-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, CKM9yZLHovAFzlW2DQLT+qcv77f2gz8jbHZIZsrraMLnxE51GVcQc0d/PAba7Wml N7baYGd12WSDx5+NE+r6Ug== 0001079450-99-000002.txt : 19990217 0001079450-99-000002.hdr.sgml : 19990217 ACCESSION NUMBER: 0001079450-99-000002 CONFORMED SUBMISSION TYPE: SB-2 PUBLIC DOCUMENT COUNT: 36 FILED AS OF DATE: 19990216 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BILTMORE GROUP OF LOUISIANA LLC CENTRAL INDEX KEY: 0001079450 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 721423893 FILING VALUES: FORM TYPE: SB-2 SEC ACT: SEC FILE NUMBER: 333-72379 FILM NUMBER: 99538712 BUSINESS ADDRESS: STREET 1: 507 TRENTON ST CITY: W MONROE STATE: LA ZIP: 71291 BUSINESS PHONE: 3183232115 MAIL ADDRESS: STREET 1: 507 TRENTON ST CITY: W MONROE STATE: LA ZIP: 71291 SB-2 1 FORM SB-2 FOR THE BILTMORE GROUP OF LOUISIANA, L.L.C. REGISTRATION NO. ------------ UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM SB-2 Registration Statement Under The Securities Act of 1933 THE BILTMORE GROUP OF LOUISIANA, L.L.C. (Name of small business issuer in its charter) Louisiana 8261 72-1423893 - --------------- --------------- -------------- (State or other (Primary Standard (I.R.S. Employer jurisdiction of Industrial Identification Number) incorporation or Classification Code organization) Number)
507 Trenton Street West Monroe, Louisiana 71291 (318) 323-2115 ----------------------- (Address and telephone number of principal executive offices) 507 Trenton Street West Monroe, Louisiana 71291 ----------------------- (Address of principal place of business or intended principal place of business) Joanne M. Caldwell-Bayles 507 Trenton Street West Monroe, Louisiana 71291 (318) 323-2115 ----------------------- (Name, address and telephone number of agent for service) Copies of communications to: Clay Carroll, Esq. 525 East Court Avenue Jonesboro, Louisiana 71251 (318) 259-4184 Michael G. Quinn, Esq. 154 North Topeka Street Wichita, Kansas 67202 (316) 267-0377 William Martin MMR Investment Bankers, Inc. 550 North 159th Street East Suite 300 Wichita, Kansas 67230 (316) 733-5081 ----------------------- Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective. If this Form is filed to register additional securities for an offering pusuant to Rule 462(b) under the Securities Act, please check the following box and list the Securitis Act registration statement number of the earlier effective registration statement for the same offering. [_] If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. [x] If this Form is a post-effective amendment filed purusant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [_] CALCULATION OF REGISTRATION FEE ============================================================================== Proposed Proposed Title of Dollar maximum maximum securities amount offering aggregate being to be price per offering Amount of registered registered unit price (1) registration fee - ---------- ---------- --------- ---------- ---------- Co-First $9,900,000 100% $9,900,000 $3,000.00 Mortgage Bonds
============================================================================== (1) The securities to be offered may be purchased in amounts of $250 or more. THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. ============================================================================== SENIOR RETIREMENT COMMUNITIES, INC. CROSS-REFERENCE SHEET PURSUANT TO PART I OF FORM SB-2
FORM SB-2 ITEM PROSPECTUS CAPTION --------------- ------------------ 1. Front of Registration Statement Front of Registration Statement; and Outside Front Cover Page of Outside Front Cover Page Prospectus. . . . . . . . . . . . 2. Inside Front and Outside Back Inside Front and Outside Back Cover Cover Pages of Prospectus . . . . Pages 3. Summary Information and Risk Prospectus Summary; Risk Factors Factors . . . . . . . . . . . . . 4. Use of Proceeds . . . . . . . . . Prospectus Summary; Sources and Uses of Proceeds 5. Determination of Offering Price Not Applicable 6. Dilution. . . . . . . . . . . . . Not Applicable 7. Selling Security Holders. . . . . Not Applicable 8. Plan of Distribution. . . . . . . Prospectus Summary; Underwriting 9. Legal Proceedings . . . . . . . . Legal Proceedings 10. Directors, Executive Officers, Management Promoters and Control Persons . . 11. Security Ownership of Certain Principal Owners of the Company Beneficial Owners and Management 12. Description of Securities . . . . Description of Bonds 13. Interest of Named Experts and Legal Matters; Experts Counsel . . . . . . . . . . . . . 14. Disclosure of Commission Not Applicable Position on Indemnification for Securities Act Liabilities. . . . 15. Organization within Last Five Not Applicable Years . . . . . . . . . . . . . . 16. Description of Business . . . . . Prospectus Summary; Risk Factors; Sources and Uses of Proceeds; Business; Management; Certain Transactions; Principal Owners of the Company; The Company's Plan of Operation; Financial Statements 17. Management's Discussion and Analysis of Plan of Operation . . The Company's Plan of Operation 18. Description of Property . . . . . Description of Property 19. Certain Relationships and Certain Transactions Related Transactions. . . . . . . 20. Market for Common Equity and Not Applicable Related Stockholder Matters . . . 21. Executive Compensation. . . . . . Management - Executive Compensation 22. Financial Statements. . . . . . . Financial Statements 23. Changes in and Disagreements Not Applicable with Accountants on Accounting and Financial Disclosure . .
================================================================================ PROSPECTUS Dated , 1999 ------------- $9,900,000.00 THE BILTMORE GROUP OF LOUISIANA, L.L.C. Co-First Mortgage Bonds Consisting of: $1,800,000 Co-First Mortgage Bonds, Series 1999-I (the "Minden Project") $2,700,000 Co-First Mortgage Bonds, Series 1999-II (the "Oak Creek Project") $1,800,000 Co-First Mortgage Bonds, Series 1999-III (the "Bastrop Project") $1,800,000 Co-First Mortgage Bonds, Series 1999-IV (the "Farmerville Project") $1,800,000 Co-First Mortgage Bonds, Series 1999-V (the "Natchitoches Project") The Biltmore Group of Louisiana, L.L.C. (the "Company") is a newly formed Louisiana limited liability company that will develop, acquire and operate retirement and assisted living facilities in certain cities primarily in the State of Louisiana and in one city in the State of Arizona. The Company will conduct business as Arbor Retirement Community in Louisiana. In Arizona, the Company will conduct business as The Biltmore of Oak Creek. The Company is offering $9,900,000.00 of co-first mortgage bonds (herein collectively referred to as the "Bonds") in five series, with the proceeds from each series being used for a particular project as set forth above. Herein, the Company's five projects are collectively referred to as the "Facilities." The issue and sale of each series of bonds is not contingent on the issue and sale of the other series of bonds, and will be separately offered, sold and subject to minimum proceeds prior to the issuance thereof. Pending receipt of minimum proceeds for each series of bonds, the proceeds for the subscriptions thereto will be held in escrow pursuant to an Escrow Agreement between the Company and Colonial Trust Company (the "Trustee"). The Bonds are issued as fully registered bonds in denominations of $250 or any integral multiple thereof. All Bonds will be issued in book-entry form unless the purchaser requests a printed bond. Payments of principal and interest thereunder will be paid by the Trustee, as paying agent and registrar of the Bonds. A portion of the Bonds bear simple interest payable semiannually, and some of the Bonds bear compound interest payable at maturity. See "Maturity Schedules." Interest on the Series 1999-I, III, IV and V Bonds will accrue from their respective dates of issue whether or not the respective minimum offering amounts have been reached. Interest on the Series 1999-II Bonds will accrue from the date payment for the Series 1999-II Bonds is received in the office of MMR Investment Bankers, Inc. (the "Underwriter") whether or not the minimum offering amount for this series of bonds has been reached. The Bonds are secured by a pledge of land and buildings constituting the Facilities and a pledge of gross income of the Company pursuant to the terms of the Trust Indenture (the "Trust Indenture") between the Company and the Trustee. The Bonds are subject to redemption prior to the respective maturities, in whole or in part, as more fully described herein. See "Description of Bonds". THE BONDS INVOLVE A HIGH DEGREE OF RISK. PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE SECTION ENTITLED "RISK FACTORS" BEGINNING ON PAGE 7 OF THIS PROSPECTUS CONCERNING THE COMPANY AND THIS OFFERING. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THE BONDS ARE NOT GUARANTEED OR INSURED BY ANY GOVERNMENTAL AGENCY. THE BONDS ARE NOT RATED BY ANY RECOGNIZED RATING AGENCY.
Series (1) Price to Underwriting Proceeds to Public (2) Discounts and Company Commissions (3) Series 1999-I . . . 100% 6% 94% Series 1999-II . . . 100% 6% 94% Series 1999-III. . . 100% 6% 94% Series 1999-IV . . . 100% 6% 94% Series 1999-V. . . . 100% 6% 94% Total. . . . . . . . 100% 6% 94%
(Notes continued on next page) MMR INVESTMENT BANKERS, INC. The Bonds are offered by MMR Investment Bankers, Inc. (the "Underwriter") on a best efforts basis as agent for the Company. The Bonds are offered subject to prior sale. The offering of the Bonds (the "Offering") will continue until the sale of all Bonds or for a period of one year from the date of this Prospectus. It is expected that the Bonds will be delivered in book-entry form, subject to the sale of minimum funds for each series of Bonds, through the facilities of the Trustee within thirty (30) days from the date subscriptions for the Bonds are received. (Notes continued from the front page) (1) The Series 1999-I Bonds are subject to the sale of a minimum of $400,000 in principal amount of Bonds. The Series 1999-II are subject to the sale of a minimum of $600,000 in principal amount of Bonds. The Series 1999-III Bonds are subject to the sale of a minimum of $400,000 in principal amount of Bonds. The Series 1999-IV Bonds are subject to the sale of a minimum of $400,000 in principal amount of Bonds. The Series 1999-V Bonds are subject to the sale of a minimum of $400,000 in principal amount of Bonds. Subject to the sale of all Bonds and any adjustments, the Underwriter will receive an aggregate maximum sales commission of $594,000. See "Underwriting." The Company, the Company's affiliates, the Underwriter and the Underwriter's affiliates may purchase Bonds in order to reach the minimum offering amounts for any series of the Bonds. These parties will not be restricted to the amount of Bonds that they may purchase. The Company has agreed to indemnify the Underwriter against certain liabilities, including liabilities under the Securities Act of 1933, as amended (the "Securities Act"). (2) The Bonds are issued as fully registered bonds in denominations of $250 or any integral multiple thereof. (3) Before deducting expenses payable by the Company estimated at $250,000, including an investment banking fee in the amount of $128,700 paid to the Underwriter for its technical assistance in connection with the Offering, $60,000 to be paid by the Trustee to the Underwriter over the terms of the Bonds and miscellaneous expenses estimated to be $61,300 for registration fees, legal fees, accounting fees and other costs associated with the Offering. THESE SECURITIES ARE OFFERED FOR SALE IN THE STATES OF COLORADO, KANSAS, LOUISIANA AND WYOMING PURSUANT TO A PERMISSIVE REGISTRATION WITH THE SECURITIES COMMISSIONERS OF THESE STATES. THESE SECURITIES ARE ALSO OFFERED FOR SALE IN THE STATES OF PENNSYLVANIA AND TEXAS PURSUANT TO EXEMPTIONS FROM REGISTRATION UNDER THESE STATES' SECURITIES ACTS. THE REGISTRATIONS AND EXEMPTIONS FROM REGISTRATION DO NOT CONSTITUTE A RECOMMENDATION OR ENDORSEMENT BY THE COMMISSIONERS NOR DOES THE REGISTRATIONS OR EXEMPTIONS FROM REGISTRATION SIGNIFY THAT THE COMMISSIONERS HAVE APPROVED OR PASSED UPON THE INVESTMENT MERIT OF SUCH SECURITIES. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. PENNSYLVANIA RESIDENTS/INVESTORS EACH PERSON WHO ACCEPTS AN OFFER TO PURCHASE SECURITIES EXEMPTED FROM REGISTRATION BY SECTION 203(d), DIRECTLY FROM THE ISSUER OR AFFILIATE OF THE ISSUER, SHALL HAVE THE RIGHT TO WITHDRAW HIS ACCEPTANCE WITHOUT INCURRING ANY LIABILITY TO THE SELLER, UNDERWRITER (IF ANY) OR ANY OTHER PERSON WITHIN 2 BUSINESS DAYS FROM THE DATE OF RECEIPT BY THE ISSUER OF HIS WRITTEN BINDING CONTRACT OF PURCHASE, OR, IN THE CASE OF A TRANSACTION IN WHICH THERE IS NO BINDING CONTRACT OF PURCHASE, WITHIN 2 BUSINESS DAYS AFTER HE MAKES THE INITIAL PAYMENT FOR THE SECURITIES BEING OFFERED. TEXAS RESIDENTS/INVESTORS THESE SECURITIES ARE OFFERED FOR SALE ONLY TO FINANCIAL INSTITUTIONS, INSTITUTIONAL INVESTORS AND ACCREDITED INVESTORS AS DEFINED IN SECTION 109.3 OF THE TEXAS SECURITIES ACT. (Artist rendering of a facility of the Company and Company's logo will go in this space) The Company intends to furnish annual reports containing audited financial statements to its bondholders. 2 MATURITY SCHEDULES
Series 1999-I Bonds Maturity Type Interest Principal Date (1) Rates Retired (2) 10/01/00 S 7.00% $21,000 04/01/01 S 7.50% $21,500 10/01/01 S 7.50% $24,000 04/01/02 S 8.00% $25,000 10/01/02 S 8.00% $29,500 04/01/03 S 8.50% $30,250 10/01/03 C 8.50% $21,750 04/01/04 S 9.00% $31,500 10/01/04 C 9.00% $20,500 04/01/05 S 9.25% $33,000 10/01/05 C 9.25% $19,250 04/01/06 S 9.50% $34,750 10/01/06 S 9.50% $36,250 10/01/06 S 9.50% $1,451,750
Series 1999-II Bonds Maturity Type Interest Principal Date (1) Rate Retired (2) 05/01/04 S 9.00% $2,700,000
Series 1999-III Bonds Maturity Type Interest Principal Date (1) Rate Retired (2) 11/01/99 C 6.50% $77,000 05/01/00 C 7.00% $74,500 11/01/00 C 7.00% $81,000 05/01/01 C 7.50% $77,750 11/01/01 C 7.50% $83,500 05/01/02 C 8.00% $79,500 11/01/02 C 8.00% $84,500 05/01/03 C 8.50% $79,500 11/01/03 C 8.50% $76,500 05/01/04 C 9.00% $71,500 11/01/04 C 9.00% $68,500 05/01/05 C 9.25% $64,500 11/01/05 C 9.25% $62,000 05/01/06 C 9.50% $58,000 11/01/06 C 9.50% $55,500 11/01/06 C 9.50% $706,250
Series 1999-IV Bonds Maturity Type Interest Principal Date (1) Rate Retired (2) 12/01/00 S 7.00% $17,250 06/01/01 S 7.50% $18,000 12/01/01 C 7.50% $23,000 06/01/02 S 8.00% $27,750 12/01/02 C 8.00% $30,000 06/01/03 S 8.50% $39,500 12/01/03 C 8.50% $28,250 06/01/04 S 9.00% $41,250 06/01/04 S 9.00% $1,575,000
Series 1999-V Bonds Maturity Type Interest Principal Date (1) Rate Retired (2) 01/01/01 S 7.00% $17,250 07/01/01 S 7.50% $18,000 01/01/02 C 7.50% $23,000 07/01/02 S 8.00% $27,750 01/01/03 C 8.00% $30,000 07/01/03 S 8.50% $39,500 01/01/04 C 8.50% $28,250 07/01/04 S 9.00% $41,250 07/01/04 S 9.00% $1,575,000
Note 1: S = Simple Interest Bonds; interest payable semiannually until maturity. C = Compound Interest Bonds; interest compounded semiannually and payable at maturity. Note 2: The Series 1999-I Bond Issue has a balloon payment of $1,451,750 due on September 30, 2006. The Series 1999-II Bond Issue has a balloon payment of $2,700,000 due on April 30, 2004. The Series 1999-III Bond Issue has a balloon payment of $1,416,771 due on October 31, 2006 consisting of $706,250 in principal and $710,521 in accrued interest. The Series 1999-IV and Series 1999-V Bond Issues each have balloon payments of $1,575,000 due on May 31, 2004 and June 30, 2004, respectively. 3 PROSPECTUS SUMMARY The following summary is qualified in its entirety by the more detailed information, including risk factors, financial statements and notes thereto appearing elsewhere in this Prospectus. The Company The Biltmore Group of Louisiana, L.L.C. is a development stage limited liability company formed under the laws of the State of Louisiana for the purpose of developing, acquiring and operating retirement and assisted living facilities in four locations in Louisiana and one location in Arizona. The Company's executive offices are located at 507 Trenton Street, West Monroe, Louisiana, and the Company's telephone number is (318) 323-2115. See "Business." The Offering Bonds Offered. . . . . . . The Company is offering $9,900,000.00 of co-first mortgage bonds in five series, with the proceeds from each series being used for a particular project. The issue and sale of each series of bonds is not contingent on the issue and sale of the other series of bonds, and will be separately offered and sold and subject to minimum proceeds prior to the issuance thereof. The Bonds are secured by a pledge of land and buildings constituting the Facilities and a pledge of gross income of the Company pursuant to the terms of the Trust Indenture between the Company and the Trustee. See "Description of Bonds - Description of Liens" and "Description of Bonds - General." The Series 1999-I Bonds will be dated April 1, 1999, and are subject to the sale of a minimum of $400,000 in principal amount of Bonds. The aggregate principal amount of the Series 1999-I Bonds is $1,800,000 and is comprised of bonds in the principal amount of $1,738,500 that will mature serially and bear simple interest payable by check mailed to the registered owners each October 1 and April 1 until maturity and bonds in the principal amount of $61,500 that will mature serially and bear interest compounded semiannually each October 1 and April 1 that is payable at maturity. The Series 1999-II Bonds will be dated May 1, 1999, and are subject to the sale of a minimum of $600,000 in principal amount of Bonds. The aggregate principal amount of the Series 1999-II Bonds is $2,700,000. The Series 1999-II Bonds will mature serially and bear simple interest payable by check mailed to the registered owners each November 1 and May 1 until maturity. The Series 1999-III Bonds will be dated May 1, 1999, and are subject to the sale of a minimum of $400,000 in principal amount of Bonds. The aggregate principal amount of the Series 1999-III Bonds is $1,800,000. The Series 1999-III Bonds will mature serially and bear interest compounded semiannually each November 1 and May 1 that is payable at maturity. The Series 1999-IV Bonds will be dated June 1, 1999, and are subject to the sale of a minimum of $400,000 in principal amount of Bonds. The aggregate principal amount of the Series 1999-IV Bonds is $1,800,000 and is comprised of bonds in the principal amount of $1,718,750 that will mature serially and bear simple interest payable by check mailed to the registered owners each December 1 and June 1 until maturity and bonds in the principal amount of $81,250 that will mature serially and bear interest compounded semiannually each December 1 and June 1 that is payable at maturity. 4 The Series 1999-V Bonds will be dated July 1, 1999, and are subject to the sale of a minimum of $400,000 in principal amount of Bonds. The aggregate principal amount of the Series 1999-VI Bonds is $1,800,000 and is comprised of bonds in the principal amount of $1,718,750 that will mature serially and bear simple interest payable by check mailed to the registered owners each January 1 and July 1 until maturity and bonds in the principal amount of $81,250 that will mature serially and bear interest compounded semiannually each January 1 and July 1 that is payable at maturity. Interest on the Bonds is included in gross income for federal tax purposes. See "Description of Bonds." Denominations. . . . . . . $250 or integral multiples thereof. Maturity . . . . . . . . . See Maturity Schedules on page 3 hereof. Subscription for Bonds . . Each person who wishes to purchase a Bond must execute a subscription agreement covering the Bond(s) being purchased. The subscription argeement is generated by the Underwriter upon receiving verbal indication from a subscriber for the Bond(s) the subscriber has selected from the available maturities. Subscribers may purchase any of the series of Bonds. Prior to executing the subscription agreement, the subscriber will be provided a Prospectus by the Underwriter. See "Underwriting - Subscription for Bonds." Operating Funds. . . . . . Under the Trust Indenture, the Company must establish an operating fund account for each of the five series of bonds. The Company will make monthly deposits into the operating fund accounts in amounts predetermined to be sufficient at all times to pay the principal and interest of the Bonds. See "Description of Bonds - Operating Fund Requirements." Redemption . . . . . . . . The Company has reserved the right to redeem all or a portion of the Bonds prior to their stated maturity. The Bonds are subject to redemption without premium at the principal amount thereof plus accrued interest. See "Description of Bonds - Prepayment." Covenants. . . . . . . . . In addition to its obligation to remit the principal and interest payments when due, the Company has agreed to at its own cost and expense, maintain the properties in good repair and condition and pay or discharge all taxes, assessments and any mechanic's or material men's liens that may become payable. The Company covenants to keep all property pledged under this Bond issue properly insured against loss by fire, windstorm and explosion in an amount equal to the outstanding balance of the Bonds. Also, the Company has obtained a key employee insurance policy covering the life of the Managing Member of the Company in the amount of $500,000 payable to the Company and $1,000,000 assignable to the Trustee for the benefit of the Bondholders. See "Description of Bonds." Bond Reserve Fund. . . . . The Company has agreed to establish a bond reserve account ("Bond Reserve Account") which will be funded by the Series 1999-I, III, IV and V Bonds. See "Sources and Uses of Proceeds." The purpose of the Bond Reserve Account is that in the event the Company has not deposited the necessary funds to pay the principal and interest due on any semiannual payment date, the Trustee may apply available funds to the principal and interest due on the Bonds. If all the Bonds are sold, the Bond Reserve Account will be funded in the amount of $537,000. The Bond Reserve Account will remain in place for a period of 7 1/2 years from May 1, 1999. At the end of the 7 1/2 year period said reserve funds will be used to call any outstanding Bonds, provided the Company is current on all operating fund payments. See "Description of Bonds - Bond Reserve Account." 5 Trustee. . . . . . . . . . Colonial Trust Company of Phoenix, Arizona has agreed to serve as Trustee for the Bonds pursuant to the Trust Indenture entered into between the Company and the Trustee. The Trustee has also agreed to serve as Paying Agent, Registrar, Disbursing Agent and Escrow Agent. The Trustee is not a guarantor or surety, does not in any way guarantee or act assurety for payment of the Bonds and may not be held liable under any conditions, except for its own negligence. See "Description of Bonds." Trust Indenture. . . . . . The Company pledges, transfers and assigns to the Trustee, in trust, to secure the payment of the Bonds, all of its rights, title and interest to the first receipts of any and all revenues of the Facilities, the real property of the Company and the furnishings and equipment of the Company and all monies and securities held by the Trustee under the terms of the Trust Indenture. The Bonds are secured by a pledge of land and buildings constituting the Facilities and a pledge of gross income of the Company. The properties securing the Bonds are located in the Northern Louisiana communities of Minden, Bastrop and Farmerville and Natchitoches and Sedona, Arizona. Pursuant to the Trust Indenture, each bond will be issued on parity with the other Bonds. See "Description of Bonds." Proceeds Escrow. . . . . . All proceeds from the sale of Bonds will be deposited with Colonial Trust Company as "Escrow Agent" pursuant to an Escrow Agreement entered into between the Company and the Escrow Agent. Pursuant to the terms of the Escrow Agreement, all proceeds from the sale of the Bonds will be deposited with the Escrow Agent, subject to the sale of minimum funds for any series of Bonds, as set forth herein. In the event minimum funds for any series of Bonds is not received within the time set forth herein, the Company will promptly pay to the Escrow Agent such sum of money as will be necessary, if any, when added to the sums held in escrow, including interest earned thereon, to pay to the subscribers the principal amount of their subscription together with the interest from the date of issue through the escrow termination date at the rate attributable to the Bonds subscribed to by the subscriber. During the escrow period, the subscriber will not have access to funds held in the Escrow Account. See "Description of Bonds - Escrow and Disbursement of Bond Proceeds." Use of Proceeds. . . . . . Subject to the sale of minimum funds for each series of Bonds, the net proceeds will be used to fund a small portion of the operating fund payments on the Bonds, fund a reserve account, provide financing for the construction, furnishing and equipping of the Company's Facilities and payoff interim/construction financing on the Facilities. See "Sources and Uses of Proceeds." Risk Factors . . . . . . An investment in the Bonds are speculative and involves a high degree of risk. Among such risks are the following: no assurance of sale of any series of the Bonds; sale of the Minimum Offerings will not be sufficient to retire the interim/construction loans; and the Company will be required to make substantial balloon payments at the final maturities of the Bonds. Potential investors should carefully consider the factors set forth under "Risk Factors." Financial Summary As of December 31, 1998, the Company had total assets of $3,953,961, total liabilities of $2,174,025 and total members equity of $1,088,646. The members of the Company have contributed a total of $1,112,762.50 in capital to the Company. Since the Company's inception on July 1, 1998 through December 31,1998, the Company has generated no revenues and has incurred cumulative expenses of $24,117. See "Financial Statements" beginning on page F-1 of the Prospectus. 6 RISK FACTORS In addition to the other information in this Prospectus, the following factors should be considered carefully in evaluating an investment in the Bonds offered by this Prospectus. An investment in the Bonds is speculative and involves a high degree of risk. Certain of these risks are set forth below and should be considered by investors, among others, as a part of their overall evaluation before making a decision to purchase Bonds. No Commitment to Purchase Bonds; Deposit of Subscriptions The Underwriter, in selling the Bonds, is acting as agent of the Company on a "best efforts" basis. The Underwriter is only obligated to use its best efforts to sell the Bonds, and the Company will not receive any proceeds of any series of the Bonds unless the Underwriter sells Bonds equal to the minimum amount of bonds applicable to a series of Bonds. During the offering period, the Underwriter will deposit all subscriptions from the sale of the Bonds with the Escrow Agent, which funds will be held until the minimum offering for a series of Bonds is met. Thereafter, such funds shall be disbursed to the Company and applied for the purposes set forth herein. See "Sources and Uses of Proceeds." If the minimum offering for any series of Bonds is not sold, potential investors will loose the use of their funds during the offering period, and any extension thereof, although the Company has agreed to promptly pay to the Escrow Agent such sum of money as shall be necessary, if any, when added to funds held in escrow, including interest earned thereon, to pay to the subscribers of the bonds the principal amount of such subscriptions together with the interest applicable to such Bonds through the escrow termination date. See "Description of Bonds - Escrow and Disbursement of Bond Proceeds." Risk Associated with Bonds - Co-First Mortgage The Company has obtained and will obtain interim/construction loans (the "Interim Loans") with The First Republic Bank of Monroe, Louisiana ("FRB") and Church Loans and Investments Trust of Amarillo, Texas ("CLT"), hereinafter collectively referred to as the Interim Lenders, for the construction and acquisition of the Company's Facilities. The Company obtained the construction loan for the Minden Project ("Minden Construction Loan") on October 2, 1998 in the amount of $1,358,520 from FRB. The Company obtained the interim loan for the Oak Creek Project ("Oak Creek Interim Loan") on October 20, 1998 in the amount of $2,174,025 from CLT. The Company obtained the construction loan for the Bastrop Project ("Bastrop Construction Loan") on November 24, 1998 in the amount of $1,220,000 from CLT. The Company agreed to the terms of a construction loan commitment issued by CLT for the construction financing of the Farmerville Project ("Farmerville Construction Loan") on February 1, 1999. The Farmerville Construction Loan will be in the amount of $1,330,000 and will be due 12 months after the initial funding of the loan. The Company agreed to the terms of a construction loan commitment issued by CLT for the construction financing of the Natchitoches Project ("Natchitoches Construction Loan") on February 1, 1999. The Natchitoches Construction Loan will be in the amount of $1,450,000 and will be due 12 months after the initial funding of the loan. Each interim/construction loan is secured by a Co-First Mortgage on the corresponding project that will be constructed or has been construction (the Oak Creek Project) from the proceeds of the respective interim/construction loan. If any of the loans go into default, the lender may exercise it rights, including Lender's right under the mortgage and the applicable Lienholder Agreement to accelerate the defaulted interim/construction loan and the applicable bonds and, if not paid, then foreclose the subject property securing the applicable interim/construction loan. There is no assurance that the Company would be able to secure alternative financing to replace the interim/construction loan(s) on a timely basis. Notwithstanding the fact that the security for each of the Facilities is in parity with its respective interim/construction loan, there can be no assurance that the proceeds arising from any sale of any of the Facilities, even though the construction has been fully completed, would be sufficient to fully repay the respective interim/construction loan and the then outstanding Bonds. Under the terms of the Lienholder Agreements, all receipts from collection and foreclosure are to be allocated between the interim/construction loan and the corresponding series of Bonds in proportion to the respective principal balances outstanding. See "Description of Property - Financing of the Company's Facilities", "Description of Bonds - Escrow and Disbursement of Bond Proceeds", "Sources and Uses of Proceeds" and "The Company's Plan of Operation." 7 Substantial Balloon Payment Requirements for the Bonds In order to retire all of the Bonds, the Company is required to make a substantial balloon payment on the final maturity for each series of bonds. See "Maturity Schedules." The Company is required to make a one-time payment of $1,451,750 on September 30, 2006, to pay principal due at that time on the remaining outstanding Series 1999-I Bonds. The Company is required to make a one time payment of $2,700,000 on April 30, 2004, to pay principal due at that time on the remaining outstanding Series 1999-II Bonds. The Company is required to make a one time payment of $1,416,771 on October 31, 2006, to pay principal and interest due at that time on the remaining outstanding Series 1999-III Bonds. The Company is required to make a one time payment of $1,575,000 on May 31, 2004, to pay principal due at that time on the remaining outstanding Series 1999-II Bonds. The Company is required to make a one time payment of $1,575,000 on June 30, 2004, to pay principal due at that time on the remaining outstanding Series 1999-II Bonds. There is no assurance the Company will have sufficient funds to do so, and, if not, may have to refinance the balance of the Bonds then due. There is also no assurance the Company will be able to refinance an amount sufficient to retire all of the Bonds then outstanding. Presence of Debt The Company is newly formed and without any operating history. The financing activities of the Company will be made primarily through the issuance of debt. As a result, the Company will be highly leveraged. Moreover, the Company will initially be highly dependent upon the proceeds received as a result of the issuance of the Bonds in order to service the debt incurred under the Bonds and, thereafter, the payment of debt will be based upon income from the Company's operation of the Facilities. There is no assurance that such operations will be successful. Other than a pledge of the land and buildings constituting the Facilities and a pledge of the gross income for the benefit of the Bonds, there are no other credit enhancements to secure the payment of the Bonds such as personal guarantees of members, letters of credit or other additional forms of security for the Bonds. The obligations for the payment of principal and interest of the Bonds are entirely the obligation of the Company. Such obligations are without recourse to the stockholders of the Company. No Assurance of Operating Fund Payments Proceeds of this Offering, in part, will be used to fund the first monthly operating fund payments on all five series of bonds in amounts approximately equivalent to the first six month operating fund payments assuming all of the Bonds are sold. There is no assurance that the Company will have sufficient funds to pay the operating fund payments after the initial operating fund payments (that are to be funded from bond proceeds) have been expended. Failure of the Company to make the operating fund payments constitutes an event of default upon which the Trustee may accelerate the Bonds. See "Description of Bonds - Initial Operating Fund Payments", "Description of Bonds - Events of Default" and "Description of Bonds - Remedies of Default." Proceeds of this Offering also will be used to fund the Bond Reserve Account to be applied by the Trustee to pay the principal and interest due on the Bonds only in an event of default. The Trustee will maintain the Bond Reserve Account and will be in effect for 7 1/2 years from May 1, 1999. Should the Company fail to make the required deposits into the operating fund account necessary to pay the principal and interest due on the payment dates, and should the Bond Reserve Account be entirely expended for said purposes, there may not be sufficient funds available to repay bondholders in a timely manner. At the end of the 7 1/2 year period, any funds remaining in the Bond Reserve Account must first be used to call any outstanding Bonds, provided the Company is current on all operating fund payments. If all of the Bonds have been retired prior to the end of the 7 1/2 year period, then the Bond Reserve Account will be released to the Company. See "Description of Bonds - Bond Reserve Accounts." If only a portion of the Bonds are sold, the operating fund payments may be adjusted to correspond with the principal and interest then outstanding, but at no time be less than the required amount to pay any principal and/or interest that would be due on any interest computation date. Possible Withdrawal of Underwriter The Underwriter is subject to civil litigation brought by the Securities Commissioner of Kansas on behalf of the State of Kansas. This case stems from the Underwriter's participation in a series of church bond offerings of a single church located in Wichita, Kansas. The Securities Commissioner of Kansas seeks a permanent injunction restraining and enjoining the Underwriter, its control persons and others from directly or indirectly employing any device, scheme, or artifice 8 to defraud; engaging in an act, practice or course of business which would operate as a fraud or deceit upon any person; and/or making any untrue statements of material fact and/or omitting to state material facts necessary in order to make other statements made not misleading, and, seeking restitution jointly and/or severely in the amount of $4,825,665.24, which is the amount in default on the last two issues of church bonds issued on behalf of the church. It is likely that during the offering of the Bonds, that this matter may be adjudicated, settled, or otherwise, and the authority of the Underwriter to engage in the securities business may be suspended, revoked or limited. Currently, this litigation is in its discovery stage, and the Underwriter has determined to vigorously defend the case. However, in the event the Underwriter is unable to continue its business as a broker dealer of securities, it will have to withdraw from its participation in this Offering and, in all likelihood, the Offering will be terminated unless and until the Company is successful in finding another Underwriter willing to participate in the sale of the Bonds. Lack of Secondary Market The Underwriter does not intend to make a market in the Bonds. There is no quoted market for the Bonds and there is no assurance a market will develop. There is no guarantee that all or a substantial portion of the Bonds will be sold. The marketability of the Bonds may also be influenced by other general market conditions, such as the overall strength of the bond market, which is influenced by a number of factors, such as changes in prevailing interest rates which may have an adverse effect on the price of the Bonds upon their sale and which are beyond the control of the Company. In addition, the Bonds have not received any credit rating by a Nationally Recognized Statistical Rating Organization. The absence of any such rating could adversely affect the ability of an investor to sell the Bonds or the price at which the Bonds are sold. Therefore, the likelihood of a market developing may be remote at best. A decision to purchase Bonds should be made with the understanding the Bonds most likely will have to be held until maturity, as there is no quoted secondary market for the Bonds, nor is there the likelihood one will develop. Purchasers of the Bonds should consider their ownership of the Bonds as an illiquid investment. Limitations of the Trust Indenture The Bonds will be issued pursuant and subject to the provisions of a certain Trust Indenture (the "Trust Indenture") between the Company and Colonial Trust Company of Phoenix, Arizona, as Trustee, Bond Registrar and Paying Agent (the "Trustee"). The Company is not required to qualify the Trust Indenture under The Trust Indenture Act of 1939 as amended (the "Act"). Thus, the Company has elected not to qualify the Trust Indenture under the Act. Although the Trust Indenture utilized by this Company does not conform entirely to the required provisions to the Trust Indenture Act of 1939, the overall agreement of the Trust Indenture does incorporate the essential provisions for the protection of bondholders. See "Description of Bonds." Enforcement of Trust Indenture The enforceability of the terms of the Trust Indenture is qualified to the extent that enforcement of the rights and remedies created by it is subject to bankruptcy, fraudulent conveyance, moratorium, insolvency, reorganization, and similar laws of general application affecting the rights and remedies of creditors and secured parties. The remedy of specific enforcement or of injunctive relief is subject to the discretion of the court for which any proceedings may be brought. To the extent the enforceability of the Trust Indenture is affected by such bankruptcy, insolvency, reorganization or similar laws, the rights of the Trustee or the Bondholders, and their ability to make recovery, in whole or in part, could be adversely affected. Additional Bonds The terms of the Trust Indenture enable the Company to further encumber the Facilities securing the Bonds by permitting the issuance of additional bonds at a future date. To the extent any additional bonds are issued, these additional bonds would be issued on parity with the Bonds and would, in turn, share proportionately with the Bonds in any proceeds that might arise from a foreclosure or similar proceeding following a default by the Company, thereby diminishing the proceeds available for repayment of the Bonds. See "Description of Bonds" and "The Company's Plan of Operation." 9 Notification of Bonds Maturing Semiannual notifications of Bond maturity may not be forwarded; each Bondholder who has received a printed bond certificate is responsible to present his/her Bonds for redemption at maturity. No interest will accrue or be payable from or after the respective payment date upon any matured installment of principal or interest. Further, the failure to present any Bond within three years of its maturity may result in the principal and interest due being subject to the laws of escheat in particular states. Early Redemption of Bonds The Bonds are subject to redemption, in whole or in part, prior to maturity as more particularly set forth herein. If the Bonds are redeemed prior to maturity, the owners thereof will not receive the yield to maturity indicated, and, if so redeemed, the owners may not be able to reinvest the proceeds thereof at comparable rates. Lack of Operating History and Related Experience The Company is newly formed and was organized on July 13, 1998. Renovations of the Oak Creek Project were completed in January 1999, and the Oak Creek Project commenced operations in January 1999. Construction of the Minden Project commenced in November 1998 and is scheduled to be completed and open for business in June 1999. Construction of the Bastrop Project commenced in December 1998 and is scheduled to be completed and open for business in July 1999. Construction of the Farmerville Project will commence in February 1999 and is scheduled to be completed and open for business in August 1999. Construction of the Natchitoches Project will commence in March 1999 and is scheduled to be completed and open for business in August 1999. Therefore, the Company has no substantial operating history. However, the Managing Member of the Company has gained previous experience in the development and operation of similar retirement, assisted living and memory disorder facilities in West Monroe, Ruston, Bossier City and Shreveport, Louisiana. The West Monroe Facility commenced operations in November of 1997. The Ruston Facility commenced operation in November 1998. The Shreveport Facility commenced operations in January 1999, and the Bossier City Facility will commence operations in February 1999. See "Management" and "Prior Performance of Affiliates of the Company." There is no assurance, that once open, the Company's Facilities will generate income sufficient to service the Bonds. Lack of Independent Feasibility Studies Independent feasibility studies have not been performed for the Company for its intended operations of the Facilities. The Company has relied upon market research conducted by the Company and the past experience of its Managing Member in analyzing the business opportunities of the Company. The Company has secured independent appraisals of the Facilities partly as a result of requests of the Underwriter and for its own purposes. See "Description of Property - Appraisals" and "Business - Competition." Risks Arising from Operations Any business entity which operates retirement and assisted living residences may be affected by adverse changes in general or local economic and market conditions, increased costs of labor or energy, competition from other similar businesses, poor management, limited alternative uses for the building and improvements, changing consumer tasks and habits, changing demographics and other factors. The Company's Facilities will be subject to various requirements, restrictions and regulations imposed by governmental authorities affecting the frail and elderly housing and care industry, the violation or claimed violation of which could have a material adverse impact upon the Company's ability to meet its business and financial obligations. More specifically, these risks include the following: General Economic Conditions: The financial success of the Company's operations may be sensitive to adverse changes in general economic conditions, such as inflation and unemployment. These changes could cause the cost of the Facilities' operations to increase in a manner that would create serious economic hardship. These changing conditions could also restrict the amount of income which potential customers have available for funding housing and care requirements such as residing at the Company's Facilities. The Company and its management have no control over any of these changes. 10 General Risks in Property Ownership: The Company will be subject to risks generally applicable to the ownership of real estate, including changes in (i) general economic conditions; (ii) supply of, or demand for, similar or competing properties; (iii) interest rates and the availability of permanent mortgage funds which may render the refinancing of their Facilities difficult or unattractive; and (iv) tax, real estate, environmental and zoning laws. Competition: The Company will experience competition from other elderly housing and care providers. The Company will compete principally on the basis of perceived quality and service, ambiance and price-value relationship. While the Company believes that their Facilities will be distinctive in design and operating concept, it is aware of other companies with similar or competitive concepts. The long-term care industry is highly competitive and the Company expects it will become more competitive in the future. The Company competes with numerous other companies providing similar long-term care alternatives, such as home health agencies, life care at home, community-based service programs, retirement communities and convalescent centers. Nursing facilities that provide long-term care services are also a potential source of competition to the Company. See "Business - Competition." Rental Risk: One of the principal risks being taken by the Company is the possibility that the Facilities will not generate sufficient cash flow to cover operating expenses and debt service payments, and the Company may be unable to meet its obligations. The cash flow derived from the Facilities may be affected by a variety of factors, including but not limited to, the following: (i) a reduction in rental income due to the Facilities inability to maintain high occupancy levels at favorable rates; (ii) adverse changes in local market conditions, such as over building, reduced employment opportunities, population shifts due to demographic changes, adverse changes in the residential quality of the surrounding neighborhood or unfavorable zoning law changes; (iii) rent control legislation; and (iv) the destruction of part or all of the Facilities due to fire, flooding, tornadoes or other natural disasters. Environmental Considerations: Certain Federal and state laws impose liability on a landowner for the presence on the premises of improperly disposed of hazardous substances. This liability is without regard to fault for, or knowledge of, the presence of such substances and may be imposed jointly or severally upon all succeeding landowners from the date of the first improper disposal. While state law is less onerous, the practical consequences may be the same. If in the future it is ever determined that hazardous substances are present, the Company could be required to pay all costs of any necessary clean up work, although under certain circumstances claims against other responsible parties could be made by the Company. Phase one environmental assessments were conducted on the Company's properties from 1998 through 1999, except for the Oak Creek Project in which no environmental assessment has been conducted. Research and visual observation undertaken from the environmental assessments did not reveal any former or current environmental conditions, problems or situations impacting the sites. Reliance on Technology - Year 2000 Risks The Company relies on computer hardware, software and related technology, together with data, in the operation of its business. In addition, the Company is dependent on the same type of technology and data generated by financial institutions, the Federal Government such as the Social Security Administration, the State of Louisiana, investment bankers, the Trustee, interim lenders and utility companies. The Company has initiated an enterprise wide program to prepare for the year 2000. The Company has created a year 2000 program office reporting to the Managing Member to coordinate and oversee the Company's year 2000 program. All of the Company's computer systems have been cleared to meet the year 2000 requirements by contacting the manufacturer of the equipment and receiving written notice of compliance. The computer software necessary for the accounting function has also been cleared for the year 2000 requirements in writing from the developer of the accounting software. The Company has discussed the year 2000 with all of the above set forth companies and agencies and have been assured either in writing or verbally that each anticipates compliance for the year 2000. As a result of the Company's own operations already being in compliance with the year 2000, it is dependent upon outside forces to also be in compliance. It is impossible for the Company to be sure that all governmental agencies, utilities, financial institutions and others with whom it does business will also be in compliance. The failure of some or all of the above stated agencies being in compliance with the year 2000 could adversely affect the Company's ability to operate. 11 Construction Risks Renovations to the Oak Creek Project are complete, and this facility commenced operations in January 1999. Construction of the Company's other four Facilities is not completed, and delays are common in the construction industry. The Company anticipates the construction of its Facilities to be completed by August 1999. Disruptive events may include shortages of, or inability to obtain, labor or materials, the inability of the general contractor or subcontractors to perform under their contracts, strikes, adverse weather conditions, changes in Federal, state or local laws or regulations, and other factors or circumstances presently unknown to or unanticipated by the Company. The Company may have little control over such events, and such events may adversely affect the cost and completion time of the Facilities. See "Business - Construction of the Facilities." Acquisition Risk - Oak Creek Project Operations The Oak Creek Project was acquired in October 1998. The property was previously used as a cancer treatment center. The Company's studies indicated the highest and best use for the facility is that of a senior independent living facility. After the Company completed renovations in January 1999, the Oak Creek Project commenced operations. The facility has not been in operation for a sufficient time to evaluate its success. See "General Risks in Property Ownership," "Competition" and "Rental Risk." Dependence on Management - Management Agreement The success of the Company's business will be highly dependent upon the services of Joanne M. Caldwell-Bayles, Managing Member of the Company. The loss of her services to the Company would adversely affect the Company's business operations. The Company has obtained a key employee insurance policy covering the life of Mrs. Caldwell-Bayles in the amount of $500,000 payable to the Company and $1,000,000 assignable to the Trustee for the benefit of the Bondholders. Mrs. Caldwell-Bayles, through a company owned by her, The Forsythe Group, Inc., has entered into a Management Agreement for the management of the Company's Facilities. See "Business - Management Agreement." The Management Agreement extends to the day-to-day operations of the retirement and assisted living facilities of the Company. The Management Agreement extends to the year 2010 and may be terminated by the mutual agreement of the parties, bankruptcy or for cause. See "Business - Facilities Operations." Employees Prior to the commencement of operations of each facility, the Company intends to employ an average of ten employees at each facility. During the construction and operation of the Facilities, the Company depends on The Forsythe Group, Inc. ("Forsythe"), for support staff and office facilities. There is no assurance that the Company or Forsythe will be able to obtain and maintain an adequate number of competent personnel, including entry-level and skilled positions, or that a shortage of operating personnel will not present a serious problem to the Company or Forsythe in the future. See "Business - Management Agreement." Lack of Company Member's Liability Under the Louisiana Limited Liability Company Act, all members and managers of a limited liability company have limited liability without regard to their participation in the management in the Company's business. A member is only liable for his contribution and improper return of capital. Accordingly, in the event of default in the payment of principal and interest on the Bonds occurs, in all likelihood, the bondholders could look only to the assets of the Company for satisfaction of such indebtedness. Conflicts of Interest The members of the Company, individually and/or through their ownership of affiliated companies have or will receive fees and compensation from the Company. These related transactions are critical to the development and operation of the Company's Facilities. See "Certain Transactions." Furthermore, the Managing Member of the Company has or will be negotiating and executing agreements on behalf of the Company. The Managing Member also has the authority to negotiate and execute agreements with entities with which she is affiliated. This presents a conflict of interest in the fact that affiliates 12 may realize benefits at the expense and detriment of the Company. However, the Company intends for the terms of each of these agreements to be no less favorable than those that might generally be obtained from third parties providing similar services. The Company acknowledges that the conflicts of interest are real and ongoing, and there is no assurance that the best interest of the Company will prevail. Government Regulations At present there are no applicable federal regulations affecting the operation of the Company's Facilities. The Oak Creek Project is not required to be licenced by the State of Arizona for Senior Independent Living Facilities. The Company's facilities that are being constructed in Louisiana will be built to conform to state regulations governing residential care for the elderly in the State of Louisiana. The management is confident all state regulations regarding the size of the Facilities, health care and environment will be met. The Company's Facilities will be designed for full compliance with the Americans with Disabilities Act, including, but not limited to areas such as parking, ramps, entrances, door and corridor widths, and public toilet facilities. The Facilities will not be required to be licensed as a nursing home, due to the fact that no 24-hour skilled medical care will be provided to residents by the staff at the present time. However, the facilities that are being constructed in Louisiana will be required to be licensed by the Louisiana Department of Social Services prior to the commencement of operations of each facility. The Company will apply for licenses with the Louisiana Department Social Services and anticipates getting a temporary license upon completion of construction of each facility and a final license within 90 days after the issuance of the temporary license. In the Company's opinion, the facilities that are being constructed in Louisiana and these facilities' management practices and operations will meet or exceed all residential care for the elderly regulations of the State of Louisiana. Failure of the Company to receive and maintain the required licensing would have a material adverse effect on the Company's financial condition and its ability to repay the Company's debt. See "Business - Government Regulation." (This space is intentionally left blank) 13 SOURCES AND USES OF PROCEEDS The sources and anticipated uses of proceeds available after the issuance of the Series 1999-I, 1999-II, 1999-III, 1999-IV and 1999-V Bonds are set forth below. See "Description of Property - Financing of Facilities" and "Certain Transactions."
Series 1999-I Bonds Series 1999-II Bonds Minden Project (1) Oak Creek Project (1) Source of Proceeds: Minimum Maximum Minimum Maximum Gross Offering Proceeds $400,000 $1,800,000 $600,000 $2,700,000 Less Underwriting Concessions (2) (24,000) (108,000) (36,000) (162,000) Less Other Offering Costs (3) (35,000) (35,000) (50,000) (50,000) -------- ---------- -------- ---------- Net Offering Proceeds 341,000 1,657,000 514,000 2,488,000 ======== ========== ======== ========== Use of Proceeds: Fund Initial Operating Fund Payments 90,000 90,000 125,000 125,000 Retire Interim Loans (4) 251,000 1,358,520 452,500 2,174,025 Fund Remaining Construction Costs 0 0 0 0 Fund Pre-Opening Costs 0 68,480 0 0 Retire Line of Credit (5) 0 0 0 188,975 Fund Bond Reserve Account 0 140,000 0 0 -------- ---------- -------- ---------- Total Use of Proceeds 341,000 1,657,000 514,000 2,488,000 ======== ========== ======== ==========
Series 1999-III Bonds Series 1999-IV Bonds Bastrop Project (1) Farmerville Project (1) Source of Proceeds: Minimum Maximum Minimum Maximum Gross Offering Proceeds $400,000 $1,800,000 $400,000 $1,800,000 Less Underwriting Concessions (2) (24,000) (108,000) (24,000) (108,000) Less Other Offering Costs (3) (35,000) (35,000) (35,000) (35,000) -------- ---------- -------- ---------- Net Offering Proceeds 341,000 1,657,000 341,000 1,657,000 ======== ========== ======== ========== Use of Proceeds: Fund Initial Operating 90,000 90,000 90,000 90,000 Fund Payments Retire Interim Loans (4) 251,000 1,220,000 251,000 1,330,000 Fund Remaining Construction Costs 0 132,000 0 22,000 Fund Pre-Opening Costs 0 75,000 0 75,000 Retire Line of Credit (5) 0 0 0 0 Fund Bond Reserve Account 0 140,000 0 140,000 -------- ---------- -------- ---------- Total Use of Proceeds 341,000 1,657,000 341,000 1,657,000 ======== ========== ======== ==========
Series 1998-V Bonds Natchitoches Project (1) Source of Proceeds: Minimum Maximum Gross Offering Proceeds $400,000 $1,800,000 Less Underwriting Concessions (2) (24,000) (108,000) Less Other Offering Costs (3) (35,000) (35,000) -------- ---------- Net Offering Proceeds 341,000 1,657,000 ======== ========== Use of Proceeds: Fund Initial Operating Fund Payments 90,000 90,000 Retire Interim Loans (4) 251,000 1,450,000 Fund Remaining Construction Costs 0 0 Fund Pre-Opening Costs 0 0 Fund Bond Reserve Account 0 117,000 -------- ---------- Total Use of Proceeds 341,000 1,657,000 ======== ==========
Note 1: The issue and sale of each series of bonds is not contingent on the issue and sale of the other series of bonds, and will be separately offered and sold and subject to minimum proceeds prior to the issuance thereof. The order in which the proceeds will be disbursed from each series appears above in descending order. For example, the net proceeds from the Series 1999-I Bonds will be disbursed in the following order and preference (based upon the sale of all of the Series 1999-I Bonds): (1) to pay the Underwriter's concessions up to $108,000 and related 14 financing costs estimated at $35,000; (2) to fund the initial six month sinking fund payments up to $90,000; (3) to retire the interim loan in the amount of $1,358,520; (4) to fund pre-opening costs in the amount of $68,480; and (5) to fund the Bond Reserve Account in the amount of $140,000. See "Description of Bonds - Escrow and Disbursement of Bond Proceeds." Note 2: Subject to the sale of the minimum offering amounts, the Underwriter will receive concession from the sale of the Bonds as follows: (1) the Underwriter will receive a concession of 6% on all bonds sold through a selling group agreement with another NASD member firm; (2) the Underwriter will receive a concession of 5% on all bonds sold to clients of the Underwriter; and (3) the Underwriter will receive a processing fee of 1% of the face amount of each bond purchased by any person or entity who is currently not a client of the Underwriter, but is affiliated with the Company or referred to the Underwriter by the Company. See "Underwriting." Note 3: Other offering expenses payable by the Company are estimated at a total of $190,000 and are allocated among the five series of bonds. Offering expenses include an investment banking fee in the amount of $128,700 paid to the underwriter for its technical assistance offered in connection with the Offering and $61,300 paid by the Company for legal fees, accounting fees, appraisal fees, recording fees, mortgage taxes, Trustee's fees and other similar fees incurred in connection with this Offering. Note 4: The interim loan provided by FRB bears interest at a fixed rate of 9.20% per annum. The construction loans provided by CLT bear interest at a variable rate which is equivalent to 2.00% per annum in excess of the lowest rate designated as the "Prime Rate" of interest published by the Wall Street Journal (North Edition) under the heading "Money Rates." Each interim/construction loan is secured by a Co-First Mortgage on the corresponding project that has been acquired or that will be built from the proceeds of the respective interim/construction loan. See "Description of Property - Financing of the Company's Facilities." Note 5: The line of credit provided by FRB for the renovation of the Oak Creek Project bears interest at a fixed rate of 9.75% per annum. A portion of the proceeds from the sale of the Series 1999-II Bonds will be used to retire this line of credit and accrued interest in an amount up to $188,975. See "Description of Property - Financing of the Company's Facilities." BUSINESS The Company The concept for the Company and its affiliates began over ten years ago. Joanne Caldwell-Bayles, Managing Member of the Company, visited her grandmother in a facility in Arizona which provided the same basic services as an assisted living center. Upon returning to Louisiana, Mrs. Caldwell- Bayles began the study of senior care, as it related to the care provided in assisted living facilities. At the time Mrs. Caldwell-Bayles started her studies, the demographics were not at a point in Northern Louisiana in which assisted living centers were a viable idea. As time passed, the aging population began to reach the stage in which assisted living centers would be necessary in the region. In 1994, Mrs. Caldwell-Bayles began the development of the first assisted living facility in West Monroe, Louisiana under the legal entity of The Arbor Group, L.L.C. In 1998, Mrs Caldwell-Bayles began the development of three additional facilities in Ruston, Bossier City and Shreveport, Louisiana under the legal entity of Senior Retirement Communities, Inc. See "Prior Performance of Affiliates of the Company". Mrs. Caldwell-Bayles started to consider the expansion into other areas in Northern Louisiana and Central Arizona prior to the opening of the facilities in Ruston, Bossier City and Shreveport, Louisiana. She decided to build additional locations in Northern Louisiana at Minden, Bastrop, Farmerville and Natchitoches as well as acquire a facility in Sedona, Arizona. Accordingly, the Company was organized on July 13, 1998 as a Louisiana limited liability company for the purpose of developing, acquiring and operating retirement and assisted living facilities in Northern Louisiana and Central Arizona. The 15 Company will conduct business as Arbor Retirement Community in Louisiana. In Arizona, the Company will conduct business as The Biltmore of Oak Creek. A limited liability company is a relatively new form of business organization designed to allow its owners, known as members, to allocate, participate and account for the profits, losses, and items of credit and deduction as if the business were a partnership, but which also provides its owners with the limited liability protection comparable to that enjoyed by the shareholders of a corporation. The members of the Company are not personally liable for the debts of the Company, absent their execution of a personal guaranty of those debts, nor can the members of the Company be held liable for the negligent actions of the Company. The responsibility for overseeing the operations of the Company is vested in the Managing Member. Business Concept and Clientele The Company's business concept is based on providing elderly residents in Northern Louisiana and Central Arizona with a broad range of cost-effective health care and personal support services, including assisted living and retirement living units. Assisted Living. Assisted living care is an emerging segment of the long-term care industry serving the rapidly growing elderly population who may require assistance with the activities of daily living ("ADLs"), such as dressing, bathing and eating. The Company's assisted living facilities are intended to provide privacy and companionship in a comfortable, secure, non-institutional living environments which are also designed to promote interdependence between the facilities' staff and the residents, all with the intent of providing a more positive lifestyle environment than that which has been historically available from other congregate care providers. Specifically, the Company's assisted living facilities are designed to house elderly persons who do not require 24-hour skilled nursing care. For example, typical residents might include persons suffering from occasional memory loss, poor diet habits, arthritis or other infirmities by reason of which they would benefit from daily assistance and supervision. Retirement Living. Residents for independent living are usually seniors who maintain an independent lifestyle, but desire no longer to have the responsibility of ownership and maintenance of a family residence. Residents usually desire one or more meals which are provided by the facility. Activity programs are provided for residents, including water aerobics, exercise programs and other activities which foster good health. Most residents, if not all, will continue to own and operate their own automobiles. They will also continue to provide their own medical and medication maintenance, shopping and other activities which are expected of seniors who maintain good health. Some residents may wish to travel extensively while maintaining a secure home base in which their possessions are protected while they are away. Operation of the Company's Facilities Format. The services provided to residents of the Company's assisted living facilities will include meals, laundry, housekeeping and physical assistance. In addition, preventive health care programs, transportation, organized social activities, 24-hour security and medication monitoring will also be provided. The residents will be responsible for their own personal purchases such as toothpaste, medical prescriptions, etc. Unlike nursing homes, however, contemplated services do not include around-the-clock skilled nursing care. The assisted living facilities will also provide limited social activities for residents. The services provided for the residents of the Company's independent living units will include meals, laundry, housekeeping and physical assistance. Preventive health care programs, transportation, organized social activities and 24-hour security will also be provided. Medication monitoring and skilled nursing care will not be provided for the residents of the Company's independent living units. Expenses of operating the Company's Facilities will be made up of a fixed costs and/or variable cost basis. Fixed costs will include debt service, management and core staff, essential utilities, insurance and taxes. Variable costs will include food costs, staffing, utilities and supplies to a small extent. The Facilities will be able to handle emergencies only to the extent 16 of calling a doctor or hospital in behalf of the resident. Should a resident require health care beyond that which the Facilities can reasonably provide or assist, then a resident may be forced to move from the Facilities. Cost of Living. The Company's Facilities will have living units priced in a range of $1,375 to $3,500 per month based on the type of accommodations and services provided. Residents are billed monthly for the services rendered. Medicare/Medicaid will not pay for a resident's stay at the Facilities. The residents may realize additional costs if they require certain health supervision/services and meals for visitors. As the cost of living may increase, charges to the residents may also need to be adjusted. Resident's Lease Requirements. The residents will be required to pay a one-time entrance fee of approximately $500 to reserve their unit or apartment. The lease of the apartments by the residents will be on a month-to-month basis. Residents will be required to pay only for the months in which they are residents of the facility. Competition The Company will experience competition from other elderly housing and care providers. The Company will compete principally on the basis of perceived quality and service, ambiance and price-value relationship. While the Company believes that the Facilities will be distinctive in design and operating concept, it is aware of other companies with similar or competitive concepts. The long-term care industry is highly competitive and the Company expects that it will become more competitive in the future. The Company competes with numerous other companies providing similar long-term care alternatives, such as home health agencies, life care at home, community-based service programs, retirement communities and convalescent centers. Nursing facilities that provide long-term care services are also a potential source of competition to the Company. There is no assurance that the Company will not encounter increased competition in the future which could limit its ability to attract residents and could have a material adverse effect on the Company's financial condition, results of operations and prospects. The following table indicates the number of units of existing competition in assisted living, retirement living, nursing home care and memory disorder for the five locations of the Company's Facilities. This information was gathered through market research that was conducted by the Company. Summary of Existing Competition
Existing Existing Existing Private-Pay Existing Memory 1996-1997 Assisted Retirement Nursing Care Disorder Location Population Living Units Living Units Units Units Minden, LA Market Area 42,181 0 0 528 0 Bastrop, LA Market Area 32,056 0 0 614 0 Farmerville, LA Market Area 21,541 0 20 455 0 Natchitoches, LA Market Area 36,689 0 0 318 22 Sedona, AZ Market Area 16,000 42 102 N/A 20
Management Agreement On August 27, 1998, the Company entered into a management agreement (the "Management Agreement") with The Forsythe Group, Inc., a company owned and controlled by Joanne M. Caldwell-Bayles, the Managing Member and principal owner of the Company. The Management Agreement extends to each of the Facilities to be financed as a result of the sale 17 of the Bonds. Pursuant to the terms of the Management Agreement, The Forsythe Group, Inc. (the "Manager" ), as agent for the Company, will perform all services incidental to the operation of the Facilities, including the hiring of employees, collection of payments, the paying of expenses, receiving governmental permits and the compliance thereof, marketing, preparing budgets, and, in general, all activities that are associated with the management of the Facilities. The Manager will account to the Company as its agent for the services rendered. The Manager will maintain operating receipt and expense accounts which are approved by the Company. Prior to the opening of any facility, the Manager will provide the Company with maintenance and operating expense projections, provide policies and procedure manuals, implement marketing plans, establish bookkeeping and accounting systems and identify inventory and equipment. The Manager will participate in final inspections of the facility before occupancy and will coordinate matters with the architect and contractor for each facility. The employees of each facility will be the employees of the Company. The Manager will have no authority to make any disbursement in excess of $15,000, unless specifically authorized by the Company, nor may the Manager incur any liability, which would require more than one year of payment. The Company will pay to the Manager, $1,500 per month or seven percent (7%) of the gross collections of a facility, whichever is greater. Prior to the opening date of a facility, the Manager shall be entitled to receive $1,500 per month. The Management Agreement continues until January 1, 2010, and may be terminated by the mutual consent of the parties, for cause if the Manager shall fail to perform any of its duties pursuant to the Management Agreement, or in the event of the Manager's bankruptcy. Other than matters regarding the operations of the Facilities, the Manger has no authority over the conduct of affairs of the Company or its management and operation. The Company believes that the Management Agreement and terms and conditions applicable thereto are the same or as similar to other management agreements generally made for the operation of health care facilities in the areas where these Facilities will be located. Employees Currently, the Company has five full time employees. Prior to the commencement of operations of each facility, the Manager intends to employ an average of 10 employees at each facility. There is no assurance that the Manager will be able to obtain and maintain an adequate number of competent personnel, including entry-level and skilled positions, or that a shortage of operating personnel will not present a serious problem to the Company in the future. Government Regulation Currently, retirement and assisted living residences are not specifically regulated as such by the federal government. The Company's Facilities will be subject to certain state regulations and licensing requirements. To conform with Louisiana's regulations governing residential care for the elderly, the Facilities will be required to be licensed by the Louisiana Department of Social Services ("LDSS") prior to the commencement of operations of the Facilities. The Company will apply for licenses with LDSS and anticipates getting a temporary license upon completion of construction of each facility and a final license within 90 days after the issuance of the temporary license. The process for applying and obtaining a license with the LDSS requires that upon completion of construction of a facility, the State of Louisiana Fire Marshall conducts an inspection of the facility examining the safety issues and compliance with the Americans With Disabilities Act ("ADA"). In general, the ADA requires businesses to accommodate the special needs of persons with certain types of disabilities. If the facility passes the inspection by the Fire Marshall, than a temporary license is granted that is effective for 90 days. Shortly after the Fire Marshall's inspection and the issuance of the temporary license, the LDSS conducts an inspection of the facility and reviews the administration procedures governing the operation of the facility. In addition to LDSS inspection, the Department of Health and Hospitals ("DHH") inspects the facility for sanitation code compliance shortly after the Fire Marshall's inspection. Any deficiencies found during the LDSS or DHH inspection must be resolved prior to the final license being granted by LDSS. After the final license is granted, the facility may be subject to quarterly inspections by the DHH and annual inspections by LDSS. The renewal of the license is granted by LDSS upon receipt of the $75 annual licensing fee and satisfactory results from the aforementioned periodic inspections. The Oak Creek Project is not required to be licenced by the State of Arizona for Senior Independent Living Facilities. In the Company's opinion, the facilities that are being constructed in Louisiana and these facilities' management practices and operations will meet or exceed all residential care for the elderly regulations of the State of Louisiana. Failure 18 of the Company to receive and maintain the required licensing would have a material adverse effect on the Company's financial condition and its ability to repay the Company's debt. The Company is subject to the Fair Labor Standards Act, which governs such matters as minimum wage, overtime and other working conditions. A portion of the Company's personnel will be paid at rates related to the federal minimum wage, and, accordingly, increases in the minimum wage will increase the Company's labor costs. As regulations are promulgated to enforce this law, the Company may be required in the future to adapt the design and format of the Facilities or otherwise incur additional capital costs to comply with such law. Such costs could have an adverse effect on the operation of the Company's Facilities and their ability to function successfully. Environmental Matters Federal law imposes liability on a landowner for the presence on the premises of improperly disposed of hazardous substances. This liability is without regard to fault for, or knowledge of, the presence of such substances and may be imposed jointly or severally upon all succeeding landowners from the date of the first improper disposal. While state law is less onerous, the practical consequences may be the same. If in the future it is ever determined that hazardous substances are present, the Company could be required to pay all costs of any necessary clean up work, although under certain circumstances claims against other responsible parties could be made by the Company. Phase one environmental assessments were conducted on the Company's properties from 1998 through 1999, except for the Oak Creek Project in which no environmental assessment has been conducted. Research and visual observation undertaken from the environmental assessments did not reveal any former or current environmental conditions, problems or situations impacting the sites. DESCRIPTION OF PROPERTY The Company's Proposed and Existing Facilities The Company has acquired land in Northern Louisiana and a building in Sedona, Arizona. The Company has converted the improvements on the Arizona property to an independent living facility. The Company intends to construct assisted living facilities on the properties located in Northern Louisiana. Additional information about the Company's properties is listed below. The Minden Project. The Minden Project will be located on 5.72 acres of land on the North side of Germantown Road just South of Country Club Drive within the City of Minden, Louisiana. Selection of the site of the Minden Project was based upon a location that was within an affluent residential neighborhood with limited assisted living and retirement living services. The Minden Project will be a 25 unit assisted living facility. The facility will contain 22,217 square feet including 21 one bedroom units, 4 efficiency units, one manager's apartment, common area amenities, a full service kitchen, dining area, activity area, office, reception area, bathrooms and storage areas. Each of the assisted living units will have one or two bedrooms, small kitchenettes, private bathroom, closet and sitting areas. The Series 1999-I Bonds in parity with the Minden Construction Loan are secured by a co-first mortgage on the Minden Project (both real and personal property). See "Description of Property - Financing of the Company's Facilities" and "Description of Bonds." The Company has title insurance on this 5.72 acres of land insuring good and marketable title to the property. During construction of the Minden Project, builder's risk, general liability and workers' compensation insurance is being provided by the general contractor, The Forsythe Group, Inc. Upon completion of the Minden Project, the Company will obtain fire and extended coverage insurance to insure against loss by fire, windstorm, explosion and various other losses in an amount equal to the outstanding balance of the Series 1999-I Bonds. The Company will also obtain general liability and workers' compensation insurance upon completion of the Minden Project. In the Company's opinion, the Minden Project is adequately covered by insurance. The Company has received the proper zoning for the project. 19 The Oak Creek Project. The Company has acquired 2.8 acres of land and an existing building located at 78 Canyon Diablo Road just outside the City of Sedona, Arizona and within the Village of Oak Creek. The Company acquired the property for $2,174,025 in October 1998. The property was previously used as a cancer treatment center. The Oak Creek Project was renovated by the Company and opened for operations on January 17, 1999. Selection of the property was based upon the location of the land and building and the needs of the community for an additional independent living facility in the area. The Oak Creek Project consists of 28 units designed and renovated as independent living apartments. The facility contains 22,235 square feet including common area amenities, a full service kitchen, dining area, activity area, office and reception area, bathrooms, storage areas and an indoor heated swimming pool. Each of the independent living units have one or two bedrooms, small kitchenettes, private bathroom, closet and sitting areas. The Series 1999-II Bonds in parity with the Oak Creek Interim Loan are secured by a co-first mortgage on the Oak Creek Project (both real and personal property). See "Description of Property - Financing of the Company's Facilities" and "Description of Bonds." The Company has title insurance on this 2.8 acres of land insuring good and marketable title to the property. During renovation of the Oak Creek Project, builder's risk, general liability and workers' compensation insurance were provided by the general contractor, The Forsythe Group, Inc. Upon completion of renovation of the Oak Creek Project, the Company obtained fire and extended coverage insurance to insure against loss by fire, windstorm, explosion and various other losses in an amount equal to the outstanding balance of the Series 1999-II Bonds. The Company also obtained general liability and workers' compensation insurance upon completion of the Oak Creek Project. In the Company's opinion, the Oak Creek Project is adequately covered by insurance. The Company has received the proper zoning for the project. The Bastrop Project. The Bastrop Project will be located on 3.35 acres of land at 10280 Boswell Drive outside the city limits of Bastrop,Louisiana. Selection of the site of the Bastrop Project was based upon a location that was within an affluent residential neighborhood with limited assisted living units. The Bastrop Project will be a 25 unit assisted living facility. The facility will contain 22,217 square feet including 21 one bedroom units, 4 efficiency units, one manager's apartment, common area amenities, a full service kitchen, dining area, activity area, office, reception area, bathrooms and storage areas. Each of the assisted living units will have one or two bedrooms, small kitchenettes, private bathroom, closet and sitting areas. The Series 1999-III Bonds in parity with the Bastrop Construction Loan are secured by a co-first mortgage on the Bastrop Project (both real and personal property). See "Description of Property - Financing of the Company's Facilities" and "Description of Bonds." The Company has title insurance on this 3.35 acres of land insuring good and marketable title to the property. During construction of the Bastrop Project, builder's risk, general liability and workers' compensation insurance will be provided by the general contractor, The Forsythe Group, Inc. Upon completion of the Bastrop Project, the Company will obtain fire and extended coverage insurance to insure against loss by fire, windstorm, explosion and various other losses in an amount equal to the outstanding balance of the Series 1999-III Bonds. The Company will also obtain general liability and workers' compensation insurance upon completion of the Bastrop Project. In the Company's opinion, the Bastrop Project is adequately covered by insurance. The Bastrop Project conforms to the zoning ordinances of Bastrop, Louisiana. The Farmerville Project. The Farmerville Project will be located on approximately 4 acres of land on the West side of LA Highway 33 just outside the city limits of Farmerville, Louisiana. Selection of the site of the Farmerville Project was based upon a location that is near a hospital with no assisted living units. The Farmerville Project will be a 25 unit assisted living facility. The facility will contain 22,217 square feet including 21 one bedroom units, 4 efficiency units, one manager's apartment, common area amenities, a full service kitchen, dining area, activity area, office, reception area, bathrooms and storage areas. Each of the assisted living units will have one or two bedrooms, small kitchenettes, private bathroom, closet and sitting areas. The Series 1999-IV Bonds in parity with the Farmerville Construction Loan are secured by a co-first mortgage on the Farmerville Project (both real and personal property). See "Description of Property - Financing of the Company's Facilities" and "Description of Bonds." The Company has title insurance on this 4 acres of land insuring good and marketable title to the property. During construction of the Farmerville Project, builder's risk, general liability and workers' compensation insurance will be provided by the general contractor, The Forsythe Group, Inc. Upon completion of the Farmerville Project, the Company will obtain fire and extended coverage insurance to insure against loss by fire, windstorm, explosion and 20 various other losses in an amount equal to the outstanding balance of the Series 1999-IV Bonds. The Company will also obtain general liability and workers' compensation insurance upon completion of the Farmerville Project. In the Company's opinion, the Farmerville Project is adequately covered by insurance. The Farmerville Project is located in Union Parish which has no zoning requirements. The Natchitoches Project. The Natchitoches Project will be located on approximately 4 acres of land on the East side of LA Highway 1 just outside the city limits of Natchitoches, Louisiana. Selection of the site of the Natchitoches Project was based upon a location that was within a growing community with no existing assisted living units. The Natchitoches Project will be a 27 unit assisted living facility. The facility will contain 22,216 square feet including 22 one bedroom units, 5 efficiency units, common area amenities, a full service kitchen, dining area, activity area, office, reception area, bathrooms and storage areas. Each of the assisted living units will have one or two bedrooms, small kitchenettes, private bathroom, closet and sitting areas. The Series 1999-V Bonds in parity with the Natchitoches Construction Loan are secured by a co- first mortgage on the Natchitoches Project (both real and personal property). See "Description of Property - Financing of the Company's Facilities" and "Description of Bonds." The Company has title insurance on this 4 acres of land insuring good and marketable title to the property. During construction of the Natchitoches Project, builder's risk, general liability and workers' compensation insurance will be provided by the general contractor, The Forsythe Group, Inc. Upon completion of the Natchitoches Project, the Company will obtain fire and extended coverage insurance to insure against loss by fire, windstorm, explosion, and various other losses in an amount equal to the outstanding balance of the Series 1999-V Bonds. The Company will also obtain general liability and workers' compensation insurance upon completion of the Natchitoches Project. In the Company's opinion, the Natchitoches Project is adequately covered by insurance. The Natchitoches Project conforms to the zoning ordinances of the City of Natchitoches, Louisiana. Appraisals Robert M. McSherry, MAI 3760 Chelsea Drive, Baton Rouge, Louisiana 70809 (the "Appraiser"), estimated market values for each of the Company's Facilities (the "Appraisals"). Listed below are these appraised values. Appraised Value of the Minden Project . . . . . . $2,100,000 Appraised Value of the Oak Creek Project. . . . . $3,170,000 Appraised Value of the Bastrop Project . . . . . $2,100,000 Appraised Value of the Farmerville Project. . . . $2,030,000 Appraised Value of the Natchitoches Project . . . $2,255,000 The Appraiser, who is independent of the Company, used various appraisal approaches, but gave the most weight to the income approach in his reconciliation and final value estimates. The income approach is an analysis which converts anticipated benefits to be derived from the ownership of property into a value estimated, with consideration given to the gross income, expense, net income, vacancy rate and capitalization. Furthermore, the income approach is not, for example, a valuation based upon the Appraiser's estimate of the price that would be arrived at by a willing buyer and a willing seller in an arms-length sales transaction. Accordingly, it is questionable that, in the event of default, the Company's Facilities could be sold, whether voluntarily or at judicial sale, for the appraised value. The Appraiser also estimated values for each of the Company's Facilities based on the cost approach. Listed below are these appraised values. Appraised Value of the Minden Project (cost approach) . . . . . .$2,255,000 Appraised Value of the Oak Creek Project (cost approach). . . . .$4,085,000 Appraised Value of the Bastrop Project (cost approach). . . . . .$2,140,000 21 Appraised Value of the Farmerville Project (cost approach). . . .$2,110,000 Appraised Value of the Natchitoches Project (cost approach) . . .$2,310,000 In contrast to the income approach, the cost approach estimates the replacement cost of the improvements. The cost approach reflects the value of the fee simple estate in the real estate; whereas the income approach reflects the "going concern" value, which would most likely not exist in a default situation. A decision to invest in the Bonds should not be made based solely on the Appraisals. Moreover, a purchaser of the Bonds should realize and take into consideration the fact the Company's Facilities, if they should have to be sold, may bring less than is necessary to pay principal and interest due on the Bonds. This could result in the investor losing all or a portion of his original investment, which the investor should take into consideration before making the purchase. Construction of the Company's Facilities Listed below are the proposed construction schedules and development/construction costs of the Company's Facilities. The dates and numbers as indicated below are estimates only.
Approximate Costs of Construction Anticipated Opening Development and Location Start Date Date (2) Construction (3) Minden Project November 1998 July 1999 $2,150,000 Bastrop Project December 1998 August 1999 $2,100,000 Farmerville Project February 1999 August 1999 $2,050,000 Natchitoches Project February 1999 August 1999 $2,200,000 Oak Creek Project (1) November 1998 January 1999 $2,750,000
(1) The Company acquired an existing building at the Oak Creek location and renovated this property. See "Description of Property - The Company's Proposed and Existing Facilities- The Oak Creek Project." (2) Delays are common in the construction industry, and unforeseen events may adversely affect the cost and completion time of the Company's Facilities. (3) The amounts shown for the Minden, Bastrop, Farmerville and Natchitoches Projects include land, construction and service costs; architectural and engineering costs; furniture, fixtures and equipment. The amount shown for the Oak Creek Project includes the acquisition and service costs; architectural and engineering costs; renovation costs; furniture, fixtures and equipment. Financing of the Company's Facilities Construction and Acquisition Financing. The Company has obtained and will obtain interim/construction loans (the "Interim Loans") with The First Republic Bank of Monroe, Louisiana ("FRB") and Church Loans and Investments Trust of Amarillo, Texas ("CLT"), collectively referred to as the Interim Lenders, for the construction and acquisition of the Company's Facilities. Each Interim Loan will be secured by a Co-First Mortgage on the corresponding project that will be acquired/built from the proceeds of the respective interim/construction loan. The Interim Loans are guaranteed by The Forsythe Group, Inc., an affiliate and member of the Company, in the amount of $500,000 for each interim/construction loan. The Trustee and holders of the Bonds will not benefit, directly or indirectly, from the guarantees of The Forsythe Group, Inc. 22 The Company obtained the construction loan for the Minden Project ("Minden Construction Loan") in the amount of $1,358,520 from FRB. The Minden Construction Loan closed on October 2, 1998, and the mortgage and security agreement setting forth the terms of the Minden Construction Loan have been filed of record. The Minden Construction Loan bears interest at the rate of 9.20% per annum and is due September 28, 1999. The Minden Construction Loan is secured by a Co-First Mortgage on the Minden Project (both real and personal property) in parity with the Series 1999-I Bonds. The Company obtained the interim loan for the acquisition of the Oak Creek Project ("Oak Creek Interim Loan") in the amount of $2,174,025 from CLT. The Oak Creek Interim Loan closed on October 20, 1998, and the mortgage and security agreement setting forth the terms of the Oak Creek Interim Loan have been filed of record. The Oak Creek Interim Loan bears interest at a variable rate equivalent to 0.5% per annum in excess of the lowest rate designated as the "Prime Rate" of interest as published by the Wall Street Journal under the heading "Money Rates." The Oak Creek Interim Loan is due May 20, 1999, unless the Company exercises its option of renewing and extending this loan. The Oak Creek Interim Loan is secured by a Co-First Mortgage on the Oak Creek Project (both real and personal property) in parity with the Series 1999-II Bonds. The Company obtained the construction loan for the Bastrop Project ("Bastrop Construction Loan") in the amount of $1,220,000 from CLT. The Bastrop Construction Loan closed on November 24, 1998, and the mortgage and security agreement setting forth the terms of the Bastrop Construction Loan have been filed of record. The Bastrop Construction Loan bears interest at a variable rate equivalent to 2.0% per annum in excess of the lowest rate designated as the "Prime Rate" of interest as published by the Wall Street Journal under the heading "Money Rates." The Bastrop Construction Loan is due November 24, 1999, unless the Company exercises its option of renewing and extending this loan. The Bastrop Construction Loan is secured by a Co-First Mortgage on the Bastrop Project (both real and personal property) in parity with the Series 1999-III Bonds. The Company agreed to the terms of a construction loan commitment issued by CLT for the construction financing of the Farmerville Project ("Farmerville Construction Loan") on February 1, 1999. The Farmerville Construction Loan will be in the amount of $1,330,000 and will be due 12 months after the initial funding of the loan, unless the Company exercises its option of renewing and extending this loan. The Farmerville Construction Loan will bear interest at a variable rate equivalent to 1.5% per annum in excess of the lowest rate designated as the "Prime Rate" of interest as published by the Wall Street Journal under the heading "Money Rates." The Farmerville Construction Loan will be secured by a Co-First Mortgage on the Farmerville Project (both real and personal property) in parity with the Series 1999-IV Bonds. The Company agreed to the terms of a construction loan commitment issued by CLT for the construction financing of the Natchitoches Project ("Natchitoches Construction Loan") on February 1, 1999. The Natchitoches Construction Loan will be in the amount of $1,450,000 and will be due 12 months after the initial funding of the loan, unless the Company exercises its option of renewing and extending this loan. The Natchitoches Construction Loan will bear interest at a variable rate equivalent to 1.5% per annum in excess of the lowest rate designated as the "Prime Rate" of interest as published by the Wall Street Journal under the heading "Money Rates." The Natchitoches Construction Loan will be secured by a Co-First Mortgage on the Natchitoches Project (both real and personal property) in parity with the Series 1999-V Bonds. If the proceeds from the sale of the Series 1999-I Bonds are insufficient to retire the Minden Construction Loan at its maturity, then The Forsythe Group, Inc. has agreed to purchase the Minden Construction Loan, giving the Company the option of renewing and extending the Minden Construction Loan into a permanent loan amortized over thirteen years subject to the Company being current on all its outstanding debt obligations. If the proceeds from the sale of the Series 1999-II, III, IV and V Bonds are insufficient to retire the Oak Creek Interim Loan, Bastrop Construction Loan, Farmerville Construction Loan and Natchitoches Construction Loan at their respective maturities, then CLT has given the Company the option of initially renewing and extending the term of these loans for an additional one year subject to the Company being current on all its outstanding debt obligations. If any of these loans are extended and any of the renewed loans have not been retired by their extended maturity dates, then CLT has given the Company the option of renewing and extending the loan(s) into permanent loan(s) amortized over thirteen years subject to the Company being current on all its outstanding debt obligations. Colonial Trust Company (acting as Trustee on behalf of holders of the Bonds) and the Interim Lenders have entered into certain Agreements Between Lienholders with regard to each of the interim/construction loans. Hereinafter, the three Agreements Between Lienholders collectively will be referred to as the "Lienholders Agreements." The Lienholders Agreements state, among other things, (i) that the mortgage, security agreement and other collateral documents covering each of the Company's Facilities shall name both the respective Interim Lender and the Trustee as lienholder and shall secure ratably as provided in the Lienholders Agreements each interim/construction loan and the 23 corresponding series of Bonds, and (ii) that proceeds of each series of Bonds will be used, subject to the Trust Indenture, to pay down or retire the Interim Loans. The Lienholders Agreements also state that in the event of a default, if either the Interim Lender or the Trustee elects to accelerate its loan, the other party agrees to accelerate its loan to the extent permitted under the other party's loan documents. In the event the Company was to default, the Lienholders Agreements provide that the respective Interim Lender and the Trustee will conduct collection and foreclosure actions and proceedings jointly to the extent possible. In the event the Interim Lender and the Trustee are unable to agree, however, the Interim Lender is given the right, in its discretion, to direct and make decisions, binding on the Trustee and the holders of Bonds, concerning maintenance, protection or disposition of the respective project in default and enforcement of the terms of the mortgage and security agreement. The Interim Lender may cause the defaulted project to be sold in its then current condition or may make renovations to, or complete construction of the defaulted project. The Interim Lender is not required to advance any funds except by its agreement, but in the event the Interim Lender elects to advance funds, proceeds of foreclosure will be applied first to reimburse any such funds advanced. Either the Interim Lender or the Trustee may purchase the defaulted project at any foreclosure sale free and clear of the claims of the other. If any of the Company's Facilities are sold or otherwise disposed of at foreclosure, the Lienholders Agreements provide that the proceeds of disposition, after reimbursement of the Interim Lender's fees and expenses as provided above, be applied to the respective interim/construction loan in default and the payment of the corresponding series of Bonds on a pro-rata basis. The "pro-rata" distribution of funds mean that after reimbursement of the Interim Lender's fees and expenses as provided above, the Interim Lender and the series of Bonds associated with the defaulted interim/construction loan will each receive funds from any disposal on foreclosure of the defaulted project according to their respective percentage of the total principal balance (including both the respective interim/construction loan in default and the corresponding series of Bonds) on the property. Thus, depending on the net proceeds from a foreclosure sale, each entity would receive proceeds from the sale of property equal to the entire amount due them, or any amount equal to their percentage of the total indebtedness against the defaulted project, whichever is lesser. In addition to requiring the timely payment of the Interim Loans and the Bond payments required under the terms of the Trust Indenture, the mortgages obligate the Company to maintain proper books and records, and refrain from certain activities (such as altering the premises) without prior written consent. The mortgages also dictate, in part, the permitted financial relationships between the Company and the residents. Lines of Credit Financing. The Company has obtained two lines of credit from FRB. The lines of credit are secured by certificate of deposits, land and residences owned by Joanne Caldwell-Bayles and The Forsythe Group, Inc., and the lines of credit are personally guaranteed by Joanne Caldwell-Bayles. One line of credit is in the amount of $75,500 bearing interest at the rate of 9.995% per annum. This line of credit was made available to the Company on August 21, 1998 and is due on August 21, 1999. The Company obtained this line of credit to help fund the initial construction of its Facilities. The second line of credit is in the amount of $176,755 bearing interest at the rate of 9.75% per annum. This second line of credit was made available to the Company on November 30, 1998 and is due November 30, 1999. Proceeds from the Series 1999-II Bonds will be used in part to retire this line of credit. See "Sources and Uses of Proceeds." The Company obtained this line of credit for the purpose of renovating the Oak Creek Project. Permanent Financing. The Company has chosen to issue the Bonds to provide the permanent financing for the Facilities. The first revenues of the Company have been pledged to repay the principal and interest on the Bonds. See "Sources and Uses of Proceeds" and "Description of Bonds." MANAGEMENT Managing Member The day to day operation of the Company will be performed by the Managing Member of the Company, Joanne M. Caldwell-Bayles. Pursuant to the terms of the Operating Agreement, the Managing Member will be the chief executive officer of the Company responsible for the general overall supervision of the business and affairs of the Company. Mrs. Caldwell-Bayles shall serve as the Managing Member of the Company until her resignation or until she is removed by 24 majority vote of all the members of the Company. Upon the resignation of the Managing Member, a successor shall be elected by a vote of the members. Joanne M. Caldwell-Bayles, 39 years old, has been the Managing Member for the Company since its inception in July 1998. Mrs. Caldwell-Bayles has senior executive experience in the development and operation of assisted living, retirement and memory disorder facilities in West Monroe, Ruston, Bossier City and Shreveport, Louisiana where she presently serves as the Operating Manager of The Arbor Group, L.L.C. ("Arbor") and President of Senior Retirement Communities, Inc. ("SRC"). Mrs. Caldwell-Bayles also has senior executive experience in hotel management, personnel, finance and commercial and residential development. In addition to her duties with the Company, Arbor and SRC, Mrs. Caldwell-Bayles is the President, Chairperson of the Board of Directors and sole owner of The Forsythe Group, Inc., the parent corporation of four subsidiaries. These subsidiaries include: (i) Forsythe Holdings, Inc. (a commercial and residential lending company); (ii) Format Capital, Corp. (a commercial development and equipment leasing company); (iii) Lewis Enterprises, Inc. (a residential development company); and (iv) Northwest Manufacturing Co., Inc. (a manufacturing company for equipment for the construction industry). Prior to her duties with the Company, Arbor, SRC and The Forsythe Group, Inc., she served as the President of Oak Development Corporation (a hotel management firm) and the general manager of Ramada Hotel in Alexandria, Louisiana. She has served on the Board of Directors of the Alexandria Chamber of Commerce, the Louisiana Restaurant Association and the Louisiana Hotel/Motel Association. She also has served as President of the Tourism Commission of Rapides Parish, Louisiana and of the Hotel/Motel Association of Alexandria, Louisiana. Mrs. Caldwell-Bayles attended Northeast Louisiana State University in Monroe, Louisiana. Mrs. Caldwell-Bayles will be the person primarily responsible for overseeing the actual operation and management of the Company. Accordingly, the success of the Company will be dependent upon her efforts. Mrs. Caldwell-Bayles will delegate most of the daily operational responsibilities of the Company to on-site administrators. The administrators will be selected from a group of candidates who must have a degree in administration and/or gerontology. Prior to commencement of operations of each facility, Mrs. Caldwell-Bayles will hire an administrator whose salary and employee benefits will be an expense of operation of the Company. Mrs. Caldwell-Bayles will also recruit all other employees. The Company anticipates that the Management Company will employ an average of 10 employees to work at each facility with a total of approximately 50 employees working for the Company upon completion of the Minden, Oak Creek, Bastrop, Farmerville, and Natchitoches Projects. Mrs. Caldwell-Bayles will devote approximately 30% of her time to the affairs of the Companybut is willing to devote additional time if necessary. Executive Compensation Joanne M. Caldwell-Bayles, Managing Member of the Company, may receive the following compensation: (1) an annual salary in the amount of $30,000 per year beginning when the Company's first facility is opened for business and (2) reimbursement for reasonable costs incurred by Mrs. Caldwell-Bayles including but not limited to automobile mileage, telephone expenses and entertainment expenses associated with the Company's business. PRINCIPAL OWNERS OF THE COMPANY The following table sets forth certain information regarding the beneficial ownership of the membership interests in the Company as of December 31, 1998. 25
Name & Address of Percent of Beneficial Owner Title of Class Units Class Owned Joanne M. Caldwell Bayles Membership Interest 578,239 52% 507 Trenton Street West Monroe, LA 71291 The Forsythe Group, Inc. (1) Membership Interest 532,524 48% 507 Trenton Street West Monroe, LA 71291
Note 1: Joanne M. Caldwell-Bayles owns 100% of the capital stock of the Forsythe Group, Inc. THE COMPANY'S PLAN OF OPERATION The primary plan of operation of the Company is to establish a local, regional and national network of retirement and assisted living facilities that will operate profitably. The Company has completed the renovation of its facility in Sedona, Arizona and intends to complete construction of four facilities in Northern Louisiana by September 1999. The Company's four facilities in Louisiana are located in Minden, Bastrop, Farmerville and Natchitoches. The Series 1999-I, II, III, IV and V Bonds will be secured by the Minden, Oak Creek, Bastrop, Farmerville and Natchitoches Projects, respectively. The Company intends to employ an average of 10 employees per completed facility with a total of approximately 50 employees working for the Company by September 1999. Based upon market research of the assisted living, retirement living and memory disorder care industries within the Facilities' market areas, the Company expects to reach stabilized occupancy within 12 months upon completion of each facility. Also, the Company's expected occupancy stabilization period is based upon the historical operating results of The Arbor Group, L.L.C. ("Arbor"), an affiliate of the Company. However, actual results of the Facilities' stabilization time frames may differ from the projected time frames due to changes in local and national market conditions. Arbor has completed construction and is now operating a similar assisted living and memory disorder facility in West Monroe, Louisiana. Arbor has been and will continue to be a model for the future development of the Company. Senior Retirement Communities, Inc. ("SRC"), another affiliate of the Company, has completed construction of two facilities in late 1998 and has a third facility under construction. SRC's facilities are similar to those to be built by the Company and are operating under the name of The Arbor Retirement Community and The Terrace. Arbor and SRC are managed by the same organization, The Forsythe Group, Inc., which will manage the Company's properties. While the Company is newly formed, it will also operate its properties in Northern Louisiana under the name of The Arbor Retirement Community. The Arbor Retirement Community has established name recognition in portions of Northern Louisiana through the operations of Arbor and SRC's facilities. The Company is in the process of increasing name recognition in the proposed communities in which the Company's Facilities will be located. The Company's facility located in Arizona is being operated under the name of The Biltmore of Oak Creek. In order for the Company to fund all of its objectives of this Offering, the maximum offering amount must be sold by the termination date of this Offering, and the Company will need to raise additional operating funds during the first 12 months of operation. The Company has estimated that $500,000 will be needed for operation during the first 12 months, above and beyond the expenses as set forth in "Sources and Uses of Funds." Currently, the Company has two lines of credit from which the Company can access for the use of additional operating funds. These lines of credit have been established by the pledging of collateral not secured by the Bonds; Mrs. Caldwell-Bayles, The Forsythe Group and Arbor also have pledged other assets to secure the lines of credit. If additional funds are needed for the Company's operation, The Forsythe Group, Inc., the management company of the Company, has agreed to defer collection of its management fees. However, the Company believes that it will not be necessary for the Company to raise additional funds during the next 12 months other than the use of its credit lines. There is no assurance that the Company will be able to accomplish any or all of these objectives. 26 The Company's product is providing living accommodations for seniors who need assistance. As the needs of the Company's residents change, the Company is willing to modify its operations to accommodate its residents needs. The Company is committed to continue researching the trends of senior citizens' living accommodation needs. PRIOR PERFORMANCE OF AFFILIATES OF THE COMPANY The Arbor Group, L.L.C., an affiliated limited liability company of the Company, has prior experience in the development and operation of an assisted living and memory disorder facility similar to that of the proposed facilities. In August 1996, Mrs. Caldwell-Bayles, Raymond Nelson and Jean Gaffney Nelson formed The Arbor Group, L.L.C. for the purpose of developing and operating a 35-unit assisted living facility and a 24-unit memory disorder facility in West Monroe, Louisiana. The facility was completed and opened for business in November 4, 1997. The year 1998 was the first full year of operations for this facility. Mrs. Caldwell-Bayles serves as the Operating Manager of The Arbor Group, L.L.C. The Arbor Group's gross revenues for the year ending December 31, 1998 were $738,415. The Arbor Group's expenses for the same period, including depreciation and debt service, were $1,108,836. For the one month period ending January 31, 1999, The Arbor Group's gross revenues were $101,197. The Arbor Group's expenses for this same period were $104,905 including depreciation and debt service. These amounts were provided by the management of The Arbor Group and are not audited. As of January 31, 1999, the occupancy rate of The Arbor Group's assisted living and memory disorder facility was 85%. The Arbor Group's assisted living and memory disorder facility was financed by the issuance of bonds in the amount of $3,250,000 under terms similar to that of the Offering. The bonds for the Arbor Group were offered and sold by the Underwriter. Senior Retirement Communities, Inc., an affiliate of the Company, has completed construction of a 48-unit assisted living facility in Ruston, Louisiana and a 24-unit memory disorder facility in Shreveport, Louisiana. These facilities were completed in the fourth quarter of 1998. SRC has a third facility under construction in Bossier City, Louisiana. These facilities are similar to those to be built by the Company. These properties operate under the name of The Arbor Retirement Community and The Terrace; they are all located in Northern Louisiana, thereby helping to increase The Arbor Retirement Communities' name recognition in the area. SRC's assisted living and memory disorder facilities are being financed by the issuance of bonds in the amount of $9,000,000 under terms similar to that of the Offering. The bonds for SRC are being offered and sold by the Underwriter with approximately 94% of the bonds having been subscribed for as of February 1, 1999. The operating results of SRC can be found in their 10-QSB dated September 30, 1998 and additional reports as required, which are filed with the Securities and Exchange Commission, Washington, D.C. 20549. CERTAIN TRANSACTIONS Joanne M. Caldwell-Bayles and The Forsythe Group, Inc., the members of the Company, individually and/or through their ownership of affiliated companies, have or intend to engage in the following transactions with the Company. See "Principal Owners of the Company." Land Acquisition On October 2, 1998, the Company acquired 5.72 acres of land at the Minden location from Senior Retirement Communities, Inc., an affiliate of the Company. The sales price for the land was $203,739. This transaction resulted in a gain to SRC of $86,059. 27 Construction Contracts On November 18, 1998, the Company entered into a design/builder contract in the amount of $1,777,000 with The Forsythe Group, Inc., one of the Company's members, to construct the Minden Project. The contract calls for the cash payments of $1,352,000 during the building of the Minden Project as approved by the contract engineer and the issuance of additional units of membership interests valued at $425,000. As of December 31, 1998, $345,245 had been paid on this contract and $174,000 of membership interests had been issued for services rendered in connection with the project. The remainder of the $251,000 due to be paid through the issuance of membership interests will be issued at the completion of this project. On November 18, 1998, the Company entered into a design/builder contract in the amount of $1,777,000 with The Forsythe Group, Inc. to construct the Bastrop Project. The contract calls for the cash payments of $1,352,000 during the building of the Bastrop Project as approved by the contract engineer and the issuance of additional units of membership interests valued at $425,000. As of December 31, 1998, $36,560 had been paid on this contract and $175,000 of membership interests had been issued for services rendered in connection with the project. The remainder of the $250,000 due to be paid through the issuance of membership interest will be issued at the completion of the project. On November 18, 1998, the Company entered into a design/builder contract in the amount of $1,777,000 with The Forsythe Group, Inc. to construct the Farmerville Project. The contract calls for the cash payments of $1,352,000 during the building of the Farmerville Project as approved by the contract engineer and the issuance of additional units membership interests valued at $425,000. As of December 31, 1998, $0 had been paid on this contract and $135,000 of membership interests had been issued for services rendered in connection with the project. The remainder of the $290,000 due to be paid through the issuance of membership interests will be issued at the completion of this project. On November 18, 1998, the Company entered into a design/builder contract in the amount of $1,777,000 with The Forsythe Group, Inc. to construct the Natchitoches Project. The contract calls for the cash payments of $1,352,000 during the building of the Natchitoches Project as approved by the contract engineer and the issuance of additional units of membership interests valued at $425,000. As of December 31, 1998, $0 had been paid on this contract and $135,000 of membership interests had been issued for services rendered in connection with the project. The remainder of the $290,000 due to be paid through the issuance of membership interests will be issued at the completion of this project. Management Contract On August 27, 1998, The Forsythe Group, Inc. entered into a Management Agreement with the Company for the management of the Company's Facilities. The Management Agreement extends to the year 2010, with compensation based on each facility, paying the Manager $1,500 per month or seven percent (7%) of the gross collections of a facility, whichever is greater. The Management Agreement can be terminated by mutual consent of the parties, bankruptcy or for cause. The Company anticipates the payments under the Management Agreement to The Forsythe Group, Inc. will exceed $60,000 per year. Other Transactions On August 20, 1998, the Company issued 265,000 units of membership interests to The Forsythe Group, Inc. for $91,000 cash and services rendered in connection with developing the plans for construction, obtaining State Fire Marshall approval of the plans and getting approval of the proper zoning of the Minden Project. On September 30, 1998, the Company issued 21,500 units of membership interests to Joanne M. Caldwell-Bayles for $2,000 cash and services rendered in connection with the formation of the Company. On October 19, 1998, the Company issued 85,000 units of membership interests to Joanne M. Caldwell-Bayles for services rendered in connection with the interior design of the Facilities and market research studies for the Facilities. On November 10, 1998, the Company issued 203,739 units of membership interests to Joanne M. Caldwell-Bayles for $203,739 in cash. On November 10, 1998, the Company issued 270,000 units of membership interests to Joanne M. Caldwell-Bayles for services rendered in connection with selecting the location and purchasing of the land on which the Bastrop and Farmerville Projects are to be built, developing the plans for construction, obtaining State Fire Marshall approval of the plans and getting approval of the proper zoning of the Bastrop and Farmerville Projects. 28 On November 10, 1998, the Company issued 267,523.50 units of membership interests to the Forsythe Group, Inc. for $132,523.50 in cash and services rendered in connection with selecting the location and purchasing of the land on which the Natchitoches Project is to be built, developing the plans for construction, obtaining State Fire Marshall approval of the plans and getting approval of the proper zoning of the Natchitoches Project. DESCRIPTION OF BONDS The Bonds will be issued in book-entry form (unless the purchaser requests a printed bond certificate) pursuant and subject to the provisions of a certain Trust Indenture (the "Trust Indenture") between the Company and Colonial Trust Company of Phoenix, Arizona, as Trustee, Bond Registrar and Paying Agent (the "Trustee"). The Company is not required to qualify the Trust Indenture under the Trust Indenture Act of 1939 as amended (the "Act"). Thus, the Company has elected not to qualify the Trust Indenture under the Act. Although the Trust Indenture utilized by this Company does not conform entirely to the required provisions to the Trust Indenture Act of 1939, the overall agreement of the Trust Indenture does incorporate the essential provisions for the protection of bondholders. Copies of the Trust Indenture will be deposited with the Trustee, the Company and the Underwriter. The following is a summary of the provisions of the Trust Indenture. Description of Liens All of the Bonds will be secured by a mortgage and security agreement, hereinafter called the "Lien," upon the Facilities as follows: (1) the Series 1999-I Bonds in the amount of $1,800,000 will be secured by the property comprising the Minden, Louisiana facility; (2) the Series 1999-II Bonds in the amount of $2,700,000 will be secured by the property comprising the Sedona, Arizona facility; (3) the Series 1999-III Bonds in the amount of $1,800,000 will be secured by the property comprising the Bastrop, Louisiana facility; (4) the Series 1999-IV Bonds in the amount of $1,800,000 will be secured by the property comprising the Farmerville, Louisiana facility; and (5) the Series 1999-V Bonds in the amount of $1,800,000 will be secured by the property comprising the Natchitoches, Louisiana facility. Notwithstanding the aforementioned, the Bonds will be issued on parity, and the provisions regarding any default on the bonds is set forth in "Description of Bonds - Remedies of Default" in this Prospectus. General The Company is offering $9,900,000 of co-first mortgage bonds in five series, with the proceeds from each series being used for the construction or acquisition of a particular project. See "Sources and Uses of Proceeds." The issue and sale of each series of bonds is not contingent on the issue and sale of the other series of bonds, and will be separately offered and sold and subject to minimum proceeds prior to the issuance thereof. The Bonds are secured by a pledge of land and buildings constituting the Facilities and a pledge of gross income of the Company pursuant to the terms of the Trust Indenture between the Company and the Trustee. The Bonds will be issued in book-entry form (unless the purchaser requests a printed bond certificate) as registered Bonds without coupon in denominations of $250 each or any integral multiple thereof. The Bonds will be issued to mature serially. To "mature serially" means the Bonds will mature according to predetermined maturity dates, beginning six months from the issue date of each series of bonds and continuing to mature each six months thereafter until the final maturity period of each of the series of bonds as indicated in the "Maturity Schedules." The purchaser of a Bond should understand that in the event he/she should need to sell the bond, the Underwriter does not make a secondary market for the Bonds, nor is there the likelihood a secondary market will develop. Principal and interest are payable in lawful money of the United States by the Trustee, acting in its capacity as Paying Agent. Certain Bonds pay interest by check semiannually ("Simple Interest Bonds"). Certain other Bonds pay the interest earned only at the maturity of the Bond ("Compound Interest Bonds"). See "Maturity Schedules." The Series 1999-I Bonds will be dated April 1, 1999, and are subject to the sale of a minimum of $400,000 in principal amount of Bonds. The aggregate principal amount of the Series 1999-I Bonds is $1,800,000 and is comprised of bonds in the principal amount of $1,738,500 that will mature serially and bear simple interest payable by check mailed to the registered owners each October 1 and April 1 until maturity and bonds in the principal amount of $61,500 that will mature 29 serially and bear interest compounded semiannually each October 1 and April 1 that is payable at maturity. The Series 1999-I Bonds will begin accruing interest as of April 1, 1999, whether or not they have been purchased and whether or not the minimum offering amount has been reached. If any of the Series 1999-I Bonds are purchased after April 1, 1999, the purchaser will be entitled to receive interest on the Bond from April 1, 1999. The Series 1999-II Bonds will be dated May 1, 1999, and the Series 1999-II are subject to the sale of a minimum of $600,000 in principal amount of Bonds. The aggregate principal amount of the Series 1999-II Bonds is $2,700,000. The Series 1999-II Bonds will mature serially and bear simple interest payable by check mailed to the registered owners each November 1 and May 1 until maturity. Interest on the Series 1999-II Bonds will accrue from the date payment for the Series 1999-II Bonds is received in the office of the Underwriter whether or not the minimum offering amount for this series of bonds has been reached. The Series 1999-III Bonds will be dated May 1, 1999, and the Series 1999-III Bonds are subject to the sale of a minimum of $400,000 in principal amount of Bonds. The aggregate principal amount of the Series 1999-III Bonds is $1,800,000 . The Series 1999-III Bonds will mature serially and bear interest compounded semiannually each November 1 and May 1 that is payable at maturity. The Series 1999-III Bonds will begin accruing interest as of May 1, 1999, whether or not they have been purchased and whether or not the minimum offering amount has been reached. If any of the Series 1999-III Bonds are purchased after May 1, 1999, the purchaser will be entitled to receive interest on the Bond from May 1, 1999. The Series 1999-IV Bonds will be dated June 1, 1999, and the Series 1999-IV Bonds are subject to the sale of a minimum of $400,000 in principal amount of Bonds. The aggregate principal amount of the Series 1999-IV Bonds is $1,800,000 and is comprised of bonds in the principal amount of $1,718,750 that will mature serially and bear simple interest payable by check mailed to the registered owners each December 1 and June 1 until maturity and bonds in the principal amount of $81,250 that will mature serially and bear interest compounded semiannually each December 1 and June 1 that is payable at maturity. The Series 1999-IV Bonds will begin accruing interest as of June 1, 1999, whether or not they have been purchased and whether or not the minimum offering amount has been reached. If any of the Series 1999-IV Bonds are purchased after June 1, 1999, the purchaser will be entitled to receive interest on the Bond from June 1, 1999. The Series 1999-V Bonds will be dated July 1, 1999, and the Series 1999-V Bonds are subject to the sale of a minimum of $400,000 in principal amount of Bonds. The aggregate principal amount of the Series 1999-V Bonds is $1,800,000 and is comprised of bonds in the principal amount of $1,718,750 that will mature serially and bear simple interest payable by check mailed to the registered owners each January 1 and July 1 until maturity and bonds in the principal amount of $81,250 that will mature serially and bear interest compounded semiannually each January 1 and July 1 that is payable at maturity. The Series 1999-V Bonds will begin accruing interest as of July 1, 1999, whether or not they have been purchased and whether or not the minimum offering amount has been reached. If any of the Series 1999-V Bonds are purchased after July 1, 1999, the purchaser will be entitled to receive interest on the Bond from July 1, 1999. Tax Consequences Interest paid on the Bonds is not exempt from federal or state income taxes. Interest on Simple Interest Bonds is paid by check semiannually. Each year the purchaser of a Simple Interest Bond will receive a form 1099 INT from the Trustee/Paying Agent showing the interest earned on the Bond(s) for that tax year. While Compound Interest Bonds pay the interest earned only at the maturity of the Bond, a portion of the interest must be reported as income each year even though no interest will be paid until maturity. The interest to be reported each year is the amount of interest accruing on the Bond that year. Each year the purchaser of a Compound Interest Bond will receive a form 1099 OID from the Trustee/Paying Agent showing the interest earned on the Bond(s) for that tax year. For further information concerning the tax consequences of purchasing or holding the Bonds, the investor should consult his or her tax advisor. 30 Trust Funds Established Under the Trust Indenture The Trust Indenture provides for the creation of the Bond Proceeds Fund, into which the proceeds from the sale of Bonds will be deposited. The Trust Indenture also creates the Bond Operating Funds, into which all payments of the Company are collected prior to payment being made to the Bondholders. Payment of Bonds Principal and interest on the Bonds is payable at the office of the Trustee in lawful currency of the United States of America. Payment of interest shall be made to the registered owners of the Bonds and paid by check or draft mailed to the registered owners at the address appearing on the bond register of the Trustee. Each holder who has received a printed bond certificate must send his/her matured Bonds to the Paying Agent in order to obtain payment of the aggregate principal amount. Events of Default The term " event of default" when used in the Trust Indenture means the occurrence of any one of the following events: a) Failure or refusal to pay when due the principal and/or interest on any Bond; b) Failure or refusal to timely pay into the Operating Fund Accounts any installment(s) required; c) Failure or refusal to pay when due any taxes, assessments, insurance, claims, liens or encumbrances upon the Facilities, or to maintain the Facilities in good repair, or to cure the breach of any other covenant set forth in the Trust Indenture; d) Failure or refusal to pay when due any loan or advance by or the fees and expenses of Trustee or of any depository or escrow agent; e) Failure or refusal, upon written request of the Trustee, (i) to furnish Trustee with such insurance policies, financial reports and information concerning the Company as may be reasonably required by Trustee, or (ii) to grant unto Trustee, its agents, accountants and attorneys access during normal business hours to Company's offices for the purpose of examining and, within reasonable limits, photocopying such records; f) Making an assignment for the benefit of creditors; or should a receiver, liquidator, or trustee be appointed to assist in the payment of Company's debt; or should any petition for bankruptcy, reorganization, or arrangement of Company be filed; or should Company be liquidated or dissolved, or its charter expire or be revoked. Remedies of Default Upon the occurrence and continuation of an event of default for a period of 30 days, the Trustee may accelerate the Bonds and declare the principal of all Bonds outstanding or any series of Bonds then in default immediately due and payable. Additionally, upon written request of the holders of not less than 25% of the Bonds outstanding, the Trustee is obligated to accelerate the maturity of the Bonds in an event of default. Notwithstanding the aforementioned, in the event that the Company is in default in the payment of the principal and/or interest on one or more series of the Bonds, but not all of the series of the Bonds, or the Company is in default in the timely payment of the installments to the Operating Fund Account required on one or more series of the Bonds, but not all of the series of the Bonds and should such default continue for a period of 30 days, and as a result thereof, the Trustee has declared to be immediately due and payable the principal balance and accrued interest of only the unpaid Bonds in the series in default and if the Company then fails to pay said amount, then the Trustee may proceed to foreclose the lien against the property applicable to the defaulted series of Bonds. If there remains a deficiency in the payment of the series of Bonds in default, then the Trustee may declare to be immediately due and payable the principal balance due and accrued interest of any or all of the unpaid Bonds of any or all of the remaining series issued by the Company pursuant to the Trust Indenture. If the Company then fails to pay said amount, the Trustee then may proceed to exercise any remedy provided for in the Trust Indenture, including a foreclosure of the lien securing the then accelerated and unpaid Bonds. Additional Covenants In addition to its obligation to remit the principal and interest payments when due the Company has agreed to at its own cost and expense, maintain the properties in good repair and condition and pay or discharge all taxes, assessments and any mechanic's or material men's liens that may become payable. 31 Casualty With respect to insurance, the Company has agreed to maintain in full force and effect at all times fire and extended coverage insurance insuring against losses in an amount at least equal to the balance then due on the outstanding Bonds. The proceeds of any such insurance are to be applied for the replacement or repair of the property damaged, to purchase additional property secured by the Trust Indenture as originally acquired with Bond proceeds, for construction of additional improvements on the Facilities, to redeem outstanding Bonds, or a combination of the foregoing. If the proceeds from the sale of the Bonds are to be used to finance the construction of improvements, the Company agrees to furnish and maintain in full force builder's risk insurance during the period of construction. In addition, the Company has agreed to maintain in full force and in effect at all time general liability insurance in such amount and with such insurers as shall be approved by the Trustee. The Trustee is authorized to withdraw funds from the Bond Operating Fund and to apply funds for the account of the Company of such obligations as aforementioned, and the Company is obligated to immediately restore the proper balance of the Bond Operating Fund. Periodic Reporting The Company has agreed to furnish to the Trustee, at least annually, audited financial statements, including a balance sheet, statement of activity and statement of changes in financial position and to permit the Trustee to examine the books or records of accounts of the Company and the Facilities at all reasonable times. Audited annual financial statements will also be supplied to the investors. Additional Bond Issues/Additional Indebtedness The Company reserves the right to issue additional parity Bonds or incur additional debt obligations ("additional Bonds") in any amount for any lawful purpose, including refunding any outstanding Bonds. Such additional Bonds along with the Bonds offered hereby should be deemed "Bonds" for all purposes and as defined in the Trust Indenture. When issued and delivered the additional Bonds will be secured under the terms of the Trust Indenture and shall be on parity with all then outstanding Bonds of the Company offered hereby. The additional Bonds may be offered in one or more series or issues, in various principal amounts, bearing interest, maturing, and having such redemption features and other provisions as may be provided in any supplemental indenture or other instrument authorizing their issuance. However, no series or issue of additional Bonds shall be issued unless: a) Any default or event which would result in default by Company under the Trust Indenture has been first cured; b) Any real property acquired from the proceeds of Additional Bonds must be subjected to and become a part of the lien of the Trust Indenture and any mortgage or deed of trust upon the Facilities; and c) The ratio of the total of outstanding Bonds plus the additional bonds shall not exceed 100% of the capitalized cost of the Property, inclusive of any new construction or improvements thereon, to secure the payment of the Bonds. Substitution of Collateral If the Company is not then in default, the Trustee may execute partial releases or accept substitution of collateral; provided, however, that in every such instance the Trustee must receive from some disinterested person a certificate stating that the value of the property to be substituted is of equal or greater value to the original property. Successor Trustee If the Trustee resigns or is removed or dissolved or if any court or administrative body takes control over the property or affairs of the Trustee because of insolvency or financial difficulty or for any other reason, the Company must appoint a Successor Trustee. If the Company fails to make such an appointment, the majority in principal amount of Bondholders may appoint a Successor Trustee. The Successor Trustee must then mail notice of its appointment to the registered owners but no other notice is required. Modification of Trust Indenture The Trust Indenture may be amended or supplemented from time to time by the parties thereto without the consent of or notice to the Bondholders for any of the following purposes: 32 a) To cure any ambiguity, omission, formal defect or inconsistency; or b) To issue additional Bonds within the guidelines described above; or c) To make any change which, in the judgement of the Trustee in reliance upon any opinion of counsel does not adversely affect the rights of the holders of any Bond. The Trust Indenture may be amended or supplemented for purposes other than those set forth above with the consent of the holders of 66 2/3% of the Bonds then outstanding; provided, however, that no such amendment or supplement without the consent of the holder of any Bond affected thereby shall: a) Reduce the percentage of the principal amount of Bonds the holders of which must consent to for any such amendment, supplement or waiver; b) Reduce the rate or extend the time of payment of interest on any Bonds; or c) Reduce the principal or premium, if any, on any Bond or extend the time or times of payment thereof whether at maturity, upon redemption or otherwise. Prepayment The Company has reserved the right to redeem all or a portion of the Bonds prior to their stated maturity. The Bonds are subject to redemption without premium at the principal amount thereof plus accrued interest. The registered owner will be given written notice of such redemption at the owner's address as it appears on the Bond Register. It is the owner's responsibility to notify the Paying Agent of any change of address. Any Bond not redeemed by its owner within three years after its maturity date is deemed to have been paid and the funds will escheat to the benefit of the appropriate state authority. Security and Source of Payment for the Bonds The Bonds will be payable primarily from the first revenues of the Facilities. These Bonds are an obligation of the Company. The Series 1999-I, II, III, IV and V Bonds will be secured by a co-first mortgage on the Minden, Oak Creek, Bastrop, Farmerville and Natchitoches Projects, respectively. Notwithstanding the aforementioned, the Bonds will be issued on parity, and the provisions regarding any default on the bonds is set forth in "Description of Bonds - Remedies of Default" in this Prospectus. The Company covenants to keep all property pledged under this Bond issue properly insured against loss by fire, windstorm and explosion in an amount equal to the outstanding balance of the Bonds. A copy of such policy, payable jointly to the Company and the Trustee, will be on file with the Company and the Trustee. Requirements of the Operating Fund Accounts Under the Trust Indenture, the Company must establish Operating Fund Accounts and make monthly deposits into the Operating Fund Accounts in amounts predetermined to be sufficient at all times to pay the principal and interest of each series of the Bonds. The required monthly deposits will be as follows: Series 1999-I ($1,800,000) $14,010.01 per month for one year (12 Payments) beginning April 1, 1999 $17,450.02 per month for one year (12 Payments) beginning April 1, 2000 $17,750.02 per month for one years (12 Payments) beginning April 1, 2001 $18,270.02 per month for four and one half years (54 Payments) beginning April 1, 2002 with a final balloon payment of $1,451,750 due on September 30, 2006 Payments include the Paying Agent fee of $450 per month. Series 1999-II ($2,700,000) $20,925.01 per month for five years (60 Payments) beginning May 1, 1999 with a final balloon payment of $2,700,000 due on April 30, 2004 Payments include the Paying Agent fee of $675 per month. 33 Series 1999-III ($1,800,000) $13,727.99 per month for one year (12 Payments) beginning May 1, 1999 $15,442.00 per month for one year (12 Payments) beginning May 1, 2000 $17,223.00 per month for one year (12 Payments) beginning May 1, 2001 $18,970.03 per month for four and one half years (54 Payments) beginning May 1, 2002 with a final balloon payment of $1,416,771 due on October 31, 2006 Payments include the Paying Agent fee of $450 per month. Series 1999-IV ($1,800,000) $13,270.00 per month for one year (12 Payments) beginning June 1, 1999 $16,119.99 per month for one year (12 Payments) beginning June 1, 2000 $17,651.00 per month for one years (12 Payments) beginning June 1, 2001 $19,434.99 per month for two years (24 Payments) beginning June 1, 2002 with a final balloon payment of $1,575,000 due on May 31, 2004 Payments include the Paying Agent fee of $450 per month. Series 1999-V ($1,800,000) $13,270.00 per month for one year (12 Payments) beginning July 1, 1999 $16,119.99 per month for one year (12 Payments) beginning July 1, 2000 $17,651.00 per month for one years (12 Payments) beginning July 1, 2001 $19,434.99 per month for two years (24 Payments) beginning July 1, 2002 with a final balloon payment of $1,575,000 due on June 30, 2004 Payments include the Paying Agent fee of $450 per month. The Trustee must first draw, from the Operating Fund Accounts, the charges due for paying agency and trustee services. Thereafter, the amounts in the Operating Fund Accounts shall be used solely for the payment of interest coming due or principal coming payable on the Bonds or for the redemption of Bonds; provided however, that the Trustee may in the event the Company fails to maintain or insure its properties, apply such funds as may be available in the Operating Fund Accounts to perform the Company's obligations. The Company is obligated to immediately replenish such funds so applied. Initial Operating Fund Payments Initial operating fund payments in the amounts of $90,000, $125,000, $90,000, $90,000 and $90,000 will be funded from the proceeds of the sale of the Series 1999-I, II, III, IV and V Bonds, respectively, and will be used only to make the initial payments on the respective series of Bonds. These initial operating fund payment amounts are equivalent to slightly more than the first six month operating fund payments for the five series of Bonds assuming all of the Bonds are sold. After the initial operating fund payment amounts have been expended, the remaining operating fund payments will be payable primarily from the first revenues of the Facilities. If the Company is unable to make the required operating fund payments to pay the principal and interest due on the Bonds, then an event of default will occur. See "Description of Bonds - Events of Default" and "Description of Bonds - Remedies of Default." Bond Reserve Account The Company has agreed to establish a Bond Reserve Account which will be funded by four of the five series of bonds as follows: $140,000 from the Series 1999-I Bonds, $140,000 from the Series 1999-III Bonds, $140,000 from the Series 1999-IV Bonds and $117,000 from the Series 1999-V Bonds. If all the Bonds are sold, the Bond Reserve Account will be funded in the amount of $537,000. The purpose of the Bond Reserve Account is that in the event the Company has not deposited the necessary funds to pay the principal and interest due on any semiannual payment date of any series of Bonds, the Trustee may apply available funds to the principal and interest due on the Bonds. In the event that the Trustee uses funds from the Bond Reserve Account to pay the principal and interest on the Bonds due at a particular paydate, then the Company shall pay to the Trustee, within one hundred eighty (180) days from the date of such paydate, an amount necessary to replenish the Bond Reserve Account. Failure to replenish the Bond Reserve Account within one-hundred eighty (180) day period shall be an event of default and shall entitle the Trustee to continue to hold the Bond Reserve Account, in addition to its other remedies. The Bond Reserve Account will remain in place for a period of seven and one half years from May 1, 1999. At the end of the seven and one half year period, any funds remaining in the Bond Reserve Account must first be 34 used to call any outstanding Bonds, provided the Company is current on all operating fund payments. If all of the Bonds have been retired prior to the end of the seven and one half year period, then the Bond Reserve Account will be released to the Company. Escrow and Disbursement of Bond Proceeds All proceeds from the sale of the Bonds shall be payable to and deposited with Colonial Trust Company of Phoenix, Arizona ("Escrow Agent" and "Registrar") pursuant to an Escrow Agreement entered into between the Company and the Escrow Agent. Pursuant to the terms of the Escrow Agreement, all proceeds from the sale of the Bonds will be deposited with the Escrow Agent, subject to the sale of minimum funds for any series of Bonds. The minimum offering amounts for the Series 1999-I Bonds, Series 1999-II Bonds, Series 1999-III Bonds, Series 1999-IV Bonds and Series 1999-V Bonds are $400,000 , $600,000, $400,000, $400,000 and $400,000, respectively. No fees still due the Underwriter related to the sale of a particular series of Bonds shall be paid out of the escrow account until the minimum escrow amount for that particular series of Bonds has been met. The funds shall be used only for the purpose set forth under "Sources and Uses of Proceeds." During the escrow period, the subscriber will not have access to funds held in the Escrow Account. The Company, the Company's affiliates, the Underwriter and the Underwriter's affiliates may purchase Bonds in order to reach the minimum offering amounts for any series of the Bonds. These parties will not be restricted to the amount of Bonds that they may purchase. If $400,000 has not been deposited in the escrow account from the sale of the Series 1999-I Bonds by October 1, 1999, the subscribers to the Series 1999-I Bonds will receive the return of their subscription amount plus interest. In the event that the minimum offering amount for the Series 1999-I Bonds is not met by October 1, 1999, the Company shall promptly pay to the Escrow Agent such sum of money as shall be necessary, if any, when added to the amount of the Escrow Property and interest earned thereon to pay to the subscribers of the Bonds the principal amount of such subscriptions together with the interest from April 1, 1999 through October 1, 1999 at the rate attributable to the Series 1999-I Bonds subscribed. If $600,000 has not been deposited in the escrow account from the sale of the Series 1999-II Bonds by November 1, 1999, the subscribers to the Series 1999-II Bonds will receive the return of their subscription amount plus interest. In the event that the minimum offering amount for the Series 1999-II Bonds is not met by November 1, 1999, the Company shall promptly pay to the Escrow Agent such sum of money as shall be necessary, if any, when added to the amount of the Escrow Property and interest earned thereon to pay to the subscribers of the Bonds the principal amount of such subscriptions together with the interest from the date payment for the Series 1999-II Bonds is received in the office of the Underwriter through November 1, 1999 at the rate attributable to the Series 1999-II Bonds subscribed. If $400,000 has not been deposited in the escrow account from the sale of the Series 1999-III Bonds by November 1, 1999, the subscribers to the Series 1999-III Bonds will receive the return of their subscription amount plus interest. In the event that the minimum offering amount for the Series 1999-III Bonds is not met by November 1, 1999, the Company shall promptly pay to the Escrow Agent such sum of money as shall be necessary, if any, when added to the amount of the Escrow Property and interest earned thereon to pay to the subscribers of the Bonds the principal amount of such subscriptions together with the interest from May 1, 1999 through November 1, 1999 at the rate attributable to the Series 1999-III Bonds subscribed. If $400,000 has not been deposited in the escrow account from the sale of the Series 1999-IV Bonds by December 1, 1999, the subscribers to the Series 1999-IV Bonds will receive the return of their subscription amount plus interest. In the event that the minimum offering amount for the Series 1999-IV Bonds is not met by December 1, 1999, the Company shall promptly pay to the Escrow Agent such sum of money as shall be necessary, if any, when added to the amount of the Escrow Property and interest earned thereon to pay to the subscribers of the Bonds the principal amount of such subscriptions together with the interest from June 1, 1999 through December 1, 1999 at the rate attributable to the Series 1999-IV Bonds subscribed. If $400,000 has not been deposited in the escrow account from the sale of the Series 1999-V Bonds by January 1, 2000, the subscribers to the Series 1999-V Bonds will receive the return of their subscription amount plus interest. In the event that the minimum offering amount for the Series 1999-V Bonds is not met by January 1, 2000, the Company shall promptly pay to the Escrow Agent such sum of money as shall be necessary, if any, when added to the amount of the Escrow Property and interest earned thereon to pay to the subscribers of the Bonds the principal amount of such subscriptions together with the interest from July 1, 1999 through January 1, 2000 at the rate attributable to the Series 1999-V Bonds subscribed. Subject to the sale of the minimum offering amount for the Series 1999-I Bonds, the Company and Trustee will use available funds from the sale of the Series 1999-I Bonds in the following order: (1) to pay expenses of the Underwriter, attorney, appraiser, recording fees, mortgage taxes, Trustee's fees, Paying Agent fees and other similar fees incurred in 35 connection with the Series 1999-I Bonds; (2) to fund an amount approximately equivalent to the first six month operating fund payments for the Series 1999-I Bonds; (3) to retire the Minden Construction Loan; (4) to fund pre-opening costs of the Minden Project; and (5) to fund the Series 1999-I portion of the Bond Reserve Account. After the above has been accomplished, any remaining funds in the Bond Proceeds Account related to the Series 1999-I Bonds will be released to the Company. See "Sources and Uses of Proceeds." Subject to the sale of the minimum offering amount for the Series 1999-II Bonds, the Company and Trustee will use available funds from the sale of the Series 1999-II Bonds in the following order: (1) to pay expenses of the Underwriter, attorney, appraiser, recording fees, mortgage taxes, Trustee's fees, Paying Agent fees and other similar fees incurred in connection with the Series 1999-II Bonds; (2) to fund an amount approximately equivalent to the first six month operating fund payments for the Series 1999-II Bonds; (3) to retire the Oak Creek Interim Loan; and (4) to retire the line of credit used for the renovation of the Oak Creek Project. After the above has been accomplished, any remaining funds in the Bond Proceeds Account related to the Series 1999-II Bonds will be released to the Company. See "Sources and Uses of Proceeds." Subject to the sale of the minimum offering amount for the Series 1999-III Bonds, the Company and Trustee will use available funds from the sale of the Series 1999-III Bonds in the following order: (1) to pay expenses of the Underwriter, attorney, appraiser, recording fees, mortgage taxes, Trustee's fees, Paying Agent fees and other similar fees incurred in connection with the Series 1999-III Bonds; (2) to fund an amount approximately equivalent to the first six month operating fund payments for the Series 1999-III Bonds; (3) to retire the Bastrop Construction Loan; (4) to fund the remaining construction costs on the Bastrop Project; (5) to fund pre-opening costs of the Bastrop Project; and (6) to fund the Series 1999-III portion of the Bond Reserve Account. After the above has been accomplished, any remaining funds in the Bond Proceeds Account related to the Series 1999-III Bonds will be released to the Company. See "Sources and Uses of Proceeds." Subject to the sale of the minimum offering amount for the Series 1999-IV Bonds, the Company and Trustee will use available funds from the sale of the Series 1999-IV Bonds in the following order: (1) to pay expenses of the Underwriter, attorney, appraiser, recording fees, mortgage taxes, Trustee's fees, Paying Agent fees and other similar fees incurred in connection with the Series 1999-IV Bonds; (2) to fund an amount approximately equivalent to the first six month operating fund payments for the Series 1999-IV Bonds; (3) to retire the Farmerville Construction Loan; (4) to fund the remaining construction costs on the Farmerville Project; (5) to fund pre-opening costs of the Farmerville Project; and (6) to fund the Series 1999-IV portion of the Bond Reserve Account. After the above has been accomplished, any remaining funds in the Bond Proceeds Account related to the Series 1999-IV Bonds will be released to the Company. See "Sources and Uses of Proceeds." Subject to the sale of the minimum offering amount for the Series 1999-V Bonds, the Company and Trustee will use available funds from the sale of the Series 1999-V Bonds in the following order: (1) to pay expenses of the Underwriter, attorney, appraiser, recording fees, mortgage taxes, Trustee's fees, Paying Agent fees and other similar fees incurred in connection with the Series 1999-V Bonds; (2) to fund an amount approximately equivalent to the first six month operating fund payments for the Series 1999-V Bonds; (3) to retire the Natchitoches Construction Loan; and (5) to fund the Series 1999-V portion of the Bond Reserve Account. After the above has been accomplished, any remaining funds in the Bond Proceeds Account related to the Series 1999-V Bonds will be released to the Company. See "Sources and Uses of Proceeds." Escrow Agent The Company has appointed Colonial Trust Company of Phoenix, Arizona, as Escrow Agent. The duties and responsibilities of the Escrow Agent are set forth in the Escrow Agreement between the Company and the Escrow Agent, the provisions of which are summarized under "Description of Bonds - Escrow And Disbursement Of Bond Proceeds." Trustee Colonial Trust Company of Phoenix, Arizona, has agreed to serve as Trustee for the Bonds pursuant to the Trust Indenture entered into between the Company and the Trustee. The Trustee has also agreed to serve as Paying Agent, Registrar, Disbursing Agent and Escrow Agent. The Trustee is not a guarantor or surety, does not in any way guarantee or act as surety for payment of the Bonds and may not be held liable under any conditions, except for its own negligence. The Underwriter and Trustee are separate corporations organized under the laws of the states of Kansas and Arizona respectively. The Trustee and Underwriter share no common officer or directors. The Underwriter will however receive a fee not to exceed $60,000 to be paid in installments over the terms of the Bond Issues from the Trustee for its technical 36 assistance pertaining to the Bond Issues. This assistance normally includes, but is not limited to, (1) helping ensure that all legal documents are recorded; (2) making sure that proper documentation is forwarded to the Trustee, including such documents as the Articles of Organization, appraisal, financial statements and annual reports; (3) due diligence documentation of the progress of the project and bond sales; and (4) follow-up with the Company in the event of delinquent payments. This assistance offered by the Underwriter presents a conflict of interest, in that the Underwriter has underwritten other offerings for affiliates of the Company, and therefore may not want to alienate the Company (and possibly lose future business) by aggressively pursuing delinquent payments that are due to investors. Dependence by the Trustee on the Underwriter to provide certain information to the Trustee restricts the Trustee's ability to function independently as a Trustee. This assistance offered by the Underwriter, for whom it is compensated by the Trustee, does in no way relieve the Trustee of its duties. Registrar The Bonds are being issued as fully registered Bonds in book entry form (unless the purchaser requests a printed bond certificate). The Trustee is also acting as Registrar and Transfer Agent for the Bonds. As Bond Registrar, the Trustee will receive and record all proceeds from the sale of the Bonds, maintain a permanent bond register, authenticate and mail all Bonds to their registered holders that have requested a printed Bond, cancel and reissue Bonds which are transferred by the original holders, and replace lost, stolen and mutilated bond certificates. All Bonds will be registered in the owner's name. Upon registration, a bond confirmation certificate or, if the purchaser requests, a printed Bond will be mailed directly to it's owner. Paying Agent The Company has also appointed the Trustee to act as Paying Agent for the Bonds. As paying agent the Trustee will receive and hold all payments remitted by the Company into the Operating Fund Accounts and will disburse therefrom all payments of principal or interest on the Bonds, Trustees fees and such other sums as provided in the Trust Indenture. The Paying Agent holds the funds in trust, commingled with similar operating funds of other companies, but must maintain detailed records to reflect the balances attributable to each Company. The Paying Agent may invest the funds in any form of account or deposit insured by depository insurance or in interest bearing obligations issued by the United States Government or any political subdivision thereof, or any funds comprised of the same. As Paying Agent, the Trustee is required to furnish periodic statements to the Company and to the Underwriter reflecting all receipts and disbursements from the Operating Fund Accounts. UNDERWRITING Underwriting Agreement Subject to the terms and conditions of the Underwriting Agreement (the "Underwriting Agreement"), a copy of which is filed as an exhibit to the Registration Statement of which this Prospectus is a part, between the Company and MMR Investment Bankers, Inc. (the "Underwriter"), the Company has retained the services of the Underwriter to offer and sell the Bonds offered hereby on a "best efforts" basis at the public offering price of $250 per Bond or integral multiples thereof. The Bonds will be issued in five series, as identified herein, and each series is subject to the sale of a minimum-offering amount as indicated under "Description of Bonds - Escrow and Disbursement of Bond Proceeds." All proceeds from the sale of the Bonds will be transmitted promptly to an escrow account with Colonial Trust Company as Escrow Agent. In the event minimum funds for any series of Bonds is not received within the time set forth herein, the Company will promptly pay to the Escrow Agent such sum of money as will be necessary, if any, when added to the sums held in escrow, including interest earned thereon, to pay to the subscribers the principal amount of their subscription together with interest through the escrow termination date at the rate attributable to the Bonds subscribed to by the subscriber. The Company expects that the Bonds will be delivered in book-entry form, subject to the sale of minimum funds for each series of Bonds, through the facilities of the Trustee within thirty (30) days from the date subscriptions for the Bonds are received. Contingent upon the sale of the minimum principal amount of a series of the Bonds, the Company will pay the Underwriter a concession as follows: (1) the Underwriter will receive 6.0% of the face amount of each Bond sold by another NASD member firm through a selling group agreement with the Underwriter and may re-allow the full 6% to the NASD member firms participating in this Offering; (2) the Underwriter will receive a concession of 5.0% of the face amount of each 37 bond sold by the Underwriter to clients of the Underwriter; or (3) the Underwriter will receive a processing fee of 1.0% of the face amount of each Bond sold to a purchaser referred to the Underwriter by the Company, provided such investors are not currently a client of the Underwriter. The Underwriter or its assigns will also receive a fee not to exceed $60,000 to be paid in installments over the term of the Bond Issues from the Trustee for services rendered to the Trustee including the review of the financial and operating condition of the Company on a continuing basis. In addition, the Company has paid to the Underwriter an investment banking fee in the amount of $128,700 for the Underwriter's technical assistance in connection with this Offering. In the event the Offering is terminated prior to the issuance of Bonds, the Company shall be liable to the Underwriter only for the Underwriter's out-of-pocket expenses for services rendered. The Company has agreed to pay all expenses in connection with qualifying the Bonds for sale under such jurisdictions as the Underwriter may designate. The Underwriting Agreement provides for reciprocal agreements of indemnity between the Company and the Underwriter as to certain civil liabilities, including liabilities under the Securities Act of 1933, as amended. The sale of the Bonds will be for a period of one year from the date of this Prospectus. All offerings are subject to prior sale. The Underwriter has the first right of refusal on any other financing needs of the Company involving the Facilities for the next three years following the offering. Additionally, the Underwriter has advised the Company that it does not intend to make a market in the Bonds. Pursuant to terms of the Underwriting Agreement, the Company may not contact any person listed in the records of the Underwriter as a customer of the Underwriter for any reason whatsoever without obtaining the prior written consent of the Underwriter. However, this provision is not to be construed to prohibit the Company from providing any reports or notifications to bondholders that may be mandated by any federal or state laws or regulations. Subscription for Bonds Each person who wishes to purchase a Bond must execute a subscription agreement covering the Bond(s) being purchased. The subscription agreement is generated by the Underwriter upon receiving verbal indication from a subscriber for the Bond(s) the subscriber has selected from the available maturities. Subscribers may purchase any of the series of Bonds. Prior to executing the subscription agreement, the subscriber will be provided a Prospectus by the Underwriter. Checks should be made payable to Colonial Trust Company as Escrow Agent and Registrar. Completion of the subscription agreement, including proper signature thereon is essential prior to any sale of the Bonds to potential investors. However, the Company and Underwriter reserve the right to reject any subscription for any reason whatsoever, in which event all monies will then be refunded to the prospective investor without interest, deduction or credit thereon. Subject to the sale of minimum funds for each series of Bonds, the Registrar will register and deliver the bonds in book-entry form or provide those registered owners who request a printed bond certificate with the Bonds within thirty (30) days from the date subscriptions for the Bonds are received. Determination of Offering Price Prior to this Offering, there has been no public market for the Bonds of the Company. Consequently, the initial public offering price for the Bonds has been determined arbitrarily between the Company and the Underwriter. Possible Withdrawal of Underwriter In June 1997, the Securities Commissioner of the State of Kansas filed a Petition in the District Court of Shawnee County, Kansas, Case No. 97-CU-755, styled State of Kansas, ex. rel. David R. Brant, Securities Commission of the State of Kansas v. William Gerald Martin, Thomas Gene Trimble, and MMR Investment Bankers, Inc. This case stems from the Underwriter's participation in a series of church bond offerings of a single church located in Wichita, Kansas. The Securities Commissioner of Kansas seeks a permanent injunction restraining and enjoining each of the defendants from directly or indirectly employing any device, scheme, or artifice to defraud; engaging in an act, practice or course of business which would operate as a fraud or deceit upon any person; and/or making any untrue statements of material fact and/or omitting to state material facts necessary in order to make other statements made not misleading, and, seeking restitution jointly and/or severely from each of the defendants in the amount of $4,825,665.24, which is the amount in default on the last two issues of church bonds issued on behalf of the church. It is likely that during the offering of the Bonds, that this matter may be adjudicated, settled, or otherwise, and the authority of the Underwriter to engage in the securities business may be suspended, revoked or limited. Currently, this litigation is in its discovery stage, and the Underwriter has determined to vigorously defend the case. However, in the event the Underwriter is unable to continue its business as a broker dealer of securities, it will have to withdraw from its participation in this offering and, in all likelihood, the offering will be terminated unless and until the Company is successful in finding another Underwriter willing to participate in the sale of the Bonds. 38 LEGAL MATTERS The Company's counsel, Bobby L. Culpepper, Esq., Jonesboro, Louisiana, has opined upon certain legal matters pertaining to the Bonds. Certain legal matters have been passed upon for the Underwriter by Michael G. Quinn, Esq., Wichita, Kansas. To the best knowledge of the Company, there are neither pending legal proceedings nor any known to be threatened or contemplated to which the Company is a party or to which any of its property may be subject. EXPERTS The following experts have consented to their names and to references to their reports appearing in this Prospectus: Robert M. McSherry, MAI, of Baton Rouge, Louisiana, has provided appraisals of the Facilities. William R. Hulsey, CPA, of Monroe, Louisiana, has audited the financial statements dated December 31, 1998. ADDITIONAL INFORMATION The Company has filed with the Securities and Exchange Commission (the "Commission"), Washington, D.C. 20549, a Registration Statement (which term shall include all amendments, exhibits and schedules thereto) on Form SB-2 under the Securities Act with respect to the Bonds offered hereby. This Prospectus, which constitutes a part of the Registration Statement, omits certain of the information contained in the Registration Statement and the exhibits and financial schedules thereto. Reference is hereby made to the Registration Statement and related exhibits and schedules for further information with respect to the Company and the Bonds offered hereby. Any statements contained herein concerning the provisions of any document are not necessarily complete, and in each such instance reference is made to the copy of such document filed as an exhibit to the Registration Statement. Each such statement is qualified in its entirety by such reference. For further information with respect to the Company and the Bonds, reference is made to the Registration Statement and such exhibits and schedules, copies of which may be examined or copied at the Public Reference Section of the Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the regional offices of the Commission located at 7 World Trade Center, Suite 1300, New York New York 10048 and at CitiCorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511. (This space is intentionally left blank) 39 INDEX TO FINANCIAL STATEMENTS Page Auditor's Report . . . . . . . . . . . . . . . . . . . . . . . . . F-2 Balance Sheet at December 31, 1998 . . . . . . . . . . . . . . . . F-3 Statement of Income from July 1, 1998 until December 31, 1998. . . F-4 Statement of Members' Equity (Deficit) from July 1, 1998 until December 31, 1998 . . . . . . . . . . . . . . . . . . . . . F-5 Statement of Cash Flows from July 1, 1998 until December 31, 1998. . . . . . . . . . . . . . . . . . . . . . . . . F-6 Notes to Financial Statements. . . . . . . . . . . . . . . . . . . F-7 F-1 WILLLIAM R. HULSEY CERTIFIED PUBLIC ACCOUNTANT 2117 FORSYTHE AVENUE MEMBER MONROE, LOUISIANA MAILING ADDRESS AMERICAN INSTITUTE OF P. 0. BOX 2253 CERTIFIED PUBLIC ACCOUNTANTS MONROE, LOUISIANA 71207 SOCIETY OF LOUISIANA (318) 362-9900 CERTIFIED PUBIIC ACCOUNTANTS FAX (318) 362-9993 The Biltmore Group of Louisiana. L.L.C. 507 Trenton Street West Monroe, Louisiana I have audited the accompanying balance sheet of The Biltmore Group of Louisiana, L.L.C. as December 31, 1998 and the related statements of income, retained earnings and cash flows for the period then ended. These financial statements are the responsibility of the Company's management. My responsibility is to express an opinion on these financial statements based on my audit. I conducted my audit in accordance with generally accepted auditing standards. Those standards require that I plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. I believe that my audit provides a reasonable basis for my opinion. In my opinion, the financial statements referred to above present fairly in all material respects, the financial position of The Biltmore Group of Louisiana, L.L.C. at December 31, 1998 and the results of its operations and its cash flows for the period then ended in conformity with generally accepted accounting principles. January 21, 1999 /S/WILLIAM R HULSEY William R. Hulsey Certified Public Accountant F-2 The Biltmore Group of Louisiana, L.L.C. ( A Development Stage Company ) Balance Sheet December 31, 1998 ASSETS Current assets: Cash $ 21,318 Prepaid expenses 4,918 ---------- Total current assets 26,236 ---------- Property, plant and equipment Building construction in progress 2,878,986 Land 938,739 ---------- Total property, plant and equipment 3,817,725 ---------- Other assets: Deferred charges 110,000 ---------- $ 3,953,961 ---------- LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Accrued payroll taxes payable $ 1,383 Notes payable 689,907 ---------- Total current liabilities 691,290 ---------- Long-term debt 2,174,025 ---------- Members' equity 1,088,646 ---------- $ 3,953,961 ---------- The notes to financial statements are an integral part of this financial statement. F-3 The Biltmore Group of Louisiana, L.L.C. ( A Development Stage Company ) Statement of Income Period from July 1, 1998 until December 31, 1998 Revenues $ 0 ---------- Operating expenses Activities 685 Advertising 2,231 Bank charges 30 Dues and subscriptions 1,167 Education 498 Equipment rental 231 Housekeeping 439 Licenses 35 Miscellaneous 596 Office 21 Office supplies 869 Payroll expense 5,202 Postage 635 Printing 1,263 Promotion 15 Telephone 347 Travel and entertainment 9,389 Uniforms 7 Utilities 457 ---------- Total operating expenses 24,117 ---------- Net income (loss) (24,117) ---------- The notes to financial statements are an integral part of this financial statement. F-4 The Biltmore Group of Louisiana, L.L.C. ( A Development Stage Company ) Statement of Members' Equity Period from July 1, 1998 until December 31, 1998 Beginning members' equity $ 0 Members, contributions 1,112,763 Net income (loss) (24,117) ---------- Ending members' equity $ 1,088,646 ---------- The notes to financial statements are an integral part of this financial statement. F-5 The Biltmore Group of Louisiana, L.L.C. ( A Development Stage Company ) Statement of Cash Flows Period from July 1, 1998 until December 31, 1998 Cash flows from operating activities: Net loss $ (24,117) Adjustments to reconcile net income to cash used by operations: Increase in prepaid expenses (4,918) Increase in accrued payroll taxes 1,383 ---------- Net cash used by operating activities (27,652) ---------- Cash flows from investing activities Acquisitions land (938,739) Payments towards construction in progress (2,878,986) Payment of deferred charges (110,000) ---------- Net cash provided by (applied to) investing (3,927,725) ---------- Cash flows from financing activities Contribution of membership equity 1,112,763 Interim construction loans 689,907 Land and real estate loans 2,174,025 ---------- Net cash provided by (applied to) financing 3,976,695 ---------- Net increase in cash 21,318 Cash at the beginning of the period 0 Cash at the end of the period $ 21,318 ---------- The notes to financial statements are an integral part of this financial statement. F-6 The Biltmore Group of Louisiana, L.L.C. ( A Development Stage Company ) Notes to Financial Statements Note 1 - Summary of Significant Accounting Policies Nature of Business The company is a Louisiana limited liability company established to develop an assisted living center and dementia facility for the housing and care of senior citizens in Bastrop, Farmerville, Minden, and Natchitoches in Louisiana and in Sedona, Arizona. Basis of Accounting The company uses the accrual basis of accounting and will utilize the calendar year for all reporting purposes. Income Taxes The company is treated as a partnership for federal income tax purposes. Consequently, federal income taxes are not payable by, or provided for, the Company. Members are taxed individually on their share of the Company's earnings. The Company's income or loss is allocated among the members in accordance with the operating agreement of the Company. The financial statements do not reflect a provision for income taxes. Property, Buildings, Equipment and Depreciation Buildings and equipment are stated at cost and are to be depreciated by the straight-line method over their estimated economic lives. Buildings shall include capitalized construction period interest which will be treated as a component cost of the building and depreciated over the same economic life as the building. Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. Advertising The Company follows the policy of charging the costs of advertising to expense as incurred. F-7 The Biltmore Group of Louisiana, L.L.C. ( A Development Stage Company ) Notes to Financial Statements Note 1 - Summary of Significant Accounting Policies-(continued) Deferred Charges Deferred charges represents the costs associated with obtaining long-term financing for the care facilities of the Company. These costs are to amortized over the life of the bonds using the effective interest rate method. Note 2 - Related Party Transactions The Company has entered into a design/builder contract in the amount of $ 1,777,000 with The Forsythe Group, one of its members, to construct the Bastrop facility. The contract calls for the cash payments of $ 1,352,000 during the building of the facility as approved by the contract engineer and the balance of $ 425,000 through the issuance of certificates of membership equity. As of December 31, 1998, $ 36,560 has been paid on this contract and $ 175,000 of membership equity had been issued for services rendered in connection with the project. The remainder of the $ 250,000 due to be paid through the issuance of equity certificates, which will be issued at the completion of the project. The Company has entered into a design/builder contract in the amount of $ 1,777,000 with The Forsythe Group, one of its members, to construct the Farmerville facility. The contract calls for the cash payments of $ 1,352,000 during the building of the facility as approved by the contract engineer and the balance of $ 425,000 through the issuance of certificates of membership equity. As of December 31, 1998, there have been no cash payments on this contract and $ 135,000 of membership equity had been issued for services rendered in connection with the project. The remainder of the $ 290,000 due to be paid through the issuance of equity certificates, which will be issued at the completion of the project. The Company has entered into a design/builder contract in the amount of $ 1,777,000 with The Forsythe Group, one of its members, to construct the Minden facility. The contract calls for the cash payments of $ 1,352,000 during the building of the facility as approved by the contract engineer and the balance of $ 425,000 through the issuance of certificates of membership equity. As of December 31, 1998, $ 348,245 has been paid on this contract and $ 174,000 of membership equity had been issued for services rendered in connection with the project. F-8 The Biltmore Group of Louisiana, L.L.C. ( A Development Stage Company ) Notes to Financial Statements Note 2 - Related Party Transactions-(continued) The remainder of the $ 251,000 due to be paid through the issuance of equity certificates, which will be issued at the completion of the project. The Company has entered into a design/builder contract in the amount of $ 1,777,000 with The Forsythe Group, one of its members, to construct the Bastrop facility. The contract calls for the cash payments of $ 1,352,000 during the building of the facility as approved by the contract engineer and the balance of $ 425,000 through the issuance of certificates of membership equity. As of December 31, 1998, there have been no payments on this contract and $ 135,000 of membership equity had been issued for services rendered in connection with the project. The remainder of the $ 250,000 due to be paid through the issuance of equity certificates, which will be issued at the completion of the project. Note 3 - Deferred Charges Deferred charges are summarized as follows: Loan fees $ 110,000 The loan fees are to be amortized as interest expense over the life of the related loan by use of the interest method. Note 4 - Notes Payable Notes payable at December 31, 1998 consist of a note to Church Loans which is to provide the funding for the construction of the Bastrop location. The loan is to be repaid from the permanent financing of the project through the proposed issuance of bonds. This note calls for the payment of interest at a rate of prime ( as published in the Wall Street Journal plus two per cent but in no case shall the rate be less than ten and one-half per cent per annum. The lender shall maintain a first mortgage position on the Bastrop location until such time as the bonds are sold. At that time Church Loans will maintain a co-first mortgage position for any amounts which are not liquidated by the bond proceeds. As of December 31, 1998, the balance on this loan is $ 196,116. F-10 The Biltmore Group of Louisiana, L.L.C. ( A Development Stage Company ) Notes to Financial Statements Note 4 - Notes Payable-(continued) Notes payable at December 31, 1998 consist of a note to First Republic Bank to provide a credit line for the funding for the construction of the various locations. The loan is to be repaid from the permanent financing of the project through the proposed issuance of bonds. This note calls for the payment of interest at a rate of 9.995 per cent. As of December 31, 1998, the balance on this loan is $ 70,500. Notes payable at December 31, 1998 consist of a note to First Republic Bank to provide the funding for the construction of the Minden location. The loan is to be repaid from the permanent financing of the project through the proposed issuance of bonds. This note calls for the monthly payment of interest at a rate of 9.20 per cent. The lender shall maintain a first mortgage position on the Minden location until such time as the bonds are sold. As of December 31, 1998, the balance on this loan is $ 351,536. Notes payable at December 31, 1998 consist of a note to First Republic Bank to provide the funding for the remodeling and upgrading of the Sedona location. This note calls for the monthly payment of interest at a rate of 9.75 per cent. The note is secured by a mortgage position on certain real estate owned by on e of the members. As of December 31, 1998, the balance on this loan is $ 71,755. Note 5 - Contributions of Members' Equity The Company has issued members' equity certificates totalling $ 1,112,763 in exchange for $ 683,500 of services and $ 429,263 of cash. Note 6 - Development Stage Operations The Company has begun construction of the Minden and Bastrop facilities which have an estimated completion date of late 1999. The Company has completed the purchase of the Sedona, Arizona facility and is in the process of upgrading and remodeling the facility which has as estimated completion date of early 1999. The expenditures related to these projects are reflected as building construction in progress on the balance sheet. F-11 The Biltmore Group of Louisiana, L.L.C. ( A Development Stage Company ) Notes to Financial Statements Note 7 - Long-Term Debt Long-term debt at December 31, 1998 consist of a note to Church Loans which is to provided the funding for the purchase of the Sedona location. The loan is to be repaid from the permanent financing of the project through the proposed issuance of bonds. This note calls for the payment of interest at a rate of prime ( as published in the Wall Street Journal plus two per cent but in no case shall the rate be less than ten and one-half per cent per annum. The lender shall maintain a first mortgage position on the Sedona location until such time as the bonds are sold. At that time Church Loans will maintain a co-first mortgage position for any amounts which are not liquidated by the bond proceeds. As of December 31, 1998, the balance on this loan is $ 2,174,025. F-12 No person has been authorized in connection with the Offering made hereby to give any information or to make any representation not contained in this Prospectus and, if given or made, such information or representation must not be relied upon as having been authorized by the Company or any Underwriter. This Prospectus does not constitute an offer to sell or a solicitation of any offer to buy any of the securities offered hereby to any person or by anyone in any jurisdiction in which it is unlawful to make such offer or solicitation. Neither the delivery of this Prospectus nor any sale made hereunder shall, under any circumstances, create any implication that the information contained herein is correct as of any date subsequent to the date hereof. TABLE OF CONTENTS Maturity Schedules . . . . . . . . . . . . . . . . . 3 Prospectus Summary . . . . . . . . . . . . . . . . . 4 Risk Factors . . . . . . . . . . . . . . . . . . . . 7 Use of Proceeds. . . . . . . . . . . . . . . . . . . 14 Business . . . . . . . . . . . . . . . . . . . . . . 15 Description of Property. . . . . . . . . . . . . . . 19 Management . . . . . . . . . . . . . . . . . . . . . 24 Principal Owners of the Company. . . . . . . . . . . 25 The Company's Plan of Operation. . . . . . . . . . . 26 Prior Performance of Affiliates of the Company . . . 27 Certain Transactions . . . . . . . . . . . . . . . . 27 Description of Bonds . . . . . . . . . . . . . . . . 29 Underwriting . . . . . . . . . . . . . . . . . . . . 37 Legal Matters. . . . . . . . . . . . . . . . . . . . 39 Experts. . . . . . . . . . . . . . . . . . . . . . . 39 Additional Information . . . . . . . . . . . . . . . 39 Index to Financial Statements. . . . . . . . . . . . F-1 Until _____________, 1999 (90 days after the date of this Prospectus), all dealers effecting transactions in the Bonds offered hereby, whether or not participating in this distribution, may be required to deliver a Prospectus. This is in addition to the obligation of dealers to deliver a Prospectus when acting as Underwriters and with respect to their unsold allotments or subscriptions. $9,900,000 Co-First Mortgage Bonds (Company logo here) THE BILTMORE GROUP OF LOUISIANA, L.L.C. ----------------------- PROSPECTUS ----------------------- MMR INVESTMENT BANKERS, INC. [MMR LOGO] [SIPC LOGO] ________________, 1999 PART II INFORMATION NOT REQUIRED IN PROSPECTUS Item 24. Indemnification of Directors and Officers The Louisiana Limited Liability Company law (La. R. S. 12:1314 and 1315) confers broad powers upon limited liability companies organized in Louisiana with respect to limitations of liability and indemnification of any person against liabilities incurred by reason of the fact that such person is or was a member, manager, employee or agent of a limited liability company, or is or was serving at the request of the company as a manager, employee or agent of another company or other business entity. The provisions of La. R.S. 12:1314 are not exclusive of any other rights to which those seeking indemnification may be entitled under any articles of organization or written operating agreement as allowed pursuant to La. R.S. 12:1315. The Operating Agreement of the Company contain a provision regarding the limits of liability of members and managers of the Company to the fullest extent allowed by law. The Underwriting Agreement, filed as Exhibit 1(a) to this Registration Statement, provides for the indemnification by the Company of the Underwriter and each person, if any, who controls the Underwriter against certain liabilities and expenses, as stated therein, which may include liabilities under the Securities Act of 1933, as amended. The Underwriting Agreement also provides that the Underwriter similarly indemnify the Company, it directors, officers and controlling persons, as set forth therein. Item 25. Other Expenses of Issuance and Distribution The following is a list of the estimated expenses in connection with the issuance and distribution of securities being registered, other than underwriting discounts and commissions, all of which is to be paid by the Registrant: SEC Registration Fee. . . . . . . . . . . . . . . . . . . . . . . . . . $3,000 NASD Registration Fee . . . . . . . . . . . . . . . . . . . . . . . . . $1,490 Blue Sky Qualification Fees and Expenses. . . . . . . . . . . . . . . . $3,150 CUSIP Registration Fees . . . . . . . . . . . . . . . . . . . . . . . . $1,000 Legal Fees and Expenses . . . . . . . . . . . . . . . . . . . . . . . .$20,000 Accounting Fees and Expenses. . . . . . . . . . . . . . . . . . . . . .$20,000 Transfer Agent, Escrow Agent, Paying Agent, Registrar & Trustee Fees. . $9,900 Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,760 ------- Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .$61,300 ======= Item 26. Recent Sale of Unregistered Securities The following table sets forth the Company's sales of unregistered securities in the last three years. No underwriters were involved in any of such sales nor were any commissions or similar fees paid by the Registrant with respect thereto. The Company claims exemption from registration for these issuances under Section 4(2) of the Securities Act of 1933, as amended. These securities were sold as a private placement to the original members, each of which is an accredited investor as defined under the Securities Act of 1933, as amended.
Date Title Identity of Sale of Securities Amount Sold of Purchaser Consideration 08/20/98 Membership 265,000 Units The Forsythe Issued in exchange Interest Group for services rendered in connection with developing plans for construction, obtaining State Fire Marshall approval of the plans and getting approval of the proper zoning of the Project and $91,000 in cash 09/30/98 Membership 21,500 Units Joanne Issued in exchange Interest Caldwell- for services rendered Bayles in connection with the formation of the Company and $2,000 in cash 10/19/98 Memership 85,000 Units Joanne Issued in exchange Interest Caldwell- for services rendered Bayles in connection with the interior design of the Facilities and market research studies for the Facilities 11/10/98 Membership 203,739 Units Joanne Issued in exchange for Interest Caldwell- $203,739 in cash Bayles 11/10/98 Membership 270,000 Units Joanne Issued in exchange for Interest Caldwell- services rendered in Bayles connection with selecting the location and purchasing of the land on which the Bastrop and Farmerville Projects are to be built, developing the plans for construction, obtaining State Fire Marshall approval of the plans and getting approval of the proper zoning of the Bastrop and Farmerville Projects 11/10/98 Membership 267,523.5 Units The Forsythe Issued in exchange for Interest Group services rendered in connection with selecting the location and purchasing of the land on which the Natchitoches Project is to be built, developing the plans for construction, obtaining Sate Fire Marshall approval of the plans and getting approval of the proper zoning of the Natchitoches Project and $132,523.50 in cash
Item 27. Exhibits Exhibit Number Description 1(a) Form of Underwriting Agreement 1(b) Form of Selling Group Agreement 1(c) Form of Proceeds Escrow Agreement 3(a) Articles of Organization 3(b) Operating Agreement 4(a) Specimen of Bond Certificate 4(b) Form of Trust Indenture 4(c) Form of Lienholders Agreements 5(a) Opinion of Bobby L. Culpepper, Esq. 10(a) Construction Management Contract - Minden Facility 10(b) Construction Management Contract - Bastrop Facility 10(c) Construction Management Contract - Farmerville Facility 10(d) Construction Management Contract - Natchitoches Facility 10(e) Construction Loan Agreement - Minden 10(f) Interim Loan Agreement - Oak Creek 10(g) Construction Loan Agreement - Bastrop 10(h) Construction Loan Agreement - Farmerville 10(i) Construction Loan Agreement - Natchitoches 10(j) Form of Management Agreements 23(a) Consent of William R. Hulsey, CPA 23(b) Consent of Bobby L. Culpepper, Esq. 23(c) Consent of Appraiser - Minden 23(d) Consent of Appraiser - Oak Creek 23(e) Consent of Appraiser - Bastrop 23(f) Consent of Appraiser - Farmerville 23(g) Consent of Appraiser - Natchitoches 99(a) Appraisal - Minden 99(b) Appraisal - Oak Creek 99(c) Appraisal - Bastrop 99(d) Appraisal - Farmerville 99(e) Appraisal - Natchitoches 99(f) Environmental Report - Minden 99(g) Environmental Report - Bastrop 99(h) Environmental Report - Farmerville 99(i) Environmental Report - Natchitoches Item 28. Undertakings Insofar as indemnification for liabilities arising under the Securities Act of 1933, as amended (the "Act"), may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. The undersigned Registrant hereby undertakes that: (1) For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this Registration Statement as of the time it was declared effective. (2) For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) It will file, during any period in which it offers or sells securities, a post-effective amendment to this registration statement to: (i) Include any prospectus required by section 10(a)(3) of the Act; (ii) Reflect in the prospectus any facts or events which, individually or together, represent a fundamental change in the information in the registration statement; (iii) Include any additional or changed material information on the plan of distribution. (4) File a post-effective amendment to remove from registration any of the securities that remain unsold at the end of the offering. SIGNATURES In accordance with the requirements of the Securities Act of 1933, the Registrant, The Biltmore Group of Louisiana, Inc., certifies that it has reasonable grounds to believe that it meets all of the requirements of filing on Form SB-2 and authorized this Registration Statement to be signed on its behalf by the undersigned, in the City of West Monroe, State of Louisiana, on this 12th day of February , 1999. ------- ------------------ The Biltmore Group of Louisiana, L.L.C. By: /s/JOANNE M CALDWELL-BAYLES ----------------------------------- Joanne. M. Caldwell-Bayles Managing Member In accordance with the requirement of the Securities Act of 1933, this Registration Statement was signed by the following persons in the capacities indicated on February 12 , 1999. ---------------- Signature Title /S/JOANNE M CALDWELL-BAYLES Managing Member (Chief Executive Officer - ------------------------------ and Chief Financial Officer) Joanne M. Caldwell-Bayles EX-1.1 2 UNDERWRITRING AGREEMENT BETWEEN MMR INVESTMENT BANKERS, INC. AND THE BILMORE GROUP OF LOUISIANA, L.L.C. UNDERWRITING AGREEMENT between THE BILTMORE GROUP OF LOUISIANA, L.L.C. ("Issuer") 507 Trenton St. West Monroe, LA 71291 and MMR INVESTMENT BANKERS, INC. ("Underwriter") 550 N. 159th East, Suite 300 P.O. Box 781440 Wichita, Kansas 67278-1440 (316) 733-5081 Toll Free 1-800-825-2663 INTRODUCTION The Underwriter will provide professional and technical services in preparing a bond issue for the Issuer. AMOUNT The Bond Issue shall be in the aggregate amount of $9,900,000.00 and shall be designated as follows: Series 1999-I (Minden Project) $1,800,000.00 Co-First Mortgage Series 1999-II (Oak Creek Project) $2,700,000.00 Co-First Mortgage Series 1999-III (Bastrop Project) $1,800,000.00 Co-First Mortgage Series 1999-IV (Farmerville Project) $1,800,000.00 Co-First Mortgage Series 1999-V (Natchitoches Project) $1,800,000.00 Co-First Mortgage SECURITY The addresses of the properties securing the Series 1999-I, II, III, IV and V Bonds are as follows: Series 1999-I The Minden Project will be located on 5.72 acres of land on the North side of Germantown Road just South of Country Club Drive within the City of Minden, Louisiana. Series 1999-II The Oak Creek Project is located on 2.8 acres of land at 78 Canyon Diablo Road just outside the City of Sedona, Arizona and within the Village of Oak Creek. Series 1999-III The Bastrop Project will be located on 3.35 acres of land at 10280 Boswell Drive just outside the city limits of Bastrop, Louisiana. Series 1999-IV The Farmerville Project will be located on approximately 4 acres of land on the West side of Louisiana Highway 33 just outside the city limits of Farmerville, Louisiana. Series 1999-V The Natchitoches Project will be located on approximately 4 acres of land on the East side of Louisiana Highway 1 just oustide the city limits of Natchitoches, Louisiana. ISSUER'S RESPONSIBILITIES The Issuer agrees to: 1. The Issuer shall complete the prospectus information forms, and provide any other information requested by the Underwriter. An independent audit performed by a Certified Public Accountant will be required. 2. Engage an attorney to prepare a legal debt letter, secure a title insurance policy in the amount of the Bond Issue and to review the necessary legal documents, including, but not limited to, the Resolution authorizing the Bond Issue and the Trust Indenture. This work shall be completed in a manner and within a time period satisfactory to the Underwriter. The Issuer shall pay the attorney's fees. 3. Furnish to the Underwriter a certified copy of its Articles of Organization, its Operating Agreement, and any other forms required by the Underwriter and the Securities Commission of its state or any other state in which it wishes to sell the bonds. 4. Furnish appraisals of its properties and improvements to the Underwriter. The Underwriter may require MAI appraisals. The Issuer agrees to pay all expenses of the appraisals. 5. Engage a paying agent, registrar, and independent trustee, selected by the Underwriter. The Issuer agrees to pay any expenses pertaining to these services. 6. Prior to the delivery of the bonds, execute the Trust Indenture and cause it to be recorded in all places required by law and as may be agreed upon by the Underwriter and the Issuer. The Issuer shall take such steps as necessary to make the Indenture a valid obligation of the Issuer and a lien on and security interest in the property owned by the Issuer and included in the lien of the Indenture. The Issuer agrees that the Bonds will be secured by a first mortgage on the properties or in a co-first mortgage position with the interim/construction lenders. 7. The Issuer shall pay the expenses of furnishing the title insurance, the filing and recording fees, the Attorney's fees, the Appraiser's fees, the Accountant's fees (if any), all Trustee's fees, any registration, recording or mortgage taxes levied on bonds by either state or federal government bodies and any registration and licensing fees required by any regulatory body, any state or the federal government. 8. Furnish the Underwriter copies of the architectural and construction contracts, final plans and specifications, and detail of all bids. 9. The Issuer shall pay all expenses related to all local Investment Seminars. 10. The Issuer is responsible to begin making Sinking Fund Payments the week of the Issue Date for each Series of Bonds. 11. The Issuer agrees to set up a Bond Reserve Account in an amount equivalent to six months of Sinking Fund Payments of each Series of Bonds to be controlled and used by the Trustee to pay principal and interest due on the bonds, should the Issuer ever be in an event of default on the bond issue. This Bond Reserve Account shall be in effect for a period of seven and one half (7 1/2) years from the date of issue of the Series 1999-III Bonds, and at the end of the seven and one half (7 1/2) years, the Bond Reserve Account will be used to call bonds provided the Issuer is current on all Sinking Fund payments. The Issuer will establish the Bond Reserve Account from sale of the bonds. In addition, the first six months of the Initial Operating Fund Payments will be funded from the initial proceeds from the sale of the bonds. 12. The Issuer agrees that it shall not contact any person listed in the records of the Underwriter as a Customer of the Underwriter for any reason whatsoever. This provision shall not be construed to prohibit the Issuer from providing any reports or notification to securities holders that may be mandated by any federal or state laws or regulations. UNDERWRITER'S RESPONSIBILITIES The Underwriter agrees to: 1. Furnish the preliminary organizational material to the Issuer. 2. Set the interest rates and calculate the maturity schedule just prior to filing the issue with theproper regulatory bodies. 3. Furnish a printed prospectus prepared from the information provided by the Issuer. 4. Process all information sent to the Underwriter by the Issuer. 5. Make appropriate filings with all regulatory bodies on behalf of the Issuer. The Issuer agrees to pay all costs of these filings. 6. Will offer and sell the Bonds on a "best efforts" basis at the public offering price of $250 per Bond, or integral multiples thereof. DEPOSIT OF PROCEEDS FROM BOND SALES The Issuer agrees to deposit proceeds from the sale of the bonds pursuant to the Trust Indenture. Any funds received by the Underwriter subject to the terms of the Trust Indenture will be delivered to the bond proceeds account no later than 12:00 noon the next business day following receipt. The Underwriter shall instruct investors to make their checks payable to the Registrar. If there is an escrow, then the Underwriter will instruct investors to make their checks payable to the Escrow Agent. FUTURE BOND ISSUES In accordance with the Trust Indenture, additional bonds may be issued from time to time on a par and equality basis with the same underlying security, (plus improvements), provided the proceeds are used to enhance the existing project, to make additional improvements, to purchase more land, or to refinance indebtedness. The Underwriter shall have the first right of refusal for any additional financing and/or refinancing for the Issuer involving the Properties that secures the Bonds for a period not to exceed three years from date of issue on the first Series of Bonds. FEES The Issuer agrees to pay the Underwriter an investment banking fee of 1.3% of the aggregate amount of the bond issue ($128,700.00). The investment banking fee is due in full prior to filing the bond issue with the regulatory agencies. In the event the issue is canceled prior to the issuance of the Bonds, the Underwriter shall be entitled to the above fee only to the extent of its actual, accountable out-of-pocket expenses, upon submission to the Issuer a listing of these expenses. These expenses may include, but are not limited to legal fees, travel, telephone, photo copies, postage and printing. If the Issuer terminates this Agreement for any reason not enumerated in the section entitled "Termination", such action shall be considered a material breach of this Agreement and the Issuer shall be liable to the Underwriter for the amount of the investment banking fee for out-of-pocket expenses for services rendered and not as a penalty. In addition to the investment banking fee, the Issuer agrees to pay the Underwriter one of the following concessions: Processing fee of 1% of the face amount of each bond sold to the Constituents of the Issuer; Concession of 5% of the face amount of each bond sold to clients of the Broker; Concession of 6% of the face amount of each bond sold through certain selected members of the National Association of Securities Dealers, Inc. through a Selling Group Agreement. All bond sales are on a best efforts basis. The concession shall be deducted from the sale price of each bond by the Registrar and forwarded to the Underwriter. The Custodian of the Bond Proceeds Account is authorized to pay MMR Investment Bankers, Inc. any fees and/or brokerage concessions due them according to the priority of disbursements as set forth in the Trust Indenture and Prospectus. In the event the issue is canceled, the Underwriter shall be entitled to the above fee to the extent of its costs, including due diligence and consulting costs incurred by the Registered Representative, and costs paid on behalf of the Issuer, upon submission to the Issuer of a listing of these costs. SYNDICATION The Underwriter may offer these bonds for sale to and through certain selected members of the National Association of Securities Dealers, Inc. INDEMNIFICATION The Issuer will indemnify and hold harmless the Underwriter, its agents and each person, if any, who controls the Underwriter within the meaning of the Securities Act of 1933 (the "Act") against any losses, claims, damages or liabilities, joint or several, to which they may become subject, under the Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any drawings, pictures, opinions of counsel or appraisals furnished by the Issuer to the Underwriter or caused by the failure or refusal of the Issuer to furnish such information to the Underwriter, any untrue statement or alleged untrue statement of any material fact contained in the Registration Statement, the Prospectus, or any amendment or supplement thereto or any related preliminary prospectus, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading; and will reimburse the Underwriter and each such controlling person for any legal or other expenses reasonably incurred by the Underwriter or such controlling person in connection with investigating or defending any such loss, claim, damage, liabilities or action; provided, however, that the Issuer will not be liable in any such case to the extent that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or omission made in any of such documents in reliance upon and in conformity with written information furnished to the Issuer by the Underwriter specifically for use therein; provided, however, that the indemnification contained in this paragraph with respect to any preliminary prospectus shall not inure to the benefit of the Underwriter (or of any person controlling the Underwriter) on account Of any such losses, claims, damages, liabilities or expenses arising from the sale of the Bonds by the Underwriter to any person if a copy of the Prospectus (as amended or supplemented if any amendments or supplements thereto shall have been furnished to such Underwriter prior to the written confirmation of the sales involved) shall not have been given or sent to such person, if required by law, by or on behalf of the Underwriter with or prior to the written confirmation of the sale involved, and the untrue statement or omission of a material fact contained in such preliminary prospectus was corrected in the Prospectus (as amended or supplemented if amended or supplemented as aforesaid). This indemnity agreement will be in addition to any liability which the Issuer may otherwise have. The Underwriter will indemnify and hold harmless the Issuer, each of its directors, each of its officers who has signed the Registration Statement and each person, if any, who controls the Issuer within the meaning of the Act, against any losses, claims, damages or liabilities to which the Issuer or any such director, officer or controlling person may become subject, under the Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in the Registration Statement, the Prospectus or any amendment or supplement thereto, or any related preliminary prospectus, or arise out of or are based upon the omission or the alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, in each case to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission was made in reliance upon and in conformity with written information furnished to the Issuer by the Underwriter specifically for use therein; and will reimburse any legal or other expenses reasonably incurred by the Issuer or any such director, officer or controlling person in connection with investigating or defending any such loss, claim, damage, liability or action. This indemnity agreement will be in addition to any liability with the Underwriter may otherwise have. Promptly after receipt by an indemnified party under this Section of notice of the commencement of any action, such indemnified party will, if a claim in respect thereof is to be made against the indemnifying party under this Section, notify the indemnifying party of the commencement thereof, but the omission so to notify the indemnifying party will not relieve it from any liability which it may have to any indemnified party otherwise than under this Section. In case any such action is brought against any indemnified party, and it notifies the indemnifying party of the commencement thereof, the indemnifying party will be entitled to participate therein and, to the extent that it may wish, jointly with any other indemnifying party similarly notified, to assume the defense thereof, the indemnifying party will not be liable to such indemnified party under this Section for any legal or other expenses subsequently incurred by such indemnified party in connection with the defense thereof other than reasonable costs of investigation. The indemnified party shall have the right to employ its counsel in any such action, but the fees and expenses of such counsel shall be at the expense of such indemnified party unless (i) the employment of the counsel by such indemnified party has been authorized by the indemnifying party, (ii) the indemnified party shall have reasonably concluded that there may be conflict of interest between the indemnifying party and the indemnified party in the conduct of the defense of such action (in which case the indemnifying party shall not have the right to direct the defense of such action on behalf of the indemnified party) or (iii) the indemnifying party shall not in fact have employed counsel to assume the defense of such action, in each of which cases the fees and expenses of such counsel shall be at the expense of the indemnifying party. An indemnifying party shall not be liable for any settlement of any action or claim effected without its consent. TERMINATION This agreement may be terminated by the Underwriter without liability to the Underwriter if, prior to the time of delivery of any bonds any substantial change in the financial position of the Issuer or in the existing operating, political, international, economic or market conditions shall have taken place, which in the judgment of the Underwriter makes it impractical to market the bonds. The Underwriter may also terminate this agreement if the Issuer becomes one month delinquent in any Sinking Fund Payment, or fails to comply with any of the provisions of this agreement. This agreement may be terminated by the Underwriter or the Issuer without liability if, after the date of this agreement the Issuer sustains a substantial loss on account of fire, accident or other act of God, or in the case of war or other national emergency makes it impractical in the judgment of the Underwriter or the Issuer to sell the bonds. The Underwriter or the Issuer may also terminate this agreement without liability if registration or exemption from registration from any state or regulatory body is finally denied after a good faith effort on the part of the Issuer and the Underwriter to obtain such registration or exemption from registration. If the Issuer terminates this Agreement for any reason not enumerated in the section entitled "Termination", such action shall be considered a material breach of this Agreement and the Issuer shall be liable to the Underwriter for the amount of the investment banking fee for out-of-pocket expenses for services rendered and not as a penalty. It is understood that no agreements will exist between MMR Investment Bankers, Inc., its officers, agents, employees, and/or registered representatives and the Issuer other than that which is in written form, signed by the authorized signatories of the Issuer and MMR Investment Bankers, Inc. This agreement must be approved by an officer of the Underwriter. Prior to signing by an officer, there will be an analysis of the Issuer's ability to perform the proposed contract by the loan committee of the Underwriter. This agreement constitutes a binding contract. Please read it carefully before signing. CONCLUSION AND VENUE This written agreement represents the entire agreement and understanding between the Underwriter and the Issuer. This agreement, and any legal action brought to enforce its provisions shall be governed by the laws of the State of Kansas. The parties mutually agree that venue for any legal action on this agreement shall be in El Dorado, Butler County, Kansas. Date: 2-10-1999 ------------------ /S/JOANNE CALDWELL-BAYLES - ------------------------------------------ Signed by Managing Member Issuer's Name: The Biltmore Group of Louisiana Address: 507 Trenton Street West Monroe, LA 71291 Phone: (318) 323-2115 /S/JERRY MARTIN - ------------------------------------------------ Approved by MMR Investment Bankers, Inc. Officer This agreement must be approved by an officer of MMR. Prior to signing by an officer, there will be an analysis of the Issuer's ability to perform the proposed contract by the loan committee of MMR. This agreement constitutes a binding contract. Please read it carefully before signing. EX-1.2 3 AGREEMENT BETWEEN MMR INVESTMENT BANKERS, INC. AND OTHER SELLING GROUPS SELLING GROUP AGREEMENT - -----------------------------------: As principal underwriter for the Issuers on Exhibit I, which is made a part of this agreement, we invite you to participate in the distribution of any or all such bonds subject to the following terms: 1. You are to offer and sell such bonds only at the public offering price, in accordance with the terms of the then current prospectus. You shall not have authority to act as agent of the Issuer, for us, or for any other dealer in any respect. All orders are subject to acceptance by us and become effective only upon confirmation by us. Sales may be made only in those states where the bonds have been qualified for sale and where your firm and its registered representatives are licensed to sell. Should your firm wish to offer the securities in a state where they are not qualified for sale, it shall be the responsibility of your firm to pay for qualification of the securities in those states. MMR will help with the actual qualification process. 2. MMR Investment Bankers, Inc. ("MMR") will process all orders and provide with the order a prospectus at no cost to your firm. MMR will instruct your customers to make their checks payable to the Escrow agent. Upon receipt of payment, MMR will promptly transmit the checks and Subscription Agreement by noon of the next business day to the Escrow Agent. The Escrow Agent will notify MMR when the minimum contingency has been met. MMR will then notify your firm. If there is no minimum contingency, or if the minimum contingency has been met, MMR will instruct your customers to make their checks payable to the Registrar. Upon receipt, MMR will promptly transmit the checks and Subscription Agreements by noon of the next business day to the Registrar. When the escrow amount is met, the Registrar will mail the bonds or confirmations to your customers. If there is no escrow, the Registrar will mail the bonds or confirmations to your customers within four weeks of receipt of the check. The procedure for the handling of orders shall be subject to instructions which we shall forward from time to time to all members of the Selling Group. We shall not accept any order from you which is placed on a conditional basis or subject to any delay or contingency prior to execution. 3. You will receive a concession of __________% of the face amount of each bond sold. Occasionally, MMR may be willing to negotiate a bonus if your firm would be willing to commit to selling a large block of bonds during a specified period of time. If there is an escrow amount to be met, your concession will be paid after escrow is met. If there is no escrow, your concession will be forwarded in a timely manner once it is received by us. 4. We shall furnish you without charge a "copy ready" Prospectus, with any supplements currently in effect, and "copy ready" sales materials issued by us from time to time. In the purchase of bonds through us, you are entitled to rely only on the information contained in the offering Prospectus. You may not publish any advertisement or distribute sales literature or other written material to the public which makes reference to us or any of the Issuers (except material which we furnish to you) without prior written approval. It will be the responsibility of your firm to make sure all sales literature used by your firm is in compliance with state and national regulatory agencies. 5. This agreement is in all respects subject to statements regarding the sale of bonds made in the offering Prospectuses of the respective Issuers, and to the Rules of Fair Practice of the National Association of Securities Dealers, Inc., which shall control and override any provision to the contrary in this Agreement. 6. In accordance with Article III, Section 24 of the Rules of Fair Practice of the National Association of Securities Dealers, Inc., you represent that you are a properly registered or licensed broker or dealer under applicable federal and state securities laws and regulations and a member in good standing of the National Association of Securities Dealers, Inc., and agree to notify us immediately if you cease to be so registered or licensed or a member in good standing of that Association. You agree to comply with the NASD Rules of Fair Practice including but not limited to Sections 8, 24, 36 and 25. 7. Either of us may cancel this Agreement at any time by written notice to the other. The right to sell shall cease upon receipt of written notice. 8. MMR shall notify you periodically of offerings available for sale. Notification will also be given when an issue is no longer available for sale by your firm. 9. All communications to us should be sent to the above address. Any notice to you shall be duly given if mailed or telegraphed to you at the address specified by you below. This agreement should be executed in duplicate and one of the duplicate originals should be returned to us for our file. Accepted: MMR INVESTMENT BANKERS, INC. By: ---------------------------------- By: ---------------------------------- Address: ----------------------------------- ----------------------------------- Phone: ------------------------ Date: ------------------------- EXHIBIT I ISSUER CONCESSION(1) LOCATION STATES FILED/QUALIFIED(2) EX-1.3 4 FORM OF PROCEEDS ESCROW AGREEMENT PROCEEDS ESCROW AGREEMENT Agreement entered on the day of 1999 by ------------ --------------- and among THE 'BILTMORE GROUP OF LOUISIANA, L.L.C., a Louisiana limited liability company, ("Issuer"), MMR INVESTMENT BANKERS, INC., ("Dealer"), and Colonial Trust Company, an Arizona Trust Company and bank, as defined by Section 3(a)(6) of the Securities and Exchange Act of 1934, (the "Escrow Agent"). WHEREAS, with the assistance of Dealer, the Issuer proposes to offer and sell up to $9,900,000 aggregate principal amount of its First Mortgage Bonds (collectively, the "Bonds") to be issued in five series (1999-I, 1999-II, 1999-III, 1999-IV, and 1999-V) and to be issued pursuant to a Trust Indenture between the Issuer and Colonial Trust Company Trustee (the "Trustee"). WHEREAS, the proceeds from each series are to be used to construct four separate particular assisted living center projects: one in Minden, Louisiana, one in Bastrop, Louisiana, one in Farmerville, Louisiana,and one in Natchitoches, Louisiana; and to purchase one assited living center in Sedona, Arizona; all as more particularly set forth and described in the Offering Circular applicable to the Bonds; and WHEREAS, each issue of a series of the Bonds has its own escrow minimum requirement and the issue and sale of each series of the Bonds is not contingent on the issue and sale of any other series of the Bonds; NOW, THEREFORE, the parties hereto hereby agree as follows: 1. The Escrow Agent agrees to act as escrow agent in connection with the offering and sale of each series of Bonds and, as such, to establish appropriate accounts and to receive the proceeds from the sale of the Bonds for deposit in the applicable account until the earlier of the termination of this Agreement or the termination of the offering and sale of the applicable series of Bonds (the "Applicable Termination Date"). 2. Checks or other items for the payment of all or a part of the purchase price of Bonds (all Such items together with all proceeds thereof, the "Escrowed Property") shall be payable to Escrow Agent, or endorsed by the Dealer or Issuer to Colonial Trust Company and delivered daily to Escrow Agent. The Escrow Agent will credit the proceeds to the applicable escrow cash account (such accounts being collectively referred to herein as the "Escrow Account") to be held by it under the terms of this Agreement subject to Rule 15c2-4 under the Securities Act of 1934. All subscribers' checks or other items for the payment of the purchase price of Bonds shall be transmitted by Dealer to the Escrow Agent by noon of the next business day upon receipt by Dealer. The Escrow Agent shall invest such collected funds deposited in the Escrow Account in short term investments to the extent permitted by the Arizona Department of Banking in accordance with the Arizona Revised Statutes, provided however, that any such funds held subject to any minimum escrow contingency shall be invested subject to rule l5c2-4. The Escrow Agent shall in no event be liable for any loss resulting from any change in interest rates applicable to funds so invested. Interest on funds invested pursuant to this Section shall accrue from the date of investment of such funds until such funds are released from escrow pursuant to paragraph 4. 3. The Escrowed Property, together with all interest earned thereon, shall be held by the Escrow Agent until the earlier of the following dates as applicable to each of the series of the Bonds.: (a) Series 1999-I Bonds: (i) the date that the Escrow Agent has received proceeds from the sale of such series of the Bonds in the aggregate principal amount of $400,000.00, or more, or (ii) the date of October 1, 1999, at which time the Series 1999-1 escrow account will terminate; (b) Series 1999-II Bonds: (i) the date that the Escrow Agent has received proceeds from the sale of such series of the Bonds in the aggregate principal amount of $600,000.00, or more, or (ii) the date of November 1, 1999, at which time the Series 1999-II escrow account will terminate; (c) Series 1999-III Bonds: (i) the date that the Escrow Agent has received proceeds from the sale of such series of the Bonds in the aggregate principal amount of $400,000.00, or more, or (ii) the date of November 1, 1999, at which time the Series 1999-III escrow account will terminate. (d) Series 1999-IV Bonds: (i) the date that the Escrow Agent has received proceeds from the sale of such series of the Bonds in the aggregate principal amount of $400,000.00, or more, or (ii) the date of December 1, 1999, at which time the Series 1999-IV escrow account will terminate. (e) Series 1999-V Bonds: GGM\F:\COLONIAL\SENIOR.ESC -2- (i) the date that the Escrow Agent has received proceeds from the sale of such series of the bonds in the aggregate principal amount of $400,000.00, or more, or (ii) the date of January 1, 2000, at which time the Series 1999-V escrow account will terminate. Notwithstanding the above, the proceeds from the sale of each series of bonds shall be held by the Escrow Agent until the Escrow Agent shall have received a written consent to release such proceeds from the Kansas Securities Commissioner, pursuant to K.A.R. 81-7-1(e). 4. Upon termination of the escrow, the Escrow Agent shall release the applicable Escrowed Property, together with all interest earned thereon to be distributed to either (a) the Issuer, or such other party or parties, as required to carry out the purpose of the Bond offering if the minimum amount of the applicable series of Bonds have been sold and the required consent of the Kansas Securities Commissioner has been received within the required time period described above, or (b) the subscribers if the minimum amount of the applicable series of Bonds have not been sold or the required consent of the Kansas Securities Commissioner has not been received within such period. In the event of the return of the escrow to the subscribers, then the subscribers shall be paid interest as provided in paragraph 5 hereof. 5. The Issuer agrees that in the event the minimum amount of the applicable series of Bonds have not been sold or the required consent of the Kansas Securities Commissioner has not been received within the time period described above, therefore necessitating the distribution by the Escrow Agent of the applicable Escrow Property and the interest earned thereon to the subscribers, Issuer shall promptly pay to the Escrow Agent such sum of money as shall be necessary, if any, when added to the amount of the applicable Escrow Property and interest earned thereon to pay to the subscribers of the applicable series of Bonds the principal amount of such subscriptions together with the interest from the date hereinafter set forth through the escrow termination date at the rate attributable to the applicable series of Bonds subscribed: (a)Series 1999-I Bonds: April 1, 1999; (b)Series 1999-II Bonds: Date of receipt by MMR of the payment of the purchase price for the bonds; (c)Series 1999-III Bonds: May 1, 1999; (d)Series 1999-IV Bonds: June 1, 1999; and (e)Series 1999-V Bonds: July 1, 1999. 6. If at any time prior to the completion of this escrow said Escrow Agent is advised by the appropriate securities or state agency that the registration to sell said Bonds or any series thereof has been revoked, said Escrow Agent shall thereupon return GGM\F:\COLONIAL\SENIOR.ESC -3- all funds relative to the series of Bonds for which the registration has been revoked to the respective subscribers, in accordance with the above set forth provisions. 7. Escrow Agent shall hold the Escrowed Property in trust, commingled with similar funds of other Issuers, but shall maintain detailed records to reflect the share thereof attributable to each Issuer. Escrow Agent shall furnish periodic statements to Issuer reflecting all receipts and disbursements from the Escrow Account. 8. The Escrow Agent's and Dealer's obligations and duties in connections herewith are confined to those specifically enumerated in this Agreement. The Escrow Agent and Dealer shall not be in any manner liable or responsible for the sufficiency, correctness, genuineness or validity of any instruments received by or deposited with them or with reference to the form of execution thereof, or the identity, authority or rights of any person executing, delivering, or depositing same, and neither the Escrow Agent nor the Dealer shall be liable for any loss that may occur by reason of forgery, false representation or the exercise of their discretion in any particular manner or for any other reason, except for their own gross negligence or willful misconduct. 9. Escrow Agent shall receive compensation for its services as set forth in the separate schedule of fees as made a part hereof by reference. 10. The Escrow Agent may act pursuant to the written advice of counsel with respect to any matter relating to this Escrow Agreement and shall not be liable for any action taken or omitted in accordance with such advice. 11. The Escrow Agent (and any other successor escrow agent) may at any time resign as such by delivering all of the Escrowed Property to the successor escrow agent jointly designated by the other parties hereto in writing, or to any court of competent jurisdiction, whereupon the Escrow Agent shall be discharged of and from any and all further obligations arising in connection with this Escrow Agreement. The resignation of the Escrow Agent will take effect on the earlier of (a) the appointment of a successor (including a court of competent jurisdiction) , or (b) the day which is thirty (30) days after the date of delivery of its written notice of resignation to the other parties hereto. If at that time the Escrow Agent has not received a designation of a successor escrow agent, the Escrow Agent's sole responsibility after that time shall be to safekeep the Escrowed Property until receipt of a designation of successor escrow agent or a written disposition instruction by the Issuer and Dealer or a final order of a court of competent jurisdiction. 12. If any controversy arises between the parties hereto or with any third person, the Escrow Agent shall not be required to GGM\F:\COLONIAL\SENIOR.ESC -4- determine the same or to take any action but may await the settlement of any such controversy by final. appropriate legal proceeding, or otherwise as the Escrow Agent may require, or the Escrow Agent may, in its discretion, institute such appropriate interpleader or other proceedings in connection therewith as it may deem proper, notwithstanding anything in this Agreement to the contrary. In any such event, the Escrow Agent shall not be liable for interest or damages to the Issuer or subscribers. In the event Escrow Agent should institute, or be named as a party in, any legal proceedings to determine the lawful owner of the Escrowed Property, Escrow Agent shall be entitled to recover from the contending parties to said legal proceedings, reasonable attorney's fees and expenses which shall be incurred by Escrow Agent in said proceedings. 13. This Escrow Agreement shall be binding upon and inure solely to the benefit of the parties hereto and their respective successors and assigns, heirs, administrators, and representatives and shall not be enforceable by or inure to the benefit of any third party except as provided in Section 10 with respect to a resignation by the Escrow Agent. No party may assign any of its rights or obligations under this Escrow Agreement without the written consent of the other parties. This Escrow Agreement shall be construed in accordance with and governed by the laws of the State of Arizona without regard to conflict of law principals. 14. This Escrow Agreement may only be modified in writing signed by all of the parties hereto, and no waiver hereunder shall be effective unless in writing signed by the party to be charged. IN WITNESS WHEREOF, the parties hereto have executed this agreement as of the day and year first above written. DEALER: MMR INVESTMENT BANKERS, INC. BY: ------------------------- Date: ----------------------- ISSUER: THE BILTMORE GROUP OF LOUISIANA, L.L.C. By: ------------------------- Managing Member Date: ----------------------- GGM\F:\COLONIAL\SENIOR.ESC -5- ESCROW AGENT: COLONIAL TRUST COMPANY Phoenix, Arizona By: ------------------------- Susan D. Carlisle, Vice-President Date: ----------------------- escroagr.ctC GGM\F:\COLONIAL\SENIOR.ESC -6- EX-3.1 5 ARTICLES OF ORGANIZATION FOX MCKEITHEN Secretary of State ARTICLES OF ORGANIZATION OF Received & Filed The Biltmore Group, L.L.C. DATE July 13 1998 ------------- The Biltmore Group, L.L.C., a Louisiana Limited Liability Company, organized under Louisiana's Limited Liability Law, as contained in La. R.S. 12:1301, et seq., appearing herein through its undersigned members, who constitute all of the members of the Limited Liability Company, and who are authorized to act herein by the written unanimous consent of all members, attached hereto, does hereby certify that: FIRST: The date the Limited Liability Company came into existence is July 8, 1998. Second: By unanimous written consent of all members of the Limited Liability Company, which written unanimous consent was given on July 8, 1988 the members of the Limited Liability Company authorized these Articles of Organization. THIRD:The Articles of Organization of the Limited Liability Company are as follows: I. NAME - The name of the Limited Liability Company shall be The Biltmore Group, L.L.C., sometimes hereinafter called "the company" II. PURPOSES - The company's purpose is to engage in any lawful activity for which Limited Liability Companies may be formed under Chamber 22 of Title 12 of the Louisiana Revised Statutes. III. MANAGEMENT - The company shall be managed by the members as provided in the Operating Agreement of the Limited Liability Company, or in the absence of such, at law. IV. RESTRICTIONS - No member may bind the company, other than the manager who may be a member as provided by the Operating Agreement. V. LIABILITY WAVIER AND INDEMNIFICATION - No member or Manager shall have any liability for damages for any duty breached or activity performed in connection with the management of the company. Further, each member and Manager shall be fully indemnified by the company for any judgments, settlements, penalties, fines or expenses incurred because he or she is or was a member or Manager of the company. It is the intention of this provision to afford members and Managers of the company the most complete elimination of liability as the fullest rights to indemnification possible under the laws of the State of Louisiana and particularly Title 12, Section 1315 of the Revised Statutes of Louisiana and this provision shall be so construed. VI. OPERATING AGREEMENT; STATUTORY APPLICATION - The company shall be operated in accordance with the provisions of the Operating Agreement enacted by the members, provided, however, that any questions for which provision is not made in the Operating Agreement shall be governed by the laws of the State Of Louisiana, and particularly Title 12, Section 1301, et seq., of the revised Statutes of Louisiana. VII. Unless and until an amendment to these articles by authentic act providing otherwise are filed in the office of the Louisiana Secretary of State and in each parish in which The Biltmore Group, L.L.C. owns immovable property any person dealing with The Biltmore Group, L.L.C., may rely upon a certificate of the Manager to: (A) establish the membership of any member of the company (B) establish the authenticity of any records of the company or (C) establish the authority of any person to act on behalf of The Biltmore Group, L.L.C., including but not limited to the authority to take actions referred to in Louisiana Revised Statutes Title 12, Section 1318(B), which actions include: (1) The dissolution and winding up of the company, (2) The sale, exchange, lease, mortgage, pledge, or other transfers of all or substantially all of the assets of the company, (3) The merger or consolidation of the company, (4) The incurrence of indebtedness by the company other than in the ordinary course of its business. (5) The alienation, lease or encumbrance of any immovables of the company, and (6) An amendment to the articles of organization. VIII.DURATION - Unless continued beyond its scheduled termination by the consent of a majority in interest of the remaining members, the company shall terminate on the earlier of: (A) July 8, 2020 (B) The consent of the majority of the members. IX. TRANSFER AND ASSIGNMENT OF MEMBERS' INTEREST - The assignment or transfer of a member's interest is subject to restrictions as set forth in the Operating Agreement. These Articles of Organization of The Biltmore Group, L.L.C. are thus done and signed on this 8th day of July in the presence of the undersigned competent witnesses and me, Notary Public, by the undersigned members of the limited Liability Company, constituting all of the members thereof as of this date. WITNESSES: The Biltmore Group, L.L.C. /S/FRED M BAYLES By: /S/JOANNE M CALDWELL - --------------------- ----------------------------- Joanne M. Caldwell Member - --------------------- /S/WILLIAM M CRAWFORD ------------------------ NOTARY PUBLIC AMENDMENT TO ARTICLES OF LIMITED LIABILITY COMPANY THE BILTMORE GROUP, L.L.C. Each of the undersigned members of the Biltmore Group, L.L.C. does hereby certify that the following amendment to the articles of the Limited liability company of the Company was duly adopted pursuant to LSA-R.S. art. 12:31 et seq., by unanimous written consent of the members of the company dated October 12, 1998. Pursuant to such unanimous written consent, they hereby execute this Amendment to Articles of the limited liability company of the company to read in its entirety as follows: PARAGRAPH THIRD-I Name -The name of the Limited Liability Company shall be The Biltmore Group, of Louisiana, L.L.C. Dated:October 13, 1998 The Biltmore Group, L.L.C. By: /S/JOANNE M CALDWELL ------------------------ Joanne M. Caldwell Member FOX MCKEITHEN Secretary Of State Received & Filed DATE OCT 14 1998 ----------- EX-3.2 6 OPERATING AGREEMENT OPERATING AGREEMENT OF THE BILTMORE OF LOUISIANA GROUP L.L.C. ARTICLE I. OFFICES 1.1 Principal Office 1.2 Registered Office ARTICLE II. MEETINGS 2.1 Annual Meeting 2.2 Regular Meetings 2.3 Special Meetings 2.4 Notice of Meeting 2.5 Quorum 2.6 Proxies 2.7 Voting 2.7.1 Voting by Members 2.7.2 Voting by Certain Members 2.8 Manner of Acting 2.8.1 Formal action by Members. 2.8.2 Procedure 2.8.3 Presumption of Assent 2.8.4 Informal Action of Members 2.9 Order of Business 2.10 Telephonic Meeting ARTICLE III FISCAL MATTERS 3.1 Fiscal Year 3.2 Deposits 3.3 Checks, Drafts, Etc. 3.4 Loans 3.5 Contracts 3.6 Accountant 3.7 Legal Counsel ARTICLE IV. MANAGEMENT CERTIFICATES AND THEIR TRANSFER 4.1 Certificates 4.2 Certificate Register 4.3 Capital contributions 4.4 Transfers of Shares ARTICLE V. BOOKS AND RECORDS 5.1 Books and Records 5.2 Right of Inspection 5.3 Financial Records ARTICLE VI. DISTRIBUTION OF PROFITS ARTICLE VII. OFFICERS 7.1 Operating Manager 7.2 Other Officers 7.3 Election and Tenure 7.4 Resignations and Removal 7.5 Vacancies 7.6 Salaries ARTICLE VIII. MISCELLANEOUS 8.1 Notice 8.2 Waiver of Notice 8.3 Indemnification By Company 8.4 Indemnification Funding 8.5 Duality of Interest Transactions 8.6 Anticipated Transactions 8.7 Gender and Number 8.8 Articles and other Headings 8.9 Reimbursement of Officers and Members ARTICLE IX. AMENDMENTS 9.1 Amendments RATIFICATION and EXECUTION Operating Agreement Of THE BILTMORE GROUP L.L.C. AUGUST 1998 ARTICLE I. OFFICES 1.1 Principal Office. The principal office of the Company in the State of Louisiana will be located at 507 Trenton Street, West Monroe, Louisiana 71291. The Company may have other offices, either within or without the state of Louisiana as the Members may designate or as the business of the Company may from time to time require. 1.2 Registered Office. The registered office of the Company, required by the Louisiana Limited Liability Company Act to be maintained in the State of Louisiana, may, but need not, be identical with the Principal Office in the State of Louisiana. The address of the initial registered office of the Company is 507 Trenton Street, West Monroe, Louisiana 71291, and the initial registered agent at that address is Joanne M. Caldwell-Bayles. The registered office and the registered agent may be changed from time to time by action of the Members and by filing the prescribed form with the Louisiana Secretary of State. ARTICLE II. MEETINGS 2.1 Annual Meeting. The annual meeting of the Members will be held the first Tuesday in the month of January in each year, beginning with the year 1997 at the hour of 10:00 o'clock a.m., for the purpose of electing an Operating Manager and for the transaction of other business as may come before the meeting. If the day fixed for the annual meeting is a legal holiday, the meeting will be held on the next succeeding business day. If the election is not held on the day designated in this Agreement for the annual meeting of the Members, or at any adjournment of the meeting, the Members will cause the election to be held at a special meeting of the Members as soon afterward as it may conveniently be held. 2.2 Regular Meetings. The Members may prescribe the time and place for the holding of regular meetings and may provide that the adoption of the resolution will constitute notice of the regular meetings. If the Members do not prescribe the time and place for the holding of regular meetings, regular meetings will be held at the time and place specified by the Operating Manager in the notice of each regular meeting. 2.3 Special Meetings. Special meetings of the Members, for any purpose or purposes, unless otherwise prescribed by statute, may be called by the Operating Manager or by any two Members. 2.4 Notice of Meeting. Written or telephonic notice stating the place, day and hour of the meeting and, in case of a special meeting, the purposes for which the meeting is called, must be delivered not less than fifteen (15) days before the date of the meeting, either personally or by mail, by or at the direction of the Operating Manager, to each Member of record entitled to vote at the meeting. If mailed, the notice will be deemed to be delivered when deposited in the United States mail, addressed to the Member at his address as it appears on the books of the Company, with postage prepaid. When all the Members of the Company are present at any meeting, or if those not present sign in writing a waiver of notice of the meeting, or subsequently ratify all the proceedings of the meeting, the transactions of the meeting are as valid as if a meeting were formally called and notice had been given. 2.5 Quorum. At any meeting of the Members, a majority of the equity interests, as determined from the capital contribution of each Member as reflected by the books of the Company, represented in person or by proxy, will constitute a quorum at a meeting of Members. If less than a majority of the equity interests are represented at a meeting, a majority of the interests so represented may adjourn the meeting from time to time without further notice. At an adjourned meeting at which a quorum is present or represented, any business may be transacted which might have been transacted at the meeting as originally notified. The Members present at a duly organized meeting may continue to transact business until adjournment, notwithstanding the withdrawal of enough Members to leave less than a quorum. 2.6 Proxies. At all meetings of Members, a Member may vote by proxy executed in writing by the Member or by his duly authorized attorney-in-fact. The proxy must be filed with the Operating Manager of the Company before or at the time of the meeting. No proxy may be valid after three months from date of execution, unless otherwise provided in the proxy. Management Certificates standing in the name of a corporation, partnership or company may be voted by the officer, partner, agent or proxy as the Bylaws of the entity may prescribe or, in the absence of such provision, as the Board of Directors of the entity may determine. Certificates held by a trustee, personal representative, administrator, executor, guardian or conservator may be voted by him, either in person or by proxy, without a transfer of the certificates into his name. 2.7. Voting. 2.7.1. Each Member will have one vote for each one (1) dollar in Equity interest, as reflected on the book and records of the company 2.7.2 Voting by Certain Members. Management Certificates standing in the name of a corporation, partnership or company may be voted by the officer, partner, agent or proxy as the Bylaws of the entity may prescribe or, in the absence of such provision, as the Board of Directors of the entity may determine. Certificates held by a trustee, personal representative, administrator, excitor, guardian or conservator may be vote by him, either in person or by proxy, without a transfer of the certificates into his name. 2.8 Manner of Acting. 2.8.1 Formal action by Members. Ordinarily, the act of a majority of the Members present at a meeting at which a quorum is present will be the act of the Members. On demand of any Member, voting on a particular issue may be in accordance with percentage of equity ownership in the company. 2.8.2 Procedure. The Operating Manager of the Company will preside at meetings of the Members, may move or second any item of business but may not vote on any matter when there is an even number of Members present and the Members are evenly divided as to an issue. A record must be maintained of the meetings of the Members. The Members may adopt their own rules of procedure which may not be inconsistent with this Operating Agreement. 2.8.3 Presumption of Assent. A Member of the Company who is present at a meeting of the Members at which action on any matter is taken will be presumed to have assented to the action taken, unless his dissent is entered in the minutes of the meeting or unless he files his written dissent to the action with the person acting as the secretary of the meeting before the adjournment of the meeting or forwards his/her dissent by certified mail to the secretary of the meeting immediately after the adjournment of the meeting. The right to dissent will not apply to a Member who voted in favor of the action. 2.8.4 Informal Action of Members. Unless otherwise provided by law, any action required to be taken at a meeting of the Members, or any other action which may be taken at a meeting of the Members, may be taken without a meeting if a consent in writing, setting forth the action so taken, is signed by all the Members entitled to vote with respect to the subject letter thereof. 2.9 Order of Business. The order of business at all meetings of the Members shall be as follows: 1. Roll Call. 2. Proof of notice of meeting or waiver of notice. 3. Reading of minutes of preceding meeting. 4. Report of the Operating Manager. 5. Reports of Committees. 6. Unfinished Business. 7. New Business. 2.10 Telephonic Meeting. Members of the Company may participate in any meeting of the Members by means of conference telephone or similar communication if all persons participating in the meeting can hear one another for the entire discussion of the matter(s) to be voted on. Participating in a meeting pursuant to this Section will constitute presence in person at the meeting. ARTICLE III FISCAL MATTERS 3.1 Fiscal Year. The fiscal year of the Limited Liability Company will begin on the first day of January and end on the last day of December each year, unless otherwise determined by resolution of the Members. 3.2 Deposits. All funds of the Limited Liability Company will be deposited from time to time to the credit of the Limited Liability Company in the banks, trust companies or other depositories as the Members may select. 3.3 Checks, Drafts, Etc. All checks, drafts or other orders for the payment of money, and all notes or other evidences of indebtedness issued in the name of the Company will be signed by the Operating Manager. 3.4 Loans. No loans may be contracted on behalf of the Limited Liability Company or no evidences of indebtedness may be issued in its name unless authorized by a resolution of the Members. The authority may be general or confined to specific instances. 3.5 Contracts. The Members may authorize any Member or agent of the Company, in addition to the Operating Manager, to enter into any contract or execute any instrument in the name of and on behalf of the Company, and such authority may be general or confined to specific instances. 3.6 Accountant. An Accountant may be selected from time to time by the Members to perform such tax and accounting services as may be required from time to time. The accountant may be removed by the members without assigning any cause. 3.7 Legal Counsel. One or more Attorney(s) at Law may be selected from time to time by the Members to review the legal affairs of the Company and to perform other services as may be required and to report to the Members with respect to those services. The Legal Counsel may be removed by the Members without assigning any cause. ARTICLE IV. MANAGEMENT CERTIFICATES AND THEIR TRANSFER 4.1 Certificates. Management Certificates representing equity interest in the Company will be in the form determined by the Members. Management Certificates must be signed by the operating Manager and by all other Members. All Management Certificates must be consecutively numbered or otherwise identified. The name and address of the person to whom the Management Certificates are issued, with the Capital Contribution and the rate of issue, must be entered in the Certificate Register of the Company. In case of a lost, destroyed or mutilated management Certificate, a new one may be issued on the terms and indemnity to the Company as the Members may prescribe. 4.2 Certificate Register. The stated capital contribution and proportionate equity interest is reflected in the books and records of the company which are prepared and kept in the Certificate Register in accordance with the articles of organization and all operating agreements which may be in force from time to time. 4.3 Capital contributions. The total capital contribution by the members is to be ONE MILLION AND N0/100 ($1,000,000.00) DOLLARS. After the capital contribution by existing members or any new member(s) totaling One Million and no/100 ($1,000,000.00) have be made or subscribed to, any and all changes in Members or the amount of Capital contribution must be approved by a majority of the existing members. Each member(s) will have the right to acquire an amount of any increase in capital in a percentage equal the percentage of all capital contribution being held by the member at the time of any increase in capital contribution approved by the majority of the members. 4.4 Transfers of Shares. Any Member proposing a transfer or assignment of his Certificate must first notify the Company, in writing, of all the details and consideration for the proposed transfer or assignment. The company, for the benefit of the remaining Members, will have the first right to acquire the equity by cancellation of the Certificate under the same terms and conditions as provided in the formal Articles of Organization as filed with the Wyoming Secretary of State for Members who are deceased, retired, resigned, expelled, or dissolved. If the company declines to elect this option, the remaining Members who desire to participate may proportionately (or in the proportions as the remaining Members may agree) purchase the interest under the same terms and conditions first proposed by the withdrawing Member. If the transfer or assignment is made as originally proposed and the other Members fail to approve the transfer or assignment by unanimous written consent, the transferee or assignee will have no right to participate in the management of the business and affairs of the Limited Liability Company or to become a Member. The transferee or assignee will only be entitled to receive the share of the profit or other compensation by way of income and the return of contributions to which that Member would otherwise be entitled. ARTICLE V. BOOKS AND RECORDS 5.1 Books and Records. The books and records of the company must be kept at the principal office of the company or at other places, within or without the state of Louisiana, as the Members from time to time determine. 5.2 Right of Inspection. Any Member of record will have the right to examine and make copies, at any reasonable time or times for all purpose, the books and records of account, minutes and records of Members. The inspection may be made by any agent or attorney of the Member. On the written request of any Member, the Company must mail to such Member its most recent financial statements, showing in reasonable detail its assets and liabilities and the results of its operations. 5.3 Financial Records. All financial records will be maintained and reported based on generally acceptable accounting practices. ARTICLE VI. DISTRIBUTION OF PROFITS 6.0 Method of distribution. In the absence of a unanimous agreement otherwise, all profits shall be distributed annually prior to the close of the fiscal year, less and except an amount to be retained for the cash needs of the company's business. Unless otherwise provided retained profits shall be deemed an increase in capital contributions of the Company. ARTICLE VII. OFFICERS 7.1 Operating Manager. The Operating Manager will be the chief executive officer of the Company responsible for the general overall supervision of the business and affairs of the Company. When present, he will preside at all meetings of the Members. The operating Manager may sign, on behalf of the Company, deeds, mortgages, bonds, contracts or other instruments which have been appropriately authorized to be executed, by the Members except in cases where the signing or execution is expressly delegated by the Members or by this operating agreement or by Statute to some other Officer or Agent of the company; and, in general, he will perform all duties as may be prescribed by the Board from time to time. The specific authority and responsibility of the operating manager will also include the following: (1) The Operating Manager will effectuate this Operating Agreement and the Regulations and decisions of the Members. (2) The Operating Manager will direct and supervise the operations of the Company. (3)The Operating Manager, within parameters as may be set by the Members, will establish charges for services and products of the Limited Liability Company as may be necessary to provide adequate income for the efficient operation of the Company. (4) The Operating Manager, within the budget established by the Members, will set and adjust wages and rates of pay for all personnel of the Company and will appoint, hire and dismiss all personnel and regulate their hours of work. (5) The Operating Manager will keep the Members advised in all matters pertaining to the operation of the Company, services rendered, operating income and expense, financial position, and, to this end, will prepare and submit a report to the Members at each regular meeting and at other tines as may be directed by the Members. 7.2 Other Officers. The Company, at the discretion of the Members, may have additional Officers including, without limitation, one or more Vice-Operating Managers, one or more Secretaries and one or more Treasurers. Officers need not be selected from among the Members. One person may hold two or more offices, except one person may not hold both the office of Operating Manager and the office of Secretary. When the incumbent of an office, as determined by the incumbent himself or by the Members, is unable to perform the duties of his office, or when there is no incumbent of an office (both such situations referred to hereafter as the "absence" of the Officer), the duties of the office shall be performed by the person specified by the Members. 7.3 Election and Tenure. The Officers of the Company will be elected annually by the Members at the annual meeting. Each Officer will hold office from the date of his election until the next annual meeting and until his successor has been elected, unless he sooner resigns or is removed. 7.4 Resignations and Removal. Any Officer may resign at any time by giving written notice to the Operating Manager or to all of the Members and, unless otherwise specified therein, the acceptance of the resignation will not be necessary to make it effective. Any Officer may be removed at any time by the Members with or without cause. 7.5 Vacancies. A vacancy in any office may be filled for the unexpired portion of the term by the Members. 7.6 Salaries. The salaries of the officers will be fixed from time to time by the Members and no officer may be prevented from receiving such salary by reason of the fact that he is also a Member of the Company. ARTICLE VIII. MISCELLANEOUS 8.1. Notice. Any notice required or permitted to be given pursuant to the provisions of the Statute, the Articles of Organization of the Limited Liability Company or this Operating Agreement will be effective as of the date personally delivered, or if sent by mail, on the date deposited with United States Postal Service, prepaid and addressed to the intended receiver at his last known address as shown in the records of the Limited Liability Company. 8.2 Waiver of Notice. Whenever any notice is required to be given pursuant to the provisions of the Statute, the Articles of Organization of the Limited Liability Company or this Operating Agreement, a waiver of the notice, in writing, signed by the persons entitled to the notice, whether before or after the time stated therein, will be deemed equivalent to the giving of the notice. 8.3 Indemnification By Company. The Limited Liability Company may indemnify any person who was or is a party defendant or is threatened to be made a party defendant to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative, or investigative (other than an action by or in the right of the Limited Liability Company) by reason of the fact that he is or was a Member of the Company, Officer, employee or agent of the Company, or is or was serving at the request of the Company, against expenses (including attorney's fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with the action, suit or proceeding if the Members determine that he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interest of the Limited Liability Company, and with respect to any criminal action or proceeding, has no reasonable cause to believe his conduct was unlawful. The termination of any action, suit, or proceeding by judgment, order, settlement, conviction, or on a plea of nolo contendere or its equivalent, will not in itself create a presumption that the person did or did not act in good faith and in a manner which he reasonably believed to be in the best interest of the Limited Liability Company, and, with respect to any criminal action or proceeding, had reasonable cause to believe that his conduct was unlawful. 8.4 Indemnification Funding. The Company will fund the indemnification obligations provided by Section 8.3 in the manner and to the extent the Members may from time to time deem proper. 8.5 Duality of Interest Transactions. Members of this Company have a duty of undivided loyalty to this Company in all matters affecting this Company's interests. 8.6 Anticipated Transactions. Notwithstanding the provision of Section 8.5, it is anticipated that the Members and Officers will have other legal and financial relationships. Representatives of this Company, along with representatives of other entities, from time to time may participate in the joint development of contracts and transactions designed to be fair and reasonable to each participant and to afford an aggregate benefit to all participants. Therefore, it is anticipated that this Company will desire to participate in these contracts and transactions and, after ordinary review for reasonableness, that the participation of the Company in these contracts and transactions may be authorized by the Members. 8.7 Gender and Number. Whenever the context requires, the gender of all words used this Agreement will include the masculine, feminine and neuter, and the number of all words will include the singular and plural. 8.8 Articles and other Headings. The Articles and other headings contained in this Operating Agreement are for reference purposes only and will not affect the meaning or interpretation. 8.9 Reimbursement of Officers and Members. Officers and members will receive reimbursement for expenses reasonably incurred in the performance of their duties. ARTICLE IX. AMENDMENTS 9.0 Amendments. This Operating Agreement may be altered, amended, restated, or repealed and a new Operating Agreement may be adopted by majority action of all of the Members, after notice and opportunity for discussion of the proposed alteration, amendment, restatement, or repeal. CERTIFICATION THE UNDERSIGNED, being all of the Members of THE BILTMORE GROUP OF LOUISIANA L.L.C. , A Louisiana Limited Liability Company, evidence their adoption and ratification of the foregoing Operating Agreement of the Company. EXECUTED by each Member on this the 11th day of August, 1998. /S/JOANNE M CALDWELL-BAYLES /S/JOANNE M CALDWELL-BAYLES - ---------------------------------- ----------------------------- The Forsythe Group, Inc. Joanne M. Caldwell-Bayles By: Joanne M. Caldwell-Bayles EX-4.1 7 SPECIMEN OF BOND CERTIFICATE BOND STATED INTEREST PRINCIPAL ACCOUNT NO. ISSUE DATE MATURITY RATE INTEREST PAYABLE AMOUNT 999-99-9999 5/01/90 5/01/95 11.00 SEMI-ANNUALLY $8,000 ON 05/01 AND 11/01 XYZ, INC. 2406 BROADWAY AUSTIN TX TRUST NO. 119 BOND NO. (herein referred to as 'Issuer') 10001-00 ISSUED JOHN DOE AND TO: MARY JANE DOE 4215 MESA CIRCLE PHOENIX, AZ 85012 Issuer, for value received, hereby promises to pay to the Registered Owner shown above, or registered assigns, the Principal Amount shown above on the Stated Maturity shown above, in such coin or currency of the United States of America as at the time of payment shall be legal tender for the payment of public or private debts, and to pay interest upon the Principal Amount from and after the Authentication Date, at the per annum Interest Rate shown above, in like coin or currency, the interest to be payable as follows: either (a) semi-annually, quarterly or monthly upon the Interest Payable dates until the Principal Amount has been paid (to be designated under Interest Payable above as 'Semi-annually", 'Quarterly" or "Monthly" followed by the designated interest payment dates), or, (b) upon the Stated Maturity date, with interest to be compounded semi-annually beginning with the first semi-annual date (six months following the Issue Date and each six months thereafter) following the Authentication Date, and semi-annually thereafter until the Principal Amount has been paid (to be designated under Interest Payable above as "At Maturity"). The Principal Amount and Interest payable upon this Bond. pursuant to the provisions of a Trust Indenture entered into between Issuer and Colonial Trust Company ("Colonial"), shall be paid to the person whose name this Bond is registered in at the close of business on the Interest Payable and Stated Maturity dates and shall be paid by check drawn upon the account of Colonial and mailed to the registered address of such person. Reference is here made to further provisions of this Bond set forth on the reverse hereof which further provisions are incorporated herein for all purposes. This bond shall not be valid or become obligatory for any purpose until it shall have been authenticated by either the manual or facsimile signature of the proper officer of Colonial. IN WITNESS WHEREOF, Issuer has caused this instrument to be duly issued and authenticated. Authentication: COLONIAL TRUST COMPANY CANCELLED COLONIAL TRUST COMPANY P.O. BOX 33487 PHOENIX, ARIZONA 85067-3487 /S/Sample Bond - ------------------------------------ Authorized Signature 5/01/90 - ------------------------------------ Authentication Date INTEREST DOES NOT ACCRUE AFTER MATURITY DATE [REVERSE SIDE OF SAMPLE BOND] ADDITIONAL PROVISIONS This Bond is one of the duly authorized Issue of Bonds to be issued by Issuer pursuant to the terms of a Trust Indenture (herein called the "Indenture") between Issuer and Colonial Trust Company (herein called "Colonial") to which Indenture reference is here made for a statement of the respective rights thereunder of Issuer, Colonial and the holders of the Bonds. If an event of default, as defined in the Indenture, shall have occurred and be continuing, the principal hereof may be declared due and payable in the manner and with the effect provided in the Indenture. As provided in the Indenture and subject to certain limitations therein set forth, this Bond is transferable on the bond register of Issuer (as maintained by Colonial) upon surrender of this Bond for transfer at the office of Colonial, duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to Colonial duly executed by the registered holder hereof or his attorney duly authorized in writing, and thereupon a new Bond in the same principal amount, interest rate and maturity date, will be issued to the designated transferee or transferees. This Bond is issued only as a registered Bond, without coupons. A reasonable service charge may be required to be paid to Colonial for any transfer or exchange of the Bond. This Bond may be subject to redemption by Issuer prior to its Stated Maturity. No assignment or transfer of this Bond shall be effective unless such assignment or transfer is recorded on the records of Issuer and/or Colonial as provided in the Indenture. Neither Issuer nor Colonial shall be responsible for the payment of the principal Amount or Interest Payable upon this Bond except to the person in whose name this Bond is registered at the time of such payment. FOR VALUE RECEIVED hereby ---------------------------------------------- Name of Current Owner sells, assigns and transfers unto -------------------------------------------- Name of New Owner - ------------------------------------------------------------------------------ Address City State Zip Social Security Number the within Bond, and does hereby irrevocably constitute and appoint the Secretary of the Colonial Trust Company, Attorney to transfer the Bond on the books of the within named Issuer with full power of substitution in the premises. The name, mailing address and social security number of the new owner must be provided before transfer can be completed. DATED --------------------------------- ------------------------------------ Current Owner In presence of ------------------------------------------------------------- (Signature must be guaranteed by Officer of State or National Bank-Include Officer's Title) (Bank is requested to use their "guarantee" Stamp or Seal) Under penalties of perjury, I certify (1) that the number shown on this form is my correct taxpayer identification number; and 2) that I am not subject to backup withholding because (a) I have-not been notified that I am subject to backup withholding as a result of a failure to report all interest or dividends, or (b) the Internal Revenue Service has notified me that I am no longer subject to backup withholding. DATED --------------------------------- ------------------------------------ New Owner INSTRUCTIONS All interest will be paid when due and will be mailed to your registered address by the Colonial Trust Company (herein called "Colonial"). Upon maturity the Bond must be surrendered to Colonial for redemption. Upon redemption, a check in the principal amount of the Bond will be forwarded by Colonial to you at your registered address. Should your address change prior to the maturity of the Bond, a written statement of this fact and your new address should be forwarded to Colonial as soon as possible in order that future payments of principal and interest upon the Bond may be properly paid to you. Should you sell or transfer the Bond to another party it will be necessary for you to complete the assignment appearing above. All registered owners must sign the assignment in the presence of an officer of a State or National Bank. Each signature must be guaranteed by the bank officer. The Bond, along with the applicable transfer agent fees, must be forwarded to Colonial to be reissued in the name of the assignee. COLONIAL TRUST COMPANY P.O. BOX 33487 PHOENIX, ARIZONA 85067-3487 EX-4.2 8 FORM OF TRUST INDENTURE TRUST INDENTURE THE BILTMORE GROUP OF LOUISIANA, L.L.C. Name of Issuer ------------------ Trust Number COLONIAL TRUST COMPANY As Trustee TABLE OF CONTENTS PAGE I. Capacities of Colonial . . . . . . . . . . . . . . . . . . . . . 1 II. Issue of Bonds and Security . . . . . . . . . . . . . . . . . . . 1 III. Description of Bonds and Liens . . . . . . . . . . . . . . . . . 2 A. Registration of Bonds and Liens . . . . . . . . . . . . . . 2 B. Bondholders' Pro Rata Lien . . . . . . . . . . . . . . . . 2 C. Trustee's Reimbursement Lien . . . . . . . . . . . . . . . 3 IV. Disbursement of Bond Proceeds . . . . . . . . . . . . . . . . . . 3 A. Bond Proceeds Account . . . . . . . . . . . . . . . . . . . 3 B. Preference of Payments Out of Bond Proceeds Account . . . . . . . . . . . . . . . . . . . . . 4 C. Construction Draws . . . . . . . . . . . . . . . . . . . . 8 D. Surplus Bond Proceeds . . . . . . . . . . . . . . . . . . . 10 E. Overpayments . . . . . . . . . . . . . . . . . . . . . . . 10 F. Abandonment of Project . . . . . . . . . . . . . . . . . . 11 V. Payment of Bonds . . . . . . . . . . . . . . . . . . . . . . . . 11 A. Priorities of Issuer's Payments . . . . . . . . . . . . . . 11 B. Priority of Charges against Sinking Fund . . . . . . . . . 12 C. Method of Payments into Sinking Fund . . . . . . . . . . . 12 D. Expenses of Default . . . . . . . . . . . . . . . . . . . . 13 E. Issuer's Payment Secured by its Revenues . . . . . . . . . 13 F. When Sinking Fund Balance May Be Paid to Issuer . . . . . . . . . . . . . . . . . . . . . . . . . 13 G. Bond Reserve Account . . . . . . . . . . . . . . . . . . . 13 H. First Six Month Operating Fund Reserve Account . . . . . . 15 VI. Bondholders' Failure to Surrender Matured Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 A. No Interest After Maturity . . . . . . . . . . . . . . . . 16 B. Escheat After Three Years . . . . . . . . . . . . . . . . . 16 VII. Issuer's Covenants . . . . . . . . . . . . . . . . . . . . . . . 17 A. Issuer Shall Maintain and Insure the Property . . . . . . . . . . . . . . . . . . . . . . . . . 17 B. Trustee May Cure . . . . . . . . . . . . . . . . . . . . . 18 C. Issuer May Not Merge . . . . . . . . . . . . . . . . . . . 18 D. Issuer's . . . . . . . . . . . . . . . . . . . . . . . . . 19 VIII. Defaults and Remedies . . . . . . . . . . . . . . . . . . . . . . 19 A. Events of Default Defined . . . . . . . . . . . . . . . . . 19 B. Waiver of Notice by Issuer; Trustee's Remedies . . . . . . . . . . . . . . . . . . . . . . . . . 20 C. Legal Ownership of Rights to Prosecution and Enforcement in Trustee Alone . . . . . . . . . . . . . 24 i D. Trustee's Discretion to Advise Bond- holders of Default . . . . . . . . . . . . . . . . . . . . 24 E. Bondholders' Rights in Event of Trustee's Failure to Act . . . . . . . . . . . . . . . . . 24 F. Trustee's Right to Stop Payment on Outstanding Checks . . . . . . . . . . . . . . . . . . . . 25 G. Penalty Interest . . . . . . . . . . . . . . . . . . . . . 25 H. Trustee Has No Duty to Cure; Trustee's Rights in Event of Overdraft or Overpayment . . . . . . . . . . . . . . . . . . . . . . . . 25 I. Application of Sinking Fund Balances Upon Default . . . . . . . . . . . . . . . . . . . . . . . 26 IX. Issuer's Prepayment Privileges . . . . . . . . . . . . . . . . . 28 A. Entire Series in Full or Partial at Random . . . . . . . . . . . . . . . . . . . . . . . . . . 28 B. No Pre-Payment Penalty; Additional Trustee's Fee . . . . . . . . . . . . . . . . . . . . . . . 28 C. Disposition of Unpresented Bonds . . . . . . . . . . . . . 28 D. Over- and Under-Deposit of Funds . . . . . . . . . . . . . 28 E. Trustee's Release of Lien . . . . . . . . . . . . . . . . . 29 X. Replacement of Bonds . . . . . . . . . . . . . . . . . . . . . . 29 A. Exchange of Mutilated or Defaced Bonds . . . . . . . . . . 29 B. Lost, Stolen or Destroyed Bonds . . . . . . . . . . . . . . 29 C. Remedies are Exclusive . . . . . . . . . . . . . . . . . . 29 XI. Additional Parity Bonds . . . . . . . . . . . . . . . . . . . . . 30 A. Conditions for Issuance . . . . . . . . . . . . . . . . . . 30 B. Right of First Refusal . . . . . . . . . . . . . . . . . . 31 XII. Sale of Property . . . . . . . . . . . . . . . . . . . . . . . . 31 A. For Fair Market Value Only . . . . . . . . . . . . . . . . 31 B. Application of Sale Proceeds . . . . . . . . . . . . . . . 32 C. Value of Pledged Property to be Sufficient to Secure Bonds Then Outstanding . . . . . . . . . . . . . . . . . . . . . . . . 32 XIII. Substitution of Collateral . . . . . . . . . . . . . . . . . . . 32 A. For Fair Market Value Only . . . . . . . . . . . . . . . . 33 B. Must Become Part of the Lien . . . . . . . . . . . . . . . 33 XIV. Condemnation of Property . . . . . . . . . . . . . . . . . . . . 33 A. Condemnation of All the Property . . . . . . . . . . . . . 33 B. Condemnation of a Portion of the Property . . . . . . . . . 33 XV. Duties of Trustee, Paying Agent and Registrar . . . . . . . . . . 34 A. Trustee's Administrative Duties . . . . . . . . . . . . . . 34 B. Paying Agent's Duties . . . . . . . . . . . . . . . . . . . 35 C. Registrart's Duties . . . . . . . . . . . . . . . . . . . 36 XVI. Limitation of Trustee's Liability . . . . . . . . . . . . . . . . 36 XVII. Ancillary/Co-Trustee; Resignation and Removal; Successor Trustee . . . . . . . . . . . . . . . . . . . . . . . . 39 A. Trustee May Appoint Ancillary and Co-Trustees . . . . . . . . . . . . . . . . . . . . . . . . 39 B. Voluntary Resignation and Involuntary Removal of Trustee . . . . . . . . . . . . . . . . . . . . 39 XVIII. Illegal Interest . . . . . . . . . . . . . . . . . . . . . . . . 42 XIX. Release of the Lien . . . . . . . . . . . . . . . . . . . . . . . 43 XX. Investment of Funds; Trustee's Fees . . . . . . . . . . . . . . . 43 A. Permitted Investments . . . . . . . . . . . . . . . . . . . 43 B. Base Fees of Trustee, Paying Agent and Registrar . . . . . . . . . . . . . . . . . . . . . . . . . 43 C. Additional Fees to be Charged for Extraordinary Services . . . . . . . . . . . . . . . . . . 43 XXI. Supplemental Indentures . . . . . . . . . . . . . . . . . . . . . 44 A. Not Requiring Bondholder Consent . . . . . . . . . . . . . 44 B. Requiring Bondholder Consent . . . . . . . . . . . . . . . 44 C. Requisites of Notice to Bondholders . . . . . . . . . . . . 45 D. Only Substantial Consent Required . . . . . . . . . . . . . 46 XXII. Bondholder Lists and Reports; Evidence of Rights of Bondholders . . . . . . . . . . . . . . . . . . . . 46 A. Form of Bondholder Action . . . . . . . . . . . . . . . . . 46 B. Issuer Owned or Controlled Bonds to be Disregarded . . . . . . . . . . . . . . . . . . . . . . . . 47 C. Third-Party Communiques to Bondholders . . . . . . . . . . 47 D. Bondholder Identities Not to be Disclosed . . . . . . . . . . . . . . . . . . . . . . . . . 48 XXIII. Miscellaneous Provisions . . . . . . . . . . . . . . . . . . . . 48 iii TRUST INDENTURE STATE OF ARIZONA COUNTY OF MARICOPA THIS TRUST INDENTURE made and entered into between THE BILTMORE GROUP OF LOUISIANA, L.L.C., a Louisiana limited liability company, c/o Arbor Group, L.L.C., 507 Trenton Street, West Monroe, Louisiana 71291, acting through its duly authorized agents and representatives, hereinafter called "Issuer," and COLONIAL TRUST COMPANY, a trust company organized under the laws of the state of Arizona, having its principal office and post office address respectively at 5336 North 19th Avenue, Phoenix, Arizona 85015, and P.O. Box 33487, Phoenix, Maricopa County, Arizona 85067-3487, hereinafter called either "Colonial" or "Trustee," WITNESSETH: I. CAPACITIES OF COLONIAL Colonial will serve in the multiple capacities of Trustee for the benefit of the Bondholders (hereinafter called "Trustee"), Registrar with respect to the transfer of the Bonds and maintenance of the Bond Register (hereinafter called "Registrar"), and Paying Agent with respect to distribution of interest and principal payments to or for the Bondholders (hereinafter called "Paying Agent"). The duties and responsibilities of Colonial for its service in each of such capacities, as well as the compensation to be paid to Colonial therefor, are hereinafter set forth; provided that, unless the context otherwise requires, all such terms are used interchangeably and collectively, the term for one capacity including as well the other two terms and capacities. II. ISSUE OF BONDS AND SECURITY Issuer has agreed and does hereby agree to issue Bonds of serial maturities in the total amount of $9,900,000.00, hereinafter called the "Bonds," secured, in accordance with the terms and provisions of this Trust Indenture by a deed of trust(s) or mortgage(s) and security agreement(s), hereinafter called the "Lien," recorded in the proper State and County or Parish or other recording office, on and covering properties of Issuer more Trust Indenture Page 1 of 51 described in such mortgage(s) or deed(s) of trust executed or to be executed by Issuer and filed of record to secure the Bond Issue governed by this Trust Indenture (hereinafter called the "Property"), and incorporated herein by reference. The Property shall include the following projects: (A)The Minden, Louisiana Project; (B)The Sedona, Arizona Project; (C)The Bastrop, Louisiana Project; (D)The Natchitoches, Louisiana Project; and (E)The Farmerville, Louisiana Project. The Mortgage(s) and/or Deeds of Trust relative to each of the above-mentioned projects as originally executed and as amended or modified, from time to time, are incorporated herein by reference and made a part hereof. All moneys received and maintained by the Trustee hereunder shall be trust funds held for the benefit of the Bondholders and shall not be subject to lien or attachment of any creditor of Issuer or Trustee. III. DESCRIPTION OF BONDS AND LIENS (A) All of the Bonds shall be issued pursuant to the prospectus or offering circular in the names of the holders thereof as registered on the books and records of the Registrar. No principal or interest payable upon the Bonds shall be paid to any persons other than the registered holders. Payments of principal and/or interest upon the Bonds shall be made by check drawn upon the Sinking Fund Account to be maintained by Trustee, which check shall be mailed, postage prepaid, to the registered holders of the Bonds at their registered addresses. (B) The Bonds will be secured by a lien upon the property and facility acquired with the proceeds of the bonds, as follows: (1) Series 1999-I bonds in the amount of $1,800,000.00 will be secured by the property comprising the Minden, Louisiana facility; (2) Series 1999-II bonds in the amount of $2,700,000.00 will be secure by the property comprising the Sedona, Arizona facility; Trust Indenture Page 2 of 51 (3) Series 1999-III bonds in the amount of $1,800,000.00 will be secured by the property comprising the Bastrop, Louisiana facility; (4) Series 1999-IV bonds in the amount of $1,800,000.00 will be secured by the property comprising the Natchitoches, Louisiana facility; and (5) Series 1999-V bonds in the amount of $1,800,000.00 will be secured by the property comprising the Farmerville, Louisiana facility. Notwithstanding the above, the Bonds are cross-collateralized to the extent and at the option of Trustee as provided in Paragraph VIII(B) (5) hereof. (C) Hereinafter the phrase "Reimbursement Lien" will be used to identify a lien against the Property in favor of Trustee securing Trustee's right to reimbursement for its own or borrowed funds advanced or expended, said Reimbursement Lien being likewise secured by the Property but being superior to the Lien securing the Bondholders until such funds advanced or expended are repaid in full. All such advances and expenditures secured by the Reimbursement Lien shall, subject to Article XVIII, bear interest at the rate equal to two (2%) percent per annum in excess of the "Prime Rate" quoted daily in the money rate column of the Wall Street Journal as said note may from day to day in Trustee's sole discretion be adjusted upward and downward. All such principal and interest accrued and/or collected by Trustee in reimbursement from Issuer shall be Trustee's sole property. IV. DISBURSEMENT OF BOND PROCEEDS (A) As the Bonds are sold (or if the Bond proceeds are placed in an escrow account to be released to Trustee only after the conditions of the escrow agreement have been met), the proceeds from the sale of the Bonds shall be delivered to Trustee to be deposited into a Bond Proceeds Account in the name and under the exclusive control of Trustee in a depository selected by Trustee, including its own commercial banking division. Trustee shall disburse the Bond proceeds in accordance with the provisions of paragraph (B) below. Trust Indenture Page 3 of 51 (B) Out of the proceeds from the sale of the Bonds, Trustee shall first pay the following items in the order and preference listed: (1) The Series 1999-I Bonds (being used for the Minden, Louisiana project) as follows: (a) The Dealer's fee, commissions and related financing costs due the broker/dealer assisting Issuer in the sale of the Bonds (hereinafter called "Broker") under the terms of a written agreement between Issuer and Broker. (b) The reimbursement to Trustee of any expenses incurred by Trustee including attorney's fees incurred in the examination by its legal counsel of all documents required to issue the Bonds. (c) The establishment of a First Six Month Operating Fund Payments Reserve in the amount of $90,000.00 to be used to pay the sinking fund payments during the first six months of the project. (d) The principal and interest payable by Issuer upon promissory notes or other obligations of Issuer or others secured by existing liens upon the Property, including any interim construction loans secured by an equal parity lien with the bonds. Upon payment of such obligations, Trustee shall be subrogated to the rights of the prior owners thereof. (e) The payment of remaining costs of construction. (f) To reimburse Issuer pre-opening costs not to exceed $75,000.00. (g) To the Bond Reserve Account in the amount of $140,000.00 for a period of time as disclosed in the offering circular pursuant to which the bonds were sold. (h) After the payment of the foregoing, the Trustee shall, subject to statutory retainage, disburse the funds remaining in Issuer's Bond Proceeds Account (hereinafter called the "Net Bond Proceeds") for the remaining purposes of the Bond offering as set forth and described in the prospectus or offering circular used in connection with the Bond offering, if any, and the balance to the Issuer; provided, that in the event of any conflict Trust Indenture Page 4 of 51 in this regard between the terms of said prospectus or offering circular and this Trust Indenture, this Trust Indenture shall be deemed to control. (2) The Series 1999-II Bonds (being used for the Sedona, Arizona as follows: (a) The Dealer's fee, commissions and related financing costs due the broker/dealer assisting Issuer in the sale of the Bonds (hereinafter called "Broker") under the terms of a written agreement between Issuer and Broker. (b) The reimbursement to Trustee of any expenses incurred by Trustee, including attorney's fees incurred in the examination by its legal counsel of all documents required to issue the Bonds. (c) The establishment of a First Six Month Operating Fund Payments Reserve in the amount of $125,000.00 to be used to pay the sinking fund payments during the first six months of the project. (d) The principal and interest payable by Issuer upon promissory notes or other obligations of Issuer or others secured by existing liens upon the Property, including any interim loan secured by an equal parity lien with the bonds owing to Church Loans & Investments Trust. Upon payment of such obligations, Trustee shall be subrogated to the rights of the prior owners thereof. (e) The payment of a line of credit in the amount of $189,000.00 used for interim loan interest costs and renovations. (f) After the payment of the foregoing, the Trustee shall, subject to statutory retainage, disburse the funds remaining in Issuer's Bond Proceeds Account (hereinafter called the "Net Bond Proceeds") for the remaining purposes of the Bond offering as set forth and described in the prospectus or offering circular used in connection with the Bond offering, if any, and the balance to the Issuer; provided, that in the event of any conflict in this regard between the terms of said prospectus or offering circular and this Trust Indenture, this Trust Indenture shall be deemed to control. (3) The Series 1999-III Bonds (being used for the Bastrop, Louisiana project) as follows: Trust Indenture Page 5 of 51 (a) The Dealer's fee, commissions and related financing costs due the broker/dealer assisting Issuer in the sale of the Bonds (hereinafter called "Broker") under the terms of a written agreement between Issuer and Broker. (b) The reimbursement to Trustee of any expenses incurred by Trustee, including attorney's fees incurred in the examination by its legal counsel of all documents required to issue the Bonds. (c) The establishment of a First Six Month Operating Fund Payments Reserve in the amount of $90,000.00 to be used to pay the sinking fund payments during the first six months of the project. (d) The principal and interest payable by Issuer upon promissory notes or other obligations of Issuer or others secured by existing liens upon the Property, including any interim construction loans secured by an equal parity lien with the bonds. Upon payment of such obligations, Trustee shall be subrogated to the rights of the prior owners thereof. (e) The payment of remaining costs of construction. (f) To reimburse Issuer pre-opening costs not to exceed $75,000.00. (g) To the Bond Reserve Account in the amount of $140,000.00 for a period of time as disclosed in the offering circular pursuant to which the bonds were sold. (h) After the payment of the foregoing, the Trustee shall, subject to statutory retainage, disburse the funds remaining in Issuer's Bond Proceeds Account (hereinafter called the "Net Bond Proceeds") for the remaining purposes of the Bond offering as set forth and described in the prospectus or offering circular used in connection with the Bond offering, if any, and the balance to the Issuer; provided, that in the event of any conflict in this regard between the terms of said prospectus or offering circular and this Trust Indenture, this Trust Indenture shall be deemed to control. (4) The Series 1999-IV bonds (being used for the Natchitoches, Louisiana Project) as follows: Trust Indenture Page 6 of 51 (a) The Dealer's fee, commissions and related financing costs due the broker/dealer assisting Issuer in the sale of the Bonds (hereinafter called "Broker") under the terms of a written agreement between Issuer and Broker. (b) The reimbursement to Trustee of any expenses incurred by Trustee, including attorney's fees incurred in the examination by its legal counsel of all documents required to issue the Bonds. (c) The establishment of a First Six Month Operating Fund Payments Reserve in the amount of $90,000.00 to be used to pay the sinking fund payments during the first six months of the project. (d) The principal and interest payable by Issuer upon promissory notes or other obligations of Issuer or others secured by existing liens upon the Property, including any interim construction loans secured by an equal parity lien with the bonds. Upon payment of such obligations, Trustee shall be subrogated to the rights of the prior owners thereof. (e) The payment of remaining costs of construction. (f) To reimburse Issuer pre-opening costs not to exceed $75,000.00. (g) To the Bond Reserve Account in the amount of $140,000.00 for a period of time as disclosed in the offering circular pursuant to which the bonds were sold. (h) After the payment of the foregoing, the Trustee shall, subject to statutory retainage, disburse the funds remaining in Issuer's Bond Proceeds Account (hereinafter called the "Net Bond Proceeds") for the remaining purposes of the Bond offering as set forth and described in the prospectus or offering circular used in connection with the Bond offering, if any, and the balance to the Issuer; provided, that in the event of any conflict in this regard between the terms of said prospectus or offering circular and this Trust Indenture, this Trust Indenture shall be deemed to control. (5) The Series 1999-V bonds (being used for the Farmerville, Louisiana Project) as follows: Trust Indenture Page 7 of 51 (a) The Dealer's fee, commissions and related financing costs due the broker/dealer assisting Issuer in the sale of the Bonds (hereinafter called "Broker") under the terms of a written agreement between Issuer and Broker. (b) The reimbursement to Trustee of any expenses incurred by Trustee, including attorney's fees incurred in the examination by its legal counsel of all documents required to issue the Bonds. (c) The establishment of a First Six Month Operating Fund Payments Reserve in the amount of $90,000.00 to be used to pay the sinking fund payments during the first six months of the project. (d) The principal and interest payable by Issuer upon promissory notes or other obligations of Issuer or others secured by existing liens upon the Property, including any interim construction loans secured by an equal parity lien with the bonds. Upon payment of such obligations, Trustee shall be subrogated to the rights of the prior owners thereof. (e) The payment of remaining costs of construction. (f) To reimburse Issuer pre-opening costs not to exceed $75,000.00. (g) To the Bond Reserve Account in the amount of $140,000.00 for a period of time as disclosed in the offering circular pursuant to which the bonds were sold. (h) After the payment of the foregoing, the Trustee shall, subject to statutory retainage, disburse the funds remaining in Issuer's Bond Proceeds Account (hereinafter called the "Net Bond Proceeds") for the remaining purposes of the Bond offering as set forth and described in the prospectus or offering circular used in connection with the Bond offering, if any, and the balance to the Issuer; provided, that in the event of any conflict in this regard between the terms of said prospectus or offering circular and this Trust Indenture, this Trust Indenture shall be deemed to control. (C) The disbursement by Trustee of the Net Bond Proceeds from Issuer's Bond Proceeds Account shall be subject to and in accordance with the following provisions: Trust Indenture Page 8 of 51 (1) Issuer shall furnish to Trustee at Issuer's expense and Trustee's election an attorney's title opinion or a mortgagee's title policy in favor of Trustee reflecting that Trustee holds the Lien on the Property as trustee for the benefit of the Bondholders, subject to no prior liens or encumbrances other than those agreed upon in writing between Issuer and Trustee. (2) If Issuer is remodeling and/or constructing new improvements with all or any portion of the Net Bond Proceeds, Issuer shall file with Trustee a written estimate of the cost of such construction, and Issuer shall provide builder's risk insurance during the period of construction with loss payable clause in favor of Trustee. (a) If Issuer enters into a contract for such construction which provides for (or if Issuer later determines such construction will actually result in) a total cost greater than the Net Bond Proceeds, Issuer will promptly notify Trustee of such fact. (b) Should Trustee be so advised or determine in its sole discretion that the Net Bond Proceeds will be insufficient to complete the contemplated use thereof, Trustee shall not be required to disburse any funds from Issuer's Bond Proceeds Account until such time as Issuer demonstrates to Trustee's satisfaction that the amount necessary for completion of the project as originally contemplated is equal to or less than the Net Bond Proceeds. (c) Provided that, notwithstanding the foregoing, Trustee may make such construction and/or purchase disbursements from the Net Bond Proceeds as it deems in its sole discretion to be in the best collective interest of the Bondholders. (3) Together with such supporting photographs and contractor's and architect's affidavits and other information and material as Trustee may from time to time require, Trustee shall be furnished an affidavit which shall be signed and approved by an authorized representative of Issuer, showing the estimate of the improvements completed in accordance with the plans and specifications up to the date of such affidavit. (a) Such affidavit shall be accompanied by Issuer's duly executed written request for Trustee to make a construction payment, whereupon Trustee is authorized to pay out of Issuer's Bond Proceeds Account the amount of the estimate shown to Trust Indenture Page 9 of 51 be due for such labor performed or materials furnshed or such other percentage of such estimate, less any applicable retainage. (b) When the representative of Issuer certifies that all improvements have been completed in accordance with the plans and specifications therfor and have been accepted by Issuer, Trustee is authorized to pay out of Issuer's Bond Proceeds Account the final balance shown by the affidavit to be due and owing. (c) Disbursements may be made to the contractor and/or Issuer, as Trustee may determine to be in the best interest of the Bondholders. (4) Trustee shall be subrogated to the rights of all laborers', materialmen's and contractors' liens which it may reduce or discharge by such payments, and the acceptance of any such payments shall be binding and conclusive upon the recipients and Issuer as to such rights of Trustee. (5) If Issuer is purchasing real property with all or any portion of the proceeds from the sale of such Bonds, Trustee shall, upon like certification, disburse such funds as are necessary to close such purchase, provided that such purchased real property shall be subjected to and become a part of the Lien and any mortgage or deed of trust upon the Property, as evidenced at Trustee's election and at Issuer's sole expense by an attorney's title opinion or a mortgagee's title policy in favor of Trustee reflecting no liens or encumbrances prior to the Lien other than as agreed upon in writing between Issuer and Trustee. (D) Any funds remaining in Issuer's Bond Proceeds Account after all the aforesaid payments, if not usable in further improvement of the Property, shall in the sole discretion of Trustee be distributed to Issuer, or may be retained by Trustee in the Bond Proceeds Account until so usable or until such remaining funds, together with any additional funds delivered to Trustee under the provisions of Article IX hereof, are used to redeem Bonds. (E) If for any reason other than the gross negligence or willful misconduct of Trustee, more funds are disbursed from the Bond Proceeds Account for the items listed in this Article IV than are deposited into said Account: Trust Indenture Page 10 of 51 (1) Trustee shall promptly upon discovery thereof notify Issuer of such fact by furnishing a statement showing how said overexpenditure occurred; (2) Within thirty (30) days of the receipt of such notice, Issuer shall remit to Trustee funds sufficient to cover the overexpenditure; and (3) Until such time, Trustee shall have its Reimbursement Lien therefor. (F) If after receipt by Trustee of the proceeds from the sale of all or any portion of Issuer's Bonds, Issuer abandons or for any reason is legally restrained or prohibited from undertaking or proceeding with the purposes for which such Bonds were issued or any series of Bonds: (1) Before any disbursements are made by Trustee therefrom, Issuer shall be obligated to pay and agrees promptly to pay all dealer's fees due and expenses the broker/dealer assisting Issuer in the sale of the bonds and any expenses incurred by the Trustee, including attorney's fees, in regard to the offering, and Trustee shall return the gross bond proceeds to the holders of such Bonds in full payment and redemption thereof. (2) After any disbursements have been made therefrom in good faith by Trustee, the provisions of subparagraphs IV(B), (C), (D), (E) and this subparagraph (F) shall then be applicable to the disbursement and return of the excess funds remaining, if any. In neither event shall the Bondholders be entitled, in addition to the principal so returned after payment of such costs and expenses, to interest on such principal. Return of such principal to the Bondholders, net of any applicable expenses, shall operate as a complete discharge of the Trustee; and Issuer hereby indemnities and agrees to hold Trustee from any and all claims therefor, including all costs of maintaining a legal defense. V. PAYMENT OF BONDS (A) Issuer shall pay directly and in the order and preference listed: Trust Indenture Page 11 of 51 (1) All expenses incurred by Broker and any escrow agent in connection with the escrowing of the Bond proceeds; (2) The charges of any depository bank selected by Trustee; (3) The service charges and fees of Trustee described in Article XX; and (4) The Sinking Fund Account maintained by Trustee for payment of the principal and interest on the Bonds as such indebtedness matures on successive Bondholder payment dates. (B) Issuer shall remit to Trustee amounts (hereinafter collectively referred to as "Sinking Fund Payments") as set forth in the Schedule of Payments set forth in the Offering Circular pursuant to which the bonds were sold and a copy of which said schedule may also be attached hereto, and if so, as EXHIBIT "C", which said amounts, if timely paid, will accumulate to be sufficient on each Bondholder payment date to pay the following in the order and preference listed: (1) Any unpaid charges of the depository bank; (2) Any unpaid Trustee, Registrar and Paying Agent fees and charges and any other compensation, repayment or reimbursement payable to Trustee hereunder; and (3) The installments of principal and interest on all Bonds then due for payment. (C) Issuer shall deliver to Trustee its required Sinking Fund Payments to be deposited into a Sinking Fund Account in the name of and under the exclusive control of Trustee in a depository or depositories selected by Trustee, including its own commercial banking division. Trustee shall cause disbursement of the sinking funds for the purpose of paying the items described above and such other items as are expressly provided to be paid from the Sinking Fund Account by other provisions of this Trust Indenture. Issuer shall remit the Sinking Fund Payments to Trustee by one of the following exclusive methods: (1) Monthly installments to be transmitted electronically through the Automated Clearing House ("ACH") network; or Trust Indenture Page 12 of 51 (2) Monthly installments to be paid by check or bank draft. (D) In the event Issuer defaults in the payment of the principal and/or interest upon any outstanding Bond(s) issued hereunder or any of the other requirements of this Trust Indenture, and Trustee consequently resorts to its remedies, Issuer hereby agrees to pay the reasonable costs of cure, collection and/or foreclosure upon the Property, including without limitation court costs, the fees of attorneys, legal stenographers, expert witnesses, appraisers, surveyors and realtors, the travel expenses of such persons and Trustee's own personnel and the costs of preserving, maintaining, insuring and paying taxes on the Property; and Trustee shall have its Reimbursement Lien therefor. (E) Issuer agrees to pay the required installments into the Sinking Fund Account as required herein before it disburses funds for any other purposes whatsoever. (1) To further secure the timely payment of the sinking fund installments and Issuer's other obligations hereunder, Issuer hereby unconditionally assigns, sets over, and pledges its first revenues from any and all sources. (2) So long as the sinking fund installments and other expenditures required of Issuer are promptly and properly made, the first revenues received by Issuer shall be handled by Issuer without any interference by Trustee; but should Issuer fail to make the required sinking fund installments, then Trustee may elect to demand payment to it of Issuer's first revenues; and after receipt of such written demand Issuer shall, promptly and without contest, deliver all of its receipts directly to Trustee until the Sinking Fund Account delinquency is remedied, after which Issuer may again deal with its receipts as before such default. (F) Any balance remaining in the Sinking Fund Account shall be paid to Issuer whenever (i) all matured principal and interest (including any unforgiven penalty interest) on the Bonds has been paid in full or provision for such payment satisfactory to Trustee has been made, (ii) all obligations, expenses, fees, costs and charges of Trustee, Paying Agent, Registrar and all depositories incurred hereunder have been paid, and (iii) Issuer is current in its installments required to be paid into the Sinking Fund Account. (G) In regard to the Series 1999-I, 1999-III, 1999-IV and 1999-V offerings, Issuer agrees to maintain with the Trustee a Trust Indenture Page 13 of 51 Bond Reserve account funded in the amounts set forth above for the periods disclosed in the offering circular pursuant to which the bonds were sold, which shall be for the purpose of providing for, in part, the debt service requirements to pay the principal and interest due on any semiannual payment date of the bonds herein authorized. Such account shall be held, administered and distributed as follows: (1) The Issuer shall fund from the proceeds of the sale of the bonds and the Trustee will accept and maintain in the Bond Reserve Account (hereinafter referred to as the "Reserve Account") the applicable amounts as set forth above in Article IV pursuant to the terms and conditions hereof. (2) During the applicable period of the Reserve Account, the Reserve Account shall be applied only to the payment of principal and interest on the bonds in the event that as of a semiannual payment date the Issuer has failed to deposit with the Trustee in the Sinking Fund Account sufficient sums to enable the Trustee to pay the principal and interest due as of such payment date. In the event that as of a certain semiannual payment date the Issuer has not deposited sufficient sums with the Trustee to pay the principal and interest then due, as defined in the Trust Indenture, but the total bonds owing have not been accelerated, then Trustee shall apply, to the extent available, funds from the Reserve Account to the payment of the principal and interest then owing on the bonds as of such payment date. (3) In the event that there are not sufficient funds in the Reserve Account to remedy any existing default in the payment of the sinking fund payments required to pay the bonds and as a result, the total amount owing on the bonds or a series of bonds has been accelerated, then the funds held in the Reserve Account shall be held, administered and distributed for the benefit of all bondholders whose bonds have been accelerated as part of the proceeds from the collateral. No portion of the Reserve Account shall inure to or benefit any interim note holder who is in a co-first mortgage position with the Trustee, unless and except that the Issuer and the Trustee may agree to use funds available in the Reserve Account to pay off any such interim lender. (4) Any interest earned on the Reserve Account shall be retained in the Reserve Account. (5) Provided that the Issuer is current in the payment of its sinking fund obligation, all funds on hand in the Reserve Account after the term provided for in the Prospectus for Trust Indenture Page 14 of 51 the maintaining of the applicable Reserve Account ("the term of the Reserve") shall be transferred by the Trustee into the Sinking Fund Account to be used to pay off existing bonds. In the event that the Issuer is not current in its sinking fund payments as of the date of the termination of the term of a Reserve Account, then the Trustee shall continue to hold the funds in the Reserve Account pursuant to the terms and conditions hereof until the Issuer is current in its sinking fund payments and maintains a current status for six (6) consecutive months. (6) In the event that the Trustee uses funds from the Reserve Account to pay the principal and interest on the bonds due at a particular paydate, then the Issuer shall pay to the Trustee, within one hundred eighty (180) days from the date of such paydate, an amount necessary to replenish such Reserve Account. Failure to replenish such Reserve Account within such one hundred eighty (180) day period shall be an event of default hereunder and shall entitle the Trustee to continue to hold such Reserve Account, in addition to its other remedies. (7) In addition to the payment of the principal and interest due the bondholders, Trustee may pay from the Reserve Account before transferring a Reserve Account to the Sinking Fund Account any and all late charges, trustees fees, collection charges, attorney's fees and other out-of-pocket expenses due and owing to the Trustee or incurred by the Trustee in regard to this issue. (8) Although the Reserve Account is funded by a specific amount from the proceeds of the four series of bonds issued, the Trustee may use any amount toward the payment of maturities of any of the five offerings. (H) Issuer agrees to maintain with the Trustee the First Six Month Operating Fund reserve accounts in the amounts set forth in Article IV above which shall be for the purpose of providing for the debt service requirements to pay the principal and interest due on the first semiannual payment date of the bonds herein authorized. During the applicable period of such reserve accounts, monies from such applicable accounts shall be applied only to the payment of principal and interest on the bonds in the event that as of the first semiannual payment date the Issuer has failed to deposit with the Trustee in the Sinking Fund Account sufficient sums to enable the Trustee to pay the principal and interest due as of such first payment date. In the event that as of the first semiannual payment date the Issuer has not deposited sufficient sums with the Trustee to pay the principal and interest then due, Trust Indenture Page 15 of 51 as defined in the Trust Indenture, but the total bonds owing have not been accelerated, then Trustee shall apply, to the extent available, funds from the applicable account to the payment of the principal and interest then owing on the bonds as of such payment date. In the event that the total amount owing on the bonds or a series of bonds has been accelerated, then the funds held in such accounts shall be held, administered and distributed for the benefit of all bondholders where bonds have been accelerated as part of the proceeds from the collateral. No portion of the accounts shall inure to or benefit any interim note holder who is in a co-first mortgage position with the Trustee, unless and except that the Issuer and the Trustee may agree to use funds available in the accounts to pay off any such interim lender. Any interest earned on the accounts shall be retained in the accounts. Provided that the Issuer is current in the payment of its sinking fund obligation, all funds on hand in these accounts after the first six month payment date shall be disbursed by the Trustee for the purposes and in the order set forth for the disbursement of bond proceeds as provided in the appropriate provision of Article IV above. VI. FAILURE TO SURRENDER MATURED BONDS FOR PAYMENT As to checks representing payments of principal and/or interest mailed by Paying Agent to the registered holders of the Bonds which are not thereafter presented for payment, Trustee shall set aside and retain in a separate account a sum equal to such maturing installment of principal or interest. (A) No interest shall accrue or be payable from or after such payment date either upon such matured installment or such funds in said separate account. (B) After three (3) years from such separation of funds, any separated funds remaining unclaimed shall be escheated and delivered by Trustee to the appropriate state which delivery shall operate as a complete discharge of Trustee; and Issuer hereby indemnifies and agrees to hold Trustee harmless from any and all subsequent claims therefor or resulting therefrom asserted by any Bondholder(s) and/or governmental agency or agencies, including all costs of maintaining a legal defense. Trust Indenture Page 16 of 51 VII. ISSUER'S COVENANTS REGARDING MAINTENANCE OF PROPERTY AND STATUS (A) At its own cost and expense, Issuer shall: (1) Obtain and maintain certification from all applicable authorities, federal, state and local, of Issuer's corporate existence and exemptions from income tax and from ad valorem taxes on all eligible property, provide same to Trustee upon request and promptly notify Trustee of any cancellation or revocation thereof, and pay all license or other fees and timely make all returns and reports necessary for that purpose; (2) Maintain the Property in good repair and condition; (3) Pay or discharge all taxes and assessments and any mechanics' and materialmen's lien indebtedness that are or may become payable with respect to the Property as same become due and payable under any law, ordinance or regulation; and (4) Secure from a reputable insurance company or companies acceptable to Trustee, and maintain in full force and effect at all times while any of said Bonds are outstanding, fire and extended coverage insuring the Property against such losses in an amount at least equal to the balance outstanding on the outstanding Bonds hereunder, including accrued interest, and in no event less than eighty (80%) percent of the fair market value of the improvements located thereon, which policy or policies shall contain a loss payable clause in favor of Trustee and shall be delivered to Trustee to be kept by it until the Bonds are paid in full. (a) In the event of any losses, the proceeds of insurance paid to Trustee shall be applied: (i) for the replacement and/or repair of the improvements damaged; (ii) toward the purchase of additional property, subjected to and become a part of the Lien and any mortgage or deed of trust upon the Property, as evidenced at Trustee's election and at Issuer's sole expense by an attorney's title opinion or a mortgagee's title policy in favor of Trustee reflecting no liens or encumbrances prior to the Lien other than as agreed upon in writing between Issuer and Trustee; (iii) for the construction of additional improvements on the Property; and/or (iv) to call and repay Trust Indenture Page 17 of 51 outstanding Bonds in the same manner as partial prepayments are to be applied under the provisions of Article IX without prepayment penalty. (b) Subject to the approval of Trustee, Issuer has the right to select which of these alternatives it desires to exercise and shall notify Trustee in writing in advance as to the alternatives selected. (B) In the event that Issuer defaults in its performance of any of the undertakings set out in paragraph VII(A) above: (1) Trustee is hereby authorized to withdraw funds from Issuer's Sinking Fund Account and to apply same in curing such default for the account of Issuer. Notwithstanding anything herein to the contrary, n the event there are no funds in Issuer's Sinking Fund Account or same are insufficient for such purpose, Trustee may in its sole discretion withdraw funds from any reserve account held in regard to the applicable facility or the Trustee may borrow for and/or advance into the Sinking Fund Account such amounts as are required for compliance, secure such loan with or be secured for such advance by the Reimbursement Lien, and repay such withdrawal, loan or advance, together with interest accruing thereon at the Reimbursement Lien rate, from future payments made into Issuer's Sinking Fund Account; provided, that Trustee shall never, under any circumstances whatsoever, be obligated to borrow for or advance funds to or for Issuer's account. (2) Issuer shall be obligated to immediately restore the proper balance of its Sinking Fund Account by prompt payment of the amount so withdrawn and expended. (3) The time, amount and nature of such withdrawal and expenditure by Trustee shall be fully established by a written notice from Trustee to Issuer of such actions by Trustee. The exercise of this right of withdrawal and expenditure by Trustee, however, shall not be considered or constitute a waiver of Trustee's cumulative right hereinafter set out to declare the entire indebtedness represented by such Bonds to be and become due and payable at once by reason of such default on the part of Issuer. (C) Issuer covenants that it will not merge or consolidate with or into any other organization or corporation unless Issuer is the surviving corporation or the surviving corporation assumes all obligations of Issuer under this Indenture. So long as any Bonds are outstanding, Issuer shall not merge or Trust Indenture Page 18 of 51 consolidate with any other organization without the prior written consent of Trustee. Issuer further covenants that it will not sell, lease or otherwise dispose of all or substantially all of its properties as an entirety. (D) Issuer covenants that so long as any Bonds are outstanding and unpaid to the extent of its financial dealings or transactions in relation to its business and the revenues derived therefrom, Issuer will keep or cause to be kept proper books of record and account. Such books shall at all times be open to the inspection of such accountants or other agencies as Trustee may from time to time designate. In addition, Issuer shall provide Trustee upon request with financial statements within ninety (90) days of the close of Issuer's fiscal year. VIII. DEFAULT AND REMEDIES (A) For purposes hereof, any one or more of the following by Issuer shall constitute an event of default: (1) Failure or refusal to pay when due the principal and/or interest on any of the Bonds; (2) Failure or refusal to timely pay into the Sinking Fund Account any installments required to pay any of the Bonds; (3) Failure or refusal to pay when due any taxes, assessments, insurance, claims, liens or encumbrances upon the Property, or to maintain the Property in good repair; or to cure the breach of any other covenant set forth in Article VII; (4) Failure or refusal to pay when due any loan or advance by or the fees and expenses of Trustee or of any depository or escrow agent; (5) Failure or refusal, upon any written request of Trustee, (i) to furnish Trustee with such insurance policies, financial reports and information concerning Issuer as may be reasonably required by Trustee, or (ii) to grant unto Trustee, its agents, accountants and attorneys access during normal business hours to Issuer's offices for the purpose of examining and, within reasonable limits, photocopying such records. Trust Indenture Page 19 of 51 (6) Making an assignment for the benefit of creditors; or should a receiver, liquidator, or trustee be appointed to assist in the payment of Issuer's debt; or should any petition for the bankruptcy, reorganization, or arrangement of Issuer be filed; or should Issuer be liquidated or dissolved, or its charter expire or be revoked; (B) Should an event of default occur, Issuer expressly hereby waives: demand and presentment for payment, notice of default and of intent to accelerate and of acceleration, and protest, notice of protest, presentment and notice of dishonor. Trustee shall be entitled to exercise the following remedies which shall be cumulative and not exclusive; and the waiver or forbearance by Trustee, whether mandatory or discretionary, as to any one or more events of default shall not under any circumstances be deemed or construed as: (i) a waiver or estoppel as to any subsequent event of default, (ii) impairing any rights or remedies consequent thereon, or (iii) establishing a course of dealing with Issuer: (1) Should the default continue for a period of thirty (30) days, Trustee may, or Trustee shall upon the receipt of (i) written request from the registered holders of twenty-five (25%) percent in principal amount of the Bonds then outstanding and unpaid and (ii) satisfactory proof of indemnity, declare to be immediately due and payable the principal balance of all unpaid Bonds together with all accrued interest thereon and all such loans, advances, taxes, assessments and insurance monies unpaid. This provision, however, is subject to the condition that if at any time after the principal of said Bonds shall have been so declared due and payable, and before any sale of the Property shall have been made, all defaults under this Trust Indenture have been cured and all expenses incurred by Trustee in any attempted correction of such default and acceleration of such indebtedness have been fully paid or reimbursed by Issuer, then Trustee shall waive such default and its consequences. (2) Should the default continue for a period of thirty (30) days, upon demand of Trustee, Issuer shall forthwith peaceably surrender the Property to Trustee, and it shall be lawful for Trustee by such officers, agents, servants and employees as it may appoint, (i) to take possession of the Property (with the relevant books, papers and accounts of Issuer), to lock-out Issuer's employees and agents and/or to hold, operate and manage the Property, any or all without having thereby committed trespass or violated any statute otherwise applicable (which claim(s) Issuer expressly hereby waives), (ii) to pay taxes, insurance and Trust Indenture Page 20 of 51 assessments thereon, (iii) to make such repairs, alterations, additions, and improvements thereto as Trustee in its sole discretion deems necessary; and (iv) to receive the rents, income, issues and profits therefrom and out of them to pay all proper costs and expenses of so taking, holding and managing such Property, including without limitation reasonable compensation to and expenses of Trustee, its agents, employees and counsel, for which Trustee shall have its Reimbursement Lien. The remainder of the monies so received by Trustee, if any, shall be utilized to pay interest and principal on the Bonds. Provided, however, that it shall not be obligatory upon Trustee to take such possession in the event of default. (3) Should the default continue for a period of thirty (30) days, Trustee may, or Trustee shall upon receipt of (i) written request from the registered holders of twenty-five (25%) percent in principal amount of the Bonds outstanding and unpaid and (ii) satisfactory proof of indemnity, proceed to sell the Property, in one or more parcels, as provided by law for foreclosure under the terms and provisions of the Lien. Anyone may bid and/or purchase at such sale, including Trustee or any Bondholder. (4) Should the default continue for a period of thirty (30) days, Trustee may, with or without entry upon the Property as hereinbefore provided, proceed by suit or suits at law or in equity or by any other appropriate remedy: (a) To recover all payments of principal, interest and other sums which are due but have not been paid; (b) To recover the entire principal sum of all Bonds then outstanding together with all accrued interest thereon (irrespective of whether the principal and/or interest of the Bonds shall then be due and payable as therein expressed and irrespective of whether Trustee shall have made any demand on Issuer for the payment of overdue principal and/or interest; (c) To enforce payment of the Bonds; and/or (d) To foreclose the Lien and to sell the Property under the judgment or decree of a court or courts of competent jurisdiction. It shall be obligatory upon Trustee to take action either by such proceedings or by the exercise of its powers with respect to entry or sale as it in its sole discretion may determine, upon being Trust Indenture Page 21 of 51 requested so to do in writing by the holders of twenty-five (25%) percent in principal amount of the Bonds then outstanding and unpaid and upon receipt of satisfactory indemnity. (5) Notwithstanding the above, in the event that the Issuer is in default in the payment of the principal and/or interest on one or more series of the Bonds, but not all of the series of the Bonds, or the Issuer is in default in the timely payment of the installments to the Sinking Fund Account required on one or more series of the Bonds, but not all of the series of the Bonds and should such default continue for a period of thirty (30) days, and as a result thereof, the Trustee has declared to be immediately due and payable the principal balance and accrued interest of only the unpaid Bonds in the Series in default and if the Issuer then fails to pay said amount, then the Trustee may proceed to foreclose the lien against the property applicable to the defaulted Series of Bonds and if there remains a deficiency in the payment of the Series of Bonds in default, then the Trustee may declare to be immediately due and payable the principal balance due and accrued interest of any or all of the unpaid Bonds of any or all of the remaining Series issued by the Issuer pursuant to this Trust Indenture and any supplement hereto and if the Issuer then fails to pay said amount, the Trustee then may proceed to exercise any remedy provided for herein or in the mortgage securing the Bonds, including a foreclosure of the lien securing the then accelerated and unpaid Bonds. The rights contained herein, however, shall not prohibit the Trustee from releasing any lien against any property upon the full payment of the series of bonds secured by said property. (6) Trustee may in good faith, if it deems such to be in the best collective interest of the Bondholders, agree with Issuer upon a temporarily reduced level of performance and/or payments into the Sinking Fund Account, during which time Trustee will forbear from resorting to other remedies even though Issuer continues in formal default; provided that such forbearance agreement shall immediately be terminated upon Trustee's receipt of written request from the registered holders of twenty-five percent (25%) in principal amount of the Bonds then outstanding and unpaid directing Trustee to resort to any other remedy. (7) Upon a filing of a bill in equity or other commencement of judicial proceedings to enforce the rights of Trustee on behalf of the Bondholders, Trustee, as a matter of right and without regard to the sufficiency of the security, shall be entitled at its sole election to the appointment (immediately and without notice to Issuer, which is hereby waived) of a receiver of Trust Indenture Page 22 of 51 the Property and of the income, rents, issues and profits thereof pending such proceedings, with such powers as may be required to protect the interest of the Bondholders as the court making such appointment shall confer. (8) In case of the pendency of any receivership, insolvency, liquidation, bankruptcy, reorganization, arrangement, adjustment, composition or other judicial proceeding relative to Issuer, or of any other obligor upon the Bonds or the Property or of such other obligor or their creditors, Trustee (irrespective of whether the principal and/or interest of the Bonds shall then be due and payable as therein expressed or by declaration or otherwise, and irrespective of whether Trustee shall have made any demand on Issuer for the payment of overdue principal and/or interest) shall be entitled and empowered, by intervention in such proceeding or otherwise: (i) to represent the interests of the Bondholders as a class in any such judicial proceedings; (ii) to file and prove a claim for the whole amount of principal and interest owing and unpaid in respect of the Bonds and to file such other papers or documents as may be necessary or advisable in order to have the claims of Trustee (including any claim for the reasonable compensation, expenses, disbursements and advances of Trustee, its agents, employees and counsel) and of the Bondholders allowed in such judicial proceedings; and (iii) to collect and receive monies or other property payable or deliverable on any such claims and to distribute the same. Any receiver, assignee, trustee, liquidator, sequestrator (or other similar official) in any such judicial proceeding is hereby authorized by each Bondholder to make such payments to Trustee, and in the event that Trustee shall consent to the making of such payments directly to the Bondholders, to pay to Trustee any amount due to it for the reasonable compensation, expenses, disbursements and advances due Trustee, its agents, employees and counsel, and any other amount due Trustee hereunder. Nothing herein contained shall be deemed to authorize Trustee to authorize or consent to or accept or adopt on behalf of any Bondholder any plan of reorganization, arrangement, adjustment or compensation affecting the Bonds or the rights of any Bondholder thereof, or to authorize Trustee to vote in respect of the claim of any Bondholder in any such proceeding. (9) In the event Trustee determines in good faith that Issuer and any other actual or potential obligor(s) upon the Bonds (e.g., obligor's personnel and members of its governing body in the event of defalcation, fraud or other malfeasance) have no other material assets worth more than the costs and expenses of obtaining and executing upon any judgment which might result from a foreclosure sale of the Property and/or a suit for damages, each Trust Indenture Page 23 of 51 Bondholder hereby expressly authorizes Trustee to bid on the Property at any foreclosure sale the total amount of indebtedness then secured by the Lien, in full and complete discharge of the liability of Issuer and any such obligor(s) upon the Bonds; and Trustee shall thereby be relieved of any duty whatsoever to pursue a deficiency against Issuer or any person. This clause shall under no circumstances be construed as limiting the liability of Issuer and/or its principals or sureties to the collateral or otherwise waiving personal recourse against such persons should Trustee elect to pursue same. (C) It is the intention of Issuer, the Bondholders and Trustee to create hereby an express trust as defined by the Arizona Trust Statutes and to which said Arizona Trust Statutes are applicable as they now exists or may hereafter be amended; and to that end legal ownership of the collective rights and choses in action created hereunder is vested in Trustee for the equitable benefit of the Bondholders, including the rights to repayment and to proceed against any and all collateral securing same and any and all persons liable therefor, of which the bonds are only an indicia of each individual Bondholder's equitable ownership. All rights of action and claims under this Trust Indenture or the Bonds may be prosecuted and enforced by Trustee as legal owner thereof without the possession of any of the Bonds or the production thereof in any proceeding relating thereto; and any such proceeding instituted by Trustee shall be brought in its own name as Trustee of this express trust. (D) After the occurrence of any event of default hereunder of which Trustee has knowledge or is required to notice, Trustee may, but shall not be obligated to, transmit by mail to all Bondholders, as their names and addresses appear in the Bond register, notice of such default and Trustee's intentions with respect thereto. Trustee shall be protected in withholding such notice so long as Trustee in good faith determines that the withholding of such notice is in the best collective interest of the Bondholders. (E) No bondholder individually or as part of group may institute any proceeding (judicial or otherwise) with respect to the Bonds and/or the Indenture or seek any remedy thereunder, unless: (i) such Bondholder(s) has notified Trustee of an event of default continuing thirty (30) days or more, (ii) the Bondholders of at least twenty-five (25%) percent in principal amount of the Bonds then outstanding and unpaid have given written notice to Trustee to institute proceedings in respect of such event of default, (iii) such Bondholder in subparagraph (i) and/or Trust Indenture Page 24 of 51 Bondholders in subparagraph (ii) have offered in writing and demonstrated to Trustee's satisfaction the ability to indemnify Trustee against the costs Trustee may incur in complying with such request, and (iv) during the sixty (60) day period following Trustee's receipt of the notice in subparagraphs (i) - (iii) , Trustee fails to institute a proceeding or take action as permitted hereunder in respect to such event of default. (F) If, at any Bondholder payment date, Issuer has failed to make the sinking fund installments required to pay all of the principal and/or interest maturing on said date, Trustee shall have the right, among other remedies, to authorize and direct the depository bank to stop payment on any and all checks therefor which may have been issued by Trustee to the Bondholders and which are outstanding at such time even though the funds which are on deposit are sufficient to pay some of those checks. When Issuer has deposited with Trustee sums sufficient to permit payment in full of all such Bondholders, Trustee's compensation and any reimbursement then due, and any charges of the depository bank, Trustee may revoke its stop payment instructions and authorize said bank to proceed to honor any checks drawn upon such Sinking Fund Account. (G) Notwithstanding any provisions) of the Bonds to the contrary, should Issuer fail for any reason to timely pay the principal and/or interest upon the Bonds at the time such payment becomes due, and should Trustee elect not to loan or advance the requisite funds and secure same with its Reimbursement Lien, Issuer shall pay as a penalty for the benefit of the Bondholders additional interest upon the past due principal and/or interest of said Bonds at the rate, subject to Article XVIII, equal to two (2%) percent per annum in excess of the highest rate of interest payable by said Issuer upon the Bonds from and after the date that said indebtedness becomes due and payable until such time as said indebtedness is paid in full; provided that Trustee may waive such penalty interest for additional consideration or if Trustee otherwise determines in its sole discretion that to do so is in the best collective interest of the Bondholders. (H) Trustee shall have no duty, obligation or liability under any circumstances whatsoever to pay any principal and/or interest upon the Bonds issued hereunder nor to correct or cure any default. Should Trustee, however, for any reason pay any principal and/or interest upon said Bonds, whether intentionally or inadvertently (excluding only overpayment), or in its sole discretion incur any expenses, including without limitation attorney fees and other legal costs, in attempting to correct or Trust Indenture Page 25 of 51 cure such default or collect any delinquent payment or foreclose upon the Lien, Trustee shall have its Reimbursement Lien to secure the repayment of such sum advanced or expended to be repayable by Issuer and otherwise from Issuer's Sinking Fund Account and, to the extent then necessary, from Issuer's Bond Proceeds Account, anything to the contrary herein notwithstanding. In the event of an overpayment to a Bondholder(s), Trustee shall look to the Bondholder(s) and not Issuer for repayment, but shall have the right of offset against other funds at any time held for distribution to such individual overpaid Bondholder(s). (I) All moneys received by Trustee pursuant to any right given or action taken under the provisions of this Article in respect of an event of default shall, after payment of the costs and expenses of the proceedings resulting in the collection of such moneys and of the fees, expenses, liabilities and advances incurred or made by Trustee or at its discretion, be deposited into the Sinking Fund Account; and all moneys in the Sinking Fund Account (other than moneys for the payment of Bonds which have matured or otherwise become payable prior to such event of default, which moneys shall be applied to such payment) shall during the continuance of an event of default be applied as follows: (1) Unless the principal of all the bonds shall have become or shall have been declared due and payable, all such moneys shall be applied: FIRST -- To the payment in full of all series of interest payments then due on the Bonds, in order of maturity, and if the amount available shall not be sufficient to pay in full the eligible series having the most recent maturity, then to the ratable payment of such series, without other discrimination or privilege; and SECOND -- To the payment in full of all series of principal payments then due on the Bonds, in order of maturity, and if the amount available shall not be sufficient to pay in full the latest series having the most recent maturity, then to the ratable payment of such series, without other discrimination or privilege. (2) If the principal of all the Bonds shall have become due or shall have been declared due and payable, all such Trust Indenture Page 26 of 51 moneys shall be applied to the payment of the principal and interest then accrued and unpaid upon all unpaid Bonds, without preference or priority of principal over interest or of interest over principal, or of any series or maturity over any other series or maturity, or of any bond over any other bond, whether simple or compound, ratably, according to the combined amount respectively due thereon for both principal and interest, to the persons entitled thereto without any discrimination or privilege. Whenever moneys are to be applied pursuant to the provisions of this paragraph (I), such moneys may be applied at such times and from time to time, as Trustee may determine in its sole discretion, having due regard to the amount of such moneys available for such application and the likelihood of additional moneys becoming available for such application in the future. Whenever Trustee so applies funds, it shall fix the date (which shall be a principal and/or interest payment date unless Trustee in its sole discretion deems another date more suitable) upon which such application is to be made, and upon such date interest on the amounts of principal and interest to be paid on such dates shall cease to accrue. Trustee may give such notice as it deems appropriate of the deposit with it of any such moneys and of the fixing of any such date, and Trustee shall not be required to make payment to the holder of any unpaid Bond until such Bond shall be presented to Trustee for appropriate endorsement or cancellation. Notwithstanding anything herein to the contrary, in the event that a Bondholder paydate distribution shall not have been made because of insufficient funds in Issuer's Sinking Fund Account, should funds thereafter accumulate in the Sinking Fund Account sufficient to meet such prior Bondholder payment in whole or in part, Trustee may nonetheless continue to hold such funds until it is able to make a good faith determination, based in its sole discretion upon its negotiations with Issuer and its perception of Issuer's ability to meet Issuer's future obligations hereunder:(i) to disburse such funds pursuant to subparagraph (I)(1), or (ii) to accelerate the entire indebtedness effective as of either the date of the event of default or the Bondholder payment date, as Trustee elects, and later disburse such funds along with other proceeds pursuant to subparagraph (I)(2). Trust Indenture Page 27 of 51 IX. PREPAYMENT PRIVILEGES (A) If Issuer is not in default and upon thirty (30) days written notice from the Issuer to the Trustee, accompanied by payment in full of all moneys required to effect the redemption, the Bonds shall be subject to redemption at any time in whole or in part (in such manner as the Trustee deems appropriate) at the redemption price of 100% of the principal amount redeemed plus accrued interest to the redemption date. Provided that the Issuer has made available moneys to effect the redemption, the Trustee shall give notice to the bondholders by first class mail at least fifteen (15) days prior to the redemption date. After the redemption date, no interest shall accrue on the Bonds. The Trustee shall pay the principal and accrued interest on the Bonds to the holders thereof as soon as practical, such payment to be made by check mailed by first class mail. All expenses of redemption shall be paid by the Issuer. (B) Except as may be otherwise provided in the prospectus, offering circular and/or Bonds themselves, there shall be no penalty for prepayment of all or any portion of the Bonds, but Issuer may be charged a reasonable fee therefor in addition to and notwithstanding those fees set forth in Article XX. (C) As to any Bonds called for prepayment which are not presented to Trustee for payment, Trustee shall set aside and retain in a separate account a sum equal to the unpaid principal and accrued interest thereof. (1) No interest shall accrue or be payable from or after such payment date either upon such called Bonds or such funds in said separate account. (2) After three (3) years from such separation of funds, any separated funds remaining unclaimed shall be escheated and delivered by Trustee to the State of Arizona; such delivery shall operate as a complete discharge of Trustee as between the Bondholders and Issuer; and Issuer hereby indemnifies and agrees to hold Trustee harmless from any and all subsequent claims therefor or resulting therefrom asserted by any Bondholder(s) or governmental agency or agencies, including all costs of maintaining a legal defense. (D) Should Issuer deposit funds for the prepayment of outstanding bonds in an amount which Trustee ultimately determines Trust Indenture Page 28 of 51 to be in excess of the funds actually required to effect said prepayment, then Trustee, immediately upon discovering this fact, shall remit such excess payment to Issuer or to such other persons or firms to whom Issuer is obligated with respect thereto. Should Issuer deposit funds for such prepayment which are insufficient to accomplish same, Issuer shall immediately remit to Trustee such additional funds as may be required to complete the prepayment, even if such underpayment was the result of the reliance by Issuer on prepayment calculations furnished it by Trustee. In the event that Issuer does not promptly remit such additional funds, then Trustee may, at its option, stop payment on the checks given by it to pay the principal and interest upon said Bonds which have not been paid, or it may borrow and/or advance such additional funds as will permit said Bonds to be prepaid. In the latter event Issuer agrees to promptly reimburse Trustee, and Trustee shall have its Reimbursement Lien therefor. (E) Trustee is authorized to execute a release of the Lien in the event of complete prepayment of all Bonds issued pursuant to this Trust Indenture. Such release will be prepared by or on behalf of Issuer at its expense and submitted to Trustee for execution. X. REPLACEMENT OF BONDS (A) In the event any Bond shall become mutilated or defaced, Registrar in its discretion may, upon presentment and cancellation thereof, issue a new Bond of like kind, maturity and date in exchange and in substitution therefor. (B) In the event any Bond is destroyed, lost or stolen, Registrar in its discretion may issue, in lieu of and in substitution therefor, a new Bond of like kind, maturity and date upon the registered holder of such Bond (i) filing with Registrar evidence satisfactory to it that he is the true owner of same and that such Bond has in fact been destroyed, lost or stolen; and (ii) indemnifying through a reputable surety and holding harmless both Issuer and Registrar and Paying Agent against any loss resulting, directly or indirectly, from issuance of the substitute Bond. (C) All Bonds issued under this Trust Indenture shall be held and owned upon the express condition that the provisions of this Article are exclusive in respect to the replacement and payment of mutilated, defaced, destroyed, lost or stolen Bonds, and shall preclude any and all other rights and remedies, Trust Indenture Page 29 of 51 notwithstanding any law or statute now existing or hereafter enacted to the contrary respecting such replacement or payment of bonds, notes, negotiable instruments or other securities without their surrender. XI. ADDITIONAL PARITY BONDS AND OTHER BORROWINGS (A) Subject to the following, Issuer reserves the right to issue additional parity bonds or to incur additional debt obligations (hereinafter collectively called "Additional Bonds" even though such debt obligations are not in bond form) for any lawful purpose, including without limitation refunding or prepaying any outstanding Bonds, construction of improvements and/or the acquisition of additional real property. Such Additional Bonds, along with the original Bonds issued under this Indenture, shall be deemed "Bonds" for all purposes as defined in this Indenture unless the context otherwise requires. Once issued and delivered, such Additional Bonds and the interest thereon shall be payable from the sources described in this Indenture and secured by the Indenture and the Lien to the same extent and priority as, and on a parity with, all then Outstanding Bonds of the applicable original series, regardless of the date and order of recording of the deed(s) of trust or mortgage(s), as if such Additional Bonds had been part of the original offering. Such Additional Bonds may be made or issued in one or more obligations, series or issues, in various principal amounts, bearing interest, maturing, and having such redemption features and other provisions as may be provided in any supplemental indenture or other instrument authorizing their making or issuance. As to such Additional Bonds, whether a debt obligation such as a note or a series or a separate issue of bonds, and whether governed by a note or supplement to the Indenture or a separate indenture, a default as to any one note, bond, series or issue shall constitute a default as to any and all other notes, bonds, series and/or issues totally or partially secured by such a parity lien on the same collateral. (1) Provided, no such note or series or issue of Additional Bonds shall be made or issued unless: (a) Any default or event which would result in default by Issuer under the Indenture has been first cured; (b) Any real property acquired from the proceeds of Additional Bonds shall be subjected to and become a part Trust Indenture Page 30 of 51 of the applicable lien and any applicable mortgage or deed of trust upon the Property securing the series of bonds related to the offering of Additional Bonds, as evidenced at Trustee's election and at Issuer's sole expense by an attorney's title opinion or a mortgagee's title policy in favor of Trustee reflecting no liens or encumbrances prior to the Lien other than as agreed upon in writing between Issuer and Trustee; and (c) The ratio of the total Outstanding series of Bonds plus the Additional Bonds related thereto shall not exceed one hundred percent (100%) of the capitalized cost of the applicable Property, inclusive of any new construction or improvements thereon, to secure the payment of the Bonds. (2) Further provided that for a period of three years from the effective date of the offering, MMR Investment Bankers, Inc. shall have a first right of refusal to provide investment banking services for any additional borrowings of Issuer relative to the subject property or any refinancing of this indebtedness. (B)Furthermore, notwithstanding anything herein to the contrary, Issuer has the right to obtain interim construction loans in order to purchase/or build the five projects referred to herein and any such interim construction loans shall be secured in parity with lien securing the applicable series of bonds. In such event, the Trustee is authorized to execute and deliver such instruments and documents as is necessary to effect in any such interim construction lender a lien of equal parity to the lien securing the bonds. XII SALE OF PROPERTY Should Issuer desire to convey all or any portion of the Property, Trustee is authorized in its sole discretion to execute a release or partial release thereof, provided that: (A) Any consideration received other than cash for such conveyance must be equal to or greater than the fair market value of the property conveyed at the time of sale and becomes part of the Lien, as evidenced at Trustee's election and at Issuer's sole expense by an attorney's title opinion or a mortgagee's title policy in favor of Trustee reflecting no liens or encumbrances Trust Indenture Page 31 of 51 prior to the Lien other than as agreed upon in writing between Issuer and Trustee, or is applied as in (B); (B) Any cash proceeds derived from such conveyance shall be delivered to Trustee to be applied either: (1) To call and prepay outstanding Bonds in the same manner as partial prepayments are to be applied under the provisions of Article IX; or (2) Paid into a trust or escrow account in a depository designated by Trustee, to be applied: (a) To purchase additional property subjected to and becoming a part of the Lien and any mortgage or deed of trust upon the Property, as evidenced at Trustee's election and at Issuer's sole expense by an attorney's title opinion or a mortgagee's title policy in favor of Trustee reflecting no liens or encumbrances prior to the Lien other than as agreed upon in writing between Issuer and Trustee; (b) To construct additional improvements on the property remaining under the Lien; and/or (c) To reduce any other lien indebtedness existing against the Property. Issuer, subject to the approval of Trustee, has the right to select from the foregoing alternatives, and shall notify Trustee in writing and in advance which alternatives it has selected and the respective amounts. (C) The value of the remaining property covered by the Lien is sufficient, in the opinion of Trustee, to secure the outstanding Bonds after application of the sale proceeds as in (B) above. Trustee shall not be liable for mistakes of judgment made in good faith in reliance upon any appraisals or other information furnished which forms a reasonable basis for Trustee's decision. XIII. SUBSTITUTION OF COLLATERAL Should Issuer desire to substitute the Property, in whole or in part, Trustee is authorized in its sole discretion to execute Trust Indenture Page 32 of 51 such releases, partial releases and other legal documents as may be necessary to do so, provided that: (A) The fair market value of the substituted property shall be equal to or greater than the fair market value of the Property released from the Lien at the time of substitution; and (B) The Property substituted shall be subjected to and become a part of the Lien and any mortgage or deed of trust upon the Property, as evidenced at Trustee's election and at Issuer's sole expense by an attorney's title opinion or a mortgagee's title policy in favor of Trustee reflecting no liens or encumbrances prior to the Lien other than as agreed upon in writing between Issuer and Trustee. Trustee shall not be liable for mistakes of judgment made in good faith in reliance upon any appraisals or other information furnished which forms a reasonable basis for Trustee's decision. XIV. CONDEMNATION OF PROPERTY (A) Should any governmental agency undertake to acquire by eminent domain all of the property comprising a project, Trustee is authorized to join with Issuer in negotiating with such governmental agency, and to execute any and all instruments necessary or required to convey said Property to such governmental agency, without requiring formal condemnation; provided, that the sums received for such condemnation shall be at least sufficient to pay the principal balance of the Bonds and accrued interest to date of pay-off. Trustee is not authorized to agree to any non-judicial total condemnation which will not provide funds sufficient to pay all of the Bonds then outstanding, with accrued interest thereon. (B) Should any governmental agency undertake to acquire by eminent domain a portion of the property comprising a project, Trustee is authorized to join with Issuer in negotiating with such governmental agency and to execute such documents as may be necessary or required to transfer title of such portion to such governmental agency without requiring formal condemnation; provided, that any cash proceeds derived from such acquisition shall be delivered to Trustee to be applied either: (1) To call and prepay outstanding Bonds in the same manner as partial prepayments are to be applied under the provisions of paragraph IX(B); or Trust Indenture Page 33 of 51 (2) To be paid into a trust account maintained by Trustee to be applied: (a) For the purchase of additional property which shall be subjected to and become a part of the Lien and any mortgage or deed of trust upon the Property, as evidenced at Trustee's election and at Issuer's sole expense by an attorney's title opinion or a mortgagee's title policy in favor of Trustee reflecting no liens or encumbrances prior to the Lien other than as agreed upon in writing between Issuer and Trustee; (b) To construct additional improvements on the property remaining under the Lien; and/or (c) To reduce any other lien indebtedness existing against the Property. Issuer, subject to the approval of Trustee, has the right to select which of the foregoing alternatives it desires to exercise, and shall notify Trustee in writing and in advance which alternative is selected by Issuer. XV. DUTIES OF TRUSTEE, PAYING AGENT AND REGISTRAR The following services will be provided for the benefit of Issuer and the Bondholders: (A) Trustee shall: (1) Maintain the legal file containing Issuer's application for financing, resolution for financing, appraisal, Issuer's organizational documents, trust indenture, escrow instructions and agreement (if applicable), commitment(s) for title insurance, policy(s) of title insurance or attorney's title opinion, opinion(s) of counsel (if applicable), current fire and extended coverage insurance policy(s), builder's risk insurance policy(s) (if applicable), and any other written agreements that may be entered into between Issuer and Trustee simultaneously with or after execution hereof. (2) Hold for the benefit of the Bondholders their legal rights to repayment and in and under the Lien; and in the event of default by Issuer, Trustee may (or shall when required) pursue in its name on their collective behalf all lawful remedies. Trust Indenture Page 34 of 51 (3) Provide Issuer an amortization schedule(s) for the payment of the Bonds. If electronic banking is available, Trustee will provide Issuer instructions for its use. If electronic banking is not available, Trustee will provide Issuer a sinking fund installment book(s). (4) Monitor all sinking fund installments and if Issuer is in arrears, give written and/or oral notification of the delinquency. (5) Disburse all Bond proceeds to Issuer at such time as all the legal requirements have been met. (6) Endorse insurance settlement checks, if any, for damages to the insured Property when satisfied that the proceeds will be used as required herein. (7) Execute a release of the Lien when all Bonds have been paid or canceled under the terms and provisions hereof. (B) Paying Agent shall: (1) Record all proceeds received from the sale of Bonds. (2) Provide Issuer after the final project disbursement from the Bond Proceeds Account with an accounting showing the deposits to and charges against the Bond Proceeds Account. (3) Receive and record weekly or monthly sinking fund installments from Issuer. (4) Provide Issuer semi-annual statements showing the deposits to and charges against the Sinking Fund Account. (5) Prepare and mail as required interest checks to the registered owners of simple-interest Bonds. (6) Prepare and mail principal checks to the registered owners of simple-interest Bonds at maturity. (7) Prepare and mail principal and interest checks to the registered owners of compound-interest Bonds at maturity. Trust Indenture Page 35 of 51 (8) Provide Issuer with information and forms for notification of the Bond owners in the event of a prepayment of all or a portion of the outstanding Bonds. (9) Prepare and mail principal and interest checks to the registered Bond owners of Bonds that are called for prepayment prior to maturity (10) Prepare and mail Internal Revenue Service Form 1099's to inform each registered owner of the Bonds of the respective amount of interest earned and required to be reported by Trustee to the Internal Revenue Service for that taxable year (which may be different figures from those applicable to and reportable for income tax purposes by individual Bondholders). (11) Prepare and forward to applicable taxing authorities all required information pertaining to the interest income of Bondholders. (C)Registrar shall: (1) Upon receipt by the Trustee of all documentation which is prerequisite, print, issue, authenticate and mail all Bonds to the registered owners. (2) Record and reissue Bonds subsequently transferred to a new owner. (3) Maintain a permanent Bond register which reflects the serial or other identification number, maturity date, face value, interest rate, name and address of owner, date bought, and price reported paid (if any) for each Bond issued. (4) Reissue mutilated, defaced, destroyed, lost and stolen Bonds if prior to maturity, and if matured, direct the payment of the principal and accrued interest to the registered Bond owners, subject to all terms and conditions hereof. XVI. LIMITATION OF LIABILITY Trustee, Paying Agent and Registrar (for purposes of this Article jointly and severally called "Trustee") accept their respective duties and responsibilities as set forth under the terms of this Trust Indenture upon the express conditions (to which Issuer and the Bondholders by the acceptance of the Bonds agree) Trust Indenture Page 36 of 51 that Trustee shall not be responsible for any act or omission hereunder unless due to its own gross negligence or willful default; and no implied covenants, obligations or warranties whatsoever shall be read into this debenture against Trustee. Without limiting the generality of the foregoing: (A) Trustee shall not be responsible or liable for any recitals, statements or representations whatsoever in any prospectus or offering circular used in connection with the sale of the Bonds. Trustee makes no representation or warranty whatsoever, express or implied, (i) that the terms, conditions or provisions of this Trust Indenture are, will remain or will become in compliance with any state or federal statute or regulations applicable or relating to this Indenture or the transactions contemplated herein or related hereto, or (ii) regarding any individual Bondholder's reportable amount of income from the Bonds, his tax liability thereon or the tax consequences of any transaction relating to the Bonds, their repayment and/or the collection thereof pursuant to Issuer's default whether through a forbearance agreement, a court-ordered or bondholder-approved restructure of the debt, or foreclosure and sale of the Property. (B) Trustee shall have no liability for any losses resulting from its reliance upon any instrument, writing or communication believed by it in good faith to be genuine and properly authorized, nor for forgery of any bond or unauthorized delivery by Issuer of any Bond. Trustee shall be under no duty to investigate or inquire into any statements contained or matters referred to in any such item. (C) Trustee shall not be liable upon the Bonds for the payment of the principal and/or interest due thereon. (D) Notwithstanding any applicable statutes or regulations relating to registered Bonds, Trustee shall have no duty to recognize any person as a Bondholder unless such person is shown as the registered Bondholder on the books and records of Trustee. (E) Trustee may accept as correct any written statement made to it by the person or persons who sign this Trust Indenture for and on behalf of Issuer or by such other representatives of Issuer as may be from time to time designated by Issuer to act for it, and Trustee will be fully protected in acting upon and in conformity with such opinion. Trust Indenture Page 37 of 51 (F) Trustee may request and act upon the opinion or advice of its counsel. If Trustee acts on an opinion of counsel concerning matters relating hereto and its duties hereunder, it shall be relieved of all liability in connection with the matters referenced herein and its duties hereunder when acting in conformity therewith. (G) If an event of default has occurred and is continuing, Trustee shall, in exercising its rights and powers hereunder, use the same degree of care and skill as a prudent person would exercise or use under the circumstances in the conduct of his own affairs. (H) Trustee shall not be bound to ascertain or inquire into the performance or observances of any covenants, conditions, or agreements of Issuer hereunder. However, Trustee may require of Issuer full information and advice about such performance or observance. (I) Trustee need not consider the ability to respond in damages when selecting or approving any person or entity to render opinions, advice and/or services pertaining hereto. (J) Trustee shall not be responsible for recording or re-recording or filing or re-filing this Indenture, for the validity of the execution by Issuer of this Indenture, for the sufficiency or maintenance of the security for the Bonds, or for the validity or enforceability of this Indenture, the Lien or any security rights or remedies granted to Trustee or the Bondholders hereunder or in any other Bond document. Trustee shall have no obligation to perform any of the duties of Issuer under the Indenture. (K) Moneys and securities held by Trustee in trust need not be segregated from other assets except to the extent required by law or this Indenture. Trustee shall not be liable for interest on any moneys received by it hereunder. Trustee shall not be accountable for the use or application of funds from Issuer's Bonds Proceeds Account after same have been disbursed in accordance herewith. (L) Notwithstanding anything to the contrary, if in the sole judgment of Trustee any action it desires or is requested or demanded to take hereunder may tend to involve liability, loss or expense, Trustee shall not be obligated to so act unless and until it is furnished with indemnity satisfactory to it. Trust Indenture Page 38 of 51 (M) The permissive right of Trustee to do certain things, whether express or implied, shall not be construed as a duty or obligation to take such action. (N) Trustee shall not be required to give any bond or security in respect hereof. (0) Upon delivery of an executed release of the Lien to Issuer pursuant to Article IX(G) or upon restructure of the debt or foreclosure and final distribution of the net proceeds therefrom to the Bondholders, Trustee shall have thereby discharged in full all its liabilities and obligations hereunder, and this trust shall terminate along with any further duties, obligations or liabilities of Trustee hereunder. (P) Should liability for any of the foregoing nonetheless be unsuccessfully judicially asserted against Trustee, it shall be reimbursed and have the Reimbursement Lien for costs and expenses incurred in defending itself, including without limitation attorney, stenographer and witness fees and travel expense and court costs. (Q) By purchasing and accepting delivery of the Bonds, each Bondholder shall hold same subject to all terms of this Trust Indenture. XVII. ANCILLARY/CO-TRUSTEE; RESIGNATION AND REMOVAL; SUCCESSOR TRUSTEES (A) Trustee may in its sole discretion appoint an additional individual or institution as a Co-Trustee or a separate ancillary Trustee hereunder. Trustee will so notify Issuer of such appointment, as well as any applicable regulatory authority. Each power or right vested in Trustee hereunder shall be exercisable by and vest in such Co-Trustee or separate ancillary Trustee to the extent necessary or desirable to enable it to exercise the powers and rights necessary to carry out the purposes of this Indenture. Provided, such Co-Trustee or ancillary Trustee may not be Issuer, Broker nor an affiliate of either. (B) No resignation or removal of the Trustee and no appointment of a successor Trustee pursuant to this Article shall become effective until the acceptance of such appointment in writing by such successor Trustee as hereinafter provided. Trust Indenture Page 39 of 51 (1) Subject to the foregoing, the Trustee may, at its election, resign at any time by either: (a) Giving to Issuer written notice thereof; or (b) Petitioning a court of competent jurisdiction for both (i) the permission to resign and (ii) the appointment of a qualified successor trustee. Provided: (i) if the Trustee shall elect to resign while Issuer is in default hereunder, the Trustee must so petition a court as set forth in (b) above, as Issuer may not in such event select the successor Trustee; and provided further, no successor Trustee shall in any event be the Broker or Issuer, or a subsidiary, affiliate or under the control of either; and (ii) every successor Trustee appointed or succeeding pursuant to any of the foregoing provisions shall be either a trust company or a national or state bank with trust powers, in good standing and having combined capital, surplus and undivided profits of at least $500,000, or a corporation, individuals or mixture approved by a court of competent jurisdiction. (2) If at any time (i) the Trustee shall be adjudged a bankrupt, (ii) a receiver shall be appointed therefor by a court of competent jurisdiction, or (iii) an authorized regulatory agency shall take charge or control thereof, Issuer may, if not in default hereunder, appoint a qualified successor Trustee. (3) If at any time the Trustee shall become incapable of acting or ineligible to act under any state or federal law or this Indenture, it shall tender its resignation as in subparagraph (2) above, failing which Issuer may, if not in default, petition a court of competent jurisdiction for both (i) the removal of the Trustee and (ii) the appointment of a qualified successor Trustee. (4) In the event Issuer shall be disqualified by its default from exercising its rights under subparagraphs (B)(2) or (3) above, or shall fail to exercise such rights within thirty (30) days from occurrence of the event giving rise to such rights, such rights shall devolve upon: (a) Under subparagraph (B)(2), such bankruptcy Trustee, receiver or government agency; and Trust Indenture Page 40 of 51 (b) Under subparagraph (B)(3), any Bondholder as set forth in subparagraph (5) below. (5) If, in a proper case, a successor Trustee has not been appointed pursuant to the foregoing provisions within six months after the resignation or removal of Trustee, any Bondholder may apply to any District Court in and for Maricopa County, Arizona or to any succeeding court of competent jurisdiction to appoint a successor Trustee. Such Court may thereupon, after such notice, if any, as it may be deem proper, appoint a successor Trustee. (6) Any Trustee may be removed at any time by an instrument appointing a successor Trustee executed by the holders of not less than a majority in aggregate principal amount of all Bonds then outstanding. (7) All provisions of this Article which refer to the "Trustee" shall likewise always include the positions of Paying Agent and Bond Registrar, except that the Trustee, acting voluntarily pursuant to subparagraph (2) above, may resign as Trustee while retaining its appointments and continuing as Paying Agent and/or Bond Registrar; or vice versa. (8) Issuer shall give notice or cause notice to be given of each resignation and each removal of the Trustee and each appointment of a successor Trustee, Paying Agent and/or Registrar by mailing written notice of such event by first-class mail, postage prepaid, to the Registered Holders of Bonds as their names and addresses appear in the Bond Register. Each notice shall include the name of the successor Trustee, Paying Agent and/or Registrar, as the case may be, and its principal address. (9) Should Trustee change its name, or voluntarily merge or consolidate with or its business be taken over by another corporation chartered to exercise trust powers and legally competent to perform such duties, then such other corporation shall succeed to all of the powers and duties of Trustee as herein set out, without any further act. (10) Any successor Trustee appointed hereunder shall execute and deliver to Issuer or the Court, whichever is applicable, an instrument accepting such appointment. Thereupon such successor Trustee, without any further act, shall become duly vested with all of the trust estate and the rights, powers, trusts, duties and obligations of its predecessor. Trust Indenture Page 41 of 51 (11) The name of any duly appointed and qualified successor trustee shall be substituted wherever "Trustee" is used throughout this Indenture. XVIII. ILLEGAL INTEREST It is the intention of the parties hereto to comply With applicable usury laws; notwithstanding any provisions herein to the contrary or in any of the documents securing payment or otherwise relating to the Bonds, in no event shall this Trust Indenture, including provisions relating to penalty interest in the event of default or to the Reimbursement Lien rate, the Bonds or such documents require the payment or permit the collection of interest in excess of the maximum amount permitted by such laws. (A) If any such excess of interest is contracted for, charged or received under the Bonds or under any of the instruments securing payment thereof or otherwise relating thereto, including this Trust Indenture or in the event the maturity of the indebtedness evidenced by the Bonds is accelerated in whole or in part, or in the event that all or part of the principal or interest of the Bonds shall be prepaid, so that under any of such circumstances the amount of interest contracted for, charged or received therefrom or under any of the instruments securing payment thereof or otherwise relating thereto, on the amount of principal actually outstanding from time to time under the Bonds, shall exceed the maximum amount of interest permitted by applicable usury laws, then in any such event: (i) the provisions of this Article shall govern and control; (ii) neither Issuer nor any other person or entity now or hereafter liable for the payment of the Bonds shall be obligated to pay the amount of such interest to the extent that it is in excess of the maximum amount of interest permitted by applicable usury laws; (iii) any such excess which may have been charged and/or collected shall be either applied as of the date charged or collected as a credit against the then unpaid principal amount of the Bonds or refunded to Issuer, at Issuer's option, and (iv) the effective rate of interest shall be automatically, immediately and retroactively reduced to the maximum lawful contract rate allowed under applicable usury laws as now or hereafter construed by the courts having jurisdiction thereof. (B) Without limiting the foregoing, all calculations of the rate of interest contracted for, charged upon or received from the Bonds or under such other documents, which calculations are made for the purpose of determining whether such rate exceeds the Trust Indenture Page 42 of 51 maximum lawful contract rate, shall be made, to the extent permitted by applicable laws, by amortizing, prorating, allocating and spreading in equal parts during the period of the full stated term of the respective indebtedness, all interest at any time contracted for, charged or received by Trustee from Issuer or otherwise. XIX. RELEASE OF THE LIEN When Issuer has duly made all of the payments required to be made under the provisions of this Trust Indenture and/or the offering circular to retire a Series of Bonds, Trustee is authorized to execute a release of the lien securing the series of bonds so retired even if there are checks issued for the payment of the principal and/or interest upon the Bonds which are still uncashed; provided, that Trustee shall first satisfy itself that the funds remaining on deposit in the Sinking Fund Account are sufficient to pay such outstanding checks upon presentment. XX. INVESTMENT OF BOND PROCEEDS AND SINKING FUND ACCOUNT FUNDS; FEES OF TRUSTEE, ET. AL. (A) Upon the receipt by Trustee of the proceeds from the sale of Bonds, and upon receipt of the sinking fund installments required of Issuer, it is expressly agreed by Issuer that Trustee may invest all or part of such funds in United States government and government agency obligations, federally insured time and/or demand deposits of banks and savings and loan associations mutual and/or money market funds which invests only in the foregoing instruments; and an investment in any such instruments and/or fund(s) shall be deemed prudent. All moneys required to be deposited with or paid to Trustee under any provision of the Indenture, until disbursed or directed as permitted by the Indenture, shall be held by Trustee in trust and may be commingled with other trust funds held by the Trustee. (B) The fees of Trustee, Paying Agent and Registrar, the payment of which is secured by the Reimbursement Lien and to which Issuer has agreed, are set forth on EXHIBIT "A" attached hereto. (C) Notwithstanding the amount of fees to be paid to Trustee as set forth on EXHIBIT "A", should Trustee, Paying Agent Trust Indenture Page 43 of 51 or Registrar be required to perform extraordinary services, it shall have the right to assess reasonable charges against Issuer for said extraordinary services in addition to the service charges otherwise described on EXHIBIT "A". Such services occasioned by Issuer' s prepayment under Article IX or default shall by definition be extraordinary. Without limiting the foregoing, Trustee shall have the right to be reimbursed by Issuer for any fees or expenses incurred for any unusual services required of Trustee, either in the event of prepayment, default or otherwise, and shall specifically have the right of reimbursement and the Reimbursement Lien for any fees, compensation or documented travel expenses paid by Trustee to or for licensed attorneys, accountants, appraisers, realtors, surveyors, court stenographers, Trustee's own personnel or any other persons whose services are necessary or required in order to perform such extraordinary services. The hourly compensation of Trustee's personnel shall be computed as base annual salary divided by two thousand (2,000) hours. XXI. SUPPLEMENTAL INDENTURES (A) Issuer and Trustee, without the consent of the Bondholders, from time to time may enter into one or more indentures supplemental hereto for any of the following purposes: (1) To add to the covenants of Issuer for the benefit of the Bondholders, or to surrender any right or power herein conferred upon Issuer; (2) To cure any vagueness or ambiguity or to correct or supplement any inconsistent or defective provision contained herein or in any supplemental indenture; provided, such action shall not adversely affect the interest of the Bondholders; or (3) To make any change which, in the judgment of Trustee in reliance upon opinion of counsel, does not adversely affect the rights of any Bondholder. (B) With the foregoing limited exceptions which permit modification of the Trust Indenture by Issuer and Trustee alone, the Trust Indenture, the rights and obligations of Issuer, and the rights and obligations of the Bondholders may be modified by Issuer with the consent of the respective holders of not less than sixty-six and two-thirds percent (66 2/3%) in principal of the Bonds then outstanding; provided that no such modification may be made without Trust Indenture Page 44 of 51 the consent of the holders of each Bond affected if such modification would: (1) Change the stated maturity date of the principal or of any installment of interest on any Bond; or (2) Reduce the principal amount or rate of interest on any Bond; or (3) Impair the right as herein set out to institute suit for the enforcement of payment on or with respect to the Bonds; or (4) Reduce the percentage and principal amount of the Bonds of which the holders' collective consent is required for any such supplemental indenture; (5) Except as permitted under this Indenture, permit the creation of any lien ranking prior to or on a parity with the Lien; or (6) Modify any of the provisions of this Article. (C) Whenever the consent of Bondholders is required for any proposed change, modification, addition, elimination or subordination of the Trust Indenture or otherwise, Trustee may cause a notice specifying the, action proposed to be mailed, first-class, postage prepaid, to the owner of each outstanding Bond at the address shown on the Bond Register maintained by the Registrar. Trustee shall be entitled to treat the failure of any Bondholder to respond within thirty (30) days after completion of the mailing of such notice as either a consent or a rejection, as indicated in the notice, of the proposed action specified in the notice. (1) Except as hereinafter provided in Article XXII(B), Trustee shall be the sole judge of the validity and regularity of all consents filed under this paragraph, and may require evidence satisfactory to it that the signer of such consent is lawfully entitled to execute the same. (2) Any required action or consent of Bondholders may also be obtained by a vote of Bondholders representing the requisite percentage of principal then outstanding who are present or represented by proxy at a meeting called by Trustee for such purpose to be held at Trustee's principal offices at a time and Trust Indenture Page 45 of 51 date specified in a notice mailed to the Bondholders as above not less than thirty (30) days prior to such meeting. (D) It shall not be necessary for any consent of Bondholders to approve the particular form of any proposed supplemental indenture; rather, it shall be sufficient if such consent approves the substance thereof. XXII. BONDHOLDER LISTS AND REPORTS EVIDENCE OF RIGHTS OF BONDHOLDERS (A) Any request, consent or other instrument which the Indenture may require or permit to be signed and executed by the Bondholders may be in any number of concurrent instruments of similar tenor, and may be signed or executed by such Bondholders in person or by an attorney appointed in writing or by a committee constituted by an agreement to which any portion of the Bonds shall have been made subject by deposit or otherwise. Proof of the execution of any such request or other instrument or of a writing appointing any such agent or the holder of the Bonds shall be sufficient for any purpose of the Indenture, if made in the following manner: (1) The fact and date of the execution by any person of such request in writing may be provided by any of the following documents in form satisfactory to Trustee: (a) The certificate under his official seal of any notary public or other officer in any jurisdiction who by the laws thereof has power to take acknowledgements of documents to be recorded within such jurisdiction, that the person signing such request or other instrument acknowledged to him the execution thereof; (b) An affidavit of a witness of such execution; or (c) The certification or guarantee of the authenticity of such signature by an officer of any duly chartered trust company or commercial bank. (2) The ownership of registered Bonds shall be proved by the Bond Register as hereinbefore provided. Trust Indenture Page 46 of 51 (3) Trustee may, nevertheless, in its discretion, (i)accept other proof in cases where it deems such other proof sufficient or (ii) require further proof in cases where it deems further proof desirable. The foregoing provisions of this paragraph shall not be construed to abrogate, modify or affect any of the exemptions or rights of Trustee set out in Article XVI of this Indenture. (B) For the purposes of this Indenture, in determining whether the holders of the required percentage of the principal amount of Bonds have concurred in any directive, amendment, modification, consent, waiver or other action, Bonds deemed by Trustee to be owned by Issuer, or under direct or indirect common control of Issuer or by an officer, director, trustee, eider or member thereof, shall be disregarded, except that for the purpose of determining whether Trustee shall be protected in relying upon any such directive, amendment, modification, consent, waiver or other action, only Bonds as to which Trustee has actual knowledge of such ownership or control must be so disregarded. (C) If either (i) Issuer or (ii) three or more Bondholders (hereinafter referred to as "Applicant(s)") apply in writing to Trustee, and, exclusive of Issuer, furnish to Trustee reasonable proof that each such Applicant has owned a Bond for a period of at least six (6) months preceding the date of such application, and such application further states that the Applicant(s) desire to communicate with all Bondholders with respect to their rights under this Indenture or under the Bonds and is accompanied by a copy of the form of proxy or other communication which such Applicant(s) propose to transmit, then Trustee shall, within ten (10) business days after the receipt of such application, at its election, either: (1) Afford such Applicant(s) access to such information; (2) Inform such Applicant(s) as to the approximate number of registered Bondholders and as to the approximate cost of mailing to such Bondholders the form of proxy or other communication, if any, specified in such application, in which latter event Trustee shall further elect either: (a) Within ten (10) days after tender to Trustee of the material to be mailed and of payment of the reasonable expenses of mailing, to mail to such Applicants, together with a return of the material to have been mailed to the Trust Indenture Page 47 of 51 Bondholders, a written statement to the effect that, in the opinion of Trustee, such mailing would be contrary to the best collective interest of the Bondholders or would be in violation of applicable law, such written statement specifying the basis of such opinion; or (b) Mail, with reasonable promptness, to each registered Bondholder a copy of the form of proxy or other communication which is specified in such request. (D) Issuer, Broker, and each and every holder of the Bonds by receiving and holding the same, agrees with Trustee and Registrar that: (1) Each Bondholder's identity is privileged information not subject to disclosure and such Bondholder may receive communications from Issuer, other Bondholders or any third party only in accordance with this Article; and (2) Neither Trustee nor Registrar shall be held accountable by reason of mailing any material pursuant to a request made pursuant to this Article which Trustee in its sole discretion determines to grant. XXIII. MISCELLANEOUS PROVISIONS (A) When the context requires, the singular includes the plural, the masculine includes the female and neuter, and vice versa. Except within a series, the conjunctive includes the disjunctive and vice versa. (B) The headings contained in the Table of Contents and body hereof are for convenience only and shall in no manner be construed as a part of this Indenture. (C) All notices required hereby as between Issuer and Trustee, Paying Agent and/or Registrar shall be sufficient if such notices are in writing and mailed by either registered or certified mail, return receipt requested, postage prepaid, or by delivering in person or causing the delivery thereof by commercial courier to such party at the address shown on the last page or at such other address as either party may hereafter furnish in writing to the other. Trust Indenture Page 48 of 51 (D) This Indenture constitutes the entire agreement between the parties and supersedes any and all other prior agreements or understandings, if any, whether oral or in writing, relating to the rights and liabilities arising out of the subject matter hereof. (E) This agreement may be amended or modified only in accordance with the terms of this Indenture by a written instrument of even or subsequent date hereto signed by both parties. (F) Neither the waiver of any provision or breach hereof nor the forbearance, failure or delay, whether intentional or inadvertent, in exercising any right or remedy hereunder, nor the partial exercise thereof, by either party shall be deemed a waiver of any other provision or breach or of the subsequent or further exercise of such right or remedy or as establishing a course of dealing. (G) If any provision of this Trust Indenture is held to be illegal or unenforceable, the remaining provisions shall nevertheless remain in full force and effect. In addition, the illegal or unenforceable provisions shall be modified so as to conform, to the greatest extent legally permissible, to the original intent of such provision. (H) This agreement will be binding upon and will inure to the benefit of each party's respective successors and assigns. (I) Each person signing below represents and warrants that he is authorized to act in the capacity stated. (J) ISSUER AND TRUSTEE EACH ACKNOWLEDGES AND AGREES THAT ITS REPRESENTATIVES AND ATTORNEYS HAVE HAD THE OPPORTUNITY TO PARTICIPATE IN THE DRAFTING AND CONSTRUCTION OF THIS INDENTURE AND THAT THE PROVISIONS HEREOF SHALL NOT BE CONSTRUED AGAINST OR IN FAVOR OF EITHER PARTY. (K) This Indenture shall be construed in accordance with and governed by the laws of Arizona, with the exception of the terms and conditions pertaining to the foreclosure of the Property set forth in Article VIII which shall be construed in accordance with and governed by the laws of the State in which the Property is located. (L) As used throughout, the words or phrases "legal costs," "collection costs," "collection expenses, "costs of maintaining a legal defense," "Reimbursement Lien" and words and Trust Indenture Page 49 of 51 phrases of like import shall be liberally construed to include all costs and expenses reasonably incurred by Trustee, directly or indirectly, as compensation or reimbursement to its own personnel, licensed legal counsel, accountants, surveyors, appraisers, court reporters and other experts, including their fees or other compensation and travel expenses, in carrying out the purposes of this Indenture and holding Trustee harmless from such costs and expenses. IN TESTIMONY WHEREOF, Issuer and Trustee have caused this instrument to be signed in duplicate originals by their duly authorized agents and representatives this 2nd day of October, 1998. ISSUER: THE BILTMORE GROUP OF LOUISIANA, L.L.C. By: ------------------------------ JoAnne M. Caldwell-Bayles, Managing Member Colonial: COLONIAL TRUST COMPANY, TRUSTEE By: ------------------------------ Its Vice-President Trust Indenture Page 50 of 51 STATE OF ARIZONA > COUNTY OF MARICOPA > This instrument was acknowledged before me on the day of , 19 , by --- ------ ---- John Johnson, President of COLONIAL TRUST COMPANY, an Arizona corporation with trust powers. ---------------------------------- Notary Public, State of Arizona ---------------------------------- Notary's Name, Printed or Typed STATE OF > ---------------- PARISH OF > --------------- This instrument was acknowledged before me on the day of , ------ ---------- 19 , by JoAnne M. Caldwell-Bayles, Managing Member of The Biltmore Group ----- of Louisiana, L.L.C., a Louisiana limited liability company. ---------------------------------- Notary Public, State of Louisiana ---------------------------------- Notary's Name, Printed or Typed Trust Indenture Page 51 of 51 EXHIBIT "A" TRUSTEE, PAYING AGENT & BOND REGISTRAR/TRANSFER AGENT SCHEDULE OF FEES EX-4.3 9 FORM OF LIENHOLDERS AGREEMENT AGREEMENT BETWEEN LIENHOLDERS THIS AGREEMENT is made [DATE] , by and between [LENDING INSTITUTION] ------------ ------------------------- (hereinafter "Lender"), having a notice address at - ------- ----------------- , COLONIAL TRUST COMPANY, as Trustee for the benefit - ----------------------- of the Bondholders of The Biltmore Group of Louisiana, L.L.C. (hereinafter "Trustee"), having a notice address at 5336 North 19th Avenue, Phoenix, Maricopa County, Arizona 85015, and THE BILTMORE GROUP of Louisiana, L.L.C. of 507 Trenton Street, West Monroe, Ouachita Parish, Louisiana 71291 (hereinafter "Borrower"). WHEREAS, Lender has committed to loan and intends to loan to Borrower the sum of to be evidenced by a promissory note ("the Note") ------------- executed by Borrower payable to Lender and secured by a first lien mortgage against the real property of Borrower described on EXHIBIT "A" attached, as well as a security interest in and to certain personal property of Borrower located in or on the property described on Exhibit "A", all of such real and personal property to be collateral for such loan and hereinafter collectively referred to as "the collateral;" WHEREAS, Lender may also make an interim construction loan to Borrower for additional projects. WHEREAS, the purpose of the Note is to provide interim financing for the purposes of construction of the facility commonly referred to as ; and the Note is to be paid - ------------------------------------- off from part of the proceeds of Borrower's Series offering of -------- bonds relative to the project in the amount of $ , ----------------- ------------ a bond offering in the total amount of $9,900,000.00 ("the bonds") to be made by Borrower through MMR Investment Bankers, Inc. (hereinafter "MMR") and for which Trustee has agreed to serve as the Indenture Trustee pursuant to a Trust Indenture dated October 2, 1998' ("the Trust Indenture"). WHEREAS, pursuant to the Trust Indenture Borrower intends to issue a total of $9,900,000.00 of first mortgage bonds of which Series --------- in the amount of $ shall be used in regard to the -------------- ------------- project, the balance of the bond proceeds of the $9,900,000.00 - ---------- offering are to be used for construction of the ----------------------------- - ---------------------------------------------------------------------------- projects, or - ----------------------------------------------------------------- to payoff interim construction loans regarding such projects; WHEREAS, the bonds are to be secured by the same collateral as that securing the Note, and such liens securing the bonds are also to be a first lien of equal position and parity as the liens securing the Note; NOW, THEREFORE, IN CONSIDERATION of the mutual covenants and agreements herein contained, Lender, Trustee and Borrower do hereby agree as follows: 1. Equity of Liens. The parties do hereby agree that Borrower shall execute one deed of trust or mortgage and security agreement and other collateral documents as may be required by Lender or Trustee for the benefit of both Lender and Trustee and that such collateral documents shall equally secure both the Note -2- and the bonds. The Note and the bonds shall both be secured by first liens of equal position and parity and shall be governed by the provisions of the deed of trust, mortgage, security agreement, or other documents or instruments creating the same, as well as, the provisions of this Agreement as hereinafter set forth. 2. Definition of Indebtedness. The indebtedness or loan as hereinafter referred to shall consist of both (i) the Note, and (ii) the bonds. The interest of Lender and Trustee in the indebtedness shall vary as their respective interests therein may from time to time appear. 3. Application of Payments. The parties agree that the proceeds of the bonds will be used to pay the principal balance and accrued interest, to the extent available, of the Note. On the tenth (10th) day of each calendar month during the term hereof, or more often at the Trustee's election, Trustee will deliver to Lender, via bank wire, for payment on the Note, all proceeds received from the sale of bonds, less brokerage fees and Trustee's fees, attorney's fees related hereto, other expenses related to the bond offering, and a sinking fund reserve (6 months) not to exceed $ , until the Note is paid in full. Lender acknowledges ----------- that Lender is aware of and consents to the establishment of the sinking fund reserve in the amount of $ . Borrower understands and agrees ----------- that proceeds of the bonds may not be used for other projects until the Note is paid in full. In the event that the Prospectus pursuant to which the bonds are to be issued is inconsistent herewith, the Trustee shall give notice of same to -3- Lender and Borrower and all payments and disbursement of bond proceeds to any person shall be withheld until such inconsistency is resolved by the parties or court of law having appropriate jurisdiction of same. 4. Procedures unon Default. Notwithstanding any provisions to the contrary set forth or contained in (i) the Note, in (ii) the bonds, in (iii) the Trust Indenture, or in (iv) the mortgage, security agreement or other security instrument or document securing the payment of the indebtedness, in the event of a default by Borrower under any of the terms and provisions of the instruments or legal documents described above, at the election of either Lender or Trustee all of the indebtedness, both the Note and the bonds, shall become immediately due and payable in full. In the event of a default under either portion of the loan, the party holding such defaulted portion of the loan will give written notice to the other party within ten (10) days after learning of such event of default. If either Trustee or Lender elects to accelerate its portion of the loan as a result of any default, such party shall likewise give written notice to the other party of such election prior to taking any action thereon and, in such event, both Trustee and Lender agree to accelerate their respective portion of the loan on such election by either Trustee or Lender. In such event, all collection and foreclosure actions or proceedings shall be conducted jointly by Lender and Trustee. All legal fees, court costs and related expenses and all receipts from collection and foreclosure hereunder shall be shared -4- proportionately between Lender and Trustee in the same proportion that the unpaid principal balance of each party's portion of the loan bears to the unpaid principal balance of the total loan; provided that, if the parties retain separate legal counsel to assist in collection or foreclosure or if a party retains legal counsel in addition to jointly-obtained counsel, then the party retaining such separate or additional legal counsel shall pay the fees and expenses thereof. In the event of a default under either portions of the loan, the Trustee and Lender hereto agree to work together in good faith in attempting to make joint decisions regarding such matters as collection attempts, foreclosure, selection of counsel, and maintenance and disposition of the collateral. In the event of receipt of proceeds from the collateral, any such proceeds shall be divided between Lender and Trustee based upon the unpaid principal balance of each party's portion of the loan bears to the unpaid principal balance of the total loan. 5. Term. This Agreement shall continue until the earliest to occur of (a) payment in full of the Note and transfer of Lender's interest in the collateral documents to Trustee; (b) a final, nonappealable judgement has been entered foreclosing the collateral documents and the sale of the collateral has been made and confirmed as required by law and the proceeds from such sale disbursed to Lender and Trustee according to the terms hereof; or (c) the mutual written agreement of the parties to terminate this Agreement. -5- 6. Enforcement. In any action brought to enforce or defend any of the provisions of this Agreement, the prevailing party or parties shall be entitled to recover its reasonable attorney' s fees and expenses from any other party in addition to other relief awarded. 7. Construction. This Agreement does not make any party the employee, agent, partner or legal representative of any other party for any purpose whatsoever. No party is granted any right or authority to assume or create any obligation or responsibility, express or implied, on behalf of or in the name of any other party. 8. Limitation on Advances By Lender. Lender agrees that the total advances on its Note to Borrower shall not exceed $ . In the event ------------- that the total advances on the Note by Lender to Borrower for purposes of Borrower's project does exceed $ , then such ---------------- ------------- advances made in excess of $ shall be second in priority to the ------------ first lien securing the bonds and the first $ advanced pursuant ------------ to the Note. 9. Borrower's Indemnity. Borrower enters into this agreement hereby agreeing to the arrangement between Lender and Trustee set forth herein in all respects. Furthermore, Borrower does hereby agree to indemnify and hold harmless the Trustee of and from any loss, expense, damages, costs, attorney's fees or other liability incurred as a result of this agreement and the transactions contemplated hereby, and does hereby release Trustee from any liability or duty to inquire as to the validity of the -6- Note owing to Lender, the proper use of the proceeds of the Note or the adequacy of funding documentation. IN WITNESS WHEREOF, the parties have executed this instrument effective the date first above written. DATED: ---------------- [NAME OF LENDER] ---------------------------- ---------------------------- By: ------------------------- COLONIAL TRUST COMPANY, as Trustee for the benefit of the Bondholders of The Biltmore Group of Louisiana, L.L.C. By: ------------------------- Susan D. Carlisle, Vice President THE BILTMORE GROUP OF LOUISIANA, L.L.C., a Louisiana limited liability Company By: ------------------------- JoAnne. M. Caldwell-BayleS, Managing Member The State of ) -------------------- ) County of ) ---------------------- This instrument was acknowledged before me on the day of ------- By Of - ----------------- ------------------------- ------------------------- --------------------------------- Notary Public State of ----------- -7- The State of Arizona ) ) County of Maricopa ) This instrument was acknowledged before me on the day of , ------ ----------- by Susan D. Carlisle, Vice President of Colonial Trust Company, as Trustee for the benefit of the Bondholders of The Biltmore Group of Lousisana, L.L.C. ------------------------------ Notary Public, State of Arizona State of Louisiana ) ) Parish of ) ---------- This instrument was acknowledged before me on the day of , ------ ------------ by JoAnne M. Caldwell-Bayles, Managing Member of THE BILTMORE GROUP OF LOUISIANA, L.L.C. ----------------------------------- Notary Public, State of Louisiana EXHIBIT "A" [LEGAL DESCRIPTON OF PROPERTY] EX-5.1 10 OPINION OF BOBBY L CULPEPER AND ASSOCIATES BOBBY L. CULPEPPER & ASSOCIATES A PROFESSIONAL LAW CORPORATION 205 WEST ALABAMA BOBBY L. CULPEPPER 525 EAST COURT AVENUE RUSTON, LA 71270 JONESBORO, LOUISIANA 71251-3497 318-251-0701 TERESA CULPEPPER CARROLL 318/259-4184 J. CLAY CARROLL FAX #318/259-6278 233 SOUTH GRAND MONROE, LA 71201 PLEASE REFER ALL CORRESPONDENCE 318/325-3884 TO THE JONESBORO OFFICE File# January 26, 1999 MMR Investment Bankers 550 North 159th Street East P.0. Box 781440 Wichita, Kansas 67278-1440 Re: Authorization of $9,900,000.00 First Mortgage Bond Issue Gentlemen: The Biltmore Group of Louisiana L.L.C. (hereinafter called "company"), is a duly organized and existing limited liability company organized under the laws of the State of Louisiana and authorized to do business therein. The correct name to be used on the first mortgage bonds and all legal instruments is The Biltmore Group of Louisiana L.L.C. Effective as of October 21, 1998, the members of the company signed resolutions authorizing the issuance of up to $9,900,000.00 of first mortgage bonds and the execution of certain instruments in connection with the bond issue by Joanne Caldwell-Bayles, as manager. I have duly examined the Articles of Organization and Operating Agreement of the company and find that the resolutions passed effective October 21, 1998, a copy of which is attached hereto as Exhibit A and made a part of this opinion, were passed in accordance with the Articles of Organization, Operating Agreement and the laws of the State of Louisiana, and I do hereby certify that said resolutions constitute a valid and legal authorization for the issuance of up to $9,900,000.00 of first mortgage bonds for the purposes set out in said resolutions and for the execution of a trust indenture, setting out the terms and conditions of the bond issue and placing a lien on the company's real property in order to secure payment of the first mortgage bonds. I further certify the following person is the proper person to sign the trust indenture in accordance with the Articles of Organization and Operating Agreement of the company: MMR Investment Bankers Page 2 January 26, 1999 Name: Joanne Caldwell-Bayles Title: Manager I further certify that when the first mortgage bonds have been paid for by the purchaser and signed by the manager, the first mortgage bonds will be a legal and binding indebtedness of the company. The opinions expressed above are subject in their entirety to (i) the effect of any applicable bankruptcy, insolvency, reorganization or similar laws affecting creditors' rights generally; and (ii) the rights of the United States government under the Federal Tax Lien Act of 1966, as amended; and (iii) the discretionary power of the courts to make available remedies of specific performance, injunctive relief or other equitable remedies. This opinion is limited to the matters stated herein, and no opinions may be implied or inferred beyond the matters stated. In giving this opinion we have assumed the authenticity of all signatures to the Operating Agreement and the resolutions and that those persons signing on behalf of a corporate or other entity that is not an individual have the requisite authority. This opinion is solely for the benefit of MMR Investment Bankers and its counsel and may not be quoted, circulated or published in the whole or in part, without our express prior written consent. With kindest personal regards, I remain Yours very truly, /S/J CLAY CARROLL J. CLAY CARROLL JCC:bb CC: The Biltmore Group of Louisiana L.L.C. EX-10.1 11 CONSTRUCTION MANAGEMENT CONTRACT FOR THE MINDEN, LA FACILITY THE AMERICAN INSTITUTE OF ARCHITECTS [AIA LOGO] AIA Document A191 Standard Form of Agreement Between Owner and Design/Builder 1985 EDITION THIS DOCUMENT HAS IMPORTANT LEGAL CONSEQUENCES; CONSULTATION WITH AN ATTORNEY IS ENCOURAGED. This Document comprises two separate Agreements: Part 1 Agreement-Preliminary Design and Budgeting and Part 2 Agreement-Final Design and Construction. Hereinafter, the Part 1 Agreement is referred to as Part 1 and the Part 2 Agreement is referred to as Part 2. PART 2 AGREEMENT-FINAL DESIGN AND CONSTRUCTION AGREEMENT made as of the TWENTY FIFTH day of AUGUST in the year of Nineteen Hundred and NINETY-EIGHT BETWEEN the Owner: THE BILTMORE GROUP, L.L.C. (Name and address) 507 TRENTON STREET WEST MONROE, LA 71291 and the Design/Builder: (Name and address) THE FORSYTHE GROUP, INC. SCENICLAND CONSTRUCTION, CO. 507 TRENTON STREET 131 SUNSET DR. WEST MONROE, LA 71291 WEST MONROE, LA 71291 For the following Project: (Include Project name, location and detailed description of scope.) THE ARBOR RETIREMENT- 619 GERMANTOWN ROAD, MINDEN, LA. DESIGN AND COMPLETE CONSTRUCTION ACCORDING TO PLANS AND SPECIFICATIONS DESIGNED BY THE FORSYTHE GROUP, INC.; WITH ASSISTANCE OF ENGINEER FIRM; TAYLOR-WALLACE:CIVIC ENGINEER The architectural services described in Article 2 will be provided by the following person or entity who is lawfully licensed to practice architecture: (Name and address) Taylor-Wallace Designs, Inc. Downsville, LA 71234 The Owner and the Design/Builder agree as set forth below. Copyright (c) 1985 by The American Institute of Architects, 1735 New York Avenue, N.W., Washington, D.C. 20006. Reproduction of the material herein or substantial quotation of its provisions without written permission of the AIA violates the copyright laws of the United States and will be subject to legal prosecution. AIA DOCUMENT A191, PART 2 OWNER-DESIGN/BUILDER AGREEMENT FIRST EDITION AIA (C)1985 THE AMERICAN INSTITUTE OF ARCHITECTS, 1735 NEW YORK AVENUE, N.W., WASHINGTON, D.C. 20006 A191-1985 PART 2-PAGE 1 Terms and Conditions-Part 2 Agreement ARTICLE I GENERAL PROVISIONS 1.1 BASIC DEFINITIONS 1.1.1 The Contract Documents consist of the Design/ Builder's Proposal identified in Article 14, this Part 2, the Construction Documents approved by the Owner in accordance with Subparagraph 2.2.2 below and Modifications issued after execution of Part 2. A Modification is a Change Order or a written amendment to Part 2 signed by both parties. These form the Contract, and are as fully a part of the Contract as if attached to this Part 2 or repeated herein. 1.1.2 The Project is the total design and construction for which the Design/Builder is responsible under Part 2, including all professional design services and all labor, materials and equipment used or incorporated in such design and construction. 1.1.3 The Work comprises the completed construction designed under the Project and includes labor necessary to produce such construction, and materials and equipment incorporated or to be incorporated in such construction. 1.2 EXECUTION, CORRELATION AND INTENT 1.2.1 This Part 2 shall be signed in not less than duplicate by the Owner and Design/Builder. 1.2.2 lt is the intent of the Owner and Design/Builder that the Contract Documents include all items necessary for proper execution and completion of the Work. The Contract Documents are complementary, and what is required by anyone shall be as binding as if required by all. Work not covered in the Contract Documents will not be required unless it is consistent with and is reasonably inferable from the Contract Documents as being necessary to produce the intended results. Words and abbreviations which have well-known technical or trade meanings are used in the Contract Documents in accordance with such recognized meanings. 1.3 OWNERSHIP AND USE OF DOCUMENTS 1.3.1 The drawings, specifications and other documents furnished by the Design/Builder are instruments of service and shall not become the property of the Owner whether or not the Project for which they are made is commenced. Drawings, specifications and other documents furnished by the Design/Builder shall not be used by the Owner on other projects, for additions to this Project or, unless the Design/Builder is in default under Part 2, for completion of this Project by others, except by written agreement relating to use, liability and compensation. 1.3.2 Submission or distribution of documents to meet official regulatory requirements or for other purposes in connection with the Project is not to be construed as publication in derogation of the Design/Builder's or the Architect's common law copyrights or other reserved rights. The Owner shall own neither the documents nor the copyrights. ARTICLE 2 DESIGN/BUILDER 2.1 SERVICES AND RESPONSIBILITIES 2.1.1 Design services shall be performed by qualified architects, engineers and other professionals selected and paid by the Design/Builder. The professional obligations of such persons shall be undertaken and performed in the interest of the Design/Builder. Construction services shall be performed by qualified construction contractors and suppliers, selected and paid by the Design/Builder and acting in the interest of the Design/Builder. Nothing contained in Part 2 shall create any professional obligation or contractual relationship between such persons and the Owner. 2.2 BASIC SERVICES 2.2.1 The Design/Builder's Basic Services are described below and in Article 14. 2.2.2 Based on the Design/Builder's Proposal, the Design/Builder shall submit Construction Documents for review and approval by the Owner. Construction Documents shall include technical drawings, schedules, diagrams and specifications, setting forth in detail the requirements for construction of the Work, and shall: .1 develop the intent of the Design/Builder's Proposal in greater detail; .2 provide information customarily necessary for the use of those in the building trades; and .3 include documents customarily required for regulatory agency approvals. 2.2.3 The Design/Builder shall assist the Owner in filing documents required to obtain necessary approvals of governmental authorities having jurisdiction over the Project. 2.2.4 Unless otherwise provided in the Contract Documents, the Design/Builder shall provide or cause to be provided and shall pay for design services, labor, materials, equipment, tools, construction equipment and machinery, water, heat, utilities, transportation and other facilities and services necessary for proper execution and completion of the Work, whether temporary or permanent and whether or not incorporated or to be incorporated in the Work. 2.2.5 The Design/Builder shall be responsible for and shall coordinate all construction means, methods, techniques, sequences and procedures. 2.2.6 The Design/Builder shall keep the Owner informed of the progress and quality of the Work. 2.2.7 If requested in writing by the Owner, the Design/ Builder, with reasonable promptness and in accordance with time limits agreed upon, shall interpret the requirements of the Contract Documents and initially shall decide, subject to demand for arbitration, claims, disputes and other matters in question relating to performance thereunder by both Owner and Design/Builder. Such interpretations and decisions shall be in writing, shall not be presumed to be correct and shall be given such weight as the arbitrators or the court shall determine. A191-1985 A191,Part2 OWNER-DESIGN/BUILDER ACREEMENT, FIRST EDITION PART 2-PAGE 2 AIA* (c)1985, THE AMERICAN INSTITUTE OF ARCHITECTS, 1735 NEW YORK AVENUE, N.W. WASHINCTON, D.C. 20006 2.2.8 The Design/Builder shall correct Work which does not conform to the Construction Documents. 2.2.9 The Design/Builder warrants to the Owner that materials and equipment incorporated in the Work will be new unless otherwise specified, and that the Work will be of good quality, free from faults and defects, and in conformance with the Contract Documents. Work not conforming to these requirements shall be corrected in accordance with Article 9. 2.2.10 The Design/Builder shall pay all sales, consumer, use and similar taxes which were in effect at the time the Design/Builder's Proposal was first submitted to the Owner, and shall secure and pay for building and other permits and governmental fees, licenses and inspections necessary for the proper execution and completion of the Work which are either customarily secured after execution of Part 2 or are legally required at the time the Design/Builder's Proposal was first submitted to the Owner. 2.2.11 The Design/Builder shall give notices and comply with laws, ordinances, rules, regulations and lawful orders of public authorities relating to the Project. 2.2.12 The Design/Builder shall pay royalties and license fees. The Design/Builder shall defend suits or claims for infringement of patent rights and shall save the Owner harmless from loss on account thereof, except that the Owner shall be responsible for such loss when a particular design, process or product of a particular manufacturer is required by the Owner. However, if the Design/Builder has reason to believe the use of a required design, process or product is an infringement of a patent, the Design/Builder shall be responsible for such loss unless such information is promptly given to the Owner. 2.2.13 The Design/Builder shall be responsible to the Owner for acts and omissions of the Design/Builder's employees and parties in privily of contract with the Design/ Builder to perform a portion of the Work, including their agents and employees. 2.2.14 The Design/Builder shall keep the premises free from accumulation of waste materials or rubbish caused by the Design/Builder's operations. At the completion of the Work, the Design/Builder shall remove from and about the Project the Design/Builder's tools, construction equipment, machinery, surplus materials, waste materials and rubbish. 2.2.15 The Design/Builder shall prepare Change Orders for the Owner's approval and execution in accordance with Part 2 and shall have authority to make minor changes in the design and construction consistent with the intent of Part 2 not involving an adjustment in the contract sum or an extension of the contract time. The Design/Builder shall promptly inform the Owner, in writing, of minor changes in the design and construction. 2.2.16 The Design/Builder shall notify the Owner when the Work or an agreed upon portion thereof is substantially completed by issuing a Certificate of Substantial Completion which shall establish the Date of Substantial Completion, shall state the responsibility of each party for security, maintenance, heat, utilities, damage to the Work and insurance, shall include a list of items to be completed or corrected and shall fix the time within which the Design/Builder shall complete items listed therein. Disputes between the Owner and Design/Builder regarding the Certificate of Substantial Completion shall be resolved by arbitration. 2.2.17 The Design/Builder shall maintain in good order at the site one record copy of the drawings, specifications, product data, samples, shop drawings, Change Orders and other Modifications, marked currently to record changes made during construction. These shall be delivered to the Owner upon completion of the design and construction and prior to final payment. ARTICLE 3 OWNER 3.1 The Owner shall designate a representative authorized to act on the Owner's behalf with respect to the Project. The Owner or such authorized representative shall examine documents submitted by the Design/Builder and shall promptly render decisions pertaining thereto to avoid delay in the orderly progress of the Work. 3.2 The Owner may appoint an on-site project representative to observe the Work and to have such other responsibilities as the Owner and Design/Builder agree in writing prior to execution of Part 2. 3.3 The Owner shall cooperate with the Design/Builder in securing building and other permits, licenses and inspections, and shall pay the fees for such permits, licenses and inspections if the cost of such fees is not identified as being included in the Design/Builder's Proposal. 3.4 The Owner shall furnish services by land surveyors, geotechnical engineers and other consultants for subsoil, air and water conditions, in addition to those provided under Part 1 when such services are deemed necessary by the Design/Builder to carry out properly the design services under this Part 2. 3.5 The Owner shall furnish structural, mechanical, chemical, geotechnical and other laboratory or on-site tests, inspections and reports as required by law or the Contract Documents. 3.6 The services, information, surveys and reports required by Paragraphs 3.4 and 3.5 shall be furnished at the Owner's expense, and the Design/Builder shall be entitled to rely upon their accuracy and completeness. 3.7 If the Owner observes or otherwise becomes aware of a fault or defect in the Work or nonconformity with the Design or Construction Documents, the Owner shall give prompt written notice thereof to the Design/Builder. 3.8 The Owner shall furnish required information and services and shall promptly render decisions pertaining thereto to avoid delay in the orderly progress of the design and construction. 3.9 The Owner shall, at the request of the Design/Builder and upon execution of Part 2, provide a certified or notarized statement of funds available for the Project and their source. 3.10 The Owner shall communicate with contractors only through the Design/Builder. ARTICLE 4 TIME 4.1 The Design/Builder shall provide services as expeditiously as is consistent with reasonable skill and care and the orderly progress of design and construction. 4.2 Time limits stated in the Contract Documents are of the essence of Part 2. The Work to be performed under Part AIA DOCUMENT A191,Part 2, OWNER-DESIGN/BUILDER AGREEMENT A191-1985 FIRST EDITION AIA* (c)1985 * THE AMERICAN INSTITUTE OF PART 2-PAGE 3 ARCHITECTS 1735 NEW YORK AVENUE N.W., WASHINGTON, D.C. 20006 2 shall commence upon execution of a notice to proceed unless otherwise agreed and, subject to authorized Modifications, Substantial Completion shall be achieved as indicated in Article 14. 4.3 The Date of Substantial Completion of the Work or an agreed upon portion thereof is the date when construction or an agreed upon portion thereof is sufficiently complete so the Owner can occupy and utilize the Work or agreed upon portion thereof for its intended use. 4.4 The schedule provided in the Design/Builder's Proposal shall include a construction schedule consistent with Paragraph 4.2 above. 4.3 If the Design/Builder is delayed in the progress of the Project by acts or neglect of the Owner, Owner's employees, separate contractors employed by the Owner, changes ordered in the Work not caused by the fault of the Design/Builder, labor disputes, fire, unusual delay in transportation, adverse weather conditions not reasonably anticipatable, unavoidable casualties, or other causes beyond the Design/Builder's control, or by delay authorized by the Owner's pending arbitration or another cause which the Owner and Design/Builder agree is justifiable, the contract time shall be reasonably extended by Change Order. ARTICLE 5 PAYMENTS 5.1 PROGRESS PAYMENTS 5.1.1 The Design/Builder shall deliver to the Owner itemized Applications for Payment in such detail as indicated in Article 14. 5.1.2 Within ten days of the Owner's receipt of a properly submitted and correct Application for Payment, the Owner shall make payment to the Design/Builder. 5.1.3 The Application for Payment shall constitute are presentation by the Design/Builder to the Owner that, to the best of the Design/Builder's knowledge, information and belief, the design and construction have progressed to the point indicated; the quality of the Work covered by the application is in accordance with the Contract Documents; and the Design/Builder is entitled to payment in the amount requested. 5.1.4 The Design/Builder shall pay each contractor, upon receiptof payment from the Owner, out of the amount paid to the Design/Builder on account of such contractor's work, the amount to which said contractor is entitled in accordance with the terms of the Design/Builder's contract with such contractor. The Design/Builder shall, by appropriate agreement with each contractor, require each contractor to make payments to subcontractors in similar manner. 5.1.5 The Owner shall have no obligation to pay or to be responsible in any way for payment to a contractor of the Design/Builder except as may otherwise be required by law. 5.1.6 No progress payment or partial or entire use or occupancy of the Project by the Owner shall constitute an acceptance of Work not in accordance with the Contract Documents. 5.1.7 The Design/Builder warrants that: (1) title to Work, materials and equipment covered by an Application for Payment will pass to the Owner either by incorporation in construction or upon receipt of payment by the Design/Builder, whichever occurs first; (2) Work, materials and equipment covered by previous Applications for Payment are free and clear of liens, claims, security interests or encumbrances, hereinafter referred to as "liens"; and (3) no Work, materials or equipment covered by an Application for Payment will have been acquired by the Design/ Builder, or any other person performing work at the site or furnishing materials or equipment for the Project, subject to an agreement under which an interest therein or an encumbrance thereon is retained by the seller or otherwise imposed by the Design/Builder or such other person. 5.1.8 If the Contract provides for retainage, then at the date of Substantial Completion or occupancy of the Work or any agreed upon portion thereof by the Owner, whichever occurs first, the Design/Builder may apply for and the Owner, if the Design/Builder has satisfied the requirements of Paragraph 5.2.1 and any other requirements of the Contract relating to retainage, shall pay the Design/Builder the amount retained, if any, for the Work or for the portion completed or occupied, less the reasonable value of incorrect or incomplete Work. Final payment of such withheld sum shall be made upon correction or completion of such Work. 5.2 FINAL PAYMENT 5.2.1 Neither final payment nor amounts retained,if any, shall become due until the Design/Builder submits to the Owner (1) an affidavit that payrolls, bills for materials and equipment, and other indebtedness connected with the Project for which the Owner or Owner's property might be liable have been paid or otherwise satisfied, (2) consent of surety, if any, to final payment, (3) a certificate that insurance required by the Contract Documents is in force following completion of the Work, and (4) if required by the Owner, other data establishing payment or satisfaction of obligations, such as receipts, releases and waivers of liens arising out of Part 2, to the extent and in such form as may be designated by the Owner. If a contractor refuses to furnish a release or waiver required by the Owner, the Design/Builder may furnish a bond satisfactory to the Owner to indemnify the Owner against such lien. If such lien remains unsatisfied after payments are made, the Design/Builder shall reimburse the Owner for moneys the latter may be compelled to pay in discharging such lien, including all costs and reasonable attorneys' fees. 5.2.2 Final payment constituting the entire unpaid balance due shall be paid by the Owner to the Design/Builder upon the Owner's receipt of the Design/Builder's final Application for Payment when the Work has been completed and the Contract fully performed except for those responsibilities of the Design/Builder which survive final payment. 5.2.3 The making of final payment shall constitute a waiver of all claims by the Ownerexcept those arising from: .1 unsettled liens; .2 faulty or defective Work appearing after Substantial Completion; .3 failure of the Work to comply with requirements of the Contract Documents; or .4 terms of special warranties required by the Contract Documents. 5.2.4 Acceptance of final payment shall constitute a waiver of all claims by the Design/Builder except those previously made in writing and identified by the Design/Builder as unsettled at the time of final Application for Payment. A191-1985 A191,Part2 OWNER-DESIGN/BUILDER ACREEMENT, FIRST EDITION PART 2-PAGE 4 AIA* (c)1985, THE AMERICAN INSTITUTE OF ARCHITECTS, 1735 NEW YORK AVENUE, N.W. WASHINCTON, D.C. 20006 5.3 INTEREST PAYMENTS 5.3.1 Payments due the Design/Builder under Part2 which are not paid when due shall bear interest from the date due at the rate specified in Article 13, or in the absence of a specified rate, at the legal rate prevailing where the principal improvements are to be located. ARTICLE 6 PROTECTION OF PERSONS AND PROPERTY 6.1 The Design/Builder shall be responsible for initiating, maintaining and providing Supervision of safety precautions and programs in connection with the Work. 6.2 The Design/Builder shall take reasonable precautions for safety of, and shall provide reasonable protection to prevent damage, injury or loss to: (1) employees on the Work and other persons who may be affected thereby; (2) the Work and materials and equipment to be incorporated therein; and (3) other property at or adjacent to the site. 6.3 The Design/Builder shall give notices and comply with applicable laws, ordinances, rules, regulations and orders of public authorities bearing on the safety of persons and property and their protection from damage, injury or loss. 6.4 The Design/Builder shall be liable for damage or loss (other than damage or loss to property insured under the property insurance provided or required by the Contract Documents to be provided by the Owner) to property at the site caused in whole or in part by the Design/Builder, a contractor of the Design/Builder or anyone directly or indirectly employed by either of them, or by anyone for whose acts they may be liable, except damage or loss attributable to the acts or omissions of the Owner, the Owner's separate contractors or anyone directly or indirectly employed by them or by anyone for whose acts they may be liable and not attributable to the fault or negligence of the Design/ Builder. ARTICLE 7 INSURANCE AND BONDS 7.1 DESIGN/BUILDER'S LIABILITY INSURANCE 7.1.1 The Design/Builder shall purchase and maintainin a company or companies authorized to do business in the state in which the Work is located such insurance as will protect the Design/Builder from claims set forth below which may arise out of or result from operations under the Contract by the Design/Builder or by a contractor of the Design/Builder, or by anyone directly or indirectly employed by any of them, or by anyone for whose acts they may be liable: .1 claims under workers' or workmen's compensation, disability benefit and other similar employee benefit laws which are applicable to the Work to be performed; .2 claims for damages because of bodily injury, occupational sickness or disease, or death of the Design/Builder's employees under any applicable employer's liability law; .3 claims for damages because of bodily injury, sickness or disease, or death of persons other than the Design/Builder's employees; .4 claims for damages covered by usual personal injury liability coverage which are sustained (1) by a person as a result of an offense directly or indirectly related to employment of such person by the Design/Builder or (2) by another person; .5 claims for damages, other than to the Work at the site, because of injury to or destruction of tangible property, including loss of use; and .6 claims for damages for bodily injury or death of a person or property damage arising out of ownership, maintenance or use of a motor vehicle. 7.1.2 The insurance required by the above Subparagraph 7.1.1 shall be written for not less than limits of liability specified in the Contract Documents or required by law, whichever are greater. 7.1.3 The Design/Builder's liability insurance shall include contractual liability insurance applicable to the Design/Builder's obligations under Paragraph 11.7. 7.1.4 Certificates of Insurance, and copies of policies if requested, acceptable to the Owner shall be delivered to the Owner prior to commencement of design and construction. These Certificates as well as insurance policies required by this Paragraph shall contain a provision that coverage will not be cancelled or allowed to expire until at least thirty days' prior written notice has been given to the Owner. If any of the foregoing insurance coverages are required to remain in force after final payment, an additional certificate evidencing continuation of such coverage shall be submitted along with the application for final payment. 7.2 OWNER'S LIABILITY INSURANCE 7.2.1 The Owner shall be responsible for purchasing and maintaining, in a company or companies authorized to do business in the state in which the principal improvements are to be located, Owner's liability insurance to protect the Owner against claims which may arise from operations under this Project. 7.3 PROPERTY INSURANCE 7.3.1 Unless otherwise provided under this Part 2, the Owner shall purchase and maintain, in a company or companies authorized to do business in the state in which the principal improvements are to be located, property insurance upon the Work at the site to the full insurable value thereof. Property insurance shall include interests of the Owner, the Design/Builder, and their respective contractors and subcontractors in the Work. It shall insure against perils of fire and extended coverage and shall include all risk insurance for physical loss or damage including, without duplication of coverage, theft, vandalism and malicious mischief. If the Owner does not intend to purchase such insurance for the full insurable value of the entire Work, the Owner shall inform the Design/Builder in writing prior to commencement of the Work. The Design/Builder may then effect insurance for the Work at the site which will protect the interests of the Design/Builder and the Design/Builder's contractors and subcontractors, and by appropriate Change Order the cost thereof shall be charged to the Owner. If the Design/Builder is damaged by failure of the Owner to purchase or maintain such insurance without notice to the Design/Builder, then the Owner shall bear all reasonable costs properly attributable thereto. if not covered under the all risk insurance or not otherwise provided in the Contract Documents, the Design/Builder shall effect and maintain similar property insurance on portions of the Work stored off-site or in transit when such portions of the Work are to be included in an Application for Payment. AIA DOCUMENT A191,Part 2, OWNER-DESIGN/BUILDER AGREEMENT A191-1985 FIRST EDITION AIA* (c)1985 * THE AMERICAN INSTITUTE OF PART 2-PAGE 5 ARCHITECTS 1735 NEW YORK AVENUE N.W., WASHINGTON, D.C. 20006 7.3.2 Unless otherwise provided under this Part 2, the Owner shall purchase and maintain such boiler and machinery insurance as may be required by the Contract Documents or by law and which shall specifically cover such insured objects during installation and until final acceptance by the Owner. This insurance shall cover interests of the Owner, the Design/Builder, and the Design/Builder's contractors and subcontractors in the Work. 7.3.3 A loss insured under Owner's property insurance is to be adjusted with the Owner and made payable to the Owner as trustee for the insureds, as their interests may appear, subject to requirements of any applicable mortgagee clause and of Subparagraph 7.3.8. The Design/ Builder shall pay contractors their shares of insurance proceeds received by the Design/Builder, and by appropriate agreement, written where legally required for validity, shall require contractors to make payments to their subcontractors in similar manner. 7.3.4 Before an exposure to loss may occur, the Owner shall file with the Design/Builder a copy of each policy required by this Paragraph 7.3. Each policy shall contain only those endorsements specifically related to this Project. Each policy shall contain a provision that the policy will not be cancelled or allowed to expire until at least thirty days' prior written notice has been given the Design/ Builder. 7.3.5 If the Design/Builder requests in writing that insurance for risks other than those described herein or for other special hazards be included in the property insurance policy, the Owner shall, if possible, obtain such insurance, and the cost thereof shall be charged to the Design/Builder by appropriate Change Order. 7.3.6 The Owner and Design/Builder waive all rights against each other and the contractors, subcontractors, agents and employees, each of the other, for damages caused by fire or other perils to the extent covered by property insurance obtained pursuant to this Paragraph 7.3 or other property insurance applicable to the Work, except such rights as they may have to proceeds of such insurance held by the Owner as trustee. The Owner or Design/Builder, as appropriate, shall require from contractors and subcontractors by appropriate agreements, written where legally required for validity, similar waivers each in favor of other parties enumerated in this Paragraph 7.3. The policies shall be endorsed to include such waivers of subrogation. 7.3.7 If required in writing by a party in interest, the Owner as trustee shall provide, upon occurrence of an insured loss, a bond for proper performance of the Owner's duties. The cost of required bonds shall be charged against proceeds received as trustee. The Owner shall deposit proceeds so received in a separate account and shall distribute them in accordance with such agreement as the parties in interest may reach, or in accordance with an arbitration award in which case the procedure shall be as provided in Article 10. If after such loss no other special agreement is made, replacement of damaged Work shall be covered by appropriate Change Order. 7.3.8 The Owner, as trustee, shall have power to adjust and settle a loss with insurers unless one of the parties in interest shall object, in writing, within ten days after occurrence of loss, to the Owner's exercise of this power. If such objection be made, the Owner as trustee shall make settlement with the insurers in accordance with the decision of arbitration as provided in Article 10. If distribution of insurance proceeds by arbitration is required, the arbitrators will direct such distribution. 7.3.9 If the Owner finds it necessary to occupy or use a portion or portions of the Work before Substantial Completion, such occupancy or use shall not commence prior to a time agreed to by the Owner and Design/Builder and to which the insurance company or companies providing property insurance have consented by endorsement to the policy or policies. The property insurance shall not lapse or be cancelled on account of such partial occupancy or use. Consent of the Design/Builder and of the insurance company or companies to such occupancy or use shall not be unreasonably withheld. 7.4 LOSS OF USE INSURANCE 7.4.1 The Owner, at the Owner's option, may purchase and maintain such insurance as will insure the Owner against loss of use of the Owner's property due to fire or other hazards, however caused. The Owner waives all rights of action against the Design/Builder, and its contractors and their agents and employees, for loss of use of the Owner's property, including consequential losses due to fire or other hazards, however caused, to the extent covered by insurance under this Paragraph 7.4. 7.5 PERFORMANCE BOND AND PAYMENT BOND 7.5.1 The Owner shall have the right to require the Design/Builder to furnish bonds covering the faithful performance of the Contract and the payment of all obligations arising thereunder if and as required in the Contract Documents or in Article 14. ARTICLE 8 CHANGES IN THE WORK 8.1 CHANGE ORDERS 8.1.1 A Change Order is a written order signed by the Owner and Design/Builder, and issued after execution of Part 2, authorizing a change in the Work or adjustment in the contract sum or contract time. The contract sum and contract time may be changed only by Change Order. 8.1.2 The Owner, without invalidating Part 2, may order changes in the Work within the general scope of Part 2 consisting of additions, deletions or other revisions, and the contract sum and contract time shall be adjusted accordingly. Such changes in the Work shall be authorized by Change Order, and shall be performed under applicable conditions of the Contract Documents. 8.1.3 If the Owner requests the Design/Builder to submit a proposal for a change in the Work and then elects not to proceed with the change, a Change Order shall be issued to reimburse the Design/Builder for any costs incurred for Design Services or proposed revisions to the Contract Documents. 8.1.4 Cost or credit to the Owner resulting from a change in the Work shall be determined in one or more of the following ways: .1 by mutual acceptance of a lump sum properly itemized and supported by sufficient substantiating data to permit evaluation; .2 by unit prices stated in the Contract Documents or subsequently agreed upon; A191-1985 A191,Part2 OWNER-DESIGN/BUILDER ACREEMENT, FIRST EDITION PART 2-PAGE 6 AIA* (c)1985, THE AMERICAN INSTITUTE OF ARCHITECTS, 1735 NEW YORK AVENUE, N.W. WASHINCTON, D.C. 20006 .3 by cost to be determined in a manner agreed upon by the parties and a mutually acceptable fixed or percentage fee; or .4 by the method provided below. 8.1.5 If none of the methods set forth in Clauses 8.1.4.1, 8.1.4.2 or 8.1.4.3 is agreed upon, the Design/Builder, provided a written order signed by the Owner is received, shall promptly proceed with the Work involved. The cost of such Work shall then be determined on the basis of reasonable expenditures and savings of those performing the Work attributable to the change, including the expenditures for design services and revisions to the Contract Documents. In case of an increase in the contract sum, the cost shall include a reasonable allowance for overhead and profit. In case of the methods set forth in Clauses 8.1.4.3 and 8.1.4.4, the Design/Builder shall keep and present an itemized accounting together with appropriate supporting data for inclusion in a Change Order. Unless otherwise provided in the Contract Documents, cost shall be limited to the following: cost of materials, including sales tax and cost of delivery; cost of labor, including social security, old age and unemployment insurance, and fringe benefits required by agreement or custom; workers' or workmen's compensation insurance; bond premiums; rental value of equipment and machinery; additional costs of supervision and field office personnel directly attributable to the change; and fees paid to architects, engineers and other professionals. Pending final determination of cost to the Owner, payments on account shall be made on the Application for Payment. The amount of credit to be allowed by the Design/ Builder to the Owner for deletion or change which results in a net decrease in the contract sum will be actual net cost. When both additions and credits covering related Work or substitutions are involved in a change, the allowance for overhead and profit shall be figured on the basis of the net increase, if any, with respect to that change. 8.1.6 If unit prices are stated in the Contract Documents or subsequently agreed upon, and if quantities originally contemplated are so changed in a proposed Change Order that application of agreed unit prices to quantities proposed will cause substantial inequity to the Owner or Design/Builder, applicable unit prices shall be equitably adjusted. 8.2 CONCEALED CONDITIONS 8.2.1 If concealed or unknown conditions of an unusual nature that affect the performance of the Work and vary from those indicated by the Contract Documents are encountered below ground or in an existing structure other than the Work, which conditions are not ordinarily found to exist or which differ materially from those generally recognized as inherent in work of the character provided for in this Part 2, notice by the observing party shall be given promptly to the other party and, if possible, before conditions are disturbed and in no event later than twenty-one days after first observance of the conditions. The contract sum shall be equitably adjusted for such concealed or unknown conditions by Change Order upon claim by either party made within twenty-one days after the claimant becomes aware of the conditions. 8.3 REGULATORY CHANGES 8.3.1 The Design/Builder shall be compensated for changes in the Work necessitated by the enactment or revision of codes, laws or regulations subsequent to the submission of the Design/Builder's Proposal under Part 1. ARTICLE 9 CORRECTION OF WORK 9.1 The Design/Builder shall promptly correct Work rejected by the Owner or known by the Design/Builder to be defective or failing to conform to the Construction Documents, whether observed before or after Substantial Completion and whether or not fabricated, installed or completed, and shall correct Work under this Part 2 found to be defective or nonconforming within a period of one year from the date of Substantial Completion of the Work or designated portion thereof, or within such longer period provided by any applicable special warranty in the Contract Documents. 9.2 Nothing contained in this Article 9 shall be construed to establish a period of limitation with respect to other obligations of the Design/Builder under this Part 2. Paragraph 9.1 relates only to the specific obligation of the Design/Builder to correct the Work, and has no relationship to the time within which the obligation to comply with the Contract Documents may be sought to be enforced, nor to the time within which proceedings may be commenced to establish the Design/Builder's liability with respect to the Design/Builder's obligations other than correction of the Work. 9.3 If the Design/Builder fails to correct defective Work as required or persistently fails to carry out Work in accordance with the Contract Documents, the Owner, by written order signed personally or by an agent specifically so empowered by the Owner in writing, may order the Design/Builder to stop the Work, or any portion thereof, until the cause for such order has been eliminated; however, the Owner's right to stop the Work shall not give rise to a duty on the part of the Owner to exercise the right for benefit of the Design/Builder or other persons or entities. 9.4 If the Design/Builder defaults or neglects to carry out the Work in accordance with the Contract Documents and fails within seven days after receipt of written notice from the Owner to commence and continue correction of such default or neglect with diligence and promptness, the Owner may give a second written notice to the Design/ Builder and, seven days following receipt by the Design/ Builder of that second written notice and without prejudice to other remedies the Owner may have, correct such deficiencies. In such case an appropriate Change Order shall be issued deducting from payments then or thereafter due the Design/Builder costs of correcting such deficiencies. If the payments then or thereafter due the Design/Builder are not sufficient to cover the amount of the deduction, the Design/Builder shall pay the difference to the Owner. Such action by the Owner shall be subject to arbitration. ARTICLE 10 ARBITRATION 10.1 Claims, disputes and other matters in question between the parties to this Part 2 arising out of or relating to Part 2 shall be decided by arbitration in accordance with the Construction Industry Arbitration Rules of the American Arbitration Association then in effect unless the parties agree otherwise. No arbitration arising out of or relat- AIA DOCUMENT A191,Part 2, OWNER-DESIGN/BUILDER AGREEMENT A191-1985 FIRST EDITION AIA* (c)1985 * THE AMERICAN INSTITUTE OF PART 2-PAGE 7 ARCHITECTS 1735 NEW YORK AVENUE N.W., WASHINGTON, D.C. 20006 ing to this Part 2 shall include, by consolidation or joinder or in any other manner, an additional person not a party to Part I except by written consent containing specific reference to Part 2 and signed by the Owner, Design/Builder and any other person sought to be joined. Consent to arbitration involving an additional person or persons shall not constitute consent to arbitration of a dispute not described or with a person not named therein. This provision shall be specifically enforceable in any court of competent jurisdiction. 10.2 Notice of demand for arbitration shall be filed in writing with the other party to this Part 2 and with the American Arbitration Association. The demand shall be made within a reasonable time after the claim, dispute or other matter in question has arisen. In no event shall the demand for arbitration be made after the date when the applicable statute of limitations would bar institution of a legal or equitable proceeding based on such claim, dispute or other matter in question. 10.3 The award rendered by arbitrators shall be final, and judgment may be entered upon it in accordance with applicable law in any court having jurisdiction. 10.4 Unless otherwise agreed in writing, the Design/Builder shall carry on the Work and maintain its progress during any arbitration proceedings, and the Owner shall continue to make payments to the Design/Builder in accordance with the Contract Documents. 10.5 This Article 1O shall survive completion or termination of Part 2. ARTICLE 11 MISCELLANEOUS PROVISIONS 11.1 This Part 2 shall be governed by the law of the place where the Work is located. 11.2 The table of contents and the headings of articles and paragraphs are for convenience only and shall not modify rights and obligations created by this Part 2. 11.3 In case a provision of Part 2 is held to be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not be affected. 11.4 SUBCONTRACTS 11.4.1 The Design/Builder, as soon as practicable after execution of Part 2, shall furnish to the Owner in writing the names of the persons or entities the Design/Builder will engage as contractors for the Project. 11.4.2 Nothing contained in the Design/Builder Contract Documents shall create a professional obligation or contractual relationship between the Owner and any third party. 11.5 WORK BY OWNER OR OWNER'S CONTRACTORS 11.5.1 The Owner reserves the right to perform work related to, but not part of, the Project and to award separate contracts in connection with other work at the site. If the Design/Builder claims that delay or additional cost is involved because of such action by the Owner, the Design/ Builder shall make such claims as provided in Subparagraph 11.6. 11.5.2 The Design/Builder shall afford the Owner's separate contractors reasonable opportunity for introduction and storage of their materials and equipment for execution of their work. The Design/Builder shall incorporate and coordinate the Design/Builder's Work with work of the Owner's separate contractors as required by the Contract Documents. 11.5.3 Costs caused by defective or ill-timed work shall be borne by the party responsible. 11.6 CLAIMS FOR DAMAGES 11.6.1 Should either party to Part2 suffer injury or damage to person or property because of an act or omission of the other party, the other party's employees or agents, or another for whose acts the other party is legally liable, claim shall be made in writing to the other party within a reasonable time after such injury or damage is or should have been first observed. 11.7 INDEMNIFICATION 11.7.1 To the fullest extent permitted by law, the Design/Builder shall indemnify and hold harmless the Owner and the Owner's consultants and separate contractors, any of their subcontractors, sub-subcontractors, agents and employees from and against claims, damages, losses and expenses, including but not limited to attorneys' fees, arising out of or resulting from performance of the Work. These indemnification obligations shall be limited to claims, damages, losses or expenses (1) that are attributable to bodily injury, sickness, disease or death, or to injury to or destruction of tangible property (other than the Work itself) including loss of use resulting therefrom, and (2) to the extent such claims, damages, losses or expenses are caused in whole or in part by negligent acts or omissions of the Design/Builder, the Design/Builder's contractors, anyone directly or indirectly employed by either or anyone for whose acts either may be liable, regardless of whether or not they are caused in part by a party indemnified hereunder. Such obligation shall not be construed to negate, abridge or otherwise reduce other rights or obligations of indemnity which would otherwise exist as to a party or person described in this Paragraph 11.7. 11.7.2 ln claims against the Owner or its consultants and its contractors, any of their subcontractors, sub-subcontractors, agents or employees by an employee of the Design/Builder, its contractors, anyone directly or indirectly employed by them or anyone for whose acts they may be liable, the indemnification obligation under this Paragraph 11.7 shall not be limited by a limitation on amount or type of damages, compensation or benefits payable by or for the Design/Builder, or a Design/Builder's contractor, under workers' or workmen's compensation acts, disability benefit acts or other employee benefit acts. 11.8 SUCCESSORS AND ASSIGNS 11.8.1 This Part2 shall be binding on successors, assigns, and legal representatives of and persons in privity of contract with the Owner or Design/Builder. Neither party shall assign, sublet or transfer an interest in Part 2 without the written consent of the other. 11.8.2 This Paragraph 11.8 shall survive completion or termination of Part 2. 11.9 In case of termination of the Architect, the Design/Builder shall provide the services of another lawfully licensed person or entity against whom the Owner makes no reasonable objection. A191-1985 A191,Part2 OWNER-DESIGN/BUILDER ACREEMENT, FIRST EDITION PART 2-PAGE 8 AIA* (c)1985, THE AMERICAN INSTITUTE OF ARCHITECTS, 1735 NEW YORK AVENUE, N.W. WASHINCTON, D.C. 20006 11.10 EXTENT OF AGREEMENT 11.10.1 Part 2 represents the entire agreement between the Owner and Design/Builder and supersedes Part 1 and prior negotiations, representations or agreements. Part 2 may be amended only by written instrument signed by both Owner and Design/Builder. ARTICLE 12 TERMINATION OF THE AGREEMENT 12.1 TERMINATION BY THE OWNER 12.1.1 This Part 2 may be terminated by the Owner upon fourteen days' written notice to the Design/Builder in the event that the Project is abandoned. If such termination occurs, the Owner shall pay the Design/Builder for Work completed and for proven loss sustained upon materials, equipment, tools, and construction equipment and machinery, including reasonable profit and applicable damages. 12.1.2 lf the Design/Builder defaults or persistently fails or neglects to carry out the Work in accordance with the Contract Documents or fails to perform the provisions of Part 2, the Owner may give written notice that the Owner intends to terminate Part 2. If the Design/Builder fails to correct the defaults, failure or neglect within seven days after being given notice, the Owner may then give a second written notice and, after an additional seven days, the Owner may without prejudice to any other remedy make good such deficiencies and may deduct the cost thereof from the payment due the Design/Builder or at the Owner's option, may terminate the employment of the Design/Builder and take possession of the site and of all materials, equipment, tools and construction equipment and machinery thereon owned by the Design/Builder and finish the Work by whatever method the Owner may deem expedient. If the unpaid balance of the contract sum exceeds the expense of finishing the Work, the excess shall be paid to the Design/Builder, but if the expense exceeds the unpaid balance, the Design/Builder shall pay the difference to the Owner. 12.2 TERMINATION BY THE DESIGN/BUILDER 12.2.1 If the Owner fails to make payment when due, the Design/Builder may give written notice of the Design/Builder's intention to terminate Part 2. If the Design/Builder fails to receive payment within seven days after receipt of such notice by the Owner, the Design/Builder may give a second written notice and, seven days after receipt of such second written notice by the Owner, may terminate Part 2 and recover from the Owner payment for Work executed and for proven losses sustained upon materials, equipment, tools, and construction equipment and machinery, including reasonable profit and applicable damages. AIA DOCUMENT A191,Part 2, OWNER-DESIGN/BUILDER AGREEMENT A191-1985 FIRST EDITION AIA* (c)1985 * THE AMERICAN INSTITUTE OF PART 2-PAGE 9 ARCHITECTS 1735 NEW YORK AVENUE N.W., WASHINGTON, D.C. 20006 ARTICLE 13 BASIS OF COMPENSATION The Owner shall compensate the Design/Builder in accordance with Article 5, Payments, and the other provisions of this Part 2 as described below. 13.1 COMPENSATION 13.1.1 FOR BASIC SERVICES,as described in Paragraphs 2.2.2 through 2.2.17, and for any other services included in Article l4 as part of Basic Services, Basic Compensation shall be as follows: FOUR HUNDRED TWENTY FIVE THOUSAND AND NO/100 (425,000.00) DOLLARS, WHICH HAS BEEN PAID BY THE ISSUANCE OF LIMITED INTEREST IN THE BILTMORE GROUP, L.L.C. 13.2 REIMBURSABLE EXPENSES 13.2.1 Reimbursable Expenses are in addition to the compensation for Basic and Additional Services and include actual expenditures made by the Design/Builder in the interest of the Project for the expenses listed as follows: CONSTRUCTION OF THE ARBOR RETIREMENT COMMUNITY LOCATED AT 619 GERMANTOWN ROAD, MINDEN, LOUISIANA FOR THE FIXED SUM OF ONE MILLION, THREE HUNDRED, FIFTY THOUSAND AND NO/100 (1,350,000). ANY AND ALL CHANGE ORDERS WILL BE IN WRITING. 13.2.2 FOR REIMBURSABLE EXPENSES, compensation shall be a multiple of N/A ( ) times the amounts expended. 13.3 INTEREST PAYMENTS 13.3.1 The rate of interest for past due payments shall be as follows: N/A (Usury laws and requirements under the Federal Truth in Lending Act, similar state and local consumer credit laws and other regulations at the Owner's and Design/Builder's principal places of business, at the location of the Project and elsewhere may affect the validity of this provision. Specific legal advice should be obtained with respect to deletion, modification or other requirements, such as written disclosures or waivers.) A191-1985 AIA DOCUMENT A191, PART 2 OWNER-DESIGN/BUILDER AGREEMENT PART 2-PAGE 10 FIRST EDITION AIA (c)1985 THE AMERICAN INSITITUTE OF ARCHITECTS, 1735 NEW YORK AVENUE, N.W., WASHINGTON, D.C. 20006 ARTICLE 14 OTHER PROVISIONS 14.1 The Basic Services to be performed shall be commenced on SEPTEMBER 15, 1998 and, subject to authorized adjustments and to delays not caused by the Design/Builder, Substantial Completion shall be achieved in THREE HUNDRED (300) calendar days. 14.2 The Basic Services beyond those described in Article 2 are: NONE 14.3 The Design/Builder shall submit an Application for Payment on the 25TH DAY of each month.* 14.4 The Design/Builder's Proposal includes: (List below. this Part 2, Supplementary and other Conditions, the drawings, the specifications, and Modifications, showing page or sheet numbers in all cases and dates where applicable to define the scope of Work.) PAYMENT OF BANK LEGAL INSPECTION FEES NOT TO EXCEED $3000.00. This Part 2 entered into as of the day and year first written above. OWNER DESIGN/BUILDER THE BILTMORE GROUP L.L.C. THE FORSYTHE GROUP, INC. - ----------------------------- --------------------------------- BY:/S/JOANNE CALDWELL BAYLES BY /S/SONYA KILE, V.P. - ----------------------------- --------------------------------- MANAGING MEMBER SCENICLAND CONSTRUCTION, CO. - ----------------------------- --------------------------------- BY BY /S/FRED M BAYLES --------------------------- ------------------------------- *APPLICATION FOR PAYMENT, APPROVED BY KARL MIKE WALLACE, P.E. ARE DUE AND PAYABLE ON OR BEFORE THE 1ST DAY OF THE MONTH FOLLOWING. AIA DOCUMENT A191, PART 2 OWNER-DESIGN/BUILDER AGREEMENT A191-1985 FIRST EDITION AIA 1985 THE AMERICAN INSTITUTE OF PART 2-PAGE 11 ARCHITECTS, 1735 NEW YORK AVENUE, N.W., WASHINGTON, D.C. 20006 EX-10.2 12 CONSTRUCTION MANAGEMENT CONTRACT FOR THE BASTROP, LA FACILITY THE AMERICAN INSTITUTE OF ARCHITECTS [AIA LOGO] AIA Document A191 Standard Form of Agreement Between Owner and Design/Builder 1985 EDITION THIS DOCUMENT HAS IMPORTANT LEGAL CONSEQUENCES; CONSULTATION WITH AN ATTORNEY IS ENCOURAGED. This Document comprises two separate Agreements: Part 1 Agreement-Preliminary Design and Budgeting and Part 2 Agreement-Final Design and Construction. Hereinafter, the Part 1 Agreement is referred to as Part 1 and the Part 2 Agreement is referred to as Part 2. PART 2 AGREEMENT-FINAL DESIGN AND CONSTRUCTION AGREEMENT made as of the ELEVENTH day Of NOVEMBER in the year of Nineteen Hundred and NINETY-EIGHT. BETWEEN the Owner: THE BILTMORE GROUP OF LOUISIANA, L.L.C. (Name and address) 507 TRENTON STREET WEST MONROE, LA 71291 and the Design/Builder: (Name and address) THE FORSYTHE GROUP, INC. SCENICLAND CONSTRUCTION, CO. 507 TRENTON STREET 131 SUNSET DR WEST MONROE, LA 71291 WEST MONROE, LA 71291 For the following Project (Include Project name, location and detailed description of scope.) THE ARBOR RETIREMENT COMMUNITY IN BASTROP, LA (EXHIBIT A) DESIGN AND COMPLETE CONSTRUCTION ACCORDING TO PLANS AND SPECIFICATIONS DESIGNED BY THE FORSYTHE GROUP, INC.; WITH ASSISTANCE OF ENGINEER FIRM: TAYLOR-WALLACE:CIVIC ENGINEER The architectural services described in Article 2 will be provided by the following person or entity who is lawfully licensed to practice architecture: (Name and address) Taylor-Wallace Designs, Inc. Downsville, LA 71234 The Owner and the Design/Builder agree as set forth below. Copyright (c) 1985 by The American Institute of Architects, 1735 New York Avenue, N.W., Washington, D.C. 20006. Reproduction of the material herein or substantial quotation of its provisions without written permission of the AIA violates the copyright laws of the United States and will be subject to legal prosecution. AIA DOCUMENT A191, PART 2 OWNER-DESIGN/BUILDER AGREEMENT FIRST EDITION AIA (C)1985 THE AMERICAN INSTITUTE OF ARCHITECTS,1735 NEW YORK AVENUE, N.W., WASHINGTON, D.C. 20006 A191-1985 PART 2-PAGE 1 Terms and Conditions-Part 2 Agreement ARTICLE I GENERAL PROVISIONS 1.1 BASIC DEFINITIONS 1.1.1 The Contract Documents consist of the Design/ Builder's Proposal identified in Article 14, this Part 2, the Construction Documents approved by the Owner in accordance with Subparagraph 2.2.2 below and Modifications issued after execution of Part 2. A Modification is a Change Order or a written amendment to Part 2 signed by both parties. These form the Contract, and are as fully a part of the Contract as if attached to this Part 2 or repeated herein. 1.1.2 The Project is the total design and construction for which the Design/Builder is responsible under Part 2, including all professional design services and all labor, materials and equipment used or incorporated in such design and construction. 1.1.3 The Work comprises the completed construction designed under the Project and includes labor necessary to produce such construction, and materials and equipment incorporated or to be incorporated in such construction. 1.2 EXECUTION, CORRELATION AND INTENT 1.2.1 This Part 2 shall be signed in not less than duplicate by the Owner and Design/Builder. 1.2.2 lt is the intent of the Owner and Design/Builder that the Contract Documents include all items necessary for proper execution and completion of the Work. The Contract Documents are complementary, and what is required by anyone shall be as binding as if required by all. Work not covered in the Contract Documents will not be required unless it is consistent with and is reasonably inferable from the Contract Documents as being necessary to produce the intended results. Words and abbreviations which have well-known technical or trade meanings are used in the Contract Documents in accordance with such recognized meanings. 1.3 OWNERSHIP AND USE OF DOCUMENTS 1.3.1 The drawings, specifications and other documents furnished by the Design/Builder are instruments of service and shall not become the property of the Owner whether or not the Project for which they are made is commenced. Drawings, specifications and other documents furnished by the Design/Builder shall not be used by the Owner on other projects, for additions to this Project or, unless the Design/Builder is in default under Part 2, for completion of this Project by others, except by written agreement relating to use, liability and compensation. 1.3.2 Submission or distribution of documents to meet official regulatory requirements or for other purposes in connection with the Project is not to be construed as publication in derogation of the Design/Builder's or the Architect's common law copyrights or other reserved rights. The Owner shall own neither the documents nor the copyrights. ARTICLE 2 DESIGN/BUILDER 2.1 SERVICES AND RESPONSIBILITIES 2.1.1 Design services shall be performed by qualified architects, engineers and other professionals selected and paid by the Design/Builder. The professional obligations of such persons shall be undertaken and performed in the interest of the Design/Builder. Construction services shall be performed by qualified construction contractors and suppliers, selected and paid by the Design/Builder and acting in the interest of the Design/Builder. Nothing contained in Part 2 shall create any professional obligation or contractual relationship between such persons and the Owner. 2.2 BASIC SERVICES 2.2.1 The Design/Builder's Basic Services are described below and in Article 14. 2.2.2 Based on the Design/Builder's Proposal, the Design/Builder shall submit Construction Documents for review and approval by the Owner. Construction Documents shall include technical drawings, schedules, diagrams and specifications, setting forth in detail the requirements for construction of the Work, and shall: .1 develop the intent of the Design/Builder's Proposal in greater detail; .2 provide information customarily necessary for the use of those in the building trades; and .3 include documents customarily required for regulatory agency approvals. 2.2.3 The Design/Builder shall assist the Owner in filing documents required to obtain necessary approvals of governmental authorities having jurisdiction over the Project. 2.2.4 Unless otherwise provided in the Contract Documents, the Design/Builder shall provide or cause to be provided and shall pay for design services, labor, materials, equipment, tools, construction equipment and machinery, water, heat, utilities, transportation and other facilities and services necessary for proper execution and completion of the Work, whether temporary or permanent and whether or not incorporated or to be incorporated in the Work. 2.2.5 The Design/Builder shall be responsible for and shall coordinate all construction means, methods, techniques, sequences and procedures. 2.2.6 The Design/Builder shall keep the Owner informed of the progress and quality of the Work. 2.2.7 If requested in writing by the Owner, the Design/ Builder, with reasonable promptness and in accordance with time limits agreed upon, shall interpret the requirements of the Contract Documents and initially shall decide, subject to demand for arbitration, claims, disputes and other matters in question relating to performance thereunder by both Owner and Design/Builder. Such interpretations and decisions shall be in writing, shall not be presumed to be correct and shall be given such weight as the arbitrators or the court shall determine. A191-1985 A191,Part2 OWNER-DESIGN/BUILDER ACREEMENT, FIRST EDITION PART 2-PAGE 2 AIA* (c)1985, THE AMERICAN INSTITUTE OF ARCHITECTS, 1735 NEW YORK AVENUE, N.W. WASHINCTON, D.C. 20006 2.2.8 The Design/Builder shall correct Work which does not conform to the Construction Documents. 2.2.9 The Design/Builder warrants to the Owner that materials and equipment incorporated in the Work will be new unless otherwise specified, and that the Work will be of good quality, free from faults and defects, and in conformance with the Contract Documents. Work not conforming to these requirements shall be corrected in accordance with Article 9. 2.2.10 The Design/Builder shall pay all sales, consumer, use and similar taxes which were in effect at the time the Design/Builder's Proposal was first submitted to the Owner, and shall secure and pay for building and other permits and governmental fees, licenses and inspections necessary for the proper execution and completion of the Work which are either customarily secured after execution of Part 2 or are legally required at the time the Design/Builder's Proposal was first submitted to the Owner. 2.2.11 The Design/Builder shall give notices and comply with laws, ordinances, rules, regulations and lawful orders of public authorities relating to the Project. 2.2.12 The Design/Builder shall pay royalties and license fees. The Design/Builder shall defend suits or claims for infringement of patent rights and shall save the Owner harmless from loss on account thereof, except that the Owner shall be responsible for such loss when a particular design, process or product of a particular manufacturer is required by the Owner. However, if the Design/Builder has reason to believe the use of a required design, process or product is an infringement of a patent, the Design/Builder shall be responsible for such loss unless such information is promptly given to the Owner. 2.2.13 The Design/Builder shall be responsible to the Owner for acts and omissions of the Design/Builder's employees and parties in privily of contract with the Design/ Builder to perform a portion of the Work, including their agents and employees. 2.2.14 The Design/Builder shall keep the premises free from accumulation of waste materials or rubbish caused by the Design/Builder's operations. At the completion of the Work, the Design/Builder shall remove from and about the Project the Design/Builder's tools, construction equipment, machinery, surplus materials, waste materials and rubbish. 2.2.15 The Design/Builder shall prepare Change Orders for the Owner's approval and execution in accordance with Part 2 and shall have authority to make minor changes in the design and construction consistent with the intent of Part 2 not involving an adjustment in the contract sum or an extension of the contract time. The Design/Builder shall promptly inform the Owner, in writing, of minor changes in the design and construction. 2.2.16 The Design/Builder shall notify the Owner when the Work or an agreed upon portion thereof is substantially completed by issuing a Certificate of Substantial Completion which shall establish the Date of Substantial Completion, shall state the responsibility of each party for security, maintenance, heat, utilities, damage to the Work and insurance, shall include a list of items to be completed or corrected and shall fix the time within which the Design/Builder shall complete items listed therein. Disputes between the Owner and Design/Builder regarding the Certificate of Substantial Completion shall be resolved by arbitration. 2.2.17 The Design/Builder shall maintain in good order at the site one record copy of the drawings, specifications, product data, samples, shop drawings, Change Orders and other Modifications, marked currently to record changes made during construction. These shall be delivered to the Owner upon completion of the design and construction and prior to final payment. ARTICLE 3 OWNER 3.1 The Owner shall designate a representative authorized to act on the Owner's behalf with respect to the Project. The Owner or such authorized representative shall examine documents submitted by the Design/Builder and shall promptly render decisions pertaining thereto to avoid delay in the orderly progress of the Work. 3.2 The Owner may appoint an on-site project representative to observe the Work and to have such other responsibilities as the Owner and Design/Builder agree in writing prior to execution of Part 2. 3.3 The Owner shall cooperate with the Design/Builder in securing building and other permits, licenses and inspections, and shall pay the fees for such permits, licenses and inspections if the cost of such fees is not identified as being included in the Design/Builder's Proposal. 3.4 The Owner shall furnish services by land surveyors, geotechnical engineers and other consultants for subsoil, air and water conditions, in addition to those provided under Part 1 when such services are deemed necessary by the Design/Builder to carry out properly the design services under this Part 2. 3.5 The Owner shall furnish structural, mechanical, chemical, geotechnical and other laboratory or on-site tests, inspections and reports as required by law or the Contract Documents. 3.6 The services, information, surveys and reports required by Paragraphs 3.4 and 3.5 shall be furnished at the Owner's expense, and the Design/Builder shall be entitled to rely upon their accuracy and completeness. 3.7 If the Owner observes or otherwise becomes aware of a fault or defect in the Work or nonconformity with the Design or Construction Documents, the Owner shall give prompt written notice thereof to the Design/Builder. 3.8 The Owner shall furnish required information and services and shall promptly render decisions pertaining thereto to avoid delay in the orderly progress of the design and construction. 3.9 The Owner shall, at the request of the Design/Builder and upon execution of Part 2, provide a certified or notarized statement of funds available for the Project and their source. 3.10 The Owner shall communicate with contractors only through the Design/Builder. ARTICLE 4 TIME 4.1 The Design/Builder shall provide services as expeditiously as is consistent with reasonable skill and care and the orderly progress of design and construction. 4.2 Time limits stated in the Contract Documents are of the essence of Part 2. The Work to be performed under Part AIA DOCUMENT A191,Part 2, OWNER-DESIGN/BUILDER AGREEMENT A191-1985 FIRST EDITION AIA* (c)1985 * THE AMERICAN INSTITUTE OF PART 2-PAGE 3 ARCHITECTS 1735 NEW YORK AVENUE N.W., WASHINGTON, D.C. 20006 2 shall commence upon execution of a notice to proceed unless otherwise agreed and, subject to authorized Modifications, Substantial Completion shall be achieved as indicated in Article 14. 4.3 The Date of Substantial Completion of the Work or an agreed upon portion thereof is the date when construction or an agreed upon portion thereof is sufficiently complete so the Owner can occupy and utilize the Work or agreed upon portion thereof for its intended use. 4.4 The schedule provided in the Design/Builder's Proposal shall include a construction schedule consistent with Paragraph 4.2 above. 4.3 If the Design/Builder is delayed in the progress of the Project by acts or neglect of the Owner, Owner's employees, separate contractors employed by the Owner, changes ordered in the Work not caused by the fault of the Design/Builder, labor disputes, fire, unusual delay in transportation, adverse weather conditions not reasonably anticipatable, unavoidable casualties, or other causes beyond the Design/Builder's control, or by delay authorized by the Owner's pending arbitration or another cause which the Owner and Design/Builder agree is justifiable, the contract time shall be reasonably extended by Change Order. ARTICLE 5 PAYMENTS 5.1 PROGRESS PAYMENTS 5.1.1 The Design/Builder shall deliver to the Owner itemized Applications for Payment in such detail as indicated in Article 14. 5.1.2 Within ten days of the Owner's receipt of a properly submitted and correct Application for Payment, the Owner shall make payment to the Design/Builder. 5.1.3 The Application for Payment shall constitute are presentation by the Design/Builder to the Owner that, to the best of the Design/Builder's knowledge, information and belief, the design and construction have progressed to the point indicated; the quality of the Work covered by the application is in accordance with the Contract Documents; and the Design/Builder is entitled to payment in the amount requested. 5.1.4 The Design/Builder shall pay each contractor, upon receiptof payment from the Owner, out of the amount paid to the Design/Builder on account of such contractor's work, the amount to which said contractor is entitled in accordance with the terms of the Design/Builder's contract with such contractor. The Design/Builder shall, by appropriate agreement with each contractor, require each contractor to make payments to subcontractors in similar manner. 5.1.5 The Owner shall have no obligation to pay or to be responsible in any way for payment to a contractor of the Design/Builder except as may otherwise be required by law. 5.1.6 No progress payment or partial or entire use or occupancy of the Project by the Owner shall constitute an acceptance of Work not in accordance with the Contract Documents. 5.1.7 The Design/Builder warrants that: (1) title to Work, materials and equipment covered by an Application for Payment will pass to the Owner either by incorporation in construction or upon receipt of payment by the Design/Builder, whichever occurs first; (2) Work, materials and equipment covered by previous Applications for Payment are free and clear of liens, claims, security interests or encumbrances, hereinafter referred to as "liens"; and (3) no Work, materials or equipment covered by an Application for Payment will have been acquired by the Design/ Builder, or any other person performing work at the site or furnishing materials or equipment for the Project, subject to an agreement under which an interest therein or an encumbrance thereon is retained by the seller or otherwise imposed by the Design/Builder or such other person. 5.1.8 If the Contract provides for retainage, then at the date of Substantial Completion or occupancy of the Work or any agreed upon portion thereof by the Owner, whichever occurs first, the Design/Builder may apply for and the Owner, if the Design/Builder has satisfied the requirements of Paragraph 5.2.1 and any other requirements of the Contract relating to retainage, shall pay the Design/Builder the amount retained, if any, for the Work or for the portion completed or occupied, less the reasonable value of incorrect or incomplete Work. Final payment of such withheld sum shall be made upon correction or completion of such Work. 5.2 FINAL PAYMENT 5.2.1 Neither final payment nor amounts retained,if any, shall become due until the Design/Builder submits to the Owner (1) an affidavit that payrolls, bills for materials and equipment, and other indebtedness connected with the Project for which the Owner or Owner's property might be liable have been paid or otherwise satisfied, (2) consent of surety, if any, to final payment, (3) a certificate that insurance required by the Contract Documents is in force following completion of the Work, and (4) if required by the Owner, other data establishing payment or satisfaction of obligations, such as receipts, releases and waivers of liens arising out of Part 2, to the extent and in such form as may be designated by the Owner. If a contractor refuses to furnish a release or waiver required by the Owner, the Design/Builder may furnish a bond satisfactory to the Owner to indemnify the Owner against such lien. If such lien remains unsatisfied after payments are made, the Design/Builder shall reimburse the Owner for moneys the latter may be compelled to pay in discharging such lien, including all costs and reasonable attorneys' fees. 5.2.2 Final payment constituting the entire unpaid balance due shall be paid by the Owner to the Design/Builder upon the Owner's receipt of the Design/Builder's final Application for Payment when the Work has been completed and the Contract fully performed except for those responsibilities of the Design/Builder which survive final payment. 5.2.3 The making of final payment shall constitute a waiver of all claims by the Ownerexcept those arising from: .1 unsettled liens; .2 faulty or defective Work appearing after Substantial Completion; .3 failure of the Work to comply with requirements of the Contract Documents; or .4 terms of special warranties required by the Contract Documents. 5.2.4 Acceptance of final payment shall constitute a waiver of all claims by the Design/Builder except those previously made in writing and identified by the Design/Builder as unsettled at the time of final Application for Payment. A191-1985 A191,Part2 OWNER-DESIGN/BUILDER ACREEMENT, FIRST EDITION PART 2-PAGE 4 AIA* (c)1985, THE AMERICAN INSTITUTE OF ARCHITECTS, 1735 NEW YORK AVENUE, N.W. WASHINCTON, D.C. 20006 5.3 INTEREST PAYMENTS 5.3.1 Payments due the Design/Builder under Part2 which are not paid when due shall bear interest from the date due at the rate specified in Article 13, or in the absence of a specified rate, at the legal rate prevailing where the principal improvements are to be located. ARTICLE 6 PROTECTION OF PERSONS AND PROPERTY 6.1 The Design/Builder shall be responsible for initiating, maintaining and providing Supervision of safety precautions and programs in connection with the Work. 6.2 The Design/Builder shall take reasonable precautions for safety of, and shall provide reasonable protection to prevent damage, injury or loss to: (1) employees on the Work and other persons who may be affected thereby; (2) the Work and materials and equipment to be incorporated therein; and (3) other property at or adjacent to the site. 6.3 The Design/Builder shall give notices and comply with applicable laws, ordinances, rules, regulations and orders of public authorities bearing on the safety of persons and property and their protection from damage, injury or loss. 6.4 The Design/Builder shall be liable for damage or loss (other than damage or loss to property insured under the property insurance provided or required by the Contract Documents to be provided by the Owner) to property at the site caused in whole or in part by the Design/Builder, a contractor of the Design/Builder or anyone directly or indirectly employed by either of them, or by anyone for whose acts they may be liable, except damage or loss attributable to the acts or omissions of the Owner, the Owner's separate contractors or anyone directly or indirectly employed by them or by anyone for whose acts they may be liable and not attributable to the fault or negligence of the Design/ Builder. ARTICLE 7 INSURANCE AND BONDS 7.1 DESIGN/BUILDER'S LIABILITY INSURANCE 7.1.1 The Design/Builder shall purchase and maintainin a company or companies authorized to do business in the state in which the Work is located such insurance as will protect the Design/Builder from claims set forth below which may arise out of or result from operations under the Contract by the Design/Builder or by a contractor of the Design/Builder, or by anyone directly or indirectly employed by any of them, or by anyone for whose acts they may be liable: .1 claims under workers' or workmen's compensation, disability benefit and other similar employee benefit laws which are applicable to the Work to be performed; .2 claims for damages because of bodily injury, occupational sickness or disease, or death of the Design/Builder's employees under any applicable employer's liability law; .3 claims for damages because of bodily injury, sickness or disease, or death of persons other than the Design/Builder's employees; .4 claims for damages covered by usual personal injury liability coverage which are sustained (1) by a person as a result of an offense directly or indirectly related to employment of such person by the Design/Builder or (2) by another person; .5 claims for damages, other than to the Work at the site, because of injury to or destruction of tangible property, including loss of use; and .6 claims for damages for bodily injury or death of a person or property damage arising out of ownership, maintenance or use of a motor vehicle. 7.1.2 The insurance required by the above Subparagraph 7.1.1 shall be written for not less than limits of liability specified in the Contract Documents or required by law, whichever are greater. 7.1.3 The Design/Builder's liability insurance shall include contractual liability insurance applicable to the Design/Builder's obligations under Paragraph 11.7. 7.1.4 Certificates of Insurance, and copies of policies if requested, acceptable to the Owner shall be delivered to the Owner prior to commencement of design and construction. These Certificates as well as insurance policies required by this Paragraph shall contain a provision that coverage will not be cancelled or allowed to expire until at least thirty days' prior written notice has been given to the Owner. If any of the foregoing insurance coverages are required to remain in force after final payment, an additional certificate evidencing continuation of such coverage shall be submitted along with the application for final payment. 7.2 OWNER'S LIABILITY INSURANCE 7.2.1 The Owner shall be responsible for purchasing and maintaining, in a company or companies authorized to do business in the state in which the principal improvements are to be located, Owner's liability insurance to protect the Owner against claims which may arise from operations under this Project. 7.3 PROPERTY INSURANCE 7.3.1 Unless otherwise provided under this Part 2, the Owner shall purchase and maintain, in a company or companies authorized to do business in the state in which the principal improvements are to be located, property insurance upon the Work at the site to the full insurable value thereof. Property insurance shall include interests of the Owner, the Design/Builder, and their respective contractors and subcontractors in the Work. It shall insure against perils of fire and extended coverage and shall include all risk insurance for physical loss or damage including, without duplication of coverage, theft, vandalism and malicious mischief. If the Owner does not intend to purchase such insurance for the full insurable value of the entire Work, the Owner shall inform the Design/Builder in writing prior to commencement of the Work. The Design/Builder may then effect insurance for the Work at the site which will protect the interests of the Design/Builder and the Design/Builder's contractors and subcontractors, and by appropriate Change Order the cost thereof shall be charged to the Owner. If the Design/Builder is damaged by failure of the Owner to purchase or maintain such insurance without notice to the Design/Builder, then the Owner shall bear all reasonable costs properly attributable thereto. if not covered under the all risk insurance or not otherwise provided in the Contract Documents, the Design/Builder shall effect and maintain similar property insurance on portions of the Work stored off-site or in transit when such portions of the Work are to be included in an Application for Payment. AIA DOCUMENT A191,Part 2, OWNER-DESIGN/BUILDER AGREEMENT A191-1985 FIRST EDITION AIA* (c)1985 * THE AMERICAN INSTITUTE OF PART 2-PAGE 5 ARCHITECTS 1735 NEW YORK AVENUE N.W., WASHINGTON, D.C. 20006 7.3.2 Unless otherwise provided under this Part 2, the Owner shall purchase and maintain such boiler and machinery insurance as may be required by the Contract Documents or by law and which shall specifically cover such insured objects during installation and until final acceptance by the Owner. This insurance shall cover interests of the Owner, the Design/Builder, and the Design/Builder's contractors and subcontractors in the Work. 7.3.3 A loss insured under Owner's property insurance is to be adjusted with the Owner and made payable to the Owner as trustee for the insureds, as their interests may appear, subject to requirements of any applicable mortgagee clause and of Subparagraph 7.3.8. The Design/ Builder shall pay contractors their shares of insurance proceeds received by the Design/Builder, and by appropriate agreement, written where legally required for validity, shall require contractors to make payments to their subcontractors in similar manner. 7.3.4 Before an exposure to loss may occur, the Owner shall file with the Design/Builder a copy of each policy required by this Paragraph 7.3. Each policy shall contain only those endorsements specifically related to this Project. Each policy shall contain a provision that the policy will not be cancelled or allowed to expire until at least thirty days' prior written notice has been given the Design/ Builder. 7.3.5 If the Design/Builder requests in writing that insurance for risks other than those described herein or for other special hazards be included in the property insurance policy, the Owner shall, if possible, obtain such insurance, and the cost thereof shall be charged to the Design/Builder by appropriate Change Order. 7.3.6 The Owner and Design/Builder waive all rights against each other and the contractors, subcontractors, agents and employees, each of the other, for damages caused by fire or other perils to the extent covered by property insurance obtained pursuant to this Paragraph 7.3 or other property insurance applicable to the Work, except such rights as they may have to proceeds of such insurance held by the Owner as trustee. The Owner or Design/Builder, as appropriate, shall require from contractors and subcontractors by appropriate agreements, written where legally required for validity, similar waivers each in favor of other parties enumerated in this Paragraph 7.3. The policies shall be endorsed to include such waivers of subrogation. 7.3.7 If required in writing by a party in interest, the Owner as trustee shall provide, upon occurrence of an insured loss, a bond for proper performance of the Owner's duties. The cost of required bonds shall be charged against proceeds received as trustee. The Owner shall deposit proceeds so received in a separate account and shall distribute them in accordance with such agreement as the parties in interest may reach, or in accordance with an arbitration award in which case the procedure shall be as provided in Article 10. If after such loss no other special agreement is made, replacement of damaged Work shall be covered by appropriate Change Order. 7.3.8 The Owner, as trustee, shall have power to adjust and settle a loss with insurers unless one of the parties in interest shall object, in writing, within ten days after occurrence of loss, to the Owner's exercise of this power. If such objection be made, the Owner as trustee shall make settlement with the insurers in accordance with the decision of arbitration as provided in Article 10. If distribution of insurance proceeds by arbitration is required, the arbitrators will direct such distribution. 7.3.9 If the Owner finds it necessary to occupy or use a portion or portions of the Work before Substantial Completion, such occupancy or use shall not commence prior to a time agreed to by the Owner and Design/Builder and to which the insurance company or companies providing property insurance have consented by endorsement to the policy or policies. The property insurance shall not lapse or be cancelled on account of such partial occupancy or use. Consent of the Design/Builder and of the insurance company or companies to such occupancy or use shall not be unreasonably withheld. 7.4 LOSS OF USE INSURANCE 7.4.1 The Owner, at the Owner's option, may purchase and maintain such insurance as will insure the Owner against loss of use of the Owner's property due to fire or other hazards, however caused. The Owner waives all rights of action against the Design/Builder, and its contractors and their agents and employees, for loss of use of the Owner's property, including consequential losses due to fire or other hazards, however caused, to the extent covered by insurance under this Paragraph 7.4. 7.5 PERFORMANCE BOND AND PAYMENT BOND 7.5.1 The Owner shall have the right to require the Design/Builder to furnish bonds covering the faithful performance of the Contract and the payment of all obligations arising thereunder if and as required in the Contract Documents or in Article 14. ARTICLE 8 CHANGES IN THE WORK 8.1 CHANGE ORDERS 8.1.1 A Change Order is a written order signed by the Owner and Design/Builder, and issued after execution of Part 2, authorizing a change in the Work or adjustment in the contract sum or contract time. The contract sum and contract time may be changed only by Change Order. 8.1.2 The Owner, without invalidating Part 2, may order changes in the Work within the general scope of Part 2 consisting of additions, deletions or other revisions, and the contract sum and contract time shall be adjusted accordingly. Such changes in the Work shall be authorized by Change Order, and shall be performed under applicable conditions of the Contract Documents. 8.1.3 If the Owner requests the Design/Builder to submit a proposal for a change in the Work and then elects not to proceed with the change, a Change Order shall be issued to reimburse the Design/Builder for any costs incurred for Design Services or proposed revisions to the Contract Documents. 8.1.4 Cost or credit to the Owner resulting from a change in the Work shall be determined in one or more of the following ways: .1 by mutual acceptance of a lump sum properly itemized and supported by sufficient substantiating data to permit evaluation; .2 by unit prices stated in the Contract Documents or subsequently agreed upon; A191-1985 A191,Part2 OWNER-DESIGN/BUILDER ACREEMENT, FIRST EDITION PART 2-PAGE 6 AIA* (c)1985, THE AMERICAN INSTITUTE OF ARCHITECTS, 1735 NEW YORK AVENUE, N.W. WASHINCTON, D.C. 20006 .3 by cost to be determined in a manner agreed upon by the parties and a mutually acceptable fixed or percentage fee; or .4 by the method provided below. 8.1.5 If none of the methods set forth in Clauses 8.1.4.1, 8.1.4.2 or 8.1.4.3 is agreed upon, the Design/Builder, provided a written order signed by the Owner is received, shall promptly proceed with the Work involved. The cost of such Work shall then be determined on the basis of reasonable expenditures and savings of those performing the Work attributable to the change, including the expenditures for design services and revisions to the Contract Documents. In case of an increase in the contract sum, the cost shall include a reasonable allowance for overhead and profit. In case of the methods set forth in Clauses 8.1.4.3 and 8.1.4.4, the Design/Builder shall keep and present an itemized accounting together with appropriate supporting data for inclusion in a Change Order. Unless otherwise provided in the Contract Documents, cost shall be limited to the following: cost of materials, including sales tax and cost of delivery; cost of labor, including social security, old age and unemployment insurance, and fringe benefits required by agreement or custom; workers' or workmen's compensation insurance; bond premiums; rental value of equipment and machinery; additional costs of supervision and field office personnel directly attributable to the change; and fees paid to architects, engineers and other professionals. Pending final determination of cost to the Owner, payments on account shall be made on the Application for Payment. The amount of credit to be allowed by the Design/ Builder to the Owner for deletion or change which results in a net decrease in the contract sum will be actual net cost. When both additions and credits covering related Work or substitutions are involved in a change, the allowance for overhead and profit shall be figured on the basis of the net increase, if any, with respect to that change. 8.1.6 If unit prices are stated in the Contract Documents or subsequently agreed upon, and if quantities originally contemplated are so changed in a proposed Change Order that application of agreed unit prices to quantities proposed will cause substantial inequity to the Owner or Design/Builder, applicable unit prices shall be equitably adjusted. 8.2 CONCEALED CONDITIONS 8.2.1 If concealed or unknown conditions of an unusual nature that affect the performance of the Work and vary from those indicated by the Contract Documents are encountered below ground or in an existing structure other than the Work, which conditions are not ordinarily found to exist or which differ materially from those generally recognized as inherent in work of the character provided for in this Part 2, notice by the observing party shall be given promptly to the other party and, if possible, before conditions are disturbed and in no event later than twenty-one days after first observance of the conditions. The contract sum shall be equitably adjusted for such concealed or unknown conditions by Change Order upon claim by either party made within twenty-one days after the claimant becomes aware of the conditions. 8.3 REGULATORY CHANGES 8.3.1 The Design/Builder shall be compensated for changes in the Work necessitated by the enactment or revision of codes, laws or regulations subsequent to the submission of the Design/Builder's Proposal under Part 1. ARTICLE 9 CORRECTION OF WORK 9.1 The Design/Builder shall promptly correct Work rejected by the Owner or known by the Design/Builder to be defective or failing to conform to the Construction Documents, whether observed before or after Substantial Completion and whether or not fabricated, installed or completed, and shall correct Work under this Part 2 found to be defective or nonconforming within a period of one year from the date of Substantial Completion of the Work or designated portion thereof, or within such longer period provided by any applicable special warranty in the Contract Documents. 9.2 Nothing contained in this Article 9 shall be construed to establish a period of limitation with respect to other obligations of the Design/Builder under this Part 2. Paragraph 9.1 relates only to the specific obligation of the Design/Builder to correct the Work, and has no relationship to the time within which the obligation to comply with the Contract Documents may be sought to be enforced, nor to the time within which proceedings may be commenced to establish the Design/Builder's liability with respect to the Design/Builder's obligations other than correction of the Work. 9.3 If the Design/Builder fails to correct defective Work as required or persistently fails to carry out Work in accordance with the Contract Documents, the Owner, by written order signed personally or by an agent specifically so empowered by the Owner in writing, may order the Design/Builder to stop the Work, or any portion thereof, until the cause for such order has been eliminated; however, the Owner's right to stop the Work shall not give rise to a duty on the part of the Owner to exercise the right for benefit of the Design/Builder or other persons or entities. 9.4 If the Design/Builder defaults or neglects to carry out the Work in accordance with the Contract Documents and fails within seven days after receipt of written notice from the Owner to commence and continue correction of such default or neglect with diligence and promptness, the Owner may give a second written notice to the Design/ Builder and, seven days following receipt by the Design/ Builder of that second written notice and without prejudice to other remedies the Owner may have, correct such deficiencies. In such case an appropriate Change Order shall be issued deducting from payments then or thereafter due the Design/Builder costs of correcting such deficiencies. If the payments then or thereafter due the Design/Builder are not sufficient to cover the amount of the deduction, the Design/Builder shall pay the difference to the Owner. Such action by the Owner shall be subject to arbitration. ARTICLE 10 ARBITRATION 10.1 Claims, disputes and other matters in question between the parties to this Part 2 arising out of or relating to Part 2 shall be decided by arbitration in accordance with the Construction Industry Arbitration Rules of the American Arbitration Association then in effect unless the parties agree otherwise. No arbitration arising out of or relat- AIA DOCUMENT A191,Part 2, OWNER-DESIGN/BUILDER AGREEMENT A191-1985 FIRST EDITION AIA* (c)1985 * THE AMERICAN INSTITUTE OF PART 2-PAGE 7 ARCHITECTS 1735 NEW YORK AVENUE N.W., WASHINGTON, D.C. 20006 ing to this Part 2 shall include, by consolidation or joinder or in any other manner, an additional person not a party to Part I except by written consent containing specific reference to Part 2 and signed by the Owner, Design/Builder and any other person sought to be joined. Consent to arbitration involving an additional person or persons shall not constitute consent to arbitration of a dispute not described or with a person not named therein. This provision shall be specifically enforceable in any court of competent jurisdiction. 10.2 Notice of demand for arbitration shall be filed in writing with the other party to this Part 2 and with the American Arbitration Association. The demand shall be made within a reasonable time after the claim, dispute or other matter in question has arisen. In no event shall the demand for arbitration be made after the date when the applicable statute of limitations would bar institution of a legal or equitable proceeding based on such claim, dispute or other matter in question. 10.3 The award rendered by arbitrators shall be final, and judgment may be entered upon it in accordance with applicable law in any court having jurisdiction. 10.4 Unless otherwise agreed in writing, the Design/Builder shall carry on the Work and maintain its progress during any arbitration proceedings, and the Owner shall continue to make payments to the Design/Builder in accordance with the Contract Documents. 10.5 This Article 1O shall survive completion or termination of Part 2. ARTICLE 11 MISCELLANEOUS PROVISIONS 11.1 This Part 2 shall be governed by the law of the place where the Work is located. 11.2 The table of contents and the headings of articles and paragraphs are for convenience only and shall not modify rights and obligations created by this Part 2. 11.3 In case a provision of Part 2 is held to be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not be affected. 11.4 SUBCONTRACTS 11.4.1 The Design/Builder, as soon as practicable after execution of Part 2, shall furnish to the Owner in writing the names of the persons or entities the Design/Builder will engage as contractors for the Project. 11.4.2 Nothing contained in the Design/Builder Contract Documents shall create a professional obligation or contractual relationship between the Owner and any third party. 11.5 WORK BY OWNER OR OWNER'S CONTRACTORS 11.5.1 The Owner reserves the right to perform work related to, but not part of, the Project and to award separate contracts in connection with other work at the site. If the Design/Builder claims that delay or additional cost is involved because of such action by the Owner, the Design/ Builder shall make such claims as provided in Subparagraph 11.6. 11.5.2 The Design/Builder shall afford the Owner's separate contractors reasonable opportunity for introduction and storage of their materials and equipment for execution of their work. The Design/Builder shall incorporate and coordinate the Design/Builder's Work with work of the Owner's separate contractors as required by the Contract Documents. 11.5.3 Costs caused by defective or ill-timed work shall be borne by the party responsible. 11.6 CLAIMS FOR DAMAGES 11.6.1 Should either party to Part2 suffer injury or damage to person or property because of an act or omission of the other party, the other party's employees or agents, or another for whose acts the other party is legally liable, claim shall be made in writing to the other party within a reasonable time after such injury or damage is or should have been first observed. 11.7 INDEMNIFICATION 11.7.1 To the fullest extent permitted by law, the Design/Builder shall indemnify and hold harmless the Owner and the Owner's consultants and separate contractors, any of their subcontractors, sub-subcontractors, agents and employees from and against claims, damages, losses and expenses, including but not limited to attorneys' fees, arising out of or resulting from performance of the Work. These indemnification obligations shall be limited to claims, damages, losses or expenses (1) that are attributable to bodily injury, sickness, disease or death, or to injury to or destruction of tangible property (other than the Work itself) including loss of use resulting therefrom, and (2) to the extent such claims, damages, losses or expenses are caused in whole or in part by negligent acts or omissions of the Design/Builder, the Design/Builder's contractors, anyone directly or indirectly employed by either or anyone for whose acts either may be liable, regardless of whether or not they are caused in part by a party indemnified hereunder. Such obligation shall not be construed to negate, abridge or otherwise reduce other rights or obligations of indemnity which would otherwise exist as to a party or person described in this Paragraph 11.7. 11.7.2 ln claims against the Owner or its consultants and its contractors, any of their subcontractors, sub-subcontractors, agents or employees by an employee of the Design/Builder, its contractors, anyone directly or indirectly employed by them or anyone for whose acts they may be liable, the indemnification obligation under this Paragraph 11.7 shall not be limited by a limitation on amount or type of damages, compensation or benefits payable by or for the Design/Builder, or a Design/Builder's contractor, under workers' or workmen's compensation acts, disability benefit acts or other employee benefit acts. 11.8 SUCCESSORS AND ASSIGNS 11.8.1 This Part2 shall be binding on successors, assigns, and legal representatives of and persons in privity of contract with the Owner or Design/Builder. Neither party shall assign, sublet or transfer an interest in Part 2 without the written consent of the other. 11.8.2 This Paragraph 11.8 shall survive completion or termination of Part 2. 11.9 In case of termination of the Architect, the Design/Builder shall provide the services of another lawfully licensed person or entity against whom the Owner makes no reasonable objection. A191-1985 A191,Part2 OWNER-DESIGN/BUILDER ACREEMENT, FIRST EDITION PART 2-PAGE 8 AIA* (c)1985, THE AMERICAN INSTITUTE OF ARCHITECTS, 1735 NEW YORK AVENUE, N.W. WASHINCTON, D.C. 20006 11.10 EXTENT OF AGREEMENT 11.10.1 Part 2 represents the entire agreement between the Owner and Design/Builder and supersedes Part 1 and prior negotiations, representations or agreements. Part 2 may be amended only by written instrument signed by both Owner and Design/Builder. ARTICLE 12 TERMINATION OF THE AGREEMENT 12.1 TERMINATION BY THE OWNER 12.1.1 This Part 2 may be terminated by the Owner upon fourteen days' written notice to the Design/Builder in the event that the Project is abandoned. If such termination occurs, the Owner shall pay the Design/Builder for Work completed and for proven loss sustained upon materials, equipment, tools, and construction equipment and machinery, including reasonable profit and applicable damages. 12.1.2 lf the Design/Builder defaults or persistently fails or neglects to carry out the Work in accordance with the Contract Documents or fails to perform the provisions of Part 2, the Owner may give written notice that the Owner intends to terminate Part 2. If the Design/Builder fails to correct the defaults, failure or neglect within seven days after being given notice, the Owner may then give a second written notice and, after an additional seven days, the Owner may without prejudice to any other remedy make good such deficiencies and may deduct the cost thereof from the payment due the Design/Builder or at the Owner's option, may terminate the employment of the Design/Builder and take possession of the site and of all materials, equipment, tools and construction equipment and machinery thereon owned by the Design/Builder and finish the Work by whatever method the Owner may deem expedient. If the unpaid balance of the contract sum exceeds the expense of finishing the Work, the excess shall be paid to the Design/Builder, but if the expense exceeds the unpaid balance, the Design/Builder shall pay the difference to the Owner. 12.2 TERMINATION BY THE DESIGN/BUILDER 12.2.1 If the Owner fails to make payment when due, the Design/Builder may give written notice of the Design/Builder's intention to terminate Part 2. If the Design/Builder fails to receive payment within seven days after receipt of such notice by the Owner, the Design/Builder may give a second written notice and, seven days after receipt of such second written notice by the Owner, may terminate Part 2 and recover from the Owner payment for Work executed and for proven losses sustained upon materials, equipment, tools, and construction equipment and machinery, including reasonable profit and applicable damages. AIA DOCUMENT A191,Part 2, OWNER-DESIGN/BUILDER AGREEMENT A191-1985 FIRST EDITION AIA* (c)1985 * THE AMERICAN INSTITUTE OF PART 2-PAGE 9 ARCHITECTS 1735 NEW YORK AVENUE N.W., WASHINGTON, D.C. 20006 ARTICLE 13 BASIS OF COMPENSATION The Owner shall compensate the Design/Builder in accordance with Article 5, Payments, and the other provisions of this Part 2 as described below. 13.1 COMPENSATION 13.1.1 FOR BASIC SERVICES, as described in Paragraphs 2.2.2 through 2.2.17, and for any other services included in Article l4 as part of Basic Services, Basic Compensation shall be as follows: FOUR HUNDRED TWENTY FIVE THOUSAND AND NO/100 (425,000.00) DOLLARS, WHICH HAS BEEN PAID BY THE ISSUANCE OF LIMITED INTEREST IN THE BILTMORE GROUP, OF LOUISIANA L.L.C. 13.2 REIMBURSABLE EXPENSES 13.2.1 Reimbursable Expenses are in addition to the compensation for Basic and Additional Services and include actual expenditures made by the Design/Builder in the interest of the Project for the expenses listed as follows: CONSTRUCTION OF THE ARBOR RETIREMENT COMMUNITY LOCATED AT: FOR THE FIXED SUM OF ONE MILLION, THREE HUNDRED FIFTY TWO THOUSAND AND NO/100 (1,352,000.00). ANY AND ALL, CHANGE(S) ORDERS WILL BE IN WRITING. 13.2.2 FOR REIMBURSABLE EXPENSES, compensation shall be a multiple of N/A ( ) times the amounts expended. 13.3 INTEREST PAYMENTS 13.3.1 The rate of interest for past due payments shall be as follows: N/A (Usury laws and requirements under the Federal Truth in Lending Act, similar state and local consumer credit laws and other regulations at the Owner's and Design/Builder's principal places of business, at the location of the Project and elsewhere may affect the validity of this provision. Specific legal advice should be obtained with respect to deletion, modification or other requirements, such as written disclosures or waivers.) A191-1985 AIA DOCUMENT A191, PART 2 OWNER-DESIGN/BUILDER AGREEMENT PART 2-PAGE 10 FIRST EDITION AIA (c)1985 THE AMERICAN INSITITUTE OF ARCHITECTS, 1735 NEW YORK AVENUE, N.W., WASHINGTON, D.C. 20006 ARTICLE 14 OTHER PROVISIONS 14.1 The Basic Services to be performed shall be commenced on and, subject to authorized adjustments and to delays not caused by the Design/Builder, Substantial Completion shall be achieved in calendar days. 14.2 The Basic Services beyond those described in Article 2 are: NONE 14.3 The Design/Builder shall submit an Application for Payment on the of each month. 14.4 The Design/Builder's Proposal includes: (List below: this Part 2, Supplementary and other Conditions, the drawings, the specifications, and Modifications, showing page or sheet numbers in all cases and dates where applicable to define the scope of Work.) This Part 2 entered into as of the day and year first written above. OWNER DESIGN/BUILDER THE BILTMORE GROUP OF LOUISIANA L.L.C. THE FORSYTHE GROUP, INC. - ------------------------------------- -------------------------------- /S/SONYA KILE, V.P. - ------------------------------------- -------------------------------- SCENICLAND CONSTRUCTION, CO. - ------------------------------------- -------------------------------- BY /S/SUNSHINE GANTT BY /S/FRED M BAYLES ----------------------------- ----------------------------- *APPLICATION FOR PAYMENT, APPROVED BY KARL MIKE WALLACE, P.E. ARE DUE AND PAYABLE BEFORE THE 1ST DAY OF THE MONTH FOLLOWING. AIA DOCUMENT A191, PART 2 OWNER-DESIGN/BUILDER AGREEMENT A191-1985 FIRST EDITION AIA 1985 THE AMERICAN INSTITUTE OF PART 2-PAGE 11 ARCHITECTS, 1735 NEW YORK AVENUE, N.W., WASHINGTON, D.C. 20006 EX-10.3 13 CONSTRUCTION MANAGEMENT CONTRACT FOR THE FARMERVILLE, LA FACILITY THE AMERICAN INSTITUTE OF ARCHITECTS [AIA LOGO] AIA Document A191 Standard Form of Agreement Between Owner and Design/Builder 1985 EDITION THIS DOCUMENT HAS IMPORTANT LEGAL CONSEQUENCES; CONSULTATION WITH AN ATTORNEY IS ENCOURAGED. This Document comprises two separate Agreements: Part 1 Agreement-Preliminary Design and Budgeting and Part 2 Agreement-Final Design and Construction. Hereinafter, the Part 1 Agreement is referred to as Part 1 and the Part 2 Agreement is referred to as Part 2. PART 2 AGREEMENT-FINAL DESIGN AND CONSTRUCTION AGREEMENT made as of the ELEVENTH day of NOVEMBER in the year of Nineteen Hundred and NINETY-EIGHT. BETWEEN the Owner: THE BILTMORE GROUP OF LOUISIANA, L.L.C. (Name and address) 507 TRENTON STREET WEST MONROE, LA 71291 and the Design/Builder: (Name and address) THE FORSYTHE GROUP, INC. SCENICLAND CONSTRUCTION, CO. 507 TRENTON STREET 131 SUNSET DR. WEST MONROE, LA 71291 WEST MONROE, LA 71291 For the following Project: (Include Project name, location and detailed description of scope.) THE ARBOR RETIREMENT COMMUNITY IN FARMERVILLE, LA (EXHIBIT A) DESIGN AND COMPLETE CONSTRUCTION ACCORDING TO PLANS AND SPECIFICATIONS DESIGNED BY THE FORSYTHE GROUP, INC.; WITH ASSISTANCE OF ENGINEER FIRM: TAYLOR-WALLACE-CIVIC ENGINEER. The architectural services described in Article 2 will be provided by the following person or entity who is lawfully licensed to practice architecture: (Name and address) Taylor-Wallace Designs, Inc. Downsville, LA 71234 The Owner and the Design/Builder agree as set forth below. Copyright (c) 1985 by The American Institute of Architects, 1735 New York Avenue, N.W., Washington, D.C. 20006. Reproduction of the material herein or substantial quotation of its provisions without written permission of the AIA violates the copyright laws of the United States and will be subject to legal prosecution. AIA DOCUMENT A191, PART 2 OWNER-DESIGN/BUILDER AGREEMENT FIRST EDITION AIA (C)1985 THE AMERICAN INSTITUTE OF ARCHITECTS,1735 NEW YORK AVENUE, N.W., WASHINGTON, D.C. 20006 A191-1985 PART 2-PAGE 1 Terms and Conditions-Part 2 Agreement ARTICLE I GENERAL PROVISIONS 1.1 BASIC DEFINITIONS 1.1.1 The Contract Documents consist of the Design/ Builder's Proposal identified in Article 14, this Part 2, the Construction Documents approved by the Owner in accordance with Subparagraph 2.2.2 below and Modifications issued after execution of Part 2. A Modification is a Change Order or a written amendment to Part 2 signed by both parties. These form the Contract, and are as fully a part of the Contract as if attached to this Part 2 or repeated herein. 1.1.2 The Project is the total design and construction for which the Design/Builder is responsible under Part 2, including all professional design services and all labor, materials and equipment used or incorporated in such design and construction. 1.1.3 The Work comprises the completed construction designed under the Project and includes labor necessary to produce such construction, and materials and equipment incorporated or to be incorporated in such construction. 1.2 EXECUTION, CORRELATION AND INTENT 1.2.1 This Part 2 shall be signed in not less than duplicate by the Owner and Design/Builder. 1.2.2 lt is the intent of the Owner and Design/Builder that the Contract Documents include all items necessary for proper execution and completion of the Work. The Contract Documents are complementary, and what is required by anyone shall be as binding as if required by all. Work not covered in the Contract Documents will not be required unless it is consistent with and is reasonably inferable from the Contract Documents as being necessary to produce the intended results. Words and abbreviations which have well-known technical or trade meanings are used in the Contract Documents in accordance with such recognized meanings. 1.3 OWNERSHIP AND USE OF DOCUMENTS 1.3.1 The drawings, specifications and other documents furnished by the Design/Builder are instruments of service and shall not become the property of the Owner whether or not the Project for which they are made is commenced. Drawings, specifications and other documents furnished by the Design/Builder shall not be used by the Owner on other projects, for additions to this Project or, unless the Design/Builder is in default under Part 2, for completion of this Project by others, except by written agreement relating to use, liability and compensation. 1.3.2 Submission or distribution of documents to meet official regulatory requirements or for other purposes in connection with the Project is not to be construed as publication in derogation of the Design/Builder's or the Architect's common law copyrights or other reserved rights. The Owner shall own neither the documents nor the copyrights. ARTICLE 2 DESIGN/BUILDER 2.1 SERVICES AND RESPONSIBILITIES 2.1.1 Design services shall be performed by qualified architects, engineers and other professionals selected and paid by the Design/Builder. The professional obligations of such persons shall be undertaken and performed in the interest of the Design/Builder. Construction services shall be performed by qualified construction contractors and suppliers, selected and paid by the Design/Builder and acting in the interest of the Design/Builder. Nothing contained in Part 2 shall create any professional obligation or contractual relationship between such persons and the Owner. 2.2 BASIC SERVICES 2.2.1 The Design/Builder's Basic Services are described below and in Article 14. 2.2.2 Based on the Design/Builder's Proposal, the Design/Builder shall submit Construction Documents for review and approval by the Owner. Construction Documents shall include technical drawings, schedules, diagrams and specifications, setting forth in detail the requirements for construction of the Work, and shall: .1 develop the intent of the Design/Builder's Proposal in greater detail; .2 provide information customarily necessary for the use of those in the building trades; and .3 include documents customarily required for regulatory agency approvals. 2.2.3 The Design/Builder shall assist the Owner in filing documents required to obtain necessary approvals of governmental authorities having jurisdiction over the Project. 2.2.4 Unless otherwise provided in the Contract Documents, the Design/Builder shall provide or cause to be provided and shall pay for design services, labor, materials, equipment, tools, construction equipment and machinery, water, heat, utilities, transportation and other facilities and services necessary for proper execution and completion of the Work, whether temporary or permanent and whether or not incorporated or to be incorporated in the Work. 2.2.5 The Design/Builder shall be responsible for and shall coordinate all construction means, methods, techniques, sequences and procedures. 2.2.6 The Design/Builder shall keep the Owner informed of the progress and quality of the Work. 2.2.7 If requested in writing by the Owner, the Design/ Builder, with reasonable promptness and in accordance with time limits agreed upon, shall interpret the requirements of the Contract Documents and initially shall decide, subject to demand for arbitration, claims, disputes and other matters in question relating to performance thereunder by both Owner and Design/Builder. Such interpretations and decisions shall be in writing, shall not be presumed to be correct and shall be given such weight as the arbitrators or the court shall determine. A191-1985 A191,Part2 OWNER-DESIGN/BUILDER ACREEMENT, FIRST EDITION PART 2-PAGE 2 AIA* (c)1985, THE AMERICAN INSTITUTE OF ARCHITECTS, 1735 NEW YORK AVENUE, N.W. WASHINCTON, D.C. 20006 2.2.8 The Design/Builder shall correct Work which does not conform to the Construction Documents. 2.2.9 The Design/Builder warrants to the Owner that materials and equipment incorporated in the Work will be new unless otherwise specified, and that the Work will be of good quality, free from faults and defects, and in conformance with the Contract Documents. Work not conforming to these requirements shall be corrected in accordance with Article 9. 2.2.10 The Design/Builder shall pay all sales, consumer, use and similar taxes which were in effect at the time the Design/Builder's Proposal was first submitted to the Owner, and shall secure and pay for building and other permits and governmental fees, licenses and inspections necessary for the proper execution and completion of the Work which are either customarily secured after execution of Part 2 or are legally required at the time the Design/Builder's Proposal was first submitted to the Owner. 2.2.11 The Design/Builder shall give notices and comply with laws, ordinances, rules, regulations and lawful orders of public authorities relating to the Project. 2.2.12 The Design/Builder shall pay royalties and license fees. The Design/Builder shall defend suits or claims for infringement of patent rights and shall save the Owner harmless from loss on account thereof, except that the Owner shall be responsible for such loss when a particular design, process or product of a particular manufacturer is required by the Owner. However, if the Design/Builder has reason to believe the use of a required design, process or product is an infringement of a patent, the Design/Builder shall be responsible for such loss unless such information is promptly given to the Owner. 2.2.13 The Design/Builder shall be responsible to the Owner for acts and omissions of the Design/Builder's employees and parties in privily of contract with the Design/ Builder to perform a portion of the Work, including their agents and employees. 2.2.14 The Design/Builder shall keep the premises free from accumulation of waste materials or rubbish caused by the Design/Builder's operations. At the completion of the Work, the Design/Builder shall remove from and about the Project the Design/Builder's tools, construction equipment, machinery, surplus materials, waste materials and rubbish. 2.2.15 The Design/Builder shall prepare Change Orders for the Owner's approval and execution in accordance with Part 2 and shall have authority to make minor changes in the design and construction consistent with the intent of Part 2 not involving an adjustment in the contract sum or an extension of the contract time. The Design/Builder shall promptly inform the Owner, in writing, of minor changes in the design and construction. 2.2.16 The Design/Builder shall notify the Owner when the Work or an agreed upon portion thereof is substantially completed by issuing a Certificate of Substantial Completion which shall establish the Date of Substantial Completion, shall state the responsibility of each party for security, maintenance, heat, utilities, damage to the Work and insurance, shall include a list of items to be completed or corrected and shall fix the time within which the Design/Builder shall complete items listed therein. Disputes between the Owner and Design/Builder regarding the Certificate of Substantial Completion shall be resolved by arbitration. 2.2.17 The Design/Builder shall maintain in good order at the site one record copy of the drawings, specifications, product data, samples, shop drawings, Change Orders and other Modifications, marked currently to record changes made during construction. These shall be delivered to the Owner upon completion of the design and construction and prior to final payment. ARTICLE 3 OWNER 3.1 The Owner shall designate a representative authorized to act on the Owner's behalf with respect to the Project. The Owner or such authorized representative shall examine documents submitted by the Design/Builder and shall promptly render decisions pertaining thereto to avoid delay in the orderly progress of the Work. 3.2 The Owner may appoint an on-site project representative to observe the Work and to have such other responsibilities as the Owner and Design/Builder agree in writing prior to execution of Part 2. 3.3 The Owner shall cooperate with the Design/Builder in securing building and other permits, licenses and inspections, and shall pay the fees for such permits, licenses and inspections if the cost of such fees is not identified as being included in the Design/Builder's Proposal. 3.4 The Owner shall furnish services by land surveyors, geotechnical engineers and other consultants for subsoil, air and water conditions, in addition to those provided under Part 1 when such services are deemed necessary by the Design/Builder to carry out properly the design services under this Part 2. 3.5 The Owner shall furnish structural, mechanical, chemical, geotechnical and other laboratory or on-site tests, inspections and reports as required by law or the Contract Documents. 3.6 The services, information, surveys and reports required by Paragraphs 3.4 and 3.5 shall be furnished at the Owner's expense, and the Design/Builder shall be entitled to rely upon their accuracy and completeness. 3.7 If the Owner observes or otherwise becomes aware of a fault or defect in the Work or nonconformity with the Design or Construction Documents, the Owner shall give prompt written notice thereof to the Design/Builder. 3.8 The Owner shall furnish required information and services and shall promptly render decisions pertaining thereto to avoid delay in the orderly progress of the design and construction. 3.9 The Owner shall, at the request of the Design/Builder and upon execution of Part 2, provide a certified or notarized statement of funds available for the Project and their source. 3.10 The Owner shall communicate with contractors only through the Design/Builder. ARTICLE 4 TIME 4.1 The Design/Builder shall provide services as expeditiously as is consistent with reasonable skill and care and the orderly progress of design and construction. 4.2 Time limits stated in the Contract Documents are of the essence of Part 2. The Work to be performed under Part AIA DOCUMENT A191,Part 2, OWNER-DESIGN/BUILDER AGREEMENT A191-1985 FIRST EDITION AIA* (c)1985 * THE AMERICAN INSTITUTE OF PART 2-PAGE 3 ARCHITECTS 1735 NEW YORK AVENUE N.W., WASHINGTON, D.C. 20006 2 shall commence upon execution of a notice to proceed unless otherwise agreed and, subject to authorized Modifications, Substantial Completion shall be achieved as indicated in Article 14. 4.3 The Date of Substantial Completion of the Work or an agreed upon portion thereof is the date when construction or an agreed upon portion thereof is sufficiently complete so the Owner can occupy and utilize the Work or agreed upon portion thereof for its intended use. 4.4 The schedule provided in the Design/Builder's Proposal shall include a construction schedule consistent with Paragraph 4.2 above. 4.3 If the Design/Builder is delayed in the progress of the Project by acts or neglect of the Owner, Owner's employees, separate contractors employed by the Owner, changes ordered in the Work not caused by the fault of the Design/Builder, labor disputes, fire, unusual delay in transportation, adverse weather conditions not reasonably anticipatable, unavoidable casualties, or other causes beyond the Design/Builder's control, or by delay authorized by the Owner's pending arbitration or another cause which the Owner and Design/Builder agree is justifiable, the contract time shall be reasonably extended by Change Order. ARTICLE 5 PAYMENTS 5.1 PROGRESS PAYMENTS 5.1.1 The Design/Builder shall deliver to the Owner itemized Applications for Payment in such detail as indicated in Article 14. 5.1.2 Within ten days of the Owner's receipt of a properly submitted and correct Application for Payment, the Owner shall make payment to the Design/Builder. 5.1.3 The Application for Payment shall constitute are presentation by the Design/Builder to the Owner that, to the best of the Design/Builder's knowledge, information and belief, the design and construction have progressed to the point indicated; the quality of the Work covered by the application is in accordance with the Contract Documents; and the Design/Builder is entitled to payment in the amount requested. 5.1.4 The Design/Builder shall pay each contractor, upon receiptof payment from the Owner, out of the amount paid to the Design/Builder on account of such contractor's work, the amount to which said contractor is entitled in accordance with the terms of the Design/Builder's contract with such contractor. The Design/Builder shall, by appropriate agreement with each contractor, require each contractor to make payments to subcontractors in similar manner. 5.1.5 The Owner shall have no obligation to pay or to be responsible in any way for payment to a contractor of the Design/Builder except as may otherwise be required by law. 5.1.6 No progress payment or partial or entire use or occupancy of the Project by the Owner shall constitute an acceptance of Work not in accordance with the Contract Documents. 5.1.7 The Design/Builder warrants that: (1) title to Work, materials and equipment covered by an Application for Payment will pass to the Owner either by incorporation in construction or upon receipt of payment by the Design/Builder, whichever occurs first; (2) Work, materials and equipment covered by previous Applications for Payment are free and clear of liens, claims, security interests or encumbrances, hereinafter referred to as "liens"; and (3) no Work, materials or equipment covered by an Application for Payment will have been acquired by the Design/ Builder, or any other person performing work at the site or furnishing materials or equipment for the Project, subject to an agreement under which an interest therein or an encumbrance thereon is retained by the seller or otherwise imposed by the Design/Builder or such other person. 5.1.8 If the Contract provides for retainage, then at the date of Substantial Completion or occupancy of the Work or any agreed upon portion thereof by the Owner, whichever occurs first, the Design/Builder may apply for and the Owner, if the Design/Builder has satisfied the requirements of Paragraph 5.2.1 and any other requirements of the Contract relating to retainage, shall pay the Design/Builder the amount retained, if any, for the Work or for the portion completed or occupied, less the reasonable value of incorrect or incomplete Work. Final payment of such withheld sum shall be made upon correction or completion of such Work. 5.2 FINAL PAYMENT 5.2.1 Neither final payment nor amounts retained,if any, shall become due until the Design/Builder submits to the Owner (1) an affidavit that payrolls, bills for materials and equipment, and other indebtedness connected with the Project for which the Owner or Owner's property might be liable have been paid or otherwise satisfied, (2) consent of surety, if any, to final payment, (3) a certificate that insurance required by the Contract Documents is in force following completion of the Work, and (4) if required by the Owner, other data establishing payment or satisfaction of obligations, such as receipts, releases and waivers of liens arising out of Part 2, to the extent and in such form as may be designated by the Owner. If a contractor refuses to furnish a release or waiver required by the Owner, the Design/Builder may furnish a bond satisfactory to the Owner to indemnify the Owner against such lien. If such lien remains unsatisfied after payments are made, the Design/Builder shall reimburse the Owner for moneys the latter may be compelled to pay in discharging such lien, including all costs and reasonable attorneys' fees. 5.2.2 Final payment constituting the entire unpaid balance due shall be paid by the Owner to the Design/Builder upon the Owner's receipt of the Design/Builder's final Application for Payment when the Work has been completed and the Contract fully performed except for those responsibilities of the Design/Builder which survive final payment. 5.2.3 The making of final payment shall constitute a waiver of all claims by the Ownerexcept those arising from: .1 unsettled liens; .2 faulty or defective Work appearing after Substantial Completion; .3 failure of the Work to comply with requirements of the Contract Documents; or .4 terms of special warranties required by the Contract Documents. 5.2.4 Acceptance of final payment shall constitute a waiver of all claims by the Design/Builder except those previously made in writing and identified by the Design/Builder as unsettled at the time of final Application for Payment. A191-1985 A191,Part2 OWNER-DESIGN/BUILDER ACREEMENT, FIRST EDITION PART 2-PAGE 4 AIA* (c)1985, THE AMERICAN INSTITUTE OF ARCHITECTS, 1735 NEW YORK AVENUE, N.W. WASHINCTON, D.C. 20006 5.3 INTEREST PAYMENTS 5.3.1 Payments due the Design/Builder under Part2 which are not paid when due shall bear interest from the date due at the rate specified in Article 13, or in the absence of a specified rate, at the legal rate prevailing where the principal improvements are to be located. ARTICLE 6 PROTECTION OF PERSONS AND PROPERTY 6.1 The Design/Builder shall be responsible for initiating, maintaining and providing Supervision of safety precautions and programs in connection with the Work. 6.2 The Design/Builder shall take reasonable precautions for safety of, and shall provide reasonable protection to prevent damage, injury or loss to: (1) employees on the Work and other persons who may be affected thereby; (2) the Work and materials and equipment to be incorporated therein; and (3) other property at or adjacent to the site. 6.3 The Design/Builder shall give notices and comply with applicable laws, ordinances, rules, regulations and orders of public authorities bearing on the safety of persons and property and their protection from damage, injury or loss. 6.4 The Design/Builder shall be liable for damage or loss (other than damage or loss to property insured under the property insurance provided or required by the Contract Documents to be provided by the Owner) to property at the site caused in whole or in part by the Design/Builder, a contractor of the Design/Builder or anyone directly or indirectly employed by either of them, or by anyone for whose acts they may be liable, except damage or loss attributable to the acts or omissions of the Owner, the Owner's separate contractors or anyone directly or indirectly employed by them or by anyone for whose acts they may be liable and not attributable to the fault or negligence of the Design/ Builder. ARTICLE 7 INSURANCE AND BONDS 7.1 DESIGN/BUILDER'S LIABILITY INSURANCE 7.1.1 The Design/Builder shall purchase and maintainin a company or companies authorized to do business in the state in which the Work is located such insurance as will protect the Design/Builder from claims set forth below which may arise out of or result from operations under the Contract by the Design/Builder or by a contractor of the Design/Builder, or by anyone directly or indirectly employed by any of them, or by anyone for whose acts they may be liable: .1 claims under workers' or workmen's compensation, disability benefit and other similar employee benefit laws which are applicable to the Work to be performed; .2 claims for damages because of bodily injury, occupational sickness or disease, or death of the Design/Builder's employees under any applicable employer's liability law; .3 claims for damages because of bodily injury, sickness or disease, or death of persons other than the Design/Builder's employees; .4 claims for damages covered by usual personal injury liability coverage which are sustained (1) by a person as a result of an offense directly or indirectly related to employment of such person by the Design/Builder or (2) by another person; .5 claims for damages, other than to the Work at the site, because of injury to or destruction of tangible property, including loss of use; and .6 claims for damages for bodily injury or death of a person or property damage arising out of ownership, maintenance or use of a motor vehicle. 7.1.2 The insurance required by the above Subparagraph 7.1.1 shall be written for not less than limits of liability specified in the Contract Documents or required by law, whichever are greater. 7.1.3 The Design/Builder's liability insurance shall include contractual liability insurance applicable to the Design/Builder's obligations under Paragraph 11.7. 7.1.4 Certificates of Insurance, and copies of policies if requested, acceptable to the Owner shall be delivered to the Owner prior to commencement of design and construction. These Certificates as well as insurance policies required by this Paragraph shall contain a provision that coverage will not be cancelled or allowed to expire until at least thirty days' prior written notice has been given to the Owner. If any of the foregoing insurance coverages are required to remain in force after final payment, an additional certificate evidencing continuation of such coverage shall be submitted along with the application for final payment. 7.2 OWNER'S LIABILITY INSURANCE 7.2.1 The Owner shall be responsible for purchasing and maintaining, in a company or companies authorized to do business in the state in which the principal improvements are to be located, Owner's liability insurance to protect the Owner against claims which may arise from operations under this Project. 7.3 PROPERTY INSURANCE 7.3.1 Unless otherwise provided under this Part 2, the Owner shall purchase and maintain, in a company or companies authorized to do business in the state in which the principal improvements are to be located, property insurance upon the Work at the site to the full insurable value thereof. Property insurance shall include interests of the Owner, the Design/Builder, and their respective contractors and subcontractors in the Work. It shall insure against perils of fire and extended coverage and shall include all risk insurance for physical loss or damage including, without duplication of coverage, theft, vandalism and malicious mischief. If the Owner does not intend to purchase such insurance for the full insurable value of the entire Work, the Owner shall inform the Design/Builder in writing prior to commencement of the Work. The Design/Builder may then effect insurance for the Work at the site which will protect the interests of the Design/Builder and the Design/Builder's contractors and subcontractors, and by appropriate Change Order the cost thereof shall be charged to the Owner. If the Design/Builder is damaged by failure of the Owner to purchase or maintain such insurance without notice to the Design/Builder, then the Owner shall bear all reasonable costs properly attributable thereto. if not covered under the all risk insurance or not otherwise provided in the Contract Documents, the Design/Builder shall effect and maintain similar property insurance on portions of the Work stored off-site or in transit when such portions of the Work are to be included in an Application for Payment. AIA DOCUMENT A191,Part 2, OWNER-DESIGN/BUILDER AGREEMENT A191-1985 FIRST EDITION AIA* (c)1985 * THE AMERICAN INSTITUTE OF PART 2-PAGE 5 ARCHITECTS 1735 NEW YORK AVENUE N.W., WASHINGTON, D.C. 20006 7.3.2 Unless otherwise provided under this Part 2, the Owner shall purchase and maintain such boiler and machinery insurance as may be required by the Contract Documents or by law and which shall specifically cover such insured objects during installation and until final acceptance by the Owner. This insurance shall cover interests of the Owner, the Design/Builder, and the Design/Builder's contractors and subcontractors in the Work. 7.3.3 A loss insured under Owner's property insurance is to be adjusted with the Owner and made payable to the Owner as trustee for the insureds, as their interests may appear, subject to requirements of any applicable mortgagee clause and of Subparagraph 7.3.8. The Design/ Builder shall pay contractors their shares of insurance proceeds received by the Design/Builder, and by appropriate agreement, written where legally required for validity, shall require contractors to make payments to their subcontractors in similar manner. 7.3.4 Before an exposure to loss may occur, the Owner shall file with the Design/Builder a copy of each policy required by this Paragraph 7.3. Each policy shall contain only those endorsements specifically related to this Project. Each policy shall contain a provision that the policy will not be cancelled or allowed to expire until at least thirty days' prior written notice has been given the Design/ Builder. 7.3.5 If the Design/Builder requests in writing that insurance for risks other than those described herein or for other special hazards be included in the property insurance policy, the Owner shall, if possible, obtain such insurance, and the cost thereof shall be charged to the Design/Builder by appropriate Change Order. 7.3.6 The Owner and Design/Builder waive all rights against each other and the contractors, subcontractors, agents and employees, each of the other, for damages caused by fire or other perils to the extent covered by property insurance obtained pursuant to this Paragraph 7.3 or other property insurance applicable to the Work, except such rights as they may have to proceeds of such insurance held by the Owner as trustee. The Owner or Design/Builder, as appropriate, shall require from contractors and subcontractors by appropriate agreements, written where legally required for validity, similar waivers each in favor of other parties enumerated in this Paragraph 7.3. The policies shall be endorsed to include such waivers of subrogation. 7.3.7 If required in writing by a party in interest, the Owner as trustee shall provide, upon occurrence of an insured loss, a bond for proper performance of the Owner's duties. The cost of required bonds shall be charged against proceeds received as trustee. The Owner shall deposit proceeds so received in a separate account and shall distribute them in accordance with such agreement as the parties in interest may reach, or in accordance with an arbitration award in which case the procedure shall be as provided in Article 10. If after such loss no other special agreement is made, replacement of damaged Work shall be covered by appropriate Change Order. 7.3.8 The Owner, as trustee, shall have power to adjust and settle a loss with insurers unless one of the parties in interest shall object, in writing, within ten days after occurrence of loss, to the Owner's exercise of this power. If such objection be made, the Owner as trustee shall make settlement with the insurers in accordance with the decision of arbitration as provided in Article 10. If distribution of insurance proceeds by arbitration is required, the arbitrators will direct such distribution. 7.3.9 If the Owner finds it necessary to occupy or use a portion or portions of the Work before Substantial Completion, such occupancy or use shall not commence prior to a time agreed to by the Owner and Design/Builder and to which the insurance company or companies providing property insurance have consented by endorsement to the policy or policies. The property insurance shall not lapse or be cancelled on account of such partial occupancy or use. Consent of the Design/Builder and of the insurance company or companies to such occupancy or use shall not be unreasonably withheld. 7.4 LOSS OF USE INSURANCE 7.4.1 The Owner, at the Owner's option, may purchase and maintain such insurance as will insure the Owner against loss of use of the Owner's property due to fire or other hazards, however caused. The Owner waives all rights of action against the Design/Builder, and its contractors and their agents and employees, for loss of use of the Owner's property, including consequential losses due to fire or other hazards, however caused, to the extent covered by insurance under this Paragraph 7.4. 7.5 PERFORMANCE BOND AND PAYMENT BOND 7.5.1 The Owner shall have the right to require the Design/Builder to furnish bonds covering the faithful performance of the Contract and the payment of all obligations arising thereunder if and as required in the Contract Documents or in Article 14. ARTICLE 8 CHANGES IN THE WORK 8.1 CHANGE ORDERS 8.1.1 A Change Order is a written order signed by the Owner and Design/Builder, and issued after execution of Part 2, authorizing a change in the Work or adjustment in the contract sum or contract time. The contract sum and contract time may be changed only by Change Order. 8.1.2 The Owner, without invalidating Part 2, may order changes in the Work within the general scope of Part 2 consisting of additions, deletions or other revisions, and the contract sum and contract time shall be adjusted accordingly. Such changes in the Work shall be authorized by Change Order, and shall be performed under applicable conditions of the Contract Documents. 8.1.3 If the Owner requests the Design/Builder to submit a proposal for a change in the Work and then elects not to proceed with the change, a Change Order shall be issued to reimburse the Design/Builder for any costs incurred for Design Services or proposed revisions to the Contract Documents. 8.1.4 Cost or credit to the Owner resulting from a change in the Work shall be determined in one or more of the following ways: .1 by mutual acceptance of a lump sum properly itemized and supported by sufficient substantiating data to permit evaluation; .2 by unit prices stated in the Contract Documents or subsequently agreed upon; A191-1985 A191,Part2 OWNER-DESIGN/BUILDER ACREEMENT, FIRST EDITION PART 2-PAGE 6 AIA* (c)1985, THE AMERICAN INSTITUTE OF ARCHITECTS, 1735 NEW YORK AVENUE, N.W. WASHINCTON, D.C. 20006 .3 by cost to be determined in a manner agreed upon by the parties and a mutually acceptable fixed or percentage fee; or .4 by the method provided below. 8.1.5 If none of the methods set forth in Clauses 8.1.4.1, 8.1.4.2 or 8.1.4.3 is agreed upon, the Design/Builder, provided a written order signed by the Owner is received, shall promptly proceed with the Work involved. The cost of such Work shall then be determined on the basis of reasonable expenditures and savings of those performing the Work attributable to the change, including the expenditures for design services and revisions to the Contract Documents. In case of an increase in the contract sum, the cost shall include a reasonable allowance for overhead and profit. In case of the methods set forth in Clauses 8.1.4.3 and 8.1.4.4, the Design/Builder shall keep and present an itemized accounting together with appropriate supporting data for inclusion in a Change Order. Unless otherwise provided in the Contract Documents, cost shall be limited to the following: cost of materials, including sales tax and cost of delivery; cost of labor, including social security, old age and unemployment insurance, and fringe benefits required by agreement or custom; workers' or workmen's compensation insurance; bond premiums; rental value of equipment and machinery; additional costs of supervision and field office personnel directly attributable to the change; and fees paid to architects, engineers and other professionals. Pending final determination of cost to the Owner, payments on account shall be made on the Application for Payment. The amount of credit to be allowed by the Design/ Builder to the Owner for deletion or change which results in a net decrease in the contract sum will be actual net cost. When both additions and credits covering related Work or substitutions are involved in a change, the allowance for overhead and profit shall be figured on the basis of the net increase, if any, with respect to that change. 8.1.6 If unit prices are stated in the Contract Documents or subsequently agreed upon, and if quantities originally contemplated are so changed in a proposed Change Order that application of agreed unit prices to quantities proposed will cause substantial inequity to the Owner or Design/Builder, applicable unit prices shall be equitably adjusted. 8.2 CONCEALED CONDITIONS 8.2.1 If concealed or unknown conditions of an unusual nature that affect the performance of the Work and vary from those indicated by the Contract Documents are encountered below ground or in an existing structure other than the Work, which conditions are not ordinarily found to exist or which differ materially from those generally recognized as inherent in work of the character provided for in this Part 2, notice by the observing party shall be given promptly to the other party and, if possible, before conditions are disturbed and in no event later than twenty-one days after first observance of the conditions. The contract sum shall be equitably adjusted for such concealed or unknown conditions by Change Order upon claim by either party made within twenty-one days after the claimant becomes aware of the conditions. 8.3 REGULATORY CHANGES 8.3.1 The Design/Builder shall be compensated for changes in the Work necessitated by the enactment or revision of codes, laws or regulations subsequent to the submission of the Design/Builder's Proposal under Part 1. ARTICLE 9 CORRECTION OF WORK 9.1 The Design/Builder shall promptly correct Work rejected by the Owner or known by the Design/Builder to be defective or failing to conform to the Construction Documents, whether observed before or after Substantial Completion and whether or not fabricated, installed or completed, and shall correct Work under this Part 2 found to be defective or nonconforming within a period of one year from the date of Substantial Completion of the Work or designated portion thereof, or within such longer period provided by any applicable special warranty in the Contract Documents. 9.2 Nothing contained in this Article 9 shall be construed to establish a period of limitation with respect to other obligations of the Design/Builder under this Part 2. Paragraph 9.1 relates only to the specific obligation of the Design/Builder to correct the Work, and has no relationship to the time within which the obligation to comply with the Contract Documents may be sought to be enforced, nor to the time within which proceedings may be commenced to establish the Design/Builder's liability with respect to the Design/Builder's obligations other than correction of the Work. 9.3 If the Design/Builder fails to correct defective Work as required or persistently fails to carry out Work in accordance with the Contract Documents, the Owner, by written order signed personally or by an agent specifically so empowered by the Owner in writing, may order the Design/Builder to stop the Work, or any portion thereof, until the cause for such order has been eliminated; however, the Owner's right to stop the Work shall not give rise to a duty on the part of the Owner to exercise the right for benefit of the Design/Builder or other persons or entities. 9.4 If the Design/Builder defaults or neglects to carry out the Work in accordance with the Contract Documents and fails within seven days after receipt of written notice from the Owner to commence and continue correction of such default or neglect with diligence and promptness, the Owner may give a second written notice to the Design/ Builder and, seven days following receipt by the Design/ Builder of that second written notice and without prejudice to other remedies the Owner may have, correct such deficiencies. In such case an appropriate Change Order shall be issued deducting from payments then or thereafter due the Design/Builder costs of correcting such deficiencies. If the payments then or thereafter due the Design/Builder are not sufficient to cover the amount of the deduction, the Design/Builder shall pay the difference to the Owner. Such action by the Owner shall be subject to arbitration. ARTICLE 10 ARBITRATION 10.1 Claims, disputes and other matters in question between the parties to this Part 2 arising out of or relating to Part 2 shall be decided by arbitration in accordance with the Construction Industry Arbitration Rules of the American Arbitration Association then in effect unless the parties agree otherwise. No arbitration arising out of or relat- AIA DOCUMENT A191,Part 2, OWNER-DESIGN/BUILDER AGREEMENT A191-1985 FIRST EDITION AIA* (c)1985 * THE AMERICAN INSTITUTE OF PART 2-PAGE 7 ARCHITECTS 1735 NEW YORK AVENUE N.W., WASHINGTON, D.C. 20006 ing to this Part 2 shall include, by consolidation or joinder or in any other manner, an additional person not a party to Part I except by written consent containing specific reference to Part 2 and signed by the Owner, Design/Builder and any other person sought to be joined. Consent to arbitration involving an additional person or persons shall not constitute consent to arbitration of a dispute not described or with a person not named therein. This provision shall be specifically enforceable in any court of competent jurisdiction. 10.2 Notice of demand for arbitration shall be filed in writing with the other party to this Part 2 and with the American Arbitration Association. The demand shall be made within a reasonable time after the claim, dispute or other matter in question has arisen. In no event shall the demand for arbitration be made after the date when the applicable statute of limitations would bar institution of a legal or equitable proceeding based on such claim, dispute or other matter in question. 10.3 The award rendered by arbitrators shall be final, and judgment may be entered upon it in accordance with applicable law in any court having jurisdiction. 10.4 Unless otherwise agreed in writing, the Design/Builder shall carry on the Work and maintain its progress during any arbitration proceedings, and the Owner shall continue to make payments to the Design/Builder in accordance with the Contract Documents. 10.5 This Article 1O shall survive completion or termination of Part 2. ARTICLE 11 MISCELLANEOUS PROVISIONS 11.1 This Part 2 shall be governed by the law of the place where the Work is located. 11.2 The table of contents and the headings of articles and paragraphs are for convenience only and shall not modify rights and obligations created by this Part 2. 11.3 In case a provision of Part 2 is held to be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not be affected. 11.4 SUBCONTRACTS 11.4.1 The Design/Builder, as soon as practicable after execution of Part 2, shall furnish to the Owner in writing the names of the persons or entities the Design/Builder will engage as contractors for the Project. 11.4.2 Nothing contained in the Design/Builder Contract Documents shall create a professional obligation or contractual relationship between the Owner and any third party. 11.5 WORK BY OWNER OR OWNER'S CONTRACTORS 11.5.1 The Owner reserves the right to perform work related to, but not part of, the Project and to award separate contracts in connection with other work at the site. If the Design/Builder claims that delay or additional cost is involved because of such action by the Owner, the Design/ Builder shall make such claims as provided in Subparagraph 11.6. 11.5.2 The Design/Builder shall afford the Owner's separate contractors reasonable opportunity for introduction and storage of their materials and equipment for execution of their work. The Design/Builder shall incorporate and coordinate the Design/Builder's Work with work of the Owner's separate contractors as required by the Contract Documents. 11.5.3 Costs caused by defective or ill-timed work shall be borne by the party responsible. 11.6 CLAIMS FOR DAMAGES 11.6.1 Should either party to Part2 suffer injury or damage to person or property because of an act or omission of the other party, the other party's employees or agents, or another for whose acts the other party is legally liable, claim shall be made in writing to the other party within a reasonable time after such injury or damage is or should have been first observed. 11.7 INDEMNIFICATION 11.7.1 To the fullest extent permitted by law, the Design/Builder shall indemnify and hold harmless the Owner and the Owner's consultants and separate contractors, any of their subcontractors, sub-subcontractors, agents and employees from and against claims, damages, losses and expenses, including but not limited to attorneys' fees, arising out of or resulting from performance of the Work. These indemnification obligations shall be limited to claims, damages, losses or expenses (1) that are attributable to bodily injury, sickness, disease or death, or to injury to or destruction of tangible property (other than the Work itself) including loss of use resulting therefrom, and (2) to the extent such claims, damages, losses or expenses are caused in whole or in part by negligent acts or omissions of the Design/Builder, the Design/Builder's contractors, anyone directly or indirectly employed by either or anyone for whose acts either may be liable, regardless of whether or not they are caused in part by a party indemnified hereunder. Such obligation shall not be construed to negate, abridge or otherwise reduce other rights or obligations of indemnity which would otherwise exist as to a party or person described in this Paragraph 11.7. 11.7.2 ln claims against the Owner or its consultants and its contractors, any of their subcontractors, sub-subcontractors, agents or employees by an employee of the Design/Builder, its contractors, anyone directly or indirectly employed by them or anyone for whose acts they may be liable, the indemnification obligation under this Paragraph 11.7 shall not be limited by a limitation on amount or type of damages, compensation or benefits payable by or for the Design/Builder, or a Design/Builder's contractor, under workers' or workmen's compensation acts, disability benefit acts or other employee benefit acts. 11.8 SUCCESSORS AND ASSIGNS 11.8.1 This Part2 shall be binding on successors, assigns, and legal representatives of and persons in privity of contract with the Owner or Design/Builder. Neither party shall assign, sublet or transfer an interest in Part 2 without the written consent of the other. 11.8.2 This Paragraph 11.8 shall survive completion or termination of Part 2. 11.9 In case of termination of the Architect, the Design/Builder shall provide the services of another lawfully licensed person or entity against whom the Owner makes no reasonable objection. A191-1985 A191,Part2 OWNER-DESIGN/BUILDER ACREEMENT, FIRST EDITION PART 2-PAGE 8 AIA* (c)1985, THE AMERICAN INSTITUTE OF ARCHITECTS, 1735 NEW YORK AVENUE, N.W. WASHINCTON, D.C. 20006 11.10 EXTENT OF AGREEMENT 11.10.1 Part 2 represents the entire agreement between the Owner and Design/Builder and supersedes Part 1 and prior negotiations, representations or agreements. Part 2 may be amended only by written instrument signed by both Owner and Design/Builder. ARTICLE 12 TERMINATION OF THE AGREEMENT 12.1 TERMINATION BY THE OWNER 12.1.1 This Part 2 may be terminated by the Owner upon fourteen days' written notice to the Design/Builder in the event that the Project is abandoned. If such termination occurs, the Owner shall pay the Design/Builder for Work completed and for proven loss sustained upon materials, equipment, tools, and construction equipment and machinery, including reasonable profit and applicable damages. 12.1.2 lf the Design/Builder defaults or persistently fails or neglects to carry out the Work in accordance with the Contract Documents or fails to perform the provisions of Part 2, the Owner may give written notice that the Owner intends to terminate Part 2. If the Design/Builder fails to correct the defaults, failure or neglect within seven days after being given notice, the Owner may then give a second written notice and, after an additional seven days, the Owner may without prejudice to any other remedy make good such deficiencies and may deduct the cost thereof from the payment due the Design/Builder or at the Owner's option, may terminate the employment of the Design/Builder and take possession of the site and of all materials, equipment, tools and construction equipment and machinery thereon owned by the Design/Builder and finish the Work by whatever method the Owner may deem expedient. If the unpaid balance of the contract sum exceeds the expense of finishing the Work, the excess shall be paid to the Design/Builder, but if the expense exceeds the unpaid balance, the Design/Builder shall pay the difference to the Owner. 12.2 TERMINATION BY THE DESIGN/BUILDER 12.2.1 If the Owner fails to make payment when due, the Design/Builder may give written notice of the Design/Builder's intention to terminate Part 2. If the Design/Builder fails to receive payment within seven days after receipt of such notice by the Owner, the Design/Builder may give a second written notice and, seven days after receipt of such second written notice by the Owner, may terminate Part 2 and recover from the Owner payment for Work executed and for proven losses sustained upon materials, equipment, tools, and construction equipment and machinery, including reasonable profit and applicable damages. AIA DOCUMENT A191,Part 2, OWNER-DESIGN/BUILDER AGREEMENT A191-1985 FIRST EDITION AIA* (c)1985 * THE AMERICAN INSTITUTE OF PART 2-PAGE 9 ARCHITECTS 1735 NEW YORK AVENUE N.W., WASHINGTON, D.C. 20006 ARTICLE 13 BASIS OF COMPENSATION The Owner shall compensate the Design/Builder in accordance with Article 5, Payments, and the other provisions of this Part 2 as described below. 13.1 COMPENSATION 13.1.1 FOR BASIC SERVICES,as described in Paragraphs 2.2.2 through 2.2.17, and for any other services included in Article l4 as part of Basic Services, Basic Compensation shall be as follows: FOUR HUNDRED TWENTY FIVE THOUSAND AND NO/100 (425,000.00) DOLLARS, WHICH HAS BEEN PAID BY THE ISSUANCE OF LIMITED INTEREST IN THE BILTMORE GROUP, OF LOUISANA L.L.C. 13.2 REIMBURSABLE EXPENSES 13.2.1 Reimbursable Expenses are in addition to the compensation for Basic and Additional Services and include actual expenditures made by the Design/Builder in the interest of the Project for the expenses listed as follows: CONTRUSTION OF THE ARBOR RETIREMENT COMMUNITY LOCATED AT: FOR THE FIXED SUM OF ONE MILLION, THREE HUNDRED FIFTY TWO THOUSAND AND NO/100 (1,352,000). ANY AND ALL CHANGE(S) ORDERS WILL BE IN WRITING. 13.2.2 FOR REIMBURSABLE EXPENSES, compensation shall be a multiple of N/A ( ) times the amounts expended. 13.3 INTEREST PAYMENTS 13.3.1 The rate of interest for past due payments shall be as follows: N/A (Usury laws and requirements under the Federal Truth in Lending Act, similar state and local consumer credit laws and other regulations at the Owner's and Design/Builder's principal places of business, at the location of the Project and elsewhere may affect the validity of this provision. Specific legal advice should be obtained with respect to deletion, modification or other requirements, such as written disclosures or waivers.) A191-1985 AIA DOCUMENT A191, PART 2 OWNER-DESIGN/BUILDER AGREEMENT PART 2-PAGE 10 FIRST EDITION AIA (c)1985 THE AMERICAN INSITITUTE OF ARCHITECTS, 1735 NEW YORK AVENUE, N.W., WASHINGTON, D.C. 20006 ARTICLE 14 OTHER PROVISIONS 14.1 The Basic Services to be performed shall be commenced on and, subject to authorized adjustments and to delays not caused by the Design/Builder, Substantial Completion shall be achieved in ( ) calendar days. 14.2 The Basic Services beyond those described in Article 2 are: NONE 14.3 The Design/Builder shall submit an Application for Payment on the of each month. 14.4 The Design/Builder's Proposal includes: (List below: this Part 2, Supplementary and other Conditions, the drawings, the specifications, and Modifications, showing page or sheet numbers in all cases and dates where applicable to define the scope of Work.) This Part 2 entered into as of the day and year first written above. OWNER DESIGN/BUILDER THE BILTMORE GROUP OF LOUISIANA L.L.C. THE FORSYTHE GROUP, INC. - ------------------------------------- -------------------------------- BY /S/SONYA KILE, V.P. - ------------------------------------- -------------------------------- SCENICLAND CONSTRUCTION, CO. - ------------------------------------- -------------------------------- BY /S/SUNSHINE GANTT BY /S/FRED M BAYLES --------------------------- ------------------------------ *APPLICATION FOR PAYMENT, APPROVED BY KARL MIKE WALLACE, P.E. ARE DUE AND PAYABLE ON OR BEFORE THE 1ST DAY OF THE MONTH FOLLOWING. AIA DOCUMENT A191, PART 2 OWNER-DESIGN/BUILDER AGREEMENT A191-1985 FIRST EDITION AIA 1985 THE AMERICAN INSTITUTE OF PART 2-PAGE 11 ARCHITECTS, 1735 NEW YORK AVENUE, N.W., WASHINGTON, D.C. 20006 EX-10.4 14 CONSTRUCTION MANAGEMENT CONTRACT FOR THE NATCHITOCHES, LA FACILITY THE AMERICAN INSTITUTE OF ARCHITECTS [AIA LOGO] AIA Document A191 Standard Form of Agreement Between Owner and Design/Builder 1985 EDITION THIS DOCUMENT HAS IMPORTANT LEGAL CONSEQUENCES; CONSULTATION WITH AN ATTORNEY IS ENCOURAGED. This Document comprises two separate Agreements: Part 1 Agreement-Preliminary Design and Budgeting and Part 2 Agreement-Final Design and Construction. Hereinafter, the Part 1 Agreement is referred to as Part 1 and the Part 2 Agreement is referred to as Part 2. PART 2 AGREEMENT-FINAL DESIGN AND CONSTRUCTION AGREEMENT made as of the ELEVENTH day of NOVEMBER in the year of Nineteen Hundred and NINETY-EIGHT. BETWEEN the Owner: THE BILTMORE GROUP OF LOUISIANA, L.L.C. (Name and address) 507 TRENTON ST. WEST MONROE, LA 71291 and the Design/Builder: (Name and address) THE FORSYTHE GROUP, INC. SCENICLAND CONSTRUCTION, CO. 507 TRENTON ST. 131 SUNSET DR WEST MONROE, LA 71291 WEST MONROE, LA 71291 For the following Project: (Include Project name, location and detailed description of scope.) THE ARBOR RETIREMENT COMMUNITY IN NATCHITOCHES, LA. (EXHIBIT A) DESIGN AND COMPLETE CONSTRUCTION ACCORDING TO PLANS AND SPECIFICATIONS DESIGNED BY THE FORSYTHE GROUP, INC.; WITH ASSISTANCE OF ENGINEER FIRM: TAYLOR-WALLACE-CIVIC ENGINEER The architectural services described in Article 2 will be provided by the following person or entity who is lawfully licensed to practice architecture: (Name and address) Taylor-Wallace Designs, Inc. Downsville, LA 71234 The Owner and the Design/Builder agree as set forth below. Copyright (c) 1985 by The American Institute of Architects, 1735 New York Avenue, N.W., Washington, D.C. 20006. Reproduction of the material herein or substantial quotation of its provisions without written permission of the AIA violates the copyright laws of the United States and will be subject to legal prosecution. AIA DOCUMENT A191, PART 2 OWNER-DESIGN/BUILDER AGREEMENT FIRST EDITION AIA (C)1985 THE AMERICAN INSTITUTE OF ARCHITECTS, 1735 NEW YORK AVENUE, N.W., WASHINGTON, D.C. 20006 A191-1985 PART 2-PAGE 1 Terms and Conditions-Part 2 Agreement ARTICLE I GENERAL PROVISIONS 1.1 BASIC DEFINITIONS 1.1.1 The Contract Documents consist of the Design/ Builder's Proposal identified in Article 14, this Part 2, the Construction Documents approved by the Owner in accordance with Subparagraph 2.2.2 below and Modifications issued after execution of Part 2. A Modification is a Change Order or a written amendment to Part 2 signed by both parties. These form the Contract, and are as fully a part of the Contract as if attached to this Part 2 or repeated herein. 1.1.2 The Project is the total design and construction for which the Design/Builder is responsible under Part 2, including all professional design services and all labor, materials and equipment used or incorporated in such design and construction. 1.1.3 The Work comprises the completed construction designed under the Project and includes labor necessary to produce such construction, and materials and equipment incorporated or to be incorporated in such construction. 1.2 EXECUTION, CORRELATION AND INTENT 1.2.1 This Part 2 shall be signed in not less than duplicate by the Owner and Design/Builder. 1.2.2 lt is the intent of the Owner and Design/Builder that the Contract Documents include all items necessary for proper execution and completion of the Work. The Contract Documents are complementary, and what is required by anyone shall be as binding as if required by all. Work not covered in the Contract Documents will not be required unless it is consistent with and is reasonably inferable from the Contract Documents as being necessary to produce the intended results. Words and abbreviations which have well-known technical or trade meanings are used in the Contract Documents in accordance with such recognized meanings. 1.3 OWNERSHIP AND USE OF DOCUMENTS 1.3.1 The drawings, specifications and other documents furnished by the Design/Builder are instruments of service and shall not become the property of the Owner whether or not the Project for which they are made is commenced. Drawings, specifications and other documents furnished by the Design/Builder shall not be used by the Owner on other projects, for additions to this Project or, unless the Design/Builder is in default under Part 2, for completion of this Project by others, except by written agreement relating to use, liability and compensation. 1.3.2 Submission or distribution of documents to meet official regulatory requirements or for other purposes in connection with the Project is not to be construed as publication in derogation of the Design/Builder's or the Architect's common law copyrights or other reserved rights. The Owner shall own neither the documents nor the copyrights. ARTICLE 2 DESIGN/BUILDER 2.1 SERVICES AND RESPONSIBILITIES 2.1.1 Design services shall be performed by qualified architects, engineers and other professionals selected and paid by the Design/Builder. The professional obligations of such persons shall be undertaken and performed in the interest of the Design/Builder. Construction services shall be performed by qualified construction contractors and suppliers, selected and paid by the Design/Builder and acting in the interest of the Design/Builder. Nothing contained in Part 2 shall create any professional obligation or contractual relationship between such persons and the Owner. 2.2 BASIC SERVICES 2.2.1 The Design/Builder's Basic Services are described below and in Article 14. 2.2.2 Based on the Design/Builder's Proposal, the Design/Builder shall submit Construction Documents for review and approval by the Owner. Construction Documents shall include technical drawings, schedules, diagrams and specifications, setting forth in detail the requirements for construction of the Work, and shall: .1 develop the intent of the Design/Builder's Proposal in greater detail; .2 provide information customarily necessary for the use of those in the building trades; and .3 include documents customarily required for regulatory agency approvals. 2.2.3 The Design/Builder shall assist the Owner in filing documents required to obtain necessary approvals of governmental authorities having jurisdiction over the Project. 2.2.4 Unless otherwise provided in the Contract Documents, the Design/Builder shall provide or cause to be provided and shall pay for design services, labor, materials, equipment, tools, construction equipment and machinery, water, heat, utilities, transportation and other facilities and services necessary for proper execution and completion of the Work, whether temporary or permanent and whether or not incorporated or to be incorporated in the Work. 2.2.5 The Design/Builder shall be responsible for and shall coordinate all construction means, methods, techniques, sequences and procedures. 2.2.6 The Design/Builder shall keep the Owner informed of the progress and quality of the Work. 2.2.7 If requested in writing by the Owner, the Design/ Builder, with reasonable promptness and in accordance with time limits agreed upon, shall interpret the requirements of the Contract Documents and initially shall decide, subject to demand for arbitration, claims, disputes and other matters in question relating to performance thereunder by both Owner and Design/Builder. Such interpretations and decisions shall be in writing, shall not be presumed to be correct and shall be given such weight as the arbitrators or the court shall determine. A191-1985 A191,Part2 OWNER-DESIGN/BUILDER ACREEMENT, FIRST EDITION PART 2-PAGE 2 AIA* (c)1985, THE AMERICAN INSTITUTE OF ARCHITECTS, 1735 NEW YORK AVENUE, N.W. WASHINCTON, D.C. 20006 2.2.8 The Design/Builder shall correct Work which does not conform to the Construction Documents. 2.2.9 The Design/Builder warrants to the Owner that materials and equipment incorporated in the Work will be new unless otherwise specified, and that the Work will be of good quality, free from faults and defects, and in conformance with the Contract Documents. Work not conforming to these requirements shall be corrected in accordance with Article 9. 2.2.10 The Design/Builder shall pay all sales, consumer, use and similar taxes which were in effect at the time the Design/Builder's Proposal was first submitted to the Owner, and shall secure and pay for building and other permits and governmental fees, licenses and inspections necessary for the proper execution and completion of the Work which are either customarily secured after execution of Part 2 or are legally required at the time the Design/Builder's Proposal was first submitted to the Owner. 2.2.11 The Design/Builder shall give notices and comply with laws, ordinances, rules, regulations and lawful orders of public authorities relating to the Project. 2.2.12 The Design/Builder shall pay royalties and license fees. The Design/Builder shall defend suits or claims for infringement of patent rights and shall save the Owner harmless from loss on account thereof, except that the Owner shall be responsible for such loss when a particular design, process or product of a particular manufacturer is required by the Owner. However, if the Design/Builder has reason to believe the use of a required design, process or product is an infringement of a patent, the Design/Builder shall be responsible for such loss unless such information is promptly given to the Owner. 2.2.13 The Design/Builder shall be responsible to the Owner for acts and omissions of the Design/Builder's employees and parties in privily of contract with the Design/ Builder to perform a portion of the Work, including their agents and employees. 2.2.14 The Design/Builder shall keep the premises free from accumulation of waste materials or rubbish caused by the Design/Builder's operations. At the completion of the Work, the Design/Builder shall remove from and about the Project the Design/Builder's tools, construction equipment, machinery, surplus materials, waste materials and rubbish. 2.2.15 The Design/Builder shall prepare Change Orders for the Owner's approval and execution in accordance with Part 2 and shall have authority to make minor changes in the design and construction consistent with the intent of Part 2 not involving an adjustment in the contract sum or an extension of the contract time. The Design/Builder shall promptly inform the Owner, in writing, of minor changes in the design and construction. 2.2.16 The Design/Builder shall notify the Owner when the Work or an agreed upon portion thereof is substantially completed by issuing a Certificate of Substantial Completion which shall establish the Date of Substantial Completion, shall state the responsibility of each party for security, maintenance, heat, utilities, damage to the Work and insurance, shall include a list of items to be completed or corrected and shall fix the time within which the Design/Builder shall complete items listed therein. Disputes between the Owner and Design/Builder regarding the Certificate of Substantial Completion shall be resolved by arbitration. 2.2.17 The Design/Builder shall maintain in good order at the site one record copy of the drawings, specifications, product data, samples, shop drawings, Change Orders and other Modifications, marked currently to record changes made during construction. These shall be delivered to the Owner upon completion of the design and construction and prior to final payment. ARTICLE 3 OWNER 3.1 The Owner shall designate a representative authorized to act on the Owner's behalf with respect to the Project. The Owner or such authorized representative shall examine documents submitted by the Design/Builder and shall promptly render decisions pertaining thereto to avoid delay in the orderly progress of the Work. 3.2 The Owner may appoint an on-site project representative to observe the Work and to have such other responsibilities as the Owner and Design/Builder agree in writing prior to execution of Part 2. 3.3 The Owner shall cooperate with the Design/Builder in securing building and other permits, licenses and inspections, and shall pay the fees for such permits, licenses and inspections if the cost of such fees is not identified as being included in the Design/Builder's Proposal. 3.4 The Owner shall furnish services by land surveyors, geotechnical engineers and other consultants for subsoil, air and water conditions, in addition to those provided under Part 1 when such services are deemed necessary by the Design/Builder to carry out properly the design services under this Part 2. 3.5 The Owner shall furnish structural, mechanical, chemical, geotechnical and other laboratory or on-site tests, inspections and reports as required by law or the Contract Documents. 3.6 The services, information, surveys and reports required by Paragraphs 3.4 and 3.5 shall be furnished at the Owner's expense, and the Design/Builder shall be entitled to rely upon their accuracy and completeness. 3.7 If the Owner observes or otherwise becomes aware of a fault or defect in the Work or nonconformity with the Design or Construction Documents, the Owner shall give prompt written notice thereof to the Design/Builder. 3.8 The Owner shall furnish required information and services and shall promptly render decisions pertaining thereto to avoid delay in the orderly progress of the design and construction. 3.9 The Owner shall, at the request of the Design/Builder and upon execution of Part 2, provide a certified or notarized statement of funds available for the Project and their source. 3.10 The Owner shall communicate with contractors only through the Design/Builder. ARTICLE 4 TIME 4.1 The Design/Builder shall provide services as expeditiously as is consistent with reasonable skill and care and the orderly progress of design and construction. 4.2 Time limits stated in the Contract Documents are of the essence of Part 2. The Work to be performed under Part AIA DOCUMENT A191,Part 2, OWNER-DESIGN/BUILDER AGREEMENT A191-1985 FIRST EDITION AIA* (c)1985 * THE AMERICAN INSTITUTE OF PART 2-PAGE 3 ARCHITECTS 1735 NEW YORK AVENUE N.W., WASHINGTON, D.C. 20006 2 shall commence upon execution of a notice to proceed unless otherwise agreed and, subject to authorized Modifications, Substantial Completion shall be achieved as indicated in Article 14. 4.3 The Date of Substantial Completion of the Work or an agreed upon portion thereof is the date when construction or an agreed upon portion thereof is sufficiently complete so the Owner can occupy and utilize the Work or agreed upon portion thereof for its intended use. 4.4 The schedule provided in the Design/Builder's Proposal shall include a construction schedule consistent with Paragraph 4.2 above. 4.3 If the Design/Builder is delayed in the progress of the Project by acts or neglect of the Owner, Owner's employees, separate contractors employed by the Owner, changes ordered in the Work not caused by the fault of the Design/Builder, labor disputes, fire, unusual delay in transportation, adverse weather conditions not reasonably anticipatable, unavoidable casualties, or other causes beyond the Design/Builder's control, or by delay authorized by the Owner's pending arbitration or another cause which the Owner and Design/Builder agree is justifiable, the contract time shall be reasonably extended by Change Order. ARTICLE 5 PAYMENTS 5.1 PROGRESS PAYMENTS 5.1.1 The Design/Builder shall deliver to the Owner itemized Applications for Payment in such detail as indicated in Article 14. 5.1.2 Within ten days of the Owner's receipt of a properly submitted and correct Application for Payment, the Owner shall make payment to the Design/Builder. 5.1.3 The Application for Payment shall constitute are presentation by the Design/Builder to the Owner that, to the best of the Design/Builder's knowledge, information and belief, the design and construction have progressed to the point indicated; the quality of the Work covered by the application is in accordance with the Contract Documents; and the Design/Builder is entitled to payment in the amount requested. 5.1.4 The Design/Builder shall pay each contractor, upon receiptof payment from the Owner, out of the amount paid to the Design/Builder on account of such contractor's work, the amount to which said contractor is entitled in accordance with the terms of the Design/Builder's contract with such contractor. The Design/Builder shall, by appropriate agreement with each contractor, require each contractor to make payments to subcontractors in similar manner. 5.1.5 The Owner shall have no obligation to pay or to be responsible in any way for payment to a contractor of the Design/Builder except as may otherwise be required by law. 5.1.6 No progress payment or partial or entire use or occupancy of the Project by the Owner shall constitute an acceptance of Work not in accordance with the Contract Documents. 5.1.7 The Design/Builder warrants that: (1) title to Work, materials and equipment covered by an Application for Payment will pass to the Owner either by incorporation in construction or upon receipt of payment by the Design/Builder, whichever occurs first; (2) Work, materials and equipment covered by previous Applications for Payment are free and clear of liens, claims, security interests or encumbrances, hereinafter referred to as "liens"; and (3) no Work, materials or equipment covered by an Application for Payment will have been acquired by the Design/ Builder, or any other person performing work at the site or furnishing materials or equipment for the Project, subject to an agreement under which an interest therein or an encumbrance thereon is retained by the seller or otherwise imposed by the Design/Builder or such other person. 5.1.8 If the Contract provides for retainage, then at the date of Substantial Completion or occupancy of the Work or any agreed upon portion thereof by the Owner, whichever occurs first, the Design/Builder may apply for and the Owner, if the Design/Builder has satisfied the requirements of Paragraph 5.2.1 and any other requirements of the Contract relating to retainage, shall pay the Design/Builder the amount retained, if any, for the Work or for the portion completed or occupied, less the reasonable value of incorrect or incomplete Work. Final payment of such withheld sum shall be made upon correction or completion of such Work. 5.2 FINAL PAYMENT 5.2.1 Neither final payment nor amounts retained,if any, shall become due until the Design/Builder submits to the Owner (1) an affidavit that payrolls, bills for materials and equipment, and other indebtedness connected with the Project for which the Owner or Owner's property might be liable have been paid or otherwise satisfied, (2) consent of surety, if any, to final payment, (3) a certificate that insurance required by the Contract Documents is in force following completion of the Work, and (4) if required by the Owner, other data establishing payment or satisfaction of obligations, such as receipts, releases and waivers of liens arising out of Part 2, to the extent and in such form as may be designated by the Owner. If a contractor refuses to furnish a release or waiver required by the Owner, the Design/Builder may furnish a bond satisfactory to the Owner to indemnify the Owner against such lien. If such lien remains unsatisfied after payments are made, the Design/Builder shall reimburse the Owner for moneys the latter may be compelled to pay in discharging such lien, including all costs and reasonable attorneys' fees. 5.2.2 Final payment constituting the entire unpaid balance due shall be paid by the Owner to the Design/Builder upon the Owner's receipt of the Design/Builder's final Application for Payment when the Work has been completed and the Contract fully performed except for those responsibilities of the Design/Builder which survive final payment. 5.2.3 The making of final payment shall constitute a waiver of all claims by the Ownerexcept those arising from: .1 unsettled liens; .2 faulty or defective Work appearing after Substantial Completion; .3 failure of the Work to comply with requirements of the Contract Documents; or .4 terms of special warranties required by the Contract Documents. 5.2.4 Acceptance of final payment shall constitute a waiver of all claims by the Design/Builder except those previously made in writing and identified by the Design/Builder as unsettled at the time of final Application for Payment. A191-1985 A191,Part2 OWNER-DESIGN/BUILDER ACREEMENT, FIRST EDITION PART 2-PAGE 4 AIA* (c)1985, THE AMERICAN INSTITUTE OF ARCHITECTS, 1735 NEW YORK AVENUE, N.W. WASHINCTON, D.C. 20006 5.3 INTEREST PAYMENTS 5.3.1 Payments due the Design/Builder under Part2 which are not paid when due shall bear interest from the date due at the rate specified in Article 13, or in the absence of a specified rate, at the legal rate prevailing where the principal improvements are to be located. ARTICLE 6 PROTECTION OF PERSONS AND PROPERTY 6.1 The Design/Builder shall be responsible for initiating, maintaining and providing Supervision of safety precautions and programs in connection with the Work. 6.2 The Design/Builder shall take reasonable precautions for safety of, and shall provide reasonable protection to prevent damage, injury or loss to: (1) employees on the Work and other persons who may be affected thereby; (2) the Work and materials and equipment to be incorporated therein; and (3) other property at or adjacent to the site. 6.3 The Design/Builder shall give notices and comply with applicable laws, ordinances, rules, regulations and orders of public authorities bearing on the safety of persons and property and their protection from damage, injury or loss. 6.4 The Design/Builder shall be liable for damage or loss (other than damage or loss to property insured under the property insurance provided or required by the Contract Documents to be provided by the Owner) to property at the site caused in whole or in part by the Design/Builder, a contractor of the Design/Builder or anyone directly or indirectly employed by either of them, or by anyone for whose acts they may be liable, except damage or loss attributable to the acts or omissions of the Owner, the Owner's separate contractors or anyone directly or indirectly employed by them or by anyone for whose acts they may be liable and not attributable to the fault or negligence of the Design/ Builder. ARTICLE 7 INSURANCE AND BONDS 7.1 DESIGN/BUILDER'S LIABILITY INSURANCE 7.1.1 The Design/Builder shall purchase and maintainin a company or companies authorized to do business in the state in which the Work is located such insurance as will protect the Design/Builder from claims set forth below which may arise out of or result from operations under the Contract by the Design/Builder or by a contractor of the Design/Builder, or by anyone directly or indirectly employed by any of them, or by anyone for whose acts they may be liable: .1 claims under workers' or workmen's compensation, disability benefit and other similar employee benefit laws which are applicable to the Work to be performed; .2 claims for damages because of bodily injury, occupational sickness or disease, or death of the Design/Builder's employees under any applicable employer's liability law; .3 claims for damages because of bodily injury, sickness or disease, or death of persons other than the Design/Builder's employees; .4 claims for damages covered by usual personal injury liability coverage which are sustained (1) by a person as a result of an offense directly or indirectly related to employment of such person by the Design/Builder or (2) by another person; .5 claims for damages, other than to the Work at the site, because of injury to or destruction of tangible property, including loss of use; and .6 claims for damages for bodily injury or death of a person or property damage arising out of ownership, maintenance or use of a motor vehicle. 7.1.2 The insurance required by the above Subparagraph 7.1.1 shall be written for not less than limits of liability specified in the Contract Documents or required by law, whichever are greater. 7.1.3 The Design/Builder's liability insurance shall include contractual liability insurance applicable to the Design/Builder's obligations under Paragraph 11.7. 7.1.4 Certificates of Insurance, and copies of policies if requested, acceptable to the Owner shall be delivered to the Owner prior to commencement of design and construction. These Certificates as well as insurance policies required by this Paragraph shall contain a provision that coverage will not be cancelled or allowed to expire until at least thirty days' prior written notice has been given to the Owner. If any of the foregoing insurance coverages are required to remain in force after final payment, an additional certificate evidencing continuation of such coverage shall be submitted along with the application for final payment. 7.2 OWNER'S LIABILITY INSURANCE 7.2.1 The Owner shall be responsible for purchasing and maintaining, in a company or companies authorized to do business in the state in which the principal improvements are to be located, Owner's liability insurance to protect the Owner against claims which may arise from operations under this Project. 7.3 PROPERTY INSURANCE 7.3.1 Unless otherwise provided under this Part 2, the Owner shall purchase and maintain, in a company or companies authorized to do business in the state in which the principal improvements are to be located, property insurance upon the Work at the site to the full insurable value thereof. Property insurance shall include interests of the Owner, the Design/Builder, and their respective contractors and subcontractors in the Work. It shall insure against perils of fire and extended coverage and shall include all risk insurance for physical loss or damage including, without duplication of coverage, theft, vandalism and malicious mischief. If the Owner does not intend to purchase such insurance for the full insurable value of the entire Work, the Owner shall inform the Design/Builder in writing prior to commencement of the Work. The Design/Builder may then effect insurance for the Work at the site which will protect the interests of the Design/Builder and the Design/Builder's contractors and subcontractors, and by appropriate Change Order the cost thereof shall be charged to the Owner. If the Design/Builder is damaged by failure of the Owner to purchase or maintain such insurance without notice to the Design/Builder, then the Owner shall bear all reasonable costs properly attributable thereto. if not covered under the all risk insurance or not otherwise provided in the Contract Documents, the Design/Builder shall effect and maintain similar property insurance on portions of the Work stored off-site or in transit when such portions of the Work are to be included in an Application for Payment. AIA DOCUMENT A191,Part 2, OWNER-DESIGN/BUILDER AGREEMENT A191-1985 FIRST EDITION AIA* (c)1985 * THE AMERICAN INSTITUTE OF PART 2-PAGE 5 ARCHITECTS 1735 NEW YORK AVENUE N.W., WASHINGTON, D.C. 20006 7.3.2 Unless otherwise provided under this Part 2, the Owner shall purchase and maintain such boiler and machinery insurance as may be required by the Contract Documents or by law and which shall specifically cover such insured objects during installation and until final acceptance by the Owner. This insurance shall cover interests of the Owner, the Design/Builder, and the Design/Builder's contractors and subcontractors in the Work. 7.3.3 A loss insured under Owner's property insurance is to be adjusted with the Owner and made payable to the Owner as trustee for the insureds, as their interests may appear, subject to requirements of any applicable mortgagee clause and of Subparagraph 7.3.8. The Design/ Builder shall pay contractors their shares of insurance proceeds received by the Design/Builder, and by appropriate agreement, written where legally required for validity, shall require contractors to make payments to their subcontractors in similar manner. 7.3.4 Before an exposure to loss may occur, the Owner shall file with the Design/Builder a copy of each policy required by this Paragraph 7.3. Each policy shall contain only those endorsements specifically related to this Project. Each policy shall contain a provision that the policy will not be cancelled or allowed to expire until at least thirty days' prior written notice has been given the Design/ Builder. 7.3.5 If the Design/Builder requests in writing that insurance for risks other than those described herein or for other special hazards be included in the property insurance policy, the Owner shall, if possible, obtain such insurance, and the cost thereof shall be charged to the Design/Builder by appropriate Change Order. 7.3.6 The Owner and Design/Builder waive all rights against each other and the contractors, subcontractors, agents and employees, each of the other, for damages caused by fire or other perils to the extent covered by property insurance obtained pursuant to this Paragraph 7.3 or other property insurance applicable to the Work, except such rights as they may have to proceeds of such insurance held by the Owner as trustee. The Owner or Design/Builder, as appropriate, shall require from contractors and subcontractors by appropriate agreements, written where legally required for validity, similar waivers each in favor of other parties enumerated in this Paragraph 7.3. The policies shall be endorsed to include such waivers of subrogation. 7.3.7 If required in writing by a party in interest, the Owner as trustee shall provide, upon occurrence of an insured loss, a bond for proper performance of the Owner's duties. The cost of required bonds shall be charged against proceeds received as trustee. The Owner shall deposit proceeds so received in a separate account and shall distribute them in accordance with such agreement as the parties in interest may reach, or in accordance with an arbitration award in which case the procedure shall be as provided in Article 10. If after such loss no other special agreement is made, replacement of damaged Work shall be covered by appropriate Change Order. 7.3.8 The Owner, as trustee, shall have power to adjust and settle a loss with insurers unless one of the parties in interest shall object, in writing, within ten days after occurrence of loss, to the Owner's exercise of this power. If such objection be made, the Owner as trustee shall make settlement with the insurers in accordance with the decision of arbitration as provided in Article 10. If distribution of insurance proceeds by arbitration is required, the arbitrators will direct such distribution. 7.3.9 If the Owner finds it necessary to occupy or use a portion or portions of the Work before Substantial Completion, such occupancy or use shall not commence prior to a time agreed to by the Owner and Design/Builder and to which the insurance company or companies providing property insurance have consented by endorsement to the policy or policies. The property insurance shall not lapse or be cancelled on account of such partial occupancy or use. Consent of the Design/Builder and of the insurance company or companies to such occupancy or use shall not be unreasonably withheld. 7.4 LOSS OF USE INSURANCE 7.4.1 The Owner, at the Owner's option, may purchase and maintain such insurance as will insure the Owner against loss of use of the Owner's property due to fire or other hazards, however caused. The Owner waives all rights of action against the Design/Builder, and its contractors and their agents and employees, for loss of use of the Owner's property, including consequential losses due to fire or other hazards, however caused, to the extent covered by insurance under this Paragraph 7.4. 7.5 PERFORMANCE BOND AND PAYMENT BOND 7.5.1 The Owner shall have the right to require the Design/Builder to furnish bonds covering the faithful performance of the Contract and the payment of all obligations arising thereunder if and as required in the Contract Documents or in Article 14. ARTICLE 8 CHANGES IN THE WORK 8.1 CHANGE ORDERS 8.1.1 A Change Order is a written order signed by the Owner and Design/Builder, and issued after execution of Part 2, authorizing a change in the Work or adjustment in the contract sum or contract time. The contract sum and contract time may be changed only by Change Order. 8.1.2 The Owner, without invalidating Part 2, may order changes in the Work within the general scope of Part 2 consisting of additions, deletions or other revisions, and the contract sum and contract time shall be adjusted accordingly. Such changes in the Work shall be authorized by Change Order, and shall be performed under applicable conditions of the Contract Documents. 8.1.3 If the Owner requests the Design/Builder to submit a proposal for a change in the Work and then elects not to proceed with the change, a Change Order shall be issued to reimburse the Design/Builder for any costs incurred for Design Services or proposed revisions to the Contract Documents. 8.1.4 Cost or credit to the Owner resulting from a change in the Work shall be determined in one or more of the following ways: .1 by mutual acceptance of a lump sum properly itemized and supported by sufficient substantiating data to permit evaluation; .2 by unit prices stated in the Contract Documents or subsequently agreed upon; A191-1985 A191,Part2 OWNER-DESIGN/BUILDER ACREEMENT, FIRST EDITION PART 2-PAGE 6 AIA* (c)1985, THE AMERICAN INSTITUTE OF ARCHITECTS, 1735 NEW YORK AVENUE, N.W. WASHINCTON, D.C. 20006 .3 by cost to be determined in a manner agreed upon by the parties and a mutually acceptable fixed or percentage fee; or .4 by the method provided below. 8.1.5 If none of the methods set forth in Clauses 8.1.4.1, 8.1.4.2 or 8.1.4.3 is agreed upon, the Design/Builder, provided a written order signed by the Owner is received, shall promptly proceed with the Work involved. The cost of such Work shall then be determined on the basis of reasonable expenditures and savings of those performing the Work attributable to the change, including the expenditures for design services and revisions to the Contract Documents. In case of an increase in the contract sum, the cost shall include a reasonable allowance for overhead and profit. In case of the methods set forth in Clauses 8.1.4.3 and 8.1.4.4, the Design/Builder shall keep and present an itemized accounting together with appropriate supporting data for inclusion in a Change Order. Unless otherwise provided in the Contract Documents, cost shall be limited to the following: cost of materials, including sales tax and cost of delivery; cost of labor, including social security, old age and unemployment insurance, and fringe benefits required by agreement or custom; workers' or workmen's compensation insurance; bond premiums; rental value of equipment and machinery; additional costs of supervision and field office personnel directly attributable to the change; and fees paid to architects, engineers and other professionals. Pending final determination of cost to the Owner, payments on account shall be made on the Application for Payment. The amount of credit to be allowed by the Design/ Builder to the Owner for deletion or change which results in a net decrease in the contract sum will be actual net cost. When both additions and credits covering related Work or substitutions are involved in a change, the allowance for overhead and profit shall be figured on the basis of the net increase, if any, with respect to that change. 8.1.6 If unit prices are stated in the Contract Documents or subsequently agreed upon, and if quantities originally contemplated are so changed in a proposed Change Order that application of agreed unit prices to quantities proposed will cause substantial inequity to the Owner or Design/Builder, applicable unit prices shall be equitably adjusted. 8.2 CONCEALED CONDITIONS 8.2.1 If concealed or unknown conditions of an unusual nature that affect the performance of the Work and vary from those indicated by the Contract Documents are encountered below ground or in an existing structure other than the Work, which conditions are not ordinarily found to exist or which differ materially from those generally recognized as inherent in work of the character provided for in this Part 2, notice by the observing party shall be given promptly to the other party and, if possible, before conditions are disturbed and in no event later than twenty-one days after first observance of the conditions. The contract sum shall be equitably adjusted for such concealed or unknown conditions by Change Order upon claim by either party made within twenty-one days after the claimant becomes aware of the conditions. 8.3 REGULATORY CHANGES 8.3.1 The Design/Builder shall be compensated for changes in the Work necessitated by the enactment or revision of codes, laws or regulations subsequent to the submission of the Design/Builder's Proposal under Part 1. ARTICLE 9 CORRECTION OF WORK 9.1 The Design/Builder shall promptly correct Work rejected by the Owner or known by the Design/Builder to be defective or failing to conform to the Construction Documents, whether observed before or after Substantial Completion and whether or not fabricated, installed or completed, and shall correct Work under this Part 2 found to be defective or nonconforming within a period of one year from the date of Substantial Completion of the Work or designated portion thereof, or within such longer period provided by any applicable special warranty in the Contract Documents. 9.2 Nothing contained in this Article 9 shall be construed to establish a period of limitation with respect to other obligations of the Design/Builder under this Part 2. Paragraph 9.1 relates only to the specific obligation of the Design/Builder to correct the Work, and has no relationship to the time within which the obligation to comply with the Contract Documents may be sought to be enforced, nor to the time within which proceedings may be commenced to establish the Design/Builder's liability with respect to the Design/Builder's obligations other than correction of the Work. 9.3 If the Design/Builder fails to correct defective Work as required or persistently fails to carry out Work in accordance with the Contract Documents, the Owner, by written order signed personally or by an agent specifically so empowered by the Owner in writing, may order the Design/Builder to stop the Work, or any portion thereof, until the cause for such order has been eliminated; however, the Owner's right to stop the Work shall not give rise to a duty on the part of the Owner to exercise the right for benefit of the Design/Builder or other persons or entities. 9.4 If the Design/Builder defaults or neglects to carry out the Work in accordance with the Contract Documents and fails within seven days after receipt of written notice from the Owner to commence and continue correction of such default or neglect with diligence and promptness, the Owner may give a second written notice to the Design/ Builder and, seven days following receipt by the Design/ Builder of that second written notice and without prejudice to other remedies the Owner may have, correct such deficiencies. In such case an appropriate Change Order shall be issued deducting from payments then or thereafter due the Design/Builder costs of correcting such deficiencies. If the payments then or thereafter due the Design/Builder are not sufficient to cover the amount of the deduction, the Design/Builder shall pay the difference to the Owner. Such action by the Owner shall be subject to arbitration. ARTICLE 10 ARBITRATION 10.1 Claims, disputes and other matters in question between the parties to this Part 2 arising out of or relating to Part 2 shall be decided by arbitration in accordance with the Construction Industry Arbitration Rules of the American Arbitration Association then in effect unless the parties agree otherwise. No arbitration arising out of or relat- AIA DOCUMENT A191,Part 2, OWNER-DESIGN/BUILDER AGREEMENT A191-1985 FIRST EDITION AIA* (c)1985 * THE AMERICAN INSTITUTE OF PART 2-PAGE 7 ARCHITECTS 1735 NEW YORK AVENUE N.W., WASHINGTON, D.C. 20006 ing to this Part 2 shall include, by consolidation or joinder or in any other manner, an additional person not a party to Part I except by written consent containing specific reference to Part 2 and signed by the Owner, Design/Builder and any other person sought to be joined. Consent to arbitration involving an additional person or persons shall not constitute consent to arbitration of a dispute not described or with a person not named therein. This provision shall be specifically enforceable in any court of competent jurisdiction. 10.2 Notice of demand for arbitration shall be filed in writing with the other party to this Part 2 and with the American Arbitration Association. The demand shall be made within a reasonable time after the claim, dispute or other matter in question has arisen. In no event shall the demand for arbitration be made after the date when the applicable statute of limitations would bar institution of a legal or equitable proceeding based on such claim, dispute or other matter in question. 10.3 The award rendered by arbitrators shall be final, and judgment may be entered upon it in accordance with applicable law in any court having jurisdiction. 10.4 Unless otherwise agreed in writing, the Design/Builder shall carry on the Work and maintain its progress during any arbitration proceedings, and the Owner shall continue to make payments to the Design/Builder in accordance with the Contract Documents. 10.5 This Article 1O shall survive completion or termination of Part 2. ARTICLE 11 MISCELLANEOUS PROVISIONS 11.1 This Part 2 shall be governed by the law of the place where the Work is located. 11.2 The table of contents and the headings of articles and paragraphs are for convenience only and shall not modify rights and obligations created by this Part 2. 11.3 In case a provision of Part 2 is held to be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not be affected. 11.4 SUBCONTRACTS 11.4.1 The Design/Builder, as soon as practicable after execution of Part 2, shall furnish to the Owner in writing the names of the persons or entities the Design/Builder will engage as contractors for the Project. 11.4.2 Nothing contained in the Design/Builder Contract Documents shall create a professional obligation or contractual relationship between the Owner and any third party. 11.5 WORK BY OWNER OR OWNER'S CONTRACTORS 11.5.1 The Owner reserves the right to perform work related to, but not part of, the Project and to award separate contracts in connection with other work at the site. If the Design/Builder claims that delay or additional cost is involved because of such action by the Owner, the Design/ Builder shall make such claims as provided in Subparagraph 11.6. 11.5.2 The Design/Builder shall afford the Owner's separate contractors reasonable opportunity for introduction and storage of their materials and equipment for execution of their work. The Design/Builder shall incorporate and coordinate the Design/Builder's Work with work of the Owner's separate contractors as required by the Contract Documents. 11.5.3 Costs caused by defective or ill-timed work shall be borne by the party responsible. 11.6 CLAIMS FOR DAMAGES 11.6.1 Should either party to Part2 suffer injury or damage to person or property because of an act or omission of the other party, the other party's employees or agents, or another for whose acts the other party is legally liable, claim shall be made in writing to the other party within a reasonable time after such injury or damage is or should have been first observed. 11.7 INDEMNIFICATION 11.7.1 To the fullest extent permitted by law, the Design/Builder shall indemnify and hold harmless the Owner and the Owner's consultants and separate contractors, any of their subcontractors, sub-subcontractors, agents and employees from and against claims, damages, losses and expenses, including but not limited to attorneys' fees, arising out of or resulting from performance of the Work. These indemnification obligations shall be limited to claims, damages, losses or expenses (1) that are attributable to bodily injury, sickness, disease or death, or to injury to or destruction of tangible property (other than the Work itself) including loss of use resulting therefrom, and (2) to the extent such claims, damages, losses or expenses are caused in whole or in part by negligent acts or omissions of the Design/Builder, the Design/Builder's contractors, anyone directly or indirectly employed by either or anyone for whose acts either may be liable, regardless of whether or not they are caused in part by a party indemnified hereunder. Such obligation shall not be construed to negate, abridge or otherwise reduce other rights or obligations of indemnity which would otherwise exist as to a party or person described in this Paragraph 11.7. 11.7.2 ln claims against the Owner or its consultants and its contractors, any of their subcontractors, sub-subcontractors, agents or employees by an employee of the Design/Builder, its contractors, anyone directly or indirectly employed by them or anyone for whose acts they may be liable, the indemnification obligation under this Paragraph 11.7 shall not be limited by a limitation on amount or type of damages, compensation or benefits payable by or for the Design/Builder, or a Design/Builder's contractor, under workers' or workmen's compensation acts, disability benefit acts or other employee benefit acts. 11.8 SUCCESSORS AND ASSIGNS 11.8.1 This Part2 shall be binding on successors, assigns, and legal representatives of and persons in privity of contract with the Owner or Design/Builder. Neither party shall assign, sublet or transfer an interest in Part 2 without the written consent of the other. 11.8.2 This Paragraph 11.8 shall survive completion or termination of Part 2. 11.9 In case of termination of the Architect, the Design/Builder shall provide the services of another lawfully licensed person or entity against whom the Owner makes no reasonable objection. A191-1985 A191,Part2 OWNER-DESIGN/BUILDER ACREEMENT, FIRST EDITION PART 2-PAGE 8 AIA* (c)1985, THE AMERICAN INSTITUTE OF ARCHITECTS, 1735 NEW YORK AVENUE, N.W. WASHINCTON, D.C. 20006 11.10 EXTENT OF AGREEMENT 11.10.1 Part 2 represents the entire agreement between the Owner and Design/Builder and supersedes Part 1 and prior negotiations, representations or agreements. Part 2 may be amended only by written instrument signed by both Owner and Design/Builder. ARTICLE 12 TERMINATION OF THE AGREEMENT 12.1 TERMINATION BY THE OWNER 12.1.1 This Part 2 may be terminated by the Owner upon fourteen days' written notice to the Design/Builder in the event that the Project is abandoned. If such termination occurs, the Owner shall pay the Design/Builder for Work completed and for proven loss sustained upon materials, equipment, tools, and construction equipment and machinery, including reasonable profit and applicable damages. 12.1.2 lf the Design/Builder defaults or persistently fails or neglects to carry out the Work in accordance with the Contract Documents or fails to perform the provisions of Part 2, the Owner may give written notice that the Owner intends to terminate Part 2. If the Design/Builder fails to correct the defaults, failure or neglect within seven days after being given notice, the Owner may then give a second written notice and, after an additional seven days, the Owner may without prejudice to any other remedy make good such deficiencies and may deduct the cost thereof from the payment due the Design/Builder or at the Owner's option, may terminate the employment of the Design/Builder and take possession of the site and of all materials, equipment, tools and construction equipment and machinery thereon owned by the Design/Builder and finish the Work by whatever method the Owner may deem expedient. If the unpaid balance of the contract sum exceeds the expense of finishing the Work, the excess shall be paid to the Design/Builder, but if the expense exceeds the unpaid balance, the Design/Builder shall pay the difference to the Owner. 12.2 TERMINATION BY THE DESIGN/BUILDER 12.2.1 If the Owner fails to make payment when due, the Design/Builder may give written notice of the Design/Builder's intention to terminate Part 2. If the Design/Builder fails to receive payment within seven days after receipt of such notice by the Owner, the Design/Builder may give a second written notice and, seven days after receipt of such second written notice by the Owner, may terminate Part 2 and recover from the Owner payment for Work executed and for proven losses sustained upon materials, equipment, tools, and construction equipment and machinery, including reasonable profit and applicable damages. AIA DOCUMENT A191,Part 2, OWNER-DESIGN/BUILDER AGREEMENT A191-1985 FIRST EDITION AIA* (c)1985 * THE AMERICAN INSTITUTE OF PART 2-PAGE 9 ARCHITECTS 1735 NEW YORK AVENUE N.W., WASHINGTON, D.C. 20006 ARTICLE 13 BASIS OF COMPENSATION The Owner shall compensate the Design/Builder in accordance with Article 5, Payments, and the other provisions of this Part 2 as described below. 13.1 COMPENSATION 13.1.1 FOR BASIC SERVICES,as described in Paragraphs 2.2.2 through 2.2.17, and for any other services included in Article l4 as part of Basic Services, Basic Compensation shall be as follows: FOUR HUNDRED TWENTY FIVE THOUSAND AND NO/100 (425,000.00) DOLLARS, WHICH HAS BEEN PAID BY THE ISSUANCE OF LIMITED INTEREST IN THE BILTMORE GROUP OF, LOUISIANA L.L.C. 13.2 REIMBURSABLE EXPENSES 13.2.1 Reimbursable Expenses are in addition to the compensation for Basic and Additional Services and include actual expenditures made by the Design/Builder in the interest of the Project for the expenses listed as follows: CONTRUCTION OF THE ARBOR RETIREMENT COMMUNITY LOCATED AT FOR THE FIXED SUM OF ONE MILLION, THREE HUNDRED FIFTY TWO THOUSAND AND NO/100 (1,352,000). ANY AND ALL CHANGE(S) ORDERS WILL BE IN WRITING. 13.2.2 FOR REIMBURSABLE EXPENSES, compensation shall be a multiple of N/A ( ) times the amounts expended. 13.3 INTEREST PAYMENTS 13.3.1 The rate of interest for past due payments shall be as follows: N/A (Usury laws and requirements under the Federal Truth in Lending Act, similar state and local consumer credit laws and other regulations at the Owner's and Design/Builder's principal places of business, at the location of the Project and elsewhere may affect the validity of this provision. Specific legal advice should be obtained with respect to deletion, modification or other requirements, such as written disclosures or waivers.) A191-1985 AIA DOCUMENT A191, PART 2 OWNER-DESIGN/BUILDER AGREEMENT PART 2-PAGE 10 FIRST EDITION AIA (c)1985 THE AMERICAN INSITITUTE OF ARCHITECTS, 1735 NEW YORK AVENUE, N.W., WASHINGTON, D.C. 20006 ARTICLE 14 OTHER PROVISIONS 14.1 The Basic Services to be performed shall be commenced on and, subject to authorized adjustments and to delays not caused by the Design/Builder, Substantial Completion shall be achieved in ( ) calendar days. 14.2 The Basic Services beyond those described in Article 2 are: NONE 14.3 The Design/Builder shall submit an Application for Payment on the of each month. 14.4 The Design/Builder's Proposal includes: (List below. this Part 2, Supplementary and other Conditions, the drawings, the specifications, and Modifications, showing page or sheet numbers in all cases and dates where applicable to define the scope of Work.) This Part 2 entered into as of the day and year first written above. OWNER DESIGN/BUILDER THE BILTMORE GROUP OF LOUISIANA L.L.C. THE FORSYTHE GROUP, INC. - --------------------------------------- --------------------------------- BY /S/SONYA KILE, V.P. - --------------------------------------- --------------------------------- SCENICLAND CONSTRUCTION, CO. - --------------------------------------- --------------------------------- BY /S/SUNSHINE GANTT BY /S/FRED M BAYLES ------------------------------------- ------------------------------- *APPLICATION FOR PAYMENT, APPROVED BY KARL MIKE WALLACE, P.E. ARE DUE AND PAYABLE ON OR BEFORE THE 1ST DAY OF THE MONTH FOLLOWING. AIA DOCUMENT A191, PART 2 OWNER-DESIGN/BUILDER AGREEMENT A191-1985 FIRST EDITION AIA 1985 THE AMERICAN INSTITUTE OF PART 2-PAGE 11 ARCHITECTS, 1735 NEW YORK AVENUE, N.W., WASHINGTON, D.C. 20006 EX-10.5 15 CONSTRUCTION LOAN AGREEMENT FOR THE MINDEN, LA FACILITY POST OFFICE BOX 2066 [LOGO OF FIRST REPUBLIC BANK] M0NROE, LOUISIANA 71207-2066 318-388-3990 1220 NORTH 18TH STREET September 16, 1998 Mr. & Mrs. Fred Bayles The Biltmore Group, L.L.C. 507 Trenton Street West Monroe, LA 71291 Dear Joanne and Fred: The attached draft Business Loan Agreement and Construction Loan Agreement will serve as the basis for First Republic Bank's (FRB) construction loan on the Biltmore's Minden project. Other terms or lending conditions not specifically described in these agreements are as follows: 1. Loan Maturity will be one year from the date of closing 2. A variable interest rate at 1.45% over Wall Street Journal Prime will be charged. If closed today, the initial rate would be 9.95%. Interest is to be paid monthly. 3. An origination fee of $13,520 plus closing cost up to $3,000 for a total of $16,520 are included in the loan amount of $1,368,520. 4. The initial disbursement will be used to payoff FRB loan #3009653 with a current principal balance of $202,000. This loan was originally incurred for the purchase of the Minden site and start up costs involving the Biltmore projects. 5. A limited guarantee of $500,000 each will be required from Joanne Caldwell Bayles and The Forsythe Group, Inc. 6. An assignment of life insurance of $500,000 each from Fred Bayles and Joanne Caldwell Bayles to FRB will be required. 7. A performance bond of $1,350,000 is in place through Patterson Insurance Company of Shreveport for this construction project. 8. Title insurance in the amount of the loan is required. 9. Acceptable inter-creditor agreements are to be worked our among First Republic Bank, The Biltmore Group, L.L.C., MMR Investment Bankers, and Colonial Trust Company. Our legal representative is Tom Allen, telephone number 318-322-9499, and he has been asked to contact Mr. Morgan and Mr. Carroll. 10. FRB will hold a co-first lien on 5.72 acres in Webster Parish, LA with Colonial Trust Company, as trustee for the benefit of the bondholders of The Biltmore Group, LLC. FRB will retain as separate collateral the 4.28 acres remaining on the Minden site along with other security previously pledged by the Bayles' entities. It is not anticipated that any title work or new recordings will be required with this latter described category of collateral. OFFICES LOCATED IN RAYVILLE - MONROE - WEST MONROE - RUSTON MEMBER F.D.I.C. [EEO LENDER LOGO] The Biltmore Group, L.L.C. Page 2 11. Borrower shall enter into, prior to closing, a Standard Owner's Fixed Price Contract for the Minden Project, which is satisfactory to FRB. 12. FRB is agreeing to finance the Minden project to the extent noted in these documents. It is recognized that Church Loan and Investments will likely be the construction lender on the next three or four projects involving the $9.9 million bond offering through MMR The bank shall be furnished with any other such loan documentation as it deems necessary for its protection and in order to document the loan and to create and perfect the FRB's security interest in the collateral for the loan. All such loan documentation is subject to review and acceptance by bank's counsel. This type financing is a new step for FRB and we look forward to working with all the groups involved to successfully accomplish this undertaking. Please contact me at 1-800-388-5510 if additional information is needed. Sincerely, /S/BILL CRAWFORD William M. CRAWFORD Executive Vice President WMC/el Enclosures Copy to: Mr. Tom Allen Mr. Jerry Martin Mr. Gerald Morgan Mr. Clay Carroll The Forsythe Group, Inc. TO WHOM IT MAY CONCERN In the event the proceeds from the sale of the Bonds for the Minden, Louisiana Arbor, owned by The Biltmore Group, L.L.C. are insufficient to retire the Construction Loan at their maturities, then The Forsythe Group, Inc., will purchase the Construction Lender's loan and will give the Company the option of renewing and extending the Construction Loan into permanent loan amortized over thirteen years subject to the Company being current on all its outstanding debt obligations. Joanne M. Caldwell-Bayles President /s/JOANNE M CALDWELL-BAYLES ------------------------------ 2-5-99 507 Trenton Street West Monroe, Louisiana 71291 (318) 323-2115 Fax (318) 323-6281 EX-10.6 16 CONSTRUCTION LOAN AGREEMENT FOR THE BASTROP, LA FACILITY CHURCH LOANS & INVESTMENTS TRUST (A Real Estate Investment Trust) October 26, 1998 The Biltmore Group of Louisiana, L.L.C. 507 Trenton W. Monroe, LA 71291 Re: $1,220,000 Interim Loan (Bastrop, LA) Gentlemen: This will constitute the commitment of Church Loans & Investments Trust ("Church Loans") to loan to The Biltmore Group, W. Monroe, LA ("Borrower") the sum of $1,220,000, or any amount less than that amount as the Borrower may need less any title insurance, appraisal costs, mortgage registration tax and all other closing costs and expense that may be incurred by Church Loans in connection with the funding and collection of the loan. The loan is to be made pending the offering of bonds by the Borrower through MMR Investment Bankers ("MMR") as provided hereinafter. The loan will be for a term of one year and will bear interest on the unpaid principal at a variable rate which would be equal to 1.5% per annum in excess of the "Prime Rate" of interest as published by the Wall Street Journal under the heading "Money Rates". The minimum rate of interest will not be less than the initial rate of interest. Interest shall be paid monthly upon the first day of each month during the term of the loan. Both principal and any unpaid interest on the loan will be due at maturity. The loan will be repaid from the first bond proceeds subject only to the payment of various broker/dealer fees. Funds advanced upon this loan will be used to construct an assisted care facility located on the north side of Cooper Lake Rd, at intersection of Boswell and Nancy, Bastrop Louisiana. 5305 I-40 West PO Box 8203 Amarillo, TX 79114-8203 (806)358-3666 (800)692-1111 Fax (806)358-1430 The Biltmore Group, L.L.C. W. Monroe, LA October 26, 1998 This commitment shall be subject to the following conditions: 1. That the Borrower pay to Church Loans, in addition to the interest on the loan as described above, a commitment fee equal to 2% (two percent) of the principal amount of the funds to be advanced to the Borrower under the terms of this commitment. One-half of the total commitment fee (ie. $12,200.00) shall be remitted with this signed commitment letter. Although such commitment fee is due and payable upon the Borrower's acceptance and execution of this commitment letter, as a convenience to the Borrower, Church Loans will allow the balance of the commitment fee to be paid at closing from the proceeds of the loan. However, in the event that you decide not to proceed to close this loan for any reason, the balance of the commitment fee is due and owing by you to Church Loans and the amount already paid is non-refundable. Such fee is not interest, but is paid and payable to Church Loans to induce Church Loans to enter into this loan commitment and to compensate Church Loans for making available the funds necessary to fund the entire amount of the committed loan whether or not such amount is advanced. 2. That the Borrower pay in advance the sum of $250.00 which is the title insurance cancellation fee in the event the Borrower decides not to accept the commitment after title work has begun. Upon closing this fee will be used to offset other closing expenses. This sum should be remitted with this signed commitment letter. The closing of your loan will normally be enhanced if our law firm orders the title insurance from title companies that have had experience in dealing with our closings. If possible, we would recommend that you allow our legal counsel to place the order for the title insurance. Our legal counsel will order the title insurance as soon as they have a correct legal description for the property. 3. That upon acceptance of this commitment the Borrower shall deposit with Church Loans the additional sum of $2,500.00 which are the legal fees to be incurred by Church Loans in connection with the loan. This amount should be remitted with this commitment letter. 4. That the loan shall be secured by a first mortgage lien and security interest upon all the Borrower's real estate, buildings and facilities, both existing and to be constructed with the proceeds of this loan. Such property shall be subject to no prior liens or encumbrances. 5. That the loan will be made pursuant to a loan agreement entered into by the Borrower and Church Loans consistent with the terms of this commitment and such other normal covenants of the Church Loans' basic loan agreement. 2 The Biltmore Group, L.L.C. W. Monroe, LA October 26, 1998 6. That a mortgage title insurance policy in the face amount of not less than the total amount of the loan be issued by a title insurance company acceptable to Church Loans, insuring the fact that Church Loans is the owner and holder of a good and valid first lien mortgage upon the real estate securing the loan as described in paragraph 4 above. 7. That the total loan will not exceed 66 2/3% of the total appraised value of the real estate given to secure the loan. Such appraisal will be completed by an appraiser acceptable to Church Loans and must (a) be a FIRREA-conforming appraisal and (b) be certified to comply with the standards of Church Loans and be submitted for approval prior to advancement of any funds. Such appraisal shall be rendered by an appraiser who, among other things, shall have: (a) appraised the real estate at not more than the fair market value thereof; (b) appraised the value of the improvements on the real estate at not more than the depreciated cost thereof; and (c) considered in making such appraisal the likelihood of deterioration of the neighborhood in which the real estate and improvements are located. The qualifications of the appraiser and references, preferably banks and insurance companies, should be submitted with the appraisal. 8. That the Borrower enter into a bond offering agreement with MMR under the terms of which MMR shall assist the Borrower in the offering upon a best efforts basis bonds of the Borrower in an amount not less than $1,800,000 of which the first proceeds after the payment of the expenses of the offering and an initial sinking fund reserve of $90,000.00 shall be used to retire this loan. The effective date of this bond offering shall be not more than 90 days after the date of the note securing this loan. Effective date is the date the bonds are first offered for sale. 9. That the promissory note evidencing the loan be guaranteed by the Forsythe Group, Inc. so that $500,000 of the total amount of the loan is guaranteed upon guaranty forms furnished by Church Loans. 10. That the loan be closed on or before sixty days from the date hereof. 11. That during the term of the loan the Borrower shall agree to periodically supply Church Loans with financial statements and reports, as requested by Church Loans. 12. That Church Loans must review and approve all legal documents prior to closing. 13. That a representative of Church Loans conduct an on-site inspection of the property to be given by the Borrower to secure the loan. The expense of this inspection shall be borne by the Borrower. 3 The Biltmore Group, L.L.C. W. Monroe, LA October 26, 1998 14. That a Phase One environmental site assessment will be completed prior to closing by an engineering firm acceptable to Church Loans certifying that the property is free and clear of any environmental problems and that the property is in compliance with all current laws and regulations regarding such environmental assessment. 15. That the Borrower require the contractor to furnish to Church Loans an original policy providing builder's risk coverage in an amount not less than the amount of this loan. Church Loans is to be listed as mortgagee. An original copy of the policy evidencing such coverage must be furnished prior to funding. 16. That the Borrower furnish to Church Loans an original copy of an insurance policy providing fire & extended coverage on the Borrower's property in an amount not less than the amount of this loan. Church Loans is to be listed as mortgagee. The original policy evidencing such coverage must be furnished prior to funding. 17. That the Borrower secure a fixed-price contract for the new construction in an amount not to exceed $1,260,000. No changes or modifications will be made to this contract without the expressed written consent of Church Loans. Construction draws will be processed once each month using normal and customary AIA Construction Progress Draw forms. 18. Notwithstanding the above, if regulatory approval of the bond offering requires changes in the bond offering, bond offering procedures, prospectus, interim loan, repayment of the interim loan or otherwise, which such changes materially effect the interim loan, the method and time of repayment of the interim loan or the likelihood of repayment of the interim loan, in the sole judgment of Church Loans, then Church Loans may, at its option, revoke this commitment without liability for same. 19. You also should be aware that once all of our requirements and the requirements of our legal counsel are met for the closing of the loan, we must have three business days to deliver the funds to the closing agent. Once all closing requirements have been met, our legal counsel will notify our office and the actual closing can be scheduled in accordance with the above-mentioned time requirements. 4 The Biltmore Group, L.L.C. W. Monroe, LA October 26, 1998 The acceptance of this commitment must be indicated by the Borrower's signing and returning the original copy of this commitment letter within fifteen (15) days from the date hereof. The acceptance of this commitment will be the Borrower's authorization for Church Loans to withhold from the proceeds of any loan any premiums for the purchase of title insurance, appraisal costs and other closing costs which are to be paid which are associated with the loan. This commitment is conditioned upon the loan being closed on or before December 26, 1998. Any extension of this commitment will be subject to terms which may be mutually agreed upon at the time of extension. We look forward to working with you in connection with this transaction. Sincerely yours, /S/KELLY ARCHER Kelly Archer Manager of Operations KA/ja The above commitment has been agreed to and accepted by the undersigned Officers of The Biltmore Group of Louisiana, L.L.C., W. Monroe, LA. Date: 11-9-98 ---------- The Biltmore Group of Louisiana L.L.C. - ---------------------------------- ------------------------------------- by /S/Joanne Caldwell-Bayles - ---------------------------------- ------------------------------------- Managing Member - ---------------------------------- ------------------------------------- 5 CHURCH LOANS & INVESTMENTS TRUST (Real Estate Investment Trust) January 27, 1999 The Biltmore, Group of Louisiana, LLC Attn: Joanne Caldwell-Bayles 507 Trenton St West Monroe, LA 71291 Re: Bastrop, LA Project Dear Mrs. Caldwell-Bayles: Reference is made to the loan agreement made by Church Loans & Investments Trust ("Church Loans") to The Biltmore Group of Louisiana, LLC ("Borrower") FBO: Bastrop, LA dated November 24, 1998. This will serve as an addendum to that original loan agreement. The addendum is as follows: 1. That should the proceeds from the sale of the bonds through MMR Investment Bankers ("MMR") and other participating broker/dealers, after the payment of the expenses associated with the bond offering and the establishment of the first six months sinking fund reserve, be insufficient to pay the unpaid principal and interest upon the loan committed herein at its maturity, at the option of the Borrower the term of said loan shall be renewed and extended by Church Loans as follows: (a) The term of the loan shall be initially renewed and extended for an additional period of one (1) year upon the following terms and conditions: (1) The Borrower shall be current upon all of its outstanding debt obligations, to include, but not necessarily restricted to all sinking fund payments payable to the trustee in correction with the bonds to be offered through MMR and other participating broker/dealers, and all interest payments upon the loan to be made by Church Loans to the Borrower under the terms of this commitment. 5305 1-40 West PO Box 8203 Amarillo, TX 79114-8203 (806)358-3666 (800)682-1111 Fax (806)358-1430 The Biltmore Group of Louisiana, LLC Attn: Joanne Caldwell-Bayles West Monroe, LA January 27, 1999 Page 2 (2) The amount of the loan to be renewed and extended shall be the lesser of (i) the unpaid principal upon the loan committed herein at maturity, or (ii) the unpaid principal amount of all unsold bonds offered through MMR and other participating broker/dealers described above. Any principal amount of the loan in excess of the amount of the unsold bonds must be paid in full by Borrower. (3) The interest rate upon the loan shall be at a variable rate equal to 2% per annum in excess of the "Prime Rate" of interest published by the Wall Street Journal under the heading "Money Rates". (4) The interest upon the unpaid principal balance of the loan shall be payable monthly. (5) The principal upon the loan shall be paid on or before one year from date. (6) The Borrower shall pay Church Loans a loan extension fee equal to 2% (2 points) of the principal amount of the loan. (7) The total amount of the loan extended and the sold bonds shall not exceed 66 2/3% of the appraised market value of the collateral. (b) If on the maturity of the one year extension, November 1, 2000, should the proceeds from the sale of the bonds to be offered by the Borrower through MMR and other participating broker/dealers be insufficient to pay the unpaid principal and interest upon the loan, then, at the option of the Borrower, the principal amount of the loan extended in regard to the Bastrop issue, shall be renewed and extended by Church Loans into a permanent loan upon the following terms and conditions: (1) The Borrower shall be current upon all of its outstanding debt obligations, to include, but not necessarily restricted to all sinking fund payments payable to the trustee in connection with the bonds to be offered through MMR and other participating broker/dealers, and all interest payments upon the loan to be made by Church Loans to the Borrower under the terms of this commitment. The Biltmore Group of Louisiana, LLC Attn: Joanne Caldwell-Bayles West Monroe, LA January 27, 1999 Page 3 (2) The permanent loan shall bear interest at the same rate as described in paragraph (a) (3) above. (3) The amount of the permanent loan shall be payable in equal, or as equal as possible due to the variable rate of interest on the loan, monthly installments of principal and interest over a period of thirteen years, however, the loan shall be due and payable in full, with interest, at the date of the final maturity of the bonds. Borrower shall have the right of the Borrower to prepay the loan at any time without penalty. (4) The Borrower shall pay to Church Loans an additional loan renewal fee equal to 5% (5 points) of the principal amount of the permanent loan. (5) The loan shall continue to be secured on an equal basis with the outstanding bonds to be issued by the Borrower through MMR and other participating broker/dealers upon all property to be given by the Borrower to secure the loan committed herein. (6) The total amount of the loan and sold bonds shall not exceed 66 2/3% of the appraised market value of the property. (c) Until such time as the loans committed herein are paid in full, the Borrower shall not further encumber the property securing the payment of said loans, either by placing additional mortgages or deeds of trust upon said property, or by increasing the indebtedness of the Borrower under any Trust Indenture, mortgage or deed of trust or other security documents associated with the sale of bonds secured by said property, Should the Borrower additionally encumber the property securing the loans committed hereby prior to their payment in full, Church Loans shall have the right to declare the unpaid principal and interest upon said loans immediately due and payable upon thirty days notice to the Borrower. (d) The term "bonds" as used herein shall mean and refer to the series of bonds dedicated to the Bastrop, Louisiana project. The Biltmore Group of Louisiana, LLC Attn: Joanne Caldwell-Bayles West Monroe, LA January 27, 1999 Page 4 The acceptance of this addendum must be indicated by the Borrower's signing and returning the original copy of this letter within fifteen (15) days from the date hereof. Sincerely yours, /S/KELLY ARCHER Kelly Archer Manager of Operations The above addendum has been agreed to and accepted by the undersigned Managing Member of The Biltmore Group of Louisiana, LLC. Date: ---------------- - ------------------------------- ------------------------------- - ------------------------------- ------------------------------- EX-10.7 17 CONSTRUCTION LOAN AGREEMENT FOR THE FARMERVILLE, LA FACILITY Church Loans & Investments Trust (A Real Estate Investment Trust) January 27, 1999 The Biltmore Group of Louisiana, LLC FBO: Farmerville, LA 507 Trenton St W. Monroe, LA 71291 Re: $1,330,000 Interim Loan Gentlemen: This will constitute the commitment of Church Loans & Investments Trust ("Church Loans") to loan to The Biltmore Group of Lousiana, LLC FBO: Farmerville, LA ("the Borrower") the sum of $1,330,000, or any amount less than that amount as the Borrower may need, less any legal fees, title insurance, appraisal costs, mortgage registration tax and all other closing costs and expense that may be incurred by Church Loans in connection with the funding and collection of the loan. The loan is to be made pending the offering of bonds by the Borrower through MMR Investment Bankers ("MMR") as provided hereinafter. The loan will be for a term of one year and will bear interest at a variable rate which would be equal to 1.5% per annum in excess of the "Prime Rate" of interest published by the Wall Street Journal under the heading "Money Rates". Interest upon the unpaid principal shall be paid monthly upon the first day of each month during the term of the loan. Both principal and interest upon the unpaid principal of the loan will be due at maturity. The loan will be repaid from the first bond proceeds subject only to (1) the payment of various broker/dealer fees and (2) an initial sinking fund reserve of $90,000. Funds advanced upon this loan would be used to construct an assisted care facility located on the west side of Louisiana Highway 33, Farmerville, LA. 5305 I-40 West PO Box 8203 Amarillo TX 79114-8203 (806)358-3666 (800)692-1111 Fax (806)358-1430 The Biltmore Group of Louisiana, LLC FBO: Farmerville, LA January 27, 1999 Page 2 This commitment shall be subject to the following conditions: 1. That the Borrower pay to Church Loans upon the acceptance of the commitment a commitment fee equal to 2.5% (two and one-half percent) of the principal amount of the funds to be advanced to the Borrower under the terms of this commitment. One-half of the total commitment fee (ie. $16,625.00) shall be remitted with this signed commitment letter. Although such commitment fee is due and payable upon the Borrower's acceptance and execution of this commitment letter, as a convenience to the Borrower, church Loans will allow the balance of the commitment letter fee to be paid at closing from the proceeds of the loan. However, in the event that you decide not to proceed to close this loan for any reason, the balance of the commitment fee is due and owing by you to Church Loans and the amount already paid in non-refundable. Such fee is not interest, but is paid and payable to Church Loans to induce Church Loans to enter into this loan commitment and to compensate Church Loans for making available the funds necessary to fund the entire amount of the committed loan whether or not such amount is advanced. 2. That the Borrower pay in advance the sum of $250.00 which is the title insurance cancellation fee in the event the Borrower decides not to accept the commitment after title work has begun. Upon closing this fee will be used to offset other closing expenses. This sum should be remitted with this signed commitment letter. The closing of your loan will normally be enhanced if our law firm orders the title insurance from title companies that have had experience in dealing with our closings. If possible, we would recommend that you allow our legal counsel to place the order for the title insurance. Our legal counsel will order the title insurance as soon as they have a correct legal description for the property. 3. That upon acceptance of this commitment the Borrower shall deposit with Church Loans the additional sum of $2,500.00 which are the legal fees to be incurred by Church Loans in connection with the loan. This amount should be remitted with this signed commitment letter. 4. That the loan shall be secured by a first mortgage lien upon all the Borrower's existing buildings and facilities. The Biltmore Group of Louisiana, LLC FBO: Farmerville, LA January 27, 1999 Page 3 5. That a mortgage title insurance policy in the face amount of not less than the total amount of the loan be issued by a title insurance company designated by Church Loans, insuring the fact that Church Loans is the owner and holder of a good and valid first lien mortgage upon the real estate securing the loan as described in paragraph 2 above. 6. That the total loan will not exceed 66 2/3% of the total appraised value of the real estate given to secure the loan. Such appraisal must be certified to comply with the standards of Church Loans and be submitted for approval prior to advancement of any funds. Such appraisal shall be rendered by an appraiser who, among other things, shall have: (a) appraised the real estate at not more than the fair market value thereof; (b) appraised the value of the improvements on the real estate at not more than the depreciated cost thereof; and (c) considered in making such appraisal the likelihood of deterioration of the neighborhood in which the real estate and improvements are located. The qualifications of the appraiser and references, preferably banks and insurance companies, should be submitted with the appraisal. 7. That the Borrower enter into a bond offering agreement with MMR, under the terms of which MMR shall assist the Borrower in the offering upon a best efforts basis bonds of the Borrower in an amount of not less than $1,800,000 of which the first proceeds after the payment of the expenses of the offering and an initial sinking fund reserve of $90,000 shall be used to retire this loan. The effective date of this bond offering shall be not more than 90 days after the date of the note securing this loan. Effective date is the date the bonds are first offered for sale. 8. That the promissory note evidencing the loan be guaranteed by the Forsythe Group, Inc. so that $500,000 of the total amount of the loan is guaranteed upon guaranty forms furnished by Church Loans. 9. That the loan be closed on or before sixty days from the date hereof. 10. That during the term of the loan the Borrower shall agree to periodically supply Church Loans with financial statements and reports, as requested by Church Loans. The Biltmore Group of Louisiana, LLC FBO: Farmerville, LA January 27, 1999 Page 4 11. That Church Loans must review and approve all legal documents prior to closing. 12. That a representative of Church Loans conduct an on-site inspection of the property to be given by the Borrower to secure the loan. The expense of this inspection shall be borne by the Borrower. 13. That the Borrower enter into a loan agreement incorporating the terms and conditions of this commitment as well as other normal terms of the Church Loans loan agreement. 14. That should the proceeds from the sale of the bonds through MMR and other participating broker/dealers, after the payment of the expenses associated with the bond offering and the establishment of the first six months sinking fund reserve, be insufficient to pay the unpaid principal and interest upon the loan committed herein at its maturity, at the option of the Borrower the term of said loan shall be renewed and extended by Church Loans as follows: (a) The term of the loan shall be initially renewed and extended for an additional period of one (1) year upon the following terms and conditions: (1) The Borrower shall be current upon all of its outstanding debt obligations, to include, but not necessarily restricted to all sinking fund payments payable to the trustee in connection with the bonds to be offered through MMR, and all interest payments upon the loan to be made by Church Loans to the Borrower under the terms of this commitment. (2) The amount of the loan to be renewed and extended shall be the lesser of (i) the unpaid principal upon the loan committed herein at maturity, or (ii) the unpaid principal amount of all unsold bonds offered through MMR described above. (3) The interest rate upon the loan shall be at a variable rate equal to 1.5% per annum in excess The Biltmore Group of Louisiana, LLC FBO: Farmerville, LA January 27, 1999 Page 5 of the "Prime Rate" of interest published by the Wall Street Journal under the heading "Money Rates". (4) The interest upon the unpaid principal balance of the loan shall be payable monthly. (5) The principal upon the loan shall be paid on or before one year from date. (6) The Borrower shall pay Church Loans a loan extension fee equal to 2.5% (two and one-half percent) of the principal amount of the loan. (b) If on the maturity of the loan described in paragraph 11 (a) above, less than all of the bonds to be offered by the Borrower through MMR have been sold, at the option of the Borrower, the principal amount of all unsold bonds shall be renewed and extended by Church Loans into a permanent loan upon the following terms and conditions; (1) The Borrower shall be current upon all of its outstanding debt obligations, to include, but not necessarily restricted to all sinking fund payments payable to the trustee in connection with the bonds to be offered through MMR, and all interest payments upon the loan to be made by Church Loans to the Borrower under the terms of this commitment. (2) The permanent loan shall bear interest at the same rate as described in paragraph 11 (a) above. (3) The amount of the permanent loan shall be payable in equal, or as equal as possible due to the variable rate of interest on the loan, monthly installments of principal and interest over a period of thirteen years, however, the loan shall be due and payable in full, with interest, at the date of the final maturity of the bonds. Borrower shall have the right of the Borrower to prepay the loan at any time without penalty. The Biltmore Group of Louisiana, LLC FBO: Farmerville, LA January 27, 1999 Page 6 (4) The Borrower shall pay to Church Loans an additional loan renewal fee equal to 5% (5 points) of the principal amount of the permanent loan. (5) The loan shall continue to be secured on an equal basis with the outstanding bonds to he issued by the Borrower through MMR upon all property to be given by the Borrower to secure the loan committed herein. (c) Until such time as the loans committed herein are paid in full, the Borrower shall not further encumber the property securing the payment of said loans, either by placing additional mortgages or deeds of trust upon said property, or by increasing the indebtedness of the Borrower under any Trust Indenture, mortgage or deed of trust or other security documents associated with the sale of bonds secured by said property. Should the Borrower additionally encumber the property securing the loans committed hereby prior to their payment in full, Church Loans shall have the right to declare the unpaid principal and interest upon said loans immediately due and payable upon thirty days notice to the Borrower. (d) The term "bonds" as used herein shall mean and refer to the series of bonds dedicated to the Farmerville, Louisiana project. The acceptance of this commitment must be indicated by the Borrower's signing and returning the original of this commitment letter within ten (10) days from the date hereof. The acceptance of this commitment will be the Borrower's authorization for Church Loans to withhold from the proceeds of any loan any legal fees, premiums for the purchase of title insurance, appraisal costs and other closing costs which are to he paid which are associated with the loan. This commitment is conditioned upon the loan being closed on or before March 27, 1999. Any extension of this commitment will be subject to terms which may he mutually agreed upon at the time of extension. The Biltmore Group of Louisiana, LLC FBO: Farmerville, LA January 27, 1999 Page 7 We look forward to working with you in connection with this transaction. Sincerely yours, /S/KELLY ARCHER Kelly Archer Manager of Operations KA/ja The above commitment has been agreed to and accepted by the undersigned Managing Member of The Biltmore Group of Louisiana, LLC. Date: ------------------ - ----------------------------- ----------------------------- - ----------------------------- ----------------------------- EX-10.8 18 CONSTRUCTION LOAN AGREEMENT FOR THE NATCHITOCHES, LA FACILITY Church Loans & Investment Trust (A Real Estate Investment Trust) January 27, 1999 The Biltmore Group of Louisiana, LLC FBO: Natchitoches, LA 507 Trenton St W. Monroe, LA 71291 Re: $1,450,000 Interim Loan Gentlemen: This will constitute the commitment of Church Loans & Investments Trust ("Church Loans") to loan to The Biltmore Group of Louisiana, LLC FBO: Natchitoches, LA ("the Borrower") the sum of $1,450,000, or any amount less than that amount as the Borrower may need, less any legal fees, title insurance, appraisal costs, mortgage registration tax and all other closing costs and expense that may be incurred by Church Loans in connection with the funding and collection of the loan. The loan is to be made pending the offering of bonds by the Borrower through MMR Investment Bankers ("MMR") as provided hereinafter. The loan will be for a term of one year and will bear interest at a variable rate which would be equal to 1.5% per annum in excess of the "Prime Rate" of interest published by the Wall Street Journal under the heading "Money Rates". Interest upon the unpaid principal shall be paid monthly upon the first day of each month during the term of the loan. Both principal and interest upon the unpaid principal of the loan will be due at maturity. The loan will be repaid from the first bond proceeds subject only to (1)the payment of various broker/dealer fees and (2)an initial sinking fund reserve of $90,000. Funds advanced upon this loan would be used to construct an assisted care facility on 4 acres located on Louisiana Highway 1 Bypass, Natchitoches, LA. 5305 I-40 West PO Box 8203 Amarillo TX 79114-8203 (806)358-3666 (800)692-1111 Fax (806)358-1430 The Biltmore Group of Louisiana, LLC FBO: Natchitoches, LA January 27, 1999 Page 2 This commitment shall be subject to the following conditions: 1. That the Borrower pay to Church Loans upon the acceptance of the commitment a commitment fee equal to 2.5% (two and one-half percent) of the principal amount of the funds to be advanced to the Borrower under the terms of this commitment. One-half of the total commitment for (ie. $18,125.00) shall be remitted with this signed commitment letter. Although such commitment fee is due and payable upon the Borrower's acceptance and execution of this commitment letter, as a convenience to the Borrower, Church Loans will allow the balance of the commitment letter fee to be paid at closing from the proceeds of the loan. However, in the event that you decide not to proceed to close this loan for any reason, the balance of the commitment fee is due and owing by you to Church Loans and the amount already paid in non-refundable. Such fee is not interest, but is paid and payable to Church Loans to induce Church Loans to enter into this loan commitment and to compensate Church Loans for making available the funds necessary to fund the entire amount of the committed loan whether or not such amount is advanced. 2. That the Borrower pay in advance the sum of $250.00 which is the title insurance cancellation fee in the event the Borrower decides not to accept the commitment after title work has begun. Upon closing this fee will be used to offset other closing expenses. This sum should be remitted with this signed commitment letter. The closing of your loan will normally be enhanced if our law firm orders the title insurance from title companies that have had experience in dealing with our closings. If possible, we would recommend that you allow our legal counsel to place the order for the title insurance. Our legal counsel will order the title insurance as soon as they have a correct legal description for the property. 3. That upon acceptance of this commitment the Borrower shall deposit with Church Loans the additional sum of $2,500.00 which are the legal fees to be incurred by Church Loans in connection with the loan. This amount should be remitted with this signed commitment letter. 4. That the loan shall be secured by a first mortgage lien upon all the Borrower's existing buildings and facilities. The Biltmore Group of Louisiana, LLC FBO: Natchitoches, LA January 27, 1999 Page 3 5. That a mortgage title insurance policy in the face amount of not less than the total amount of the loan be issued by a title insurance company designated by Church Loans, insuring the fact that Church Loans is the owner and holder of a good and valid first lien mortgage upon the real estate securing the loan as described in paragraph 2 above. 6. That the total loan will not exceed 66 2/3% of the total appraised value of the real estate given to secure the loan. Such appraisal must be certified to comply with the standards of Church Loans and be submitted for approval prior to advancement of any funds. Such appraisal shall be rendered by an appraiser who, among other things, shall have. (a) appraised the real estate at not more than the fair market value thereof; (b) appraised the value of the improvements on the real estate at not more than the depreciated cost thereof; and (c) considered in making such appraisal the likelihood of deterioration of the neighborhood in which the real estate and improvements are located. The qualifications of the appraiser and references, preferably banks and insurance companies, should be submitted with the appraisal. 7. That the Borrower enter into a bond offering agreement with MMR under the terms of which MMR shall assist the Borrower in the offering upon a best efforts basis bonds of the Borrower in an amount of not less than $1,800,000 of which the first proceeds after the payment of the expenses of the offering and an initial sinking fund reserve of $90,000 shall be used to retire this loan. The effective date of this bond offering shall be not more than 90 days after the date of the note securing this loan. Effective date is the date the bonds are first offered for sale. 8. That the promissory note evidencing the loan be guaranteed by the Forsythe Group, Inc. so that $500,000 of the total amount of the loan is guaranteed upon guaranty forms furnished by Church Loans. 9. That the loan be closed on or before sixty days from the date hereof. 10. That during the term of the loan the Borrower shall agree to periodically supply Church Loans with financial statements and reports, as requested by Church Loans. The Biltmore Group of Louisiana, LLC FBO: Natchitoches, LA January 27, 1999 Page 4 11. That Church Loans must review and approve all legal documents prior to closing. 12. That a representative of Church Loans conduct an on-site inspection of the property to be given by the Borrower to secure the loan. The expense of this inspection shall be borne by the Borrower. 13. That the Borrower enter into a loan agreement incorporating the terms and conditions of this commitment as well as other normal terms of the Church Loans loan agreement. 14. That should the proceeds from the sale of the bonds through MMR and other participating broker/dealers, after the payment of the expenses associated with the bond offering and the establishment of the first six months sinking fund reserve, be insufficient to pay the unpaid principal and interest upon the loan committed herein at its maturity, at the option of the Borrower the term of said loan shall be renewed and extended by Church Loans as follows: (a) The term of the loan shall he initially renewed and extended for an additional period of one (1) year upon the following terms and conditions: (1) The Borrower shall be current upon all of its outstanding debt obligations, to include, but not necessarily restricted to all sinking fund payments payable to the trustee in connection with the bonds to be offered through MMR, and all interest payments upon the loan to be made by Church Loans to the Borrower under the terms of this commitment. (2) The amount of the loan to be renewed and extended shall be the lesser of (i) the unpaid principal upon the loan committed herein at maturity, or (ii) the unpaid principal amount of all unsold bonds offered through MMR described above. (3) The interest rate upon the loan shall be at a variable rate equal to 1.5% per annum in excess of the "Prime Rate" of interest published by The Biltmore Group of Louisiana, LLC PBO: Natchitoches, LA January 27, 1999 Page 5 the Wall Street Journal under the heading "Money Rates". (4) The interest upon the unpaid principal balance of the loan shall be payable monthly. (5) The principal upon the loan shall be paid on or before one year from date. (6) The Borrower shall pay Church Loans a loan extension fee equal to 2.5% (two and one-half percent) of the principal amount of the loan. (b) If on the maturity of the loan described in paragraph 11 (a) above, less than all of the bonds to be offered by the Borrower through MMR have been sold, at the option of the Borrower, the principal amount of all unsold bonds shall be renewed and extended by Church Loans into a permanent loan upon the following terms and conditions; (1) The Borrower shall be current upon all of its outstanding debt obligations, to include, but not necessarily restricted to all Sinking fund payments payable to the trustee in connection with the bonds to be offered through MMR, and all interest payments upon the loan to be made by Church Loans to the Borrower under the terms of this commitment. (2) The permanent loan shall bear interest at the same rate as described in paragraph 11 (a) above. (3) The amount of the permanent loan shall be payable in equal, or as equal as possible due to the variable rate of interest on the loan, monthly installments of principal and interest over a period of thirteen years, however, the loan shall be due and payable in full, with interest, at the date of the final maturity of the bonds. Borrower shall have the right of the Borrower to prepay the loan at any time without penalty. The Biltmore Group of Louisiana, LLC FBO: Natchitoches, LA January 27, 1999 Page 6 (4) The Borrower shall pay to Church Loans an additional loan renewal fee equal to 5% (5 points) of the principal amount of the permanent loan. (5) The loan shall continue to be secured on an equal basis with the outstanding bonds to be issued by the Borrower through MMR upon all property to be given by the Borrower to secure the loan committed herein. (c) Until such time as the loans committed herein are paid in full, the Borrower shall not further encumber the property securing the payment of said loans, either by placing additional mortgages or deeds of trust upon said property, or by increasing the indebtedness of the Borrower under any Trust Indenture, mortgage or deed of trust or other security documents associated with the sale of bonds secured by said property. Should the Borrower additionally encumber the property securing the loans committed hereby prior to their payment in full, Church Loans shall have the right to declare the unpaid principal and interest upon said loans immediately due and payable upon thirty days notice to the Borrower. (d) The term "bonds" as used herein shall mean and refer to the series of bonds dedicated to the Natchitoches, Louisiana project. The acceptance of this commitment must be indicated by the Borrower's signing and returning the original of this commitment letter within ten (10) days from the date hereof. The acceptance of this commitment will be the Borrower's authorization for Church Loans to withhold from the proceeds of any loan any legal fees, premiums for the purchase of title insurance, appraisal costs and other closing costs which are to be paid which are associated with the loan. This commitment is conditioned upon the loan being closed on or before March 27, 1999. Any extension of this commitment will be subject to terms which may be mutually agreed upon at the time of extension. The Biltmore Group of Louisiana, LLC FBO: Natchitoches, LA January 27, 1999 Page 7 We look forward to working with you in connection with this transaction. Sincerely yours, /S/KELLY ARCHER Kelly Archer Manager of Operations KA/ja The above commitment has been agreed to and accepted by the undersigned Managing Member of The Biltmore Group of Louisiana, LLC. Date: ----------------- - ----------------------------- ----------------------------- - ----------------------------- ----------------------------- EX-10.9 19 INTERIUM LOAN AGREEMENT FOR OAK CREEK Church Loans & Investments Trust (A Real Estate Investment Trust) January 27, 1999 The Biltmore Group of Louisiana, LLC Attn: Joanne Caldwell-Bayles 507 Trenton St West Monroe, LA 71291 Re: Sedona, AZ Project Dear Mrs. Caldwell-Bayles: Reference is made to the loan agreement made between Church Loans & Investments Trust ("Church Loans") and The Biltmore Group of Louisiana, LLC ("Borrower") FBO: Sedona, AZ dated October 16, 1998, This will serve as an addendum to that loan agreement. The addendum is as follows: 1. That should the proceeds from the sale of the bonds through MMR Investment Bankers ("MMR") and other participating broker/dealers, after the payment of the expenses associated with the bond offering and the establishment of the first six months sinking fimd reserve, be insufficient to pay the unpaid principal and interest upon the loan committed herein at its maturity, at the option of the Borrower the term of said loan shall be renewed and extended by Church Loans as follows: (a) The term of the loan shall be initially renewed and extended for an additional period of one (1) year upon the following terms and conditions: (1) The Borrower shall be current upon all of its outstanding debt obligations, to include, but not necessarily restricted to all sinking fund payments payable to the trustee in connection with the bonds to be offered through MMR and other participating broker/dealers, and all interest payments upon the loan to be made by Church Loans to the Borrower under the terms of this commitment. 5305 1-40 West PO Box 8203 Amarillo,TX 79114-8203 (806)358-3666 (800)692-1111 Fax (806)358-1430 The Biltmore Group of Louisiana, LLC Attn: Joanne Caldwell-Bayles West Monroe, LA January 27, 1999 Page 2 (2) The amount of the loan to be renewed and extended shall be the lesser of (i) the unpaid principal upon the loan committed herein at maturity, or (ii) the unpaid principal amount of all unsold bonds offered through MMR and other participating broker/dealers described above. Any principal amount of the loan in excess of the amount of the unsold bonds must be paid in full by Borrower. (3) The interest rate upon the loan shall be at a variable rate equal to 2% per annum in excess of the "Prime Rate" of interest published by the Wall Street Journal under the heading "Money Rates". (4) The interest upon the unpaid principal balance of the loan shall be payable monthly. (5) The principal upon the loan shall be paid on or before one year from date. (6) The Borrower shall pay Church Loans a loan extension fee equal to 2% (2 points) of the principal amount of the loan. (7) The total amount of the loan extended and the sold bonds shall not exceed 66 2/3% of the appraised market value of the collateral. (b) If on the maturity of the one year extension, May 1, 2000, should the proceeds from the sale of the bonds to be offered by the Borrower through MMR and other participating broker/dealers be insufficient to pay the unpaid principal and interest upon the loan, then, at the option of the Borrower, the principal amount of the loan extended in regard to the Sedona issue, shall be renewed and extended by Church Loans into a permanent loan upon the following terms and conditions: (1) The Borrower shall be current upon all of its outstanding debt obligations, to include, but not necessarily restricted to all sinking fund payments payable to the trustee in connection with the bonds to be offered through MMR and other participating broker/dealers, and all interest payments upon the loan to be made by Church Loans to the Borrower under the terms of this commitment. The Biltmore Group of Louisiana, LLC Attn: Joanne Caldwell-Bayles West Monroe, LA January 27, 1999 Page 3 (2) The permanent loan shall bear interest at the same rate as described in paragraph (a) (3) above. (3) The amount of the permanent loan shall be payable in equal, or as equal as possible due to the variable rate of interest on the loan, monthly installments of principal and interest over a period of thirteen years, however, the loan shall be due and payable in full, with interest, at the date of the final maturity of the bonds. Borrower shall have the right of the Borrower to prepay the loan at any time without penalty. (4) The Borrower shall pay to Church Loans an additional loan renewal fee equal to 5% (5 points) of the principal amount of the permanent loan. (5) The loan shall continue to be secured on an equal basis with the outstanding bonds to be issued by the Borrower through MMR and other participating broker/dealers upon all property to be given by the Borrower to secure the loan committed herein. (6) The total amount of the loan and sold bonds shall not exceed 66 2/3% of the appraised market value of the property. (c) Until such time as the loans committed herein are paid in full, the Borrower shall not further encumber the property securing the payment of said loans, either by placing additional mortgages or deeds of trust upon said property, or by increasing the indebtedness of the Borrower under any Trust Indenture, mortgage or deed of trust or other security documents associated with the sale of bonds secured by said property. Should the Borrower additionally encumber the property securing the loans committed hereby prior to their payment in full, Church Loans shall have the right to declare the unpaid principal and interest upon said loans immediately due and payable upon thirty days notice to the Borrower. (d) The term "bonds" as used herein shall mean and refer to the series of bonds dedicated to the Sedona, Arizona project. The Biltmore Group of Louisiana, LLC Attn: Joanne Caldwell-Bayles West Monroe, LA January 27, 1999 Page 4 The acceptance of this addendum must be indicated by the Borrower's signing and returning the original copy of this letter within fifteen (15) days from the date hereof. Sincerely yours, /S/KELLY ARCHER Kelly Archer Manager of Operations The above addendum has been agreed to and accepted by the undersigned Managing Member of The Biltmore Group of Louisiana, LLC. Date: ----------------- - ----------------------------- ----------------------------- - ----------------------------- ----------------------------- EX-10.10 20 FORM OF MANAGEMENT AGREEMENT BETWEEN THE BILTMORE GROUP OF LOUISIANA, L.L.C.. AND THE FORSYTHE GROUP, INC. MANAGEMENT AGREEMENT This agreement is entered into this th day of , between --- -------------- (Hereafter referred to as "the owner" - ----------------------------------- or "the sponsor") and The Forsythe Group, Inc. (Hereafter referred to as "the agent"). This agreement relates to activities to be performed, responsibilities to be accepted and authority to be exercised with regard to the properties to be known as -------------------------------------------- - ---------------------------------------------------------------------------- - ---------------------------------------------------------------------------- Located in : --------------------------------------------------------------- - ---------------------------------------------------------------------------- In consideration of the terms conditions and covenants hereinafter set forth, the Owner and the Agent mutually agree as follows: SECTION 101 DEFINITIONS: As used in this Agreement the terms below shall have the following definitions unless context otherwise requires: 101.1 "Project " shall mean the land, improvements, buildings, appurtenances and equipment thereon described in... --------------- ------------------------------------------------------------------- 101.2 "Gross Collections" shall mean all amounts actually collected by the Agent, as tenant rents, income from commercial space, community fees and other miscellaneous charges, but excluding (i) income derived from interest on investments, (ii) discounts and dividends on insurance, and (iii) security deposits. 101.3 "Lease" shall mean the approved agreement between the Owner and a Tenant under the terms of which said Tenant is entitled to enjoy possession of a dwelling unit. 101.4 "Rent" shall mean that monthly amount which a Tenant is obligated to pay the Owner pursuant to the terms of a Lease. 101.5 "Tenant" shall mean a person occupying a dwelling unit in the Development pursuant to a Lease. 101.6 "Lender" shall mean the financial institution holding the mortgage for the Project property. SECTION 201 APPOINTMENT OF AGENT: The Owner hereby appoints the Agent, and the Agent hereby accepts appointments, on the terms and conditions hereinafter provided, as exclusive management agent of the Project. SECTION 301 LEFT BLANK ON PURPOSE SECTION 401 CONFER WITH OWNER, LENDER The Agent agrees to keep itself informed on the applicable lender policies and requirements, and, notwithstanding the authority given to the Agent in this agreement, to confer fully and freely with the Owner, and the lender in the performance of its duties hereunder. SECTION 501 MEETING WITH OWNER AND THE AGENT The Agent agrees to cause an officer of the Agent to attend meetings with the Owner at any time or times requested by the Owner. SECTION 601 PERSONNEL OF THE AGENT: 601.1 Employees of Agent. The Agent shall hire the Director, who will be responsible and report directly to the Agent. Said Director will perform duties on-site and compensation will be considered an expense of the Project. The Agent shall hire in the Owner's name the Director and on-site personnel necessary for the full and efficient performance of the Agent's duties under this Agreement. Such employees shall be physically present on the Project site. No less that one responsible person(s) for each twenty tenants and/or required by licensing regulator shall be physically present at the Project at such times, and in any event, for not less than 24 hours per day, seven days per week. Compensation for the services of all on-site employees, including the Director, shall be included as operating expenses of the Project. The Agent shall develop a staffing plan which is sensitive to tenant occupancy and the level of service to be provided. The Agent will be responsible for developing and implementing orientation and training for all on-site employees. 601.2 Employment of Residents and Contractors. The Agent shall operate as an equal opportunity employer in conformity with all related laws and regulations. Employment practices will not discriminate based upon sex, race, color, sexual orientation, age, creed, religion, or national origin. SECTION 701. SERVICES OF AGENT: 701.01 Services Prior to Resident Occupancy. Prior to occupancy of the Project, the Agent shall: (i) furnish the Owner revised estimates of maintenance and operating expenses accompanied by documentation including a staffing plan and where appropriate, bids, contracts or comparable for any and all items so requested by the Owner or lender; (ii) develop, and establish such policies and procedures as are necessary to carry out the Agent's responsibilities under this Agreement for the effective and efficient operation of the Project. Such policies and procedures shall provide the guidelines for on-site staff in the day to day operation of the Project and shall include but not be limited to aspects of marketing (e.g., sales practices, mail list management, referral contact, affirmative fair housing practices), administration (e.g., tenant application and move-in, landlord-tenant relations, rental agreements, bookkeeping, tenant charges, etc.) personnel,(e.g., job descriptions, hiring, evaluation, discharge, benefits, etc.) tenant services (e.g., housekeeping, laundry, maintenance, food service, ancillary services, etc.), property management. (e.g., maintenance, preventive maintenance, general repairs, etc.); (iii) implement marketing plan. (iv) retain such marketing, maintenance and managerial personnel as are necessary for the preliminary marketing and sale of units; (v) provide training opportunities to marketing staff; (vi) establish a bookkeeping and accounting system in accordance with requirements specified by the owner and sufficient to document operational income and expenses of the project covered by the management agreement; (vii) identify start-up inventory, equipment and supplies and secure such as approved by the Owner and additionally will develop a system for ordering and protecting inventory against loss and waste; (viii) provide a system for bookkeeping, including payroll, accounts payable, accounts receivable, general ledger, and petty cash, such system being designed to generate timely information regarding cash flow, as well as information necessary for owner's financial reports. 701.02 Structure and Warranties. the Agent shall obtain from the Owner a complete set of plans and specifications and copies of all guarantees and warranties pertinent to construction, fixtures and equipment. With the aid of this information and inspection by competent personnel, the Agent shall thoroughly familiarize itself with the character, location, construction, layout, plan and operation of the Project and especially of the electrical, heating, plumbing, air conditioning and ventilating systems, and all other mechanical equipment. 701.03 Inspection of Development. The Agent shall participate in the final inspection(s) of the Project to certify the readiness of the units for occupancy and shall (i) inform the Owner, the Architect, the Contractor and the lender and insurer of all defects in material and workmanship discovered within the construction warranty period; and (ii) monitor the action taken by the Contractor to correct the defects; and (iii) participate in any formal inspection held for the purpose of identifying construction defects. 701.04 Maintenance and Repairs. The Agent shall cause the general building interior and grounds of the Project to be maintained and repaired according to standards acceptable to the Owner, lender and insurer. The Agent shall coordinate with the Owner responsibility for maintaining in good working order, repairing and replacing the structural aspects of the building, appurtenances, capital equipment, and the electrical, heating, plumbing, air conditioning and ventilating systems, and all other mechanical equipment. The Agent shall report mechanical, structural, electrical, plumbing, heating, ventilating or air conditioning problems to the owner in a timely manner. 701.05 Preventive Maintenance. The Agent shall coordinate with the Owner to assure the timely accomplishment of preventive maintenance. The Agent shall cause the buildings, appurtenances, and equipment of the Project to be maintained and repaired according to written procedures and schedules. The Agent shall develop a preventive maintenance schedule including, but not limited to periodic inspections of the units; residency commencement and termination check lists; inventory control; common area maintenance; equipment monitoring; and monitoring of exterior maintenance and landscaping on a seasonal basis. The Agent will develop a schedule for routine painting and replacement as well as a budget item to fund redecorating as necessary. 701.06 Property Insurance. The Agent will cause to be placed in force, all forms of insurance needed to adequately protect the Owner and the Project, including, comprehensive general liability insurance, fire and extended coverage insurance, burglary, and theft insurance. The Agent shall promptly investigate and make a full written report to the Owner within five (5) days of receiving knowledge of any accident or claim for damage relating to the ownership, operation and maintenance of the Project, including any damage or destruction of the Project and the estimated cost of repair, and shall cooperate and make any and all reports required by any insurance company in connection therewith. 701.07 Employees of Owner. On the basis of wage rates previously approved by the Owner, the Agent shall investigate, hire, pay, supervise and discharge all administrative and general maintenance personnel. No less than one responsible person(s) shall be physically present at the Project not less than 24 hours per day seven days per week. All personnel shall in every instance be in the Owner's and not in the Agent's employ. Compensation for the services of all employees, as evidenced by certified payroll(s) shall be considered an operating expense of the Project. 701.08 Notice of Authority. In addition to its authority to manage the premises as specified herein, the Agent is authorized by the Owner to accept service of process and to receive and give receipt for notices and demands. A notice containing such information shall be posted in a conspicuous place on the premises. 701.09 Service Requests of Tenants. The Agent shall maintain businesslike relations with Residents whose service requests shall be received, considered, and recorded on a systematic, written basis to show the action taken with respect to each such request. Complaints of a serious nature and all written complaints shall, after thorough investigation, be reported to the Owner with appropriate recommendations. The Agent shall make provisions for delivery of services calls from Tenants on a 24-hour basis. 701.10 Inspection of Units. As part of the continuing program to secure full performance by the Residents of all obligations and maintenance for which they are responsible, the Agent shall make an annual inspection of all dwelling units and report its findings in writing to the Owner. 701.11 Review of 0perations. The Agent shall permit the lender and insurer to conduct on-site evaluations of the performance of any or all management services which the Agent has agreed to provide as required by this Agreement and the Management Plan. An authorized representative of the Agent shall be available during on-site evaluations. The Agent shall correct any deficiencies noted in these evaluations within 30 days of the receipt of the report from the lender. 701.12 Collections and Delinquencies. The Agent shall collect and deposit in the account established pursuant to Section 1001 hereof all rents and other charges due from Tenants and all rents or other payments due the Owner from lessees of other nondwelling areas of the Project. The Agent agrees, and the Owner hereby authorizes the Agent, to request, demand, collect, receive, and give receipts for any and all charges or rents which may at any time be or become payable to the owner. Rents and other charges shall not be accepted in cash by the Agent. The Agent agrees to take such action, including legal action, with respect to delinquencies in payments due the Owner with an itemized list of all Tenants with delinquent accounts as of the tenth (1Oth) day of each month on or before the fifteenth (15th) day of same month. 701.13 Payments and Expenses. From the funds collected and deposited in the account established pursuant to Section 1001 hereof, the Agent shall coordinate with the Owner and cause to be disbursed regularly and punctually the following: (i) all of the real estate tax and insurance premium escrow payments required of the Owner, which payments shall be deemed to be part of the operating expenses of the Project; (ii) all of the principal and interest required to be paid to the lender; (iii) all remaining operating expenses of the Project including administrative, operational, franchise fees, maintenance and utility expenses and vendor payables; (iv) the fees of The Forsythe Group evolving from the Management Agreement including the fees of the Agent as provided in Section 1201. With the exception of payments provided in this section and payments for utilities services, the Agent shall make no disbursements in excess of $15,000 unless specifically authorized by the Owner, provided that emergency repairs, involving manifest danger to life and property, or immediately necessary for the preservation and safety of the Project, or for the safety of the Tenants, or required to avoid the suspension of any necessary services to the Project, may be made by the Agent without regard to the cost limitation imposed by this Section with the understanding that the Agent will, if at all possible, confer immediately with the Owner regarding every such expenditure. The Agent shall not incur liabilities to the Owner (direct or contingent) which, in the aggregate, will exceed at any time $15,000 or which require payment more than one year from the creation thereof, unless specifically authorized by the Owner. 701.14 Governmental Orders. The Agent shall take such action as may be necessary to comply promptly with any and all orders or requirements affecting the Project placed thereon by any federal, state, county or municipal authority or other similar bodies. The Agent shall not take any action under this Section unless the Owner so directs and shall not take action so long as the Owner is contesting or had affirmed its intention to contest any such order or requirement and promptly institutes proceedings contesting any such order or requirement. The Agent shall promptly, and in no event later than 48 hours from the time of their receipt, notify the Owner in writing of all such orders and notices of requirements. 701.15 Utility Service and Purchases. Subject to the approval of the Owner, the Agent shall make contracts for garbage and trash removal, snow removal, and other necessary contracted maintenance services. The Agent shall secure such equipment, tools, appliances, materials and supplies as are necessary to maintain and repair the Project properly. Payment for costs associated with these said activities and purchases will be included in the Project operating budget. The Agent shall act at all times in the best interest of the Owner and shall be under duty to secure for and credit to the Owner any discounts, commissions or rebates obtainable as a result of the purchase. 701.16 Records and Reports. (i) The Agent shall establish and maintain a comprehensive system of records, books and accounts in a manner satisfactory to the Owner. All records, books and accounts will be subject to examination at reasonable hours by any authorized representative of the Owner, lender or insurer. (ii) With respect to each fiscal year ending during the term of this Agreement, the Agent shall cooperate with the Owner to have an annual financial report prepared by an independent Certified Public Accountant, Non-audited, based upon the preparer's examination of the books and records of the Owner and the Agent. Compensation for the preparer's services will be considered an operating expense of the Project. (iii) The Agent will prepare a semi-annual income statement which compares actual and budgeted income and expenses for the six (6) month period and for the "year to date", and will submit each statement to the Owner within fifteen (15) days after the end of each six (6) month period ending June and December. (vi) The Agent will furnish such information (including occupancy reports) as may be requested by the Owner or the lender from time to time with respect to the financial, physical or operational condition of the Project. (v) By the fifteenth (15th) day of each month, the Agent will furnish the Owner with an itemized list of all rent delinquencies as of the tenth (1Oth) day of the same month. (vi) By the fifteenth (15th) day of each month, the Agent will furnish the Owner with a statement of receipts and disbursements during the previous month, and with a schedule af accounts receivable and payable, and reconciled bank statements for the Account as of the end of the previous month. (vii) The Agent shall cooperate with the Owner to, execute and file all forms, reports and returns required by law in connection with the employment of personnel, including unemployment insurance, worker's compensation insurance, disability benefits, social security and other similar insurance, benefits and taxes now in effect or hereafter imposed. 701.17 Operating Budget. At least sixty (60) days before the beginning of each new fiscal year for the Project, the Agent shall prepare and submit to the Owner budget, setting forth an itemized statement of the anticipated receipts and disbursements for the Project. 701.18 Marketing Duties. The Agent shall immediately assume responsibility for all functions and services as described in the marketing plan submitted. Such responsibilities shall include but not be limited to: (i) development of and due diligence of rent-up occupancy goals; (ii) development of a month-by-month marketing plan; (iii) development of a budget for all labor and materials; (iv) development of marketing policies and procedures; (v) concept development and production coordination for collateral materials as well as print and broadcast advertisement; (vi) hiring, training and supervision of employed staff and contract labor; (vii) informing the Owner of problems requiring adjustment to the marketing plan or goals; (viii) maintenance of marketing effort to stabilize occupancy once the Project is full. Marketing activities shall be coordinated with on-going operations once the Project is operational. Activities shall reflect a broad based effort including community networking, media use, and print pieces. 701.19 Compliance of Tenants. (i) The Agent shall at all times during the term of this Agreement operate and maintain the Project according to the highest standards achievable. The Agent shall secure full compliance by the Tenants with the terms and conditions of their respective leases, rules and regulations. (ii) Voluntary compliance shall be emphasized, and the Agent shall counsel tenants and make referrals to social service agencies in cases of financial hardship or under other circumstances deemed appropriated by the Agent, so that involuntary terminations of tenancy may be avoided to the maximum extent consistent with sound management of the Project. The Agent will not, however, tolerate willful evasion of payment of rent. (iii) The Agent may lawfully terminate any tenancy when, in the Agent's judgement, sufficient cause occurs under the terms of the Tenants's Lease. Statements explaining evictions shall be filed promptly with the Owner. (iv) The Agent is authorized to consult with legal counsel designated by the Owner to bring actions for eviction and to execute notices to vacate and to commence appropriate judicial proceedings; provided, however, that the Agent shall keep the Owner informed of such actions and shall follow such instructions as the Owner has prescribed. Subject to the owner's approval, costs incurred in connection with such actions shall be considered as operating expenses. (v) Tenant applications will be reviewed by the Director who will make the decisions on acceptance, rejection, and relocation to another facility based upon tenant's physical and emotional condition. Agent will carry out their directions and judgements. 701.2 Qualification of Tenants. The Agent shall require prospective private pay tenants to complete a confidential financial statement. As a condition of tenancy, the Agent shall make use of this and other available information to determine that the prospective tenant has sufficient income and assets to pay the monthly fees associated with tenancy. 701.21 Services to Tenants. The Agent shall be responsible for the effective and efficient provision of tenant services, including the maintenance of safe and clean common areas and grounds; weekly housekeeping and laundry service; periodic window washing, carpet and drapery cleaning; provision of three meals per day, seven days per week; maintenance of twenty-four hour per day security and emergency call system; scheduled transportation; recreational facilities and activities; centrally located mail distribution; and other contracted services and specified in the Tenant's negotiated service plan. The Agent shall insure that systems to delivery all tenant services are in place, staff hired and trained prior to Project opening. Recognizing the contribution that quality makes to the successful long term marketing of the Project, the Agent shall provide services of consistently high quality, acceptable to the Tenants and the Owner. SECTION 801 OTHER ACTS: The Agent shall perform such other acts and deeds requested by the Owner as are reasonable, necessary and proper in the discharge of the Agent's duties under this Agreement. SECTION 901 LIABILITY OF AGENT Everything done by the Agent under the provision of this agreement shall be done as agent of the Owner, and all obligations or expenses incurred thereunder shall be for the account of and on behalf of the Owner. The Agent shall not be obliged to make any advance to, or the account of, the Owner or to pay any sum, except out of the funds held or provided as aforesaid, nor shall the Agent be obliged to incur any liability or obligation for the account of the Owner without assurance that the necessary funds for the discharge thereof will be provided. SECTION 1001.1 BANK ACCOUNTS: 1001.1 Operating Receipt and Expenses Account. The Agent shall establish and maintain, in an account, and which is approved by the owner, a separate account as Agent of the Owner for the deposit of the monies of the Owner, with authority to draw thereon for any payments to be made by the Agent to discharge any liabilities or obligations of the owner incurred in accordance with this Agreement. This account shall be carried in the name of and designated of record as -------------------------------------- L.L.C. Operating Receipts and Expense Account". The Agent shall also establish such other special accounts as may be required by the Owner or the lender. Any and all interest which may accrue on deposits contained in any accounts established in accordance with this paragraph shall be used by the Agent to discharge any liabilities or obligations of the Owner in the same manner as the Agent uses other monies of the Owner. 1001.2 Community Fee and Security Deposit Account. The Agent shall collect, deposit and disburse Tenants' community fee and security deposits in accordance with the terms of the respective Leases. Tenants' community fee and security deposit shall be deposited by the agent in an interest-bearing account, with a bank or other financial institution whose deposits are insured by the FDIC. This account shall be carried in the name and be designated of record as -------------------------------------------------- Security Deposit Account." SECTION 1101 STAFF FACILITIES AT PROJECT SITE: The Owner shall furnish the Director and support staff with suitable office space and office furniture on the site of the project and with electricity, heat, water and janitorial service therein. For all operational staff the Owner shall provide office accommodations as necessary to perform their assigned functions, as well as safe storage for appropriate personal belongings and staff dining space furnished with tables and chairs which allow staff to eat or take breaks in reasonable comfort. SECTION 1201 COMPENSATION OF AGENT: The compensation which the agent shall be entitled to receive for all Project management services performed under this agreement shall be $1,500 per month or 7% of the gross collections of the Project which ever is greater. This fee shall be computed and paid monthly based upon Gross collections for the preceding month. Expenses not agreed to be charged to the project and all of the Agent's overhead expenses will be borne by the Agent out of its own funds and will not be treated as an operating expense of the Project. The Agent shall receive compensation for preliminary management and marketing services at $1,500 per Month prior to the opening date or as specified in the plan. SECTION 1301 NONDISCRIMINATION: In the performance of its obligations under this Agreement, the Agent will comply with the provisions of any federal, state, or local law prohibiting discrimination in housing on the grounds of race, color, sex, religion, or national origin as stated in POLICIES & PROCEDURES. This Agreement may be terminated or suspended, in whole or in part, by the Owner upon the basis of a finding by the Owner that the Agent has not complied with nondiscrimination provisions. SECTION 1401 EXPIRATION AND TERMINATION 1401.1 Expiration. Unless sooner terminated pursuant to Section 1401.2, 1401.3, 1401.4, 1401.5 or 1401.6 of this Agreement, the Agreement shall be in effect from the date of execution hereof until January 1, 2010. This Agreement shall be renewable with the mutual consent of the Owner and the Agent. 1401.2 Termination by Mutual Consent: This Agreement may be terminated by the mutual written consent of the Owner and Agent only. Owner and Agent shall submit their written request to terminate this Agreement to the lender at least sixty (60) days prior to the date specified for termination. 1401.3 Termination by Owner for Cause: In the event that the Agent shall fail to perform any of its duties hereunder or comply with any of the provisions hereof, the Owner shall notify the Agent, the lender and the insurer of the Owners intent to terminate this Agreement by delivering to the Agent written notice to remedy such default. If such default is not remedied within thirty (30) days, from the date of notice to the Agent, the Owner may, with prior written consent from the lender and the insurer, terminate this Agreement immediately. 1401.4 Termination Because of Bankruptcy: In the event that the Owner or the Agent shall become insolvent, however defined; shall be dissolved; shall commit an act of bankruptcy under the United States Bankruptcy Act (as now or hereafter amended); shall file or have filed against it, voluntarily or involuntarily, a petition in bankruptcy or for reorganization or for the adoption of an arrangement under the United States Bankruptcy Act (as now or hereafter amended); shall make an assignment of the benefit of creditors; shall procure, permit or suffer, voluntarily or involuntarily, the appointment of a receiver or trustee to take charge of any of the mortgaged property or any other propertied owned by the Owner or the Agent, voluntarily or involuntarily, any act, process or proceeding under any insolvency law or the statute or law providing for the modification or adjustment of the rights of creditors, either party hereto may immediately terminate this Agreement without notice to the other party. 1401.5 Accounting Upon Termination. Within ten (10) days after the termination of this Agreement, the Owner and Agent shall account to each other with respect to all matters outstanding as of the date of termination. The Owner shall furnish the Agent security against any outstanding obligations or liabilities which the Agent shall turn over to the Owner all records, documents or other instruments, waiting lists and any and all other files and papers in its possession pertaining to the Agent's performance under this Agreement, SECTION 1501 ASSIGNMENTS: This Agreement shall inure to the benefit of any constitute a binding obligation upon the Owner and the Agent, and their respective successors and assigns, provided that the Agent cannot assign this Agreement or any of its duties hereunder without the prior written consent of the Owner and the lender. SECTION 1601 AMENDMENT: This Agreement constitutes the entire agreement between the owner and the Agent, and no amendment or modification thereto shall be valid and enforceable except by supplemental agreement is executed in writing and approved by the Owner, the Agent, the lender and insurer. SECTION 1701 EXECUTION OF COUNTERPARTS: For the convenience of the parties, this agreement has been executed in counterpart copies, which are in all respects similar and each of which shall be deemed to be complete in itself so that any one may be introduced in evidence or used for any other purpose without the production of the other counterparts. SECTION 1801 MISCELLANEOUS: Wherever used in this Agreement, the singular number shall include the plural, and the plural shall include the singular; and the use of any gender shall apply to all genders. The captions and the headings of the sections of this Agreement are for convenience only and are not to be used to interpret or define the provisions hereof. SECTION 1901 WAIVER No waiver of a breach of any of the agreements or provisions contained in this Agreement shall be construed to be a waiver of any subsequent breach of the same or of any other provisions of this Agreement. SECTION 2001 SEVERABILITY: If any clauses, sentence, section, paragraph, provision or part of this Agreement is judged to be invalid or unenforceable, such adjudication shall not affect or invalidate the remainder of this Agreement, it being understood and agreed that such invalid or unenforceable clause, sentence, paragraph, provision or part is and shall be severable from the remainder of this Agreement. 2101 NOTICE: Whenever any notice is required to be given herein, Notice shall be deemed to have been given when sent by certified mail to this Agreement at the following addresses: OWNER: --------------------------------------- AGENT: --------------------------------------- SECTION 2101 EXECUTION OF AGREEMENT IN WITNESS WHEREOF, the parties hereto have executed this Agreement the day and year first above written. AGENT: The Forsythe Group, Inc. OWNER: Biltmore Group of Louisianan LLC ------------------------ --------------------------------- BY: By: --------------------------- ------------------------------------ Agent President AND By: Joanne M Caldwell-Bayles ------------------------------------ Owner ------------------------------------ EX-23.1 21 CONSENT OF WILLIAM R HULSEY WILLIAM R. HULSEY CERTIFIED PUBLIC ACCOUNTANT 2117 FORSYTHE AVENUE MEMBER MONROE, LOUISIANA MAILING ADDRESS AMERICAN INSTITUTE OF P.0. BOX 2253 CERTIFIED PUBLIC ACCOUNTANTS MONROE, LOUISIANA 71207 SOCIETY OF LOUISIANA (318) 362-9900 CERTIFIED PUBLIC ACCOUNTANTS FAX (318) 362-9993 January 25, 1999 MMR Investment Bankers, Inc. 5SO N. 159th East, Suite 300 P.O. Box 781440 Wichita, Kansas 67278-1440 Dear Sirs: I, William R. Hulsey serve as the accountant for The Biltmore Group of Louisiana, L.L.C. and do hereby give permission to use my name and/or values concerning the audited financial statements dated December 31, 1998 in the offering circular for the Bond Issue(s) of The Biltmore Group of Louisiana, L.L.C. Respectively Submitted, /S/WILLIAM R HULSEY William R. Hulsey Certified Public Accountant EX-23.2 22 CONSENT OF BOBBY L. CULEPPER & ASSOCIATES BOBBY L. CULPEPPER & ASSOCIATES A PROFESSIONAL LAW CORPORATION 205 WEST ALABAMA BOBBY L. CULPEPPER 525 EAST COURT AVENUE RUSTON, LA 71270 JONESBORO, LOUISIANA 71251-3497 318-251-0701 TERESA CULPEPPER CARROLL 318/259-4184 J. CLAY CARROLL FAX #318/259-6278 233 SOUTH GRAND MONROE, LA 71201 PLEASE REFER ALL CORRESPONDENCE 318/325-3884 TO THE JONESBORO OFFICE File# January 26, 1999 MMR Investment Bankers 550 North 159th Street East P.0. Box 781440 Wichita, Kansas 67278-1440 Gentlemen: Bobby L. Culpepper & Associates, a PLC, serves as the attorney for The Biltmore Group of Louisiana, L.L.C., and does hereby give permission to use its opinion letter hereby furnished to you concerning our client's incurrence of debt in the principal amount of $9,900,000.00 and the issuance of first mortgage bonds in connection with development, construction and purchase of property in Louisiana and Arizona, in the Prospectus for Bond Issue of The Biltmore Group of Louisiana, L.L.C. With kindest personal regards, I remain Yours very truly, /S/J CLAY CARROLL J. Clay Carroll JCC:bb Cc: The Biltmore Group of Louisiana, L.L.C. EX-23.3 23 CONSENT OF APPRAISER FOR MINDEN, LA FACILITY ROBERT M. MC SHERRY, MAI Administrative Services 3760 Chelsea Drive Baton Rouge, Louisiana 70809 Phone (504)924-8093 November 25, 1998 Mr. Bill Martin, III MMR Investment Bankers P.0. Box 781440 Wichita, Kansas 67278-1440 RE: Biltmore Group, L.L.C. Dear Mr. Martin: This letter is to acknowledge permission for Biltmore Group, L.L.C. and MMR Investment Bankers to copy or reproduce the Summary Appraisal Report of the proposed 21 assisted care units and 4 efficiency unit assisted care facility and to be constructed on Germantown Road within the corporate limits of Minden, Webster Parish, Louisiana, dated September 8, 1998, for use with investors and in the Registration Statement on form SB-2 pursuant to Regulation SB. Please note that this appraisal contains a number of conditions upon which the value is based and these conditions must be made a part of any correspondence affecting the subject property. Respectfully, /S/ROBERT M. MCSHERRY Robert M. McSherry, MAI RMM:je EX-23.4 24 CONSENT OF APPRAISER FOR OAK CREEK, AZ FACILITY Robert M. McSherry, MAI Administrative Services 3760 Chelsea Drive Baton Rouge, Louisiana 70809 Phone (504)924-8093 January 22, 1999 Mr. Bill Martin, III MMR Investment Bankers P.O. Box 781440 Wichita, Kansas 67278-1440 RE: Biltmore Group of Louisiana, LLC Dear Mr. Martin: This letter is to acknowledge permission for Biltmore Group of Louisiana, L.L.C. and MMR Investment Bankers to copy or reproduce the Summary Appraisal Report of the existing 28 independent living units located at 78 Canyon Diable, Sedona, Arizona, dated January 10, 1999, for use with investors and in the Registration Statement on form SB-2 pursuant to Regulation SB. Please note that this appraisal contains a number of conditions upon which the value is based and these conditions must be made a part of any correspondence affecting the subject property. Respectfully, /S/ROBERT M MCSHERRY Robert M. McSherry, MAI RMM:je EX-23.5 25 CONSENT OF APPRAISER FOR BASTROP, LA FACILITY ROBERT M. MC SHERRY, MAI Administrative Services 3760 Chelsea Drive Baton Rouge, Lousisana 70809 Phone (504)924-8093 November 25, 1998 Mr. Bill Martin, III MMR Investment Bankers P.0. Box 781440 Wichita, Kansas 67278-1440 RE: Biltmore Group, L.L.C. Dear Mr. Martin: This letter is to acknowledge permission for Biltmore Group, L.L.C. and MMR, Investment Bankers to copy or reproduce the Summary Appraisal Report of the proposed 21 assisted care units and 4 efficiency unit assisted care facility and to be constructed on Cooper Lake Road within the corporate limits of Bastrop, Morehouse Parish, Louisiana, dated September 20, 1998, for use with investors and in the Registration Statement on form SB-2 pursuant to Regulation SB. Please note that this appraisal contains a number of conditions upon which the value is based and these conditions must be made a part of any correspondence affecting the subject property. Respectfully, /S/ROBERT M MCSHERRY Robert M. McSherry, MAI RMM:je EX-23.6 26 CONSENT OF APPRAISER FOR FARMERVILLE, LA FACILITY ROBERT M. MC SHERRY, MAI Administrative Services 3760 Chelsea Drive Baton Rouge, Louisiana 70809 Phone (504)924-8093 October 28, 1998 Mr. Bill Martin, III MMR Investment Bankers P.O. Box 781440 Wichita, Kansas 67278-1440 RE: Biltmore Group, L.L.C. Dear Mr. Martin: This letter is to acknowledge permission for Biltmore Group, L.L.C. and MMR Investment Bankers to copy or reproduce the Summary Appraisal Report of the proposed 21 assisted care units and 4 efficiency unit assisted care facility and to be constructed on LA Highway 33 just outside the corporate limits of Farmerville, Union Parish, Louisiana, dated October 20, 1998, for use with investors and in the Registration Statement on form SB-2 pursuant to Regulation SB. Please note that this appraisal contains a number of conditions upon which the value is based and these conditions must be made a part of any correspondence affecting the subject property. Repectfully, /S/ROBERT M MCSHERRY Robert M. McSherry, MAI RMM:je EX-23.7 27 CONSENT OF APPRAISER FOR NATCHITOCHES, LA FACILITY ROBERT M. MC SHERRY, MAI Administrative Services 3760 Chelsea Drive Baton Rouge, Louisiana 70809 Phone (504)924-8093 January 15, 1999 Mr. Bill Martin, III MMR Investment Bankers P.O. Box 781440 Wichita, Kansas 67278-1440 RE: Biltmore Group, L.L.C. Dear Mr. Martin: This letter is to acknowledge permission for Biltmore Group, L.L.C. and MMR Investment Bankers to copy or reproduce the Summary Appraisal Report of the proposed 22 assisted care units and 5 efficiency unit assisted care facility and to be constructed on LA Highway 1 Bypass within the corporate limits of Natchitoches, Natchitoches Parish, Louisiana, dated January 10, 1999, for use with investors and in the Registration Statement on form SB-2 pursuant to Regulation SB. Please note that this appraisal contains a number of conditions upon which the value is based and these conditions must be made a part of any correspondence affecting the subject property. Respectfully, /S/ROBERT M MCSHERRY Robert M. McSherry, MAI RMM:je EX-99.1 28 PROPERTY APPRAISAL FOR MINDEN, LA FACILITY A Self-Contained Real Estate Appraisal Report of A Proposed 21 Unit Assisted Care Facility, Resident Manager's Apartment and 4 Efficiency Assisted Care Units all Located on the Northside of Germantown Road Just South of Country Club Road at Municipal Number 619 Germantown Road Within the Corporate Limits of Minden, Webster Parish, Louisiana For First Republic Bank Attn: Mr. David Knight, MAI 1220 North 18th Street Post Office Box 2066 Monroe, Louisiana 71207 As Of September 8, 1998 Prepared by Robert M. McSherry, MAI Louisiana State Certified General Real Estate Appraiser No. G0891 3760 Chelsea Drive Baton Rouge, Louisiana 70809 ROBERT M. MC SHERRY, MAI 3760 Chelsea Drive Baton Rouge, Louisiana 70809 Phone (504)924-8093 September 8, 1998 First Republic Bank Attn: Mr. David Knight, MAI 1220 North 18th Street Post Office Box 2066 Monroe, Louisiana 71207 RE: A proposed 21 unit assisted care facility, resident manager's apartment and 4 efficiency assisted care units all located on the north side of Germantown Road just south of Country Club Road at municipal address 619 Germantown Road, within the corporate limits of Minden, Webster Parish, Louisiana. Dear Sir: In accordance with your request to provide an estimate of the Estimated Market Value of Fee Simple Interest of the Going Concern of the property identified as a proposed 21 unit Assisted Care Facility, Resident Manager's Apartment and 4 Efficiency Assisted Care Units all located within the corporate limits of Minden, Webster Parish, Louisiana, we have personally inspected the subject site and reviewed the submitted plans and specifications for the proposed improvements and conducted a thorough review and analysis of all matters pertinent for the Estimate of Market Value herein contained. Market Value as defined by the Department of the Treasury, Office of the Comptroller of the Currency, August 24, 1990, is, "The most probable price which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller, each acting prudently, knowledgeably and assuming the price is not affected by undue stimulus. Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby: a. buyer and seller are typically motivated; b. both parties are well informed or well advised, and each acting in what he considers his own best interest; c. a reasonable time is allowed for exposure in the open market; Robert M. McSherry, MAI Page Two d. payment is made in terms of cash in U.S. dollars or in terms of financial arrangements comparable thereto; and e. the price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions granted by anyone associated with the sale. Fee Simple Interest is defined by the Appraisal Institute as being, "a fee without limitations to any particular class of heirs or restrictions but subject to the limitations of eminent domain, escheat, police power and taxation. An inheritable estate". Going Concern Value is "the value created by a proven property operation." It includes the incremental value associated with the business concern, which is distinct from the value of the real estate only. Going concern value includes an intangible enhancement of the value of an operating business enterprise which is produced by the assemblage of the land, building, labor, equipment, and marketing operation. This process creates an economically viable business that is expected to continue. Going concern value refers to the total value of a property, including both real property and intangible personal property attributed to business value. Special purpose properties such as the subject are appropriate for only one use or for a very limited number of uses. The highest and best use of a special purpose property as improved, is probably the continuation of its current use, if that use remains viable. Therefore, in the case of special purpose properties a going concern value is considered appropriate. In this instance the subject property has an excellent location within a viable market. As long as quality management is maintained, it's Market Value would be the same as it's Going Concern Value. Included is our appraisal report which contains the various exhibits and data utilized in arriving at the herein contained estimate of Market Value for the subject property. It is our opinion that the property herein identified as the proposed 21 Unit Assisted Care Facility, Resident Manager's Apartment and 4 Efficiency Assisted Care Units all located at 619 Germantown Road within the corporate limits of Minden, Webster Parish, Louisiana, was estimated to have a Market Value based on Stabilized Net Operating Income, as of September 8, 1998, of: TWO MILLION ONE HUNDRED THOUSAND DOLLARS ($2,100,000.00) Robert M. McSherry, MAI Page Three Allocated: LAND: $ 140,000.00 IMPROVEMENTS: $1,885,000.00 FURNITURE, FIXTURES & EQUIPMENT: $ 75,000.00 GOODWILL OF GOING CONCERN -0- The "As Is" Value of the property, derived by the utilization of the Discounted Cash Flow Methodology, is estimated to be, as of September 8, 1998, but subject to completion of the property in accordance with submitted plans and specifications within a reasonable period of time, of: TWO MILLION FORTY THOUSAND DOLLARS ($2,040,000.00) The subject property is proposed at the present time and this appraiser has been provided plans and specifications for the property. The herein contained Estimate of Market Value is conditioned upon the completion of the improvements in accordance with the plans and specifications utilizing quality materials and workmanship within a reasonable period of time. A final inspection by this appraiser will be required to ascertain the assumptions utilized in preparing this appraisal report have been fulfilled. This appraisal report was prepared in accordance with and compliance of the Uniform Standards of Professional Appraisal Practice promulgated by the Appraisal Foundation and the Guide Notes to the Standards of Professional Practice adopted by the Appraisal Institute. These standards contain binding requirements and specific guidelines that deal with the procedures to be followed in developing an appraisal, analysis, or opinion. These uniform standards also set the requirements to communicate the appraiser's analysis, opinions, and conclusions in a manner that will be meaningful and not misleading in the marketplace, accordingly, the Departure Provision does not apply. Robert M. McSherry, MAI Page Four A complete set of plans and specifications have been provided First Republic Bank and delivered under separate cover. If we may be of further service to you in regard to this property or in any other manner, please do not hesitate to contact us at your earliest convenience. Respectfully submitted, /S/ROBERT M MCSHERRY Robert M. McSerry, MAI Louisiana State Certified General Real Estate Appraiser No. G0891 Robert M. McSherry, MAI [Area Location Map of Surrounding Cities] EXECUTIVE SUMMARY Location: Northside of Germantown Road just south of Country Club Drive within the Corporate Limits of Minden, Webster Parish, Louisiana Interest Appraised: Fee Simple Interest Site: 5.72 Acres or 249,163 Square Feet, more or less Building Description: The property will include twenty-one (21) assisted care living units, a resident manager's apartment and 4 efficiency assisted care units all located within a single, T-shaped building. The common area amenities including a full service kitchen, a dining area, activities area, office/reception area, adequate bathrooms which would be fully equipped to satisfy the needs of the residents of the assisted care facilities as well as storage areas and other required additions to render the subject property a functional assisted care facility catering to those requiring assisted care. Construction characteristics include a reinforced poured concrete foundation, wood framing, with a combination of brick veneer and vinyl siding exterior walls with the roof being of composition shingles. Although the property is proposed at the present time, this appraiser is aware of a similar property which has been constructed by the owners of the subject and our physical inspection of this existing complex has been utilized in conjunction with the submitted plans and specifications. The property is considered to be a most functional assisted living facility and is considered a most attractive property and should be well accepted by the local market. Robert M. McSherry, MAI Highest and Best Use: Assisted care facility including all required amenities. Cost Approach to Value $2,255,000.00 Market Approach to Value $2,150,000.00 Income Approach to Value: Stabilized Net Income: $2,100,000.00 Discounted Cash Flow Value: $2,040,000.00 Final Value Estimate: Stabilized Net Income: $2,100,000.00 "As Is" Value: $2,040,000.00 Allocated: Land $ 140,000.00 Improvements $1,885,000.00 Furniture, Fixtures and Equipment $ 75,000.00 Goodwill of Going Concern -0- Robert M. McSherry, MAI IDENTIFICATION OF THE PROPERTY The property being inspected, analyzed and for which the Market Value Estimate of the Fee Simple Interest of the Going Concern is applicable is a four 4 acre tract of land which will be basically a rectangular in shape and having frontage along the north side of Germantown Road and located within the corporate limits of Minden, Webster Parish, Louisiana. The property is located in portions of Section 14, T9N-R9W, Webster Parish, Louisiana and, as a condition of this appraisal report, a complete legal description and a metes and bounds survey of the subject site will be required to ascertain the assumptions utilized within this appraisal report have been fulfilled. The subject site is the "heart" of a larger ten (10) acre parcel with the subject site encompassing the vast majority of the usable land area contained within the total site area. "A 5.72 acre, more or less, tract of land situated in Section 14, Township 19 North, Range 9 West, Minden, Webster Parish, Louisiana being more particularly described as follows:" "Beginning at a point of the West right-of-way of Germantown Road 347.85 feet West and 1,063.61 feet South of the Northeast corner of the Southwest Quarter of the Northwest Quarter of said Section 14; thence South 31 degrees 18 minutes West along the West right-of-way of Germantown Road 86.57 feet to the point of beginning; thence run South 31 degrees 18 minutes West along the West right-of-way of Germantown Road 634.44 feet; thence run North 86 degrees 00 minutes West 393.09 Robert M. McSherry, MAI feet; thence North 4 degrees 00 minutes East 124.64 feet; thence run North 34 degrees 18 minutes East 469.61 feet; thence run South 88 degrees 40 minutes East 469.20 feet to the point of beginning. Containing 5.72 acres, more or less." Robert M. McSherry, MAI PURPOSE OF THE APPRAISAL The purpose of this report is to communicate, in a narrative format, the data and reasoning that the appraisers have utilized to form the herein contained estimate of Market Value of the Fee Simple Interest of the Going Concern for the property identified as a proposed 21 assisted care facility and 4 efficiency assisted care units all located on the north side of Germantown Road, Minden, Louisiana. OBJECTIVE OF THE APPRAISAL The objective and function of this appraisal report is to provide an estimate of the Market Value of the Fee Simple Interest of the Going Concern of the property for use by First Republic Bank in order to provide long term financing of the subject property for the Biltmore Group, L.L.C. The Subject property was personally inspected by this appraiser both before and after the date of this appraisal and the submitted plans and specifications reviewed. As the property is proposed construction, a final inspection of the property will be required by the appraiser to ascertain the assumptions utilized within this appraisal report have been fulfilled and this appraisal is also conditioned upon being completed in accordance with the plans and specifications utilizing quality materials and workmanship throughout. Other additional conditions are contained in an additional section of this report. Robert M. McSherry, MAI DATE OF THE APPRAISAL The effective date of this appraisal is September 8, 1998. The subject site was personally inspected by this appraiser both before and after this date and the submitted plans and specifications for the proposed improvements were also reviewed by the appraiser prior to the date of the appraisal. Robert M. McSherry, MAI DEFINITION OF SIGNIFICANT TERMS Market Value, as defined by the Department of the Treasury, Office of the Comptroller of the Currency, August 24, 1990, is, "The most probable price which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller, each acting prudently, knowledgeably and assuming the price is not affected by undue stimulus. Implicit in this definition, is the consummation of a sale as of a specified data and the passing of title from seller to buyer under conditions whereby: a. buyer and seller are typically motivated; b. both parties are well informed or well advised, and each acting in what he considers his own best interest; c. a reasonable time is allowed for exposure in the open market; d. payment is made in terms of cash in U.S. dollars or in terms of financial arrangements comparable thereto; and e. the price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions granted by anyone associated with the sale. Fee Simple Interest is defined by the Appraisal Institute as being, "a fee without limitations to any particular class of heirs or restrictions but subject to the limitations of eminent domain, escheat, police power and taxation. An inheritable estate". Going Concern Value is "the value created by a proven property operation." It includes the incremental value associated with the business concern, which is distinct from the value of the real estate only. Going concern value includes an Robert M. McSherry, MAI intangible enhancement of the value of an operating business enterprise which is produced by the assemblage of the land, building, labor, equipment, and marketing operation. This process creates an economically viable business that is expected to continue. Going concern value refers to the total value of a property, including both real property and intangible personal property attributed to business value. Special purpose properties such as the subject are appropriate for only one use or for a very limited number of uses. The highest and best use of a special purpose property as improved, is probably the continuation of its current use, if that use remains viable. Therefore, in the case of special purpose properties a going concern value is considered appropriate. Robert M. McSherry, MAI PROPERTY RIGHTS APPRAISED This assignment concerns the appraisal of the Fee Simple Interest with Fee Simple Interest defined in Real Estate Appraisal Terminology as being, "a fee without limitations to any particular class of heirs or restrictions but subject to the limitations of eminent domain, escheat, police power and taxation. An inheritable estate". STATEMENT OF OWNERSHIP AND RECENT HISTORY The larger tract from which the subject property was partitioned was under the ownership of Luther Moore and Donald Hinton Trust and was conveyed to Senior Retirement Center of Minden, LLC. The 5.57 acre tract which is the subject of this appraisal report is located on the north side of Germantown Road just south of Country Club Road within the corporate limits of Minden, Webster Parish, Louisiana. The subject site is to be surveyed and a complete metes and bounds description provided this appraiser as a condition of this appraisal report. The subject is a portion of a larger ten (10) acre tract which was purchased for $150,000.00 on April 30, 1998. Although the original site purchased for the construction of the subject improvements encompassed a total of ten (10) acres of gross land area, the usable portion of this site was substantially less and estimated to be between six (6) and seven (7) acres. The remaining three plus (3+) acres of the original site is considered unusable land due to it's steep topography but can be used in conjunction with the cut and fill operation which will be necessary in the Robert M. McSherry, MAI development and preparation of the actual subject site prior to the construction of the improvements. It is noted that the indicated price per acre for the total tract purchased on April 3, 1998, was $15,000 per acre. When the usable land is utilized in the calculation, the indicated price per acre increased to approximately $25,000.00 per acre prior to other costs which were incurred during the acquisition of the site. These costs include the addition of a separate Real Estate Commission in the amount of approximately $10,000.00 as well as interest expense during the approximate eight (8) month holding period from the time the subject property was optioned, the rezoning process completed and the actual purchase consummated. The 5.57 acre tract which is the subject of this appraisal report is considered to be the "heart" of the subject property and due to it's superior location within the site, superior topography as well as smaller size, a substantial increase in the per acre value is estimated for this portion of the property. The subject property had been owned by the prior owners for a period in excess of five years and no speculative transactions have affected the subject property according to records found in the Webster Parish Clerk of Court's Office. The site will require considerable preparation prior to construction and it's anticipated sales price is considered slightly below it's true market value. Robert M. McSherry, MAI ASSUMPTIONS AND LIMITING CONDITIONS This appraisal report has been made with the following assumptions and limiting conditions: 1. No responsibility is assumed for the legal description or for matters including legal or title consideration. Title to the property is assumed to be good and marketable unless otherwise stated. 2. The property is appraised free and clear of any and all liens or encumbrances unless otherwise stated. 3. Responsible ownership and competent property management are assumed. 4. The information furnished by others is believed to be reliable. No warranty, however, is given for its accuracy. 5. All engineering is assumed to be correct. The plot plans and illustrative material in this report are included only to assist the reader in visualizing the property. 6. It is assumed that there are no hidden or apparent conditions of the property, subsoil, or structures that render it more or less valuable. No responsibility is assumed for such conditions or for arranging for engineering studies that may be required to discover them. 7. It is assumed that there is full compliance with all applicable federal, state, and local environmental regulations and laws unless noncompliance is stated, defined, and considered in the appraisal report. 8. It is assumed that all applicable zoning and use regulations and restrictions have been complied with, unless a nonconformity has been stated, defined, and considered in the appraisal report. 9. It is assumed that all required licenses, certificates of occupancy, consents, or other legislative or administrative authority from any local, state or national government or private entity or organization have been, or can be obtained or renewed for any use on which the value estimate contained in this report is based. Robert M. McSherry, MAI 10. It is assumed that the utilization of the land and improvements is within the boundaries or property lines of the property described and that there is no encroachment or trespass unless noted in the report. 11. The distribution, if any, of the total valuation in this report between land and improvements applies only under the stated program of utilization. The separate allocations for land and buildings must not be used in conjunction with any other appraisal and are invalid if so used. 12. The appraisers herein, by reason of this appraisal, are not required to give further consultation, testimony, or be in attendance in court with reference to the property in question unless arrangements have been previously made. 13. Possession of this report, or a copy thereof, does not carry with it the right of publication. It may not be used for any purpose by any person other than the party to whom it is addressed without the written consent of the appraisers, and in any event only with proper written qualification and only in its entirety. 14. Neither all nor any part of the contents of this report (especially any conclusions as to value, the identity of the appraisers, or the firm with which the appraisers are connected) shall be disseminated to the public through advertising, public relations, new, sales, or other media without the prior written consent and approval of the appraisers. 15. The existence of hazardous materials, which may or may not be present on the subject property, was not observed by the appraisers. The appraisers have the knowledge of the existence of such materials on or in the subject property. However, the appraisers are not qualified to detect such substances and the presence of potential hazardous materials may affect the value of the property. This value estimate contained within this report is predicated on the assumption that no such hazardous materials are present on or in the property. No responsibility is assumed for any such conditions or for any expertise or any knowledge required to discover these items. This should be accomplished by an expert in the field and is a condition of this appraisal report. 16. That the appraiser has personally inspected the subject property and finds no obvious evidence of structural deficiencies, except as stated in this report; however, no responsibility for hidden defects or conformity to specific governmental requirements, such as the Americans with Disabilities (ADA) or fire, building and safety, earthquake, or occupancy codes, etc., can be assumed without provision of specific professional or governmental inspections. Robert M. McSherry, MAI 17. This property is proposed at the present time and the appraisal is conditioned upon the completion of the subject property in accordance with the submitted plans and specifications utilizing quality materials and workmanship throughout. A final inspection by the appraiser would be required in order to ascertain the assumptions utilized in arriving at the herein contained Estimate of Market Value have been fulfilled. 18. This appraisal is not based on a requested minimum valuation, a specific valuation or the approval of the loan. Robert M. McSherry, MAI CITY/AREA DATA The Minden and the Webster Parish areas are considered one and the same with the population trends for both being very similar with the following population trends noted: Population
Present 1970 1980 1990 Estimate City 13,966 15,074 13,661 14,000 Parish 39,939 43,631 41,989 43,000 State 3,641,306 4,205,900 4,219,973 4,219,973
The City of Minden provides numerous municipal services including public water, public sewer, electricity is provided by the City of Minden which is served by Swepco with natural gas provided by ARKLA Gas. Telephone service is provided by BellSouth and all services and utilities including police and fire protection are considered adequate. The educational requirements of the area are provided by four elementary schools, one middle school, one junior high school and one high school as well as one private facility. The higher educational requirements are fulfilled by Northwest Technical Institute in Minden, Louisiana State University, Southern University and Centenary Colleges all located in Shreveport, approximately 30 miles distance with Louisiana Tech University and Grambling State University also located within 30 miles of the City of Minden. Transportation requirements are provided by Interstate 20, the major east-west interstate highway through the southern United States as well as U.S. Highways 79 and 80, Louisiana Highway 371, 159 and 3008. Greyhound Bus Lines Robert M. McSherry, MAI provides bus service to the area with rail service provided by Kansas City Southern. The health requirements in the area are provided by one hospital with a total of 21 beds as well as two nursing homes with a total of 374 beds and two medical clinics. There are seventeen medical doctors, twelve dentists and two DVM's servicing the area. Recreational requirements are fulfilled by public facilities including four tennis courts, three swimming pools and nine city parks. Although the city does not provide a golf course, there is a country club available in the area. The major employers found in the Minden Webster Parish area are as follows: Major Area Employers
Company Name Location Product Employees Fibrebond Minden Portable Comm Bldgs 550 Mister Twister Minden Fishing Tackle 100 Ruskin Minden Industrial Air 135 Inland Container Minden Corrugated Boxes 137 Clement Industries Minden Trailers 150 Reynolds Contractors Minden Metal Fabrication 160 McInnis Construction Minden Construction 120 Minden Medical Center Minden Health Care 305 Town and Country Nursing Home Minden Nursing Care 130 IHS of Minden Minden Nursing Care 225
In summary, the Minden and Webster Parish area is one of stability and moderate growth. The major employers in the area have been in existence for an extended period of time and are gradually expanding their employee base Robert M. McSherry, MAI and this trend will continue over the foreseeable future. A large number of the residents living in the Minden area work within the major metropolitan area of Shreveport/Bossier City and this is also considered a positive factor as Minden is considered to be somewhat of a bedroom community for this larger metropolitan area. All indications indicate a positive and stable future for both Minden and the Webster Parish area. Robert M. McSherry, MAI NEIGHBORHOOD DATA A Neighborhood may be defined as a homogeneous grouping of individuals, buildings, or business enterprises within a larger community. These groupings are usually devoted to residential use, trade and service activities, or cultural and civic activities. Residential neighborhoods tends to reflect characteristics of their inhabitants, expressing the mutual desires of people with comparable interests, related traditions, and similar social and economic status. Neighborhood Boundaries The neighborhood in which the subject property is located is considered to be that area lying in the northern portion of the City of Minden. The main arterial roadway through the neighborhood is considered to be Germantown Road, a dual laned, asphalt, municipally maintained roadway which provides access into the downtown area of Minden as well as the outlying areas of northern Webster Parish. Trends in the neighborhood tend to be for construction of either multi-family apartment complexes or the Azalea Terrace Housing for the Elderly which is a subsidized housing complex for the elderly. This property was financed by bonds issued by the Louisiana Public Finance Authority and requires a certain percentage of the residents to be under the median income level of the parish as a whole. Both the apartment complex identified as Rose Hill and the housing complex for the elderly identified as Azalea Terrace are fairly new construction and have been well maintained and are both considered positive influences in the subject neighborhood. Robert M. McSherry, MAI There is a public elementary school located directly across Germantown Road from the subject site and is also not considered detrimental to the area. Other land uses include primarily detached single family dwellings which range in value from a low of $40,000.00 to a high of $200,000.00. The area is also the location of the majority of the vacant developable land located within the corporate limits of Minden. The trends in the area are considered most positive as access is well provided and the overall location of the neighborhood is considered to be in the path of growth for the City of Minden. No adverse physical characteristics were noted during the inspection of the area. It is noted that a large number of the residents of Minden are employed in the metropolitan area of Shreveport/Bossier City. This trend of persons utilizing smaller municipalities as their residential base and commuting to the larger metropolitan areas should continue over the foreseeable future and is considered a positive factor in the continued development and growth of Minden and Webster Parish. Robert M. McSherry, MAI OVERVIEW OF ASSISTED LIVING INDUSTRY In anticipation that more elderly Americans will live in assisted living homes than nursing homes in the near future, consumer industry groups are saying it is time to put some minimum standards into law. One of the most important things for the industry is to try not to admit residents it cannot provide quality care for. Many assisted living homes charge additional fees for personal services residents may come to need as they grow older. Some will help residents if they get sick by permitting periodic visits from nurses, for example, or providing supervision for people with Alzheimer's Disease. In order to minimize residents need to move, the consumer or trade groups say assisted living facilities should be required to offer at least some help with the dozen daily activities including meals, using the bathroom, taking medication and shopping. Those facilities which accept people with Alzheimer's or other types of dementia would also be required to provide 24 hour awake staff and special training for those workers. Assisted living has become the hottest new housing option for older people by promising to provide a happy medium between their homes and a full nursing home facility. Industry estimates show that the number of elderly Americans living in settings that could be described as assisted living has probably doubled from 560,000 in 1990 to as many as 1,000,000 in 1997. By early next century, experts predict assisted living homes will care for more elderly Americans than nursing homes. Robert M. McSherry, MAI Although numbers are inexact, assisted living facilities ranging from luxury apartment buildings to modest group homes provide housing along with personal services and some health care. Residents may be too frail to live alone but too healthy to need the 24 hour medical attention of nursing homes. Assisted living can be less expensive than nursing homes. A 1997 survey by the National Center for Assisted Living found that 52% costs $1,001.00 to $2,000.00 per month and 24% cost less than $1,000.00 per month. In contrast, monthly nursing home fees average above $3,000.00. Assisted living's affordability has attracted the attention of law makers worried about how the nation will ensure elderly care for the huge baby boom generation now middle aged. Medicaid programs for the poor in 28 states have begun to cover some assisted living services and the Department of Health and Human Services is conducting a fact finding survey. Unlike nursing homes, assisted living homes are not regulated by the Federal Government. Fewer than half of the states require licensing before it opens. That allows for flexibility and partly explains assisted living's popularity. In summary, the assisted living facilities currently expanding throughout the United States are the most popular and desirable alternative living situation for those elderly which require some minimal level of care but not the extensive level required by nursing home patients. As the population continues to grow older but maintain better health, the appeal thus desirability of assisted living facilities will continue to be enhanced. Robert M. McSherry, MAI SCOPE OF THE APPRAISAL The appraiser has personally inspected the subject site and conducted an in-depth inspection of the neighborhood in which the subject property is located observing it's trends of development and characteristics. Vacant land sales utilized in conjunction with the Cost Approach to Value and in determining the estimated Market Value of the subject site, as if vacant, and owned in Fee Simple have been inspected by this appraiser and a combination of data provided by the Marshall Valuation Service Cost Manual and other available in-file data has been utilized in the process of estimating the replacement cost new of the subject improvements. In the final analysis, the appraiser has utilized and relied upon the experience of judgment based on the opinion of the quality and quantity of the data in arriving at the final value estimate of the Fee Simple Interest in the subject property. The Income Approach to Value has been completed utilizing a stabilized net income capitalized into value and a discounted cash flow method. Economic rents were determined by rent comparables and current data utilized with respect to expense projections. Information provided by the publication "Trends in the Health Care Industry" as well as information provided by other actual ongoing facilities similar to the subject have been utilized in the process of estimating the projected expenses which were included in the Income Approach to Value. Although the subject property is proposed at the present time and has no income or expense history, it is considered to be a functional facility and a facility which is demand with respect to providing long term assisted living care. Robert M. McSherry, MAI DESCRIPTION OF THE PROPERTY Site Data Size, Shape and Topography The subject site will be a 5.72 acre parcel of land which will be basically rectangular in shape and lying along the north side of Germantown Road, a two laned, asphalt street which provides access to the downtown area of Minden, Louisiana. The topography of the property is rolling and will require substantial grading and site preparation prior to construction. This is not considered truly detrimental. Inspection of the site did not reveal any detrimental physical characteristics which would affect the development of the subject property to it's highest and best use or the proposed utilization of the property. The 5.72 acre parcel which is the subject site is a portion of a larger 10 acre tract of land which was purchased in April of 1998. This tract contains approximately three (3) to four (4) acres of unusable land located at the rear and along the northern side of the tract which features extremely rough topography, ravines and is, for the most part, unbuildable. This portion of the property can be used in connection with the cut and fill operation necessary to prepare the actual building site for construction with an estimated site preparation expense of $60,000.00 projected by area dirt contractors. Utilities The subject property is located inside the corporate limits of Minden, Webster Parish, Louisiana and is provided with all city utilities and services available to properties within the corporate limits of Minden including electrical service, police and fire protection, public water, sewerage disposal, and refuge disposal. Robert M. McSherry, MAI Telephone service and natural gas service is provided by the local utility companies servicing the area. Access Access to the subject development is provided as a result of the location of Germantown Road along the southern boundary of the site. Germantown Road is a dual laned, asphalt, municipally maintained traffic artery servicing primarily local traffic and provides access into the downtown area of Minden to the south and the outlying areas of Webster Parish to the north. There exists an intersection with Interstate 20 in the southern portion of the City of Minden, Interstate 20 being the major east-west interstate highway through the southern United States with I-20 providing access into the metropolitan area of Shreveport/Bossier City, approximately 30 miles to the west. Numerous other municipal traffic arteries dissect the area and provide adequate access to the subject site from all areas of Minden and Webster Parish. Zoning Review of the zoning map found in the Minden City Hall indicates the subject property to be currently zoned "R-4", Multi-Family Residential. The proposed utilization of the site as a site for an assisted living facility requires the site to be zoned "R-4" and this zoning will result in the proposed utilization being a legal conforming use. This appraiser has not conducted an in-depth review with respect to the abstract to the subject site but no deed restrictions or other restrictive covenants are assumed to exist which would affect the development of the subject property to Robert M. McSherry, MAI its highest and best use. However, this should be ascertained by competent legal authority and is a condition of this appraisal report. Drainage Review of Flood Hazard Maps found in the Minden Municipal Office indicated the subject property to be located in a Flood Zone "C" and flood insurance is not required for the subject property. The applicable flood map is identified as Map No. 220237-0005-D with an effective date of March 3, 1992. A copy of this map is contained in the Addenda of this report. Again it is noted that flood insurance is not required for the subject property according to available maps but this should be ascertained by competent surveyor or engineer. Tax Data The subject property is proposed construction property and the taxes on the vacant land only are minimal. The subject property will be placed on the Webster Parish tax rolls the year after it is completed and at that time will be assessed and the tax liability can be estimated. For the purposes of this appraisal report and for the utilization in the Income Approach, taxes have been projected based on comparable properties but are subject to change once the property is completed and placed on the tax roles. The 1998 millage rates applicable to the subject property are as follows: Robert M. McSherry, MAI City 8.87 Mills Parish 72.28 Mills Total 81.15 Mills Assisted living facilities such as the subject are assessed at 10% of Market Value and conversations with representatives of the Webster Parish Tax Assessor's Office indicate an estimated Market Value for tax purposes will be approximately 20% less than actual Market Value. Thus: Estimated Value of Subject $2,100,000.00 Estimated Assessed Value $1,680,000.00 10% - Assessed Value $ 168,000.00 $168,000.00 X 81.15 Mills = Estimated Tax Liability $13,633.20 Robert M. McSherry, MAI LOCATION MAP Robert M. McSherry, MAI DESCRIPTION OF THE IMPROVEMENTS Assisted Living Facility The proposed facility containing the assisted living units will be constructed within a single T-shaped building but a building comprised of different component sections housing the assisted living units in two wings with the public areas located in the center or core of the building. The building is a modified T-shape and encompasses a total of 22,217 square feet of heated area. The assisted living units contained within this facility will contain approximately 485 square feet of living area and feature a bedroom, living room, kitchenette and full bath with shower while the efficiency units will contain approximately 200 square feet of area. The gross building area was calculated by Mr. Mike Wallace, the preparer of the plans and specifications for the property. Construction characteristics for this building include reinforced poured concrete foundation with adequate grade beams and both interior and perimeter footings with the exterior being wood framing utilizing a combination of brick veneer vinyl with the roof being a composition shingle roof over wood decking. Windows will be insulated, horizontal slide aluminum windows with each unit of the assisted care units having their own central HVAC unit with the common areas utilizing central, zoned units. Interior construction will include a combination of vinyl and carpet or ceramic tile flooring, painted or vinyl covered sheetrock walls with acoustical ceilings. Lighting will be both standard and fluorescent fixtures. Robert M. McSherry, MAI Amenities to be contained within the assisted care portion of the building include a full service kitchen, dining room, activities area, whirlpool area, staff laundry, TV rooms, offices and other required amenities as well as an apartment for the resident managing couple. As previously noted, the total gross area contained within this portion of the subject property is 22,217 square feet. Within this total, 21 assisted living units, 4 efficiency assisted units, the manager's apartment and remaining common areas will be contained. Parking will be poured concrete and located at strategic locations around the site and will be adequate to fulfill the requirements of both the tenants and staff. Landscaping will be extensive and utilized in conjunction with the natural topography of the area should be most pleasing. Each assisted living unit will include a toilet, lavatory and tub/shower unit, through wall air conditioning unit with heat strip, drop-in over/range unit with vent hood as well as adequate closet and cabinet space. A complete set of working drawings will be provided the appraiser as a condition of this appraisal to ascertain the assumptions utilized within this report have been fulfilled. A final inspection by the appraiser will be required. As noted, the subject is proposed construction and this appraisal is conditioned upon the completion utilizing quality materials and workmanship with a final inspection by the appraiser required to ascertain the preliminary plans and specifications provided this appraiser were correct. Robert M. McSherry, MAI [Subject Property Location Map Indicating the Subject Property] Robert M. McSherry, MAI HIGHEST AND BEST USE Introduction The Appraisal Institute defined highest and best use as follows, "that legal use, at the time of the appraisal, which is the most profitable likely use to which a property can be put." There are several basic factors which must be considered in order to make a proper determination of Highest and Best Use: 1. The use must be legal, that is, legally adaptable regarding zoning and other restrictions; 2. The use must be probable, not conjectural or speculative; 3. The property must be physically adaptable to use contemplated, 4. There must be a demand for such use; 5. The use must be profitable, the highest return to the land over the longest period of time. Highest and best use of the land (or site) if vacant and available for use may be different from the highest and best use of the improved property. This is true if the improvement is not an appropriate use, but it makes a contribution to the total property value in excess of the value of the site. The above five tests have been applied to the subject property's vacant site. In arriving at the estimate of highest and best use, the subject site has been carefully analyzed. Robert M. McSherry, MAI HIGHEST AND BEST USE ASSUMING A VACANT SITE Permissible Use An investigation has been conducted in order to determine the zoning classification that encumbers the subject property. The results of this investigation has revealed that the subject site is currently zoned "R-4". This is the required zoning for the development of the site to it's proposed utilization as an assisted care facility and, accordingly, this use is a legal, conforming, permissible use. Possible Use Inspection of the subject property's neighborhood has been made to determine any physical limitations that might be present. The result of this inspection has revealed the neighborhood is developed with mix of property types. The zoning which is currently applicable to the subject property does allow for an assisted care facility to be constructed on the site as well as other types of multi-family construction. This zoning classification will allow the property to be developed as proposed within this appraisal report and this is considered the most highly probable use to which the subject property could be put. In the final analysis, the proposed utilization of the subject property is considered to constitute one of it's Highest and Best Uses. Robert M. McSherry, MAI THE APPRAISAL PROCESS The real estate appraisal profession typically utilizes three basic approaches in the process of estimating the value of a parcel of real property. These approaches include the Cost Approach, the Income Approach and the Market Data Approach. The Cost Approach utilizes an estimate of reproduction or replacement costs new of the building and other on-site improvements to be contained within the subject property less accrued depreciation from all sources including physical curable and incurable deterioration, functional obsolescence and economic obsolescence to arrive at an estimate of depreciated reproduction or replacement costs for the improvements. The estimated value of the site, as if vacant, and determined by the comparison of the subject site with other similar parcels in either the immediate proximity of the subject or in other comparable areas is added to the depreciated reproduction or replacement cost estimate of the improvements to provide an indication of value of the property being appraised from the Cost Approach. The Cost Approach is generally accorded the greatest credence in instances where the property being appraised is either a proposed property or a new property having little or no accrued depreciation or instances where the property being appraised represents a special purpose type property. In these instances, the Cost Approach is an accurate indication of value for the property and is accorded considerable credence in the reconciliation process. The Income Approach to Value utilizes an estimate of gross annual income to be generated by the property being appraised as determined to be representative of economic rentals for this type property within the area less an allowance Robert M. McSherry, MAI considered typical for vacancy and collection losses to arrive at an estimate of effective gross annual income which is to be generated by the property. Expenses typically associated with the operation of this type property in accordance with prevailing lease terms and conditions in the area as well as data provided by analysis of the operating history of other similar type properties are projected and deducted from the effective gross annual income to arrive at an estimate of net operating income before recapture attributable to the subject. This net operating income is then capitalized by the most appropriate method available with respect to the subject property in particular and the appraisal problem in general into an indication of value for the property being appraised from the Income Approach. Another method of utilizing the Income Approach is the Gross Income Multiplier technique. This technique identifies the relationship between the sales price (value) of a property and its gross annual income earning potential. The Gross Income Multiplier is derived by dividing the sales price of a property by its gross potential income and, thus, is an excellent indicator of buyer, seller and investor attitudes toward the property being analyzed. An effective gross income multiplier is also excellent as it utilizes the actual gross income after vacancy to derive the multiplier. use depends upon available data. The Market Data or Direct Sales Comparison Approach utilize sales of comparable improved properties in either the immediate proximity of the subject or in other comparable areas to derive a unit of comparison. Each of the various comparable sales are carefully reviewed and analyzed by the appraiser, adjusted for any dissimilarities between the subject property and the comparable sale in such areas as date of sale, location, design, condition, and other physical characteristics to result in an adjusted unit of comparison to be utilized in the Robert M. McSherry, MAI Market Data or Direct Sales Comparison Approach to provide an indication of value for the property being appraised. The reconciliation is the method whereby all data provided by the various approaches utilized in the appraisal report are carefully analyzed and accorded weight in varying degrees. The approach which is considered to be the most representative of current buyer, seller and investor attitudes towards the subject property is accorded the greatest credence in the final analysis but all the approaches are interrelated and all data gathered and utilized in the various approaches must be carefully analyzed in the reconciliation process and to ignore any available data would be improper. Robert M. McSherry, MAI COST APPROACH TO VALUE The Cost Approach to Value, like the Sales Comparison and Income Approaches, is based on comparison. in the Cost Approach, the cost to construct a building and the value of any existing building are compared. The Cost Approach to Value reflects market thinking in the recognition that market participants relate value to cost. Buyers tend to judge the value of an existing structure by comparing it to the value of a newly constructed building with optimal functional utility. Moreover, buyers adjust the prices they are willing to buy by estimating the cost to bring an existing structure to desired levels of functional utility. Thus, by applying the Cost Approach, an appraiser attempts to estimate the difference in worth to a buyer between the property being appraised and a newly constructed building with optimal utility. An appraiser makes a sound value estimate by estimating the cost to construct a reproduction of or a replacement of the existing structure and then deducts all evidence of accrued depreciation in the property being appraised from the cost of the reproduction or replacement structure and the resulting figure, plus the value of the land, plus any entrepreneurial profit provides a value indication through the application of the Cost Approach. The decision to utilize reproduction or replacement costs is most pertinent and the selection plays and important part in contributing to the validity of the Cost Approach. Replacement cost is defined in Real Estate Appraisal Terminology as being, "the cost of construction at current prices of a building having utility equivalent to the building being appraised but built with modern materials and Robert M. McSherry, MAI according to the current standards, design and layout. The use of the replacement cost concept presumably eliminates all functional obsolescence and the only depreciation to be measured is physical deterioration and economic obsolescence." The appraisers will utilize the replacement cost method supported by Marshall Valuation Service in conjunction with the construction cost estimate provided by knowledgeable contractors/engineers or architects. DEPRECIATION All types of accrued depreciation affecting the subject improvements were considered. Accrued depreciation is defined as, "the difference between reproduction cost new as of the date of the appraisal and the present contributory value of the improvements." Accrued depreciation is divided into three basic categories: physical deterioration (which includes curable and incurable), functional obsolescence (including curable and incurable), and economic obsolescence (which is always incurable). The following is a discussion of each type of depreciation and the observed depreciation applicable to the subject property. Physical Deterioration, Curable This type of depreciation is defined as, "the loss in value from cost new which can be recovered or offset through correction, repair, or replacement of the defective items causing the loss, providing the resultant value approximates the cost of the work." The property is proposed thus no deferred maintenance is present. Robert M. McSherry, MAI Physical Deterioration, Incurable This type of depreciation is defined as, "the loss from cost new which is impossible to offset or which would involve an expenditure substantially in excess of the value increase resulting therefrom." The property is proposed and has an effective are of 0 years and a total economic life of 30 years. Functional Obsolescence Functional obsolescence is defined as, "the loss from cost new as of the date of the appraisal which is caused by a superadequacy, inadequacy, unattractive style, poor or inefficient layout or design." Items causing functional obsolescence can be either curable or incurable; it is curable only when it is profitable to cure the item. Incurable, functional obsolescence involves items of initiate which would not be economical to correct because the value would not increase so much as the cost of correction. Based on my inspection of the subject improvements, it is my opinion that they are totally adequate and comparable to similar properties in the same general price range, therefore, no loss of value from functional obsolescence exists. Economic Obsolescence This type of depreciation is defined as, "the loss from cost new as of the date of the appraisal due to causes external to the property boundaries." To measure this type of obsolescence the appraiser capitalizes the rent lost due to the external factor for the prorata share applicable to the building. As indicated in the site date, there are no undesirable external influences and, thus, there is no loss to the subject improvements due to economic obsolescence. Robert M. McSherry, MAI Entrepreneurial Profit For the Cost Approach to provide a sound indication of value, a market derived entrepreneurial profit must be added to the direct and indirect costs. The profit figure is typically expressed as a percentage of total direct and indirect costs. Entrepreneurial profit is a necessary element in the motivation to construct the improvements. However, part or all of the profit may be lost as functional or external obsolescence if the market indicates that the improvements have a Market Value less than the current reproduction or replacement cost less physical deterioration. The results of the investigation and analysis of this market data will appear as follows: Robert M. McSherry, MAI COMPARABLE LAND SALE 1 Date of Sale: September 12, 1988 Location: Westside of Germantown Road south of Country Club Drive, Minden, Webster Parish, Louisiana Brief Legal Description: Tract in located in the SW 1/4 of the NE 1/4 of the SE 1/4 of Section 15, T19N-R9W, Webster Parish, Louisiana Recordation Data: CB 704, Page 695, Webster Parish, Louisiana Grantor: R.D. Hinton Grantee: Rose Hill Estates, Limited Partnership Sales Price: $37,500.00 Terms of Sale: Cash Cash Equivalency Price: $37,500.00 Site Size: 2.5 acres or 108,900 square feet Indicated Price/Acre: $15,000.OO/Acre Indicated Price/Sq. Ft.: $.34/Square Foot Utilities: All available Flood Zone: N/A Zoning: "R-4" Confirmation: Deed Records Robert M. McSherry, MAI COMPARABLE LAND SALE 2 Date of Sale: July 14, 1994 Location: Westside of Germantown Road south of Country Club Drive, Minden, Webster Parish, Louisiana Brief Legal Description: Tract located on portions of Sections 14 and 15, T19N-R9W, Minden, Webster Parish, Louisiana Recordation Data: CB 804, Page 93, Webster Parish, Louisiana Grantor: Luther Moore and Donald Hinton Trust Grantee: Azalea Terrace Apartments, Limited Partnership Sales Price: $57,000.00 Terms of Sale: Cash Cash Equivalency Price: $57,000.00 Site Size: 2.82 acres or 122,839 square feet Indicated Price/Acre: $20,212.00/Acre Indicated Price/Sq. Ft.: $.46/Square Foot Utilities: All available Flood Zone: N/A Zoning: "B-4" Confirmation: Deed Records Robert M. McSherry, MAI ANALYSIS OF COMPARABLE LAND SALES The two vacant comparable land sales contained within this appraisal report and utilized for analysis purposes are sales of two sites located either adjacent to or directly to the south of the subject property. Vacant Land Sale 1 was developed with a small multi-family complex and, although somewhat dated, is considered to be reflective of attitudes in the area. This property is somewhat smaller in size requiring a slight upward adjustment but was similar in physical characteristics at the time of sale requiring no adjustment for the physical characteristics or for location. Vacant Comparable Land Sale 2 is located south of and adjacent to the subject property and again it is somewhat smaller requiring a slight upward adjustment. This property has been developed with a housing complex for the elderly which utilizes low interest financing which requires a certain number of units to be rented to persons having less than the per capita income in the parish and this complex is not considered truly competitive with the subject property. Again, this property required substantial site preparation prior to development, similar to the subject, and requires no adjustment for physical characteristics or location. Analysis of these two sales indicates an adjustment for the time differential to be required. The analysis of these paired sales indicates an annual increase in value of 5% and, accordingly, both of these sales have been adjusted accordingly for the time differential between the date of this appraisal report and the date of the comparable sales conveyance. Robert M. McSherry, MAI This appraiser conducted a thorough and in-depth review of vacant and comparable land sales transactions in the Minden, Louisiana area. Although a number of sales are found which have occurred in the immediate proximity of Interstate 20, the location of these sales and the Highest and Best Use are decidedly different than those for the subject site and were not felt appropriate to this appraisal assignment. The subject property was originally a 10 acre tract purchased in April of 1998. However, the actual contract to purchase the property was executed approximately seven (7) months prior to this date with additional costs accumulated with respect to the purchase price of the site including a real estate commission, legal work required for the rezoning of the subject property as well as carrying costs of the money borrowed for the deposit paid on the site during this holding period. In addition, of the total 10 acres, approximately six (6) to seven (7) acres are considered usable land with the remaining acreage considered unusable without extensive and cost prohibitive site preparation. However, this unusable portion of the site can be used to provide fill for the primary site which will be needed in the preparation of the primary site for the construction of the improvements. Thus, the effective price paid for the subject property based on usable acreage only is somewhat in excess of the $15,000.00 per acre indicated by the deed when all the appropriate additional expenses are added and only the usable land area is considered in the calculations. It is also important to note that the 5.72 acre site has been taken from what is considered the "heart" of the site and is the best land thus indicating an additional adjustment. Robert M. McSherry, MAI In the final analysis, after each of the sales have been carefully analyzed and adjusted for dissimilarities, it is our opinion that the available market data indicates a market value of the subject property as if vacant but prior to site preparation for construction of $25,000.00 per acre. Therefore, the Estimated Value of the subject property, as if vacant, is thus summarized: 5.72 acres @ $25,000.00/acre = $143,000.00 INDICATED VALUE OF SITE, AS IF VACANT, BUT PRIOR TO SITE PREPARATION (R/T) $140,000.00 Robert M. McSherry, MAI VACANT LAND SALES ADJUSTMENT CHART
Sale Number Subject 1 2 Property Rights Appraised Leased Fee Leased Fee Leased Fee Financing Terms Cash Equivalent Cash Equivalent Cash Equivalent Condition of Sale Arms Length Arms Length Arms Length Sale Date Current September 1, 1998 July, 1994 Size/Acres 5.72 2.50 2.82 Effective Price/Acre N/A $15,000.00 $20,212.00 Market Condition Current +50% +20% Location -0- -0- Size +10% +10% Physical Characteristics -0- -0- Adjusted Price/Acre $24,000.00 $26,275.00 Gross Income Multiplier 7.9 8.5
[COMPARABLE LAND SALES MAP INDICATING COMPARABLE LAND SALES LOCATIONS] DISCUSSION OF COST APPROACH In the construction of any project, the total cost of development can be divided into basic categories: direct or hard cost, and indirect or soft costs. As defined in Real Estate Appraisal Terminology, the definition of Direct Costs is, "the cost of direct labor and materials devoted specifically to a unit of work. In construction, these costs are directly related to site acquisition and construction of the improvements..." Defined in this same text, Indirect Cost is, "that cost in the development of a property which would not be included in a general contract for construction or for land acquisition..." Direct costs include the cost of items such as land acquisition, construction of the buildings, equipment and fixtures, the builder's profit and overhead, any temporary buildings for on-the-job usage, power line installation, and the electrical power used in the construction. As indicated in the Cost Approach Schedule which follows, direct or hard costs have been broken down into categories of building area, elevators and other primary building costs. Indirect, or soft costs, generally include fees, financing costs, and overhead. As the Cost Approach Schedule indicates, the indirect costs fall into 8 categories. The permits and fees sections include the estimated costs of a building permit, an appraisal, a survey and accounting and inspection charges. Architectural engineering estimates have been based on typical market charges. The legal expenses includes work done on both interim and permanent loan packages. The insurance costs indicated are limited to construction-period coverage including the builder's risk. Robert M. McSherry, MAI The closing cost estimate includes costs of closing both the interim and permanent loans. The interest expense is based on typical current market conditions and covers the period of time required to complete the construction of the project. The loan commitment fees are also based on current typical market conditions. The appraiser's have relied upon the Marshall Valuation Service, a publication of Marshall & Swift, 1617 Beverly Boulevard, Post Office Box 26307, Los Angeles, California, in estimating the replacement costs new of the subject property improvements. The Cost Approach to Value, as it applies to the property being appraised, is as follows: Robert M. McSherry, MAI COST APPROACH TO VALUE Cost Source: Marshall-Swift Cost Manual and Actual Costs Provided by Fred Bayles Direct Costs: Primary Structure 22,217 sq. ft. @ $59.70/sq. ft. $1,326,354.00 Total Direct Costs: Improvements $1,326,354.00 Indirect Costs: Plans, Specifications, Inspection Included in Direct Costs Contractor's Overhead/Profit $170,000.00 Interim Interest $ 65,250.00 Legal, Audit, Appraisal $ 60,400.00 Financing Fees - Construction $ 30,000.00 Misc. Expenses $ 50,000.00 Financing Fees - Long Term $162,500.00 Total Indirect Costs $ 538,150.00 Total Replacement Costs New: Improvements $1,864,504.00 Less:Accrued Depreciation Physical Curable -0- Physical Incurable -0- Functional Obsolescence -0- Economic Obsolescence -0- Total Accrued Depreciation -0- Depreciated Replacement Costs: Improvements $1,864,504.00 Add: Land Value 5.57 acres @ $25,000.00/acre $ 140,000.00 Add: Site Preparation $ 60,000.00 Add: Furniture, Fixtures and Equipment $ 75,000.00 Add: Parking, Walks, Landscaping, Porches $ 25,000.00 Robert M. McSherry, MAI Add: Entrepreneurial Profit @ 5% $ 93,200.00 Total All Costs and Value Components $2,257,704.00 INDICATED VALUE OF SUBJECT FROM COST APPROACH (R/T) $2,255,000.00 Note: Cost of Furniture, Fixture and Equipment based on costs association with actual costs experienced by Southside Garden Assisted Care Facility and Arbor House of West Monroe, Louisiana. Robert M. McSherry, MAI MARKET DATA APPROACH TO VALUE Market data is discussed in all the approaches to value. Data analysis is needed in the Cost Approach to develop a land value indication and to support costs and depreciation indicators; in the Income Approach to establish rent levels, vacancy indications, expenses, and capitalization rates; and in the Direct Sales Comparison Approach to establish comparability. The appraiser has carefully perused the Louisiana market with respect to sales of properties considered similar to the subject property and none were found. However, available data from other appraisers has revealed the sale of three similar type properties in other areas of the United States and these are included merely for analysis purposes as follows: Robert M. McSherry, MAI IMPROVED PROPERTY SALE 1 VENDOR: American Retirement, Inc. VENDOR: Horizon Retirement, Inc. LOCATION: 2601 Chimney Rock Road, Hendersonville, North Carolina RECORDATION: N/A DATE: February, 1993 CONSIDERATION: $6,480,000.00 TERMS: $2,224,000.00 cash, assumption of a mortgage balance of $4,316,000.00. terms are considered to be cash equivalent. SITE SIZE: N/A IMPROVEMENTS: This is a 110 unit senior living community constructed in 1988. The units are housed in a three-story building of wood frame construction. Construction quality is considered to be average; condition at the time of sale was good. The gross building area is approximately 96,058 square feet with an average unit size of 873 square feet. ESTIMATED GROSS INCOME: $1,706,255.00 ESTIMATED EXPENSE RATIO: Approximately 56 percent NET OPERATING INCOME: Approximately $751,844.00 UNIT INDICATORS: SP/Unit = $58,909.00 SP/SF = $ 67.46 SP/GI = 3.80 GIM NOI/SP = 0.1160 OAR Robert M. McSherry, MAI IMPROVED PROPERTY SALE 2 VENDOR: American Retirement, Inc. VENDOR: Emeritus Corporation LOCATION: 2601 Chimney Rock Road, Hendersonville, North Carolina RECORDATION: N/A DATE: September, 1995 CONSIDERATION: $9,483,523.00 TERMS: Cash SITE SIZE: N/A IMPROVEMENTS: This is a 110 unit senior living community constructed in 1988. The units are housed in a three-story building of wood frame construction. Construction quality is considered to be average; condition at the time of sale was good. The gross building area is approximately 96,058 square feet with an average unit size of 873 square feet. ESTIMATED GROSS INCOME: Approximately $2,175,000.00 ESTIMATED EXPENSE RATIO: Approximately 56 percent NET OPERATING INCOME: Approximately $957,000.00 UNIT INDICATORS: SP/Unit = $86,214.00 SP/SF = $ 98.73 SP/GI = 4.36 GIM NOI/SP = 0.1009 OAR Robert M. McSherry, MAI IMPROVED PROPERTY SALE 3 VENDOR: ABD Investments, Inc. VENDOR: Merrill Associates, LP LOCATION: 6725 Inglewood Avenue, Stockton, California RECORDATION: N/A DATE: July, 1994 CONSIDERATION: $4,200,000.00 TERMS: Cash SITE SIZE: N/A IMPROVEMENTS: This is a 74 unit senior living community constructed in 1989. The units are housed in two-story buildings of wood frame construction. Construction quality is considered to be average; condition at the time of sale was good. The gross building area is approximately 63,730 square feet with an average unit size of 861 square feet. ESTIMATED GROSS INCOME: Approximately $1,395,000.00 ESTIMATED EXPENSE RATIO: Approximately 70 percent NET OPERATING INCOME: Approximately $418,500.00 UNIT INDICATORS: SP/Unit = $56,757.00 SP/SF = $ 65.90 SP/GI = 3.01 GIM NOI/SP = 0.0996 OAR Robert M. McSherry, MAI [Improved Property Sales 1 & 2 Map Indicating the Suject Property] [Improved Property Sale 3 Map Indicating the Subject Property] SUMMARY
Sale One Sale Two Sale Three Indicated OAR 11.6% 10.09% 9.96% Price/Unit $58,909.00 $86,214.00 $56,757.00 Gross Income Multiplier 3.80 4.36 3.01 Estimated Expense Ratio 56% 56% 70%
The three Improved Property Sales included within this report have been provided this appraiser by knowledgeable sources and other appraisers and are deemed accurate as they were verified by knowledgeable and ethical persons. The appraiser has conducted an in-depth review of conveyances of similar type assisted living or congregate care facilities in the State of Louisiana and none were found which were considered to be reflective of true arms-length transactions between willing buyers and willing sellers with no undue duress being experienced. These three Improved Property Sales have been included for the purpose of deriving an indicated Overall Capitalization Rate, an indicated price per unit and an indicated Gross Income Multiplier for utilization in the analysis process with respect primarily to the Income Approach to Value. The level of services provided by these facilities are similar to those to be provided by the subject property which would include three (3) meals per day, utilities, maid service one (1) day a week, flat linen service one (1) day a week, various assistance with respect to bathing, exercise, and transportation to various off-site functions as well as on-site recreational functions, counseling, with other services provided on a more extensive basis for additional expense paid by the guest or resident of the facility. It is acknowledged that a large number of the residents residing in the assisted care facilities are requiring increased levels of Robert M. McSherry, MAI care and these additional expenses are being passed directly to the tenant as they upset the economies of an assisted care facility having to provide this extraordinary level of care without additional remuneration. The price per unit indicated by Improved Property Sale 2 is considered the best available and has been accorded the greatest credence. Accordingly: 25 Units @ $86,000.00/Unit $2,150,000.00 INDICATED VALUE OF SUBJECT FROM THE MARKET DATA OR DIRECT SALES COMPARISON APPROACH (R/T) $2,150,000.00 Robert M. McSherry, MAI INCOME APPROACH TO VALUE Introduction The Income Approach reflects the subject's income-producing capabilities and requires an analysis of the project's probable market rent. In the comparative analysis, we have considered factors that would probably influence market acceptance of properties in the area. The factors include proximity to major traffic arteries; location; design; amenities; and the quality of management. To develop a supportable estimate of value using the Income Capitalization Approach, realistic projections of income and expenses must be made. congregate care facilities are unique forms of real estate with many unusual characteristics, such as an intensive use of labor, costs of goods sold, expenses categories, and product identity. Therefore, special care in data gathering and analysis are required to create an estimate of the future income for the subject. The appraiser will utilize data provided by the publication, Trends in the Health Care lndustry for supporting data. The subject property is proposed at the present time and, therefore, has no historical income and expense data associated with the property. The subject will contain 21 assisted care units and 4 efficiency assisted care units all located in a single T-shaped building which will also contain a resident manager's apartment and common areas for the operation of the facility. The services provided the assisted living units include all utilities, maid service, three meals a day, transportation, activities with additional laundry and maid service available at additional expense. Normal day to day medical treatments are also Robert M. McSherry, MAI available for the various tenants with any extraordinary medical expense passed directly to the tenant. This appraiser has had the opportunity to appraise a number of assisted care facilities in both Louisiana and Mississippi over the last several years and has relied on data provided by these facilities, various industry publications and data provided by various health care consulting groups and experts in arriving at the estimated monthly rental rates and expenses including fixed expenses, operating expenses, staffing, dietary, reserves and other appropriate expenses. This appraiser has conducted rental surveys of a number of assisted care, private pay facilities located in the Baton Rouge, Louisiana area as well as a single facility located in West Monroe, Louisiana in order to arrive at an estimated economic rental rate for the subject property based on the level of services provided. The assisted care market is still a relatively new market and the majority of the facilities have been constructed in larger metropolitan areas such as Baton Rouge. The rental rates commanded in these larger areas are above those which can be commanded in smaller or more rural communities in North Louisiana and appropriate adjustments have been made. The most comparable property is the Arbor House of West Monroe, which was completed in December of 1997 and has experienced stabilized occupancy with respect to the assisted care units within a six (6) month period. These units lease for $1,725.00 per month for the basic rate with expenses including utilities, three (3) meals a day, maid service once a week, laundry service once a week, assistance in bathing, transportation to shopping, church and other functions as well as in-house recreational activities. Robert M. McSherry, MAI This appraiser has also recently completed an appraisal of a 33 unit assisted care facility located in Baton Rouge, Louisiana which is very typical with respect to the subject property. However, the monthly rate provided by this facility is slightly higher than those in rural areas with the base monthly rate being $1,850.00 per month. The same services are provided including utilities, three (3) meals per day, assistance with daily living activities including bathing, grooming, weekly bed linen and towel service, weekly house keeping, transportation to medical and dental appointments, worship service, planned activities as well as other assistance required. Based on this appraiser's personal inspection of these two facilities and adjustment, it is our opinion that a $1,775.00 per month with services including electricity, three (3) meals per day, maid service, transportation, activities, assistance in the normal living activities as well as normal day to day medical treatment being provided. The actual income and expense data of various facilities is closely held information and these individuals have requested confidentiality with respect to this actual data. Accordingly, this data has been retained in our various files. The results of our survey and analysis indicates an economic rental rate for the assisted care units, based on the herein listed services being provided, of $1,775.00 per month and $1,100.00 per month for the efficiency units with the rates remaining stable over the two year projection period. The projected rate includes the herein listed services being provided. Robert M. McSherry, MAI Inflation will impact expense projections as well as increased occupancy and these anticipated increases have also been utilized in the Income Approach to Value. In order to accurately project appropriate expenses for the subject property, the appraiser has reviewed the current publication Trends On the Health Care Industry with respect to historical operating expenses for assisted care facilities. In addition, this appraiser has been provided itemized comparable expense data with respect to three separate properties located in the State of Louisiana but, due to confidentiality requirements, the names of these properties are retained in the appraiser's file at the request of the property owners. However, the following summary chart is included for the benefit of the reader of this appraisal report and it also provides support for the expense projections for the subject property. The Income Approach to Value as it applies to the property being appraised based on economic rental rates herein quoted and utilizing a two year period in order to achieve a stabilized net occupancy and thus a stabilized net operating income is reproduced as follows: Robert M. McSherry, MAI ITEMIZED COMPARABLE EXPENSE DATA
Property 1 Property 2 Property 3 Administrative $249,610.00 $417,960.00 $461,530.00 Dietary $186,938.00 $251,184.00 $204,983.00 Maintenance $156,914.00 $275,424.00 $193,530.00 Housekeeping/Janitorial $ 51,340.00 $ 55,512.00 $ 52,322.00 Taxes/Insurance $ 82,000.00 $110,560.00 $ 66,738.00 Utilities $ 91,328.00 $ 24,360.00 $ 65,678.00 Nursing/Other -0- $ 9,458.00 $ 10,664.00 Per Unit Expenses $ 9,522.00 $ 9,458.00 $ 10,664.00
Robert M. McSherry, MAI INCOME APPROACH TO VALUE Year One Gross Annual Potential Income: 21 - Assisted Living Units @ $1,775.00/month $ 447,300.00 4 - Efficiency Units @ $1,100.00/month $ 52,800.00 Total Gross Annual Potential Income $ 500,100.00 Less:Vacancy and Collection Losses Assisted Living Units (25%) $ 111,825.00 Total Vacancy and Collection Loss $ 111,825.00 Effective Gross Annual Potential Income $ 388,275.00 Expenses: Administrative $53,500.00 Plant Operations $37,400.00 Dietary $45,625.00 Housekeeping $12,500.00 Aides $41,000.00 Activities $15,000.00 Reserves for Replacement $ 7,500.00 Total Expenses $ 212,525.00 Net Operating Income $ 175,750.00 Note: Management fee included in Administrative Expense. Robert M. McSherry, MAI INCOME APPROACH TO VALUE Year Two Gross Annual Potential Income: 21 - Assisted Living Units @ $1,775.00/month $ 447,300.00 4 - Efficiency Units @ $1,100.00/month $ 52,800.00 Total Gross Annual Potential Income $ 500,100.00 Less:Vacancy and Collection Losses Assisted Living Units (10%) $ 44,730.00 Total Vacancy and Collection Loss $ 44,730.00 Effective Gross Annual Potential Income $ 455,370.00 Expenses: Administrative $53,500.00 Plant Operations $44,550.00 Dietary $54,200.00 Housekeeping $13,750.00 Aides $45,100.00 Activities $16,500.00 Reserves for Replacement $ 7,500.00 Total Expenses $ 235,100.00 Net Operating Income $ 220,270.00 Note: Management Fee included in Administrative Expense. Robert M. McSherry, MAI JUSTIFICATION OF CAPITALIZATION RATE Direct Capitalization is a method used to convert a single year's income estimate into a value indication in the Income Capitalization Approach. The direct capitalization formula using an overall property capitalization rate is: Value / Net Operating Income = Overall Capitalization Rate In this appraisal, the appraisers will employ two different methods to obtain an overall capitalization rate: 1) Band of Investment - mortgage and equity components 2) Underwriter's Method (derivation from debt coverage ratio) Band of Investment The appraisers contacted local lenders regarding rates and terms of alternate investments as well as current market rates applicable for this market. Annual Constant - In developing the mortgage components for the Band of Investment Method, the appraisers reviewed the National Mortgage Commitment Survey conducted by the Appraisal Institute Research Department which surveyed sample lenders in various geographical regions throughout the United States. The data quoted is based on national averages and do not reflect conditions inherent in all markets. Therefore, the appraisers contacted local lenders regarding rates and terms applicable for this market area. Lenders in the local market are quoting rates at prime plus 1%, terms of 20 years. 75% and a loan-to-value ratio. The local market closely approximates the national averages for the subject property type. Robert M. McSherry, MAI The appraisers reviewed available data concerning current national and local quoted mortgage rates and talked to various lenders in the Louisiana area which confirm that market rates and terms for loans of the quality of the subject property are available at 9% interest rate with monthly payments amortized for a 20 year term, a 75% loan-to-value ratio. Therefore, the mortgage constant is derived to be .1079671. Equity Dividend - Current rates of return available from alternative investment vehicles are reviewed. These alternative investments are more liquid than an investment in real estate- therefore any potential investor would expect a higher rate of return. Based on this, we have been able to conclude that a 9% equity dividend rate is required to attract investment capital to the subject property's type which is considered to be slightly more risky than other types of real estate investments. In order to ascertain the appropriate equity dividend or "cash-on-cash" rate, the appraiser has reviewed money rates for other alternate investments as of September 8, 1998. The results of this analysis of comparable and alternative money rates are as follows: Certificates of Deposit 30 Day 4.68% 90 Day 4.96% 180 Day 5.04% Treasury Bill Rates 3 Months 4.79% 6 Months 4.79% 52 Weeks 5.00% 30 Year Treasury Bond Rate 5.36% Merrill-Lynch Ready Assets 30 Day 5.03% (Average Yield) Robert M. McSherry, MAI As can be reflected by the above alternate investment vehicles. Current rates for both short and long term yields is between the high 4.00% to the low 5.00% range. The projected 9.00% equity yield or "cash-on-cash" return projected for the subject property provides an excellent return on the investor's cash, approximately 3.00% in excess of other alternate investment vehicles. Accordingly, the 9.00% equity dividend rate is considered appropriate when the overall risk and competitive rates are considered. Derivation of Capitalization Rate - The band of investment (or weighted average) formula for deriving an overall rate when the mortgage constant and equity dividend rates is known as: Mortgage Percent x Mortgage Constant Plus Equity Percent x Equity Dividend Rate Equals Overall Capitalization Rate .75 x . 1079671 = .0809 .25 x .09 = .0225 Total = .10340 Rounded to .103 Underwriter's Method In making loan decisions, institutional lenders use a debt coverage ratio (DCR), which is the ratio of net operating income to annual debt service. This measure of constraint is frequently used by institutional lenders, who are general fiduciaries. They manage and lend the money of others, including depositors and policy holders. Because of the fiduciary responsibility, institutional lenders Robert M. McSherry, MAI are particularly sensitive to the safety and profit and are anxious to avoid default and possible foreclosure. Consequently, when they underwrite income property loans, institutional lenders try to provide a cushion so that the borrower will be able to meet the debt service obligations on the loan even if the building income declines. The debt coverage ratio may also be used to estimate the overall capitalization rate by multiplying the ratio by the mortgage loan constant (RM) and the loan-to-value ratio (M). The debt coverage ratio, mortgage loan constant, and loan-to-value ratio have already been determined to be 1.20, .1079671 and .75, respectfully. The formula for derivation of an overall capitalization rate from debt coverage ratio is as follows: RO = DCR x RM x M RO = 1.20 X .1079671 X.75 RO = .0971 R/T = .097 Review of the three (3) improved property sales contained within this report have indicated an Overall Capitalization Rate from a low of 9.96% to a high of 11.6%. These indicated Overall Capitalization Rates which have been derived from available market data indicates the rate chosen for the capitalization of the net income into an indication of value based upon stabilized income of 10.5% is reflective of current industry attitudes and is considered appropriate with respect to this particular appraisal assignment. Robert M. McSherry, MAI Conclusion Based on the available information we have concluded that a 10.5% is the most appropriate capitalization rate which is derived from the actual band of investments method and supported by the Underwriter's Method and available market data. The location of the subject has also been considered. Thus: NET OPERATING INCOME -------------------- = VALUE OVERALL CAPITALIZATION RATE $220,270.00 -------------------- = $2,097,809.00 .105 INDICATED VALUE OF SUBJECT FROM INCOME APPROACH (R/T) $2,100,000.00 Robert M. McSherry, MAI DISCOUNTED CASH FLOW ANALYSIS The subject property will require a period in excess of one year to achieve stabilized net income. In order to provide an estimate of the present value of the improvements upon completion but prior to achieving stabilized net operating income, the discounting process is utilized. The income stream generated by the subject until stabilized income is reached is discounted into an estimate of present value and the reversionary value of the improvements as estimated upon achieving a stabilized net income is also discounted to present worth. The market indicates a discount rate of 11% to be appropriate to be utilized in discounting the income and reversion and this is based on current rates of return on alternate investments and the risk associated with the subject. Robert M. McSherry, MAI Present Worth of Income Stream Year One: $175,750.00 x .900901 = $ 158,333.00 Year Two: $220,270.00 x .811622 = $ 178,775.00 Total Present Value of Income Stream $ 337,108.00 Present Worth of Reversion $2,100,000.00 x .811622 $1,704,406.00 Summation: Present Worth of Income Stream $ 337,108.00 Present Worth/Reversion $1,704,406.00 Total $2,041,514.00 INDICATED VALUE OF SUBJECT FROM INCOME APPROACH/DISCOUNTED CASH FLOW $2,040,000.00 Robert M. McSherry, MAI RECONCILIATION AND FINAL VALUE The three approaches to value have indicated the following value estimates of the property being appraised: COST APPROACH TO VALUE $2,255,000.00 MARKET APPROACH TO VALUE $2,150,000.00 INCOME APPROACH TO VALUE OVERALL CAPITALIZATION RATE $2,100,000.00 DISCOUNTED CASH FLOW ANALYSIS $2,040,000.00 The subject property is proposed construction and only preliminary plans and specifications have been provided this appraiser in order to complete the Cost Approach to Value. Costs are extremely difficult to estimate and no two competent contractors will ever agree on the actual cost to construct a property. However, this appraiser has utilized reliable sources including the Marshall Valuation Service Cost Manual as well as actual construction costs affecting a similar type property in order to complete the Cost Approach to Value and this approach is considered reflective of the cost new of the subject property. The subject property is considered an income producing and has been valued based on it being a Going Concern. The property is under competent ownership and will have excellent management in place and the utilization of the Going Concern concept is considered appropriate with respect to this particular appraisal problem. Accordingly, the Indicated Value of the Property based on stabilized net income being generated at the end of the second year is Robert M. McSherry, MAI considered the best available indicator of it's current Market Value and has been accorded the greatest credence in the final analysis. Based on the data contained within this report, other in-file data, and this appraiser's review and analysis of said data, it is our opinion that the proposed property identified as the 21 Unit Assisted Care and 4 Unit Efficiency Assisted Care Facility all located on Germantown Road within the corporate limits of Minden, Webster Parish, Louisiana was estimated to have a Market Value, as of September 8, 1998, but subject to completion according to plans and specifications utilizing quality materials and workmanship throughout and also subject to the other conditions contained within this report, and based upon Stabilized Net Operating Income, of: TWO MILLION ONE HUNDRED THOUSAND DOLLARS ($2,100,000.00) Allocated: Land $ 140,000.00 Improvements: $1,885,000.00 Furniture, Fixtures and Equipment $ 75,000.00 Goodwill of Going Concern -0- The estimated "as is" value is estimated to be, as of September 8, 1998 and subject to completion within a reasonable period of time, is: TWO MILLION FORTY THOUSAND DOLLARS ($2,040,000.00) Robert M. McSherry, MAI ADDENDA Robert M. McSherry, MAI APPRAISER'S CERTIFICATION I certify that, to the best of my knowledge and belief.... (1) The statements of fact contained in this report are true and correct. (2) The reported analyses, opinions, and conclusions are limited only by the report assumptions and limiting conditions, and are my personal, unbiased professional analyses, opinion and conclusions. (3) I have no present or prospective interest in the property that is the subject of this report, and I have no personal interest or bias with respect to the parties involved. (4) My compensation is not contingent upon the reporting of a predetermined value or direction in value that favors the cause of the client, the amount of the value estimate, the attainment of a stipulated result, or the occurrence of a subsequent event. (5) My analyses, opinions, and conclusions were developed, and this report has been prepared, in conformity with the Uniform Standards of Professional Appraisal Practice. (6) I have made a personal inspection of the property that is the subject of this report and all rent comparables. (7) No one provided significant professional assistance to the person signing this report. (8) The reported analyses, opinions, and conclusions were developed, and this report has been prepared, in conformity with the requirements of the Code of Professional Ethics and the Standards of Professional Practice of the American Institute of Real Estate Appraisers. (9) The use of this report is subject to the requirements of the Appraisal Institute relating to review by its duly authorized representatives. (10) I am not currently certified under the voluntary continuing education program of the American Institute of Real Estate Appraisers. Robert M. McSherry, MAI (11) I certify that the use of this report is subject to the, requirements of the Appraisal Institute relating to review by its duly authorized representatives. Estimated Market Value: /S/ROBERT M MCSHERRY $2,100,000.00 ---------------------------- Robert M. McSherry, MAI LA State Certified General Real Estate Appraiser No. G0891 Allocated: Land $ 140,000.00 Improvements $1,885,000.00 Furniture, Fixtures and Equipment $ 75,000.00 Goodwill of Going Concern -0- As Of: September 8, 1998 Robert M. McSherry, MAI QUALIFICATIONS OF ROBERT M. MC SHERRY, MAI EDUCATIONAL BACKGROUND AND TRAINING: Graduate of Louisiana State University, Baton Rouge, Louisiana, Bachelor of Science Degree in Business Administration with a Major in Finance. Real Estate Appraisal Course 1-A, Basic Fundamentals, Methods and Techniques, 1974, AIREA Real Estate Appraisal Course 1-B, Capitalization, 1975, AIREA Real Estate Appraisal Course VIII, Single-Family Residential Appraisal, 1974, AIREA Real Estate Appraisal Course II, Techniques and Application, 1976 and 1980, AIREA Real Estate Appraisal Course III, Rural Properties, 1979 Real Estate Appraisal "Industrial Valuation" Course, 1984 Seminar: R-41C - New Orleans, Louisiana, AIREA, 1978 "Standards of Professional Practice" Course, AIREA, 1987 "Capitalization Theory and Techniques, Part A" Course, AIREA, 1987 "Standards of Professional Practice" Course, Appraisal Institute, 1992 "Advanced Level Finance I & II", 1997 "Risk Management/Ethics/Fair Housing", 1997 "How to Value Louisiana Timberland", 1997 "Uniform Standards of Professional Appraisal Practice" Seminar, 1997 PROFESSIONAL EXPERIENCE Real Estate Broker, State of Louisiana (1971) Monroe Redevelopment Agency, Monroe, Louisiana (1971) Robert M. McSherry, MAI Ford, Bacon & Drive Construction and Engineering Company, Monroe, Louisiana (1972) Mississippi power and Light Company, Jackson, Mississippi (1973-1976) Cameron-Brown South, Inc., Mortgage Bankers, Baton Rouge, Louisiana (1976-1977) Real Estate Appraiser, Monroe, Louisiana (1978-1985) Real Estate Appraiser, Baton Rouge, Louisiana and Jackson, Mississippi (1985-Present) PROFESSIONAL MEMBERSHIPS: Residential Member, American Institute of Real Estate Appraisers, Certification Number 1040 Licensed Real Estate Broker, State of Louisiana Fee Inspector for the Louisiana Homeowners Warranty Corporation FNMA Approved Level III Appraiser, Number 1027135 Member, American Institute of Real Estate Appraisers - MAI Designation (1981), Number 6291 Certified Licensed General Appraiser, State of Louisiana, Number 0891 Robert M. McSherry, MAI PHOTOGRAPHS Robert M. McSherry, MAI [PHOTO OF SUBJECT PROPERTY] [PHOTO OF SUBJECT PROPERTY] Robert M. McSherry, MAI [PHOTO OF SUBJECT PROPERTY] Robert M. McSherry, MAI [PHOTO OF SUBJECT PROPERTY LOOKING NORTH DOWN GERMANTOWN ROAD] [PHOTO OF SUBJECT PROPERTY LOOKING SOUTHWEST DOWN GERMANTOWN ROAD] Robert M. McSherry, MAI [Letter of Engagement and Appraisal Ckeck List] [FIRST REPUBLIC BANK'S LOGO HERE] Date: September 8, 1998 Appraiser's Name: Robert M. McSherry, MAI Address: 3760 Chelsea Drive Baton Rouge, LA 70809 Re: Proposed Assisted Living Facility (26 Units) TBA Germantown Road Minden, LA Access/Information Contact: Mr. Fred Bales Report Due Date: On or before Septernber 15, 1998 Dear Mr, McSherry: This letter is to confirm your engagement by First Rcpublic Bank, to perforrn a "complete appraisal" (self-contained report), of the above referenced real property within the agreed upon time frame and for the agreed upon fee. Please ensure that your appraisal report is addressed to First Republic Bank. The purpose of the appraisal is to estimate the market value. The property interest to be appraised is the fee simple interest, unless the subject is encumbered by a legally bindinig lease. If this is the case, then the leased fee interest should also be appraised, In order to be acceptable to First Republic Bank, your appraisal report must comply with the following: FIRREA STANDARDS 1. Conform to generally accepted appraisal standards as evidenced by the Uniform Standards of Professional Appraisal Practice (USPAP). 2. Be written and contain sufficient information and analysis to support the bank;s decision to engage in the loan transaction. 3. Analyze and report appropriate deductions and discounts for proposed construction or renovations, partailly leased buildings, non-market lease terms and tract developments with unsold units. 4. Be performed by sate licensed or state certified appraiser(s). 5. Be based upon the definition of market value and this definition will be included in your report. [FIRST REPUBLIC BANK LOGO HERE] Mr. Robert McSherry, MAI September 8. 1998 RE: Proposed Assisted Living facility Germantown Road Minden, LA Page 2 Market Value is defined by the United States Treasury Dep@ent, Comptroller of the Currency, as: The most probable price which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller each acting prudently and knowledgeably, and assuming the price is not affected by undue stimulus. Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to burner under conditions whereby: 1. Buver and seller are typically motivated. 2. Both parties are well informed or well advised, and acting in what they consider their best interests. 3. A reasonable time is allowed for exposure in the open market. 4. Payment is made in terms of cash, in United States dollars or in terms of financial arrangements comparable thereto. 5. The price represents the normal consideration for the property sold unaffected bv special or creative financing or sales concessions granted anyone associated with the sale. First Republic Bank Appraisal Standards 1. All value estimates will be reported based on the "as is" physical condition of the real estate. Exceptions to this standard are allowed on appraisals for construction loans, renovation loans and development loans. In these instances, the value is reported ander the assumption that all proposed improvements are completed and available for sale, rent or use on the date of the appraisal; absorplion period and any and all holding costs must also be taken into consideration for the "as is" value. 2. All appraisals of owner-occupied properties will reflect the value of the property, assuming that the owner-occupied space is vacant and available for absorption. If it is partially owner-occupied, the portion occupied by the owner should be considered vacant for appraisal purposes and all appropriate deductions for leasing commissions, tenant improvement, rent loss, capital costs, etc. must be incorporated into your Income Approach, if the Income Approach is applicable to your appraisal. 3. All assumptions in the appraisal will bc reasonable. 4. The appraisal report will contain a certification stating that the appraiser engaged by the bank inspected the suject property and all comparable data. 5. The appraisal report will contain a statement regarding investigation and observation of environmental hazards. 6. All information sources will be disclosed in the appraisal report. 7. The appraisal report will contain a disclosure of any previous appraisals or real estate related financial transactions by the appraiser associated with the subject property. Mr. Robert M. McSherry, MAI September 8, 1998 RE: Proposed Assisted Living Facility Germantown Road Minden, LA Page 3 First Republic Bank Appraisal Standards (con't) 8. A copy of the legal description (as per deed) will be included in the appraisal report. 9. All appraisal Rrports will cortain location maps of comparable data and the subject property. 10. A copy of the site survey will be included in the appraisal report, if available. 11. A copy of the subject's flood map will be included in the appraisal report. 12. Current tax information on the subject property will be included in the appraisal report (excludirg single-family residences). If the improvements are proposed, the tax burden upon completion should be estimated. 13. Sufficient description of existing (or proposed) improvements and adequate photographs of the subject property will be included. 14. Copies of operating statements, rent rolls and lease summaries will be included in all appraisals of exsting income producing properties. If proposed, includes pro-formas of anticipated performance. 15. Detailed information on comparable sales and rentals is required. 16. All adjustments to comparable sales and rentals will be discussed. 17. Capitalization and discount rates will be adequately supported. 18. A discounted cash flow analysis (DCF) will be included in each appraisal report of a multiple tenant, income producing property less adequate explanation is given for its omission. A DCF will be included in appraisals of leasehold and leased fee valuations. All assumptions and projections used in DCF's will be clearlv stated and adequately supported. 19. Residential properties (1-4 units) require a complete appraisal, summary report (URAR or appropriate form), or a complete appraisal, narrative self-contained report. 20. Non-residential properties require a complete appraisal, self-contained report, 21. A signed copy of the appraiser engagement letter, including the appraisil checklist (completed), will be included in the appraisal report 22. Three (3) signed original appraisal reports are required. Mr. Robert M. McSherry, MAI September 8, 1998 RE: Proposed Assisted Living Facility Germantown Road Minden, LA Page 4 The following items are enclosed with this letter: Appraiser to obtain all other necessary information from contact Please notify me immediately of any problems in obtaining access or necessary information that mav delay completion of the report by the agreed upon date. Sincerely, FIRST REPUBLIC BANK /S/DAVID M KNIGHT David M. Knight, MAI Vice President Credit Administration Enclosures Your appraisal report will be owned by First Republic Bank, which is entitled to retain the report, photocopy the report, and disclose all or any portion, of the report information therein to any third party within First Republic Bank as deemed appropriate. The above stated conditions are hereby acknowledged and accepted. I also understand that First Republic Bank is the client in this appraisal assignment and any matters relating to value estimates will not be divulged to any third party without the written approval of First Republic Bank. In addition, any information furnished by First Rcpublic Bank which is not considered to be public record, including but not limited to, financial statements, operating statements, income statements, cost estimates. construction contracts and property leases may not be divulged to any third party without the witten approval of First Republic Bank. APPRAISER'S SIGNATURE: /S/ROBERT M MCSHERRY -------------------------- DATE: 9/8/98 -------------------------- Mr. Robert McSherry, MAI September 8, 1999 RE: Proposed Assisted Living Facility Germantown Road Minden, LA Page 5 APPRAISAL CHECKLIST Please review each item on this checklist and note the page number where the information can be located within the report when possible. If the question is not applicable to the subject property type being appraised, please answer with N/A (Statements in Italic - not applicable to residential form reports) Page No. X Definition of Market Value - ------- X Statement of compliance with USPAP and also indicate that the - ------- Departure Provision does not apply X Legal description of subject property as per deed - ------- X Prior sales history of subject preceding the date of the appraisal - ------- (1 year for 1-4 famiiv residential properties, and 3 years for all other property types) X Approoriate, deductions and discounts are analyzed and reported for - ------- any proposed construction, or any completed properties that are panially leased or leased at other than market rents as of the date of the appraisal, or any tract developments with unsold units X Subject location map - ------- X Site Survey and/or Subdivision plat Copy of subject Flood Zone Map - ------- X Statement regarding investigation of enviromental hazards - ------- X Current Tax information on subject/Past due taxes/Tax estimate if - ------- actual is different from market X Detailed information and photograph(s) on comparable sales & rentals - ------- (address, lot & square, recordation information, vendor & vendee, lessor & lessee [if partnership/corporation list names of principals], site description, sales data, sales price, and listed days an market prior to sale), X Specific land and improved sales adjustments are discussed - a - ------- matched pairs analysis is the preferred method to estimate the amount of adjustments in the Sales Comparison Approach X Land sales adjustment grid included - ------- X Comparable land sales location map - ------- X Comparable improved sales location map - ------- X Comparable rental location map - ------- X Capitalization rate is derived from, or supported by, comparable sales - ------- data or other market derived data X Discounted Cash Flow analysis is presented, or reason for its - ------- exclusion is discussed X Letter of transmittal identifies First Republic Bank as the client - ------- 3 original, signed appraisal reports are provided to First Republic Bank X An Original engagement letter is signed and included as an addendum - ------- to the appraisal report X Copy of this checklist is completed and included as an addendum to - ------- the appraisal report X A certification statement that you personally inspected the subject - ------- property and all comparable is included in the report X Report was completed within specified time - or any extension beyond - ------- the required time frame was explained in the report, and approved by First Republic Bank Flood Map [FLOOD MAP INDICATING THE SUBJECT PROPERTY] Plat of Subject Site [PLAT OF SUBJECT SITE] Rent Comparable One Location Map [MAP INDICATING LOCATION OF RENT COMPARABLE 1] Rent Comparable Two Location Map [MAP INDICATING LOCATION OF RENT COMPARABLE 2] EX-99.2 29 PROPERTY APPRAISAL FOR OAK CREEK, AZ FACILITY A Self-Contained Real Estate Appraisal Report of A Existing 28 Unit Independent Living Facility Located at 78 Canyon Diablo Just Outside the Corporate Limits of Sedona, Arizona and Within the Village of Oak Creek For MMR Investment Bank Post Office Box 781440 Witchita, Kansas 67278-1440 As Of January 10, 1999 Prepared by Robert M. McSherry, MAI Louisiana State Certified General Real Estate Appraiser No. G0891 3760 Chelsea Drive Baton Rouge, Louisiana 70809 A Self-Contained Real Estate Appraisal Report of A Existing 28 Unit Independent Living Facility Located at 78 Canyon Diablo Just Outside the Corporate Limits of Sedona, Arizona and Within the Village of Oak Creek For Colonial Trust Company 5336 North 19th Avenue Phoenix, Arizona 85015 As Of January 10, 1999 Prepared by Robert M. McSherry, MAI Louisiana State Certified General Real Estate Appraiser No. G0891 3760 Chelsea Drive Baton Rouge, Louisiana 70809 Robert M. McSherry, MAI A Self-Contained Real Estate Appraisal Report of A Existing 28 Unit Independent Living Facility Located at 78 Canyon Diablo Just Outside the Corporate Limits of Sedona, Arizona and Within the Village of Oak Creek For Church Loans and Investments 5305 1-40 West Post Office Box 8203 Amarillo, Texas 79114-8203 As Of January 10, 1999 Prepared by Robert M. McSherry, MAI Louisiana State Certified General Real Estate Appraiser No. G0891 3760 Chelsea Drive Baton Rouge, Louisiana 70809 Robert M. McSherry, MAI ROBERT M. MC SHERRY, MAI 3760 Chelsea Drive Baton Rouge, Louisiana 70809 Phone (504)924-8093 January 11, 1999 MMR Investment Bank Post Office Box 781440 Witchita, Kansas 67278-1440 RE: An existing 28 unit independent living facility located at 78 Canyon Diablo Road, just outside the corporate limits of Sedona, Arizona and within the Village of Oak Creek. Dear Sir: In accordance with your request to provide an estimate of the Estimated Market Value of Fee Simple Interest of the Going Concern of the property identified as an existing 28 unit Independent Living Facility located at 78 Canyon Diablo, Sedona, Arizona, we have personally inspected the subject site and reviewed the submitted plans and specifications for the improvements and conducted a thorough review and analysis of all matters pertinent for the Estimate of Market Value herein contained. Market Value as defined by the Department of the Treasury, Office of the Comptroller of the Currency, August 24, 1990, is, "The most probable price which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller, each acting prudently, knowledgeably and assuming the price is not affected by undue stimulus. Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby: a. buyer and seller are typically motivated; b. both parties are well informed or well advised, and each acting in what he considers his own best interest; c. a reasonable time is allowed for exposure in the open market, Robert M. McSherry, MAI ROBERT M. MC SHERRY, MAI 3760 Chelsea Drive Baton Rouge, Louisiana 70809 Phone (504)924-8093 October 20, 1998 Colonial Trust Company 5336 North 19th Avenue Phoenix, Arizona 85015 RE: An existing 28 unit independent living facility located at 78 Canyon Diablo Road, just outside the corporate limits of Sedona, Arizona and within the Village of Oak Creek. Dear Sir: In accordance with your request to provide an estimate of the Estimated Market Value of Fee Simple Interest of the Going Concern of the property identified as an existing 28 unit Independent Living Facility located at 78 Canyon Diablo, Sedona, Arizona, we have personally inspected the subject site and reviewed the submitted plans and specifications for the improvements and conducted a thorough review and analysis of all matters pertinent for the Estimate of Market Value herein contained. Market Value as defined by the Department of the Treasury, Office of the Comptroller of the Currency, August 24, 1990, is, "The most probable price which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller, each acting prudently, knowledgeably and assuming the price is not affected by undue stimulus. Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby: a. buyer and seller are typically motivated; b. both parties are well informed or well advised, and each acting in what he considers his own best interest; c. a reasonable time is allowed for exposure in the open market, Robert M. McSherry, MAI ROBERT M. MC SHERRY, MAI 3760 Chelsea Drive Baton Rouge, Louisiana 70809 Phone (504)924-8093 October 20, 1998 Church Loans and Investments 5305 1-40 West Post Office Box 8203 Amarillo, Texas 79114-8203 RE: An existing 28 unit independent living facility located at 78 Canyon Diablo Road, just outside the corporate limits of Sedona, Arizona and within the Village of Oak Creek. Dear Sir: In accordance with your request to provide an estimate of the Estimated Market Value of Fee Simple Interest of the Going Concern of the property identified as an existing 28 unit Independent Living Facility located at 78 Canyon Diablo, Sedona, Arizona, we have personally inspected the subject site and reviewed the submitted plans and specifications for the improvements and conducted a thorough review and analysis of all matters pertinent for the Estimate of Market Value herein contained. Market Value as defined by the Department of the Treasury, Office of the Comptroller of the Currency, August 24, 1990, is, "The most probable price which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller, each acting prudently, knowledgeably and assuming the price is not affected by undue stimulus. Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby: a. buyer and seller are typically motivated; b. both parties are well informed or well advised, and each acting in what he considers his own best interest; c. a reasonable time is allowed for exposure in the open market; Robert M. McSherry, MAI Page Two d. payment is made in terms of cash in U.S. dollars or in terms of financial arrangements comparable thereto; and e. the price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions granted by anyone associated with the sale. Fee Simple Interest is defined by the Appraisal Institute as being, "a fee without limitations to any particular class of heirs or restrictions but subject to the limitations of eminent domain, escheat, police power and taxation. An inheritable estate". Going Concern Value is "the value created by a proven property operation." It includes the incremental value associated with the business concern, which is distinct from the value of the real estate only. Going concern value includes an intangible enhancement of the value of an operating business enterprise which is produced by the assemblage of the land, building, labor, equipment, and marketing operation. This process creates an economically viable business that is expected to continue. Going concern value refers to the total value of a property, including both real property and intangible personal property attributed to business value. Special purpose properties such as the subject are appropriate for only one use or for a very limited number of uses. The highest and best use of a special purpose property as improved, is probably the continuation of its current use, if that use remains viable. Therefore, in the case of special purpose properties a going concern value is considered appropriate. In this instance the subject property has an excellent location within a viable market. As long as quality management is maintained, it's Market Value would be the same as it's Going Concern Value. Included is our appraisal report which contains the various exhibits and data utilized in arriving at the herein contained estimate of Market Value for the subject property. It is our opinion that the property herein identified as the existing 28 Unit Independent Living Facility located at 78 Canyon Diablo Road, just outside the corporate limits of Sedona, Arizona and within the Village of Oak Creek, was estimated to have a Market Value based on Stabilized Net Operating Income, as of January 10, 1999, of: Robert M. McSherry, MAI Page Three THREE MILLION ONE HUNDRED SEVENTY THOUSAND DOLLARS ($3,170,000.00) Allocated: LAND: $ 780,000.00 IMPROVEMENTS: $2,350,000.00 FURNITURE, FIXTURES & EQUIPMENT: $ 40,000.00 GOODWILL OF GOING CONCERN -0- The "As Is" Value of the property, derived by the utilization of the Discounted Cash Flow Methodology, is estimated to be, as of January 10, 1999, but subject to completion of the property in accordance with submitted plans and specifications within a reasonable period of time, of: TWO MILLION NINE HUNDRED TWENTY-FIVE THOUSAND DOLLARS ($2,925,000.00) The subject property is proposed at the present time and this appraiser has been provided plans and specifications for the property. The herein contained Estimate of Market Value is conditioned upon the completion of the improvements in accordance with the plans and specifications utilizing quality materials and workmanship within a reasonable period of time. A final inspection by this appraiser will be required to ascertain the assumptions utilized in preparing this appraisal report have been fulfilled. This appraisal report was prepared in accordance with and compliance of the Uniform Standards of Professional Appraisal Practice promulgated by the Appraisal Foundation and the Guide Notes to the Standards of Professional Practice adopted by the Appraisal Institute. These standards contain binding requirements and specific guidelines that deal with the procedures to be followed in developing an appraisal, analysis, or opinion. These uniform Robert M. McSherry, MAI Page Four standards also set the requirements to communicate the appraiser's analysis, opinions, and conclusions in a manner that will be meaningful and not misleading in the marketplace, accordingly, the Departure Provision does not apply. If we may be of further service to you in regard to this property or in any other manner, please sitate to contact us at your earliest convenience. Respectfully Submitted, /S/ROBERT M MCSHERRY Robert M McSherry, MAI Louisiana State Certified General Real Estate Appraiser No. G0891 Robert M. McSherry, MAI EXECUTIVE SUMMARY Location: 78 Canyon Diablo, Sedona, Arizona Interest Appraised: Fee Simple Interest Site: 2.78 Acres or 121,097 Square Feet, more or less Building Description: The property will include twenty-eight (28) independent living units all located within a single, T-shaped building. The common area amenities including a full service kitchen, a dining area, activities area, office/reception area, adequate bathrooms which would be fully equipped to satisfy the needs of the residents and other required additions to render the subject property a functional assisted care facility catering to those desiring independent living. Construction characteristics include a reinforced poured concrete foundation, wood framing, with a combination of stucco and siding exterior walls with the roof being built-up. The property is considered to be a most functional assisted living facility and is considered a most attractive property and should be well accepted by the local market. Highest and Best Use: Independent Living Facility including all required amenities Cost Approach to Value $4,085,000.00 Market Approach to Value $2,520,000.00 Income Approach to Value: Stabilized Net Income: $3,170,000.00 Robert M. McSherry, MAI Discounted Cash Flow Value: $2,925,000.00 Final Value Estimate- Stabilized Net Income: $3,170,000.00 "As Is" Value: $2,925,000.00 Allocated: Land $ 780,000.00 Improvements $2,350,000.00 Furniture, Fixtures and Equipment $ 40,000.00 Goodwill of Going Concern -0- Robert M. McSherry, MAI IDENTIFICATION OF THE PROPERTY The property being inspected, analyzed and for which the Market Value Estimate of the Fee Simple Interest of the Going Concern is applicable is a 2.78 acre tract of land which is irregular in shape having frontage along the Canyon Diablo within the village of Oak Creek which lies just outside the corporate limits of Sedona,Arizona. The subject property has been developed as an independent living and/or assisted living facility for several years and has recently been transferred to the Biltmore Group of Louisiana, LLC. The legal description of the property being appraised is described as follows: "A tract of land located in the north half of Section 18, T16N-R6E, G&SRB&M, Yavapai County, more fully described as follows: Tract A and J of Village Plaza, Section 18, T16N-R6E, G&SRB&M, Yavapai County, Arizona, containing 121,097 square feet or 2.78 acres, more or less." Robert M. McSherry, MAI PURPOSE OF THE APPRAISAL The purpose of this report is to communicate, in a narrative format, the data and reasoning that the appraisers have utilized to form the herein contained estimate of Market Value of the Fee Simple Interest of the Going Concern for the property identified as an existing 28 unit independent living facility located at 78 Canyon Diablo just outside the corporate limits of Sedona, Arizona. OBJECTIVE OF THE APPRAISAL The objective and function of this appraisal report is to provide an estimate of the Market Value of the Fee Simple Interest of the Going Concern of the property for use by MMR Investment Bank in order to provide long term financing of the subject property for the Biltmore Group of Louisiana, L.L.C. The Subject property was personally inspected by this appraiser both before and after the date of this appraisal and the submitted plans and specifications reviewed. As the property is existing construction, no final inspection of the property will be required by the appraiser with the property having recently undergone total renovation and is now considered an excellent quality independent living facility utilizing quality workmanship and materials throughout. Robert M. McSherry, MAI PURPOSE OF THE APPRAISAL The purpose of this report is to communicate, in a narrative format, the data and reasoning that the appraisers have utilized to form the herein contained estimate of Market Value of the Fee Simple Interest of the Going Concern for the property identified as an existing 28 unit independent living facility located at 78 Canyon Diablo, Sedona, Arizona. OBJECTIVE OF THE APPRAISAL The objective and function of this appraisal report is to provide an estimate of the Market Value of the Fee Simple Interest of the Going Concern of the property for use by Colonial Trust Company in order to provide long term financing of the subject property for the Biltmore Group of Louisiana, L.L.C. The Subject property was personally inspected by this appraiser both before and after the date of this appraisal and the submitted plans and specifications reviewed. As the property is proposed construction, a final inspection of the property will be required by the appraiser to ascertain the assumptions utilized within this appraisal report have been fulfilled and this appraisal is also conditioned upon being completed in accordance with the plans and specifications utilizing quality materials and workmanship throughout. Other additional conditions are contained in an additional section of this report. Robert M. McSherry, MAI PURPOSE OF THE APPRAISAL The purpose of this report is to communicate, in a narrative format, the data and reasoning that the appraisers have utilized to form the herein contained estimate of Market Value of the Fee Simple Interest of the Going Concern for the property identified as an existing 28 unit independent living facility located at 78 Canyon Diablo just outside the corporate limits of Sedona, Arizona. OBJECTIVE OF THE APPRAISAL The objective and function of this appraisal report is to provide an estimate of the Market Value of the Fee Simple Interest of the Going Concern of the property for use by Church Loans and Investments in order to provide long term financing of the subject property for the Biltmore Group of Louisiana, L.L.C. The Subject property was personally inspected by this appraiser both before and after the date of this appraisal and the submitted plans and specifications reviewed. As the property is proposed construction, a final inspection of the property will be required by the appraiser to ascertain the assumptions utilized within this appraisal report have been fulfilled and this appraisal is also conditioned upon being completed in accordance with the plans and specifications utilizing quality materials and workmanship throughout. Other additional conditions are contained in an additional section of this report. Robert M. McSherry, MAI DATE OF THE APPRAISAL The effective date of this appraisal is January 10, 1999. The subject property was personally inspected by this appraiser both before and after this date. Robert M. McSherry, MAI DEFINITION OF SIGNIFICANT TERMS Market Value, as defined by the Department of the Treasury, Office of the Comptroller of the Currency, August 24, 1990, is, "The most probable price which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller, each acting prudently, knowledgeably and assuming the price is not affected by undue stimulus. Implicit in this definition, is the consummation of a sale as of a specified data and the passing of title from seller to buyer under conditions whereby: a. buyer and seller are typically motivated; b. both parties are well informed or well advised, and each acting in what he considers his own best interest; c. a reasonable time is allowed for exposure in the open market; d. payment is made in terms of cash in U.S. dollars or in terms of financial arrangements comparable thereto; and e. the price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions granted by anyone associated with the sale. Fee Simple Interest is defined by the Appraisal Institute as being, "a fee without limitations to any particular class of heirs or restrictions but subject to the limitations of eminent domain, escheat, police power and taxation. An inheritable estate". Going Concern Value is "the value created by a proven property operation." It includes the incremental value associated with the business concern, which is Robert M. McSherry, MAI distinct from the value of the real estate only. Going concern value includes an intangible enhancement of the value of an operating business enterprise which is produced by the assemblage of the land, building, labor, equipment, and marketing operation. This process creates an economically viable business that is expected to continue. Going concern value refers to the total value of a property, including both real property and intangible personal property attributed to business value. Special purpose properties such as the subject are appropriate for only one use or for a very limited number of uses. The highest and best use of a special purpose property as improved, is probably the continuation of its current use, if that use remains viable. Therefore, in the case of special purpose properties a going concern value is considered appropriate. Robert M. McSherry, MAI PROPERTY RIGHTS APPRAISED This assignment concerns the appraisal of the Fee Simple Interest with Fee Simple Interest defined in Real Estate Appraisal Terminology as being, "a fee without limitations to any particular class of heirs or restrictions but subject to the limitations of eminent domain, escheat, police power and taxation, An inheritable estate". STATEMENT OF OWNERSHIP AND RECENT HISTORY The subject property was previously owned by Church Loans and Investment Trust and Colonial Trust Company and had been acquired by these two entities through the foreclosure of the property by the previous owner. The property was conveyed to the Biltmore Group of Louisiana, LLC on October 16, 1998, for a combined consideration of $2,176,000.00 for the real property, an additional $350,000.00 was provided by the sellers for the renovation of the property and $174,000.00 for overhead, lease up and operating capital for the first year of operation indicating a total consideration of $2,700,000.00. The total consideration paid for the property and which was financed by Church Loans and Investment Trust and Colonial Trust Company is $2,700,000.00 which is considered to be below the Market Value of the subject property once stabilized occupancy and stabilized income is achieved. Robert M. McSherry, MAI As the property has been involved in numerous legal actions in the recent past, numerous transactions affect the property but the transaction between Church Loans and Investment Trust and Colonial Trust Company as sellers and the Biltmore Group of Louisiana, LLC as buyers is considered an arms-length transaction. Robert M. McSherry, MAI ASSUMPTIONS AND LIMITING CONDITIONS This appraisal report has been made with the following assumptions and limiting conditions: 1. No responsibility is assumed for the legal description or for matters including legal or title consideration. Title to the property is assumed to be good and marketable unless otherwise stated. 2. The property is appraised free and clear of any and all liens or encumbrances unless otherwise stated. 3. Responsible ownership and competent property management are assumed. 4. The information furnished by others is believed to be reliable. No warranty, however, is given for its accuracy. 5. All engineering is assumed to be correct. The plot plans and illustrative material in this report are included only to assist the reader in visualizing the property. 6. It is assumed that there are no hidden or apparent conditions of the property, subsoil, or structures that render it more or less valuable. No responsibility is assumed for such conditions or for arranging for engineering studies that may be required to discover them. 7. It is assumed that there is full compliance with all applicable federal, state, and local environmental regulations and laws unless noncompliance is stated, defined, and considered in the appraisal report. 8. It is assumed that all applicable zoning and use regulations and restrictions have been complied with, unless a nonconformity has been stated, defined, and considered in the appraisal report. 9. It is assumed that all required licenses, certificates of occupancy, consents, or other legislative or administrative authority from any local, state or national government or private entity or organization have been, or can be obtained or renewed for any use on which the value estimate contained in this report is based. Robert M. McSherry, MAI 10. It is assumed that the utilization of the land and improvements is within the boundaries or property lines of the property described and that there is no encroachment or trespass unless noted in the report. 11. The distribution, if any, of the total valuation in this report between land and improvements applies only under the stated program of utilization. The separate allocations for land and buildings must not be used in conjunction with any other appraisal and are invalid if so used. 12. The appraisers herein, by reason of this appraisal, are not required to give further consultation, testimony, or be in attendance in court with reference to the property in question unless arrangements have been previously made. 13. Possession of this report, or a copy thereof, does not carry with it the right of publication. It may not be used for any purpose by any person other than the party to whom it is addressed without the written consent of the appraisers, and in any event only with proper written qualification and only in its entirety. 14. Neither all nor any part of the contents of this report (especially any conclusions as to value, the identity of the appraisers, or the firm with which the appraisers are connected) shall be disseminated to the public through advertising, public relations, new, sales, or other media without the prior written consent and approval of the appraisers. 15. The existence of hazardous materials, which may or may not be present on the subject property, was not observed by the appraisers. The appraisers have the knowledge of the existence of such materials on or in the subject property. However, the appraisers are not qualified to detect such substances and the presence of potential hazardous materials may affect the value of the property. This value estimate contained within this report is predicated on the assumption that no such hazardous materials are present on or in the property. No responsibility is assumed for any such conditions or for any expertise or any knowledge required to discover these items. This should be accomplished by an expert in the field and is a condition of this appraisal report. 16. That the appraiser has personally inspected the subject property and finds no obvious evidence of structural deficiencies, except as stated in this report; however, no responsibility for hidden defects or conformity to specific governmental requirements, such as the Americans with Disabilities (ADA) or fire, building and safety, earthquake, or occupancy Robert M. McSherry, MAI codes, etc., can be assumed without provision of specific professional or governmental inspections. 17. This appraisal is not based on a requested minimum valuation, a specific valuation or the approval of the loan. Robert M. McSherry, MAI SEDONA AREA DATA Sedona is one of Arizona's premier tourism, recreation, resort, retirement and art centers. It's location at the mouth of scenic Oak Creek Canyon and at the center of the state's legendary Red Rock Country affords breath-taking panoramas, a mild climate, plenty of sunshine and clean, fresh air. The area is the second most visited site in the state after the Grand Canyon. Established in 1902 and incorporated in 1988, the community was named for Sedona Schnebly, an elderly settler. Sedona spreads across the boundaries of two north central Arizona counties, Coconico and Yavapai. It sits at an elevation of 4,500 feet, 3,200 feet higher than Phoenix which is 120 miles south, and 2,600 feet lower than the rim country of Flagstaff, 30 miles to the north. The average daily temperature in January is 55 degrees, April 72 degrees, July 95 degrees and October 78 degrees. The average annual participation is 17.15 inches, snowfall - 8.8 inches. The population in Sedona for 1996 was 9,235, while the population of Coconino County was 113,475 and Yavapai County 134,600. The City of Sedona has growth rapidly over the past decade and may exceed 15,00 by the year 2010. There are 6 financial institutions, 1 medical center, 2 health care clinics and the population is served by 7 physicians, 3 dentists and 7 other health care specialists. Robert M. McSherry, MAI There are 12 Protestant churches and 2 Catholic churches serving the area. Recreational facilities include parks, a library, golf courses, motion picture theaters, art museums and a live theater. There are 2 elementary schools, 1 high school as well as several private schools in the area. The population base of the City of Sedona is largely comprised of the age group which is either retired or near retirement. About 48 percent of the population is 55 years of age or older. Robert M. McSherry, MAI OVERVIEW OF ASSISTED AND INDEPENDENT LIVING INDUSTRY In anticipation that more elderly Americans will live in assisted living homes than nursing homes in the near future, consumer industry groups are saying it is time to put some minimum standards into law. One of the most important things for the industry is to try not to admit residents it cannot provide quality care for. Many assisted living homes charge additional fees for personal services residents may come to need as they grow older. Some will help residents if they get sick by permitting periodic visits from nurses, for example, or providing supervision for people with Alzheimer's Disease. In order to minimize residents need to move, the consumer or trade groups say assisted living facilities should be required to offer at least some help with the dozen daily activities including meals, using the bathroom, taking medication and shopping. Those facilities which accept people with Alzheimer's or other types of dementia would also be required to provide 24 hour awake staff and special training for those workers. Assisted living has become the hottest new housing option for older people by promising to provide a happy medium between their homes and a full nursing home facility. Industry estimates show that the number of elderly Americans living in settings that could be described as assisted living has probably doubled from 560,000 in 1990 to as many as 1,000,000 in 1997. By early next century, experts predict assisted living homes will care for more elderly Americans than nursing homes. Robert M. McSherry, MAI Although numbers are inexact, assisted living facilities ranging from luxury apartment buildings to modest group homes provide housing along with personal services and some health care. Residents may be too frail to live alone but too healthy to need the 24 hour medical attention of nursing homes. Assisted living can be less expensive than nursing homes. A 1997 survey by the National Center for Assisted Living found that 52% costs $1,001.00 to $2,000.00 per month and 24% cost less than $1,000.00 per month. In contrast, monthly nursing home fees average above $3,000.00. Assisted living's affordability has attracted the attention of law makers worried about how the nation will ensure elderly care for the huge baby boom generation now middle aged. Medicaid programs for the poor in 28 states have begun to cover some assisted living services and the Department of Health and Human Services is conducting a fact finding survey. Unlike nursing homes, assisted living homes are not regulated by the Federal Government. Fewer than half of the states require licensing before it opens. That allows for flexibility and partly explains assisted living's popularity. In summary, the assisted living facilities currently expanding throughout the United States are the most popular and desirable alternative living situation for those elderly which require some minimal level of care but not the extensive Robert M. McSherry, MAI level required by nursing home patients. As the population continues to grow older but maintain better health, the appeal thus desirability of assisted living facilities will continue to be enhanced. Robert M. McSherry, MAI SCOPE OF THE APPRAISAL The appraiser has personally inspected the subject site and conducted an in-depth inspection of the neighborhood in which the subject property is located observing it's trends of development and characteristics. Vacant land sales utilized in conjunction with the Cost Approach to Value and in determining the estimated Market Value of the subject site, as if vacant, and owned in Fee Simple have been inspected by this appraiser and a combination of data provided by the Marshall Valuation Service Cost Manual and other available in-file data has been utilized in the process of estimating the replacement cost new of the subject improvements. In the final analysis, the appraiser has utilized and relied upon the experience of judgment based on the opinion of the quality and quantity of the data in arriving at the final value estimate of the Fee Simple Interest in the subject property. The Income Approach to Value has been completed utilizing a stabilized net income capitalized into value and a discounted cash flow method. Economic rents were determined by rent comparables and current data utilized with respect to expense projections. Information provided by the publication "Trends in the Health Care Industry" as well as information provided by other actual ongoing facilities similar to the subject have been utilized in the process of estimating the projected expenses which were included in the Income Approach to Value. Although the subject property is proposed at the present time and has Robert M. McSherry, MAI no income or expense history, it is considered to be a functional facility and a facility which is demand with respect to providing long term assisted living care. Robert M. McSherry, MAI DESCRIPTION OF THE PROPERTY Site Data Size, Shape and Topography The subject site is a 2.78 acre or 121,097 square foot site which is slightly irregular in shape having approximately 465 feet of frontage along the east side of Canyon Diablo Road and 212 feet of frontage along the south side of Horse Canyon Road all within the Village of Oak Creek which is located just outside the incorporated areas of Sedona, Arizona. The property is located just off State Highway 179 "Rimrock-Sedona Highway" and is within approximately 10 minutes drive of the Interstate Highway System. The subject property is level to gently rolling due to extensive site preparation and the entire site is either improved with the improvements, asphalt parking areas, landscape areas consisting of creek washed rocks, lava rocks or sodded grass and the site is considered an excellent site having all the amenities required to be developed as an above average quality independent living facility. Utilities The subject property is located within the Village of Oak Creek and is provided with all available utilities and services available to properties in the area including electrical service, police and fire protection, public water, sewerage disposal and refuge pick-up. Telephone service and natural gas service is provided by local utility companies serving the area with natural gas being Robert M. McSherry, MAI primarily propane and all services and utilities are considered adequate to provide for the requirements of the subject property. Access Access to the subject property is provided as the result of frontage along Canyon Diablo Road, a dual-lane, municipally maintained traffic artery which is asphalt in nature and provides a connection with Arizona Highway 179 approximately 200 feet from the subject property. Arizona Highway 179 provides assess to the Interstate Highway System as well as to the incorporated areas of Sedona, Arizona and, overall, access from all areas of the Village of Oak Creek and Sedona, Arizona as well as the other inhabited areas within this portion of Arizona is well provided. Zoning Conversations with representatives in the local Zoning and Planning Office indicated that the current zoning for the subject site is "R2-3" Multiple Dwelling District with a special use permit for food services and other health services. Land uses are also controlled by deed restrictions or other restrictive covenants which run with the land and, although this appraiser has not conducted an in-depth review of the abstract to the subject site, no deed restrictions or other restrictive covenants are assumed to exist which would affect the utilization of the subject site as a site of an assisted living facility. Robert M. McSherry, MAI This appraiser has not conducted an in-depth review with respect to the abstract to the subject site but no deed restrictions or other restrictive covenants are assumed to exist which would affect the development of the subject property to its highest and best use. However, this should be ascertained by competent legal authority and is a condition of this appraisal report. Drainage Review of Flood Hazard Maps found in the local Community Office indicated the subject property to be located in a Flood Zone "C" according to Flood Map No. 040093-0880 having an effective date of August 19, 1995. This indicates no flood insurance is required for the subject property. Tax Data The subject property is currently accessed as Parcel 13-405-41-065A-1 with the land accessed at $420,000.00 and the improvements at $1,083,599.00 for a total of $1,503,599.00 which is the estimated depreciated replacement costs estimate for the property. Conversations with representatives in the County Treasurer's Office indicated the subject property to be affected by two different millage rates and two separate accessed values as follows: Millage 6.3091 Mills Robert M. McSherry, MAI Assessed Value $141,730.00 Millage 3.8712 Assessed Value $150,060.00 Total Taxes Due - 1998 $13,777.36 Note: These taxes were paid in 1998. Robert M. McSherry, MAI LOCATION MAP Robert M. McSherry, MAI DESCRIPTION OF THE IMPROVEMENTS Independent Living Facility The existing facility containing the 28 independent living units is constructed within a somewhat modified T-shaped building but with the indoor swimming pool and activity building being separate from the primary structure containing the 28 independent living units and common areas. Construction characteristics include a reinforced poured concrete foundation, wood frame exterior walls with a stucco exterior and roof being a commercial tar and gravel built-up roof. Gutters and downspouts are in place at strategic locations, windows are horizontal slide doubled paned insulated windows with screens and exterior doors are metal insulated doors. The building is totally sprinklered for fire protection, has emergency lighting in place and an emergency call system which connects each individual guest room to a central control console. The property includes 16 efficiency units containing 401 square feet each, 8 one bedroom/one bath units containing 490 square feet each and 4 two bedroom/one bath units containing also 490 square feet each. The common area includes a full service kitchen and serving area, foyer, 2 administrative offices, large hallways, a combination living/dining activities area which features a hand laid stone fireplace with gas fire logs are contained within the main building and encompass approximately 9,930 square feet. The enclosed swimming pool and activities building encompasses approximately 2,100 square feet for a total of 24,332 square feet of heating and cooled area within the subject property. Robert M. McSherry, MAI Each of the individual guest rooms features a combination of carpet and glazed tile flooring, painted sheet rock interior walls and ceilings with the kitchen including a small microwave unit and a small refrigerator. All units are sprinklered for fire protection, provide a 24 hours intercom system which is monitored at a central console and feature a very efficient functional design. The bathroom found within these units features a large open shower which is also of glazed tile construction with respect to the floor and surrounding walls and these showers are accessible to handicap and wheelchair patients as well as normal persons. Each of these units is heated and cooled by an individual HVAC system which is on a separate meter and has an individual thermostat in each of the rooms. The common areas feature a large institutional kitchen which contains all of the typical kitchen equipment necessary for operating a facility such as the subject. This equipment is all in working order, of stainless steel construction and of the highest quality and is adequate to provide functional food service for the subject property. The remaining common areas include large open corridors with skylight ceilings which house individual group seating areas and feature carpet flooring and painted shetrock walls and a vaulted ceiling again with skylights. The two administrative offices feature carpet flooring, painted sheetrock walls and are of adequate size to render them functional. The major common area is the combination living/dining and activities area which features carpet flooring, painted sheetrock walls with wallpaper and a large amount of open glass viewing areas of the picturesque scenery facing the Robert M. McSherry, MAI rear of the subject property. This picturesque scenery is such as to generate additional income from the rooms enjoying this view with the rooms facing the front of the structure enjoy slightly less view amenities. The living area is improved with a hand laid stone fireplace with gas logs with lighting provided by ceiling fans, recessed fixtures and chandeliers and this area is most functional and livable. The separate activities building contains the heated 4 foot deep gunite pool features a concrete apron around the pool, wood walls and ceiling which have been painted with a hand painted Muriel painted by a local artist and is climate controlled. The activities room is located just off the pool and is separated by a small partition and features carpet flooring and painted sheetrock walls and an adequate area for exercise classes and various excercise equipment. As noted, the entire property contains a total of 24,322 square feet of gross building area and it contains 28 efficiency, one bedroom and two bedroom living units as well as the common areas and all required amenities to make this a functional, very desirable development. Although the property is existing construction, approximately $350,000.00 worth of renovation expense has been incurred since October, 1998 and thus all deferred maintenance has been cured in the property. It's effective age is effectively 0-1 year with a total economic life of 40 years and no functional obsolescence was found within the layout or design or any economic obsolescence throughout the neighborhood. Robert M. McSherry, MAI The property being appraised is considered to be a most functional independent living facility containing the required amenities to make it a success in this particular retirement community market. Robert M. McSherry, MAI HIGHEST AND BEST USE Introduction The Appraisal Institute defined highest and best use as follows, "that legal use, at the time of the appraisal, which is the most profitable likely use to which a property can be put." There are several basic factors which must be considered in order to make a proper determination of Highest and Best Use: 1. The use must be legal, that is, legally adaptable regarding zoning and other restrictions; 2. The use must be probable, not conjectural or speculative; 3. The property must be physically adaptable to use contemplated, 4. There must be a demand for such use, 5. The use must be profitable, the highest return to the land over the longest period of time. Highest and best use of the land (or site) if vacant and available for use may be different from the highest and best use of the improved property. This is true if the improvement is not an appropriate use, but it makes a contribution to the total property value in excess of the value of the site. The above five tests have been applied to the subject property's vacant site. In arriving at the estimate of highest and best use, the subject site has been carefully analyzed. Robert M. McSherry, MAI HIGHEST AND BEST USE ASSUMING A VACANT SITE Permissible Use An investigation has been conducted in order to determine the zoning classification that encumbers the subject property. The results of this investigation has revealed that the subject site is zoned "R-2-3" Multiple Dwelling District with Special Use Exception granted for food and medical services to be provided. This zoning classification allows a large number of residential uses to be permitted for this classification and considering the overall condition and design of the subject, it's location within a combination residential/commercial area, the access provided the property and other pertinent factors indicate the present utilization as an independent living facility with certain amenities including medical and food services to be one of the better is not the best permissible use of the site and would be a legal, conforming permissible use. Possible Use Inspection of the subject property's neighborhood has been made to determine any physical limitations that might be present. The result of this inspection has revealed the neighborhood is developed with mix of property types. The zoning which is currently applicable to the subject property does allow for an assisted care facility to be constructed on the site as well as other types of multi-family construction. This zoning classification will allow the property to be developed as proposed within this appraisal report and this is considered the most likely probable use to which the subject property could be put. Robert M. McSherry, MAI In the final analysis, the proposed utilization of the subject property is considered to constitute one of it's Highest and Best Uses. Robert M. McSherry, MAI THE APPRAISAL PROCESS The real estate appraisal profession typically utilizes three basic approaches in the process of estimating the value of a parcel of real property. These approaches include the Cost Approach, the Income Approach and the Market Data Approach. The Cost Approach utilizes an estimate of reproduction or replacement costs new of the building and other on-site improvements to be contained within the subject property less accrued depreciation from all sources including physical curable and incurable deterioration, functional obsolescence and economic obsolescence to arrive at an estimate of depreciated reproduction or replacement costs for the improvements. The estimated value of the site, as if vacant, and determined by the comparison of the subject site with other similar parcels in either the immediate proximity of the subject or in other comparable areas is added to the depreciated reproduction or replacement cost estimate of the improvements to provide an indication of value of the property being appraised from the Cost Approach. The Cost Approach is generally accorded the greatest credence in instances where the property being appraised is either a proposed property or a new property having little or no accrued depreciation or instances where the property being appraised represents a special purpose type property. In these instances, the Cost Approach is an accurate indication of value for the property and is accorded considerable credence in the reconciliation process. Robert M. McSherry, MAI The Income Approach to Value utilizes an estimate of gross annual income to be generated by the property being appraised as determined to be representative of economic rentals for this type property within the area less an allowance considered typical for vacancy and collection losses to arrive at an estimate of effective gross annual income which is to be generated by the property. Expenses typically associated with the operation of this type property in accordance with prevailing lease terms and conditions in the area as well as data provided by analysis of the operating history of other similar type properties are projected and deducted from the effective gross annual income to arrive at an estimate of net operating income before recapture attributable to the subject. This net operating income is then capitalized by the most appropriate method available with respect to the subject property in particular and the appraisal problem in general into an indication of value for the property being appraised from the Income Approach. Another method of utilizing the Income Approach is the Gross Income Multiplier technique. This technique identifies the relationship between the sales price (value) of a property and its gross annual income earning potential. The Gross Income Multiplier is derived by dividing the sales price of a property by its gross potential income and, thus, is an excellent indicator of buyer, seller and investor attitudes toward the property being analyzed. An effective gross income multiplier is also excellent as it utilizes the actual gross income after vacancy to derive the multiplier. use depends upon available data. The Market Data or Direct Sales Comparison Approach utilize sales of comparable improved properties in either the immediate proximity of the subject Robert M. McSherry, MAI or in other comparable areas to derive a unit of comparison. Each of the various comparable sales are carefully reviewed and analyzed by the appraiser, adjusted for any dissimilarities between the subject property and the comparable sale in such areas as date of sale, location, design, condition, and other physical characteristics to result in an adjusted unit of comparison to be utilized in the Market Data or Direct Sales Comparison Approach to provide an indication of value for the property being appraised. The reconciliation is the method whereby all data provided by the various approaches utilized in the appraisal report are carefully analyzed and accorded weight in varying degrees. The approach which is considered to be the most representative of current buyer, seller and investor attitudes towards the subject property is accorded the greatest credence in the final analysis but all the approaches are interrelated and all data gathered and utilized in the various approaches must be carefully analyzed in the reconciliation process and to ignore any available data would be improper. Robert M. McSherry, MAI COST APPROACH TO VALUE The Cost Approach to Value, like the Sales Comparison and Income Approaches, is based on comparison. in the Cost Approach, the cost to construct a building and the value of any existing building are compared. The Cost Approach to Value reflects market thinking in the recognition that market participants relate value to cost. Buyers tend to judge the value of an existing structure by comparing it to the value of a newly constructed building with optimal functional utility. Moreover, buyers adjust the prices they are willing to buy by estimating the cost to bring an existing structure to desired levels of functional utility. Thus, by applying the Cost Approach, an appraiser attempts to estimate the difference in worth to a buyer between the property being appraised and a newly constructed building with optimal utility. An appraiser makes a sound value estimate by estimating the cost to construct a reproduction of or a replacement of the existing structure and then deducts all evidence of accrued depreciation in the property being appraised from the cost of the reproduction or replacement structure and the resulting figure, plus the value of the land, plus any entrepreneurial profit provides a value indication through the application of the Cost Approach. The decision to utilize reproduction or replacement costs is most pertinent and the selection plays and important part in contributing to the validity of the Cost Approach. Replacement cost is defined in Real Estate Appraisal as Robert M. McSherry, MAI being, "the cost of construction at current prices of a building having utility equivalent to the building being appraised but built with modern materials and according to the current standards, design and layout. The use of the replacement cost concept presumably eliminates all functional obsolescence and the only depreciation to be measured is physical deterioration and economic obsolescence." The appraisers will utilize the replacement cost method supported by Marshall Valuation Service in conjunction with the construction cost estimate provided by knowledgeable contractors/engineers or architects. DEPRECIATION All types of accrued depreciation affecting the subject improvements were considered. Accrued depreciation is defined as, "the difference between reproduction cost new as of the date of the appraisal and the present contributory value of the improvements." Accrued depreciation is divided into three basic categories:physical deterioration (which includes curable and incurable), functional obsolescence (including curable and incurable), and economic obsolescence(which is always incurable). The following is a discussion of each type of depreciation and the observed depreciation applicable to the subject property. Physical Deterioration, Curable This type of depreciation is defined as, "the loss in value from cost new which can be recovered or offset through correction, repair, or replacement of the defective items causing the loss, providing the resultant value approximates the Robert M. McSherry, MAI cost of the work." The property is existing but has had all the deferred maintenance cured thus no deferred maintenance exists. Physical Deterioration, Incurable This type of depreciation is defined as, "the loss from cost new which is impossible to offset or which would involve an expenditure substantially in excess of the value increase resulting therefrom." The property is existing but has an effective age of 1 year and a total economic life of 40 years thus no physical incurable deterioration is present. Functional Obsolescence Functional obsolescence is defined as, "the loss from cost new as of the date of the appraisal which is caused by a superadequacy, inadequacy, unattractive style, poor or inefficient layout or design." Items causing functional obsolescence can be either curable or incurable; it is curable only when it is profitable to cure the item. Incurable, functional obsolescence involves items of initiate which would not be economical to correct because the value would not increase so much as the cost of correction. Based on my inspection of the subject improvements, it is my opinion that they are totally adequate and comparable to similar properties in the same general price range, therefore, no loss of value from functional obsolescence exists. Robert M. McSherry, MAI Economic Obsolescence This type of depreciation is defined as, "the loss from cost new as of the date of the appraisal due to causes external to the property boundaries." To measure this type of obsolescence the appraiser capitalizes the rent lost due to the external factor for the prorata share applicable to the building. As indicated in the site date, there are no undesirable external influences and, thus, there is no loss to the subject improvements due to economic obsolescence. Entrepreneurial Profit For the Cost Approach to provide a sound indication of value, a market derived entrepreneurial profit must be added to the direct and indirect costs. The profit figure is typically expressed as a percentage of total direct and indirect costs. Entrepreneurial profit is a necessary element in the motivation to construct the improvements. However, part or all of the profit may be lost as functional or external obsolescence if the market indicates that the improvements have a Market Value less than the current reproduction or replacement cost less physical deterioration. The results of the investigation and analysis of this market data will appear as follows: Robert M. McSherry, MAI COMPARABLE LAND SALE 1 Date of Sale: January 31, 1997 Recordation: Conveyance Book 3351, Page 598, Sedona,Arizona Vendor: Frederick Coleman, III Vendee: IDNANI Investment Group, LLC Size: 1.09 Acres or 47,480 Square Feet Consideration: $450,000.00 Indicated Price/Acre: $412,844.009/acre Indicated Price/Square Foot: $9.47/square foot Brief Legal Description: The north 300 feet of Tract C, Lake Plaza, in Section 18, T16N-R6E Financing: Typical Site Utilities: Public Terrain: Relatively Level Access: Adequate Zoning: "C2-A" Highest and Best Use: Commercial or Motel Confirmation: Public Records Robert M. McSherry, MAI COMPARABLE LAND SALE 2 Date of Sale: August 25, 1997 Recordation: Conveyance Book 3465, Page 256, Sedona,Arizona Vendor: 6th Avenue Apartments Vendee: Sedona Fore District Size: 1.63 Acres or 71,002 Square Feet Consideration: $680,9070.00 Indicated Price/Acre: $417,773/acre Indicated Price/Square Foot: $9.59/square foot Brief Legal Description: Part of Trach H, Village Square amended, Section 13, T16N-R5E Financing: Typical Site Utilities: Public Terrain: Relatively Level Access: Adequate Zoning: "C2-2" Highest and Best Use: Commercial Confirmation: Public Records Robert M. McSherry, MAI COMPARABLE LAND SALE 3 Date of Sale: November 6, 1996 Recordation: Conveyance Book 3307, Page 211, Sedona,Arizona Vendor: Dale Scott Vendee: Gene Baccola Size: .17 Acres or 7,500 Square Feet Consideration: $77,000.00 Indicated Price/Acre: $447,674.00/acre Indicated Price/Square Foot: $10.26/square foot Brief Legal Description: Lot 7, Village Square Amended Financing: Typical Site Utilities: Public Terrain: Relatively Level Access: Adequate Zoning: "C2-2" Highest and Best Use: Commercial Confirmation: Public Records Robert M. McSherry, MAI COMPARABLE LAND SALES SUMMARY CHART
Date Size/Usable Price/Acre Location Sale 1 1/97 1.09 Acres $412,844.00 Sedona,AZ Sale 2 8/97 1.63 Acres $417,773.00 Sedona,AZ Sale 3 11/96 .17 Acres $447,674.00 Sedona,AZ Robert M. McSherry, MAI ANALYSIS OF COMPARABLE LAND SALES Analysis of the three vacant comparable land sales indicated all sales to be current with respect to date of sale and the appraiser discovered several additional small square footage sales similar to Comparable Sale 3 but have not included them in the actual report but utilized them for analysis purposes. Vacant Comparable Land Sale 2 and 3 are both of nearly the same size as the subject, feature a similar location but a slightly superior zoning classification requiring a downward adjustment of these sales. All physical characteristics are considered similar requiring no adjustment and no adjustment is required for the date of sale. Vacant Land Sale 3 is significantly smaller than the subject requiring a downward adjustment for this factor as well as a downward adjustment for it's superior zoning classification. All other physical characteristics are similar requiring no adjustment nor does this property require adjustments for the time differential. In the final analysis, Vacant Comparable Land Sale 1 is considered to be the best available indicator as it is located almost adjacent to the subject site and this sale has been accorded the greatest credence. However, considerable weight has been accorded Vacant Land Sale 2 in the analysis process. Robert M. McSherry, MAI In the final analysis, after each of these various vacant land sales have been carefully inspected and adjusted by the appraiser for dissimilarity between the comparable sale and the subject, it is our opinion that the available market data indicates a per square foot value for the subject site, as if vacant and in it's present condition, of $6.50 per square foot and is indicative of current attitudes in this particular market when the location and zoning of the subject site are considered. Therefore, the estimated value of the subject, as if vacant, is thus derived: 121,097 square feet @ $6.50/square foot $787,130.00 INDICATED VALUE OF THE SUBJECT SITE, AS IF VACANT (R/T) $780,000.00 Robert M. McSherry, MAI DISCUSSION OF COST APPROACH In the construction of any project, the total cost of development can be divided into basic categories: direct or hard cost, and indirect or soft costs. As defined in Real Estate Appraisal Terminology, the definition of Direct Costs is, "the cost of direct labor and materials devoted specifically to a unit of work. In construction, these costs are directly related to site acquisition and construction of the improvements..." Defined in this same text, Indirect Cost is, "that cost in the development of a property which would not be included in a general contract for construction or for land acquisition..." Direct costs include the cost of items such as land acquisition, construction of the buildings, equipment and fixtures, the builder's profit and overhead, any temporary buildings for on-the-job usage, power line installation, and the electrical power used in the construction. As indicated in the Cost Approach Schedule which follows, direct or hard costs have been broken down into categories of building area, elevators and other primary building costs. Indirect, or soft costs, generally include fees, financing costs, and overhead. As the Cost Approach Schedule indicates, the indirect costs fall into 8 categories The permits and fees sections include the estimated costs of a building permit, an appraisal, a survey and accounting and inspection charges. Architectural engineering estimates have been based on typical market charges. The legal expenses includes work done on both interim and permanent loan packages. Robert M. McSherry, MAI The insurance costs indicated are limited to construction-period coverage including the builder's risk. The closing cost estimate includes costs of closing both the interim and permanent loans. The interest expense is based on typical current market conditions and covers the period of time required to complete the construction of the project. The loan commitment fees are also based on current typical market conditions. The appraiser's have relied upon the Marshall Valuation Service, a publication of Marshall & Swift, 1617 Beverly Boulevard, Post Office Box 26307, Los Angeles, California, in estimating the replacement costs new of the subject property improvements. The Cost Approach to Value, as it applies to the property being appraised, is as follows: Robert M. McSherry, MAI COST APPROACH TO VALUE Cost Source: Marshall-Swift Cost Manual and Contractor Cost Data Direct Costs: Primary Structure 24,332 sq. ft. @ $93.15/sq. ft. $2,266,525.00 Total Direct Costs: Improvements $2,266,525.00 Indirect Costs: Plans, Specifications, Inspection Included in Direct Costs Contractor's Overhead/Profit $248,540.00 Interim Interest $104,000.00 Legal, Audit, Appraisal $ 82,000.00 Financing Fees - Construction $ 41,400.00 Misc. Expenses $ 50,000.00 Financing Fees - Long Term $248,000.00 Total Indirect Costs $ 773,940.00 Total Replacement Costs New: Improvements $3,040,465.00 Less:Accrued Depreciation Physical Curable -0- Physical Incurable -0- Functional Obsolescence -0- Economic Obsolescence -0- Total Accrued Depreciation -0- Depreciated Replacement Costs: Improvements $3,040,465.00 Add: Land Value 2.78 acres @ $45,000.00/acre $ 780,000.00 Add: Site Improvements Including Landscaping, Parking, Lighting, Walks, Patio, Porches $ 60,000.00 Robert M. McSherry, MAI Add: Contributing Value of Pool $ 25,000.00 Add: Furniture, Fixtures and Equipment $ 40,000.00 Add: Entrepreneurial Profit @ 5% $ 140,000.00 Total All Costs and Value Components $4,085,465.00 INDICATED VALUE OF SUBJECT FROM COST APPROACH (R/T) $4,085,000.00 Note: Cost of Furniture, Fixture and Equipment based on costs association with actual costs experienced by other comparable facilities. Robert M. McSherry, MAI MARKET DATA APPROACH TO VALUE Market data is discussed in all the approaches to value. Data analysis is needed in the Cost Approach to develop a land value indication and to support costs and depreciation indicators; in the Income Approach to establish rent levels, vacancy indications, expenses, and capitalization rates; and in the Direct Sales Comparison Approach to establish comparability. The appraiser has carefully perused the area market with respect to sales of properties considered similar to the subject property and none were found. However, available data from other appraisers has revealed the sale of three similar type properties in other areas of the United States and these are included merely for analysis purposes as follows: Robert M. McSherry, MAI IMPROVED PROPERTY SALE 1 VENDOR: American Retirement, Inc. VENDOR: Horizon Retirement, Inc. LOCATION: 2601 Chimney Rock Road, Hendersonville, North Carolina RECORDATION: N/A DATE: February, 1993 CONSIDERATION: $6,480,000.00 TERMS: $2,224,000.00 cash, assumption of a mortgage balance of $4,316,000.00. terms are considered to be cash equivalent. SITE SIZE: N/A IMPROVEMENTS: This is a 110 unit senior living community constructed in 1988. The units are housed in a three-story building of wood frame construction. Construction quality is considered to be average; condition at the time of sale was good. The gross building area is approximately 96,058 square feet with an average unit size of 873 square feet. ESTIMATED GROSS INCOME: $1,706,255.00 ESTIMATED EXPENSE RATIO: Approximately 56 percent NET OPERATING INCOME: Approximately $751,844.00 UNIT INDICATORS: SP/Unit = $58,909.00 SP/SF = $ 67.46 SP/GI = 3.80 GIM NOI/SP = .1160 OAR Robert M. McSherry, MAI IMPROVED PROPERTY SALE 2 VENDOR: American Retirement, Inc. VENDOR: Emeritus Corporation LOCATION: 2601 Chimney Rock Road, Hendersonville, North Carolina RECORDATION: N/A DATE: September, 1995 CONSIDERATION: $9,483,523.00 TERMS: Cash SITE SIZE: N/A IMPROVEMENTS: This is a 110 unit senior living community constructed in 1988. The units are housed in a three-story building of wood frame construction. Construction quality is considered to be average; condition at the time of sale was good. The gross building area is approximately 96,058 square feet with an average unit size of 873 square feet. ESTIMATED GROSS INCOME: Approximately $2,175,000.00 ESTIMATED EXPENSE RATIO: Approximately 56 percent NET OPERATING INCOME: Approximately $957,000.00 UNIT INDICATORS: SP/Unit = $86,214.00 SP/SF = $ 98.73 SP/GI = 4.36 GIM NOI/SP = 0.1009 OAR Robert M. McSherry, MAI IMPROVED PROPERTY SALE 3 VENDOR: ABD Investments, Inc. VENDOR: Merrill Associates, LP LOCATION: 6725 Inglewood Avenue, Stockton, California RECORDATION: N/A DATE: July, 1994 CONSIDERATION: $4,200,000.00 TERMS: Cash SITE SIZE: N/A IMPROVEMENTS: This is a 74 unit senior living community constructed in 1989. The units are housed in two-story buildings of wood frame construction. Construction quality is considered to be average; condition at the time of sale was good. The gross building area is approximately 63,730 square feet with an average unit size of 861 square feet. ESTIMATED GROSS INCOME: Approximately $1,395,000.00 ESTIMATED EXPENSE RATIO: Approximately 70 percent NET OPERATING INCOME: Approximately $418,500.00 UNIT INDICATORS: SP/Unit = $56,757.00 SP/SF = $ 65.90 SP/GI = 3.01 GIM NOI/SP = 0.0996 OAR Robert M. McSherry, MAI SUMMARY
Sale One Sale Two Sale Three Indicated OAR 11.6% 10.09% 9.96% Price/Unit $58,909.00 $86,214.00 $56,757.00 Gross Income Multiplier 3.80 4.36 3.01 Estimated Expense Ratio 56% 56% 70%
The three Improved Property Sales included within this report have been provided this appraiser by knowledgeable sources and other appraisers and are deemed accurate as they were verified by knowledgeable and ethical persons. The appraiser has conducted an in-depth review of conveyances of similar type assisted living or congregate care facilities in the Sedona, Arizona area and none were found which were considered to be reflective of true arms-length transactions between willing buyers and willing sellers with no undue duress being experienced. These three Improved Property Sales have been included for the purpose of deriving an indicated Overall Capitalization Rate, an indicated price per unit and an indicated Gross Income Multiplier for utilization in the analysis process with respect primarily to the Income Approach to Value. The level of services provided by these facilities are similar to those to be provided by the subject property which would include three (3) meals per day, utilities, maid service one (1) day a week, flat linen service one (1) day a week, various assistance with respect to bathing, exercise, and transportation to various off-site functions as well as on-site recreational functions, counseling, with other services provided on a more extensive basis for additional expense paid by the Robert M. McSherry, MAI guest or resident of the facility. It is acknowledged that a large number of the residents residing in the independent living facilities are requiring increased levels of care and these additional expenses are being passed directly to the tenant as they upset the economies of an assisted care facility having to provide this extraordinary level of care without additional remuneration. The price per unit indicated by Improved Property Sale 2 is considered the best available and has been accorded the greatest credence. Accordingly: 28 Units @ $90,000.00/Unit $2,520,000.00 INDICATED VALUE OF SUBJECT FROM THE MARKET DATA OR DIRECT SALES COMPARISON APPROACH (R/T) $2,520,000.00 Robert M. McSherry, MAI INCOME APPROACH TO VALUE Introduction The Income Approach reflects the subject's income-producing capabilities and requires an analysis of the project's probable market rent. In the comparative analysis, we have considered factors that would probably influence market acceptance of properties in the area. The factors include proximity to major traffic arteries; location; design; amenities; and the quality of management. To develop a supportable estimate of value using the Income Capitalization Approach, realistic projections of income and expenses must be made. Independent living facilities are unique forms of real estate with many unusual characteristics, such as an intensive use of labor, costs of goods sold, expenses categories, and product identity. Therefore, special care in data gathering and analysis are required to create an estimate of the future income for the subject. The appraiser will utilize data provided by the publication, Trends in the Health Care Industry for supporting data. The subject property is existing at the present time but has not been operated as an independent living facility in the past and thus no historical income or expense data is available for the property. The subject property will contain 28 independent living units including 16 efficiencies, 8 one bedroom and 4 two bedroom units with half of the units facing the front of the building and half facing the rear. The units facing the rear of the Robert M. McSherry, MAI building enjoy the picturesque view amenity of the mountains and other view amenities and should generate slightly additional income than those facing the front of the building. In the processing of arriving at a projected economic rental rate for the subject units, the only competing facility in the Sedona, Arizona area has been surveyed by the appraiser. This development is identified as the Ktria Kachi Point Retirement Community which contains not only independent living units but also assisted care units,a nursing home unit and dementia units. The units include one and two bedroom units ranging in size from 400 square foot to a high of 963 square feet with the one bedroom units leasing from a low of $2,000.00 to a high of $2,600.00 per unit while the two bedrooms lease from a low of $2,600.00 to a high of $3,100.00 per unit. These rents include utilities with the exception of a telephone and cable television but only one meal per day, weekly housekeeping and a limited amount of other services. The services provided by this comparable property are vastly inferior to the services projected to be provided by the subject and this has been taken into consideration when projecting economic rental rates for the subject units. Based on our analysis, it is felt that the efficiency units facing the view amenity will lease for $2,400.00 each while the units facing the front of the building will lease for $2,200.00. The one bedroom units enjoying the view amenity will lease for $2,800.00 while the units facing the front will be $2,600.00 each. The two bedroom units facing the view amenity will lease for $3,200.00 with the two bedroom units facing the front of the building leasing for $3,000.00. These rents Robert M. McSherry, MAI will include all utility services including cable TV, valet service, 24 hour security, three complete meals chosen from a menu, town car and van transportation for shopping and doctor's appointments, a private club with heated pool and spa, turndown bed service nightly, a library/computer area, activities area, extensive wellness programs including mind, body and spirit, 24 hour staffing, daily freshening of apartments with intensive weekly housekeeping and weekly laundry service. As noted, the amenity package enjoyed by the subject property is vastly superior to that enjoyed by the only comparable in the area and the actual units are vastly superior to these comparable units. The appraiser has had the opportunity to appraise a number of assisted and independent living facilities throughout the southeast over the last several years and has relied on data provided by these facilities, various industry publications and data provided by various health care facilities and groups and experts in arriving at the estimated monthly rental rates and expenses including fixed expenses, operating expenses, staffing, dietary, reserves for replacement and other appropriate expenses. The level of care and the amenities offered by the subject property are greatly in excess of these typically offered an assisted unit facility. However, this appraiser has reviewed per unit expenses associated with similar design assisted living facilities throughout the southeast and adjusted these expenses to allow for the provision of the various amenities to be provided by the subject. Robert M. McSherry, MAI Based on the projected economic rental rates for the subject property as quoted in this appraisal report and our estimated expenses associated with the operation of the subject property, the Income Approach to Value is as follows. It is appropriate to note that the appraiser has reviewed the current publication Trends in the Health Care Industry with respect to historical operating expenses for independent living units in arriving at our estimates of the appropriate expenses. The Income Approach to Value as it applies to the property being appraised based on economic rental rates herein quoted and utilizing a three year period in order to achieve a stabilized net occupancy and thus a stabilized net operating income with rental rates anticipated to increase 10% between year two and three are completed as follows: Robert M. McSherry, MAI INCOME APPROACH TO VALUE Year One Gross Annual Potential Income: 8 - Efficiency Units @ $2,200.00/month $ 211,200.00 8 - Efficiency Units @ $2,400.00/month $ 230,400.00 4 - One Bedroom Units @ $2,600.00/month $ 124,800.00 4 - One Bedroom Units @ $2,800.00/month $ 134,400.00 2 - Two Bedroom Units @ $3,000.00/month $ 72,000.00 2 - Two Bedroom Units @ 3,200.00/month $ 76,800.00 Total Gross Annual Potential Income $ 849,600.00 Less: Vacancy and Collection Losses (25%) $ 212,400.00 Total Vacancy and Collection Loss $ 212,400.00 Effective Gross Annual Potential Income $ 637,200.00 Expenses: Administrative $158,000.00 Plant Operations $ 71,400.00 Dietary $ 91,200.00 Housekeeping $ 25,000.00 Aides $ 76,500.00 Activities $ 30,000.00 Reserves for Replacement $ 15,000.00 Total Expenses $ 467,100.00 Net Operating Income $ 170,100.00 Note: Management fee included in Administrative Expense. Robert M. McSherry, MAI INCOME APPROACH TO VALUE Year Two Gross Annual Potential Income: Gross Annual Potential Income: 8 - Efficiency Units @ $2,200.00/month $ 211,200.00 8 - Efficiency Units @ $2,400.00/month $ 230,400.00 4 - One Bedroom Units @ $2,600.00/month $ 124,800.00 4 - One Bedroom Units @ $2,800.00/month $ 134,400.00 2 - Two Bedroom Units @ $3,000.00/month $ 72,000.00 2 - Two Bedroom Units @ 3,200.00/month $ 76,800.00 Total Gross Annual Potential Income $ 849,600.00 Less: Vacancy and Collection Losses (10%) $ 84,960.00 Total Vacancy and Collection Loss $ 84,960.00 Effective Gross Annual Potential Income $ 764,640.00 Expenses: Administrative $158,000.00 Plant Operations $ 84,000.00 Dietary $107,310.00 Housekeeping $ 25,000.00 Aides $ 90,000.00 Activities $ 30,000.00 Reserves for Replacement $ 15,000.00 Total Expenses $ 509,310.00 Net Operating Income $ 255,330.00 Note: Management Fee included in Administrative Expense. Robert M. McSherry, MAI INCOME APPROACH TO VALUE Year Three Gross Annual Potential Income: Gross Annual Potential Income: 8 - Efficiency Units @ $2,420.00/month $ 232,320.00 8 - Efficiency Units @ $2,640.00/month $ 253,440.00 4 - One Bedroom Units @ $2,800.00/month $ 137,280.00 4 - One Bedroom Units @ $3,080.00/month $ 147,840.00 2 - Two Bedroom Units @ $3,300.00/month $ 79,200.00 2 - Two Bedroom Units @ 3,520.00/month $ 84,480.00 Total Gross Annual Potential Income $ 934,560.00 Less- Vacancy and Collection Losses (5%) $ 46,728.00 Total Vacancy and Collection Loss $ 46,728.00 Effective Gross Annual Potential Income $ 887,832.00 Expenses: Administrative $180,000.00 Plant Operations $ 90,000.00 Dietary $115,000.00 Housekeeping $ 25,000.00 Aides $ 98,000.00 Activities $ 30,000.00 Reserves for Replacement $ 15,000.00 Total Expenses $ 553,000.00 Net Operating Income $ 334,832.00 Note: Management Fee included in Administrative Expense. Robert M. McSherry, MAI JUSTIFICATION OF CAPITALIZATION RATE Direct Capitalization is a method used to convert a single year's income estimate into a value indication in the Income Capitalization Approach. The direct capitalization formula using an overall property capitalization rate is Value / Net Operating Income = Overall Capitalization Rate In this appraisal, the appraisers will employ two different methods to obtain an overall capitalization rate: 1) Band of Investment - mortgage and equity components 2) Underwriter's Method (derivation from debt coverage ratio) Band of Investment The appraisers contacted local lenders regarding rates and terms of alternate investments as well as current market rates applicable for this market. Annual Constant - In developing the mortgage components for the Band of Investment Method, the appraisers reviewed the National Mortgage Commitment Survey conducted by the Appraisal Institute Research Department which surveyed sample lenders in various geographical regions throughout the United States. The data quoted is based on national averages and do not reflect conditions inherent in all markets. Therefore, the appraisers contacted local lenders regarding rates and terms applicable for this market area. Lenders in the local market are quoting rates at prime plus 1%, terms of 20 years. 75% and a loan-to-value ratio. The local market closely approximates the national averages for the subject property type. Robert M. McSherry, MAI The appraisers reviewed available data concerning current national and local quoted mortgage rates and talked to various lenders in the Louisiana area which confirm that market rates and terms for loans of the quality of the subject property are available at 9% interest rate with monthly payments amortized for a 20 year term, a 75% loan-to-value ratio. Therefore, the mortgage constant is derived to be .1079671. Equity Dividend - Current rates of return available from alternative investment vehicles are reviewed. These alternative investments are more liquid than an investment in real estate, therefore any potential investor would expect a higher rate of return. Based on this, we have been able to conclude that a 9% equity dividend rate is required to attract investment capital to the subject property's type which is considered to be slightly more risky than other types of real estate investments. In order to ascertain the appropriate equity dividend or "cash-on-cash" rate, the appraiser has reviewed money rates for other alternate investments as of January 10, 1999. The results of this analysis of comparable and alternative money rates are as follows: Certificates of Deposit 30 Day 4.29% 90 Day 4.51% 180 Day 4.67% Treasury Bill Rates 3 Months 4.39% 6 Months 4.40% 52 Weeks 4.33% Robert M. McSherry, MAI 30 Year Treasury Bond Rate 5.21% Merrill-Lynch Ready Assets 30 Day 54.65 (Average Yield) As can be reflected by the above alternate investment vehicles. Current rates for both short and long term yields is between the high 4.00% to the low 5.00% range. The projected 9.00% equity yield or "cash-on-cash" return projected for the subject property provides an excellent return on the investor's cash, approximately 3.00% in excess of other alternate investment vehicles. Accordingly, the 9.00% equity dividend rate is considered appropriate when the overall risk and competitive rates are considered. Derivation of Capitalization Rate - The band of investment (or weighted average) formula for deriving an overall rate when the mortgage constant and equity dividend rates is known as: Mortgage Percent x Mortgage Constant Plus Equity Percent x Equity Dividend Rate Equals Overall Capitalization Rate .75 x . 1 079671 = .0809 .25 x .09 = .0225 Total = .10340 Rounded to .103 Underwriter's Method In making loan decisions, institutional lenders use a debt coverage ratio (DCR), which is the ratio of net operating income to annual debt service. This measure Robert M. McSherry, MAI of constraint is frequently used by institutional lenders, who are general fiduciaries. They manage and lend the money of others, including depositors and policy holders. Because of the fiduciary responsibility, institutional lenders are particularly sensitive to the safety and profit and are anxious to avoid default and possible foreclosure. Consequently, when they underwrite income property loans, institutional lenders try to provide a cushion so that the borrower will be able to meet the debt service obligations on the loan even if the building income declines. The debt coverage ratio may also be used to estimate the overall capitalization rate by multiplying the ratio by the mortgage loan constant (RM) and the loan-to-value ratio (M). The debt coverage ratio, mortgage loan constant, and loan-to-value ratio have already been determined to be 1.20, .1079671 and .75, respectfully. The formula for derivation of an overall capitalization rate from debt coverage ratio is as follows: RO = DCR x RM x M RO = 1.20 X. 1 079671 X.75 RO =.0971 R/T = .097 Review of the three (3) improved property sales contained within this report have indicated an Overall Capitalization Rate from a low of 9.96% to a high of 11.6%. These indicated Overall Capitalization Rates which have been derived from available market data indicates the rate chosen for the capitalization of the net Robert M. McSherry, MAI income into an indication of value based upon stabilized income of 10.5% is reflective of current industry attitudes and is considered appropriate with respect to this particular appraisal assignment. Conclusion Based on the available information we have concluded that a 10.5% is the most appropriate capitalization rate which is derived from the actual band of investments method and supported by the Underwriter's Method and available market data. The location of the subject has also been considered. Thus: NET OPERATING INCOME ------------------------ = VALUE OVERALL CAPITALIZATION RATE $334,832.00 --------------- = $3,188,876.00 .105 INDICATED VALUE OF SUBJECT FROM INCOME APPROACH (R/T) $3,170,000.00 Robert M. McSherry, MAI DISCOUNTED CASH FLOW ANALYSIS The subject property will require a period in excess of one year to achieve stabilized net income. In order to provide an estimate of the present value of the improvements upon completion but prior to achieving stabilized net operating income, the discounting process is utilized. The income stream generated by the subject until stabilized income is reached is discounted into an estimate of present value and the reversionary value of the improvements as estimated upon achieving a stabilized net income is also discounted to present worth. The market indicates a discount rate of 11% to be appropriate to be utilized in discounting the income and reversion and this is based on current rates of return on alternate investments and the risk associated with the subject. Robert M. McSherry, MAI Present Worth of Income Stream Year One: $170,100.00x.900901 = $ 153,243.00 Year Two: $255,330.00 x.811622 = $ 207,231.00 Year Three: $334,832.00 x.731191 $ 244,826.00 Total Present Value of Income Stream $ 605,300.00 Present Worth of Reversion $3,170,000.00 x.731191 $2,317,875.00 Summation: Present Worth of Income Stream $ 605,300.00 Present Worth/Reversion $2,923,175.00 Total $2,923,175.00 INDICATED VALUE OF SUBJECT FROM INCOME APPROACH/DISCOUNTED CASH FLOW $2,925,000.00 Robert M. McSherry, MAI RECONCILIATION AND FINAL VALUE The three approaches to value have indicated the following value estimates of the property being appraised: COST APPROACH TO VALUE $4,085,000.00 MARKET APPROACH TO VALUE $2,520,000.00 INCOME APPROACH TO VALUE OVERALL CAPITALIZATION RATE $3,170,000.00 DISCOUNTED CASH FLOW ANALYSIS $2,925,000.00 The subject property is existing construction and only preliminary plans and specifications have been provided this appraiser in order to complete the Cost Approach to Value. Costs are extremely difficult to estimate and no two competent contractors will ever agree on the actual cost to construct a property. However, this appraiser has utilized reliable sources including the Marshall Valuation Service Cost Manual as well as actual construction costs affecting a similar type property in order to complete the Cost Approach to Value and this approach is considered reflective of the cost new of the subject property. The subject property is considered an income producing and has been valued based on it being a Going Concern. The property is under competent ownership and will have excellent management in place and the utilization of the Going Concern concept is considered appropriate with respect to this particular appraisal problem. Accordingly, the Indicated Value of the Property based on stabilized net income being generated at the end of the third year is considered Robert M. McSherry, MAI the best available indicator of it's current Market Value and has been accorded the greatest credence in the final analysis. Based on the data contained within this report, other in-file data, and this appraiser's review and analysis of said data, it is our opinion that the existing property identified as the 28 Unit Independent Living Facility located at 78 Canyon Diablo, within the corporate limits of Sedona, Arizona was estimated to have a Market Value, as of January 10, 1999, and based upon Stabilized Net Operating Income, of: THREE MILLION ONE HUNDRED SEVENTY THOUSAND DOLLARS ($3,170,000.00) Allocated: Land $ 780,000.00 Improvements: $2,350,000.00 Furniture, Fixtures and Equipment $ 40,000.00 Goodwill of Going Concern -0- The estimated "as is" value is estimated to be, as of January 10, 1999 and subject to completion within a reasonable period of time, is: TWO MILLION NINE HUNDRED TWENTY-FIVE THOUSAND DOLLARS ($2,925,000.00) Robert M. McSherry, MAI ADDENDA Robert M. McSherry, MAI APPRAISER'S CERTIFICATION I certify that, to the best of my knowledge and belief,... (1) The statements of fact contained in this report are true and correct. (2) The reported analyses, opinions, and conclusions are limited only by the report assumptions and limiting conditions, and are my personal, unbiased professional analyses, opinion and conclusions. (3) I have no present or prospective interest in the property that is the subject of this report, and I have no personal interest or bias with respect to the parties involved. (4) My compensation is not contingent upon the reporting of a predetermined value or direction in value that favors the cause of the client, the amount of the value estimate, the attainment of a stipulated result, or the occurrence of a subsequent event. (5) My analyses, opinions, and conclusions were developed, and this report has been prepared, in conformity with the Uniform Standards of Professional Appraisal Practice. (6) I have made a personal inspection of the property that is the subject of this report and all rent comparables. (7) No one provided significant professional assistance to the person signing this report. (8) The reported analyses, opinions, and conclusions were developed, and this report has been prepared, in conformity with the requirements of the Code of Professional Ethics and the Standards of Professional Practice of the American Institute of Real Estate Appraisers. (9) The use of this report is subject to the requirements of the Appraisal Institute relating to review by its duly authorized representatives. (10) I am not currently certified under the voluntary continuing education program of the American Institute of Real Estate Appraisers. Robert M. McSherry, MAI (11) I certify that the use of this report is subject to the requirements of the Appraisal Institute relating to review by its authorized representatives. Estimated Market Value: /S/ROBERT M MCSHERRY $3,170,000.00 --------------------------- Robert M. McSherry, MAI LA State Certified General Estate Appraiser No. G0891 Allocated: Land $ 780,000.00 Improvements $2,350,000.00 Furniture, Fixtures and Equipment $ 40,000.00 Goodwill of Going Concern -0- As Of: January 10, 1999 Robert M. McSherry, MAI QUALIFICATIONS OF ROBERT M. MC SHERRY, MAI EDUCATIONAL BACKGROUND AND TRAINING: Graduate of Louisiana State University, Baton Rouge, Louisiana, Bachelor of Science Degree in Business Administration with a Major in Finance. Real Estate Appraisal Course 1-A, Basic Fundamentals, Methods and Techniques, 1974, AIREA Real Estate Appraisal Course 1-B, Capitalization, 1975, AIREA Real Estate Appraisal Course VIII, Single-Family Residential Appraisal, 1974, AIREA Real Estate Appraisal Course II, Techniques and Application, 1976 and 1980, AIREA Real Estate Appraisal Course III, Rural Properties, 1979 Real Estate Appraisal "Industrial Valuation" Course, 1984 Seminar: R-41 C - New Orleans, Louisiana, AIREA, 1978 "Standards of Professional Practice" Course, AIREA, 1987 "Capitalization Theory and Techniques, Part A" Course, AIREA, 1987 "Standards of Professional Practice" Course, Appraisal Institute, 1992 "Advanced Level Finance I & II", 1997 "Risk Management/Ethics/Fair Housing", 1997 "How to Value Louisiana Timberland", 1997 "Uniform Standards of Professional Appraisal Practice" Seminar, 1997 PROFESSIONAL EXPERIENCE Real Estate Broker, State of Louisiana (1971) Robert M. McSherry, MAI Monroe Redevelopment Agency, Monroe, Louisiana (1971) Ford, Bacon & Drive Construction and Engineering Company, Monroe, Louisiana (1972) Mississippi power and Light Company, Jackson, Mississippi (1973-1976) Cameron-Brown South, Inc., Mortgage Bankers, Baton Rouge, Louisiana (1976-1977) Real Estate Appraiser, Monroe, Louisiana (1978-1985) Real Estate Appraiser, Baton Rouge, Louisiana and Jackson, Mississippi (1985-Present) PROFESSIONAL MEMBERSHIPS: Residential Member, American Institute of Real Estate Appraisers, Certification Number 1040 Licensed Real Estate Broker, State of Louisiana Fee Inspector for the Louisiana Homeowners Warranty Corporation FNMA Approved Level III Appraiser, Number 1027135 Member, American Institute of Real Estate Appraisers - MAI Designation (1981), Number 6291 Certified Licensed General Appraiser, State of Louisiana, Number 0891 Robert M. McSherry, MAI PHOTOGRAPHS Robert M. McSherry, MAI [PHOTO OF FRONT ENTRANCE] [PHOTO OF FRONT ENTRANCE] Robert M. McSherry, MAI [PHOTO OF SURROUNDING AREA] [PHOTO OF FACILTIY] Robert M. McSherry, MAI [PHOTO OF INTERIOR HALLWAY] [PHOTO OF SHOWER] Robert M. McSherry, MAI [PHOTO OF UNIT KITCHEN] [PHOTO OF UNIT LIVING ROOM] Robert M. McSherry, MAI [PHOTO OF INTERIOR HALLWAY] [PHOTO OF REAR ENTRANCE] Robert M. McSherry, MAI [PHOTO OF FACILTIY] [PHOTO OF FACILITY] Robert M. McSherry, MAI [PHOTO OF FACITLITY EXTERIOR] [PHOTO OF FACITLITY EXTERIOR] Robert M. McSherry, MAI [PHOTO OF SWIMMING POOL] [PHOTO OF COMMON AREA] Robert M. McSherry, MAI [PHOTO OF COMMON AREA] [PHOTO OF FACILITY EXTERIOR] Robert M. McSherry, MAI FLOOR PLAN Robert M. McSherry, MAI [FLOOR PLAN OF STANDARD UNIT] Robert M. McSherry, MAI [FLOOR PLAN OF 1 BEDROOM UNIT] Robert M. McSherry, MAI [FLOOR PLAN OF 2 BEDROOM UNIT] Robert M. McSherry, MAI [SITE PLAN] Robert M. McSherry, MAI EX-99.3 30 PROPERTY APPRAISAL FOR BASTROP, LA FACILITY A Self-Contained Real Estate Appraisal Report of A Proposed 21 Unit Assisted Care Facility, Resident Manager's Apartment and 4 Efficiency Assisted Care Units all Located on the South Side of Cooper Lake Road Just East of the Intersection with Orion Drive Within the Corporate Limits of Bastrop, Morehouse Parish, Louisiana For MMR Investment Bank Post Office Box 781440 Witchita, Kansas 67278-1440 As Of September 20, 1998 Prepared by Robert M. McSherry, MAI Louisiana State Certified General Real Estate Appraiser No. G0891 3760 Chelsea Drive Baton Rouge, Louisiana 70809 A Self-Contained Real Estate Appraisal Report of A Proposed 21 Unit Assisted Care Facility, Resident Manager's Apartment and 4 Efficiency Assisted Care Units all Located on the South Side of Cooper Lake Road Just East of the Intersection with Orion Drive Within the Corporate Limits of Bastrop, Morehouse Parish, Louisiana For Colonial Trust Company 5336 North 19th Avenue Phoenix, Arizona 85015 As Of September 20, 1998 Prepared by Robert M. McSherry, MAI Louisiana State Certified General Real Estate Appraiser No. G0891 3760 Chelsea Drive Baton Rouge, Louisiana 70809 Robert M. McSherry, MAI A Self-Contained Real Estate Appraisal Report of A Proposed 21 Unit Assisted Care Facility, Resident Manager's Apartment and 4 Efficiency Assisted Care Units all Located on the South Side of Cooper Lake Road Just East of the Intersection with Orion Drive Within the Corporate Limits of Bastrop, Morehouse Parish, Louisiana For Church Loans and Investments 5305 I-40 West Post Office Box 8203 Amarillo, Texas 79114-8203 As Of September 20, 1998 Prepared by Robert M. McSherry, MAI Louisiana State Certified General Real Estate Appraiser No. G0891 3760 Chelsea Drive Baton Rouge, Louisiana 70809 Robert M. McSherry, MAI ROBERT M. MC SHERRY, MAI 3760 Chelsea Drive Baton Rouge, Louisiana 70809 Phone (504)924-8093 September 20, 1998 MMR Investment Bank Post Office Box 781440 Witchita, Kansas 67278-1440 RE: A proposed 21 unit assisted care facility, resident manager's apartment and 4 efficiency assisted care units all located on the south side of Cooper Lake Road just east of the Intersection with Orion Drive within the corporate limits of Bastrop, Morehouse Parish, Louisiana. Dear Sir: In accordance with your request to provide an estimate of the Estimated Market Value of Fee Simple Interest of the Going Concern of the property identified as a proposed 21 unit Assisted Care Facility, Resident Manager's Apartment and 4 Efficiency Assisted Care Units all located within the corporate limits of Bastrop, Morehouse Parish, Louisiana, we have personally inspected the subject site and reviewed the submitted plans and specifications for the proposed improvements and conducted a thorough review and analysis of all matters pertinent for the Estimate of Market Value herein contained. Market Value as defined by the Department of the Treasury, Office of the Comptroller of the Currency, August 24, 1990, is, "The most probable price which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller, each acting prudently, knowledgeably and assuming the price is not affected by undue stimulus. Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby: a. buyer and seller are typically motivated; b. both parties are well informed or well advised, and each acting in what he considers his own best interest; c. a reasonable time is allowed for exposure in the open market; Robert M. McSherry, MAI ROBERT M. MC SHERRY, MAI 3760 Chelsea Drive Baton Rouge, Louisiana 70809 Phone (504)924-8093 September 20, 1998 Colonial Trust Company 5336 North 19th Avenue Phoenix, Arizona 85015 RE: A proposed 21 unit assisted care facility, resident manager's apartment and 4 efficiency assisted care units all located on the south side of Cooper Lake Road just east of the Intersection with Orion Drive within the corporate limits of Bastrop, Morehouse Parish, Louisiana. Dear Sir: In accordance with your request to provide an estimate of the Estimated Market Value of Fee Simple Interest of the Going Concern of the property identified as a proposed 21 unit Assisted Care Facility, Resident Manager's Apartment and 4 Efficiency Assisted Care Units all located within the corporate limits of Bastrop, Morehouse Parish, Louisiana, we have personally inspected the subject site and reviewed the submitted plans and specifications for the proposed improvements and conducted a thorough review and analysis of all matters pertinent for the Estimate of Market Value herein contained. Market Value as defined by the Department of the Treasury, Office of the Comptroller of the Currency, August 24, 1990, is, "The most probable price which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller, each acting prudently, knowledgeably and assuming the price is not affected by undue stimulus. Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby: a. buyer and seller are typically motivated; b. both parties are well informed or well advised, and each acting in what he considers his own best interest; c. a reasonable time is allowed for exposure in the open market; Robert M. McSherry, MAI ROBERT M. MC SHERRY, MAI 3760 Chelsea Drive Baton Rouge, Louisiana 70809 Phone (504)924-8093 September 20, 1998 Church Loans and Investments 5305 I-40 West Post Office Box 8203 Amarillo, Texas 79114-8203 RE: A proposed 21 unit assisted care facility, resident manager's apartment and 4 efficiency assisted care units all located on the south side of Cooper Lake Road just east of the Intersection with Orion Drive within the corporate limits of Bastrop, Morehouse Parish, Louisiana. Dear Sir: In accordance with your request to provide an estimate of the Estimated Market Value of Fee Simple Interest of the Going Concern of the property identified as a proposed 21 unit Assisted Care Facility, Resident Manager's Apartment and 4 Efficiency Assisted Care Units all located within the corporate limits of Bastrop, Morehouse Parish, Louisiana, we have personally inspected the subject site and reviewed the submitted plans and specifications for the proposed improvements and conducted a thorough review and analysis of all matters pertinent for the Estimate of Market Value herein contained Market Value as defined by the Department of the Treasury, Office of the Comptroller of the Currency, August 24, 1990, is, "The most probable price which a property should bring in 2 competitive and open market under all conditions requisite to a fair sale, the buyer and seller, each acting prudently, knowledgeably and assuming the price is not affected by undue stimulus. Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby: a. buyer and seller are typically motivated; b. both parties are well informed or well advised, and each acting in what he considers his own best interest; c. a reasonable time is allowed for exposure in the open market; d. payment is made in terms of cash in U.S. dollars or in terms of financial arrangements comparable thereto; and Robert M. McSherry, MAI Page Two e. the price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions granted by anyone associated with the sale. Fee Simple Interest is defined by the Appraisal Institute as being, "a fee without limitations to any particular class of heirs or restrictions but subject to the limitations of eminent domain, escheat, police power and taxation. An inheritable estate" Going Concern Value is "the value created by a proven property operation." It includes the incremental value associated with the business concern, which is distinct from the value of the real estate only. Going concern value includes an intangible enhancement of the value of an operating business enterprise which is produced by the assemblage of the land, building, labor, equipment, and marketing operation. This process creates an economically viable business that is expected to continue. Going concern value refers to the total value of a property, including both real property and intangible personal property attributed to business value. Special purpose properties such as the subject are appropriate for only one use or for a very limited number of uses. The highest and best use of a special purpose property as improved, is probably the continuation of its current use, if that use remains viable. Therefore, in the case of special purpose properties a going concern value is considered appropriate. In this instance the subject property has an excellent location within a viable market. As long as quality management is maintained, it's Market Value would be the same as it's Going Concern Value. Included is our appraisal report which contains the various exhibits and data utilized in arriving at the herein contained estimate of Market Value for the subject property. It is our opinion that the property herein identified as the proposed 21 Unit Assisted Care Facility, Resident Manager's Apartment and 4 Efficiency Assisted Care Units all located on the south side of Cooper Lake Road within the corporate limits of Bastrop, Morehouse Parish, Louisiana, was estimated to have a Market Value based on Stabilized Net Operating Income, as of September 20, 1998, of: TWO MILLION ONE HUNDRED THOUSAND DOLLARS ($2,100,000.00) Robert M. McSherry, MAI Page Three Allocated: LAND: $ 50,000.00 IMPROVEMENTS: $1,975,000.00 FURNITURE, FIXTURES & EQUIPMENT: $ 75,000.00 GOODWILL OF GOING CONCERN -0- The "As Is" Value of the property, derived by the utilization of the Discounted Cash Flow Methodology, is estimated to be, as of September 20, 1998, but subject to completion of the property in accordance with submitted plans and specifications within a reasonable period of time, of: TWO MILLION FORTY THOUSAND DOLLARS ($2,040,000.00) The subject property is proposed at the present time and this appraiser has been provided plans and specifications for the property. The herein contained Estimate of Market Value is conditioned upon the completion of the improvements in accordance with the plans and specifications utilizing quality materials and workmanship within a reasonable period of time. A final inspection by this appraiser will be required to ascertain the assumptions utilized in preparing this appraisal report have been fulfilled. This appraisal report was prepared in accordance with and compliance of the Uniform Standards of Professional Appraisal Practice promulgated by the Appraisal Foundation and the Guide Notes to the Standards of Professional Practice adopted by the Appraisal Institute. These standards contain binding requirements and specific guidelines that deal with the procedures to be followed in developing an appraisal, analysis, or opinion. These uniform standards also set the requirements to communicate the appraiser's analysis, opinions, and conclusions in a manner that will be meaningful and not misleading in the marketplace, accordingly, the Departure Provision does not apply. Robert M. McSherry, MAI Page Four If we may be of further service to you in regard to this property or in any other manner, please do not hesitate to contact us at your earliest convenience. Respectfully submitted, /S/ROBERT M MCSHERRY Robert M. Mc Sherry, MAI Louisiana State Certified General Real Estate Appraiser No. G0891 Robert M. McSherry, MAI EXECUTIVE SUMMARY Location: South side of Cooper Lake Road just east of Orion Drive within the Corporate Limits of Bastrop, Morehouse Parish, Louisiana Interest Appraised: Fee Simple Interest Site: 3.35 Acres or 145,926 Square Feet, more or less Building Description: The property will include twenty-one (21) assisted care living units, a resident manager's apartment and 4 efficiency assisted care units all located within a single, T-shaped building. The common area amenities including a full service kitchen, a dining area, activities area, office/reception area, adequate bathrooms which would be fully equipped to satisfy the needs of the residents of the assisted care facilities as well as storage areas and other required additions to render the subject property a functional assisted care facility catering to those requiring assisted care. Construction characteristics include a reinforced poured concrete foundation, wood framing, with a combination of brick veneer and vinyl siding exterior walls with the roof being of composition shingles. Although the property is proposed at the present time, this appraiser is aware of a similar property which has been constructed by the owners of the subject and our physical inspection of this existing complex has been utilized in conjunction with the submitted plans and specifications. The property is considered to be a most functional assisted living facility and is considered a most attractive property and should be well accepted by the local market. Robert M. McSherry, MAI Highest and Best Use: Assisted care facility including all required amenities. Cost Approach to Value $2,140,000.00 Market Approach to Value $2,150,000.00 Income Approach to Value: Stabilized Net Income: $2,100,000.00 Discounted Cash Flow Value: $2,040,000.00 Final Value Estimate: Stabilized Net Income: $2,100,000.00 "As Is" Value: $2,040,000.00 Allocated: Land $ 50,000.00 Improvements $1,975,000.00 Furniture, Fixtures and Equipment $ 75,000.00 Goodwill of Going Concern -0- Robert M. McSherry, MAI IDENTIFICATION OF THE PROPERTY The property being inspected, analyzed and for which the Market Value Estimate of the Fee Simple Interest of the Going Concern is applicable is a 3.35 acre tract of land which will be basically rectangular in shape and having approximately 475 feet of frontage along the south side of Cooper Lake Road, a depth of 307 feet and is located within the corporate limits of Bastrop, Morehouse Parish, Louisiana. The subject site is a portion of a larger tract of land which is to be purchased from Woodrow Wilson by Bittmore, LLC for a verified consideration of $100,000.00 for this total 6.70 acre tract of land. The total tract of land of which the subject property will constitute one-half is as follows: "All of that portion of Section 19, 20, 29 and 30, Township 21 North, Range 6 East, Morehouse Parish, Louisiana beginning at Cooper Lake Road and the back of Lots 1-3, 6-13 and 15-18 of the Space Estates Number 5 per plat found in Plat Book 6, Page 13 of the Records of Morehouse Parish, Louisiana. The total property contains 6.7 acres of gross land area, more or less. As noted, the subject property will constitute one-half of the above described tract of land with a complete metes and bounds survey and complete legal description to be provided this appraiser as a condition of this appraisal report. Robert M. McSherry, MAI PURPOSE OF THE APPRAISAL The purpose of this report is to communicate, in a narrative format, the data and reasoning that the appraisers have utilized to form the herein contained estimate of Market Value of the Fee Simple Interest of the Going Concern for the property identified as a proposed 21 assisted care facility and 4 efficiency assisted care units all located on the south side of Cooper Lake Road, Bastrop, Louisiana. OBJECTIVE OF THE APPRAISAL The objective and function of this appraisal report is to provide an estimate of the Market Value of the Fee Simple Interest of the Going Concern of the property for use by MMR Investment Bank in order to provide long term financing of the subject property for the Biltmore Group, L.L.C. The Subject property was personally inspected by this appraiser both before and after the date of this appraisal and the submitted plans and specifications reviewed. As the property is proposed construction, a final inspection of the property will be required by the appraiser to ascertain the assumptions utilized within this appraisal report have been fulfilled and this appraisal is also conditioned upon being completed in accordance with the plans and specifications utilizing quality materials and workmanship throughout. Other additional conditions are contained in an additional section of this report. Robert M. McSherry, MAI PURPOSE OF THE APPRAISAL The purpose of this report is to communicate, in a narrative format, the data and reasoning that the appraisers have utilized to form the herein contained estimate of Market Value of the Fee Simple Interest of the Going Concern for the property identified as a proposed 21 assisted care facility and 4 efficiency assisted care units all located on the south side of Cooper Lake Road, Bastrop, Louisiana. OBJECTIVE OF THE APPRAISAL The objective and function of this appraisal report is to provide an estimate of the Market Value of the Fee Simple Interest of the Going Concern of the property for use by Colonial Trust Company in order to provide long term financing of the subject property for the Biltmore Group, L.L.C. The Subject property was personally inspected by this appraiser both before and after the date of this appraisal and the submitted plans and specifications reviewed. As the property is proposed construction, a final inspection of the property will be required by the appraiser to ascertain the assumptions utilized within this appraisal report have been fulfilled and this appraisal is also conditioned upon being completed in accordance with the plans and specifications utilizing quality materials and workmanship throughout. Other additional conditions are contained in an additional section of this report. Robert M. McSherry, MAI PURPOSE OF THE APPRAISAL The purpose of this report is to communicate, in a narrative format, the data and reasoning that the appraisers have utilized to form the herein contained estimate of Market Value of the Fee Simple Interest of the Going Concern for the property identified as a proposed 21 assisted care facility and 4 efficiency assisted care units all located on the south side of Cooper Lake Road, Bastrop, Louisiana. OBJECTIVE OF THE APPRAISAL The objective and function of this appraisal report is to provide an estimate of the Market Value of the Fee Simple Interest of the Going Concern of the property for use by Church Loans and Investments in order to provide long term financing of the subject property for the Biltmore Group, L.L.C. The Subject property was personally inspected by this appraiser both before and after the date of this appraisal and the submitted plans and specifications reviewed. As the property is proposed construction, a final inspection of the property will be required by the appraiser to ascertain the assumptions utilized within this appraisal report have been fulfilled and this appraisal is also conditioned upon being completed in accordance with the plans and specifications utilizing quality materials and workmanship throughout. Other additional conditions are contained in an additional section of this report. Robert M. McSherry, MAI DATE OF THE APPRAISAL The effective date of this appraisal is September 20, 1998. The subject site was personally inspected by this appraiser both before and after this date and the submitted plans and specifications for the proposed improvements were also reviewed by the appraiser prior to the date of the appraisal. Robert M. McSherry, MAI DEFINITION OF SIGNIFICANT TERMS Market Value, as defined by the Department of the Treasury, Office of the Comptroller of the Currency, August 24, 1990, is, "The most probable price which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller, each acting prudently, knowledgeably and assuming the price is not affected by undue stimulus. Implicit in this definition, is the consummation of a sale as of a specified data and the passing of title from seller to buyer under conditions whereby: a. buyer and seller are typically motivated; b. both parties are well informed or well advised, and each acting in what he considers his own best interest; c. a reasonable time is allowed for exposure in the open market; d. payment is made in terms of cash in U.S. dollars or in terms of financial arrangements comparable thereto; and e. the price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions granted by anyone associated with the sale. Fee Simple Interest is defined by the Appraisal Institute as being, "a fee without limitations to any particular class of heirs or restrictions but subject to the limitations of eminent domain, escheat, police power and taxation. An inheritable estate". Going Concern Value is "the value created by a proven property operation." It includes the incremental value associated with the business concern, which is distinct from the value of the real estate only. Going concern value includes an Robert M. McSherry, MAI intangible enhancement of the value of an operating business enterprise which is produced by the assemblage of the land, building, labor, equipment, and marketing operation. This process creates an economically viable business that is expected to continue. Going concern value refers to the total value of a property, including both real property and intangible personal property attributed to business value, Special purpose properties such as the subject are appropriate for only one use or for a very limited number of uses. The highest and best use of a special purpose property as improved, is probably the continuation of its current use, if that use remains viable. Therefore, in the case of special purpose properties a going concern value is considered appropriate. Robert M. McSherry, MAI PROPERTY RIGHTS APPRAISED This assignment concerns the appraisal of the Fee Simple Interest with Fee Simple Interest defined in Real Estate Appraisal Terminology as being, "a fee without limitations to any particular class of heirs or restrictions but subject to the limitations of eminent domain, escheat, police power and taxation. An inheritable estate". STATEMENT OF OWNERSHIP AND RECENT HISTORY The larger tract from which the subject property will be partitioned is under the ownership of Woodrow Wilson and has been under this ownership for a period in excess of five (5) years. The property will be purchased by Biltmore, LLC for a total consideration of $100,000.00 for the 6.70 acre tract which indicates a purchase price of $14,925.00 per acre or $.34 per square foot. The property has been owned by the current owner, Woodrow Wilson, for a period in excess of five (5) years and no there are no speculative transactions affecting the subject property according to the records found in the Morehouse Parish Clerk of Court's Office. Robert M. McSherry, MAI ASSUMPTIONS AND LIMITING CONDITIONS This appraisal report has been made with the following assumptions and limiting conditions: 1. No responsibility is assumed for the legal description or for matters including legal or title consideration. Title to the property is assumed to be good and marketable unless otherwise stated. 2. The property is appraised free and clear of any and all liens or encumbrances unless otherwise stated. 3. Responsible ownership and competent property management are assumed. 4. The information furnished by others is believed to be reliable. No warranty, however, is given for its accuracy. 5. All engineering is assumed to be correct. The plot plans and illustrative material in this report are included only to assist the reader in visualizing the property. 6. It is assumed that there are no hidden or apparent conditions of the property, subsoil, or structures that render it more or less valuable. No responsibility is assumed for such conditions or for arranging for engineering studies that may be required to discover them. 7. It is assumed that there is full compliance with all applicable federal, state, and local environmental regulations and laws unless noncompliance is stated, defined, and considered in the appraisal report. 8. It is assumed that all applicable zoning and use regulations and restrictions have been complied with, unless a nonconformity has been stated, defined, and considered in the appraisal report. 9. It is assumed that all required licenses, certificates of occupancy, consents, or other legislative or administrative authority from any local, state or national government or private entity or organization have been, or can be obtained or renewed for any use on which the value estimate contained in this report is based. Robert M. McSherry, MAI 10. It is assumed that the utilization of the land and improvements is within the boundaries or property lines of the property described and that there is no encroachment or trespass unless noted in the report. 11. The distribution, if any, of the total valuation in this report between land and improvements applies only under the stated program of utilization. The separate allocations for land and buildings must not be used in conjunction with any other appraisal and are invalid if so used. 12. The appraisers herein, by reason of this appraisal, are not required to give further consultation, testimony, or be in attendance in court with reference to the property in question unless arrangements have been previously made. 13. Possession of this report, or a copy thereof, does not carry with it the right of publication. It may not be used for any purpose by any person other than the party to whom it is addressed without the written consent of the appraisers, and in any event only with proper written qualification and only in its entirety. 14. Neither all nor any part of the contents of this report (especially any conclusions as to value, the identity of the appraisers, or the firm with which the appraisers are connected) shall be disseminated to the public through advertising, public relations, new, sales, or other media without the prior written consent and approval of the appraisers. 15. The existence of hazardous materials, which may or may not be present on the subject property, was not observed by the appraisers. The appraisers have the knowledge of the existence of such materials on or in the subject property. However, the appraisers are not qualified to detect such substances and the presence of potential hazardous materials may affect the value of the property. This value estimate contained within this report is predicated on the assumption that no such hazardous materials are present on or in the property. No responsibility is assumed for any such conditions or for any expertise or any knowledge required to discover these items. This should be accomplished by an expert in the field and is a condition of this appraisal report. 16. That the appraiser has personally inspected the subject property and finds no obvious evidence of structural deficiencies, except as stated in this report; however, no responsibility for hidden defects or conformity to specific governmental requirements, such as the Americans with Disabilities (ADA) or fire, building and safety, earthquake, or occupancy codes, etc., can be assumed without provision of specific professional or governmental inspections. Robert M. McSherry, MAI 17. This property is proposed at the present time and the appraisal is conditioned upon the completion of the subject property in accordance with the submitted plans and specifications utilizing quality materials and workmanship throughout. A final inspection by the appraiser would be required in order to ascertain the assumptions utilized in arriving at the herein contained Estimate of Market Value have been fulfilled. 18. This appraisal is not based on a requested minimum valuation, a specific valuation or the approval of the loan. Robert M. McSherry, MAI MOREHOUSE PARISH AND BASTROP CITY DATA Bastrop is located in the extreme northeastern corner of Louisiana approximately 124 miles northeast of Shreveport, Louisiana and 129 miles northwest of Jackson, Mississippi. The population as of 1993 for the City of Bastrop was 14,019 while the population of Morehouse Parish was 31,818. There are 19 local public and private schools that service Bastrop while Northeast Louisiana University lies within 24 miles of the City. The local utilities and services include Louisiana Power and Light, natural gas is supplied by Louisiana Gas Service and water is supplied by Peoples Water Company. There is a local Police Department and Fire Department for personal protection. Local telephone service is provided by South Central Bell. The community enjoys 64 local churches which are either Protestant, Catholic or Other Denomination. There are 26 doctors servicing one local hospital. Highways serving the area are US Highway 165, LA Highway 139 and LA Highway 2.; local railroads are UP-MP and AL&M, the Bastrop Municipal Local is the area airport, the bus service, Trailways and the local waterway is the Oauchita River. There are 3 daily newspapers, 2 local radio stations, one television station and cable television is available. Robert M. McSherry, MAI The major employer in the area is International Paper with approximately 1,100 union employees with Ditto of California-Apparel (800 employees), Morehouse Parish School Board (784 employees), Morehouse General Hospital (350 employees) with Wal-Mart and the City of Bastrop following with 225 employees and 180 employees respectively. Robert M. McSherry, MAI OVERVIEW OF ASSISTED LIVING INDUSTRY In anticipation that more elderly Americans will live in assisted living homes than nursing homes in the near future, consumer industry groups are saying it is time to put some minimum standards into law. One of the most important things for the industry is to try not to admit residents it cannot provide quality care for. Many assisted living homes charge additional fees for personal services residents may come to need as they grow older. Some will help residents if they get sick by permitting periodic visits from nurses, for example, or providing supervision for people with Alzheimer's Disease. In order to minimize residents need to move, the consumer or trade groups say assisted living facilities should be required to offer at least some help with the dozen daily activities including meals, using the bathroom, taking medication and shopping. Those facilities which accept people with Alzheimer's or other types of dementia would also be required to provide 24 hour awake staff and special training for those workers. Assisted living has become the hottest new housing option for older people by promising to provide a happy medium between their homes and a full nursing home facility. Industry estimates show that the number of elderly Americans living in settings that could be described as assisted living has probably doubled from 560,000 in 1990 to as many as 1,000,000 in 1997. By early next century, experts predict assisted living homes will care for more elderly Americans than nursing homes. Robert M. McSherry, MAI Although numbers are inexact, assisted living facilities ranging from luxury apartment buildings to modest group homes provide housing along with personal services and some health care. Residents may be too frail to live alone but too healthy to need the 24 hour medical attention of nursing homes. Assisted living can be less expensive than nursing homes. A 1997 survey by the National Center for Assisted Living found that 52% costs $1,001.00 to $2,000.00 per month and 24% cost less than $1,000.00 per month. In contrast, monthly nursing home fees average above $3,000.00. Assisted living's affordability has attracted the attention of law makers worried about how the nation will ensure elderly care for the huge baby boom generation now middle aged. Medicaid programs for the poor in 28 states have begun to cover some assisted living services and the Department of Health and Human Services is conducting a fact finding survey. Unlike nursing homes, assisted living homes are not regulated by the Federal Government. Fewer than half of the states require licensing before it opens. That allows for flexibility and partly explains assisted living's popularity. In summary, the assisted living facilities currently expanding throughout the United States are the most popular and desirable alternative living situation for those elderly which require some minimal level of care but not the extensive level required by nursing home patients. As the population continues to grow Robert M. McSherry, MAI older but maintain better health, the appeal thus desirability of assisted living facilities will continue to be enhanced. Robert M. McSherry, MAI SCOPE OF THE APPRAISAL The appraiser has personally inspected the subject site and conducted an in-depth inspection of the neighborhood in which the subject property is located observing it's trends of development and characteristics. Vacant land sales utilized in conjunction with the Cost Approach to Value and in determining the estimated Market Value of the subject site, as if vacant, and owned in Fee Simple have been inspected by this appraiser and a combination of data provided by the Marshall Valuation Service Cost Manual and other available in-file data has been utilized in the process of estimating the replacement cost new of the subject improvements. In the final analysis, the appraiser has utilized and relied upon the experience of judgment based on the opinion of the quality and quantity of the data in arriving at the final value estimate of the Fee Simple Interest in the subject property. The Income Approach to Value has been completed utilizing a stabilized net income capitalized into value and a discounted cash flow method. Economic rents were determined by rent comparables and current data utilized with respect to expense projections. Information provided by the publication "Trends in the Health Care Industry" as well as information provided by other actual ongoing facilities similar to the subject have been utilized in the process of estimating the projected expenses which were included in the Income Approach to Value. Although the subject property is proposed at the present time and has no income or expense history, it is considered to be a functional facility and a facility which is demand with respect to providing long term assisted living care. Robert M. McSherry, MAI DESCRIPTION OF THE PROPERTY Site Data Size, Shape and Topography The subject site will be a 3.35 acre rectangular shaped parcel of land having approximately 475 feet of frontage along the south side of Cooper Lake Road, a depth of 307 feet thus encompassing 3.35 acres or 145,926 square feet, more or less. The property is located, as noted, along the south side of Cooper Lake Road which is a dual-land, asphalt, municipally maintained traffic artery serving local vehicular traffic. The topography of the property is rolling to gently rolling and will require limited site preparation prior to construction. Inspection of the site did not reveal any detrimental physical characteristics which would adversely affect the development of the subject property to it's highest and Best Use as an assisted living facility. Utilities The subject property is located inside the corporate limits of Bastrop, Morehouse Parish, Louisiana and is provided with all city utilities and services available to properties within the corporate limits of Bastrop including electrical service, police and fire protection, public water, sewerage disposal, and refuge disposal. Telephone service and natural gas service is provided by the local utility companies servicing the area. Access Access to the subject development will be provided as the result of the location of Cooper Lake Road along the northern boundary of the site. Cooper Lake Road is a dual laned, asphalt, municipally maintained traffic artery servicing Robert M. McSherry, MAI primarily local vehicular traffic and provides access into the downtown area of Bastrop as well as to the outlying areas of Bastrop and Morehouse Parish. There exists an intersection with US Hwy 165 in the immediate proximity of the subject site with US Hwy 165 being the major traffic artery through Bastrop and Morehouse Parish. Overall, access to the subject site from all areas of both the City of Bastrop or the outlying areas of Morehouse Parish is adequately provided. Zoning Conversations with representatives in the Bastrop City Hall indicated that no zoning currently affects the City of Bastrop. Land uses are controlled by deed restrictions or other restrictive covenants which run with the land and, although this appraiser has not conducted an in-depth review of the abstract to the subject site, no deed restrictions or other restrictive covenants are assumed to exist which would affect the utilization of the subject site as a site of an assisted living facility. This appraiser has not conducted an in-depth review with respect to the abstract to the subject site but no deed restrictions or other restrictive covenants are assumed to exist which would affect the development of the subject property to its highest and best use. However, this should be ascertained by competent legal authority and is a condition of this appraisal report. Robert M. McSherry, MAI Drainage Review of Flood Hazard Maps found in the Morehouse Parish Community Office indicated the subject property to be located in a Flood Zone "C" according to Flood Map No. 220127-002-B having an effective date of December 16, 1980. This indicates no flood insurance is required for the subject property. Tax Data The subject property is proposed construction property and the taxes on the vacant land only are minimal. The subject property will be placed on the Morehouse Parish tax rolls the year after it is completed and at that time will be assessed and the tax liability can be assigned. For the purposes of this appraisal report and for the utilization in the Income Approach, taxes have been projected but are subject to change once the property is completed and placed on the tax rolls. The 1997 millage rates applicable to the subject property are as follows: City 40.70 Mills Parish 65.15 Mills Total 105.85 Mills Assisted living facilities such as the subject are assessed at 10% of Market Value and conversations with representatives of the Morehouse Parish Tax Assessor's Office indicate an estimated Market Value for tax purposes will be approximately 30% less than actual Market Value. Thus: Robert M. McSherry, MAI Estimated Value of Subject $2,100,000.00 Estimated Assessed Value $1,470,000.00 10% - Assessed Value $ 147,000.00 $147,000.00 X 105.85 Mills = Estimated Tax Liability $ 15,559.95 Robert M. McSherry, MAI [Subject Site Location Map Indicating Subject Property] DESCRIPTION OF THE IMPROVEMENTS Assisted Living Facility The proposed facility containing the assisted living units will be constructed within a single T-shaped building but a building comprised of different component sections housing the assisted living units in two wings with the public areas located in the center or core of the building. The building is a modified T-shape and encompasses a total of 22,217 square feet of heated area. The assisted living units contained within this facility will contain approximately 485 square feet of living area and feature a bedroom, living room, kitchenette and full bath with shower while the efficiency units will contain approximately 200 square feet of area. The gross building area was calculated by Mr. Mike Wallace, the preparer of the plans and specifications for the property. Construction characteristics for this building include reinforced poured concrete foundation with adequate grade beams and both interior and perimeter footings with the exterior being wood framing utilizing a combination of brick veneer vinyl with the roof being a composition shingle roof over wood decking. Windows will be insulated, horizontal slide aluminum windows with each unit of the assisted care units having their own central HVAC unit with the common areas utilizing central, zoned units. Interior construction will include a combination of vinyl and carpet or ceramic tile flooring, painted or vinyl covered sheetrock walls with acoustical ceilings. Lighting will be both standard and fluorescent fixtures. Robert M. McSherry, MAI Amenities to be contained within the assisted care portion of the building include a full service kitchen, dining room, activities area, whirlpool area, staff laundry, TV rooms, offices and other required amenities as well as an apartment for the resident managing couple. As previously noted, the total gross area contained within this portion of the subject property is 22,217 square feet. Within this total, 21 assisted living units, 4 efficiency assisted units, the manager's apartment and remaining common areas will be contained. Parking will be poured concrete and located at strategic locations around the site and will be adequate to fulfill the requirements of both the tenants and staff. Landscaping will be extensive and utilized in conjunction with the natural topography of the area should be most pleasing. Each assisted living unit will include a toilet, lavatory and tub/shower unit, through wall air conditioning unit with heat strip, drop-in over/range unit with vent hood as well as adequate closet and cabinet space. A complete set of working drawings will be provided the appraiser as a condition of this appraisal to ascertain the assumptions utilized within this report have been fulfilled. A final inspection by the appraiser will be required. As noted, the subject is proposed construction and this appraisal is conditioned upon the completion utilizing quality materials and workmanship with a final inspection by the appraiser required to ascertain the preliminary plans and specifications provided this appraiser were correct. Robert M. McSherry, MAI HIGHEST AND BEST USE Introduction The Appraisal Institute defined highest and best use as follows, "that legal use, at the time of the appraisal, which is the most profitable likely use to which a property can be put." There are several basic factors which must be considered in order to make a proper determination of Highest and Best Use: 1. The use must be legal, that is, legally adaptable regarding zoning and other restrictions; 2. The use must be probable, not conjectural or speculative; 3. The property must be physically adaptable to use contemplated; 4. There must be a demand for such use; 5. The use must be profitable, the highest return to the land over the longest period of time. Highest and best use of the land (or site) if vacant and available for use may be different from the highest and best use of the improved property. This is true if the improvement is not an appropriate use, but it makes a contribution to the total property value in excess of the value of the site. The above five tests have been applied to the subject property's vacant site. In arriving at the estimate of highest and best use, the subject site has been carefully analyzed. Robert M. McSherry, MAI HIGHEST AND BEST USE ASSUMING A VACANT SITE Permissible Use An investigation has been conducted in order to determine the zoning classification that encumbers the subject property. The results of this investigation has revealed that the subject site is not affected by City or Parish zoning with land uses controlled by deed restrictions or other restrictive covenants. The lack of zoning allows a large number of permissible uses to be considered for the subject property but it's location within a primarily residential area, the access provided by a dual-laned municipal traffic artery and other factors indicate the proposed utilization as an assisted care facility to be one of the better if not the best permissible uses of the site and would be a legal, conforming, permissible use. Possible Use Inspection of the subject property's neighborhood has been made to determine any physical limitations that might be present. The result of this inspection has revealed the neighborhood is developed with mix of property types. The lack of zoning which is currently applicable to the subject property does allow for an assisted care facility to be constructed on the site as well as other types of multi-family construction. This lack of zoning classification will allow the property to be developed as proposed within this appraisal report and this is considered the most likely probable use to which the subject property could be put. In the final analysis, the proposed utilization of the subject property is considered to constitute one of it's Highest and Best Uses. Robert M. McSherry, MAI THE APPRAISAL PROCESS The real estate appraisal profession typically utilizes three basic approaches in the process of estimating the value of a parcel of real property. These approaches include the Cost Approach, the Income Approach and the Market Data Approach. The Cost Approach utilizes an estimate of reproduction or replacement costs new of the building and other on-site improvements to be contained within the subject property less accrued depreciation from all sources including physical curable and incurable deterioration, functional obsolescence and economic obsolescence to arrive at an estimate of depreciated reproduction or replacement costs for the improvements. The estimated value of the site, as if vacant, and determined by the comparison of the subject site with other similar parcels in either the immediate proximity of the subject or in other comparable areas is added to the depreciated reproduction or replacement cost estimate of the improvements to provide an indication of value of the property being appraised from the Cost Approach. The Cost Approach is generally accorded the greatest credence in instances where the property being appraised is either a proposed property or a new property having little or no accrued depreciation or instances where the property being appraised represents a special purpose type property. In these instances, the Cost Approach is an accurate indication of value for the property and is accorded considerable credence in the reconciliation process. The Income Approach to Value utilizes an estimate of gross annual income to be generated by the property being appraised as determined to be representative of Robert M. McSherry, MAI economic rentals for this type property within the area less an allowance considered typical for vacancy and collection losses to arrive at an estimate of effective gross annual income which is to be generated by the property. Expenses typically associated with the operation of this type property in accordance with prevailing lease terms and conditions in the area as well as data provided by analysis of the operating history of other similar type properties are projected and deducted from the effective gross annual income to arrive at an estimate of net operating income before recapture attributable to the subject. This net operating income is then capitalized by the most appropriate method available with respect to the subject property in particular and the appraisal problem in general into an indication of value for the property being appraised from the Income Approach. Another method of utilizing the Income Approach is the Gross Income Multiplier technique. This technique identifies the relationship between the sales price (value) of a property and its gross annual income earning potential. The Gross Income Multiplier is derived by dividing the sales price of a property by its gross potential income and, thus, is an excellent indicator of buyer, seller and investor attitudes toward the property being analyzed. An effective gross income multiplier is also excellent as it utilizes the actual gross income after vacancy to derive the multiplier. use depends upon available data. The Market Data or Direct Sales Comparison Approach utilize sales of comparable improved properties in either the immediate proximity of the subject or in other comparable areas to derive a unit of comparison. Each of the various comparable sales are carefully reviewed and analyzed by the appraiser, adjusted for any dissimilarities between the subject property and the comparable Robert M. McSherry, MAI sale in such areas as date of sale, location, design, condition, and other physical characteristics to result in an adjusted unit of comparison to be utilized in the Market Data or Direct Sales Comparison Approach to provide an indication of value for the property being appraised. The reconciliation is the method whereby all data provided by the various approaches utilized in the appraisal report are carefully analyzed and accorded weight in varying degrees. The approach which is considered to be the most representative of current buyer, seller and investor attitudes towards the subject property is accorded the greatest credence in the final analysis but all the approaches are interrelated and all data gathered and utilized in the various approaches must be carefully analyzed in the reconciliation process and to ignore any available data would be improper. Robert M. McSherry, MAI COST APPROACH TO VALUE The Cost Approach to Value, like the Sales Comparison and Income Approaches, is based on comparison. in the Cost Approach, the cost to construct a building and the value of any existing building are compared. The Cost Approach to Value reflects market thinking in the recognition that market participants relate value to cost. Buyers tend to judge the value of an existing structure by comparing it to the value of a newly constructed building with optimal functional utility. Moreover, buyers adjust the prices they are willing to buy by estimating the cost to bring an existing structure to desired levels of functional utility. Thus, by applying the Cost Approach, an appraiser attempts to estimate the difference in worth to a buyer between the property being appraised and a newly constructed building with optimal utility. An appraiser makes a sound value estimate by estimating the cost to construct a reproduction of or a replacement of the existing structure and then deducts all evidence of accrued depreciation in the property being appraised from the cost of the reproduction or replacement structure and the resulting figure, plus the value of the land, plus any entrepreneurial profit provides a value indication through the application of the Cost Approach. The decision to utilize reproduction or replacement costs is most pertinent and the selection plays and important part in contributing to the validity of the Cost Approach. Replacement cost is defined in Real Estate Appraisal Terminology as being, "the cost of construction at current prices of a building having utility Robert M. McSherry, MAI equivalent to the building being appraised but built with modern materials and according to the current standards, design and layout. The use of the replacement cost concept presumably eliminates all functional obsolescence and the only depreciation to be measured is physical deterioration and economic obsolescence." The appraisers will utilize the replacement cost method supported by Marshall Valuation Service in conjunction with the construction cost estimate provided by knowledgeable contractors/engineers or architects DEPRECIATION All types of accrued depreciation affecting the subject improvements were considered Accrued depreciation is defined as, "the difference between reproduction cost new as of the date of the appraisal and the present contributory value of the improvements." Accrued depreciation is divided into three basic categories: physical deterioration (which includes curable and incurable), functional obsolescence (including curable and incurable), and economic obsolescence(which is always incurable). The following is a discussion of each type of depreciation and the observed depreciation applicable to the subject property. Physical Deterioration, Curable This type of depreciation is defined as, "the loss in value from cost new which can be recovered or offset through correction, repair, or replacement of the defective items causing the loss, providing the resultant value approximates the cost of the work." The property is proposed thus no deferred maintenance is present. Robert M. McSherry, MAI Physical Deterioration, Incurable This type of depreciation is defined as, "the loss from cost new which is impossible to offset or which would involve an expenditure substantially in excess of the value increase resulting therefrom." The property is proposed and has an effective are of 0 years and a total economic life of 30 years. Functional Obsolescence Functional obsolescence is defined as, "the loss from cost new as of the date of the appraisal which is caused by a superadequacy, inadequacy, unattractive style, poor or inefficient layout or design." Items causing functional obsolescence can be either curable or incurable; it is curable only when it is profitable to cure the item. Incurable, functional obsolescence involves items of initiate which would not be economical to correct because the value would not increase so much as the cost of correction. Based on my inspection of the subject improvements, it is my opinion that they are totally adequate and comparable to similar properties in the same general price range, therefore, no loss of value from functional obsolescence exists. Economic Obsolescence This type of depreciation is defined as, "the loss from cost new as of the date of the appraisal due to causes external to the property boundaries." To measure this type of obsolescence the appraiser capitalizes the rent lost due to the external factor for the prorata share applicable to the building. As indicated in Robert M. McSherry, MAI the site date, there are no undesirable external influences and, thus, there is no loss to the subject improvements due to economic obsolescence. Entrepreneurial Profit For the Cost Approach to provide a sound indication of value, a market derived entrepreneurial profit must be added to the direct and indirect costs. The profit figure is typically expressed as a percentage of total direct and indirect costs. Entrepreneurial profit is a necessary element in the motivation to construct the improvements. However, part or all of the profit may be lost as functional or external obsolescence if the market indicates that the improvements have a Market Value less than the current reproduction or replacement cost less physical deterioration. The results of the investigation and analysis of this market data will appear as follows: Robert M. McSherry, MAI COMPARABLE LAND SALE 1 Date of Sale: September 4, 1998 Vendor: John Kaffenberger Vendee: Sibley Century Development, LLC Size: 9.1 Acres Consideration: $80,000.00 Location: East side of Holt Street, Bastrop, Louisiana Indicated Price/Acre: $8,791.00 per Acre Brief Legal Description: Tract or parcel of land located in the southeast quarter of the northeast quarter of Section 30, T21N-R6E, Morehouse Parish, Louisiana. Financing: Cash Condition of Sale: Market Site Utilities: Public Terrain: Gently Sloping Access: Public Asphalt Road Highest and Best Use: Commercial or Multi-Family Comments: Of this total acreage only approximately 7 acres are considered useable land. Comfirmation: John Sibley Robert M. McSherry, MAI COMPARABLE LAND SALE 2 Date of Sale: June 21, 1995 Recordation: Conveyance Book 487, Page 713, Morehouse Parish, Louisiana Vendor: John S. Cereen, et al Vendee: Douglas Jones Size: 9.37 Acres Consideration: $55,000.00 Location: 6197 Mer Rouge Road, Bastrop, Louisiana Indicated Price/Acre: $5,870.00 per Acre Brief Legal Description: A certain 9.37 acre tract of land in the southwest quarter of Section 28, T21N-R6E, Morehouse Parish, Louisiana. Financing: Cash Condition of Sale: Market Site Utilities: Public Terrain: Level Access: Public Road Highest and Best Use: Commercial Confirmation: John Sibley Robert M. McSherry, MAI COMPARABLE LAND SALE 3 Date of Sale: March 17, 1997 Vendor: Sandra Lockwood Vendee: Northwood Apartment, LLC Size: 4.688 Acres Consideration: $60,000.00 Location: 1801 North Washington Street, Bastrop, Louisiana Indicated Price/Acre: $12,799.00 per Acre Brief Legal Description: Tract or parcel of land located in the southeast quarter of the northwest quarter of Section 24, T21N-R5E, Morehouse Parish, Louisiana. Financing: Cash Condition of Sale: Market Site Utilities: Public Terrain: Slightly Rolling Access: Public Road Highest and Best Use: Commercial Confirmation: John Sibley Robert M. McSherry, MAI COMPARABLE LAND SALE 4 Date of Sale: June 19, 1996 Recordation: Document No. 140922 Vendor: Woodrow Wilson, et al Vendee: Benny Evans, et al Size: 6.484 Acres Consideration: $100,000.00 Location: Southeast corner of US Hwy 425 (Crossett Road) and McCreight Street, Bastrop, Louisiana Indicated Price/Acre: $15,422.58 per Acre Brief Legal Description: Tract situated in the southwest quarter of the southwest quarter of Section 18, T21N-R6E, Morehouse Parish, Louisiana. Financing: Cash Condition of Sale: Market Site Utilities: Public Terrain: Slightly Sloping Access: Public Highway Highest and Best Use: Commercial or Light Industrial Confirmation: John Sibley Robert M. McSherry, MAI COMPARABLE LAND SALE 5 Date of Sale: July 6, 1994 Recordation: Conveyance Book 479, Page 667, Morehosue Parish, Louisiana Vendor: Kathrine Buford, et al Vendee: Larry Greenwood, et al Size: 3.3 Acres Consideration: $50,000.00 Location: McCreight Street at Todd Street, Bastrop, Louisiana Indicated Price/Acre: $15,052.00 per Acre Brief Legal Description: Tract on the northeast quarter of the northeast quarter of Section 25, T21N-R6E, Morehouse Parish, Louisiana. Financing: Cash Condition of Sale: Market Type Utilities: Public Terrain: Level to Gently Rolling Access: Public Road Highest and Best Use: Multi-Family Confirmation: John Sibley Robert M. McSherry, MAI [Comparable Sales Location Map Indicating Comparable Property Locations] COMPARABLE LAND SALES SUMMARY CHART
Date Size/Usable Price/Acre Location Sale 1 9/98 7.00 Acres $11,428.00 Holt Street Sale 2 6/95 9.37 Acres $ 5,870.00 Mer Rouge Road Sale 3 3/97 4.68 Acres $12,799.00 North Washington Sale 4 6/96 6.48 Acres $15,422.00 Crossett Road Sale 5 7/94 3.30 Acres $15,152.00 McCreight Street
Robert M. McSherry, MAI ANALYSIS OF COMPARABLE LAND SALES The five vacant comparable land sales contained within this appraisal report and utilized for analysis purposes are sales of sites located either within the corporate limits of Bastrop, Louisiana. All sites are considered current with respect to the date of sale with the exception of Comparable Sale 5 which occurred in July of 1994 with all sales requiring an upward adjustment for the time differential for all sales occurring prior to 1998. The size of these sales are similar to the subject property with the size of Sales 3 and 5 being the closest to that of the subject and analysis of compared sales does indicate an adjustment required for the size differential. However, location is considered important and the locational dissimilarities between the comparable properties and the subject site has been considered and adjusted accordingly. Physical characteristics are also important factors in the desirability of the vacant developmental site and the physical characteristics associated with each of these comparable sales have been analyzed, compared to the subject property and the proper adjustments made. The following land sales adjustment grid has been utilized to reflect the appraiser's opinion of the required adjustment of these comparable sales which results in an indicated value of the subject site, as if vacant, and in it's current condition. Robert M. McSherry, MAI After this adjustment grid has been carefully completed, it is our opinion that the subject site is estimated to have a Market Value, As If Vacant and prior to site preparation, of $15,000.00 per acre. Therefore, the Estimated Value of the Subject Site, As If Vacant, is thus derrived: 3.35 Acres @ $15,000.00/ Acre = $50,250.00 INDICATED VALUE OF THE SUBJECT SITE, AS IF VACANT (R/T) $50,000.00 Robert M. McSherry, MAI VACANT LAND SALES ADJUSTMENT CHART
Sale Number Subject 1 2 Property Rights Appraised Leased Fee Leased Fee Leased Fee Financing Terms Cash Equivalent Cash Equivalent Cash Equivalent Condition of Sale Arms Length Arms Length Arms Length Sale Date Current September, 1998 June, 1995 Size-Gross Area/Acres 3.35 9.1 9.37 Effective Price/Square Foot N/A $8,791.00 $5,870.00 Market Time Current -0- +10% Zoning -0- -0- Size +20% +20% Physical +25% +25% Adjusted Price/Square Foot $12,746.00 $9,098.00
VACANT LAND SALES ADJUSTMENT CHART
Sale Number 3 4 5 Property Rights Appraised Leased Fee Leased Fee Leased Fee Financing Terms Cash Equivalent Cash Equivalent Cash Equivalent Condition of Sale Arms Length Arms Length Arms Length Sale Date March, 1997 June, 1996 June, 1994 Size-Gross Area/Acres 4.6 6.4 3.3 Effective Price/Square Foot $12,799.00 $15,522.00 $15,052.00 Market Time +5% +10% +20% Zoning -0- -0- -0- Size -0- -0- -0- Physical +10% -10% -20% Adjusted Price/Square Foot $14,718.00 $15,422.00 $15,052.00
DISCUSSION OF COST APPROACH In the construction of any project, the total cost of development can be divided into basic categories: direct or hard cost, and indirect or soft costs. As defined in Real Estate Appraisal Terminology, the definition of Direct Costs is, "the cost of direct labor and materials devoted specifically to a unit of work. In construction, these costs are directly related to site acquisition and construction of the improvements..." Defined in this same text, Indirect Cost is, "that cost in the development of a property which would not be included in a general contract for construction or for land acquisition..." Direct costs include the cost of items such as land acquisition, construction of the buildings, equipment and fixtures, the builder's profit and overhead, any temporary buildings for on-the-job usage, power line installation, and the electrical power used in the construction. As indicated in the Cost Approach Schedule which follows, direct or hard costs have been broken down into categories of building area, elevators and other primary building costs. Indirect, or soft costs, generally include fees, financing costs, and overhead. As the Cost Approach Schedule indicates, the indirect costs fall into 8 categories. The permits and fees sections include the estimated costs of a building permit, an appraisal, a survey and accounting and inspection charges. Architectural engineering estimates have been based on typical market charges. The legal expenses includes work done on both interim and permanent loan packages. The insurance costs indicated are limited to construction-period coverage including the builder's risk. Robert M. McSherry, MAI The closing cost estimate includes costs of closing both the interim and permanent loans. The interest expense is based on typical current market conditions and covers the period of time required to complete the construction of the project. The loan commitment fees are also based on current typical market conditions. The appraiser's have relied upon the Marshall Valuation Service, a publication of Marshall & Swift, 1617 Beverly Boulevard, Post Office Box 26307, Los Angeles, California, in estimating the replacement costs new of the subject property improvements. The Cost Approach to Value, as it applies to the property being appraised, is as follows: Robert M. McSherry, MAI COST APPROACH TO VALUE Cost Source: Marshall-Swift Cost Manual and Actual Costs Provided by Fred Bayles Direct Costs: Primary Structure 22,217 sq. ft. @ $59.70/sq. ft. $1,326,354.00 Total Direct Costs: Improvements $1,326,354.00 Indirect Costs: Plans, Specifications, Inspection Included in Direct Costs Contractor's Overhead/Profit $170,000.00 Interim Interest $ 65,250.00 Legal, Audit, Appraisal $ 60,400.00 Financing Fees - Construction $ 30,000.00 Misc. Expenses $ 50,000.00 Financing Fees - Long Term $162,500.00 Total Indirect Costs $ 538,150.00 Total Replacement Costs New: Improvements $1,864,504.00 Less: Accrued Depreciation Physical Curable -0- Physical Incurable -0- Functional Obsolescence -0- Economic Obsolescence -0- Total Accrued Depreciation -0- Depreciated Replacement Costs: Improvements $1,864,504.00 Add: Land Value 3.35 acres @ $15,000.00/acre $ 50,000.00 Add: Site Preparation $ 30,000.00 Add: Furniture, Fixtures and Equipment $ 75,000.00 Robert M. McSherry, MAI Add: Parking, Walks, Landscaping, Porches $ 25,000.00 Add: Entrepreneurial Profit @ 5% $ 93,200.00 Total All Costs and Value Components $2,137,704.00 INDICATED VALUE OF SUBJECT FROM COST APPROACH (R/T) $2,140,000.00 Note: Cost of Furniture, Fixture and Equipment based on costs association with actual costs experienced by Southside Garden Assisted Care Facility and Arbor House of West Monroe, Louisiana. Robert M. McSherry, MAI MARKET DATA APPROACH TO VALUE Market data is discussed in all the approaches to value. Data analysis is needed in the Cost Approach to develop a land value indication and to support costs and depreciation indicators; in the Income Approach to establish rent levels, vacancy indications, expenses, and capitalization rates; and in the Direct Sales Comparison Approach to establish comparability. The appraiser has carefully perused the Louisiana market with respect to sales of properties considered similar to the subject property and none were found. However, available data from other appraisers has revealed the sale of three similar type properties in other areas of the United States and these are included merely for analysis purposes as follows: Robert M. McSherry, MAI IMPROVED PROPERTY SALE 1 VENDOR: American Retirement, Inc. VENDOR: Horizon Retirement, Inc. LOCATION: 2601 Chimney Rock Road, Hendersonville, North Carolina RECORDATION: N/A DATE: February, 1993 CONSIDERATION: $6,480,000.00 TERMS: $2,224,000.00 cash, assumption of a mortgage balance of $4,316,000.00. terms are considered to be cash equivalent. SITE SIZE: N/A IMPROVEMENTS: This is a 110 unit senior living community constructed in 1988. The units are housed in a three-story building of wood frame construction. Construction quality is considered to be average; condition at the time of sale was good. The gross building area is approximately 96,058 square feet with an average unit size of 873 square feet. ESTIMATED GROSS INCOME: $1,706,255.00 ESTIMATED EXPENSE RATIO: Approximately 56 percent NET OPERATING INCOME: Approximately $751,844.00 UNIT INDICATORS: SP/Unit = $58,909.00 SP/SF = $67.46 SP/GI = 3.80 GIM NOI/SP = 0.1160 OAR Robert M. McSherry, MAI IMPROVED PROPERTY SALE 2 VENDOR: American Retirement, Inc. VENDOR: Emeritus Corporation LOCATION: 2601 Chimney Rock Road, Hendersonville, North Carolina RECORDATION: N/A DATE: September, 1995 CONSIDERATION: $9,483,523.00 TERMS: Cash SITE SIZE: N/A IMPROVEMENTS: This is a 110 unit senior living community constructed in 1988. The units are housed in a three-story building of wood frame construction. Construction quality is considered to be average; condition at the time of sale was good. The gross building area is approximately 96,058 square feet with an average unit size of 873 square feet. ESTIMATED GROSS INCOME: Approximately $2,175,000.00 ESTIMATED EXPENSE RATIO: Approximately 56 percent NET OPERATING INCOME: Approximately $957,000.00 UNIT INDICATORS: SP/Unit = $86,214.00 SP/SF = $98.73 SP/GI = 4.36 GIM NOI/SP = 0.1009 OAR Robert M. McSherry, MAI SUMMARY
Sale One Sale Two Sale Three Indicated OAR 11.6% 10.09% 9.96% Price/Unit $58,909.00 $86,214.00 $56,757.00 Gross Income Multiplier 3.80 4.36 3.01 Estimated Expense Ratio 56% 56% 70%
The three Improved Property Sales included within this report have been provided this appraiser by knowledgeable sources and other appraisers and are deemed accurate as they were verified by knowledgeable and ethical persons. The appraiser has conducted an in-depth review of conveyances of similar type assisted living or congregate care facilities in the State of Louisiana and none were found which were considered to be reflective of true arms-length transactions between willing buyers and willing sellers with no undue duress being experienced. These three Improved Property Sales have been included for the purpose of deriving an indicated Overall Capitalization Rate, an indicated price per unit and an indicated Gross Income Multiplier for utilization in the analysis process with respect primarily to the Income Approach to Value. The level of services provided by these facilities are similar to those to be provided by the subject property which would include three (3) meals per day, utilities, maid service one (1) day a week, flat linen service one (1) day a week, various assistance with respect to bathing, exercise, and transportation to various off-site functions as well as on-site recreational functions, counseling, with other services provided on a more extensive basis for additional expense paid by the guest or resident of the facility. It is acknowledged that a large number of the Robert M. McSherry, MAI residents residing in the assisted care facilities are requiring increased levels of care and these additional expenses are being passed directly to the tenant as they upset the economies of an assisted care facility having to provide this extraordinary level of care without additional remuneration. The price per unit indicated by Improved Property Sale 2 is considered the best available and has been accorded the greatest credence. Accordingly: 25 Units @ $86,000.00/Unit $2,150,000.00 INDICATED VALUE OF SUBJECT FROM THE MARKET DATA OR DIRECT SALES COMPARISON APPROACH (R/T) $2,150,000.00 Robert M. McSherry, MAI INCOME APPROACH TO VALUE Introduction The Income Approach reflects the subject's income-producing capabilities and requires an analysis of the project's probable market rent. In the comparative analysis, we have considered factors that would probably influence market acceptance of properties in the area. The factors include proximity to major traffic arteries; location; design; amenities; and the quality of management. To develop a supportable estimate of value using the Income Capitalization Approach, realistic projections of income and expenses must be made. congregate care facilities are unique forms of real estate with many unusual characteristics, such as an intensive use of labor, costs of goods sold, expenses categories, and product identity. Therefore, special care in data gathering and analysis are required to create an estimate of the future income for the subject. The appraiser will utilize data provided by the publication, Trends in the Health Care Industry for supporting data. The subject property is proposed at the present time and, therefore, has no historical income and expense data associated with the property. The subject will contain 21 assisted care units and 4 efficiency assisted care units all located in a single T-shaped building which will also contain a resident manager's apartment and common areas for the operation of the facility. The services provided the assisted living units include all utilities, maid service, three meals a day, transportation, activities with additional laundry and maid service Robert M. McSherry, MAI available at additional expense. Normal day to day medical treatments are also available for the various tenants with any extraordinary medical expense passed directly to the tenant. This appraiser has had the opportunity to appraise a number of assisted care facilities in both Louisiana and Mississippi over the last several years and has relied on data provided by these facilities, various industry publications and data provided by various health care consulting groups and experts in arriving at the estimated monthly rental rates and expenses including fixed expenses, operating expenses, staffing, dietary, reserves and other appropriate expenses. This appraiser has conducted rental surveys of a number of assisted care, private pay facilities located in the Baton Rouge, Louisiana area as well as a single facility located in West Monroe, Louisiana in order to arrive at an estimated economic rental rate for the subject property based on the level of services provided. The assisted care market is still a relatively new market and the majority of the facilities have been constructed in larger metropolitan areas such as Baton Rouge. The rental rates commanded in these larger areas are above those which can be commanded in smaller or more rural communities in North Louisiana and appropriate adjustments have been made. The most comparable property is the Arbor House of West Monroe, which was completed in December of 1997 and has experienced stabilized occupancy with respect to the assisted care units within a six (6) month period. These units lease for $1,725.00 per month for the basic rate with expenses including utilities, three (3) meals a day, maid service once a week, laundry service once a week, Robert M. McSherry, MAI assistance in bathing, transportation to shopping, church and other functions as well as in-house recreational activities. This appraiser has also recently completed an appraisal of a 33 unit assisted care facility located in Baton Rouge, Louisiana which is very typical with respect to the subject property. However, the monthly rate provided by this facility is slightly higher than those in rural areas with the base monthly rate being $1,850.00 per month. The same services are provided including utilities, three (3) meals per day, assistance with daily living activities including bathing, grooming, weekly bed linen and towel service, weekly house keeping, transportation to medical and dental appointments, worship service, planned activities as well as other assistance required. Based on this appraiser's personal inspection of these two facilities and adjustment, it is our opinion that a $1,775.00 per month with services including electricity, three (3) meals per day, maid service, transportation, activities, assistance in the normal living activities as well as normal day to day medical treatment being provided. The actual income and expense data of various facilities is closely held information and these individuals have requested confidentiality with respect to this actual data. Accordingly, this data has been retained in our various files. The results of our survey and analysis indicates an economic rental rate for the assisted care units, based on the herein listed services being provided, of $1,775.00 per month and $1,100.00 per month for the efficiency units with the Robert M. McSherry, MAI rates remaining stable over the two year projection period. The projected rate includes the herein listed services being provided. Inflation will impact expense projections as well as increased occupancy and these anticipated increases have also been utilized in the Income Approach to Value. In order to accurately project appropriate expenses for the subject property, the appraiser has reviewed the current publication Trends in the Health Care Industry with respect to historical operating expenses for assisted care facilities. In addition, this appraiser has been provided itemized comparable expense data with respect to three separate properties located in the State of Louisiana but, due to confidentiality requirements, the names of these properties are retained in the appraiser's file at the request of the property owners. However, the following summary chart is included for the benefit of the reader of this appraisal report and it also provides support for the expense projections for the subject property. The Income Approach to Value as it applies to the property being appraised based on economic rental rates herein quoted and utilizing a two year period in order to achieve a stabilized net occupancy and thus a stabilized net operating income is reproduced as follows: Robert M. McSherry, MAI ITEMIZED COMPARABLE EXPENSE DATA
Property 1 Property 2 Property 3 Administrative $249,610.00 $417,960.00 $461,530.00 Dietary $186,938.00 $251,184.00 $204,983.00 Maintenance $156,914.00 $275,424.00 $193,530.00 Housekeeping/Janitorial $ 51,340.00 $ 55,512.00 $ 52,322.00 Taxes/insurance $ 82,000.00 $110,560.00 $ 66,738.00 Utilities $ 91,328.00 $ 24,360.00 $ 65,678.00 Nursing/Other -0- $ 9,458.00 $ 10,664.00 Per Unit Expenses $ 9,522.00 $ 9,458.00 $ 10,664.00
Robert M. McSherry, MAI INCOME APPROACH TO VALUE Year One Gross Annual Potential Income: 21 - Assisted Living Units @ $1,775.00/month $ 447,300.00 4 - Efficiency Units @ $1,100.00/month $ 52,800.00 Total Gross Annual Potential Income $ 500,100.00 Less: Vacancy and Collection Losses Assisted Living Units (25%) $ 111,825.00 Total Vacancy and Collection Loss $ 111,825.00 Effective Gross Annual Potential Income $ 388,275.00 Expenses: Administrative $53,500.00 Plant Operations $37,400.00 Dietary $45,625.00 Housekeeping $12,500.00 Aides $41,000.00 Activities $15,000.00 Reserves for Replacement $ 7,500.00 Total Expenses $ 212,525.00 Net Operating Income $ 175,750.00 Note: Management Fee included in Administrative Expense. Robert M. McSherry, MAI INCOME APPROACH TO VALUE Year Two Gross Annual Potential Income: 21 - Assisted Living Units @ $1,775.00/month $ 447,300.00 4 - Efficiency Units @ $1,100.00/month $ 52,800.00 Total Gross Annual Potential Income $ 500,100.00 Less: Vacancy and Collection Losses Assisted Living Units (10%) $ 44,730.00 Total Vacancy and Collection Loss $ 44,730.00 Effective Gross Annual Potential Income $ 455,370.00 Expenses: Administrative $53,500.00 Plant Operations $44,550.00 Dietary $54,200.00 Housekeeping $13,750.00 Aides $45,100.00 Activities $16,500.00 Reserves for Replacement $ 7,500.00 Total Expenses $ 235,100.00 Net Operating Income $ 220,270.00 Note: Management Fee included in Administrative Expense. Robert M. McSherry, MAI JUSTIFICATION OF CAPITALIZATION RATE Direct Capitalization is a method used to convert a single year's income estimate into a value indication in the Income Capitalization Approach. The direct capitalization formula using an overall property capitalization rate is: Value / Net Operating Income = Overall Capitalization Rate In this appraisal, the appraisers will employ two different methods to obtain an overall capitalization rate: 1) Band of Investment - mortgage and equity components 2) Underwriter's Method (derivation from debt coverage ratio) Band of Investment The appraisers contacted local lenders regarding rates and terms of alternate investments as well as current market rates applicable for this market. Annual Constant - In developing the mortgage components for the Band of Investment Method, the appraisers reviewed the National Mortgage Commitment Survey conducted by the Appraisal Institute Research Department which surveyed sample lenders in various geographical regions throughout the United States. The data quoted is based on national averages and do not reflect conditions inherent in all markets. Therefore, the appraisers contacted local lenders regarding rates and terms applicable for this market area. Lenders in the local market are quoting rates at prime plus 1%, terms of 20 years. 75% and a loan-to-value ratio. The local market closely approximates the national averages for the subject property type. Robert M. McSherry, MAI The appraisers reviewed available data concerning current national and local quoted mortgage rates and talked to various lenders in the Louisiana area which confirm that market rates and terms for loans of the quality of the subject property are available at 9% interest rate with monthly payments amortized for a 20 year term, a 75% loan-to-value ratio. Therefore, the mortgage constant is derived to be .1079671. Equity Dividend - Current rates of return available from alternative investment vehicles are reviewed. These alternative investments are more liquid than an investment in real estate; therefore any potential investor would expect a higher rate of return. Based on this, we have been able to conclude that a 9% equity dividend rate is required to attract investment capital to the subject property's type which is considered to be slightly more risky than other types of real estate investments. In order to ascertain the appropriate equity dividend or "cash-on-cash" rate, the appraiser has reviewed money rates for other alternate investments as of September 8, 1998. The results of this analysis of comparable and alternative money rates are as follows: Certificates of Deposit 30 Day 4.68% 90 Day 4.96% 180 Day 5.04% Treasury Bill Rates 3 Months 4.79% 6 Months 4.79% 52 Weeks 5.00% 30 Year Treasury Bond Rate 5.36% Merrill-Lynch Ready Assets 30 Day 5.03% (Average Yield) Robert M. McSherry, MAI As can be reflected by the above alternate investment vehicles. Current rates for both short and long term yields is between the high 4.00% to the low 5.00% range. The projected 9.00% equity yield or "cash-on-cash" return projected for the subject property provides an excellent return on the investor's cash, approximately 3.00% in excess of other alternate investment vehicles. Accordingly, the 9.00% equity dividend rate is considered appropriate when the overall risk and competitive rates are considered. Derivation of Capitalization Rate - The band of investment (or weighted average) formula for deriving an overall rate when the mortgage constant and equity dividend rates is known as: Mortgage Percent x Mortgage Constant Plus Equity Percent x Equity Dividend Rate Equals Overall Capitalization Rate .75 x .1079671 = .0809 .25 x .09 = .0225 Total = .10340 Rounded to .103 Underwriter's Method In making loan decisions, institutional lenders use a debt coverage ratio (DCR), which is the ratio of net operating income to annual debt service. This measure of constraint is frequently used by institutional lenders, who are general fiduciaries. They manage and lend the money of others, including depositors and policy holders. Because of the fiduciary responsibility, institutional lenders Robert M. McSherry, MAI are particularly sensitive to the safety and profit and are anxious to avoid default and possible foreclosure. Consequently, when they underwrite income property loans, institutional lenders try to provide a cushion so that the borrower will be able to meet the debt service obligations on the loan even if the building income declines. The debt coverage ratio may also be used to estimate the overall capitalization rate by multiplying the ratio by the mortgage loan constant (RM) and the loan-to-value ratio (M). The debt coverage ratio, mortgage loan constant, and loan-to-value ratio have already been determined to be 1.20, .1079671 and .75, respectfully. The formula for derivation of an overall capitalization rate from debt coverage ratio is as follows: RO = DCR x RM x M RO = 1.20 X .1079671 X .75 RO = .0971 R/T = .097 Review of the three (3) improved property sales contained within this report have indicated an Overall Capitalization Rate from a low of 9.96% to a high of 11.6%. These indicated Overall Capitalization Rates which have been derived from available market data indicates the rate chosen for the capitalization of the net income into an indication of value based upon stabilized income of 10.5% is reflective of current industry attitudes and is considered appropriate with respect to this particular appraisal assignment. Robert M. McSherry, MAI Conclusion Based on the available information we have concluded that a 10.5% is the most appropriate capitalization rate which is derived from the actual band of investments method and supported by the Underwriter's Method and available market data. The location of the subject has also been considered. Thus: NET OPERATING INCOME -------------------- = VALUE OVERALL CAPITALIZATION RATE $220,270.00 -------------------- = $2,097,809.00 .105 INDICATED VALUE OF SUBJECT FROM INCOME APPROACH (R/T) $2,100,000.00 Robert M. McSherry, MAI DISCOUNTED CASH FLOW ANALYSIS The subject property will require a period in excess of one year to achieve stabilized net income. In order to provide an estimate of the present value of the improvements upon completion but prior to achieving stabilized net operating income, the discounting process is utilized. The income stream generated by the subject until stabilized income is reached is discounted into an estimate of present value and the reversionary value of the improvements as estimated upon achieving a stabilized net income is also discounted to present worth. The market indicates a discount rate of 11 % to be appropriate to be utilized in discounting the income and reversion and this is based on current rates of return on alternate investments and the risk associated with the subject. Robert M. McSherry, MAI Present Worth of Income Stream Year One: $175,750.00 x .900901 = $ 158,333.00 Year Two: $220,270.00 x .811622 = $ 178,775.00 Total Present Value of Income Stream $ 337,108.00 Present Worth of Reversion $2,100,000.00 x .811622 $1,704,406.00 Summation: Present Worth of Income Stream $ 337,108.00 Present Worth/Reversion $1,704,406.00 Total $2,041,514.00 INDICATED VALUE OF SUBJECT FROM INCOME APPROACH/DISCOUNTED CASH FLOW $2,040,000.00 Robert M. McSherry, MAI RECONCILIATION AND FINAL VALUE The three approaches to value have indicated the following value estimates of the property being appraised: COST APPROACH TO VALUE $2,140,000.00 MARKET APPROACH TO VALUE $2,150,000.00 INCOME APPROACH TO VALUE OVERALL CAPITALIZATION RATE $2,100,000.00 DISCOUNTED CASH FLOW ANALYSIS $2,040,000.00 The subject property is proposed construction and only preliminary plans and specifications have been provided this appraiser in order to complete the Cost Approach to Value. Costs are extremely difficult to estimate and no two competent contractors will ever agree on the actual cost to construct a property. However, this appraiser has utilized reliable sources including the Marshall Valuation Service Cost Manual as well as actual construction costs affecting a similar type property in order to complete the Cost Approach to Value and this approach is considered reflective of the cost new of the subject property. The subject property is considered an income producing and has been valued based on it being a Going Concern. The property is under competent ownership and will have excellent management in place and the utilization of the Going Concern concept is considered appropriate with respect to this particular appraisal problem. Accordingly, the Indicated Value of the Property based on stabilized net income being generated at the end of the second year is Robert M. McSherry, MAI considered the best available indicator of it's current Market Value and has been accorded the greatest credence in the final analysis. Based on the data contained within this report, other in-file data, and this appraiser's review and analysis of said data, it is our opinion that the proposed property identified as the 21 Unit Assisted Care and 4 Unit Efficiency Assisted Care Facility all located on Germantown Road within the corporate limits of Minden, Webster Parish, Louisiana was estimated to have a Market Value, as of September 8, 1998, but subject to completion according to plans and specifications utilizing quality materials and workmanship throughout and also subject to the other conditions contained within this report, and based upon Stabilized Net Operating Income, of: TWO MILLION ONE HUNDRED THOUSAND DOLLARS ($2,100,000.00) Allocated: Land $ 50,000.00 Improvements: $1,975,000.00 Furniture, Fixtures and Equipment $ 75,000.00 Goodwill of Going Concern -0- The estimated "as is" value is estimated to be, as of September 20, 1998 and subject to completion within a reasonable period of time, is: TWO MILLION FORTY THOUSAND DOLLARS ($2,040,000.00) Robert M. McSherry, MAI ADDENDA Robert M. McSherry, MAI APPRAISER'S CERTIFICATION I certify that, to the best of my knowledge and belief.... (1) The statements of fact contained in this report are true and correct. (2) The reported analyses, opinions, and conclusions are limited only by the report assumptions and limiting conditions, and are my personal, unbiased professional analyses, opinion and conclusions. (3) I have no present or prospective interest in the property that is the subject of this report, and I have no personal interest or bias with respect to the parties involved. (4) My compensation is not contingent upon the reporting of a predetermined value or direction in value that favors the cause of the client, the amount of the value estimate, the attainment of a stipulated result, or the occurrence of a subsequent event. (5) My analyses, opinions, and conclusions were developed, and this report has been prepared, in conformity with the Uniform Standards of Professional Appraisal Practice. (6) I have made a personal inspection of the property that is the subject of this report and all rent comparables. (7) No one provided significant professional assistance to the person signing this report. (8) The reported analyses, opinions, and conclusions were developed, and this report has been prepared, in conformity with the requirements of the Code of Professional Ethics and the Standards of Professional Practice of the American Institute of Real Estate Appraisers. (9) The use of this report is subject to the requirements of the Appraisal Institute relating to review by its duly authorized representatives. (10) I am not currently certified under the voluntary continuing education program of the American Institute of Real Estate Appraisers. Robert M. McSherry, MAI (11) I certify that the use of this report is subject to the requirements of the Appraisal Institute relating to review by its duly authorized representatives. Estimated Market Value: /S/ROBERT M MCSHERRY $2,100,000.00 ------------------------ Robert M, McSherry, MAI LA State Certified General Real Estate Appraiser No. G0891 Allocated: Land $ 50,000.00 Improvements $1,975,000.00 Furniture, Fixtures and Equipment $ 75,000.00 Goodwill of Going Concern -0- As Of: September 2O, l998 Robert M. McSherry, MAI QUALIFICATIONS OF ROBERT M. MC SHERRY, MAI EDUCATIONAL BACKGROUND AND TRAINING: Graduate of Louisiana State University, Baton Rouge, Louisiana, Bachelor of Science Degree in Business Administration with a Major in Finance. Real Estate Appraisal Course 1-A, Basic Fundamentals, Methods and Techniques, 1974, AIREA Real Estate Appraisal Course 1-B, Capitalization, 1975, AIREA Real Estate Appraisal Course VIII, Single-Family Residential Appraisal, 1974, AIREA Real Estate Appraisal Course II, Techniques and Application, 1976 and 1980, AIREA Real Estate Appraisal Course III, Rural Properties, 1979 Real Estate Appraisal "Industrial Valuation" Course, 1984 Seminar: R-41C - New Orleans, Louisiana, AIREA, 1978 "Standards of Professional Practice" Course, AIREA, 1987 "Capitalization Theory and Techniques, Part A" Course, AIREA, 1987 "Standards of Professional Practice" Course, Appraisal Institute, 1992 "Advanced Level Finance I & II", 1997 "Risk Management/Ethics/Fair Housing", 1997 "How to Value Louisiana Timberland", 1997 "Uniform Standards of Professional Appraisal Practice" Seminar, 1997 PROFESSIONAL EXPERIENCE Real Estate Broker, State of Louisiana (1971) Monroe Redevelopment Agency, Monroe, Louisiana (1971) Robert M. McSherry, MAI Ford, Bacon & Drive Construction and Engineering Company, Monroe, Louisiana (1972) Mississippi power and Light Company, Jackson, Mississippi (1973-1976) Cameron-Brown South, Inc., Mortgage Bankers, Baton Rouge, Louisiana (1976-1977) Real Estate Appraiser, Monroe, Louisiana (1978-1985) Real Estate Appraiser, Baton Rouge, Louisiana and Jackson, Mississippi (1985-Present) PROFESSIONAL MEMBERSHIPS: Residential Member, American Institute of Real Estate Appraisers, Certification Number 1040 Licensed Real Estate Broker, State of Louisiana Fee Inspector for the Louisiana Homeowners Warranty Corporation FNMA Approved Level III Appraiser, Number 1027135 Member, American Institute of Real Estate Appraisers - MAI Designation (1981), Number 6291 Certified Licensed General Appraiser, State of Louisiana, Number 0891 Robert M. McSherry, MAI PHOTOGRAPHS Robert M. McSherry, MAI [PHOTOGRAPH VIEW LOOKING EAST DOWN COOPER LAKE ROAD] [PHOTOGRAPH VIEW LOOKING WEST DOWN COOPER LAKE ROAD] [PHOTOGRAPH OF SUBJECT PROPERTY] [PHOTOGRAPH OF SUBJECT PROPERTY] [PHOTOGRAPH OF SUBJECT PROPERTY] Floor Plans [FLOOR PLAN OF THE BASTROP FACILTY] EX-99.4 31 PROPERTY APPRAISAL FOR FARMERVILLE, LA FACILITY A Self-Contained Real Estate Appraisal Report of A Proposed 21 Unit Assisted Care Facility, Resident Manager's Apartment and 4 Efficiency Assisted Care Units all Located on the West Side of Louisiana Highway 33 Just Outside the Corporate Limits of Farmerville, Union Parish, Louisiana For MMR Investment Bank Post Office Box 781440 Witchita, Kansas 67278-1440 As Of October 20, 1998 Prepared by Robert M. McSherry, MAI Louisiana State Certified General Real Estate Appraiser No. G0891 3760 Chelsea Drive Baton Rouge, Louisiana 70809 A Self-Contained Real Estate Appraisal Report of A Proposed 21 Unit Assisted Care Facility, Resident Manager's Apartment and 4 Efficiency Assisted Care Units all Located on the West Side of Louisiana Highway 33 Just Outside the Corporate Limits of Farmerville, Union Parish, Louisiana For Colonial Trust Company 5336 North 19th Avenue Phoenix, Arizona 85015 As Of October 20, 1998 Prepared by Robert M. McSherry, MAI Louisiana State Certified General Real Estate Appraiser No. G0891 3760 Chelsea Drive Baton Rouge, Louisiana 70809 Robert M. McSherry, MAI A Self-Contained Real Estate Appraisal Report of A Proposed 21 Unit Assisted Care Facility, Resident Manager's Apartment and 4 Efficiency Assisted Care Units all Located on the West Side of Louisiana Highway 33 Just Outside the Corporate Limits of Farmerville, Union Parish, Louisiana For Church Loans and Investments 5305 I-40 West Post Office Box 8203 Amarillo, Texas 79114-8203 As Of October 20, 1998 Prepared by Robert M. McSherry, MAI Louisiana State Certified General Real Estate Appraiser No. G0891 3760 Chelsea Drive Baton Rouge, Louisiana 70809 Robert M. McSherry, MAI ROBERT M. MC SHERRY, MAI 3760 Chelsea Drive Baton Rouge, Louisiana 70809 Phone (504)924-8093 October 20, 1998 MMR Investment Bank Post Office Box 781440 Witchita, Kansas 67278-1440 RE: A proposed 21 unit assisted care facility, resident manager's apartment and 4 efficiency assisted care units all located on the west side of Louisiana Highway 33, just outside the corporate limits of Farmerville, Union Parish, Louisiana. Dear Sir: In accordance with your request to provide an estimate of the Estimated Market Value of Fee Simple Interest of the Going Concern of the property identified as a proposed 21 unit Assisted Care Facility, Resident Manager's Apartment and 4 Efficiency Assisted Care Units all located just outside the corporate limits of Farmerville, Union Parish, Louisiana, we have personally inspected the subject site and reviewed the submitted plans and specifications for the proposed improvements and conducted a thorough review and analysis of all matters pertinent for the Estimate of Market Value herein contained. Market Value as defined by the Department of the Treasury, Office of the Comptroller of the Currency, August 24, 1990, is, "The most probable price which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller, each acting prudently, knowledgeably and assuming the price is not affected by undue stimulus. Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby: a. buyer and seller are typically motivated, b. both parties are well informed or well advised, and each acting in what he considers his own best interest; c. a reasonable time is allowed for exposure in the open market; Robert M. McSherry, MAI ROBERT M. MC SHERRY, MAI 3760 Chelsea Drive Baton Rouge, Louisiana 70809 Phone (504)924-8093 October 20, 1998 Colonial Trust Company 5336 North 19th Avenue Phoenix, Arizona 85015 RE: A proposed 21 unit assisted care facility, resident manager's apartment and 4 efficiency assisted care units all located on the west side of Louisiana Highway 33, just outside the corporate limits of Farmerville, Union Parish, Louisiana. Dear Sir: In accordance with your request to provide an estimate of the Estimated Market Value of Fee Simple Interest of the Going Concern of the property identified as a proposed 21 unit Assisted Care Facility, Resident Manager's Apartment and 4 Efficiency Assisted Care Units all located just outside the corporate limits of Farmerville, Union Parish, Louisiana, we have personally inspected the subject site and reviewed the submitted plans and specifications for the proposed improvements and conducted a thorough review and analysis of all matters pertinent for the Estimate of Market Value herein contained. Market Value as defined by the Department of the Treasury, Office of the Comptroller of the Currency, August 24, 1990, is, "The most probable price which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller, each acting prudently, knowledgeably and assuming the price is not affected by undue stimulus. Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby: a. buyer and seller are typically motivated; b. both parties are well informed or well advised, and each acting in what he considers his own best interest; c. a reasonable time is allowed for exposure in the open market; Robert M. McSherry, MAI ROBERT M. MC SHERRY, MAI 3760 Chelsea Drive Baton Rouge, Louisiana 70809 Phone (504)924-8093 October 20, 1998 Church Loans and Investments 5305 I-40 West Post Office Box 8203 Amarillo, Texas 79114-8203 RE: A proposed 21 unit assisted care facility, resident manager's apartment and 4 efficiency assisted care units all located on the west side of Louisiana Highway 33, just outside the corporate limits of Farmerville, Union Parish, Louisiana. Dear Sir: In accordance with your request to provide an estimate of the Estimated Market Value of Fee Simple Interest of the Going Concern of the property identified as a proposed 21 unit Assisted Care Facility, Resident Manager's Apartment and 4 Efficiency Assisted Care Units all located just outside the corporate limits of Farmerville, Union Parish, Louisiana, we have personally inspected the subject site and reviewed the submitted plans and specifications for the proposed improvements and conducted a thorough review and analysis of all matters pertinent for the Estimate of Market Value herein contained. Market Value as defined by the Department of the Treasury, Office of the Comptroller of the Currency, August 24, 1990, is, "The most probable price which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller, each acting prudently, knowledgeably and assuming the price is not affected by undue stimulus. Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby: a. buyer and seller are typically motivated; b. both parties are well informed or well advised, and each acting in what he considers his own best interest; c. a reasonable time is allowed for exposure in the open market; Robert M. McSherry, MAI Page Two d. payment is made in terms of cash in U.S. dollars or in terms of financial arrangements comparable thereto; and e. the price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions granted by anyone associated with the sale. Fee Simple Interest is defined by the Appraisal Institute as being, "a fee without limitations to any particular class of heirs or restrictions but subject to the limitations of eminent domain, escheat, police power and taxation. An inheritable estate". Going Concern Value is "the value created by a proven property operation." It includes the incremental value associated with the business concern, which is distinct from the value of the real estate only. Going concern value includes an intangible enhancement of the value of an operating business enterprise which is produced by the assemblage of the land, building, labor, equipment, and marketing operation. This process creates an economically viable business that is expected to continue. Going concern value refers to the total value of a property, including both real property and intangible personal property attributed to business value. Special purpose properties such as the subject are appropriate for only one use or for a very limited number of uses. The highest and best use of a special purpose property as improved, is probably the continuation of its current use, if that use remains viable. Therefore, in the case of special purpose properties a going concern value is considered appropriate. In this instance the subject property has an excellent location within a viable market. As long as quality management is maintained, it's Market Value would be the same as it's Going Concern Value. Included is our appraisal report which contains the various exhibits and data utilized in arriving at the herein contained estimate of Market Value for the subject property. It is our opinion that the property herein identified as the proposed 21 Unit Assisted Care Facility, Resident Manager's Apartment and 4 Efficiency Assisted Care Units all located on the west side of Louisiana Highway 33 just outside the corporate limits of Farmerville, Union Parish, Louisiana, was estimated to have a Market Value based on Stabilized Net Operating Income, as of October 20, 1998, of: Robert M. MeSherry, MAI Page Three TWO MILLION THIRTY THOUSAND DOLLARS ($2,030,000.00) Allocated: LAND: $ 20,000.00 IMPROVEMENTS: $1,935,000.00 FURNITURE, FIXTURES & EQUIPMENT: $ 75,000.00 GOODWILL OF GOING CONCERN -0- The "As Is" Value of the property, derived by the utilization of the Discounted Cash Flow Methodology, is estimated to be, as of October 20, 1998, but subject to completion of the property in accordance with submitted plans and specifications within a reasonable period of time, of: ONE MILLION NINE HUNDRED FIFTY-FIVE THOUSAND DOLLARS ($1,955,000.00) The subject property is proposed at the present time and this appraiser has been provided plans and specifications for the property. The herein contained Estimate of Market Value is conditioned upon the completion of the improvements in accordance with the plans and specifications utilizing quality materials and workmanship within a reasonable period of time. A final inspection by this appraiser will be required to ascertain the assumptions utilized in preparing this appraisal report have been fulfilled. This appraisal report was prepared in accordance with and compliance of the Uniform Standards of Professional Appraisal Practice promulgated by the Appraisal Foundation and the Guide Notes to the Standards of Professional Practice adopted by the Appraisal Institute. These standards contain binding requirements and specific guidelines that deal with the procedures to be followed in developing an appraisal, analysis, or opinion. These uniform Robert M. McSherry, MAI Page Four standards also set the requirements to communicate the appraiser's analysis, opinions, and conclusions in a manner that will be meaningful and not misleading in the marketplace, accordingly, the Departure Provision does not apply. If we may be of further service to you in regard to this property or in any other manner, please do not hesitate to contact us at your earliest convenience. Respectfully submitted, /S/ROBERT M MCSHERRY Robert M McSherry, MAI Louisiana State Certified General Real Estate No. G0891 Robert M. McSherry, MAI EXECUTIVE SUMMARY Location: West side of LA Highway 33 just outside the Corporate Limits of Farmerville, Union Parish, Louisiana Interest Appraised: Fee Simple Interest Site: 4.00 Acres or 174,240 Square Feet, more or less Building Description: The property will include twenty-one (21) assisted care living units, a resident manager's apartment and 4 efficiency assisted care units all located within a single, T-shaped building. The common area amenities including a full service kitchen, a dining area, activities area, office/reception area, adequate bathrooms which would be fully equipped to satisfy the needs of the residents of the assisted care facilities as well as storage areas and other required additions to render the subject property a functional assisted care facility catering to those requiring assisted care. Construction characteristics include a reinforced poured concrete foundation, wood framing, with a combination of brick veneer and vinyl siding exterior walls with the roof being of composition shingles. Although the property is proposed at the present time, this appraiser is aware of a similar property which has been constructed by the owners of the subject and our physical inspection of this existing complex has been utilized in conjunction with the submitted plans and specifications. The property is considered to be a most functional assisted living facility and is Robert M. McSherry, MAI considered a most attractive property and should be well accepted by the local market. Highest and Best Use: Assisted care facility including all required amenities. Cost Approach to Value $2,110,000.00 Market Approach to Value $2,075,000.00 Income Approach to Value: Stabilized Net Income: $2,030,000.00 Discounted Cash Flow Value: $1,955,000.00 Final Value Estimate: Stabilized Net Income: $2,030,000.00 "As Is" Value: $1,955,000.00 Allocated: Land $ 20,000.00 Improvements $1,935,000.00 Furniture, Fixtures and Equipment $ 75,000.00 Goodwill of Going Concern -0- Robert M. McSherry, MAI IDENTIFICATION OF THE PROPERTY The property being inspected, analyzed and for which the Market Value Estimate of the Fee Simple Interest of the Going Concern is applicable is a 4.0 acre tract of land which will be basically rectangular in shape with no direct frontage along the west side of LA Highway 33 with access provided to the site from the right-of-way of this State maintained highway by a right-of-way of a minimum width of 50 feet which will be a dedicated right-of-way providing perpetual access to the subject site from the state highway. The subject site is a portion of a larger tract of land which is to be purchased from Lejoe Long by Biltmore, LLC for a total consideration of $32,000.00 for a 16 acre tract. The property features a somewhat sloping topography and the 4.0 acres which are the subject of this appraisal report are considered the "heart" of the property providing an excellent view of an existing man made lake located to the southeast of the site and the surrounding terrain. The property has not been purchased as of the date of this appraisal with the closing date set to be within two weeks of the date of the appraisal and, at that time, a complete legal description including metes and bounds survey of the property including the access right-of-way will be provided this appraiser to ascertain the assumptions utilized within this report have been fulfilled. This is a condition of this appraisal report. Robert M. McSherry, MAI PURPOSE OF THE APPRAISAL The purpose of this report is to communicate, in a narrative format, the data and reasoning that the appraisers have utilized to form the herein contained estimate of Market Value of the Fee Simple Interest of the Going Concern for the property identified as a proposed 21 assisted care facility and 4 efficiency assisted care units all located on the west side of LA Highway 33, Farmerville, Louisiana. OBJECTIVE OF THE APPRAISAL The objective and function of this appraisal report is to provide an estimate of the Market Value of the Fee Simple Interest of the Going Concern of the property for use by MMR Investment Bank in order to provide long term financing of the subject property for the Biltmore Group, L.L.C. The Subject property was personally inspected by this appraiser both before and after the date of this appraisal and the submitted plans and specifications reviewed. As the property is proposed construction, a final inspection of the property will be required by the appraiser to ascertain the assumptions utilized within this appraisal report have been fulfilled and this appraisal is also conditioned upon being completed in accordance with the plans and specifications utilizing quality materials and workmanship throughout. Other additional conditions are contained in an additional section of this report. Robert M. McSherry, MAI PURPOSE OF THE APPRAISAL The purpose of this report is to communicate, in a narrative format, the data and reasoning that the appraisers have utilized to form the herein contained estimate of Market Value of the Fee Simple Interest of the Going Concern for the property identified as a proposed 21 assisted care facility and 4 efficiency assisted care units all located on the west side of LA Highway 33, Farmerville, Louisiana. OBJECTIVE OF THE APPRAISAL The objective and function of this appraisal report is to provide an estimate of the Market Value of the Fee Simple Interest of the Going Concern of the property for use by Colonial Trust Company in order to provide long term financing of the subject property for the Biltmore Group, L.L.C. The Subject property was personally inspected by this appraiser both before and after the date of this appraisal and the submitted plans and specifications reviewed. As the property is proposed construction, a final inspection of the property will be required by the appraiser to ascertain the assumptions utilized within this appraisal report have been fulfilled and this appraisal is also conditioned upon being completed in accordance with the plans and specifications utilizing quality materials and workmanship throughout. Other additional conditions are contained in an additional section of this report. Robert M. McSherry, MAI PURPOSE OF THE APPRAISAL The purpose of this report is to communicate, in a narrative format, the data and reasoning that the appraisers have utilized to form the herein contained estimate of Market Value of the Fee Simple Interest of the Going Concern for the property identified as a proposed 21 assisted care facility and 4 efficiency assisted care units all located on the west side of LA Highway 33, Farmerville, Louisiana. OBJECTIVE OF THE APPRAISAL The objective and function of this appraisal report is to provide an estimate of the Market Value of the Fee Simple Interest of the Going Concern of the property for use by Church Loans and Investments in order to provide long term financing of the subject property for the Biltmore Group, L.L.C. The Subject property was personally inspected by this appraiser both before and after the date of this appraisal and the submitted plans and specifications reviewed. As the property is proposed construction, a final inspection of the property will be required by the appraiser to ascertain the assumptions utilized within this appraisal report have been fulfilled and this appraisal is also conditioned upon being completed in accordance with the plans and specifications utilizing quality materials and workmanship throughout. Other additional conditions are contained in an additional section of this report. Robert M. McSherry, MAI DATE OF THE APPRAISAL The effective date of this appraisal is October 20, 1998. The subject site was personally inspected by this appraiser both before and after this date and the submitted plans and specifications for the proposed improvements were also reviewed by the appraiser prior to the date of the appraisal. Robert M. McSherry, MAI DEFINITION OF SIGNIFICANT TERMS Market Value, as defined by the Department of the Treasury, Office of the Comptroller of the Currency, August 24, 1990, is, "The most probable price which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller, each acting prudently, knowledgeably and assuming the price is not affected by undue stimulus. Implicit in this definition, is the consummation of a sale as of a specified data and the passing of title from seller to buyer under conditions whereby: a. buyer and seller are typically motivated; b. both parties are well informed or well advised, and each acting in what he considers his own best interest- c. a reasonable time is allowed for exposure in the open market; d. payment is made in terms of cash in U.S. dollars or in terms of financial arrangements comparable thereto; and e. the price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions granted by anyone associated with the sale. Fee Simple Interest is defined by the Appraisal Institute as being, "a fee without limitations to any particular class of heirs or restrictions but subject to the limitations of eminent domain, escheat, police power and taxation. An inheritable estate". Going Concern Value is "the value created by a proven property operation." It includes the incremental value associated with the business concern, which is Robert M. McSherry, MAI distinct from the value of the real estate only. Going concern value includes an intangible enhancement of the value of an operating business enterprise which is produced by the assemblage of the land, building, labor, equipment, and marketing operation. This process creates an economically viable business that is expected to continue. Going concern value refers to the total value of a property, including both real property and intangible personal property attributed to business value. Special purpose properties such as the subject are appropriate for only one use or for a very limited number of uses. The highest and best use of a special purpose property as improved, is probably the continuation of its current use, if that use remains viable. Therefore, in the case of special purpose properties a going concern value is considered appropriate. Robert M. McSherry, MAI PROPERTY RIGHTS APPRAISED This assignment concerns the appraisal of the Fee Simple Interest with Fee Simple Interest defined in Real Estate Appraisal Terminology as being, "a fee without limitations to any particular class of heirs or restrictions but subject to the limitations of eminent domain, escheat, police power and taxation. An inheritable estate". STATEMENT OF OWNERSHIP AND RECENT HISTORY The larger tract from which the subject property will be partitioned is under the ownership of Lejoe Long and has been under this ownership for a period in excess of five (5) years. The property will be purchased by Biltmore, LLC for a total consideration of $32,000.00 for the 16 acre tract which indicates a purchase price of $4,000.00 per acre. The portion of the property which is the subject of this appraisal report will be the 4.0 acre "heart" of this property located in the very center of the tract which will afford the site a view of an existing man made lake and the surrounding terrain and will be most conducive to the overall environment which is intended to be developed in conjunction with the subject property. The property, as noted, is located at the center of the larger tract and a minimum 50 foot right-of-way must be dedicated into perpetuity providing access to LA Highway 33 to the subject site. This is a condition of this appraisal report. Robert M. McSherry, MAI The property has been owned by the current owner, Lejoe Long, for a period in excess of five (5) years and there are no speculative transactions affecting the subject property according to the records found in the Union Parish Clerk of Court's Office other than those of normal business transactions. Robert M. McSherry, MAI ASSUMPTIONS AND LIMITING CONDITIONS This appraisal report has been made with the following assumptions and limiting conditions: 1. No responsibility is assumed for the legal description or for matters including legal or title consideration. Title to the property is assumed to be good and marketable unless otherwise stated. 2. The property is appraised free and clear of any and all liens or encumbrances unless otherwise stated. 3. Responsible ownership and competent property management are assumed. 4. The information furnished by others is believed to be reliable. No warranty, however, is given for its accuracy. 5. All engineering is assumed to be correct. The plot plans and illustrative material in this report are included only to assist the reader in visualizing the property. 6. It is assumed that there are no hidden or apparent conditions of the property, subsoil, or structures that render it more or less valuable. No responsibility is assumed for such conditions or for arranging for engineering studies that may be required to discover them. 7. It is assumed that there is full compliance with all applicable federal, state, and local environmental regulations and laws unless noncompliance is stated, defined, and considered in the appraisal report. 8. It is assumed that all applicable zoning and use regulations and restrictions have been complied with, unless a nonconformity has been stated, defined, and considered in the appraisal report. 9. It is assumed that all required licenses, certificates of occupancy, consents, or other legislative or administrative authority from any local, state or national government or private entity or organization have been, or can be obtained or renewed for any use on which the value estimate contained in this report is based. Robert M. McSherry, MAI 10. It is assumed that the utilization of the land and improvements is within the boundaries or property lines of the property described and that there is no encroachment or trespass unless noted in the report. 11. The distribution, if any, of the total valuation in this report between land and improvements applies only under the stated program of utilization. The separate allocations for land and buildings must not be used in conjunction with any other appraisal and are invalid if so used. 12. The appraisers herein, by reason of this appraisal, are not required to give further consultation, testimony, or be in attendance in court with reference to the property in question unless arrangements have been previously made. 13. Possession of this report, or a copy thereof, does not carry with it the right of publication. It may not be used for any purpose by any person other than the party to whom it is addressed without the written consent of the appraisers, and in any event only with proper written qualification and only in its entirety. 14. Neither all nor any part of the contents of this report (especially any conclusions as to value, the identity of the appraisers, or the firm with which the appraisers are connected) shall be disseminated to the public through advertising, public relations, new, sales, or other media without the prior written consent and approval of the appraisers. 15. The existence of hazardous materials, which may or may not be present on the subject property, was not observed by the appraisers. The appraisers have the knowledge of the existence of such materials on or in the subject property. However, the appraisers are not qualified to detect such substances and the presence of potential hazardous materials may affect the value of the property. This value estimate contained within this report is predicated on the assumption that no such hazardous materials are present on or in the property. No responsibility is assumed for any such conditions or for any expertise or any knowledge required to discover these items. This should be accomplished by an expert in the field and is a condition of this appraisal report. 16. That the appraiser has personally inspected the subject property and finds no obvious evidence of structural deficiencies, except as stated in this report; however, no responsibility for hidden defects or conformity to specific governmental requirements, such as the Americans with Disabilities (ADA) or fire, building and safety, earthquake, or occupancy Robert M. McSherry, MAI codes, etc., can be assumed without provision of specific professional or governmental inspections. 17. This property is proposed at the present time and the appraisal is conditioned upon the completion of the subject property in accordance with the submitted plans and specifications utilizing quality materials and workmanship throughout. A final inspection by the appraiser would be required in order to ascertain the assumptions utilized in arriving at the herein contained Estimate of Market Value have been fulfilled. 18. This appraisal is not based on a requested minimum valuation, a specific valuation or the approval of the loan. Robert M. McSherry, MAI UNION PARISH AND FARMERVILLE CITY DATA Farmerville is located in the extreme northeastern corner of Louisiana approximately 124 miles northeast of Shreveport, Louisiana and 129 miles northwest of Jackson, Mississippi. The population as of 1993 for the City of Farmerville was 3,010 while the population of Union Parish was 21,116. There are 14 local public and private schools that service Farmerville while Northeast Louisiana University lies within 24 miles of the City. The local utilities and services include Louisiana Power and Light, natural gas is supplied by Louisiana Gas Service and water is supplied by Peoples Water Company. There is a local Police Department and Fire Department for personal protection. Local telephone service is provided by South Central Bell. The community enjoys 64 local churches which are either Protestant, Catholic or Other Denomination. There are 26 doctors servicing one local hospital. Highways serving the area are US Highway 165, LA Highway 33 and LA Highway 2 and the local waterway is the Oauchita River. There are 3 daily newspapers, 2 local radio stations, one television station and cable television is available. Robert M. McSherry, MAI The major employer in the area is International Paper with approximately 1,100 union employees, Union Parish School Board (784 employees), Morehouse General Hospital (350190 employees) with Wal-Mart and the City of Farmerville and Union Parish following with 190 employees and 1680 employees respectively. Robert M. McSherry, MAI [Area Location Map Indicating Subject Property] OVERVIEW OF ASSISTED LIVING INDUSTRY In anticipation that more elderly Americans will live in assisted living homes than nursing homes in the near future, consumer industry groups are saying it is time to put some minimum standards into law. One of the most important things for the industry is to try not to admit residents it cannot provide quality care for. Many assisted living homes charge additional fees for personal services residents may come to need as they grow older. Some will help residents if they get sick by permitting periodic visits from nurses, for example, or providing supervision for people with Alzheimer's Disease. In order to minimize residents need to move, the consumer or trade groups say assisted living facilities should be required to offer at least some help with the dozen daily activities including meals, using the bathroom, taking medication and shopping. Those facilities which accept people with Alzheimer's or other types of dementia would also be required to provide 24 hour awake staff and special training for those workers. Assisted living has become the hottest new housing option for older people by promising to provide a happy medium between their homes and a full nursing home facility. Industry estimates show that the number of elderly Americans living in settings that could be described as assisted living has probably doubled from 560,000 in 1990 to as many as 1,000,000 in 1997. By early next century, experts predict assisted living homes will care for more elderly Americans than nursing homes. Robert M. McSherry, MAI Although numbers are inexact, assisted living facilities ranging from luxury apartment buildings to modest group homes provide housing along with personal services and some health care. Residents may be too frail to live alone but too healthy to need the 24 hour medical attention of nursing homes. Assisted living can be less expensive than nursing homes. A 1997 survey by the National Center for Assisted Living found that 52% costs $1,001.00 to $2,000.00 per month and 24% cost less than $1,000.00 per month. In contrast, monthly nursing home fees average above $3,000.00. Assisted living's affordability has attracted the attention of law makers worried about how the nation will ensure elderly care for the huge baby boom generation now middle aged. Medicaid programs for the poor in 28 states have begun to cover some assisted living services and the Department of Health and Human Services is conducting a fact finding survey. Unlike nursing homes, assisted living homes are not regulated by the Federal Government. Fewer than half of the states require licensing before it opens. That allows for flexibility and partly explains assisted living's popularity. In summary, the assisted living facilities currently expanding throughout the United States are the most popular and desirable alternative living situation for those elderly which require some minimal level of care but not the extensive Robert M. McSherry, MAI level required by nursing home patients. As the population continues to grow older but maintain better health, the appeal thus desirability of assisted living facilities will continue to be enhanced. Robert M. McSherry, MAI SCOPE OF THE APPRAISAL The appraiser has personally inspected the subject site and conducted an in-depth inspection of the neighborhood in which the subject property is located observing it's trends of development and characteristics. Vacant land sales utilized in conjunction with the Cost Approach to Value and in determining the estimated Market Value of the subject site, as if vacant, and owned in Fee Simple have been inspected by this appraiser and a combination of data provided by the Marshall Valuation Service Cost Manual and other available in-file data has been utilized in the process of estimating the replacement cost new of the subject improvements. In the final analysis, the appraiser has utilized and relied upon the experience of judgment based on the opinion of the quality and quantity of the data in arriving at the final value estimate of the Fee Simple Interest in the subject property. The Income Approach to Value has been completed utilizing a stabilized net income capitalized into value and a discounted cash flow method. Economic rents were determined by rent comparables and current data utilized with respect to expense projections. Information provided by the publication "Trends in the Health Care Industry" as well as information provided by other actual ongoing facilities similar to the subject have been utilized in the process of estimating the projected expenses which were included in the Income Approach to Value. Although the subject property is proposed at the present time and has Robert M. McSherry, MAI no income or expense history, it is considered to be a functional facility and a facility which is demand with respect to providing long term assisted living care. Robert M. McSherry, MAI DESCRIPTION OF THE PROPERTY Site Data Size, Shape and Topography The subject site will be a 4.0 acre rectangular shaped parcel of land having no direct frontage along the right-of-way of LA Highway 33 with access to be provided by a minimum 50 foot wide right-of-way which will be dedicated into perpetuity which will provide an access road for the subject property. The subject property is located just west of LA Highway 33 which is a dual-lane, asphalt, State maintained traffic artery serving local and Parish wide vehicular traffic. The topography is rolling and will require site preparation prior to construction. The 4.0 acre tract which is the subject is considered to be the "heart" of the property and will feature a level topography with an excellent view amenity including that of a large man made lake to the southeast and the surrounding wooded topography when site preparations are complete. Utilities The subject property is located just outside the corporate limits of Farmerville, Union Parish, Louisiana but will be provided with all city utilities and services available to properties within the corporate limits of Farmerville including electrical service, police and fire protection, public water, sewerage disposal, and refuge disposal. Telephone service and natural gas service is provided by the local utility companies servicing the area and all services and utilities are considered adequate to provide the requirements of the subject property. Robert M. McSherry, MAI Access Access to the subject development will be provided as the result of an access road leading from the west right-of-way of LA Highway 33 to the 4.0 acre subject site. The access road will exit LA Highway 33, a dual-lane, asphalt, State maintained traffic artery which services both local and Parish wide vehicular traffic and provides direct access to the downtown areas of Farmerville as well as to the outlying areas of Farmerville and Union Parish. There exists several other State maintained highways including LA Highway 2 which traverse the area and provide adequate access to the subject site from all areas of both Farmerville and Union Parish. Zoning Conversations with representatives on the Farmerville City Hall indicated that no current zoning is applicable to areas in the unincorporated areas of Farmerville, Louisiana. Land uses are controlled by deed restrictions or other restrictive covenants which run with the land and, although this appraiser has not conducted an in-depth review of the abstract to the subject site, no deed restrictions or other restrictive covenants are assumed to exist which would affect the utilization of the subject site as a site of an assisted living facility. This appraiser has not conducted an in-depth review with respect to the abstract to the subject site but no deed restrictions or other restrictive covenants are assumed to exist which would affect the development of the subject property to its highest and best use. However, this should be ascertained by competent legal authority and is a condition of this appraisal report. Robert M. McSherry, MAI Drainage Review of Flood Hazard Maps found in the Union Parish Community Office indicated the subject property to be located in a Flood Zone "X" according to Flood Map No. 220359-007-A having an effective date of September 13, 1997. This indicates no flood insurance is required for the subject property. Tax Data The subject property is proposed construction property and the taxes on the vacant land only are minimal. The subject property will be placed on the Union Parish tax rolls the year after it is completed and at that time will be assessed and the tax liability can be assigned. For the purposes of this appraisal report and for the utilization in the Income Approach, taxes have been projected but are subject to change once the property is completed and placed on the tax rolls. The 1997 millage rates applicable to the subject property are as follows: Forestry .08 Mills Parish 45.04 Mills Total 45.12 Mills Assisted living facilities such as the subject are assessed at 10% of Market Value and conversations with representatives of the Union Parish Tax Assessor's Office indicate an estimated Market Value for tax purposes will be approximately 30% less than actual Market Value. Thus: Robert M. McSherry, MAI Estimated Value of Subject $2,030,000.00 Estimated Assessed Value $1,470,000.00 10% - Assessed Value $ 147,000.00 $147,000.00 X 45.12 Mills = Estimated Tax Liability $ 6,632.64 Robert M. McSherry, MAI LOCATION MAP Robert M. McSherry, MAI [Subject Property Location Map Indicating Subject Property] DESCRIPTION OF THE IMPROVEMENTS Assisted Living Facility The proposed facility containing the assisted living units will be constructed within a single T-shaped building but a building comprised of different component sections housing the assisted living units in two wings with the public areas located in the center or core of the building. The building is a modified T-shape and encompasses a total of 22,217 square feet of heated area. The assisted living units contained within this facility will contain approximately 485 square feet of living area and feature a bedroom, living room, kitchenette and full bath with shower while the efficiency units will contain approximately 200 square feet of area. The gross building area was calculated by Mr. Mike Wallace, the preparer of the plans and specifications for the property. Construction characteristics for this building include reinforced poured concrete foundation with adequate grade beams and both interior and perimeter footings with the exterior being wood framing utilizing a combination of brick veneer vinyl with the roof being a composition shingle roof over wood decking. Windows will be insulated, horizontal slide aluminum windows with each unit of the assisted care units having their own central HVAC unit with the common areas utilizing central, zoned units. Interior construction will include a combination of vinyl and carpet or ceramic tile flooring, painted or vinyl covered sheetrock walls with acoustical ceilings. Lighting will be both standard and fluorescent fixtures. Robert M. McSherry, MAI Amenities to be contained within the assisted care portion of the building include a full service kitchen, dining room, activities area, whirlpool area, staff laundry, TV rooms, offices and other required amenities as well as an apartment for the resident managing couple. As previously noted, the total gross area contained within this portion of the subject property is 22,217 square feet. Within this total, 21 assisted living units, 4 efficiency assisted units, the manager's apartment and remaining common areas will be contained. Parking will be poured concrete and located at strategic locations around the site and will be adequate to fulfill the requirements of both the tenants and staff. Landscaping will be extensive and utilized in conjunction with the natural topography of the area should be most pleasing. Each assisted living unit will include a toilet, lavatory and tub/shower unit, through wall air conditioning unit with heat strip, drop-in over/range unit with vent hood as well as adequate closet and cabinet space. A complete set of working drawings will be provided the appraiser as a condition of this appraisal to ascertain the assumptions utilized within this report have been fulfilled. A final inspection by the appraiser will be required. As noted, the subject is proposed construction and this appraisal is conditioned upon the completion utilizing quality materials and workmanship with a final Robert M. McSherry, MAI inspection by the appraiser required to ascertain the preliminary plans and specifications provided this appraiser were correct. Robert M. McSherry, MAI HIGHEST AND BEST USE Introduction The Appraisal Institute defined highest and best use as follows, "that legal use, at the time of the appraisal, which is the most profitable likely use to which a property can be put." There are several basic factors which must be considered in order to make a proper determination of Highest and Best Use: 1. The use must be legal, that is, legally adaptable regarding zoning and other restrictions; 2. The use must be probable, not conjectural or speculative; 3. The property must be physically adaptable to use contemplated; 4. There must be a demand for such use; 5. The use must be profitable, the highest return to the land over the longest period of time. Highest and best use of the land (or site) if vacant and available for use may be different from the highest and best use of the improved property. This is true if the improvement is not an appropriate use, but it makes a contribution to the total property value in excess of the value of the site. The above five tests have been applied to the subject property's vacant site. In arriving at the estimate of highest and best use, the subject site has been carefully analyzed. Robert M. McSherry, MAI HIGHEST AND BEST USE ASSUMING A VACANT SITE Permissible Use An investigation has been conducted in order to determine the zoning classification that encumbers the subject property. The results of this investigation has revealed that the subject site is not affected by City or Parish zoning with land uses controlled by deed restrictions or other restrictive covenants. The lack of zoning allows a large number of permissible uses to be considered for the subject property but it's location within a primarily residential area, the access provided by a dual-laned municipal traffic artery and other factors indicate the proposed utilization as an assisted care facility to be one of the better if not the best permissible uses of the site and would be a legal, conforming, permissible use. Possible Use Inspection of the subject property's neighborhood has been made to determine any physical limitations that might be present. The result of this inspection has revealed the neighborhood is developed with mix of property types. The lack of zoning which is currently applicable to the subject property does allow for an assisted care facility to be constructed on the site as well as other types of multi-family construction. This lack of zoning classification will allow the property to be developed as proposed within this appraisal report and this is considered the most likely probable use to which the subject property could be put. Robert M. McSherry, MAI In the final analysis, the proposed utilization of the subject property is considered to constitute one of it's Highest and Best Uses. Robert M. McSherry, MAI THE APPRAISAL PROCESS The real estate appraisal profession typically utilizes three basic approaches in the process of estimating the value of a parcel of real property. These approaches include the Cost Approach, the Income Approach and the Market Data Approach. The Cost Approach utilizes an estimate of reproduction or replacement costs new of the building and other on-site improvements to be contained within the subject property less accrued depreciation from all sources including physical curable and incurable deterioration, functional obsolescence and economic obsolescence to arrive at an estimate of depreciated reproduction or replacement costs for the improvements. The estimated value of the site, as if vacant, and determined by the comparison of the subject site with other similar parcels in either the immediate proximity of the subject or in other comparable areas is added to the depreciated reproduction or replacement cost estimate of the improvements to provide an indication of value of the property being appraised from the Cost Approach. The Cost Approach is generally accorded the greatest credence in instances where the property being appraised is either a proposed property or a new property having little or no accrued depreciation or instances where the property being appraised represents a special purpose type property. In these instances, the Cost Approach is an accurate indication of value for the property and is accorded considerable credence in the reconciliation process. Robert M. McSherry, MAI The Income Approach to Value utilizes an estimate of gross annual income to be generated by the property being appraised as determined to be representative of economic rentals for this type property within the area less an allowance considered typical for vacancy and collection losses to arrive at an estimate of effective gross annual income which is to be generated by the property. Expenses typically associated with the operation of this type property in accordance with prevailing lease terms and conditions in the area as well as data provided by analysis of the operating history of other similar type properties are projected and deducted from the effective gross annual income to arrive at an estimate of net operating income before recapture attributable to the subject. This net operating income is then capitalized by the most appropriate method available with respect to the subject property in particular and the appraisal problem in general into an indication of value for the property being appraised from the Income Approach. Another method of utilizing the Income Approach is the Gross Income Multiplier technique. This technique identifies the relationship between the sales price (value) of a property and its gross annual income earning potential. The Gross Income Multiplier is derived by dividing the sales price of a property by its gross potential income and, thus, is an excellent indicator of buyer, seller and investor attitudes toward the property being analyzed. An effective gross income multiplier is also excellent as it utilizes the actual gross income after vacancy to derive the multiplier. use depends upon available data. The Market Data or Direct Sales Comparison Approach utilize sales of comparable improved properties in either the immediate proximity of the subject Robert M. McSherry. MAI or in other comparable areas to derive a unit of comparison. Each of the various comparable sales are carefully reviewed and analyzed by the appraiser, adjusted for any dissimilarities between the subject property and the comparable sale in such areas as date of sale, location, design, condition, and other physical characteristics to result in an adjusted unit of comparison to be utilized in the Market Data or Direct Sales Comparison Approach to provide an indication of value for the property being appraised. The reconciliation is the method whereby all data provided by the various approaches utilized in the appraisal report are carefully analyzed and accorded weight in varying degrees. The approach which is considered to be the most representative of current buyer, seller and investor attitudes towards the subject property is accorded the greatest credence in the final analysis but all the approaches are interrelated and all data gathered and utilized in the various approaches must be carefully analyzed in the reconciliation process and to ignore any available data would be improper. Robert M. McSherry, MAI COST APPROACH TO VALUE The Cost Approach to Value, like the Sales Comparison and Income Approaches, is based on comparison. in the Cost Approach, the cost to construct a building and the value of any existing building are compared. The Cost Approach to Value reflects market thinking in the recognition that market participants relate value to cost. Buyers tend to judge the value of an existing structure by comparing it to the value of a newly constructed building with optimal functional utility. Moreover, buyers adjust the prices they are willing to buy by estimating the cost to bring an existing structure to desired levels of functional utility. Thus, by applying the Cost Approach, an appraiser attempts to estimate the difference in worth to a buyer between the property being appraised and a newly constructed building with optimal utility. An appraiser makes a sound value estimate by estimating the cost to construct a reproduction of or a replacement of the existing structure and then deducts all evidence of accrued depreciation in the property being appraised from the cost of the reproduction or replacement structure and the resulting figure, plus the value of the land, plus any entrepreneurial profit provides a value indication through the application of the Cost Approach. The decision to utilize reproduction or replacement costs is most pertinent and the selection plays and important part in contributing to the validity of the Cost Approach. Replacement cost is defined in Real Estate Appraisal Terminology as Robert M. McSherry, MAI being, "the cost of construction at current prices of a building having utility equivalent to the building being appraised but built with modern materials and according to the current standards, design and layout. The use of the replacement cost concept presumably eliminates all functional obsolescence and the only depreciation to be measured is physical deterioration and economic obsolescence." The appraisers will utilize the replacement cost method supported by Marshall Valuation Service in conjunction with the construction cost estimate provided by knowledgeable contractors/engineers or architects. DEPRECIATION All types of accrued depreciation affecting the subject improvements were considered. Accrued depreciation is defined as, "the difference between reproduction cost new as of the date of the appraisal and the present contributory value of the improvements." Accrued depreciation is divided into three basic categories: physical deterioration (which includes curable and incurable), functional obsolescence (including curable and incurable), and economic obsolescence (which is always incurable) The following is a discussion of each type of depreciation and the observed depreciation applicable to the subject property. Physical Deterioration, Curable This type of depreciation is defined as, "the loss in value from cost new which can be recovered or offset through correction, repair, or replacement of the defective items causing the loss, providing the resultant value approximates the Robert M. McSherry, MAI cost of the work." The property is proposed thus no deferred maintenance is present. Physical Deterioration, Incurable This type of depreciation is defined as, "the loss from cost new which is impossible to offset or which would involve an expenditure substantially in excess of the value increase resulting therefrom." The property is proposed and has an effective are of 0 years and a total economic life of 30 years. Functional Obsolescence Functional obsolescence is defined as, "the loss from cost new as of the date of the appraisal which is caused by a superadequacy, inadequacy, unattractive style, poor or inefficient layout or design." Items causing functional obsolescence can be either curable or incurable; it is curable only when it is profitable to cure the item. Incurable, functional obsolescence involves items of initiate which would not be economical to correct because the value would not increase so much as the cost of correction. Based on my inspection of the subject improvements, it is my opinion that they are totally adequate and comparable to similar properties in the same general price range, therefore, no loss of value from functional obsolescence exists. Economic Obsolescence This type of depreciation is defined as, "the loss from cost new as of the date of the appraisal due to causes external to the property boundaries." To measure Robert M. McSherry, MAI this type of obsolescence the appraiser capitalizes the rent lost due to the external factor for the prorata share applicable to the building. As indicated in the site date, there are no undesirable external influences and, thus, there is no loss to the subject improvements due to economic obsolescence. Entrepreneurial Profit For the Cost Approach to provide a sound indication of value, a market derived entrepreneurial profit must be added to the direct and indirect costs. The profit figure is typically expressed as a percentage of total direct and indirect costs. Entrepreneurial profit is a necessary element in the motivation to construct the improvements. However, part or all of the profit may be lost as functional or external obsolescence if the market indicates that the improvements have a Market Value less than the current reproduction or replacement cost less physical deterioration. The results of the investigation and analysis of this market data will appear as follows: Robert M. McSherry, MAI COMPARABLE LAND SALE 1 Date of Sale: January 27, 1998 Recordation: Conveyance Book 1020, Page 198, Union Parish, Louisiana. Vendor: Donald Hinton Vendee: Jo Ann Stoy Size: 2.82 Acres Consideration: $6,000.00 Indicated Price/Acre: $2,127.00 per Acre Brief Legal Description: Tract or parcel of land located in the northeast quarter of the northwest quarter of Section 28 and the southeast quarter of the southwest quarter of Section 21, T21 N-Rl E, Union Parish, Louisiana. Financing: Cash Condition of Sale: Market Site Utilities: Public Terrain: Gently Sloping Access: Public Asphalt Road Highest and Best Use: Commercial or Multi-Family Confirmation: Union Parish Tax Assessors Office Robert M. McSherry, MAI COMPARABLE LAND SALE 2 Date of Sale: January 31, 1998 Recordation: Conveyance Book 1021, Page 107, Union Parish, Louisiana Vendor: Ernest St. John, Jr. Vendee: Hayes Caldwin Size: 24.0 Acres Consideration: $50,600.00 Indicated Price/Acre: $2,108.00 per Acre Brief Legal Description: A tract or parcel of land located in the northeast quarter of the southwest quarter of Section 6, T21N-ReW, Union Parish, Louisiana. Financing: Cash Condition of Sale: Market Site Utilities: Public Terrain: Level Access: Public Road Highest and Best Use: Commercial Confirmation: Union Parish Tax Assessor's Office Robert M. McSherry, MAI COMPARABLE LAND SALE 3 Date of Sale: May 7, 1998 Recordation: Conveyance Book 1029, Page 76, Union Parish, Louisiana. Vendor: Ruth Kennedy Vendee: Bobby Patrick Size: 11.262 Acres Consideration: $37,158.00 Indicated Price/Acre: $3,299.00 per Acre Brief Legal Description: Tract or parcel of land located in the southeast quarter of the southeast quarter of Section 2 and the northeast quarter of the northeast quarter of Section 11, T21N-R1E, Union Parish, Louisiana. Financing: Cash Condition of Sale: Market Site Utilities: Public Terrain: Slightly Rolling Access: Public Road Highest and Best Use: Commercial Confirmation: Union Parish Tax Assessor's Office Robert M. McSherry, MAI COMPARABLE LAND SALE 4 Date of Sale: August 17, 1998 Recordation: Conveyance Book 1034, Page 239, Union Parish, Louisiana. Vendor: Jerry Rugg Vendee: Jose Romany, M.D Size: 15.03 Acres Consideration: $34,000.00 Indicated Price/Acre: $2,262.00 per Acre Brief Legal Description: Tract or parcel of land located in the south half of the northwest quarter of Section 18, T21N-R1E, Union Parish, Louisiana. Financing: Cash Condition of Sale: Market Site Utilities: Public Terrain: Slightly Sloping Access: Public Highway Highest and Best Use: Commercial or Light Industrial Confirmation: Union Parish Tax Assessor's Office Robert M. McSherry, MAI COMPARABLE LAND SALES SUMMARY CHART
Date Size/Usable Price/Acre Location Sale 1 1/98 2.820 Acres $2,127.00 Union Parish, LA Sale 2 1/98 24.000 Acres $2,108.00 Union Parish, LA Sale 3 5/98 11.262 Acres $3,299.00 Union Parish, LA Sale 4 8/98 15.030 Acres $2,262.00 Union Parish, LA
Robert M. McSherry, MAI ANALYSIS OF COMPARABLE LAND SALES The four vacant comparable land sales contained within this appraisal report and utilized for analysis purposes are sales of sites located either in the immediate proximity of the subject or other comparable areas of Farmerville, Louisiana. All sites are considered current with respect to date of sale as all sales have been sold within the calendar year of 1998 thus requiring no adjustment for the time differential. The size of the sales are similar with respect to the subject property with the exception of Sale 2 which is somewhat larger but analysis of paired sales did not indicate any adjustment required for this somewhat minimal size differential. However, the location of all sales is considered inferior to that of the subject property requiring an upward adjustment for this locational dissimilarity between the subject property and the comparable sale and this sale has been adjusted accordingly. Physical characteristics are also important factors in the desirability of the vacant developmental site and the physical characteristics associated with each of these comparable sales have been analyzed, compared to the subject property and the proper adjustments made. The following land sales adjustment grid has been utilized to reflect the appraiser's opinion of the required adjustment of these comparable sales which results in an indicated value of the subject site, as if vacant, and in it's current condition. Robert M. McSherry, MAI After this adjustment grid has been carefully completed, it is our opinion that the subject site is estimated to have a Market Value, As If Vacant and prior to site preparation, of $5,000.00 per acre. Therefore, the Estimated Value of the Subject Site, As If Vacant, is thus derived: 4.0 Acres @ $5,000.OO/Acre = $20,000.00 INDICATED VALUE OF THE SUBJECT SITE, AS IF VACANT (R/T) $20,000.00 Robert M. McSherry, MAI DISCUSSION OF COST APPROACH In the construction of any project, the total cost of development can be divided into basic categories: direct or hard cost, and indirect or soft costs. As defined in Real Estate Appraisal Terminology, the definition of Direct Costs is, "the cost of direct labor and materials devoted specifically to a unit of work. In construction, these costs are directly related to site acquisition and construction of the improvements..." Defined in this same text, Indirect Cost is, "that cost in the development of a property which would not be included in a general contract for construction or for land acquisition..." Direct costs include the cost of items such as land acquisition, construction of the buildings, equipment and fixtures, the builder's profit and overhead, any temporary buildings for on-the-job usage, power line installation, and the electrical power used in the construction. As indicated in the Cost Approach Schedule which follows, direct or hard costs have been broken down into categories of building area, elevators and other primary building costs. Indirect, or soft costs, generally include fees, financing costs, and overhead. As the Cost Approach Schedule indicates, the indirect costs fall into 8 categories. The permits and fees sections include the estimated costs of a building permit, an appraisal, a survey and accounting and inspection charges. Architectural engineering estimates have been based on typical market charges. The legal expenses includes work done on both interim and permanent loan packages. Robert M. McSherry, MAI The insurance costs indicated are limited to construction-period coverage including the builder's risk. The closing cost estimate includes costs of closing both the interim and permanent loans. The interest expense is based on typical current market conditions and covers the period of time required to complete the construction of the project. The loan commitment fees are also based on current typical market conditions. The appraiser's have relied upon the Marshall Valuation Service, a publication of Marshall & Swift, 1617 Beverly Boulevard, Post Office Box 26307, Los Angeles, California, in estimating the replacement costs new of the subject property improvements. The Cost Approach to Value, as it applies to the property being appraised, is as follows: Robert M. McSherry, MAI COST APPROACH TO VALUE Cost Source: Marshall-Swift Cost Manual and Actual Costs Provided by Fred Bayles Direct Costs: Primary Structure 22,217 sq. ft. @ $59.70/sq. ft. $1,326,354.00 Total Direct Costs: Improvements $1,326,354.00 Indirect Costs: Plans, Specifications, Inspection Included in Direct Costs Contractor's Overhead/Profit $170,000.00 Interim Interest $ 65,250.00 Legal, Audit, Appraisal $ 60,400.00 Financing Fees - Construction $ 30,000.00 Misc. Expenses $ 50,000.00 Financing Fees - Long Term $162,500.00 Total Indirect Costs $ 538,150.00 Total Replacement Costs New: Improvements $1,864,504.00 Less: Accrued Depreciation Physical Curable -0- Physical Incurable -0- Functional Obsolescence -0- Economic Obsolescence -0- Total Accrued Depreciation -0- Depreciated Replacement Costs: Improvements $1,864,504.00 Add: Land Value 4.0 acres @ $5,000.00/acre $ 20,000.00 Add: Site Preparation $ 30,000.00 Add: Furniture, Fixtures and Equipment $ 75,000.00 Robert M. McSherry, MAI Add: Parking, Walks, Landscaping, Porches $ 25,000.00 Add: Entrepreneurial Profit @ 5% $ 93,200.00 Total All Costs and Value Components $2,107,704.00 INDICATED VALUE OF SUBJECT FROM COST APPROACH (R/T) $2,110,000.00 Note: Cost of Furniture, Fixture and Equipment based on costs association with actual costs experienced by Southside Garden Assisted Care Facility and Arbor House of West Monroe, Louisiana. Robert M. McSherry, MAI MARKET DATA APPROACH TO VALUE Market data is discussed in all the approaches to value. Data analysis is needed in the Cost Approach to develop a land value indication and to support costs and depreciation indicators; in the Income Approach to establish rent levels, vacancy indications, expenses, and capitalization rates; and in the Direct Sales Comparison Approach to establish comparability. The appraiser has carefully perused the Louisiana market with respect to sales of properties considered similar to the subject property and none were found. However, available data from other appraisers has revealed the sale of three similar type properties in other areas of the United States and these are included merely for analysis purposes as follows: Robert M. McSherry, MAI IMPROVED PROPERTY SALE 1 VENDOR: American Retirement, Inc. VENDOR: Horizon Retirement, Inc. LOCATION: 2601 Chimney Rock Road, Hendersonville, North Carolina RECORDATION: N/A DATE: February, 1993 CONSIDERATION: $6,480,000.00 TERMS: $2,224,000.00 cash, assumption of a mortgage balance of $4,316,000.00. terms are considered to be cash equivalent. SITE SIZE: N/A IMPROVEMENTS: This is a 110 unit senior living community constructed in 1988. The units are housed in a three-story building of wood frame construction. Construction quality is considered to be average; condition at the time of sale was good. The gross building area is approximately 96,058 square feet with an average unit size of 873 square feet. ESTIMATED GROSS INCOME: $1,706,255.00 ESTIMATED EXPENSE RATIO: Approximately 56 percent NET OPERATING INCOME: Approximately $751,844.00 UNIT INDICATORS: SP/Unit = $58,909.00 SP/SF = $ 67.46 SP/GI = 3.80 GIM NOI/SP = 0.1160 OAR Robert M. McSherry, MAI IMPROVED PROPERTY SALE 2 VENDOR: American Retirement, Inc. VENDOR: Emeritus Corporation LOCATION: 2601 Chimney Rock Road, Hendersonville, North Carolina RECORDATION: N/A DATE: September, 1995 CONSIDERATION: $9,483,523.00 TERMS: Cash SITE SIZE: N/A IMPROVEMENTS: This is a 110 unit senior living community constructed in 1988. The units are housed in a three-story building of wood frame construction. Construction quality is considered to be average; condition at the time of sale was good. The gross building area is approximately 96,058 square feet with an average unit size of 873 square feet ESTIMATED GROSS INCOME: Approximately $2,175,000.00 ESTIMATED EXPENSE RATIO: Approximately 56 percent NET OPERATING INCOME: Approximately $957,000.00 UNIT INDICATORS: SP/Unit = $86,214.00 SP/SF = $ 98.73 SP/GI = 4.36 GIM NOI/SP = 0.1009 OAR Robert M. McSherry, MAI IMPROVED PROPERTY SALE 3 VENDOR: ABD Investments, Inc. VENDOR: Merrill Associates, LP LOCATION: 6725 Inglewood Avenue, Stockton, California RECORDATION: N/A DATE: July, 1994 CONSIDERATION: $4,200,000.00 TERMS: Cash SITE SIZE: N/A IMPROVEMENTS: This is a 74 unit senior living community constructed in 1989. The units are housed in two-story buildings of wood frame construction. Construction quality is considered to be average, condition at the time of sale was good. The gross building area is approximately 63,730 square feet with an average unit size of 861 square feet. ESTIMATED GROSS INCOME: Approximately $1,395,000.00 ESTIMATED EXPENSE RATIO: Approximately 70 percent NET OPERATING INCOME: Approximately $418,500.00 UNIT INDICATORS: SP/Unit = $56,757.00 SP/SF = $65.90 SP/GI = 3.01 GIM NOI/SP = 0.0996 OAR Robert M. McSherry, MAI SUMMARY
Sale One Sale Two Sale Three Indicated OAR 11.6% 10.09% 9.96% Price/Unit $58,909.00 $86,214.00 $56,757.00 Gross Income Multiplier 3.80 4.36 3.01 Estimated Expense Ratio 56% 56% 70%
The three Improved Property Sales included within this report have been provided this appraiser by knowledgeable sources and other appraisers and are deemed accurate as they were verified by knowledgeable and ethical persons. The appraiser has conducted an in-depth review of conveyances of similar type assisted living or congregate care facilities in the State of Louisiana and none were found which were considered to be reflective of true arms-length transactions between willing buyers and willing sellers with no undue duress being experienced. These three Improved Property Sales have been included for the purpose of deriving an indicated Overall Capitalization Rate, an indicated price per unit and an indicated Gross Income Multiplier for utilization in the analysis process with respect primarily to the Income Approach to Value. The level of services provided by these facilities are similar to, those to be provided by the subject property which would include three (3) meals per day, utilities, maid service one (1) day a week, flat linen service one (1) day a week, various assistance with respect to bathing, exercise, and transportation to various off-site functions as well as on-site recreational functions, counseling, with other services provided on a more extensive basis for additional expense paid by the Robert M. McSherry, MAI guest or resident of the facility. It is acknowledged that a large number of the residents residing in the assisted care facilities are requiring increased levels of care and these additional expenses are being passed directly to the tenant as they upset the economies of an assisted care facility having to provide this extraordinary level of care without additional remuneration. The price per unit indicated by Improved Property Sale 2 is considered the best available and has been accorded the greatest credence. Accordingly: 25 Units @ $83,000.00/Unit $2,075,000.00 INDICATED VALUE OF SUBJECT FROM THE MARKET DATA OR DIRECT SALES COMPARISON APPROACH (R/T) $2,075,000.00 Robert M. McSherry, MAI INCOME APPROACH TO VALUE Introduction The Income Approach reflects the subject's income-producing capabilities and requires an analysis of the project's probable market rent. In the comparative analysis, we have considered factors that would probably influence market acceptance of properties in the area. The factors include proximity to major traffic arteries; location; design; amenities; and the quality of management. To develop a supportable estimate of value using the Income Capitalization Approach, realistic projections of income and expenses must be made. congregate care facilities are unique forms of real estate with many unusual characteristics, such as an intensive use of labor, costs of goods sold, expenses categories, and product identity. Therefore, special care in data gathering and analysis are required to create an estimate of the future income for the subject. The appraiser will utilize data provided by the publication, Trends in the Health Care Industry for supporting data. The subject property is proposed at the present time and, therefore, has no historical income and expense data associated with the property. The subject will contain 21 assisted care units and 4 efficiency assisted care units all located in a single T-shaped building which will also contain a resident manager's apartment and common areas for the operation of the facility. The services provided the assisted living units include all utilities, maid service, three Robert M. McSherry, MAI meals a day, transportation, activities with additional laundry and maid service available at additional expense. Normal day to day medical treatments are also available for the various tenants with any extraordinary medical expense passed directly to the tenant. This appraiser has had the opportunity to appraise a number of assisted care facilities in both Louisiana and Mississippi over the last several years and has relied on data provided by these facilities, various industry publications and data provided by various health care consulting groups and experts in arriving at the estimated monthly rental rates and expenses including fixed expenses, operating expenses, staffing, dietary, reserves and other appropriate expenses. This appraiser has conducted rental surveys of a number of assisted care, private pay facilities located in the Baton Rouge, Louisiana area as well as a single facility located in West Monroe, Louisiana in order to arrive at an estimated economic rental rate for the subject property based on the level of services provided. The assisted care market is still a relatively new market and the majority of the facilities have been constructed in larger metropolitan areas such as Baton Rouge. The rental rates commanded in these larger areas are above those which can be commanded in smaller or more rural communities in North Louisiana and appropriate adjustments have been made. The most comparable property is the Arbor House of West Monroe, which was completed in December of 1997 and has experienced stabilized occupancy with respect to the assisted care units within a six (6) month period. These units lease for $1,725.00 per month for the basic rate with expenses including utilities, three (3) Robert M. McSherry, MAI meals a day, maid service once a week, laundry service once a week, assistance in bathing, transportation to shopping, church and other functions as well as in-house recreational activities. This appraiser has also recently completed an appraisal of a 33 unit assisted care facility located in Baton Rouge, Louisiana which is very typical with respect to the subject property. However, the monthly rate provided by this facility is slightly higher than those in rural areas with the base monthly rate being $1,850.00 per month. The same services are provided including utilities, three (3) meals per day, assistance with daily living activities including bathing, grooming, weekly bed linen and towel service, weekly house keeping, transportation to medical and dental appointments, worship service, planned activities as well as other assistance required. Based on this appraiser's personal inspection of these two facilities and adjustment, it is our opinion that a $1,775.00 per month with services including electricity, three (3) meals per day, maid service, transportation, activities, assistance in the normal living activities as well as normal day to day medical treatment being provided. The actual income and expense data of various facilities is closely held information and these individuals have requested confidentiality with respect to this actual data. Accordingly, this data has been retained in our various files. Robert M. McSherry, MAI The results of our survey and analysis indicates an economic rental rate for the assisted care units, based on the herein listed services being provided, of $1,775.00 per month and $1,100.00 per month for the efficiency units with the rates remaining stable over the two year projection period. The projected rate includes the herein listed services being provided. Inflation will impact expense projections as well as increased occupancy and these anticipated increases have also been utilized in the Income Approach to Value. In order to accurately project appropriate expenses for the subject property, the appraiser has reviewed the current publication Trends in the Health Care Industry with respect to historical operating expenses for assisted care facilities. In addition, this appraiser has been provided itemized comparable expense data with respect to three separate properties located in the State of Louisiana but, due to confidentiality requirements, the names of these properties are retained in the appraiser's file at the request of the property owners. However, the following summary chart is included for the benefit of the reader of this appraisal report and it also provides support for the expense projections for the subject property. The Income Approach to Value as it applies to the property being appraised based on economic rental rates herein quoted and utilizing a two year period in order to achieve a stabilized net occupancy and thus a stabilized net operating income is reproduced as follows: Robert M. McSherry, MAI ITEMIZED COMPARABLE EXPENSE DATA
Property 1 Property 2 Property 3 Administrative $249,610.00 $417,960.00 $461,530.00 Dietary $186,938.00 $251,184.00 $204,983.00 Maintenance $156,914.00 $275,424.00 $193,530.00 Housekeeping/Janitorial $ 51,340.00 $ 55,512.00 $ 52,322.00 Taxes/insurance $ 82,000.00 $110,560.00 $ 66,738.00 Utilities $ 91,328.00 $ 24,360.00 $ 65,678.00 Nursing/Other -0- $ 9,458.00 $ 10,664.00 Per Unit Expenses $ 9,522.00 $ 9,458.00 $ 10,664.00
Robert M. McSherry, MAI INCOME APPROACH TO VALUE Year One Gross Annual Potential Income: 21 - Assisted Living Units @ $1,6775.00/month $ 422,300.00 4 - Efficiency Units @ $1,000.00/month $ 48,000.00 Total Gross Annual Potential Income $ 470,100.00 Less: Vacancy and Collection Losses Assisted Living Units (25%) $ 105,525.00 Total Vacancy and Collection Loss $ 105,525.00 Effective Gross Annual Potential Income $ 364,575.00 Expenses: Administrative $48,500.00 Plant Operations $35,400.00 Dietary $45,625.00 Housekeeping $12,500.00 Aides $41,000.00 Activities $15,000.00 Reserves for Replacement $ 7,500.00 Total Expenses $ 205,525.00 Net Operating Income $ 159,050.00 Note: Management fee included in Administrative Expense. Robert M. McSherry, MAI INCOME APPROACH TO VALUE Year Two Gross Annual Potential Income: 21 - Assisted Living Units @ $1,675.00/month $ 422,100.00 4 - Efficiency Units @ $1,000.00/month $ 48,000.00 Total Gross Annual Potential Income $ 470,100.00 Less: Vacancy and Collection Losses Assisted Living Units (10%) $ 42,210.00 Total Vacancy and Collection Loss $ 42,210.00 Effective Gross Annual Potential Income $ 427,890.00 Expenses: Administrative $48,500.00 Plant Operations $39,550.00 Dietary $54,200.00 Housekeeping $13,750.00 Aides $45,100.00 Activities $16,500.00 Reserves for Replacement $ 7,500.00 Total Expenses $ 225,100.00 Net Operating Income $ 202,790.00 Note: Management Fee included in Administrative Expense. Robert M. Mcsherry, MAI JUSTIFICATION OF CAPITALIZATION RATE Direct Capitalization is a method used to convert a single year's income estimate into a value indication in the Income Capitalization Approach. The direct capitalization formula using an overall property capitalization rate is: Value / Net Operating Income = Overall Capitalization Rate In this appraisal, the appraisers will employ two different methods to obtain an overall capitalization rate; 1) Band of Investment - mortgage and equity components 2) Underwriter's Method (derivation from debt coverage ratio) Band of Investment The appraisers contacted local lenders regarding rates and terms of alternate investments as well as current market rates applicable for this market. Annual Constant - In developing the mortgage components for the Band of Investment Method, the appraisers reviewed the National Mortgage Commitment Survey conducted by the Appraisal Institute Research Department which surveyed sample lenders in various geographical regions throughout the United States. The data quoted is based on national averages and do not reflect conditions inherent in all markets. Therefore, the appraisers contacted local lenders regarding rates and terms applicable for this market area. Lenders in the local market are quoting rates at prime plus 1%, terms of 20 years. 75% and a loan-to-value ratio. The local market closely approximates the national averages for the subject property type. Robert M. McSherry, MAI The appraisers reviewed available data concerning current national and local quoted mortgage rates and talked to various lenders in the Louisiana area which confirm that market rates and terms for loans of the quality of the subject property are available at 9% interest rate with monthly payments amortized for a 20 year term, a 75% loan-to-value ratio. Therefore, the mortgage constant is derived to be .1079671. Equity Dividend - Current rates of return available from alternative investment vehicles are reviewed. These alternative investments are more liquid than an investment in real estate; therefore any potential investor would expect a higher rate of return. Based on this, we have been able to conclude that a 9% equity dividend rate is required to attract investment capital to the subject property's type which is considered to be slightly more risky than other types of real estate investments. In order to ascertain the appropriate equity dividend or "cash-on-cash" rate, the appraiser has reviewed money rates for other alternate investments as of September 8, 1998. The results of this analysis of comparable and alternative money rates are as follows: Certificates of Deposit 30 Day 4.68% 90 Day 4.96% 180 Day 5.04% Treasury Bill Rates 3 Months 4.79% 6 Months 4.79% 52 Weeks 5.00% Robert M. McSherry, MAI 30 Year Treasury Bond Rate 5.36% Merrill-Lynch Ready Assets 30 Day 5.03% (Average Yield) As can be reflected by the above alternate investment vehicles. Current rates for both short and long term yields is between the high 4.00% to the low 5.00% range. The projected 9.00% equity yield or "cash-on-cash" return projected for the subject property provides an excellent return on the investor's cash, approximately 3.00% in excess of other alternate investment vehicles. Accordingly, the 9.00% equity dividend rate is considered appropriate when the overall risk and competitive rates are considered. Derivation of Capitalization Rate - The band of investment (or weighted average) formula for deriving an overall rate when the mortgage constant and equity dividend rates is known as: Mortgage Percent x Mortgage Constant Plus Equity Percent x Equity Dividend Rate Equals Overall Capitalization Rate .75 x . 1079671 = .0809 .25 x .09 =.0225 Total = .10340 Rounded to .103 Underwriter's Method In making loan decisions, institutional lenders use a debt coverage ratio (DCR), which is the ratio of net operating income to annual debt service. This measure Robert M. McSherry, MAI of constraint is frequently used by institutional lenders, who are general fiduciaries. They manage and lend the money of others, including depositors and policy holders. Because of the fiduciary responsibility, institutional lenders are particularly sensitive to the safety and profit and are anxious to avoid default and possible foreclosure. Consequently, when they underwrite income property loans, institutional lenders try to provide a cushion so that the borrower will be able to meet the debt service obligations on the loan even if the building income declines. The debt coverage ratio may also be used to estimate the overall capitalization rate by multiplying the ratio by the mortgage loan constant (RM) and the loan-to-value ratio (M). The debt coverage ratio, mortgage loan constant, and loan-to-value ratio have already been determined to be 1.20, .1079671 and .75, respectfully. The formula for derivation of an overall capitalization rate from debt coverage ratio is as follows: RO = DCR x RM x M RO = 1.20 X. 1079671 X .75 RO = .0971 R/T = .097 Review of the three (3) improved property sales contained within this report have indicated an Overall Capitalization Rate from a low of 9.96% to a high of 11.6%. These indicated Overall Capitalization Rates which have been derived from available market data indicates the rate chosen for the capitalization of the net Robert M. McSherry, MAI income into an indication of value based upon stabilized income of 10.5% is reflective of current industry attitudes and is considered appropriate with respect to this particular appraisal assignment. Conclusion Based on the available information we have concluded that a 10.5% is the most appropriate capitalization rate which is derived from the actual band of investments method and supported by the Underwriter's Method and available market data. The location of the subject has also been considered. Thus: NET OPERATING INCOME = VALUE -------------------- OVERALL CAPITALIZATION RATE $202,790.00 = $2,027,900.00 -------------------- .10 INDICATED VALUE OF SUBJECT FROM INCOME APPROACH (R/T) $2,030,000.00 Robert M. McSherry, MAI DISCOUNTED CASH FLOW ANALYSIS The subject property will require a period in excess of one year to achieve stabilized net income. In order to provide an estimate of the present value of the improvements upon completion but prior to achieving stabilized net operating income, the discounting process is utilized. The income stream generated by the subject until stabilized income is reached is discounted into an estimate of present value and the reversionary value of the improvements as estimated upon achieving a stabilized net income is also discounted to present worth. The market indicates a discount rate of 11% to be appropriate to be utilized in discounting the income and reversion and this is based on current rates of return on alternate investments and the risk associated with the subject. Robert M. McSherry, MAI Present Worth of Income Stream Year One- $159,050.00 x .900901 = $ 143,288.00 Year Two- $202,290.00 x .811622 = $ 164,588.00 Total Present Value of Income Stream $ 307,876.00 Present Worth of Reversion $2,030,000.00 x .811622 $1,647,592.00 Summation: Present Worth of Income Stream $ 307,876.00 Present Worth/Reversion $1,647,592.00 Total $1,955,468.00 INDICATED VALUE OF SUBJECT FROM INCOME APPROACH/DISCOUNTED CASH FLOW $1,955,000.00 Robert M. McSherry, MAI RECONCILIATION AND FINAL VALUE The three approaches to value have indicated the following value estimates of the property being appraised: COST APPROACH TO VALUE $2,110,000.00 MARKET APPROACH TO VALUE $2,150,000.00 INCOME APPROACH TO VALUE OVERALL CAPITALIZATION RATE $2,075,000.00 DISCOUNTED CASH FLOW ANALYSIS $1,955,000.00 The subject property is proposed construction and only preliminary plans and specifications have been provided this appraiser in order to complete the Cost Approach to Value. Costs are extremely difficult to estimate and no two competent contractors will ever agree on the actual cost to construct a property. However, this appraiser has utilized reliable sources including the Marshall Valuation Service Cost Manual as well as actual construction costs affecting a similar type property in order to complete the Cost Approach to Value and this approach is considered reflective of the cost new of the subject property. The subject property is considered an income producing and has been valued based on it being a Going Concern. The property is under competent ownership and will have excellent management in place and the utilization of the Going Concern concept is considered appropriate with respect to this particular appraisal problem. Accordingly, the Indicated Value of the Property based on stabilized net income being generated at the end of the second year is Robert M. McSherry, MAI considered the best available indicator of it's current Market Value and has been accorded the greatest credence in the final analysis. Based on the data contained within this report, other in-file data, and this appraiser's review and analysis of said data, it is our opinion that the proposed property identified as the 21 Unit Assisted Care and 4 Unit Efficiency Assisted Care Facility all located on Louisiana Highway 33 just outside the corporate limits of Farmerville, Union Parish, Louisiana was estimated to have a Market Value, as of October 20, 1998, but subject to completion according to plans and specifications utilizing quality materials and workmanship throughout and also subject to the other conditions contained within this report, and based upon Stabilized Net Operating Income, of: TWO MILLION THIRTY THOUSAND DOLLARS ($2,030,000.00) Allocated: Land $ 20,000.00 Improvements: $1,935,000.00 Furniture, Fixtures and Equipment $ 75,000.00 Goodwill of Going Concern -0- The estimated "as is" value is estimated to be, as of September 20, 1998 and subject to completion within a reasonable period of time, is: Robert M. McSherry, MAI ONE MILLION NINE HUNDRED NINETY-FIVE THOUSAND DOLLARS ($1,955,000.00) Robert M. McSherry, MAI ADDENDA Robert M. McSherry, MAI APPRAISER'S CERTIFICATION I certify that, to the best of my knowledge and belief,... (1) The statements of fact contained in this report are true and correct. (2) The reported analyses, opinions, and conclusions are limited only by the report assumptions and limiting conditions, and are my personal, unbiased professional analyses, opinion and conclusions. (3) I have no present or prospective interest in the property that is the subject of this report, and I have no personal interest or bias with respect to the parties involved. (4) My compensation is not contingent upon the reporting of a predetermined value or direction in value that favors the cause of the client, the amount of the value estimate, the attainment of a stipulated result, or the occurrence of a subsequent event. (5) My analyses, opinions, and conclusions were developed, and this report has been prepared, in conformity with the Uniform Standards of Professional Appraisal Practice. (6) I have made a personal inspection of the property that is the subject of this report and all rent comparables. (7) No one provided significant professional assistance to the person signing this report. (8) The reported analyses, opinions, and conclusions were developed, and this report has been prepared, in conformity with the requirements of the Code of Professional Ethics and the Standards of Professional Practice of the American Institute of Real Estate Appraisers. (9) The use of this report is subject to the requirements of the Appraisal Institute relating to review by its duly authorized representatives. (10) I am not currently certified under the voluntary continuing education program of the American Institute of Real Estate Appraisers. Robert M. McSherry, MAI (11) I certify that the use of this report is subject requirements of the Appraisal Institute relating to review by its duly authorized representatives. Estimated Market Value: /S/ROBERT M MCSHERRY ---------------------------- $2,030,000.00 Robert M. McSherry MAI LA State Certified Real Estate Appraiser No. G0891 Allocated: Land $ 20,000.00 Improvements $1,935,000.00 Furniture, Fixtures and Equipment $ 75,000.00 Goodwill of Going Concern -0- As Of: October 20, 1998 Robert M. McSherry, MAI QUALIFICATIONS OF ROBERT M. MC SHERRY, MAI EDUCATIONAL BACKGROUND AND TRAINING: Graduate of Louisiana State University, Baton Rouge, Louisiana, Bachelor of Science Degree in Business Administration with a Major in Finance. Real Estate Appraisal Course 1-A, Basic Fundamentals, Methods and Techniques, 1974, AIREA Real Estate Appraisal Course 1-B, Capitalization, 1975, AIREA Real Estate Appraisal Course VIII, Single-Family Residential Appraisal, 1974, AIREA Real Estate Appraisal Course II, Techniques and Application, 1976 and 1980, AIREA Real Estate Appraisal Course III, Rural Properties, 1979 Real Estate Appraisal "Industrial Valuation" Course, 1984 Seminar: R-41C - New Orleans, Louisiana, AIREA, 1978 "Standards of Professional Practice" Course, AIREA, 1987 "Capitalization Theory and Techniques, Part A" Course, AIREA, 1987 "Standards of Professional Practice" Course, Appraisal Institute, 1992 "Advanced Level Finance I & II", 1997 "Risk Management/Ethics/Fair Housing", 1997 "How to Value Louisiana Timberland", 1997 "Uniform Standards of Professional Appraisal Practice" Seminar, 1997 PROFESSIONAL EXPERIENCE Real Estate Broker, State of Louisiana (1971) Robert M. McSherry, MAI Monroe Redevelopment Agency, Monroe, Louisiana (1971) Ford, Bacon & Drive Construction and Engineering Company, Monroe, Louisiana (1972) Mississippi power and Light Company, Jackson, Mississippi (1973-1976) Cameron-Brown South, Inc., Mortgage Bankers, Baton Rouge, Louisiana (1976-1977) Real Estate Appraiser, Monroe, Louisiana (1978-1985) Real Estate Appraiser, Baton Rouge, Louisiana and Jackson, Mississippi (1985-Present) PROFESSIONAL MEMBERSHIPS: Residential Member, American Institute of Real Estate Appraisers, Certification Number 1040 Licensed Real Estate Broker, State of Louisiana Fee Inspector for the Louisiana Homeowners Warranty Corporation FNMA Approved Level III Appraiser, Number 1027135 Member, American Institute of Real Estate Appraisers - MAI Designation (1981), Number 6291 Certified Licensed General Appraiser, State of Louisiana, Number 0891 Robert M. McSherry, MAI PHOTOGRAPHS Robert M. McSherry, MAI [PICTURE OF SUBJECT PROPERTY] [PICTURE OF SUBJECT PROPERTY] [PICTURE OF SUBJECT PROPERTY] [PICTURE OF SUBJECT PROPERTY] [PICTURE OF SUBJECT PROPERTY] [PICTURE OF SUBJECT PROPERTY] [PICTURE OF SUBJECT PROPERTY] [PICTURE OF SUBJECT PROPERTY] [PICTURE OF SUBJECT PROPERTY] [PICTURE OF SUBJECT PROPERTY] EX-99.5 32 PROPERTY APPRAISAL FOR NATCHITOCHES, LA FACILITY A Self-Contained Real Estate Appraisal Report of A Proposed 22 Unit Assisted Care Facility and 5 Efficiency Assisted Care Units all Located on the Louisiana Highway 1 Bypass Within the Corporate Limits of Natchitoches, Natchitoches Parish, Louisiana For MMR Investment Bank Post Office Box 781440 Witchita, Kansas 67278-1440 As Of January 10, 1999 Prepared by Robert M. McSherry, MAI Louisiana State Certified General Real Estate Appraiser No. G0891 3760 Chelsea Drive Baton Rouge, Louisiana 70809 ROBERT M. MC SHERRY, MAI 3760 Chelsea Drive Baton Rouge, Louisiana 70809 Phone (504)924-8093 January 11, 1999 MMR Investment Bank Post Office Box 781440 Witchita, Kansas 67278-1440 RE: A proposed 22 unit assisted care facility and 5 efficiency assisted care units all located on the Louisiana Highway 1 Bypass, within the corporate limits of Natchitoches, Natchitoches Parish, Louisiana. Dear Sir: In accordance with your request to provide an estimate of the Estimated Market Value of Fee Simple Interest of the Going Concern of the property identified as a proposed 22 unit Assisted Care Facility and 5 Efficiency Assisted Care Units all located within the corporate limits of Natchitoches, Natchitoches Parish, Louisiana, we have personally inspected the subject site and reviewed the submitted plans and specifications for the proposed improvements and conducted a thorough review and analysis of all matters pertinent for the Estimate of Market Value herein contained. Market Value as defined by the Department of the Treasury, Office of the Comptroller of the Currency, August 24, 1990, is, "The most probable price which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller, each acting prudently, knowledgeably and assuming the price is not affected by undue stimulus. Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby: a. buyer and seller are typically motivated; b. both parties are well informed or well advised, and each acting in what he considers his own best interest; c. a reasonable time is allowed for exposure in the open market; Robert M. McSherry, MAI Page Two d. payment is made in terms of cash in U.S. dollars or in terms of financial arrangements comparable thereto; and e. the price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions granted by anyone associated with the sale. Fee Simple Interest is defined by the Appraisal Institute as being, "a fee without limitations to any particular class of heirs or restrictions but subject to the limitations of eminent domain, escheat, police power and taxation. An inheritable estate". Going Concern Value is "the value created by a proven property operation." It includes the incremental value associated with the business concern, which is distinct from the value of the real estate only. Going concern value includes an intangible enhancement of the value of an operating business enterprise which is produced by the assemblage of the land, building, labor, equipment, and marketing operation. This process creates an economically viable business that is expected to continue. Going concern value refers to the total value of a property, including both real property and intangible personal property attributed to business value. Special purpose properties such as the subject are appropriate for only one use or for a very limited number of uses. The highest and best use of a special purpose property as improved, is probably the continuation of its current use, if that use remains viable. Therefore, in the case of special purpose properties a going concern value is considered appropriate. In this instance the subject property has an excellent location within a viable market. As long as quality management is maintained, it's Market Value would be the same as it's Going Concern Value. Included is our appraisal report which contains the various exhibits and data utilized in arriving at the herein contained estimate of Market Value for the subject property. It is our opinion that the property herein identified as the proposed 22 Unit Assisted Care Facility and 5 Efficiency Assisted Care Units all located on the Louisiana Highway 1 Bypass within the corporate limits of Natchitoches, Natchitoches Parish, Louisiana, was estimated to have a Market Value based on Stabilized Net Operating Income, as of January 10, 1999, of: Robert M. McSherry, MAI Page Three TWO MILLION TWO HUNDRED FIFTY-FIVE THOUSAND DOLLARS ($2,255,000.00) Allocated: LAND: $ 175,000.00 IMPROVEMENTS: $2,005,000.00 FURNITURE, FIXTURES & EQUIPMENT: $ 75,000.00 GOODWILL OF GOING CONCERN -0- The "As Is" Value of the property, derived by the utilization of the Discounted Cash Flow Methodology, is estimated to be, as of January 10, 1999, but subject to completion of the property in accordance with submitted plans and specifications within a reasonable period of time, of: TWO MILLION ONE HUNDRED SEVENTY THOUSAND DOLLARS ($2,170,000.00) The subject property is proposed at the present time and this appraiser has been provided plans and specifications for the property. The herein contained Estimate of Market Value is conditioned upon the completion of the improvements in accordance with the plans and specifications utilizing quality materials and workmanship within a reasonable period of time. A final inspection by this appraiser will be required to ascertain the assumptions utilized in preparing this appraisal report have been fulfilled. This appraisal report was prepared in accordance with and compliance of the Uniform Standards of Professional Appraisal Practice promulgated by the Appraisal Foundation and the Guide Notes to the Standards of Professional Practice adopted by the Appraisal Institute. These standards contain binding requirements and specific guidelines that deal with the procedures to be followed in developing an appraisal, analysis, or opinion. These uniform Robert M. McSherry, MAI Page Four standards also set the requirements to communicate the appraiser's analysis, opinions, and conclusions in a manner that will be meaningful and not misleading in the marketplace, accordingly, the Departure Provision does not apply. If we may be of further service to you in regard to this property or in any other manner, please do not hesitate to contact us at your earliest convenience. Respectfully submitted, /S/ROBERT M MCSHERRY Robert M. McSherry, MAI Louisiana State certified General Real Estate Appraiser No. G0891 Robert M. McSherry, MAI EXECUTIVE SUMMARY Location: East side of LA Highway 1 Bypass within the Corporate Limits of Natchitoches, Natchitoches Parish, Louisiana Interest Appraised: Fee Simple Interest Site: 4.00 Acres or 174,240 Square Feet, more or less Building Description: The property will include twenty-two (22) assisted care living units and 5 efficiency assisted care units all located within a single, T-shaped building. The common area amenities including a full service kitchen, a dining area, activities area, office/reception area, adequate bathrooms which would be fully equipped to satisfy the needs of the residents of the assisted care facilities as well as storage areas and other required additions to render the subject property a functional assisted care facility catering to those requiring assisted care. Construction characteristics include a reinforced poured concrete foundation, wood framing, with a combination of brick veneer and vinyl siding exterior walls with the roof being of composition shingles. Although the property is proposed at the present time, this appraiser is aware of a similar property which has been constructed by the owners of the subject and our physical inspection of this existing complex has been utilized in conjunction with the submitted plans and specifications. The property is considered to be a most functional assisted living facility and is Robert M. McSherry, MAI considered a most attractive property and should be well accepted by the local market. Highest and Best Use: Assisted care facility including all required amenities. Cost Approach to Value $2,310,000.00 Market Approach to Value $2,240,000.00 Income Approach to Value: Stabilized Net Income: $2,255,000.00 Discounted Cash Flow Value: $2,170,000.00 Final Value Estimate: Stabilized Net Income: $2,255,000.00 "As Is" Value: $2,170,000.00 Allocated: Land $ 175,000.00 Improvements $2,005,000.00 Furniture, Fixtures and Equipment $ 75,000.00 Goodwill of Going Concern -0- Robert M. McSherry, MAI IDENTIFICATION OF THE PROPERTY The property being inspected, analyzed and for which the Market Value Estimate of the Fee Simple Interest of the Going Concern is applicable is a 4.0 acre tract of land which will be basically rectangular in shape with no direct frontage along the east side of LA Highway 1 Bypass within the corporate limits of Natchitoches, Louisiana. The subject site is a portion of a larger tract of land which is to be purchased from Farm Burear Insurance by Biltmore, LLC for a total consideration of $175,000.00. The property has not been purchased as of the date of this appraisal with the closing date set to be within two weeks of the date of the appraisal and, at that time, a complete legal description including metes and bounds survey of the property will be provided this appraiser to ascertain the assumptions utilized within this report have been fulfilled. This is a condition of this appraisal report. Robert M. McSherry, MAI PURPOSE OF THE APPRAISAL The purpose of this report is to communicate, in a narrative format, the data and reasoning that the appraisers have utilized to form the herein contained estimate of Market Value of the Fee Simple Interest of the Going Concern for the property identified as a proposed 22 assisted care facility and 5 efficiency assisted care units all located on the west side of LA Highway 1 Bypass, Natchitoches, Louisiana. OBJECTIVE OF THE APPRAISAL The objective and function of this appraisal report is to provide an estimate of the Market Value of the Fee Simple Interest of the Going Concern of the property for use by MMR Investment Bank in order to provide long term financing of the subject property for the Biltmore Group, L.L.C. The Subject property was personally inspected by this appraiser both before and after the date of this appraisal and the submitted plans and specifications reviewed. As the property is proposed construction, a final inspection of the property will be required by the appraiser to ascertain the assumptions utilized within this appraisal report have been fulfilled and this appraisal is also conditioned upon being completed in accordance with the plans and specifications utilizing quality materials and workmanship throughout. Other additional conditions are contained in an additional section of this report. Robert M. McSherry, MAI PURPOSE OF THE APPRAISAL The purpose of this report is to communicate, in a narrative format, the data and reasoning that the appraisers have utilized to form the herein contained estimate of Market Value of the Fee Simple Interest of the Going Concern for the property identified as a proposed 22 assisted care facility and 5 efficiency assisted care units all located on the west side of LA Highway 1 Bypass, Natchitoches, Louisiana. OBJECTIVE OF THE APPRAISAL The objective and function of this appraisal report is to provide an estimate of the Market Value of the Fee Simple Interest of the Going Concern of the property for use by Colonial Trust Company in order to provide long term financing of the subject property for the Biltmore Group, L.L.C. The Subject property was personally inspected by this appraiser both before and after the date of this appraisal and the submitted plans and specifications reviewed. As the property is proposed construction, a final inspection of the property will be required by the appraiser to ascertain the assumptions utilized within this appraisal report have been fulfilled and this appraisal is also conditioned upon being completed in accordance with the plans and specifications utilizing quality materials and workmanship throughout. Other additional conditions are contained in an additional section of this report. Robert M. McSherry, MAI PURPOSE OF THE APPRAISAL The purpose of this report is to communicate, in a narrative format, the data and reasoning that the appraisers have utilized to form the herein contained estimate of Market Value of the Fee Simple Interest of the Going Concern for the property identified as a proposed 22 assisted care facility and 5 efficiency assisted care units all located on the west side of LA Highway 1 Bypass, Natchitoches, Louisiana. OBJECTIVE OF THE APPRAISAL The objective and function of this appraisal report is to provide an estimate of the Market Value of the Fee Simple Interest of the Going Concern of the property for use by Church Loans and Investments in order to provide long term financing of the subject property for the Biltmore Group, L.L.C. The Subject property was personally inspected by this appraiser both before and after the date of this appraisal and the submitted plans and specifications reviewed. As the property is proposed construction, a final inspection of the property will be required by the appraiser to ascertain the assumptions utilized within this appraisal report have been fulfilled and this appraisal is also conditioned upon being completed in accordance with the plans and specifications utilizing quality materials and workmanship throughout. Other additional conditions are contained in an additional section of this report. Robert M. McSherry, MAI DATE OF THE APPRAISAL The effective date of this appraisal is January 10, 1999. The subject site was personally inspected by this appraiser both before and after this date and the submitted plans and specifications for the proposed improvements were also reviewed by the appraiser prior to the date of the appraisal. Robert M. McSherry, MAI DEFINITION OF SIGNIFICANT TERMS Market Value, as defined by the Department of the Treasury, Office of the Comptroller of the Currency, August 24, 1990, is, "The most probable price which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller, each acting prudently, knowledgeably and assuming the price is not affected by undue stimulus. Implicit in this definition, is the consummation of a sale as of a specified data and the passing of title from seller to buyer under conditions whereby: a. buyer and seller are typically motivated; b. both parties are well informed or well advised, and each acting in what he considers his own best interest; c. a reasonable time is allowed for exposure in the open market; d. payment is made in terms of cash in U.S. dollars or in terms of financial arrangements comparable thereto; and e. the price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions granted by anyone associated with the sale. Fee Simple Interest is defined by the Appraisal Institute as being, "a fee without limitations to any particular class of heirs or restrictions but subject to the limitations of eminent domain, escheat, police power and taxation. An inheritable estate". Going Concern Value is "the value created by a proven property operation." It includes the incremental value associated with the business concern, which is Robert M. McSherry, MAI distinct from the value of the real estate only. Going concern value includes an intangible enhancement of the value of an operating business enterprise which is produced by the assemblage of the land, building, labor, equipment, and marketing operation. This process creates an economically viable business that is expected to continue. Going concern value refers to the total value of a property, including both real property and intangible personal property attributed to business value. Special purpose properties such as the subject are appropriate for only one use or for a very limited number of uses. The highest and best use of a special purpose property as improved, is probably the continuation of its current use, if that use remains viable. Therefore, in the case of special purpose properties a going concern value is considered appropriate. Robert M. McSherry, MAI PROPERTY RIGHTS APPRAISED This assignment concerns the appraisal of the Fee Simple Interest with Fee Simple Interest defined in Real Estate Appraisal Terminology as being, "a fee without limitations to any particular class of heirs or restrictions but subject to the limitations of eminent domain, escheat, police power and taxation. An inheritable estate". STATEMENT OF OWNERSHIP AND RECENT HISTORY The larger tract from which the subject property will be partitioned is under the ownership of Farm Bureau Insurance and has been under this ownership for a period in excess of three (3) years. The property will be purchased by Biltmore, LLC for a total consideration of $175,000.00 for the 4 acre tract which indicates a purchase price of $43,750.00 per acre. The property has been owned by the current owner, Farm Bureau Insurance, for a period in excess of three (3) years and there are no speculative transactions affecting the subject property according to the records found in the Natchitoches Parish Clerk of Court's Office other than those of normal business transactions. Robert M. McSherry, MAI ASSUMPTIONS AND LIMITING CONDITIONS This appraisal report has been made with the following assumptions and limiting conditions: 1. No responsibility is assumed for the legal description or for matters including legal or title consideration. Title to the property is assumed to be good and marketable unless otherwise stated. 2. The property is appraised free and clear of any and all liens or encumbrances unless otherwise stated. 3. Responsible ownership and competent property management are assumed. 4. The information furnished by others is believed to be reliable. No warranty, however, is given for its accuracy. 5. All engineering is assumed to be correct. The plot plans and illustrative material in this report are included only to assist the reader in visualizing the property. 6. It is assumed that there are no hidden or apparent conditions of the property, subsoil, or structures that render it more or less valuable. No responsibility is assumed for such conditions or for arranging for engineering studies that may be required to discover them. 7. It is assumed that there is full compliance with all applicable federal, state, and local environmental regulations and laws unless noncompliance is stated, defined, and considered in the appraisal report. 8. It is assumed that all applicable zoning and use regulations and restrictions have been complied with, unless a nonconformity has been stated, defined, and considered in the appraisal report. 9. It is assumed that all required licenses, certificates of occupancy, consents, or other legislative or administrative authority from any local, state or national government or private entity or organization have been, or can be obtained or renewed for any use on which the value estimate contained in this report is based. Robert M. McSherry, MAI 10. It is assumed that the utilization of the land and improvements is within the boundaries or property lines of the property described and that there is no encroachment or trespass unless noted in the report. 11. The distribution, if any, of the total valuation in this report between land and improvements applies only under the stated program of utilization. The separate allocations for land and buildings must not be used in conjunction with any other appraisal and are invalid if so used. 12. The appraisers herein, by reason of this appraisal, are not required to give further consultation, testimony, or be in attendance in court with reference to the property in question unless arrangements have been previously made. 13. Possession of this report, or a copy thereof, does not carry with it the right of publication. It may not be used for any purpose by any person other than the party to whom it is addressed without the written consent of the appraisers, and in any event only with proper written qualification and only in its entirety. 14. Neither all nor any part of the contents of this report (especially any conclusions as to value, the identity of the appraisers, or the firm with which the appraisers are connected) shall be disseminated to the public through advertising, public relations, new, sales, or other media without the prior written consent and approval of the appraisers. 15. The existence of hazardous materials, which may or may not be present on the subject property, was not observed by the appraisers. The appraisers have the knowledge of the existence of such materials on or in the subject property. However, the appraisers are not qualified to detect such substances and the presence of potential hazardous materials may affect the value of the property. This value estimate contained within this report is predicated on the assumption that no such hazardous materials are present on or in the property. No responsibility is assumed for any such conditions or for any expertise or any knowledge required to discover these items. This should be accomplished by an expert in the field and is a condition of this appraisal report. 16. That the appraiser has personally inspected the subject property and finds no obvious evidence of structural deficiencies, except as stated in this report, however, no responsibility for hidden defects or conformity to specific governmental requirements, such as the Americans with Disabilities (ADA) or fire, building and safety, earthquake, or occupancy Robert M. McSherry, MAI codes, etc., can be assumed without provision of specific professional or governmental inspections. 17. This property is proposed at the present time and the appraisal is conditioned upon the completion of the subject property in accordance with the submitted plans and specifications utilizing quality materials and workmanship throughout. A final inspection by the appraiser would be required in order to ascertain the assumptions utilized in arriving at the herein contained Estimate of Market Value have been fulfilled, 18. This appraisal is not based on a requested minimum valuation, a specific valuation or the approval of the loan. Robert M. McSherry, MAI NACHITOCHES AREA DATA Natchitoches was founded in 1714 by Louis de St. Denis when he traveled up the Mississippi River into the Red River and built Fort St. Jean Baptiste near a village of an Indian tribe of the Caddo family, the Natchitoches. The Red River began changing courses in 1825 leaving Natchitoches without transportation advantages. During the 20th century the river to Natchitoches was dammed creating the serene Cane River that meanders peacefully through the center of this historic city and into Plantation Country. Natchitoches is known as the "City of Lights" in honor of the world famous Christmas Festival of Lights, a fairyland of multi-colored lights created by 170,000 Christmas bulbs strung along city streets and along the Cane River Lake. The lights reflect in the waters below and stretch along the historic downtown area. This festival, always held the first Saturday in December, attracts over 150,000 people to the day long festivities. This festival has been consistently listed as "Top 100 Events in North America" by the American Bus Association and one of the "Top 20 Events in December by the Southeast Tourism Bureau. The City also gained fame when in 1988 the popular movie "Steel Magnolias" was filmed there. Robert M. McSherry, MAI Natchitoches continues to retain it's magic, charm and heritage while maintaining a perfect balance with progressive industries. Coupled with scenic beauty and friendly hospitality, the quality of life makes Natchitoches a retirement haven. In this old-world, modern city and parish, both visitor and citizen can seek their hearts desire. Most recently the City of Natchitoches has been named on of the top six U.S. communities to retire to as published by the Klinger's Personal Finance Adviser. Diverse recreation opportunities, cost of living, low taxes, weather and cultural offering attract retirees to the area. Thirty-three blocks in the downtown area are in the National Historic Landmark District, which overlooks the picturesque Cane River Lake. Points of interest include the first French Settlement, Fort St. Jean Baptiste State Commemorative Area, the American Cemetery, the Louisiana Sports Hall of Fame and the National Fish Hatchery and Aquarium. In the country side along the winding Cane River are some of the earliest plantations in the state including Bayou Folk Museum, Beau Fort, Magnolia, Oaklawn and Landmark Plantation which is the home of the St. Augustine Church and Cemetery. Kisatchie National Forest and freshwater lakes offer recreational opportunities to fishermen, hunters, campers and hikers. Natchitoches Parish is located in West Central Louisiana and is one of the larger political subdivisions of the state. The parish consists of 1,264 square miles on Robert M. McSherry, MAI 803,388 acres. Winn, Bienville, Vernon, Grant, Rapides, Sabine and DeSoto Parishes, as well as the Red River, create the parish boundaries. The Natchitoches Parish School System includes 5 preschool, 13 elementary and 3 high schools. There also exists two church affiliated private schools serving the community. The Louisiana School of Math, Science and the Arts provide high quality education for the state's most gifted high school students. Higher education is provided by Northwestern State University as well as vocational training provided by the Louisiana Technical College and Natchitoches Central Area Vocational Technical School. Within two hour's drive of Natchitoches are 12 colleges or universities in which 5 of these institutions offer doctoral degrees in the arts, sciences, engineering, medical and legal fields. Police protection is provided by the Natchitoches Police Department and the Natchitoches Parish Sheriff's Department which handles the entire criminal, civil and tax division operations for the parish. Fire protection, rescue and emergency services are provided by the Natchitoches Fire Department. Robert M. McSherry, MAI The Natchitoches Parish Hospital serving Natchitoches Parish is an integral part of the community. The Natchitoches Parish Hospital is an 84 bed hospital and 112 bed long term care unit providing medical and surgical acute care. Regional medical centers with the very latest medical technology are available in the Alexandria/Pineville area, 50 miles south. There are 8 voluntary health agencies and 1 parish health unit, the Natchitoches Parish Health Unit, in the parish. Natchitoches also has a kidney dialysis center and a rehabilitation center. The city is served by 25 physicians, 126 nurses, 9 dentists and 1 skilled nursing staff. There are 8 financial institutions serving the area and the 7 top providers of employment are as follows:
Name Product/Service # Employees Natchitoches Parish School Board Public Education 1,025 Con Agra Frozen Foods Food Manufacturing 900 Northwestern State University Higher Education 634 Marco Plywood 520 Natchitoches Parish Hospital Health Care 425 Willamette Industries, Inc. Linerboard Paper 374 City of Natchitoches Municipal Government 250
Robert M. McSherry, MAI Area Location Map [MAP OF SURROUNDING AREA] Robert M. McSherry, MAI OVERVIEW OF ASSISTED LIVING INDUSTRY In anticipation that more elderly Americans will live in assisted living homes than nursing homes in the near future, consumer industry groups are saying it is time to put some minimum standards into law. One of the most important things for the industry is to try not to admit residents it cannot provide quality care for. Many assisted living homes charge additional fees for personal services residents may come to need as they grow older. Some will help residents if they get sick by permitting periodic visits from nurses, for example, or providing supervision for people with Alzheimer's Disease. In order to minimize residents need to move, the consumer or trade groups say assisted living facilities should be required to offer at least some help with the dozen daily activities including meals, using the bathroom, taking medication and shopping. Those facilities which accept people with Alzheimer's or other types of dementia would also be required to provide 24 hour awake staff and special training for those workers. Assisted living has become the hottest new housing option for older people by promising to provide a happy medium between their homes and a full nursing home facility. Industry estimates show that the number of elderly Americans living in settings that could be described as assisted living has probably doubled from 560,000 in 1990 to as many as 1,000,000 in 1997. By early next century, experts predict assisted living homes will care for more elderly Americans than nursing homes. Robert M. McSherry, MAI Although numbers are inexact, assisted living facilities ranging from luxury apartment buildings to modest group homes provide housing along with personal services and some health care. Residents may be too frail to live alone but too healthy to need the 24 hour medical attention of nursing homes. Assisted living can be less expensive than nursing homes. A 1997 survey by the National Center for Assisted Living found that 52% costs $1,001.00 to $2,000.00 per month and 24% cost less than $1,000.00 per month. In contrast, monthly nursing home fees average above $3,000.00. Assisted living's affordability has attracted the attention of law makers worried about how the nation will ensure elderly care for the huge baby boom generation now middle aged. Medicaid programs for the poor in 28 states have begun to cover some assisted living services and the Department of Health and Human Services is conducting a fact finding survey. Unlike nursing homes, assisted living homes are not regulated by the Federal Government. Fewer than half of the states require licensing before it opens. That allows for flexibility and partly explains assisted living's popularity. In summary, the assisted living facilities currently expanding throughout the United States are the most popular and desirable alternative living situation for those elderly which require some minimal level of care but not the extensive Robert M. McSherry, MAI level required by nursing home patients. As the population continues to grow older but maintain better health, the appeal thus desirability of assisted living facilities will continue to be enhanced. Robert M. McSherry, MAI SCOPE OF THE APPRAISAL The appraiser has personally inspected the subject site and conducted an in-depth inspection of the neighborhood in which the subject property is located observing it's trends of development and characteristics. Vacant land sales utilized in conjunction with the Cost Approach to Value and in determining the estimated Market Value of the subject site, as if vacant, and owned in Fee Simple have been inspected by this appraiser and a combination of data provided by the Marshall Valuation Service Cost Manual and other available in-file data has been utilized in the process of estimating the replacement cost new of the subject improvements. In the final analysis, the appraiser has utilized and relied upon the experience of judgment based on the opinion of the quality and quantity of the data in arriving at the final value estimate of the Fee Simple Interest in the subject property. The Income Approach to Value has been completed utilizing a stabilized net income capitalized into value and a discounted cash flow method. Economic rents were determined by rent comparables and current data utilized with respect to expense projections. Information provided by the publication "Trends in the Health Care Industry" as well as information provided by other actual ongoing facilities similar to the subject have been utilized in the process of estimating the projected expenses which were included in the Income Approach to Value. Although the subject property is proposed at the present time and has Robert M. McSherry, MAI no income or expense history, it is considered to be a functional facility and a facility which is demand with respect to providing long term assisted living care. Robert M. McSherry, MAI DESCRIPTION OF THE PROPERTY Site Data Size, Shape and Topography The subject site will be a 4.0 acre rectangular shaped parcel of land having direct frontage along the right-of-way of LA Highway 1 Bypass. The subject property is located on the east side of LA Highway 1 Bypass which is a dual-lane, asphalt, State maintained traffic artery serving local and Parish wide vehicular traffic. The topography is level to rolling and will require site preparation prior to construction. Utilities The subject property is located within the corporate limits of Natchitoches, Natchitoches Parish, Louisiana and will be provided with all city utilities and services available to properties within the corporate limits of Natchitoches including electrical service, police and fire protection, public water, sewerage disposal, and refuge disposal. Telephone service and natural gas service is provided by the local utility companies servicing the area and all services and utilities are considered adequate to provide the requirements of the subject property. Access Access to the subject development will be provided as the result of frontage along the east right-of-way of LA Highway 1 Bypass. This bypass provides a Robert M. McSherry, MAI connection to not only I-49 via LA Highway 6 but also to the downtown area of Natchitoches, major shopping areas as well as the other areas of the parish. Overall, access to the site is considered above average. Zoning Conversations with representatives on the Natchitoches City Hall indicated that the current zoning applicable to this area of the incorporated areas of Natchitoches, Louisiana is "B-3". Land uses are also controlled by deed restrictions or other restrictive covenants which run with the land and, although this appraiser has not conducted an in-depth review of the abstract to the subject site, no deed restrictions or other restrictive covenants are assumed to exist which would affect the utilization of the subject site as a site of an assisted living facility. This appraiser has not conducted an in-depth review with respect to the abstract to the subject site but no deed restrictions or other restrictive covenants are assumed to exist which would affect the development of the subject property to its highest and best use. However, this should be ascertained by competent legal authority and is a condition of this appraisal report. Drainage Review of Flood Hazard Maps found in the Natchitoches Community Office indicated the subject property to be located in a Flood Zone "X" according to Robert M. McSherry, MAI Flood Map No. 220131-0003-C having an effective date of September 18, 1987. This indicates no flood insurance is required for the subject property. However, the flood map indicates a flood zone "AE" to be in the area and the exact flood zone status must be determined by an engineer. Tax Data The subject property is proposed construction property and the taxes on the vacant land only are minimal. The subject property will be placed on the Natchitoches Parish tax rolls the year after it is completed and at that time will be assessed and the tax liability can be assigned. For the purposes of this appraisal report and for the utilization in the Income Approach, taxes have been projected but are subject to change once the property is completed and placed on the tax rolls. The 1998 millage rates applicable to the subject property are as follows: City 17.03 Parish 105.82 Total 122.85 Assisted living facilities such as the subject are assessed at 10% of Market Value and conversations with representatives of the Natchitoches Parish Tax Assessor's Office indicate an estimated Market Value for tax purposes will be approximately 30% less than actual Market Value. Thus: Robert M. McSherry, MAI Estimated Value of Subject $2,255,000.00 Estimated Assessed Value $1,578,500.00 10% - Assessed Value $ 157,850.00 $157,850.00 X 122.85 Mills = Estimated Tax Liability $19,391.87 Robert M. McSherry, MAI Subject Property Location Map [STREET MAP OF NATCHITOCHES INDICATING SUBJECT PROPERTY] Robert M. McSherry, MAI DESCRIPTION OF THE IMPROVEMENTS Assisted Living Facility The proposed facility containing the assisted living units will be constructed within a single T-shaped building but a building comprised of different component sections housing the assisted living units in two wings with the public areas located in the center or core of the building. The building is a modified T-shape and encompasses a total of 22.216 square feet of heated area. The assisted living units contained within this facility will contain approximately 485 square feet of living area and feature a bedroom, living room, kitchenette and full bath with shower while the efficiency units will contain approximately 200 square feet of area. The gross building area was calculated by Mr. Mike Wallace, the preparer of the plans and specifications for the property. Construction characteristics for this building include reinforced poured concrete foundation with adequate grade beams and both interior and perimeter footings with the exterior being wood framing utilizing a combination of brick veneer vinyl with the roof being a composition shingle roof over wood decking. Windows will be insulated, horizontal slide aluminum windows with each unit of the assisted care units having their own central HVAC unit with the common areas utilizing central, zoned units. Interior construction will include a combination of vinyl and carpet or ceramic tile flooring, painted or vinyl covered sheetrock walls with acoustical ceilings. Lighting will be both standard and fluorescent fixtures. Robert M. McSherry, MAI Amenities to be contained within the assisted care portion of the building include a full service kitchen, dining room, activities area, whirlpool area, staff laundry, TV rooms, offices and other required amenities as well as an apartment for the resident managing couple. As previously noted, the total gross area contained within this portion of the subject property is 22.216 square feet. Within this total, 22 assisted living units, 5 efficiency assisted units and remaining common areas will be contained. Parking will be poured concrete and located at strategic locations around the site and will be adequate to fulfill the requirements of both the tenants and staff. Landscaping will be extensive and utilized in conjunction with the natural topography of the area should be most pleasing. Each assisted living unit will include a toilet, lavatory and tub/shower unit, through wall air conditioning unit with heat strip, drop-in over/range unit with vent hood as well as adequate closet and cabinet space. A complete set of working drawings will be provided the appraiser as a condition of this appraisal to ascertain the assumptions utilized within this report have been fulfilled. A final inspection by the appraiser will be required. As noted, the subject is proposed construction and this appraisal is conditioned upon the completion utilizing quality materials and workmanship with a final Robert M. McSherry, MAI inspection by the appraiser required to ascertain the preliminary plans and specifications provided this appraiser were correct. Robert M. McSherry, MAI HIGHEST AND BEST USE Introduction The Appraisal Institute defined highest and best use as follows, "that legal use, at the time of the appraisal, which is the most profitable likely use to which a property can be put." There are several basic factors which must be considered in order to make a proper determination of Highest and Best Use: 1. The use must be legal, that is, legally adaptable regarding zoning and other restrictions; 2. The use must be probable, not conjectural or speculative; 3. The property must be physically adaptable to use contemplated; 4. There must be a demand for such use; 5. The use must be profitable, the highest return to the land over the longest period of time. Highest and best use of the land (or site) if vacant and available for use may be different from the highest and best use of the improved property. This is true if the improvement is not an appropriate use, but it makes a contribution to the total property value in excess of the value of the site. The above five tests have been applied to the subject property's vacant site. In arriving at the estimate of highest and best use, the subject site has been carefully analyzed. Robert M. McSherry, MAI HIGHEST AND BEST USE ASSUMING A VACANT SITE Permissible Use An investigation has been conducted in order to determine the zoning classification that encumbers the subject property. The results of this investigation has revealed that the subject site is not affected by City zoning with the subject site zoned "B-3". The zoning classification allows a large number of permissible uses to be considered for the subject property but it's location within a combination residential and commercial area, the access provided by a dual-laned traffic artery and other factors indicate the proposed utilization as an assisted care facility to be one of the better if not the best permissible uses of the site and would be a legal, conforming, permissible use. Possible Use Inspection of the subject property's neighborhood has been made to determine any physical limitations that might be present. The result of this inspection has revealed the neighborhood is developed with mix of property types. The zoning which is currently applicable to the subject property does allow for an assisted care facility to be constructed on the site as well as other types of multi-family construction. This zoning classification will allow the property to be developed as proposed within this appraisal report and this is considered the most likely probable use to which the subject property could be put. In the final analysis, the proposed utilization of the subject property is considered to constitute one of it's Highest and Best Uses. Robert M. McSherry, MAI THE APPRAISAL PROCESS The real estate appraisal profession typically utilizes three basic approaches in the process of estimating the value of a parcel of real property. These approaches include the Cost Approach, the Income Approach and the Market Data Approach. The Cost Approach utilizes an estimate of reproduction or replacement costs new of the building and other on-site improvements to be contained within the subject property less accrued depreciation from all sources including physical curable and incurable deterioration, functional obsolescence and economic obsolescence to arrive at an estimate of depreciated reproduction or replacement costs for the improvements. The estimated value of the site, as if vacant, and determined by the comparison of the subject site with other similar parcels in either the immediate proximity of the subject or in other comparable areas is added to the depreciated reproduction or replacement cost estimate of the improvements to provide an indication of value of the property being appraised from the Cost Approach. The Cost Approach is generally accorded the greatest credence in instances where the property being appraised is either a proposed property or a new property having little or no accrued depreciation or instances where the property being appraised represents a special purpose type property. In these instances, the Cost Approach is an accurate indication of value for the property and is accorded considerable credence in the reconciliation process. Robert M. McSherry, MAI The Income Approach to Value utilizes an estimate of gross annual income to be generated by the property being appraised as determined to be representative of economic rentals for this type property within the area less an allowance considered typical for vacancy and collection losses to arrive at an estimate of effective gross annual income which is to be generated by the property. Expenses typically associated with the operation of this type property in accordance with prevailing lease terms and conditions in the area as well as data provided by analysis of the operating history of other similar type properties are projected and deducted from the effective gross annual income to arrive at an estimate of net operating income before recapture attributable to the subject. This net operating income is then capitalized by the most appropriate method available with respect to the subject property in particular and the appraisal problem in general into an indication of value for the property being appraised from the Income Approach. Another method of utilizing the Income Approach is the Gross Income Multiplier technique. This technique identifies the relationship between the sales price (value) of a property and its gross annual income earning potential. The Gross Income Multiplier is derived by dividing the sales price of a property by its gross potential income and, thus, is an excellent indicator of buyer, seller and investor attitudes toward the property being analyzed. An effective gross income multiplier is also excellent as it utilizes the actual gross income after vacancy to derive the multiplier. use depends upon available data. The Market Data or Direct Sales Comparison Approach utilize sales of comparable improved properties in either the immediate proximity of the subject Robert M. McSherry, MAI or in other comparable areas to derive a unit of comparison. Each of the various comparable sales are carefully reviewed and analyzed by the appraiser, adjusted for any dissimilarities between the subject property and the comparable sale in such areas as date of sale, location, design, condition, and other physical characteristics to result in an adjusted unit of comparison to be utilized in the Market Data or Direct Sales Comparison Approach to provide an indication of value for the property being appraised. The reconciliation is the method whereby all data provided by the various approaches utilized in the appraisal report are carefully analyzed and accorded weight in varying degrees. The approach which is considered to be the most representative of current buyer, seller and investor attitudes towards the subject property is accorded the greatest credence in the final analysis but all the approaches are interrelated and all data gathered and utilized in the various approaches must be carefully analyzed in the reconciliation process and to ignore any available data would be improper. Robert M. McSherry, MAI COST APPROACH TO VALUE The Cost Approach to Value, like the Sales Comparison and Income Approaches, is based on comparison. in the Cost Approach, the cost to construct a building and the value of any existing building are compared. The Cost Approach to Value reflects market thinking in the recognition that market participants relate value to cost. Buyers tend to judge the value of an existing structure by comparing it to the value of a newly constructed building with optimal functional utility. Moreover, buyers adjust the prices they are willing to buy by estimating the cost to bring an existing structure to desired levels of functional utility. Thus, by applying the Cost Approach, an appraiser attempts to estimate the difference in worth to a buyer between the property being appraised and a newly constructed building with optimal utility. An appraiser makes a sound value estimate by estimating the cost to construct a reproduction of or a replacement of the existing structure and then deducts all evidence of accrued depreciation in the property being appraised from the cost of the reproduction or replacement structure and the resulting figure, plus the value of the land, plus any entrepreneurial profit provides a value indication through the application of the Cost Approach. The decision to utilize reproduction or replacement costs is most pertinent and the selection plays and important part in contributing to the validity of the Cost Approach. Replacement cost is defined in Real Estate Appraisal Terminology as Robert M. McSherry, MAI being, "the cost of construction at current prices of a building having utility equivalent to the building being appraised but built with modern materials and according to the current standards, design and layout. The use of the replacement cost concept presumably eliminates all functional obsolescence and the only depreciation to be measured is physical deterioration and economic obsolescence." The appraisers will utilize the replacement cost method supported by Marshall Valuation Service in conjunction with the construction cost estimate provided by knowledgeable contractors/engineers or architects. DEPRECIATION All types of accrued depreciation affecting the subject improvements were considered. Accrued depreciation is defined as, "the difference between reproduction cost new as of the date of the appraisal and the present contributory value of the improvements." Accrued depreciation is divided into three basic categories: physical deterioration (which includes curable and incurable), functional obsolescence (including curable and incurable), and economic obsolescence (which is always incurable). The following is a discussion of each type of depreciation and the observed depreciation applicable to the subject property. Physical Deterioration, Curable This type of depreciation is defined as, "the loss in value from cost new which can be recovered or offset through correction, repair, or replacement of the defective items causing the loss, providing the resultant value approximates the Robert M. McSherry, MAI cost of the work." The property is proposed thus no deferred maintenance is present. Physical Deterioration, Incurable This type of depreciation is defined as, "the loss from cost new which is impossible to offset or which would involve an expenditure substantially in excess of the value increase resulting therefrom." The property is proposed and has an effective are of 0 years and a total economic life of 30 years. Functional Obsolescence Functional obsolescence is defined as, "the loss from cost new as of the date of the appraisal which is caused by a superadequacy, inadequacy, unattractive style, poor or inefficient layout or design." Items causing functional obsolescence can be either curable or incurable, it is curable only when it is profitable to cure the item. Incurable, functional obsolescence involves items of initiate which would not be economical to correct because the value would not increase so much as the cost of correction. Based on my inspection of the subject improvements, it is my opinion that they are totally adequate and comparable to similar properties in the same general price range, therefore, no loss of value from functional obsolescence exists. Economic Obsolescence This type of depreciation is defined as, "the loss from cost new as of the date of the appraisal due to causes external to the property boundaries." To measure Robert M. McSherry, MAI this type of obsolescence the appraiser capitalizes the rent lost due to the external factor for the prorata share applicable to the building. As indicated in the site date, there are no undesirable external influences and, thus, there is no loss to the subject improvements due to economic obsolescence. Entrepreneurial Profit For the Cost Approach to provide a sound indication of value, a market derived entrepreneurial profit must be added to the direct and indirect costs. The profit figure is typically expressed as a percentage of total direct and indirect costs. Entrepreneurial profit is a necessary element in the motivation to construct the improvements. However, part or all of the profit may be lost as functional or external obsolescence if the market indicates that the improvements have a Market Value less than the current reproduction or replacement cost less physical deterioration. The results of the investigation and analysis of this market data will appear as follows: Robert M. McSherry, MAI COMPARABLE LAND SALE 1 Date of Sale: July 10, 1997 Recordation: Conveyance Book 522, Page 858, Nachitoches Parish, Louisiana Vendor: Nelkin, et al Vendee: J&K Properties, LLC Size: 4.02 Acres Consideration: $55,000.00 Indicated Price/Acre: $13,681.59 per Acre Brief Legal Description: Located in Section 83, T9N-R7W, Nachitoches Parish, Louisiana Financing: Typical Site Utilities: Public Terrain: Relatively Level Access: Two-lane Asphalt Zoning: "R-1" to be Changes to "R-3" Highest and Best Use: Commercial or Multi-Family Confirmation: Vendee Comments: Proposed site of Magnolia Place Apartments, 1 48 unit complex Robert M. McSherry, MAI COMPARABLE LAND SALE 2 Date of Sale: May 27, 1997 Recordation: Conveyance Book 521, Page 806, Nachitoches Parish, Louisiana Vendor: A.J. Brouillette Vendee: Kenneth Sparks Size: 1.2 Acres + Consideration: $40,000.00 Indicated Price/Acre: $33,333.00 per Acre Brief Legal Description: Lots 18 and 19 in Tract 2 of S. Nelkin Estate, Natchitoches, Louisiana Financing: Typical Site Utilities: Public Terrain: Relatively Level Access: Two-lane Concrete Zoning: "C-1" Commercial Highest and Best Use: Commercial Confirmation: Public Records Comments: Site of newly constructed USDA Complex Robert M. McSherry, MAI COMPARABLE LAND SALE 3 Date of Sale: May 21, 1998 Recordation: Conveyance Book 530, Page 442, Natchitoches Parish, Louisiana Vendor: Ferguson Realty, Inc. Vendee: Kenneth Starks Size: 2.065 Acres Consideration: $80,000.00 Indicated Price/Acre: $38,740.00 per Acre Brief Legal Description: Tract or Parcel located in Section 86, T9N-R7W, Natchitoches Parish, Louisiana Financing: Typical Site Utilities: Public Terrain: Relatively Level Access: Two-lane Asphalt Zoning: "C-1" Commercial Highest and Best Use: Commercial Confirmation: Public Records Robert M. McSherry, MAI COMPARABLE LAND SALE 4 Date of Sale: June 30, 1997 Recordation: Conveyance Book 522, Page 702, Natchitoches Parish, Louisiana Vendor: E.W. Robertson, et ux Vendee: First Church of Christ Size: 3.01 Acres Consideration: $50,000.00 Indicated Price/Acre: $16,611.00 per Acre Brief Legal Description: Tract or Parcel located in a portion of Section 83 and 86, T9N-R7W, Natchitoches Parish, Louisiana Financing: Typical Site Utilities: Public Terrain: Relatively Level Access: Two-lane Asphalt Zoning: "R-1" Residential Highest and Best Use: Commercial Confirmation: Public Records Robert M. McSherry, MAI COMPARABLE LAND SALES SUMMARY CHART
Date Size/Usable Price/Acre Location Sale 1 7/97 4.02 Acres $13,681.00 Natchitoches Ph., LA Sale 2 5/97 1.20 Acres $33,338.00 Natchitoches Ph., LA Sale 3 5/98 2.065 Acres $38,740.00 Natchitoches Ph., LA Sale 4 6/97 3.01 Acres $16,611.00 Natchitoches Ph., LA
Robert M. McSherry, MAI Land Sales Location Map [STREET MAP OF NATCHITOCHES INDICATING COMPARABLE LAND SALES 1,2,3 & 4] ANALYSIS OF COMPARABLE LAND SALES The four vacant comparable land sales contained within this appraisal report and utilized for analysis purposes are sales of sites located either in the immediate proximity of the Louisiana Highway 1 Bypass or in other very comparable areas of Natchitoches, Louisiana. All sites thus sales are considered current with respect to date and all sales have been sold within either 1997 or 1998 thus requiring only minimal adjustment for the time differential. The size of the sales is similar with respect to the subject property with the major adjustment criteria required for that of location with Sales 1 and 4 located some distance away from direct highway frontage with Sales 2 and 3 having highway frontage. However, the location of all sales are considered slightly inferior to that of the subject property requiring an upward adjustment for this locational dissimilarity between the subject property and the comparable sales and these sales have been adjusted accordingly. Adjustments for zoning differential between the comparable sales and the subject property is also required with respect to Sale 2. After this adjustment grid has been completed, it is our opinion that the subject site is estimated to have a Market Value, as if vacant and after site preparation, of $43,750.00 per acre. Robert M. McSherry, MAI Therefore, the estimated Market Value of the subject site, as if vacant, is thus derived: 4.0 Acres @ $43,750.00/ Acre $175,000.00 INDICATED VALUE OF THE SUBJECT SITE, AS IF VACANT (R/T) $175,000.00 Robert M. McSherry, MAI DISCUSSION OF COST APPROACH In the construction of any project, the total cost of development can be divided into basic categories: direct or hard cost, and indirect or soft costs. As defined in Real Estate Appraisal Terminology, the definition of Direct Costs is, "the cost of direct labor and materials devoted specifically to a unit of work. In construction, these costs are directly related to site acquisition and construction of the improvements..." Defined in this same text, Indirect Cost is, "that cost in the development of a property which would not be included in a general contract for construction or for land acquisition..." Direct costs include the cost of items such as land acquisition, construction of the buildings, equipment and fixtures, the builder's profit and overhead, any temporary buildings for on-the-job usage, power line installation, and the electrical power used in the construction. As indicated in the Cost Approach Schedule which follows, direct or hard costs have been broken down into categories of building area, elevators and other primary building costs. Indirect, or soft costs, generally include fees, financing costs, and overhead. As the Cost Approach Schedule indicates, the indirect costs fall into 8 categories. The permits and fees sections include the estimated costs of a building permit, an appraisal, a survey and accounting and inspection charges. Architectural engineering estimates have been based on typical market charges. The legal expenses includes work done on both interim and permanent loan packages. Robert M. McSherry, MAI The insurance costs indicated are limited to construction-period coverage including the builder's risk. The closing cost estimate includes costs of closing both the interim and permanent loans. The interest expense is based on typical current market conditions and covers the period of time required to complete the construction of the project. The loan commitment fees are also based on current typical market conditions. The appraiser's have relied upon the Marshall Valuation Service, a publication of Marshall & Swift, 1617 Beverly Boulevard, Post Office Box 26307, Los Angeles, California, in estimating the replacement costs new of the subject property improvements. The Cost Approach to Value, as it applies to the property being appraised, is as follows: Robert M. McSherry, MAI COST APPROACH TO VALUE Cost Source: Marshall-Swift Cost Manual and Contractor Cost Data Direct Costs: Residential Living Units 15,681 sq. ft. @ $61.70/sq. ft. $ 967,518.00 Common Area Core 6,535 sq. ft. @ $59.70/sq. ft. $ 390,140.00 Total Direct Costs: Improvements $1,357,658.00 Indirect Costs: Plans, Specifications, Inspection Included in Direct Costs Contractor's Overhead/Profit $176,900.00 Interim Interest $ 67,800.00 Legal, Audit, Appraisal $ 55,000.00 Financing Fees - Construction $ 27,100.00 Misc. Expenses $ 50,000.00 Financing Fees - Long Term $162,800.00 Total Indirect Costs $ 539,600.00 Total Replacement Costs New: Improvements $1,897,258.00 Less: Accrued Depreciation Physical Curable -0- Physical Incurable -0- Functional Obsolescence -0- Economic Obsolescence -0- Total Accrued Depreciation -0- Depreciated Replacement Costs: Improvements $1,897,258.00 Add: Land Value 4.0 acres @ $43,750.00/acre $ 175,000.00 Robert M. McSherry, MAI Add: Site Preparation $ 35,000.00 Add: Furniture, Fixtures and Equipment $ 80,000.00 Add: Parking, Walks, Landscaping, Porches $ 25,000.00 Add: Entrepreneurial Profit @ 5% $ 94,850.00 Total All Costs and Value Components $2,307,108.00 INDICATED VALUE OF SUBJECT FROM COST APPROACH (R/T) $2,310,000.00 Note: Cost of Furniture, Fixture and Equipment based on costs association with actual costs experienced by Southside Garden Assisted Care Facility and Arbor House of West Monroe, Louisiana. Robert M. McSherry, MAI MARKET DATA APPROACH TO VALUE Market data is discussed in all the approaches to value. Data analysis is needed in the Cost Approach to develop a land value indication and to support costs and depreciation indicators; in the Income Approach to establish rent levels, vacancy indications, expenses, and capitalization rates; and in the Direct Sales Comparison Approach to establish comparability. The appraiser has carefully perused the Louisiana market with respect to sales of properties considered similar to the subject property and none were found. However, available data from other appraisers has revealed the sale of three similar type properties in other areas of the United States and these are included merely for analysis purposes as follows: Robert M. McSherry, MAI IMPROVED PROPERTY SALE 1 VENDOR: American Retirement, Inc. VENDOR: Horizon Retirement, Inc. LOCATION: 2601 Chimney Rock Road, Hendersonville, North Carolina RECORDATION: N/A DATE: February, 1993 CONSIDERATION: $6,480,000.00 TERMS: $2,224,000.00 cash, assumption of a mortgage balance of $4,316,000.00. terms are considered to be cash equivalent. SITE SIZE: N/A IMPROVEMENTS: This is a 110 unit senior living community constructed in 1988. The units are housed in a three-story building of wood frame construction. Construction quality is considered to be average; condition at the time of sale was good. The gross building area is approximately 96,058 square feet with an average unit size of 873 square feet. ESTIMATED GROSS INCOME: $1,706,255.00 ESTIMATED EXPENSE RATIO: Approximately 56 percent NET OPERATING INCOME: Approximately $751,844.00 UNIT INDICATORS: SP/Unit = $58,909.00 SP/SF = $ 67.46 SP/GI = 3.80 GIM NOI/SP = 0.1160 OAR Robert M. McSherry, MAI IMPROVED PROPERTY SALE 2 VENDOR: American Retirement, Inc. VENDOR: Emeritus Corporation LOCATION: 2601 Chimney Rock Road, Hendersonville, North Carolina RECORDATION: N/A DATE: September, 1995 CONSIDERATION: $9,483,523.00 TERMS: Cash SITE SIZE: N/A IMPROVEMENTS: This is a 110 unit senior living community constructed in 1988. The units are housed in a three-story building of wood frame construction. Construction quality is considered to be average; condition at the time of sale was good. The gross building area is approximately 96,058 square feet with an average unit size of 873 square feet ESTIMATED GROSS INCOME: Approximately $2,175,000.00 ESTIMATED EXPENSE RATIO: Approximately 56 percent NET OPERATING INCOME: Approximately $957,000.00 UNIT INDICATORS: SP/Unit = $86,214.00 SP/SF = $ 98.73 SP/GI = 4.36 GIM NOI/SP = 0.1009 OAR Robert M. McSherry, MAI IMPROVED PROPERTY SALE 3 VENDOR: ABD Investments, Inc. VENDOR: Merrill Associates, LP LOCATION: 6725 Inglewood Avenue, Stockton, California RECORDATION: N/A DATE: July, 1994 CONSIDERATION: $4,200,000.00 TERMS: Cash SITE SIZE: N/A IMPROVEMENTS: This is a 74 unit senior living community constructed in 1989. The units are housed in two-story buildings of wood frame construction. Construction quality is considered to be average; condition at the time of sale was good. The gross building area is approximately 63,730 square feet with an average unit size of 861 square feet. ESTIMATED GROSS INCOME: Approximately $1,395,000.00 ESTIMATED EXPENSE RATIO: Approximately 70 percent NET OPERATING INCOME: Approximately $418,500.00 UNIT INDICATORS: SP/Unit = $56,757.00 SP/SF = $ 65.90 SP/GI = 3.01 GIM NOI/SP = 0.0996 OAR Robert M. McSherry, MAI SUMMARY
Sale One Sale Two Sale Three Indicated OAR 11.6% 10.09% 9.96% Price/Unit $58,909.00 $86,214.00 $56,757.00 Gross Income Multiplier 3.80 4.36 3.01 Estimated Expense Ratio 56% 56% 70%
The three Improved Property Sales included within this report have been provided this appraiser by knowledgeable sources and other appraisers and are deemed accurate as they were verified by knowledgeable and ethical persons. The appraiser has conducted an in-depth review of conveyances of similar type assisted living or congregate care facilities in the State of Louisiana and none were found which were considered to be reflective of true arms-length transactions between willing buyers and willing sellers with no undue duress being experienced. These three Improved Property Sales have been included for the purpose of deriving an indicated Overall Capitalization Rate, an indicated price per unit and an indicated Gross Income Multiplier for utilization in the analysis process with respect primarily to the Income Approach to Value. The level of services provided by these facilities are similar to those to be provided by the subject property which would include three (3) meals per day, utilities, maid service one (1) day a week, flat linen service one (1) day a week, various assistance with respect to bathing, exercise, and transportation to various off-site functions as well as on-site recreational functions, counseling, with other services provided on a more extensive basis for additional expense paid by the Robert M. McSherry, MAI guest or resident of the facility. It is acknowledged that a large number of the residents residing in the assisted care facilities are requiring increased levels of care and these additional expenses are being passed directly to the tenant as they upset the economies of an assisted care facility having to provide this extraordinary level of care without additional remuneration. The price per unit indicated by Improved Property Sale 2 is considered the best available and has been accorded the greatest credence. Accordingly: 27 Units @ $83,000.00/Unit $2,241,000.00 INDICATED VALUE OF SUBJECT FROM THE MARKET DATA OR DIRECT SALES COMPARISON APPROACH (R/T) $2,240,000.00 Robert M. McSherry, MAI INCOME APPROACH TO VALUE Introduction The Income Approach reflects the subject's income-producing capabilities and requires an analysis of the project's probable market rent. In the comparative analysis, we have considered factors that would probably influence market acceptance of properties in the area. The factors include proximity to major traffic arteries; location; design; amenities; and the quality of management. To develop a supportable estimate of value using the Income Capitalization Approach, realistic projections of income and expenses must be made. congregate care facilities are unique forms of real estate with many unusual characteristics, such as an intensive use of labor, costs of goods sold, expenses categories, and product identity. Therefore, special care in data gathering and analysis are required to create an estimate of the future income for the subject. The appraiser will utilize data provided by the publication, Trends in the Health Care Industry for supporting data. The subject property is proposed at the present time and, therefore, has no historical income and expense data associated with the property. The subject will contain 22 assisted care units and 5 efficiency assisted care units all located in a single T-shaped building which will also contain common areas for the operation of the facility. The services provided the assisted living units include all utilities, maid service, three meals a day, transportation, Robert M. McSherry, MAI activities with additional laundry and maid service available at additional expense. Normal day to day medical treatments are also available for the various tenants with any extraordinary medical expense passed directly to the tenant. This appraiser has had the opportunity to appraise a number of assisted care facilities in both Louisiana and Mississippi over the last several years and has relied on data provided by these facilities, various industry publications and data provided by various health care consulting groups and experts in arriving at the estimated monthly rental rates and expenses including fixed expenses, operating expenses, staffing, dietary, reserves and other appropriate expenses. This appraiser has conducted rental surveys of a number of assisted care, private pay facilities located in the Baton Rouge, Louisiana area as well as facilities located in West Monroe, Shreveport and Alexandria, Louisiana in order to arrive at an estimated economic rental rate for the subject property based on the level of services provided. The assisted care market is still a relatively new market and the majority of the facilities have been constructed in larger metropolitan areas such as Baton Rouge. The rental rates commanded in these larger areas are above those which can be commanded in smaller or more rural communities in North Louisiana and appropriate adjustments have been made. The most comparable property is the Arbor House of West Monroe, which was completed in December of 1997 and has experienced stabilized occupancy with respect to the assisted care units within a six (6) month period. These units lease for $1,850.00 per month for the basic rate with expenses including utilities, Robert M. McSherry, MAI three (3) meals a day, maid service once a week, laundry service once a week, assistance in bathing, transportation to shopping, church and other functions as well as in-house recreational activities. This appraiser has also recently completed an appraisal of a 33 unit assisted care facility located in Baton Rouge, Louisiana which is very typical with respect to the subject property. However, the monthly rate provided by this facility is slightly higher than those in rural areas with the base monthly rate being $1,850.00 per month. The same services are provided including utilities, three (3) meals per day, assistance with daily living activities including bathing, grooming, weekly bed linen and towel service, weekly house keeping, transportation to medical and dental appointments, worship service, planned activities as well as other assistance required. Both rent comparables require upward adjustment for time and location. Based on this appraiser's personal inspection of these two facilities and adjustment, it is our opinion that a $2,000.00 per month stabilized rent with services including electricity, three (3) meals per day, maid service, transportation, activities, assistance in the normal living activities as well as normal day to day medical treatment being provided is economic rent. The actual income and expense data of various facilities is closely held information and these individuals have requested confidentiality with respect to this actual data. Accordingly, this data has been retained in our various files. Robert M. McSherry, MAI income into an indication of value based upon stabilized income of 10.5% is reflective of current industry attitudes and is considered appropriate with respect to this particular appraisal assignment. Conclusion Based on the available information we have concluded that a 10.5% is the most appropriate capitalization rate which is derived from the actual band of investments method and supported by the Underwriter's Method and available market data. The location of the subject has also been considered. Thus: NET OPERATING INCOME ------------------------ = VALUE OVERALL CAPITALIZATION RATE $236,770.00 ----------------- = $2,254,952.00 .105 INDICATED VALUE OF SUBJECT FROM INCOME APPROACH (R/T) $2,255,000.00 Robert M. McSherry, MAI DISCOUNTED CASH FLOW ANALYSIS The subject property will require a period in excess of one year to achieve stabilized net income. In order to provide an estimate of the present value of the improvements upon completion but prior to achieving stabilized net operating income, the discounting process is utilized. The income stream generated by the subject until stabilized income is reached is discounted into an estimate of present value and the reversionary value of the improvements as estimated upon achieving a stabilized net income is also discounted to present worth. The market indicates a discount rate of 11% to be appropriate to be utilized in discounting the income and reversion and this is based on current rates of return on alternate investments and the risk associated with the subject. Robert M. McSherry, MAI Present Worth of Income Stream Year One: $164,970.00 x .900901 = $ 148,621.00 Year Two: $236,770.00 x .811622 = $ 192,167.00 Total Present Value of Income Stream $ 340,788.00 Present Worth of Reversion $2,255,000.00 x .811622 $1,830,207.00 Summation: Present Worth of Income Stream $ 340,788.00 Present Worth/Reversion $1,830,207.00 Total $2,170,995.00 INDICATED VALUE OF SUBJECT FROM INCOME APPROACH/DISCOUNTED CASH FLOW $2,170,000.00 Robert M. McSherry, MAI RECONCILIATION AND FINAL VALUE The three approaches to value have indicated the following value estimates of the property being appraised: COST APPROACH TO VALUE $2,310,000.00 MARKET APPROACH TO VALUE $2,240,000.00 INCOME APPROACH TO VALUE OVERALL CAPITALIZATION RATE $2,255,000.00 DISCOUNTED CASH FLOW ANALYSIS $2,170,000.00 The subject property is proposed construction and only preliminary plans and specifications have been provided this appraiser in order to complete the Cost Approach to Value. Costs are extremely difficult to estimate and no two competent contractors will ever agree on the actual cost to construct a property. However, this appraiser has utilized reliable sources including the Marshall Valuation Service Cost Manual as well as actual construction costs affecting a similar type property in order to complete the Cost Approach to Value and this approach is considered reflective of the cost new of the subject property. The subject property is considered an income producing and has been valued based on it being a Going Concern. The property is under competent ownership and will have excellent management in place and the utilization of the Going Concern concept is considered appropriate with respect to this particular appraisal problem. Accordingly, the Indicated Value of the Property based on stabilized net income being generated at the end of the second year is Robert M. McSherry, MAI 30 Year Treasury Bond Rate 5.21% Merrill-Lynch Ready Assets 30 Day 54.65 (Average Yield) As can be reflected by the above alternate investment vehicles. Current rates for both short and long term yields is between the high 4.00% to the low 5.00% range. The projected 9.00% equity yield or "cash-on-cash" return projected for the subject property provides an excellent return on the investor's cash, approximately 3.00% in excess of other alternate investment vehicles. Accordingly, the 9.00% equity dividend rate is considered appropriate when the overall risk and competitive rates are considered. Derivation of Capitalization Rate - The band of investment (or weighted average) formula for deriving an overall rate when the mortgage constant and equity dividend rates is known as: Mortgage Percent x Mortgage Constant Plus Equity Percent x Equity Dividend Rate Equals Overall Capitalization Rate .75 x .1079671 = .0809 .25 x .09 = .0225 Total = .10340 Rounded to .103 Underwriter's Method In making loan decisions, institutional lenders use a debt coverage ratio (DCR), which is the ratio of net operating income to annual debt service. This measure Robert M. McSherry, MAI of constraint is frequently used by institutional lenders, who are general fiduciaries. They manage and lend the money of others, including depositors and policy holders. Because of the fiduciary responsibility, institutional lenders are particularly sensitive to the safety and profit and are anxious to avoid default and possible foreclosure. Consequently, when they underwrite income property loans, institutional lenders try to provide a cushion so that the borrower will be able to meet the debt service obligations on the loan even if the building income declines. The debt coverage ratio may also be used to estimate the overall capitalization rate by multiplying the ratio by the mortgage loan constant (RM) and the loan-to-value ratio (M). The debt coverage ratio, mortgage loan constant, and loan-to-value ratio have already been determined to be 1.20, .1079671 and .75, respectfully. The formula for derivation of an overall capitalization rate from debt coverage ratio is as follows: RO = DCR x RM x M RO = 1.20 X .1079671 X .75 RO = .0971 R/T = .097 Review of the three (3) improved property sales contained within this report have indicated an Overall Capitalization Rate from a low of 9.96% to a high of 11.6%. These indicated Overall Capitalization Rates which have been derived from available market data indicates the rate chosen for the capitalization of the net Robert M. McSherry, MAI The results of our survey and analysis indicates an economic rental rate for the assisted care units, based on the herein listed services being provided, of $2,000.00 per month and $1,550.00 per month for the efficiency units with the rates remaining stable over the two year projection period. The projected rate includes the herein listed services being provided. Inflation will impact expense projections as well as increased occupancy and these anticipated increases have also been utilized in the Income Approach to Value. In order to accurately project appropriate expenses for the subject property, the appraiser has reviewed the current publication Trends in the Health Care Industry with respect to historical operating expenses for assisted care facilities. In addition, this appraiser has been provided itemized comparable expense data with respect to three separate properties located in the State of Louisiana but, due to confidentiality requirements, the names of these properties are retained in the appraiser's file at the request of the property owners. However, the following summary chart is included for the benefit of the reader of this appraisal report and it also provides support for the expense projections for the subject property. The Income Approach to Value as it applies to the property being appraised based on economic rental rates herein quoted and utilizing a two year period in order to achieve a stabilized net occupancy and thus a stabilized net operating income is reproduced as follows: Robert M. McSherry, MAI ITEMIZED COMPARABLE EXPENSE DATA
Property 1 Property 2 Property 3 Administrative $249,610.00 $417,960.00 $461,530.00 Dietary $186,938.00 $251,184.00 $204,983.00 Maintenance $156,914.00 $275,424.00 $193,530.00 Housekeeping/Janitorial $ 51,340.00 $ 55,512.00 $ 52,322.00 Taxes/Insurance $ 82,000.00 $110,560.00 $ 66,738.00 Utilities $ 91,328.00 $ 24,360.00 $ 65,678.00 Nursing/Other -0- $ 9,458.00 $ 10,664.00 Per Unit Expenses $ 9,522.00 $ 9,458.00 $ 10,664.00
Robert M. McSherry, MAI INCOME APPROACH TO VALUE Year One Gross Annual Potential Income: 22 - Assisted Living Units @ $2,000.00/month $ 528,000.00 5 - Efficiency Units @ $1,550.00/month $ 93,000.00 Total Gross Annual Potential Income $ 621,000.00 Less: Vacancy and Collection Losses Assisted Living Units (35%) $ 184,800.00 Total Vacancy and Collection Loss $ 184,800.00 Effective Gross Annual Potential Income $ 436,200.00 Expenses: Administrative $80,430.00 Plant Operations $43,600.00 Dietary $56,700.00 Housekeeping $17,500.00 Aides $48,000.00 Activities $17,500.00 Reserves for Replacement $ 7,500.00 Total Expenses $ 271,230.00 Net Operating Income $ 164,970.00 Note: Management fee included in Administrative Expense. Robert M. McSherry, MAI INCOME APPROACH TO VALUE Year Two Gross Annual Potential Income: 22 -Assisted Living Units @ $2,000.00/month $ 528,100.00 5 - Efficiency Units @ $1,550.00/month $ 93,000.00 Total Gross Annual Potential Income $ 621,000.00 Less:Vacancy and Collection Losses Assisted Living Units (10%) $ 52,800.00 Total Vacancy and Collection Loss $ 52,800.00 Effective Gross Annual Potential Income $ 568,200.00 Expenses: Administrative $85,230.00 Plant Operations $56,800.00 Dietary $74,000.00 Housekeeping $22,700.00 Aides $62,500.00 Activities $22,700.00 Reserves for Replacement $ 7,500.00 Total Expenses $ 331,430.00 Net Operating Income $ 236,770.00 Note: Management Fee included in Administrative Expense. Robert M. McSherry, MAI JUSTIFICATION OF CAPITALIZATION RATE Direct Capitalization is a method used to convert a single year's income estimate into a value indication in the Income Capitalization Approach. The direct capitalization formula using an overall property capitalization rate is: Value / Net Operating Income = Overall Capitalization Rate In this appraisal, the appraisers will employ two different methods to obtain an overall capitalization rate: 1) Band of Investment - mortgage and equity components 2) Underwriter's Method (derivation from debt coverage ratio) Band of Investment The appraisers contacted local lenders regarding rates and terms of alternate investments as well as current market rates applicable for this market. Annual Constant - In developing the mortgage components for the Band of Investment Method, the appraisers reviewed the National Mortgage Commitment Survey conducted by the Appraisal Institute Research Department which surveyed sample lenders in various geographical regions throughout the United States. The data quoted is based on national averages and do not reflect conditions inherent in all markets. Therefore, the appraisers contacted local lenders regarding rates and terms applicable for this market area. Lenders in the local market are quoting rates at prime plus 1%, terms of 20 years. 75% and a loan-to-value ratio. The local market closely approximates the national averages for the subject property type. Robert M. McSherry, MAI The appraisers reviewed available data concerning current national and local quoted mortgage rates and talked to various lenders in the Louisiana area which confirm that market rates and terms for loans of the quality of the subject property are available at 9% interest rate with monthly payments amortized for a 20 year term, a 75% loan-to-value ratio. Therefore, the mortgage constant is derived to be .1079671. Equity Dividend - Current rates of return available from alternative investment vehicles are reviewed. These alternative investments are more liquid than an investment in real estate; therefore any potential investor would expect a higher rate of return. Based on this, we have been able to conclude that a 9% equity dividend rate is required to attract investment capital to the subject property's type which is considered to be slightly more risky than other types of real estate investments. In order to ascertain the appropriate equity dividend or "cash-on-cash" rate, the appraiser has reviewed money rates for other alternate investments as of January 10, 1999. The results of this analysis of comparable and alternative money rates are as follows: Certificates of Deposit 30 Day 4.29% 90 Day 4.51% 180 Day 4.67% Treasury Bill Rates 3 Months 4.39% 6 Months 4.40% 52 Weeks 4.33% Robert M. McSherry, MAI considered the best available indicator of it's current Market Value and has been accorded the greatest credence in the final analysis. Based on the data contained within this report, other in-file data, and this appraiser's review and analysis of said data, it is our opinion that the proposed property identified as the 22 Unit Assisted Care and 5 Unit Efficiency Assisted Care Facility all located on Louisiana Highway 1 Bypass within the corporate limits of Natchitoches, Natchitoches Parish, Louisiana was estimated to have a Market Value, as of January 10, 1999, but subject to completion according to plans and specifications utilizing quality materials and workmanship throughout and also subject to the other conditions contained within this report, and based upon Stabilized Net Operating Income, of: TWO MILLION TWO HUNDRED FIFTY-FIVE THOUSAND DOLLARS ($2,255,000.00) Allocated: Land $ 175,000.00 Improvements: $2,005,000.00 Furniture, Fixtures and Equipment $ 75,000.00 Goodwill of Going Concern -0- The estimated "as is" value is estimated to be, as of January 10, 1999 and subject to completion within a reasonable period of time, is: Robert M. McSherry, MAI TWO MILLION ONE HUNDRED SEVENTY THOUSAND DOLLARS ($2,170,000.00) Robert M. McSherry, MAI ADDENDA Robert M. McSherry, MAI APPRAISER'S CERTIFICATION I certify that, to the best of my knowledge and belief.... (1) The statements of fact contained in this report are true and correct. (2) The reported analyses, opinions, and conclusions are limited only by the report assumptions and limiting conditions, and are my personal, unbiased professional analyses, opinion and conclusions. (3) I have no present or prospective interest in the property that is the subject of this report, and I have no personal interest or bias with respect to the parties involved. (4) My compensation is not contingent upon the reporting of a predetermined value or direction in value that favors the cause of the client, the amount of the value estimate, the attainment of a stipulated result, or the occurrence of a subsequent event. (5) My analyses, opinions, and conclusions were developed, and this report has been prepared, in conformity with the Uniform Standards of Professional Appraisal Practice. (6) I have made a personal inspection of the property that is the subject of this report and all rent comparables. (7) No one provided significant professional assistance to the person signing this report. (8) The reported analyses, opinions, and conclusions were developed, and this report has been prepared, in conformity with the requirements of the Code of Professional Ethics and the Standards of Professional Practice of the American Institute of Real Estate Appraisers. (9) The use of this report is subject to the requirements of the Appraisal Institute relating to review by its duly authorized representatives. (10) I am not currently certified under the voluntary continuing education program of the American Institute of Real Estate Appraisers. Robert M. McSherry, MAI (11) I certify that the use of this report is subject to the requirements of the Appraisal Institute relating to review by its duly authorized representatives. Estimated Market Value: /S/ROBERT M MCSHERRY $2,255,000.00 -------------------------- Robert M. McSherry, MAI LA State Certified General Real Estate Appraiser No. G0891 Allocated: Land $ 175,000.00 Improvements $2,005,000.00 Furniture, Fixtures and Equipment $ 75,000.00 Goodwill of Going Concern -0- As Of: January 10, 1999 Robert M. McSherry, MAI QUALIFICATIONS OF ROBERT M. MC SHERRY, MAI EDUCATIONAL BACKGROUND AND TRAINING: Graduate of Louisiana State University, Baton Rouge, Louisiana, Bachelor of Science Degree in Business Administration with a Major in Finance. Real Estate Appraisal Course 1-A, Basic Fundamentals, Methods and Techniques, 1974, AIREA Real Estate Appraisal Course 1-B, Capitalization, 1975, AIREA Real Estate Appraisal Course VIII, Single-Family Residential Appraisal, 1974, AIREA Real Estate Appraisal Course II, Techniques and Application, 1976 and 1980, AIREA Real Estate Appraisal Course III, Rural Properties, 1979 Real Estate Appraisal "Industrial Valuation" Course, 1984 Seminar: R-41C - New Orleans, Louisiana, AIREA, 1978 "Standards of Professional Practice" Course, AIREA, 1987 "Capitalization Theory and Techniques, Part A" Course, AIREA, 1987 "Standards of Professional Practice" Course, Appraisal Institute, 1992 "Advanced Level Finance I & II", 1997 "Risk Management/Ethics/Fair Housing", 1997 "How to Value Louisiana Timberland", 1997 "Uniform Standards of Professional Appraisal Practice" Seminar, 1997 PROFESSIONAL EXPERIENCE Real Estate Broker, State of Louisiana (1971) Robert M. McSherry, MAI Monroe Redevelopment Agency, Monroe, Louisiana (1971) Ford, Bacon & Drive Construction and Engineering Company, Monroe, Louisiana (1972) Mississippi power and Light Company, Jackson, Mississippi (1973-1976) Cameron-Brown South, Inc., Mortgage Bankers, Baton Rouge, Louisiana (1976-1977) Real Estate Appraiser, Monroe, Louisiana (1978-1985) Real Estate Appraiser, Baton Rouge, Louisiana and Jackson, Mississippi (1985-Present) PROFESSIONAL MEMBERSHIPS Residential Member, American Institute of Real Estate Appraisers, Certification Number 1040 Licensed Real Estate Broker, State of Louisiana Fee Inspector for the Louisiana Homeowners Warranty Corporation FNMA Approved Level III Appraiser, Number 1027135 Member, American Institute of Real Estate Appraisers - MAI Designation (1981), Number 6291 Certified Licensed General Appraiser, State of Louisiana, Number 0891 Robert M. McSherry, MAI PHOTOGRAPHS FLOOR PLAN [FLOOR PLAN OF ENTIRE FACILITY] [FLOOR PLAN OF DINING AND ADMINISTRATION] [ENLARGED FLOOR PLAN OF APT UNITS] EX-99.6 33 ENVIRONMENTAL STUDY FOR MINDEN, LA FACILITY INVESTIGATION AND REPORT ON PHASE I ENVIRONMENTAL RISK AUDIT (ERA) THE ARBOR OF MINDEN A PROPOSED ASSISTED LIVING CENTER GERMANTOWN ROAD MINDEN, LOUISIANA FOR: MRS. JOANNE M. CALDWELL 507 TRENTON ST. West Monroe, LA 71291 (318) 325-5462 BY: KARL M. WALLACE, P.E. ENVIRONMENTAL ENGINEER POINT PLACE ROAD ROUTE 2 BOX 163B DOWNSVILLE, LA 71234 (318)-396-2197 August 27, 1998 KARL M. WALLACE, P.E. ENVIRONMENTAL ENGINEER ROUTE 2 BOX 163B DOWNSVILLE, LA 71234 (318)-396-2197 August 27, 1998 Mrs. Joanne M. Caldwell 507 Trenton St. West Monroe, LA 71291 Re: Phase I Environmental Risk Audit (ERA) The Arbor of Minden Germantown Road Minden, LA A. SCOPE: The scope of this Environmental Risk Audit (ERA) consists of a general site inspection, review of the site's history, review of Public Records, and contacts with people familiar with the site to determine if there is any environmental problem or liability. The site is located on the West side of Germantown Road, directly across the street from Harper School, and consists of a 9.72 acre Tract (See Exhibit A for legal description).. B. REFERENCES: B.1 ASTM Standards on Environmental Site Assessments for Commercial Real Estate, E 1527-97 and E 1528-96. B.2 The following Federal Rules and Regulations: 1. Solid Waste Disposal Act (SWDA) of 1976, as amended. 2. U. S. Environmental Protection Agency (EPA) Implementing Regulations 40 CFR Parts 50, 51, 52 & 61(CAA),Parts 100-149 and Parts 240-265. 3.Federal Water Pollution Control Act of 1972, as amended. B.3 The following Louisiana Rules and Regulations: 1. La. Administrative Code, Volumes 11 & 12, Air Quality. 2. La. Administrative Code, Volume 13, Hazardous Waste. 3. La. Administrative Code, Volume 14, Solid Waste, Underground Storage Tanks, Water Resources. 4. La. Administrative Code, Volume 15, Nuclear Energy. -2- C. INVESTIGATION: C.1 Mrs. Joanne Caldwell retained this firm to conduct a Phase I Environmental Risk Audit (ERA) of subject property before finalizing property development. At the date of this investigation, the site contained vegetation consisting of a few trees with grass cover. The grass appeared to be cut at some interval for hay. C.2 Information relative to the ERA is as follows: C.2.1 Location: The site investigated is more specifically described in the attached Plat. (See Attachment #1). C.2.2 Visual Site Reconnaissance: A visual inspection was performed at the site on August 27, 1998. C.2.3 Records Search: A records search was conducted on Public Records contained in the Clerk of Court and Tax Assessors Office in the Webster Parish Courthouse. C.2.4 Review of Past and Present Land Use: A review was made of aerial photos owned by the Webster Parish Natural Resource Conservation Service Office, United States Department of Agriculture. Mr. Robert Austin, USDA, was interviewed for this report. C.2.5 Soil Survey: A brief soil survey was conducted on the site to determine the suitability of this site to have supported extensive agriculture in it's history. C.3 Adequate data was obtained to construct a current and historical review of the site. D. DISCUSSION: D.1 General: The Environmental Risk Audit (ERA) is an investigation of the site to determine if contaminants are present. D.1.1 Records Search: Detailed ownership history was studied from the public record including prior use and activities and descriptions of the property and adjacent pertinent property. Property descriptions and chain-of-title records were reviewed. The site has had minor agricultural use with records showing the Hinton Dairy a occupant. The sloping site was used primarily as a grazing pasture for dairy animals. Aerial photographs confirm this use of the site. Interviews with public employees confirm the same site usage. D.1.2 Visual Inspection: Attention was given to readily apparent environmental indicators. Particular concerns were distressed vegetation, ground stains, trash, landfills, noxious odors, depressions, and evidence of any below grade tanks or other potential contaminant sources. None were evident. Contact was made and veification was given by Officials of the Louisiana Department of Environmental Quality that no enviromental hazards existed on the site. D.1.3 Soil Suitability for Farming: The site contains a high sand content soil with more than 3 percent slopes. This soil has minor potential for cultivated crops and has many limitations for this use. It has average potential for most urban uses; average strength, and low shrink-swell potential. It is very likely that the site was used for minor farming. The likelihood of pesticide and herbicide residues is minor. -3- D.1.4 Check for Specific Contaminants: The specific contaminants of interest in this report were asbestos, lead-based paint, volatile organic compounds such as methyl ethyl ketone, semivolatile organic compounds such as o-Cresol, pesticides/herbicides/PCB's such as toxaphene, and metals/inorganic compounds such as mercury. No evidence appeared to require specific tests for these contaminants. E. CONCLUSION: Based on this investigation, which was performed according to generally accepted standards in the profession, the site does not appear to have any detectable contaminants. F. RECOMMENDATIONS: It is the recommendation of this report that after evaluation of all data, there is no need for further soil or groundwater studies or chemical analyses on soil and groundwater samples at this site. The ERA concludes there is no reasonable evidence to suggest existing or potential environmental impairment. G. LIABILITY: G.1 This report is not a certification and in no way implies or envokes any warranty or guaranty. G.2 In as much as the visual inspection of a site requires that certain assumptions be made regarding prior and existing conditions, and because some of these assumptions cannot be verified without expending great sums of additional money, or destroying otherwise adequate or serviceable portions of the site, the Engineer and his agents are not liable for claims, damages, losses, and expenses including attorney's fees arising out of or resulting from any subsequent discovery of contaminants not specifically discussed herein, acts of God, or any cause not attributable to Professional Design negligence. END OF REPORT /S/KARL M WALLACE KARL M. WALLACE, P.E. Consulting Engineer enclos. EXHIBIT A Perimeter Description of 9.72 Acre Tract A 9.72 acre more or less,tract of land situated in Section 14. Township 19 North. Range 9 West: Minden, Webster Parish, Louisiana being more particularly described as follows: Begin at a point on the West right-of-way of Germantown Road 347.85 feet West and 1063.61 feet South of the Northeast corner of the Southweset Quarter of the Northwest Quarter, said Section 14, for the point of beginning:thence run South 31 degrees 18 minutes West along the West right-of-way of Germantown Road 721.02 feet;thence run North 86 degrees 00 minutes West 393.09 feet; thence North 4 degrees 00 minutes East 124.64 feet; thence run North 86 degrees 00 minutes West 146 feet; thence run North 475.16 feet to the center line of L.P.& L. right-of-way; thence run South 88 degrees 40 minutes East along said center line 903.74 feet to the point of beginning. Containing 9.72 acres, more or less. [TOPICGRAHICAL MAP INDICATING PROPERTY SITE] EX-99.7 34 ENVIRONMENTAL STUDY FOR BASTROP, LA FACILITY INVESTIGATION AND REPORT ON PHASE I ENVIRONMENTAL RISK AUDIT (ERA) THE ARBOR OF BASTROP A PROPOSED ASSISTED LIVING CENTER NANCY STREET @ BOSWELL STREET BASTROP, LOUISIANA FOR: MRS. JOANNE M. CALDWELL 507 TRENTON ST. West Monroe, LA 71291 (318) 325-5462 BY: KARL M. WALLACE, P.E. ENVIRONMENTAL ENGINEER 441 POINT PLACE ROAD DOWNSVILLE, LA 71234 (318)-396-2197 November 25, 1998 KARL M. WALLACE, P.E. ENVIRONMENTAL ENGINEER 441 POINT PLACE ROAD DOWNSVILLE, LA 71234 (318)-396-2197 November 25, 1998 Mrs. Joanne M. Caldwell 507 Trenton St. West Monroe, LA 71291 Re: Phase I Environmental Risk Audit (ERA) The Arbor of Bastrop Nancy Street @ Boswell Street Bastrop, LA A. SCOPE: The scope of this Environmental Risk Audit (ERA) consists of a general site inspection, review of the site's history, review of Public Records, and contacts with people familiar with the site to determine if there is any environmental problem or liability. The site is located in the Southeast corner of the intersection of Nancy Street and Boswell Street and consists of a 6.00 acre Tract (See Exhibit A for legal description).. B. REFERENCES: B.1 ASTM Standards on Environmental Site Assessments for Commercial Real Estate, E 1527-97 and E 1528-96. B.2 The following Federal Rules and Regulations: 1. Solid Waste Disposal Act (SWDA) of 1976, as amended. 2. U. S. Environmental Protection Agency (EPA) Implementing Regulations 40 CFR Parts 50, 51, 52 & 61(CAA),Parts 100-149 and Parts 240-265. 3. Federal Water Pollution Control Act of 1972, as amended. B.3 The following Louisiana Rules and Regulations: 1. La. Administrative Code, Volumes 11 & 12, Air Quality. 2. La. Administrative Code, Volume 13, Hazardous Waste. 3. La. Administrative Code, Volume 14, Solid Waste, Underground Storage Tanks, Water Resources. 4. La. Administrative Code, Volume 15, Nuclear Energy. -2- C. INVESTIGATION: C.1 Mrs. Joanne Caldwell retained this firm to conduct a Phase I Environmental Risk Audit (ERA) of subject property before finalizing property development. At the date of this investigation, the site contained vegetation consisting of trees with grass cover. The site slopes gently to the South. C.2 Information relative to the ERA is as follows: C.2.1 Location: The site investigated is more specifically described in the attached Plat. (See Attachment # 1). C.2.2 Visual Site Reconnaissance: A visual inspection was performed at the site on November 25, 1998. C.2.3 Records Search: A records search was conducted on Public Records contained in the Clerk of Court and Tax Assessors Office in the Morehouse Parish Courthouse. C.2.4 Review of Past and Present Land Use: A review was made of aerial photos owned by the Morehouse Parish Natural Resource Conservation Service Office, United States Department of Agriculture. USDA employees were interviewed for this report. C.2.5 Soil Survey: A brief soil survey was conducted on the site to determine the suitability of this site to have supported extensive agriculture in it's history. C.3 Adequate data was obtained to construct a current and historical review of the site. D. DISCUSSION: D.1 General: The Environmental Risk Audit (ERA) is an investigation of the site to determine if contaminants are present. D.1.1 Records Search: Detailed ownership history was studied from the public record including prior use and activities and descriptions of the property and adjacent pertinent property. Property descriptions and chain-of-title records were reviewed. The site has had no major agricultural use with records showing woodsland as the primary use. Aerial photographs confirm this use of the site. Interviews with public employees confirm the same site usage. D.1.2 Visual Inspection: Attention was given to readily apparent environmental indicators. Particular concerns were distressed vegetation, ground stains, trash, landfills, noxious odors, depressions, and evidence of any below grade tanks or other potential contaminant sources. None were evident. Contact was made and veification was given by Officials of the Louisiana Department of Environmental Quality that no enviromental hazards existed on the site. D.1.3 Soil Suitability for Farming: The site contains a high acid content silt loam soil with up to 5 percent slopes. This soil can be used for cultivated crops but has many limitations for this use. It has moderate wetness and is moderately well suited for most urban uses; it has slight erosion hazard, and low shrink-swell potential. It should be noted that slow permeability and a seasonal high water table due to a perched water table above the fragipan will require site drainage for winter construction. It is very likely that the site was used only for woodsland. The likelihood of pesticide and herbicide residues is minor. -3- D.1.4 Check for Specific Contaminants: The specific contaminants of interest in this report were asbestos, lead-based paint, volatile organic compounds such as methyl ethyl ketone, semivolatile organic compounds such as o-Cresol, pesticides/herbicides/PCB's such as toxaphene, and metals/inorganic compounds such as mercury. No evidence appeared to require specific tests for these contaminants. E. CONCLUSION: Based on this investigation, which was performed according to generally accepted standards in the profession, the site does not appear to have any detectable contaminants. F. RECOMMENDATIONS: It is the recommendation of this report that after evaluation of all data, there is no need for further soil or groundwater studies or chemical analyses on soil and groundwater samples at this site. The ERA concludes there is no reasonable evidence to suggest existing or potential environmental impairment. G. LIABILITY: G.1 This report is not a certification and in no way implies or envokes any warranty or guaranty. G.2 In as much as the visual inspection of a site requires that certain assumptions be made regarding prior and existing conditions, and because some of these assumptions cannot be verified without expending great sums of additional money, or destroying otherwise adequate or serviceable portions of the site, the Engineer and his agents are not liable for claims, damages, losses, and expenses including attorney's fees arising out of or resulting from any subsequent discovery of contaminants not specifically discussed herein, acts of God, or any cause not attributable to Professional Design negligence. END OF REPORT KARL M. WALLACE, P.E. Consulting Engineer enclos. [TOPOGRAPHIC DRAWING OF SUBJECT PROPERTY SHOWING SITE PLAN] EX-99.8 35 ENVIRONMENTAL STUDY FOR FARMERVILLE, LA FACILITY INVESTIGATION AND REPORT ON PHASE I ENVIRONMENTAL RISK AUDIT (ERA) THE ARBOR OF FARMERVILLE A PROPOSED ASSISTED LIVING CENTER RAILROAD STREET FARMERVILLE, LOUISIANA FOR: MRS. JOANNE M. CALDWELL 507 TRENTON ST. West Monroe, LA 71291 (318) 325-5462 BY: KARL M. WALLACE, P.E. ENVIRONMENTAL ENGINEER 441 POINT PLACE ROAD DOWNSVILLE, LA 71234 (318)-396-2197 November 25, 1998 KARL M. WALLACE, P.E. ENVIRONMENTAL ENGINEER 441 POINT PLACE ROAD DOWNSVILLE, LA 71234 (318)-396-2197 November 25, 1998 Mrs. Joanne M. Caldwell 507 Trenton St. West Monroe, LA 71291 Re: Phase I Environmental Risk Audit (ERA) The Arbor of Farmerville Railroad Street Farmerville, LA A. SCOPE: The scope of this Environmental Risk Audit (ERA) consists of a general site inspection, review of the site's history, review of Public Records, and contacts with people familiar with the site to determine if there is any environmental problem or liability. The site is located on the West side of Railroad Street and consists of a 15.00 acre Tract (See Exhibit A for legal description).. B. REFERENCES: B.1 ASTM Standards on Environmental Site Assessments for Commercial Real Estate, E 1527-97 and E 1528-96. B.2 The following Federal Rules and Regulations: 1. Solid Waste Disposal Act (SWDA) of 1976, as amended. 2. U. S. Environmental Protection Agency (EPA) Implementing Regulations 40 CFR Parts 50, 51, 52 & 61(CAA),Parts 100-149 and Parts 240-265. 3. Federal Water Pollution Control Act of 1972. as amended. B.3 The following Louisiana Rules and Regulations: 1. La. Administrative Code, Volumes 11 & 12, Air Quality. 2. La. Administrative Code, Volume 13, Hazardous Waste. 3. La. Administrative Code, Volume 14, Solid Waste, Underground Storage Tanks, Water Resources. 4. La. Administrative Code, Volume 15, Nuclear Energy. -2- C. INVESTIGATION: C.1 Mrs. Joanne Caldwell retained this firm to conduct a Phase I Environmental Risk Audit (ERA) of subject property before finalizing property development. At the date of this investigation, the site contained vegetation consisting of small trees with grass cover. The site slopes gently to the South. C.2 Information relative to the ERA is as follows: C.2.1 Location: The site investigated is more specifically described in the attached Plat. (See Attachment #1). C.2.2 Visual Site Reconnaissance: A visual inspection was performed at the site on November 25, 1998. C.2.3 Records Search: A records search was conducted on Public Records contained in the Clerk of Court and Tax Assessors Office in the Union Parish Courthouse. C.2.4 Review of Past and Present Land Use: A review was made of aerial photos owned by the Union Parish Natural Resource Conservation Service Office, United States Department of Agriculture. USDA employees were interviewed for this report. C.2.5 Soil Survey: A brief soil survey was conducted on the site to determine the suitability of this site to have supported extensive agriculture in it's history. C.3 Adequate data was obtained to construct a current and historical review of the site. D. DISCUSSION: D.1 General: The Environmental Risk Audit (ERA) is an investigation of the site to determine if contaminants are present. D.1.1 Records Search: Detailed ownership history was studied from the public record including prior use and activities and descriptions of the property and adjacent pertinent property. Property descriptions and chain-of-title records were reviewed. The site has had no major agricultural use with records showing pasture land as the primary use. Aerial photographs confirm this use of the site. Interviews with public employees confirm the same site usage. D.1.2 Visual Inspection: Attention was given to readily apparent environmental indicators. Particular concerns were distressed vegetation, ground stains, trash, landfills, noxious odors, depressions, and evidence of any below grade tanks or other potential contaminant sources. None were evident. Contact was made and veification was given by Officials of the Louisiana Department of Environmental Quality that no enviromental hazards existed on the site. D.1.3 Soil Suitability for Farming: The site contains "Darley" gravelly fine sandy loam soil with up to 12 percent slopes. This soil can be used for cultivated crops but has many limitations for this use. It has moderate fertility and high levels of exchangeable aluminum that are potentially toxic to crops. The construction use is considered severe for most urban uses due to extreme slopes; it has severe erosion hazard, and low shrink-swell potential. It is very likely that the site was used only for pasture and woodsland. The likelihood of pesticide and herbicide residues is minor. -3- D.1.4 Check for Specific Contaminants: The specific contaminants of interest in this report were asbestos, lead-based paint, volatile organic compounds such as methyl ethyl ketone, semivolatile organic compounds such as o-Cresol, pesticides/herbicides/PCB's such as toxaphene, and metals/inorganic compounds such as mercury. No evidence appeared to require specific tests for these contaminants. E. CONCLUSION: Based on this investigation, which was performed according to generally accepted standards in the profession, the site does not appear to have any detectable contaminants. F. RECOMMENDATIONS: It is the recommendation of this report that after evaluation of all data, there is no need for further soil or groundwater studies or chemical analyses on soil and groundwater samples at this site. The ERA concludes there is no reasonable evidence to suggest existing or potential environmental impairment. G. LIABILITY: G.1 This report is not a certification and in no way implies or envokes any warranty or guaranty. G.2 In as much as the visual inspection of a site requires that certain assumptions be made regarding prior and existing conditions, and because some of these assumptions cannot be verified without expending great sums of additional money, or destroying otherwise adequate or serviceable portions of the site, the Engineer and his agents are not liable for claims, damages, losses, and expenses including attorney's fees arising out of or resulting from any subsequent discovery of contaminants not specifically discussed herein, acts of God, or any cause not attributable to Professional Design negligence. END OF REPORT KARL M. WALLACE, P.E. Consulting Engineer enclos. [TOGOGRAPHICAL MAP OF SUBJECT PROPERTY INDICATING SITE PLAN] EX-99.9 36 ENVIRONMENTAL STUDY FOR NATCHITOCHES, LA FACILITY INVESTIGATION AND REPORT ON PHASE I ENVIRONMENTAL RISK AUDIT (ERA) THE ARBOR OF NATCHITOCHES A PROPOSED ASSISTED LIVING CENTER LOUISIANA HWY #1 NATCHITOCHES, LOUISIANA FOR: MRS. JOANNE M. CALDWELL 507 TRENTON ST. West Monroe, LA 71291 (318) 325-5462 BY: KARL M. WALLACE, P.E. ENVIRONMENTAL ENGINEER 441 POINT PLACE ROAD DOWNSVILLE, LA 71234 (318)-396-2197 February 4, 1999 KARL M. WALLACE, P.E. ENVIRONMENTAL ENGINEER 441 POINT PLACE ROAD DOWNSVILLE, LA 71234 (318)-396-2197 February 4, 1999 Mrs. Joanne M. Caldwell 507 Trenton St. West Monroe, LA 71291 Re: Phase I Environmental Risk Audit (ERA) The Arbor of Natchitoches LA HWY #1 Natchitoches, LA A. SCOPE: The scope of this Environmental Risk Audit (ERA) consists of a general site inspection, review of the site's history, review of Public Records, and contacts with people familiar with the site to determine if there is any environmental problem or liability. The site is located on the East side of LA HWY #1 and consists of a 8.72 acre Tract (See Exhibit A for legal description).. B. REFERENCES: B.1 ASTM Standards on Environmental Site Assessments for Commercial Real Estate, E 1527-97 and E 1528-96. B.2 The following Federal Rules and Regulations: 1. Solid Waste Disposal Act (SWDA) of 1976, as amended. 2. U.S. Environmental Protection Agency (EPA) Implementing Regulations 40 CFR Parts 50, 51, 52 & 61(CAA),Parts 100-149 and Parts 240-265. 3. Federal Water Pollution Control Act of 1972, as amended. B.3 The following Louisiana Rules and Regulations: 1. La. Administrative Code, Volumes 11 & 12, Air Quality. 2. La. Administrative Code, Volume 13, Hazardous Waste. 3. La. Administrative Code, Volume 14, Solid Waste, Underground Storage Tanks, Water Resources. 4. La. Administrative Code, Volume 15, Nuclear Energy. -2- C. INVESTIGATION: C.1 Mrs. Joanne Caldwell retained this firm to conduct a Phase I Environmental Risk Audit (ERA) of subject property before finalizing property development. At the date of this investigation, the site contained vegetation consisting of a few trees with grass cover. The site slopes gently to the East. C.2 Information relative to the ERA is as follows: C.2.1 Location: The site investigated is more specifically described in the attached Plat. (See Attachment #1). C.2.2 Visual Site Reconnaissance: A visual inspection was performed at the site on February 4, 1999. C.2.3 Records Search: A records search was conducted on Public Records contained in the Clerk of Court and Tax Assessors Office in the Natchitoches Parish Courthouse. C.2.4 Review of Past and Present Land Use: A review was made of aerial photos owned by the Natchitoches Parish Natural Resource Conservation Service Office, United States Department of Agriculture. USDA employees were interviewed for this report. C.2.5 Soil Survey: A brief soil survey was conducted on the site to determine the suitability of this site to have supported extensive agriculture in it's history. C.3 Adequate data was obtained to construct a current and historical review of the site. D. DISCUSSION: D.1 General: The Environmental Risk Audit (ERA) is an investigation of the site to determine if contaminants are present. D.1.1 Records Search: Detailed ownership history was studied from the public record including prior use and activities and descriptions of the property and adjacent pertinent property. Property descriptions and chain-of-title records were reviewed. The site has had no major agricultural use with records showing pasture land as the primary use. Aerial photographs confirm this use of the site. Interviews with public employees confirm the same site usage. D.1.2 Visual Inspection: Attention was given to readily apparent environmental indicators. Particular concerns were distressed vegetation, ground stains, trash, landfills, noxious odors, depressions, and evidence of any below grade tanks or other potential contaminant sources. None were evident. Contact was made and veification was given by Officials of the Louisiana Department of Environmental Quality that no environmental hazards existed on the site. D.1.3 Soil Suitability for Farming: The site contains "Latanier" clay soil to a depth of 22". This soil can be used for cultivated crops but has many limitations for this use. It has moderate fertility and low permeability. The construction use is considered severe for most urban uses due to high shrink-swell potential. It is very likely that the site was used only for pasture and woodsland. The likelihood of pesticide and herbicide residues is minor. -3- D.1.4 Check for Specific Contaminants: The specific contaminants of interest in this report were asbestos, lead-based paint, volatile organic compounds such as methyl ethyl ketone, semivolatile organic compounds such as o-Cresol, pesticides/herbicides/PCB's such as toxaphene, and metals/inorganic compounds such as mercury. No evidence appeared to require specific tests for these contaminants. E. CONCLUSION: Based on this investigation, which was performed according to generally accepted standards in the profession, the site does not appear to have any detectable contaminants. F. RECOMMENDATIONS: It is the recommendation of this report that after evaluation of all data, there is no need for further soil or groundwater studies or chemical analyses on soil and groundwater samples at this site. The ERA concludes there is no reasonable evidence to suggest existing or potential environmental impairment. G. LIABILITY: G.1 This report is not a certification and in no way implies or envokes any warranty or guaranty. G.2 In as much as the visual inspection of a site requires that certain assumptions be made regarding prior and existing conditions, and because some of these assumptions cannot be verified without expending great sums of additional money, or destroying otherwise adequate or serviceable portions of the site, the Engineer and his agents are not liable for claims, damages, losses, and expenses including attorney's fees arising out of or resulting from any subsequent discovery of contaminants not specifically discussed herein, acts of God, or any cause not attributable to Professional Design negligence. END OF REPORT /S/KARL M WALLACE KARL M. WALLACE, P.E. Consulting Engineer enclos. [CERTIFICATE OF SURVEY] -----END PRIVACY-ENHANCED MESSAGE-----