FEASIBILITY REPORT

For The Issuance Not to Exceed

$7,000,000 Principal Amount

of

QUAILWOOD MEADOWS COMMUNITY FACILITIES DISTRICT

(PRESCOTT VALLEY, ARIZONA)

GENERAL OBLIGATION BONDS, SERIES 2004

October 1, 2004

TABLE OF CONTENTS

SECTION

Introduction; Purpose of Feasibility Report and General Description of District ........................................................................ ONE

Description, Estimate of Cost and Timetable for Completion of Public Infrastructure............................................................................. TWO

Map Showing Location of Public Infrastructure and Area to be Benefited..........................................................................THREE

Plan of Finance .......................................................................................................................FOUR

APPENDIX A

Legal Description for Quailwood Meadows Community Facilities District A (Prescott Valley, Arizona)

SECTION ONE

INTRODUCTION; PURPOSE OF FEASIBILITY REPORT; GENERAL DESCRIPTION OF DISTRICT

INTRODUCTION

This Feasibility Report (this “Report”) has been prepared by engineers and other qualified persons including Quailwood Meadows, LLC (the “Landowner”) for presentation to the District Board of the Quailwood Meadows Community Facilities District (the “District”) in connection with the proposed issuance by the District of its General Obligation Bonds, Series 2004 (the “Bonds”) in an aggregate principal amount not to exceed $7,000,000 pursuant to the Community Facilities Act of 1989, Title 48, Chapter 4, Article 6 of Arizona Revised Statutes (the “Act”), specifically in accordance with the provisions of A.R.S. 48-715 with respect to the feasibility and benefits of certain public infrastructure (as that term is defined in A.R.S. 48-701) described herein (the “Public Infrastructure”) and the plan for financing the Public Infrastructure with proceeds of the sale of the Bonds.

PURPOSE OF FEASIBILITY REPORT

Pursuant to A.R.S. 48-715, this Report includes (i) a description, an estimate of cost of acquisition and operation and maintenance, and an estimated schedule for completion of the Public Infrastructure to be acquired [Section Two]; (ii) a map showing, in general, the location of the Public Infrastructure and area to be benefited by the Public Infrastructure [Section Three]; and (iii) a plan for financing the Public Infrastructure [Section Four].

This Report has been prepared for the consideration of the District Board of the

District only. It is not intended or anticipated that this Report will be relied upon by other persons, including, but not limited to, purchasers of the Bonds. This Report does not attempt to address the quality of the Bonds as investments or the likelihood of repayment of the Bonds. In preparing this Report, financial consultants, appraisers, counsel, engineers, staff of the Town of Prescott Valley, Arizona (the “Town”) and other experts have been consulted as deemed appropriate.

GENERAL DESCRIPTION OF DISTRICT

Formation of the District was approved by the Town on August 12, 2004 upon the request of 100% of the landowners within the District. The District is located within the Town boundaries and was created to finance the acquisition of certain public infrastructure, including the Public Infrastructure which relates to the development of portions of Quailwood Meadows, a 289.89 acre master-planned residential development (the “Project”), owned by the Landowner and being developed by Empire Land, LLC (“Empire”).

The Project will consist of 1,227 residential units comprising the following mix of

lots: 987 single family home lots and 240 townhouse lots, plus a 9,000 square foot recreation center which will include a pool, fitness center, and meeting rooms. Additionally, the Project includes approximately 20 acres designed for public parks and open spaces. All 289.89 acres of the Project, which includes the residential units, recreation center and open space, is in the District. A legal description of the District is included in Appendix A and a map of the District is included in Section three of this Report.

SECTION TWO

DESCRIPTION, ESTIMATE OF COST AND TIMETABLE FOR COMPLETION OF PUBLIC INFRASTRUCTURE

DESCRIPTION OF THE PROJECTS

The Public Infrastructure has been or will be publicly bid pursuant to State law and Town policies, and, upon acquisition by the District, will be dedicated to the Town. Listed below are descriptions, estimated costs of acquisition and the timetable for completion of the Public Infrastructure. Proceeds of the sale of the Bonds, after payment of the costs of issuance, will be used to finance the acquisition of the Public Infrastructure:

After acquisition thereof by the District and transfer to and acceptance by the Town, the operation and maintenance of the Public Infrastructure will be the responsibility of the Town. The District will levy a tax up to $0.30 per $100 of secondary assessed value annually to provide for the operation and maintenance of the Public Infrastructure. Empire, along with other entities involved in the development of the Project, will be responsible, jointly and severally, for a portion of the annual expenses which are not covered by the $0.30 tax levy, up to $30,000 annually until the earlier of fifteen (15) years from July 1, 2005 or the July 1 after the date that the building permit for the nine hundredth (900) density unit is issued in the Project.

Amount to beUnit Estimated Total Financed from

Measure Date of Completion Cost Series 2004 Bonds1 LS 11/1/2004 386,150$ 386,150.00$

2000 LF of off-site roadway improvements from Highway 69 to the Quialwood property line. Improvements include placement of AB sub grade, asphalt and sidewalk.

2 LS 11/1/2004 2,376,364$ 2,376,364.00$ 280' pre-stressed concrete girder bridge necessary to access the property on Bradshaw Mountain Road from Highway 69 across the Aqua Fria River. Bridge Construction includes necessary channel bank protection, concrete bridge abutments, girders, concrete deck, approach and barrier.

3 LS 11/1/2004 439,706$ 439,706.00$ 3200' of 16" Ductile Iron Pipe from East property boundary to the water tank, 3,600' of 16" ductile iron pipe from the West property boundary to the nearest town main located next to highway 69 and clipper wash. Installation of water pipe across bridge.

4 LS 11/1/2004 204,000$ 204,000.00$

Approximate 2,000' of trenching in Bradshaw Mountain Road from the West Property line to Highway 69 for Electric, Phone, Cable and Gas. Installation of all utilities across the bridge.

5 11/25/2004 1,891,420$ 1,891,420.00$

(2) 9000' 10" ductile iron force mains from Quailwood Lift Station to Orchard Ranch lift station. Quailwood Lift Station is capable of servicing approximately 2800 development units (single family homes) and construction consists of a dry vault, wet vault and overflow vault, all pumps and electronics necessary to operate the lift station. Approximate 2,400' of 15" gravity sewer from the west property boundary across the bridge terminating at the lift station.

6 LS 4/1/2005 950,000$ 950,000.00$ Roadway improvements including grading, place ment of sub grade, asphalt, and concrete for 2,500LF of roadway. Also included in the job is a 120' box culvert extension from highway 69 to the edge of village way.

7 LS 4/1/2006 1,100,000$ 87,005.62$ Includes all public right of way landscape, site walls, 2 multi purpose courts, a junior high/little league baseball field, small multi use play field 3 tot lots, 60 space parking lot and a public restroom facility.

8 LS 4/1/2006 5,100,000$ Includes placement of asphalt and concrete for all residential streets in units 4-8 of Quailwood Meadows.

TOTAL 12,541,375$ 6,334,645.62$

Construction of Village Way

Public Land Scape

Asphalt and Concrete Residential Streets 4-8

Offsite Water

Bradshaw Bridge

Off Site Dry Utilities

Off Site Sewer

DescriptionOff Site Roadway Improvements

SECTION THREE

MAP SHOWING DISTRICT BOUNDARIES, LOCATION OF PUBLIC INFRASTRUCTURE

AND AREA TO BE BENEFITED

Quailwood Meadows

Hwy 69

To Prescott

Valley

To

Dewey

CFD Projects

602.467.2200 FAX 602.467.2201 www.RBF.com602.467.2200 FAX 602.467.2201 www.RBF.com

PHOENIX, ARIZONA 85053-7550PHOENIX, ARIZONA 85053-7550

16605 NORTH 28th AVENUE, SUITE 100

September, 2004September, 2004H:/Pdata/45101474/cadd/graphics/ai/CFD Projects.aiH:/Pdata/45101474/cadd/graphics/ai/CFD Projects.ai

Symbol ProjectsOffsite Water Line

Lift Station

Offsite Sewer Line

Force Main

Bradshaw Mountain Rd

Village Way

Landscaping

Park

Paving & Concrete

CFD Boundary & Area to be Benefiting

Connection toCity Project

Connection toTank Site

exception

exception

SECTION FOUR

PLAN OF FINANCE

PLAN OF FINANCE

The Acquisition of the Public Infrastructure will be financed by the District pursuant to a Plan of Finance herein described. This Plan of Finance is subject to modification to accommodate market conditions at the time of the actual sale of the Bonds and to the extent necessary to comply with federal and State law.

(1) Proposed Bond Sale.

The Bonds were authorized pursuant to a bond authorization election held on October 12, 2004 which authorized up to $25,000,000 of District general obligation bonds. The Bonds will have a 25-year maturity, with principal due 2008 through and including 2029, with principal amortized to produce approximately level debt service. (See Table One of this Section for an estimated debt service schedule and Table Two for a debt service vs. projected revenue schedule.) The Bonds will be unrated and sold through a limited offering (non-public offering pursuant to A.R.S. 48-722). Investors will be required to sign a qualified investors letter and meet certain investor criteria.

(2) Sources and Uses of Funds – First Bond Issue. The sources and uses of funds related to the sale of the Bonds (exclusive of accrued interest and original issue discount or premium, if any) will be: SOURCES Series 2004 Bonds $ 7,000,000.00 Landowner Contribution 700,000.00 Total $ 7,700,000.00 USES: Public Infrastructure $ 6,334,645.62 Capitalized Interest 295,354.38 Costs of Issuance 195,000.00 Deposit with respect to hereinafter described Depository Agreement

700,000.00

Underwriter’s Discount 175,000.00 TOTAL

$ 7,700,000.00

(3) District Tax Rate.

The total District tax rate is targeted to be $3.30, representing $3.00 per $100 secondary assessed value for the purpose of paying debt service and $0.30 for operational and maintenance expenses of the Public Infrastructure as well as administrative expenses of the District.

(4) Standby Contribution Agreement. The $3.00 tax levy for debt service, given the current tax base, is not sufficient to provide for the proposed debt service of the Bonds. As a consequence, the Landowner and Empire will enter into a standby contribution agreement (the “Contribution Agreement”) pursuant to which they will be liable, jointly and severally, for the amount of any debt service payments not provided for by the $3.00 tax levy, given the then current tax base. The Contribution Agreement will be in effect while any of the Bonds remain outstanding unless terminated under the conditions specified in the Contribution Agreement, principally when the $3.00 tax rate for debt service alone provides for the maximum, annual debt service on the Bonds. If at any time prior to the termination of the Contribution Agreement, Empire’s audited net worth is less than (i) three (3) times the sum of the portions of the principal amounts of the following: (A) the Bonds, the debt service for which is payable from the amounts payable pursuant to the Contribution Agreement, plus (B) other general obligation bonds of the District thereafter issued the debt service for which will be payable pursuant to a contribution agreement similar to the Contribution Agreement or (ii) fifteen (15) times the maximum annual debt service for each series of the bonds described in the preceding clauses (A) and (B) and each series of bonds or other indebtedness whose principal and/or interest is guaranteed or otherwise secured by a standby contribution agreement, guaranty or similar type or form of agreement executed by Empire Land, its subsidiaries or affiliates, less in the case of clause (ii) the aggregate amount of all tax or similar collections collected solely for the payment of principal of or interest on the bonds described in the preceding clauses (A) and (B) or such other guaranteed or secured debt and received by the District or the issuer of such other guaranteed or secured debt during the last full year of tax collection, then Empire will either cause an appropriate amount of the Bonds to be defeased, post collateral, or any combination of the two such that the net worth test will be met.

(5) Deposit Pursuant to Payment Agreement. The Landowner will deposit at closing with respect to the Bonds an amount equal to 10% of the original principal amount of the Bonds which will be held pursuant to a depository agreement (the “Depository Agreement”). Such amount will be available to pay debt service if the Landowner and Empire fail to pay under the Contribution Agreement. The amount held pursuant to the Depository Agreement will be paid to the Landowner when tax revenues alone have proven to be sufficient to provide for maximum annual debt service on the Bonds. Interest earnings on amounts held pursuant to the Depository Agreement will be used to offset amounts due pursuant to the Contribution Agreement.

(6) Homeowners Obligation. At the $3.30 tax rate level, assuming an average home price of $200,000, the District portion of a tax bill for a homeowner would be approximately $46.75 per month or $561.00 annually.

(7) Disclosure Obligation. Disclosure of the existence of the District and the District’s debt obligations will be provided to homebuyers in the following forms:

(i) Within the real estate report, required by A.R.S. 32-2183, signed by all homebuyers

(ii) A disclosure form signed by each homebuyer describing the District, the Bonds and levy of taxes with respect thereto.

(8) Absorption.

Development at the Project is anticipated to proceed as follows:

Empire Residential Other Builder Empire ResidentialSingle Family Single Family Attached Product

Calendar Homes to be Homes to be (Townhomes)Year Sold (1) Sold (2) To be Sold (3) Totals

2005 138 135 18 2912006 87 180 72 3392007 72 175 72 3192008 38 135 72 2452009 16 11 6 33

351 636 240 1,227

(1) Average price estimates at $174,333.(2) Average price estimates at $213,333.(3) Average price estimates at $150,667.

Table 1

Quailwood Meadows Community Facilities District (Prescott Valley, Arizona)

District General Obligation Bonds, Series 2004

NET DEBT SERVICE SCHEDULE

Less: NetMaturity Estimated Estimated Estimated Capitalized Annualized

Date Principal Interest (a) Debt Service Interest Debt Service7/15/2005 $295,354 $295,354 ($295,354)1/15/2006 209,306 209,3067/15/2006 209,306 209,306 $418,9551/15/2007 209,306 209,3067/15/2007 209,306 209,306 418,9551/15/2008 209,306 209,3067/15/2008 $150,000 209,306 359,306 588,9551/15/2009 206,119 206,1197/15/2009 240,000 206,119 446,119 586,7301/15/2010 200,719 200,7197/15/2010 200,000 200,719 400,719 603,8551/15/2011 196,019 196,0197/15/2011 190,000 196,019 386,019 609,4551/15/2012 191,364 191,3647/15/2012 200,000 191,364 391,364 588,9201/15/2013 186,314 186,3147/15/2013 215,000 186,314 401,314 588,5681/15/2014 180,670 180,6707/15/2014 225,000 180,670 405,670 587,2801/15/2015 174,595 174,5957/15/2015 235,000 174,595 409,595 585,1301/15/2016 167,310 167,3107/15/2016 250,000 167,310 417,310 585,5601/15/2017 159,560 159,5607/15/2017 265,000 159,560 424,560 585,0601/15/2018 151,345 151,3457/15/2018 280,000 151,345 431,345 588,6301/15/2019 142,665 142,6657/15/2019 300,000 142,665 442,665 585,9601/15/2020 133,365 133,3657/15/2020 320,000 133,365 453,365 587,3601/15/2021 123,445 123,4457/15/2021 340,000 123,445 463,445 587,5201/15/2022 112,905 112,9057/15/2022 360,000 112,905 472,905 586,4401/15/2023 101,745 101,7457/15/2023 380,000 101,745 481,745 589,1201/15/2024 89,775 89,7757/15/2024 405,000 89,775 494,775 584,8651/15/2025 77,018 77,0187/15/2025 430,000 77,018 507,018 584,3501/15/2026 63,473 63,4737/15/2026 460,000 63,473 523,473 587,2601/15/2027 48,983 48,9837/15/2027 485,000 48,983 533,983 588,2801/15/2028 33,705 33,7057/15/2028 520,000 33,705 553,705 587,4101/15/2029 17,325 17,3257/15/2029 550,000 17,325 567,325 584,650

$7,000,000 $7,068,024 $14,068,024 ($295,354) $13,789,268

(a) Interest estimated at current market rates.

Table 2

Quailwood Meadows Community Facilities District District General Obligation Bonds, Series 2004

PROJECTED REVENUES AND DISTRICT DEBT SERVICE

(1) (2) (3) (4) (5) (6) (7) (8) (9) (10) (11) (12) (13)

$7,000,000 Est. ShortageEstimated Estimated Quailwood Meadows CFD Amount Estimated

Projected Full Cash Secondary Estimated Debt Service Analysis Pursuant to O&MFiscal Market Value Assessed Estimated Debt Less: Cap. Less: Interest Net Debt Secondary Standby Levy @Year Valuation (a) @ 85% (b) Valuation (c) Principal Interest (d) Service Interest Earnings (e) Service Tax Rate (f) Contribution (g) $0.30

2004/05 $20,435,199 $3,269,553 $295,354 $295,354 ($295,354) $02005/06 $13,537,000 28,469,149 3,864,598 418,613 418,613 ($21,000) 397,613 $3.00 ($281,485) $11,5942006/07 71,629,000 63,679,549 6,535,570 418,613 418,613 (21,000) 397,613 3.00 (201,225) 19,6072007/08 133,995,000 114,560,849 11,495,912 $150,000 418,613 568,613 (21,000) 547,613 3.00 (202,172) 34,4882008/09 191,965,000 163,170,250 16,317,025 240,000 412,238 652,238 (21,000) 631,238 3.00 (140,927) 48,9512009/10 228,150,000 193,927,500 19,392,750 200,000 401,438 601,438 (21,000) 580,438 2.99 58,1782010/11 230,090,000 195,576,500 19,557,650 190,000 392,038 582,038 582,038 2.98 58,6732011/12 230,090,000 195,576,500 19,557,650 200,000 382,728 582,728 582,728 2.98 58,6732012/13 230,090,000 195,576,500 19,557,650 215,000 372,628 587,628 587,628 3.00 58,6732013/14 230,090,000 195,576,500 19,557,650 225,000 361,340 586,340 586,340 3.00 58,6732014/15 230,090,000 195,576,500 19,557,650 235,000 349,190 584,190 584,190 2.99 58,6732015/16 230,090,000 195,576,500 19,557,650 250,000 334,620 584,620 584,620 2.99 58,6732016/17 230,090,000 195,576,500 19,557,650 265,000 319,120 584,120 584,120 2.99 58,6732017/18 230,090,000 195,576,500 19,557,650 280,000 302,690 582,690 582,690 2.98 58,6732018/19 230,090,000 195,576,500 19,557,650 300,000 285,330 585,330 585,330 2.99 58,6732019/20 230,090,000 195,576,500 19,557,650 320,000 266,730 586,730 586,730 3.00 58,6732020/21 230,090,000 195,576,500 19,557,650 340,000 246,890 586,890 586,890 3.00 58,6732021/22 230,090,000 195,576,500 19,557,650 360,000 225,810 585,810 585,810 3.00 58,6732022/23 230,090,000 195,576,500 19,557,650 380,000 203,490 583,490 583,490 2.98 58,6732023/24 230,090,000 195,576,500 19,557,650 405,000 179,550 584,550 584,550 2.99 58,6732024/25 230,090,000 195,576,500 19,557,650 430,000 154,035 584,035 584,035 2.99 58,6732025/26 230,090,000 195,576,500 19,557,650 460,000 126,945 586,945 586,945 3.00 58,6732026/27 230,090,000 195,576,500 19,557,650 485,000 97,965 582,965 582,965 2.98 58,6732027/28 230,090,000 195,576,500 19,557,650 520,000 67,410 587,410 587,410 3.00 58,6732028/29 230,090,000 195,576,500 19,557,650 550,000 34,650 584,650 584,650 2.99 58,673

$7,000,000

(a) Market Valuation is estimated using absorption schedules provided by Empire and assumes no growth after Build-out. Market valuation does not include value of undeveloped property.(b) 2004/05 provided by the County. Full Cash Value assume approximately 85% of market value per discussions with the County. Full Cash Values include the full cash values of undeveloped property within the District.(c) 2004/05 provided by the County. 2005/06 through 2007/08 includes a combination of 10% and 16% of Full Cash Value, depending on the classification. 2008/09 and therafter estimated at 10% of Full Cash Value. (d) Interest is estimated at an average rate of 6.38%.(e) Reflects 3.00% interest earnings on the amounts held pursuant to the Depository Agreement until released per the Agreement.(f) Secondary tax rates are per $100 of assessed valuation. Projected tax rates are not adjusted for arbitrage rebate, delinquent tax collections or SRP In-lieu contributions (if any).(g) Estimated shortage amount covered by Empire pursuant to the Standby Contribution Agreement.

APPENDIX A

LEGAL DESCRIPTION FOR QUAILWOOD MEADOWS AND ROUWENHORST

(PRESCOTT VALLEY, ARIZONA)