THE CONCEPT Woodland Villages Inc.’s (WVI) business model is to develop on a single campus an integrated and progressive system of residential care services for the growing population of elderly. Typically each Village begins with the construction and operation of an independent living facility (Gardens). Once completed and minimum occupancy achieved, as assisted living facility (Terrace) is constructed. The additional facility utilizes the same management, systems and professional staff employed by the Gardens. Next an Alzheimer’s facility (Woodland House) is constructed along with a skilled nursing facility (Woodland Place). Residents are guaranteed a system of continuous care within the same organization and at the same location. Rooms and beds in the Gardens, Terrace, and Place are allocated on the basis of need and utilization. Although the preferred method of expanding operations is to build their own facilities, Woodland Villages have and will consider the acquisition of existing facilities, provided they meet rigorous standards. All services are provided by Woodland Villages, Inc. operations or employees with the exception of medical laboratory work which is outsourced to a medical lab. However, that lab, Medilabs Inc., has contracted to operate a lab in the Houston facility beginning in 2002. Medical waste disposal and linen services are also contracted out by each facility. Although WVI admits new residents directly into the Terrace, Woodland House and Woodland Place levels of care, WVI’s experience has been that 50% of Terrace residents come from the Gardens, 30% of House residents come from the Gardens or the Terrace and that 10% of Place residents come from one of WVI’s facilities. These percentages have increased every year since inception. This suggest that residents choose to remain in WVI facilities. OPERATIONS The overall mission of Woodland Villages, Inc. is to provide and maintain a quality life style with appropriate levels of resident support for an aging population of residents at multiple levels of care giving while generating a reasonable level of profit and asset growth over time. Woodland Gardens (Independent Living) Woodland Gardens is a specially designed living facility for the elderly that are capable of taking care of themselves but who wish to simplify their living accommodations and have the availability of many on site services. Each facility has a restaurant, a swimming pool, an exercise room, hobby rooms, a laundry and a beauty/barber shop. Independent contractors operate the laundry and beauty/barber shops on a lease back arrangement. Each apartment is designed to accommodate the handicapped and meets OSHA standards. Linen and cleaning services are available for an additional monthly fee. Each apartment includes the use of one underground parking space and unlimited outdoor parking. All residents are encourage to enter and leave through a lobby that is staffed by an individual 24 hours a day. Entrance from other doors is by use of an individually coded card key. Woodland Terrace (Assisted Living) Assisted living is an alternative for those elderly individuals who do not require skilled nursing care. Woodland Terrace provides meals, licensed 24-hour caregivers, medication reminders or assistance, social and recreational activities and housekeeping services. Residents enjoy a home-like, social environment that enhances their well-being and quality of life. Woodland Terrace is a single story facility designed for those individuals requiring some level of daily assisted living. The Level I monthly rate includes lodging, utilities, (except telephone), three meals daily, between meal snacks, weekly housekeeping, weekly laundry, social and recreational activities, scheduled transportation, medication reminders, daily assurance checks, 24-hour staffing and a licensed nurse available 24 hours per day. The Level II month rate includes Level I service plus personal assistance with activities of daily living including bathing, additional housekeeping and laundry, medication administration and other personal needs. The highest level of assisted living, Level III, includes services in Level I and II plus special dining services, ambulating services, incontinence care and nutritional monitoring. Woodland House (Alzheimer’s Care) Woodland House is a single story facility designed to serve the needs of older individuals with memory loss. The philosophy is to provide an individualized service plan for those residents who need additional care. Woodland House care blends a home-like residence with the personal care and supportive services residents specifically need. Woodland House is designed, decorate and scaled like a family home with private rooms. Certified Care Givers and Registered Nurses staff Woodland House. There are 14 units in each Woodland House and 2 caregivers. The staff is experienced in memory loss care and is continually educated and trained to understand and handle the special, unscheduled needs of the memory impaired. Woodland Place (Skilled Nursing Care) Woodland Place is dedicated to providing the sensitive and personal care required on both a short term and long-term basis. Woodland Place offers an array of services including long-term care, respite stay, skilled and sub-acute nursing, and recuperative therapy programs. Physical therapy includes functional restoration, strength promotion, disability prevention, pain reduction and increased endurance, balance and mobility. Occupation therapy helps residents to achieve a maximum level of independence with daily activities such as dressing, bathing, and eating, with or without assistance. Training in fine motor skill coordination, muscle strength and reflex coordination are also included in this type of therapy. Woodland Place’s therapy programs have been so successful that they are also provided on an outpatient basis for an hourly or daily use fee. Woodland Care (Short Term Stay/Respite Care Program) Woodland Care was created to offer short-term care to those individuals whose primary care is at the home of a loved one or family, recognizing that many families often decide to take care of their elderly relatives at home as either a labor of love or to reduce the cost of care. The individual may also be recuperating from surgery or an illness. In addition, it provides an alternative use for vacant facilities and provides a marketing opportunity for possible future residents or a great way to give living at any one of the Woodland Villages a trial run. Woodland Care short-term respite stay program offers elderly adults the option of staying at any one of the Woodland Villages residences for a few days, or up to 30 days. MANAGEMENT STRUCTURE AND STAFFING All facilities at each location are managed by an experienced individual who serves as a resident manager and who reports directly to the executive committee. The executive committee is made up of the owner Dr. Woodland and the four corporate vice presidents. Nancy J. Anderson, JD, is the vice president of operations and serves as the legal officer of Woodland Villages. Edward Lance, CPA, is the Chief Financial Officer and stockholder. Catherine A. Hatton, MBA, is vice president in charge of all marketing activities. Martin C. Campbell, MD, is vice president and medical director. LOSS HISTORY Loss experience has generally been good. The most difficult experience has been with worker’s compensation claims. Several automobile accidents have occurred involving both the company owned automobiles as well as employee owned automobiles used on behalf of the company. The only property losses that have occurred were either fires contained to the kitchen areas, theft of furnishings and one significant fire loss in Houston. There have been no D&O, or EPLI claims. Paid losses for the three years 1997-1999 are reflected in Exhibit 2. INSURANCE PREMIUM Insurance premiums are shown below for Property, General Liability, Automobile, Professional Liability, Director & Officers, Employment Practices Liability, Workers Compensation and Inland Marine 1999 - $450,000 1998 - $425,000 1997 - $400,000 WOODLAND VILLAGES, INC. Exhibit 1: Description of Facilities Woodland Gardens (independent living) 192 total units 4 locations: Dallas, Houston, New Orleans, Oklahoma City 4 story bldg – 48 units per location with restaurant, laundry, beauty/barber shops 50,000 ft2 building Woodland Terrace (assisted living) 128 rooms 4 locations: Dallas, Houston, New Orleans, Oklahoma City 1 story bldg – 32 rooms per building with cafeteria, beauty salon 25,000 ft2 building Woodland House (Alzheimer’s Care) 48 rooms 2 locations: Dallas, Houston 1 story bldg - 14 rooms per location 1 resident per room Utilizes Terrace cafeteria services 1 location under construction 15,000 ft2 building Woodland Place (Skilled Nursing Facility) 24 rooms/48 patients 1 location: Houston 1 story bldg – 12 rooms per location; 2 per room; connected to Woodland House Utilizes Terrace cafeteria services 9,000 ft2 building Headquarters Building 1 location: Dallas 1 story 5,000 ft2 building Exhibit 2: Three Year Paid Loss History Three Year Summary by Line and Location Dallas Houston New Orleans Oklahoma City Total GL 1999 $11,000 $10,000 $ 2,500 $15,000 $38,500 1998 5,000 5,750 1,500 - 0 - 12,250 1997 3,000 7,500 8,000 - 0 - 18,500 Auto 1999 5,250 7,000 1,500 2,000 15,750 1998 2,000 2,300 1,000 - 0 - 5,300 1997 - 0 - 2,500 - 0 - 2,500 5,000 Property 1999 2,000 1,500 1,000 5,000 9,500 1998 4,400 75,000 - 0 - - 0 - 79,400 1997 5,000 2,000 - 0 - 9,000 16,000 Worker’s Comp 1999 14,000 15,000 25,000 6,000 60,000 1998 10,000 5,000 4,000 15,000 34,000 1997 35,000 10,000 4,000 5,000 54,000 Exhibit 3: Operational Comparisons By Location: Revenues Expenses Units Staff 3 Yr Losses Dallas $ 3,382,000 $ 2,874,000 94 25 $ 96,650 Houston $ 3,528,000 $ 3,303,000 106 26 $ 143,550 New Orleans $ 1,870,000 $ 1,683,000 80 20 $ 48,500 Oklahoma City $ 1,585,000 $ 1,400,000 19 19 $ 59,500 Headquarters n/a $ 820,000 n/a 8 $ 0 $10,365,000 $10,080,000 By Category: Revenues % Total Units % Total Gardens $ 4,013,000 38.7 192 58.5 (Independent Living) Terrace $ 4,100,000 39.6 96 29.3 (Assisted Living) House $ 1,167,000 11.3 28 8.5 (Alzheimer’s) Place $ 1,062,000 10.2 12 3.7 (Skilled Nursing) Care/Services $ 23,000 0.2 n/a n/a