data as 48
are available to estimate the operating expenses of the property;
(iii) analyze such comparable data as are available to
estimate RATES OF CAPITALIZATION and/or 51, 53
estimate RATES OF DISCOUNT and DNA
(iv) base projections of FUTURE RENT and 30, 31
expenses (FUTURE EXPENSES) on reasonably clear and appropriate evidence 48, 51
d. when developing an opinion of the value of a leased fee estate or a
leasehold estate, an appraiser must analyze the effect on value,
if any, of the TERMS AND CONDITIONS OF THE LEASE(s) 45
e. an appraiser must analyze the effect on value, if any, of the
ASSEMBLAGE OF THE VARIOUS ESTATES or component parts of a property DNA
and refrain from valuing the whole solely by adding together the individual
values of the various estates or component parts.
f. an appraiser must analyze the effect on value, if any, of
ANTICIPATED PUBLIC OR PRIVATE IMPROVEMENTS, located on or off the site, to the 7
extent that market actions reflect such anticipated improvements as of the
effective apprisal date.
g. an appraiser must analyze the effect on value of any
PERSONAL PROPERTY, TRADE FIXTURES, OR INTANGIBLE ITEMS that are not real 3
property but are included in the appraisal.
h. when appraising proposed improvements, an appraiser must examine
and have available for future examination:
(i) PLANS, SPECIFICATIONS, or other documentation DNA
SUFFICIENT TO IDENTIFY THE SCOPE AND CHARACTER OF THE PROPOSED
IMPROVEMENTS; DNA
(ii) evidence indicating the PROBABLE TIME OF COMPLETION of the DNA
proposed improvements; and
(iii) reasonably clear and appropriate evidence supporting
DEVELOPMENT COSTs, DNA
ANTICIPATED EARNINGs, DNA
OCCUPANCY PROJECTIONs, and the DNA
ANTICIPATED COMPETITION at the time of completion 7
STANDARDS RULE 1-5 (This Standards Rule contains binding requirements from which
departure is NOT permitted.)
In developing a real property appraisal, an appraiser must:
a. analyze any current AGREEMENT OF SALE, OPTION, OR LISTING of the property, 6
if such information is available to the appraiser in the normal course of business;
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Page
b. analyze any prior sales of the property that occurred within the following
minimum time periods:
(i) one year for one-to-four-family residential property; and
(ii) (TRANSFER IN THE PAST THREE YEARS) three years for all other property types; 6
c. RECONCILE THE QUALITY AND QUANTITY OF DATA available and analyzed within the 65
approaches used and the APPLICABILITY OR SUITABILITY OF THE APPROACHES used. 65
In reporting the results of a real property appraisal, an appraiser must
communicate each analysis, opinion, and conclusion in a manner that is not
misleading.
STANDARDS RULE 2-1 (This Standards Rule contains binding requirements from which
departure is NOT permitted.) Each written or oral real property appraisal report
must:
a. clearly and accurately set forth the appraisal in a manner that will not be misleading:
b. contain sufficient information to enable the intended users of the appraisal to
understand the report properly;
c. clearly and accurately disclose any
EXTRAORDINARY ASSUMPTION, 1
HYPOTHETICAL CONDITION, 1
or LIMITING CONDITIONS that directly affect the appraisal and indicate its impact on value. 1, 70, 72
STANDARDS RULE 2-2 (This Standards Rule contains binding requirements from which
departure is NOT permitted.) Each written real property appraisal report must:
a. (i) state the identity of the client (THE CLIENT) and any 1
INTENDED USERs, by name or type; 1
(ii) state the INTENDED USE of the appraisal; 1, 4, 70
(iii) describe information sufficient to IDENTIFY THE REAL ESTATE involved 5
in the appraisal, including the physical (PHYSICAL ATTRIBUTES) and economic 12
(ECONOMIC ATTRIBUTES) property characteristics relevant to the assignment; 24
(iv) state the REAL PROPERTY INTEREST APPRAISED; 3
(v) state the PURPOSE OF THE APPRAISAL, including the type and definition of 1
value (the MARKET VALUE IS DEFINED AS) and its source; 2
(vi) state the EFFECTIVE DATE of the appraisal and the 1, 55, 68
DATE OF THE REPORT; 1
(vii) describe sufficient information to disclose to the client and any intended
users of the appraisal the SCOPE of work used to develop the appraisal; 4
(viii) state all assumptions, HYPOTHETICAL CONDITIONs, and 1
LIMITING CONDITIONS that affected the analyses, opinions, and conclusions; 1, 70, 72
(ix) describe the INFORMATION ANALYZED, the 4
APPRAISAL PROCEDURES FOLLOWED, and the 4
REASONING THAT SUPPORTS THE ANALYSES, OPINIONS, AND CONCLUSIONS; 5
(x) state the use of the real estate existing as of the date of value, and the
use of the real estate reflected in the appraisal; and, when the purpose
of the assignment is market value, describe the support and rationale for
the appraiser's OPINION OF THE HIGHEST AND BEST USE OF THE REAL ESTATE; 26, 30
(xi) state and EXPLAIN ANY PERMITTED DEPARTURES from specific requirements of 2
Standard 1, and the reason for excluding (EXPLAIN AND SUPPORT THE EXCLUSION of) 30
any of the usual valuation approaches;
(xii) include a SIGNED CERTIFICATION in accordance with Standards Rule 2-3 71
</TABLE>
<PAGE>
Page
STANDARDS RULE 2-3 (This Standards Rule contains binding requirements from which
departure is NOT permitted.)
Each written real property appraisal report must contain a signed certification
that is similar in content to the following form:
I certify that, to the best of my knowledge and belief:
the statements of fact contained in this report are true and
correct.
the reported analyses, opinions, and conclusions are limited
only by the reported assumptions and limiting conditions, and
are my personal, impartial, and unbiased professional
analyses, opinions, and conclusions.
I have no (or the specified) present or prospective interest
in the property that is the subject of this report, and no (or
the specified) personal interest with respect tot he parties
involved.
I have no bias with respect to the property that is the
subject of this report or to the parties involved with this
assignment.
my engagement in this assignment was not contingent upon
developing or reporting predetermined results.
my compensation for completing this assignment is not
contingent upon the development or reporting of a
predetermined value or direction in value that favors the
cause of the client, the amount of the value opinion, the
attainment of a stipulated result, or the occurrence of a
subsequent event directly related to the intended use of this
appraisal.
my analyses, opinions, and conclusions were developed, and
this report has been prepared, in conformity with the Uniform
Standards of Professional Appraisal Practice.
I have (or have not) made a personal inspection of the
property that is the subject of this report. (If more than one
person signs the report, this certification must clearly
specify which individuals did and which individuals did not
make a personal inspection of the appraisal property.)
no one provided significant professional assistance tot he
person signing this report. (If there are exceptions, the name
of each individual providing significant professional
assistance must be stated.)
STANDARDS RULE 2-4 (This Standards Rule contains specific requirements from
which departure is permitted. See DEPARTURE RULE.)
2-4 Deals with oral real property appraisal reports, therefore omitted.
STANDARDS RULE 2-5 (This Standards Rule contains binding requirements from which
departure is NOT permitted.)
An appraiser who signs a real property appraisal report prepared by
another in any capacity ACCEPT FULL RESPONSIBILITY for the appraisal
and the contents of the appraisal report. 71
<PAGE>
<TABLE>
<CAPTION>
Page
Other specific client requests:
<S> <C> <C>
0-1 disclose steps taken to comply with the COMPETENCY Provisions of USPAP; 4
0-2 analyze and report a REASONABLE MARKET PERIOD FOR THE SUBJECT PROPERTY; 69
0-3 if any information was required for this appraisal, BUT THIS INFORMATION WAS NOT AVAILABLE, 5
this fact must be disclosed and explained in the appraisal;
0-4 the CURRENT "AS IS" VALUE to be established as required 66
</TABLE>
The 2-2 Standards not outlined here are for the Summary and/or Restricted Use
report types. The standards not detailed pertain to report types not germane to
this assignment.
italics indicate text added for better understanding of requirements.
( ) indicates text added or modified by Chapman & Bell to improve clarity and
understanding of requirements.
*These are the USPAP nondeparture issues.
Revised 6/8/99-TBD
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16
PURPOSE, USE, AND DATE
----------------------
The PURPOSE OF THE APPRAISAL is to estimate the "as is" market value,
interpreted as the MOST PROBABLE PRICE, of the leased fee estate of the improved
subject property and the fee simple value of the excess land. The INTENDED USE
of this report is for portfolio review by NTS (THE CLIENT).
There are no other INTENDED USERS of this appraisal to the best of
Integra Chapman & Bell's knowledge. The EFFECTIVE DATE OF THE APPRAISAL is
November 2, 1999. The DATE OF THE REPORT is June 23, 2000.
ASSUMPTIONS AND LIMITING CONDITIONS
-----------------------------------
The special LIMITING CONDITIONS, EXTRAORDINARY ASSUMPTIONS, and/or
HYPOTHETICAL CONDITIONS necessary to complete this assignment and likely to
directly affect the appraisal and conclusions are:
- Financing is available to a credit-worthy purchaser for the
subject property.
- The subject property is environmentally clean.
- The vacant site is deemed excess land and can accommodate a
(proposed) office of approximately 35,000 square feet. All
utilities are available to the site in sufficient capacity for
development.
- At the client's request, a market study was not performed. A
review of the current market trends was made and is discussed
within the highest and best use and in Integra Chapman &
Bell's opinion meets the market study USPAP requirement.
- Portions of Integra Chapman & Bell analyses are being copied
and distributed to persons other than our clients. Henceforth,
all information, data, and analyses contained within this
report will be protected by copyright law. Reproduction of any
part without the written permission of Integra Chapman & Bell
is expressly prohibited.
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5100 - 5200 NORTHWEST 33rd AVENUE - FT. LAUDERDALE, FLORIDA Page
17
USPAP requires Integra Chapman & Bell to IDENTIFY AND EXPLAIN ANY
PERMITTED DEPARTURES FROM THE REQUIREMENTS OF STANDARD 1. The Cost Approach has
not been used in the appraisal, because of the improvements age and
unreliability in the market by investors. This may be considered a departure
from 1-4b ii and iii.
DEFINITION OF THE VALUE AND INTEREST APPRAISED
----------------------------------------------
The market value is defined as:
The most probable price which a property should bring in a
competitive and open market under all conditions requisite to a fair
sale, the buyer and seller each acting prudently and knowledgeably, and
assuming the price is not affected by undue stimulus. Implicit in this
definition is the consummation of a sale as of a specified date and the
passing of title from seller to buyer under conditions whereby:
1. Buyer and seller are typically motivated;
2. Both parties are well informed or well advised, and acting in
what they consider their own best interests;
3. A reasonable time is allowed for exposure in the open market;
4. Payment is made in terms of cash in U.S. dollars or in terms
of financial arrangements comparable thereto; and
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5100 - 5200 NORTHWEST 33rd AVENUE - FT. LAUDERDALE, FLORIDA Page
18
5. The price represents the normal consideration for the property
sold unaffected by special or creative financing or sale
concessions granted by anyone associated with the sale.(1)
The REAL PROPERTY INTEREST APPRAISED is in part the leased fee estate
which is not a PARTIAL HOLDING of a FRACTIONAL INTEREST is defined as:
An ownership interest held by a landlord with the right of use
and occupancy conveyed by lease to others; the rights of lessor or
leased fee owner and leased fee are specified by contract terms
contained within the lease.(2)
The excess land is unencumbered by any leases, therefore the real
property interest appraised is fee simple which is defined as:
Absolute ownership unencumbered by any other interest or
estate subject only to the limitations imposed by the governmental
powers of taxation, eminent domain, police power, and escheat.(3)
PERSONAL PROPERTY
-----------------
No personal property, trade fixtures, or intangible items are
considered in this valuation.
SCOPE
-----
The SCOPE of work necessary to complete this assignment considers the
EXTENT OF THE DATA COLLECTION PROCESS. For this assignment, the INFORMATION
ANALYZED
----------------
(1)The Appraisal Foundation, USPAP, 1999 Edition p. 139.
(2)Appraisal Institute, THE DICTIONARY OF REAL ESTATE APPRAISAL, Third
Edition (Chicago, Illinois, 1993) p. 204.
(3)Appraisal Institute, THE DICTIONARY OF REAL ESTATE APPRAISAL, Third
Edition (Chicago, Illinois, 1993), p. 140.
<PAGE>
5100 - 5200 NORTHWEST 33rd AVENUE - FT. LAUDERDALE, FLORIDA Page
19
includes an inspection of the subject property; analysis of the neighborhood,
market area, land comparables, improved comparables, and leased comparables; and
analysis of the highest and best use incorporating economic factors from the
market area and neighborhood that may impact the subject. Integra Chapman &
Bell's COMPETENCY to appraise this type of property is based on prior experience
as revealed to the client as well as the data, analyses, and conclusions that
have been developed in this report.
The CHARACTERISTICS OF THE PROPERTY THAT ARE RELEVANT TO THE PURPOSE
AND INTENDED USE are described in the site and improvement descriptions of this
report. The relevance of these characteristics to the value sought are focused
upon in the highest and best use and value impact explained in the appropriate
approach to value. The EFFECT ON USE AND VALUE OF EXISTING LAND USE REGULATIONS
to include zoning, overlay studies, and binding elements, are reviewed and
discussed in the site's PHYSICAL ATTRIBUTE section and value impacts explained
in the land value analysis.
The APPRAISAL PROCEDURES FOLLOWED include two of the three approaches
to value which are the Sales Comparison and Income Approaches. The data utilized
in these approaches is obtained from buyers, sellers, brokers, leasing agents,
property managers, and other parties that may have been involved in
transactions. Integra Chapman & Bell assumes the information received from these
various sources and verification where possible is correct and representative of
the actual transaction. In each of the approaches and the final correlation, the
REASONING THAT SUPPORTS THE ANALYSES, OPINIONS, AND CONCLUSIONS is described.
A number of items were requested and furnished to assist the appraiser.
However, the following items were also requested, BUT THIS INFORMATION WAS NOT
AVAILABLE:
- Detailed Building Plans
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5100 - 5200 NORTHWEST 33rd AVENUE - FT. LAUDERDALE, FLORIDA Page
20
- Environmental Report
- ADA Report
- Title Report
- Shared Access and Parking Agreement
LEGAL ATTRIBUTES, SALES HISTORY, AND ZONING
-------------------------------------------
The purpose of this part of the report is to identify the LEGAL
ATTRIBUTES and IDENTIFY THE REAL ESTATE being appraised. This is done through
the address, the Broward County Property Valuation Administrator's Office (PVA)
identification, and the property legal description. The SUBJECT'S LOCATION is
identified by the Broward County PVA as Phase I: Folio # 19218-16-01000 and
Phase II: Folio # 19218-16-03900. The Phase I is owned by NTS Ft. Lauderdale
Office Joint Venture and Phase II is owned by NTS Ft. Lauderdale, Ltd. The
subject property legal description was obtained from the client and is shown in
Exhibit "A". A title report and survey were requested from the client, but a
title report was not provided. These sources were used to IDENTIFY AND DESCRIBE
THE REAL ESTATE.
Based on the Broward County PVA's records, the property has not had a
TRANSFER IN THE PAST THREE YEARS, nor is it presently subject to an AGREEMENT OF
SALE, OPTION, OR LISTING, based upon the information available to Integra
Chapman & Bell. The survey and legal description were relied upon as the source
for EASEMENTS, RESTRICTIONS, ENCUMBRANCES, LEASES, RESERVATIONS, COVENANTS,
CONTRACTS, DECLARATIONS, SPECIAL ASSESSMENTS, AND ORDINANCES. No impact on value
was observed using these resources for the restrictions to the bundle of rights.
The subject is zoned B-3-C, Planned Warehouse/Light Industrial
Controlled and B- 1-C Retail Business Controlled, and is improved in compliance
with the zoning ordinances.
TAX AND ASSESSMENT ANALYSIS
---------------------------
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5100 - 5200 NORTHWEST 33rd AVENUE - FT. LAUDERDALE, FLORIDA Page
21
The subject property is taxed under the jurisdiction of the Broward
PVA's Office and the State of Florida at 100 percent of market value. The PVA's
current assessment will be used for determining the tax liability. The subject
property is assessed as follows:
Phase I Phase II Excess Land
----------------------------------------------------------
Land $1,440,430 $2,277,500 $1,020,000
Improvements $3,867,570 $4,253,200 N/A
---------- ---------- ----------
Total $5,308,000 $6,530,700 $1,020,000
The real property taxes are estimated to be approximately $349,687
based upon the current tax rate of 27.1797 mills and includes State, County, and
City of Ft. Lauderdale. The real estate taxes are passed through to the tenants
as a reimbursement expense, which is typical for the market.
NEIGHBORHOOD AND DISTRICT DESCRIPTION
-------------------------------------
The MARKET TRENDS IMPACT ON THE USE AND ADAPTABILITY are observed by
Integra Chapman & Bell to be in the immediate western Ft. Lauderdale area. The
additions to this district which are ANTICIPATED COMPETITION for the proposed
subject development includes the 35,000 square foot building proposed on the
subject's excess land. There are no ANTICIPATED PUBLIC OR PRIVATE IMPROVEMENTS,
which may impact the subject.
The subject is located on the northeast corner of Commercial Boulevard
and 33rd Avenue in the central portion of Broward County. The neighborhood is
bounded on the north by West Cypress Creek Road, on the east by Interstate 95,
on the south by Oakland Park Boulevard, and on the west by Florida's Turnpike.
Figure 1 is a neighborhood map outlining these boundaries and locating the
subject property in its relationship to the City of Ft. Lauderdale. The
neighborhood includes areas of Ft.
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5100 - 5200 NORTHWEST 33rd AVENUE - FT. LAUDERDALE, FLORIDA Page
22
Lauderdale, Oakland Park, Lauderdale Lakes, and unincorporated areas of Broward
County. The major economic generators in the neighborhood includes the Ft.
Lauderdale Executive Airport and various office, light industrial services, and
retail along the major roadways. The neighborhood area is approximately 80
percent developed.
Figure 1
Neighborhood Map
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5100 - 5200 NORTHWEST 33rd AVENUE - FT. LAUDERDALE, FLORIDA Page
23
Residential development in the area ranges from primarily single family
detached residences to garden style apartments. Single family density is
typically greater than 3 to 4 dwelling units per acre. Multi-family development
is typically garden style units at densities not exceeding 10 to 15 units per
acres. The primary single-family residential developments in the neighborhood
include Lauderdale Lakes and Royal Palm Park. The homes in the southern portion
of the neighborhood range in price from $100,000 to $500,000. Most of the homes
range in age from 10 to 40 years, with high occupancies.
Figure 2 is a cross section and overview of the west Ft. Lauderdale
office market also know as Cyprus Creek. Overall the subject is competing equal
to the other office buildings in the market. Additional office buildings are to
be constructed in Broward County, but outside the immediate market area. These
buildings will compete indirectly with the subject, but are not anticipated to
impact the subject's or market occupancy.
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5100 - 5200 NORTHWEST 33rd AVENUE - FT. LAUDERDALE, FLORIDA Page
24
Figure 2
Cyprus Creek and Broward County Office Submarket
<TABLE>
<CAPTION>
Relative
Age/Condition and
Building(1) Location SF (GLA) Occupancy Rent ($/SF) Location to Subject
---------------------------- ----------------------------- ---------------- --------------- ------------------ -------------------
<S> <C> <C> <C> <C> <C>
2101 Building 2101 West Commercial Blvd 94,980 82% $13.00 Slightly Superior
Avion Corp. Center 2200 West Commercial Blvd 66,908 98% $12.00 Equal
Commercial Place I 3230 West Commercial Blvd 90,370 98% $14.00 Equal
Commercial Place II 3250 West Commercial Blvd 83,336 50% $12 to $15.50 Superior
The Exchange 3303-3363 W Commercial Blvd 173,814 93% $11.00 Equal
Atrium 2000 2000 West Commercial Blvd 109,000 94% $12.00 Equal
Spectrum Center 1500 NW 49th Avenue 80,000 0% $14.00 Superior
Ft. Lauderdale 5410 NW 33rd Avenue 65,891 96% $10.50 Equal
Commerce Center
Trafalger Plaza 5300-5310 NW 33rd Avenue 97,795 87% $10.50 Equal
Lakeshore I 5100-5200 NW 33rd Avenue 103,554 91% $12.25
Lakeshore II 5100-5200 NW 33rd Avenue 97,261 89% $12.25
Broward County Total 10,063,602 91% $15.00
</TABLE>
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5100 - 5200 NORTHWEST 33rd AVENUE - FT. LAUDERDALE, FLORIDA Page
25
<TABLE>
<S> <C> <C> <C> <C> <C>
Cypress Creek 3,945,020 92% $14.00
Submarket
Cypress Creek 2,514,381 92% $13.00
Submarket Class B
</TABLE>
(1) All individual are Class "B" and part of Broward County and Cypress Creek
submarket.
Source: Integra Chapman & Bell, Miami, and Black's Guide to Commercial Real
Estate, 1998, 1999.
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5100 - 5200 NORTHWEST 33rd AVENUE - FT. LAUDERDALE, FLORIDA Page
26
The industrial parks within the neighborhood include the Ft. Lauderdale
Industrial Park which is contiguous to the Ft. Lauderdale Executive Airport.
Industrial users have primarily light industrial or service needs. Rents for
industrial uses are $3.95 to $6.50 per square foot, with the tenant responsible
for expenses. Occupancies are 85 percent or higher.
Vacant land accounts for approximately 20 percent of the
neighborhood, and is primarily located in the east and southeast portions of the
area. These areas will not be developed in the immediate future because of the
sites physical limitations or Planning and Zoning restrictions due to traffic
congestion.
Police and fire protection are provided by the City of Ft. Lauderdale
and Broward County. The City of Ft. Lauderdale's Fire Department is
approximately 1 mile west of the subject property providing ample fire
protection.
Utilities servicing the area include natural gas and electricity
supplied by Florida Power & Light, water supplied by Ft. Lauderdale Water
Company, telephone provided by Bell South, and sewage disposal by the City of
Ft. Lauderdale Sewer System.
In summary, the neighborhood is in high demand for retail and office
uses as demonstrated by the occupancy and rent levels. The neighborhood is at
the end of the growth phase and is entering the stability phase. New development
will occur in infill locations. Utilities are reasonably adequate and available
in developed areas.
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5100 - 5200 NORTHWEST 33rd AVENUE - FT. LAUDERDALE, FLORIDA Page
27
PHYSICAL ATTRIBUTES
-------------------
The PHYSICAL ATTRIBUTES are divided into the site and improvement
descriptions of the property.
SITE ATTRIBUTES
The subject consists of three parcels located near the intersection of
Commercial Boulevard and Northwest 33rd Avenue. Phase II has frontage on
Commercial Boulevard and Northwest 33rd Avenue. Phase II is north of Phase I
with visibility and frontage on Northwest 33rd Avenue. The excess land has
visibility on Commercial Boulevard. The subject subdivision plats are included
as Figures 3, 4, and 5.
Figure 3
Site Plan
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5100 - 5200 NORTHWEST 33rd AVENUE - FT. LAUDERDALE, FLORIDA Page
28
Figure 4
Site Plan
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5100 - 5200 NORTHWEST 33rd AVENUE - FT. LAUDERDALE, FLORIDA Page
29
Figure 5
Site Plan
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5100 - 5200 NORTHWEST 33rd AVENUE - FT. LAUDERDALE, FLORIDA Page
25
Land Area: Phase I 7.35 acres or 320,096 sf
Phase II 6.70 acres or 291,896 sf
Excess Land 2.931 acres or 127,683 sf
Shape: Phase I Irregular
Phase II Irregular
Excess Land Irregular
Front Feet: Phase I 452 feet on Northwest 33rd Avenue
Phase II 835 feet on West Commercial Blvd
Phase II 450 feet on Northwest 33rd Avenue
Excess Land 81 feet on Commercial Blvd
Topography: Level, on grade with West Commercial Boulevard and
Northwest 33rd Avenue.
Drainage: Drainage to offsite retention basin north of the
subject and drainage canal between Phases I and II.
Flood Zone: According to Flood Insurance Rate Map (FIRM) Panel
#12011C0204F, dated August 18, 1992 (Figure 6),
the subject is located in Flood Zone "AH", an area
inside the 100-year flood plain. The subject
improvements are 2 to 3 feet above the floodplain
elevation and have been approved by the Broward
County Planning Commission and the City of Ft.
Lauderdale.
Utilities: Water, sewer, electricity, natural gas, and
telephone.
Parking Spaces and Material: Phase I has approximately 386 asphalt paved parking
spaces or 3.73 spaces per 1,000 GLA.
These spaces are in average
condition. The number of spaces is
less than required by Planning and
Zoning. The spaces exclude rear
parking in the loading area between
the buildings.
Phase II has 401 spaces or 4.13
spaces per 1,000 GLA. The spaces are
in average condition.
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5100 - 5200 NORTHWEST 33rd AVENUE - FT. LAUDERDALE, FLORIDA Page
30
Street Improvements: Commercial Boulevard is a medium speed east/west
four to six lane roadway. The average traffic count
is 61,200 APR in 1998 (intersection of Northwest
33rd Avenue, Northwest 31st Avenue, and Commerce
Boulevard)
Ingress and Egress: Phase I has two curb cuts from east side of
Northwest 33rd Avenue.
Phase II has one curb cut each from
Northwest 31st Avenue, and along
Commercial Boulevard and Northwest
33rd Avenue.
Phase I and II are not connected
because of the canal. The excess land
has shared access with Phase I.
Building/Land Ratio: 105,100 sf GBA/320,096 sf land = 0.33
101,100 sf GBA/291,896 sf land = 0.34
Setbacks and Easements: Phase I is set back 164 feet from Northwest 33rd
Avenue. A 25 foot drainage easement extends along
the northern boundary. A 20 foot utility easement
is on the southern boundary. A 30 foot lake
maintenance easement extends along the eastern
boundary.
Phase II has 12 foot utility
easements along the west and south
boundaries. A 20 foot canal
maintenance easement exist along the
northern boundary.
Excess Land - the excess land does
not have utility easements, which
negatively impacts the site.
Miscellaneous Site Phase I has concrete curbing, sidewalks, landscaped
Improvements: medians and a shared concrete pad between the
improvements which is used for a
loading area. Fire protection is
provided from five hydrants at the
north and west sides of the parcel.
Phase II has concrete curbing
sidewalks, landscaping medians,
signage, and a concrete pad for the
loading area.
Overall, the subject parcels have average utility and visibility for
the existing uses. The inspection revealed no apparent adverse easements or
encroachments. The subject parcels are equal to competing office and light
industrial locations in Ft.
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32
Lauderdale. The sites have sufficient shape, depth, visibility, and good access
for the current uses. The parcels are located in the 100-year flood plain which
is typical because of the low elevation in the neighborhood. Building elevations
are three feet above flood elevations as shown on Figures 3 and 4.
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5100 - 5200 NORTHWEST 33rd AVENUE - FT. LAUDERDALE, FLORIDA Page
33
Figure 6
Flood Map
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5100 - 5200 NORTHWEST 33rd AVENUE - FT. LAUDERDALE, FLORIDA Page
34
Phase I has a deficit of approximately 14 parking spaces. Interviews
with management does not indicate that Phase I occupancy has been adversely
effected by the insufficient parking spaces. The subject tenants have been
service users attracted by the office/warehouse space. The warehouse space
accounts for an average 12 percent of the overall space. These tenants have less
than typical needs for employee or customer parking. There is no differential in
the market for office versus office/warehouse rent users. The subject's
office/warehouse design is unique to the market compensating for any
deficiencies. Based upon Integra Chapman & Bell's inspection, the soils are of
suitable load-bearing capacity as evidenced by surrounding properties and the
subject's integrity. Photographs of the subject are included as Exhibit "B".
IMPROVEMENT ATTRIBUTES
----------------------
A detailed description of Phase I and II improvement attributes is as
follows and was taken from a physical inspection of the property and limited
floor plans.
Both buildings are multi-tenant and first floor users and have
approximately 20 percent as unfinished space. The second floor finish is 100
percent office. The office space varies with the tenant but is classified as
Class "A" to "B" finish. The average tenant space would be classified as Class
"B" space.
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35
<TABLE>
<CAPTION>
EXTERIOR Phase I Phase II
-------- ------- --------
<S> <C> <C>
Year Built: 1987 1990
Gross Building Area: 105,100 square feet 100,100 square feet
Gross Leasable Area: 103,554 GLA is used for the tenant 97,261 GLA is used for the tenant
space. Load factor of 20 percent space. Load factor of 20 percent
on 1st floor space and 10 percent on 1st floor space and 10 percent
on 2nd floor space. on 2nd floor space.
Foundation: Poured concrete foundation with Poured concrete foundation with
spread footings; average condition. spread footings; average condition.
Framing: Steel frame construction; average Steel frame construction; average
condition. condition.
Walls and Doors: Exterior walls are curtaining Exterior walls are curtaining
masonry and glass; average masonry and glass; average
condition. Rear elevations of the condition. Rear elevations of the
buildings are concrete walls with buildings are concrete walls with
stucco finish; average condition. stucco finish; average condition.
Windows: Tinted double-pane in metal frame; Tinted double-pane in metal frame;
average condition. average condition.
Roof Structure: Built-up ballasted roof; average Built-up ballasted roof; average
condition. condition.
Roof Cover: Single ply membrane roof. Parapet Single ply membrane roof. Parapet
walls are covered with single walls are covered with single
membrane; average condition. membrane; average condition.
Rubberized membrane; average Rubberized membrane; average
condition. condition.
Number of Stories: Two Two
Stairwells: Emergency stairwells at each end Emergency stairwells at each end
of hallway. Interior stairwells at of hallway. Interior stairwells at
foyer; average condition. foyer; average condition.
</TABLE>
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5100 - 5200 NORTHWEST 33rd AVENUE - FT. LAUDERDALE, FLORIDA Page
36
<TABLE>
<CAPTION>
INTERIOR Phase I Phase II
-------- ------- --------
<S> <C> <C>
Walls: Painted drywall, wallpaper/vinyl Painted drywall, wallpaper/vinyl
covering; average condition. covering; average condition.
Ceiling: Painted drywall with acoustical tile Painted drywall with acoustical tile
in metal grid in office areas; open in metal grid in office areas; open
foyer at main entrance; average foyer at main entrance; average
condition. condition.
Floors: Tile or carpet in office and hallway; Tile or carpet in office and hallway;
marble in some offices; tile in marble in some offices; tile in
restrooms; average condition. restrooms; average condition.
Lighting: Incandescent and recessed Incandescent and recessed
flourescent panels; average flourescent panels; average
condition. condition.
Doors: Glass/wood entry doors in metal Glass/wood entry doors in metal
frames; average condition. frames; average condition.
Electric: Each tenant is individually metered. Each tenant is individually metered.
Capacity varies by size. Base unit Capacity varies by size. Base unit
use is 200 amphage, 3 phase use is 200 amphage, 3 phase.
Plumbing: Common area men and women Common area men and women
restrooms on each floor with six to restrooms on each floor with six to
eight fixtures each. Natural gas- eight fixtures each. Natural gas-
fired water heaters; average fired water heaters; average
condition. condition.
Sprinkler: Dry and wet sprinkler. Dry and wet sprinkler.
Heating, Ventilation, Central package roof top HVAC Central package roof top HVAC
and Air Conditioning: with individual controls. with individual controls.
Effective Age: 12 years 9 years
Economic Life: 50 years 80 years
Miscellaneous: Rear loading doors are 10'x12' and Rear loading doors are 10'x12' and
10'x14' aluminum electric roll-up 10'x14' aluminum electric roll-up
doors. These doors are drive-in doors. These doors are drive-in
with the extension of 3 loading with the extension of 8 loading
docks with elevated slab. The total docks with elevated slab. The total
loading doors and docks are 17. loading doors and docks are 6.
</TABLE>
The subject buildings do not have deficiencies that resulted in lost
building utility.
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37
As of the date of the inspection, this analysis revealed the following deferred
maintenance:
- Phase II - Suites 104a and 134 tenant finish of first
generation space. Estimated cost is $51,000 or $15.00 per
square foot. This includes replacement carpet, painting and
redesign of space.
- Phases I and II - Foyer area - replacement of carpet, wall
paper, and paint. Estimated cost is $40,000.
- Phases I and II - Common Area - floor covering replacement in
first and second floors hallways. Estimated cost is $15,000.
These items are minimal and will be deducted as a capital expenditures
in the Income Approach and as a line item in the Sales Comparison Approach.
To determine the physical adaptability of the property for its current
use, several important property attributes were investigated including building
and site layout, quality of construction, and building utility. The improvements
do not suffer from functional or external obsolescence.
<PAGE>
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38
ECONOMIC ATTRIBUTES
-------------------
The ECONOMIC ATTRIBUTES are discussed under the highest and best use
concept which is the use or the likely use which will create the maximum return
to the land. HIGHEST AND BEST USE OF THE REAL ESTATE gives consideration to the
possible, physical, feasible, legal, and permitted uses which would provide the
highest net return to the owner of the site under all current market conditions.
Highest and best use is defined as:
The reasonably probable and legal use of vacant land or an
improved property, which is physically possible, appropriately
supported, financially feasible, and that results in the highest value.
The four criteria the highest and best use must meet are legal
permissibility, physical possibility, financial feasibility, and
maximum profitability.(4)
The previous definition applies specifically to the highest and best
use of the land. In many cases where a site has existing improvements, the
highest and best use may well be determined to be different from the existing
use. The existing use would continue until the land value exceeds the total
value of the property in its existing use. Due to the age and condition of the
subject's improvements, this is unlikely in the near future.
Further implied within the definition of highest and best use is the
recognition of the contribution of the specific use to the community environment
or community development goals. In appraisal practice, the concept of highest
and best use represents the premise upon which value is based.
The MARKET AREA TRENDS IMPACT OF THE SUBJECT USE AND PHYSICAL
ADAPTABILITY ON VALUE.
------------------------
(4) Appraisal Institute, THE DICTIONARY OF REAL ESTATE APPRAISAL, Third
Edition (Chicago, Illinois, 1993), p. 171.
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39
HIGHEST AND BEST USE AS VACANT
------------------------------
LEGAL PERMISSIBILITY
The subject parcels are zoned B-3-C, Planned Warehouse/Light Industrial
- Controlled and B-1-C, Retail Business Controlled. The parcels are legally
capable to be developed to an array of office/industrial uses as currently exist
within the area. As such, the site's possible, physical, and feasible features
carry a higher significance in the highest and best use analysis of the property
than the legally permitted uses.
PHYSICAL POSSIBILITY
The parcels are of significant size and possess good physical and
visual access from Commercial Boulevard and Northwest 33rd Avenue. All
public/private utilities such as water, sewer, electricity, and telephone are
available to the site. The site is level on grade with the street and drains to
the canal separating the two parcels and the lake. The sites are inside the
100-year flood zone. General surrounding uses tend to indicate that the soil
type has adequate load-bearing capacity, but no engineering reports were
provided to verify this observation. The site is not considered to be restricted
by potential physical problems.
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40
FINANCIAL FEASIBILITY
The financial feasibility is generally believed to be met by the
location of similar uses in the area. Rents in the current market tend to
support a reasonable return on land and building and should continue to show
slight increases over the near foreseeable future. Further, given the land value
of the subject and those in the immediate area, development for office or light
industrial is possible.
Considering the zoning, size, shape, and interstate exposure, other
uses would not be feasible for these sites.
MAXIMUM PROFITABILITY
The site, as if vacant, can be used for any number of zoned industrial,
service, or office uses. However, due to the subject's size, access, exposure,
and neighboring uses, the most likely use for the subject's site is for
office/service development.
In summary, the opinion of the highest and best use of the real estate
as vacant is the subject property's current use for office/service.
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41
HIGHEST AND BEST USE AS IMPROVED
--------------------------------
LEGAL PERMISSIBILITY
The improvements conform to zoning, building codes, density, and
setbacks. In addition, the parking, building heights, landscaping, access,
drainage, and other (public or private/deed) restrictions are assumed to have
been met.
PHYSICAL POSSIBILITY
The subject buildings are multi-tenant office/service buildings with
tenant sizes of 715 square feet to 10,058 square feet. Tenants are primarily
1,000 square feet to 3,000 square feet which is typical for the market. The
buildings are of quality construction and condition except for a few deferred
maintenance issues presented.
FINANCIAL FEASIBILITY/MAXIMUM PROFITABILITY
From the Black's Office Report Overview 1999 market survey, the vacancy
rate for the subject's market area (Cypress Pointe) is 12 percent. The total
area accounts for approximately 3.6 million square feet. The estimated net space
absorption has been approximately -14,000 square feet per year for the past two
years accounting for less than one percent of the total space. Based on
interviews with local brokers this can be attributed to frictional vacancy. The
larger market area, Broward County, has had a positive net absorption for the
office space of approximately 160,000 for the past two years.
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42
Historic trends in the market show decreasing construction of
multi-tenant speculative space. New construction planned to be available in the
Broward County market area for the 6 to 12 months is approximately 250,000 to
750,000 square feet or a growth of 3 to 9 percent. This slightly less than five
year average (approximately 1 million square feet construction per year) but
higher than the previous two years when less than 500,000 square feet was
constructed. The growth in the overall market is strong relative to previous
years.
The office district is described as the Cypress Creek submarket area.
The submarket encompasses approximately 3,945,020 square feet of which 2,514,381
is classified as Class "B" similar to the subject. For the subject direct
competitors occupancies are 87 percent for stabilized buildings. The subject
occupancy for Lakeshore I and II is approximately 90 percent. Two buildings,
Spectrum Center and Commercial Place II, lost tenants in the past 12 months.
Absorption for the past two years has been a -18,000 square feet in the Cypress
Creek submarket from 1996 to 1999 and within the Class "B" segment a loss of
-15,000 leasable square feet GLA for the past 12 months.
<PAGE>
5100 - 5200 NORTHWEST 33rd AVENUE - FT. LAUDERDALE, FLORIDA Page
43
Figure 7
Cyprus Creek Class "B" Competitors
<TABLE>
<CAPTION>
Annual Rent
Building Location SF (GLA) Occupancy Per SF
---------------------------- -------------------------------------- ---------------- --------------- ------------------
<S> <C> <C> <C> <C>
2101 Building 2101 West Commercial Blvd 94,980 82% $13.00
Avion Corp. Center 2200 West Commercial Blvd 66,908 98% $12.00
Commercial Place I 3230 West Commercial Blvd 90,370 98% $14.00
Commercial Place II 3250 West Commercial Blvd 83,336 50% $12 to $15.50
The Exchange 3303-3363 W Commercial Blvd 173,814 93% $11.00
Atrium 2000 2000 West Commercial Blvd 109,000 94% $12.00
Spectrum Center 1500 NW 49th Avenue 80,000 0% $14.00
Ft. Lauderdale 5410 NW 33rd Avenue 65,891 96% $10.50
Commerce Center
Trafalger Plaza 5300-5310 NW 33rd Avenue 97,795 87% $10.50
Lakeshore I 5100-5200 NW 33rd Avenue 103,554 91% $12.25
Lakeshore II 5100-5200 NW 33rd Avenue 97,261 89% $12.25
</TABLE>
Source: Integra Chapman & Bell, Miami, and Black's Guide to Commercial Real
Estate, 1998, 1999.
The market area has had moderate rental growth and stable occupancy for
the previous three years. Rent levels, for the market, similar to the subject
have had growth rates of 1.5 to 2 percent based on manager's interview and
secondary sources.
Future rent growth is projected to be similar at 2 percent per year.
Occupancy levels for the market and submarket are 85 to 90 percent and are
expected to remain stable with the addition of new space and future
construction.
Based upon these observations, the opinion of the highest and best use
of the real estate as improved is the current office/service use.
VALUATION ANALYSIS
------------------
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44
The appropriate MARKET ANALYSIS and/or economic demand analysis has
been performed to address the demand characteristics from which the value impact
can be determined. The value derived used RECOGNIZED METHODS AND TECHNIQUES THAT
ARE NECESSARY TO PRODUCE A CREDIBLE APPRAISAL. The typical methods considered in
an appraisal analysis are the Cost, Sales Comparison, and Income Approaches to
value.
The Cost Approach has not been used because of the difficulty in
determining accrued depreciation for the improvements. The Cost Approach is not
utilized as investors as a reliable method for valuation. This is deemed
adequate to EXPLAIN AND SUPPORT THE EXCLUSION of the Cost Approach.
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45
The SALES COMPARISON APPROACH IS APPLICABLE and utilizes the dollar
sale-price- per-square foot unit of comparison with adjustments made for
differences between the sales as compared to the subject. This approach
estimates the "as is" leased fee value. This valuation method has been used to
support the value derived from the Income Approach.
The INCOME APPROACH IS APPLICABLE and uses a discounted cash flow
analysis to estimate the leased fee value. Future rent is based on the market
lease. The subject lease has been compared to current economic rent using other
current market area leases. Expenses and investor capitalization and discount
rates were determined from comparables and interviews with market area
participants. The indicated value is the "as is" value.
The values were correlated to determine the "as is" leased fee market
values. The subject's leases have been considered in the leased fee analysis.
<PAGE>
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46
COST APPROACH
-------------
LAND VALUE
----------
The land was valued by the Sales Comparison Approach, as though vacant
and available for its highest and best use. A search resulted in the collection
of four sales, which were verified and analyzed on a dollar-per-square foot
basis. None of the comparables (unless stated on the sale summary) have resold
in the past three years to the best of Integra Chapman & Bell's knowledge.
A summary of these sales and rating grid is included as Figure 8.
Details of these sales are found in the Addenda as Exhibit "C".
<PAGE>
5100 - 5200 NORTHWEST 33rd AVENUE - FT. LAUDERDALE, FLORIDA Page
47
Figure 8
Land Comparables
<TABLE>
<CAPTION>
1 2 3 4
<S> <C> <C> <C> <C>
Key Number 7792 7793 7794 7791
Name Park of Commerce Storage World
Address Carribean Circle 3300 N University Dr.
City Ft. Lauderdale Ft. Lauderdale Coral Springs Ft. Lauderdale
State FL FL FL FL
Date of sale 3-Aug-98 9-Jun-98 4-Feb-99 1-Apr-99
Sale Price $816,800 $1,798,500 $1,750,000 $528,405
Cash Equivalent Amount $816,800 $1,798,500 $1,750,000 $528,405
# of SQ FT 179,032 214,315 259,182 105,681
# of Acres 4.11 4.92 5.95 2.43
Zoning COM IOC GC
Land Use Office Other Office Self Storage
Topography Level Level Level
Price Per Acre $198,735 $365,549 $294,118 $217,809
Property Rights
Dollar Adjustment $0.00 $0.00 $0.00 $0.00
Percentage Adjustment 0.00% 0.00% 0.00% 0.00%
Adjusted Price $198,735 $365,549 $294,118 $217,809
Financing Terms
Dollar Adjustment $0.00 $0.00 $0.00 $0.00
Percentage Adjustment 0.00% 0.00% 0.00% 0.00%
Adjusted Price $198,735 $365,549 $294,118 $217,809
Conditions of Sale
Dollar Adjustment $0.00 $0.00 $0.00 $0.00
Percentage Adjustment 0.00% 0.00% 0.00% 0.00%
Adjusted Price $198,735 $365,549 $294,118 $217,809
Time/Market Conditions 3.74% 4.19% 2.22% 1.76%
% Adjustment
(Annualized % = 3.00%)
Time ADJ Price Per Acre $206,167 $380,865 $300,647 $221,643
</TABLE>
<PAGE>
5100 - 5200 NORTHWEST 33rd AVENUE - FT. LAUDERDALE, FLORIDA Page
48
<TABLE>
<S> <C> <C> <C> <C>
Location
Dollar Adjustment $0.00 ($95,216) $0.00 $0.00
Percentage Adjustment 0.00% -25.00% 0.00% 0.00%
Adjusted Price $206,167 $285,649 $300,647 $221,643
Size
Dollar Adjustment $0.00 $0.00 $0.00 $0.00
Percentage Adjustment 0.00% 0.00% 0.00% 0.00%
Adjusted Price $206,167 $285,649 $300,647 $221,643
Utility
Dollar Adjustment $0.00 $0.00 $0.00 $0.00
Percentage Adjustment 0.00% 0.00% 0.00% 0.00%
Adjusted Price $206,167 $285,649 $300,647 $221,643
Net Adjustment $0.00 ($95,216) $0.00 $0.00
Net Percent Adjustment 0.00% -25.00% 0.00% 0.00%
Adjusted Price $206,167 $285,649 $300,647 $221,643
Market Range Per Acre...
Maximum = $300,647
Minimum = $206,167
Mean = $253,527
</TABLE>
<PAGE>
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49
The comparables selected are briefly summarized as follows:
Comparable 1 is located in the Park of Commerce Business Park in Ft.
Lauderdale, Florida containing 179,032 square feet or 4.11 acres and selling for
a confirmed price of $816,800 in August 1998. The site characteristics include
water, sewer, electricity, natural gas, and telephone with approximately 50
percent of the site in the 100-year flood plain and zoned COM. This site was
used for a multi-tenant low rise office building.
Comparable 2 is located on Carribean Circle in the Park of Commerce
Business Park in Ft. Lauderdale, Florida containing 214,315 square feet or 4.92
acres and selling for a confirmed price of $1,798,500 in June 1998. The site
characteristics include water, sewer, electricity, natural gas, and telephone
with the site in the 100-year flood plain and zoned IOC. This site was used for
a multi-tenant low rise office building.
Comparable 3 is located on 3300 North University Drive in Ft.
Lauderdale, Florida containing 259,182 square feet or 5.95 acres and selling for
a confirmed price of $1,750,000 in February 1999. The site characteristics
include water, sewer, electricity, natural gas, and telephone with the site in
the 100-year flood plain and zoned GC, Office. This site was used for a
multi-tenant low rise office building.
Comparable 4 is located in Ft. Lauderdale, Florida containing 105,681
square feet or 2.43 acres and selling for a confirmed price of $528,405 in April
1999. The site characteristics include water, sewer, electricity, natural gas,
and telephone with the site in the 100-year floodplain and zoned IOC. This site
is to be used for a self storage facility.
Adjustments for interest appraised and condition of sale are not
necessary for the sales selected. The adjustment for market condition (time) is
3 percent, based upon linear regression of the sales included plus other sales
in the market not sufficiently comparable to consider. The land appreciation for
the office/service sites is tantamount to other land uses in the market area
indicating little divergence from the
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5100 - 5200 NORTHWEST 33rd AVENUE - FT. LAUDERDALE, FLORIDA Page
50
overall real estate market.
PHYSICAL ADJUSTMENTS
A direct comparison of the comparables revealed no size adjustment is
warranted. The comparables range from 2.43 acres to 5.95 acres. Lakeshore I and
II are slightly larger sites, but indications from lots for sale in the Park of
Commerce do not indicate any incremental value differential for a larger site
under 10 acres.
The location adjustment, when required, was based upon comparison of
sales after time adjustments. Comparable 2 required a 25 percent downward
adjustment because of a superior location. The subject location is sightly
inferior because of the immediate surrounding land uses than the superior
comparables.
The indicated range is $206,167 to $300,647 per acre. Lakeshore I and
the excess land are considered to be a superior location because of commercial
exposure. The estimated land value is $255,000 per acre. Based on comparable
sales not included in the analysis, the secondary location, Lakeshore II, is
approximately 25 percent inferior. The land values are as follows. The primary
commercial location is estimated at $255,000 per acre and the secondary location
at $200,000 per acre.
<TABLE>
<CAPTION>
Acres $/Acre Indicated Value Rounded to
<S> <C> <C> <C> <C>
Lakeshore I 7.35 $255,000 $1,874,250 $1,900,000
Lakeshore II 6.70 $200,000 $1,340,000 $1,350,000
Excess Land 2.931 $255,000 $ 747,405 $ 750,000
</TABLE>
<PAGE>
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51
SALES COMPARISON APPROACH
-------------------------
The Sales Comparison Approach was utilized to value Lakeshore I and II.
The improvements are 105,100 square feet and 100,100 square feet, respectively.
Recent office building sales from the Ft. Lauderdale area were analyzed on a
dollar-per-square foot (GBA) basis after subtracting the estimated land value at
the time of sale using land sales in the area. Extracting the land value
minimizes the locational influences. To the best of Integra Chapman & Bell's
knowledge, none of the comparables (unless stated on the sale summary) have
resold in the past three years. The sales all have transpired since 1996. A
summary of these sales and a sales rating grid are included as Figure 9. The
details of these comparables are found in Exhibit "D".
Figure 9
Improved Sales Identified and Described
<TABLE>
<CAPTION>
1 2 3 4
<S> <C> <C> <C> <C>
Key Number 2955 2954 2982 2745
Name Vantage Industrial The Exchange Am Capital Properties Fountains of Plantation
Address 2900 West Cyprus W Commercial Blvd. University Dr. University Dr.
City Ft. Lauderdale Ft. Lauderdale Ft. Lauderdale Ft. Lauderdale
State FL FL FL FL
Date of sale 1-Jul-98 1-Dec-96 1-Dec-97 1-Apr-98
Sale Price $2,750,000 $13,850,000 $6,630,000 $7,800,000
Cash Equivalent Amount $2,750,000 $13,850,000 $6,630,000 $7,800,000
Rentable Area 43,463 167,867 101,181 112,000
Gross Building Area 43,561 167,867 101,181 112,000
Land Area (SF) 99,317 570,200 295,772 273,170
Land Area (Acres) 2.28 13.09 6.79 6.20
Year Built 1984 1987 1983 1982
EGIM 6.9 6.5 6.6 5.2
Ro 9.8% 9.7% 10.5% 11.5%
Effective Age 14 9 14 16
Price Per GBA $63.13 $82.51 $65.53 $69.64
Property Rights
Dollar Adjustment $0.00 $0.00 $0.00 $0.00
Percentage Adjustment 0.00% 0.00% 0.00% 0.00%
Adjusted Price $63.13 $82.51 $65.53 $69.64
Financing Terms
Dollar Adjustment $0.00 $0.00 $0.00 $0.00
Percentage Adjustment 0.00% 0.00% 0.00% 0.00%
Adjusted Price $63.13 $82.51 $65.53 $69.64
</TABLE>
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5100 - 5200 NORTHWEST 33rd AVENUE - FT. LAUDERDALE, FLORIDA Page
52
<TABLE>
<S> <C> <C> <C> <C>
Land Value
Dollar Adjustment ($12.56) ($16.01) ($15.28) ($13.99)
Percentage Adjustment -19.90% -19.40% -23.32% -20.09%
Adjusted Price $50.57 $66.50 $50.25 $55.65
Time/Market Conditions 0.00% 0.00% 0.00% 0.00%
% Adjustment
(Annualized % = 3.00%)
Time ADJ Price Per Acre $50.70 $66.50 $50.25 $55.65
Age/Condition
Dollar Adjustment $4.05 ($1.33) $4.02 $6.68
Percentage Adjustment 8.00% -2.00% 8.00% 12.00%
Adjusted Price $54.62 $65.17 $54.27 $62.33
Construction
Dollar Adjustment $0.00 $0.00 $0.00 $0.00
Percentage Adjustment 0.00% 0.00% 0.00% 0.00%
Adjusted Price $54.62 $65.17 $54.27 $62.33
Occupancy
Dollar Adjustment $0.00 $0.00 $0.00 $0.00
Percentage Adjustment 0.00% 0.00% 0.00% 0.00%
Adjusted Price $54.62 $65.17 $54.27 $62.33
Land Value
Dollar Adjustment $17.00 $17.00 $17.00 $17.00
Percentage Adjustment 31.12% 26.09% 31.32% 27.27%
Net Adjustment $21.05 $15.67 $21.02 $23.68
Net Percent Adjustment 41.63% 23.56% 41.83% 42.55%
Adjusted Price $71.62 $82.17 $71.27 $79.33
Market Range Per GBA...
Maximum = $102.77
Minimum = $71.27
Mean = $82.84
</TABLE>
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Figure 9 (continued)
Improved Sales Identified and Described
<TABLE>
<CAPTION>
5 6 7
<S> <C> <C> <C>
Key Number 3067 3068 3066
Name Avion Atrium 2000 Atrium West
Address 2200 W. Commercial Blvd. 2000 W. Commercial Blvd. 7771 W. Oakland Park Blvd.
City Ft. Lauderdale Ft. Lauderdale Ft. Lauderdale
State FL FL FL
Date of sale 14-Jun-99 6-Aug-98 14-Jun-99
Sale Price $5,396,000 $9,900,000 $7,200,000
Cash Equivalent Amount $5,396,000 $9,900,000 $7,200,000
Rentable Area 66,908 109,522 92,086
Gross Building Area 66,908 109,522 92,086
Land Area (SF) 157,794 379,974 295,860
Land Area (Acres) 3.62 8.72 6.79
Year Built 1985 1977 1983
EGIM 6.2 6.2
Ro 9.8% 9.5%
Effective Age 14 21 16
Price Per GBA $80.65 $90.39 $78.19
Property Rights
Dollar Adjustment $0.00 $0.00 $0.00
Percentage Adjustment 0.00% 0.00% 0.00%
Adjusted Price $80.65 $90.39 $78.19
Financing Terms
Dollar Adjustment $0.00 $0.00 $0.00
Percentage Adjustment 0.00% 0.00% 0.00%
Adjusted Price $80.65 $90.39 $78.19
Land Value
Dollar Adjustment ($11.96) ($20.09) ($18.43)
Percentage Adjustment -14.83% -22.23% -23.57%
Adjusted Price $68.69 $70.30 $59.76
Time/Market Conditions 0.00% 0.00% 0.00%
% Adjustment
(Annualized % = 3.00%)
Time ADJ Price Per Acre $68.69 $70.30 $59.76
Age/Condition
Dollar Adjustment $5.50 $15.47 $4.78
Percentage Adjustment 8.00% 22.00% 8.00%
Adjusted Price $74.19 $85.77 $64.54
Construction
Dollar Adjustment $0.00 $0.00 $0.00
Percentage Adjustment 0.00% 0.00% 0.00%
Adjusted Price $74.19 $85.77 $64.54
Occupancy
Dollar Adjustment $0.00 $0.00 $0.00
</TABLE>
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54
<TABLE>
<S> <C> <C> <C>
Percentage Adjustment 0.00% 0.00% 0.00%
Adjusted Price $74.19 $85.77 $64.54
Land Value
Dollar Adjustment $17.00 $17.00 $17.00
Percentage Adjustment 22.91% 19.82% 26.34%
Net Adjustment $22.50 $32.47 $21.78
Net Percent Adjustment 32.76% 46.19% 36.45%
Adjusted Price $91.19 $102.77 $81.54
Market Range Per GBA...
Maximum = $102.77
Minimum = $71.27
Mean = $82.84
</TABLE>
<PAGE>
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An outline of the pertinent details of the comparables is as follows.
Comparable 1, Vantage Industrial Office Property is located at 2900
West Cyprus in Ft. Lauderdale, Florida, containing 99,317 square feet and
selling for a confirmed price of $2,750,000 in July 1998 The 43,561-square foot
gross building area improvements, built in 1984, are of brick veneer glass and
steel construction and were in average condition for both the exterior and
interior.
Comparable 2, The Exchange, is located at on West Commercial Boulevard
in Ft. Lauderdale, Florida, containing 570,200 square feet and selling for a
confirmed price of $13,850,000 in December 1996. The 167,867-square foot gross
building area improvements, built in 1987, are of pre-cast concrete, dryvit and
glass construction and were in average condition for both the exterior and
interior.
Comparable 3, American Capital Properties is located at University
Drive in Ft. Lauderdale, Florida, containing 295,772 square feet and selling for
a confirmed price of $6,630,000 in October 1997. The 101,181-square foot gross
building area improvements, built in 1983, are of precast concrete construction
and were in average condition for both the exterior and interior.
<PAGE>
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Comparable 4, Fountains of Plantation is located at University Drive in
Ft. Lauderdale, Florida, containing 273,170 square feet and selling for a
confirmed price of $7,800,000 in May 1998. The 112,000-square foot gross
building area improvements, built in 1982, are of brick veneer, concrete, and
glass construction and were in average condition for both the exterior and
interior.
Comparable 5, The Avion is located at 2200 West Commercial Drive in Ft.
Lauderdale, Florida, containing 157,794 square feet and selling for a confirmed
price of $5,396,000 in June 1999. The 66,908-square foot gross building area
improvements, built in 1985, are of steel and concrete construction and were in
average condition for both the exterior and interior.
Comparable 6, is located at 2000 West Commercial Drive in Ft.
Lauderdale, Florida, containing 379,974 square feet and selling for a confirmed
price of $9,900,000 in August 1998. The 109,522-square foot gross building area
improvements, built in 1977, are of steel and concrete construction and were in
average condition for both the exterior and interior.
Comparable 7, is located at 7771 West Oakland Park Boulevard in Ft.
Lauderdale, Florida, containing 295,860 square feet and selling for a confirmed
price of $7,200,000 in June 1999. The 92,086-square foot gross building area
improvements, built in 1983, are of steel and concrete construction and were in
average condition for both the exterior and interior.
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Adjustments for property rights, financing terms, and/or condition of
sale are not necessary for the sales selected.
From the improved comparable, land is extracted to derive the
improvement values only. The remaining building value reflects the improvement
value only with minimal location influence.
The market condition adjustment is derived by a comparison of the sales
to determine if appreciation of the improvements is occurring in the market.
There is no evidence from the sales to support a market condition adjustment.
Other characteristics which may indicate a market condition adjustment include
high or lower than market occupancy levels or spikes in effective rents.
Interviews with managers, leasing agents or secondary sources do not indicate
these conditions exist.
Physical adjustments are segmented for physical and economic
differences. Physical adjustments examined include age, condition, efficiency,
quality of construction and tenant improvements. Economic adjustments are below
market occupancy, below market rents and future excessive rent loss due to
tenant turnover. Adjustments have been made for age and condition.
The age adjustment is the effective age of the subject versus the
comparables. The economic life of the improvements is estimated at 50 years.
The effective ages of Lakeshore I is 12 years and Lakeshore II is 9 years. The
comparables effective ages range from 9 to 21 years. The subject improvements
are relatively close in age therefore, an effective age of 10 years is used as
the basis for comparison.
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The land value is derived in the site valuation and is included on a
dollar per square foot of building area. The land value is estimated at $17.00
per square foot of building area.
The indicated range from this analysis is $71.27 to $102.77 per square
foot. Giving the greatest consideration to Comparables 5, 6, and 7, Integra
Chapman & Bell has selected $90.00 per square foot for the subject.
The indicated value from the Sales Comparison Approach using the dollar
per square foot adjustment is:
SF $/sf Indicated Value Rounded To
Lakeshore I 105,100 $90 $9,459,000 $9,500,000
Lakeshore II 100,100 $90 $9,009,000 $9,000,000
INCOME APPROACH
---------------
The Income Approach has utilized a discounted cash flow (DCF) analysis
to determine the "as is" value. From the potential gross income, a vacancy and
credit factor is subtracted to determine the effective gross income. Expenses
are derived from comparable office buildings and the subject's historic
expenses. Typical expenses are categorized as property taxes, management/leasing
commission, insurance, maintenance/repairs, utilities, janitorial, and reserves
for replacement.
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To derive a present value indication from the Income Approach, the cash
flow are discounted by a rate equal to the current investment criteria and the
last year capitalized less marketing expenses to calculate a residual value. The
overall capitalization rate was determined from comparable sales in the Sales
Comparison Approach and secondary source estimates such as the band of
investment technique and . The discounted cash analysis uses the projected
annual net incomes/cash flows and a market derived discount rate to determine
the present value of the cash flows. The terminal value from the end of the
holding period projects the subsequent years net income/cash flow which is
capitalized at a terminal rate.
POTENTIAL GROSS INCOME
----------------------
The market rent is determined from the rent comparables and compared to
the subject's more recently negotiate contract rents. The potential gross income
(PGI) is the subject's rent at full occupancy. The leases are on a net basis
with the expenses being passed thru to the tenant including taxes, insurance,
maintenance, common area maintenance, and management. The summary of the
Lakeshore I and II rent rolls are shown in Figure 10.
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60
Figure 10
Summary of Lakeshore I and II Rent Rolls
<TABLE>
<CAPTION>
Lakeshore I Lakeshore II
------------------------------------- -----------------------------------
Minimum Maximum Minimum Maximum
<S> <C> <C> <C> <C>
Range tenant size (SF) 466 9,383 812 10,580
Contract Rent $ 9.45 $17.45 $10.00 $14.74
Asking Rent $11.75 $12.50 $11.75 $12.50
Free Rent Months 3 months 3 months
Vacancy as of 10/99 10.7% 11.1%
Percentage turnover 1999 23% 41%
Percentage turnover 2000 19% 15%
Percentage turnover 2001 17% 31%
</TABLE>
The tenant finish varies form Class "A-" to "B" space; however, tenant
finish in excess of the typical Class 'B" finish is the tenant responsibility
and sometimes amortized the additional tenant improvements over the lease.
Approximately 12 percent of the overall buildings is unfinished warehouse space
with 14 foot ceilings and overhead or dock access. This office/warehouse mix is
unusual in the market and provides the subject buildings a comparative advantage
in marketing. Based on a review of the 1st and 2nd floor tenants there is no
major differential between the rent levels for the office space versus the
office/warehouse space.
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The subject leases also have load factors which vary with the tenant.
The standard load factor is 20 percent for the first floor office/service space
and 10 percent for the second floor office space. Load factors are typical in
the market and range from 10 to 20 percent. Factors which influence a load
factor is primary the current occupancy and rent levels.
RENT COMPARABLES
A search was made for comparable rental properties within the subject's
market area of Cyprus Creek. Sources of rental information included database,
newspaper classified advertisement, multiple listing service, and signage.
Leases were typically verified by interviewing the listing broker. Specific
lease information was unable to be obtained because of the confidential nature
of the lease information. This practice is typically acceptable by local
appraisers and financial institutions.
The TERMS AND CONDITIONS OF THE LEASES consider comparable are
summarized in Figure 11. The comparable leases are from multi-tenant Class "B"
office buildings in the Cyprus Creek market area. The comparable leases are on a
net lease basis which is the standard in the market. Tenants are responsible for
pass thru of all expenses and are separately metered for personal electric. The
subject's present leases are also on a net basis with the lessee responsible for
all expenses.
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Figure 11
Comparable Lease Summary
<TABLE>
<S> <C> <C> <C> <C>
Key 2897-4 2585-1 2954 2771-1
Building Commercial Place I Commercial Place II The Exchange Atrium 2000
Address 32300 W Commercial Blvd 3250 W Commercial Blvd 3303-3363 W Commercial 2000 W Commercial
City Ft. Lauderdale Ft. Lauderdale Ft. Lauderdale Ft. Lauderdale
State FL FL FL FL
Average Size 3,800 4,900 2,560 3,200
Survey Date Oct-99 Oct-99 Oct-99 Oct-99
Annual Rent $53,200 $71,050 $28,160 $41,600
$/SF $14.00 $14.50 $11.00 $13.00
Average Term (years) 5 5 5 2
Lessor Responsibility
Taxes N N N N
Insurance N N N N
Interior Maintenance N N N N
Exterior Maintenance N N N N
Utilities N N N N
Janitorial N N N N
Miscellaneous N N N N
Management N N N N
Market Condition 0% 0% 0% 0%
Adjusted $/Sf $14.00 $14.50 $11.00 $13.00
Physical Adjustments
Location = = = =
</TABLE>
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63
<TABLE>
<S> <C> <C> <C> <C>
Age = - = =
Condition + + + +
Quality = - - -
Total Physical Adj. Equal Equal Equal Equal
</TABLE>
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64
The market comparables range from $11.00 to $14.50 per square foot. The
subject leases are $9.00 to $20.44 per square foot. The projected future
economic rent for the subject is estimated at $12.00 per square foot which is
approximately 3 percent above the current average effective rent.
EXPENSE REIMBURSEMENTS AND OTHER INCOME
---------------------------------------
Expense reimbursements for the subject include real estate taxes,
insurance, maintenance and repairs, management, advertising and administrative
cost. These expenses reimbursements and other income are projected at $557,071
for Lakeshore I and $558,798 for Lakeshore II in Year 1 or $5.30 to $5.53 per
square foot, respectively. The Lakeshore I historic expense reimbursements and
other income have ranged from $419,234 to $588,994 for 1997 and 1998. The FY
2000 projection is within the historic parameters.
VACANCY AND CREDIT
------------------
The market overall vacancy is 5 to 12 percent with buildings most
similar to the subject at approximately 7 to 10 percent. The subject vacancy and
credit factor has historically been from 8 to 12 percent and shadows the overall
market vacancy. The vacancy rate, with the lease rollover, is estimated at 7
percent for Lakeshore I and II.
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EXPENSES
--------
COMPARABLE OPERATING EXPENSE DATA for office properties which are the
most similar to the subject, along with the subject historic expenses, are
presented in Figure 12. These expenses will provide a basis for the FUTURE
EXPENSES.
Figure 12
Comparable and Subject Operating Expense Data
<TABLE>
<CAPTION>
1 2 3 4
1999 % 1999 % 2742 % 2741 %
BOMA BOMA
All Suburban All Suburban 1996 1997
Ft. Ft. Confidential Confidential
Lauderdale Lauderdale Mid-Rise(1) Mid-Rise
Average Average
less than greater than
100,000 SF 100,000 SF
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Effective Age 10 years 10 years 24 years 15 years
Total Income $16.98 $16.98 100 $11.20 100 $15.03
($/sf)
Expenses:
Janitorial $0.97 $0.99 $0.36 $0.38
Maintenance $1.69 $1.24 $1.02 $1.21
Utilities $1.17 $1.61 $1.20 $1.20
Grounds $0.23 --- $0.40 --- ---
Taxes $1.89 $1.95 $1.02 $0.76
Management/ $0.94 $1.46 $0.39 $0.61
Administrative
Insurance $0.27 $0.29 $0.32 $0.32
Other $0.07 $0.32
-----------------------------------------------------------------------------------------------
Total $7.05 --- $8.10 52 $4.46 42 $4.81 26
Expenses
Adjusted 2%- $7.05 $8.10 $4.75 $5.00
Yr. to 1999
-------------------------------------------------------------------------------------------------------------------
</TABLE>
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66
--------------------------------------------------------------------------------
Note: Expense Comparables 1, 2, 3, and 4 are net basis with the lessor
responsible for all expenses which are then passed thru to the tenant.
Comparables 1 and 2 are the average expenses from a survey by BOMA for
suburban office buildings. The average age of this expense comparable
improvements is 10 years and the expenses are tabulated under the assumption
that the rents are on a gross basis.
Comparables 3 and 4 are Class "B" suburban mid-rise office buildings
within the Cyprus Pointe market area. The comparables were constructed in the
mid 1980's The improvements are in average condition.
The subject is projected to operate on a net lease basis with the
lessee responsible for all pass-thru expenses including real estate taxes,
insurance, maintenance and repairs, janitorial, administration, and management.
This subject's historic expenses are shown in Figure 13.
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67
Figure 13
Lake Shore Phase I - Income and Expense Statements
<TABLE>
<CAPTION>
SF GBA 1998 105,100 1997 105,100 to May 1999 Annualized 105,100
<S> <C> <C> <C> <C> <C> <C> <C>
$ $/SF $ $/SF $ $ $/SF annualized
Base Rent 981,417 9.34 1,040,046 9.90 380,521 913,250 8.69
Other Income 122,634 1.17 14,227 34,145 0.32
Expense Reimbursement 466,360 4.44 419,234 3.99 155,136 372,326 3.54
Effective Gross Income 1,570,411 14.94 1,459,280 13.88 549,884 1,319,722 12.56
Real Estate Taxes 158,011 1.50 177,648 1.69 105,336 252,806 2.41
Insurance 26,602 0.25 27,481 0.26 12,500 30,000 0.29
Utilities 45,578 0.43 46,479 0.44 15,230 36,552 0.35
Maintenance 131,375 1.25 133,198 1.27 57,643 138,343 1.32
Admin/Other
Janitorial 56,381 54,950 16,155 38,772 0.37
Reserve & Replacement 25,165 0.24 1,841 0.02 2,356 5,654 0.05
Leasing Fees 109,681 1.04 86,153 0.82 54,550 130,920 1.25
</TABLE>
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<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Management Fee 130,555 1.24 50,472 0.48 32,986 79,166 0.75
Total Expenses 683,348 6.50 578,222 5.50 296,756 712,214 6.78
Net Operating Income 887,063 8.44 881,058 8.38 158,000 607,507 5.78
</TABLE>
<PAGE>
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69
Figure 13
Lake Shore Phase II - Income and Expense Statements
<TABLE>
<CAPTION>
SF GBA 1998 100,100 to May 1999 Annualized 100,100
<S> <C> <C> <C> <C> <C>
$ $/SF $ $ $/SF annualized
Base Rent 993,350 9.45 385,427 925,025 9.24
Other Income 203,181 1.93 47,718 114,523 1.14
Expense Reimbursement 433,023 4.12 163,342 392,021 3.92
Effective Gross Income 1,629,554 15.50 596,487 1,431,569 14.30
Real Estate Taxes 184,368 1.75 96,472 231,533 2.31
Insurance 26,000 0.25 11,250 27,000 0.27
Utilities 39,000 0.37 17,351 41,642 0.42
Maintenance 126,500 1.20 52,385 125,724 1.26
Admin/Other
Janitorial 36,250 15,226 36,542 0.37
Reserve & Replacement 1,500 0.01 2,877 6,905 0.07
Leasing Fees 108,000 46,571 111,770 1.12
Management Fee 123,000 1.17 32,120 77,088 0.77
Total Expenses 644,618 6.13 274,252 658,205 6.58
Net Operating Income 984,936 9.37 158,000 773,364 7.73
</TABLE>
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The subject's expenses are $5.50 to $6.78 per square foot including
tenant improvements and leasing commissions. Extracting the leasing fees expense
the range is $5.02 to $5.81 per square foot. The expenses are less than the
secondary source expenses comparables but more than the expense comparables. For
determining the future expenses the greatest weight has been given to the
historic expenses. The projected expenses have been estimated for Lakeshore I at
$605,053 or $5.75 per square foot and Lakeshore II at $603,072 or $6.00 per
square foot in FY2000. From the historic data and the comparables these
projections are reasonable. The expenses have been projected to increase at 3
percent per year based on secondary sources such as Valuation 2000 published by
Integra and the Price Waterhouse/ Korpacz publication.
OVERALL RATE AND DISCOUNT RATE DETERMINATION
--------------------------------------------
The overall rate (R sub 0) is derived from two sources. The first is
from the market comparables which were included in the Sales Comparison
Approach section and shown in Figure 8. From these office building sales,
comparable rates of capitalization from the market range from 9.5 to 11.5
percent. The most recent sale is 9.8 percent.
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Another method of deriving the capitalization rate is by the band of
investment. Mortgage assumptions were based upon current information from
lending institutions. This method derives a weighted-average of the mortgage and
equity components of the investment. Based on interviews with market
participants and local lenders, Integra Chapman & Bell assumptions for the
mortgage and equity components are as follows.
<TABLE>
<CAPTION>
Mortgage/Equity Formula Assumptions
================================================================================
<S> <C> <C> <C>
Loan-to-Value Ratio 70.00%
Interest Rate 7.32%
Amortization Period 20 years
Holding Period 9 years
Mortgage Constant 9.50%
Equity Ratio 30.00%
Equity Dividend Rate 10.00%
------------------------------- ----------- --------- --------------- ----------
Mortgage Components 70.00% x 9.50% = 6.65%
Equity Components 30.00% x 10.00% = 3.00%
Overall Capitalization Rate 9.70% rounded to 9.70%
</TABLE>
A 9.5 to 11.5 percent overall capitalization rate was indicated from
the market sales. From the Band of Investment, the overall capitalization rate
is estimated at 9.7 percent. The most recent contract to purchase indicates a
capitalization rate of approximately 9.8 percent An overall capitalization rate
of 9.8 percent has been selected based on the credit worthiness of the tenants
and current market conditions.
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A summary of the RATES OF CAPITALIZATION is as follows:
Market Comparables 9.70% to 11.5%
Mortgage Technique 9.70%
"Going In" Capitalization Rate in Pro forma 9.8%
Based on the projected year 1 net operating income, the indicated
values are as follows:
Lakeshore I Lakeshore II
-------------------- ---------------------
FY 2000 Net Operating Income $939,984 $913,674
Divided by Capitalization Rate (divided by) 9.8% (divided by) 9.8%
-------------------- ---------------------
Value $9,591,673 $9,323,204
Rounded to: $9,600,000 $9,300,000
DISCOUNTED CASH FLOW ANALYSIS
-----------------------------
CASH FLOW PROJECTIONS
---------------------
Integra Chapman & Bell as prepared a ten year projection of day cash
flow analysis using a lease by lease analysis software program ( ARGUS)
specifically designed for cash flow analysis. A reversion capitalization rate is
used to derive an estimate the leased feet value at the end of the investment.
The assumptions used in preparation of the cash flow analysis are shown in
Figure 14. The discount rate and capitalization rates are derived from surveys
of investor requirements and alternate investment opportunities.
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73
Figure 14
Discounted Cash Flow Assumptions and Projections
<TABLE>
<CAPTION>
==================================================================================================
Year One 10/99
Projection Period 10 years
-------------------------------------------------------- ----------------------------------------
<S> <C> <C>
INCOME
======================================================== ========================================
Occupancy Market 90%
Market Rental Rate 2006
Average Size Tenant $12.00/sf net basis
Growth Rate 2.5%
Typical Lease Term 120 Months
-------------------------------------------------------- ----------------------------------------
VACANCY
======================================================== ========================================
Renewal Probability 70%
Projected Vacancy Between Leases 4 Months
Average Vacancy 7%
General Vacancy and Collection Loss 2%
-------------------------------------------------------- ----------------------------------------
EXPENSES
======================================================== ========================================
Operating Expenses (Year 1)
Operating Expense Escalation Rates 4%
----------------------------------------
$5.00 to $5.80/sf
Leasing Commissions New Tenants 3% existing
Tenant Improvement Allowance New Tenants $10/sf
Escalation of Refurbishment Costs 3%
-------------------------------------------------------- ----------------------------------------
REVERSION Lakeshore I Lakeshore II
======================================================== =================== ====================
Reversion Year Year 12/2009 Year 12/2009
Reversion Capitalization Rate 10% 10.25%
Reversion Selling Expenses 2% 2%
Discount Rate(Y sub 0) 10.5% 10.8%
Value Conclusion (Rounded) $9,800,000 $9,000,000
IRR 14.7% 15.4%
</TABLE>
In Exhibit "E", we have included a synopsis of the lease-by-lease
program, together with the output reports.
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As reflected in the cash flow projection, the income and expenses for
the subject have been estimated individually over the projection period. Income
and expenses vary non- systematically. The principle of change implies that
neither income nor expenses remain static. These items may fluctuate in terms of
the purchasing power of the dollar and in terms of commodities in exchange.
In projecting income and expenses, Integra Chapman & Bell have
considered the typical criteria for decisions of informed investors concerning
market trends. Furthermore, the projected income expenses may to prove to be
higher or lower than the actual operating experience of the property in the
future. Integra Chapman & Bell projections reflect current market conditions and
the perspective as of the effective date of this appraisal, November 2, 1999.
The risk inherent in the projected assumptions is reflected in the discount
(yield) rate applied to cash flow.
DCF EXPLANATIONS
----------------
MARKET RENT GROWTH RATE
-----------------------
The projected market rent growth rate of 3.0 percent per year is
slightly above the recent and projected increases in the consumer price index
(CPI), but it is consistent with typical investor expectations.
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ABSORPTION OF VACANT SPACE
--------------------------
The subject buildings are currently 85 to 90 percent occupied as a
multi-tenant user. The subject has a normal quantity of vacant space and is at
market occupancy.
LEASE EXPIRATIONS
-----------------
The expiration schedule for the present leases indicates abnormal risk
for Lakeshore II for year 1 with 40.5 percent of the space experiencing lease
expiration. For the first three years approximately 86 percent of the space
expires. Lakeshore I, 24 percent of the space expires in year 1 with 60 percent
expiring over three years. The lease expiration reports are shown in Exhibit
"E".
OPERATING EXPENSE ESCALATION RATES
----------------------------------
We have projected the increase in real estate taxes at 3.0 percent per
year, which is generally consistent with the consumer price index (CPI). In
addition, we have projected all other operating expenses to increase 3.0 percent
per year, which is also consistent with CPI.
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LEASING COMMISSIONS
-------------------
Leasing commissions in the area are paid primarily on a percentage
basis, with total commissions typically averaging 3 percent of the total base
rent of the lease. Commissions on renewals have also been estimated at 3
percent.
TENANT IMPROVEMENTS AND ALTERATIONS
-----------------------------------
The tenant improvements are typically a negotiable item with allowances
ranging from $5 to $8 per square foot for second generation space. For the
subject buildings, the tenant improvements have been estimated at $4.00 per
square foot.
EXTERIOR RENOVATION ALLOWANCE
-----------------------------
An exterior renovation allowance has been included as a line item. For
items not included in the normal maintenance and repair, and roof repairs.
ROOF REPAIR
-----------
The roof repair cost has been estimated in Year 4 and Year 7, based on
NTS projections, and an allowance of $3.50 per square foot has been assigned to
this capital expenditure category.
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HVAC
----
The HVAC is replacement of roof top units and will be conducted over a
eight year period. The estimated cost is $0.50 per square foot for Years 3, 5,
7, and 9.
REVERSION CALCULATIONS
----------------------
To estimate the value of the reversion at the end of the 10-year
holding period, we have consulted the Integra Realty Resources Viewpoint 2000,
which indicates "going-in" and "residual" ("reversion") capitalization rates for
suburban office properties of 9.3 percent and 9.9 percent, respectively. The
change in the income stream is equal to the national trend of 3.0 percent change
in the income stream. The selected going out capitalization rates versus the
going in capitalization rate is estimated at 9.00 percent. Based on these
factors the reversion capitalization rate is 20 to 45 basis points higher than
the going-in overall capitalization rate. Varying on the greater risk of
Lakeshore II because of the higher percentage of leases expiring by Year 3. This
reversion value is discounted to a present time frame and added to the annual
discounted cash flows to derive a present value estimate. The cash flow from our
10-year holding period is reflected on the cash flow chart in Figure 14.
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DISCOUNT RATE ANALYSIS
----------------------
The discount rate considered trends in interest rates and national, and
was assisted by regional and local market surveys to arrive at an appropriate
rate. The discount rate is also reflected in the internal rate of return, which
measures investment performance. The discount rate is also determined by the
change in the value or income stream over the holding period. This discount rate
is applied to the annual cash flows/net incomes and the terminal or reversionary
value. To assist in determining the discount rate alternative yield rates were
investigated. Long-term treasury are currently yielding 6.2 percent (as of
January 2000), and the corporate (B) bonds are yielding 7.6 percent (as of
January 2000). Corporate bonds have a higher return than U.S. Treasury Bonds and
both are lower rate of return than required by real estate investors. The
differential is based upon investor expectations and requirements for the types
of investments. Risk and liquidity are the principal driving factors between
treasuries and real estate. As reported in Viewpoint 2000 discount rates for
national suburban office buildings is 11.4 percent or approximately 3.8 percent
above corporate grade levels.
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The subject's going in capitalization rate is 9.8 percent. The selected
discount rate is 10.5 percent for Lakeshore I and 10.8 percent for Lakeshore II
or approximately 70 to 100 basis points greater than going in capitalization
rate. The change in the cash flows are approximately 2 to 3 percent, which would
indicate a higher discount rate. However, the internal rate of return is 14 to
15 percent, which is the upper end of the range for a stabilized property.
After an analysis of alternative yields in current investor criteria,
we have selected a discount rate of 10.50 percent for Lakeshore I and 10.8
percent for Lakeshore II.
The pro forma table is the indicated discount rate. The cash flow
projections from Argus and discounted cash flow are shown in Figures 15, 16, 17,
and 18.
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Figure 15 Lakeshore 1- Cash Flow
<TABLE>
<CAPTION>
Year 1 Year 2 Year 3 Year 4 Year 5
<S> <C> <C> <C> <C> <C>
For the years ending Nov - 2000 Nov - 2001 Nov - 2002 Nov - 2003 Nov - 2004
POTENTIAL GROSS REVENUE
Base Rental Revenue $1,122,124 $1,259,590 $1,275,296 $1,288,806 $1,322,255
Absorption & Turnover Vacancy (17,746) (22,625) (22,694) (8,103) (35,022)
Scheduled Base Rental Revenue $1,104,378 1,236,965 1,252,602 1,280,703 1,287,233
Expense Reimbursement Revenue
Insurance 34,008 37,934 38,903 40,322 40,553
Property Taxes 151,666 169,166 173,475 179,825 180,835
Utilities 43,569 48,596 49,831 51,659 51,948
Maintenance & Repairs 160,857 179,419 183,987 190,723 191,794
Administrative 9,195 10,249 10,514 10,899 10,959
Professional Fees 2,299 2,566 2,624 2,724 2,740
Janitorial 55,150 61,516 63,083 65,390 65,760
Management Fee 100,327 121,305 124,180 127,586 127,423
Total Reimbursement Revenue 557,071 630,751 646,597 669,128 672,012
TOTAL POTENTIAL GROSS 1,661,449 1,867,716 1,899,199 1,949,831 1,959,245
REVENUE
General Vacancy (99,798) (109,699) (111,839) (128,952) (104,577)
Collection Loss (16,614) (18,677) (18,992) (19,498) (19,592)
EFFECTIVE GROSS REVENUE 1,545,037 1,739,340 1,768,368 1,801,381 1,835,076
OPERATING EXPENSES
Insurance 37,000 37,925 38,873 39,845 40,841
Property Taxes 165,000 169,125 173,353 177,687 182,129
Utilities 47,400 48,585 49,800 51,045 52,321
Maintenance & Repairs 175,000 179,375 183,859 188,456 193,167
</TABLE>
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<TABLE>
<S> <C> <C> <C> <C> <C>
Administrative 10,000 10,250 10,506 10,769 11,038
Professional Fees 2,500 2,562 2,627 2,692 2,760
Janitorial 60,000 61,500 63,038 64,613 66,229
Management Fee 108,153 121,754 123,786 126,097 128,455
TOTAL OPERATING INCOME 605,053 631,076 645,842 661,204 676,940
NET OPERATING INCOME 939,984 1,108,264 1,122,526 1,140,177 1,158,136
LEASING & CAPITAL COSTS
Tenant Improvements 172,054 113,716 73,339 49,955 137,791
Leasing Commissions 56,501 39,068 26,419 18,140 50,431
Exterior Renovation 21,538
HVAC Replacement 10,506 11,038
Roof Replacement 183,071
TOTAL LEASING & CAPITAL 228,555 152,784 110,264 272,704 199,260
COSTS
CASH FLOW BEFORE DEBT $711,429 $955,480 $1,012,262 $867,473 $958,876
SERVICE & TAXES
</TABLE>
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Figure 15 Lakeshore 1- Cash Flow (continued)
<TABLE>
<CAPTION>
Year 6 Year 7 Year 8 Year 9 Year 10
For the years ending Nov - 2000 Nov - 2001 Nov - 2002 Nov - 2003 Nov - 2004
<S> <C> <C> <C> <C> <C>
POTENTIAL GROSS REVENUE
Base Rental Revenue $1,398,708 $1,437,623 $1,466,448 $1,503,086 $1,598,121
Absorption & Turnover Vacancy (52,370) (20,914) (14,367) (39,967) (59,793)
Scheduled Base Rental Revenue 1,346,338 1,416,709 1,452,081 1,463,119 1,538,328
Expense Reimbursement Revenue
Insurance 41,097 43,078 44,371 44,755 45,357
Property Taxes 183,263 192,107 197,852 199,605 202,276
Utilities 52,648 55,186 56,843 57,341 58,109
Maintenance & Repairs 194,368 203,752 209,841 211,700 214,536
Administrative 11,106 11,640 11,989 12,096 12,258
Professional Fees 2,776 2,915 2,998 3,024 3,063
Janitorial 66,644 69,858 71,949 72,583 73,556
Management Fee 131,928 138,744 143,776 144,078 148,756
Total Reimbursement Revenue 683,830 717,280 739,619 745,182 757,911
TOTAL POTENTIAL GROSS 2,030,168 2,133,989 2,191,700 2,208,301 2,296,239
REVENUE
General Vacancy (93,408) (129,929) (140,058) (117,412) (105,129)
Collection Loss (20,302) (21,340) (21,917) (22,083) (22,962)
EFFECTIVE GROSS REVENUE 1,916,458 1,982,720 2,029,725 2,068,806 2,168,148
OPERATING EXPENSES
Insurance 41,862 42,909 43,981 45,081 46,208
Property Taxes 186,682 191,349 196,133 201,036 206,062
Utilities 53,629 54,969 56,344 57,752 59,196
Maintenance & Repairs 197,996 202,946 208,020 213,221 218,551
</TABLE>
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<TABLE>
<S> <C> <C> <C> <C> <C>
Administrative 11,314 11,597 11,887 12,184 12,489
Professional Fees 2,829 2,899 2,972 3,046 3,122
Janitorial 67,884 69,582 71,321 73,104 74,932
Management Fee 134,152 138,790 142,081 144,816 151,770
TOTAL OPERATING INCOME 696,348 715,041 732,739 750,240 772,330
NET OPERATING INCOME 1,220,110 1,267,679 1,296,986 1,318,566 1,395,818
LEASING & CAPITAL COSTS
Tenant Improvements 204,382 80,950 46,924 129,683 253,764
Leasing Commissions 75,412 30,116 17,605 49,074 96,851
Exterior Renovation 23,194
HVAC Replacement 11,597 12,184
Roof Replacement 197,148
TOTAL LEASING & CAPITAL 279,794 343,005 64,529 190,941 350,615
COSTS
CASH FLOW BEFORE DEBT $940,316 $924,674 $1,232,457 $1,127,625 $1,045,203
SERVICE & TAXES
</TABLE>
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Figure 16 - Lakeshore Business 1 Pro Forma
<TABLE>
<CAPTION>
Year 1 Year 2 Year 3 Year 4 Year 5
<S> <C> <C> <C> <C> <C> <C>
Cash Flow $711,429 $955,480 $1,012,262 $867,473 $958,876
Clash Flow Discount @ 10.50% 0.904977 0.818984 0.741162 0.670735 0.060700
Present Values $643,827 $782,523 $750,250 $581,844 $582,038
Reversionary Value Capitalized at 10.00% $11,000,000
Discounted Reversion $ 4,478,496
Sum of Discounted Net Incomes $ 5,330,256
Net Present Value $9,808,752
Rounded to $9,800,000
NOTE: Year 10 Cash flow is estimated average of previous two years and projected Year 10.
Net Income $711,429 $955,480 $1,012,262 $867,473 $958,876
Minus Debt Service $749,425 $749,425 $749,425 $749,425 $749,425
Plus Cash Throw Off
Net Cash Flow ($37,996) $206,055 $262,837 $118,048 $209,451
Debt Coverage 0.95 1.27 1.35 1.16 1.28
Re -1.55% 8.40% 10.72% 4.81% 8.54%
Average Debt Coverage 1.29
Internal Rate of Return Yo 14.71%
FOOTNOTES:
Equity 25.00% $2,452,188
Mortgage 75.00% $7,356,564
Mortgage Term Years 20
Interest Rate 8.20%
Holding Period Years 9
Payments Per Year 12
</TABLE>
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<TABLE>
<S> <C> <C> <C> <C> <C>
Sale Price $11,000,000
Sales Expense 2.00% ($220,000)
Mortgage Balance ($5,419,584)
Cash Throw Off $5,360,416
</TABLE>
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Figure 16 - Lakeshore Business 1 Pro Forma (continued)
<TABLE>
<CAPTION>
Year 6 Year 7 Year 8 Year 9 Year 10
<S> <C> <C> <C> <C> <C>
Cash Flow $940,316 $924,674 $1,232,457 $1,127,625 $1,100,000
Clash Flow Discount @ 10.50% 0.549321 0.497123 0.449885 0.407136
Present Values $516,535 $459,677 $554,464 $459,097
Reversionary Value Capitalized at 10.00% $11,000,000
Discounted Reversion $ 4,478,496
Sum of Discounted Net Incomes $ 5,330,256
Net Present Value $9,808,752
Rounded to $9,800,000
NOTE: Year 10 Cash flow is estimated average of previous two years and projected Year 10.
Net Income $940,316 $924,674 $1,232,457 $1,127,625 $0
Minus Debt Service $749,425 $749,425 $749,425 $749,425
Plus Cash Throw Off $5,360,416
Net Cash Flow $190,891 $175,249 $483,032 $5,738,616
Debt Coverage 1.25 1.23 1.64 1.50
Re 7.78% 7.15% 19.70%
Average Debt Coverage 1.29
Internal Rate of Return Yo 14.71%
FOOTNOTES:
Equity 25.00% $2,452,188
Mortgage 75.00% $7,356,564
Mortgage Term Years 20
Interest Rate 8.20%
Holding Period Years 9
Payments Per Year 12
</TABLE>
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<TABLE>
<S> <C> <C> <C> <C> <C>
Sale Price $11,000,000
Sales Expense 2.00% ($220,000)
Mortgage Balance ($5,419,584)
Cash Throw Off $5,360,416
</TABLE>
Figure 17 - Lakeshore 2 - Cash Flow
<TABLE>
<CAPTION>
Year 1 Year 2 Year 3 Year 4 Year 5
For the years ending Nov - 2000 Nov - 2001 Nov - 2002 Nov - 2003 Nov - 2004
<S> <C> <C> <C> <C> <C>
POTENTIAL GROSS REVENUE
Base Rental Revenue $1,089,442 $1,149,860 $1,164,607 $1,181,342 $1,228,676
Absorption & Turnover Vacancy (36,500) (17,299) (31,948) (5,431) (37,368)
Scheduled Base Rental Revenue 1,052,942 1,132,561 1,132,659 1,175,911 1,191,308
Expense Reimbursement Revenue
Insurance 34,294 37,375 37,861 39,677 39,675
Property Taxes 152,944 166,671 168,836 176,935 176,930
Utilities 43,935 47,881 48,504 50,829 50,828
Maintenance & Repairs 162,212 176,773 179,071 187,656 187,654
Administrative 9,269 10,100 10,233 10,725 10,722
Professional Fees 2,315 2,528 2,559 2,683 2,680
Janitorial 55,614 60,607 61,396 64,339 64,339
Management Fee 98,215 111,762 111,969 117,468 117,075
Total Reimbursement Revenue 558,798 613,697 620,429 650,312 649,903
TOTAL POTENTIAL GROSS 1,611,740 1,746,645 1,753,088 1,826,223 1,841,211
REVENUE
General Vacancy (78,877) (106,150) (93,005) (122,785) (94,133)
</TABLE>
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<TABLE>
<S> <C> <C> <C> <C> <C>
Collection Loss (16,117) (17,463) (17,531) (18,262) (18,412)
EFFECTIVE GROSS REVENUE 1,516,746 1,622,645 1,642,552 1,685,176 1,728,666
OPERATING EXPENSES
Insurance 37,000 37,925 38,873 39,845 40,841
Property Taxes 165,000 169,125 173,353 177,687 182,129
Utilities 47,400 48,585 49,800 51,045 52,321
Maintenance & Repairs 175,000 179,375 183,859 188,456 193,167
Administrative 10,000 10,250 10,506 10,769 11,038
Professional Fees 2,500 2,562 2,627 2,692 2,760
Janitorial 60,000 61,500 63,038 64,613 66,229
Management Fee 106,172 113,585 114,979 117,962 121,007
TOTAL OPERATING INCOME 603,072 622,907 637,035 653,069 669,492
NET OPERATING INCOME 913,674 999,738 1,005,517 1,032,107 1,059,174
</TABLE>
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<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
LEASING & CAPITAL COSTS
Tenant Improvements 152,849 101,737 121,869 27,521 147,023
Leasing Commissions 53,135 36,065 43,903 9,994 53,810
Exterior Renovation 21,538
HVAC Replacement 10,506 11,038
Roof Replacement 183,071
TOTAL LEASING & CAPITAL 205,984 137,802 176,278 242,124 211,871
COSTS
CASH FLOW BEFORE DEBT $707,690 $861,936 $829,239 $789,983 $847,303
SERVICE & TAXES
</TABLE>
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Figure 17 Lakeshore 2 - Cash Flow (continued)
<TABLE>
<CAPTION>
Year 6 Year 7 Year 8 Year 9 Year 10
For the years ending Nov - 2005 Nov - 2006 Nov - 2007 Nov - 2008 Nov - 2009
POTENTIAL GROSS REVENUE
<S> <C> <C> <C> <C> <C>
Base Rental Revenue $1,273,547 $1,322,323 $1,351,800 $1,406,059 $1,457,080
Absorption & Turnover Vacancy (30,594) (37,380) (7,915) (42,646) (34,932)
Scheduled Base Rental Revenue 1,242,953 1,284,943 1,343,885 1,363,413 1,422,148
Expense Reimbursement Revenue
Insurance 40,919 41,762 43,742 43,798 45,466
Property Taxes 182,482 186,244 195,073 195,299 201,405
Utilities 52,423 53,501 56,037 56,103 57,858
Maintenance & Repairs 193,542 197,529 206,896 207,134 213,613
Administrative 11,058 11,287 11,822 11,838 12,205
Professional Fees 2,763 2,819 2,955 2,957 3,052
Janitorial 66,359 67,727 70,936 71,018 73,236
Management Fee 122,789 125,929 132,867 133,192 138,622
Total Reimbursement Revenue 672,335 686,798 720,328 721,339 745,157
TOTAL POTENTIAL GROSS 1,915,288 1,971,741 2,064,213 2,084,752 2,167,305
REVENUE
General Vacancy (105,618) (103,258) (137,134) (106,272) (119,225)
Collection Loss (19,153) (19,717) (20,642) (20,848) (21,673)
EFFECTIVE GROSS REVENUE 1,790,517 1,848,766 1,906,437 1,957,632 2,026,407
OPERATING EXPENSES
Insurance 41,862 42,909 43,981 45,081 46,208
Property Taxes 186,682 191,349 196,133 201,036 206,062
Utilities 53,629 54,969 56,344 57,752 59,196
Maintenance & Repairs 197,996 202,946 208,020 213,221 218,551
</TABLE>
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<TABLE>
<S> <C> <C> <C> <C> <C>
Administrative 11,314 11,597 11,887 12,184 12,489
Professional Fees 2,829 2,899 2,972 3,046 3,122
Janitorial 67,884 69,582 71,321 73,104 74,932
Management Fee 125,336 129,414 133,451 137,034 141,848
TOTAL OPERATING INCOME 687,532 705,665 724,109 742,458 762,408
NET OPERATING INCOME 1,102,985 1,143,101 1,182,328 1,215,174 1,263,999
</TABLE>
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<TABLE>
<S> <C> <C> <C> <C> <C>
LEASING & CAPITAL COSTS
Tenant Improvements 119,400 144,683 10,465 182,968 131,796
Leasing Commissions 44,055 53,827 3,927 69,136 50,300
Exterior Renovation 23,194
HVAC Replacement 11,597 12,184
Roof Replacement 197,148
TOTAL LEASING & CAPITAL 163,455 430,449 14,392 264,018 182,096
COSTS
CASH FLOW BEFORE DEBT $939,530 $712,652 $1,167,936 $951,156 $1,081,903
SERVICE & TAXES
</TABLE>
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Figure 18 - Lakeshore 2 Pro Forma
<TABLE>
<CAPTION>
Year 1 Year 2 Year 3 Year 4 Year 5
<S> <C> <C> <C> <C> <C> <C>
Cash Flow $707,690 $861,936 $829,239 $789,983 $847,303
Clash Flow Discount @ 10.80% 0.902527 0.814555 0.735158 0.663500 0.598827
Present Values $638,709 $702,094 $609,622 $524,154 $507,388
Reversionary Value Capitalized at 10.25% $10,555,151
Discounted Reversion $4,193,789
Sum of Discounted Net Incomes $4,729,436
Net Present Value $8,923,226
Rounded to $9,000,000
Net Income $707,690 $861,936 $829,239 $789,983 $847,303
Minus Debt Service $681,767 $681,767 $681,767 $681,767 $681,767
Plus Cash Throw Off
Net Cash Flow $25,923 $180,169 $147,472 $108,216 $165,536
Debt Coverage 1.04 1.26 1.22 1.16 1.24
Re 1.16% 8.08% 6.61% 4.85% 7.42%
Average Debt Coverage 1.27
Internal Rate of Return Yo 15.44%
FOOTNOTES:
Equity 25.00% $2,230,806
Mortgage 75.00% $6,692,419
Mortgage Term Years 20
</TABLE>
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<TABLE>
<S> <C> <C> <C> <C> <C>
Interest Rate 8.20%
Holding Period Years 9
Payments Per Year 12
Sale Price $10,555,151
Sales Expense 2.00% ($211,103)
Mortgage Balance ($4,930,309)
Cash Throw Off $5,413,740
</TABLE>
Figure 18 - Lakeshore 2 Pro Forma
<TABLE>
<CAPTION>
Year 6 Year 7 Year 8 Year 9 Year 10
<S> <C> <C> <C> <C> <C>
Cash Flow $939,530 $712,652 $1,167,936 $951,156 $1,081,903
Clash Flow Discount @ 10.80% 0.540457 0.487777 0.440232 0.397322
$507,776 $347,616 $514,163 $377,915
Present Values
Reversionary Value Capitalized at 10.25% $10,555,151
Discounted Reversion $4,193,789
Sum of Discounted Net Incomes $4,729,436
Net Present Value $8,923,226
Rounded to $9,000,000
Net Income $939,530 $712,652 $1,167,936 $951,156
Minus Debt Service $681,767 $681,767 $681,767 $681,767
Plus Cash Throw Off $5,413,740
Net Cash Flow $257,763 $30,885 $486,169 $5,683,128
</TABLE>
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<TABLE>
<S> <C> <C> <C> <C> <C>
Debt Coverage 1.38 1.05 1.71 1.40
Re 11.55% 1.38% 21.79%
Average Debt Coverage 1.27
Internal Rate of Return Yo 15.44%
FOOTNOTES:
Equity 25.00% $2,230,806
Mortgage 75.00% $6,692,419
Mortgage Term Years 20
Interest Rate 8.20%
Holding Period Years 9
Payments Per Year 12
Sale Price $10,555,151
Sales Expense 2.00% ($211,103)
Mortgage Balance ($4,930,309)
Cash Throw Off $5,413,740
</TABLE>
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FINAL CONCLUSION/RECONCILIATION
-------------------------------
Phase I Phase II Excess Land
------- -------- -----------
Cost Approach: N/A N/A $750,000
Sales Comparison Approach: $9,500,000 $9,000,000 N/A
Income Capitalization Approach: $9,800,000 $9,000,000 N/A
VALUE CONCLUSIONS
-----------------
"As Is" Value: $9,800,000 $9,000,000 $750,000
The purpose herein is to RECONCILE THE QUALITY AND QUANTITY OF DATA.
Also a conclusion is reached as to APPLICABILITY OR SUITABILITY OF THE
APPROACHES used.
The Cost Approach value is derived from the value of the land,
building, and site improvements. The Cost Approach is most accurate when a
property is new and minimal depreciation exists. Based on the subject's age,
this approach has not been considered in the valuation.
The Sales Comparison Approach utilized market office sales. Satisfying
the supply and demand, substitutions, balance, and externalities, sufficient
quality sales were available to determine an "as is" value. Comparable sales
were adjusted using appropriate methodology. The comparables were adjusted based
on the physical differences to the subject. The Sales Comparison Approach is
weighted from the quantity and quality of reliable market sales. The Sales
Comparison Approach is given the corollary support in this analysis.
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The Income Approach is given the most consideration in determining the
value of the subject property. The potential gross income was projected based on
the current leases in place and projected economic rent using comparable leased
data. The vacancy/credit and expenses were estimated based on historic data and
comparables. The overall rate and discount rate was based upon investor criteria
established by sales and/or interviews. This approach used a discounted cash
flow to arrive at the leased fee of this property.
Taking into account all pertinent facts that affect value, the current
"as is" value of the leased fee estate of Lakeshore I, as of November 2, 1999,
is:
* * *NINE EIGHT HUNDRED THOUSAND MILLION DOLLARS * * *
$9,800,000
Taking into account all pertinent facts that affect value, the current
"as is" value of the leased fee estate of Lakeshore II, property, as of November
2, 1999, is:
* * * NINE MILLION DOLLARS * * *
$9,000,000
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Taking into account all pertinent facts that affect value, the current
"as is" value of the fee simple estate of the 2.931 acres of excess land, as of
November 2, 1999, is:
* * * SEVEN HUNDRED FIFTY THOUSAND DOLLARS * * *
$750,000
EXPOSURE TIME AND MARKETING PERIOD
----------------------------------
The Appraisal Standards Board of the Appraisal Foundation has issued
advisory opinions on the Uniform Standards of Professional Appraisal Practice
(USPAP) for exposure time and market period. Integra Chapman & Bell will address
the relationship between these periods, discuss factors impacting timing, and
estimate a time period for both exposure and marketing.
Exposure Time is the retrospective occurrences in the market, while
Marketing Period is a prospective view of what is likely to occur in the market.
These two time periods are consistent with the appraisal of most properties,
necessitating the investigation of a retrospective performance and prospective
(future) action of a particular real estate market. Both time periods are
sensitive of price, time, use, the cost and availability of funds.
Resources used to make estimates for the respective time periods are
sales data, days on the market, both listing and sold properties, and interviews
of market participants. Understanding buyers' and sellers' motivations and
financial expectations for a reasonably priced property are key.
Since the time periods are based on similar information, we have
considered the contrast for the time periods, based on changing trends. The
basic profiles for similarity or bases for difference in the time periods:
When the prospective and retrospective market is stable before and
after the effective date of the appraisal, then Exposure Time and
Marketing Period are generally equal.
When the prospective and retrospective market is improving (greater
demand) before and after the effective date of the appraisal, then
Exposure Time is generally longer
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100
than Marketing Period.
When the prospective and retrospective market is deteriorating (less
demand) before and after the effective date of the appraisal, then
Exposure Time is generally less than Marketing Period.
When the retrospective market is improving before the effective date,
and prospective market decreasing or stable after the effective date,
then Exposure Time is generally less than Marketing Period.
When the retrospective market is deteriorating before the effective
date of the appraisal, and prospective market increasing or stable
after the effective date, then Exposure Time is generally longer than
Marketing Period.
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The market information used by Integra Chapman & Bell in determination
of Exposure Time and Marketing Period is:
- Mortgage interest rates and key investment returns are at
levels of 7.5 to 9.0 percent.
- The local and regional economy maintains stability with
moderate growth.
- The sales indicate marketing times of 12 to 24 months.
- Interviews with brokers and market participants indicate
marketing of typically 12 months.
Based upon broker interviews, both an Exposure Time and a Marketing
Period of less than 12 months is considered a REASONABLE MARKET PERIOD FOR THE
SUBJECT PROPERTY using the value conclusions found in this report.
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CERTIFICATION
-------------
This Certification is for the Appraisal Report for the property located
at 5100 - 5200 Northwest 33rd Avenue and 3201 West Commercial Boulevard in Ft.
Lauderdale, Flordia. The undersigned do hereby certify that:
1. To the best of their knowledge and belief, the statements of
facts contained in this appraisal report are true and correct.
2. The reported analyses, opinions, and conclusions are limited
only by the reported assumptions and limiting conditions, and
are personal, impartial, and unbiased professional analyses,
opinions, and conclusions.
3. Our engagement in this assignment was not contingent upon
developing or reporting predetermined results.
4. We have no present or prospective interest in the property
that is the subject of this appraisal report, and no personal
interest or bias with respect to the parties involved.
5. Our compensation for completing this assignment is not
contingent upon the development or reporting of a
predetermined value or direction in value that favors the
cause of the client, the amount of the value opinion, the
attainment of a stipulated result, or the occurrence of a
subsequent event directly related to the intended use of this
appraisal.
6. Our analyses, opinions, and conclusions were developed, and
this appraisal report has been prepared, in conformity with
the Uniform Standards of Professional Appraisal Practice and
in conformity with the requirements of the Code of
Professional Ethics and the Standards of Professional Practice
of the Appraisal Institute.
7. The use of this appraisal report is subject to the
requirements of the Appraisal Institute relating to review by
its duly authorized representatives.
<PAGE>
5100 - 5200 NORTHWEST 33rd AVENUE - FT. LAUDERDALE, FLORIDA Page
103
8. George M. Chapman, Lin E. Bell, Charles L. Fore, and Mark E.
Mitchell are currently certified under the continuing
education programs of the Appraisal Institute.
As of the date of this report, I, George M. Chapman, MAI, SRA,
CRE have completed the requirements under the continuing
education program of the Appraisal Institute (Through December
31, 2002).
As of the date of this report, I, Mark E. Mitchell, MAI, have
completed the requirements under the continuing education
program of the Appraisal Institute (Through December 31,
2001).
9. No one other than the undersigned prepared the analyses,
conclusions, and opinions concerning real estate that are set
forth in this appraisal report.
10. George M. Chapman, MAI, SRA, CRE and Mark E. Mitchell, MAI
have made a personal inspection of the property that is the
subject of this appraisal report.
11. This appraisal report was prepared by George M. Chapman, MAI,
SRA, CRE and Mark E. Mitchell, MAI who ACCEPT FULL
RESPONSIBILITY as stated in this SIGNED CERTIFICATION.
------------------------------------ ----------------------------------------
George M. Chapman, MAI, SRA, CRE Mark E. Mitchell, MAI
Flordia Certified General
Real Property Appraiser
Temporary Practice Permit
#0001776
Date: June 23, 2000
<PAGE>
104
ASSUMPTIONS AND LIMITING CONDITIONS
-----------------------------------
The accompanying appraisal report regarding the property located at
5100 - 5200 Northwest 33rd Avenue and 3201 West Commercial Boulevard in Ft.
Lauderdale, Florida is subject to the following assumptions and limiting
conditions.
1. The property is assumed to have a clear and marketable title
such as any title company will insure, the rights of which can
be conveyed by deed of the general warranty.
2. No responsibility is assumed for matters legal or engineering
in nature unless otherwise noted. Information provided by the
client is assumed to be accurate.
3. Any legal descriptions, property survey, site plans, site
plats, drawings, and/or sketches contained herein were either
furnished to the appraiser(s) or are based upon data provided
to the appraiser(s). These items are included herein to assist
the reader in visualizing the property. Although to the best
of our knowledge, these items provide an accurate
representation of the property, we have made no survey of the
property, and we assume no responsibility in connection with
such matters.
4. The accompanying appraisal report is to be used as a whole and
no part to be taken as a fraction thereof.
5. Integra Chapman & Bell associates are not required to give
further consultation, to testify in court, or be in attendance
in court regarding this appraisal report unless arrangements
have been set out previously.
6. Neither all nor any part of the contents of this appraisal
report shall be conveyed to the public through advertising,
public relations, news, sales, or other media, without the
written consent and approval of Integra Chapman & Bell,
particularly as to valuation conclusions, the identity of the
appraiser or firm with which he/she is connected, or any
reference to the Appraisal Institute.
<PAGE>
105
7. Any distribution of the valuation of this appraisal report
between land and improvements applies only under the existing
program of utilization. The separate valuations for land and
building must not be used in conjunction with any other
appraisal or report and are invalid if so used.
8. The appraiser assumes that there are no hidden or unapparent
conditions of the property, subsoil, or structures which would
render it more or less valuable. The appraiser assumes no
responsibility for such conditions or for engineering which
might be required to discover such factors.
9. Responsible ownership is assumed.
10. The appraisal assignment was not based on a requested minimum
valuation, a specific valuation, or the approval of a loan.
11. The property history has been provided by conversations with
various individuals involved with the chain of title
contracts, deeds, leases, and closing statements. We have not
performed a title search, nor do we warrant that the history,
as presented herein, is completely accurate since we have
relied upon the information of others. Any person or entity
contemplating an interest in the subject should rely solely
upon a title search and opinion prepared by a qualified
attorney-at-law.
12. The Americans with Disabilities Act (ADA) became effective
January 29, 1992. Integra Chapman & Bell has not made a
specific compliance survey and analysis of this property to
determine whether or not it is in conformity with the various
detailed requirements of the ADA. It is possible that a
compliance survey of the property together with a detailed
analysis of the requirements of the ADA could reveal that the
property is not in compliance with one or more of the
requirements of the act. If so, this fact could have a
negative effect upon the value of the property. Since Integra
Chapman & Bell has no direct evidence relating to this issue,
we did not consider possible noncompliance with the
requirements of ADA in estimating the value of the property.
<PAGE>
106
13. Integra Chapman & Bell requested a Level I and/or Level II
environmental study, but it was not provided as of the date of
this appraisal report. Integra Chapman & Bell inspected the
subject property and saw no "red flags" indicating the
evidence of hazardous materials. Integra Chapman & Bell has no
knowledge of the existence of such materials on or in the
property. Integra Chapman & Bell, however, is not qualified to
detect such substances. The presence of substances such as
asbestos, radon, urea- formaldehyde foam insulation, or other
potentially hazardous materials may affect the value of the
property. The value estimate is predicated on the assumption
that there are no such materials on or in the property that
would cause a loss in value. No responsibility is assumed for
any such conditions or for any expertise or engineering
knowledge required to discover them. The client is urged to
retain an expert in this field, if desired. Further, Integra
Chapman & Bell reserves the right to adjust the values
reported herein, based on an engineer's report of the presence
of hazardous materials.
14. The value estimate expressed herein assumes competent and
aggressive management and/or marketing of the subject
property.
15. Unless otherwise noted herein, it is presumed that there are
no encroachments nor any violations of zoning regulations
affecting the subject property.
16. Data included in this appraisal report relative to public
rights-of-way at the property reflects visual evidence that
was apparent during our inspection of the property. Unless
otherwise stated herein, the appraiser(s) is unaware of any
planned or proposed roadway relocations or reconstructions at
and near the property that would adversely affect the
property's access and/or exposure, and the appraiser(s)
assumes no responsibility beyond readily apparent visual
evidence at the date of appraisal.
17. It is assumed that any user of this appraisal report has
obtained and reviewed all architectural data, such as property
survey, building/site plans, and specifications, as well as
all leases, if any.
18. No termite inspection has been made, nor is a termite report
available to the appraiser(s). It is assumed that there is no
termite infestation and that a termite bond supplementing
annual inspections is in effect.
<PAGE>
107
19. The value estimate expressed herein considers that all phases
of development are under the same ownership. If separate
ownership of any phase occurs, it is assumed that suitable
easements, access, and utility rights are available between
phases, including use of common areas, so that the integral
character of the overall development will not be adversely
affected.
20. If the value estimate expressed herein relates to a
fractional-interest only in the real estate appraised, it is
not necessarily a conclusion of this appraisal report that the
value of this fractional interest (plus the value of all other
fractional interests) equal the value of the fee simple
estate, considered as a sole interest.
21. Certain information contained in this appraisal report has
been furnished by others. The sources and the information are
considered to be reliable but cannot be guaranteed.
<PAGE>
108
Subject Photographs
View of
View of
View of
View of
View of
View of
View of
<PAGE>
Exhibit (c)(3)
Appraisal Report by Integra Chapman & Bell
dated October 20, 2000
<PAGE>
October 20, 2000
NTS - Properties Plus Associates
NTS
10172 Linn Station Road
Louisville, Kentucky 40223
RE: Acquisition of the
NTS - Properties Plus
Louisville, Kentucky
File #300-046-99 LOU (G)
To Whom It May Concern:
At your request, we have prepared a comparable analysis for the
acquisition of NTS - Properties Plus limited partnership. For additional
references the reader should refer to the limited partnership agreement and the
Integra Chapman & Bell real estate appraisals of the Blankenbaker Business
Center IA (BBCIA), and Lakeshore I, II, and III properties with effective dates
of Nov. 2, 1999 and October 30, 1999 [Integra Chapman & Bell files #300-047-99
LOU (G) and #300-046-99 LOU (G)].
The comparable analysis has relied on the following documentation to
determine the implied value of the limited partnership interest os NTS -
Properties Plus, Ltd.
- Forms 10-K for fiscal years 1997, 1998, 1999, and Forms 10-Q
for the first and second quarters of 2000.
- Amended and Restated Agreement of Limited Partnership of NTS -
Properties Plus, Ltd.
These documents are in Exhibit "A" in the addenda.
<PAGE>
This report will present an analysis of comparable companies,
comparable transactions, an analysis, and discounted cash flow analysis. These
are preferred methods of valuation when the partnership interests have limited
trading volume.
Attached you will find the facts and conclusions used in arriving at
the appropriate valuation of the limited partnership.
The valuation conclusion is based upon the following special
assumptions:
- The partnership agreement is fully in effect as of the date of
this report.
- The partnership has a 7.69 % interest in Lakeshore III, which
is an office building under construction. The partial interest
of the office building under construction on Lakeshore III has
been included using the effective date of July 20, 2000. This
is included as a letter addendum to the Lakeshore real estate
appraisal. No inspection of the building under construction
was made by Integra Chapman & Bell. The status of the building
construction relied on the construction draw supplied by NTS
and the total construction budget.
- No provision has been made for the final statement for federal
income taxes.
- The real estate values for BBCIA and Lakeshores I and II as
reported in the appraisal have not been dramatically impacted
by market conditions from the previous effective dates.
Sincerely yours,
George M. Chapman, MAI, SRA, CRE
Mark E. Mitchell, MAI
GMC/tbd/ls/lat
Attachment
<PAGE>
Page 3
NTS - Properties PLUS, LTD. - LOUISVILLE, KENTUCKY -
PURPOSE, USE, AND DATE
----------------------
The purpose of this report is to present the analyses used to establish
the valuation of the limited partnership interests. The following is a list of
the assets of the limited partnership:
-------------------------------------------------------------------------------
NTS - Properties
Plus Ltd.
Percentage of Property Description
Ownership
-------------------------------------------------------------------------------
BBCIA 39.00% Louisville Office Building
Lakeshore I 7.69% Fort Lauderdale Office Building
Lakeshore II 7.69% Fort Lauderdale Office Building
Lakeshore III 7.69% Fort Lauderdale (Under Construction)
Office Building Office Building(1)
(1)The office building is 39% complete based on the construction cost draw as of
the date of the addendum report, dated July 1, 2000. Integra Chapman & Bell has
not inspected the office building, but relied on the Job Cost Summary as
provided by NTS.
The percentage of ownership in the Lakeshore properties was diluted in
the second quarter of 2000 because of the cash infusion to construct Lakeshore
III by other partners of the joint venture. prior to the dilution, nts -
properties plus, ltd. had a 12% ownership in Lakeshore I, II, and III.
The effective date of this report is July 1, 2000. The date of this
report is October 20, 2000.
<PAGE>
Page 4
NTS - Properties PLUS, LTD. - LOUISVILLE, KENTUCKY -
ASSUMPTIONS AND LIMITED CONDITIONS
----------------------------------
The special assumptions and limited conditions associated with this
report are as follows:
- The partnership agreement is fully in effect as of the date of
this report.
- The partnership has a 7.69% interest in Lakeshore III, which
is an office building under contract for sale. The partial
interest of the office building under construction on
Lakeshore III has been included using the effective date of
July 20, 2000. This is included as a letter addendum to the
Lakeshore real estate appraisal. No inspection of the building
under construction was made by Integra Chapman & Bell. The
status of the building construction relied on the construction
draw supplied by NTS and the total construction budget.
- No provision has been made for the final statement for federal
income taxes.
- The real estate values for BBCIA and Lakeshores I and II as
reported in the appraisal have not been dramatically impacted
by market conditions from the previous effective dates.
The scope of this report includes a search of the current merger
literature, literature on controlling interest acquisitions, and court rulings.
Several local stock brokerage firms, accounting firms, lawyers, and legal
experts were consulted in deriving criteria for, and the conclusions of, this
analysis. Integra Chapman & Bell's competency to value the limited partnership
interest is based on prior experience with property valuations of partial
interests valuations, and fairness opinions of limited partnerships.
<PAGE>
Page 5
NTS - Properties PLUS, LTD. - LOUISVILLE, KENTUCKY -
DESCRIPTION OF THE ASSETS
-------------------------
The interests in the real property are described in the real estate
appraisal reports with effective dates of November 1, 1999 and September 30,
1999. Lakeshore III's physical status is described in a letter addendum to the
Lakeshore I and II real estate appraisal report.
ASSET VALUE
-----------
The market value of the real estate is described on pages 1 and 2 of
the real estate appraisal reports. The objective of this document is to
determine the market range value for the remaining limited partnership interests
in the NTS - Properties Plus, Ltd., Limited Partnership.
LIMITED PARTNERSHIP
-------------------
The original offering of NTS - Properties Plus occurred from June 24,
1988 through June 23, 1990. The partnership issued 685,647 units for proceeds of
$13,712,940 or approximately $20.00 per unit. Quarterly distributions were
determined based on current cash balances, cash flow being generated by
operations and cash reserves. Distributions
<PAGE>
Page 6
NTS - Properties PLUS, LTD. - LOUISVILLE, KENTUCKY -
have not been made since 1991. There are currently 643,650 units outstanding as
of June 30, 2000. The NTS-Properties Plus, Ltd., 10-Q and 10-K have for the past
3 years has omitted 5 shares.
The partnership has had historic net income per limited partnership
interest of the following:
Net Income Per Limited
EBIT Partnership Interest
------------------------ ------------------------
1994 ($1,803,166) ($2.60)
1995 ($ 386,230) ($0.56)
1996 ($ 145,057) ($0.21)
1997 ($ 77,434) ($0.12)
1998 $2,026,515(1) $3.04
1999 ($ 14,063) ($0.02)
2000-II $ 14,969 $0.02
(1) Sale of University Business Center Phase II on October 6, 1998,
extraordinary non-recurring item.
Source: NTS Properties Plus, Ltd., Forms 10-K, Fiscal Years 1997
to 1999; 10-Q - June 30, 2000
HISTORY OF TRANSFERS OF INTEREST
--------------------------------
The following is the history of the transfers of interest based on the
information provided by Stifel Nicolaus and Company, the partnership
underwriter, and NTS - Properties Plus, Ltd. The current interest price has been
influenced by the acquisitions of
<PAGE>
Page 7
NTS - Properties PLUS, LTD. - LOUISVILLE, KENTUCKY -
ORIG, which have accounted for approximately 65% of the volume in 2000. The
percentage of ORIG activity was based on reports provided to Integra Chapman &
Bell from NTS - Properties Plus, Ltd.
<TABLE>
<CAPTION>
NTS - Properties Plus, Ltd. - Transactions in Interests
Estimated
Weighted Avg. Price Monthly Volume
Year Price Low High in Interests % Interests(2)
------------ ---------------------- ----------------------- ------------------------- -------------------
<S> <C> <C> <C> <C> <C>
1997 $0.88 $0.86 $0.95 1,500 1.5%
1998 $0.86 $0.81 $0.98 825 1.0%
1999 $0.95 N/A N/A N/A N/A
2000(1) $1.10 $0.75 $1.58 2,245(1) 0.2%
</TABLE>
N/A - Not Available
(1) As of July 2000
Source: Stifel Nicolaus and Company Genesis, and September 2000 The Partnership
Spectrum, Partnership Profiles, Inc.
(2) Estimated monthly volume divided by units outstanding.
The amalgamated data from the respectful sources indicates the
interests have had low trading volume relative to the total number of interests.
Share prices have ranged from $0.88 to $1.10 for the previous 3.5 years. The
varying sources contain inconsistent information and data. As of June 30, 2000,
the total liabilities of the NTS - Properties Plus, Ltd. is $2,365,814 which
includes the pro rata debt to NTS - Properties Plus Ltd. from the Joint
Partnership for BBC1A and Lakeshore I and II. It has been assumed, as of the
effective date of the comparable analysis, that there is no debt for Lakeshore
III.
COMPARABLE PUBLIC PARTNERSHIP ANALYSIS
In this analysis, comparable limited partnerships were identified with
similar financial characteristics and similar investments, certain ratios and
multiples of publicly-traded companies that are generally comparable to NTS -
Properties Plus, Ltd. These partnerships were selected because the general
partner was increasing the holding to a majority ownership. The strength of this
method is the investment
<PAGE>
Page 8
NTS - Properties PLUS, LTD. - LOUISVILLE, KENTUCKY -
guidelines as supported by the market comparables. Multiples are derived from
sales of similar entities. The weakness of this analysis is the current debt
structure of NTS - Properties Plus, Ltd., which exceeds that of the comparable
companies including Consolidated Capital Institution Properties, Damson/Birtcher
Realty Income Fund I and II, and Krupp Realty Fund III. The multiples/ratios are
calculated based on publicly available financial information and research
reports, and were adjusted for certain extraordinary and non-recurring items.
Financial data used included earnings before interest, taxes, depreciation and
amortization (EBITDA), and earnings before interest and taxes (EBIT), for the
respective time periods. Also certain operating margins, valuation statistics,
financial ratios, and projected growth rates were investigated and compared to
the limited partnership.
<PAGE>
Page 9
NTS - Properties PLUS, LTD. - LOUISVILLE, KENTUCKY -
In determining the implied enterprise and implied equity value for NTS
- Properties Plus, Ltd. historical financial, operating, and other data that was
publicly available or furnished by the partnership, included, but was not
limited to: NTS - Properties Plus Ltd.'s Form 10-K for the period ended December
31, 1999 and Form 10-Q for the period ending June 30, 2000.
NTS - Properties Plus, Ltd.
Summary of EBITDA and EBIT
1999 1998(2) 1997
---- ------- ----
Rental Income $639,747 $854,180 $826,343
Expenses(1) $358,082 $404,409 $440,298
Interest Expense $206,672 $293,936 $303,763
Depreciation and Amortization $106,088 $109,793 $161,351
EBITDA $281,665 $449,771 $386,045
EBIT $175,577 $339,978 $224,694
(1)Without Interest, Tax, Depreciation, and Amortization.
(2)Excludes extraordinary gain on sale of University Business Center Phase II to
Silver City Properties.
The historic income and expenses have been declining because of the
sell-off of University Business Center Phase II. The 1999 data best represents
the future cash flows and will be the basis for the comparable ratio analysis.
After review of the historic income and expenses and the individual real estate
income sources, the 1999 operating statements provide a most reasonable
indication of the future operating income and expenses for valuation even though
this is before the dilution of ownership.
<PAGE>
Page 10
NTS - Properties PLUS, LTD. - LOUISVILLE, KENTUCKY -
The interests in NTS - Properties Plus, Ltd. Limited Partnership are
traded infrequently compared to the publicly-traded equity of the comparable
companies. The comparables were selected because they have general business,
operating, and financial characteristics similar to those of NTS - Properties
Plus Ltd. Figure 1 is the comparable company analysis. No company used in the
foregoing analysis is identical to the subject. Accordingly, Integra Chapman &
Bell did not rely solely on the mathematical results of the analysis, but also
made qualitative judgments concerning differences in financial and operating
characteristics of the comparable companies and other factors that could affect
the values of each.
<PAGE>
Page 11
NTS - Properties PLUS, LTD. - LOUISVILLE, KENTUCKY -
<TABLE>
<CAPTION>
Figure 1
Comparative Company Ratio Analysis
Comparable Analysis
X 1000
Time Frame EBIT EBITDA Revenue EBITDA Price to Earning
Margin Ratio
<S> <C> <C> <C> <C> <C> <C>
1 1999 $1,809 $2,954 $6,300 46.9% 15.26
2 1997 $1,453 $2,950 $5,906 49.9% 4.71
3 1999 $2,124 $3,863 $7,848 49.2% 3.35
4 1999 $2,011 $2,883 $5,570 51.8% 3.25
Subject $175.6 $281.7 $639.0 44.1% 2.51
</TABLE>
<TABLE>
<CAPTION>
Trades Multipliers
Units Outstanding Wt. Avg. $/Unit GP $/unit Units Trades EBIT EBITDA
<S> <C> <C> <C> <C> <C> <C> <C>
1 909,124 $49.57 $76.40 657 19 24.91 15.26
2 35,000 $397 $1,645 4 2 9.56 4.71
3 25,000 $518 600 30 3 6.10 3.35
4 28,372 $330 363 48 4 4.66 3.25
Subject 643,650 $1.10 4.03 2.51
</TABLE>
1 - Consolidated Capital Institution Properties/2 (Edgar 201529). The 1999
Revenue was adjusted due to the sale of 7 properties. The adjustment was
based on 1998 and 1999 10K revenues.
2 - Damson Birtcher Realty Income Fund I; Damson Birtcher Realty Income Fund II
3 - Krupp Realty Fund III
<PAGE>
Page 12
NTS - Properties PLUS, LTD. - LOUISVILLE, KENTUCKY -
4 - Davidson Growth Plus, L.P. (Edgar 795757)
<PAGE>
Page 13
NTS - Properties PLUS, LTD. - LOUISVILLE, KENTUCKY -
Footnotes:
Consolidated Capital Institution Properties/2 (Edgar 201529) - This is a
partnership whose primary business is the lending of funds to equity partners.
The partnership is a California limited partnership in which the partners are
former shareholders and former management consolidated Capital Equities
Corporation. The properties at the time of calculation included apartments and
office complexes. Currently (2000), six properties remain and include apartments
and office complexes. The portfolio has been reduced either by foreclosure or by
sale. The partnership was offered in July 1983 enclosed in July of 1980 with
proceeds of $228 million with a unit cost of $250. Cumulative distribution has
been $219.
Krupp Realty Fund III (Edgar 702117) - The Krupp Family Limited partnership -
94, affiliates of the General Partner, filed a Transaction Statement on Schedule
13E-3 with the Securities and Exchange Commission (the "SEC") with respect to
KR3's proposal to merge KRF-III with and into KR3. Under the terms of the
proposed merger, each unit holder of KRF-III other than KR3 and certain unit
holders that have agreed to reinvest their units in KR3 will receive $600 in
cash for each outstanding investor limited partnership interest owned by it. KR3
was initially organized for the purpose of effecting a tender offer for the
units of the Partnership, pursuant to which it acquired 10,304 units, or
approximately 41.2% of the outstanding units, for a price of $550 per unit, in
June 1999. KR3 later purchased a total of 1,637.5 units, for a price of $600 per
unit, from various investment management professionals, increasing its ownership
to approximately 47.9% of the outstanding units.
Davidson Growth Plus, L.P. (Edgar 795757) - Several tender offers were made by
various parties, including affiliates of the Managing General Partner, during
the years ended December 31, 1999 and 1998. As a result of these tender offers,
AIMCO and its affiliates currently own 14,431 limited partnership units in the
Partnership representing 50.864% of the outstanding units. It is possible that
AIMCO or its affiliates will make one or more additional offers to acquire
additional limited partnership interests in the Partnership for cash or in
exchange for units in the operating partnership of AIMCO. Consequently, AIMCO is
in a position to influence all voting decisions with respect to the Registrant.
Under the Partnership Agreement, unit holders holding a majority of the Units
are entitled to take action with respect to a variety of matters. When voting on
matters, AIMCO would in all likelihood vote the Units it acquired in a manner
favorable to the interest of the Managing General Partner because of their
affiliation with the Managing General Partner.
1GP #/unit is the general partner estimate of value.
Source: Annual Partnership Profile and Inspection, 1997, 1998, and 1999.
<PAGE>
Page 14
NTS - Properties PLUS, LTD. - LOUISVILLE, KENTUCKY -
For each of the comparables, the multiplier/ratio used weighted average
price per unit times the share divided by the, EBITDA and EBIT per unit during
the most recent 12-month period.
The 1999 earnings figures for NTS - Properties Plus, Ltd. are presented
in Figure 2.
<PAGE>
Page 15
NTS - Properties PLUS, LTD. - LOUISVILLE, KENTUCKY -
Figure 2
NTS - Properties Plus, Ltd.
$/Interest(1)
1999 EBITDA $281,665 $0.44
1999 EBIT $175,577 $0.27
(1)643,650 interests outstanding as of June 1, 2000.
The range for the 1999 ratios of EBIT/Price and EBITDA/Price is as
follows and was based on the most comparable developments. Consolidated Capital
Institutional Properties was not considered in the analysis because of the
motivations of the purchaser, which was reflected in the abnormal ratios.
<TABLE>
<CAPTION>
Comparable Ratio Analysis - Effective date as of June 30, 2000
Low High
<S> <C> <C>
Comparable EBITDA/Price Multiplier 3.25 4.71
$/Interest x $0.44 x $0.44
-------- --------
Estimated Implied Value of NTS - Properties Plus Ltd (per $1.43 $2.07
interest)
Comparable EBIT/Price Multiplier 4.66 9.56
$/Interest x $0.27 x $0.27
-------- --------
Estimated Implied Value of NTS - Properties Plus Ltd (per $1.26 $2.58
interest)
</TABLE>
<PAGE>
Page 16
NTS - Properties PLUS, LTD. - LOUISVILLE, KENTUCKY -
The per interest implied value range is $1.26 to $2.58 per unit. From
this implied value the current debt is subtracted as reported by the 10-Q -
second quarter 2000. Lakeshore III's land and partially constructed building has
not been recognized in the revenue cash flows because it is a non-economic
generator as of the effective date. Subtracting the debt and adding the
partially constructed building and land value, the implied equity value is
($2.13) to ($0.81) per share from the comparable ratios.
<TABLE>
<CAPTION>
$ (dollars) Interests
---------------------------------------- -------------------------
Low High Low High
<S> <C> <C> <C> <C>
Estimated value (per interest) $ 810,996 $ 1,660,612 $ 1.26 $ 2.58
Less: debt $(2,365,814) $(2,365,814) $(3.68) $ (3.68)
Plus: Value of Lakeshore III 9.69% of $ 180,715 $ 180,715 $ 0.28 $ 0.28
(Land value plus partial improvement value)
Estimated equity value (per interest) $(1,374,103) $ (524,487) $(2.13) $ (0.81)
Shares outstanding June 30, 2000 643,650
</TABLE>
COMPARABLE ANALYSIS
-------------------
In determining the implied equity value for NTS - Properties Plus,
Ltd., we also reviewed and analyzed other company acquisitions where 50.1% or
more interest (the "Comparable Transactions") in the company was purchased. The
comparable transactions set the upper limit of the value range because the
buyers wanted to increase their ownership percentage in an existing investments
and were willing to pay above the prevailing trading range to acquire a majority
interest. A general review of the
<PAGE>
Page 17
NTS - Properties PLUS, LTD. - LOUISVILLE, KENTUCKY -
purchase of controlling interests was noted in The Merger Stats Review,
published by Ulihan, Lokey, Howard, and Ziskin of Los Angeles, 1999 publication,
which included 512 companies for which control was purchased in 1998. The mean
premium was 32.2%. Following is a breakdown of these premiums:
Paid Premium # of Observations
------------------------ --------------------------
0-15% 27
15-30% 25
30-45% 21
Also, a further analysis used the industry Merger Stats, Inc., Control
Premium Study, 2nd Quarter 2000. Categories analyzed included overall premium
acquisition, premiums for construction and building and real estate. Individual
company premiums were also noted, which indicated an overall range of 14% to
34%.
The premiums for all mergers appear to be rising over the past year.
However, those purchased for all transactions with some relationship to real
estate are somewhat lower and reasonably consistent (23% to 29%). Then the only
two recent real estate transactions reveal low discounts (23% to 32%). The
Price/sale, Price/Net Income and Price/Book Value ratios for the two real estate
entities were compared to the corresponding ratios for NTS - Properties Plus
Ltd. to determine the degree of comparability between transactions in interests
of these entities and transactions in the limited partnership interests of NTS -
Properties Plus Ltd. This analysis, however, was inconclusive.
<PAGE>
Page 18
NTS - Properties PLUS, LTD. - LOUISVILLE, KENTUCKY -
<TABLE>
<CAPTION>
2000-II 2000-I 1999-IV 1999-III Average
------------- ----------------------------------------------------- -----------
<S> <C> <C> <C> <C> <C>
Overall Premiums 34.0% 33.0% 32.0% 32.0% 32.8%
Building Construction 29.0%
Real Estate 23.0%
Specific Target Multipliers Price/sales Price/net income Price/Book Value
------------- ----------------------------------------------------- -----------
Cornerstone Properties 4.4 19.6 1.3
Tyndall Property Trust 8.6 15.0 0.8
------------- ---------------------
NTS - Properties Plus LTD as of 0.99 Negative
December 31, 1999
</TABLE>
Source:Control Premium Study 2nd quarter 2000, Merger Stats Review
Using the data from Merger Stats a premium range of 25% to 32% was
selected to value the interest. The value for interest is estimated based on a
premium range of $1.19 to $1.45.
<TABLE>
<CAPTION>
NTS - Properties Implied
Plus Unit Price(1) % Premium Range Implied Unit Value Equity Value
-------------------------- ------------------------------- -------------------------------- --------------------
<S> <C> <C> <C>
$1.19-$1.25
$0.95 - $1.10 x 25% - 32% $1.37-$1.45 $654,307
(1)Historic trading price/unit.
</TABLE>
<PAGE>
Page 19
NTS - Properties PLUS, LTD. - LOUISVILLE, KENTUCKY -
<PAGE>
Page 20
NTS - Properties PLUS, LTD. - LOUISVILLE, KENTUCKY -
DISCOUNTED CASH FLOW ANALYSIS
-----------------------------
The implied value of the NTS - Properties Plus, Ltd. is calculated by
performing a discounted cash flow and liquidation analysis. The cash flow
projections were prepared by Integra Chapman & Bell using a combined pro forma
for each of the two real estate appraisals. Historic financial statements for
these properties were furnished by the NTS - Properties Plus, Ltd. management.
The unleveraged (no debt) free cash flows for NTS - Properties Plus, Ltd. is
projected for the fiscal years December 31, 2000 through 2010. The leverage free
cash flow, as reported in the pro forma, is equal to earnings before interest
and taxes (equal to EBITDA) plus depreciation and amortization less capital
expenditures and working capital requirements. The cash flows were discounted at
rates ranging from 13.8% to 17.3%, based on the weighted average cost of capital
("WACC"). The discount rate was also supported by secondary data from Korpacz
Real Estate Survey Second Quarter 2000, published by PriceWaterhouseCoopers. The
National Suburban Office Market indicated discount rates in all cash
transactions from 9.75% to 12.50%, with a average of 11.07%. The additional risk
of the partnership would increase the discount rate to levels equivalent to the
WACC. The reversion capitalization rate has been estimated to be equal to the
discount rate.
<PAGE>
Page 21
NTS - Properties PLUS, LTD. - LOUISVILLE, KENTUCKY -
Cash Flow Available for Distribution Per Share
----------------------------------------------
Since the real estate holdings are partially owned by NTS - Properties
Plus, as a non-controlling interest, the holding time is projected to be 10
years. During this period real estate net operating income (EBITDA) will be
offset by administrative expenses and debt interest payments.
NTS - Properties Plus, Ltd. has historically experienced negative
enterprise cash flows with exceptions occurring at aberrations, such as gain due
to sale of assets.
The net income for the real estate of each development is multiplied by
the NTS - Properties Plus percentage of ownership to derive the net income for
the real estate. In Year 1, the future net income is $403,470 as shown in
Figures 3 and 4.
Expenses for partnership administration, bank charges, and the current
debt service are subtracted to derive the enterprise/limited partnership cash
flow. The debt service will be based on the current debt schedule as presented
by NTS.
The enterprise cash flow for Year 1 is a loss of ($105,479).
<PAGE>
Page 22
NTS - Properties PLUS, LTD. - LOUISVILLE, KENTUCKY -
<TABLE>
<CAPTION>
Figure 3
Cash Flow Analysis - Low Discount
FY 2000 2001 2002 2003 2004
Year 1 Year 2 Year 3 Year 4 Year 5
<S> <C> <C> <C> <C> <C>
Lakeshore I $711,429 $955,480 $1,012,262 $867,473 $958,876
Percentage of ownership 7.69% 7.69% 7.69% 7.69% 7.69%
Income based on ownership percentage $54,709 $73,476 $77,843 $66,709 $73,738
Lakeshore II $707,690 $861,936 $829,239 $789,983 $847,303
Percentage of ownership 7.69% 7.69% 7.69% 7.69% 7.69%
Income based on ownership percentage $54,421 $66,283 $63,768 $60,750 $65,158
Blankenbaker Office 1A $754,718 $754,716 $749,714 $709,712 $711,397
Percentage of ownership 39% 39% 39% 39% 39%
Income based on ownership percentage $294,340 $294,339 $292,388 $276,788 $277,445
Gross Income $403,470 $434,099 $434,000 $404,246 $416,340
Expenses
Administrative (1) $120,000 $123,600 $127,308 $131,127 $135,061
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Bank Charges (2) $ 5,000 $ 5,150 $ 5,305 $ 5,464 $ 5,628
Debt Service (3) $383,949 $383,949 $383,949 $383,949 $262,520
Total Expenses $508,949 $512,699 $516,562 $520,540 $403,209
Cash Flow ($105,479) ($78,600) ($82,562) ($116,294) $ 13,131
Discount @ (4) 14.30% 0.874891 0.765434 0.669671 0.585889 0.512588
Present Value ($92,282) ($60,163) ($55,289) ($68,135) $ 6,731
Sum of Discounted Net cash flows ($549,444) The value of the discounted cash flows from Year 1 to Year 9
Reversion Capitalization Rate in Year 10 $657,632 The reversion rate is the Year 10 cash flow discounted then divided
by the reversion capitalization rate also 14.3%
Value of Lakeshore III Land & Partially $180,715 Value of the partially constructed office building and land value
Completed Building (5) times the ownership interest held by NTS-Properties Plus Ltd.
Value of NTS-Properties Plus Ltd. $288,903
Divided by Number of Shares (6) 643,650
Per Unit $ 0.45
</TABLE>
<PAGE>
Page 23
Figure 3 (continued)
Cash Flow Analysis - Low Discount
<TABLE>
<CAPTION>
FY 2005 2006 2007 2008 2009
Year 6 Year 7 Year 8 Year 9 Year 10
<S> <C> <C> <C> <C> <C>
Lakeshore I $940,316 $924,674 $1,232,457 $1,127,625 $1,100,000
Percentage of ownership 7.69% 7.69% 7.69% 7.69% 7.69%
Income based on ownership percentage $72,310 $71,107 $94,776 $86,714 $84,590
Lakeshore II $939,530 $712,652 $1,167,936 $951,156 $1,081,903
Percentage of ownership 7.69% 7.69% 7.69% 7.69% 7.69%
Income based on ownership percentage $72,250 $54,803 $89,814 $73,144 $83,198
Blankenbaker Office 1A $711,207 ($15,373) ($1,076,689) $434,689 $905,704
Percentage of ownership 39% 39% 39% 39% 39%
Income based on ownership percentage $277,371 ($5,995) ($419,909) $169,529 $353,225
Gross Income $421,931 $119,915 ($235,318) $329,387 $521,013
Expenses
Administrative (1) $139,113 $143,286 $147,585 $152,012 $156,573
Bank Charges (2) $ 5,796 $ 5,970 $ 6,149 $ 6,334 $ 6,524
Debt Service (3) $262,520 $262,520 $262,520 $0 $0
Total Expenses $407,429 $411,777 $416,254 $158,346 $163,097
Cash Flow $14,502 ($291,862) ($651,573) $171,041 $357,916
Discount @ (4) 14.30% 0.448459 0.392352 0.343266 0.300320 0.262747
Present Value $6,503 ($114,513) ($223,662) $51,367 $94,041
Sum of Discounted Net cash flows ($549,444) The value of the discounted cash flows from Year 1 to Year 9
Reversion Capitalization Rate in Year 10 $657,632 The reversion rate is the Year 10 cash flow discounted then
divided by the reversion capitalization rate also 14.3%
Value of Lakeshore III Land & $180,715 Value of the partially constructed office building and land
Partially Completed Building (5) value times the ownership interest held by NTS-Properties
Plus Ltd.
Value of NTS-Properties Plus Ltd. $288,903
Divided by Number of Shares (6) 643,650
Per Unit $ 0.45
</TABLE>
Footnotes:
(1) Administrative fees based on current estimates of administrative cost from
NTS-Properties Plus. These cost estimates have been projected to increase
by 3% per year.
(2) Bank charges based on historic expenses.
(3) Based on current debt service as provided to ICB and pro rata to
NTS-Properties Plus based on percentage r ownership.
(4) Discount rate based on CAPM
(5) The building and land value has been estimated at $2,350,000 of which
NTS-Properties Plus has 7.69% ownership.
(6) Number of shares based on 2000-Q2 10Q.
<PAGE>
Page 24
NTS - Properties PLUS, LTD. - LOUISVILLE, KENTUCKY -
<TABLE>
<CAPTION>
Figure 4
Cash Flow Analysis - High Discount
FY 2000 2001 2002 2003 2004
Year 1 Year 2 Year 3 Year 4 Year 5
<S> <C> <C> <C> <C> <C>
Lakeshore I $711,429 $955,480 $1,012,262 $867,473 $958,876
Percentage of ownership 7.69% 7.69% 7.69% 7.69% 7.69%
Income based on ownership $54,709 $73,476 $77,843 $66,709 $73,738
percentage
Lakeshore II $707,690 $861,936 $829,239 $789,983 $847,303
Percentage of ownership 7.69% 7.69% 7.69% 7.69% 7.69%
Income based on ownership $54,421 $66,283 $63,768 $60,750 $65,158
percentage
Blankenbaker Office 1A $754,718 $754,716 $749,714 $709,712 $711,397
Percentage of ownership 39% 39% 39% 39% 39%
Income based on ownership percentage $294,340 $434,099 $434,000 $404,246 $416,340
Gross Income $404,470 $434,099 $434,000 $404,246 $416,340
Expenses
Administrative (1) $120,000 $123,600 $127,308 $131,127 $135,061
Bank Charges (2) $ 5,000 $ 5,150 $ 5,305 $ 5,464 $ 5,628
Debt Service (3) $383,949 $383,949 $383,949 $383,949 $262,520
Total Expenses $508,949 $512,699 $516,562 $520,540 $403,209
Cash Flow ($105,479) ($78,600) ($82,562) ($116,294) $13,131
Discount @ (4) 18.30% 0.845309 0.714547 0.604012 0.510577 0.431595
Present Value ($89,162) ($56,164) ($49,868) ($59,377) $ 5,667
Sum of Discounted Net cash flows ($465,788) The value of the discounted cash flows from Year 1 to Year 9
Reversion Capitalization Rate in Year 10 $364,320 The reversion rate is the Year 10 cash flow discounted then
divided by the reversion capitalization rate also 18.3%
Value of Lakeshore III Land & $180,715 Value of the partially constructed office building and land
Partially Completed Building (5) value times the ownership interest held by NTS-Properties
Plus Ltd.
Value of NTS-Properties Plus Ltd. $ 79,247
Divided by Number of Shares (6) 643,650
Per Unit $ 0.12
</TABLE>
<PAGE>
Page 25
NTS - Properties PLUS, LTD. - LOUISVILLE, KENTUCKY -
Figure 4 (continued)
Cash Flow Analysis - High Discount
<TABLE>
<CAPTION>
FY 2005 2006 2007 2008 2009
Year 6 Year 7 Year 8 Year 9 Year 10
<S> <C> <C> <C> <C> <C>
Lakeshore I $940,316 $924,674 $1,232,457 $1,127,625 $1,100,000
Percentage of ownership 7.69% 7.69% 7.69% 7.69% 7.69%
Income based on ownership $72,310 $71,107 $94,776 $86,714 $84,590
percentage
Lakeshore II $939,530 $712,652 $1,167,936 $951,156 $1,081,903
Percentage of ownership 7.69% 7.69% 7.69% 7.69% 7.69%
Income based on ownership $72,250 $54,803 $89,814 $73,144 $83,198
percentage
Blankenbaker Office 1A $711,207 ($15,373) ($1,076,689) $434,689 $905,704
Percentage of ownership 39% 39% 39% 39% 39%
Income based on ownership $277,371 ($5,995) ($419,909) $169,529 $353,225
percentage
Gross Income $421,931 $119,915 ($235,318) $329,387 $521,013
Expenses
Administrative (1) $139,113 $143,286 $147,585 $152,012 $156,573
</TABLE>
<TABLE>
<CAPTION>
FY 2000 2001 2002 2003 2004
Year 1 Year 2 Year 3 Year 4 Year 5
<S> <C> <C> <C> <C> <C>
Bank Charges (2) $ 5,796 $ 5,970 $ 6,149 $ 6,334 $ 6,524
Debt Service (3) $262,520 $262,520 $262,520 $0 $0
Total Expenses $407,429 $411,777 $416,254 $158,346 $163,097
Cash Flow $14,502 ($291,862) ($651,573) $171,041 $357,916
Discount @ (4) 18.30% 0.364831 0.308395 0.260689 0.220362 0.186274
Present Value $5,291 ($90,009) ($69,858) $37,691 $66,671
Sum of Discounted Net cash flows ($465,788) The value of the discounted cash flows from Year 1 to Year 9
Reversion Capitalization Rate in Year 10 $364,320 The reversion rate is the Year 10 cash flow discounted then
divided by the reversion capitalization rate also 14.3%
Value of Lakeshore III Land & $180,715 Value of the partially constructed office building and land
Partially Completed Building (5) value times the ownership interest held by NTS-Properties
Plus Ltd.
Value of NTS-Properties Plus Ltd. $79,247
Divided by Number of Shares (6) 643,650
Per Unit $ 0.12
</TABLE>
Footnotes:
(1) Administrative fees based on current estimates of administrative cost from
NTS-Properties Plus. These cost estimates have been projected to increase
by 3% per year.
(2) Bank charges based on historic expenses.
(3) Based on current debt service as provided to ICB and pro rata to
NTS-Properties Plus based on percentage r ownership.
(4) Discount rate based on CAPM
(5) The building and land value has been estimated at $2,350,000 of which
NTS-Properties Plus has 7.69% ownership.
(6) Number of shares based on 2000-Q2 10Q.
<PAGE>
Page 26
NTS - Properties PLUS, LTD. - LOUISVILLE, KENTUCKY -
<PAGE>
Page 27
NTS - Properties PLUS, LTD. - LOUISVILLE, KENTUCKY -
DISCOUNT RATE DETERMINATION
---------------------------
The discount rate takes into consideration inflation, time value of
money and the risk related to the collection of the net income amounts estimated
in the cash flow projection. The best methodology for the selection of a
discount rate is to consider rates used for the acquisition or internal analysis
of similar partnerships.
This weighted average cost of capital (WACC) represents the blended
cost of equity and debt capital and thus this approach accounts for the use of
both debt and equity in financing the acquisition.
The cost of debt capital represents the cost to the typical market
buyer of borrowing longer-term funds for NTS - Properties Plus, Ltd. The Capital
Asset Pricing Model (CAPM), cost of equity, is equal to the risk free rate of
securities plus the beta market risk premium. The mathematical function is shown
as follows:
R= r (sub f) + (E(r(sub m))-r(sub r))(beta)+SCR
r (sub f) = risk free rate or return
E(r(sub m)) = Expected rate of return of the overall market portfolio
E(r(sub m)) - r(sub r) = market risk premium
SCR = Specific Investment Risk Premium
<PAGE>
Page 28
NTS - Properties PLUS, LTD. - LOUISVILLE, KENTUCKY -
The CAPM is meant to explain historic average returns for various
assets over a long period of time. This model utilizes the positive theory which
describes the market relationship that will result if the investors behave in
the manner prescribed by portfolio theory. The CAPM assumptions include:
1. Investors are risk averse.
2. Rational investors seek to hold efficient portfolios and
portfolios are fairly diverse.
3. All investors have identical time horizons and holding
periods.
4. Investors have identical expectations about such variables as
expected rates of return and how capitalization rates are
generated.
5. No investment taxes.
6. Rate recorded from lending money is the same as cost of
borrowing.
7. Market has perfect divisibility and liquidity.
These assumptions sanitize external influences to appropriately mask or
minimize differences in the analyses. The CAPM theory further measures risk of a
project by the beta of the cash flow respective of the return on the market
portfolio of all the assets. The theory assumes a linear relationship required
between the expected return and beta.
<PAGE>
Page 29
NTS - Properties PLUS, LTD. - LOUISVILLE, KENTUCKY -
In dissecting the CAPM theory, there are two relationships, which must
be analyzed. These are the risk of the project as measured by the beta cash
flow, and the respective return on the market portfolio of all the assets in the
economy. The beta is the measure of the volatility of risk and the growth of the
investment return versus the Standard & Poor's 500 stock index. The beta is most
commonly compared to the Standard & Poor's 500, the Wilshire Index, and the
Standard & Poor's 100. For example, the beta is equal to one minus the movement
of the Standard & Poor's 500. A beta of less than 1 is a lower risk than the
marketplace, e.g. Standard & Poor's 500, and the converse is true of beta
greater than 1.
RISK FREE RATE
The "risk free rate" is the no-default risk of a security or portfolio.
Three time periods are utilized in determining the risk free rate (the treasury
note rate), which may be on a 10-, 20-, or 30-year adjustment period. The
decision to use which rate varies on the term that most closely matches the cash
flows and approximates the duration of the stock market index portfolio. The
advantages of a 10-year rate is that the yield is less sensitive to unexpected
changes in inflation and has a smaller beta than the 30-year rate.
Traditionally, the liquidity premium is slightly lower than for a 30-year bond.
<PAGE>
Page 30
NTS - Properties PLUS, LTD. - LOUISVILLE, KENTUCKY -
MARKET RISK PREMIUM
The "market risk premium" is the spread between the expected rate of
return on the market portfolio and the risk free rate. A long time frame reduces
the outlyers and abnormalities. Shorter periods do not reflect the adverse
economic periods. The rates of return can be analyzed either geometrically or
arithmetically. The advantage of the geometric analysis is that the rate of
return is compounded used by technicians of the market, whereas the arithmetic
rate of return best represents the typical investor's expectations over time.
The discount rate for NTS - Properties Plus, Ltd. has been estimated by
comparing the risk between investments in a company of a specific industry and
investment in a broad portfolio of companies as a whole, such as the Standard &
Poor's 500, to a year average.
The measure of risk has been developed as the result of extensive
empirical research into the market pricing of risk. The risk index, or "beta"
has gained wide acceptance as a measure of the degree of risk incurred by
investing in an individual company relative to a well-diversified portfolio of
common stocks. Investing in the stock of a company with a beta of 1.10 means
that the investment is 10% more volatile and risky than the average portfolio of
common shares, while shares of a company with a beta of 0.90 means that the
investment is 10% less volatile and risky.
<PAGE>
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NTS - Properties PLUS, LTD. - LOUISVILLE, KENTUCKY -
The method involving the application of a beta factor to a market risk
premium is generally used for publicly-traded companies. For purposes of NTS -
Properties Plus, Ltd., this method is used to provide a basis for estimating an
appropriate rate of return.
Real Estate Investment Trust types including office, retail,
industrial, and special properties are categorized in a wide variety.
Given the subject's history, the current performance the beta factor
has been estimated at 1.0. This beta is based on similar office REIT investments
with similar assets as the subject.
When comparing the risk of NTS - Properties Plus, Ltd. to that of the
industry, there are often specific risks inherent that are not, or may not, be
present in companies being used as a benchmark for evaluation. Examples of
specific risk factors are: key personnel issues (or management depth); financial
structure; product, geographical, and customer diversification; earnings
margins, stability, and predictability; and other risks associated with a
particular company and/or investment.
Based on an assessment of these issues, as well as our industry and
valuation experience, an additional risk factor has been applied to the
calculation of an appropriate cost of capital. This risk factor is based on a
variety of factors including the percentage of total revenues.
Risk-free rate 4.60%
Plus
The product of Market Risk Premium 18.77%
Times Beta Factor x 1.00 18.77%
Specific Investment Risk Premium 2.00%
(Additional Risk Factor)
<PAGE>
Page 32
Total CAPM 25.37%
Source: Ibbotson & Associates, Yearbook 1999, 10-year return
YIELD REQUIRED ON DEBT
Since the above calculations only result in the required rate of return
on equity capital, a further adjustment is necessary to arrive at the
weighted-average-cost-of-capital. This adjustment involves an estimate of the
cost of debt capital associated with anticipated debt acquired in this
transaction. The average interest rate was based on the rate on NTS - Properties
Plus, Ltd's. recent debt which was approximately 9.5%.
WEIGHTED AVERAGE COST OF CAPITAL
The required rates of return on equity and debt are then weighted to
derive a weighted average cost of capital. For purpose of this analysis, it is
assumed that the NTS - Properties Plus, Ltd. would have a 30% equity and 70%
debt to derive the low discount rate, and 55% equity and 45% debt to derive a
high discount rate, optimistically.
<PAGE>
Page 33
NTS - Properties PLUS, LTD. - LOUISVILLE, KENTUCKY -
The WACC is computed by applying the following formula: WACC =
Per[*(Equity/Total Capital)]+[(Debt/Total Capital)*(1-T)] Where:
Per = rate of return required on the equity portion of total
capitalization
Applying this formula in this specific case results in the following
estimate of the weighted average cost of capital:
<TABLE>
<CAPTION>
Low High
--- ----
<S> <C> <C> <C>
WACC = 30% (0.2537) + 70% (0.095) WACC = 55% (0.2537) + 45% (0.095)
WACC = 7.61% + 6.65% WACC = 13.95% + 4.3%
WACC = 14.3% WACC = 18.3%
</TABLE>
Therefore, to estimate the present value of the future cash flows
generated by the components, a 14.3% to 18.3% discount rate should be used,
given the current level of risk associated with the industry and the operation
of NTS - Properties Plus, Ltd.
VALUE FROM DISCOUNTED CASH FLOW ANALYSIS
In summary, it can be clearly observed that a specific discount rate
cannot be easily ascertained. However, the investment community involved in
partnerships, corporations, and varying legal real estate interests have similar
objectives. These are to measure the risk of the investment versus the rate of
return on the investment and likelihood of return of principal.
<PAGE>
Page 34
NTS - Properties PLUS, LTD. - LOUISVILLE, KENTUCKY -
As reflected on Figures 3 and 4, the indicated value from the
discounted cash flow is $0.12 to $0.45 per interest, which includes the
estimated value of Lakeshore III as partially constructed. The Lakeshore III
construction mortgage interest is subtracted during the construction and initial
lease up of the building until the stabilized occupancy is achieved.
VALUE SUMMARY
Three methods have been used to determine the implied enterprise and
equity value of NTS - Properties Plus, Ltd. The variation in the concluding
values is dependent on the methodology of each approach. A summary of the
methods and implied equity value per unit is:
Low High
Comparative Ratio Analysis Multiplier $(2.13) $(0.81)
Comparative Analysis Acquisition of Controlling Interest $ 1.19 $ 1.45
Discount Cash Flow Analysis $ 0.12 $ 0.45
The implied equity value derived by the corresponding analysis
indicates a variation in the value per share of ($2.13) to $1.45. The
mathematical results were weighted from the qualitative adjustments based on the
differences in financial and operating characteristics of the comparable
companies relative to NTS - Properties Plus, Ltd. The greatest consideration is
given to the discounted cash flow analysis which best represents the anticipated
changes in the future cash flow.
The cash flows for the next nine years are negative because of the debt
service
<PAGE>
Page 35
NTS - Properties PLUS, LTD. - LOUISVILLE, KENTUCKY -
in place for the next eight years. The mortgages are to be paid in full on all
of the properties by 2008. Refinancing has not been considered in the analysis,
but may be available on a larger amortization period of 20 years.
The comparative acquisition value represents the maximum unit value
based of the current motivations of the purchaser. The comparative ratio
analysis places the greatest emphasis on the current cash flow which for NTS -
Properties Plus, Ltd. is negative creating the lowest value.
The comparative analysis acquisition of controlling interest sets the
highest price for the partnership interest. A premium is applied to the stock
price based on lateral mergers of similar real estate or real estate related
corporations. The partnership price represents the maximum value.
<PAGE>
Page 40
NTS - Properties PLUS, LTD. - LOUISVILLE, KENTUCKY -
CERTIFICATION
-------------
This Certification is for the NTS - Properties Plus, Ltd. The
undersigned do hereby
certify that:
1. To the best of their knowledge and belief, the statements of
facts contained in this appraisal report are true and correct.
2. The reported analyses, opinions, and conclusions are limited
only by the reported assumptions and limiting conditions, and
are personal, impartial, and unbiased professional analyses,
opinions, and conclusions.
3. Our engagement in this assignment was not contingent upon
developing or reporting predetermined results.
4. We have no present or prospective interest in the property
that is the subject of this report, and no personal interest
or bias with respect to the parties involved.
5. Our compensation for completing this assignment is not
contingent upon the development or reporting of a
predetermined value or direction in value that favors the
cause of the client, the amount of the value opinion, the
attainment of a stipulated result, or the occurrence of a
subsequent event directly related to the intended use of this
appraisal.
6. Our analyses, opinions, and conclusions were developed, and
this appraisal report has been prepared, in conformity with
the Uniform Standards of Professional Appraisal Practice and
in conformity with the requirements of the Code of
Professional Ethics and the Standards of Professional Practice
of the Appraisal Institute.
7. The use of this appraisal report is subject to the
requirements of the Appraisal Institute relating to review by
its duly authorized representatives.
<PAGE>
Page 41
NTS - Properties PLUS, LTD. - LOUISVILLE, KENTUCKY -
8. George M. Chapman, Lin E. Bell, Charles L. Fore, and Mark E.
Mitchell are currently certified under the continuing
education programs of the Appraisal Institute.
As of the date of this report, I, George M. Chapman, MAI, SRA,
CRE, have completed the requirements under the continuing
education program of the Appraisal Institute (Through December
31, 2002).
9. No one other than the undersigned prepared the analyses,
conclusions, and opinions concerning comparative analysis that
are set forth in this report.
---------------------------------- ----------------------------
George M. Chapman, MAI, SRA, CRE Mark E. Mitchell, MAI
Date: October 20, 2000
<PAGE>
ASSUMPTIONS AND LIMITING CONDITIONS
-----------------------------------
The accompanying is for NTS - Properties Plus, Ltd. subject to the
following assumptions and limiting conditions.
1. The property is assumed to have a clear and marketable title
such as any title company will insure, the rights of which can
be conveyed by deed of the general warranty.
2. No responsibility is assumed for matters legal or engineering
in nature unless otherwise noted. Information provided by the
client is assumed to be accurate.
3. Any legal descriptions, property survey, site plans, site
plats, drawings, and/or sketches contained herein were either
furnished to the appraiser(s) or are based upon data provided
to the appraiser(s). These items are included herein to assist
the reader in visualizing the property. Although to the best
of our knowledge, these items provide an accurate
representation of the property, we have made no survey of the
property, and we assume no responsibility in connection with
such matters.
4. The accompanying report is to be used as a whole and no part
to be taken as a fraction thereof.
5. Integra Chapman & Bell associates are not required to give
further consultation, to testify in court, or be in attendance
in court regarding this appraisal report unless arrangements
have been set out previously.
6. Neither all nor any part of the contents of this report shall
be conveyed to the public through advertising, public
relations, news, sales, or other media, without the written
consent and approval of Integra Chapman & Bell, particularly
as to valuation conclusions, the identity of the appraiser or
firm with which he/she is connected, or any reference to the
Appraisal Institute.
7. Any distribution of the valuation of this report applies only
under the existing program of utilization. The separate
valuations for real estate and business must not be used in
conjunction with any other appraisal or report and are invalid
if so used.
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8. The appraiser assumes that there are no hidden or unapparent
conditions of the property, subsoil, or structures which would
render it more or less valuable. The appraiser assumes no
responsibility for such conditions or for engineering which
might be required to discover such factors.
9. Responsible business enterprise ownership is assumed.
10. The appraisal assignment was not based on a requested minimum
valuation, a specific valuation, or the approval of a loan.
11. The property history has been provided by conversations with
various individuals involved with the chain of title
contracts, deeds, leases, and closing statements. We have not
performed a title search, nor do we warrant that the history,
as presented herein, is completely accurate since we have
relied upon the information of others. Any person or entity
contemplating an interest in the subject should rely solely
upon a title search and opinion prepared by a qualified
attorney-at-law.
12. Integra Chapman & Bell requested a Level I and/or Level II
environmental study, but it was not provided as of the date of
this appraisal report. Integra Chapman & Bell inspected the
subject property and saw no "red flags" indicating the
evidence of hazardous materials. Integra Chapman & Bell has no
knowledge of the existence of such materials on or in the
property. Integra Chapman & Bell, however, is not qualified to
detect such substances. The presence of substances such as
asbestos, radon, urea-formaldehyde foam insulation, or other
potentially hazardous materials may affect the value of the
property. The value estimate is predicated on the assumption
that there are no such materials on or in the property that
would cause a loss in value. No responsibility is assumed for
any such conditions or for any expertise or engineering
knowledge required to discover them. The client is urged to
retain an expert in this field, if desired. Further, Integra
Chapman & Bell reserves the right to adjust the values
reported herein, based on an engineer's report of the presence
of hazardous materials.
13. The value estimate expressed herein assumes competent and
aggressive management and/or marketing of the enterprise.
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14. It is assumed that any user of this appraisal report has
obtained and reviewed all architectural data, such as property
survey, building/site plans, and specifications, as well as
all leases, if any.
15. The value estimate expressed herein considers that all phases
of development are under the same ownership.
16. If the value estimate expressed herein relates to a fractional
interest, it is not necessarily a conclusion of this appraisal
report that the value of this fractional interest (plus the
value of all other fractional interests) equal the value of
the fee simple estate, considered as a sole interest.
17. Certain information contained in this appraisal report has
been furnished by others. The sources and the information are
considered to be reliable but cannot be guaranteed.
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Exhibit (c)(4)
Fairness Opinion of Integra Chapman & Bell
dated October 23, 2000
<PAGE>
October 23, 2000
NTS-Properties Plus Associates
c/o Mr. J. D. Nichols
10172 Linn Station Road
Louisville Kentucky, 40223
Dear Mr. Nichols:
Integra Chapman & Bell has been asked to address the fairness of an
offer to purchase the outstanding limited partnership interests ("Interests") of
NTS-Properties Plus (the "Partnership"). It is our understanding that ORIG, LLC
("ORIG") intends to offer to purchase all Interests, except Interests owned by
affiliates of ORIG, NTS-Properties Plus Associates (the "General Partner") and
the Partnership, at a price of $1.15 per Interest. In preparation of the
fairness opinion the documents reviewed included the SEC publicly filed
partnership documents, appraisals of real estate held by joint ventures in which
the Partnership holds Interests, the Valuation of Limited Partnership Interest
report prepared by Integra Chapman & Bell dated October 20, 2000, and
documentation prepared by NTS Development Company or the Arthur Andersen
accountants employed by NTS Development Company.
The real estate assets of the Partnership are joint venture interests
in Blankenbaker Business Center Joint Venture and Lakeshore/University II Joint
Venture. These two joint ventures collectively own the Lakeshore Business Center
I, II, and III which are located in Fort Lauderdale, Florida and the
Blankenbaker Business Center IA located in Louisville, Kentucky. The properties
in Fort Lauderdale, Florida and Louisville, Kentucky were inspected and
appraised by Integra Chapman & Bell. Members of the Appraisal Institute holding
the MAI designation prepared the real estate appraisal reports which were
prepared to comply with Uniform Standards of Professional Appraisal Practice as
complete appraisals and self-contained reports. The reports were dated November
1, 1999 and September 10, 1999, respectively.
In conducting our analysis and arriving at the opinion expressed
herein, we have reviewed historical financial data deemed relevant, which is
publicly available and furnished by NTS Development Company. This included real
estate operating data, short and long term debt, and partnership operating data
regarding the Partnership. Also reviewed were the cash flow analysis
projections, long and short-term debt information applicable to the Partnership,
and the 10Q and 10K filings with the SEC. The Form 10Q reviewed was for the
period ending June 30, 2000. The Forms 10K
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reviewed were for the periods ending December 31, 1997, 1998, and 1999. Also
reviewed was the addendum letter concerning Lakeshore III and the Valuation of
Limited Partnership Interests report which estimates the value of the Interests.
Integra Chapman & Bell was requested to address the fairness of the
consideration offered by ORIG for the Interests. Integra Chapman & Bell does not
perform tax, accounting, or legal services or render such advice in review and
analysis. We have relied upon the valuation of the physical assets which was
performed by Integra Chapman & Bell, the SEC filings, the financial statements,
and other information provided by NTS and Arthur Andersen.
Since the date of the appraisal report, the Lakeshore Business Center
III site has commenced construction of an office building. The Lakeshore
Business Center appraisal included a letter of addendum, dated August 9, 2000
which addressed the construction of a partially completed office building on the
vacant site, in addition to the Lakeshore Center assets. This site was owned
free and clear prior to construction. The Partnership was asked to inject funds
for construction of the improvements in proportion to its ownership interest in
the joint venture. Funds were not available, necessitating a reduction in the
Partnership's ownership interest in the Lakeshore/University II joint venture.
The purpose of the real estate appraisal, Valuation of Limited Partnership
Interests report, and the financial analysis is to establish the value of all
Interests of the Partnership. The value of the Partnership's non-real estate
assets was derived from the financial statements that were provided. It is
assumed that the financial statements provided reflect the financial condition
of all non-real estate assets of the Partnership. The Partnership financial
statements specified the cash, accounts payable, accounts receivable, short term
and long term liabilities, and other associated income and expenses. It is
understood that a cash offer will be made for all of the Interests, except
Interests owned by affiliates of ORIG, the General Partner and the Partnership.
The general partner (NTS-Properties Associates) and affiliates currently own
30,884 Interests of the originally issued 685,647 Interests. The Partnership has
retired the remaining Interests.
The fairness opinion has been based upon a physical inspection by
George M. Chapman of the Kentucky real property, but no inspection of the
Florida real estate properties has been completed. Further, this fairness
opinion has been based upon the real estate value reported in the appraisals,
which are the major contributors to the value of the Interests. The remaining
assets of the Partnership are derived from the cash and accounts receivable less
accounts payable to include the long-term debt. Valuation of these components is
on a cash basis and is documented in the Valuation of Limited Partnership
Interests report. Three approaches were used to derive a value: comparable
public partnerships analysis, comparable transactions analysis, and discounted
cash flow analysis.
The first is the traditional method using a comparable public
partnership analysis. This analysis identified transactions in which the buyer
was acquiring a major or controlling interest in the outstanding Interests and
is traditionally the most relied upon
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approach to value. This method identified four transactions, but only three were
given consideration in the final conclusions of the value of the enterprise from
which the value of the equity was derived. Due to the weakness in the degree of
comparability to the type of transactions being considered by ORIG one of the
comparables was omitted. The second method used is the comparable transaction
analysis which identified companies in which controlling interest was being
purchased. The investigation included a historic general summary of recent
controlling interest premiums for stock transactions, real estate related
premiums, and two specific real estate transaction premiums. The resulting
multiplier was applied to the recent range of unit sale prices to derive a value
of the units, if controlling interest is to be acquired. The third method is a
discounted cash flow model. Using the projected annual net incomes reported in
the real estate appraisals and the Partnership's percentage ownership of each
property, the annual real estate incomes for the Partnership is determined.
Other income and expenses to the Partnership were taken from the financial
statements furnished by the Partnership's Form 10K and 10Q SEC filings. The
results of the data extraction is found in the 10 year pro forma statement and
shown as the cash flow. The cash flows and the reversionary value (sale price of
the assets at the end of the 10 year term) less any debt were discounted to a
present value using an appropriate rate. Since the Partnership owns a partial
interest in several real properties and only through the acquiring of the joint
venture Interests could control the property to be obtained, a projected holding
period was estimated. During this holding period it is assumed the Partnership
performance will be similar to that in the past. There does not appear to be any
changes on the horizon which would improve performance in the next few years.
The rate was determined using the Weighted Average Cost of Capital and compared
to all cash transactions for real estate nationally. This method takes into
consideration any changes in income and debt over the holding period.
The comparable public partnership analysis is a good indicator of value
if the income, expenses, and debt are reasonably constant over the holding
period. However, the Partnership shows significant variation over the ten-year
pro forma period, reducing the reliability of this analysis. The reduced
reliability is caused by using static EBITDA (earnings before interest, income
tax, depreciation and amortization) and a multiplier. Because of the heavy debt
service for the next few years until the mortgage is retired and shortfalls in
income, this method produces unreliable results. The findings are ($2.13) to
($0.81) per Interest. The transaction analysis is to produce the highest likely
price that would be paid for acquiring a majority interest in a company. The
most reliable data was obtained from the statistical analysis and individual
acquisition reported by Merger Stats. Even though the general partner has
control of the Partnership, to gain majority interest will require a premium
purchase price with the highest premium to be the upper limits of cost for
acquiring majority status. The results are currently $1.19 to about $1.45 per
Interest. The discounted cash flow analysis is believed to produce the most
probable findings since this takes into consideration future changes in real
estate income, debt, income, and expenses which accrue to the Partnership. There
is difficulty with using this method of selecting the appropriate discount rate,
but is deemed to be less of a concern than failure to take into consideration
changes in income and debt over the holding period, which is a shortcoming of
other methods. The value derived
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from the discounted cash flow analysis is $0.12 to $0.45 Interest. This is the
most reliable method of analysis since this specifically outlined future income
and expenses of the real estate and the Partnership.
This presentation does not address any other assets, holdings,
partnerships, or ventures nor does it provide an opinion as to the capital
requirements or availability of capital by ORIG to purchase the partner's
Interest. Integra Chapman & Bell was retained to provide this fairness opinion.
Integra Chapman & Bell has no interest in the NTS-Properties Plus Ltd.
Partnership and commits that it will not participate in this partnership for the
next 24 months. This opinion is solely for the use of the General Partner.
Integra Chapman & Bell requests prior approval for inclusion to filings with the
Securities and Exchange Commission. Parts of this letter may not be quoted or
quotes extracted without prior approval. This opinion does not constitute a
recommendation to the limited partners on any aspect of the purchase or to ORIG
if it offers to purchase the Interests.
In conclusion, based upon the analysis presented, it is Integra Chapman
& Bell's opinion that as of October 15, 2000 the offer to purchase the Interests
by ORIG at a price of $1.15 per Interest is fair to the Limited Partners from a
financial point of view.
Sincerely yours,
George M. Chapman MAI SRA CRE
GMC:lja
<PAGE>
Exhibit (d)(1)
Agreement, Bill of Sale and Assignment dated February, 2000
between ORIG, LLC, Roger M. Kalar, Martha Kalar,
David Warshawsky and Marilyn Warshawsky
<PAGE>
AGREEMENT, BILL OF SALE AND ASSIGNMENT
--------------------------------------
THIS AGREEMENT, BILL OF SALE AND ASSIGNMENT (the "Agreement") is made and
entered into this ___ day of February, 2000, by and among (i) ROGER M. KALAR and
MARTHA KALAR, his wife, with mailing address at Old Avon Village, P.O. Box 788,
Building 39, Avon, Connecticut 06001 (collectively, "Kalar") and DAVID
WARSHAWSKY and MARILYN WARSHAWSKY, his wife, with mailing address at 1506
Berwick Road, Baltimore, Maryland 21204 (collectively, "Warshawsky") (Kalar and
Warshawsky are hereinafter collectively referred to herein as the "Sellers"),
and (ii) ORIG, LLC, a Kentucky limited liability company, with principal office
and place of business at 10172 Linn Station Road, Louisville, Kentucky 40223
(the "Buyer").
PRELIMINARY STATEMENT
The Sellers own certain limited partnership interests (the "Units") in the
"NTS Public Partnerships" (as that term is hereinafter defined) and desire to
sell the same to the Buyer, and the Buyer desires to purchase the same from the
Sellers, in accordance with the terms and conditions of this Agreement.
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto hereby agree as follows:
1. The Sellers hereby sell, transfer, convey and assign to the Buyer those
Units in the NTS Public Partnerships owned by the Sellers as set forth on
Exhibit A attached hereto and made a part hereof (all of the entities referred
to on Exhibit A are hereinafter collectively referred to as the "NTS Public
Partnerships" and each is individually referred to as a "NTS Public
Partnership").
2. Each of the Sellers represents and warrants that he or she owns the
respective Units in the NTS Public Partnerships as identified on Exhibit A
hereto, free and clear of all liens, encumbrances and security interests
whatsoever, and that he or she will defend title to the Units hereby conveyed
against the claims and demands of all persons. Each of the Sellers further
represents and warrants that he or she has had the opportunity to ask questions
and receive answers concerning the NTS Public Partnerships, to inspect and copy
material documents relating to the NTS Public Partnerships, and to obtain all
additional information necessary to verify the accuracy of such information.
Each of the Sellers further represents and warrants that he or she, either alone
or with his or her purchaser representative, has such knowledge and experience
in financial matters that he or she is capable of evaluating the merits and
risks of this sale. Each of the Sellers further represents and warrants that as
of the date hereof, none of them own, either individually or jointly with
another, or as a beneficiary, any other limited partnership interests in any of
the NTS Public Partnerships, and the Sellers further warrant and agree that from
and after the date hereof, they shall not acquire a partnership interest in any
form whatsoever in any of the NTS Public Partnerships.
3. Each of the Sellers hereby agrees to execute and deliver to the Buyer,
or if such Units are held in trust for the benefit of a Seller, the respective
Seller shall cause the trustee or
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custodian to execute and deliver to the Buyer, contemporaneously with the
execution and delivery of this Agreement, the following documents:
(A) A Partnership Transfer Form, a form of which is attached
hereto and made a part hereof as Exhibit B, with respect to the Units
in each of the NTS Public Partnerships which the respective Seller
owns; and
(B) The original Certificates, if any, representing the Units
owned in each of the NTS Public Partnerships duly assigned to the
Buyer. If the Certificates have been lost, then the Sellers will
execute and deliver an Affidavit of Loss and Indemnity Agreement, a
form of which is attached hereto and made a part hereof as Exhibit C,
with respect to the lost Certificates.
4. As payment for the assignment of the Sellers' Units in the NTS Public
Partnerships pursuant to Paragraph 1 hereof, the Buyer hereby agrees (a) to pay
Kalar the sum of Six Hundred Seventy-Five Thousand and 00/100 Dollars
($675,000.00) and (b) to pay Warshawsky the sum of Two Hundred Twenty-Five
Thousand and 00/100 Dollars ($225,000.00) (collectively, the "Purchase Price").
The Purchase Price for the Units shall be wire transferred by Buyer to Sellers,
pursuant to written wire instructions received from Sellers, within three (3)
business days of receipt by Buyer of all transfer documents necessary,
appropriate or required in order to evidence the transfer of the Units to Buyer
as contemplated herein. Upon the payment of the Purchase Price by Buyer to
Sellers and delivery by Sellers to Buyer of the documents evidencing the
transfer of the Units as contemplated in Paragraph 3 hereof, the Buyer shall be
entitled to receive all benefits and cash distributions and otherwise exercise
all rights of beneficial ownership of the Units herein conveyed.
5. The Purchase Price shall be allocated to the different Units in the NTS
Public Partnerships as is specified opposite each of those NTS Public
Partnerships on Exhibit A.
6. The Sellers and their respective heirs, personal representatives,
successors and assigns, hereby agree from and after the date hereof to keep
confidential and not disclose without the prior written consent of the Buyer (a)
the existence of this Agreement, or (b) the terms and conditions of this
Agreement. The foregoing restriction shall not apply to disclosures and
information which (i) are required to comply with any applicable court or
administrative order, law, statute or regulation, (ii) are required to enforce
this Agreement, or (iii) are already in the public domain or enter the public
domain through a third party who does not thereby breach an obligation of
confidentiality required by this Agreement.
7. The Sellers and the Buyer hereby release any and all claims,
liabilities, actions, causes of action, demands, lawsuits, losses, damages and
the like, whatsoever that each may have against the other and Buyer's affiliates
and their officers, directors and employees, whether known or unknown, matured
or unmatured, contingent or absolute, except that the obligations of the Sellers
and the Buyer under this Agreement are not released.
8. The parties hereto hereby appoint the respective general partner of each
of the NTS Public Partnerships to transfer ownership of the Units conveyed
herein on the books and records of the respective NTS Public Partnership, and
the parties hereto further agree to execute
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and deliver any and all additional documents required by such general partner in
order to effect the transfer of the Units contemplated herein.
9. The parties hereto hereby agree that if any of the provisions of this
Agreement are not performed in accordance with their specific terms or are
otherwise breached, irreparable damage would occur. Without limiting any rights
or remedies available to the Buyer, upon the violation of any provision hereof,
each of the Sellers hereby acknowledge that the Buyer is entitled to institute
and prosecute proceedings in any court of competent jurisdiction, either at law
or in equity, to obtain damages for any willful breach of this Agreement or to
enforce specific performance of this Agreement.
10. All notices and other communications hereunder shall be given in
writing and shall be sufficiently given when personally delivered, delivered by
a nationally recognized overnight courier service, or when sent in the U.S.
mail, registered or certified, return receipt requested, postage prepaid,
addressed as follows (or to such other address or to such other person as to
which any party hereto shall have given the other parties hereto written
notice):
If to Kalar: Mr. and Mrs. Roger M. Kalar
Old Avon Village
P.O. Box 788, Building 39
Avon, CT 06001
If to Warshawsky: Mr. and Mrs. David Warshawsky
1506 Berwick Road
Baltimore, MD 21204
If to Buyer: ORIG, LLC
10172 Linn Station Road
Louisville, KY 40223
Attention: Neil A. Mitchell
11. This Agreement shall be governed by and construed in accordance with
the laws of the Commonwealth of Kentucky, without regard to its conflicts of law
rules.
12. This Agreement may not be amended or modified, unless in writing signed
by all parties.
13. This Agreement shall be binding upon the parties hereto, and their
respective legal representatives, heirs, successors and assigns.
14. This Agreement contains the entire understanding between the parties
hereto pertaining to its subject matter and supersedes all other agreements and
understandings, both oral and written, between the parties hereto concerning the
subject matter hereof.
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IN WITNESS WHEREOF, the parties have entered into this Agreement as of
the day, month and year first above written.
/s/ Roger M. Kalar
-----------------------------------
ROGER M. KALAR
/s/ Martha C. Kalar
-----------------------------------
MARTHA KALAR
(collectively, "Kalar")
/s/ David Warshawsky
-----------------------------------
DAVID WARSHAWSKY
/s/ Marilyn Warshawsky
-----------------------------------
MARILYN WARSHAWSKY
(collectively, "Warshawsky")
ORIG, LLC
By:
--------------------------------
Title:
-----------------------------
(the "Buyer")
<PAGE>
Exhibit (d)(2)
Guaranty Agreement dated August 15, 2000
between the Bank of Louisville and J.D. Nichols
<PAGE>
GUARANTY AGREEMENT
dated as of August 15, 2000
among
BANK OF LOUISVILLE
as the Lender
ORIG, LLC
as the Borrower
and
J. D. NICHOLS
as the Guarantor
<PAGE>
GUARANTY AGREEMENT
This is a Guaranty Agreement dated as of August 15, 2000, (this
"Agreement"), among BANK OF LOUISVILLE (the "Lender"); ORIG, LLC (the
"Borrower"); J. D. NICHOLS (the "Guarantor").
SECTION 1
Recitals and Definitions
------------------------
This Agreement is entered into concurrently with and pursuant to a Loan
Agreement (the "Loan Agreement"), dated as of August 15, 2000, between the
Lender and the Borrower and joined in by the Guarantor. Capitalized terms not
otherwise defined herein shall have the meanings given them in the Loan
Agreement. Pursuant to the Loan Agreement, the Borrower has executed and
delivered to the Lender three Revolving Credit Notes each dated August 15, 2000
and in the principal amount Two Million Dollars ($2,000,000) (for a total of Six
Million Dollars ($6,000,000.00)) and payable to the order of the Lender (such
three Revolving Credit Notes, including any notes or other instruments issued in
renewal, replacement, extension, modification, novation and/or revival thereof,
the "Revolving Credit Notes") and various other Borrower Documents (as that term
is defined in the Loan Agreement).
SECTION 2
Guaranty of Payment and Performance
-----------------------------------
The Guarantor, intending to be bound as an accommodation party for the
Borrower, jointly and severally, absolutely and unconditionally guarantees the
following obligations and/or liabilities (collectively, the "Guaranteed
Principal"): (a) the prompt payment in full by the Borrower of all obligations
under the Revolving Credit Notes; and (b) the punctual and faithful performance
and observance by the Borrower of all other obligations and undertakings to be
performed or observed pursuant to the Loan Agreement and the other Borrower
Documents. In addition to the Guaranteed Principal, the Guarantor, intending to
be bound as an accommodation party for the Borrower, jointly and severally,
absolutely and unconditionally guarantee the following obligations and/or
liabilities (collectively, the "Other Guaranteed Amounts"): (x) any and all
interest accruing on the Guaranteed Principal under the Revolving Credit Notes,
the Loan Agreement, and/or any other of the Borrower Documents; and (y) that the
Guarantor will, upon demand, pay to the Lender any and all fees, charges and
costs of collecting the Guaranteed Principal or otherwise enforcing the Lender's
rights under this Agreement, including without limitation the reasonable fees
and expenses of the Lender's counsel. Notwithstanding the foregoing, the maximum
aggregate liability of the Guarantor under this Agreement for the Guaranteed
Principal shall not exceed the Guarantor Maximum. (For purposes of this Section,
"Guarantor Maximum" at any time shall mean the lesser of (i) $6,000,000.00, or
(ii) the greater of (A) the Guaranteed Principal multiplied by the percentage of
the equity interests of the Borrower owned by the Guarantor (directly or
indirectly, and legally or beneficially) on either (I) the date of an Event of
Default under the Loan Agreement or (II) the date on which the Lender makes a
demand for payment from the Guarantor under this Agreement (it being within the
1
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discretion of the Lender to choose between the dates in (I) and (II)), or (B)
$4,500,000.00). The Guaranteed Principal, limited to the Guarantor Maximum, and
the Other Guaranteed Amounts are sometimes referenced in this Agreement as the
"Guaranteed Obligations." The Guaranteed Obligations under this Agreement shall
be in addition to the maximum aggregate liability of the Guarantor or any other
guarantor to the Lender under any guaranty agreement of the Guarantor or any
other guarantor heretofore or hereafter given.
SECTION 3
Obligations Unconditional
-------------------------
This is an unconditional and absolute guaranty of payment and performance.
If for any reason, the Borrower fails to observe or perform any obligation,
undertaking or condition (whether affirmative or negative) in the Loan Agreement
or any other of the Borrower Documents, to be performed or observed by the
Borrower or if any amounts payable by the Borrower pursuant to the Revolving
Credit Note or the Loan Agreement are not paid promptly when due or any Event of
Default occurs, the Guarantor shall promptly perform or observe or cause to be
performed or observed each such obligation, undertaking or condition and
forthwith shall pay such amount at the place and to the person entitled thereto
pursuant to the Revolving Credit Note or the Loan Agreement, regardless of any
set-off or counterclaim which the Borrower may have or assert, and regardless of
whether or not the Lender or anyone on behalf of the Lender shall have
instituted any suit, action or proceeding or exhausted their remedies or taken
any steps to enforce any rights against the Borrower or any other person to
compel such performance or to collect all or any part of such amount pursuant to
the provisions of the Revolving Credit Note, the Loan Agreement or any other of
the Borrower Documents, or at law or in equity, or otherwise, and regardless of
any other condition or contingency. The liability of the Guarantor shall be for
the payment in full of the entire amount of the Guaranteed Obligations, jointly
and severally with that of the Borrower, any co-maker, or accommodation party,
or other guarantor, subject to the Maximum Liability Amount. This Agreement
shall not, however, be construed to require the Guarantor to make any payment
which is duplicative of a payment already made by the Guarantor or by the
Borrower, any co-maker, accommodation party, or any other guarantor, except as
provided in Section 8 of this Agreement.
SECTION 4
Waivers and Agreements
----------------------
The Guarantor hereby unconditionally:
4.01 Waives any requirement that the Lender first seek to enforce remedies
against the Borrower or any other person or entity before seeking to enforce
this Agreement against either Guarantor.
4.02 Waives any requirement that the Lender first make demand upon, or seek
to enforce remedies against, to Guarantor, or against any other guarantor of any
of the Guaranteed Obligations in any particular order, before demanding payment
from, or seeking to enforce this
2
<PAGE>
Agreement against, the Guarantor or any other guarantor. The Guarantor
acknowledges that the Lender, in the Lender's sole discretion, may enforce
remedies against the Guarantor pursuant to this Agreement and not enforce
similar remedies against any other guarantor with respect to the Guaranteed
Obligations or vice versa. The Guarantor further acknowledges that the
enforcement of remedies against the Guarantor in lieu of enforcing remedies
against any other guarantor, or vice versa, shall not affect the validity or
enforceability of the Lender's rights and/or remedies under this Agreement or
any other guaranty agreement guarantying any of the Guaranteed Obligations.
4.03 Waives any requirement that the Lender first seek to enforce remedies
against any property in which the Lender may have any interest securing any (a)
indebtedness which either Guarantor has guaranteed under this Agreement, or (b)
guaranty obligations of any other guarantor, or enforcing any such rights in any
particular order, before demanding payment from, or seeking to enforce this
Agreement against, either Guarantor.
4.04 Covenants that the Guarantor's obligation under this Agreement will
not be discharged except by complete payment and performance of all of the
Guaranteed Obligations, including, without limitation, all obligations of the
Borrower under the Revolving Credit Note, and all other obligations of the
Borrower under the Loan Agreement and the other Borrower Documents, or by
payment in full by the Guarantor of the Guaranteed Obligations in accordance
with the terms of this Agreement.
4.05 Agrees that this Agreement shall remain in full force and effect
without regard to, and shall not be affected or impaired by any invalidity,
irregularity or unenforceability in whole or in part of the Revolving Credit
Note, the Loan Agreement, any other of the Borrower Documents, or any limitation
of the liability of the Borrower thereunder, or any limitation on the method or
terms of payment thereunder which may now or hereafter be caused or imposed in
any manner whatsoever.
4.06 Waives any obligation that the Lender might otherwise have to marshal
assets or to proceed against any particular persons or assets in any particular
order.
4.07 Waives any defenses either Guarantor may have arising out of or in any
way related to any or all of the following:
(a) Any failure on the part of the Lender to perfect the Lender's
security interest in or lien against, or any lack of diligence in
connection with or failure to foreclose or realize upon, any property,
whether real or personal, tangible or intangible, now or hereafter granted
to the Lender as collateral security for any of (1) the Borrower's
liabilities or obligations, or (2) either Guarantor's liabilities or
obligations hereunder, or (3) any other guarantor's liabilities or
obligations under any other guaranty agreement relating to all or any part
of the Guaranteed Obligations.
(b) The voluntary or involuntary discharge or release of any of the
Guaranteed Obligations, or of any co-maker, accommodation party, surety or
any other person or entity,
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including but not limited to, any other guarantor, whether voluntarily or
by reason of bankruptcy, insolvency, or other laws affecting the rights of
creditors generally or otherwise.
(c) The receipt by the Lender of any provisional, invalid or
refundable payment if such payment is thereafter revoked or if such payment
is returned by the Lender to or for the benefit of the Borrower, either
Guarantor or any other guarantor or the creditors of either.
(d) Any right of set-off or counterclaim against the Lender which
would otherwise impair the Lender's rights against either Guarantor or any
other guarantor.
(e) Any change in the composition, ownership or business of the
Borrower, the Guarantor or any other guarantor.
SECTION 5
Obligations Not Impaired
------------------------
The obligations of the Guarantor under this Agreement are joint and
several, and intended to be in addition to and independent of those of the
Borrower under the Guaranteed Obligations. In addition, the Guarantor
acknowledge that the Guarantor's obligations under this Agreement are
independent of and in addition to the obligations of any other guarantor(s)
under any other guaranty agreement(s) related to all or any part of the
Guaranteed Obligations. To that end, the obligations, undertakings and
conditions to be performed or observed by the Guarantor under this Agreement
shall not be affected or impaired by reason of the happening from time to time
and one or more times of any of the following with respect to the Revolving
Credit Note, the Loan Agreement, or any assignment of the rights of the Lender
under this Agreement whether or not with notice to, or further consent of, the
Guarantor:
5.01 Waiver by the Lender or any other person(s) of the observance or
performance by (a) the Borrower of any obligation, undertaking or condition
contained in the Revolving Credit Note, the Loan Agreement or any other of the
Borrower Documents, or (b) any other guarantor of any liability or obligation
contained in its guaranty agreement (except for the particular observance or
performance so waived).
5.02 Extension of the time for payment by the Borrower or any guarantor of
any amount owing or payable under the Revolving Credit Note, the Loan Agreement,
or any other guaranty agreement or of the time for payment or performance by the
Borrower, any other guarantor(s) or any other person of any other obligation
under or arising out of the Guaranteed Obligations, or otherwise under or with
respect to the Revolving Credit Note, the Loan Agreement, any other of the
Borrower Documents, or any other guaranty agreement related to all or any part
of the Guaranteed Obligations or the extension or the renewal of any thereof
(except for the particular extension or renewal so granted).
5.03 Modification or amendment (whether material or otherwise) of any term,
obligation, undertaking or condition to be performed by the Borrower or any
other guarantor(s) under the Guaranteed Obligations, or otherwise under or with
respect to the Revolving Credit
4
<PAGE>
Note, the Loan Agreement, any other of the Borrower Documents, or any other
guaranty agreement.
5.04 Taking or omitting to take any action referred to in the Revolving
Credit Note, the Loan Agreement, any other of the Borrower Documents, or any
other guaranty agreement.
5.05 Any failure, omission, delay or lack on the part of the Lender or any
other person, to enforce, assert or exercise any right, power or remedy
conferred on the Lender or any other person in the Revolving Credit Note, the
Loan Agreement, any other of the Borrower Documents, or any other guaranty
agreement, or any action on the part of the Lender or any other person granting
indulgence or extension in any form, or suspending any such right, power or
remedy as to any person or entity.
5.06 Voluntary or involuntary liquidation, dissolution, sale or other
disposition of all or substantially all of the assets, marshalling of assets and
liability, receivership, insolvency, bankruptcy, assignment for the benefit of
creditors, reorganization, arrangement, composition or readjustment of, or other
similar proceeding affecting the Borrower or any other guarantor(s), or the
assets of the Borrower or any other guarantor(s), or the disaffirmance,
rejection or postponement in any such proceeding of any other obligations or
undertakings of the Borrower or any other guarantor(s) set forth in the
Revolving Credit Note, the Loan Agreement, any of the Borrower Documents or any
other guaranty agreement.
5.07 Release or discharge of the Borrower or any other guarantor(s)
from the performance or observance of any obligation, undertaking or condition
to be performed by the Borrower or any other guarantor(s) under the Revolving
Credit Note, the Loan Agreement, any other of the Borrower Documents or any
other guaranty agreement by operation of law or otherwise.
5.08 Release, substitution, exchange, dissipation, surrender or replacement
of any collateral security for any liability or obligation of the Borrower or
any other guarantor(s), with respect to all or any part of the Guaranteed
Obligations or otherwise, under or with respect to the Borrower Documents or any
other guaranty agreement, whether or not permitted in any of the Borrower
Documents.
5.09 Receipt and acceptance by the Lender or any other person or entity of
notes, checks or other instruments for the payment of money made by the Borrower
or other person or entity, and extension or renewals of such instrument (except
to the extent that such instruments are paid or converted into cash).
5.10 Any failure of title with respect to the interest of the Borrower or
Lender in the collateral security for any liability or obligation of the
Borrower for any other guarantor(s) or any parts or components thereof.
5.11 The dissolution, merger or consolidation of the Borrower, either
Guarantor or any other guarantor(s) or the sale, divesture or other disposition
of any or all of the interest of the Borrower, either Guarantor or any other
guarantor(s) in any collateral.
5
<PAGE>
5.12 Any action or inaction (including, without limitation, the election of
the Lender to proceed with a judicial or nonjudicial foreclosure against any
real or personal property security it holds) by the Lender or any other persons
which results in any impairment or destruction of (a) any subrogation or rights
of either Guarantor, (b) any rights of either Guarantor to proceed against the
Borrowers, and other guarantor(s) or any other person for reimbursement, or (c)
any rights of Lender with respect to any collateral security for any liability
or obligation of the Borrowers with respect to all or any part of the Guaranteed
Obligations, or otherwise under or with respect to the Borrower Documents, or
for any obligation under any other guaranty agreement.
5.13 Any action taken by the Lender or any other person or entity against
the Borrower or Guarantor which would afford the Borrower or any guarantor a
defense based on any anti-deficiency protection under the laws of any
jurisdiction.
5.14 Change, exchange, waiver, release or subordination, in whole or in
part, of any security interest, mortgage, pledge or other lien now or hereafter
held by the Lender as collateral security for any of the Guaranteed Obligations,
or any other liability or obligation of the Borrower under the Borrower
Documents, or for any obligations under any other guaranty agreement and the
justifiable or unjustifiable impairment of any such collateral security, or
suspension of the right to enforce against any such collateral security.
5.15 Grant of indulgences, forbearances or compromises with respect to, and
any settlement made with, Borrower, or any co-maker, accommodation party,
surety, any other guarantor(s) or any other person or entity, or with respect to
any of the Guaranteed Obligations or the obligations under any other guaranty
agreement.
5.16 Extension of loans, credit, advances, discounts and other
financial accommodations to the Borrower by the Lender in addition to, or in
excess of, the amount of the Guaranteed Obligations.
5.17 Acceptance by the Lender of any late, partial or interest-only payment
with respect to the Guaranteed Obligations.
5.18 Lack of diligence by the Lender in collecting, or attempting to
collect, the Guaranteed Obligations, the obligations under any other guaranty
agreement or any other obligations or liabilities or in otherwise dealing with
the Borrower, the Guaranteed Obligations or any co-maker, accommodation party,
surety, or any other guarantor(s), or any other person or entity.
5.19 The calling for and accepting, at any time the Lender deems necessary
or appropriate, as additional security, the signature or signatures of
additional parties, or a security interest in property of any kind or
description, or both.
5.20 Any other cause, whether similar or dissimilar to the foregoing. It is
the intention of the Guarantor that this Agreement constitutes an absolute and
unconditional guaranty in any
6
<PAGE>
and all circumstances, and this Agreement shall be discharged only by the
payment in full of all sums guaranteed and by the performance in full of all of
the Guaranteed Obligations.
SECTION 6
Waiver of Notice
----------------
The Guarantor waives notice of acceptance of this Agreement by the Lender,
notice of execution and delivery of the Revolving Credit Note, the Loan
Agreement any other of the Borrower Documents, and any other guaranty agreement,
or any instrument referred to in such documents. The Guarantor further waives,
to the fullest extent permitted by applicable law, each and every notice to
which the Guarantor would otherwise be entitled under principles of guaranty or
suretyship law. Without limiting the generality of the foregoing, the Guarantor
hereby expressly waive all notices and defenses whatsoever with respect to this
Agreement or with respect to the Guaranteed Obligations, including, but not
limited to, notice of the Lender's acceptance of the Agreement or its intention
to act, or its action, in reliance upon this Agreement; notice of the present
existence or future incurring by the Borrower of any Guaranteed Obligations or
any other obligations or liability or any terms or amount thereof or any change
therein; notice of any default or nonpayment (whether to the Guaranteed
Obligations or of any other obligation or liability) by the Borrower or any
accommodation party, co-maker, surety, pledgor, mortgagor, grantor of security,
any other guarantor(s) or any other person or entity; notice of the obtaining or
release of any guaranty or surety agreement (in addition to this Agreement),
pledge, mortgage, security interest, assignment, or other security for any of
the Guaranteed Obligations; notice of dishonor; notice of nonpayment; notice of
acceleration of the Guaranteed Obligations; notice of the making of a demand for
payment of the liability or obligations of the Borrower; presentment and notice
of presentment; protest and notice of protest; demand and notice of demand;
nonpayment and notice of nonpayment; notice of the disposition of any collateral
held to secure the Guaranteed Obligations; and any other notice required by law
or otherwise. The Guarantor recognizes and hereby guarantees a Revolving Credit
Note which may vary in the amount of aggregate principal outstanding, and waives
notice of all disbursements made to the Borrower pursuant to the Loan Agreement.
In any event, the Guarantor's obligations under this Agreement shall not exceed
the limitations provided in Section 2 of this Agreement.
SECTION 7
Waiver of Subrogation
---------------------
The Guarantor hereby unconditionally waives any right of subrogation which
they might have acquired by way of any payment made under this Agreement or
otherwise. Accordingly, the Guarantor shall not become a creditor of the
Borrower as a result of the payment made by any Guarantor under this agreement.
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SECTION 8
Rescission of Payment
---------------------
Notwithstanding Section 9 below, this Agreement shall continue to be
effective, or be reinstated as the case may be, as though such payment had not
been made, if any payment by the Borrower pursuant to the terms and conditions
of the Revolving Credit Note, the Loan Agreement, this Agreement or any other of
the Borrower Documents is rescinded or must otherwise be restored or returned by
the Lender for any reason, including, without limitation (a) the invalidity or
unenforceability of the obligation paid, for any reason; (b) failure or
insufficiency of consideration for the obligation paid, or (c) the insolvency,
bankruptcy or reorganization of the Borrower or any of any other guarantor(s).
SECTION 9
Termination
-----------
This Agreement shall remain in full force and effect until, and shall
terminate (as "terminate" is used in Kentucky Revised Statutes ss. 371.065) on
the earlier of (a) the day following the date of (1) payment in full upon
maturity of all sums payable by the Borrower under, and (2) performance in full
of all other obligations of the Borrower in accordance with the provisions of,
the Revolving Credit Note, the Loan Agreement, this Agreement, all of the other
Borrower Documents, and any extension and renewals thereof; or (b) August 31,
2006; provided, however, that termination of this Agreement on such termination
date shall not affect in any manner the liability of the Guarantor with respect
to (1) the Guaranteed Obligations which are created or incurred prior to such
termination date ("Prior Obligations"), or (2) extension or renewals of,
interest accruing on, or fees, costs or expenses incurred with respect to, such
Prior Obligations prior to, on or after such termination date.
SECTION 10
Acknowledgment
--------------
The Guarantor acknowledges that (a) pursuant to Section 2.02 of the Loan
Agreement, the Revolving Credit (as that term is defined in the Loan Agreement)
shall be effective as of the date of the Loan Agreement, and unless the
Revolving Credit is sooner terminated (or extended in the Lender's sole
discretion) as provided in the Loan Agreement, shall continue in effect until
August 31, 2005; (b) the Lender is under no duty to extend the period of the
Revolving Credit beyond August 31, 2005; (c) neither the Borrower nor the
Guarantor is relying upon or anticipating any such extension; and (d) if the
Lender chooses to extend the Revolving Credit pursuant to Section 2.03(d) of the
Loan Agreement, the Lender may require as a condition precedent to any
extension, such modification(s), or amendment(s) of any kind or nature
whatsoever, as the Lender determines in its sole discretion, to the Loan
Agreement and/or any other Borrower Documents, including, but not limited to,
the grant or increase of collateral security for the obligations of the
Guarantor under the Agreement. The Guarantor further acknowledges that upon any
extension of the period of the Revolving Credit, this Agreement
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shall remain in full force and effect and shall continue to apply to the
Revolving Credit Notes, as extended (and to any renewal or replacement note or
notes for one or more of the Revolving Credit Notes, or any replacement for all
or any of them), until that Revolving Credit Notes, as extended, renewed or
replaced, shall have been paid in full.
SECTION 11
Miscellaneous
-------------
11.01 This Agreement shall be binding upon the Guarantor and the
Guarantor's heirs, personal representatives, successors and assigns, and shall
inure to the benefit of, and be enforceable by, the Lender and the Lender's
successors, transferees and assigns, including each and every holder of any
indebtedness, obligation or liability of the Borrower constituting all or a
portion of the Guaranteed Obligations.
11.02 The Lender may enforce this Agreement with respect to one or more
breaches either separately or cumulatively.
11.03 This Agreement may not be modified or amended without the prior
written consent of the Lender, and any attempted modification or amendment
without such consent shall be void.
11.04 This Agreement shall in all respects be governed by, and construed
and enforced in accordance with, the laws (without regard to the conflicts of
laws rules) of the Commonwealth of Kentucky.
11.05 If any part, term or provision of this Agreement is unenforceable or
prohibited by any law applicable to this Agreement the rights and obligations of
the parties shall be construed and enforced with that part, term or provision
limited so as to make it enforceable to the greatest extent allowed by law, or
if it is totally unenforceable, as if this did not contain that particular part,
term or provision. A determination in one jurisdiction that any part, term or
provision of this Agreement is unenforceable or prohibited by law does not
affect the validity of such part, term or provision in any other jurisdiction.
11.06 The headings in this Agreement have been included for ease of
reference only, and shall not be considered in the construction or
interpretation of this Agreement.
11.07 This Agreement may be signed by each party hereto upon a separate
copy, and in such case one counterpart of this Agreement shall consist of enough
of such copies to reflect the signature of each party.
11.08 This Agreement may be executed by each party in multiple
counterparts, each of which shall be deemed an original. It shall not be
necessary in making proof of this Agreement or its terms to account for more
than one such counterpart.
9
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11.09 THE GUARANTOR CONSENTS TO ONE OR MORE ACTIONS BEING INSTITUTED AND
MAINTAINED IN THE JEFFERSON COUNTY, KENTUCKY, CIRCUIT COURT AND/OR THE UNITED
STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF KENTUCKY (AT THE LENDER'S
DISCRETION) TO ENFORCE THIS AGREEMENT AND/OR ONE OR MORE OF THE OTHER BORROWER
DOCUMENTS, AND WAIVES ANY OBJECTION TO ANY SUCH ACTION BASED UPON LACK OF
PERSONAL OR SUBJECT MATTER JURISDICTION OR IMPROPER VENUE. THE GUARANTOR AGREE
THAT ANY PROCESS OR OTHER LEGAL SUMMONS IN CONNECTION WITH ANY SUCH ACTION OR
PROCEEDING MAY BE SERVED BY MAILING A COPY THEREOF BY CERTIFIED MAIL, OR ANY
SUBSTANTIALLY SIMILAR FORM OF MAIL, ADDRESSED TO THE BORROWER AS PROVIDED IN
SECTION 12.12 BELOW. THE BORROWER ALSO AGREES THAT IT SHALL NOT COMMENCE OR
MAINTAIN ANY ACTION IN ANY COURT, ADMINISTRATIVE AGENCY OR OTHER TRIBUNAL OTHER
THAN THE JEFFERSON COUNTY, KENTUCKY, CIRCUIT COURT OR THE UNITED STATES DISTRICT
COURT FOR THE WESTERN DISTRICT OF KENTUCKY WITH RESPECT TO THIS AGREEMENT, ANY
OTHER OF THE BORROWER DOCUMENTS, ANY OF THE TRANSACTIONS PROVIDED FOR OR
CONTEMPLATED IN ANY OF THE BORROWER DOCUMENTS, OR ANY CAUSE OF ACTION OR ALLEGED
CAUSE OF ACTION ARISING OUT OF OR IN CONNECTION WITH ANY DEBTOR AND CREDITOR
RELATIONSHIP BETWEEN OR AMONG THE GUARANTOR, THE BORROWER AND/OR THE LENDER THAT
MAY EXIST FROM TIME TO TIME.
11.10 In the event that any of the Guaranteed Obligations arise out of or
are evidenced by more than one obligation or liability of the Borrower to the
Lender, this Agreement may be enforced as to each separate liability or
obligation constituting one of the Guaranteed Obligations, either separately or
cumulatively.
11.11 The use of any gender in this Agreement shall be deemed to include
each other gender to the extent the context requires.
11.12 (a) Any requirement of the Uniform Commercial Code or other
applicable law of reasonable notice shall be met if such notice is given at
least ten (10) business days before the time of sale, disposition or other event
or thing giving rise to the requirement of notice.
(b) All notices or communications under this Agreement shall be in
writing and shall be (1) mailed by registered or certified mail, return
receipt requested, (2) hand delivered, or (3) delivered by overnight
carrier, to the parties at the addresses set forth below their names on the
signature page(s) to this Agreement, and any notice so addressed and mailed
or delivered to and/or deposited with such carrier, freight prepaid, shall
be deemed to have been given when so mailed if mailed; or delivered if
hand-delivered; or delivered to such overnight courier if delivered by
overnight courier.
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(c) The parties hereto may at any time, and from time to time, change
the address(es) to which notice shall be mailed, transmitted or otherwise
delivered by written notice setting forth the changed address(es).
11.13 THE BORROWER AND EACH GUARANTOR HEREBY WAIVES ITS RIGHT TO A JURY
TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS
AGREEMENT, THE LOAN AGREEMENT, THE REVOLVING CREDIT NOTE, THE PLEDGE AGREEMENT
AND/OR ANY OTHER OF THE BORROWER DOCUMENTS. THIS WAIVER IS INTENDED TO APPLY TO
ANY AND ALL DISPUTES THAT MAY BE FILED IN ANY COURT THAT RELATE TO THE SUBJECT
MATTER OF THIS TRANSACTION, INCLUDING, WITHOUT LIMITATION, CONTRACT CLAIMS, TORT
CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW AND STATUTORY CLAIMS.
THE BORROWER AND GUARANTOR ACKNOWLEDGES THAT THIS WAIVER IS A MATERIAL
INDUCEMENT FOR THE LENDER TO ENTER INTO A BUSINESS RELATIONSHIP, AND THAT THE
LENDER HAS ALREADY RELIED ON THIS WAIVER IN ITS DEALINGS WITH THE BORROWER AND
THE GUARANTOR. THE BORROWER AND GUARANTOR FURTHER WARRANTS AND REPRESENTS THAT
EACH HAS REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL, AND THAT EACH KNOWINGLY
AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL
COUNSEL. THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER
ORALLY OR IN WRITING, AND THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS,
RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT, THE LOAN AGREEMENT,
THE REVOLVING CREDIT NOTE, THE PLEDGE AGREEMENT AND/OR THE OTHER BORROWER
DOCUMENTS. IN THE EVENT OF LITIGATION, THIS AGREEMENT MAY BE FILED AS A WRITTEN
CONSENT TO TRIAL BY THE COURT.
11.14 The Guarantor acknowledges that the Guarantor has received a copy of
the Loan Agreement and each of the other Borrower Documents, as fully executed
by the parties thereto. The Guarantor represent and warrants that the Guarantor
(a) HAS READ THE LOAN AGREEMENT AND THE OTHER BORROWER DOCUMENTS OR HAS CAUSED
SUCH DOCUMENTS TO BE EXAMINED BY THE GUARANTOR'S REPRESENTATIVES OR ADVISORS;
(b) is thoroughly familiar with the transactions contemplated in the Loan
Agreement and the other Borrower Documents; and (c), together with the
Guarantor's representatives or advisors, if any, has had the opportunity to ask
such questions to representatives of the Borrower and the Lender, respectively,
and receive answers thereto, concerning the terms and conditions of the
transactions contemplated in the Loan Agreement and the other Borrower Documents
as the Guarantor deem necessary in connection with the Guarantor's decision to
enter into this Agreement.
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IN WITNESS WHEREOF, the parties have executed this as of the date set out
on the preamble hereto, but actually on the date(s) set forth below.
GUARANTOR: /s/ J. D. Nichols
--------------------------------------------------
J. D. NICHOLS
Date: August 15, 2000
---------------------------------------------
Address:
10172 Linn Station Road
Louisville, KY 40223
Attn: Neil Mitchell
BORROWER: ORIG, LLC
By /s/ J. D. Nichols
------------------------------------------------
J. D. NICHOLS, MANAGER
Date: August 15, 2000
-------------------------------------------
Address:
10172 Linn Station Road #200
Louisville, KY 40223
Attn: Neil Mitchell
12
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LENDER: BANK OF LOUISVILLE
By /s/ Richard Bean
-----------------------------------------------
Richard Bean, Senior Vice President
Date: August 15, 2000
---------------------------------------------
Address:
500 W. Broadway
Louisville, KY 40202
Attn: Richard Bean, Senior Vice President
13
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Exhibit (d)(3)
Guaranty Agreement dated August 15, 2000
between the Bank of Louisville and Brian F. Lavin
<PAGE>
GUARANTY AGREEMENT
dated as of August 15, 2000
among
BANK OF LOUISVILLE
as the Lender
ORIG, LLC
as the Borrower
and
BRIAN F. LAVIN
as the Guarantor
<PAGE>
GUARANTY AGREEMENT
------------------
This is a Guaranty Agreement dated as of August 15, 2000, (this
"Agreement"), among BANK OF LOUISVILLE (the "Lender"); ORIG, LLC (the
"Borrower"); BRIAN F. LAVIN (the "Guarantor").
SECTION 1
Recitals and Definitions
------------------------
This Agreement is entered into concurrently with and pursuant to a Loan
Agreement (the "Loan Agreement"), dated as of August 15, 2000, between the
Lender and the Borrower and joined in by the Guarantor. Capitalized terms not
otherwise defined herein shall have the meanings given them in the Loan
Agreement. Pursuant to the Loan Agreement, the Borrower has executed and
delivered to the Lender three Revolving Credit Notes each dated August 15, 2000
and in the principal amount Two Million Dollars ($2,000,000) (for a total of Six
Million Dollars ($6,000,000.00)) and payable to the order of the Lender (such
three Revolving Credit Notes, including any notes or other instruments issued in
renewal, replacement, extension, modification, novation and/or revival thereof,
the "Revolving Credit Notes") and various other Borrower Documents (as that term
is defined in the Loan Agreement).
SECTION 2
Guaranty of Payment and Performance
-----------------------------------
The Guarantor, intending to be bound as an accommodation party for the
Borrower, jointly and severally, absolutely and unconditionally guarantees the
following obligations and/or liabilities (collectively, the "Guaranteed
Principal"): (a) the prompt payment in full by the Borrower of all obligations
under the Revolving Credit Notes; and (b) the punctual and faithful performance
and observance by the Borrower of all other obligations and undertakings to be
performed or observed pursuant to the Loan Agreement and the other Borrower
Documents. In addition to the Guaranteed Principal, the Guarantor, intending to
be bound as an accommodation party for the Borrower, jointly and severally,
absolutely and unconditionally guarantee the following obligations and/or
liabilities (collectively, the "Other Guaranteed Amounts"): (x) any and all
interest accruing on the Guaranteed Principal under the Revolving Credit Notes,
the Loan Agreement, and/or any other of the Borrower Documents; and (y) that the
Guarantor will, upon demand, pay to the Lender any and all fees, charges and
costs of collecting the Guaranteed Principal or otherwise enforcing the Lender's
rights under this Agreement, including without limitation the reasonable fees
and expenses of the Lender's counsel. Notwithstanding the foregoing, the maximum
aggregate liability of the Guarantor under this Agreement for the Guaranteed
Principal shall not exceed the Guarantor Maximum. (For purposes of this Section,
"Guarantor Maximum" at any time shall mean the lesser of (i) $6,000,000.00, or
(ii) the greater of (A) the Guaranteed Principal multiplied by the percentage of
the equity interests of the Borrower owned by the Guarantor (directly or
indirectly, and legally or beneficially) on either (I) the date of an Event of
Default under the Loan Agreement or (II) the date on which the Lender makes a
demand for payment from the Guarantor under this Agreement (it being within the
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<PAGE>
discretion of the Lender to choose between the dates in (I) and (II)), or (B)
$600,000.00). The Guaranteed Principal, limited to the Guarantor Maximum, and
the Other Guaranteed Amounts are sometimes referenced in this Agreement as the
"Guaranteed Obligations." The Guaranteed Obligations under this Agreement shall
be in addition to the maximum aggregate liability of the Guarantor or any other
guarantor to the Lender under any guaranty agreement of the Guarantor or any
other guarantor heretofore or hereafter given.
SECTION 3
Obligations Unconditional
-------------------------
This is an unconditional and absolute guaranty of payment and performance.
If, for any reason, the Borrower fails to observe or perform any obligation,
undertaking or condition (whether affirmative or negative) in the Loan Agreement
or any other of the Borrower Documents, to be performed or observed by the
Borrower or if any amounts payable by the Borrower pursuant to the Revolving
Credit Note or the Loan Agreement are not paid promptly when due or any Event of
Default occurs, the Guarantor shall promptly perform or observe or cause to be
performed or observed each such obligation, undertaking or condition and
forthwith shall pay such amount at the place and to the person entitled thereto
pursuant to the Revolving Credit Note or the Loan Agreement, regardless of any
set-off or counterclaim which the Borrower may have or assert, and regardless of
whether or not the Lender or anyone on behalf of the Lender shall have
instituted any suit, action or proceeding or exhausted their remedies or taken
any steps to enforce any rights against the Borrower or any other person to
compel such performance or to collect all or any part of such amount pursuant to
the provisions of the Revolving Credit Note, the Loan Agreement or any other of
the Borrower Documents, or at law or in equity, or otherwise, and regardless of
any other condition or contingency. The liability of the Guarantor shall be for
the payment in full of the entire amount of the Guaranteed Obligations, jointly
and severally with that of the Borrower, any co-maker, or accommodation party,
or other guarantor, subject to the Maximum Liability Amount. This Agreement
shall not, however, be construed to require the Guarantor to make any payment
which is duplicative of a payment already made by the Guarantor or by the
Borrower, any co-maker, accommodation party, or any other guarantor, except as
provided in Section 8 of this Agreement.
SECTION 4
Waivers and Agreements
----------------------
The Guarantor hereby unconditionally:
4.01 Waives any requirement that the Lender first seek to enforce remedies
against the Borrower or any other person or entity before seeking to enforce
this Agreement against either Guarantor.
4.02 Waives any requirement that the Lender first make demand upon, or seek
to enforce remedies against, to Guarantor, or against any other guarantor of any
of the Guaranteed Obligations in any particular order, before demanding payment
from, or seeking to enforce this
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Agreement against, the Guarantor or any other guarantor. The Guarantor
acknowledges that the Lender, in the Lender's sole discretion, may enforce
remedies against the Guarantor pursuant to this Agreement and not enforce
similar remedies against any other guarantor with respect to the Guaranteed
Obligations or vice versa. The Guarantor further acknowledges that the
enforcement of remedies against the Guarantor in lieu of enforcing remedies
against any other guarantor, or vice versa, shall not affect the validity or
enforceability of the Lender's rights and/or remedies under this Agreement or
any other guaranty agreement guarantying any of the Guaranteed Obligations.
4.03 Waives any requirement that the Lender first seek to enforce remedies
against any property in which the Lender may have any interest securing any (a)
indebtedness which either Guarantor has guaranteed under this Agreement, or (b)
guaranty obligations of any other guarantor, or enforcing any such rights in any
particular order, before demanding payment from, or seeking to enforce this
Agreement against, either Guarantor.
4.04 Covenants that the Guarantor's obligation under this Agreement will
not be discharged except by complete payment and performance of all of the
Guaranteed Obligations, including, without limitation, all obligations of the
Borrower under the Revolving Credit Note, and all other obligations of the
Borrower under the Loan Agreement and the other Borrower Documents, or by
payment in full by the Guarantor of the Guaranteed Obligations in accordance
with the terms of this Agreement.
4.05 Agrees that this Agreement shall remain in full force and effect
without regard to, and shall not be affected or impaired by any invalidity,
irregularity or unenforceability in whole or in part of the Revolving Credit
Note, the Loan Agreement, any other of the Borrower Documents, or any limitation
of the liability of the Borrower thereunder, or any limitation on the method or
terms of payment thereunder which may now or hereafter be caused or imposed in
any manner whatsoever.
4.06 Waives any obligation that the Lender might otherwise have to marshal
assets or to proceed against any particular persons or assets in any particular
order.
4.07 Waives any defenses either Guarantor may have arising out of or in any
way related to any or all of the following:
(a) Any failure on the part of the Lender to perfect the Lender's security
interest in or lien against, or any lack of diligence in connection with or
failure to foreclose or realize upon, any property, whether real or personal,
tangible or intangible, now or hereafter granted to the Lender as collateral
security for any of (1) the Borrower's liabilities or obligations, or (2) either
Guarantor's liabilities or obligations hereunder, or (3) any other guarantor's
liabilities or obligations under any other guaranty agreement relating to all or
any part of the Guaranteed Obligations.
(b) The voluntary or involuntary discharge or release of any of the
Guaranteed Obligations, or of any co-maker, accommodation party, surety or any
other person or entity,
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including but not limited to, any other guarantor, whether voluntarily or by
reason of bankruptcy, insolvency, or other laws affecting the rights of
creditors generally or otherwise.
(c) The receipt by the Lender of any provisional, invalid or refundable
payment if such payment is thereafter revoked or if such payment is returned by
the Lender to or for the benefit of the Borrower, either Guarantor or any other
guarantor or the creditors of either.
(d) Any right of set-off or counterclaim against the Lender which would
otherwise impair the Lender's rights against either Guarantor or any other
guarantor.
(e) Any change in the composition, ownership or business of the Borrower,
the Guarantor or any other guarantor.
SECTION 5
Obligations Not Impaired
------------------------
The obligations of the Guarantor under this Agreement are joint and
several, and intended to be in addition to and independent of those of the
Borrower under the Guaranteed Obligations. In addition, the Guarantor
acknowledges that the Guarantor's obligations under this Agreement are
independent of and in addition to the obligations of any other guarantor(s)
under any other guaranty agreement(s) related to all or any part of the
Guaranteed Obligations. To that end, the obligations, undertakings and
conditions to be performed or observed by the Guarantor under this Agreement
shall not be affected or impaired by reason of the happening from time to time
and one or more times of any of the following with respect to the Revolving
Credit Note, the Loan Agreement, or any assignment of the rights of the Lender
under this Agreement whether or not with notice to, or further consent of, the
Guarantor:
5.01 Waiver by the Lender or any other person(s) of the observance or
performance by (a) the Borrower of any obligation, undertaking or condition
contained in the Revolving Credit Note, the Loan Agreement or any other of the
Borrower Documents, or (b) any other guarantor of any liability or obligation
contained in its guaranty agreement (except for the particular observance or
performance so waived).
5.02 Extension of the time for payment by the Borrower or any guarantor of
any amount owing or payable under the Revolving Credit Note, the Loan Agreement,
or any other guaranty agreement or of the time for payment or performance by the
Borrower, any other guarantor(s) or any other person of any other obligation
under or arising out of the Guaranteed Obligations, or otherwise under or with
respect to the Revolving Credit Note, the Loan Agreement, any other of the
Borrower Documents, or any other guaranty agreement related to all or any part
of the Guaranteed Obligations or the extension or the renewal of any thereof
(except for the particular extension or renewal so granted).
5.03 Modification or amendment (whether material or otherwise) of any term,
obligation, undertaking or condition to be performed by the Borrower or any
other guarantor(s) under the Guaranteed Obligations, or otherwise under or with
respect to the Revolving Credit
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Note, the Loan Agreement, any other of the Borrower Documents, or any other
guaranty agreement.
5.04 Taking or omitting to take any action referred to in the Revolving
Credit Note, the Loan Agreement, any other of the Borrower Documents, or any
other guaranty agreement.
5.05 Any failure, omission, delay or lack on the part of the Lender or any
other person, to enforce, assert or exercise any right, power or remedy
conferred on the Lender or any other person in the Revolving Credit Note, the
Loan Agreement, any other of the Borrower Documents, or any other guaranty
agreement, or any action on the part of the Lender or any other person granting
indulgence or extension in any form, or suspending any such right, power or
remedy as to any person or entity.
5.06 Voluntary or involuntary liquidation, dissolution, sale or other
disposition of all or substantially all of the assets, marshalling of assets and
liability, receivership, insolvency, bankruptcy, assignment for the benefit of
creditors, reorganization, arrangement, composition or readjustment of, or other
similar proceeding affecting the Borrower or any other guarantor(s), or the
assets of the Borrower or any other guarantor(s), or the disaffirmance,
rejection or postponement in any such proceeding of any other obligations or
undertakings of the Borrower or any other guarantor(s) set forth in the
Revolving Credit Note, the Loan Agreement, any of the Borrower Documents or any
other guaranty agreement.
5.07 Release or discharge of the Borrower or any other guarantor(s) from
the performance or observance of any obligation, undertaking or condition to be
performed by the Borrower or any other guarantor(s) under the Revolving Credit
Note, the Loan Agreement, any other of the Borrower Documents or any other
guaranty agreement by operation of law or otherwise.
5.08 Release, substitution, exchange, dissipation, surrender or replacement
of any collateral security for any liability or obligation of the Borrower or
any other guarantor(s), with respect to all or any part of the Guaranteed
Obligations or otherwise, under or with respect to the Borrower Documents or any
other guaranty agreement, whether or not permitted in any of the Borrower
Documents.
5.09 Receipt and acceptance by the Lender or any other person or entity of
notes, checks or other instruments for the payment of money made by the Borrower
or other person or entity, and extension or renewals of such instrument (except
to the extent that such instruments are paid or converted into cash).
5.10 Any failure of title with respect to the interest of the Borrower or
Lender in the collateral security for any liability or obligation of the
Borrower for any other guarantor(s) or any parts or components thereof.
5.11 The dissolution, merger or consolidation of the Borrower, either
Guarantor or any other guarantor(s) or the sale, divesture or other disposition
of any or all of the interest of the Borrower, either Guarantor or any other
guarantor(s) in any collateral.
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5.12 Any action or inaction (including, without limitation, the election of
the Lender to proceed with a judicial or nonjudicial foreclosure against any
real or personal property security it holds) by the Lender or any other persons
which results in any impairment or destruction of (a) any subrogation or rights
of either Guarantor, (b) any rights of either Guarantor to proceed against the
Borrowers, and other guarantor(s) or any other person for reimbursement, or (c)
any rights of Lender with respect to any collateral security for any liability
or obligation of the Borrowers with respect to all or any part of the Guaranteed
Obligations, or otherwise under or with respect to the Borrower Documents, or
for any obligation under any other guaranty agreement.
5.13 Any action taken by the Lender or any other person or entity against
the Borrower or Guarantor which would afford the Borrower or any guarantor a
defense based on any anti-deficiency protection under the laws of any
jurisdiction.
5.14 Change, exchange, waiver, release or subordination, in whole or in
part, of any security interest, mortgage, pledge or other lien now or hereafter
held by the Lender as collateral security for any of the Guaranteed Obligations,
or any other liability or obligation of the Borrower under the Borrower
Documents, or for any obligations under any other guaranty agreement and the
justifiable or unjustifiable impairment of any such collateral security, or
suspension of the right to enforce against any such collateral security.
5.15 Grant of indulgences, forbearances or compromises with respect to, and
any settlement made with, Borrower, or any co-maker, accommodation party,
surety, any other guarantor(s) or any other person or entity, or with respect to
any of the Guaranteed Obligations or the obligations under any other guaranty
agreement.
5.16 Extension of loans, credit, advances, discounts and other financial
accommodations to the Borrower by the Lender in addition to, or in excess of,
the amount of the Guaranteed Obligations.
5.17 Acceptance by the Lender of any late, partial or interest-only payment
with respect to the Guaranteed Obligations.
5.18 Lack of diligence by the Lender in collecting, or attempting to
collect, the Guaranteed Obligations, the obligations under any other guaranty
agreement or any other obligations or liabilities or in otherwise dealing with
the Borrower, the Guaranteed Obligations or any co-maker, accommodation party,
surety, or any other guarantor(s), or any other person or entity.
5.19 The calling for and accepting, at any time the Lender deems necessary
or appropriate, as additional security, the signature or signatures of
additional parties, or a security interest in property of any kind or
description, or both.
5.20 Any other cause, whether similar or dissimilar to the foregoing. It is
the intention of the Guarantor that this Agreement constitutes an absolute and
unconditional guaranty in any
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and all circumstances, and this Agreement shall be discharged only by the
payment in full of all sums guaranteed and by the performance in full of all of
the Guaranteed Obligations.
SECTION 6
Waiver of Notice
----------------
The Guarantor waives notice of acceptance of this Agreement by the Lender,
notice of execution and delivery of the Revolving Credit Note, the Loan
Agreement any other of the Borrower Documents, and any other guaranty agreement,
or any instrument referred to in such documents. The Guarantor further waives,
to the fullest extent permitted by applicable law, each ande very notice to
which the Guarantor would otherwise be entitled under principles of guaranty or
suretyship law. Without limiting the generality of the foregoing, the Guarantor
hereby expressly waives all notices and defenses whatsoever with respect to this
Agreement or with respect to the Guaranteed Obligations, including, but not
limited to, notice of the Lender's acceptance of the Agreement or its intention
to act, or its action, in reliance upon this Agreement; notice of the present
existence or future incurring by the Borrower of any Guaranteed Obligations or
any other obligations or liability or any terms or amount thereof or any change
therein; notice of any default or nonpayment (whether to the Guaranteed
Obligations or of any other obligation or liability) by the Borrower or any
accommodation party, co-maker, surety, pledgor, mortgagor, grantor of security,
any other guarantor(s) or any other person or entity; notice of the obtaining or
release of any guaranty or surety agreement (in addition to this Agreement),
pledge, mortgage, security interest, assignment, or other security for any of
the Guaranteed Obligations; notice of dishonor; notice of nonpayment; notice of
acceleration of the Guaranteed Obligations; notice of the making of a demand for
payment of the liability or obligations of the Borrower; presentment and notice
of presentment; protest and notice of protest; demand and notice of demand;
nonpayment and notice of nonpayment; notice of the disposition of any collateral
held to secure the Guaranteed Obligations; and any other notice required by law
or otherwise. The Guarantor recognizes and hereby guarantees a Revolving Credit
Note which may vary in the amount of aggregate principal outstanding, and waives
notice of all disbursements made to the Borrower pursuant to the Loan Agreement.
In any event, the Guarantor's obligations under this Agreement shall not exceed
the limitations provided in Section 2 of this Agreement.
SECTION 7
Waiver of Subrogation
---------------------
The Guarantor hereby unconditionally waives any right of subrogation which
they might have acquired by way of any payment made under this Agreement or
otherwise. Accordingly, the Guarantor shall not become a creditor of the
Borrower as a result of the payment made by any Guarantor under this agreement.
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SECTION 8
Rescission of Payment
---------------------
Notwithstanding Section 9 below, this Agreement shall continue to be
effective, or be reinstated as the case may be, as though such payment had not
been made, if any payment by the Borrower pursuant to the terms and conditions
of the Revolving Credit Note, the Loan Agreement, this Agreement or any other of
the Borrower Documents is rescinded or must otherwise be restored or returned by
the Lender for any reason, including, without limitation (a) the invalidity or
unenforceability of the obligation paid, for any reason; (b) failure or
insufficiency of consideration for the obligation paid, or (c) the insolvency,
bankruptcy or reorganization of the Borrower or any of any other guarantor(s).
SECTION 9
Termination
-----------
This Agreement shall remain in full force and effect until, and shall
terminate (as "terminate" is used in Kentucky Revised Statutes ss. 371.065) on
the earlier of (a) the day following the date of (1) payment in full upon
maturity of all sums payable by the Borrower under, and (2) performance in full
of all other obligations of the Borrower in accordance with the provisions of,
the Revolving Credit Note, the Loan Agreement, this Agreement, all of the other
Borrower Documents, and any extension and renewals thereof; or (b) August 31,
2006; provided, however, that termination of this Agreement on such termination
date shall not affect in any manner the liability of the Guarantor with respect
to (1) the Guaranteed Obligations which are created or incurred prior to such
termination date ("Prior Obligations"), or (2) extension or renewals of,
interest accruing on, or fees, costs or expenses incurred with respect to, such
Prior Obligations prior to, on or after such termination date.
SECTION 10
Acknowledgment
--------------
The Guarantor acknowledges that (a) pursuant to Section 2.02 of the Loan
Agreement, the Revolving Credit (as that term is defined in the Loan Agreement)
shall be effective as of the date of the Loan Agreement, and unless the
Revolving Credit is sooner terminated (or extended in the Lender's sole
discretion) as provided in the Loan Agreement, shall continue in effect until
August 31, 2005; (b) the Lender is under no duty to extend the period of the
Revolving Credit beyond August 31, 2005; (c) neither the Borrower nor the
Guarantor is relying upon or anticipating any such extension; and (d) if the
Lender chooses to extend the Revolving Credit pursuant to Section 2.03(d) of the
Loan Agreement, the Lender may require as a condition precedent to any
extension, such modification(s), or amendment(s) of any kind or nature
whatsoever, as the Lender determines in its sole discretion, to the Loan
Agreement and/or any other Borrower Documents, including, but not limited to,
the grant or increase of collateral security for the obligations of the
Guarantor under the Agreement. The Guarantor further acknowledges that upon any
extension of the period of the Revolving Credit, this Agreement
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shall remain in full force and effect and shall continue to apply to the
Revolving Credit Notes, as extended (and to any renewal or replacement note or
notes for one or more of the Revolving Credit Notes, or any replacement for all
or any of them), until that Revolving Credit Notes, as extended, renewed or
replaced, shall have been paid in full.
SECTION 11
Miscellaneous
-------------
11.01 This Agreement shall be binding upon the Guarantor and the
Guarantor's heirs, personal representatives, successors and assigns, and shall
inure to the benefit of, and be enforceable by, the Lender and the Lender's
successors, transferees and assigns, including each and every holder of any
indebtedness, obligation or liability of the Borrower constituting all or a
portion of the Guaranteed Obligations.
11.02 The Lender may enforce this Agreement with respect to one or more
breaches either separately or cumulatively.
11.03 This Agreement may not be modified or amended without the prior
written consent of the Lender, and any attempted modification or amendment
without such consent shall be void.
11.04 This Agreement shall in all respects be governed by, and construed
and enforced in accordance with, the laws (without regard to the conflicts of
laws rules) of the Commonwealth of Kentucky.
11.05 If any part, term or provision of this Agreement is unenforceable or
prohibited by any law applicable to this Agreement the rights and obligations of
the parties shall be construed and enforced with that part, term or provision
limited so as to make it enforceable to the greatest extent allowed by law, or
if it is totally unenforceable, as if this did not contain that particular part,
term or provision. A determination in one jurisdiction that any part, term or
provision of this Agreement is unenforceable or prohibited by law does not
affect the validity of such part, term or provision in any other jurisdiction.
11.06 The headings in this Agreement have been included for ease of
reference only, and shall not be considered in the construction or
interpretation of this Agreement.
11.07 This Agreement may be signed by each party hereto upon a separate
copy, and in such case one counterpart of this Agreement shall consist of enough
of such copies to reflect the signature of each party.
11.08 This Agreement may be executed by each party in multiple
counterparts, each of which shall be deemed an original. It shall not be
necessary in making proof of this Agreement or its terms to account for more
than one such counterpart.
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11.09 THE GUARANTOR CONSENTS TO ONE OR MORE ACTIONS BEING INSTITUTED AND
MAINTAINED IN THE JEFFERSON COUNTY, KENTUCKY, CIRCUIT COURT AND/OR THE UNITED
STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF KENTUCKY (AT THE LENDER'S
DISCRETION) TO ENFORCE THIS AGREEMENT AND/OR ONE OR MORE OF THE OTHER BORROWER
DOCUMENTS, AND WAIVES ANY OBJECTION TO ANY SUCH ACTION BASED UPON LACK OF
PERSONAL OR SUBJECT MATTER JURISDICTION OR IMPROPER VENUE. THE GUARANTOR AGREE
THAT ANY PROCESS OR OTHER LEGAL SUMMONS IN CONNECTION WITH ANY SUCH ACTION OR
PROCEEDING MAY BE SERVED BY MAILING A COPY THEREOF BY CERTIFIED MAIL, OR ANY
SUBSTANTIALLY SIMILAR FORM OF MAIL, ADDRESSED TO THE BORROWER AS PROVIDED IN
SECTION 12.12 BELOW. THE BORROWER ALSO AGREES THAT IT SHALL NOT COMMENCE OR
MAINTAIN ANY ACTION IN ANY COURT, ADMINISTRATIVE AGENCY OR OTHER TRIBUNAL OTHER
THAN THE JEFFERSON COUNTY, KENTUCKY, CIRCUIT COURT OR THE UNITED STATES DISTRICT
COURT FOR THE WESTERN DISTRICT OF KENTUCKY WITH RESPECT TO THIS AGREEMENT, ANY
OTHER OF THE BORROWER DOCUMENTS, ANY OF THE TRANSACTIONS PROVIDED FOR OR
CONTEMPLATED IN ANY OF THE BORROWER DOCUMENTS, OR ANY CAUSE OF ACTION OR ALLEGED
CAUSE OF ACTION ARISING OUT OF OR IN CONNECTION WITH ANY DEBTOR AND CREDITOR
RELATIONSHIP BETWEEN OR AMONG THE GUARANTOR, THE BORROWER AND/OR THE LENDER THAT
MAY EXIST FROM TIME TO TIME.
11.10 In the event that any of the Guaranteed Obligations arise out of or
are evidenced by more than one obligation or liability of the Borrower to the
Lender, this Agreement may be enforced as to each separate liability or
obligation constituting one of the Guaranteed Obligations, either separately or
cumulatively.
11.11 The use of any gender in this Agreement shall be deemed to include
each other gender to the extent the context requires.
11.12 (a) Any requirement of the Uniform Commercial Code or other
applicable law of reasonable notice shall be met if such notice is given at
least ten (10) business days before the time of sale, disposition or other event
or thing giving rise to the requirement of notice.
(b) All notices or communications under this Agreement shall be in
writing and shall be (1) mailed by registered or certified mail, return receipt
requested, (2) hand delivered, or (3) delivered by overnight carrier, to the
parties at the addresses set forth below their names on the signature page(s) to
this Agreement, and any notice so addressed and mailed or delivered to and/or
deposited with such carrier, freight prepaid, shall be deemed to have been given
when so mailed if mailed; or delivered if hand-delivered; or delivered to such
overnight courier if delivered by overnight courier.
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(c)The parties hereto may at any time,and from time to time,change the
address(es) to which notice shall be mailed, transmitted or otherwise delivered
by written notice setting forth the changed address(es).
11.13 THE BORROWER AND EACH GUARANTOR HEREBY WAIVES ITS RIGHT TO A JURY
TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS
AGREEMENT, THE LOAN AGREEMENT, THE REVOLVING CREDIT NOTE, THE PLEDGE AGREEMENT
AND/OR ANY OTHER OF THE BORROWER DOCUMENTS. THIS WAIVER IS INTENDED TO APPLY TO
ANY AND ALL DISPUTES THAT MAY BE FILED IN ANY COURT THAT RELATE TO THE SUBJECT
MATTER OF THIS TRANSACTION, INCLUDING, WITHOUT LIMITATION, CONTRACT CLAIMS, TORT
CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW AND STATUTORY CLAIMS.
THE BORROWER AND GUARANTOR ACKNOWLEDGES THAT THIS WAIVER IS A MATERIAL
INDUCEMENT FOR THE LENDER TO ENTER INTO A BUSINESS RELATIONSHIP, AND THAT THE
LENDER HAS ALREADY RELIED ON THIS WAIVER IN ITS DEALINGS WITH THE BORROWER AND
THE GUARANTOR. THE BORROWER AND GUARANTOR FURTHER WARRANTS AND REPRESENTS THAT
EACH HAS REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL, AND THAT EACH KNOWINGLY
AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL
COUNSEL. THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER
ORALLY OR IN WRITING, AND THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS,
RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT, THE LOAN AGREEMENT,
THE REVOLVING CREDIT NOTE, THE PLEDGE AGREEMENT AND/OR THE OTHER BORROWER
DOCUMENTS. IN THE EVENT OF LITIGATION, THIS AGREEMENT MAY BE FILED AS A WRITTEN
CONSENT TO TRIAL BY THE COURT.
11.14 The Guarantor acknowledges that the Guarantor has received a copy of
the Loan Agreement and each of the other Borrower Documents, as fully executed
by the parties thereto. The Guarantor represent and warrants that the Guarantor
(a) HAS READ THE LOAN AGREEMENT AND THE OTHER BORROWER DOCUMENTS OR HAS CAUSED
SUCH DOCUMENTS TO BE EXAMINED BY THE GUARANTOR'S REPRESENTATIVES OR ADVISORS;
(b) is thoroughly familiar with the transactions contemplated in the Loan
Agreement and the other Borrower Documents; and (c), together with the
Guarantor's representatives or advisors, if any, has had the opportunity to ask
such questions to representatives of the Borrower and the Lender, respectively,
and receive answers thereto, concerning the terms and conditions of the
transactions contemplated in the Loan Agreement and the other Borrower Documents
as the Guarantor deem necessary in connection with the Guarantor's decision to
enter into this Agreement.
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IN WITNESS WHEREOF, the parties have executed this as of the date set out
on the preamble hereto, but actually on the date(s) set forth below.
GUARANTOR: /s/ Brian F. Lavin
-----------------------------------------------
BRIAN F. LAVIN
Date: August 15, 2000
------------------------------------------
Address:
10172 Linn Station Road
Louisville, KY 40223
Attn: Neil Mitchell
BORROWER: ORIG, LLC
By /s/ J. D. Nichols
--------------------------------------------
J. D. NICHOLS, MANAGER
Date: August 15, 2000
------------------------------------------
Address:
10172 Linn Station Road #200
Louisville, KY 40223
Attn: Neil Mitchell
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