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REGISTRATION NO. 333-45419
------------
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM SB-2/A
Registration Statement Under The Securities Act of 1933
SENIOR RETIREMENT COMMUNITIES, INC.
(Name of small business issuer in its charter)
<TABLE>
<S> <C> <C>
Louisiana 8261 72-1394159
- --------------- --------------- --------------
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Identification Number)
incorporation or Classification Code
organization) Number)
</TABLE>
507 Trenton Street
West Monroe, Louisiana 71291
(318) 323-2115
-----------------------
(Address and telephone number
of principal executive offices)
507 Trenton Street
West Monroe, Louisiana 71291
-----------------------
(Address of principal place of business
or intended principal place of business)
Joanne M. Caldwell-Bayles
507 Trenton Street
West Monroe, Louisiana 71291
(318) 323-2115
-----------------------
(Name, address and telephone
number of agent for service)
Copies of communications to:
Clay Carroll, Esq.
525 East Court Avenue
Jonesboro, Louisiana 71251
(318) 259-4184
Michael G. Quinn, Esq.
154 North Topeka Street
Wichita, Kansas 67202
(316) 267-0377
William Martin
MMR Investment Bankers, Inc.
550 North 159th Street East
Suite 300
Wichita, Kansas 67230
(316) 733-5081
-----------------------
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Approximate date of commencement of proposed sale to the public: As soon
as practicable after this Registration Statement becomes effective.
If this Form is filed to register additional securities for an offering
pusuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securitis Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, check the following box. [X]
If this Form is a post-effective amendment filed purusant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
CALCULATION OF REGISTRATION FEE
==============================================================================
<TABLE>
<S> <C> <C> <C> <C>
Proposed Proposed
Title of Dollar maximum maximum
securities amount offering aggregate
being to be price per offering Amount of
registered registered unit price (1) registration fee
- ---------- ---------- --------- ---------- ----------
First $9,000,000 100% $9,000,000 $2,727.27
Mortgage
Bonds
</TABLE>
==============================================================================
(1) The securities to be offered may be purchased in amounts of $250 or more.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
==============================================================================
<PAGE>
SENIOR RETIREMENT COMMUNITIES, INC.
CROSS-REFERENCE SHEET PURSUANT TO PART I OF FORM SB-2/A
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<CAPTION>
FORM SB-2/A ITEM PROSPECTUS CAPTION
--------------- ------------------
<S> <C>
1. Front of Registration Statement Front of Registration Statement;
and Outside Front Cover Page of Outside Front Cover Page
Prospectus. . . . . . . . . . . .
2. Inside Front and Outside Back Inside Front and Outside Back Cover
Cover Pages of Prospectus . . . . Pages
3. Summary Information and Risk Prospectus Summary; Risk Factors
Factors . . . . . . . . . . . . .
4. Use of Proceeds . . . . . . . . . Prospectus Summary; Sources and Uses
of Proceeds
5. Determination of Offering Price Not Applicable
6. Dilution. . . . . . . . . . . . . Not Applicable
7. Selling Security Holders. . . . . Not Applicable
8. Plan of Distribution. . . . . . . Prospectus Summary; Underwriting
9. Legal Proceedings . . . . . . . . Legal Proceedings
10. Directors, Executive Officers, Management
Promoters and Control Persons . .
11. Security Ownership of Certain Principal Owners of the Company
Beneficial Owners and Management
12. Description of Securities . . . . Description of Bonds
13. Interest of Named Experts and Legal Matters; Experts
Counsel . . . . . . . . . . . . .
14. Disclosure of Commission Not Applicable
Position on Indemnification for
Securities Act Liabilities. . . .
15. Organization within Last Five Not Applicable
Years . . . . . . . . . . . . . .
16. Description of Business . . . . . Prospectus Summary; Risk Factors;
Sources and Uses of Proceeds;
Business; Management; Certain
Transactions; Principal Owners of the
Company; The Company's Plan of
Operation; Financial Statements
17. Management's Discussion and
Analysis of Plan of Operation . . The Company's Plan of Operation
18. Description of Property . . . . . Description of Property
19. Certain Relationships and Certain Transactions
Related Transactions. . . . . . .
20. Market for Common Equity and Not Applicable
Related Stockholder Matters . . .
21. Executive Compensation. . . . . . Management - Executive Compensation
22. Financial Statements. . . . . . . Financial Statements
23. Changes in and Disagreements Not Applicable
with Accountants on Accounting
and Financial Disclosure . .
</TABLE>
================================================================================
<PAGE>
PROSPECTUS Dated ______, 1998
$9,000,000.00
SENIOR RETIREMENT COMMUNITIES, INC.
Co-First Mortgage Bonds Consisting of:
$3,685,000 Co-First Mortgage Bonds, Series 1998-I (the "Ruston Project")
$3,470,000 Co-First Mortgage Bonds, Series 1998-II (the "Bossier City Project")
$1,845,000 Co-First Mortgage Bonds, Series 1998-III (the "Shreveport Project")
Senior Retirement Communities, Inc. (the "Company") is a newly formed
Louisiana corporation which will develop and operate retirement, assisted
living and memory disorder facilities in certain cities in the State of
Louisiana. The Company will conduct business doing business as the Arbor
Retirement Community. The Company is offering $9,000,000 of co-first
mortgage bonds (herein collectively referred to as the "Bonds") in three
series, with the proceeds from each series being used for a particular
project located in a city in the State of Louisiana. Herein, the Company's
three 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 and 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 each series of the bonds will accrue from
its respective dates of issue whether or not the respective minimum offering
amounts have 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.
<TABLE>
<CAPTION>
Underwriting
Price to Discounts and Proceeds to
Series (1) Public (2) Commissions (3) Company
<S> <C> <C> <C>
Series 1998-I 100% 6% 94%
Series 1998-II 100% 6% 94%
Series 1998-III 100% 6% 94%
Total 100% 6% 94%
</TABLE>
(Notes continued on next page)
MMR INVESTMENT BANKERS, INC.
The Bonds are offered by MMR Investment Bankers, Inc. (the "Underwriter")
on a best efforts basis as agent for the Company. The Bonds are offered
subject to prior sale. The offering of the Bonds (the "Offering") will
continue until the sale of all Bonds or for a period of one year from the
date of this Prospectus. It is expected that the Bonds will be delivered in
book-entry form, subject to the sale of minimum funds for each series of
Bonds, through the facilities of the Trustee within thirty (30) days from the
date subscriptions for the Bonds are received.
<PAGE>
(Notes continued from the front page)
(1) The Series 1998-I Bonds are subject to the sale of a minimum of $750,000
in principal amount of Bonds. The Series 1998-II are subject to the sale of
a minimum of $750,000 in principal amount of Bonds. The Series 1998-III
Bonds are subject to the sale of a minimum of $500,000 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 $630,000. 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 $280,000,
including an investment banking fee in the amount of $117,000 paid to the
Underwriter for its technical assistance in connection with the Offering,
$100,000 to be paid by the Trustee to the Underwriter over the terms of the
Bonds and miscellaneous expenses estimated to be $63,000 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 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.
[Place picture of facilities here] [SRC logo here]
The Company intends to furnish annual reports containing audited financial
statements to its bondholders.
<PAGE>
MATURITY SCHEDULES
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<CAPTION>
Series 1998-I Bonds
Maturity Type Interest Principal
Date (1) Rate Retired
<S> <C> <C> <C>
12/01/98 S 7.50% $85,000
06/01/99 S 7.50% $88,250
12/01/99 S 8.00% $107,750
06/01/00 S 8.00% $112,250
12/01/00 C 8.50% $109,000
06/01/01 S 8.50% $135,000
12/01/01 S 9.00% $156,500
06/01/02 S 9.00% $163,750
12/01/02 C 9.25% $114,000
06/01/03 S 9.25% $171,000
12/01/03 S 9.50% $179,000
06/01/04 S 9.50% $187,500
12/01/04 C 9.75% $105,500
06/01/05 S 9.75% $196,000
12/01/05 S 10.00% $206,500
06/01/06 S 10.00% $216,000
12/01/06 C 10.00% $99,250
06/01/07 C 10.00% 94,250
12/01/07 C 10.00% 89,750
06/01/08 C 10.00% 85,750
12/01/08 C 10.25% 79,500
06/01/09 C 10.25% 75,500
12/01/09 C 10.25% 72,000
06/01/10 C 10.25% 68,250
12/01/10 C 10.25% 65,250
06/01/11 C 10.50% 60,000
12/01/11 C 10.50% 57,000
06/01/12 C 10.50% 54,250
12/01/12 C 10.50% 51,500
06/01/13 C 10.50% 48,750
12/01/13 C 10.75% 44,750
06/01/14 C 10.75% 42,500
12/01/14 C 10.75% 40,250
06/01/15 C 10.75% 38,250
12/01/15 C 10.75% 36,500
06/01/16 C 11.00% 33,000
12/01/16 C 11.00% 31,250
06/01/17 C 11.00% 29,750
12/01/17 C 11.00% 28,250
06/01/18 C 11.00% 26,500
</TABLE>
<TABLE>
Series 1998-II Bonds
Maturity Type Interest Principal
Date (1) Rate Retired (2)
<S> <C> <C> <C>
01/01/99 C 7.50% $154,750
07/01/99 C 7.50% $149,250
01/01/00 C 8.00% $159,750
07/01/00 C 8.00% $153,750
01/01/01 C 8.50% $161,750
07/01/01 C 8.50% $155,000
01/01/02 C 9.00% $160,500
07/01/02 C 9.00% $153,250
01/01/03 C 9.25% $145,500
07/01/03 C 9.25% $138,750
01/01/04 C 9.50% $131,000
07/01/04 C 9.50% $125,250
01/01/05 C 9.75% $117,500
07/01/05 C 9.75% $112,000
01/01/06 C 10.00% $105,250
01/01/06 C 10.00% $1,346,750
</TABLE>
<TABLE>
<CAPTION>
Series 1998-III Bonds
Maturity Type Interest Principal
Date (1) Rate Retired (2)
<S> <C> <C> <C>
01/01/00 S 8.00% $10,500
07/01/00 S 8.00% $11,000
01/01/01 S 8.50% $22,250
07/01/01 S 8.50% $23,000
01/01/02 S 9.00% $34,500
07/01/02 S 9.00% $36,250
01/01/03 S 9.25% $37,750
07/01/03 S 9.50% $39,750
07/01/03 S 9.50% $1,630,000
</TABLE>
Note 1:
S = Simple Interest Bonds; interest payable
semiannually until maturity.
C = Compound Interest Bonds; interest
compounded semiannually and payable at maturity.
Note 2: The Series 1998-II Bond Issue has a balloon payment of $2,800,000 due
on December 31, 2005 consisting of $1,346,750 in principal and $1,453,250 in
accrued interest. The Series 1998-III Bond Issue has a balloon payment of
$1,630,000 due on June 30, 2003.
3
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information, including risk factors, financial statements and notes thereto
appearing elsewhere in this Prospectus.
The Company
Senior Retirement Communities, Inc. is a development stage corporation
formed under the laws of the State of Louisiana for the purpose of developing
and operating retirement, assisted living and memory disorder facilities in
Northern Louisiana. 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 $9,000,000 of co-first
mortgage bonds in three series, with the proceeds from each series being used
for a particular project located in a city in the State of Louisiana. 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 Series 1998-I Bonds will be dated June 1, 1998, and are subject to the
sale of a minimum of $750,000 in principal amount of Bonds. The aggregate
principal amount of the Series 1998-I Bonds is $3,685,000 and is comprised of
bonds in the principal amount of $2,004,500 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
$1,680,500 that will mature serially and bear interest compounded semiannually
each December 1 and June 1 that is payable at maturity.
The Series 1998-II Bonds will be dated July 1, 1998, and the Series 1998-II
are subject to the sale of a minimum of $750,000 in principal amount of Bonds.
The aggregate principal amount of the Series 1998-II Bonds is $3,470,000. The
Series 1998-II Bonds will mature serially and bear interest compounded
semiannually each January 1 and July 1 that is payable at maturity.
The Series 1998-III Bonds will be dated July 1, 1998, and the Series 1998-III
Bonds are subject to the sale of a minimum of $500,000 in principal amount of
Bonds. The aggregate principal amount of the Series 1998-III Bonds is
$1,845,000. The Series 1998-III Bonds will mature serially and bear simple
interest payable by check mailed to the registered owners each January 1 and
July 1 until maturity.
Interest on the Bonds is includable 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 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
4
<PAGE>
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 three 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 materialmen's liens
that may become payable. Furthermore, 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. 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 each of the three
series of 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 $620,000. The Bond Reserve Account
will remain in place for a period of ten years from June 1, 1998. At the end
of the ten 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".
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. 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 Ruston, Bossier City and Shreveport. 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
5
<PAGE>
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 construction financing on the Facilities. See "Sources and Uses of
Proceeds".
Risk Factors . . . . . . An investment in the Bonds is 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 only pay expenses and reserves associated with the Offering; and if
sufficient Bonds are not sold to repay the construction loan(s), there is a
risk of foreclosure. Potential investors should carefully consider the
factors set forth under "Risk Factors".
Financial Summary
As of December 31, 1997, the Company had total assets of $1,477,784,
total liabilities of $529,605 and total stockholders' equity of $948,179.
The stockholders of the Company have contributed a total of $948,820 in
capital to the Company. Since the Company's inception on September 10, 1997
through December 31, 1997, the Company has generated no revenues and has
incurred cumulative expenses of $641. See "Financial Statements" beginning
on page F-1 of the Prospectus.
(This space is intentionally left blank)
6
<PAGE>
RISK FACTORS
In addition to the other information in this Prospectus, the following
factors should be considered carefully in evaluating an investment in the
Bonds offered by this Prospectus. An investment in the Bonds is speculative
and involves a high degree of risk. Certain of these risks are set forth
below and should be considered by investors, among others, as a part of their
overall evaluation before making a decision to purchase Bonds.
No Commitment to Purchase Bonds; Deposit of Subscriptions
The Underwriter, in selling the Bonds, is acting as agent of the Company
on a "best efforts" basis. The Underwriter is only obligated to use its best
efforts to sell the Bonds, and the Company will not receive any proceeds of
any series of the Bonds unless the Underwriter sell 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 Use 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 construction loans (the "Construction Loans")
with Church Loans and Investments Trust of Amarillo, Texas (the "Construction
Lender") for the financing of construction of the Company's Facilities. The
Company obtained the construction loan for the Ruston Project ("Ruston
Construction Loan") on December 1, 1997 in the amount of $2,700,000. The
Ruston Construction Loan is due December 1, 1998, unless mutually extended by
the Construction Lender and the Company. The Company obtained the construction
loan for hte Bossier City Project ("Bossier City Construction Loan") on April
24, 1998 in the amount of $2,200,000. The Bossier City Construction Loan
is due April 24, 1999 unless mutually extended by the Construction Lender and
the Company. The Company obtianed the Construction Loan for the Shreveport
Project ("Shreveport Construction Loan") on April 24, 1998 in the amount of
$1,225,000. The Shreveport Construction Loan is due April 24, 1999, unless
mutually extended by the Construction Lender and the Company. Each
construction loan is secured by a Co-First Mortgage on the corresponding
project that will be built from the proceeds of the respective construction
loan. As indicated under "Description of Bonds - Escrow and Disbursement of Bond
Proceeds" and "Sources and Uses of Proceeds", offering costs, concessions and
the initial operating reserves are to be paid from the Bond proceeds from each
series prior to the retirement of the Construction Loans. Accordingly, if
approximately 87.6% of the Series 1998-I Bonds ($3,226,000) are not sold by
December 1, 1998, the Ruston Construction Loan may go into default. If
approximately 77.8% of the Series 1998-II Bonds ($2,699,000) are not sold by
April 24,1999, the Bossier City Construction Loan may go into default. If
approximately 84.5% of the Series 1998-III Bonds ($1,559,250) are not sold by
April 24, 1999, the Shreveport Construction Loan may go into default. If any
of the Construction Loans go into default, the Construction Lender may
exercise its rights, including the Construction Lender's right under the
mortgage and the applicable Lienholders Agreement to accelerate the defaulted
construction loan and the applicable bonds and, if not paid, then foreclose
the subject property securing the applicable construction loan. There is no
assurance that the Company would be able to secure alternative financing to
replace the construction loan(s) on a timely basis. Notwithstanding the fact
that the security for each of the Facilities is in parity with its respective
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
construction loan and the then outstanding Bonds. Under the terms of the
Lienholders Agreements, all receipts from collection and foreclosure are to
be allocated between the 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," "Use of
Proceeds" and "The Company's Plan of Operation".
7
<PAGE>
Substantial Balloon Payment Requirements for the Series 1998-II and
Series 1998-III Bonds
The Company is required to make a one time payment of $2,800,000 on December
31, 2005, to pay principal and interest due at that time on the remaining
outstanding Series 1998-II Bonds. Additionally, the Company is required to
make a one time payment of $1,630,000 on June 30, 2003, to pay principal due
at that time on the remaining outstanding Series 1998-III 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 Series 1998-II and Series 1998-III Bonds
then due. There is also no assurance the Company will be able to refinance an
amount sufficient to retire all of the Series 1998-II and Series 1998-III
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 initiallybe 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 three series of bonds in amounts
equivalent to slightly more than 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 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 ten years from June 1, 1998.
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 ten 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 ten 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.
Experience of the Underwriter
The Underwriter does not have substantial experience in acting as a lead
underwriter in an initial public offering. The Underwriter's experience has
primarily been in the underwriting of nonprofit debt securities, intrastate
debt offerings and debt offerings offered pursuant to Regulation A of the
Securities Act of 1933, as amended, as an exemption from the registration
requirements under the Act. There can be no assurance that the Underwriter's
lack of experience will not adversely affect the Offering. See "Underwriting".
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 to defraud; engaging in an act, practice or
course of business which would operate as a fraud or deceit upon any person;
and/or
8
<PAGE>
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. 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. The
Company intends to issue additional bonds on parity with the Bonds to finance
the construction of other retirement, assisted living and memory disorder
facilities in the State of Louisiana. See "Description of Bonds" and "The
Company's Plan of Operation".
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
9
<PAGE>
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 for 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 in September of 1997.
Construction of the Company's first facility located in Ruston, Louisiana
commenced on December 1, 1997 and is not scheduled to be completed and open
for business until August of 1998. Construction of the Company's other
proposed retirement, assisted living and memory disorder facilities have not
commenced. Therefore, the Company has no substantial operating history.
Furthermore, the Company, its affiliates and the President of the Company
have very limited experience in the development and operation of assisted
living/memory disorder facilities. The President of the Company has gained
some previous experience in the development and operation of a similar
assisted living/memory disorder facility in West Monroe, Louisiana, which
commenced operations in November of 1997. 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.
Risks Arising from Operations
Any business entity which operates retirement, assisted living and
memory disorder 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.
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 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 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
10
<PAGE>
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, tornados 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 in
1997. Research and visual observation undertaken did not reveal any former
or current environmental conditions, problems or situations impacting the sites.
Construction Risks
Construction of the Facilities are not completed, and delays are common
in the construction industry. The Company anticipates the construction of its
Facilities to be completed by April 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".
Dependence on Management - Management Agreement
The success of the Company's business will be highly dependent upon the
services of Joanne M. Caldwell-Bayles, President of the Company. The loss of
her services of 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., will enter 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, assisted living and memory disorder 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 35 employees at each facility. There is no
assurance that the Company 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.
Conflicts of Interest
The principal shareholders 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 President of the Company has or will be
negotiating and executing agreements on behalf of the Company. The President
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 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 which 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.
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<PAGE>
Government Regulations
At present there are no applicable federal regulations affecting the
operation of the Company's Facilities. The Facilities will be built to
conform with 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 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 and 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 spavce is intentionally left blank)
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<PAGE>
SOURCES AND USES OF PROCEEDS
The sources and anticipated uses of proceeds available after the
issuance of the Series 1998-I, 1998-II and 1998-III Bonds are set forth
below. See"Description of Property - Financing of Facilities" and "Certain
Transactions".
<TABLE>
<CAPTION>
Series 1998-I Bonds Series 1998-II Bonds
Ruston Project (1) Bossier City Project (1)
Source of Proceeds: Minimum Maximum Minimum Maximum
<S> <C> <C> <C> <C>
Gross Offering Proceeds $750,000 $3,685,000 $750,000 $3,470,000
Less Underwriting
Concessions (2) (45,000) (221,100) (45,000) (208,200)
Less Other Offering
Costs (3) (67,500) (67,500) (67,500) (67,500)
------- ---------- -------- ----------
Net Offering Proceeds 637,500 3,396,400 637,500 3,194,300
======= ========= ======= =========
Use of Proceeds:
Fund Initial Operating
Fund Payments 200,000 200,000 185,000 185,000
Retire Construction
Loan (4) 437,500 2,700,000 452,500 2,200,000
Fund Remaining
Construction Costs 0 146,400 0 469,300
Fund Pre-Opening Costs 0 100,000 0 100,000
Fund Bond Reserve
Account 0 250,000 0 240,000
------- ---------- -------- ----------
Total Use of Proceeds 637,500 3,396,400 637,500 3,194,300
======= ========= ======= =========
</TABLE>
<TABLE>
<CAPTION>
Series 1998-III Bonds
Shreveport Project (1)
Source of Proceeds: Minimum Maximum
<S> <C> <C>
Gross Offering Proceeds $500,000 $1,845,000
Less Underwriting
Concessions (2) (30,000) (110,700)
Less Other Offering
Costs (3) (45,000) (45,000)
-------- ----------
Net Offering Proceeds 425,000 1,689,300
======== ==========
Use of Proceeds:
Fund Initial Operating
Fund Payments 100,000 100,000
Retirre Construction
Loans (4) 325,000 1,225,000
Fund Remaining
Construction Costs 0 134,300
Fund Pre-Opening Costs 0 100,000
Fund Bond Reserve
Account 0 130,000
------- ----------
Total Use of Proceeds 425,000 1,689,300
======= ==========
</TABLE>
Note 1: The issue and sale of each series of bonds is not contingent on the
issue and sale of the other series of bonds, and will be separately offered
and sold and subject to minimum proceeds prior to the issuance thereof. The
order in which the proceeds will be disbursed from each series appears above
in descending order. For example, the net proceeds from the Series 1998-I
Bonds will be disbursed in the following order and preference (based upon the
sale of all of the Series 1998-I Bonds): (1) to fund the initial operating
fund payments in the amount of $200,000; (2) to retire the Construction Loan
in the amount of $2,700,000; (3) to fund any remaining construction costs up
to $146,400 to fund pre-opening costs in the amount of $100,000; and (5) to
fund the Bond Reserve Account in the amount of $250,000. 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 $180,000 and are allocated among the three series of bonds. Offering
expenses include an investment banking fee in the amount of $117,000 paid to
the Underwriter for its technical assistance offered in connection with the
Offering and $63,000 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 Construction Loans bear interest at a variable rate which is
equivalent to 2% 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 construction loan is secured by a
Co-First Mortgage on the corresponding project that will be built from the
proceeds of the respective construction loan. Approximately 87.6% of the
Series 1998-I Bonds ($3,226,000) must be sold by December 1, 1998 in order to
revent the Ruston Construction Loan from going into default. Approximately
77.8% of the Series 1998-II Bonds ($2,699,000) must be sold by April 24, 1999
in order to prevent the Bossier City Construction Loan from going into
default. Approximately 84.5% of the
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<PAGE>
Series 1998-III Bonds ($1,559,250) must be sold by April 24, 1999 in order to
prevent the Shreveport Construction Loan from going into default. See
"Description of Property - Financing of the Company's Facilities".
BUSINESS
The Company
The concept for the Company began over ten years ago. Joanne
Caldwell-Bayles, President 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. See "Prior Performance of Affiliates of
the Company".
Mrs. Caldwell-Bayles started to consider the expansion into other areas in
Northern Louisiana prior to the opening of the West Monroe facility. She and
the founding stockholders of the Company decided to develop additional
locations along Interstate 20 between Shreveport and West Monroe, Louisiana.
Accordingly, the Company was organized on September 1, 1997 as a Louisiana
corporation formed for the purpose of developing and operating retirement,
assisted living and memory disorder facilities in Northern Louisiana. The
Company will conduct business doing business as the Arbor Retirement
Community.
Business Concept and Clientele
The Company's business concept is based on providing elderly residents in
North Louisiana with a broad range of cost-effective health care and personal
support services, including assisted living, retirement living and memory
disorder 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. In addition to providing assistance with ADLs,
the Company will also offer a range of routine and skilled nursing services
(as permitted by government regulation). 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 - Independent Cottages. Residents for independent
cottages are usually seniors who maintain an independent lifestyle, but
desire no longer to have the responsibility of ownership and maintenance
of a family residence. Most residents, if not all, will continue to own
and operate their own automobiles. They will also continue to provide
their own house cleaning, 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.
Memory Disorder. Memory disorder units are specifically designed to
assist individuals suffering from Dementia. Dementia includes multi infact
(mini-strokes), Parkinson disease, Lou Gehrig disease, Alzheimer's and
several other similar disorders. Of these disorders, Alzheimer's is the most
common. Memory disorder units provide a secure, protected living environment
for individuals suffering from these types of disorders. Memory disorder
units provide attention with one care giver for no more than five residents
during the day. Night care giver requirements depend on the needs or each
individual resident. The Company's memory disorder units are designed to
provide as much freedom of movement and activity as the progression
of the disorder will allow. Each living unit is designed with memory
disorders in mind.
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<PAGE>
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 as well as the services of a registered nurse who is
available on an "on call" basis. 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
cottages will include all utilities, building and lawn maintenance, 15 meals
each month, security, emergency call systems and housekeeping once each week.
The services provided to the residents of the Company's memory disorder units
will include 24-hour care, three meals each day, medication monitoring,
therapeutic activities, bathing, personal grooming and secure outdoor
activities.
Expenses of operating the Company's Facilities will be made up of
"fixed" costs and "variable" costs. "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 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 $900 to $2,450 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.
Additional costs may be realized by the residents 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 $1,475 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 three locations of the Company's Facilities. This information was
gathered by Essential Decisions Inc. for the Company.
15
<PAGE>
<TABLE>
<CAPTION>
Summary of Existing Competition
Existing
Existing Private-Pay
Location 1996 Assisted Retirement
Population Living Units Living Units
<S> <C> <C> <C>
Ruston, Louisiana 46,040 0 0
Bossier City, Louisiana 91,309 0 59
Shreveport, Louisiana 235,933 204 241
</TABLE>
<TABLE>
<CAPTION>
Summary of Existing Competition...CONT
Memory
Existing Existing
Nursing Care Disorder
Units Units
<S> <C> <C>
Ruston, Louisiana 425 20
Bossier City, Louisiana 818 0
Shreveport, Louisiana 2,749 0
</TABLE>
Management Agreement
On September 10, 1997, 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 President and principal
shareholder of the Company. The Management Agreement extends to each of the
Facilities to be financed as a result of the sale 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 does not have any full time employees. Prior to
the commencement of operations of each facility, the Company intends to employ
an average of 35 employees at each facility. There is no assurance that the
Company 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, assisted living and memory disorder residences
are not specifically regulated as such by the federal government. However,
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
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<PAGE>
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 Company has elected to build their memory disorder units in
conformity with DHH's requirements for nursing homes. These memory disorder
units will be licensed under LDSS. However, the additional construction is
being done in order that the Company may in the future increase the level of
care to be provided. If these units are to be converted to nursing homes
units in the future, than the Company must obtain such a license from the DHH.
In the Company's opinion, the Facilities and management practices and
operations will meet or exceed all residential care for elderly regulations of
State of Louisiana. Failure of the Company to receive and maintian the
required licensing would have a material adverse affect 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 in 1997. Research and visual observation undertaken did
not reveal any former or current environmental conditions, problems or
situations impacting the sites.
DESCRIPTION OF PROPERTY
The Company's Proposed Facilities
The Company has acquired land in Northern Louisiana and intends to
construct retirement, assisted living and memory disorder facilities on these
properties as indicated below.
The Ruston Project. The Ruston Project will be located on 6 acres of
land in Lincoln Parrish next to the eastern portion of Ruston, Louisiana north
of US Highway 80 and south of Interstate 20. Selection of the site of the
Ruston Project was based upon a location that was within an affluent
residential neighborhood with limited assisted living and retirement living
services. The Ruston Project will include a 48 unit assisted living facility
and 12 independent living cottage units. The assisted living units will
contain 483 square feet each with common area amenities including a full
service kitchen, dining area, activity area, office and 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 independent living cottage units are located in separate buildings
and include six one bedroom/one bath units and six two bedroom/one bath units
containing 816 square feet and 840 square feet respectively. Each of the
cottages will have full kitchens and washer and dryers.
The Series 1998-I Bonds in parity with the Ruston Construction Loan are
secured by a co-first mortgage on the Ruston Project (both real and personal
property). See "Description of Property - Financing of the Company's
Facilities" and
17
<PAGE>
"Description of Bonds". The Company has title insurance on this 6 acres of
land insuring good and marketable title to the property. During construction
of the Ruston Project, builder's risk, general liability and worker's
comprehensive insurance will be provided by the general contractor, The
Forsythe Group, Inc. Upon completion of the Ruston 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 1998-I Bonds. The Company will also obtain
general liability and worker's comprehensive insurance upon completion of the
Ruston Project. In the Company's opinion, the Ruston Project is adequately
covered by insurane. The Parrish of Lincoln has no zoning ordinances.
Therefore, the Ruston Project has no zoning ordinances to comply with.
The Bossier City Project. The Bossier City Project will be located on 6
acres of land on the southside of Brandon Avenue just east of Industrial
Drive in Bossier City, Louisiana. Selection of the site of the Bossier City
Project was based upon a location that was within an affluent residential
neighborhood with limited assisted living, retirement living and memory
disorder units. The Bossier City Project will include 18 independent living
cottage units, 18 assisted living units and 24 mental disorder units with
common area amenities including a full service kitchen, dining area,
activities area, office/reception area, bathrooms and storage areas. The
building will contain a total of 42,829 square feet of heated area. The
assisted living units will each contain approximately 485 square feet and
feature a bedroom, living room, kitchenette and full bath with shower. The
assisted living units will be identical to the independent living units in
all respects. The mental disorder units will each contain 283 square feet of
living area and feature a half bath with a toilet and lavatory and bedroom
area.
The Series 1998-II Bonds in parity with the Bossier City Construction
Loan are secured by a co-first mortgage on the Bossier City 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 6 acres of land insuring good and marketable title to the
property. See "Description of Property - Financing of the Company's Facilities"
and "Description of Bonds". During construction of the Bossier City Project,
builder's risk, general liability and worker's comprehensive insurance will
be provided by the general contractor, The Forsythe Group, Inc. Upon
completion of the Bossier City 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 1998-II Bonds. The Company will also obtain general
liability and worker's comprehensive insurance upon completion of the Bossier
City Project. In the Company's opinion, the Ruston Project is adequately
covered by insurance. The Bossier City Project conforms to the zoning
ordinances of Bossier City, Louisiana.
The Shreveport Project. The Shreveport Project will be located on
approximately 3 acres of land on Lot 4, Orleans Square Subdivision, located
on East Kings Highway in Shreveport, Louisiana, or such other location of
equal value in the same area. Selection of the site of the Shreveport Project
was based upon a location that was within an affluent residential
neighborhood with limited memory disorder units. The Shreveport Project will
have 24 memory disorder units and contain 11,410 square feet of heated area.
Each of these units will contain 283 square feet of living area and feature a
half bath with a toilet and lavatory and bedroom area.
The Series 1998-III Bonds in parity with the Shreveport Construction Loan
are secured by a co-first mortgage on the Shreveport 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 acres of land insuring good and marketable title to the property. See
"Description of Property - Financing of the Company's Facilities" and
"Description of Bonds". During construction of the Shreveport Project,
builder's risk, general liability and worker's comprehensive insurance will
be provided by the general contractor, The Forsythe Group, Inc. Upon
completion of the Shreveport 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 1998-III Bonds. The Company will also obtain general
liability and worker's comprehensive insurance upon completion of the
Shreveport Project. In the Company's opinion, the Ruston Project is
adequately covered by insurance. The Shreveport Project conforms to the
zoning ordinances of the City of Shreveport, 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.
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<PAGE>
Appraised Value of the Ruston Project. . . . . . . . . $4,955,000
Appraised Value of the Bossier City Project. . . . . . $6,310,000
Appraised Value of the Shreveport Project. . . . . . . $2,550,000
The Appraiser, who is independent of the Company, used various appraisal
approaches, but gave the most weight to the income approach in his
reconciliations 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 Ruston Project (Cost Approach). . . . $3,560,000
Appraised Value of the Bossier City Project (Cost Approach). $3,290,000
Appraised Value of the Shreveport Project (Cost Approach). . $1,890,000
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 is the proposed construction schedule and development/
construction costs of the Company's Facilities. The dates and numbers as
indicated below are estimates only.
<TABLE>
<CAPTION>
Approximate
Costs of
Anticipated Anticipated Development
Construction Opening and
Location Start Date Date (1) Construction (2)
<S> <C> <C> <C>
Ruston Project December 1997 October 1998 $3,750,000
Bossier City Project June 1998 April 1999 $3,500,000
Shreveport Project June 1998 February 1999 $1,845,000
</TABLE>
(1) Delays are common in the construction industry, and unforseen events may
adversely affect the cost and completion time of the Company's Facilities.
(2) Includes land, construction and service costs; architectural and
engineering costs; furniture, fixtures and equipment.
Financing of the Company's Facilities
Construction Financing. The Company has obtained construction loans
(the "Construction Loans") with Church Loans and Investments Trust of
Amarillo, Texas (the "Construction Lender") for the financing of construction
of the Company's Facilities. Each construction loan is secured by a Co-First
Mortgage on the corresponding project that will be built from the proceeds of
the respective construction loan. The Construction Loans bear interest at a
variable rate which is equivalent to 2% 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". The Construction
Loans are guaranteed by The Forsythe Group, Inc.,
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<PAGE>
an affiliate and stockholder of the Company, in the amount of $500,000 for
each construction loan. The Trustee and holders of the Bonds will not benefit,
directly or indirectly, from the guarantees of The Forsythe Group, Inc.
The Company obtained the construction loan for the Ruston Project
("Ruston Construction Loan") in the amount of $2,700,000. The Ruston
Construction Loan closed on December 1, 1997, and the mortgage and security
agreement setting forth the terms of the Ruston Construction Loan have been
filed of record. The Ruston Construction Loan is due December 1, 1998, unless
mutually extended by the Construction Lender and the Company. The Ruston
Construction Loan is secured by a Co-First Mortgage on the Ruston Project
(both real and personal property) in parity with the Series 1998-I Bonds.
The Company obtained the construction loan for the Bossier City Project
("Bossier City Construction Loan") in the amount of $2,200,000. The Bossier
City Construction Loan closed on April 24, 1998, and the mortgage and security
agreement setting forth the terms of the Bossier City Construction Loan have
been filed of record. The Bossier City Construction Loan is due April 24,
1999, unless mutually extended by the Construction Lender and the Company.
The Bossier City Construction Loan is secured by a Co-First Mortgage on the
Bossier City Project (both real and personal property) in parity with the
Series 1998-II Bonds.
The Company obtained the construction loan for the Shreveport Project
("Shreveport Construction Loan") in the amount of $1,225,000. The Shreveport
Construction Loan closed on April 24, 1998, and the mortgage and security
agreement setting forth the terms of the Shreveport Construction Loan have
been filed of record. The Shreveport Construction Loan is due April 24, 1999,
unless mutually extended by the Construction Lender and the Company. The
Shreveport Construction Loan is secured by a Co-First Mortgage on the
Shreveport Project (both real and personal property) in parity with the Series
1998-III Bonds.
Colonial Trust Company (acting as Trustee on behalf of Series 1998-I
bondholders) and the Construction Lender have entered into a certain Agreement
Between Lienholders dated as of December 1, 1997 with regard to the Ruston
Construction Loan. Furthermore, Colonial Trust Company (acting as Trustee on
behalf of the Series 1998-II and Series 1998-III bondholders) and the
Construction Lender have enter into two additional Agreements Between
Lienholders on April 24, 1998 with regard to the Bossier City Construction Loan
and the Shreveport Construction Loan, respectively. 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 Construction Lender and the
Trustee as lienholder and shall secure ratably as provided in the Lienholders
Agreements each construction loan and the 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 Construction Loans. The Lienholders
Agreements also state that in the event of a default, if either the
Construction 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 were to default, the
Lienholders Agreements provide that the Construction Lender and the Trustee
will conduct collection and foreclosure actions and proceedings jointly to
the extent possible. In the event the Construction Lender and the Trustee
are unable to agree, however, the Construction 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 Construction 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 Construction Lender is
not required to advance any funds except by its agreement, but in the event
the Construction Lender elects to advance funds, proceeds of foreclosure will
be applied first to reimburse any such funds advanced. Either the
Construction 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 Construction Lender's fees and expenses as provided above,
be applied to the respective 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 Construction
Lender's fees and expenses as provided above, the Construction Lender and the
series of Bonds associated with the defaulted 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 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 Construction 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
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<PAGE>
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.
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 "Use of Proceeds" and "Description of Bonds".
MANAGEMENT
Directors and Executive Officer
The names of the directors and executive officers of the Company, their
respective ages and their positions and office with the Company are as
follows:
Name Age Positions and Offices Held
Joanne M. Caldwell-Bayles 37 Chairperson of the Board, Chief
Executive Office, President and
Director
Raymond L. Nelson 62 Vice President and Director
Jean Gaffney Nelson 60 Director
The directors and executive officers of the Company have very limited
experience in the development and operation of assisted living/memory disorder
facilities. The professional experience of the Company's directors and
executive officers is summarized below:
Joanne M. Caldwell-Bayles has been the President and Chief Executive
Officer of the Company since its inception in September 1997. Mrs.
Caldwell-Bayles has senior executive experience in the development and
operation of an assisted living and memory disorder facility in West
Monroe, Louisiana where she presently serves as the Operating Manager of
The Arbor Group, L.L.C. ("Arbor"). 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 and
Arbor, 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 and the
Forsythe Group, she served as the President of Oak Development Corporation
(a hotel management firm) and the general manager of Ramada Hotel in
Alexandra, 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 Parrish 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 nursing and
administration. 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. All other employees will
also be recruited by Mrs. Caldwell-Bayles. The Company anticipates employing
a total of an average of 35 employees to work at each facility with a total
of approximately 105 employees working for the Company upon completion of
the Ruston, Bossier City and Shreveport Projects. Mrs. Caldwell-Bayles will
devote approximately 65% of her time to the affairs of the Company but is
willing to devote additional time if necessary.
Raymond L. Nelson has served as Vice President and a Director since the
Company's inception. In addition to these duties, Mr. Nelson will be serving
as the Director of Personnel for the Company. Mr. Nelson is the person
primarily responsible for overseeing the management systems and the insurance
needs for the Company. Mr. Nelson attended the
21
<PAGE>
University of Houston. He is the President and CEO of Town & Country Insurance
Agency, Inc. He manages 40 employees in three locations in the
Houston-Galveston, Texas metropolitan area. Mr. Nelson is the past President
of the Houston Council of the Navy League of the United States and is
currently a national director. He is a past director of the Independent
Insurance Agency of Houston, Texas. Mr. Nelson is developing the operations
manual and all of the employee benefits and retirement plans for the Company.
Mr. Nelson has devoted and will continue to devote approximately 15% of
his time to the Company. As compensation for performing said duties, Mr.
Nelson shall receive $6,000 annually. He may be reimbursed for reasonable costs
incurred including but not limited to automobile mileage, office rental,
telephone and facsimile machine expenses, expenses associated with computer
and other office equipment usage, clerical expenses and other expenses
related to the Company's business.
Jean Gaffney Nelson has served as a Director since the Company's
inception. Mrs. Nelson also will be the person primarily responsible for
inspection and evaluation of the health care facilities and employees. Mrs.
Nelson has 27 years in management experience in diagnostic and Iterventional
cardiology in a large hospital environment. Mrs. Nelson was employed as
the Manager of Cardiology Services and Nuclear Medicine at the Methodist
Hospital in Houston, Texas. She studied biology and took courses in computer
science, accounting and management at the University of Houston in Houston,
Texas. Mrs. Nelson is registered in adult echocardiography by the American
Registry of Diagnostic Medical Sonographers and is a member of the American
College of Cardiovascular Administrators.
Mrs. Nelson has management experience in environmental, operations,
materials control, finances, human resources, design and construction,
database systems, project development and marketing. Over the term of her
career, she has managed the following specific activities: cardiac
catheterization, cardiac rehabilitation, pacemaker evaluation clinic,
electrophysiology, nuclear cardiology, nuclear medicine, echocardiography,
stress testing, electrocardiography, vascular diagnostics, electrocardiograph,
aeromedical services, admission, observation and discharge units.
Selected professional accomplishments of Mrs. Nelson include managing a
cardiology departments for a large hospital and developing and implementing
this hospital's first aeromedical program to transport critically ill
patients. Mrs. Nelson also was responsible for the design and construction of
the following items at the hospital: cardiac catheterization laboratories, an
electrophysiology suite, an ambulatory diagnostic cardiology center, a
nuclear medicine laboratory, a cardiology non-invasive laboratory, and a
flight center. Mrs. Nelson has authored more than 40 articles and abstracts
related to cardiovascular disease. She was named as manager of the year in
1988 at the Methodist Hospital in Houston, Texas. In July 1997, Mrs. Nelson
retired as a full-time employee of the Methodist Hospital. However, she
continues to perform consulting duties with the hospital.
As compensation for performing said duties, Mrs. Nelson shall
receive $6,000 annually. Mrs. Nelson also may be reimbursed for reasonable
costs including but not limited to automobile mileage, office rental,
telephone and facsimile machine expenses, expenses associated with computer
and other office equipment usage, clerical expenses and other expenses
related to the Company's business.
Executive Compensation
Joanne M. Caldwell-Bayles, President and Chief Executive Officer of the
Company, may receive the following compensation: (1) an annual salary in the
amount of $60,000 per year beginning when the Company's first facility is
opened for business and (2) reimbursement for reasonable costs incurred by
the 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 common stock of the Company as of January 26,
1998, (i) by each shareholder who is known by the Company to own beneficially
more than five percent (5%) of the common stock, (ii) by each director, (iii)
by each executive officer named herein under "Management," and (iv) by all
executive officers and directors as a group. Except as otherwise indicated
and except to the extent authority is shared by spouses under applicable law,
each named beneficial owner has sole voting and investment power with respect
to the common stock listed.
22
<PAGE>
<TABLE>
<CAPTION>
Name & Address of Percent of
Beneficial Owner Title of Class Shares Class Owned
<S> <C> <C> <C>
Joanne M. Caldwell Bayles Common Stock 106,313.0 17.5%
507 Trenton Street
West Monroe, LA 71291
Raymond and Jean Nelson Common Stock 57,264.0 9.4%
1075 Katy Freeway, Suite 150
Houston, TX 77024
The Forsythe Group, Inc. (1) Common Stock 322,916.5 53.2%
507 Trenton Street
West Monroe, LA 71291
The Arbor Group, L.L.C. (2) Common Stock 120,416.5 19.9%
507 Trenton Street
West Monroe, LA 71291
</TABLE>
Note 1: Joanne M. Caldwell-Bayles owns 100% of the capital stock of the
Forsythe Group, Inc.
Note 2: Joanne M. Caldwell-Bayles owns 50%, Raymond and Jean Nelson own 40%
and the Forsythe Group, Inc. owns 10% of the capital stock of The
Arbor Group, L.L.C.
The executive officers and directors of the Company as a group are the
beneficial owners of 100% of the common stock of the Company.
THE COMPANY'S PLAN OF OPERATION
The primary plan of operation of the Company is to establish a local and
regional network of retirement, assisted living and memory disorder
facilities that will operate profitably. The Company intends to complete
construction of five facilities along Interstate 20 between West Monroe,
Louisiana and Shreveport, Louisiana by January of 2000. Three of these
facilities are located in Ruston, Bossier City and Shreveport, Louisiana and
will be secured by the Bonds. The Company intends to build two additional
facilities in Minden and West Monroe, Louisiana and finance these facilities
with the issuance of bonds similar to that of this Offering. Beyond these
first five facilities, the Company may continue to expand in Northern
Louisiana and Southern Arkansas, including possible locations of Bastrop and
Homer-Hainsville, Louisiana and Crosset and El Dorado, Arkansas. The Company
intends to employ an average of 35 employees per completed facility with a
total of approximately 105 employees working for the Company upon completion
of the Ruston, Bossier City and Shreveport Projects. Based upon market
research of the assisted living, retirement living and memory disorder care
industries in Northern Louisiana, the Company expects to reach stabilized
occupancy within 24 months upon completion of each facility. However, the
Company has no historical operating results to verify this projected time
frame to reach stabilized occupancy.
An affiliate of the Company, The Arbor Group, L.L.C. ("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. Also,
Arbor is managed by the same organization, The Forsythe Group, that will
manage the Company's properties. While the Company is newly formed, it will
operate its properties under the name of The Arbor Retirement Community.
Arbor has established name recognition in the community of West Monroe, and
the Company is in the process of establishing name recognition in the
proposed communities in which the Company's units will be located.
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 $200,000
will be needed for operation during the first 12 months, above and beyond the
expenses as set forth in "Sources and Uses of Funds". The Company has
presently 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
23
<PAGE>
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,
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.
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. For
example, the Company's memory disorder units will be constructed according to
nursing home specifications so that they may easily be converted into nursing
home units if such a change is warranted and the appropriate licenses are
granted. 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 corporation of the Company, has
limited 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
on November 4, 1997. Mrs. Caldwell-Bayles serves as the Operating Manager of
The Arbor Group, L.L.C.
The Arbor Group's gross revenues for the period beginning November 4,
1997 through March 24, 1998 were $146,877. The Arbor Group's expenses for the
same period, including deprecation and debt service, were $238,767. These
amounts were provided by the management of The Arbor Group and are not
audited. As of March 24, 1998, the occupancy rate of The Arbor Group's
assisted living and memory disorder facility was 56%.
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.
CERTAIN TRANSACTIONS
Joanne M. Caldwell-Bayles and Raymond and Jean Nelson, the principal
shareholders 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 September 10, 1997, the Company acquired 6 acres of land at the Ruston
location with an estimated fair market value of $450,000 in a transaction
with The Forsythe Group, Inc. in exchange for 125,000 shares of common stock
of the Company and by assuming a debt of $200,000. This transaction would
have resulted in a gain to The Forsythe Group, Inc. of approximately $95,000
had it not been a tax free exchange.
On September 10, 1997, the Company acquired 20 acres of land at the
Ruston location with an estimated fair market value of $250,000 in a
transaction with The Forsythe Group, Inc. in exchange for 125,000 in shares
of common stock. This transaction would have resulted in a gain to The
Forsythe Group, Inc. of approximately $170,000 had it not been a tax free
exchange.
On September 10, 1997 the Company acquired land in West Monroe, Louisiana
with an estimated fair market value of $200,000 in a transaction with The
Arbor Group, L.L.C. in exchange for 100,000 shares of common stock. This
transaction would have resulted in no gain to The Arbor Group, L.L.C. had it
not been a tax free exchange.
On January 7, 1998, the Company entered into a real estate agreement with
Patterson Insurance Company ("Patterson") to purchase approximately six acres
of land on which the Bossier City Project is to be built. The sale and
conveyance of this property by Patterson to the Company will be subject to
the following terms: the Company is to pay Patterson a total consideration of $
525,000 for the property by the issuance of $425,000 in preferred stock of
the Company and $100,000 in cash prior to closing.
24
<PAGE>
On March 6, 1998, the Company acquired approximately 3 acres of land in
Shreveport, Louisiana on which the Shreveport Project is to be built. The
Company acquired this land by securing a loan with The Forsythe Group, Inc.,
in the amount of the purchase price of the property, $266,500. The loan
bears interest at the annual rate of 1% over the Prime Rate. Interest is
payable monthly, and the loan has no stated maturity date.
Construction Contracts
On November 5, 1997, the Company entered into a construction contract in
the amount of $2,750,000 with The Forsythe Group, Inc. to construct the Ruston
Project. The contract calls for the cash payments of $2,500,000 during the
building of the Ruston Project as approved by the contract engineer and the
issuance of an additional 125,000 shares of common stock at the completion of
the project. Such stock issuance is to be paid to The Forsythe Group, Inc.
as its builder's profit in the project.
On December 16, 1997, the Company entered into a construction contract in
the amount of $2,200,000 with The Forsythe Group, Inc. to construct the
Bossier City Project. The contract calls for the cash payments of $2,200,000
during the building of the Bossier City Project as approved by the contract
engineer.
On December 16, 1997, the Company entered into a construction contract in
the amount of $1,225,000 with The Forsythe Group, Inc. to construct the
Shreveport Project. The contract calls for the cash payments of $1,225,000
during the building of the Shreveport Project as approved by the contract
engineer.
Management Contract
On September 10, 1997, The Forsythe Group, Inc., entered into a Management
Agreement with the company for the management of the Facilities to be
constructed as a result of the issuance of the Bonds. The Agreement extends
to the year 2010, with compensation based on each facility, paying the
Manager $1,500 per month of 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 Services Rendered
On September 10, 1997, the Company issued 85,896 shares of common stock of
the Company to Joanne M. Caldwell-Bayles in exchange for services rendered in
connection with developing the plans for construction for the Ruston Project
and a deposit on the plans for the Bossier City, Shreveport, Minden and West
Monroe Locations.
On September 10, 1997, the Company issued 57,264 shares of common stock of
the Company to Raymond and Jean Nelson in exchange for services rendered in
connection with developing the plans for construction for the Ruston Project
and a deposit on the plans for the Bossier City, Shreveport, Minden and West
Monroe locations.
The Company has also reserved 252,440 shares of Common Stock to be issued
to Joanne M. Caldwell-Bayles and Raymond and Jean Nelson in exchange for
services rendered in connection with developing the plans for the Bossier City,
Shreveport, Minden and West Monroe locations.
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 the 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.
25
<PAGE>
Description of Liens
All of the Bonds will be secured by a mortgage and security agreement,
hereinafter called the "Lien", upon the Facilities, and shall have equal
rights, liens and privileges under the Trust Indenture and the Lien so that
each and every Bond shall be equally and proportionately secured without
preference, priority or distinction as to the lien securing any one Bond over
the lien securing any other Bond or Bonds. The Trustee is authorized
pursuant to the Trust Indenture to modify or amend the mortgage as necessary
to accomplish the purpose of having all bonds issued by the Company in regard
to the Facilities to be secured by a lien on all three of the Projects.
General
The Company is offering $9,000,000 of co-first mortgage bonds in three
series, with the proceeds from each series being used for a particular project
located in a city in the State of Louisiana. 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 1998-I Bonds will be dated June 1, 1998, and are subject to
the sale of a minimum of $750,000 in principal amount of Bonds. The
aggregate principal amount of the Series 1998-I Bonds is $3,685,000 and is
comprised of bonds in the principal amount of $2,004,500 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 $1,680,500 that will mature serially and bear interest compounded
semiannually each December 1 and June 1 that is payable at maturity. The
Series 1998-I Bonds will begin accruing interest as of June 1, 1998, whether
or not they have been purchased and whether or not the minimum offering
amount has been reached. If any of the Series 1998-I Bonds are purchased
after June 1, 1998, the purchaser will nevertheless be entitled to receive
the accrued interest on the Bond from June 1, 1998.
The Series 1998-II Bonds will be dated July 1, 1998, and the Series
1998-II are subject to the sale of a minimum of $750,000 in principal amount
of Bonds. The aggregate principal amount of the Series 1998-II Bonds is
$3,470,000. The Series 1998-II Bonds will mature serially and bear interest
compounded semiannually each January 1 and July 1 that is payable at maturity.
The Series 1998-II Bonds will begin accruing interest as of July 1, 1998,
whether or not they have been purchased and whether or not the minimum
offering amount has been reached. If any of the Series 1998-II Bonds are
purchased after July 1, 1998, the purchaser will nevertheless be entitled to
receive the accrued interest on the Bond from July 1, 1998.
The Series 1998-III Bonds will be dated July 1, 1998, and the Series
1998-III Bonds are subject to the sale of a minimum of $500,000 in principal
amount of Bonds. The aggregate principal amount of the Series 1998-III Bonds
is $1,845,000. The Series 1998-III Bonds will mature serially and bear
simple interest payable by check mailed to the registered owners each January
1 and July 1 until maturity. The Series 1998-III Bonds will begin accruing
interest as of July 1, 1998, whether or not they have been purchased and
whether or not the minimum offering amount has been reached. If any of the
Series 1998-III Bonds are purchased after July 1, 1998, the purchaser will
nevertheless be entitled to receive the accrued interest on the Bond from
July 1, 1998.
26
<PAGE>
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.
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.
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 materialmen's liens that may become
payable.
27
<PAGE>
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 shall 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 a 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, accept substitution of collateral, or subordinate its lien; 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:
28
<PAGE>
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 and will be secured
by a co-first mortgage on the Ruston, Bossier City and Shreveport Projects.
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 1998-I ($3,685,000)
$30,380.00 per month for one year (12 Payments) beginning June 1, 1998
$33,048.98 per month for one years (12 Payments) beginning June 1, 1999
$36,017.01 per month for one years (12 Payments) beginning June 1, 2000
$38,763.00 per month for seventeen years (204 Payments) beginning June 1, 2001
Payments include the Paying Agent fee of $921.25 per month.
Series 1998-II ($3,470,000)
$27,638.32 per month for one year (12 Payments) beginning July 1, 1998
$30,838.24 per month for one year (12 Payments) beginning July 1, 1999
$34,046.78 per month for one year (12 Payments) beginning July 1, 2000
$37,248.31 per month for four and one half years (54 Payments) beginning
July 1, 2001
with a final balloon payment of $2,800,000 due on December 31, 2005
Payments include the Paying Agent fee of $867.50.
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<PAGE>
Series 1998-III ($1,845,000)
$14,965.56 per month for one year (12 Payments) beginning July 1, 1998
$16,735.15 per month for one year (12 Payments) beginning July 1, 1999
$18,504.75 per month for one year (12 Payments) beginning July 1, 2000
$20,274.34 per month for two years (48 Payments) beginning July 1, 2001
with a final balloon payment of $1,630,000 due on June 30, 2003
Payments include the Paying Agent fee of $461.25.
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 $200,000, $185,000 and
$100,000 will be funded from the proceeds of the sale of the Series 1998-I,
II and III 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 three 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 each of the three series of bonds as follows: $250,000 from the
Series 1998-I Bonds, $240,000 from the Series 1998-II Bonds and $130,000 from
the Series 1998-III Bonds. If all the Bonds are sold, the Bond Reserve
Account will be funded in the amount of $620,000. 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 ten years from June 1,
1998. At the end of the ten 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 ten 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 1998-I Bonds, Series 1998-II Bonds and Series
1998-III Bonds are $750,000, $750,000 and $500,000, 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 purposes 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.
30
<PAGE>
If $750,000 has not been deposited in the escrow account from the sale
of the Series 1998-I Bonds by December 1, 1998, the subscribers to the Series
1998-I Bonds will receive the return of their subscription amount plus interest.
In the event that the minimum offering amount for the Series 1998-I Bonds is
not met by December 1, 1998, 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, 1998 through December 1, 1998 at the rate
attributable to the Series 1998-I Bonds subscribed.
If $750,000 has not been deposited in the escrow account from the sale of
the Series 1998-II Bonds by January 1, 1999, the subscribers to the Series
1998-II Bonds will receive the return of their subscription amount plus
interest. In the event that the minimum offering amount for the Series 1998-II
Bonds is not met by January 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 July 1, 1998 through January 1, 1999 at the rate
attributable to the Series 1998-II Bonds subscribed.
If $500,000 has not been deposited in the escrow account from the sale of
the Series 1998-III Bonds by January 1, 1999, the subscribers to the Series
1998-III Bonds will receive the return of their subscription amount plus
interest. In the event that the minimum offering amount for the Series
1998-III Bonds is not met by January 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 July 1, 1998 through January 1, 1999 at the
rate attributable to the Series 1998-III Bonds subscribed.
Subject to the sale of the minimum offering amount for the Series 1998-I
Bonds, the Company and Trustee will use available funds from the sale of the
Series 1998-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 connection with
the Series 1998-I Bonds; (2) to fund an amount approximately equivalent to the
first six month operating fund payments for the Series 1998-I Bonds; (3) to
retire the Ruston Construction Loan; (4) to fund the remaining construction
costs on the Ruston Project; (5) to fund pre-opening costs of the Ruston
Project; (6) to fund the Series 1998-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 1998-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
1998-II Bonds, the Company and Trustee will use available funds from the sale
of the Series 1998-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 1998-II Bonds; (2) to fund an amount approximately
equivalent to the first six month operating fund payments for the Series
1998-II Bonds; (3) to retire the Bossier City Construction Loan; (4) to fund
the remaining construction costs on the Bossier City Project; (5) to fund
pre-opening costs of the Bossier City Project; (6) to fund the Series 1998-II
portion of the Bond Reserve Account. After the above has been accomplished,
any remaining funds in the Bond Proceeds Account related to the Series
1998-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
1998-III Bonds, the Company and Trustee will use available funds from the
sale of the Series 1998-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 1998-III Bonds; (2) to fund an amount approximately
equivalent to the first six month operating fund payments for the Series
1998-III Bonds; (3) to retire the Shreveport Construction Loan; (4) to fund
the remaining construction costs on the Shreveport Project; (5) to fund
pre-opening costs of the Shreveport Project; (6) to fund the Series 1998-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
1998-III 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."
31
<PAGE>
Trustee
Colonial Trust Company of Phoenix, Arizona, has agreed to serve as Trustee
for the Bonds pursuant to the Trust Indenture entered into between the Company
and the Trustee. The Trustee has also agreed to serve as Paying Agent,
Registrar, Disbursing Agent and Escrow Agent. The Trustee is not a
guarantor or surety, does not in any way guarantee or act 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 $100,000 to be paid in installments over
the terms of the Bond Issues from the Trustee for its technical 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 which 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 three 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 the
interest form
32
<PAGE>
the date of issue 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 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 will also receive a fee not to exceed $100,000 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 $117,000
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.
Experience of the Underwriter
The Underwriter has not acted as a principal underwriter of debt
securities such as the Bonds offered hereby. During the last twelve years,
the Underwriter's experience has primarily been in the underwriting of
nonprofit debt securities, intrastate debt offerings and debt offerings
offered pursuant to Regulation A of the Securities Act of 1933, as amended,
as an exemption from the registration requirements under the Act.
33
<PAGE>
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.
LEGAL MATTERS
The Company's counsel, Bobby L. Culpepper, Esq., of 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 no 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 an appraisal of the Facilities. The
financial statements dated November 30, 1997 have been audited by William R.
Hulsey, CPA, of Monroe, Louisiana.
(This space is intentionally left blank)
34
<PAGE>
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)
35
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Page
Auditor's Report . . . . . . . . . . . . . . . . . . . . . . . . . . . F-2
Balance Sheet at December 31, 1997 . . . . . . . . . . . . . . . . . . F-3
Statement of Income from September 10, 1997 until
December 31, 1997. . . . . . . . . . . . . . . . . . . . . . . . . . F-4
Statement of Retained Earnings (Deficit) from
September 10, 1997 until December 31, 1997 . . . . . . . . . . . . . F-5
Statement of Cash Flows from September 10, 1997
until December 31, 1997. . . . . . . . . . . . . . . . . . . . . . . F-6
Notes to Financial Statements. . . . . . . . . . . . . . . . . . . . . F-8
(This space is intentionally left blank)
F-1
<PAGE>
WILLIAM R. HULSEY
CERTIFIED PUBLIC ACCOUNTANT
2117 FORSYTHE AVENUE
MEMBER MONROE, LOUISIANA MAILING ADDRESS
AMERICAN INSTITUTE OF P. 0. BOX 2253
CERTIFIED PUBLIC ACCOUNTANTS MONROE, LOUISIANA 71207
SOCIETY OF LOUISIANA (318) 362-9900
CERTIFIED PUBLIC ACCOUNTANTS FAX (318) 362-9993
Senior Retirement Communities, Inc.
507 Trenton Street
West Monroe, Louisiana
I have audited the accompanying balance sheet of Senior Retirement
Communities, Inc. as December 31, 1997 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 Senior Retirement
Communities, Inc. at December 31, 1997 and the results of its operations and
its cash flows for the period then ended in conformity with generally accepted
accounting principles.
March 20, 1998
/S/ WILLIAM R HULSEY
William R. Hulsey
Certified Public Accountant
F-2
<PAGE>
Senior Retirement Communities, Inc.
(A Development Stage Company)
Balance Sheet
December 31, 1997
ASSETS
Current assets;
Cash $ 352
Prepaid insurance 4,125
------------
Total current assets 4,477
------------
Property, plant and equipment
Building construction in progress 716,307
Land 635,000
------------
Total property, plant and equipment 1,351,307
------------
Other assets:
Deposits 2,000
Deferred charges 120,000
------------
Total other assets 122,000
------------
$ 1,477,784
------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Bank overdraft $ 21,405
Notes payable 450,000
------------
Total current liabilities 471,405
------------
Other liabilities:
Due to stockholders and affiliates 58,200
------------
Stockholders' Equity
Common stock, $ 2 par value, 1,500,000
shares authorized, 474,410 shares issued
and outstanding 948,820
Retained earnings ( deficit ) accumulated
during the development stage (641)
------------
948,179
------------
$ 1,477,784
------------
The notes to financial statements are an integral
part of this financial statement.
<PAGE>
Senior Retirement Communities, Inc.
(A Development Stage Company)
Statement of Income
Period from September 10, 1997 until December 31, 1997
Revenues $ 0
Operating expenses
Bank charges 151
Casual labor 380
Printing 110
------------
Total operating expenses 641
------------
Net income (loss) $ (641)
------------
The notes to financial statements are an integral
part of this financial statement.
F-4
<PAGE>
Senior Retirement Communities, Inc.
(A Development Stage Company)
Statement of Retained Earnings ( Deficit )
Period from September 10, 1997 until December 31, 1997
Beginning retained earnings $ 0
Net loss (641)
------------
Ending retained earnings ( deficit ) $ (641)
------------
The notes to financial statements are an integral
part of this financial statement.
F-5
<PAGE>
Senior Retirement Communities, Inc.
(A Development Stage Company)
Statement of Cash Flows
Period from September 10, 1997 until December 31, 1997
Cash flows from operating activities:
Cash paid to suppliers and employees $ (641)
------------
Net cash provided (used) by operations (641)
------------
Cash flows from investing activities
Acquisitions land (635,000)
Payments towards construction in progress (716,307)
Payments of deposits (2,000)
Payment of deferred charges (120,000)
------------
Net cash provided by (applied to) investing (1,473,307)
Cash flows from financing activities
Issuance of common stock 948,820
Interim construction loans 450,000
Loans from stockholders and affiliates 58,200
------------
Net cash provided by (applied to) financing 1,457,020
------------
Net increase (decrease) in cash -21,053
Cash at the beginning of the period 0
------------
Cash at the end of the period $ -21,053
------------
The notes to financial statements are an integral
part of this financial statement.
F-6
<PAGE>
Senior Retirement Communities, Inc.
(A Development Stage Company)
Statement of Cash Flows
Period from September 10, 1997 until December 31, 1997
Reconciliation of net income to net cash provided by operations:
Net income $ (641)
Adjustments to reconcile net income to cash
provided by operations
------------
Net cash provided (used) by operations $ (641)
------------
The notes to financial statements are an integral
part of this financial statement.
F-7
<PAGE>
Senior Retirement Communities, Inc.
(A Development Stage Company)
Notes to Financial Statements
Note 1 - Summary of Significant Accounting Policies
Nature of Business
The Company is a Louisiana corporation established to develop assisted
living center and dementia facilities for the housing and care of senior
citizens in Ruston, Bossier City, Shreveport, Minden and West Monroe,
Louisiana.
Basis of Accounting
The Company uses the accrual basis of accounting and will utilize a
calendar year for all reporting purposes.
Income Taxes
The company is treated as a corporation for federal income tax purposes.
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. Land was acquired in a a series of
tax free exchange in return for shares of the Company's common stock
( Note 4 ). Consequently, the Company's tax basis in the property for
income tax purposes is the stockholder's basis.
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-8
<PAGE>
Senior Retirement Communities, Inc.
(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 acquired 6 acres of land at the Ruston location with an
estimated fair market value of $ 450,000 in a transaction with one of
its stockholders in exchange for 125,000 shares of common stock and by
assuming a debt of $ 200,000, which is reflected as a due to
stockholders and affiliates. This transaction would have resulted in a
gain to the transferring shareholder of approximately $ 95,000 had it
not been a tax free exchange.
The company acquired 6 acres of land at the Ruston location with an
estimated fair market value of $ 450,000 in a transaction with one of
its stockholders in exchange for 77,500 shares of common stock and by
assuming a debt of $ 200,000, which is reflected as a due to stockholders
and affiliates. This transaction would have resulted in a gain to the
transferring shareholder of approximately $ 95,000 had it not been a tax
free exchange. This land is included on the balance sheet at a value of
$ 355,000 which is the transferring shareholder's basis in this property.
The company acquired 20 acres of land at the Ruston location with an
estimated fair market value of $ 250,000 in a transaction with one of its
stockholders in exchange for 40,000 shares of common stock. This
transaction would have resulted in a qain to the transferring shareholder
of approximately $ 170,006 had it not been a tax free exchange. This
land is included on the balance sheet at a value of $ 80,000 which is
the transferring shareholder's basis in this property.
The company acquired land at the West Monroe location with an estimated
fair market value of $ 200,000 in a transaction with one of its
stockholders in exchange for 100,000 shares of common stock. This
transaction would have resulted no gain to the transferring shareholder
had it not been a tax free exchange.
The Company has entered into a construction contract in the amount of
$ 2,750,000 with one of the shareholders to construct the Ruston facility.
The contract calls for the cash payments of $ 2,500,000 during the
building of the facility as approved by the contract engineer and the
issuance of an additional 125,000 shares of common stock at the
completion of the project, such stock issuance to represent the builders
profit in the project. As of December 31, 1997 $ 189,297 has been paid
on this contract.
F-9
<PAGE>
Senior Retirement Communities, Inc.
(A Development Stage Company)
Notes to Financial Statements
Note 2 - Related Party Transactions-(continued)
Due to stockholders and affiliates consist of amounts advanced by
stockholders and other related entities.
Note 3 - Deferred Charges
Deferred charges are summarized as follows:
Loan fees $ 120,000
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, 1997 consist of one note to Church Loans,
dated December 1, 1997. This note is to provide the funding for the
construction of the Ruston not to exceed $ 2,700,000. 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
percent but in no case shall the rate be less than ten and one-half per
cent per annum. The lender shall maintian a first mortgage position on
the Ruston 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.
Note 5 - Issuances of Common Stock
The Company was formed September 10, 1997. The Company has issued
common stock totalling 606,910 shares of $ 2.00 par value in exchange
for property and cash as follows:
Description Shares Amount
1. Certificate number 1 issued in 20,417 $ 40,834
exchange for cash
F-10
<PAGE>
2. Certificate number 2 issued in 85,896 171,792
exchange for services rendered
in connection with developing the
plans for construction for the Ruston
location and a deposit on the plans
for the Bossier City, Shreveport,
Minden, and West Monroe locations
3. Certificate number 3 issued in 20,417 40,834
exchange for cash
4. Certificate number 4 issued in 77,500 155,000
exchange for the equity in 6
acres of land at the Ruston location.
5. Certificate number 5 issued in 40,000 80,000
exchange for 20 acres of land at
the Ruston location.
6. Certificate number 6 issued in 57,264 114,528
exchange for services rendered
in connection with developing the
plans for construction for the Ruston
Location and a deposit on the plans
for the Bossier City, Shreveport,
Minden, and West Monroe locations
7. Certificate number 7 issued in 20,416 40,832
exchange for cash
8. Certificate number 8 issued in 100,000 200,000
exchange for land at the West
Monroe location.
9. Certificate number 9 issued in 52,500 105,000
exchange for cash -------- ---------
Totals 606,910 $1,213,820
======== =========
The Company has also reserved 252,440 shares of Common Stock to be
issued at the completion of the services described above relative to
certificates 2 and 6.
F-11
<PAGE>
Note 6 - Development Stage Operations
The Company has begun construction of the Ruston facility which has an
estimated completion date of late 1998. The expenditures related to
this project are reflected as building construction in progress on the
balance sheet.
Note 7 - Income Taxes
As discussed in notes 2 and 4, the Company was incorporated and
capitalized during the period from September 10, 1997 to December 31,
1997.
F-12
<PAGE>
No person has been authorized in connection with the Offering made hereby
to give any information or to make any representation not contained in this
Prospectus and, if given or made, such information or representation must not
be relied upon as having been authorized by the Company or any Underwriter.
This Prospectus does not constitute an offer to sell or a solicitation of any
offer to buy any of the securities offered hereby to any person or by anyone
in any jurisdiction in which it is unlawful to make such offer or
solicitation. Neither the delivery of this Prospectus nor any sale made
hereunder shall, under any circumstances, create any implication that the
information contained herein is correct as of any date subsequent to the date
hereof.
TABLE OF CONTENTS
Maturity Schedules . . . . . . . . . . . . . . . . . . . 3
Prospectus Summary . . . . . . . . . . . . . . . . . . . 4
Risk Factors . . . . . . . . . . . . . . . . . . . . . . 7
Use of Proceeds. . . . . . . . . . . . . . . . . . . . . 13
Business . . . . . . . . . . . . . . . . . . . . . . . . 14
Description of Property. . . . . . . . . . . . . . . . . 17
Management . . . . . . . . . . . . . . . . . . . . . . . 21
Principal Owners of the Company. . . . . . . . . . . . . 22
The Company's Plan of Operation. . . . . . . . . . . . . 23
Prior Performance of Affiliates of the Company . . . . . 24
Certain Transactions . . . . . . . . . . . . . . . . . . 24
Description of Bonds . . . . . . . . . . . . . . . . . . 25
Underwriting . . . . . . . . . . . . . . . . . . . . . . 32
Legal Matters. . . . . . . . . . . . . . . . . . . . . . 34
Experts. . . . . . . . . . . . . . . . . . . . . . . . . 34
Additional Information . . . . . . . . . . . . . . . . . 35
Index to Financial Statements. . . . . . . . . . . . . . F-1
Until _____________, 1998 (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.
$9,000,000
Co-First Mortgage Bonds
[SRC LOGO HERE]
SENIOR RETIREMENT
COMMUNITIES, INC.
(d/b/a the Arbor Retirement Community)
----------
PROSPECTUS
----------
MMR INVESTMENT BANKERS, INC.
[MMR LOGO HERE] [SIPC LOGO HERE]
________________, 1998
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers
The Louisiana General Corporation Code (La. R. S. 12:24C (1968), as
amended 1987) confers broad powers upon corporations incorporated in Louisiana
with respect to indemnification of any person against liabilities incurred by
reason of the fact that such person is or was a director, officer, employee
or agent of the corporation, or is or was serving at the reequest of the
corporation as a director, officer, employee or agent of another corporation
or other business entity. These provisions are not exclusive of any other
rights to which those seeking indemnification may be entitled under any
by-law, agreement, or otherwise.
The Articles of Incorporation of the Company contain a provision regarding
the limits of liability of incorporators, offcer and directors 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. . . . . . . . . . . . . . . . . . $2,727
NASD Registration Fee . . . . . . . . . . . . . . . . . $1,400
Blue Sky Qualification Fees and Expenses. . . . . . . . $3,150
CUSIP Registration Fees . . . . . . . . . . . . . . . . $734
Legal Fees and Expenses . . . . . . . . . . . . . . . .$23,000
Accounting Fees and Expenses. . . . . . . . . . . . . .$20,000
Transfer Agent, Escrow Agent, Paying Agent,
Registrar & Trustee Fees. . . . . . . . . . . . . . . $9,000
Miscellaneous . . . . . . . . . . . . . . . . . . . . . $3,000
-------
Total. . . . . . . . . . . . . . . . . . . . . . .$63,011
=======
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 stockholders,
each of which is an accredited investor as defined under the Securities Act
of 1933, as amended.
II-1
<PAGE>
<TABLE>
<CAPTION>
Date of Title of Identity of
Sale Securities Amount Sold Purchaser Consideration
<S> <C> <C> <C> <C>
09/10/97 Common Stock 20,417 Shares Joanne $40,834 in cash
Caldwell-Bayles
09/10/97 Common Stock 85,896 Shares Joanne Issued in exchange
Caldwell-Bayles for services
rendered in
connection with
developing the plans
for construction for
the Ruston Project
and a deposit on the
plans for the
Bossier City,
Shreveport, Minden
and West Monroe
locations
09/10/97 Common Stock 20,417 Shares The Forsythe Group $40,834 in cash
09/10/97 Common Stock 125,000 Shares The Forsythe Group Issued in exchange
for 20 acres of
land at the Ruston
location
09/10/97 Common Stock 125,000 Shares The Forsythe Group Issued in exchange
for 6 acres of land
at the Ruston
location
09/10/97 Common Stock 57,264 Shares Raymond & Jean
Nelson Issued in exchange
for services
rendered in
connection with
developing the plans
for construction
for the Ruston
Project and a
deposit
on the plans for the
Bossier City,
Shreveport, Minden
and West Monroe
locations
09/10/97 Common Stock 20,416 Shares The Arbor Group $40,832 in cash
09/10/97 Common Stock 100,000 Shares The Arbor Group Issued in exchange
for land at the
West Monroe location
09/10/97 Common Stock 52,500 Shares The Forsythe Group $105,000 in cash
</TABLE>
II-2
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 Incorporation
3(b) * Constitution and By-Laws
4(a) * Specimen of Bond Certificate
4(b) ** Form of Trust Indenture
4(c) * Lienholders Agreement
5(a) * Opinion of Bobby L. Culpepper, Esq.
10(a) * Construction Management Contract - Ruston Facility
10(b) * Construction Management Contract - Bossier City Facility
10(c) * Construction Management Contract - Shreveport Facility
10(d) * Construction Loan Agreement - Ruston
10(e) * Management Agreement
10(f) * Construction Loan Agreement - Bossier City
10(g) * Construction Loan Agreement - Shreveport
23(a) ** Consent of William R. Hulsey, CPA
23(b) * Consent of Bobby L. Culpepper, Esq.
23(c) * Consent of Appraiser - Ruston
23(d) * Consent of Appraiser - Bossier City
23(e) * Consent of Appraiser - Shreveport
99(a) * Appraisal - Ruston
99(b) * Appraisal - Bossier City
99(c) * Appraisal - Shreveport
99(e) * Environmental Report - Ruston
99(f) * Environmental Report - Bossier City
99(g) * Environmental Report - Shreveport
* Filed previously
** Filed herewith
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.
II-3
<PAGE>
(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.
II-4
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant, Senior Retirement Communities, 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 13th day of May , 1998.
------ ------------------
Senior Retirement Communities, Inc.
By: /S/ JOANNE M CALDWELL-BAYLES
--------------------------------_
Joanne. M. Caldwell-Bayles
Chief Executive Officer
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 May 13th , 1998.
--------------
Signature Title
/S/JOANNE M CALDWELL-BAYLES
- --------------------------------- President, Chief Executive Officer,
Joanne M. Caldwell-Bayles Chief Financial Officer and Chairman of
the Board
/S/RAYMOND L NELSON
- ---------------------------------- Vice-President and Director
Raymond L. Nelson
/S/JEAN GAFFNEY NELSON
- ---------------------------------- Director
Jean Gaffney Nelson
TRUST INDENTURE
SENIOR RETIREMENT COMMUNITIES, INC.
Name of Issuer
--------------
Trust Number
COLONIAL TRUST COMPANY
As Trustee
<PAGE>
TABLE OF CONTENTS
PAGE
I. Capacities of Colonial 1
II. Issue of Bonds and Security 1
III. Description of Bonds and Liens 2
A. Registration of Bonds and Liens 2
B. Bondholders' Pro Rata Lien 2
C. Trustee's Reimbursement Lien 2
IV. Disbursement of Bond Proceeds 3
A. Bond Proceeds Account 3
B. Preference of Payments Out of Bond
Proceeds Account 3
C. Construction Draws 6
D. Surplus Bond Proceeds 8
E. Overpayments 8
F. Abandonment of Project 8
V. Payment of Bonds 9
A. Priorities of Issuer's Payments 9
B. Priority of Charges against Sinking Fund 9
C. Method of Payments into Sinking Fund 10
D. Expenses of Default 10
E. Issuer's Payment Secured by its Revenues 10
F. When Sinking Fund Balance May Be Paid
to Issuer 11
VI. Bondholders' Failure to Surrender Matured Bonds 13
A. No Interest After Maturity 14
B. Escheat After Three Years 14
VII. Issuer's Covenants 14
A. Issuer Shall Maintain and Insure the
Property 14
B. Trustee May Cure 15
C. Issuer May Not Merge 16
D. Issuer's 16
VIII. Defaults and Remedies 16
A. Events of Default Defined 16
B. Waiver of Notice by Issuer; Trustee's
Remedies 17
C. Legal Ownership of Rights to Prosecution
and Enforcement in Trustee Alone 21
D. Trustee's Discretion to Advise Bond-
holders of Default 21
i
<PAGE>
E. Bondholders' Rights in Event of
Trustee's Failure to Act 22
F. Trustee's Right to Stop Payment on
Outstanding Checks 22
G. Penalty Interest 22
H. Trustee Has No Duty to Cure; Trustee's
Rights in Event of Overdraft or
Overpayment 23
I. Application of Sinking Fund Balances
Upon Default 23
IX. Issuer's Prepayment Privileges 25
A. Entire Series in Full or Partial at
Random 25
B. No Pre-Payment Penalty; Additional
Trustee's Fee 25
C. Pre-Payment Funds to be on Deposit in
Advance 25
D. Prior Notice to Trustee and to Bond-
holders Required 26
E. Disposition of Unpresented Bonds 26
F. Over- and Under-Deposit of Funds 26
G. Trustee's Release of Lien 27
X. Replacement of Bonds 27
A. Exchange of Mutilated or Defaced Bonds 27
B. Lost, Stolen or Destroyed Bonds 27
C. Remedies are Exclusive 27
XI. Additional Parity Bonds 28
A. Conditions 28
B. Right of First Refusal 29
XII. Sale of Property 29
A. For Fair Value Only 29
B. Application of Sale Proceeds 30
C. Value of Pledged Property to be
Sufficient to Secure Bonds Then
Outstanding 30
XIII. Substitution of Collateral 30
A. For Fair Value Only 31
B. Must Become Part of the Lien 31
XIV. Condemnation of Property 31
XV. Duties of Trustee, Paying Agent and Registrar 32
A. Trustee's Administrative Duties 32
B. Paying Agent's Duties 33
C. Registrar's Duties 34
ii
<PAGE>
XVI. Limitation of Trustee's Liability 34
XVII. Ancillary/Co-Trustee; Resignation and Removal;
Successor Trustee 37
A. Trustee May Appoint Ancillary and
Co-Trustees 37
B. Voluntary Resignation and Involuntary
Removal of Trustee 37
XVIII. Illegal Interest 40
XIX. Release of the Lien 41
XX. Investment of Funds; Trustee's Fees 41
A. Permitted Investments 41
B. Base Fees of Trustee, Paying Agent and
Registrar 41
C. Additional Fees to be Charged for
Extraordinary Services 41
XXI. Supplemental Indentures 42
A. Not Requiring Bondholder Consent 42
B. Requiring Bondholder Consent 42
C. Requisites of Notice to Bondholders 43
D. Only Substantial Consent Required 44
XXII. Bondholder Lists and Reports; Evidence
of Rights of Bondholders 44
A. Form of Bondholder Action 44
B. Issuer Owned or Controlled Bonds to be
Disregarded 45
C. Third-Party Communiques to Bondholders 45
D. Bondholder Identities Not to be
Disclosed 46
XXIII. Miscellaneous Provisions 46
iii
<PAGE>
TRUST INDENTURE
STATE OF ARIZONA
COUNTY OF MARICOPA
THIS TRUST INDENTURE made and entered into between
SENIOR RETIREMENT COMMUNITIES, INC., a Louisiana corporation,
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 2510 West Dunlap, Suite 232, Phoenix, Arizona
85021, 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 $9,000,000.00, hereinafter called the
"Bonds," secured, in accordance with the terms and provisions of this Trust
Indenture by a deed of trust or mortgage and security agreement, hereinafter
called the "Lien," recorded in the proper State and Parish or other recording
office, on and
Trust Indenture
Page 1 of 48
<PAGE>
covering property of Issuer more described in a mortgage(s) 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 Ruston, Louisiana project (the
legal description of which is attached to the Mortgage executed this date),
the Shreveport, Louisiana project and the Bossier City, Louisiana
project. The Mortgage as originally executed and as amended or
modified, from time to time, is incorporated herein by reference
and made apart 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 on the "Authentication Date"
defined in 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) All of the Bonds will be secured by the Lien upon the Property
(including all three of the subject projects referred to above) of Issuer,
and shall have equal rights, liens and privileges under this Trust Indenture
and the Lien so that each and every Bond shall be equally and proportionately
secured without preference, priority or distinction as to the lien securing
any one Bond over the lien securing any other Bond or Bonds. The Trustee is
hereby authorized to modify or amend the mortgage as is necessary to
accomplish this purpose of having all bonds issued by Issuer in regard to the
three subject projects secured by a lien on all three of the projects.
(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
Trust Indenture
Page 2 of 48
<PAGE>
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.
(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 1998-I Bonds (being used for the Ruston, Louisiana
project) as follows:
(a) The Dealer's fee 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 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 $200,000.00 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
Trust Indenture
Page 3 of 48
<PAGE>
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 in an
amount not to exceed $77,050.00.
(f) To reimburse Issuer pre-opening costs not to exceed
$100,000.00.
(g) To the Ten Year Bond Reserve Account in the amount of
$250,000.00.
(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.
(2) The Series 1998-II Bonds (being used for the Bossier City,
Louisiana project) as follows:
(a) The Dealer's fee 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 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 $185,000.00 to be used to pay the sinking
fund payments during the first six months of the project.
(d) To the payment of a portion of the land acquisition of
the project not to exceed $100,000.00.
(e) The principal and interest payable by Issuer upon
promissory notes or other obligations of Issuer or
Trust Indenture
Page 4 of 48
<PAGE>
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.
(f) The payment of remaining costs of construction in an
amount not to exceed $277,100.00.
(g) To reimburse Issuer pre-opening costs not to exceed
$100,000.00.
(h) To the Three Year Bond Reserve Account in the amount of
$240,000.00.
(i) 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 1998-III Bonds (being used for the Shreveport,
Louisiana project) as follows:
(a) The Dealer's fee 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 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 $100,000.00 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
Trust Indenture
Page 5 of 48
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 and the
purchase of furniture, fixtures and equipment in an amount not to exceed
$35,850.00.
(f) To reimburse Issuer pre-opening costs not to exceed
$100,000.00.
(g) To the Ten Year Bond Reserve Account in the amount of
$130,000.00.
(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:
(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 withall or any portion of the Net Bond Proceeds,
Issuer shall filewith 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.
Trust Indenture
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<PAGE>
(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 be due for such labor performed or
materials furnished 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 therefor 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.
Trust Indenture
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<PAGE>
(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:
(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:
(1) Before any disbursements are made by Trustee therefrom, Issuer
shall be obligated to pay and agrees promptly to pay the charges listed in
subparagraphs IV(B) (1) and (2) above, and Trustee shall return the gross
bond proceeds to the holders of such Bonds in full payment and redemption
thereof.
Trust Indenture
Page 8 of 48
<PAGE>
(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 indemnifies 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:
(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;
Trust Indenture
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<PAGE>
(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
(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.
Trust Indenture
Page 10 of 48
<PAGE>
(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) Issuer agrees to maintain with the Trustee a Ten Year Bond Reserve
account funded in the amounts set forth above 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 Ten Year 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.
Trust Indenture
Page 11 of 48
<PAGE>
(3) In the event that the total amount owing on the bonds has been
accelerated, then the funds held in the Reserve Account shall be held,
administered and distributed for the benefit of all bondholders 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 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 three series of bonds
Trust Indenture
Page 12 of 48
<PAGE>
issued, the Trustee may use any amount toward the payment of maturities of
any of the three 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, 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 has been accelerated, then the funds held
in such accounts shall be held, administered and distributed for the benefit
of all bondholders 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
Trust Indenture
Page 13 of 48
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.
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
Trust Indenture
Page 14 of 48
<PAGE>
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 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. In 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
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
Trust Indenture
Page 15 of 48
<PAGE>
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 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;
Trust Indenture
Page 16 of 48
<PAGE>
(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.
(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
Trust Indenture
Page 17 of 48
<PAGE>
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 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
Trust Indenture
Page 18 of 48
<PAGE>
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 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,
then the Trustee may, at Trustee's option, either declare to be immediately
due and payable the principal balance and accrued interest of only the
unpaid Bonds in the Series in default or the Trustee may declare to be
immediately due and payable the principal balance due and accrued interest
of all of the unpaid Bonds of all Series issued by the Issuer pursuant to
this Trust Indenture and any supplement hereto. Should the Trustee elect
to accelerate only the unpaid principal balance and accrued interest in
regard to the Series of Bonds then in default and if the Issuer then fails
to pay said amount and the Trustee then proceeds to foreclose the lien
securing the Bonds, the Trustee may first foreclose only 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.
Trust Indenture
Page 19 of 48
<PAGE>
(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 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
Trust Indenture
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<PAGE>
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 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,
Trust Indenture
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<PAGE>
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 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 provision(s) 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
Trust Indenture
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<PAGE>
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 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
Trust Indenture
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<PAGE>
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 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
Trust Indenture
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<PAGE>
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).
IX.
PREPAYMENT PRIVILEGES
(A) If Issuer is not in default:
(1) If there is only one series of Bonds outstanding hereunder,
Issuer shall have the privilege of prepaying all of the Bonds of said series
in full before maturity; provided that said prepayment shall be made only on
a principal and/or interest payment date. If there are two or more series of
Bonds outstanding hereunder, Issuer shall have the privilege of prepaying in
full before maturity, on a principal and/or interest payment date only, all
of the Bonds of one or more of such series, which series Issuer may in its
sole discretion select.
(2) Issuer shall also have the privilege of peremptory partial
prepayment, i.e., prepayment in full before maturity of one or more randomly
selected Bonds from any one outstanding series, but not all the Bonds thereof,
to be made only on a principal and/or interest payment date. Issuer shall
notify Trustee of both the amount to be prepaid and the series designated,
and Trustee shall randomly by lot, in such manner as it may determine,
select from such series individual Bonds in the requisite amount for
prepayment.
(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) Issuer will pay to Trustee not less than two (2) full working days
before the date fixed by Issuer for such prepayment as provided in paragraph
(D) next following, a sum sufficient to pay the principal of the Bonds being
called for
Trust Indenture
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<PAGE>
prepayment together with all interest accrued thereon as of the prepayment
date, together with Trustee's fee. Upon the prepayment date, or as
soon thereafter as shall be practicable, Trustee shall pay to the holders of
the Bonds being called for prepayment the principal and accrued interest
upon said Bonds as of the prepayment date. Payment of the principal and
accrued interest upon said Bonds shall be by check drawn upon the Sinking
Fund Account mailed, postage prepaid, to the registered Bondholder at his
registered address.
(D) Issuer shall give Trustee written notice of its election to call
and prepay such Bonds at least thirty (30) days prior to the date fixed by
Issuer for such call and prepayment. Trustee shall, at the expense of Issuer,
then give written notice of the proposed prepayment to each of the
registered Bondholders of the Bonds selected at least fifteen (15) days
prior to the date fixed by Issuer for such prepayment.
(E) 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.
(F) Should Issuer deposit funds for the prepayment of outstanding bonds
in an amount which Trustee ultimately determines 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
Trust Indenture
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<PAGE>
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.
(G) 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, 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.
Trust Indenture
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<PAGE>
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,
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, series or issue shall constitute a
default as to any and all other notes, 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 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; and
Trust Indenture
Page 28 of 48
(c) The ratio of the total Outstanding Bonds plus the
Additional Bonds shall not exceed one hundred percent (100%) of the capitalized
cost of the 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 build
the Shreveport, Louisiana and Bossier City, Louisiana projects and any such
interim construction loans shall be secured in parity with lien securing the
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) The consideration for such conveyance is equal to or greater than
the fair market value of the property conveyed at the time of sale and either
becomes subject to and a 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 prior to
the Lien other than as agreed upon in writing between Issuer and Trustee, or
is applied as in (B);
Trust Indenture
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<PAGE>
(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 such releases,
partial releases and other legal documents as may be necessary to do so,
provided that:
Trust Indenture
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<PAGE>
(A) The net fair market value of the substituted property after
subtracting therefrom its potential exposure to any superior lienshall 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, 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, 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
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<PAGE>
(2) To be paid into a trust account maintained by Trustee to be
applied:
(a) For the purchase of additional property which shall be
subjected to and become a part of the Lien and any mortgage or deed of trust
upon the Property, as evidenced at Trustee's election and at Issuer's sole
expense by an attorney's title opinion or a mortgagee's title policy in favor
of Trustee reflecting no liens or encumbrances prior to the Lien other than
as agreed upon in writing between Issuer and Trustee;
(b) To construct additional improvements on the property
remaining under the Lien; and/or
(c) To reduce any other lien indebtedness existing against
the Property.
Issuer, subject to the approval of Trustee, has the right to select which of
the foregoing alternatives it desires to exercise, and shall notify Trustee
in writing and in advance which alternative is selected by Issuer.
XV.
DUTIES OF TRUSTEE, PAYING AGENT AND REGISTRAR
The following services will be provided for the benefit of Issuer and
the Bondholders:
(A) Trustee shall:
(1) Maintain the legal file containing Issuer's application for
financing, resolution for financing, appraisal, articles of incorporation,
bylaws, trust indenture, escrow instructions and agreement (if applicable),
commitment for title insurance, policy of title insurance or attorney's title
opinion, opinion of counsel (if applicable), current fire and extended
coverage insurance policy, builder's risk insurance policy (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
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<PAGE>
(3) Provide Issuer an amortization schedule 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.
(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
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<PAGE>
(8) Provide Issuer with information and forms for notification of
the Bond owners in the event of a prepayment of all or a portion of the
outstanding Bonds.
(9) Prepare and mail principal and interest checks to the
registered Bond owners of Bonds that are called for prepayment prior to
maturity
(10) Prepare and mail Internal Revenue Service Form 1099's to
inform each registered owner of the Bonds of the respective amount of
interest earned and required to be reported by Trustee to the Internal
Revenue Service for that taxable year (which may be different figures from
those applicable to and reportable for income tax purposes by individual
Bondholders).
(11) Prepare and forward to applicable taxing authorities all
required information pertaining to the interest income of Bondholders.
(C) Registrar shall:
(1) Upon receipt by the Trustee of all documentation which is
prerequisite, print, issue, authenticate and mail all Bonds to the registered
owners.
(2) Record and reissue Bonds subsequently transferred to a new
owner.
(3) Maintain a permanent Bond register which reflects the serial
or other identification number, maturity date, face value, interest rate,
name and address of owner, date bought, and price reported paid (if any) for
each Bond issued.
(4) Reissue mutilated, defaced, destroyed, lost and stolen Bonds
if prior to maturity, and if matured, direct the payment of the principal and
accrued interest to the registered Bond owners, subject to all terms and
conditions hereof.
XVI.
LIMITATION OF LIABILITY
Trustee, Paying Agent and Registrar (for purposes of this Article
jointly and severally called "Trustee") accept their respective duties and
responsibilities as set forth under the terms of this Trust Indenture upon
the express conditions (to which Issuer and the Bondholders by the acceptance
of the Bonds agree)
Trust Indenture
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<PAGE>
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 35 of 48
<PAGE>
(F) Trustee may request and act upon the opinion or advice of its
counsel. If Trustee acts on an opinion of counsel concerning matters
relating hereto and its duties hereunder, it shall be relieved of all
liability in connection with the matters referenced herein and its duties
hereunder when acting in conformity therewith.
(G) If an event of default has occurred and is continuing, Trustee
shall, in exercising its rights and powers hereunder, use the same degree of
care and skill as a prudent person would exercise or use under the
circumstances in the conduct of his own affairs.
(H) Trustee shall not be bound to ascertain or inquire into the
performance or observances of any covenants, conditions, or agreements of
Issuer hereunder. However, Trustee may require of Issuer full information
and advice about such performance or observance.
(I) Trustee need not consider the ability to respond in damages when
selecting or approving any person or entity to render opinions, advice and/or
services pertaining hereto.
(J) Trustee shall not be responsible for recording or re-recording or
filing or re-filing this Indenture, for the validity of the execution by
Issuer of this Indenture, for the sufficiency or maintenance of the security
for the Bonds, or for the validity or enforceability of this Indenture, the
Lien or any security rights or remedies granted to Trustee or the Bondholders
hereunder or in any other Bond document. Trustee shall have no obligation to
perform any of the duties of Issuer under the Indenture.
(K) Moneys and securities held by Trustee in trust need not be
segregated from other assets except to the extent required by law or this
Indenture. Trustee shall not be liable for interest on any moneys received
by it hereunder. Trustee shall not be accountable for the use or application
of funds from Issuer's Bonds Proceeds Account after same have been disbursed
in accordance herewith.
(L) Notwithstanding anything to the contrary, if in the sole judgment
of Trustee any action it desires or is requested or demanded to take
hereunder may tend to involve liability, loss or expense, Trustee shall not
be obligated to so act unless and until it is furnished with indemnity
satisfactory to it.
Trust Indenture
Page 36 of 48
<PAGE>
(M) The permissive right of Trustee to do certain things, whether
express or implied, shall not be construed as a duty or obligation to take
such action.
(N) Trustee shall not be required to give any bond or security in
respect hereof.
(O) 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 37 of 48
<PAGE>
(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, individual(s)
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 38 of 48
<PAGE>
(b) Under subparagraph (B) (3), any Bondholder as set forth
in subparagraph (5) below.
(5) If, in a proper case, a successor Trustee has not been
appointed pursuant to the foregoing provisions within six months after the
resignation or removal of Trustee, any Bondholder may apply to any District
Court in and for Maricopa County, Arizona or to any succeeding court of
competent jurisdiction to appoint a successor Trustee. Such Court may
thereupon, after such notice, if any, as it may be deem proper, appoint a
successor Trustee.
(6) Any Trustee may be removed at any time by an instrument
appointing a successor Trustee executed by the holders of not less than a
majority in aggregate principal amount of all Bonds then outstanding.
(7) All provisions of this Article which refer to the "Trustee"
shall likewise always include the positions of Paying Agent and Bond
Registrar, except that the Trustee, acting voluntarily pursuant to
subparagraph (2) above, may resign as Trustee while retaining its
appointments and continuing as Paying Agent and/or Bond Registrar; or vice
versa.
(8) Issuer shall give notice or cause notice to be given of each
resignation and each removal of the Trustee and each appointment of a
successor Trustee, Paying Agent and/or Registrar by mailing written notice
of such event by first-class mail, postage prepaid, to the Registered
Holders of Bonds as their names and addresses appear in the Bond Register.
Each notice shall include the name of the successor Trustee, Paying Agent
and/or Registrar, as the case may be, and its principal address.
(9) Should Trustee change its name, or voluntarily merge or
consolidate with or its business be taken over by another corporation
chartered to exercise trust powers and legally competent to perform such
duties, then such other corporation shall succeed to all of the powers and
duties of Trustee as herein set out, without any further act.
(10) Any successor Trustee appointed hereunder shall execute and
deliver to Issuer or the Court, whichever is applicable, an instrument
accepting such appointment. Thereupon such successor Trustee, without any
further act, shall become duly vested with all of the trust estate and the
rights, powers, trusts, duties and obligations of its predecessor.
Trust Indenture
Page 39 of 48
<PAGE>
(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 40 of 48
<PAGE>
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, Trustee is authorized to execute a
release of the Lien 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 or Registrar be required
to perform extraordinary services, it
Trust Indenture
Page 41 of 48
<PAGE>
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 42 of 48
<PAGE>
the consent of the holders of each Bond affected if such modification would:
(1) Change the stated maturity date of the principal or of any
installment of interest on any Bond; or
(2) Reduce the principal amount or rate of interest on any Bond;
or
(3) Impair the right as herein set out to institute suit for the
enforcement of payment on or with respect to the Bonds; or
(4) Reduce the percentage and principal amount of the Bonds of
which the holders' collective consent is required for any such supplemental
indenture;
(5) Except as permitted under this Indenture, permit the creation
of any lien ranking prior to or on a parity with the Lien; or
(6) Modify any of the provisions of this Article.
(C) Whenever the consent of Bondholders is required for any proposed
change, modification, addition, elimination or subordination of the Trust
Indenture or otherwise, Trustee may cause a notice specifying the action
proposed to be mailed, first-class, postage prepaid, to the owner of each
outstanding Bond at the address shown on the Bond Register maintained by the
Registrar. Trustee shall be entitled to treat the failure of any Bondholder
to respond within thirty (30) days after completion of the mailing of
such notice as either a consent or a rejection, as indicated in the notice,
of the proposed action specified in the notice.
(1) Except as hereinafter provided in Article XXII(B), Trustee
shall be the sole judge of the validity and regularity of all consents filed
under this paragraph, and may require evidence satisfactory to it that the
signer of such consent is lawfully entitled to execute the same.
(2) Any required action or consent of Bondholders may also be
obtained by a vote of Bondholders representing the requisite percentage of
principal then outstanding who are present or represented by proxy at a
meeting called by Trustee for such purpose to be held at Trustee's principal
offices at a time and
Trust Indenture
Page 43 of 48
<PAGE>
date specified in a notice mailed to the Bondholders as above not less than
thirty (30) days prior to such meeting.
(D) It shall not be necessary for any consent of Bondholders to
approve the particular form of any proposed supplemental indenture; rather,
it shall be sufficient if such consent approves the substance thereof.
XXII.
BONDHOLDER LISTS AND REPORTS
EVIDENCE OF RIGHTS OF BONDHOLDERS
(A) Any request, consent or other instrument which the Indenture may
require or permit to be signed and executed by the Bondholders may be in any
number of concurrent instruments of similar tenor, and may be signed or
executed by such Bondholders in person or by an attorney appointed in
writing or by a committee constituted by an agreement to which any portion
of the Bonds shall have been made subject by deposit or otherwise. Proof
of the execution of any such request or other instrument or of a writing
appointing any such agent or the holder of the Bonds shall be sufficient for
any purpose of the Indenture, if made in the following manner:
(1) The fact and date of the execution by any person of such
request in writing may be provided by any of the following documents in form
satisfactory to Trustee:
(a) The certificate under his official seal of any notary
public or other officer in any jurisdiction who by the laws thereof has
power to take acknowledgements of documents to be recorded within such
jurisdiction, that the person signing such request or other instrument
acknowledged to him the execution thereof;
(b) An affidavit of a witness of such execution; or
(c) The certification or guarantee of the authenticity of
such signature by an officer of any duly chartered trust company or
commercial bank.
(2) The ownership of registered Bonds shall be proved by the Bond
Register as hereinbefore provided.
Trust Indenture
Page 44 of 48
<PAGE>
(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 45 of 48
<PAGE>
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 46 of 48
<PAGE>
(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 47 of 48
<PAGE>
phrases of like import shall be liberally construed to include all costs and
expenses reasonably incurred by Trustee, directly or indirectly, as
compensation or reimbursement to its own personnel, licensed legal counsel,
accountants, surveyors, appraisers, court reporters and other experts,
including their fees or other compensation and travel expenses, in carrying
out the purposes of this Indenture and holding Trustee harmless from such
costs and expenses.
IN TESTIMONY WHEREOF, Issuer and Trustee have caused this instrument to
be signed in duplicate originals by their duly authorized agents and
representatives this 1st day of December, 1997.
ISSUER:
SENIOR RETIREMENT COMMUNITIES, INC.
By:
--------------------------------
JoAnne M. Caldwell-Bayles,
President
Colonial:
COLONIAL TRUST COMPANY, TRUSTEE
By:
--------------------------------
Its President
Trust Indenture
Page 48 of 48
<PAGE>
STATE OF ARIZONA )
)
COUNTY OF MARICOPA )
This instrument was acknowledged before me on the day of , 19 , by
John Johnson, President of COLONIAL TRUST COMPANY, an Arizona corporation
with trust powers.
----------------------------------
Notary Public, State of Arizona
----------------------------------
Notary's Name, Printed or Typed
STATE OF )
)
PARISH OF )
This instrument was acknowledged before me on the day of , 19 , by
JoAnne M. Caldwell-Bayles, President of Senior Retirement Communities, Inc.,
a Louisiana corporation.
----------------------------------
Notary Public, State of Louisiana
----------------------------------
Notary's Name, Printed or Typed
Trust Indenture
Page 49 of 48
<PAGE>
EXHIBIT "A"
TRUSTEE, PAYING AGENT & BOND REGISTRAR/TRANSFER AGENT
SCHEDULE OF FEES
<PAGE>
WILLLAM R. HULSEY
CERTIFIED PUBLIC ACCOUNTANT
2117 FORSYTHE AVENUE
MONROE, LOUISIANA
MEMBER MAILING ADRESS
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
April 22, 1998
MMR Investment Bankers, Inc.
550 N. 159th East, Suite 300
P.O. Box 781440
Wichita, Kansas 67278-1440
Dear Sir:
I, William R. Hulsey serve as the accountant for Senior Retirement
Communities, Inc. and do hereby give permission to use my name and/or values
concerning the audited financial statements dated December 31, 1997 in the
offering circular for the Bond Issue(s) of Senior Retirement Communities, Inc.
Respectively Submitted,
/S/WILLIAM R HULSEY
William R. Hulsey
Certified Public Accountant
<PAGE>
