REGISTRATION NO.
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM SB-2
Registration Statement Under The Securities Act of 1933
FRONT RANGE ASSISTED LIVING, L.L.C.
(Name of small business issuer in its charter)
Kansas 8261 48-1171755
--------------- --------------- ---------------
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Identification Number)
incorporation or Classification Code
organization) Number)
260 North Rock Road
Suite 260
Wichita, Kansas 67206
(316) 682-4650
-----------------------
(Address and telephone number
of principal executive offices)
220 South 1200 East Street
St. George, Utah 84770
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(Address of principal place of business
or intended principal place of business)
Robert A. Brooks
260 North Rock Road
Suite 260
Wichita, Kansas 67206
(316) 682-4650
-----------------------
(Name, address and telephone
number of agent for service)
Copies of communications to:
Michael G. Quinn, Esq.
154 North Topeka Street
Wichita, Kansas 67202
(316) 267-0377
-----------------------
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
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities 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. [ ]
If this Form is a post-effective amendment filed pursuant 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
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Proposed Proposed
Title of Dollar maximum maximum
securities amount offering aggregate Amount of
being to be price per offering registration
registered registered unit price (1) on fee
- ---------- ---------- ---------- ---------- ----------
Co-First $2,500,000 100% $2,500,000 $863
Deed of
Trust
Bonds
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(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.
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FRONT RANGE ASSISTED LIVING, L.L.C.
CROSS-REFERENCE SHEET PURSUANT TO PART I OF FORM SB-2
FORM SB-2 ITEM PROSPECTUS CAPTION
--------------- ------------------
1. Front of Registration Statement Front of Registration Statement;
and Outside Front Cover Page of Outside Front Cover Page
Prospectus. . . . . . . . . . . . .
2. Inside Front and Outside Back Inside Front and Outside Back Cover
Cover Pages of Prospectus . . . . . Pages
3. Summary Information and Risk Prospectus Summary; Risk Factors
Factors . . . . . . . . . . . . . .
4. Use of Proceeds . . . . . . . . . . Prospectus Summary; Use 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,
Promoters and Control Persons . . . Management
11. Security Ownership of Certain
Beneficial Owners and Management. . Principal Owners of the Company
12. Description of Securities . . . . . Description of Bonds
13. Interest of Named Experts and
Counsel . . . . . . . . . . . . . . Legal Matters; Experts
14. Disclosure of Commission
Position on Indemnification for
Securities Act Liabilities. . . . . Not Applicable
15. Organization within Last Five
Years . . . . . . . . . . . . . . . Not Applicable
16. Description of Business . . . . . . Prospectus Summary; Risk Factors; Use
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
Related Transactions. . . . . . . . Certain Transactions
20. Market for Common Equity and
Related Stockholder Matters . . . . Not Applicable
21. Executive Compensation. . . . . . Management - Compensation of Managing
Member
22. Financial Statements. . . . . . . . Financial Statements
23. Changes in and Disagreements
with Accountants on Accounting
and Financial Disclosure. . . . . . Not Applicable
==============================================================================
PROSPECTUS Dated , 1997
[LOGO HERE] ------
FRONT RANGE ASSISTED LIVING, L.L.C.
(d/b/a EVERGREEN GARDENS AT ST. GEORGE)
$2,500,000 Co-First Deed of Trust Bonds, Series 1997-I
Front Range Assisted Living, L.L.C. (the "Company") is offering for sale
$1,566,000 Co-First Deed of Trust Bonds bearing simple interest payable
semiannually and $934,000 Co-First Deed of Trust Bonds bearing compound
interest payable at maturity (hereinafter collectively referred to as the
"Bonds"). See "Maturity Schedule". Interest will accrue on the Bonds from
the date of issue. The Bonds are secured by a pledge of the land and
building constituting the 38-unit assisted living facility (the "Residence")
and a pledge of the gross income of the Company pursuant to the terms of the
Trust Indenture (the "Trust Indenture") between the Company and Colonial Trust
Company (the "Trustee"). The Bonds are subject to redemption prior to their
respective maturities, in whole or in part, as more fully described herein.
Subject to acceptance and delivery of the Bonds, proceeds from subscriptions
will be held by the Trustee as Escrow Agent. There is no established
trading market for the Bonds offered hereby and the Company does not
anticipate that an active trading market will be established.
See "Risk Factors" beginning on page 6 for a discussion of certain factors
that should be considered by purchasers of the Bonds. Such risks include: (i)
no assurance of sale of all the Bonds, (ii) if only $300,000 in principal
amount in Bonds are sold, such funds will only pay expenses and reserves
associated with the Offering and (iii) if sufficient Bonds are not sold to
fully repay the Construction Loan, there is a risk of foreclosure by the
Construction Lender.
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.
Underwriting
Price to Discounts and Proceeds to
Public (1) Commissions (2) (3) Company
Minimum Purchase ...... $250 $16.25 $233.75
Total Minimum ......... $300,000 $19,500 $280,500
Total Maximum ......... $2,500,000 $162,500 $2,337,500
(1) Bonds will sold in registered form at par in denominations of $250 or
integral multiples thereof.
(2) Subject to the sale of all Bonds and any adjustments, the Underwriter will
receive a maximum sales commission of $162,500. See "Underwriting". The
Company has agreed to indemnify the Underwriter against certain liabilities,
including liabilities under the Securities Act of 1933, as amended (the
"Securities Act").
(3) Before deducting expenses payable by the Company estimated at $56,250,
including $31,250 paid to the Underwriter for its unaccountable expenses
associated with the Offering and miscellaneous expenses estimated to be
$25,000 for registration fees, legal fees, accounting fees and other costs
associated with the Offering.
Subject to the sale of $300,000 in principal amount of the Bonds, the
underwriter is offering the Bonds on a "best efforts" basis as agent for the
Company. The Bonds are subject to prior sale, acceptance of offers to purchase
and to approval of certain legal matters by counsel for the Underwriter and the
Company. The Underwriter reserves the right to reject any order, in whole or
in part, and to withdraw, cancel or modify the Offering of the Bonds without
notice. It is expected that the Bonds will be ready for delivery, subject to
the sale of minimum Bonds, within 30 days from the date subscription for the
Bonds are received.
MMR INVESTMENT BANKERS, INC.
MATURITY SCHEDULE
Series 1997-I Simple Interest Bonds Series 1997-I Compound Interest Bonds
Maturity Bonds Interest Maturity Bonds Interest
Date Retired Rate Date Retired Rate
04/01/1998 $46,500 7.00% 10/01/2000 $64,500 8.00%
10/01/1998 $48,000 7.00% 10/01/2002 $67,000 9.00%
04/01/1999 $62,500 7.50% 04/01/2005 $63,000 9.50%
10/01/1999 $64,750 7.50% 10/01/2006 $60,000 9.75%
04/01/2000 $78,750 8.00% 04/01/2008 $55,000 10.00%
04/01/2001 $91,250 8.50% 10/01/2008 $51,750 10.00%
10/01/2001 $94,750 8.50% 04/01/2009 $49,500 10.00%
04/01/2002 $100,000 9.00% 10/01/2009 $47,000 10.00%
04/01/2003 $104,000 9.25% 04/01/2010 $44,500 10.00%
10/01/2003 $109,000 9.25% 10/01/2010 $41,750 10.25%
04/01/2004 $115,500 9.50% 04/01/2011 $39,000 10.25%
10/01/2004 $118,750 9.50% 10/01/2011 $37,500 10.25%
10/01/2005 $122,500 9.75% 04/01/2012 $35,500 10.25%
04/01/2006 $130,750 9.75% 10/01/2012 $33,500 10.25%
04/01/2007 $135,500 10.00% 04/01/2013 $31,250 10.50%
10/01/2007 $143,500 10.00% 10/01/2013 $29,750 10.50%
04/01/2014 $28,000 10.50%
10/01/2014 $26,500 10.50%
04/01/2015 $25,250 10.50%
10/01/2015 $23,000 10.75%
04/01/2016 $21,750 10.75%
10/01/2016 $20,750 10.75%
04/01/2017 $19,750 10.75%
10/01/2017 $18,500 10.75%
[PICTURE HERE]
Artist's rendering of Evergreen Gardens Assisted Living at St. George, Utah
The Company intends to furnish annual reports containing audited financial
statements to its bondholders.
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
Front Range Assisted Living, L.L.C. (d/b/a Evergreen Gardens of St.
George) is a development stage limited liability company formed under the laws
of the State of Kansas for the purpose of developing and operating a 38-unit
assisted living facility in St. George, Utah (the "Residence"). The Company's
executive offices are located at 260 North Rock Road, Suite 260, Wichita,
Kansas 67206, and the Company's telephone number is (316) 682-4650. See
"Business".
The Offering
Bonds Offered
Subject to the sale of $300,000 in principal amount of the Bonds, the
Underwriter is offering the Bonds on a "best efforts" basis, without any
commitment to sell any of the Bonds as agent for the Company. The Bonds will
be dated October 1, 1997. The aggregate principal amount of the Series 1997-I
Bonds is $2,500,000. Bonds in the principal amount of $1,566,000 ("Simple
Interest Bonds") will mature serially and bear simple interest payable by check
mailed to the registered owners each April 1 and October 1 until maturity.
Bonds in the principal amount of $934,000 ("Compound Interest Bonds") will
mature serially and bear interest payable at maturity. The interest on the
Compound Interest Bonds will be compounded semiannually each April 1 and
October 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 Schedule on page 2 hereof.
Operating Fund
Under the Trust Indenture, the Company must establish an Operating Fund Account
and make monthly deposits into the Operating Fund Account 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 on any semiannual interest payment/computation
date. The Bonds are subject to redemption without premium at the principal
amount thereof plus accrued interest. See "Description of Bonds - Prepayment".
3
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 Ten Year Bond Reserve Account from bond
proceeds. The Ten Year Bond Reserve Account will be funded in the amount of
$130,000 and will remain in place for a period of ten years from October 1,
1997. The purpose of the Ten Year 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. 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 - Ten Year 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 Residence, 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 will be secured by a Co-First Deed of Trust with Colonial Trust Company
and Emprise Bank, N.A. of Hays, Kansas ("Emprise"). The property securing the
Bonds is located at 220 South 1200 East Street in St. George, Utah. See
"Description of Bonds".
Lienholders Agreement
The rights of Colonial Trust Company acting as Trustee on behalf of the Series
1997-I bondholders are subject to a certain Lienholders Agreement between the
Trustee and Emprise dated as of June 20, 1997, which, among other things,
provides for the allocation of proceeds from the sale of the Residence based on
the principal balance of the debts as calculated under the Lienholders Agreement
in the event of foreclosure on the Construction Loan or the Bonds. See
"Description of Property - Financing of Residence".
4
Proceeds Escrow
If $300,000 has not been deposited in the escrow account from the sale of the
Bonds by April 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
the date of issue through the escrow termination date at the rate attributable
to the Bonds subscribed. During the escrow period, the subscriber has no
access to funds held in the escrow account by the Escrow Agent. All funds from
the sale of the Bonds will be deposited with Colonial Trust Company (the
"Registrar" and "Escrow Agent"). See "Underwriting".
Use of Proceeds
The net proceeds will be used to fund a small portion of the operating fund
payments on the Bonds, fund a reserve fund, provide permanent financing for the
construction, furnishing and equipping the Residence and payoff the existing
construction financing on the Residence. See "Use 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 Bonds; sale of the
minimum offering will only pay expenses and reserves associated with the
Offering; and if sufficient Bonds are not sold to repay the construction loan,
there is a risk of foreclosure. Potential investors should carefully consider
the factors set forth under "Risk Factors".
Financial Summary
As of June 30, 1997, the Company had total assets of $248,793, total
liabilities of $261,287 and total member's deficit of ($12,494). The members
of the Company have contributed a total of $200 in capital to the Company.
Since the Company's inception on July 18, 1995 through June 30, 1997, the
Company has generated no revenues and has incurred cumulative expenses of
$12,694. See "Financial Statements" beginning on page F-1 of the Prospectus.
(This space is intentionally left blank)
5
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 of 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 this
Offering unless the Underwriter sells Bonds equal to $300,000 in principal
amount by April 1, 1998. If $300,000 in principal amount is not sold within
such period, 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
October 1, 1997 through the escrow termination date at the rate attributable to
the Bonds subscribed. All subscriptions funds will be deposited with the
Trustee, as Escrow Agent. See "Description of Bonds - Escrow and Disbursement
of Bond Proceeds".
Risk of Default of Existing Construction Loan
The Company obtained a construction loan (the "Construction Loan") on
June 20, 1997 with Emprise Bank, N.A. of Hays, Kansas (the "Construction
Lender") in the amount of $2,000,000. The Construction Loan is due September
1, 1998 (the "Maturity Date"), unless mutually extended by the Construction
Lender and the Company. As indicated under "Description of Bonds - Escrow and
Disbursement of Bond Proceeds" and "Use of Proceeds", the Construction Loan may
be the last item to be paid from the proceeds of this Offering. Accordingly,
if all of the Bonds are not sold by the Maturity Date, the Construction Loan
may go into default and the Construction Lender may exercise its rights,
including the Construction Lender's right under the Deed of Trust to sell the
Residence without the necessity of complying with a formal foreclosure
proceeding. There is no assurance that the Company would be able to secure
alternative financing to replace the Construction Loan on a timely basis.
Notwithstanding the fact that the security for the Bonds is in parity with the
Construction Loan, there can be no assurance that the proceeds arising from any
sale of the Residence, even though the construction has been fully completed,
would be sufficient to fully repay the Construction Loan and the then
outstanding Bonds. Under the terms of the Lienholders Agreement all receipts
from collection and foreclosure are to be allocated between the Construction
Loan and the Bonds in proportion to the respective principal balances
outstanding. See "Description of Property - Financing of Residence,"
"Description of Bonds - Escrow and Disbursement of Bond Proceeds," "Use of
Proceeds" and "The Company's Plan of Operation".
Presence of Debt
The Company is newly formed and without any operating history. The
financing activities of the Company have only been made through debt. As a
result, the Company is highly leveraged and will initially be highly dependent
upon the proceeds received as a result of the issuance of the Bonds in order to
service the debt incurred under the Bonds and, thereafter, the payment of debt
will be based upon income from the Company's operation of the Residence. There
is no assurance that such operations will be successful. Other than a pledge of
the land and building constituting the Residence 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 members
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 up to $125,000. This amount is 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 $125,000 has 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. Additionally, upon
written request of the bondholders 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. See "Description of Bonds - Events of Default" and
"Description of Bonds - Remedies of Default."
6
Proceeds of this Offering also will used to fund a reserve fund (the "Ten Year
Bond Reserve Account") in the amount of $130,000 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 Ten Year Bond Reserve Account. The Ten Year Bond
Reserve Account will be in effect for a period of ten years from October 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 Ten Year 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 Ten Year Bond Reserve Account must first be used to call any outstanding
Series 1997-I Bonds. If there are no bonds outstanding, the Ten Year Bond
Reserve Account will then be released to the Company. See "Description of
Bonds - Ten Year Bond Reserve Account".
If only a portion of the Bonds are sold, the operating fund payment 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 Regulation A debt offerings. 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 requesting a permanent
injunction against the Underwriter, its control person and others from directly
or indirectly employing any device which would operate as a fraud or deceit on
any person; and/or making any untrue statements of material facts; and/or
omitting to state material facts in order to make such statements not
misleading. The civil action also requests restitution by the Underwriter and
the other 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.
This action arises out of the Underwriter's participation in an underwriting of
church bonds for a church located in Wichita, Kansas. In the event the action
brought by the Securities Commissioner of Kansas is successful, the Underwriter
may be required to withdraw from the offering of the Bonds. At the date of this
Offering, arrangements have not been made for a substitute Underwriter if, in
fact, the Underwriter is required to withdraw from this Offering.
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.
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.
7
Additional Bonds
The terms of the Trust Indenture enable the Company to further encumber the
Residence securing the Bonds by permitting the issuance of additional bonds at a
future date. To the extent any additional bonds are issued, these additional
bonds would be issued on parity with the Bonds and would, in turn, share
proportionately with the Bonds in any proceeds that might arise from a
foreclosure or similar proceeding following a default by the Company, thereby
diminishing the proceeds available for repayment of the Bonds. See "Description
of Bonds".
Notification of Bonds Maturing
Semiannual notifications of Bond maturity may not be forwarded; each
Bondholder who has received a printed bond certificate is responsible to present
his/her Bonds for redemption at maturity. No interest will accrue or be payable
from or after the respective payment date upon any matured installment of
principal or interest. Further, the failure to present any Bond within three
years of its maturity may result in the principal and interest due being subject
to the laws of escheat in particular states.
Early Redemption of Bonds
The Bonds are subject to redemption, in whole or in part, prior to maturity
as more particularly set 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 Independent Feasibility Study
An independent feasibility study has not been performed for the Company for
its intended operations of the Residence. The Company has relied upon the past
experience of its Managing Member in analyzing the business opportunities of the
Company. The Company has secured an appraisal of the Residence partly as a
result of requests of the Construction Lender and Underwriter and for its own
purposes. See "Business - Appraisal".
Lack of Operating History
The Company is newly formed and was organized in July of 1995.
Construction of the Residence commenced on June 23, 1997, and the Residence is
not scheduled to be completed and open for business until January of 1998.
Therefore, the Company has no substantial operating history. However, the
Managing Member of the Company, Robert A. Brooks, has previous experience in the
development and operation of five assisted living facilities, three of which are
located in Kansas and two in Colorado. There is no assurance, that once open,
the Residence will generate income sufficient to service the Bonds.
Lack of Company Liability
Under the Kansas Limited Liability Company Act, all members and managers of
a limited liability company have limited liability without regard to their
participation in the management in the Company's business. A member is only
liable for his contribution and improper return of capital. Accordingly, in the
event of default in the payment of principal and interest on the Bonds occurs,
in all likelihood, the bondholders could look only to the assets of the Company
for satisfaction of such indebtedness.
Risks Arising from Operations
Any business entity which operates an assisted living residence 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 Residence 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 Residence's 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
8
care requirements such as residing at the Residence. 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 the Residence 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 the Residence 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 the assisted living industry, in particular, 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. While there
presently is only one assisted living facility providing substantially the same
services as those proposed by the Company in St. George, the Company expects
that, as assisted living becomes increasingly recognized as an alternative form
of long-term care, competition will grow from new market entrants focusing
primarily on assisted living. After diligent research, the Company discovered
that two assisted living facilities may be built in the St. George area during
the next 12 months. However, no new building permits for assisted living
facilities have been submitted to the city planning department and building
department of St. George. 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. See "Business -
Competition."
Rental Risk: One of the principal risks being taken by the Company is the
possibility that the Residence 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 Residence may be affected
by a variety of factors, including but not limited to, the following: (i) a
reduction in rental income due to the Residence's inability to maintain high
occupancy levels at favorable rates; (ii) adverse changes in local market
conditions, such as over building, reduced employment opportunities, population
shifts due to demographic changes, adverse changes in the residential quality of
the surrounding neighborhood, or unfavorable zoning law changes; (iii) rent
control legislation; and (iv) the destruction of part or all of the Residence
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. A phase one environmental assessment was
conducted on the property in November 1996. Research and visual observation
undertaken did not reveal any former or current environmental conditions,
problems or situations impacting the site.
Construction Risks
Construction of the Residence is not completed, and delays are common in
the construction industry. The Company anticipates the construction of the
Residence to be complete by January of 1998. 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
Residence. See "Business - Construction of the Residence".
9
Residence Location
The Residence is being constructed in St. George, Utah. However, the
Company's executive offices are located in Wichita, Kansas. Adequate oversight
of the construction and operations of the Residence may prove difficult for the
Company considering the distance between the location of the Residence and the
Company's executive offices. As a result, there can be no assurance that such
distance will not have a material adverse effect on the Company's financial
condition or results of operations.
Dependence on Management
The success of the Company's business will be highly dependent upon the
services of Robert A. Brooks, Managing Member of the Company. The loss of his
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 Mr. Brooks in the amount of $500,000 payable to the Construction
Lender. Once the Construction Loan has been retired, this policy will be
payable to the Trustee. See "Business - Residence Operations".
Employees
Prior to the commencement of operations of the Residence, the Company
intends to employ up to 15 full and/or part time employees at the Residence.
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
Robert A. Brooks, the Managing Member of the Company, is also the Managing
Member of Brooks Development Company, L.L.C. and Colorado Springs Assisted
Living, L.L.C. Accordingly, Mr. Brooks will not be able to devote his
time exclusively to the operations of the Company. 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. See "Certain Transactions".
Government Regulations
At present there are no applicable federal regulations affecting the
operation of the Residence. The facility will be built to conform with state
regulations governing residential care for the elderly in the State of Utah.
The management is confident all state regulations regarding the size of the
facility, health care and environment will be met. The assisted living project
is 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 Residence 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. However, the
Residence will be required to be licensed by the Utah Department of Health
prior to the commencement of operations of the Residence. The Company has
applied for a license with the Utah Department of Health and anticipates getting
the license upon completion of construction of the Residence. In the Company's
opinion, the facility and management practices and operations will meet or
exceed all residential care for the elderly regulations of the State of Utah.
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.
10
USE OF PROCEEDS
The estimated net proceeds to the Company from the sale of the Bonds
offered by it will be $255,500 if the minimum amount of bonds offered is sold
and $2,312,500 if the maximum amount of bonds offered pursuant to the Offering
is sold. If the minimum amount of bonds offered pursuant to the Offering is
sold, the Company intends to use the net proceeds of this Offering in the
following order and preference: (i) to fund $125,000 to pay for the first
monthly operating fund payments (this amount is equivalent to slightly more
than the first six month operating fund payments assuming all of the Bonds are
sold) and (ii) to fund the Ten Year Bond Reserve Account in the amount of
$130,000. The balance of the proceeds, if any, will be used to payoff a portion
of the Construction Loan due the Construction Lender.
As additional Bonds are sold beyond the minimum offering amount, the
Company intends to use these net proceeds as follows: to reimburse the Company
for costs associated with the development, marketing and pre-opening of the
Residence up to $57,500 and concurrently to payoff the Construction Loan due the
Construction Lender in the amount of up to $2,000,000 (should the Construction
Loan be used in its entirety). If the maximum amount of bonds are sold prior to
the Construction Loan being used in its entirety, then the $2,000,000 of the net
proceeds available to payoff the Construction Loan will be used to retire the
Construction Loan and to complete construction of the Residence including the
furnishing and equipping of the Residence in the amount of the unfunded portion
of the Construction Loan. The balance of the proceeds from this Offering, if
any, will be used for the repayment of unsecured notes due the Managing Member
and Brooks Development Company ("Unsecured Notes").
The Construction Loan bears interest at a variable rate of 1% over the
Prime Rate and matures on September 1, 1998, unless mutually extended by the
Construction Lender and the Company. Proceeds from the $2,000,000 Construction
Loan will be used by the Company to pay $1,800,000 for construction of the
Residence, to pay approximately $63,000 in "soft costs" associated with the
development of the Residence and to purchase furniture and appliances in an
amount of approximately $137,000. See "Description of Property - Financing of
Residence".
The Unsecured Notes bear interest at 9% and are due at various dates
through 1997 and 1998 with automatic extension provisions if not paid in full
on their maturity dates. Proceeds from the Unsecured Notes were used by the
Company for the acquisition of land from the Managing Member and the purchase of
architectural plans and development services from Brooks Development Company, an
affiliate of the Company. See "Certain Transactions".
BUSINESS
The Company
The Company, a limited liability company formed under the laws of the
State of Kansas, was organized on July 18, 1995 for the purpose of developing
and operating a 38-unit assisted living facility in St. George, Utah. Since its
inception, the Company has acquired unimproved land in St. George, Utah and
commenced construction of the Residence on this land on June 23, 1997.
A limited liability company is a relatively new form of business
organization designed to allow its owners, known as members, to allocate,
participate and account for the profits, losses, and items of credit and
deduction as if the business were a partnership, but which also provides its
owners with the limited liability protection comparable to that enjoyed by the
shareholders of a corporation. The members of the Company are not personally
liable for the debts of the Company, absent their execution of a personal
guaranty of those debts, nor can the members of the Company be held liable for
the negligent actions of the Company. The responsibility for overseeing the
operations of the Company is vested in the Managing Member.
Business Concept
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 business concept is based on providing elderly
residents in Southwest Utah with a broad range of cost-effective health care and
personal support services, on a 24-hour basis, enabling them to maintain an
independent and dignified lifestyle in a residential setting.
11
The Residence is intended to provide privacy and companionship in a
comfortable, secure, non-institutional living environment which is also designed
to promote interdependence between the Residence's 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 Residence is 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.
Residence Operations
Format. The services provided to residents 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 Residence will also provide
limited social activities for residents.
Expenses of operating the Residence 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 Residence 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 Residence can reasonably provide or
assist, then a resident may be forced to move from the Residence.
Residence Clientele. The types of residents the Company intends to attract
are those who need the physical and emotional assistance to preserve the level
of comfort that they are no longer able to maintain at home. The Company has
currently restricted the size of the Residence to 38 units. By limiting its size
to only 38 units, the Company feels the residents will probably be happier than
if they lived in a large facility which may tend to be less personal. The
Residence will not be operated as a nursing home. There will be activities
offered which would be typical to a senior citizen community.
Cost of Living. The Residence will have 38 rooms priced at an average of
$2,200 per month per room. Residents are billed monthly for the services
rendered. Medicare/Medicaid will not pay for a resident's stay at the
Residence. 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 $2,000 to reserve their apartment. The lease of the
apartments by the residents will be on a month-to-month basis. Resident will be
required to pay only for the months in which they are residents of the facility.
Competition
The long-term care industry generally is highly competitive with respect to
price, service, quality of care and level of services, and the Company expects
that the assisted living business in particular will become increasingly
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. While there
presently is only one assisted living facility providing substantially the same
services as those proposed by the Company in St. George, the Company expects
that, as assisted living becomes increasingly recognized as an alternative form
of long-term care, competition will grow from new market entrants focusing
primarily on assisted living. After diligent research, the Company discovered
that two assisted living facilities may be built in the St. George area during
the next 12 months. However, no new building permits for assisted living
facilities have been submitted to the city planning department and building
department of St. George. 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. In St. George, there
are
12
currently approximately 80 beds providing assisted living services and four
approximately 396 beds providing nursing home care. The Company's market area
includes the population of St. George, Utah, which is approximately 45,000.
Employees
Currently, the Company does not have any full time employees. Prior to the
commencement of operations of the Residence, the Company intends to employ up
to 15 full and/or part time employees to work at the Residence. There is no
assurance that the Company will be able to obtain and maintain an adequate
number of competent personnel, including persons seeking 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, assisted living residences are not specifically regulated as
such by the federal government. However, the Residence will be subject to
certain state regulations and licensing requirements. To conform with Utah's
regulations governing residential care for the elderly, the Residence will be
required to be licensed by the Utah Department of Health prior to the
commencement of operations of the Residence. The Company has applied for a
license with the Utah Department of Health and anticipates getting the license
upon completion of construction of the Residence. In the Company's opinion, the
Residence and management practices and operations will meet or exceed all
residential care for the elderly regulations of Utah. 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.
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. The Company is also subject to the Americans With
Disabilities Act. In general, this law requires businesses to accommodate the
special needs of persons with certain types of disabilities. As regulations are
promulgated to enforce this law, the Company may be required in the future to
adapt the design and format of the Residence or otherwise incur additional
capital costs to comply with such law. Such costs could have an adverse effect
on the operation of the Residence and its 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.
In November 1996, a phase one environmental assessment was conducted on the
property on which the Residence is being constructed. Research and visual
observation undertaken did not reveal any former or current environmental
conditions, problems or situations impacting the site.
DESCRIPTION OF PROPERTY
The Residence
The Residence will be located in St. George, Utah. Selection of the
Residence's site was based upon a location that was within an affluent
residential neighborhood, with limited assisted living services. This
demographic information was gathered from the Company's review of the "1990
CENSUS OF POPULATION AND HOUSING" for the Southwest Utah area. St. George
appeared to offer a market for this type of assisted living facility.
The Residence encompasses approximately 22,811 square feet and is located
on 1.99 acres of land located in the eastern portion of St. George, Utah east of
I-15 and south of St. George Boulevard. The Residence is designed and
constructed to include a beauty shop, kitchen and laundry. The residents' rooms
each have a private bathroom, closet and sitting and bedroom areas. All include
small kitchenettes. The Bonds in parity with the Construction Loan are
secured by a co-first deed of trust on the Residence (both real and personal
property). See "Description of Property - Financing of Residence" and
"Description of Bonds - Co-First Deed of Trust". The Company has title
insurance on this
13
1.99 acres of land insuring good and marketable title to the property.
Furthermore, in the Company's opinion, the Residence is adequately covered by
insurance.
Appraisal
In an appraisal dated April 7, 1997, Keith D. Callison, SRA, of Keith
Callison and Associates, 840 S. Broadway, #700, Wichita, Kansas 67211 (the
"Appraiser"), estimated a value of $2,650,000 for the Residence based upon the
"Market Value" derived from the income approach (highest and best use) procedure
for estimating real property values. Upon completion of construction and
lease-up, the Appraiser, who is independent of the Company, estimated the value
of the Residence to increase to $3,266,500 based upon the income approach. 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 Residence can be sold, whether
voluntarily or at judicial sale, for the appraised value.
Assuming all Bonds are sold, the Bond indebtedness of $2,500,000 will equal
approximately 94% of the Market Value of the Residence based on the income
approach ($2,650,000), which is prior to the lease-up of the Residence. The
Trust Indenture allows the Company to issue additional subsequent bond issues,
however, so long as the aggregate debt (new and old) does not then exceed 100%
of the value of the Residence.
A decision to invest in the Bonds should not be made based solely on the
appraisal. Moreover, a purchaser of the Bonds should realize and take into
consideration the fact the Residence, if it 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 Residence
Construction of the Residence commenced on June 23, 1997. The Residence is
expected to be completed and begin operations in January of 1998. However,
delays are common in the construction industry, and unforseen events may
adversely affect the cost and completion time of the Residence. The Company
estimates the capitalized cost of the Residence to be approximately $2,510,725
upon completion of the Residence.
Financing of Residence
Construction Financing. The Company has secured a construction loan (the
"Construction Loan"), in the amount of $2,000,000 from Emprise Bank, N.A. of
Hays, Kansas ("Emprise") for the construction of the Residence. The Company
has paid a loan origination fee in the amount of $30,000. The loan is due
September 1, 1998 (the "Maturity Date"), unless mutually extended by both
parties. The Construction Loan bears interest at a variable rate which is
equivalent to 1% per annum in excess of the lowest rate designated as the
"Prime Rate" of interest published by the Wall Street Journal (Southwest
Edition) under the heading "Money Rates". The minimum rate of interest will be
not less than 2.0%. The maximum rate of interest will not exceed 25%. The
Construction Loan was guaranteed by Robert A. Brooks, Managing Member of the
Company, to the extent of $340,000, and the Construction Loan is secured by
additional collateral furnished by Mr. Brooks and the other principal of the
Company. The Trustee and the holders of the Bonds will not benefit, directly
or indirectly, from the guarantee of Mr. Brooks or the additional collateral.
Mr. Brooks will receive no consideration for acting as guarantor. The loan will
be secured by a Co-First Deed of Trust with the Series 1997-I Bonds.
This loan closed on June 20, 1997, and the Deed of Trust and Security
Agreement setting forth the terms of the Construction Loan has been filed of
record.
The Construction Loan is secured by a Co-First Deed of Trust on the
Residence (both real and personal property) in parity with the Series 1997-I
Bonds. Colonial Trust Company acting as Trustee on behalf of the Series 1997-I
bondholders and Emprise have entered into a certain Agreement Between
Lienholders (the "Lienholder Agreement") dated as of June 20, 1997, with regard
to the Deed of Trust and Security Agreement, and the rights of the holders of
the Bonds are subject in all respects to the rights of Emprise under the
Lienholder Agreement. The Lienholder Agreement states, among other things, (i)
that the Deed of Trust, Security Agreement and other collateral documents
covering the Residence shall name both Emprise and the Trustee as lienholder and
shall secure ratably as provided in the Lienholder Agreement the Construction
Loan and the indebtedness under the Bonds, and (ii) that proceeds of the Bonds
will be used, subject to the Trust Indenture, to pay down or retire the
Construction Loan. The Lienholder Agreement also states that
14
in the event of a default, if either Emprise 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 Lienholder Agreement provides
that Emprise and the Trustee will conduct collection and foreclosure actions and
proceedings jointly to the extent possible. In the event Emprise and the
Trustee are unable to agree, however, Emprise 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 Residence and
enforcement of the terms of the Deed of Trust and Security Agreement. Emprise
may cause the Residence to be sold in its then current condition or may make
renovations to, or compete construction of, the Residence. Emprise is not
required to advance any funds except by its agreement, but in the event Emprise
elects to advance funds, proceeds of foreclosure will be applied first to
reimburse any such funds advanced. Either Emprise or the Trustee may purchase
the Residence at any foreclosure sale free and clear of the claims of the other.
If the Residence is sold or otherwise disposed of at foreclosure, the
Lienholder Agreement provides that the proceeds of disposition, after
reimbursement of Emprise's fees and expenses as provided above, be applied to
the Construction Loan and the payment of the Bonds on a pro-rata basis. The
"pro-rata" distribution of funds mean that after reimbursement of Emprise's fees
and expenses as provided above, Emprise and the Bonds will each receive funds
from any disposal on foreclosure of the Residence according to their respective
percentage of the total principal balance (including both the Construction Loan
and 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 Residence, whichever is lesser.
In addition to requiring the timely payment of the Construction Loan and
the Bond payments required under the terms of the Trust Indenture, the Deed of
Trust obligates the Company to maintain proper books and records, and refrain
from certain activities (such as altering the premises) without prior written
consent, and it also dictates in part the permitted financial relationships
between the Company and the residents.
Permanent Financing. The Company has chosen to issue bonds to provide the
permanent financing for the Residence. The first revenues of the Residence have
been pledged to repay the principal and interest on the Bonds. See "Use of
Proceeds" and "Description of Bonds".
PRINCIPAL OWNERS OF THE COMPANY
The following table sets forth certain information with respect to the
beneficial ownership of Membership Interests in the Company.
Name & Address of Title of Class Percent of
Beneficial Owner Class Owned
Robert A. Brooks Membership Interest 94%
220 S. 1200 East Street
St. George, UT 84770
Carol M. Brooks (1) Membership Interest 6%
220 S. 1200 East Street
St. George, UT 84770
Management and officers of the Company as a group are the beneficial owners of
94% of the Membership Interests of the Company. Presently, only Robert A.
Brooks serves in these capacities for the Company.
(1) Carol M. Brooks is the wife of Robert A. Brooks.
15
MANAGEMENT
Managing Member
The day to day operation of the Residence will be performed by the Managing
Member of the Company, Robert A. Brooks, (hereinafter referred to as the
"Managing Member"). The Managing Member shall have full and complete authority
and discretion in the management and control of the business of the Company and
shall make all decisions affecting the business of the Company, subject to the
restrictions set forth in the Operating Agreement. More specifically, the duties
of the Managing Member include (i) acquiring, improving, developing,
maintaining, leasing and selling the Residence, (ii) expending the capital and
revenues of the Company in furtherance of the Company's business, (iii) seeking
zoning changes, plat approval, CPU approval and other similar administrative
actions, (iv) entering and executing agreements and any or all documents in
connection with the Residence, (v) borrowing money for the Company, (vi)
employing agents, employees, managers, accountants, consultants and other
persons necessary to carry out the business and operations of the Company,
(vii) exercising the option of the Company to redeem any Member's interest,
(viii) maintaining adequate records and accounts of all operations and
expenditures, (ix) selling assets of the Company, (x) purchasing insurance on
behalf of the Company, (xi) performing any and all other acts or activities
customary or incident to the acquisition, ownership, financing, improvement,
development, sale or lease of the Residence, (xi) obtaining all necessary
governmental licenses, franchises, approvals and consents on behalf of the
Company, (xii) electing either the cash or accrual method of accounting for the
Company, (xiii) performing other acts not prohibited by law or the Operating
agreement and (xiv) executing valid and binding resolutions of the Company to
accomplish any of the foregoing.
Restrictions of the Managing Member include (i) any act in contravention
of the Operating Agreement of the Company; (ii) any act that would make it
impossible to carry on the ordinary business of the Company; (iii) the
confession of any judgment against the Company; (iv) possessing Company property
or assigning the rights of the Company in specific Company property for other
than a Company purpose; (v) admitting a person as a Member except as provided in
the Operating Agreement and (vi) acquiring any property other than in connection
with the acquisition, ownership, improvement, development, leasing or sale of
the Company's assisted living property in the St. George area.
Mr. Brooks shall serve as the Managing Member of the Company until his
resignation or until he is removed by majority vote of all the Members of the
Company. Upon the resignation of the Managing Member, a successor shall be
elected by a vote of the Members.
Robert A. Brooks, 52 years old, has been the Managing Member of the Company
since its inception in July of 1995. Mr. Brooks has senior executive experience
in business management, personnel, finance and international start-ups. His
professional experience includes serving in the following capacities: Research
Geologist for Conoco; a team leader for U.S. Geological Survey in Denver, Utah;
Vice President of Energy Reserves Group of Golden, Utah; Vice President of BHP
Petroleum (Americas) Inc. of Wichita, Kansas; President and Director of Team
Resources Corporation (an oil and gas exploration and production company) of
Wichita, Kansas; and President and Director of Masters Operating Company (an oil
and gas exploration and production company) of Wichita, Kansas. Mr. Brooks also
previously developed three assisted living facilities in Kansas and two in
Colorado. Mr. Brooks is presently the Managing Member of Colorado Springs
Assisted Living, the company that operates the two assisted living facilities in
Colorado. He is also the Managing Member of Brooks Development Company, a
company formed to assist in the development of assisted living properties.
Mr. Brooks received a Bachelor of Science degree in Geology from the University
of Illinois, Champaign-Urbana, Illinois, and a Masters and Doctorate degree from
the Louisiana State University in Baton Rouge, Louisiana.
Mr. Brooks 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 his efforts. Mr. Brooks will delegate most
of the daily operational responsibilities of the Company to the On-Site Program
Director, whom will be hired prior to the commencement of operations of the
Residence. The On-Site Program Director's salary and employee benefits will be
an expense of operation of the Residence. All other employees will also be
recruited by Mr. Brooks. The Company anticipates employing a total of 15 full
and/or part time employees to work at the Residence upon completion of the
assisted living facility. Mr. Brooks will devote approximately 25% of his time
to the affairs of the Company but is willing to devote additional time if
necessary.
16
Compensation of Managing Member
The Managing Member may receive the following compensation: (i) a
development fee in the amount of $100,000, (ii) a management fee equal to 7% of
the gross rental income of the Company (this fee shall be computed and paid 45
days after the date on which the gross rental income was earned) and (iii)
reimbursement for reasonable costs incurred by the Managing Member 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.
See "Certain Transactions".
Limitation of Members' Liability Indemnification
Under the Kansas Limited Liability Company Act, all Members and Managers of
a limited liability company have limited liability without regard to their
participation in the management of the Company's business. A Member is only
liable for his contribution and improper return of capital.
The Company's Operating Agreement provides that the Company shall indemnify
the Managing member against all claims and liability incurred or imposed upon
the Managing Member in the good faith exercise of his judgement relative to the
business of the Company, provided; however, that the Managing Member is not
guilty of willful misconduct or gross negligence. The Company has also agreed
to indemnify its members against all claims or liability incurred or imposed
upon such members solely as a result of the members having an interest in the
Company.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended (the "Act") may be permitted to members or controlling
persons of the Company pursuant to the foregoing provisions or otherwise, the
Company has been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable.
THE COMPANY'S PLAN OF OPERATION
The Company intends to complete construction of the Residence by January
1998, employ up to 15 full and/or part time employees to work at the Residence
upon completion of the Residence, operate the Residence as an assisted living
facility and reach approximately 95% occupancy of the Residence within four to
eight months upon completion of the Residence. There is no assurance that the
Company will be able to accomplish any or all of these objectives.
If only the minimum offering amount is sold, no proceeds from the sale of
the Bonds would be available to repay the Construction Loan. This could result
in default and foreclosure on the Residence, unless the Company is able to
obtain additional financing to retire the Construction Loan from other sources.
However, there is no assurance that the Company could obtain additional
financing if needed to avoid default and foreclosure.
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. In the Company's opinion, if all of the Bonds are sold, the proceeds
from this Offering will satisfy the Company's cash requirements, and the Company
will not need to raise additional funds during the next twelve months following
the commencement of this offering.
(This space is intentionally left blank)
17
PRIOR PERFORMANCE OF THE MANAGING MEMBER
The Managing Member of the Company, Robert A. Brooks, has prior experience
in the development, operation and disposition of comparable assisted living
facilities to that of the Residence. He has developed and operated five
assisted living facilities, three in Kansas and two in Colorado. Each of these
facilities were formed as a franchise of Sterling House Assisted Living.
Sterling House Corporation is publicly traded on the American Stock Exchange
under the symbol "SGH". Since its inception in 1991, SGH has been a long-term
care provider offering a wide range of assisted living care services through the
ownership, operation, management and franchising of Sterling House assisted
living residences. SGH is in the process of merging with Alternative Living
Services, a publicly traded assisted living company listed on the American Stock
Exchange. The Residence is not a franchise of SGH, or in no way is connected
with SGH.
In October 1993, Mr. Brooks formed Masters Associates, L.L.C. for the
purpose of developing and operating a 26-unit assisted living facility in Derby,
Kansas. The facility was completed in April 1994, reached stabilized occupancy
(considered 95% occupancy) within eight months of opening and was sold to SGH in
March 1996. Mr. Brooks served as the Managing Member of Masters Associates
until its sale to SGH. This limited liability company terminated shortly after
the sale of the facility.
In December 1993, Mr. Brooks formed Wellington Partners, L.L.C. for the
purpose of developing and operating a 26-unit assisted living facility in
Wellington, Kansas. The facility was completed in September 1994, reached
stabilized occupancy within ten months of opening and was sold to SGH in March
1996. Mr. Brooks served as the Managing Member of Wellington Partners until
its sale to SGH. This limited liability company terminated shortly after
the sale of the facility.
In October 1994, Mr. Brooks formed Hays Assisted Living, L.L.C. for the
purpose of developing and operating a 33-unit assisted living facility in Hays,
Kansas. The facility was completed in April 1995, reached stabilized occupancy
within five months of opening and was sold to SGH in March 1996. Mr. Brooks
served as the Managing Member of Hays Assisted Living until its sale to SGH.
This limited liability company terminated shortly after the sale of the
facility.
In August 1995, Colorado Springs Assisted Living, L.L.C. was formed for the
purpose of developing and operating up to three 37-unit assisted living
facilities in Colorado Springs, Colorado. Two facilities were built; no plans
for the third facility are presently being contemplated. The first facility
was completed in September 1996 and reached stabilized occupancy within four
months of opening. The second facility was completed in April 1997 and
presently is at 67% occupancy. Mr. Brooks is currently serving as the Managing
Member of Colorado Springs Assisted Living.
Each of the five aforementioned assisted living facilities were financed by
the issuance of bonds under terms similar to that of the Offering. The table on
the following page sets forth pertinent information regarding such financings,
the status of such offerings and of the facilities financed. Each of such
financings were offered and sold by the Underwriter on terms similar to the
Offering. An investor must realize that prior performance is in no way to be
construed as a guarantee of future performance.
(This space is intentionally left blank)
18
PRIOR PERFORMANCE TABLE OF OTHER OFFERINGS BY THE MANAGING MEMBER
Masters Wellington Hays Assisted
Associates, Partners,L.L.C. Living, L.L.C.
Dollar Amount of Bonds
Offered for Sale: $1,000,000 $1,150,000 $1,700,000
Dollar Amount Raised: $1,000,000 $1,150,000 $1,700,000
Issue Date of the Bonds:03/01/1994 08/01/1994 03/01/1995
Primary Use of Net Retire Retire Retire
Proceeds: construction loan construction loan construction loan
and construct 26 and construct 26 and construct 33
unit assisted unit assisted unit assisted
living facility living facility living facility
How are the Offerings Co-first mortgage Co-first mortgage Co-first mortgage
Similar? bonds issued on a bonds issued on a bonds issued on a
"best efforts" "best efforts" "best efforts"
basis basis basis
How Long was the 12 months 12 months 12 months
Offering Period?
What was the Term of 12 months 12 months 10 months
the Offering?
What was the Total $870,950 $870,950 $1,400,000
Amount of the
Construction Loan to be
Paid?
Was the Company Able No Yes Yes
to Retire the
Construction Loan in
Full before its
Maturity Date?
What were the The Company Not applicable Not applicable
Consequences of was able to
Failing to Pay the extend the note
Construction Loan by and paid it off by
the Maturity Date? the date required.
What was the Cost to Interest costs Not applicable Not applicable
the Company to Extend only
the Construction Loan?
Are the Bonds Still No, the Bonds No, the Bonds No, the Bonds
Outstanding? were called on were called on were called on
October 1, 1996. August 1, 1996. October 1, 1996.
Has the Property Been Yes Yes Yes
Sold by the Company?
Is each Assisted Not Applicable Not Applicable Not Applicable
Living Home Open and
Producing Cash Flow
at a Rate that is
Adequate to Cover
Operating Expenses and
Debt Service on the Bonds?
PRIOR PERFORMANCE TABLE OF OTHER OFFERINGS BY THE MANAGING MEMBER CONT...
Colorado Colorado
Springs Springs
Assisted Assisted
Living Living
L.L.C. L.L.C.
Dollar Amount of Bonds
Offered for Sale: $2,400,000 $2,400,000
Dollar Amount Raised: $2,400,000 $2,400,000
Issue Date of the Bonds: 07/01/1996 09/01/1996
Primary Use of Net Retire Retire
Proceeds: construction loan construction loan
and construct 37 and construct 37
unit assisted unit assisted
living facility living facility
How are the Offerings Co-first deed of Co-first deed of
Similar? trust bonds issued trust bonds issued
on a "best on a "best
efforts" basis efforts" basis
How Long was the 12 months 12 months
Offering Period?
What was the Term of 10 months 9 months
the Offering?
What was the Total $1,900,000 $1,900,000
Amount of the
Construction Loan to be
Paid?
Was the Company Able to Yes Yes
Retire the Construction
Loan in Full before its
Maturity Date?
What were the Not applicable Not applicable
Consequences of
Failing to Pay the
Construction Loan by
the Maturity Date?
What was the Cost to Not applicable Not applicable
the Company to Extend
the Construction Loan?
Are the Bonds Still Yes Yes
Outstanding?
Has the Property Been No No
Sold by the Company?
Is each Assisted Yes The facility is
Living Home Open and open but not yet
Producing Cash Flow producing
at a Rate that is sufficient cash
Adequate to Cover flow to cover debt
Operating Expenses and service.
Debt Service on the Bonds?
19
CERTAIN TRANSACTIONS
Robert A. Brooks, the Managing Member and control person of the Company,
will have certain transactions with the Company that are not a result of arms
length negotiations. Prospective purchasers of the Bonds must rely on the
ability and integrity of Mr. Brooks and his operation of the Company.
Management Fees
In return for certain on-going management and administrative services,
including primary responsibility for the day-to-day operation of the Residence,
the Managing Member may receive 7% of the gross rental income of the Company.
This fee shall be computed and paid 45 days after the date on which the gross
rental income was earned. In general, "gross rental income" means all amounts
actually collected by the Company, as tenants' rents, vending and laundry
income, income from commercial space, but excluding: (i) income derived from
interest on investments, (ii) discounts and dividends on insurance, and (iii)
security deposits. This management fee would approximately equal $5,800 per
month assuming 100% occupancy of the units and collection of 100% rents and fees
due associated with the Residence. The Managing Member may be reimbursed for
reasonable costs incurred by the Managing Member 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. For example, the
Managing Member may be reimbursed for automobile mileage between his home in
Wichita, Kansas and the Residence in St. George, Utah. The Company may also
reimburse the Managing Member for the cost of flying between these two locations
and for his temporary lodging in St. George. The Company does not have a cap on
expenses that can be reimbursed to the Managing Member. See "Management -
Managing Member."
Development
Mr. Brooks has been responsible for various development services associated
with the Residence including: land acquisition, zoning, and licensing; obtaining
financing; site planning; general contractor selection; construction oversight;
and initial accounting system and organizational setup. In return for these
development services, Mr. Brooks may receive a development fee in the amount of
$100,000 solely from the operations of the Residence. Mr. Brooks has not been
paid a development fee as of the date of this Offering.
Unsecured Notes
The Company has entered into financing arrangements in the form of
unsecured notes payable to the Managing Member and also an affiliated company of
the Managing Member. As of June 30, 1997, the Company had an aggregate of
$252,726 in unsecured notes payable to the Managing Member, due at various dates
through 1997 and 1998 with automatic extension provisions if not paid in full on
the maturity dates, at interest of 9%. As of July 17, 1997, the Company had
$88,142 in unsecured notes payable to the Brooks Development Company (an
affiliated company of the Managing Member) bearing interest at 9% and due at
various dates through 1997 and 1998 with automatic extension provisions if not
paid in full on the maturity dates.
Real Estate Conveyance
In June of 1997, Robert A. Brooks, Managing Member of the Company, conveyed
the property securing the Bonds (1.99 acres at 220 S. 1200 East Street in St.
George, Utah) to the Company in exchange for an unsecured note payable to Mr.
Brooks. This unsecured note is included in the total amount of unsecured notes
payable to the Managing Member as disclosed in "Certain Transactions - Unsecured
Notes". This property was conveyed at Mr. Brooks' original cost basis of
approximately $206,000.
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 Trust Indenture will be filed for record in the Washington
County Courthouse in Utah. 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.
20
Co-First Deed of Trust
The Series 1997-I Bonds will be secured by a Co-First Deed of Trust with
Emprise Bank on the Residence. A co-first deed of trust allows each lien holder
(Colonial Trust Company acting as Trustee on behalf of the Series 1997-I
bondholders, and Emprise), in the event of a default, to share in the proceeds
form the sale of the Residence. The rights of Colonial Trust Company acting as
Trustee on behalf of the Series 1997-I bondholders are subject to a certain
Lienholders Agreement between the Trustee and Emprise dated as of June 20, 1997,
which, among other things, provides for the allocation of proceeds from the sale
of the Residence based on the principal balance of the debts as calculated under
the Lienholders Agreement. See "Description of Property - Financing of
Residence". The total liabilities against the Residence between the Series
1997-I Bonds and the Construction Loan should at no time exceed the aggregate
amount of the Series 1997-I Bonds ($2,500,000).
Types of Bonds
There are two types of bonds being offered: Simple Interest Bonds and
Compound Interest Bonds.
Simple Interest Bonds begin accruing interest from October 1, 1997 whether
or not the bonds have been purchased. Interest on the Simple Interest Bonds is
payable to the investor semiannually until the bonds mature. Upon maturity the
bonds will cease to accrue interest.
Compound Interest Bonds begin accruing interest from October 1, 1997
whether or not the bonds have been purchased. Interest on the Compound Interest
Bonds will compound semiannually, and will pay both principal and accrued
interest upon maturity of the bond. Upon maturity the bonds will cease to
accrue interest.
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. 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. For further
information concerning the tax consequences of purchasing or holding the Bonds,
the investor should consult his or her tax advisor.
General
The Bonds will be dated October 1, 1997. 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. Both Simple Interest Bonds and Compound Interest Bonds will
be issued to mature serially. To "mature serially" means the bonds will mature
according to a predetermined maturity date, beginning six months from the issue
date of the bonds and continuing to mature each six months thereafter through 20
years. The Simple Interest Bonds will pay interest to the registered owner each
six months until the bond matures. The Simple Interest Bonds mature serially
and bear simple interest payable by check mailed to the registered owner each
April 1 and October 1 until the Bonds mature. The Simple Interest Bonds mature
serially and will begin earning interest on the issue date of October 1, 1997,
whether or not they have been purchased. The Compound Interest Bonds bear
compound interest from the date of issue payable at maturity compounded
semiannually each April 1 and October 1 until the Bonds mature. Compound
Interest Bonds will pay both principal and interest upon maturity of the bond.
The Compound Interest Bonds will begin accruing interest as of October 1, 1997,
whether or not they have been purchased. See "Maturity Schedule". If any
Compound Interest Bonds are purchased after the Issue Date, the purchaser will
nevertheless be entitled to receive the accrued interest on the Bond from the
date of issuance. Both types of bonds are sold at face value with the accrued
interest going to the investor. Each year the purchaser of a Compound Bond will
receive a form 1099 O.I.D. from the Trustee/Paying Agent showing the interest
earned on the Bond(s) for that tax year. The purchaser of either a Simple
Interest Bond or a Compound 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. The Issue Date of all the
Bonds will be the same regardless of when each individual Bond is sold.
Subject to the sale of a minimum of $300,000 in principal amount of the
Bonds, the Offering will terminate one year from the date hereof.
21
Trust Estate
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 Residence, 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. Under
the terms of a certain Lienholders Agreement which the Trustee is subject to,
all receipts from collection and foreclosure are to be allocated between the
Construction Loan and the Bonds in proportion to their then respective
outstanding balances. If a substantial amount of the Bonds are not timely sold,
the recovery of each Bondholder would then be substantially diminished if a
default were to occur.
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 Fund, 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 Account any
installment(s) required;
c) Failure or refusal to pay when due any taxes, assessments, insurance,
claims, liens or encumbrances upon the Residence, or to maintain the Residence
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 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, the Trustee
may accelerate the Bonds and declare the principal of all Bonds outstanding
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.
22
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 Residence, 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 Residence 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 Residence;
c) The ratio of the total of outstanding Bonds, as compared to the
appraised value of the property securing the payment of the Bonds, must not
exceed 100% of the then appraised market value of the property securing the
payment of the Bonds as derived from the Income Approach Appraisal Method; and
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:
23
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 on any semiannual interest computation date.
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
Residence. These Bonds are an obligation of the Company and will be secured by
a co-first deed of trust on the Residence, the Residence being more fully
described in the Trust Indenture.
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.
Operating Fund Requirements
Under the Trust Indenture, the Company must establish a Operating Fund
Account and make monthly deposits into the Operating Fund Account in amounts
predetermined to be sufficient at all times to pay the principal and interest
of the Bonds. The required monthly deposits will be as follows:
Series 1997-I ($2,500,000)
$19,573.19 per month for one year (12 Payments) beginning October 1, 1997
$21,668.49 per month for one years (12 Payments) beginning October 1, 1998
$23,583.95 per month for one years (12 Payments) beginning October 1, 1999
$25,260.00 per month for sixteen and one half years (198 Payments) beginning
October 1, 2000
$22,461.32 per month for six months (6 Payments) beginning April 1, 2017
Payments do not include the Paying Agent fee of $625 per month.
The Company will fund from the proceeds of this Offering operating fund
payments in the amount of $125,000. This amount is equivalent to slightly more
than the first six month operating fund payments assuming all of the Bonds are
sold. The $125,000 in operating fund payments funded from bond proceeds will be
applied for the initial operating fund payments. After the $125,000 has been
used for the initial operating fund payments, the remaining operating fund
payments will be payable primarily from the first revenues of the Residence.
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."
The Trustee must first draw, from the Operating Fund Account, the charges
due for paying agency and trustee services. Thereafter, the amounts in the
Operating Fund Account shall be used solely for the payment of interest
24
becoming due or principal becoming 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 Account to perform the Company's obligations. The Company is
obligated to immediately replenish such funds so applied.
Ten Year Bond Reserve Account
The Company has agreed to establish a Ten Year Bond Reserve Account from
bond proceeds. The Ten Year Bond Reserve Account will be funded in the amount
of $130,000 and will remain in place for a period of ten years from the issue
date of the Bonds. The purpose of the Ten Year 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. All
interest earned on the funds in the Ten Year Bond Reserve Account will remain as
a part of the Ten Year Bond Reserve Account to be used for said purposes. 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.
Escrow And Disbursement Of Bond Proceeds
Proceeds from the sale of the Bonds shall be payable to and deposited with
Colonial Trust Company of Phoenix, Arizona ("Escrow Agent" and "Registrar"). No
fees still due the Broker shall be paid out of the escrow account until the
Minimum Escrow Amount ($300,000) is met. The funds shall be used only for the
purposes set forth under the "Use of Proceeds." If $300,000 has not been
deposited in the Escrow Account from the sale of the Bonds by April 1, 1998, the
subscribers to the Bonds will receive the return of their subscription amount
plus interest. In the event that the Offering is not successful and is
terminated, 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 October 1, 1997
through the escrow termination date at the rate attributable to the Bonds
subscribed. The Investor has no access to funds held in the Escrow Account by
the Escrow Agent. See "Underwriting".
Escrow Agent
The Company has appointed Colonial Trust Company of Phoenix, Arizona, as
Escrow Agent. The duties and responsibilities of the Escrow Agent are set forth
in the Escrow agreement between the Company and the Escrow Agent, the provisions
of which are summarized under "Description of Bonds - Escrow And Disbursement Of
Bond Proceeds."
Trustee
Colonial Trust Company of Phoenix, Arizona, has agreed to serve as Trustee
for the Bonds pursuant to the Trust Indenture entered into between the Company
and the Trustee. The Trustee has also agreed to serve as Paying Agent,
Registrar, Disbursing Agent and Escrow Agent. The Trustee is not a guarantor
or surety, does not in any way guarantee or act as surety for payment of the
Bonds and may not be held liable under any conditions, except for its own
negligence.
The Underwriter and Trustee are separate corporations, organized under the
laws of the states of Kansas and Arizona respectively. The Trustee and
Underwriter share no common officer or directors. The Underwriter will however
receive a fee not to exceed $50,000 to be paid in installments over the term of
the Bond Issue from the Trustee for its technical assistance pertaining to the
Bond Issue. 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 elinquent 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.
25
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 Account 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 Account.
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. There is a minimum escrow of $300,000 on the Bonds. The
Bonds will be sold on an "as available" basis without regard to the various
maturity dates and the type of Bond. The minimum investment amount is $250.
The offering price for the Bonds has been arbitrarily determined by negotiations
between the Company and the Underwriter.
The Underwriter will receive a concession from the Company for the sale of
the Bonds. The concession will be paid in one of the following manners: (1)
the Underwriter will receive 6.5% of the face amount of each Bond sold by
another NASD member firm through a selling group agreement with the Underwriter;
(2) the Underwriter will receive a concession of 5% 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 2.5% 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 $50,000 to be paid in installments over
the term of the Bond Issue 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 Underwriter has received an investment
banking fee of $31,250 for its unaccountable expenses associated with the
Offering. The Company has agreed to indemnify the Underwriter against certain
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. The Underwriter will not receive any unpaid fees due until
the minimum escrow of $300,000 has been met. 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 Residence for the next three years following the
offering.
In addition, 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.
Each person who wishes to purchase a Bond must execute a subscription
agreement covering the Bond(s) being purchased. 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
26
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.
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 ten years, the Underwriter's
experience has primarily been in the underwriting of nonprofit debt securities,
intrastate debt offerings and Regulation A debt offerings.
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, Roger L. Theis, of Morris, Laing, Evans, Brock &
Kennedy, Chartered, Attorneys At Law, Wichita, Kansas, has opined upon certain
legal matters pertaining to the Bonds. In addition, David Gee of Kimball, Parr,
Waddoups, Brown & Gee, Salt Lake City, Utah, has opined upon certain legal
matters pertaining to the Bonds for the Company. 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: Keith D. Callison, SRA, Wichita,
Kansas, has provided an appraisal of the Residence. The financial statements
dated December 31, 1996 and 1995 have been audited by George, Bowerman, Osborn
and Company, P.A., independent certified public accountants, Wichita, Kansas.
(This space is intentionally left blank)
27
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)
28
INDEX TO FINANCIAL STATEMENTS
Page
Accountant's Compilation Report with Reference
to the Company's Audited Financial Statements. . . . . . . . . . . . F-2
Balance Sheets at December 31, 1995 and 1996
and June 30, 1997 (Unaudited). . . . . . . . . . . . . . . . . . . . F-3
Statements of Operations for the Years Ended December 31, 1995 and 1996
and the Twenty-Six Weeks Ended June 30, 1997 (Unaudited) . . . . . . F-4
Statements of Members' Equity (Deficit) for the Years Ended
December 31, 1995 and 1996 and the Twenty-Six Weeks Ended
June 30, 1997 (Unaudited). . . . . . . . . . . . . . . . . . . . . . F-5
Statements of Cash Flows for the Years Ended December 31, 1995 and 1996
and the Twenty-Six Weeks Ended June 30, 1997 (Unaudited) . . . . . . F-6
Notes to Financial Statements (Unaudited) . . . . . . . . . . . . . . . . F-7
(This space is intentionally left blank)
F-1
[GEORGE, BOWERMAN, NOEL & DEUTSCH, P.A. LETTERHEAD HERE]
ACCOUNTANT'S COMPILATION REPORT
To the Members
Front Range Assisted Living, L.L.C.
Wichita, Kansas
We have compiled the accompanying balance sheet of Front Range Assisted Living,
L.L.C. (a development stage company) as of June 30, 1997 and the related
statements of operations, members' equity and cash flows for the period from
January 1, 1997 to June 30, 1997 and for the period from July 18, 1995
(inception) to June 30, 1997, in accordance with Statements on Standards for
Accounting and Review Services issued by the American Institute of Certified
Public Accountants.
A compilation is limited to presenting in the form of financial statements
information that is the representation of management. We have not audited or
reviewed the accompanying financial statements at June 30, 1997 and for the
period from January 1, 1997 to June 30, 1997 and for the period from July 18,
1997 (inception) to June 30, 1997 and, accordingly, do not express an
opinion or any other form of assurance on them.
The financial statements for the year ended December 31, 1996 and for the period
from July 18, 1995 to December 31, 1995, were audited by us and we expressed an
unqualified opinion on them in our report dated January 8, 1997, but we have not
performed any auditing procedures since that date.
/S/George, Bowernam, Noel & Deutsch, P.A.
July 18, 1997
Wichita, Kansas
F-2
FRONT RANGE ASSISTED LIVING, L.L.C.
A LIMITED LIABILITY COMPANY
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
December 3l, December 3l,
June 30, 1997 1996 1995
(Unaudited) (Audited) (Audited)
ASSETS
Current assets:
Cash $ 143 $ 273 $ 402
---------- --------- --------
Property assets:
Land 206,213 - -
Site development 6,796 - -
---------- --------- --------
213,009 - -
---------- --------- --------
Other assets:
Organizational costs 1,943 1,260 1,260
Financing costs 33,698 15,000 -
---------- --------- --------
Total other assets 35,641 16,260 1,260
Total assets $ 248,793 $ 16,533 $ 1,662
========== ========= =========
LIABILITIES AND MEMBERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable $ 100 $ 100 $ -
Accrued interest payable 3,383 799 187
Notes payable 257,804 21,560 6,460
---------- --------- --------
Total current liabilities 261,287 22,459 6,647
---------- --------- --------
Members equity (deficit):
Capital contributions 200 200 200
Deficit accumulated during the (12,694) (6,126) (5,185)
development stage ---------- --------- --------
Total members' deficit (12,494) (5,926) (4,985)
---------- --------- --------
Total liabilities and
members' deficit $ 248,793 $ 16,533 $ 1,662
========== ========= ========
See accompanying notes and Accountant's Compilation Report.
F-3
FRONT RANGE ASSISTED LIVING, L.L.C.
A LIMITED LIABILITY COMPANY
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
Cumulative For The
During Period
Development Beginning
Stage July 18, 1995
From July 18, 1995 Year (Inception)
January 1, 1997 (Inception) Ended To
To To December 31, December 31,
June 30, 1997 June 30, 1997 1996 1995
(Unaudited) (Unaudited) (Audited) (Audited)
Revenues $ - $ - $ - $ -
--------- --------- ------- -------
Expenses:
Office rent - 4,400 - 4,400
Advertising 2,303 2,303 - -
Professional fees 1,350 1,789 150 289
Interest expense 1,075 1,874 612 187
Travel and
entertainment 1,309 1,501 - 192
Telephone 393 393 - -
Office supplies 124 178 - 54
Bank charges 14 173 96 63
Licenses and permits - 83 83 -
--------- --------- ------- -------
Total expenses 6,568 12,694 941 5,185
--------- --------- ------- -------
Net loss $ (6,568) $ (12,694) $ (941) $(5,185)
========= ========== ======= =======
See accompanying notes and Accountant's Compilation Report.
F-4
FRONT RANGE ASSISTED LIVING, L.L.C.
A LIMITED LIABILITY COMPANY
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF MEMBERS' EQUITY
From July 18, 1995 (Inception) To June 30, 1997
Contributed Accumulated
Capital deficit Total
Balance at July 18, 1995 $ - $ - $ -
Member contributions 200 - 200
Net loss - (5,185) (5,185)
------- -------- ------
Balance at December 31, 1995(audited) 200 (5,185) (4,985)
Net loss - (941) (941)
------- -------- ------
Balance at December 31, 1996(audited) 200 (6,126) (5,926)
Net loss - (6,568) (6,568)
------- -------- ------
Balance at June 30, 1997(unaudited) $ 200 $(12,694) $(12,494)
======= ========= ========
See accompanying notes and Accountant's Compilation Report.
F-5
FRONT RANGE ASSISTED LIVING, L.L.C.
A LIMITED LIABILITY COMPANY
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
Cumulative For The
During Period
Development Beginning
Stage July 18, 1995
July 18,1995 Year (Inception)
January 1, 1997 (Inception) Ended To
To To December 31, December 31,
June 30, 1997 June 30, 1997 1996 1995
(Unaudited) (Unaudited) (Audited) (Audited)
Cash flows from
operating activities:
Net loss $ (6,568) $ (12,694) $ (941) $ (5,185)
Adjustments to
reconcile net loss
to net cash used for
operating activities:
Increase in
accounts payable - 100 100 -
Increase in accrued
interest payable 2,584 3,383 612 187
Accrued interest
capitalized $ (1,509) (l,509) - -
--------- --------- -------- --------
Net cash used
for operating
activities (5,493) (10,720) (229) (4,998)
--------- --------- -------- --------
Cash flows used for
investing activities:
Site development assets (6,500) (6,500) - -
Purchase of other assets (19,381) (35,641) (15,000) (1,260)
--------- --------- -------- --------
Net cash used
for investing
activities (25,881) (42,141) (15,000) (1,260)
--------- --------- -------- --------
Cash flows from
financing activities:
Member contributions - 200 - 200
Loan proceeds 31,244 52,804 15,100 6,460
--------- --------- -------- --------
Net cash provided by
financing activities 31,244 53,004 15,100 6,660
--------- --------- -------- --------
Increase (decrease) in cash (130) 143 (129) 402
Cash at beginning of period 273 - 402 -
--------- --------- -------- --------
Cash at end of period $ 143 $ 143 $ 273 $ 402
========= ========= ======== ========
Noncash transactions:
Land acquisition from
issuance of notes payable $ 205,000 $ 205,000 $ - $ -
Capitalized interest
from accrued interest
payable 1,509 1,509 - -
See accompanying notes and Accountant's Compilation Report.
F-6
FRONT RANGE ASSISTED LIVING, L.L.C.
A LIMITED LIABILITY COMPANY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
June 30, 1997, December 31, 1996 and December 31, 1995
(Information as of June 30, 1997 and for the Six-Month Period
Ended June 30, 1997 is Unaudited)
1. ORGANIZATION AND OPERATIONS
Front Range Assisted Living, L.L.C. (the Company), is a limited liability
company organized under the Kansas Limited Liability Company Act. The Company
was formed to develop and operate an assisted living facility in the Saint
George, Utah area. The planned facility is to consist of 38 residential rental
units.
The Managing Member of the Company is Robert A. Brooks. The Manager is
responsible for managing and controlling the affairs of the Company. The
Company is comprised of two Members whose initial capital contributions consist
of cash. The interests of the Members in the Company range from 6% to 94%. The
other Member of the Company is Carol M. Brooks, wife of the Managing Member.
The operating agreement provides for up to eight additional persons to be
admitted as Members at the sole discretion of the Managing Member. In the event
of such admission of such additional Members, the interest of such additional
Members shall reduce the interest of the Managing Member. Additional Members
shall be entitled to an interest of 6% per capital contribution of $50,000. All
items of income, gain, loss, deduction and credit shall be allocated among the
Members in accordance with their percentage interest in the Company.
The Company will rent the facility, when constructed, to elderly individuals who
are located in the Saint George, Utah area. Collection of rental income will be
dependent upon the resources of the individuals to afford the rental rates being
charged by the Company.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Financing Costs
Costs incurred in connection with obtaining financing have been capitalized and
will be amortized on the straight-line method over the term of the financing.
Financing costs consist of bond issue costs related to the bonds to be issued
and will be amortized over the life of the bonds when
issued.
Organization Costs
Costs incurred in connection with the organization of the Company will be
amortized over five years.
Income Taxes
A limited liability company ("LLC") is an entity created and authorized under
various Kansas statutes. An LLC is structured to be taxed as a partnership, yet
provides limited liability protection for all of its members. For Federal and
state tax purposes, a LLC, like a partnership, is a pass-through entity; thus,
its income and losses are taxed only at the member level based on their pro rata
shares of the Company's items of income, deductions, losses and credits.
F-7
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Cash and Cash Equivalents
For the purposes of the statement of cash flows, cash is comprised of demand
deposit accounts.
Concentration of Credit Risks
The Company maintains cash balances at a bank which is insured by the Federal
Deposit Insurance Corporation up to $100,000.
Advertising Costs
Advertising costs are expensed as incurred.
Financial Statements
The process of preparing financial statements in conformity with generally
accepted accounting principles requires the use of estimates and assumptions
regarding certain types of assets, liabilities, revenues and expenses. Such
estimates primarily relate to unsettled transactions and events as of the date
of the financial statements. Accordingly, upon settlement, actual results
may differ from estimated amounts.
3. NOTES PAYABLE
Notes payable consist of the following:
June 30, December 3l, December 3l,
1997 1996 1995
(Unaudited) (Audited) (Audited)
----------- --------- ---------
Unsecured notes payable to Managing
Member, due at various dates through
1997 and 1998 with automatic extension
provisions if not paid in full on their
maturity dates, at interest rates of 9% $ 252,726 $ 20,300 $ 5,200
Unsecured notes payable to Brooks
Development Company, L.L.C. (an
affiliated company of the Managing
Member), due at various dates through
1997 and 1998 with automatic extension
provisions if not paid in full on their
maturity dates, at interest rates of 9% 5,078 1,260 1,260
========= ======== =======
$ 257,804 $ 21,560 $ 6,460
There have been no payments of principal or interest on any of the above
outstanding notes payable by the Company. Interest expense for the period from
January 1, 1997 through June 30, 1997 was $2,584 of which $1,509 was capitalized
as a component of the cost of land and site development and $1,075 was charged
to operations. The capitalization rate used to determine the amount of interest
eligible for capitalization was 9%. For the year ended
3. NOTES PAYABLE (continued)
December 31, 1996 and the period beginning July 18, 1995 to December 31, 1995,
interest expense was incurred and charged to operations in the amounts of $612
and $187, respectively.
4. FINANCING
The Company entered into a financing agreement dated December 20, 1996 with MMR
Investment Bankers, Inc. for the underwriting and sale of a bond issue in the
amount of $2,500,000, expected to be payable over 20 years at the prevailing
market rates upon issuance. The Company intends to use the bond proceeds to
provide permanent financing for the facility to be constructed. The bonds will
be collateralized by a first mortgage on the land and facility to be constructed
or in a co-first deed of trust position with a construction lender. Bond
retirement payments are to be provided from the Company's rental fees. The
Company is required to establish a three year bond reserve account in the amount
of $125,000 to be controlled and used by the Trustee to pay principal and
interest due on the bonds, should the issuer ever be in default on the bond
issue. This bond reserve account shall be in effect for a period of three years
from the date of the bond issue, and at the end of the three years, the bond
reserve account will be used to call bonds provided the issuer is current on all
bond reserve payments. The issuer will establish the bond reserve account with
the initial proceeds from the sale of the bonds. In addition, the first six
months operating fund requirements may be funded from the initial proceeds from
the sale of the bonds.
The agreement provides for the Company to pay a 1 1/4% investment banking fee
($31,250) of the aggregate amount of the bond issue. The Company has paid the
investment banking fee as of June 30, 1997. In addition, the Company will pay a
processing fee of 2.5% of the face amount of each bond sold to the constituents
of the issuer, a fee of 5% of the face amount of each bond sold to clients of
the Broker, and a fee of 6.5% of the face amount of each bond sold to and/or
through certain selected members of the National Association of Securities
Dealers, Inc. through a selling group agreement.
5. RELATED PARTY TRANSACTIONS
During the time that the Managing Member serves in that capacity, a management
fee equal to 7% of the gross rental income of the Company shall be paid to him.
In addition, the Managing Member is allowed reimbursement 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. Further, the Managing Member shall receive a
development fee in the amount of $100,000 payable at such time and in such
manner as the Managing Member shall determine is appropriate after January 1,
1997.
The Company has entered into financing arrangements in the form of unsecured
notes payable with the Managing Member and also an affiliated company of the
Managing Member (see Notes 3 and 6).
6. COMMITMENTS, CONTINGENCIES AND SUBSEQUENT EVENTS
On May 23, 1997, the Company entered into a contractual agreement in the amount
of $1,592,181 for the construction of the facility. No payments have been made
under the agreement through June 30, 1997.
6. COMMITMENTS, CONTINGENCIES AND SUBSEQUENT EVENTS (continued)
An affiliated company of the Managing Member, Brooks Development Company,
L.L.C., has entered into a contract in the amount of $91,000 with an
architecture firm to provide site development and building plans for the
facility. Brooks Development Company, L.L.C. has incurred expenses related to
the architecture contract in the amount of $83,064 to June 30, 1997. Front
Range Assisted Living, L.L.C. purchased the plans from Brooks Development
Company, L.L.C. on July 17, 1997 issuing a note payable to Brooks Development in
the amount of $83,064, due July 17, 1998 with an interest rate of 9%.
On June 20, 1997, the Company entered into a construction loan with a financial
institution for temporary financing of the project in the amount of $2,000,000.
The Company incurred a loan commitment fee in the amount of 1 1/2% ($30,000) of
the total loan commitment at the closing of the loan agreement. The loan
agreement provides for a variable daily interest rate at 1% above the "prime
rate", which was 9.50% at June 30, 1997. Interest payments are due monthly
beginning August 1, 1997 and the principal amount of the loan is due on
September 1, 1998. The loan is secured by a deed of trust on the property, a
security interest in all tangible and intangible personal property and fixtures
associated with the project, a personal guaranty by Robert A. Brooks, Managing
Member, in the amount of $340,000 and assignment of (a) a $500,000 life
insurance policy on the Managing Member, (b) a certificate of deposit in the
amount of $108,500 owned by the Managing Member and (c) a mutual fund with a
market value of $59,700 owned by the Managing Member. Draw downs under the loan
agreement to July 18, 1997 were $108,417.
The Company expects to incur total land, architecture, construction, financing
and development costs of approximately $2,510,725 for the facility.
(This page is intentionally left blank)
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 Schedule. . . . . . . . . . . . . . . . 2
Prospectus Summary . . . . . . . . . . . . . . . 3
Risk Factors . . . . . . . . . . . . . . . . . . 6
Use of Proceeds. . . . . . . . . . . . . . . . .11
Business . . . . . . . . . . . . . . . . . . . .11
Description of Property. . . . . . . . . . . . .13
Principal Owners of the Company. . . . . . . . .15
Management . . . . . . . . . . . . . . . . . . .16
The Company's Plan of Operation. . . . . . . . .17
Prior Performance of the Managing Member . . . .18
Certain Transactions . . . . . . . . . . . . . .20
Description of Bonds . . . . . . . . . . . . . .20
Underwriting . . . . . . . . . . . . . . . . . .26
Legal Matters. . . . . . . . . . . . . . . . . .27
Experts. . . . . . . . . . . . . . . . . . . . .27
Additional Information . . . . . . . . . . . . .28
Index to Financial Statements. . . . . . . . . .F-1
Until _____________, 1997 (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.
$2,500,000
Co-First Deed of Trust Bonds
Series 1997-I
[LOGO]
FRONT RANGE
ASSISTED LIVING, L.L.C.
(d/b/a Evergreen Gardens of St. George)
--------------
PROSPECTUS
--------------
MMR INVESTMENT BANKERS, INC.
, 1997
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers
Under the Kansas Limited Liability Company Act, all Members and Managers of
a limited liability company have limited liability without regard to their
participation in the management of the Company's business. A Member is only
liable for his contribution and improper return of capital.
The Company's Operating Agreement provides that the Company shall indemnify
the Managing member against all claims and liability incurred or imposed upon
the Managing Member in the good faith exercise of his judgement relative to the
business of the Company, provided; however, that the Managing Member is not
guilty of willful misconduct or gross negligence. The Company has also agreed
to indemnify its members against all claims or liability incurred or imposed
upon such members solely as a result of the members having an interest in the
Company.
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. . . . . . . . . . . . . . . . . . . . . . . . . .$863
NASD Registration Fee . . . . . . . . . . . . . . . . . . . . . . . . .$750
Blue Sky Qualification Fees and Expenses. . . . . . . . . . . . . . . . *
CUSIP Registration Fees . . . . . . . . . . . . . . . . . . . . . . . . *
Legal Fees and Expenses . . . . . . . . . . . . . . . . . . . . . . . . *
Accounting Fees and Expenses. . . . . . . . . . . . . . . . . . . . . . *
Transfer Agent, Escrow Agent, Paying Agent, Registrar & Trustee Fees. . *
Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . *
----
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . .$*
====
* To be filed by amendment.
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.
Date of Sale Title of Securities Sold Amount Sold Identity of Purchaser
July 1995 Membership Interest 94% Interest Robert A. Brooks
July 1995 Membership Interest 6% Interest Carol M. Brooks
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Item 27. Exhibits
The following exhibits are filed herewith:
Exhibit
Number Description
1(a) Form of Underwriting Agreement
1(b) Form of Selling Group Agreement
1(c) Form of Proceeds Escrow Agreement
3(a) Articles of Organization
3(b) Operating Agreement
4(a) Specimen of Bond Certificate
4(b) Form of Trust Indenture
4(c) Lienholders Agreement
5(a) Opinion of Morris, Laing, Evans, Brock & Kennedy
5(b) Opinion of Kimball, Parr, Waddoups, Brown & Gee
10(a) Construction Management Contract
10(b) Construction Loan Agreement
23(a) Consent of George, Bowerman, Osborn and Company
23(b) Consent of Morris, Laing, Evans, Brock & Kennedy
23(c) Consent of Kimball, Parr, Waddoups, Brown & Gee
23(d) Consent of Keith Callison & Associates
99(a) Appraisal
99(b) Environmental Report
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 pusuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the opinion of the Securities
and exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(3) It will file, during any period in which it offers or sells
securities, a post-effective amendment to this registration statement to:
II-2
(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-3
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant, Front Range Assisted Living, L.L.C., 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 Wichita, State of Kansas, on this 11th day
of August, 1997.
FRONT RANGE ASSISTED LIVING, L.L.C.
By: /S/Robert A Brooks
-----------------------------------
Robert A. Brooks
Managing Member
In accordance with the requirement of the Securities Act of 1933, this
Registration Statement was signed by the following persons in the capacities
indicated on August 11th, 1997.
Signature Title
/S/Robert A Brooks Managing Member
- -----------------------------
Robert A. Brooks (Principal Executive and Financial Officer)
/S/Carol M Brooks Member
- -----------------------------
Carol M. Brooks
II-4