AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 2, 1997
REGISTRATION NO. 333-17969
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 2
TO
FORM S-4
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
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BFC GUARANTY CORP.
BFC FINANCE CORP.
(Exact name of Registrants as specified in its charter)
DELAWARE 6799 52-1994622
DELAWARE 6799 52-1994568
(State of Incorporation) (Primary Standard Industrial (I.R.S. Employer
Classification Code Number) Identification
Number)
BFC GUARANTY CORP.
BFC FINANCE CORP.
1455 PENNSYLVANIA AVENUE, SUITE 230
WASHINGTON, DC 20004
(202) 639-0512
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
ROGER BAILEY
BFC GUARANTY CORP.
BFC FINANCE CORP.
1455 PENNSYLVANIA AVENUE, SUITE 230
WASHINGTON, DC 20004
(202) 639-0512
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
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COPY TO:
THOMAS J. MANCUSO, ESQ.
Brownstein Hyatt Farber & Strickland, P.C.
410 Seventeenth Street, 22nd Floor
Denver, CO 80202
(303) 534-6335
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
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If any of the securities being registered on this Form are being offered
with the formation of a holding company and there is compliance with General
Instruction G, check the following box: / /
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CALCULATION OF REGISTRATION FEE
PROPOSED
PROPOSED MAXIMUM
MAXIMUM AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE OFFERING REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED PER NOTE(1) PRICE FEE
Guarantees of Public Facilities
Revenue Bonds, Series 1996 B....... $66,975,000 100% $66,975,000 $20,930(2)
REMIC Lease-Backed Bonds Series 1996,
Class B............................ $67,075,000 100% $67,075,000 -0-
(1) Estimated solely for the purposes of calculating the registration fee
pursuant to Rule 457.
(2) Previously paid.
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THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS
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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CROSS-REFERENCE SHEET
PURSUANT TO ITEM 501(B) OF REGULATION S-K
SHOWING LOCATION IN PROSPECTUS OF INFORMATION
REQUIRED BY ITEMS OF PART I OF FORM S-4
REGISTRATION STATEMENT
ITEM NUMBER AND CAPTION CAPTION OR LOCATION IN PROSPECTUS
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1. Forepart of Registration Statement and
Outside Front Cover Page of Prospectus............. Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages of
Prospectus......................................... Inside Front Cover Page; Outside Back Cover Page
3. Risk Factors, Ratio of Earnings to Fixed
Charges and Other Information...................... Prospectus Summary; Risk Factors; Selected Historical
Financial Data
4. Terms of the Transaction............................ Outside Front Cover Page; Prospectus Summary;
The Exchange Offer; Description of Exchange Bonds
5. Pro Forma Financial Information..................... Pro Forma Financial Data
6. Material Contracts with the Company Being
Acquired........................................... Inapplicable
7. Additional Information Required for
Reoffering by Persons and Parties Deemed
to be Underwriters................................. Inapplicable
8. Interests of Named Experts and Counsel.............. Legal Matters; Independent Auditors
9. Disclosure of Commission Position on
Indemnification for Securities Act Liabilities..... Inapplicable
10. Information with Respect to S-3 Registrants........ Inapplicable
11. Incorporation of Certain Information by
Reference.......................................... Inapplicable
12. Information with Respect to S-2 or S-3
Registrants........................................ Inapplicable
13. Incorporation of Certain Information by
Reference.......................................... Inapplicable
14. Information with Respect to Registrants other
than S-2 or S-3 Registrants........................ Outside Front Cover Page; Prospectus Summary;
Risk Factors; Use of Proceeds; Capitalization;
Selected Historical Financial Data; Management's
Discussion and Analysis of Financial Condition and
Results of Operations; The Project; The Authority;
The Districts; Credit Enhancement; Management;
Ownership of the Authority; Certain Transactions
15. Information with Respect to S-3 Companies.......... Inapplicable
16. Information with Respect to S-2 or S-3
Companies.......................................... Inapplicable
17. Information with Respect to Companies
Other than S-2 or S-3 Companies.................... Inapplicable
18. Information if Proxies, Consents or
Authorizations are to be Solicited................. Inapplicable
19. Information if Proxies, Consents or
Authorizations are not to be Solicited or in
an Exchange Offer.................................. Management; Ownership of the Authority; Certain
Transactions
EXPLANATORY NOTE
The legend along the left side of the front cover of the Prospectus will be
printed in red on the final version of the Prospectus.
SUBJECT TO COMPLETION, DATED JULY 2, 1997
PROSPECTUS
, 1997
GUARANTEE OF $66,975,000
CASTLE ROCK RANCH PUBLIC IMPROVEMENTS AUTHORITY
PUBLIC FACILITIES REVENUE BONDS, SERIES 1996B
BY BFC GUARANTY CORP.
OFFER TO EXCHANGE GUARANTEED PUBLIC FACILITIES REVENUE BONDS, SERIES 1996 B
FOR ANY AND ALL OUTSTANDING GUARANTEED PUBLIC FACILITIES REVENUE BONDS, SERIES
1996
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME,
ON , 1997 UNLESS EXTENDED
Castle Rock Ranch Public Improvements Authority, a Colorado nonprofit
corporation (the "Authority"), hereby offers (the "Exchange Offer"), upon the
terms and conditions set forth in this Prospectus (the "Prospectus") and the
accompanying Letter of Transmittal (the "Letter of Transmittal"), to exchange
$5,000 principal amount of its Public Facilities Revenue Bonds, Series 1996 B
(the "Exchange Bonds") for each $5,000 principal amount of its outstanding
Public Facilities Revenue Bonds, Series 1996 (the "Bonds"), of which $66,975,000
principal amount is outstanding. The Bonds are, and the Exchange Bonds will be,
credit enhanced (the "Credit Enhancement") by BFC Guaranty Corp. (the "Credit
Enhancement Provider") as described herein. The form and terms of the Exchange
Bonds are the same as the form and term of the Bonds (which they replace) except
that the Exchange Bonds will bear a Series B designation and, because the Credit
Enhancement will have been registered under the Securities Act of 1933, as
amended (the "Securities Act") pursuant to a Registration Statement of which
this prospectus is a part, the Exchange Bonds will not bear legends restricting
their transfer and will not contain certain provisions relating to an increase
in the interest rate which were included in the terms of the Bonds in certain
circumstances relating to the timing of the Exchange Offer. The Exchange Bonds
will evidence the same debt as the Bonds (which they replace) and will be issued
under and be entitled to the benefits of the Indenture (the "Indenture") dated
as of March 1, 1996 between the Authority and SouthTrust Bank of Alabama,
National Association (the "Trustee") governing the Bonds. See "The Exchange
Offer" and "Description of Exchange Bonds."
The Authority has not issued any other indebtedness, but has plans to issue
other indebtedness in the future. The Exchange Bonds will be limited obligations
of the Authority payable solely from the funds held under the Indenture,
Revenues (as defined herein) of the Authority and payments under the Credit
Enhancement. The Authority has executed a Deed of Trust (as defined herein) to
provide security to the Trustee for the benefit of the bondholders and to
provide security to the Credit Enhancement Provider with regard to amounts
payable by the Credit Enhancement Provider, including amounts payable pursuant
to a Reimbursement Agreement dated as of March 1, 1996 (the "Reimbursement
Agreement") between the Authority and the Credit Enhancement Provider.
SEE "RISK FACTORS" BEGINNING ON PAGE 9 HEREOF FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED BY HOLDERS WHO TENDER THEIR BONDS IN THE
EXCHANGE OFFER.
The Authority itself has no taxing power. The Authority is acting as an
instrumentality of Dawson Ridge Metropolitan District No. 5 (the "District"). On
November 7, 1995, the voters of the District and certain related improvement
districts (the "Related Districts") approved the execution and delivery of an
Operating Agreement and an Intergovernmental Agreement obligating the Related
Districts to provide funds to the District for payment to the Authority to the
extent that revenues from the Project (as defined herein) are insufficient to
fund debt service on the Bonds and operating expenses of the Project, such
i
funds to be derived from a mill levy that is subject to certain limitations,
including a 35-mill limitation on taxable property within the District and the
Related Districts (collectively, the "Districts"). The Operating Agreement and
the Intergovernmental Agreement will not become effective until one of two
conditions (hereinafter discussed) for imposition of the mill levy are
satisfied. In order to provide an alternate source of revenue, the Authority has
entered into a Development Agreement dated as of March 1, 1996, with Douglas
County Development Corporation, the owner of approximately 75% of the taxable
property in the Districts, providing for a payment in lieu of taxes by Douglas
County Development Corporation and all subsequent owners of the property owned
by Douglas County Development Corporation in the Districts. Neither the
principal of the Bonds, nor the interest accruing thereon, shall ever constitute
a general indebtedness of the Authority, the District or the Related Districts
or an indebtedness of the State of Colorado or any political subdivision thereof
within the meaning of any constitutional or statutory provision whatsoever or
shall ever constitute or give rise to a pecuniary liability of the State of
Colorado or any political subdivision thereof or a charge against the general
credit or taxing power of the State of Colorado or any political subdivision
thereof, nor will the Bonds be, or be deemed to be, an obligation of the State
of Colorado or any political subdivision thereof. The taxing power of the
District and the Related Districts is limited.
Certain terms and documents relating to the Bonds and the Credit Enhancement
are described herein under the caption "DEFINITIONS OF CERTAIN TERMS AND
DESCRIPTIONS OF PRINCIPAL DOCUMENTS."
The Authority will accept for exchange any and all Bonds validly tendered
and not withdrawn prior to 5:00 p.m., New York City time, on , 1997,
unless extended by the Authority in its reasonable discretion (the "Expiration
Date"). Notwithstanding the foregoing, the Authority will not extend the
Expiration Date beyond , 1997. Tenders of Bonds may be withdrawn at
any time prior to 5:00 p.m. on the Expiration Date. The Exchange Offer is
subject to certain customary conditions. The Bonds were sold by the Authority on
March 27, 1996 in a transaction not registered under the Securities Act in
reliance upon exemptions under the Securities Act. Because of the exemption from
registration relied upon for the issuance of the Credit Enhancement, the Bonds
may not be reoffered, resold or otherwise transferred in the United States
unless the Credit Enhancement is registered under the Securities Act or unless
an applicable exemption from the registration requirements of the Securities Act
is available. The Exchange Bonds are being offered hereunder in order to satisfy
the obligations of the Authority and the Credit Enhancement Provider under the
Registration Rights Agreement (as defined herein) entered into by the Authority
in connection with the offering of the Bonds. See "The Exchange Offer."
Based on no-action letters issued by the staff of the Securities and
Exchange Commission to third parties, the Credit Enhancement Provider believes
the Credit Enhancement issued pursuant to the Exchange Offer may be offered for
resale, resold and otherwise transferred by any holder thereof (other than any
such holder that is an "affiliate" of the Authority or the Credit Enhancement
Provider within the meaning of Rule 405 under the Securities Act) without
compliance with the registration and prospectus delivery provisions of the
Securities Act, provided that such Credit Enhancement is acquired in the
ordinary course of such holders' business and such holder has no arrangement or
understanding with any person to participate in the distribution of such
Exchange Bonds. See "The Exchange Offer--Purpose and Effect of the Exchange
Offer" and "The Exchange Offer--Resale of the Exchange Bonds." The Exchange
Bonds themselves are exempt from registration under Section 3(a)(2) of the
Securities Act. By virtue of the Credit Enhancement, each broker-dealer (a
"Participating Broker-Dealer") that receives Exchange Bonds for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Bonds. The Letter of
Transmittal states that by so acknowledging and by delivering a prospectus, a
participating Broker-Dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act. This Prospectus, as it
may be amended or supplemented from time to time, may be used by a Participating
Broker-Dealer in connection with resales
ii
of Exchange Bonds received in exchange for Bonds where such Bonds were acquired
by such Participating Broker-Dealer as a result of market-making activities or
other trading activities. The Credit Enhancement Provider has agreed that, for a
period of 180 days after the Expiration Date, it will make this Prospectus
available to any Participating Broker-Dealer for use in connection with any such
resale. See "Plan of Distribution."
Holders of Bonds not tendered and accepted in the Exchange Offer will
continue to hold such Bonds and will be entitled to all the rights and benefits
and will be subject to the limitations applicable thereto under the Indenture
and with respect to transfer under the Securities Act. The Authority will pay
all the expenses incurred by it incident to the Exchange Offer. See "The
Exchange Offer."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
There has not previously been any public market for the Bonds or the
Exchange Bonds. The Authority does not intend to list the Exchange Bonds on any
securities exchange or to seek approval for quotation through any automated
quotation system. There can be no assurance that an active market for the
Exchange Bonds will develop. See "Risk Factors--Lack of Public Market."
Moreover, to the extent that Bonds are tendered and accepted in the Exchange
Offer, the trading market for untendered and tendered but unaccepted Bonds could
be adversely affected.
The Exchange Bonds will be available only in book-entry form. The Authority
expects that the Exchange Bonds issued pursuant to this Exchange Offer will be
issued in the form of a Global Certificate (as defined herein), which will be
deposited with, or on behalf of, The Depository Trust Company and registered in
the name of CEDE & CO., its nominee. Beneficial interests in the Global
Certificate representing the Exchange Bonds will be shown on, and transfers
thereof to qualified institutional buyers will be effected through, records
maintained by The Depository Trust Company and its participants. After the
initial issuance of the Global Certificate, Exchange Bonds in certificated form
will be issued in exchange for the Global Certificate only on the terms set
forth in the Indenture. See "Description of Exchange Bonds--Book-Entry; Delivery
and Form."
In order to secure its obligations under the Collateralized Credit
Enhancement Agreement, the Credit Enhancement Provider has pledged and delivered
to the Trustee $67,075,000 principal amount of REMIC Lease-Backed Bonds, Series
1996, Class B (the "Series B REMIC Bonds") issued by BFC Finance Corp. payable
from an interest in a trust estate (the "REMIC Trust Estate") under an indenture
of trust (the "REMIC Indenture") between BFC Finance Corp. and SouthTrust Bank
of Alabama, National Association (the "REMIC Trustee"), in accordance with the
provisions of a Bond Pledge and Security Agreement between the Credit
Enhancement Provider, the Trustee and the REMIC Trustee. An election was made to
have the REMIC Trust Estate treated as a "real estate mortgage investment
conduit" for federal income tax purposes. This Prospectus also relates to the
Series B REMIC Bonds.
iii
AVAILABLE INFORMATION
The Credit Enhancement Provider and BFC Finance Corp. (Collectively, the
"Registrants") have filed with the Securities and Exchange Commission a
Registration Statement on Form S-4 (the "Exchange Offer Registration Statement,"
which term shall encompass all amendments, exhibits, annexes and schedules
thereto) pursuant to the Securities Act, and the rules and regulations
promulgated thereunder, covering the Credit Enhancement of the Exchange Bonds
being offered hereby. This Prospectus does not contain all the information set
forth in the Exchange Offer Registration Statement. For further information with
respect to the Authority, the Exchange Offer and the Credit Enhancement and
Credit Enhancement Provider, reference is made to the Exchange Offer
Registration Statement. Statements made in this Prospectus as to the contents of
any contract, agreement or other document referred to are not necessarily
complete. With respect to each such contract, agreement or other document filed
as an exhibit to the Exchange Offer Registration Statement, reference is made to
the exhibit for a more complete description of the document or matter involved,
and each such statement shall be deemed qualified in its entirety by such
reference. The Exchange Offer Registration Statement, including the exhibits
thereto, can be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Washington,
D.C. 20549, at the Regional Offices of the Commission at 7 World Trade Center,
Suite 1300, New York, New York 10048 and at Northwestern Atrium Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such materials
can be obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington, DC 20549, at prescribed rates. The Commission also
maintains a Web site that contains reports, proxy and information statements and
other materials that are filed through the Commission's Electronic Data
Gathering, Analysis and Retrieval system. This Web site can be accessed at
http://www.sec.gov.
As a result of the filing of the Exchange Offer Registration Statement with
the Securities and Exchange Commission, the Registrants will become subject to
the informational requirements of the Securities Exchange Act of 1934, as
amended, and in accordance therewith will be required to file periodic reports
and other information with the Securities and Exchange Commission. The
obligation of the Registrants to file periodic reports and other information
with the Securities and Exchange Commission will be suspended if the Exchange
Bonds are held of record by fewer than 300 holders as of the beginning of any
fiscal year of the Registrants other than the fiscal year in which the Exchange
Offer Registration Statement is declared effective. The Credit Enhancement
Provider will nevertheless be required to continue to file reports with the
Securities and Exchange Commission if the Exchange Bonds are listed on a
national securities exchange, although the Authority does not intend to list the
Exchange Bonds on any securities exchange. In addition and in the event the
Registrants cease to be subject to the informational requirements of the
Securities Exchange Act of 1934, as amended, in order to satisfy the
requirements of Rule 15c2-12 of the Securities Exchange Act of 1934, as amended,
the Authority, the Credit Enhancement Provider, the Districts and the Trustee
have entered into a Continuing Disclosure Agreement for the benefit of owners of
the Bonds. Pursuant to such agreement, the Authority, the Credit Enhancement
Provider and the Districts have covenanted to provide to each nationally
recognized municipal securities information repository and to the Colorado state
information depository, if and when established, certain annual financial
information and operating data, including audited financial statements, within
210 days following the end of each of their fiscal years. The Authority, the
Credit Enhancement Provider and each District have covenanted to provide notice
in a timely manner to each nationally recognized municipal securities
information repository or to the Municipal Securities Rulemaking Board and to
the Colorado state information depository of its failure to provide the required
annual financial information on or before the date specified in the Continuing
Disclosure Agreement.
iv
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY, AND SHOULD BE READ IN
CONJUNCTION WITH, THE MORE DETAILED INFORMATION AND FINANCIAL DATA, INCLUDING
THE FINANCIAL STATEMENTS, ELSEWHERE IN THIS PROSPECTUS.
THE AUTHORITY, THE CREDIT ENHANCEMENT PROVIDER AND BFC FINANCE CORP.
The Authority is a nonprofit corporation created as an instrumentality of
the District for the purpose of acquiring from Douglas County Development
Corporation, an affiliate of The Franklin L. Haney Company, an approximately 876
acre portion of the Dawson Ridge development in the Town of Castle Rock,
Colorado (the "Real Estate"), and for the acquisition from Douglas County
Development Corporation of an estimated 900 acre feet of water rights in the
Arapahoe, Laramie-Fox Hills, Denver and lower Dawson aquifers (collectively with
the Real Estate, the "Property") for $54,550,000. It is anticipated that the
Authority will construct a 36-hole golf course on the Real Estate, to be
operated as a municipal golf course, although none of the necessary governmental
approvals or permits have been obtained. Consequently, no assurances can be
given that the contemplated golf course will be ultimately constructed. See "The
Project" and "The Authority."
The Credit Enhancement Provider is a newly-formed Delaware corporation
formed for the purpose of providing the Credit Enhancement. The Credit
Enhancement Provider has executed a Collateralized Credit Enhancement Agreement
to provide for the due, prompt and complete payment of the Bonds. As collateral,
the Credit Enhancement Provider has pledged and delivered to the Trustee
$67,075,000 of Series B REMIC Bonds. See "Credit Enhancement."
BFC Finance Corp. Is a newly-formed Delaware corporation formed for the
purpose of issuing the REMIC Bonds.
The Authority's address is 4582 South Ulster Street, Suite 902, Denver,
Colorado 80237, and its telephone number is (303) 770-4760.
The Credit Enhancement Provider's and BFC Finance Corp.'s address is 1455
Pennsylvania Avenue, Suite 230, Washington, DC 20004, and its telephone number
is (202) 639-0512.
THE PROJECT
The proceeds of the Bonds will be used for the acquisition from Douglas
County Development Corporation, an affiliate of The Franklin L. Haney Company,
of the Property. The purchase price for this acquisition ($54,550,000) was not
determined in an arm's length negotiation, but rather is the appraised fair
market value determined by THK Associates, Inc., independent appraisers, in
their February 26, 1996 appraisal. It is anticipated that the Authority will
construct a 36-hole golf course on the Real Estate, to be operated by the
Authority as a municipal golf course. No assurances, however, can be given that
the contemplated golf course will be ultimately constructed. The Bonds will be
used solely for real estate and water rights acquisitions (and payment of cost
of issuance, including the payment of fees and expenses of the Credit
Enhancement Provider in connection with providing the Credit Enhancement).
Following the completion of construction documentation and the issuance of all
the necessary government permits and approvals, the Authority intends to issue
one or more subsequent series of bonds in order to finance the design,
construction and completion of golf course and recreational facility
improvements and equipment, and for roadway construction (all such acquisition
and construction constituting the "Project").
The construction and completion of the golf course and other recreational
facility improvements is currently estimated to cost $5,150,000. The Authority
also expects to incur approximately $25,000,000 of additional costs to complete
nonrevenue producing infrastructure, including roadways, which will be
transferred to the District on completion. Under the terms of the Indenture, any
additional bonds issued by the Authority will be issued on a subordinate basis.
There can be no assurance that the Authority will be
1
able to issue any additional bonds or issue them in amounts needed to finance
construction of the golf course and other recreational facility improvements and
non-revenue producing infrastructure.
On November 7, 1995, the voters of the District and the Related Districts
approved the execution and delivery of an Operating Agreement and an
Intergovernmental Agreement obligating the Related Districts to provide funds to
the District for payment to the Authority to the extent that revenues from the
Project are insufficient to fund debt service on the Bonds and operating
expenses of the Project, such funds to be derived from a mill levy that is
subject to certain limitations, including a 35-mill limitation on taxable
property within the Districts. The Operating Agreement and the Intergovernmental
Agreement will not become effective until one of two conditions (discussed in
"SECURITY AND SOURCE OF PAYMENT") for imposition of the mill levy are satisfied.
In order to provide an alternate source of revenue, the Authority has entered
into a Development Agreement dated as of March 1, 1996, with Douglas County
Development Corporation, the owner of approximately 75% of the taxable property
in the Districts, providing for a payment in lieu of taxes by Douglas County
Development Corporation and all subsequent owners of the property owned by
Douglas County Development Corporation in the Districts. See "DEFINITIONS OF
CERTAIN TERMS AND DESCRIPTIONS OF PRINCIPAL DOCUMENTS" herein for a more
complete description of the Operating Agreement, the Intergovernmental Agreement
and the Development Agreement.
Development of the Project will require that the Town of Castle Rock approve
amendments to each of the Districts service plans, as discussed in "THE
DISTRICTS--Service Plan" and"--Town of Castle Rock Agreements." At the present
time, the Town of Castle Rock is not accepting any applications for service plan
amendments until it finalizes new policies regarding the use and powers of
special districts located within its jurisdiction. These new policies are
expected to be in place in 1997. Once the new policies are in effect, the
Districts will submit their applications for service plan amendments to the Town
of Castle Rock. Such amendments to the Districts' service plans may also be a
condition to the effectiveness of the Operating Agreement and the
Intergovernmental Agreement, as described in "SECURITY AND SOURCE OF PAYMENT."
There can be no assurance that the Town of Castle Rock will approve the
amendments to the Districts' service plans. In addition, undertaking completion
of the Project will require various governmental permits and approvals
(including revisions of the previously approved Planned Unit Development ("PUD")
for the Dawson Ridge development). While the Districts and the Authority have
commenced initial conversations with Town of Castle Rock staff on the nature and
extent of such requirements, no formal PUD amendments will be submitted to the
Town of Castle Rock or the Town of Castle Rock Zoning Commission until the Town
of Castle Rock has approved the amendments to the Districts' service plans. Even
if the service plan amendments are approved by the Town of Castle Rock, no
assurance can be given that the requisite approvals for actual development of
the Project will be forthcoming or that they will be obtained in a timely
fashion.
In the event that the design and construction of the golf course and
recreational facility improvements and equipment within the Project are not
completed, there will be no revenues from the operation of those facilities
available for payment of principal and interest on the Bonds, although property
tax revenues or fees in lieu thereof under the Development Agreement will
continue to be available for that purpose. If the golf course and recreational
facilities are built, but the residential development of Dawson Ridge is not
completed as planned, then the amount of property tax revenues and Development
Agreement revenues collected by the Districts together with the net revenues
from operation could be insufficient to make full payment of principal and
interest on the Bonds. In either such event, the Credit Enhancement Provider
must pay the debt service on the Bonds (exclusive of Extra Payments), but the
Credit Enhancement Provider might foreclose on the Project and convert it into a
non-public facility. Such a change in use could adversely affect the exclusion
of interest on the Bonds from gross income for federal income tax purposes.
Consequently, the Deed of Trust requires that, before the Credit Enhancement
Provider can foreclose on the Project, it must obtain an opinion of Special Tax
Counsel acceptable to the Trustee that such foreclosure will not adversely
affect the exclusion of interest on the Bonds from gross income for federal
2
income tax purposes. In addition, the Deed of Trust will be terminated as to the
Bondholders if the Credit Enhancement Provider forecloses on it because of a
default by the Authority under the Reimbursement Agreement.
At the present time there exist no material contracts with respect to the
development of the Project. With respect to the planned golf course, the
Authority previously engaged Global Golf Course Design, Inc. for the preparation
of a detailed design and construction package based on a review of Real Estate
suitability, creation of a detailed golf course design, and overview of on-site
construction requirements. Contracts for final design of the golf course between
the Authority and Global Golf Course Design, Inc. are anticipated to be executed
once the service plan amendments are approved by the Town of Castle Rock.
THE OFFERING
Securities Offered.................. The Bonds were sold by the Authority on March 29,
1996 to Lehmann Brothers Inc., acting as placement
agent, pursuant to a Purchase Agreement dated March
26, 1996 (the "Purchase Agreement"). Lehmann Brothers
Inc. subsequently resold the Bonds to qualified
institutional buyers pursuant to Rule 144A under the
Securities Act and to institutional accredited
investors that agreed to comply with certain transfer
restrictions and other conditions. The Authority is a
public instrumentality of the State of Colorado. As a
result, the offer and sale of the Bonds and the
Exchange Bonds is exempt from the registration
requirements of the Securities Act pursuant to
Section 3(a)(2) of the Securities Act. However, the
Credit Enhancement Provider is not a public
instrumentality and the Credit Enhancement is not so
exempt.
The Exchange Offer.................. $5,000 principal amount of the Exchange Bonds in
exchange for each $5,000 principal amount of Bonds.
As of the date hereof, $66,975,000 aggregate
principal amount of Bonds are outstanding. The
Authority will issue the Exchange Bonds to holders on
or promptly after the Expiration Date.
Based on an interpretation by the staff of the
Securities and Exchange Commission set forth in no
action letters issued to third parties, the Authority
and the Credit Enhancement Provider believe that
Credit Enhancement issued in connection with the
Exchange Bonds issued pursuant to the Exchange Offer
in exchange for Bonds may be offered for resale,
resold and otherwise transferred by any holder
thereof (other than any such holder which is an
"affiliate" of the Authority or the Credit
Enhancement Provider within the meaning of Rule 405
under the Securities Act) without compliance with the
registration and prospectus delivery provisions of
the Securities Act, provided that such Credit
Enhancement is acquired in the ordinary course of
such holder's business and that such holder does not
intend to participate and has no arrangement or
understanding with
3
any person to participate in the distribution of such
Credit Enhancement.
By virtue of the Credit Enhancement, each
Participating Broker-Dealer that receives Exchange
Bonds for its own account pursuant to the Exchange
Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such
Exchange Bonds. The Letter of Transmittal states that
by so acknowledging and by delivering a prospectus, a
Participating Broker-Dealer will not be deemed to
admit that it is an "underwriter" within the meaning
of the Securities Act. This Prospectus, as it may be
amended or supplemented from time to time, may be
used by a Participating Broker-Dealer in connection
with resales of Exchange Bonds received in exchange
for Bonds where such Bonds were acquired by such
Participating Broker-Dealer as a result of
market-making activities or other trading activities.
The Credit Enhancement Provider has agreed that, for
a period of 180 days after the Expiration Date, it
will make this Prospectus available to any
Participating Broker-Dealer for use in connection
with any such resale. See "Plan of Distribution."
Any holder who tenders in the Exchange Offer with the
intention to participate, or for the purpose of
participating, in a distribution of the Exchange
Bonds could not rely on the position of the staff of
the Securities and Exchange Commission enunciated in
no-action letters and, in the absence of an exemption
therefrom, must comply with the registration and
prospectus delivery requirements of the Securities
Act in connection with any resale transaction.
Failure to comply with such requirements in such
instance may result in such holder incurring
liability under the Securities Act for which the
holder is not indemnified by the Authority.
Expiration Date..................... 5:00 p.m., New York City time, on ,
1997 unless the Exchange Offer is extended, in which
case the term "Expiration Date" means the latest date
and time to which the Exchange Offer is extended.
Accrued Interest on the Exchange
Bonds and the Bonds............... Each Exchange Bond will bear interest from its
issuance date. Holders of Bonds that are accepted for
exchange will receive, in cash, accrued interest
thereon to, but not including, the issuance date of
the Exchange Bonds. Such interest will be paid with
the first interest payment on the Exchange Bonds.
Interest on the Bonds accepted for exchange will
cease to accrue upon issuance of the Exchange Bonds.
Conditions.......................... The Exchange Offer is subject to certain customary
conditions, which must be satisfied or waived by the
Authority
4
and the Credit Enhancement Provider prior to the
Expiration Date. See "The Exchange
Offer--Conditions."
Procedures for Tendering Bonds...... Each holder of Bonds wishing to accept the Exchange
Offer must complete, sign and date the accompanying
Letter of Transmittal, or a facsimile thereof, in
accordance with the instructions contained herein and
therein, and mail or otherwise deliver such Letter of
Transmittal, or such facsimile, together with the
Bonds and any other required documentation to the
Exchange Agent (as defined) at the address set forth
herein. By executing the Letter of Transmittal, each
holder will represent to the Authority and the Credit
Enhancement Provider that, among other things, the
Exchange Bonds acquired pursuant to the Exchange
Offer are being obtained in the ordinary course of
business of the person receiving such Exchange Bonds,
whether or not such person is the holder, that
neither the holder nor any such other person has any
arrangement or understanding with any person to
participate in the distribution of such Exchange
Bonds and that neither the holder nor any such other
person is an "affiliate," as defined under Rule 405
of the Securities Act, of the Authority and the
Credit Enhancement Provider. See "The Exchange
Offer--Purpose and Effect of the Exchange Offer" and
"--Procedures for Tendering."
Untendered Bonds.................... Following the consummation of the Exchange Offer,
holders of Bonds eligible to participate but who do
not tender their Bonds will not have any further
exchange rights and such Bonds will continue to be
subject to certain restrictions on transfer.
Accordingly, the liquidity of the market for such
Bonds could be adversely affected.
Consequences of Failure to
Exchange.......................... Because of the Credit Enhancement, the Bonds that are
not exchanged pursuant to the Exchange Offer will
remain restricted securities. Accordingly, such Bonds
may be resold only (1) to the Authority, (ii)
pursuant to Rule 144A or Rule 144 under the
Securities Act or pursuant to some other exemption
under the Securities Act, (iii) outside the United
States to a foreign person pursuant to the
requirements of Rule 904 under the Securities Act, or
(iv) pursuant to an effective registration statement
under the Securities Act. See "The Exchange
Offer--Consequences of Failure to Exchange."
Special Procedures for Beneficial
Owners............................ Any beneficial owner whose Bonds are registered in
the name of a broker, dealer, commercial bank, trust
company or other nominee and who wishes to tender
should contact such registered holder promptly and
instruct such registered holder to tender on such
beneficial owner's behalf. If such beneficial owner
wishes to tender on such owner's own behalf, such
owner must, prior to completing and executing the
Letter of Transmittal and delivering its Bonds,
either
5
make appropriate arrangements to register ownership
of the Bonds in such owner's name or obtain a
properly completed bond power from the registered
holder. The transfer of registered ownership may take
considerable time. The Authority will keep the
Exchange Offer open for not less than twenty business
days in order to provide for the transfer of
registered ownership.
Guaranteed Delivery Procedures...... Holders of Bonds who wish to tender their Bonds and
whose Bonds are not immediately available or who
cannot deliver their Bonds, the Letter of Transmittal
or any other documents required by the Letter of
Transmittal to the Exchange Agent (or comply with the
procedures for book-entry transfer) prior to the
Expiration Date must tender their Bonds according to
the guaranteed delivery procedures set forth in "The
Exchange Offer--Guaranteed Delivery Procedures."
Use of Proceeds..................... There will be no cash proceeds to the Authority from
the exchange pursuant to the Exchange Offer.
Withdrawal Rights................... Tenders may be withdrawn at any time prior to 5:00
p.m., New York City time, on the Expiration Date.
Acceptance of Bonds and Delivery of
Exchange Bonds.................... The Authority will accept for exchange any and all
Bonds which are properly tendered in the Exchange
Offer prior to 5:00 p.m., New York City time, on the
Expiration Date. The Exchange Bonds issued pursuant
to the Exchange Offer will be delivered promptly
following the Expiration Date. See "The Exchange
Offer--Terms of the Exchange Offer."
Exchange Agent...................... SouthTrust Bank of Alabama, National Association, 100
Office Park Drive, Lower Level, Birmingham, Alabama
35223, attention Judy Miller, telephone number (205)
254-5000, fax (205) 254-4180.
Registration Rights Agreement....... Pursuant to the Purchase Agreement, the Authority,
the Credit Enhancement Provider and Lehmann Brothers
Inc. entered into a Registration Rights Agreement
dated as of March 1, 1996 (the "Registration Rights
Agreement"), which grants the holder of the Bonds
certain exchange and registration rights. The
Exchange Offer is intended to satisfy such exchange
rights which terminate upon the consummation of the
Exchange Offer.
Tax Consequences.................... Brownstein Hyatt Farber & Strickland, P.C., special
counsel to the Authority, has advised the Authority
that in its opinion, the exchange of the Bonds for
Exchange Bonds pursuant to the Exchange Offer will
not be treated as an "exchange" for federal income
tax purposes because the Exchange Bonds will not be
considered to differ materially in kind or extent
from the Bonds. Rather, the Exchange Bonds received
by a holder will be treated as a continuation of the
Bonds in the hands of such holder. As a result, there
will be no federal income tax
6
consequences to holders exchanging Bonds for Exchange
Bonds pursuant to the Exchange Offer.
Principal Documents................. "DEVELOPMENT AGREEMENT" between the Authority and
Douglas County Development Corporation, the owner of
approximately 75% of the taxable property in the
Districts, and certain other property owners to
provide an alternate source of revenue for payments
due on the Bonds. The Development Agreement provides
for a payment in lieu of taxes by such owners and all
subsequent owners of the property owned by such
owners in the Districts. The amount of such payment
will be equivalent to the amount which would be
generated by a mill levy against all of the taxable
real and personal property in the Districts pursuant
to the Operating Agreement and the Intergovernmental
Agreement. The payment obligations under the
Development Agreement are absolute and unconditional
and no conditions must be satisfied for the
Development Agreement to become effective. The
Authority has assigned its interests in the
Development Agreement to the Credit Enhancement
Provider and the Trustee, allowing the Credit
Enhancement Provider and the Trustee to accelerate
any amounts due but not paid under the Development
Agreement, and to foreclose on such property for
which payments have not been made, if necessary.
"RECREATIONAL FACILITIES AGREEMENT" between the
Authority and the District to provide for the
ownership and operation of the Project until the
Operating Agreement becomes effective. Pursuant to
the terms of the Recreational Facilities Agreement,
the Authority will be the owner of the Project and
the District will have no fee title thereto until
such time as a deed to all or any portion of the
Project is delivered to the District under the terms
of the Operating Agreement.
"REIMBURSEMENT AGREEMENT" between the Authority and
the Credit Enhancement Provider establishing the
terms and conditions of the payment by the Authority
to the Credit Enhancement Provider of any amounts
paid by it under the Credit Enhancement. In
accordance with the terms of the Reimbursement
Agreement, the Authority is required to pay to the
Credit Enhancement Provider all amounts paid by the
Credit Enhancement Provider under the Credit
Enhancement, together with interest on any amounts
not timely paid.
"THE DEED OF TRUST"--The Authority delivered the Deed
of Trust for the purpose of securing (i) repayment of
the indebtedness evidenced by the Bonds, the Note and
the Credit Enhancement Note; (ii) the payment of all
other sums, with interest thereon, advanced in
accordance with the Deed of Trust; (iii) the
performance of the covenants and
7
agreements of the Authority and the Indenture; and
(iv) the repayment of any future disbursements, with
interest thereon, made to the Authority by the
Trustee or the Credit Enhancement Provider. The Deed
of Trust irrevocably grants and conveys to the Public
Trustee of Douglas County, Colorado, in trust, with
power of sale, the interests of the Authority in the
Property, together with all buildings and
improvements, and fixtures or appurtenances, now and
hereafter erected thereon, construction material,
supplies and equipment intended to be incorporated
and installed therein or used in construction
thereon; all building permits, construction
contracts, claims and warranties under construction
contracts, tap fees, architectural plans and
specifications relating to construction of
improvements on the Real Estate and trademarks and
logos relating to marketing the Property and any and
all rents and leases (subject to the rights to
collect and apply such rents), profits, royalties,
claims to water, water rights, minerals, geothermal
resources, oil and gas rights and profits, easements
and access rights, less any of said property which
may be released from the Deed of Trust.
"COLLATERALIZED CREDIT ENHANCEMENT AGREEMENT" between
the Credit Enhancement Provider and the Trustee,
pursuant to which the Credit Enhancement Provider is
obligated to make payment of debt service on the
Bonds for the period commencing March 1, 1998, but
the Credit Enhancement Provider's liability is
limited to the Collateral pledged and assigned to the
Trustee consisting of the Series B REMIC Bonds and
the debt service payments on the Series B REMIC
Bonds, which will be payable effectively from certain
payments to be made by the U.S. Government under a
lease for space in a building in the District of
Columbia.
"INDENTURE"--Contract between the Authority and the
Trustee (representing the interests of Bondholders)
setting forth the duties and responsibilities of the
Trustee with respect to the Bonds. The Indenture
establishes the exact nature of the security of the
Bonds and the trust provisions.
8
THE EXCHANGE BONDS
General........................... The form and terms of the Exchange Bonds are the same as
the form and terms of the Bonds (which they replace)
except that (i) the Exchange Bonds bear a Series B
designation, (ii) the Credit Enhancement for the
Exchange Bonds has been registered under the Securities
Act and, therefore, the Exchange Bonds will not bear
legends restricting the transfer thereof, and (iii) the
holders of Exchange Bonds will not be entitled to
certain rights under the Registration Rights Agreement,
including the provisions providing for an increase in
the interest rate on the Bonds in certain circumstances
relating to the timing of the Exchange Offer, which
rights will terminate when the Exchange Offer is
consummated. See "The Exchange Offer- Purpose and Effect
of the Exchange Offer." The Exchange Bonds will evidence
the same debt as the Bonds and will be entitled to the
benefits of the Indenture. See "Description of Exchange
Bonds. The Bonds and the Exchange Bonds are referred to
herein collectively as the "Securities."
Securities Offered................ $66,975,000 aggregate principal amount of Public
Facilities Revenue Bonds, Series 1996 B.
Maturity Schedule and Interest Rate COUPON REOFFERING
Maturity Date............................. (DECEMBER 1) PAR AMOUNT RATE YIELD
--------------- ------------ --------- ---------
1999 $ 1,980,000 5.75% 4.75%
2000 2,095,000 5.75 4.95
2001 2,215,000 5.75 5.15
2002 2,340,000 5.75 5.30
2003 2,475,000 5.90 5.40
2004 2,620,000 6.00 5.50
2005 2,780,000 6.10 5.60
2006 2,950,000 5.70 5.70
2007 3,115,000 6.30 5.80
2008 3,310,000 6.40 5.90
2009 3,525,000 6.50 6.00
$7,750,000 6.375% Term Bonds due December 1, 2011 at
6.15%
$29,820,000 6.25% Term Bonds due December 1, 2017 at
6.35%
9
"Reoffering Yield" means the prices and/or yields,
listed by maturity, at which the Exchange Bonds are
offered to the public by the initial purchaser of the
Exchange Bonds. The Reoffering Yield is the rate of
return to the investors earned from payments of
principal and interest, with interest compounded semi-
annually at the stated yield, presuming that the
Exchange Bonds remain outstanding until the maturity
date. The Reoffering Yield takes into account the amount
of the premium or discount, if any, and the time value
of the investment.
Interest Payment Dates............ June 1 and December 1, commencing December 1, 1996.
Optional Redemption............... The Exchange Bonds are not subject to redemption at the
option of the Authority.
Extraordinary Mandatory The Exchange Bonds are subject to extraordinary
Redemption...................... mandatory redemption in whole at a redemption price of
100% of the principal amount thereof plus accrued
interest to the date fixed for redemption from proceeds
of prepayment of the Collateral. In the event that the
Series B REMIC Bonds are prepaid in full while the
Exchange Bonds are outstanding, the proceeds of such
prepayment will be used to redeem the Exchange Bonds.
The Acquisition and Construction Notes (as defined
herein under "CREDIT ENHANCEMENT") permit optional
prepayments in full to be made on and after December 1,
2015. Under the REMIC Indenture, prepayments of the
Acquisition and Construction Notes requires prepayment
of the Series B REMIC Bonds. See "CREDIT ENHANCEMENT."
Credit Enhancement................ The Exchange Bonds will be credit enhanced by the Credit
Enhancement Provider. The Exchange Bonds are limited
obligations of the Authority, secured by a Deed of Trust
interest in the Property. See "DEFINITIONS OF CERTAIN
TERMS AND DESCRIPTIONS OF PRINCIPAL DOCUMENTS-- THE DEED
OF TRUST."
Collateral........................ The Collateral consists of $67,075,000 in principal
amount of Series B REMIC Bonds, which will effectively
be payable from certain payments to be made by the U.S.
Government under a lease for space in a building in the
District of Columbia.
SELECTED FINANCIAL DATA-BFC GUARANTY CORP.
The income statement data set forth below for the period from March 29, 1996
to December 31, 1996 and the balance sheet data at December 31, 1996 have been
derived from the audited financial statements of BFC Guaranty Corp. The data
presented below for the four month period ended April 30, 1997 has been derived
from the unaudited financial statements of BFC Guaranty Corp. and, in the
opinion of BFC Guaranty Corp., reflects all adjustments (consisting only of
normal recurring adjustments) necessary for a fair presentation of the financial
position and results of operations of BFC Guaranty Corp. for such period.
10
PERIOD FROM
MARCH 29,
1996 TO FOUR MONTHS
DECEMBER 31, ENDED APRIL
1996 30, 1997
------------- -------------
Income Statement Data:
Revenues......................................................................... $ 3,484,999 $ 1,585,005
Provision for Income Taxes....................................................... 1,184,900 538,902
Net Income....................................................................... $ 2,300,099 $ 1,046,103
Weighted Average Common Shares Outstanding......................................... 1,500 1,500
Primary and Fully Diluted Earnings per Common Share.............................. $ 1,533.40 $ 697.40
Balance Sheet Data:
Cash............................................................................. $ 1,000 $ 1,000
Debt Securities.................................................................... $ 53,800,994 $ 55,203,858
Advances to Parent Company......................................................... $ 4,018,500 $ 4,018,500
------------- -------------
Total Assets................................................................... $ 59,405,685 $ 60,908,164
------------- -------------
------------- -------------
SELECTED FINANCIAL DATA-BFC FINANCE CORP.
The income statement data set forth below for the period from March 29, 1996
to December 31, 1996 and the balance sheet data at December 31, 1996 have been
derived from the audited financial statements of BFC Finance Corp. The data
presented below for the four month period ended April 30, 1997 has been derived
from the unaudited financial statements of BFC Finance Corp. and, in the opinion
of BFC Finance Corp., reflects all adjustments (consisting only of normal
recurring adjustments) necessary for a fair presentation of the financial
position and results of operations of BFC Finance Corp. for such period.
PERIOD FROM MARCH 29,
1996 FOUR MONTHS ENDED
TO DECEMBER 31, 1996 APRIL 30, 1997
------------------------- ------------------
Income Statement Data:
Interest Income................................................... $ 7,340,218 $ 3,339,248
Interest Expense.................................................. $ 7,226,258 $ 3,221,105
Amortization Expense.............................................. $ 76,548 $ 34,021
Provision for Income Taxes........................................ 12,720 28,600
Net Income........................................................ $ 24,692 $ 55,522
Weighted Average Common Shares Outstanding........................ 1,500 1,500
Primary and Fully Diluted Earnings per Common Share............... $ 16.40 $ 37.01
Balance Sheet Data:
Notes Receivable.................................................. $ 126,488,158 $ 129,827,406
Bond Issue Costs.................................................. $ 2,134,833 $ 2,100,812
Total Assets.................................................. $ 128,622,991 $ 129,617,911
Bonds Payable..................................................... $ 128,170,270 $ 129,617,911
Stockholders Equity............................................... $ 26,192 $ 81,714
GRAPHICAL DEPICTION OF AFFILIATES
The following chart depicts the relationships between the various affiliates
of the Registrants.
- ------------------------ FRANKLIN L. HANEY -
INDIVIDUAL(1)
FRANKLIN L. HANEY
COMPANY
A SOLE PROPRIETORSHIP(1)
------------------------
/
/
/
--------------------------------------------------------------------------------
/ / / /
/ / / /
/ / / /
- ------------------------ ------------------------ ------------------------ ------------------------ ------------------------
CASTLE ROCK RANCH DOUGLAS COUNTRY BUILDING FINANCE COMPANY TOWER ASSOCIATES, INC(5) TOWER ASSOCIATES II,
PUBLIC IMPROVEMENTS DEVELOPMENT OF TENNESSEE(4) INC.(6)
AUTHORITY(2) CORPORATION (DCDC)(3)
OWNERSHIP: OWNERSHIP: OWNERSHIP: OWNERSHIP:
NONE - GOVERNMENTAL OWNERSHIP: FRANKLIN L. HANEY 49% FRANKLIN L. HANEY FRANKLIN L. HANEY
ENTITY FRANKLIN L. HANEY 100% HERBERT OAKES 51% AND HIS FAMILY 100% AND HIS FAMILY 100%
- ------------------------ ------------------------ ------------------------ ------------------------ ------------------------
/ / / /
/ / / /
/ / / /
------------------------ ------------------------ ------------------------ ------------------------
DCDC II(7) BFC FINANCE CORP. PARCEL 49B LIMITED PARCEL, 49C LIMITED
(REMIC)(8) PARTNERSHIP(9) PARTNERSHIP(10)
OWNERSHIP: OWNERSHIP:
OWNERSHIP: OWNERSHIP: TOWER ASSOCIATES, TOWER ASSOCIATES,
FRANKLIN L. HANEY 21% BUILDING FINANCE COMPANY INC. 50% INC. 50%
DCDC 79% OF TENNESSEE, INC. 100% OTHER UNRELATED 50% OTHER UNRELATED 50%
------------------------ ------------------------ ------------------------ ------------------------
/
/
/
------------------------
BFC GUARANTY CORP.(11)
OWNERSHIP:
BUILDING FINANCE COMPANY
OF TENNESSEE, INC. 100%
------------------------
(1) Party to the following principal documents: None
(2) Issuer of the Bonds and the Exchange Bonds; Party to the following
documents: Indenture of Trust; Operating Agreement; Reimbursement Agreement;
Development agreement; Deed of Trust: Recreational Facilities Agreement
(3) Party to the following principal documents: Development Agreement
(4) Party to the following principal documents: REMIC Trust Indenture; Loan
Agreement
(5) Party to the following principal documents: None
(6) Party to the following principal documents: None
(7) Party to the following principal documents: Assignment of Collateral and
Trust agreement; Deed of Trust with Assignment of Rents and Security
Agreement and Fixture Filing
(8) Issuer of REMIC Bonds; Party to the following principal documents: REMIC
Trust Indenture; Assignment of Collateral and Trust Agreement
(9) Party to the following principal documents: None
(10) Party to the following principal documents: the Lease; Instrument of
Assignment of Payments Under Government Contracts; Loan Agreement; Deed of
Trust, Security Agreement and Assignment of Rents
(11) Issuer of the Credit Enhancement; Party to the following principal
documents: Reimbursement Agreement; Collateralized Credit Enhancement
Agreement; Bond Pledge and Security Agreement
11
RISK FACTORS
Prospective investors should carefully consider the following factors before
accepting the Exchange Offer.
APPROVALS NECESSARY FOR CONSTRUCTION OF THE PROJECT
The Authority intends to construct a 36-hole golf course on the Real Estate,
which will generate revenue that will be used to pay interest and the principal
on the Exchange Bonds. Construction will not commence until the requisite local
government approvals, including approvals of amendments to the Districts'
service plans, are granted. See "THE PROJECT" herein for a further discussion of
the necessary governmental approvals for construction of the Project. No
assurance can be given that the necessary approvals will be forthcoming, or that
such construction will be successful or completed on a timely basis. See "THE
PROJECT--Necessary Approvals."
RISK OF NON-COMPLETION OF THE PROJECT
The Authority may be unable to complete construction of the Project due to
(i) the failure of obtaining necessary governmental approvals; (ii) failure to
secure additional financing necessary to construct the golf course; (iii)
failure to successfully negotiate a golf course construction agreement; or (iv)
construction delays beyond the Authority's control. In such an event, revenues
from the Project may be insufficient to fund debt service on the Bonds and
operating expenses of the Project, in which case payments of such amounts would
be dependent on the Credit Enhancement (in the case of debt service payments on
the Bonds) and the Development Agreement. In such event, the Credit Enhancement
Provider might foreclose on the Project and convert it into a non-public
facility. Such a change in use could adversely affect the exclusion of interest
on the Bonds from gross income for federal income tax purposes. Consequently,
the Deed of Trust requires that, before the Credit Enhancement Provider can
foreclose on the Project, it must obtain an opinion of Special Tax Counsel
acceptable to the Trustee that such foreclosure will not adversely affect the
exclusion of interest on the Bonds from gross income for federal income tax
purposes. The rating and marketability of the Bonds might also likely be
adversely affected by the non-completion of the Project.
RISK OF NON-COMPLETION OF DAWSON RIDGE
The residential development of Dawson Ridge may not be completed as planned
due to (i) financial failure of Douglas County Development Corporation; (ii)
failure by Douglas County Development Corporation to secure necessary financing
to fund construction of the development; or (iii) the failure to obtain all
necessary zoning approvals. In such event, the amount of mill levy revenues
collected by the Districts together with the net revenues from operation could
be insufficient to make full payment of principal and interest on the Bonds,
although the Credit Enhancement will continue to be available for that purpose
(exclusive of Extra Payments). In such event, the Credit Enhancement Provider
might foreclose on the Project and convert it into a non-public facility. Such a
change in use could adversely affect the exclusion of interest on the Bonds from
gross income for federal income tax purposes. Consequently, the Deed of Trust
requires that, before the Credit Enhancement Provider can foreclose on the
Project, it must obtain an opinion of Special Tax Counsel acceptable to the
Trustee that such foreclosure will not adversely affect the exclusion of
interest on the Bonds from gross income for federal income tax purposes. The
bond rating and marketability of the Bonds might also likely be adversely
affected by the non-completion of Dawson Ridge.
LIMITED OBLIGATION OF THE AUTHORITY
The Bonds are limited obligations of the Authority, secured only by the
trust estate identified in the Indenture and payable solely from the funds held
under the Indenture (including capitalized interest
12
deposited from the proceeds of the Bonds), revenues of the Authority and
payments made under the Credit Enhancement.
COMPETITIVE CONDITIONS
Although the Property is situated in one of the fastest growing counties in
the country, Douglas County, Colorado, there are a number of existing planned
unit developments in the immediate vicinity of the Property which will compete
with the Property if it is ever developed. In addition to such competing
developments, many more planned unit developments exist in the greater Denver
metropolitan area. This may adversely effect the success of the Project and the
ability of Dawson Ridge to attract people to live in this community.
RISKS RELATED TO RENT COMMENCEMENT
The Government is not obligated to pay rent on the Portals II office
building and parking garage until March 1, 1998. Until such date, debt service
on the Bonds is payable from the proceeds of the Bonds in the form of
capitalized interest. See "USE OF PROCEEDS" herein. Such capitalized interest
amount is on deposit with the Trustee and will be sufficient to make all
payments of interest on the Bonds through March 1, 1998 (but not Extra
Payments).
RISKS RELATED TO PAYMENT OF RENT
As is the case with most federal agencies, the government's access to funds
to make payments due under the Lease requires an annual appropriation by
Congress. The government's ability to make payments under the Lease requires
such an appropriation to the Federal Buildings Fund, the fund from which all the
government's long-term leases are paid. Counsel for the U.S. Government rendered
an opinion that the obligations of the government to pay rent under the Lease
constitutes an absolute and unconditional obligation of the government
irrespective of whether Congress makes the necessary appropriations for the
Lease. Accordingly, if Congress fails to make the necessary appropriation to the
Federal Buildings Fund or in the event any payments that are properly due and
owing under the Lease are not made for any other reason, the partnership or the
REMIC Trustee would still be entitled, in the opinion of the counsel for the
government, to enforce the payment of the obligations of the United States in
accordance with the terms of the Lease, or as otherwise may be available at law
or in equity. For a further description of the Lease, see "DEFINITIONS OF
CERTAIN TERMS AND DESCRIPTIONS OF PRINCIPAL DOCUMENTS--THE LEASE." In the event
the Lease is terminated as a result of casualty or condemnation, proceeds of
insurance policies or of any condemnation award would be used to redeem the
Series B REMIC Bonds and such redemption proceeds would be used to redeem the
Bonds. There can be no assurance that insurance or condemnation proceeds would
be received in amounts sufficient to redeem all or any of the Bonds. See "The
Bonds--Redemption Provisions--Extraordinary Mandatory Redemption."
ADDITIONAL BONDS
The Authority has the power to issue additional bonds which are subordinate
in right of payment to the Exchange Bonds. While this will not affect the
collateral securing the Exchange Bonds, the issuance of additional bonds could
dilute the revenue stream available to pay the principal and interest on the
Exchange Bonds as they become due.
LACK OF PUBLIC MARKET
The Bonds are currently owned by a relatively small number of beneficial
owners. Prior to the Exchange Offer, there has not been any public market for
the Bonds. The Bonds and the Credit Enhancement have not been registered under
the Securities Act and will be subject to restrictions on
13
transferability to the extent that they are not exchanged for Exchange Bonds by
holders who are entitled to participate in this Exchange Offer. The Authority
does not intend to list the Exchange Bonds on any national securities exchange
or to seek the admission thereof to trading in the National Association of
Securities Dealers Automated Quotation System. Lehmann Brothers Inc. has advised
the Authority that they currently intend to make a market in the Exchange Bonds,
but they are not obligated to do so and may discontinue such market making at
any time. In addition, such market making activity will be subject to the limits
imposed by the Securities Act and the Securities Exchange Act of 1934, as
amended, and may be limited during the Exchange Offer (as defined herein) and
the pendency of the Shelf Registration Statement. Accordingly, no assurance can
be given that an active public or other market will develop for the Exchange
Bonds or as to the liquidity of the trading market for the Exchange Bonds. If a
trading market does not develop or is not maintained, holders of the Exchange
Bonds may experience difficulty in reselling the Exchange Bonds or may be unable
to sell them at all. If a market for the Exchange Bonds develops, any such
market may be discontinued at any time.
If a public trading market develops for the Exchange Bonds, future trading
prices for such securities will depend on many factors, including, among other
things, prevailing interest rates, the Authority's result of operations and the
market for similar securities. Depending on prevailing interest rates, the
market for similar securities and other factors, including the financial
condition of the Authority, or the Credit Enhancement Provider the Exchange
Bonds may trade at a discount from their principal amount.
Issuance of the Exchange Bonds in exchange for the Bonds pursuant to the
Exchange Offer will be made only after a timely receipt by the Authority of such
Bonds, a properly completed and duly executed Letter of Transmittal and all
other required documents. Therefore, holders of the Bonds desiring to tender
such Bonds in exchange for Exchange Bonds should allow sufficient time to ensure
timely delivery. The Authority is under no duty to give notification of defects
or irregularities with respect to the tenders of Bonds for exchange. Bonds that
are not tendered or are tendered but not accepted will, following the
consummation of the Exchange Offer, continue to be subject to the existing
restrictions upon transfer thereof, and upon consummation of the Exchange Offer
certain registration rights under the Registration Rights Agreement will
terminate. In addition, any holder of Bonds who tenders in the Exchange Offer
for a purpose of participating in a distribution of the Exchange Bonds may be
deemed to have received restricted securities and, if so, will be required to
comply with the registration and prospectus delivery requirements of the
Securities Act in connection with any resale transaction. Each broker-dealer
that receives Exchange Bonds for its own account in exchange for Bonds, where
such Bonds were acquired by such broker-dealer as a result of market-making
activities or other trading activities, must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Bonds. See "Plan of
Distribution." To the extent that Bonds are tendered and accepted in the
Exchange Offer, the trading market for untendered and tendered but unaccepted
Bonds could be adversely affected. See "The Exchange Offer."
RISKS RELATED TO CHANGE IN RATING
Standard & Poor's Ratings Services, a division of The McGraw-Hill Companies,
Inc. (the "Rating Agency"), has assigned a rating of "AAp" to the Bonds based on
an evaluation of the Credit Enhancement. The letter "p" indicates the rating is
provisional. The provisional rating assumes the successful completion of the
Portals II building which is the subject of the Lease and indicates that
sufficiency of the Credit Enhancement to pay debt service requirements of the
Bonds is largely or entirely dependent upon the successful timely completion of
such building. This rating, however, while addressing credit quality subsequent
to completion of such building, makes no comment on the likelihood of, or the
risk of default upon failure of such completion. There is no assurance that such
rating will be maintained for any given period of time or that it will not be
lowered or withdrawn entirely if, in the judgment of the Rating Agency,
circumstances so warrant. If the Portals II building is not timely completed,
the Exchange Bonds' rating
14
may be revised downward or withdrawn altogether. Any such revision or withdrawal
of such a rating could have an adverse effect on the market price and
marketability of the Bonds.
TAXATION
The treatment of interest on the Exchange Bonds, as described herein under
"TAX EXEMPTION" assumes the accuracy of the certifications of the Authority, and
continuing compliance by the Authority with the requirements of the Internal
Revenue Code of 1986, as amended (the "Code"). If such certifications are not
accurate, or if the Authority fails to continue to comply with the Code
requirements, the treatment of interest on the Exchange Bonds could be adversely
affected as described below. Furthermore, ownership of the Bonds may result in
collateral federal income tax consequences to certain taxpayers, including,
without limitation, financial institutions, property and casualty insurance
companies, individual recipients of Social Security or Railroad Retirement
benefits, certain S corporations with "excess net passive income" and taxpayers
who may be deemed to have incurred or continued indebtedness to purchase or
carry the Exchange Bonds. Special Tax Counsel has expressed no opinion as to
such collateral tax consequences. Purchasers of the Bonds should consult their
own tax advisors as to collateral federal income tax consequences.
The Code sets forth certain requirements which must be met subsequent to the
issuance and delivery of the Bonds for interest thereon to remain excludable
from the gross income of the owners of the Bonds for federal income tax
purposes, including investment restrictions, periodic payments of arbitrage
profits to the United States, requirements regarding the proper use of bond
proceeds and the facilities financed therewith and certain other matters. The
Authority has covenanted to comply with such requirements. Noncompliance with
such requirements could cause the interest on the Bonds to be includable in the
gross income of the owners of the Bonds for federal income tax purposes,
retroactive to the date of issue of the Bonds.
PREPAYMENT
In addition to the mandatory sinking fund provisions of the Exchange Bonds,
the Exchange Bonds are subject to mandatory prepayment in full in the
circumstances described under "DESCRIPTION OF EXCHANGE BONDS--Redemption
Provisions." Therefore, under certain circumstances, Bondholders may not be able
to hold their Exchange Bonds to maturity.
CERTAIN CONSIDERATIONS RELATING TO BOOK-ENTRY-ONLY FORM OF EXCHANGE BONDS
Until and unless definitive Exchange Bonds are issued in exchange for the
Book-Entry-Only form of the Exchange Bonds, owners of the Book-Entry-Only form
of Exchange Bonds will not be considered owners or holders of any Exchange
Bonds. Cede & Co., as nominee of DTC, will be the sole registered owner and
holder of the Exchange Bonds. After payment to Cede & Co., as nominee of DTC,
neither the Trustee nor the Authority will have any responsibility or liability
for the payment of interest, principal or other amounts to DTC or to beneficial
owners of any Exchange Bonds. Accordingly, each person owning Book-Entry
interests in the Exchange Bonds must rely on the procedures of DTC and, if such
person is not a Participant in DTC, on the procedures of the Participant through
which such person owns its interest, to exercise any rights and obligations of a
registered owner under the Indenture. See "Description of Exchange
Bonds--Book-Entry-Only System."
Payment of principal, interest and other amounts owing on or in respect of
the Exchange Bonds will be made to Cede & Co., as nominee of DTC, and
thereafter, payments will be made to Participants (and then by the Participants
to Indirect Participants). Neither the Trustee nor the Authority will have any
responsibility or liability for any aspect of the records relating to, or
payment made on account of, such Book-Entry interests in the Exchange Bonds or
for maintaining, supervising or reviewing any records relating to such
Book-Entry interests in the Exchange Bonds.
15
Owners of Book-Entry interests in the Exchange Bonds will not have the
direct rights to act upon solicitations by the Trustee of consents or requests
by the Trustee for waivers or other actions from registered owners of the
Exchange Bonds. Instead, an owner of Book-Entry interests in the Exchange Bonds
will be permitted to act only to the extent it has received appropriate proxies
to do so from DTC or, if applicable, from a Participant. There can be no
assurance that procedures implemented for the granting of such proxies will be
sufficient to enable owners of Book-Entry interests in the Exchange Bonds to
vote on any requested actions on a timely basis. Similarly, upon the occurrence
of an Event of Default (as defined) under the Indenture, unless and until
definitive Exchange Bonds are issued, owners of Book-Entry interests in the
Exchange Bonds will be restricted to acting through DTC. There can be no
assurance that the procedures to be implemented by DTC under such circumstances
will be adequate to ensure the timely exercise of remedies under the Exchange
Bonds. DTC, or its nominee, will be the only owner with the right to bring a
claim under the Indenture for nonpayment of principal and interest; therefore,
the holders must rely upon the procedures of the DTC, unless and until
definitive Exchange Bonds are issued. See "Description of Exchange
Bonds--Book-Entry-Only System."
ADEQUACY OF INSURANCE FOR THE PROJECT
The Registrants believe existing insurance coverage amounts are adequate for
the Property. However, as the Property is developed and becomes more valuable,
additional insurance may be necessary. There can be no assurance that such
additional insurance will be available on terms agreeable to the Authority.
Moreover, there is no assurance that the existing insurance coverage amounts
will be adequate under all possible circumstances.
USE OF PROCEEDS
This Exchange Offer is intended to satisfy certain of the Authority's
obligations under the Purchase Agreement and the Registration Rights Agreement.
The Authority will not receive any cash proceeds from the issuance of the
Exchange Bonds offered hereby. In consideration for issuing the Exchange Bonds
contemplated in this Prospectus, the Authority will receive Bonds in like
principal amount, the form and terms of which are the same as the form and terms
of the Exchange Bonds (which they replace), except as otherwise described
herein. The Bonds surrendered in exchange for Exchange Bonds will be retired and
canceled and cannot be reissued. Accordingly, issuance of the Exchange Bonds
will not result in any increase or decrease in the indebtedness of the
Authority.
The net proceeds from the Bonds in the initial offering were used (1) to
acquire the Property, (2) to pay capitalized interest, and (3) to pay certain
costs to issue the Bonds and provide credit enhancement. The following table
shows the estimated sources and uses of funds from the offering of the Bonds:
SOURCES:
Proceeds of Bonds (1)................................................. $ 67,760,621.05
Accrued Interest...................................................... 321,393.53
TOTAL SOURCES OF FUNDS............................................ $ 68,082,014.58
USES:
Project Fund Deposit.................................................. $ 54,550,000.00
Debt Service Fund Deposit (2)......................................... 7,729,585.70
Costs and Expenses of Issuance and Financing Fees (3)................. 5,802,428.88
----------------
TOTAL USES OF FUNDS............................................... $ 68,082,014.58
- ------------------------
(1) Includes premium of $785,621.05.
(2) Represents capitalized interest to March 1, 1998 and accrued interest.
(3) Includes underwriter's discount, legal fees, initial, first and second
annual Trustee fee, rating fee, credit enhancement fee, printing and
miscellaneous expenses.
16
CAPITALIZATION
The following table sets forth the historical capitalization of the
Registrants at December 31, 1996. This table should be read in conjunction with
the Selected Historical Financial Data included elsewhere in this Prospectus.
BFC Guaranty Corp.
AS OF DECEMBER UNAUDITED AS OF
31, 1996 APRIL 30, 1997
----------------- ---------------
STOCKHOLDER'S EQUITY:
Common Stock, no par value, 1,500 shares authorized and issued................ $ 1,000 $ 1,000
Additional Paid-In Capital.................................................... 50,741,210 50,741,210
Retained Earnings............................................................. 3,346,202 2,300,099
----------------- ---------------
Total Stockholder's Equity and Capitalization............................... $ 54,088,412 $ 53,042,309
----------------- ---------------
----------------- ---------------
BFC Finance Corp.
AS OF DECEMBER UNAUDITED AS OF
31, 1996 APRIL 30, 1997
----------------- ---------------
Bonds Payable................................................................. $ 128,170,270 $ 129,617,911
STOCKHOLDER'S EQUITY:
Common Stock, no par value, 1,500 shares authorized and issued................ $ 1,500 $ 1,500
Retained Earnings............................................................. $ 24,692 $ 80,214
----------------- ---------------
Total Stockholder's Equity and Capitalization............................... $ 128,196,462 $ 129,699,625
----------------- ---------------
----------------- ---------------
17
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following should be read in conjunction with the Financial Statements
and notes thereto included elsewhere in this Prospectus.
BFC GUARANTY CORP. MARCH 29, 1996 THROUGH DECEMBER 31, 1996.
The Credit Enhancement Provider is a special purpose entity formed solely to
provide credit enhancement for the Bonds. In connection with the issuance of the
Bonds, the Authority paid $4,018,500 to the Credit Enhancement Provider as a
commitment fee. The Credit Enhancement Provider advanced this fee to its parent,
the Building Finance Company of Tennessee. The Credit Enhancement Provider has
no other operations.
The Authority received $67,760,621 in net proceeds from the issuance of the
Bonds, of which $54,550,000 was used to acquire land and water rights from the
Douglas County Development Corporation. The Authority has no other operations.
BFC FINANCE CORP. MARCH 29, 1996 THROUGH DECEMBER 31, 1996.
BFC Finance Corp. is a special purpose entity formed solely to purchase
certain loans from its parent company, Building Finance Company of Tennessee,
and to issue its REMIC Lease-Backed Bonds Series 1996, Class A (the "Class A
REMIC Bonds" and, together with the Class B REMIC Bonds, the "REMIC BONDS") and
the Class B REMIC Bonds. BFC Finance Corp.'s operations commenced on March 29,
1996, with the issuance of $74,925,000 of Class A REMIC Bonds and the subsequent
exchange of certain proceeds from these bonds and placement of the Class B REMIC
Bonds with the Credit Enhancement Provider for notes receivable totaling
$126,087,367 from 49C Partnership that were held by Building Finance Company of
Tennessee. The notes receivable are providing financing for the construction of
the Portals II project. BFC Finance Corp. also loaned $9,310,689.07 to DCDC II,
Inc. and received a non-interest bearing Note Receivable secured by undeveloped
land in Castle Rock, Colorado. BFC Finance Corp.'s entire operations during 1996
consisted of interest income of $7,240,218 from the notes receivable, interest
expense of $7,226,258 on the REMIC Bonds, and amortization expense of $76,548
related to issuance costs of the REMIC Bonds. Actual interest payments received
on the notes receivable and made on the REMIC Bonds totaled $3,990,295. All
additional interest income and expense results from the discounting of the notes
receivable and REMIC Bonds to their net present values based on future cash
flows.
THE PROJECT
GENERAL
The proceeds of the Bonds were used for the acquisition from Douglas County
Development Corporation, an affiliate of The Franklin L. Haney Company, of the
Property. Douglas County Development Corporation is owned entirely by Franklin
L. Haney. See "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS" herein. The
purchase price for this acquisition ($54,550,000) was not determined in an arm's
length negotiation, but rather is the appraised fair market value determined by
THK Associates, Inc., independent appraisers, in their February 26, 1996
appraisal. It is anticipated that the Authority will construct a 36-hole golf
course on the Real Estate, to be operated by the Authority as a municipal golf
course. No assurances, however, can be given that the contemplated golf course
will be ultimately constructed. The Authority has covenanted in the
Reimbursement Agreement to take all reasonable efforts and diligently proceed to
complete the Recreational Facilities, including the golf course. It is expected
that certain roadways will also be constructed on the Real Estate. In addition,
it is expected that tennis and other recreational facilities will be built at a
central golf course club house facility, which facilities will be open to the
public. The Bonds will be used solely for real estate and water rights
18
acquisitions (and payment of cost of issuance, including the payment of fees and
expenses of the Credit Enhancement Provider in connection with providing the
Credit Enhancement). Following the completion of construction documentation and
the issuance of all the necessary government permits and approvals, the
Authority intends to issue one or more subsequent series of bonds in order to
finance the design, construction and completion of golf course and recreational
facility improvements and equipment, and for roadway construction (all such
acquisition and construction constituting the "Project").
THE APPRAISAL REPORT
THK Associates, Inc. was engaged by C. Roger Addlesperger, a director of the
Authority, to conduct an appraisal of the Property for the purpose of
establishing the fair market value. The investigation included a comprehensive
market analysis, examination of lot and parcel sales, review of development
costs, derivation of a discount rate, inquiry of water rights values, and
physical inspection of the site and surrounding area.
THK Associates, Inc., conducted a "Highest and Best Use Analysis" which is
the reasonably probable and legal use of vacant land or an improved property,
which is physically possible, appropriately supported, financially feasible, and
that results in the highest value. It was determined by THK Associates, Inc.
that there are no physical limitations, legal restrictions, or economic
limitations, and that the proposed and zoned uses offer the greatest potential
return to the Property. The highest and best use recommendation by THK
Associates, Inc. is for mixed use, residential, office, industrial, retail and
related uses. A discounted cash flow/subdivision approach was utilized as a
method of valuation, based upon the highest and best use being for current
development and the partial improvement of the site. The valuation of the
Property was determined to be $52,300,000, with excess water rights totalling
$2,250,000 for a combined value of $54,550,000. The appraisal report issued by
THK Associates, Inc, is subject to a number of assumptions and limiting
conditions, each of which are set forth in the appraisal. A copy of the
appraisal is available from the Exchange Agent.
THK Associates, Inc. was selected by the Authority to conduct the appraisal
analysis because of its nationally recognized expertise in golf course
feasibility and valuation. THK Associates, Inc. has prepared over 300 studies
for various types of golf courses and golf course real estate developments
across the country. For the period from January 1, 1993 through December 31,
1996, THK Associates, Inc. was paid $41,838 for its professional services
relating to the appraisal of the Property and feasibility study and land
development assistance with respect to the Project. During such time, THK
Associates, Inc has also performed other valuation and consulting services for
affiliates of BFC Guaranty Corp. and has been paid $53,854 for such services.
GOLF COURSE DESIGN WORK
The Authority engaged Global Golf Course Design, Inc. to produce a detailed
design and construction package based on a review of Real Estate suitability,
creation of a detailed golf course design, and overview of on-site construction
requirements. Global Golf Course Design, Inc. was founded by James J. Engh. Mr.
Engh has been involved with golf course design and construction since 1981.
Global Golf Course Design, Inc.'s current project list includes 13 golf courses
located primarily in the western United States although some are in Thailand and
China. Other golf courses designed by Mr. Engh and presently open include
facilities in Thailand, Austria, Italy, France, Germany, England, Ireland and
Belgium.
ESTIMATED COSTS TO COMPLETE THE PROJECT
The construction and completion of the golf course and other recreational
facility improvements currently estimated to cost $5,150,000. The Authority also
expects to incur approximately $25,000,000 of additional costs to complete
nonrevenue producing infrastructure, including roadways, which will be
transferred to the District on completion. Under the terms of the Indenture, any
additional bonds issued
19
by the Authority will be issued on a subordinate basis. There can be no
assurance that the Authority will be able to issue any additional bonds or issue
them in amounts needed to finance construction of the golf course and other
recreational facility improvements and non-revenue producing infrastructure.
NECESSARY APPROVALS
Development of the Project will require that the Town of Castle Rock approve
amendments to each of the Districts service plans, as discussed in "THE
DISTRICTS--Service Plan" and "--Town of Castle Rock Agreements." At the present
time, the Town of Castle Rock is not accepting any applications for service plan
amendments until it finalizes new policies regarding the use and powers of
special districts located within its jurisdiction. These new policies are
expected to be in place in 1997. Once the new policies are in effect, the
Districts will submit their applications for service plan amendments to the Town
of Castle Rock. Such amendments to the Districts' service plans may also be a
condition to the effectiveness of the Operating Agreement and the
Intergovernmental Agreement, as described in "SECURITY AND SOURCE OF PAYMENT."
There can be no assurance that the Town of Castle Rock will approve the
amendments to the Districts' service plans. In addition, undertaking completion
of the Project will require various governmental permits and approvals
(including revisions of the previously approved Planned Unit Development ("PUD")
for the Dawson Ridge development). While the Districts and the Authority have
commenced initial conversations with Town of Castle Rock staff on the nature and
extent of such requirements, no formal PUD amendments will be submitted to the
Town of Castle Rock or the Town of Castle Rock Zoning Commission until the Town
of Castle Rock has approved the amendments to the Districts' service plans. Even
if the service plan amendments are approved by the Town of Castle Rock, no
assurance can be given that the requisite approvals for actual development of
the Project will be forthcoming or that they will be obtained in a timely
fashion. Once construction has commenced, it is anticipated that completion of
the golf course and other recreational improvements component of the Project
will occur within eighteen months of commencement of construction.
In the event that the design and construction of the golf course and
recreational facility improvements and equipment within the Project are not
completed, there will be no revenues from the operation of those facilities
available for payment of principal and interest on the Bonds, although property
tax revenues or fees in lieu thereof under the Development Agreement will
continue to be available for that purpose. If the golf course and recreational
facilities are built, but the residential development of Dawson Ridge is not
completed as planned, then the amount of property tax revenues and Development
Agreement revenues collected by the Districts together with the net revenues
from operation of the Project could be insufficient to make full payment of
principal and interest on the Bonds. In either such event, the Credit
Enhancement Provider must pay the debt service on the Bonds (exclusive of Extra
Payments), but the Credit Enhancement Provider might foreclose on the Project
and convert it into a non-public facility. Such a change in use could adversely
affect the exclusion of interest on the Bonds from gross income for federal
income tax purposes. Consequently, the Deed of Trust requires that, before the
Credit Enhancement Provider can foreclose on the Project, it must obtain an
opinion of Special Tax Counsel acceptable to the Trustee that such foreclosure
will not adversely affect the exclusion of interest on the Bonds from gross
income for federal income tax purposes. In addition, the Deed of Trust will be
terminated as to the Bondholders if the Credit Enhancement Provider forecloses
on it because of a default by the Authority under the Reimbursement Agreement.
COMPETITIVE CONDITIONS
Although the Property is situated in one of the fastest growing counties in
the country, Douglas County, Colorado, there are a number of existing planned
unit developments in the immediate vicinity of the Property which will compete
with the Property if it is ever developed. In addition to such competing
developments, many more planned unit developments exist in the greater Denver
metropolitan area.
20
INSURANCE COVERAGE
The Property is currently covered by $2,000,000 of general liability
insurance. There are no physical improvements located on the Property at the
present time. In the opinion of the Registrants, the Property is adequately
covered by such insurance coverage amounts at the present time.
LIMITATIONS ON IMPOSITION OF MILL LEVY
On November 7, 1995, the voters of the District and the Related Districts
approved the execution and delivery of an Operating Agreement and an
Intergovernmental Agreement obligating the Related Districts to provide funds to
the District for payment to the Authority to the extent that revenues from the
Project are insufficient to fund debt service on the Bonds and operating
expenses of the Project, such funds to be derived from a mill levy not to exceed
35 mills on all of the taxable property within the Districts. The Operating
Agreement and the Intergovernmental Agreement will not become effective,
however, until one of two conditions (discussed in "SECURITY AND SOURCE OF
PAYMENT") for imposition of the mill levy are satisfied. In order to provide an
alternate source of revenue, the Authority has entered into a Development
Agreement dated as of March 1, 1996, with Douglas County Development
Corporation, the owner of approximately 75% of the taxable property in the
Districts, providing for a payment in lieu of taxes by Douglas County
Development Corporation and all subsequent owners of the property owned by
Douglas County Development Corporation in the Districts. See "DEFINITIONS OF
CERTAIN TERMS AND DESCRIPTIONS OF PRINCIPAL DOCUMENTS" herein for a more
complete description of the Operating Agreement, the Intergovernmental Agreement
and the Development Agreement.
EFFECT OF FORECLOSURE ON THE DEED OF TRUST
The Deed of Trust requires that, before the Credit Enhancement Provider can
foreclose on the Project, it must obtain an opinion of Special Tax Counsel
acceptable to the Trustee that such foreclosure will not adversely affect the
exclusion of interest on the Bonds from gross income for federal income tax
purposes. In addition, the Deed of Trust will be terminated as to the
Bondholders if the Credit Enhancement Provider forecloses on it because of a
default by the Authority under the Reimbursement Agreement. See "DEFINITIONS OF
CERTAIN TERMS AND DESCRIPTIONS OF PRINCIPAL DOCUMENTS--THE DEED OF TRUST"
herein.
THE AUTHORITY
The Authority was created in 1996 as a nonprofit corporation organized under
the laws of the State of Colorado, intended to be in general compliance with the
requirements of the Internal Revenue Service Revenue Procedure 82-26. Generally,
that revenue procedure provides that the Internal Revenue Service will
ordinarily rule that obligations issued by a nonprofit corporation are issued on
behalf of a governmental unit if the following requirements are met:
I. The corporation must engage in activities that are essentially
public in nature.
II. The corporation must not be organized for profit except to the
extent of retiring indebtedness.
III. The corporate income may not inure to any private person.
IV. The governmental unit must have a beneficial interest in the
corporation while the indebtedness remains outstanding.
V. The governmental unit must obtain full legal title to the property
of the corporation with respect to which the indebtedness was incurred upon
retirement of the indebtedness.
21
VI. The governmental unit must approve both the nonprofit corporation
and the specific obligations to be issued by the corporation.
The District is a sponsoring governmental unit for purposes of the
requirements of Internal Revenue Service Revenue Procedure 82-26.
As a newly formed organization, the Authority has no other undertakings or
obligations other than with respect to the Bonds and the Project. Franklin L.
Haney and C. Roger Addlesperger are the members of the board of directors of the
Authority. Franklin L. Haney is one of the principals of Douglas County
Development Corporation, the owner of the Real Estate. See "CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS."
C. Roger Addlesperger, one of the directors for each of the Districts, has
consulted for the Franklin L. Haney Company and Douglas County Development
Corporation on matters pertaining to the real estate within Dawson Ridge and
other developments in the State of Colorado. In connection with such
consultation, Mr. Addlesperger has received compensation from The Franklin L.
Haney Company, and anticipates having a future relationship with The Franklin L.
Haney Company. Mr. Addlesperger is a Vice President of Douglas County
Development Corporation. Candace Addlesperger, who is also a director of each of
the Districts, is Mr. Addlesperger's wife. Each of the Districts currently has
three directors. See "District Management."
The Articles of Incorporation of the Authority provide that it is organized
and shall be operated exclusively on behalf of and for the benefit and in
furtherance of the purposes of Dawson Ridge Metropolitan District No. 5. The
Articles of Incorporation also provide that all monies realized by the Authority
will be used exclusively for the operation, maintenance and development of
property of the Authority, including payment of obligations of the Authority in
connection therewith, which property shall be used to provide public facilities.
Such property must be located within the District or have a substantial
connection therewith.
In furtherance of those purposes, the Authority has all powers that may now
or hereafter be exercised by a nonprofit corporation organized under the laws of
the State of Colorado.
Restrictions on the power of the Authority include a requirement that no
part of the net earnings of the Authority will inure to the benefit of any
private person, and no substantial part of the activities of the Authority shall
consist of carrying on propaganda activities or otherwise attempting to
influence legislation. All property of the Authority shall be owned for the
benefit of the District. Upon dissolution of the Authority, all of the
Authority's assets (remaining after payment of or provision for all its
liabilities) shall be paid to the District.
COMPLIANCE WITH REVENUE PROCEDURE 82-26
The following discussion addresses the Authority's compliance with Internal
Revenue Service Procedure 82-26.
I. ACTIVITIES ESSENTIALLY PUBLIC IN NATURE. The Authority is deemed to be
engaged in activities that are essentially public in nature if the activities
and purposes of the Authority are those permitted under the general nonprofit
corporation law of the State of Colorado and the property to be provided by the
Bonds is located within the geographical boundaries of or has a substantial
connection with the District. The Articles of Incorporation provide that the
Authority was organized and is operated exclusively on behalf of and for the
benefit and furtherance of the purposes of the District and the inhabitants
thereof and that the Authority has and may exercise all of the powers conferred
upon nonprofit corporations organized under the laws of Colorado.
II. NOT ORGANIZED FOR PROFIT. The Authority will be deemed not to be
organized for profit except to the extent of retiring indebtedness if the
Authority is organized under the general nonprofit corporation
22
law of the State of Colorado and the Articles of Incorporation of the Authority
provide that the Authority is one that is not organized for profit. The
Authority is organized under the general nonprofit corporation law of the State
of Colorado and the Articles of Incorporation of the Authority provide that the
corporation at all times shall be one not organized for profit.
III. NO PRIVATE INUREMENT. The income of the Authority will be deemed to
not inure to any private person if the Articles of Incorporation provide that
the Authority's income will not inure to any private person and, in fact, the
Authority's income does not inure to any private person. The Articles of
Incorporation provide that no part of the net earnings or earnings of the
Authority shall inure to, or to the benefit of or be distributable to, any
private person.
IV. BENEFICIAL INTEREST BY GOVERNMENTAL UNIT. The District will be deemed
to have a beneficial interest in the Authority while the Bonds remain
outstanding if the District has the right at any time to obtain unencumbered fee
title and exclusive possession of the property financed by the Bonds, and any
additions to that property, by (1) placing into escrow an amount that will be
sufficient to defease the Bonds, and (2) paying reasonable costs incident to the
defeasance. The District, at any time before it defeases the Bonds, may not
agree or otherwise be obligated to convey any interest in the property to any
person for any period extending beyond or beginning after defeasance of the
Bonds. If the District exercises the right to obtain unencumbered fee title by
defeasing the Bonds, the Authority must, within a reasonable time, cancel all
encumbrances on the property, including leases and management contracts.
Additionally, the District must have an exclusive option to purchase the
property financed by the obligations in the event the Authority defaults in its
payments under the obligations. Pursuant to the terms of the Operating
Agreement, the above requirements are satisfied. See "DEFINITIONS OF CERTAIN
TERMS AND DESCRIPTIONS OF PRINCIPAL DOCUMENTS--THE OPERATING AGREEMENT."
V. GOVERNMENTAL UNIT TO OBTAIN FULL LEGAL TITLE. The requirement that the
District must obtain full legal title to the property of the Authority with
respect to which the Bonds were incurred upon retirement of the Bonds will be
met if (i) the Bonds of the Authority are issued on behalf of no more than one
governmental unit and unencumbered fee title the property will vest solely in
that governmental unit when the Bonds are discharged; (ii) all of the original
proceeds and investment proceeds of the Bonds are used to provide tangible real
or tangible personal property; (3) the District obtains upon discharge of the
Bonds unencumbered fee title and exclusive possession and use of the property
financed by the Bonds; (4) before the Bonds are issued, the District adopts a
resolution stating that it will accept title to the property financed by the
Bonds, including any additions to that property, when the Bonds are discharged;
(5) the indenture or other documents under which the Bonds are used to provide
the property state that any other obligations issued by the Authority either to
make improvements to the property or to refund a prior issue of the Authority's
obligations will be discharged no later than the latest maturity date of the
Bonds, and the maturity date of the Bonds, or any other obligations issued by
the Authority with respect to the property, may not be extended beyond the
latest maturity date of the original obligations; (6) the proceeds of fire or
other casualty insurance policies received in connection with damage to or
destruction of the property financed by the Bonds, including any additions to
the property, will, subject to the claims of the holders of the Bonds, be used
to reconstruct the property, regardless of whether the insurance proceeds are
sufficient to pay for the reconstruction or be remitted to the District; and (7)
a reasonable estimate of the fair market value of the property on the latest
maturity date of the Bonds, regardless of whether the Bonds are callable at an
earlier date, must equal at least 20% of the original cost of the property
financed by the Bonds determined without including in the value any addition to
the property or any increase or decrease for inflation or deflation during the
terms of Bonds, and a reasonable estimate of the remaining useful life of the
property on the latest maturity date of the Bonds must be the longer of one year
or 20% of the originally-estimated useful life of the property financed by the
Bonds.
The obligations of the Authority are issued only on behalf of the District
and unencumbered fee title to the property financed by the Bonds will vest
solely in the District when the Bonds are discharged. All of
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the original proceeds and investment proceeds of the Bonds were used to acquire
real property, including water rights. Assuming continuing compliance with the
requirements set forth in the Operating Agreement, the above requirements will
be satisfied.
VI. DISTRICT APPROVAL OF AUTHORITY AND BONDS. The District must approve
both the Authority and the Bonds to be issued by the Authority. The District
adopted a resolution approving the purposes and activities of the Authority and
the Bonds to be issued by the Authority.
Noncompliance with the requirements of Internal Revenue Service Revenue
Procedure 82-26 could cause the interest on the Bonds to be included in gross
income for Federal and state income tax purposes retroactive to the date of
issuance of the Bonds.
THE DISTRICTS
GENERAL
The Project is located in a proposed development generally referred to as
Dawson Ridge. Since the inception of planning for Dawson Ridge, it has been
proposed that Dawson Ridge be serviced by multiple special districts each
serving a portion of Dawson Ridge. Special districts are political subdivisions
of the State of Colorado and quasi-municipal corporations created pursuant to
Title 32, Colorado Revised Statutes, as amended (the "Act"). The five contiguous
special districts serving Dawson Ridge are referred to as Dawson Ridge
Metropolitan Districts Nos. 1 through 5 (the "Districts"). The purpose of
multiple metropolitan districts is to assure that residential infrastructure is
supported by the benefitted property, and that then-current residents and
taxpayers of an area are not unreasonably burdened by the cost of future
development.
The Districts were organized in 1985 for the purpose of providing certain
water, sewer, street, park and recreation and safety improvements for Dawson
Ridge, which is located entirely within the boundaries of the Town of Castle
Rock.
The Dawson Ridge development contains approximately 1,883 acres of which
approximately 876 acres are being acquired by the Authority with Bond proceeds
for use in the Project. There are presently no residents living in any of the
Districts and infrastructure development in the Districts (i.e., roads and
traffic signalization, traffic and street signage, street lighting, drainage
control, and sanitary sewer) has not yet begun pending approval of service plan
amendments by the Town of Castle Rock. See "THE PROJECT-- Necessary Approvals."
SERVICE PLAN
The preparation and approval of a service plan is a requirement under
Colorado Statutes for the organization of a special district. The service plans
for each District consisted of a financial survey and preliminary engineering
survey showing how the proposed services were to be provided and financed,
including a description, among other things, of facilities to be constructed. In
the preparation of the service plans, projections were utilized regarding
construction costs, amounts of revenues to each District proposing the service
plan, building rates and other matters. A separate service plan was prepared, in
substantially identical form, with respect to each of the five Districts.
Following preparation of the Districts' service plans, they were submitted to
the Town of Castle Rock and approved by the Town of Castle Rock and by a
majority of the electors within each District. The organization of each District
was then approved by the District Court for Douglas County, Colorado.
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Any material departure from a service plan may be enjoined by the District
Court for Douglas County on its own motion or upon motion by the Town of Castle
Rock, residents or property owners of the District or municipalities or special
districts within a radius of three miles of each District. To this extent, the
powers of the Districts may be considered limited by their respective service
plans. The Act permits amendments to existing service plans by a procedure
analogous to that required in the original approval, when required for changes
of a basic essential nature. Such a revision would require the approval of the
Town of Castle Rock. However, no further approval by the District Court is
required after revision approval by the Town of Castle Rock. In connection with
the expected development in the Districts, including development of the Project,
amendments to the service plan of each District will be required. No assurance
can be given regarding whether any such service plan amendments will be approved
or the timing thereof. See "SECURITY AND SOURCE OF PAYMENT" and "THE
DISTRICTS--Town of Castle Rock Agreements."
ORIGINAL DEVELOPMENT
The primary owner of the property within the geographic boundaries of the
development at the time of the organization of the Districts was Bellamah
Community Development, a New Mexico general partnership. Bellamah Community
Development was an affiliate of and controlled by Public Service Company of New
Mexico.
In April 1986, District No. 1 issued its general obligation bonds in the
original principal amount of $24,725,000 (the "1986 Bonds"), the payment of
which was secured in part by the pledge of taxes of District No. 1, service
charges and development fees. In connection with the issuance of the 1986 Bonds,
Bellamah Community Development entered into a Facilities Development Fee
Agreement (the "Fee Agreement") wherein it agreed to pay fees to District No. 1
in the total amount of $21,431,867 for the right to use facilities of District
No. 1.
Subsequent to the issuance of the 1986 Bonds, utility rate payers in
Albuquerque, New Mexico successfully challenged Public Service Company of New
Mexico's participation in real estate development activities, including those
related to Bellamah Community Development's activities with respect to the
property within the geographic boundaries of the Districts. These utility rate
payers convinced the New Mexico legislature to revoke Public Service Company of
New Mexico's authority to participate in real estate development activities. As
a result, Public Service Company of New Mexico ceased all financial support of
Bellamah Community Development.
In 1988, Bellamah Community Development defaulted on its payment obligations
under the Fee Agreement and District No. 1 initiated foreclosure of a lien
against Bellamah Community Development property arising under the Fee Agreement.
In June 1988, Bellamah Community Development filed a Chapter 11 bankruptcy
petition, and District No. 1 sought and received relief from the bankruptcy
court to enable it to attempt to foreclose on Bellamah Community Development's
property. Subsequently, Bellamah Community Development's Chapter 11 proceeding
was converted to a Chapter 7 liquidation.
The fees due to District No. 1 under the Fee Agreement were projected to be
the primary source of repayment of the 1986 Bonds until development produced
enough revenues to pay the debt service requirement from reasonable mill levies.
At the time of the Bellamah Community Development bankruptcy, no homes had been
constructed within the geographic boundaries of District No. 1, and, without the
collection of fees anticipated to be derived from Bellamah Community
Development's development, District No. 1 determined that a mill levy of
approximately 10,000 mills would have been necessary to pay 1991 debt service on
the 1986 Bonds, a level the board of directors of District No. 1 believed to be
uncollectible. Accordingly, on September 28, 1990, District No. 1 determined it
was insolvent and filed a Chapter 9 petition in bankruptcy.
Under District No. 1's plan of reorganization, holders of the 1986 Bonds
received (i) the pro rata distribution of the unexpended bond proceeds in the
amount of approximately $9,300,000 (which
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amounted to approximately $.356 per dollar of the creditor claims), and (ii) an
exchange refunding bond (the "1992 Bonds") for the remaining portion of such
claims. The total principal amount of the 1992 Bonds was $21,054,000
(representing the original principal amount of the 1986 Bonds, plus accrued
interest, less distribution of existing funds). The 1992 Bonds were additionally
secured by a Deed of Trust (the "1992 Deed of Trust") from District No. 1, with
respect to all property which it had obtained from Bellamah Community
Development in satisfaction of the Fee Agreement.
At substantially the same time as the issuance of the 1992 Bonds, Douglas
County Development Corporation, a Colorado corporation related to The Franklin
L. Haney Company, made a tender offer to purchase 1992 Bonds from the holders
thereof for the price of $.15 per dollar of principal amount of the 1986 Bonds
outstanding on the date of the filing of the Chapter 9 proceeding by the
District. A vote accepting or rejecting the plan of reorganization did not
constitute an acceptance or rejection of the offer of Douglas County Development
Corporation to purchase the 1992 Bonds. Douglas County Development Corporation
eventually purchased substantially all the 1992 Bonds, although in some
instances the purchase price paid was in excess of $.15 per dollar.
The 1992 Bonds were issued as limited tax obligations of District No. 1,
payable from a mill levy against property within the District not to exceed 35
mills, plus additional development fees paid by developers of property, plus a
pledge of the proceeds of the sale of the real estate encumbered by the 1992
Deed of Trust.
Subsequent to the bankruptcy of District No. 1, Douglas County Development
Corporation also offered to purchase from District No. 1 all of the property
pledged pursuant to the 1992 Deed of Trust and outstanding utility service taps
which had previously been delivered to Bellamah Community Development, but had
been recovered by the District, under the Fee Agreement. On June 1, 1993,
Douglas County Development Corporation purchased such property and utility
service taps from District No. 1 for a purchase price of $127,847,640. The
proceeds from the sale of the real estate and taps by District No. 1 to Douglas
County Development Corporation were deposited with the trustee for the 1992
Bonds and were applied to defease the 1992 Bonds under the original Indenture of
Trust pursuant to which the 1992 Bonds were issued, and no taxes, fees or other
revenues of District No. 1 will be required to be collected for the 1992 Bonds,
substantially all of which Douglas County Development Corporation has
subsequently sold.
If the amendment to District No. 1's service plan is approved, it will be
obligated to impose a mill levy not to exceed 35 mills upon all of the taxable
property located within District No. 1 pursuant to the terms of the
Intergovernmental Agreement. District No. 1's past bankruptcy will not affect
its obligation to impose the mill levy under the Intergovernmental Agreement.
DISTRICT MANAGEMENT
Each District is governed by an elected board of directors consisting of
three members. While the Act anticipates a five-member board of directors,
directors must be registered electors of the State of Colorado and they or their
spouse must either own taxable real or personal property within the District or
live within the District. At the present time, Douglas County Development
Corporation owns approximately 75% of the taxable property within the Districts.
Property interests within the Districts are also owned by C. Roger Addlesperger
and Joseph Knopinski. Mr. Knopinski, Mr. Addlesperger and Ms. Candace
Addlesperger are the members of the board of each of the five Districts.
C. Roger Addlesperger, one of the directors for each of the Districts, has
consulted for the Franklin L. Haney Company and Douglas County Development
Corporation on matters pertaining to the real estate within Dawson Ridge and
other developments in the State of Colorado. In connection with such
consultation, Mr. Addlesperger has received compensation from The Franklin L.
Haney Company, and anticipates having a future relationship with The Franklin L.
Haney Company. Mr. Addlesperger is a Vice President of Douglas County
Development Corporation. Candace Addlesperger, who is a director of the
District, is Mr. Addlesperger's wife.
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Pursuant to Colorado law, a director must disqualify himself or herself from
voting on any issue in which he or she has a conflict of interest unless he or
she has disclosed such conflict of interest in a certificate filed with the
Colorado Secretary of State and the board of directors at least 72 hours in
advance of any meeting in which such conflicts may arise. Each of the directors
believes that such laws have been complied with fully.
TOWN OF CASTLE ROCK AGREEMENTS
In order to provide for the orderly extension of certain public services of
the Districts, each District and the Town of Castle Rock entered into a separate
Intergovernmental Agreement dated August 15, 1985, as amended. Subsequently, in
connection with the bankruptcy of Bellamah Community Development, the Districts
and the Town of Castle Rock executed a Suspension Agreement pursuant to which it
was agreed that further development of the Districts would require the
submission to the Town of Castle Rock, and approval by the Town of Castle Rock,
of service plan amendments outlining the anticipated development of the
Districts. While the Districts have commenced discussions on revised service
plans with the Town of Castle Rock, the Town of Castle Rock will not formally
consider such amendments to the service plans until it has completed its own
revisions to the Town of Castle Rock's existing policies concerning special
districts located within its jurisdiction. See "THE PROJECT--Necessary
Approvals." No assurance can be given that the Town of Castle Rock will approve
such revisions to the Districts' service plans, and a failure to receive such
approval could interfere with development of each of the Districts, including
construction of the contemplated golf course and construction of residences.
DISTRICT POWERS
The operation and administration of each District are controlled by its
board of directors. The rights, powers, privileges, authority, functions and
duties of the District are established by the laws of the State of Colorado,
particularly the Act. Each District has the power, among other powers, to enter
into contracts and agreements; to sue and be sued, to incur indebtedness and
issue bonds following approval at an election or to refund any bonded
indebtedness of the District at lower interest rates without an election; to fix
rates, tolls or charges for services or facilities furnished by the District; to
adopt and enforce regulations promulgated by the board; to levy and collect
general ad valorem property taxes; to acquire, dispose of and encumber real and
personal property, to have the management, control and supervision of all the
business affairs of the District and the construction, installation, operation
and maintenance of District improvements; and to exercise the powers of eminent
domain for the condemnation of private property for public use.
DISTRICT LIABILITY
In the opinion of the board of directors of each District, the insurance
presently held by each District and public employee bonds coverage, together
with the provisions of the Colorado Governmental Immunity Act, Part 1 of Article
10 of Title 24, Colorado Revised Statutes, as amended (the "Immunity Act") will
provide adequate protection for each District and its board against the majority
of potential liability claims.
The Immunity Act states for political subdivisions of the State of Colorado,
that sovereign immunity acts as a bar to any action against a public entity,
such as any District, but only to the extent and subject to the conditions
provided therein. The Immunity Act generally provides that a District is immune
from liability resulting from claims for injury which lie in tort or those which
could lie in tort, except for specified actions for damages or injuries
resulting from: the operation of a motor vehicle of or on behalf of the
District; the operation of any public hospital, correctional facility or jail; a
dangerous condition of any public building of the District; a dangerous
condition caused by the District which interferes with the movement of traffic
on any public highway, road, street or sidewalk; a dangerous condition of any
public facility of the District; and the operation and maintenance of water and
sanitation facilities. The Immunity
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Act establishes a limitation on judgments for the above-described activities
such that the maximum allowed for one person is $150,000, and for an injury to
two or more persons, the maximum allowed is $150,000 per person or $600,000,
whichever is less. The Immunity Act also provides that in the event the District
is unable to pay a settlement or judgment due to a lack of available funds, the
District shall certify a general ad valorem tax to discharge such settlement or
judgment. In no case shall such tax exceed a total of ten mills per year of
assessment for all outstanding settlements or judgments. For injuries occurring
prior to July 1, 1986, sovereign immunity is deemed to be waived to the extent
that the District's insurance covers such injury. With regard to injuries
occurring on and after such date, a District may, by resolution, increase any
maximum amount that may be recovered from the District for the type of injury
described in the resolution. However, no District has adopted a resolution to
increase such maximum amounts. A District may not be held liable either directly
or by indemnification for punitive or exemplary damages.
A District may not be able to claim governmental immunity and, therefore,
may be subject to certain civil liabilities premised upon certain causes of
action founded in various federal laws. This could occur, for example, in suits
filed pursuant to 42 U.S.C. Section 1983 alleging the deprivation of the civil
rights of an individual, or suits alleging anti-competitive practices and
violation of the anti-trust laws by the District in the exercise of its
delegated powers. However, the Immunity Act provides that it applies to any
action against a public entity or public employee in any court of this state
having jurisdiction over any claim brought pursuant to any federal law, if such
action lies in tort or could lie in tort.
With the completion of the Project, the Districts may be subject to
increased claims for liability attendant to the operation of a public golf
course facility. However, such increased claims for liability may still be
subject to the limits imposed by the Immunity Act as discussed above.
BUDGETARY PROCESS
Each District is subject to the Local Government Budget Law of Colorado,
part 1 of article 1 of title 29, Colorado Revised Statutes, as amended. Under
this statute, the District's budget is required to be adopted before
certification of a mill levy for the forthcoming calendar year. The budget is
required to set forth all proposed expenditures for the administration,
operation, maintenance and debt service of the District, including all
expenditures for capital projects to be undertaken or executed in the fiscal
year. The budget must show the actual figures for the prior fiscal year,
estimated figures projected through the end of the current fiscal year,
including disclosure of all beginning and ending fund balances, and the
anticipated expenditures for the ensuing year. In addition, it must set forth
the anticipated revenues and other means of financing the proposed expenditures
for the ensuing year. After the proposed budget is prepared, a notice must be
published indicating that the budget is open for public inspection and that a
hearing will be held on the budget.
Before the beginning of the ensuing year, the board of each District must
enact resolutions making appropriations for that year. The amounts appropriated
may not exceed the amounts fixed in the budget as adopted by the board. Upon the
adoption of the budget, the board must file certified copies of the budget with
the Colorado Division of Local Government. In the event of some contingency
which could not have been reasonably foreseen at the time of adoption of the
budget, the board of the District may also authorize the expenditure of funds in
excess of the budget by a resolution adopted by a majority vote of the board at
a public meeting.
Through the preparation of the budget, and by taking into consideration all
sources of revenue, costs of constructing, operating and maintaining the
facilities of each District, the required tax levy is determined each year. Any
property tax levy which results in tax revenues for District operations (but not
principal and interest payments on District indebtedness, including the
obligations arising under the Operating Agreement and the Intergovernmental
Agreement) exceeding 105.5% of the amount raised in the previous year (but with
an exemption for increased valuation for assessment attributable to annexation
or inclusions, or increased valuation due to new construction) must be submitted
to the Colorado Division
28
of Local Government for approval. If approval is not granted, such approval can
be obtained by vote of electors within the District. However, the provisions of
an amendment to the Constitution of the State of Colorado, approved in the
November 3, 1992 general election and commonly referred to as Amendment One
("Amendment One"), may result in a more restrictive increase (or a decrease) in
property tax revenues and spending for the Districts.
Since authorization for the execution of the Operating Agreement and the
Intergovernmental Agreement, including the imposition of a mill levy not to
exceed 35 mills upon all of the taxable property within the Districts, was
approved by the electors of each District on November 7, 1995, the requirements
of Amendment One have been complied with and will not affect the ability of the
Districts to impose taxes pursuant to the Operating Agreement and the
Intergovernmental Agreement. Moreover, since principal and interest payments on
District indebtedness, including the obligations arising under the Operating
Agreement and the Intergovernmental Agreement are not included in determining
whether approval of the Colorado Division of Local Government is necessary, no
further approvals other than approval by the Town of Castle Rock of a service
plan amendment and any necessary PUD approvals for the Project are required.
Once the service plan amendments are approved, the Districts may impose a mill
levy for the following year in accordance with the budgetary process set out
above.
FINANCIAL STATEMENTS
Under Colorado statutes, unless exempted (e.g., for insubstantial financial
activity) the board of each District is required to have the financial
statements of the District audited at least annually. The audited financial
statements must be filed with the board by July 1 of each year, and with the
State Auditor 30 days thereafter. If such audit is not filed as required by law,
the State Auditor may authorize the County Treasurer holding moneys of the
District generated pursuant to the taxing authority of the District to prohibit
the release of such moneys until the District complies with the audit law.
AMENDMENT ONE
Amendment One amended the Colorado Constitution to require voter approval
prior to: (1) imposition of a new tax, tax rate increase, mill levy increase,
valuation for assessment ratio increase, tax extension, or other change in
policy which results in a net gain of tax revenues; or (2) creation for more
than one fiscal year of any debt or other financial obligation, with limited
exceptions. Authorization for the execution of the Operating Agreement and the
Intergovernmental Agreement, including the imposition of a mill levy not to
exceed 35 mills upon all of the taxable property within the Districts, was
approved by the electors of each District in compliance with Amendment One on
November 7, 1995.
Amendment One also limits increases in property tax revenues, with certain
adjustments (including voter-approved revenue changes), (1) for local
governments, to the total of inflation plus the net percentage change in actual
value of all real property within the local government due to construction of
improvements and additional taxable real property; and (2) for school districts,
to the total of inflation plus the percentage change in student enrollment. In
addition, Amendment One limits percentage increases in spending, with certain
adjustments, (including voter-approved revenue changes) (1) for local
governments, to the total of inflation plus the net percentage change in actual
value of all real property within the local government due to construction of
improvements and additional taxable real property and (2) for school districts,
to a total of inflation plus the percentage change in student enrollment.
Revenues collected in excess of limits are required to be refunded unless voters
approve a revenue change as an offset.
However, Amendment One provides that the future creation of local government
debt shall increase (and retiring or refinancing debt shall lower) fiscal year
property tax revenue by the annual debt service so funded.
Amendment One also provides that if annual local government revenue is less
than the annual payments on general obligation bonds, pensions and final court
judgments, the election requirements and
29
the limits for percentage changes in spending and property tax revenues will be
suspended to provide for the deficiency.
It is not possible to predict the effect of Amendment One on future
activities of the Districts, including their ability to raise taxes and other
funds to generate sufficient revenues for their general funds, to undertake
additional programs or to engage in any subsequent financing activities.
TAX EXEMPTION
GENERAL
Interest on the Bonds is excluded from gross income pursuant to Section
103(a) of the Internal Revenue Code of 1986 (the "Code"). Section 103(a)
excludes from gross income interest on all obligations of a state or political
subdivision thereof except those listed in Section 103(b). The Authority is an
instrumentality of Dawson Ridge Metropolitan District No. 5, which is a
political subdivision of the State of Colorado. Section 103(b) provides that
Section 103(a) does not apply to (1) private activity bonds which are not a
qualified bond within the meaning of Section 141 of the Code, (2) arbitrage
bonds, and (3) bonds not in registered form. The Bonds are not private activity
bonds since the proceeds were used to acquire land for public use and are in
registered form. The documents governing the Bonds contain requirements that
preclude them from being arbitrage bonds and the Authority has covenanted to
take all steps required to prevent the Bonds from becoming arbitrage bonds as
defined in Section 148 of the Code.
On the date of issuance of the Bonds, Jenner & Block, Special Tax Counsel
delivered its opinion to the effect that the interest on the Bonds is excludable
from gross income for purposes of federal income tax under existing laws as
enacted and construed on the date of such opinion, assuming the accuracy of the
certifications of the Issuer, and continuing compliance by the Issuer with the
requirements of the Code. Interest on the Bonds will not be an item of tax
preference for purposes of either individual or corporate alternative minimum
tax for individuals or corporations under the Code.
The alternative minimum tax for corporations is levied for taxable years
beginning after December 31, 1986 in addition to the corporate regular tax in
certain cases. The alternative minimum tax, if any, depends upon the
corporation's alternative minimum taxable income, which is the corporation's
taxable income with certain adjustments. One of the adjustment items used in
computing the alternative minimum taxable income of a corporation (excluding S
Corporations, Regulated Investment Companies, Real Estate Investment Trusts and
REMICs) is an amount equal to 75% of the excess of such corporation's "adjusted
current earnings" over an amount equal to its alternative minimum taxable income
(before such adjustment item and the alternative tax net operating loss
deduction). The term "adjusted current earnings" would include all tax-exempt
interest, including interest on the Bonds.
Under Section 884 of the Code, interest on the Bonds is to be taken into
account in the computation of the foreign branch profits tax.
Ownership of the Bonds may result in collateral federal income tax
consequences to certain taxpayers, including, without limitation, financial
institutions, property and casualty insurance companies, individual recipients
of Social Security or Railroad Retirement benefits, certain S corporations with
"excess net passive income" and taxpayers who may be deemed to have incurred or
continued indebtedness to purchase or carry the Bonds. Special Tax Counsel
expresses no opinion as to such collateral tax consequences. Purchasers of the
Bonds should consult their own tax advisors as to collateral federal income tax
consequences.
The Code sets forth certain requirements which must be met subsequent to the
issuance and delivery of the Bonds for interest thereon to remain excludable
from the gross income of the owners of the Bonds for federal income tax
purposes, including investment restrictions, periodic payments of arbitrage
profits to the United States, requirements regarding the proper use of bond
proceeds and the facilities financed therewith and certain other matters. The
Authority has covenanted to comply with such requirements.
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Noncompliance with such requirements could cause the interest on the Bonds to be
includable in the gross income of the owners of the Bonds for federal income tax
purposes, retroactive to the date of issue of the Bonds.
BOND PREMIUM
An investor may purchase a Bond at a price in excess of its stated principal
amount. Such excess is characterized as "bond premium" and must be amortized by
the investor on a constant yield basis over the remaining term of the Bond in a
manner that takes into account potential call dates and call prices. An investor
cannot deduct amortized bond premium relating to a tax-exempt bond for federal
income tax purposes. However, as bond premium is amortized, it reduces the
investor's basis in the Bond. Investors who purchase a Bond at a premium should
consult their own tax advisors regarding the amortization of bond premium and
its affect on the Bond's basis for purposes of computing gain or loss in
connection with the sale, exchange, redemption or early retirement of the Bond.
ORIGINAL ISSUE DISCOUNT
The initial offering price of one maturity of the Bonds was less than the
principal amount payable at maturity. The difference between the issue price of
such maturity of the Bonds and the amount payable at maturity is original issue
discount. The issue price (the "Issue Price") for such maturity of the Bonds was
the price at which a substantial amount of such maturity of the Bonds is first
sold to the public.
For an investor who purchased a Bond of such maturity in the initial
offering at the Issue Price for such maturity and who holds such Bond to its
stated maturity, subject to the condition that the Authority complies with the
covenants discussed under "TAX EXEMPTION--General" above, (a) the full amount of
original issue discount with respect to such Bond constitutes interest which is
not includable in the gross income of the owner thereof for federal income tax
purposes and (b) such owner will not realize taxable capital gain or market
discount upon payment of such Bond at its stated maturity; such interest is not
included as an item of tax preference in computing an adjustment used in
determining the alternative minimum tax for individuals and corporations under
the Code, but is taken into account in computing an adjustment used in
determining the alternative minimum tax for certain corporations under the Code,
as described above; and the accretion of original issue discount in each year
may result in an alternative minimum tax liability for corporations or certain
other collateral federal income tax consequences in each year even though a
corresponding cash payment may not be received until a later year.
Owners of Bonds who dispose of Bonds prior to the stated maturity (whether
by sale, redemption or otherwise), who purchase Bonds in the initial offering,
but at a price different from the Issue Price or who purchase Bonds subsequent
to the initial offering at a price other than the Bond's Issue Price plus
accreted original issue discount should consult their own tax advisors.
EXCHANGE BONDS
Brownstein Hyatt Farber & Strickland, P.C., special counsel to the
Authority, has advised the Authority that in its opinion, the exchange of the
Bonds for Exchange Bonds pursuant to the Exchange Offer will not be treated as
an "exchange" for federal income tax purposes because the Exchange Bonds will
not be considered to differ materially in kind or extent from the Bonds. Rather,
the Exchange Bonds received by a holder will be treated as a continuation of the
Bonds in the hands of such holder. As a result, there will be no federal income
tax consequences to holders exchanging Bonds for Exchange Bonds pursuant to the
Exchange Offer.
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DESCRIPTION OF EXCHANGE BONDS
GENERAL
The Exchange Bonds will be delivered to the purchasers thereof only as fully
registered bonds in the denominations of $100,000 and integral multiples of
$5,000 in excess thereof in book-entry only form as described below under the
subheading "Book-Entry-Only System" and as provided in the Indenture.
The Exchange Bonds will bear interest at the rates, and will mature, subject
to the right of redemption described below, in the principal amounts and on the
dates set forth on the cover page hereof. Interest on the Exchange Bonds from
the dated date thereof will be payable only on June 1, 1997 and semiannually
thereafter on each June 1 and December 1 (each, an "Interest Payment Date") and
until maturity or prior redemption.
Interest on the Exchange Bonds is payable in lawful money of the United
States of America by check mailed by first class mail on each Interest Payment
Date to the registered owner as of the close of business on the 15th day of the
calendar month immediately preceding such Interest Payment Date (whether or not
a business day) (the "Record Date"); provided, however, that any owners of
$1,000,000 or more of the principal amount of the Exchange Bonds may, at any
time prior to a Record Date, give to the Trustee written instructions for
payment of such interest on each succeeding Interest Payment Date by wire
transfer. The principal on the Exchange Bonds and premium, if any, thereon are
payable when due upon presentation thereof at the principal corporate trust
office of the Trustee in lawful money of the United States of America.
Any such interest not so timely paid or duly provided for shall cease to be
payable to the person who is the registered owner thereof on the Record Date and
shall be payable to the person who is the registered owner thereof at the close
of business on a special record date (the "Special Record Date") established for
the payment of the defaulted interest. Such Special Record Date shall be fixed
by the Trustee whenever moneys become available for payment of the defaulted
interest, and notice of the Special Record Date shall be given to the registered
owners of the Exchange Bonds not less than ten days prior to the Special Record
Date by first-class mail to each such registered owner as shown on the
registration books kept by the Trustee on a date selected by the Trustee. Such
notice shall state the date of the Special Record Date and the date fixed for
the payment of such defaulted interest.
REDEMPTION PROVISIONS
MANDATORY SINKING FUND REDEMPTION. The Exchange Bonds maturing December 1,
2011 and December 1, 2017 shall be subject to mandatory sinking fund redemption
at a redemption price of 100% of the principal amount thereof, plus accrued
interest to the date fixed for redemption, on December 1 of each of the years
and in the principal amounts set forth below:
EXCHANGE BONDS MATURING EXCHANGE BONDS MATURING
DECEMBER 1, 2011 DECEMBER 1, 2017
- ----------------------- -----------------------
YEAR AMOUNT YEAR AMOUNT
- --------- ------------ --------- ------------
2010 $ 3,755,000 2012 $ 4,250,000
2011 * 3,995,000 2013 4,515,000
2014 4,795,000
2015 5,095,000
2016 5,415,000
2017* 5,750,000
- ------------------------
* Stated Maturity
The Exchange Bonds to be redeemed will be selected by the Trustee by lot, using
a computer system which randomly selects which bonds will be redeemed within the
maturity or maturities called for redemption.
32
EXTRAORDINARY MANDATORY REDEMPTION. The Exchange Bonds are subject to
extraordinary mandatory redemption in whole at a redemption price of 100% of the
principal amount thereof plus accrued interest to the date fixed for redemption
from proceeds of prepayment of the Collateral. In the event that the Series B
REMIC Bonds (as defined herein under "CREDIT ENHANCEMENT") are prepaid in full
while the Exchange Bonds are outstanding, the proceeds of such prepayment will
be used to redeem the Exchange Bonds. The Acquisition and Construction Notes (as
defined herein under "CREDIT ENHANCEMENT") permit optional prepayments in full
to be made on and after December 1, 2015. Under the trust indenture for the
Series B REMIC Bonds, prepayments of the Acquisition and Construction Notes
requires prepayment of the Series B REMIC Bonds. See "CREDIT ENHANCEMENT."
BOOK-ENTRY-ONLY SYSTEM
A portion of the information contained in this section has been extracted
from a report from DTC entitled "Book-Entry-Only Municipals". No representation
is made by the Authority or the Credit Enhancement Provider as to the
completeness or the accuracy of such information or as to the absence of
material adverse changes in such information subsequent to the date hereof.
DTC will act as securities depository for the Exchange Bonds. The
ownership of one fully registered Exchange Bond for each maturity set
forth on the cover page hereof, each in the aggregate principal amount
of such maturity, will be registered in the name of CEDE & CO., as
nominee for DTC. DTC is a limited-purpose trust company organized under
the laws of the State of New York, a member of the Federal Reserve
System, a "clearing corporation" within the meaning of the New York
Uniform Commercial Code, and a "clearing agency" registered pursuant to
the provisions of Section 17A of the Securities Exchange Act of 1934, as
amended. DTC was created to hold securities of its participants (the
"Direct Participants") and to facilitate the clearance and settlement of
securities transactions among Direct Participants, thereby eliminating
the need for physical movement of securities certificates. Direct
Participants include securities brokers and dealers, banks, trust
companies, clearing corporations, and certain other organizations, some
of whom (and/or their representatives) own DTC. Access to the DTC system
is also available to others such as banks, brokers, dealers and trust
companies that clear through or maintain a custodial relationship with a
Direct Participant, either directly or indirectly ("Indirect
Participants"). The Rules applicable to DTC and the Direct Participants
and Indirect Participants are on file with the Securities and Exchange
Commission.
Purchases of Exchange Bonds under the DTC system must be made through
Direct Participants, who will receive a credit for the Bonds on DTC's
records. The ownership interest of each actual purchaser of each
Exchange Bond (each a "Beneficial Owner") will be recorded through the
records of the Direct Participants and Indirect Participants. Beneficial
Owners will not receive written confirmations of their purchase, but
Beneficial Owners are expected to receive written confirmations
providing details of the transaction, as well as periodic statements of
their holdings, from the Direct Participant or Indirect Participant
through which the Beneficial Owner entered into the transaction.
Transfers of ownership interests in the Bonds will be accomplished by
book entries made by DTC and by the Direct Participants and Indirect
Participants which act on behalf of the Beneficial Owners. Beneficial
Owners will not receive certificates representing their ownership
interest in the Bonds, except as specifically provided in the Indenture.
NEITHER THE AUTHORITY NOR THE TRUSTEE WILL HAVE ANY RESPONSIBILITY OR
OBLIGATION TO DIRECT PARTICIPANTS OR INDIRECT PARTICIPANTS OR THE
PERSONS FOR WHOM THEY ACT AS NOMINEES WITH RESPECT TO THE PAYMENTS TO,
OR THE PROVIDING OF NOTICE FOR, SUCH DIRECT PARTICIPANTS OR INDIRECT
PARTICIPANTS OR THE PERSONS FOR WHOM THEY ACT AS NOMINEES.
All notices that are to be given to owners of the Exchange Bonds by the
Trustee will be given only to DTC as registered owner. Conveyance of
notices and other communications by DTC to Direct
33
Participants, by Direct Participants to Indirect Participants, and by
Direct Participants and Indirect Participants to Beneficial Owners will
be governed by arrangements among them, subject to any statutory or
regulatory requirements as may be in effect from time to time.
SO LONG AS CEDE & CO. IS THE REGISTERED OWNER OF THE EXCHANGE BONDS, AS
NOMINEE OF DTC, REFERENCES HEREIN TO THE BONDHOLDERS OR REGISTERED
OWNERS OF THE EXCHANGE BONDS SHALL MEAN CEDE & CO. AND SHALL NOT MEAN
THE BENEFICIAL OWNERS OF THE BONDS. BENEFICIAL OWNERS OF THE BONDS OR
INTERESTS IN THE BONDS WILL NOT RECEIVE OR HAVE THE RIGHT TO RECEIVE
PHYSICAL DELIVERY OF SUCH BONDS.
Under the Indenture, payment made by the Trustee to DTC or its nominee
shall satisfy the Authority's obligation under the Indenture to the
extent of such payments.
Principal, redemption price, if any, and interest payments on the
Exchange Bonds will be made to DTC or its nominee, CEDE & CO., as
registered owners of the Exchange Bonds. Upon receipt of moneys, DTC's
current practice is to credit immediately the accounts of the Direct
Participants in accordance with their respective holdings shown on the
records of DTC. Payments by Direct Participants and Indirect
Participants to Beneficial Owners will be governed by standing
instructions and customary practices, as is now the case with municipal
securities held for the accounts of customers in bearer form or
registered in "street name," and will be the responsibility of such
Direct Participants and Indirect Participants and not of DTC, the
Trustee or the Authority, subject to any statutory and regulatory
requirements as may be in effect from time to time.
For every transfer and exchange of the Exchange Bonds, the Beneficial
Owners may be charged a sum sufficient to cover any tax, fee or other
governmental charge that may be imposed in relation thereto.
DTC may determine to discontinue providing its services with respect to
the Exchange Bonds at any time by giving notice to the Authority and the
Trustee and discharging its responsibilities with respect thereto under
applicable law. Under such circumstances, bond certificates are required
to be delivered as described in the Indenture. Each Beneficial Owner,
upon registration of certificates held in such Beneficial Owner's name,
will become a Bondholder.
The Authority, in its reasonable discretion, may determine that
continuation of the system of book-entry transfers through DTC (or a
successor securities depository) is not in the best interests of the
Beneficial Owners. In such event, bond certificates will be delivered as
described in the Indenture.
In the event that the Book-Entry-Only System is discontinued, the
following provisions would apply to the Exchange Bonds. The Trustee
shall keep the registration books for the Exchange Bonds at its
principal corporate trust office. Subject to the further conditions
contained in the Indenture, the Exchange Bonds may be transferred or
exchanged for one or more Exchange Bonds of the same maturity in
different authorized denominations upon surrender thereof at the
principal corporate trust office of the Trustee by the registered owners
or their duly authorized attorneys; upon surrender of any Exchange Bonds
to be transferred or exchanged, the Trustee shall record the transfer or
exchange in its registration books and shall authenticate and deliver
new Exchange Bonds of the same maturity appropriately registered and in
appropriate authorized denominations; during the 15 days immediately
preceding the date of mailing of any notice of redemption or at any time
following the mailing of any notice of redemption, the Trustee shall not
be required to effect or register any transfer or exchange of any
Exchange Bond which has been selected for such redemption, except that
Exchange Bonds properly surrendered for partial redemption may be
exchanged for new Exchange Bonds of the same maturity in authorized
denominations equal in the aggregate to the unredeemed portion; the
Authority and the Trustee
34
shall be entitled to treat the registered owners of the Exchange Bonds,
as their names appear in the registration books as of the appropriate
dates, as the owners of such Exchange Bonds for all purposes under the
Indenture. No transfer or exchange made other than as described above
and in the Indenture shall be valid or effective for any purposes under
the Indenture.
DEBT SERVICE REQUIREMENTS ON THE BONDS
The table below indicates total debt service on the Bonds for the periods
indicated.
PERIOD ENDING DECEMBER 31
-------------------------------------------------------
TOTAL DEBT SERVICE
PRINCIPAL INTEREST REQUIREMENT
---------------- ---------------- -------------------
1996.................................................... -- $ 3,099,151.88 $ 3,099,151.88
1997.................................................... -- 4,132,202.50 4,132,202.50
1998.................................................... -- 4,132,202.50 4,132,202.50
1999.................................................... $ 1,980,000.00 4,132,202.50 6,112,202.50
2000.................................................... 2,095,000.00 4,018,352.50 6,113,352.50
2001.................................................... 2,215,000.00 3,897,890.00 6,112,890.00
2002.................................................... 2,340,000.00 3,770,527.50 6,110,527.50
2003.................................................... 2,475,000.00 3,635,977.50 6,110,977.50
2004.................................................... 2,620,000.00 3,489,952.50 6,109,952.50
2005.................................................... 2,780,000.00 3,332,752.50 6,112,752.50
2006.................................................... 2,950,000.00 3,163,172.50 6,113,172.50
2007.................................................... 3,115,000.00 2,995,022.50 6,110,022.50
2008.................................................... 3,310,000.00 2,798,777.50 6,108,777.50
2009.................................................... 3,525,000.00 2,586,937.50 6,111,937.50
2010.................................................... 3,755,000.00 2,357,812.50 6,112,812.50
2011.................................................... 3,995,000.00 2,118,431.25 6,113,431.25
2012.................................................... 4,250,000.00 1,863,750.00 6,113,750.00
2013.................................................... 4,515,000.00 1,598,125.00 6,113,125.00
2014.................................................... 4,795,000.00 1,315,937.50 6,110,937.50
2015.................................................... 5,095,000.00 1,016,250.00 6,111,250.00
2016.................................................... 5,415,000.00 697,812.50 6,112,812.50
2017.................................................... 5,750,000.00 359,375.00 6,109,375.00
---------------- ---------------- -------------------
Total................................................... $ 66,975,000.00 $ 60,512,615.63 $ 127,487,615.63
---------------- ---------------- -------------------
---------------- ---------------- -------------------
35
SECURITY AND SOURCE OF PAYMENT
The Bonds are limited obligations of the Authority, secured only by the
trust estate identified in the Indenture and payable solely from the funds held
under the Indenture (including capitalized interest deposited from the proceeds
of the Bonds), Revenues of the Authority and payments made under the Credit
Enhancement.
Revenues of the Authority include, without limitation, all income, rents,
receipts and profits of the Authority (excluding certain payments for operation
and maintenance expenses and specifically restricted gifts, bequests and other
forms of contributions). Revenues will include income derived from operation of
the golf course and the swimming and tennis facilities which the Authority
intends to construct on the Real Estate. See "The Project." The Authority is
acting as an instrumentality of the District. On November 7, 1995, the voters of
the District and the Related Districts approved the execution and delivery of
the Operating Agreement and the Intergovernmental Agreement obligating the
Related Districts to provide funds to the District for payment to the Authority
to the extent that revenues from the Project are insufficient to fund debt
service on the Bonds and operating expenses of the Project. Such funds would be
derived from a mill levy that is subject to certain limitations, including a
35-mill limitation on taxable property within the District and the Related
Districts. The Operating Agreement and the Intergovernmental Agreement will not
become effective until an amendment to the Districts' service plans including
the mill levy is approved by the Town of Castle Rock, or the Districts receive
an acceptable opinion of counsel acceptable to the Districts that such mill levy
may be imposed without regard to any service plan amendment. Each of the
Districts has covenanted in the Recreational Facilities Agreement to take all
reasonable action necessary to effect such service plan amendment or to obtain
such opinion. At the present time, the Town of Castle Rock is not accepting any
applications for service plan amendments until it finalizes new policies
regarding the use and powers of special districts located within its
jurisdiction. These new policies are expected to be in place in 1997. Once the
new policies are in effect, the Districts will submit their applications for
service plan amendments to the Town of Castle Rock. There can be no assurance
that the Town of Castle Rock will approve the amendments to the Districts'
service plans. See "THE PROJECT--Necessary Approvals."
In order to provide an alternate source of revenue, the Authority entered
into a Development Agreement dated as of March 1, 1996 (the "Development
Agreement") with Douglas County Development Corporation, the owner of
approximately 75% of the taxable property in the Districts, and certain other
property owners providing for a payment in lieu of taxes by Douglas County
Development Corporation and all subsequent owners of the property owned by
Douglas County Development Corporation in the Districts. The amount of such
payment will be equivalent to the amount which would be generated by a mill levy
against all of the taxable real and personal property in the Districts pursuant
to the Operating Agreement and the Intergovernmental Agreement. The payment
obligations under the Development Agreement are absolute and unconditional and
no conditions must be satisfied for the Development Agreement to become
effective. Payment obligations under the Development Agreement are required to
be paid within fifteen days after any applicable payment date, as set forth in
the Development Agreement. The Authority has assigned its interests in the
Development Agreement to the Credit Enhancement Provider and the Trustee,
allowing the Credit Enhancement Provider and the Trustee to accelerate any
amounts due but not paid under the Development Agreement, and to foreclose on
such property for which payments have not been made, if necessary. Descriptions
of the material terms of the Operating Agreement, the Intergovernmental
Agreement, the Development Agreement and the Recreational Facilities Agreement
appear herein under the caption "DEFINITIONS OF CERTAIN TERMS AND DESCRIPTIONS
OF PRINCIPAL DOCUMENTS."
Debt service on the Bonds for the period prior to March 1, 1998 is payable
from the proceeds of the Bonds in the form of capitalized interest. See "USE OF
PROCEEDS" herein. Such capitalized interest amount is on deposit with the
Trustee and will be sufficient to make all payments of interest on the Bonds
36
to March 1, 1998 (but not Extra Payments). As credit enhancement for the Bonds,
the Credit Enhancement Provider executed a Collateralized Credit Enhancement
Agreement for the benefit of the Trustee, pursuant to which the Credit
Enhancement Provider is obligated to make payment of debt service on the
Securities for the period commencing March 1, 1998, but the Credit Enhancement
Provider's liability is limited to the Collateral pledged and assigned to the
Trustee. The Collateral to be assigned by the Credit Enhancement Provider
consists of the Series B REMIC Bonds and the debt service payments on the Series
B REMIC Bonds, which will be payable effectively from certain payments to be
made by the U.S. Government under a lease for space in a building in the
District of Columbia. See "Credit Enhancement" and "DEFINITIONS OF CERTAIN TERMS
AND DESCRIPTIONS OF PRINCIPAL DOCUMENTS-- THE LEASE." The amounts required to be
paid on the Series B REMIC Bonds, if timely paid, will be sufficient to pay
principal of and interest on the Bonds when due for the period commencing March
1, 1998, but not to pay Extra Payments.
Pursuant to the Reimbursement Agreement between the Authority and the Credit
Enhancement Provider, monies applied by the Trustee from the proceeds of the
Series B REMIC Bonds to pay principal and interest on the Bonds are required to
be reimbursed to the Credit Enhancement Provider from operating revenues of the
Authority (which are currently expected to be primarily golf course revenues,
mill levy payments by the Districts and payments under the Development
Agreement). There is no assurance that such revenues will be sufficient to
enable the Authority to meet these obligations, and a failure to do so
constitutes a default under the Reimbursement Agreement. If such a default
occurs and the Credit Enhancement Provider is not in default under the
Collateralized Credit Enhancement Agreement, the Credit Enhancement Provider is
entitled to exercise various remedies, including foreclosing on the Deed of
Trust, thereby terminating the rights of the Bondholders in various security
(other than the Collateral), including the Authority's interest in the Project.
However, such foreclosure is permitted only if the Credit Enhancement Provider
obtains an opinion of Special Tax Counsel acceptable to the Trustee that such
foreclosure will not adversely affect the exclusion of interest on the Bonds
from gross income for federal income tax purposes. See "DEFINITIONS OF CERTAIN
TERMS AND DESCRIPTIONS OF PRINCIPAL DOCUMENTS--THE DEED OF TRUST,"
"--COLLATERALIZED CREDIT ENHANCEMENT AGREEMENT" and "--REIMBURSEMENT AGREEMENT."
CREDIT ENHANCEMENT
The Credit Enhancement Provider executed the Collateralized Credit
Enhancement Agreement for the benefit of the Trustee. Pursuant to the
Collateralized Credit Enhancement Agreement, the Credit Enhancement Provider has
agreed to provide to the Trustee amounts sufficient to provide for the due,
prompt and complete payment of the Bonds, including principal and interest
payable thereunder for the period commencing March 1, 1998 (but excluding
payments with respect to premium on the Bonds, interest on the Bonds in excess
of the pre-default rate thereon, Additional Interest and amounts due solely as a
result of acceleration or redemption of the Bonds (collectively, "Extra
Payments")) all of which shall be paid solely from payments on the Series B
REMIC Bonds.
In order to secure its obligations under the Collateralized Credit
Enhancement Agreement, the Credit Enhancement Provider has pledged and delivered
to the Trustee the Series B REMIC Bonds payable from an interest in the REMIC
Trust Estate under the REMIC Indenture, in accordance with the provisions of a
Bond Pledge and Security Agreement between the Credit Enhancement Provider, the
Trustee and the REMIC Trustee. An election was made to have the REMIC Trust
Estate treated as a "real estate mortgage investment conduit" for federal income
tax purposes.
The Series B REMIC Bonds will be payable on a parity with the Series A REMIC
Bonds from amounts paid on notes held in the REMIC Trust Estate, and such
payments will be pledged as Collateral and used to pay the debt service payments
on the Series A REMIC Bonds and Series B REMIC Bonds. Certain of the notes held
in the REMIC Trust Estate (the "Acquisition and Construction Notes") have been
issued by Parcel 49C Limited Partnership, a District of Columbia limited
partnership, in respect of
37
loans to Parcel 49C Limited Partnership related to the acquisition and
construction by Parcel 49C Limited Partnership of an office building (with
parking garage) in the District of Columbia commonly referred to as Portals II.
Space in such office building has been leased by Parcel 49C Limited Partnership
to the U.S. Government pursuant to a lease agreement dated August 12, 1994, as
amended and supplemented (the "Lease"). Parcel 49C Limited Partnership assigned
the Lease and rent payable thereunder to Building Finance Company of Tennessee,
Inc., as collateral for amounts loaned by Building Finance Company of Tennessee,
Inc. to Parcel 49C Limited Partnership, which amounts are evidenced by the
Acquisition and Construction Notes. Building Finance Company of Tennessee, Inc.,
transferred the Acquisition and Construction Notes and the collateral therefor
to BFC Finance Corp. which then assigned all such assets to the REMIC Trustee as
security for the REMIC Bonds. Amounts payable on the Acquisition and
Construction Notes (and, in turn, amounts payable on the REMIC Bonds other than
certain initial interest on the Series A REMIC Bonds) are expected to come from
the portion of payments under the Lease which is not subject to set-aside by the
U.S. Government (the "Non Set-Off Lease Payments"). The Non Set-Off Lease
Payments received under the Lease are expected to be sufficient to pay principal
and interest on the REMIC Bonds when due. The amounts required to be paid as
principal and interest on the Series B REMIC Bonds (which amounts will be paid
to the Trustee), if timely paid, will be sufficient to pay principal and
interest on the Bonds when due for the period commencing March 1, 1998, but not
to pay Extra Payments. Nonpayment of Extra Payments, in and of itself, will not
constitute an Event of Default under the Indenture or give rise to the right to
foreclose under the Deed of Trust. See "DEFINITIONS OF CERTAIN TERMS AND
DESCRIPTIONS OF PRINCIPAL DOCUMENTS--THE DEED OF TRUST" and "--THE LEASE."
THE REMIC BONDS
Certain proceeds of the Series A REMIC Bonds were transferred by BFC Finance
Corp. to Building Finance Company of Tennessee, Inc. to enable that company,
using such proceeds and other funds at its disposal, to make (i) a loan of
$99,000,000 to Parcel 49C Limited Partnership in connection with the
partnership's construction of the Portals II office building and related parking
garage in the District of Columbia, and (ii) a $27,087,366.74 loan to the
partnership for costs to acquire and develop property on which the office
building is to be constructed.
Certain proceeds of the Series A REMIC Bonds were also used by BFC Finance
Corp. to lend $9,310,689.07 to DCDC II, Inc. for which BFC Finance Corp.
received a note in such principal amount (the "DCDC II Note"), secured by a deed
of trust on approximately 300 acres of undeveloped land in Castle Rock, Colorado
(the "DCDC II Mortgage") and a pledge of United States Government securities
pursuant to an Assignment of Collateral and Trust Agreement (the "Pledge
Agreement").
Pursuant to the REMIC Indenture, BFC Finance Corp. deposited with the REMIC
Trustee certain assets comprising the trust estate including all rights to
payments under the Acquisition and Construction Notes which accrue after January
31, 1998, deeds of trust on the Portals II property, an assignment of Lease, the
DCDC II Note, the DCDC II Mortgage and the Pledge Agreement.
The terms of the Acquisition and Construction Notes and the Lease are such
that amounts payable thereunder are expected to be sufficient to pay principal
of and interest on the REMIC Bonds as and when due from and after March 1, 1998.
The terms of the DCDC II Note and the collateral securing the DCDC II Note are
such that amounts payable thereunder are expected to be sufficient to pay
interest on the REMIC Bonds which accrues from March 1, 1996 through January 31,
1998. In addition, the REMIC Trustee will be a beneficiary of certain insurance
policies covering casualty risks related to the property which is the subject of
the Lease, both during construction and after completion of construction. Such
policies are to be in amounts which are anticipated to be sufficient to enable
payment of debt service on the REMIC Bonds during any period of Lease
interruption or, together with proceeds from the sale of the property, to redeem
the REMIC Bonds in the event the Lease is terminated as a result of a casualty.
38
However, there can be no assurance that such proceeds will be sufficient to pay
such debt service or redemption price.
The REMIC Trustee is also to be the beneficiary of certain casualty
insurance policies which are to be purchased with respect to Portals II. In the
event the Lease is terminated as a result of casualty or condemnation, proceeds
of such insurance policies or of any condemnation award would be used to redeem
the Series B REMIC Bonds and such redemption proceeds would be used to redeem
the Bonds. There can be no assurance that insurance or condemnation proceeds
would be received in amounts sufficient to redeem all or any of the Bonds. See
"The Bonds-Redemption Provisions-Extraordinary Mandatory Redemption."
In the event that the Series B REMIC Bonds are prepaid in full while the
Securities are outstanding, the proceeds of such prepayment will be used to
redeem the Securities. The Acquisition and Construction Notes permit optional
prepayments in full to be made on and after December 1, 2015. Under the REMIC
Indenture, prepayments of the Acquisition and Construction Notes requires
prepayment of the Series B REMIC Bonds.
The Authority will be required to reimburse the Credit Enhancement Provider
for any payments made by the Credit Enhancement Provider to holders of Exchange
Bonds pursuant to the Reimbursement Agreement. See "DEFINITIONS OF CERTAIN TERMS
AND DESCRIPTIONS OF PRINCIPAL DOCUMENTS--REIMBURSEMENT AGREEMENT."
EVENTS OF DEFAULT: REMEDIES AVAILABLE TO BONDHOLDERS
Pursuant to the Collateralized Credit Enhancement Agreement and the Bond
Pledge and Security Agreement, the Trustee, for the benefit of the Bondholders,
has a valid and perfected first priority lien on and security interest in the
Credit Enhancement Provider's right, title and interest in, and to the
Collateral. Upon an event of default by the Credit Enhancement Provider, the
Trustee may foreclose on the Collateral and seek all other remedies available at
law and equity.
TAX TREATMENT OF REMIC TRUST ESTATE AND SERIES B REMIC BONDS
The REMIC Trustee has made an election to treat the segregated asset pool
comprising the REMIC Trust Estate as a "real estate mortgage investment conduit"
("REMIC") for federal income tax purposes. Qualification as a REMIC requires
ongoing compliance with certain conditions. Kutak Rock, Special Tax Counsel to
BFC Finance Corp., has advised the REMIC Trustee that, in the firm's opinion and
assuming (i) compliance with the procedural requirements for making a REMIC
election, (ii) compliance with the REMIC Indenture under which the REMIC Bonds
were issued, and (iii) continuing compliance with the applicable provisions of
the Code, the segregated asset pool comprising the REMIC Trust Estate will
qualify as a REMIC, and the Series B REMIC Bonds will be considered REMIC
"regular interests" in such REMIC.
In order for the segregated asset pool comprising the REMIC Trust Estate
to maintain qualification as a REMIC, there must be ongoing compliance with
certain requirements set forth in the Code. If the REMIC Trust Estate fails
to comply with the ongoing requirements during any taxable year, the Code
provides that it will not be treated as a REMIC for such year and thereafter.
In such event, the classification of the REMIC for federal income tax
purposes is uncertain. The Series B REMIC Bonds may continue to be treated as
debt instruments for federal income tax purposes, but it is also possible
that the segregated asset pool comprising the REMIC Trust Estate may be
treated as a separate association taxable as a corporation and the Series B
REMIC Bonds may be treated as equity interests therein. If such treatment
were to apply, the REMIC Trust Estate would be subject to corporate tax on
its income, thereby potentially reducing amounts payable to the Trustee, as
pledgee of the Series B REMIC Bonds. The Treasury Department is authorized to
issue regulations that would address situations where a failure to meet
requirements for REMIC status occurs inadvertently and in good faith and,
absent regulatory relief,
39
disqualification of the REMIC may occur. However, the legislative history of the
REMIC provisions of the Code indicates that such regulatory relief may be
accompanied by sanctions, such as the imposition of corporate tax on all or a
portion of a REMIC's income for the period of time during which requirements for
REMIC status are not satisfied.
Except as indicated above, the Series B REMIC Bonds will generally be
treated for federal income tax purposes as debt instruments that are issued by
the REMIC Trust Estate on the date of issuance of the Series B REMIC Bonds and
not as ownership interests in the REMIC Trust Estate or the REMIC Trust Estate's
assets. Income with respect to such Bonds is required to be reported under the
accrual method of accounting, not the cash method. In general, stated interest,
original issue discount and market discount accrued on the Series B REMIC Bonds
will be ordinary income, and principal payments on the Series B REMIC Bonds will
be return of capital to the extent of the holder's basis in the Series B REMIC
Bonds allocable to such payments.
THE PORTALS II BUILDING
Construction of the Portals II office building and parking garage, which is
being leased to the U.S. government pursuant to the Lease, commenced in the
spring of 1996. Construction of the building and parking garage is progressing
according to the planned construction schedule, and is anticipated to be
completed in November 1997. In December of 1996, the U.S. Government exercised
its option to lease the remaining space in the building so that the U.S.
Government now has a lease for 100% of the net usable square footage of the
building. The U.S. Government must commence paying rent directly to the REMIC
Trustee, pursuant to the assignment of the Lease, on March 1, 1998.
The base rent payable under the Lease is based on an initial annual rental
rate of $38.85 per net usable square foot for the first 287,483 of net usable
square feet of space leased and $37.95 per net usable square foot for the
remaining 247,647 of net usable square feet leased for a total initial amount of
$20,566,918.20 per year or $1,713,909.85 per month. The U.S. Government may
deduct from the base rent during any year of the term of the Lease an amount
which will not exceed $8.50 per net usable square foot (which amount may be
increased each year in accordance with a formula set forth in the Lease using
the same methodology for calculating the increase in the rent for operating
costs set forth in the Lease) for the partnership's failure to perform its
obligations under the Lease, but the government has agreed pursuant to an
attornment agreement to give the REMIC Trustee notice of and an opportunity to
cure the partnership's failure to perform its obligations under the Lease prior
to deducting amounts from the base rent, unless the partnership's failure to
perform has caused a life or health-threatening condition. Consequently, the
total base rent not subject to set-off is $16,018,313.20 per year, or
$1,334,859.43 per month. Rent is payable in equal monthly installments in
arrears. It was a condition to issuance of the REMIC Bonds that counsel for the
government render an opinion that the obligations of the government to pay rent
under the Lease constitutes an absolute and unconditional obligation of the
government. As is the case with most federal agencies, the government's access
to funds requires an annual appropriation by Congress. The government's ability
to make payments under the Lease requires such an appropriation to the Federal
Buildings Fund, the fund from which all the government's long-term leases are
paid. In the event Congress fails to make such appropriation, or in the event
any payments that are properly due and owing the partnership under the Lease are
not made, the partnership or the REMIC Trustee would be entitled, in the opinion
of the counsel for the government, to enforce the payment obligations of the
United States in accordance with the terms of the Lease, or as otherwise may be
available at law or in equity. For a further description of the Lease, see
"DEFINITIONS OF CERTAIN TERMS AND DESCRIPTIONS OF PRINCIPAL DOCUMENTS--THE
LEASE."
REASONS FOR SELECTING THE TYPE OF CREDIT ENHANCEMENT AND THE PROVIDER THEREOF
Approximately 75% of the taxable property located within the Districts is
owned by Douglas County Development Corporation, a Colorado corporation related
to the Franklin L. Haney Corporation. DCDC
40
II also owns certain taxable property within the Districts. As described under
"CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS," Franklin L. Haney owns 21%,
and Douglas County Development Corporation owns 79% of DCDC II, Inc. Franklin L.
Haney also owns Douglas County Development Corporation.
Franklin L. Haney also owns 16% and various members of his family own the
remaining 84%, of Tower Associates II, Inc., which is a general partner and a
limited partner of Parcel 49C Limited Partnership. Franklin L. Haney owns 49% of
Building Finance Company of Tennessee, Inc., which in turn owns BFC Guaranty
Corp. and BFC Finance Corp. Building Finance Company of Tennessee acquired the
Acquisition Note and the Construction Note which are now held in a trust estate
under an Indenture of Trust between the REMIC Trustee and BFC Finance Corp. As a
result, BFC Guaranty Corp., as owner of the Series B REMIC Bonds, has a right to
receive, through an Assignment of the GSA Lease payments, amounts payable by the
GSA to Parcel 49C Limited Partnership.
DCDC II, Inc. and Douglas County Development Corporations will be the
primary beneficiaries of the ultimate development of the Districts. As a result,
they will have a substantial benefit from the successful construction and
completion of the Project, which is anticipated to enhance greatly the value of
their holdings within the Districts. This type of credit enhancement was chosen
inasmuch as it permitted the Franklin L. Haney Company, through affiliates, to
provide readily available credit enhancement through related entities.
Utilization of credit enhancements is intended to substantially lower the
borrowing costs and permit more ready access by the Authority to the tax-exempt
municipal market.
Franklin L. Haney also owns 16% and various members of his family own the
remaining 84%, of Tower Associates II, Inc., which is a general partner and a
limited partner of Parcel 49C Limited Partnership. Franklin L. Haney owns 49% of
Building Finance Company of Tennessee, Inc., which in turn owns BFC Guaranty
Corp. and BFC Finance Corp. Building Finance Company of Tennessee acquired the
Acquisition Note and the Construction Note which are now held in a trust estate
under an Indenture of Trust between the REMIC Trustee and BFC Finance Corp. As a
result, BFC Guaranty Corp., as owner of the Series B REMIC Bonds, has a right to
receive, through an Assignment of the GSA Lease payments, amounts payable by the
GSA to Parcel 49C Limited Partnership.
DCDC II, Inc. and Douglas County Development Corporations will be the
primary beneficiaries of the ultimate development of the Districts. As a result,
they will have a substantial benefit from the successful construction and
completion of the Project, which is anticipated to enhance greatly the value of
their holdings within the Districts. This type of credit enhancement was chosen
inasmuch as it permitted the Franklin L. Haney Company, through affiliates, to
provide readily available credit enhancement through related entities.
Utilization of credit enhancements is intended to substantially lower the
borrowing costs and permit more ready access by the Authority to the tax-exempt
municipal market.
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DESCRIPTION OF SERIES B REMIC BONDS
GENERAL
The Series B REMIC Bonds are dated March 1, 1996, and will bear interest
from and including March 1, 1998, at the rates per annum, and will mature in the
principal amounts, as set forth on the "Maturity Schedule" below. Interest on
the Series B REMIC Bonds will be payable initially on June 1, 1998 and
semiannually thereafter on June 1 and December 1 of each year until maturity or
prior redemption (each a "REMIC Interest Payment Date"). The interest payable on
the Series B REMIC Bonds will be computed on the basis of a 360-day year of
twelve 30-day months. If any payment of the principal of or interest on the
Series B REMIC Bonds is due on a payment date that is not a business day, such
payment will be made on the next succeeding business day, and no interest will
accrue on the amount of such payment during the intervening period. The Series B
REMIC Bonds were issued in book-entry form only in authorized denominations of
$100,000 and multiples of $5,000 in excess thereof, and are registered in the
name of Cede & Co., as registered owner and nominee of The Depository Trust
Company, New York, New York. The sole beneficial owner of the Series B REMIC
Bonds is the Credit Enhancement Provider. Neither the holders or the Exchange
Bonds nor the Trustee own the Series B REMIC Bonds. They are merely pledged to
the Trustee as collateral security for the obligation of the Credit Enhancement
Provider under the Credit Enhancement.
MATURITY SCHEDULE
ORIGINAL PRINCIPAL
STATED MATURITIES AMOUNT INTEREST RATE (PER ANNUM)
- ------------------------------------------------------------- ------------------------ ---------------------------
December 1, 1998............................................. $ 5,000 5.750%
December 1, 1999............................................. 1,985,000 5.750
December 1, 2000............................................. 2,100,000 5.750
December 1, 2001............................................. 2,220,000 5.750
December 1, 2002............................................. 2,345,000 5.750
December 1, 2003............................................. 2,480,000 5.900
December 1, 2004............................................. 2,625,000 6.000
December 1, 2005............................................. 2,785,000 6.100
December 1, 2006............................................. 2,955,000 5.700
December 1, 2007............................................. 3,120,000 6.300
December 1, 2008............................................. 3,315,000 6.400
December 1, 2009............................................. 3,530,000 6.500
December 1, 2010............................................. 3,760,000 6.375
December 1, 2011............................................. 4,000,000 6.375
December 1, 2012............................................. 4,255,000 6.250
December 1, 2013............................................. 4,520,000 6.250
December 1, 2014............................................. 4,800,000 6.250
December 1, 2015............................................. 5,100,000 6.250
December 1, 2016............................................. 5,420,000 6.250
December 1, 2017............................................. 5,755,000 6.250
REDEMPTION PRIOR TO MATURITY
EXTRAORDINARY MANDATORY REDEMPTION
(1) The Series B REMIC Bonds maturing on or after December 1, 2016 are
subject to extraordinary mandatory redemption prior to maturity on or after
December 1, 2015, upon notice from BFC Finance Corp. to the REMIC Trustee of the
optional total prepayment of the Acquisition and Construction Notes by Parcel
49C Limited Partnership, as a whole on any REMIC Interest Payment Date set forth
below at the redemption prices (expressed as a percentage of the principal
amount redeemed) set forth below, plus accrued interest to the redemption date.
REMIC INTEREST PAYMENT DATES REDEMPTION PRICE
- ---------------------------------------------------------------------------- -------------------
December 1, 2015 and June 1, 2016........................................... 102%
December 1, 2016 and June 1, 2017........................................... 101%
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(2) The Series B REMIC Bonds shall be subject to extraordinary mandatory
redemption from monies received by the REMIC Trustee constituting prepayments of
the Acquisition and Construction Notes, in whole or in part to the extent of
such monies received by the REMIC Trustee, upon notice from BFC Finance Corp. to
the REMIC Trustee that the Acquisition and Construction Notes have become
subject to mandatory prepayment as a whole due to casualty or condemnation with
respect to all or substantially all of the office building and related parking
garage in the District of Columbia, at a price equal to one hundred percent
(100%) of the principal amount thereof, plus accrued interest thereon to the
redemption date, on the REMIC Interest Payment Date for which notice can be
given and which next follows receipt by the REMIC Trustee of monies constituting
such Acquisition and Construction Note prepayments.
(3) If not all of the outstanding Series B REMIC Bonds can be redeemed from
monies received by the REMIC Trustee due to a mandatory prepayment of the
Acquisition and Construction Notes arising from casualty or condemnation as
described above, the REMIC Trustee shall apply all monies so received to redeem
the outstanding Series B REMIC Bonds in part, which redemption shall be made pro
rata among the holders of the outstanding Series B REMIC Bonds.
NOTICE OF REDEMPTION
Notice of any extraordinary mandatory redemption of the Series B REMIC Bonds
shall be given by the REMIC Trustee by certified mail, return receipt requested,
not less than 30 days nor more than 45 days prior to the applicable redemption
date to each holder in whose name a Series B REMIC Bond is registered on the
REMIC Record Date preceding the applicable redemption date, at such bondholder's
address appearing in the bond register. Prior to the REMIC Trustee giving any
notice of redemption, the REMIC Trustee is required to have on deposit in the
REMIC Redemption Fund the redemption price for the Series B REMIC Bonds to be
redeemed.
All notices of redemption shall state the amount of Series B REMIC Bonds
being redeemed, redemption date, redemption price, the place where the Series B
REMIC Bonds are to be surrendered for payment of the redemption price and that
no interest shall accrue on such Series B REMIC Bonds after such redemption
date. Any failure to give such notice, or any defect therein, shall not affect
the validity of any proceedings for the redemption of any other Series B REMIC
Bonds for which no such failure or defect occurs.
SERIES B REMIC BONDS DUE AND PAYABLE ON REDEMPTION DATE; INTEREST CEASES TO
ACCRUE
On any applicable redemption date, Series B REMIC Bonds subject to
redemption shall become due and payable and interest thereon, unless there is a
default in the payment of the redemption price, shall cease to accrue.
MUTILATED, DESTROYED, LOST OR STOLEN SERIES B REMIC BONDS
If any mutilated Series B REMIC Bond is surrendered to the REMIC Trustee or
the REMIC Trustee receives evidence to its satisfaction of the destruction, loss
or theft of any Series B REMIC Bond, and there is delivered to the REMIC Trustee
such security or indemnity as may be by the REMIC Trustee to save BFC Finance
Corp. and the REMIC Trustee harmless, BFC Finance Corp. shall execute and the
REMIC Trustee shall authenticate and deliver, in exchange for or in lieu of any
mutilated, destroyed, lost or stolen Series B REMIC Bond, a new bond of like
class, stated maturity, tenor and principal amount, bearing a number not
contemporaneously outstanding. If any such mutilated, destroyed, lost or stolen
Series B REMIC Bond shall have become due and payable, or shall have been called
for redemption, instead of issuing a new Series B REMIC Bond, BFC Finance Corp.
may pay such bond without surrender thereof, except that any mutilated Series B
REMIC Bond shall be surrendered.
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Upon the issuance of a new Series B REMIC Bond, BFC Finance Corp. or the
REMIC Trustee may require the payment by the bondholder of a sum sufficient to
cover any tax or other governmental charge that may be imposed and any other
reasonable expenses (including the fees and expenses of the REMIC Trustee)
related to such issuance.
TRANSFER AND EXCHANGE OF SERIES B REMIC BONDS
Upon surrender for registration of transfer or exchange of any Series B
REMIC Bond at the Corporate Trust Office, BFC Finance Corp. shall execute and
the REMIC Trustee shall authenticate and deliver in the name of the transferee
or transferees, a new Series B REMIC Bond of the same stated maturity and of
authorized denominations for the same class and then unpaid principal amount.
All Series B REMIC Bonds presented for any registration of transfer or exchange
shall be duly endorsed, or be accompanied by a written instrument of transfer,
in form and with guaranty of signature satisfactory to the REMIC Trustee, duly
executed by the registered owner or by an attorney duly authorized in writing.
BFC Finance Corp. and the REMIC Trustee shall not be required to register,
transfer or exchange any Series B REMIC Bonds selected, called or being called
for redemption, during any period from a REMIC Record Date to the immediately
succeeding REMIC Interest Payment Date. All Series B REMIC Bonds issued upon any
registration of transfer or exchange of Series B REMIC Bonds shall be valid
obligations of BFC Finance Corp., evidencing the same debt and entitled to all
of the security and benefits under the REMIC Indenture to the same extent as the
Series B REMIC Bonds surrendered.
In case of any registration of transfer or exchange, BFC Finance Corp. and
the REMIC Trustee may require payment of a sum sufficient to cover actual
expenses incurred in making such exchange or transfer and any tax or other
governmental charge that may be imposed in connection with any such registration
of transfer or exchange.
CREATION OF FUNDS AND ACCOUNTS TO BE HELD BY THE REMIC TRUSTEE
The REMIC Trustee holds the following Trust Funds under the REMIC Indenture:
(i) the Debt Service Fund; (ii) the Redemption Fund; (iii) the Trust Expense
Fund; and (iv) the Residual Fund.
DEBT SERVICE FUND
The REMIC Trustee shall deposit into the Debt Service Fund all monies
transferred from the Income Account held by the REMIC Trustee as Approved Bank
under the Loan Agreement which are payments made on account of the Acquisition
and Construction Notes pursuant to the Loan Agreement and all amounts received
from payments on the DCDC Note.
Moneys on deposit in the Debt Service Fund shall be used in the following
order and priority: (i) to transfer to the Trust Expense Fund on each REMIC
Interest Payment Date beginning June 1, 1998, the sum of $10,000 to cover fees
and expenses of the REMIC Trustee; (ii) to pay interest on the Series B REMIC
Bonds coming due on each REMIC Interest Payment Date; and (iii) to pay the
principal on the Series B REMIC Bonds as it becomes due or, if not then due on
such payment date, to serve a ratable portion of the principal due on the next
principal payment date. After making such payments on the Series B REMIC Bonds
or reserving such amounts as applicable, the REMIC Trustee will transfer to the
Trust Expense Fund from the Debt Service Fund the lesser of (A) the unpaid fees
and expenses of the Manager or (B) the balance on deposit in the Debt Service
Fund.
After making such transfer to the Trust Expense Fund, on each June 1 and
December 1 commencing December 1, 1998, the REMIC Trustee will transfer the
balance in the Debt Service Fund to the Residual Fund, provided no REMIC Event
of Default has occurred and is continuing.
Except for the transfers to the Trust Expense Fund and the Residual Fund
described above, the REMIC Trustee shall use moneys in the Debt Service Fund
solely for the payment of interest on the
44
Series B REMIC Bonds when due and the payment of principal of and the premium
(if any) on the Series B REMIC Bonds as the same become due and payable at
maturity or upon earlier redemption or acceleration.
REDEMPTION FUND
BFC Finance Corp. shall cause to be deposited into the Redemption Fund for
the payment of principal, accrued interest to the redemption date, if any, and
premium, if any, upon extraordinary mandatory redemption of the Series B REMIC
Bonds, solely out of moneys received as prepayment on the Acquisition and
Construction Notes, an amount sufficient to pay, when due, the principal,
accrued interest to the redemption date, if any, and premium, if any, upon such
a redemption of the Series B REMIC Bonds. The REMIC Trustee shall use moneys in
the Redemption Fund solely for the payment of principal of, premium if any, and
accrued interest on the Series B REMIC Bonds to the redemption date in
connection with any extraordinary mandatory redemption thereof. See "DESCRIPTION
OF THE SERIES B REMIC BONDS--REDEMPTION PRIOR TO MATURITY."
TRUST EXPENSE FUND
Moneys shall be transferred into the Trust Expense Fund from the Debt
Service Fund at the times and as provided in of the REMIC Indenture. The REMIC
Trustee shall use moneys transferred into the Trust Expense Fund to pay the fees
and expenses of the REMIC Trustee and to pay the fees and expenses of the
Manager.
RESIDUAL FUND
Moneys shall be transferred into the Residual Fund from the Debt Service
Fund at the times and as provided in the REMIC Indenture. The REMIC Trustee
shall use moneys transferred into the Residual Fund solely to make payments on
the Certificates on each June 1 and December 1, commencing December 1, 1996.
DISCHARGE OF REMIC INDENTURE
Whenever the following conditions shall have been satisfied with respect to
the REMIC Bonds:
(a) either:
(i) all Series A REMIC Bonds and Series B REMIC Bonds theretofore
authenticated and delivered (other than those which have been mutilated,
destroyed, lost or stolen and which have been replaced or paid as provided in
the REMIC Indenture) have been delivered to the REMIC Trustee for cancellation;
or
(ii) all Series A REMIC Bonds and Series B REMIC Bonds not theretofore
delivered to the REMIC Trustee for cancellation have become due and payable and
there has been deposited with the REMIC Trustee, in trust for such purpose, an
amount of cash or certain non-callable Government Securities, the principal of
and interest on which is sufficient to pay and discharge the entire indebtedness
on such Series A REMIC Bonds and Series B REMIC Bonds not theretofore delivered
to the REMIC Trustee for cancellation;
(b) all other sums payable hereunder with respect to the REMIC Bonds
(including all REMIC Trustee fees and expenses) have been paid or provided for;
and
(c) the REMIC Trustee has received an opinion of counsel to the effect that
all conditions precedent herein provided for the satisfaction and discharge of
the REMIC Indenture with respect to the REMIC Bonds have been complied with;
then, at the direction of the residual holders, the REMIC Indenture and the
lien, rights and interests created thereby shall cease to be of further effect,
and the REMIC Trustee shall execute and deliver all
45
such instruments as may be necessary to acknowledge the satisfaction and
discharge of the REMIC Indenture and shall pay, or assign or transfer and
deliver, to the residual holders all cash, securities and other property held by
the REMIC Trustee as part of the REMIC Trust Estate remaining after satisfaction
of the conditions set forth in (a) and (b) above.
EVENTS OF DEFAULT
Each of the following events constitute a REMIC Event of Default under the
REMIC Indenture:
(a) A default in any payment when and as due of interest on any REMIC bond;
or
(b) A default in any payment of principal of any REMIC Bond when and as due,
whether at the stated maturity thereof or when called for redemption; or
(c) A failure by BFC Finance Corp. to perform or observe any covenants of
BFC Finance Corp. other than such covenants relating to (a) or (b) above, or if
any representation made in the REMIC Indenture or in any certificate delivered
pursuant to the REMIC Indenture shall prove to be materially incorrect at the
time made, and failure to remedy the same within 90 days (subject to extension
to 180 days in certain circumstances as provided in the REMIC Indenture) after
notice thereof has been given pursuant to of the REMIC Indenture.
WAIVER, RESCISSION AND ANNULMENT OF REMEDY EVENT
The REMIC Trustee may waive any REMIC Event of Default which has been
remedied and its consequences. The REMIC Trustee shall waive any REMIC Event of
Default which has not been remedied upon the written request of the holders of a
majority of the aggregate outstanding amount of each class of REMIC Bonds
affected thereby.
REMEDIES
If a REMIC Event of Default shall have occurred and be continuing and its
consequences have not been rescinded or annulled, the REMIC Trustee may, subject
to the rights of the REMIC Bondholders to control remedies, do one or more of
the following:
(a) Institute proceedings for the collection of all amounts then payable on
the Acquisition and Construction Notes or DCDC Note, including all action
commercially reasonable to realize upon the collateral securing the Acquisition
and Construction Notes or DCDC Note (assuming an event of default exists with
respect to such notes pursuant to the terms thereof);
(b) Institute proceedings for the collection of all amounts then payable on
the REMIC Bonds or under the REMIC Indenture, enforce any judgment obtained and
collection from the REMIC Trust Estate securing the Series B REMIC Bonds moneys
adjudged due;
(c) Institute proceedings from time to time for the complete or partial
foreclosure of the REMIC Indenture with respect to the REMIC Trust Estate or to
enforce its rights thereunder;
(d) Exercise any remedies as a secured party under the UCC and take any
other appropriate action to protect and enforce the rights and remedies of the
REMIC Trustee or holders;
(e) Replace the Manager; and
(f) with respect to a payment default on the Series B REMIC Bonds which
remains uncured for a period of 120 days or more, accelerate and declare the
Series B REMIC Bonds immediately due and payable in full; provided at any time
there exists and is continuing a payment default on the Series B REMIC Bonds,
the REMIC Trustee shall accelerate and declare the Series B REMIC Bonds
immediately due and payable in full if directed to do so by a majority in
aggregate outstanding amount of the Series B REMIC Bonds.
46
Notwithstanding the foregoing, no deficiency judgment shall be sought or
obtained against BFC Finance Corp. or the residual holders if the amounts
realizable from the REMIC Trust Estate under the REMIC Indenture are
insufficient to pay the obligations on the Series B REMIC Bonds.
APPLICATION OF MONEYS COLLECTED
All moneys received by the REMIC Trustee following a REMIC Event of Default
upon the exercise of any remedies available to it, after payment of the costs
and expenses of the proceedings resulting in the collection of such moneys and
of any amounts due and owing to the REMIC Trustee under the REMIC Indenture,
shall be deposited in the Debt Service Fund and all moneys in the Debt Service
Fund (other than moneys held for redemption of bonds duly called for redemption)
shall be applied to the extent permitted by law in the following order, at the
date or dates from time to time fixed by the REMIC Trustee, in the manner and
priority provided as follows until such REMIC Event of Default is cured:
First--To the payment to the persons entitled thereto of all installments of
interest then due on the REMIC Bonds, in the direct order of the maturity of the
installments of such interest and, if the amounts available shall not be
sufficient to pay in full any particular installment, then to the payment
ratably, according to the amounts due on such installment, to the persons
entitled thereto, without any discrimination or privilege; and
Second--To the payment to the persons entitled thereto of the unpaid
principal and premium, if any, on any of the REMIC Bonds, which shall have
become due (other than REMIC Bonds which have matured or otherwise become
payable before such REMIC Event of Default and moneys for the payment of which
are held in the Debt Service Fund or otherwise held by the REMIC Trustee), with
interest on such principal from the respective dates upon which the same became
due and, if the amount available shall not be sufficient to pay in full the
amount of principal, premium, if any, and the interest due on any particular
date, then to the payment ratably, according to the amount of principal due on
such date, to the persons entitled thereto, without any discrimination or
privilege.
To the extent funds remain after such payments, such funds shall be held by
the REMIC Trustee; provided that in no event shall Series B REMIC Bonds be
called for redemption in part so long as a REMIC Event of Default is outstanding
under the REMIC Indenture.
CONTROL BY THE REMIC BONDHOLDERS UNTIL NO OUTSTANDING SERIES B REMIC BONDS
Subject to the terms of the REMIC Indenture, holders of a majority in
aggregate outstanding amount of each class of REMIC Bonds shall have the right
at any time, by an instrument in writing executed and delivered to the REMIC
Trustee, to direct the time, method and place of conducting any proceeding for
any remedy available to the REMIC Trustee or exercising any trust or power
conferred on the REMIC Trustee with respect to the bonds provided that:
(a) such direction shall not be in conflict with any rule of law or with the
REMIC Indenture;
(b) the REMIC Trustee shall have been provided with indemnity reasonably
satisfactory to it;
(c) any direction to the REMIC Trustee to undertake a sale of the REMIC
Trust Estate shall be accompanied by a Non-Disqualification Opinion;
(d) the REMIC Trustee may take any other action deemed proper by the REMIC
Trustee which is not inconsistent with such direction; provided, however, that
the REMIC Trustee need not take any action which it determines would be unjustly
prejudicial to REMIC Bondholders not consenting.
Notwithstanding the foregoing, no holder of any REMIC Bond shall have the
right to institute any suit, action or proceeding in equity or at law with
respect to any remedy provided under the REMIC Indenture unless a REMIC Event of
Default of which the REMIC Trustee is deemed to have notice under the REMIC
Indenture has occurred, the requisite percentage of holders has directed the
REMIC Trustee
47
to institute proceedings, indemnity has been provided the REMIC Trustee, and
thereafter the REMIC Trustee has failed to institute suit in its own name.
REMIC TRUSTEE RESIGNATION AND REMOVAL; SUCCESSOR REMIC TRUSTEE
The REMIC Trustee and any successor REMIC Trustee may at any time resign by
giving 30 days' prior written notice by registered or certified mail to BFC
Finance Corp., the Rating Agency and the Manager and by first-class mail
(postage prepaid) to the registered holder of each REMIC Bond and Certificate,
all at the REMIC Trustee's expense, and such resignation shall take effect only
upon the appointment and acceptance of a successor REMIC Trustee. If no
successor REMIC Trustee shall have been appointed and have accepted appointment
within 45 days of giving notice of removal or notice of resignation as
aforesaid, the resigning REMIC Trustee or any holder of REMIC Bonds (on behalf
of himself and all other holders) may petition any court of competent
jurisdiction for the appointment of a successor REMIC Trustee and such court may
thereupon, after such notice (if any) as it may deem proper, appoint such
successor REMIC Trustee.
The REMIC Trustee may be removed at any time by an instrument or concurrent
instruments in writing delivered to the REMIC Trustee, the Rating Agency, BFC
Finance Corp., the Manager and the residual holders and signed by the owners of
a majority of the aggregate outstanding amount of each class of bonds; provided,
however, that no removal shall become effective until a successor REMIC Trustee
has been appointed and has accepted the duties of the REMIC Trustee. In
addition, any REMIC Trustee may be removed at any time, (i) at the written
request of the Majority Residual Holders, for cause, including breach of the
trusts set forth in the REMIC Indenture and (ii) by BFC Finance Corp. with the
written approval of the Majority Residual Holders.
In case the REMIC Trustee shall resign or be removed, or be dissolved, or
shall be in course of dissolution or liquidation, or otherwise become incapable
of acting under the REMIC Indenture, or in case it shall be taken under the
control of any public officer or officers, or of a receiver appointed by a
court, a successor may be appointed by the owners of a majority of the aggregate
outstanding amount of each class of bonds, with the consent of the Majority
Residual Holders, by an instrument or concurrent instruments in writing signed
by such owners, or by their attorneys-in-fact duly authorized and a copy of
which shall be delivered personally or sent by registered mail to BFC Finance
Corp., the REMIC Trustee and the Manager. In addition, in case of such vacancy,
BFC Finance Corp., upon notice as provided in the REMIC Indenture may, with the
consent of the Majority Residual Holders, appoint a temporary REMIC Trustee to
fill such vacancy until a successor REMIC Trustee shall be appointed by the
owners of a majority of the aggregate outstanding amount of each class of bonds
in the manner above provided. Any REMIC Trustee appointed under the REMIC
Indenture (other than the initial REMIC Trustee thereunder) or appointed as a
successor to the REMIC Trustee shall be a trust company or bank in good
standing, duly authorized to exercise trust powers under the REMIC Indenture,
having trust assets of at least $500,000,000 and a combined capital and surplus
of at least $75,000,000, and subject to supervision or examination by federal or
state authority, provided there is such a bank or trust company willing or able
to serve in such capacity. In case at any time the successor REMIC Trustee shall
cease to be eligible in accordance with such provisions, the REMIC Trustee shall
resign immediately in the manner and with the effect specified in the REMIC
Indenture. Resignation or removal of the REMIC Trustee does not relieve such
resigning or removed REMIC Trustee from liability for its acts before the date
such removal or resignation is effective. If there is no qualified REMIC Trustee
willing to serve, the successor REMIC Trustee shall be selected by the Majority
Residual Holders.
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SUPPLEMENTAL REMIC INDENTURES WITHOUT CONSENT OF REMIC BONDHOLDERS
Without the consent of, or notice, to, any REMIC Bondholders, BFC Finance
Corp. (but only with the consent or direction of the Majority Residual Holders)
and the REMIC Trustee, at any time and from time to time, may enter into one or
more supplemental indentures for any of the following purposes:
(a) To cure any ambiguity, to correct or supplement any provision of the
REMIC Indenture or in any supplemental indenture which may be defective or
inconsistent with any other provision therein or in any supplemental indenture
or to make such other provisions in regard to matters or questions arising under
the REMIC Indenture or under any supplemental indenture, which shall not be
inconsistent with the provisions of the REMIC Indenture, as BFC Finance Corp.
may deem necessary or desirable and which do not adversely affect the interests
of the holders of any affected REMIC Bonds;
(b) To conform to any mandatory provisions of law;
(c) To modify, amend or supplement the REMIC Indenture in such manner as to
permit the qualification thereof under the Trust Indenture Act of 1939 or any
similar federal statute hereafter in effect or under any state securities laws
and to add to the REMIC Indenture such other provisions as may be expressly
required by the Trust Indenture Act of 1939;
(d) To correct or amplify the description of the REMIC Trust Estate or
better to assure, convey and confirm unto the REMIC Trustee the REMIC Trust
Estate, or to subject to the lien of the REMIC Indenture additional property;
(e) To modify, eliminate or add to the provisions of the REMIC Indenture to
such extent as shall be necessary to maintain the qualification of the REMIC
Trust Estate as a REMIC under the Code; or
(f) To maintain or improve the then current rating by the Rating Agency of
any class of REMIC Bonds (so long as the rating (if any) with respect to any
other class of REMIC Bonds is not adversely affected thereby).
SUPPLEMENTAL REMIC INDENTURES WITH CONSENT OF REMIC BONDHOLDERS
With the consent of the REMIC Bondholders of not less than two-thirds in
aggregate outstanding amount of the class of REMIC Bonds affected thereby, BFC
Finance Corp. (but only with the consent or direction of the Majority Residual
Holders) and the REMIC Trustee may enter into indentures supplemental thereto
for the purpose of adding any provisions to or changing in any manner or
eliminating any of the provisions of the REMIC Indenture or of modifying in any
manner the rights of REMIC Bondholders under the REMIC Indenture; provided,
however,
(a) that no such supplemental indenture shall, without the consent of REMIC
Bondholders of 100% in aggregate outstanding amount of REMIC Bonds affected
thereby, change the stated maturity of the principal of, or any installment of
principal or interest on, any REMIC Bond or reduce the principal amount thereof
or the interest rate thereon or the redemption price with respect thereto; and
(b) that no such supplemental indenture shall, without the consent of REMIC
Bondholders of 100% in aggregate outstanding amount of REMIC Bonds affected
thereby;
(i) reduce the percentage of aggregate amount of REMIC Bonds, holders of
which are specifically required under the REMIC Indenture (A) to direct the
REMIC Trustee to liquidate the REMIC Trust Estate, (B) consent to any
supplemental indenture or (C) for any waiver of compliance with certain
provisions of the REMIC Indenture or certain defaults thereunder and their
consequences provided for in the REMIC Indenture;
(ii) except as expressly provided in the REMIC Indenture, create any
lien having a priority over or a parity with the lien of the REMIC
Indenture, terminate the lien of the REMIC Indenture on the
49
REMIC Trust Estate, or deprive any REMIC Bondholder of the security afforded
by the lien of the REMIC Indenture.
No supplemental indenture shall be adopted without the prior written consent
of the REMIC Trustee or the Manager if such supplemental indenture, as evidenced
by an opinion of counsel delivered by the REMIC Trustee or the Manager, would
impose additional duties or obligations upon the REMIC Trustee or the Manager.
Any supplemental indenture must be accompanied by an opinion of counsel to the
effect that the execution and delivery of such supplemental indenture will not,
when applicable, cause the REMIC Trust Estate to fail to qualify as a REMIC so
long as any Series B REMIC Bonds are outstanding.
AMENDMENTS TO THE NOTES AND LOAN DOCUMENTS WITHOUT CONSENT OF REMIC BONDHOLDERS
BFC Finance Corp., acting at the direction of the Majority Residual Holders,
and the REMIC Trustee may, without the consent of or notice to the REMIC
Bondholders, consent to any amendment of the Notes and Loan Documents (i) to
cure any ambiguity or to make minor corrections consistent with the terms
thereof, or (ii) to make any other change that does not materially adversely
affect the interests of the REMIC Bondholders provided in either case there is
delivered to the REMIC Trustee an opinion of counsel stating that such amendment
would not materially affect the interests of the REMIC Bondholders and that the
execution and delivery of any such amendment will not cause the REMIC Trust
Estate to fail to qualify as a REMIC so long as any REMIC Bonds are outstanding.
AMENDMENTS TO THE NOTES AND LOAN DOCUMENTS WITH CONSENT OF REMIC BONDHOLDERS
Except for amendments as provided for above, neither BFC Finance Corp. nor
the REMIC Trustee shall consent to any other amendment, change or modification
of the Notes and Loan Documents without the written consent of the holders of
not less than two-thirds of the aggregate outstanding amount of each class of
REMIC Bonds affected thereby and the Majority Residual Holders. Prior to any
such amendment, there must be delivered to the REMIC Trustee a
Non-Disqualification Opinion. Nothing contained in the REMIC Indenture shall
permit, or be construed as permitting, a reduction in the percentage of the
holders of any class of REMIC Bonds which are required to consent to any such
amendment, change or modification, or a reduction in, or a postponement of, the
payments under the Notes, without the consent of all holders and the Majority
Residual Holders.
THE MANAGER
The Manager, which is Building Finance Company of Tennessee, Inc., shall (i)
monitor the REMIC status of the REMIC Trust Estate and file tax returns and
reports required by the Code; (ii) advise the REMIC Trustee whether transactions
proposed by the REMIC Trustee or the holders of Certificates could jeopardize
the REMIC status of the REMIC Trust Estate or result in the imposition of tax on
the REMIC Trust Estate; and (iii) advise the REMIC Trustee and the holders of
Certificates with respect to any administrative or judicial proceedings relating
to an audit or examination by any governmental taxing authority regarding the
REMIC.
The Manager may be removed by the REMIC Trustee or the Majority Residual
Holders acting with the consent of the REMIC Trustee, if the Manager shall
default in the performance of its duties under the REMIC Indenture.
THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
The Bonds were originally sold by the Authority on March 27, 1996 to Lehmann
Brothers Inc. pursuant to the Purchase Agreement. Lehmann Brothers Inc.
subsequently resold the Bonds to qualified institutional buyers in reliance on
Rule 144A under the Securities Act and to an institutional accredited
50
investor that agreed to comply with certain transfer restrictions and other
conditions. As a condition to the Purchase Agreement, the Authority and the
Credit Enhancement Provider entered into the Registration Rights Agreement with
Lehmann Brothers Inc. (the "Registration Rights Agreement"). The Registration
Rights Agreement provides that (i) the Authority and the Credit Enhancement
Provider will file an Exchange Offer Registration Statement with the Securities
and Exchange Commission on or prior to December 24, 1996, (ii) the Authority and
the Credit Enhancement Provider will use their best efforts to have the Exchange
Offer Registration Statement declared effective by the Securities and Exchange
Commission on or prior to March 23, 1997, and (iii) unless the Exchange Offer
would not be permitted by applicable law or Securities and Exchange Commission
policy, the Authority will commence the Exchange Offer and use its best efforts
to issue on or prior to 30 business days after the date on which the Exchange
Offer Registration Statement was declared effective by the Securities and
Exchange Commission, Exchange Bonds in exchange for all Bonds tendered prior
thereto in the Exchange Offer. If (a) the Authority and the Credit Enhancement
Provider fail to file any of the Registration Statements required by the
Registration Rights Agreement on or before the date specified for such filing,
(b) any of such Registration Statements is not declared effective by the
Securities and Exchange Commission on or prior to the date specified for such
effectiveness, or (c) the Authority fails to consummate the Exchange Offer
within 30 business days of the date specified for such effectiveness with
respect to the Exchange Offer Registration Statement, then the Authority will
pay to each holder of Securities ("Additional Interest"), additional interest
calculated at the rate of 1% per annum on the principal amount of Securities
held by such holder. Additional Interest, if any, shall be due and payable on
each Interest Payment Date; provided that (1) Additional Interest shall be paid
solely to the extent funds therefor are available from Revenues as provided for
in the Indenture, (2) no Additional Interest shall be paid while any installment
of interest (other than Additional Interest) or principal is due and payable
under the Indenture or (unless paid from Revenues received under the Development
Agreement) any amount is due to the Credit Enhancement Provider under the
Reimbursement Agreement, (3) the Bonds shall not accelerate as a result of
nonpayment of Additional Interest and (4) neither nonpayment of Additional
Interest nor any of the events referred to in clauses (a) through (c) above,
shall constitute an event of default under the Indenture. Following registration
under the Act of the Credit Enhancement for resale by the holders thereof, the
payment of Additional Interest will cease. Upon the Exchange Offer Registration
Statement being declared effective, the Authority will offer the Exchange Bonds
in exchange for surrender of the Bonds. The Authority will keep the Exchange
Offer open for not less than 20 business days (or longer if required by
applicable law) after the date on which notice of the Exchange Offer is mailed
to the holders of the Bonds. For each Bond surrendered to the Authority pursuant
to the Exchange Offer, the holder of such Bond will receive an Exchange Bond
having a principal amount equal to that of the surrendered Bond. Interest on
each Exchange Bond will accrue from the date of its original issue.
Under existing interpretations of the staff of the Securities and Exchange
Commission contained in several no-action letters to third parties, the Credit
Enhancement issued in connection with the Exchange Bonds would in general be
freely tradeable after the Exchange Offer without further registration under the
Securities Act. However, any purchaser of Bonds who is an "affiliate" of the
Authority or the Credit Enhancement Provider or who intends to participate in
the Exchange Offer for the purpose of distributing the Exchange Bonds (i) will
not be able to rely on the interpretation of the staff of the Securities and
Exchange Commission, (ii) will not be able to tender its Bonds in the Exchange
Offer and (iii) must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any sale or transfer of
the Bonds, unless such sale or transfer is made pursuant to an exemption from
such requirements.
Each holder of the Bonds (other than certain specified holders) who wishes
to exchange the Bonds for Exchange Bonds in the Exchange Offer will be required
to represent in the Letter of Transmittal that (i) it is not an affiliate of the
Authority or the Credit Enhancement Provider, (ii) the Exchange Bonds to be
received by it were acquired in the ordinary course of its business and (iii) at
the time of commencement of the Exchange Offer, it has no arrangement with any
person to participate in the distribution (within the
51
meaning of the Securities Act) of the Exchange Bonds. In addition, in connection
with any resales of Exchange Bonds, any Participating Broker-Dealer who acquired
the Bonds for its own account as a result of market making or other trading
activities must deliver a prospectus meeting the requirements of the Securities
Act. The Securities and Exchange Commission has taken the position that
Participating Broker-Dealers may fulfill their prospectus delivery requirements
with respect to the Exchange Bonds (other than a resale of an unsold allotment
from the original sale of the Bonds) with the prospectus contained in the
Exchange Offer Registration Statement. Under the Registration Rights Agreement,
the Authority is required to allow Participating Broker-Dealers and other
persons, if any, subject to similar prospectus delivery requirements to use the
prospectus contained in the Exchange Offer Registration Statement in connection
with the resale of such Exchange Bonds.
Holders of Bonds will be required to make certain representations to the
Authority (as described in the Registration Rights Agreement) in order to
participate in the Exchange Offer.
Following the consummation of the Exchange Offer, holders of the Bonds who
were eligible to participate in the Exchange Offer, but who did not tender their
Bonds will not have any further registration rights and such Bonds will continue
to be subject to certain restrictions on transfer. Accordingly, the liquidity of
the market for such Bonds could be adversely affected.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letter of Transmittal, the Authority will accept any and all Bonds
validly tendered and not withdrawn prior to 5:00 p.m., New York City time, on
the Expiration Date. The Authority will issue $5,000 principal amount of
Exchange Bonds in exchange for each $5,000 principal amount of outstanding Bonds
accepted in the Exchange Offer. Holders may tender some or all of their Bonds
pursuant to the Exchange Offer. However, Bonds may be tendered only in integral
multiples of $5,000.
The form and terms of the Exchange Bonds are the same as the form and terms
of the Bonds except that (i) the Exchange Bonds bear a Series B designation and
a different CUSIP Number from the Bonds, (ii) the Exchange Bonds will not bear
legends restricting the transfer thereof and (iii) the holders of the Exchange
Bonds will not be entitled to certain rights under the Registration Rights
Agreement, including the provisions providing for an increase in the interest
rate on the Bonds in certain circumstances relating to the timing of the
Exchange Offer, all of which rights will terminate when the Exchange Offer is
terminated. The Exchange Bonds will evidence the same debt as the Bonds and will
be entitled to the benefits of the Indenture.
As of the date of this Prospectus, $66,975,000 aggregate principal amount of
Bonds were outstanding. The Authority has fixed the close of business on
, 1997 as the record date for the Exchange Offer for purposes of
determining the persons to whom this Prospectus and the Letter of Transmittal
will be mailed initially.
Holders of Bonds do not have any appraisal or dissenters' rights under the
Indenture in connection with the Exchange Offer. The Authority intends to
conduct the Exchange Offer in accordance with the applicable requirements of the
Securities Exchange Act of 1934, as amended, and the rules and regulations of
the Securities and Exchange Commission thereunder.
The Authority shall be deemed to have accepted validly tendered Bonds when,
as and if the Authority has given oral or written notice thereof to the Exchange
Agent. The Exchange Agent will act as agent for the tendering holders for the
purpose of receiving the Exchange Bonds from the Authority.
If any tendered Bonds are not accepted for exchange because of an invalid
tender, the occurrence of certain other events set forth herein or otherwise,
the certificates for any such unaccepted Bonds will be returned, without
expense, to the tendering holder thereof as promptly as practicable after the
Expiration Date.
52
Holders who tender Bonds in the Exchange Offer will not be required to pay
brokerage commissions or fees or, subject to the instructions in the Letter of
Transmittal, transfer taxes with respect to the exchange of Bonds pursuant to
the Exchange Offer. The Authority will pay all charges and expenses, other than
transfer taxes in certain circumstances, in connection with the Exchange Offer.
See "Fees and Expenses."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean 5:00 p.m., New York City time, on
1997, unless the Authority, in its reasonable discretion, extends the
Exchange Offer, in which case the term "Expiration Date" shall mean the latest
date and time to which the Exchange Offer is extended. Notwithstanding the
foregoing, the Authority will not extend the Expiration Date beyond ,
1997.
In order to extend the Exchange Offer, the Authority will notify the
Exchange Agent of any extension by oral or written notice and will mail to the
registered holders an announcement thereof, each prior to 9:00 a.m., New York
City time, on the next business day after the previously scheduled expiration
date.
The Authority reserves the right, in its reasonable discretion, (i) to delay
accepting any Bonds, to extend the Exchange Offer or to terminate the Exchange
Offer if any of the conditions set forth below under "--Conditions" shall not
have been satisfied, by giving oral or written notice of such delay, extension
or termination to the Exchange Agent or (ii) to amend the terms of the Exchange
Offer in any manner. Any such delay in acceptance, extension, termination or
amendment will be followed as promptly as practicable by oral or written notice
thereof to the registered holders.
INTEREST ON THE EXCHANGE BONDS
The Exchange Bonds will bear interest from their date of issuance. Holders
of Bonds that are accepted for exchange will receive, in cash, accrued interest
thereon to, but not including, the date of issuance of the Exchange Bonds. Such
interest will be paid with the first interest payment on the Exchange Bonds on
, 1997. Interest on the Bonds accepted for exchange will cease to
accrue upon issuance of the Exchange Bonds.
Interest on the Exchange Bonds is payable semi-annually on each June 1 and
December 1, commencing on December 1, 1997.
PROCEDURES FOR TENDERING
Only a holder of Bonds may tender such Bonds in the Exchange Offer. To
tender in the Exchange Offer, a holder must complete, sign and date the Letter
of Transmittal, or a facsimile thereof, have the signatures thereon guaranteed
if required by the Letter of Transmittal, and mail or otherwise deliver such
Letter of Transmittal or such facsimile, together with the Bonds and any other
required documents, to the Exchange Agent prior to 5:00 p.m., New York City
time, on the Expiration Date. To be tendered effectively, the Bonds, Letter of
Transmittal and other required documents must be completed and received by the
Exchange Agent at the address set forth below under "Exchange Agent" prior to
5:00 p.m., New York City time, on the Expiration Date. Delivery of the Bonds may
be made by book-entry transfer in accordance with the procedures described
below. Confirmation of such book-entry transfer must be received by the Exchange
Agent prior to the Expiration Date.
By executing the Letter of Transmittal, each holder will make to the
Authority the representations set forth above in the third paragraph under the
heading "Purpose and Effect of the Exchange Offer."
The tender by a holder and the acceptance thereof by the Authority will
constitute agreement between such holder and the Authority in accordance with
the terms and subject to the conditions set forth herein and in the Letter of
Transmittal.
53
THE METHOD OF DELIVERY OF BONDS AND THE LETTER OF TRANSMITTAL AND ALL OTHER
REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND SOLE RISK OF THE
HOLDER. AS AN ALTERNATIVE TO DELIVERY BY MAIL, HOLDERS MAY WISH TO CONSIDER
OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME SHOULD BE
ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION DATE. NO
LETTER OF TRANSMITTAL OR BONDS SHOULD BE SENT TO THE AUTHORITY. HOLDERS MAY
REQUEST THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL BANKS, TRUST COMPANIES OR
NOMINEES TO EFFECT THE ABOVE TRANSACTIONS FOR SUCH HOLDERS.
Any beneficial owner whose Bonds are registered in the name of a broker,
dealer, commercial bank, trust company or other nominee and who wishes to tender
should contact the registered holder promptly and instruct such registered
holder to tender on such beneficial owner's behalf. See "Instruction to
Registered Holder and/or Book-Entry Transfer Facility Participant from Owner"
included with the Letter of Transmittal.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the case
may be, must be guaranteed by a member firm of the Medallion System unless the
Bonds tendered pursuant thereto are tendered (i) by a registered holder who has
not completed the box entitled "Special Registration Instructions" or "Special
Delivery Instructions" on the Letter of Transmittal or (ii) for the account of a
member firm of the Medallion System. In the event that signatures on a Letter of
Transmittal or a notice of withdrawal, as the case may be, are required to be
guaranteed, such guarantee must be by a member firm of the Medallion System.
If the Letter of Transmittal is signed by a person other than the registered
holder of any Bonds listed therein, such Bonds must be endorsed or accompanied
by a properly completed bond power, signed by such registered holder as such
registered holder's name appears on such Bonds with the signature thereon
guaranteed by a member firm of the Medallion System.
If the Letter of Transmittal or any Bonds or bond powers are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and evidence satisfactory to the
Authority of their authority to so act must be submitted with the Letter of
Transmittal.
The Authority understands that the Exchange Agent will make a request
promptly after the date of this Prospectus to establish accounts with respect to
the Exchange Bonds at the book-entry transfer facility, The Depository Trust
Company, for the purpose of facilitating the Exchange Offer, and subject to the
establishment thereof, any financial institution that is a participant in The
Depository Trust Company's system may make book-entry delivery of Bonds by
causing such Book-Entry Transfer Facility to transfer such Bonds into the
Exchange Agent's account with respect to the Bonds in accordance with The
Depository Trust Company's procedures for such transfer. Though delivery of the
Bonds may be effected through book-entry transfer into the Exchange Agent's
account at The Depository Trust Company, an appropriate Letter of Transmittal
properly completed and duly executed with any required signature guarantee and
all other required documents must in each case be transmitted to and received or
confirmed by the Exchange Agent at its address set forth below on or prior to
the Expiration Date, or, if the guaranteed delivery procedures described below
are complied with, within the time period provided under such procedures.
Delivery of documents to The Depository Trust Company does not constitute
delivery to the Exchange Agent.
54
All questions as to the validity, form, eligibility (including time of
receipt), acceptance of tendered Bonds and withdrawal of tendered Bonds will be
determined by the Authority in its reasonable discretion, which determination
will be final and binding. The Authority reserves the absolute night to reject
any and all Bonds not properly tendered or any Bonds the Authority's acceptance
of which would, in the opinion of counsel for the Authority, be unlawful. The
Authority also reserves the right in its reasonable discretion to waive any
defects, irregularities or conditions of tender as to particular Bonds. The
Authority's interpretation of the terms and conditions of the Exchange Offer
(including the instructions in the Letter of Transmittal) will be final and
binding on all parties. Unless waived, any defects or irregularities in
connection with tenders of Bonds must be cured within such time as the Authority
shall determine. Although the Authority intends to notify holders of defects or
irregularities with respect to tenders of Bonds, neither the Authority, the
Exchange Agent nor any other person shall incur any liability for failure to
give such notification. Tenders of Bonds will not be deemed to have been made
until such defects or irregularities have been cured or waived. Any Bonds
received by the Exchange Agent that are not properly tendered and as to which
the defects or irregularities have not been cured or waived will be returned by
the Exchange Agent to the tendering holders, unless otherwise provided in the
Letter of Transmittal, as soon as practicable following the Expiration Date.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Bonds and (i) whose Bonds are not
immediately available, (ii) who cannot deliver their Bonds, the Letter of
Transmittal or any other required documents to the Exchange Agent or (iii) who
cannot complete the procedures for book-entry transfer, prior to the Expiration
Date, may effect a tender if:
(a) the tender is made through a member firm of the Medallion System;
(b) prior to the Expiration Date, the Exchange Agent receives from such
Eligible Institution a properly completed and duly executed Notice of Guaranteed
Delivery (by facsimile transmission, mail or hand delivery) setting forth the
name and address of the holder, the certificate number(s) of such Bonds and the
principal amount of Bonds tendered, stating that the tender is being made
thereby and guaranteeing that, within five New York Stock Exchange trading days
after the Expiration Date, the Letter of Transmittal (or facsimile thereof)
together with the certificate(s) representing the Bonds (or a confirmation of
book-entry transfer of such Bonds into the Exchange Agent's account at The
Depository Trust Company), and any other documents required by the Letter of
Transmittal will be deposited by the Eligible Institution with the Exchange
Agent; and
(c) such properly completed and executed Letter of Transmittal (or facsimile
thereof), as well as the certificate(s) representing all tendered Bonds in
proper form for transfer (or a confirmation of book-entry transfer of such Bonds
into the Exchange Agent's account at The Depository Trust Company), and all
other documents required by the Letter of Transmittal are received by the
Exchange Agent upon five New York Stock Exchange trading days after the
Expiration Date.
Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will be
sent to holders who wish to tender their Bonds according to the guaranteed
delivery procedures set forth above.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Bonds may be withdrawn at
any time prior to 5:00 p.m., New York City time, on the Expiration Date.
To withdraw a tender of Bonds in the Exchange Offer, a telegram, telex,
letter or facsimile transmission notice of withdrawal must be received by the
Exchange Agent at its address set forth herein prior to 5:00 p.m., New York City
time, on the Expiration Date. Any such notice of withdrawal must (i) specify the
name of the person having deposited the Bonds to be withdrawn, (ii) identify the
Bonds to be withdrawn
55
(including the certificate number(s) and principal amount of such Bonds, or, in
the case of Bonds transferred by book-entry transfer, the name and number of the
account at The Depository Trust Company to be credited), (iii) be signed by the
holder in the same manner as the original signature on the Letter of Transmittal
by which such Bonds were tendered (including any required signature guarantees)
or be accompanied by documents of transfer sufficient to have the Trustee with
respect to the Bonds register the transfer of such Bonds into the name of the
person withdrawing the tender and (iv) specify the name in which any such Bonds
are to be registered, if different from that of the person having deposited the
Bonds to be withdrawn. All questions as to the validity, form and eligibility
(including time of receipt) of such notices will be determined by the Authority,
whose determination shall be final and binding on all parties. Any Bonds so
withdrawn will be deemed not to have been validly tendered for purposes of the
Exchange Offer and no Exchange Bonds will be issued with respect thereto unless
the Bonds so withdrawn are validly retendered. Any Bonds which have been
tendered but which are not accepted for exchange will be returned to the holder
thereof without cost to such holder as soon as practicable after withdrawal,
rejection of tender or termination of the Exchange Offer. Properly withdrawn
Bonds may be retendered by following one of the procedures described above under
"--Procedures for Tendering" at any time prior to the Expiration Date.
CONDITIONS
Notwithstanding any other term of the Exchange Offer, the Authority shall
not be required to accept for exchange, or issue Exchange Bonds for, any Bonds,
and may terminate or amend the Exchange Offer as provided herein before the
acceptance of such Bonds, if:
(a) any action or proceeding is instituted or threatened in any court or by
or before any governmental agency with respect to the Exchange Offer which, in
the reasonable judgment of the Authority, might materially impair the ability of
the Authority to proceed with the Exchange Offer or any material adverse
development has occurred in any existing action or proceeding with respect to
the Authority or any of its subsidiaries; or
(b) any law, statute, rule, regulation or interpretation by the staff of the
Securities and Exchange Commission is proposed, adopted or enacted, which, in
the reasonable judgment of the Authority, might materially impair the ability of
the Authority to proceed with the Exchange Offer or materially impair the
contemplated benefits of the Exchange Offer to the Authority; or
(c) any governmental approval has not been obtained, which approval the
Authority shall, in its reasonable discretion, deem necessary for the
consummation of the Exchange Offer as contemplated hereby.
If the Authority determines in its reasonable discretion that any of the
conditions are not satisfied, the Authority may (i) refuse to accept any Bonds
and return all tendered Bonds to the tendering holders, (ii) extend the Exchange
Offer and retain all Bonds tendered prior to the expiration of the Exchange
Offer, subject, however, to the rights of holders to withdraw such Bonds (see
"Withdrawal of Tenders") or (iii) waive such unsatisfied conditions with respect
to the Exchange Offer and accept all properly tendered Bonds which have not been
withdrawn.
All conditions to the Exchange Offer (with the exception of certain
governmental approvals) must be satisfied or waived prior to the Expiration
Date. The Authority shall not be required to accept for exchange, or issue
Exchange Bonds for, any Bonds, and may terminate or amend the Exchange Offer if
any of the specified conditions do not occur prior to the Expiration Date.
EXCHANGE AGENT
SouthTrust Bank of Alabama, N.A.
P.O. Box 2554
56
Birmingham, Alabama 35290
Attention: Judy Miller
Telephone: (205) 254-5000
Fax: (205) 254-4180
Delivery to an address other than as set forth above will not constitute a
valid delivery.
FEES AND EXPENSES
The expenses of soliciting tenders will be born by the Authority. The
principal solicitation is being made by mail; however, additional solicitation
may be made by telegraph, telecopy, telephone or in person by officers and
regular employees of the Authority and its affiliates.
The Authority has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers, dealers, or others
soliciting acceptances of the Exchange Offer. The Authority, however, will pay
the Exchange Agent reasonable and customary fees for its services and will
reimburse it for its reasonable out-of-pocket expenses in connection therewith.
The cash expenses to be incurred in connection with the Exchange Offer will
be paid by the Authority. Such expenses include fees and expenses of the
Exchange Agent and Trustee, accounting and legal fees and printing costs, among
others.
ACCOUNTING TREATMENT
The Exchange Bonds will be recorded at the same carrying value as the Bonds,
which is face value, as reflected in the Authority's accounting records on the
date of exchange. Accordingly, no gain or loss for accounting purposes will be
recognized by the Authority. The expenses of the Exchange Offer will be expensed
over the term of the Exchange Bonds.
57
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS OF BFC GUARANTY CORP. AND BFC FINANCE CORP.
Set forth below are the names, ages (as of September 30, 1996) and a brief
account of the business experience of each person who is a director or executive
officer of the Credit Enhancement Provider and BFC Finance Corp. (each such
person holds the same positions with each company).
NAME AGE POSITION
- ------------------------------- --- ----------------------------------------------------
Franklin L. Haney.............. 56 President and Director
Emeline W. Haney............... 49 Director
Chris E. Zahnd................. 55 Director
Roger D. Bailey................ 51 Secretary
FRANKLIN L. HANEY. Mr Haney is a graduate of the University of Tennessee at
Knoxville and received his law degree from George Washington School of Law. Mr.
Haney is the founder and sole proprietor of the Franklin L. Haney Company which
was established in 1968. The Franklin L. Haney Company is engaged in real estate
development and finance brokering. Mr. Haney is married to Emeline W. Haney.
EMELINE W. HANEY. Mrs. Haney is a graduate of the University of Georgia.
Mrs. Haney has not been employed during the past five years, but is the mother
of five children and is active in many civic and community projects. She was
instrumental in establishing the Childrens Advocacy Center of Hamilton County,
the first such center in Tennessee and is currently working to establish Home
Safe, a Childrens Advocacy Center in Palm Beach, Florida. Mrs. Haney is also
active in the Franklin L. Haney Company. Mrs. Haney is married to Franklin L.
Haney.
CHRIS ZAHND. Mr. Zahnd is a graduate of the University of Tennessee at
Chattanooga. Mr. Zahnd has worked in the hotel industry for the past 16 years.
During more than the past five years, he has been the evening Manager of the
Holiday Inn Chattanooga Choo-Choo in Chattanooga, Tennessee, where he has been
responsible for all aspects of the evening operations of the hotel. Prior to
entering the inn keeping business, he was involved in the accounting and banking
industries.
ROGER D. BAILEY. Mr. Bailey is a former C.P.A. with Arthur Andersen & Co.
and has over 25 years experience in accounting and financial businesses. He is
currently Chief Financial Officer for the Franklin L. Haney Company, a position
he has held for more than the last five years. As Chief Financial Officer, Mr.
Bailey is responsible for the financial operations of the Franklin L. Haney
Company, including accounting, bookkeeping, auditing, tax matters and financial
reporting.
EXECUTIVE COMPENSATION
None of the officers or directors of the Authority or the Registrants
receives compensation from either the Authority or the Registrants for serving
as an officer or director, although certain of them are employed by Franklin L.
Haney Company, an entity affiliated with the Registrants. See "Management."
Franklin L. Haney, President and a Director of each of the Registrants and
Secretary and a Director of the Authority, has financial interests in some of
the transactions described in this Prospectus. See "Certain Relationships and
Related Transactions."
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Franklin L. Haney, the President and a Director of each of the Registrants,
is also the President and a Director of a number of other affiliated companies:
Tower Associates, Inc.; Tower Associates II, Inc.; Building Finance Company of
Tennessee, Inc.; Douglas County Development Corporation; and DCDC II, Inc. In
addition, Franklin L. Haney is the Secretary and a Director of Castle Rock
Public Improvement Authority. See "PROSPECTUS SUMMARY--Graphical Depiction of
Affiliates."
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OWNERSHIP OF THE AUTHORITY
The Authority is a nonprofit corporation organized under the laws of the
State of Colorado to be in general compliance with the requirements of Internal
Revenue Service Revenue Procedure 82-26, which provides that the Internal
Revenue Service will ordinarily rule that obligations issued by a nonprofit
corporation on behalf of a governmental unit in accordance with the requirements
of the revenue procedure meet the requirements of the revenue procedure. See
"THE AUTHORITY." The Authority has no members and no shareholders, but is
organized and operated exclusively on behalf of and for the benefit and in
furtherance of the purposes of Dawson Ridge Metropolitan District No. 5, which
is a municipal corporation and political subdivision of the State of Colorado.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The following is a description of certain relationships and related-party
transactions.
SALE OF THE PROPERTY
Franklin L. Haney is a Director of the Authority, which recently acquired
the Property from DCDC for $54,550,000 cash. Franklin L. Haney owns Douglas
County Development Corporation. At the present time, DCDC owns approximately 75%
of the taxable property within the Districts.
THE CREDIT ENHANCEMENT
Franklin L. Haney also owns 49% of Building Finance Company of Tennessee,
Inc. ("BFCT"). BFCT owns the Registrants. The Series B REMIC Bonds are payable
from notes held in a trust estate (the "REMIC Trust Estate") under an indenture
of trust between the trustee and BFC Finance Corp.
The remaining 51% of BFCT is owned by Franklin L. Haney's father-in-law,
Herbert L. Oakes. Franklin L. Haney and his wife Emeline W. Haney are the
Directors and, respectively, the President and Secretary of BFCT.
REMIC TRUST ESTATE--OTHER ASSETS
In addition to the Series B REMIC Bonds securing the Credit Enhancement, the
REMIC Trust Estate contains assets resulting from other transactions between
BFCT and BFC Finance Corp., but that do not secure the Credit Enhancement. These
assets include (i) notes issued by DCDC II, Inc., a Colorado corporation,
representing a $9,310,689.07 loan originated by BFCT and (ii) notes issued by
Parcel 49C Limited Partnership, a limited partnership, representing a
$99,000,000 loan originated by BFCT. Franklin L. Haney owns 21%, and Douglas
County Development Corporation owns 79%, of DCDC II, Inc. Franklin L. Haney owns
16%, and various members of his family own the remaining 84%, of Tower
Associates II, Inc., which is a general partner and a limited partner of Parcel
49C Limited Partnership. (See "Credit Enhancement.")
OFFICERS AND DIRECTORS
The officers and directors of BFC Guaranty Corp., BFC Finance Corp., and
Tower Associates II, Inc., each of which is a Delaware Corporation, are
identical. (See "Management.")
C. Roger Addlesperger is a director for each of the Districts, as is his
wife, Candace Addlesperger. C. Roger Addlesperger has also served as a
consultant on matters relating to the real estate within the Dawson Ridge
development for Franklin L. Haney Company, a sole proprietorship owned by
Franklin L. Haney. Mr. Addlesperger has received approximately $363,267.33 from
Franklin L. Haney Company for his consulting services since the beginning of
Franklin L. Haney Company's last full fiscal year. Mr. Addlesperger has also
served as Vice President of Douglas County Development Corporation.
ABSENCE OF PREFERENTIAL TERMS
The Registrants believe that the transactions described herein are on no
more favorable terms than would have been achieved if each of the transactions
was between unrelated third parties.
PLAN OF DISTRIBUTION
Each Participating Broker-Dealer that receives Exchange Bonds for its own
account pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Bonds. This
Prospectus, as it may be amended or supplemented from time to time, may be used
by a Participating Broker-Dealer in connection with resales of Exchange Bonds
received in exchange for
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Bonds where such Bonds were acquired as a result of market-making activities or
other trading activities. The Authority has agreed that for a period of 180 days
after the Expiration Date, it will make this Prospectus, as amended or
supplemented, available to any Participating Broker-Dealer, all dealers
effecting transactions in the Exchange Bonds for use in connection with any such
resale. In addition, until the Exchange Bonds are registered, Participating
Broker-Dealers may be required to deliver a prospectus.
The Authority will not receive any proceeds from any sales of the Exchange
Bonds by Participating Broker-Dealers. Exchange Bonds received by Participating
Broker-Dealers for their own account pursuant to the Exchange Offer may be sold
from time to time in one or more transactions in the over-the-counter market, in
negotiated transactions, through the writing of options on the Exchange Bonds or
a combination of such methods of resale, at market prices prevailing at the time
of resale, at prices related to such prevailing market prices or negotiated
prices. Any such resale may be made directly to purchaser or to or through
brokers or dealers who may receive compensation in the form of commissions or
concessions from any such Participating Broker-Dealer and/or the purchasers of
any such Exchange Bonds. Any Participating Broker-Dealer that resells the
Exchange Bonds that were received by it for its own account pursuant to the
Exchange Offer and any broker or dealer that participates in a distribution of
such Exchange Bonds may be deemed to be an "underwriter" within the meaning of
the Securities Act and any profit on any such resale of Exchange Bonds and any
commissions or concessions received by any such persons may be deemed to be
underwriting compensation under the Securities Act. The Letter of Transmittal
states that by acknowledging that it will deliver and by delivering a
prospectus, a Participating Broker-Dealer will not be deemed to admit that it is
an "underwriter" within the meaning of the Securities Act.
For a period of 180 days after the Expiration Date the Authority will
promptly send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any Participating Broker-Dealer that requests
such documents in the Letter of Transmittal.
RATING
Standard & Poor's Ratings Services, a division of The McGraw-Hill Companies,
Inc. (the "Rating Agency"), has assigned a rating of "AAp" to the Bonds based on
an evaluation of the Credit Enhancement. The letter "p" indicates the rating is
provisional. The provisional rating assumes the successful completion of the
Portals II building which is the subject of the Lease and indicates that
sufficiency of the Credit Enhancement to pay debt service requirements of the
Bonds is largely or entirely dependent upon the successful timely completion of
such building. This rating, however, while addressing credit quality subsequent
to completion of such building, makes no comment on the likelihood of, or the
risk of default upon failure of such completion. The investor should exercise
his/her own judgment with respect to such likelihood and risk. Any explanation
of the significance of such rating may only be obtained from the Rating Agency.
There is no assurance that such rating will be maintained for any given period
of time or that it will not be lowered or withdrawn entirely if, in the judgment
of the Rating Agency, circumstances so warrant. Any such revision or withdrawal
of such a rating could have an adverse effect on the market price and
marketability of the Bonds.
LEGAL MATTERS
The validity of the issuance of the Exchange Bonds will be passed upon for
the Authority by Brownstein Hyatt Farber & Strickland, P.C., Denver, Colorado.
INDEPENDENT ACCOUNTANTS
The financial statements of Castle Rock Ranch Public Improvements Authority,
BFC Guaranty Corp. and BFC Finance Corp., as of December 31, 1996 included in
this Prospectus, have been so included in reliance on the report of Joseph
Decosimo & Company, LLP, independent accountants, given on the authority of said
firm as experts in auditing and accounting.
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DEFINITIONS OF CERTAIN TERMS AND DESCRIPTIONS OF PRINCIPAL DOCUMENTS
Capitalized terms used in this Prospectus, and not otherwise defined, are
used with the meanings assigned to such terms in the Indenture, the Operating
Agreement, the Intergovernmental Agreement, the Deed of Trust, the
Collateralized Credit Enhancement Agreement, the Reimbursement Agreement, the
Development Agreement, the Recreational Facilities Agreement and the Lease, as
applicable. The following definitions of such capitalized terms have been
modified as may be appropriate for use in this Prospectus. Descriptions of the
material terms of the Indenture, the Collateralized Credit Enhancement
Agreement, the Deed of Trust, the Operating Agreement, the Intergovernmental
Agreement, the Lease, the Development Agreement and the Recreational Facilities
Agreement are included in this Prospectus, but are qualified in their entirety
by reference to the actual documents being described. Copies of such documents
are available from the Exchange Agent.
DEFINITIONS OF CERTAIN TERMS
"1986 BONDS" shall mean the general obligation bonds in the original
principal amount of $24,725,000 issued by Dawson Ridge Metropolitan District No.
1.
"1992 BONDS" shall mean the exchange refunding bonds in the original
principal amount of $21,054,000 offered in connection with Dawson Ridge
Metropolitan District No. 1's plan of reorganization to holders of the 1986
Bonds.
"1992 DEED OF TRUST" shall mean the Deed of Trust securing the 1992 Bonds.
"ACCOUNTANT" shall mean a person or firm engaged in the practice of
accounting who is a nationally recognized certified public accountant acceptable
to the Trustee and who is independent of the entity whose accounts are being
audited.
"ACQUISITION AND CONSTRUCTION NOTES" shall mean those notes held in REMIC
Trust Estate issued by Parcel 49C Limited Partnership.
"ACT" shall mean Title 32 of the Colorado Revised Statutes, as amended.
"ACT OF BANKRUPTCY" shall mean the filing of a petition in bankruptcy (or
other commencement of a bankruptcy or similar proceeding) by or against the
Authority under any applicable bankruptcy, insolvency or similar law as now or
hereafter in effect.
"ADDITIONAL INTEREST" shall mean additional interest payable to each Holder
of Transfer Restricted Securities calculated at the rate of 1% per annum on the
principal amount of such Transfer Restricted Securities during the period (prior
to the registration of the Credit Enhancement) that any Nonregistration exists.
"AMENDMENT ONE" shall mean the provisions of an amendment to the
Constitution of the State of Colorado, approved in the November 3, 1992 general
election which may affect property tax revenues and spending for the Districts.
"AUTHORITY" shall mean Castle Rock Ranch Public Improvements Authority, a
corporate instrumentality of the District and a nonprofit corporation organized
and existing under and by virtue of the laws of the State of Colorado.
"AVAILABLE MONEYS" shall mean (a) proceeds of the Bonds received
contemporaneously with the issuance and sale of the Bonds and held by the
Trustee at all times since receipt of such proceeds in a separate and segregated
account in which only Available Monies were at any time held, and the proceeds
from the investment thereof, (b) monies paid by the Authority to the Trustee
which monies shall have been held by the Trustee for at least 126 days prior to
the date such monies are to be applied to the payment of principal or interest
on the Bonds, provided that no Act of Bankruptcy shall have occurred during such
126
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day period, (c) monies drawn under any Credit Enhancement which are either
applied directly to the payment of the principal of or interest on the Bonds or
which, if not so applied, are held in a separate and segregated subaccount under
the Indenture until so applied, (d) deposits with the Trustee as agent and
bailee of proceeds of the issuance of refunding obligations or obligations of
the Authority or the District if, in the written opinion of nationally
recognized counsel experienced in bankruptcy matters and acceptable to the
Trustee, the deposit and use of such proceeds will not constitute a voidable
preference under the Bankruptcy Code in the case of bankruptcy of the Authority
or the District, (e) any other money the application of which will not, in the
written opinion of nationally recognized counsel experienced in bankruptcy
matters and acceptable to the Trustee, constitute a voidable preference under
the Bankruptcy Code in the case of bankruptcy of the Authority or the District,
and (f) investment income derived from the investment of the foregoing types of
monies; provided that such proceeds, monies or income shall not be deemed to be
Available Monies or available for payment of the Bonds if, among other things,
an injunction, restraining order or stay is in effect preventing such proceeds,
monies or income from being applied to make such payment.
"BANKRUPTCY CODE" shall mean the Bankruptcy Reform Act of 1978, as amended.
"BENEFICIAL OWNER" shall mean each actual purchaser of each Bond or Exchange
Bond.
"BOND COUNSEL" shall mean any attorney at law or firm of attorneys selected
by the Authority, of nationally recognized standing in matters pertaining to the
validity of and federal tax exemption of interest on obligations issued by
states and political subdivisions, and duly admitted to practice law before the
highest court of any state of the United States of America.
"BONDS" shall mean the Authority's $66,975,000 aggregate principal amount of
Public Facilities Revenue Bonds, Series 1996, issued pursuant to the Indenture
and, after the exchange pursuant to the Registration Rights Agreement, shall
include the bonds issued in exchange therefor (all such bonds to have the same
rights and to be considered as one series for all purposes under the Indenture).
"CERTIFICATES" shall mean the certificates representing a fractional
undivided interest in the economic benefit to BFC Finance Corp. arising by,
through or under the REMIC Indenture.
"CODE" shall mean the Internal Revenue Code of 1986, as amended.
"COLLATERAL" shall mean the Series B REMIC Bonds, the payments on such Bonds
and any Federal Securities substituted therefor.
"CREDIT ENHANCEMENT" shall mean that Collateralized Credit Enhancement
Agreement from the Credit Enhancement Provider for the benefit of the Trustee,
together with the Collateral (which shall be pledged and assigned pursuant
thereto).
"CREDIT ENHANCEMENT PROVIDER" shall mean BFC Guaranty Corp., a Delaware
corporation.
"DEED OF TRUST" shall mean that certain Deed of Trust, Security Agreement,
Financing Statement and Assignment of Rents and Leases, dated March 1, 1996,
from the Authority for the benefit of the Trustee and the Credit Enhancement
Provider.
"DEVELOPMENT AGREEMENT" shall mean the Development Agreement, dated as of
March 1, 1996, between the Authority and Douglas County Development Corporation.
"DIRECT PARTICIPANTS" shall mean participants in the DTC and shall include
security brokers and dealers, banks, trust companies, clearing corporations and
certain other organizations.
"DISTRICT" shall mean generally the Dawson Ridge Metropolitan District No. 5
as the same is organized and existing under and by virtue of the laws of the
State of Colorado now in effect and as hereafter amended. "Districts" shall mean
the following Districts: Dawson Ridge Metropolitan District No. 1, Dawson Ridge
Metropolitan District No. 2, Dawson Ridge Metropolitan District No. 3, Dawson
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Ridge Metropolitan District No. 4 and Dawson Ridge Metropolitan District No. 5.
"RELATED DISTRICTS" shall mean Dawson Ridge Metropolitan District No. 1, Dawson
Ridge Metropolitan District No. 2, Dawson Ridge Metropolitan District No. 3 and
Dawson Ridge Metropolitan District No. 4.
"EVENT OF DEFAULT" shall have the meaning given to that term in the document
in which such term is being used.
"EXCHANGE BONDS" shall mean the Public Facilities Revenue Bonds, Series
1996B.
"EXCHANGE OFFER" shall mean the offer by the Authority to exchange $5,000
principal amount of the Exchange Bonds for each $5,000 principal amount of its
outstanding Bonds, of which $66,975,000 principal amount is outstanding.
"EXCHANGE OFFER REGISTRATION STATEMENT" shall mean the registration
statement filed in connection with the offering of the Exchange Bonds.
"EXPENSE OBLIGATION" shall mean the obligation of each District to pay its
Proportionate Share of Operations and Maintenance Expense pursuant to the
Intergovernmental Agreement.
"EXPIRATION DATE" shall mean 5:00 p.m., New York City time on ,
1997 unless the Exchange Offer is extended, in which case it shall mean the
latest date and time to which the Exchange Offer is extended.
"EXTRA PAYMENTS" shall mean payments with respect to premium, if any, on the
Bonds, interest on the Bonds in excess of the pre-default rate thereon,
Additional Interest and amounts due solely as a result of acceleration of the
Bonds.
"FEDERAL SECURITIES" shall mean securities of the type described in
paragraphs (a), (b) and (c)(v) of the definition of Investment Securities.
"FEE AGREEMENT" shall mean the Facilities Development Fee Agreement, dated
as of April 1986, between Bellamah Community Development and Dawson Ridge
Metropolitan District No. 1.
"FINANCING OBLIGATIONS" shall mean the obligations which arise pursuant to
the provisions of the Intergovernmental Agreement as evidenced by the execution
of the Intergovernmental Agreement by each District.
"HOLDER" or "BONDHOLDER" shall mean the person in whose name such Bond shall
be registered.
"IMMUNITY ACT" shall mean the Colorado Governmental Immunity Act, Part I of
Article 10 of Title 24, Colorado Revised Statutes, as amended.
"INDEBTEDNESS" shall mean any indebtedness or obligation of the Authority
which, in accordance with generally accepted accounting principles, is
classified as a liability on a balance sheet.
"INDENTURE" shall mean the Indenture of Trust, dated as of March 1, 1996,
between the Authority and the Trustee, together with any indentures supplemental
thereto made in conformity therewith.
"INDIRECT PARTICIPANTS" shall include banks, brokers, dealers and trust
companies that clear through or maintain a custodial relationship with a Direct
Participant, either directly or indirectly.
"INTEREST PAYMENT DATE" shall mean June 1 and December 1 of each year,
commencing with respect to the Bonds, on December 1, 1996.
"INTERGOVERNMENTAL AGREEMENT" shall mean the Intergovernmental Agreement,
dated as of March 1, 1996, among the Districts, and any amendments or
supplements thereto.
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"INVESTMENT SECURITIES" shall mean, and includes, any of the following
investments, to the extent permitted or authorized by applicable law at the time
purchased by the Trustee, bearing interest or issued at a discount to the extent
permitted by applicable law:
(a) direct obligations of, or obligations the principal of and interest on
which are unconditionally guaranteed by, the United States of America (including
obligations issued or held in book-entry form on the books of the Department of
the Treasury of the United States of America);
(b) bonds, debentures, notes or other evidence of indebtedness issued or
guaranteed by any of the following federal agencies and provided such
obligations are backed by the full faith and credit of the United States of
America (stripped securities are only permitted if they have been stripped by
the agency itself):
(i) U.S. Export-Import Bank (direct obligations or fully guaranteed
certificates of beneficial ownership);
(ii) Farmers Home Administration (certificates of beneficial ownership);
(iii) Federal Financing Bank;
(iv) General Services Administration participation certificates;
(v) Government National Mortgage Association ("GNMA") guaranteed
mortgage-backed bonds and pass through certificate obligations;
(vi) U.S. Maritime Administration guaranteed Title XI financing
obligations; or
(vii) U.S. Department of Housing and Urban Development (HUD) project
notes, local authority bonds, new communities debentures (U.S. guaranteed)
and U.S. public housing notes and bonds-- U.S. government guaranteed public
housing notes and bonds;
(c) bonds, debentures, notes or other evidence of indebtedness issued or
guaranteed by any of the following non-full faith and credit U.S. government
agencies (stripped securities are only permitted if they have been stripped by
the agency itself):
(i) Federal Home Loan Bank System senior debt obligations;
(ii) FHLMC senior debt obligations and participation certificates;
(iii) FNMA mortgage-backed securities and senior debt obligations;
(iv) Student Loan Marketing Association senior debt obligations; or
(v) Resolution Funding Corporation obligations; or
(d) money market mutual funds rated "AAAm" or "AAAm-G" by Standard & Poor's
Ratings Services, whose investments are limited to securities of the types
listed in (a)-(c) above.
"ISSUE PRICE" shall mean the price at which a substantial amount of one
maturity of the Bonds is first sold to the public.
"LEASE" shall mean that certain U.S. Government Lease for Real Property,
dated August 12, 1994, as supplemented by a Supplemental Lease Agreement No.1,
dated January 3, 1996, and a supplemental Lease Agreement No. 2, dated March 27,
1996, between the General Services Administration of the United States of
America and Parcel 49C Limited Partnership, a District of Columbia limited
partnership, as the same may be further supplemented or amended.
"LETTER OF TRANSMITTAL" shall mean the letter of transmittal accompanying
the Prospectus.
"LOAN AGREEMENT" shall mean the Loan Agreement dated as of March 1, 1996
between the Building Finance Company of Tennessee, Inc. and Parcel 49C Limited
Partnership.
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"MAJORITY RESIDUAL HOLDERS" shall mean the holders of a majority in interest
of Certificates.
"NON-DISQUALIFICATION OPINION" shall mean, with respect to any action
proposed to be under the REMIC Indenture, an opinion of counsel to the effect
that the taking of such action will not cause the REMIC Trust Estate to fail to
qualify as a REMIC at any time while any of the REMIC Bonds are outstanding and
will not result in the imposition of a tax pursuant to Section 860F(a) of the
Code or otherwise subject the REMIC Trust Estate to taxation.
"NON-RECOURSE INDEBTEDNESS" shall mean any indebtedness secured by a lien,
which is not a general obligation of the Authority and liability for which is
effectively limited to the property subject to such lien with no recourse to, or
lien upon, directly or indirectly, the Revenues or any other property of the
Authority.
"NON SET-OFF LEASE PAYMENTS" shall mean rental payments made pursuant to the
Lease that are not subject to set-off by reason of the failure of 49C to perform
its obligations thereunder.
"NOTES" shall mean the Acquisition Note, the Construction Note and a note
given by DCDC II, Inc. to BFC Finance Corp. in the principal amount of
$9,310,689.07 secured by various documents including a deed of trust on
approximately 300 acres of undeveloped land in Castle Rock, Colorado.
"OPERATING AGREEMENT" shall mean the Operating Agreement, dated as of March
1, 1996, by and between the Authority and the District.
"OPERATING AGREEMENT PAYMENTS" shall mean the Operating Agreement Payments
required to be made by the District under the Operating Agreement, as the same
shall be amended and supplemented from time to time in accordance with the
express provisions thereof.
"OPERATION AND MAINTENANCE EXPENSES" shall mean such reasonable and
necessary current expenses, paid or accrued, for operation, maintenance and
repair of the Recreational Facilities (as such term is defined in the Operating
Agreement) as may be determined by the Authority, and the term may also include
except as limited by contract or otherwise limited by law, without limiting the
generality of the foregoing:
(1) legal and overhead expenses of the Authority directly related and
reasonably allocable to the administration of the Recreational Facilities;
(2) all insurance premiums and premiums or fees for fidelity bonds
appertaining to or required for the Recreational Facilities or a reasonably
allocable share of a premium of any blanket bond or policy pertaining to the
Recreational Facilities;
(3) contractual services, professional services, salaries, administrative
expenses, and costs of labor appertaining to the Recreational Facilities;
(4) the costs incurred in the collection of all or any part of the Revenues
from Recreational Facilities;
(5) any costs of utility services furnished to the Recreational Facilities;
and
(6) payments of taxes, payments in lieu of taxes, assessments imposed by any
governmental unit or public corporation, or any monthly deposits to an escrow
established for any such purposes;
"OPERATION AND MAINTENANCE EXPENSES" does not include:
(a) any allowance for depreciation;
(b) any costs of Recreational Facilities renewals or replacements, major
repairs, reconstruction, improvements, extensions, or betterments;
(c) any accumulation of reserves for capital replacements;
(d) any reserves for operation, maintenance, or repair of the Recreational
Facilities;
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(e) any allowance for the redemption of the Bonds, or the payment of any
interest thereon;
(f) any liabilities incurred in the acquisition or improvement of any
properties comprising the Recreational Facilities or any combination thereof;
and
(g) any other ground of legal liability not based on contract.
"OPINION OF COUNSEL" shall mean a written opinion of counsel (who may be
counsel for the Authority) appointed by the Authority.
"OUTSTANDING" shall mean all Bonds (including, under certain circumstances,
pledged bonds) theretofore authenticated and delivered by the Trustee under the
Indenture except:
(a) Bonds theretofore cancelled by the Trustee or surrendered to the Trustee
for cancellation;
(b) Bonds for the payment or redemption of which Available Moneys in the
necessary amount shall have theretofore been deposited with the Trustee (whether
upon or prior to the maturity or the redemption date of such Bonds); provided
that, if such Bonds are to be redeemed prior to the maturity thereof, notice of
such redemption shall have been given as provided in the Indenture or provision
satisfactory to the Trustee shall have been made for the giving of such notice;
and
(c) Bonds in lieu of, or in substitution for, which other Bonds shall have
been authenticated and delivered by the Trustee pursuant to the Indenture.
"PARTICIPATING BROKER-DEALER" shall mean a broker-dealer that receives
Exchange Bonds for its own account pursuant to the Exchange Offer.
"PROJECT" shall mean the acquisition, construction, equipping and improving
of certain public improvements consisting of parks and recreational facilities.
"PROPERTY" means the Real Estate (upon which certain of the Project
facilities will be located) and water rights acquired with proceeds of the
Bonds.
"PROPORTIONATE SHARE" shall mean, for a District, the ratio of the estimated
assessed value of all taxable real and personal property in such District to the
total assessed value of all taxable real and personal property in all the
Districts.
"PROSPECTUS" shall mean the Prospectus relating to the initial offering of
the Exchange Bonds.
"PURCHASE AGREEMENT" shall mean the Purchase Agreement, dated as of March
26, 1996, between the Authority and Lehmann Brothers Inc.
"RATING AGENCY" shall mean Standard & Poor's Ratings Services or, if
Standard & Poor's Ratings Services is no longer rating the Bonds, any nationally
recognized statistical rating organization which is then rating the Bonds.
"REAL ESTATE" shall mean an approximately 876 acre portion of the Dawson
Ridge Development in the Town of Castle Rock, Colorado.
"RECORD DATE" shall mean the close of business on the 15th day of the
calendar month immediately preceding the Interest Payment Date.
"RECREATIONAL FACILITIES" shall mean parks and recreational facilities
located within or for the benefit of the District.
"RECREATIONAL FACILITIES AGREEMENT" shall mean the Recreational Facilities
Agreement, dated as of March 1, 1996, between the Authority and the District.
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"REGISTRATION RIGHTS AGREEMENT" shall mean the agreement among the
Authority, the Credit Enhancement Provider and the Underwriter, described more
fully under "THE BONDS--Registration Rights,-- Additional Interest."
"REIMBURSEMENT AGREEMENT" shall mean the Reimbursement Agreement, dated as
of March 1, 1996, between the Authority and the Credit Enhancement Provider, as
the same may be supplemented or amended.
"REMIC EVENT OF DEFAULT" shall mean any Event of Default under the REMIC
Indenture.
"REMIC INDENTURE" shall mean an indenture of trust between BFC Finance Corp.
and SouthTrust Bank of Alabama, National Association.
"REMIC INTEREST PAYMENT DATE" shall mean each June 1 and December 1,
commencing June 1, 1998.
"REMIC RECORD DATE" shall mean the 15th day preceding each REMIC Interest
Payment Date.
"REMIC REDEMPTION FUND" shall mean the Redemption Fund established pursuant
to the REMIC Indenture.
"REMIC TRUST ESTATE" shall mean a trust estate established under the REMIC
Indenture in accordance with the provisions of a Bond Pledge and Security
Agreement between the Credit Enhancement Provider, the Trustee and the REMIC
Trustee.
"REMIC TRUSTEE" shall mean the SouthTrust Bank of Alabama, National
Association.
"RESIDUAL HOLDER" shall mean the owner of a fractional undivided interest in
the economic benefit to BFC Finance Corp. arising by, through or under the REMIC
Indenture.
"REVENUE OBLIGATION" shall mean the obligation of the Districts under the
Intergovernmental Agreement to pay the deficiencies required to pay obligations
secured by the Deed of Trust.
"REVENUES" shall mean all proceeds, charges, income, rents, receipts,
profits, benefits and existing fund balances of the Authority, exclusive of (i)
payments for Operation and Maintenance Expenses paid by the District pursuant to
the Operating Agreement, (ii) any gifts, grants, bequests, donations and
contributions to the extent specifically restricted by the donor to a particular
purpose inconsistent with their use for Bond payments, and (iii) any payments
received by the Authority pursuant to the Development Agreement.
"SECURITIES ACT" shall mean the Securities Act of 1933, as amended.
"SPECIAL RECORD DATE" shall mean a date fixed by the Trustee whenever moneys
become available for payment of defaulted interest.
"TRUSTEE" shall mean SouthTrust Bank of Alabama, National Association, a
national banking association organized and existing under and by virtue of the
laws of the United States of America having a corporate trust office in
Birmingham, Alabama, or its successor as Trustee under the Indenture.
"TRUST ESTATE" shall mean all of the property described in the granting
clauses of the Indenture or of any supplemental indenture.
"UNDERWRITER" shall mean Lehmann Brothers Inc.
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THE INDENTURE
The following describes the material provisions of the Indenture which are
not described elsewhere in the Prospectus. This description is subject in all
respects to the provisions of, and is qualified in its entirety by, reference to
the Indenture. Copies of the Indenture are available from the Trustee.
AUTHORIZED AMOUNT OF BONDS
The total principal amount of Bonds that may be issued under the Indenture
is expressly limited to $66,975,000. The Authority may issue Bonds under the
Indenture in exchange for the Bonds pursuant to the Registration Rights
Agreement.
ADDITIONAL BONDS AND SUBORDINATE INDEBTEDNESS
So long as any of the Bonds remain Outstanding, the Authority will not issue
any additional bonds or obligations payable from Revenues or having a lien upon
the Trust Estate having priority over, or on a parity with, the Bonds.
The Authority may incur any Indebtedness secured by a lien or encumbrance
which is expressly stated to be junior and subordinate to the lien and
encumbrance upon the Revenues created under the Indenture and to the Deed of
Trust except as otherwise provided in the Indenture. Subordinate Indebtedness
shall have no rights of acceleration or foreclosure. No such subordinate
Indebtedness shall be secured by the Credit Enhancement. No such subordinate
Indebtedness shall be issued without the consent of the Credit Enhancement
Provider.
ESTABLISHMENT OF FUNDS
Upon the issuance of the Bonds, the Authority and/or the Trustee will
establish and create the following funds and accounts:
(a) Project Fund; and within the Project Fund, the Costs of Issuance
Account.
(b) Revenue Fund.
(c) Collateralized Credit Fund.
(d) Interest Fund, and within the Interest Fund, the following accounts:
(i) Capitalized Interest Account
(ii) Collateralized Credit Interest Account
(iii) Revenue Interest Account
(e) Principal Fund, and within the Principal Fund, the following accounts:
(i) Collateralized Credit Principal Account
(ii) Revenue Principal Account
(iii) The Sinking Fund Accounts
(f) Redemption Fund, and within the Redemption Fund, the following accounts:
(i) Special Redemption Account
(ii) Redemption Holding Account
(g) Rebate Fund.
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PROJECT FUND
The Authority shall establish, maintain and hold a separate fund to be known
as the "Project Fund." The proceeds of the Bonds deposited in the Project Fund
shall be applied for the purpose of providing funds for the acquisition of the
Property and payment of expenses incident to the Project, including
architectural and engineering fees and expenses, tests and inspection, surveys,
land acquisition, the fees and expenses of the Trustee, costs of issuance and
all other expenses in connection with the preparation, issuance and delivery of
the Bonds of legal fees and expenses of counsel, and similar expenses.
Before any expenditure is made from the Project Fund, the Authority shall
determine that the entire sum of the expenditures then to be made and of all
other expenditures previously made from the Project Fund have been used to
finance the acquisition of the Property and expenses incident thereto, all of
which property other than land is of a character subject to the allowance for
depreciation under Section 167 of the Code.
REVENUE FUND
The Authority agrees that, so long as any of the Bonds remain Outstanding,
all of the Revenues of the Authority shall be deposited as soon as practicable
upon receipt in the Revenue Fund which the Authority shall establish and
maintain in an account to be held by the Trustee. Subject only to the provisions
of the Indenture permitting the application thereof for the purposes and on the
terms and conditions set forth therein, the Authority pledges and, to the extent
permitted by law, grants a security interest to the Trustee in the Revenue Fund
to secure the payment of the principal of, premium, if any, and interest on the
Bonds.
CREDIT ENHANCEMENT OF THE BONDS; ALLOCATION OF REVENUES
So long as the Credit Enhancement is in effect and no Event of a Default
exists thereunder, all payments of principal and interest on the Bonds (except
for interest for the period prior to March 1, 1998, Additional Interest, other
Extra Payments and amounts payable on redemption in the event of a taking of the
Project by eminent domain) shall be made from the proceeds of draws on the
Credit Enhancement which are to be deposited directly in the Collateralized
Credit Fund. Pursuant to the Bond Pledge and Security Agreement, all payments in
regard to the Collateral are to be made directly to the Trustee, and shall be
deposited in the Collateralized Credit Fund. To the extent that the amount in
the Collateralized Credit Fund is insufficient on any Interest Payment Date to
pay interest (other than interest for the period prior to March 1, 1998,
Additional Interest, any other interest constituting Extra Payments and Interest
due as a result of a redemption (described above) and principal due and payable
on the Bonds on such Interest Payment Date (other than amounts payable on such a
redemption) the Trustee shall demand that the Credit Enhancement Provider
immediately deposit the amount of such deficiency in the Collateralized Credit
Fund.
The Trustee shall have the obligation to hold and maintain the Credit
Enhancement for the benefit of the owners of Bonds in accordance with its terms.
If at any time during the term of the Credit Enhancement any successor Trustee
shall be appointed and qualified under the Indenture, the resigning Trustee
shall request that the provider of such Credit Enhancement transfer or cause the
transfer of the Credit Enhancement to the successor Trustee. If the resigning
Trustee fails to make this request, the successor Trustee shall do so before
accepting appointment.
On or before each Interest Payment Date, the Trustee shall transfer from the
Revenue Fund and deposit into the following respective accounts or transfer the
respective amount directly, as provided below, the following amounts, in the
following order of priority, the requirements of each such account (including
the making up of any deficiencies in any such account resulting from lack of
moneys sufficient to
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make any earlier required deposit) at the time of deposit to be satisfied before
any transfer is made to any account subsequent in priority:
(1) Available Moneys to the Revenue Interest Account, in an amount equal to
the aggregate amount of interest becoming due and payable on the next such
Interest Payment Date on all Bonds then Outstanding (other than Additional
Interest, interest constituting Excess Payments or payable as a result of
certain redemptions) less any amounts to be transferred to the Interest Fund
from the Capitalized Interest Account as capitalized interest and less any
transfers from the Collateralized Credit Interest Account for the payment of
such interest;
(2) Available Moneys to the Revenue Principal Account, in an amount equal to
the aggregate amount of principal, if any, becoming due and payable on the
Outstanding Bonds (including any mandatory sinking fund payments required to be
paid into the respective Sinking Fund Accounts for Outstanding Bonds) on the
next ensuing Interest Payment Date, less any transfers from the Collateralized
Credit Principal Account for the payment of such principal;
(3) To the Rebate Fund in accordance with the rebate instructions;
(4) To the Credit Enhancement Provider in an amount equal to amounts drawn
under the Credit Enhancement and applied to the payment of principal of or
interest on the Bonds, together with interest thereon as determined pursuant to
the Reimbursement Agreement, to the extent a request for the same has been
submitted to the Trustee by the Credit Enhancement Provider or otherwise
provided pursuant to the Credit Enhancement, and to the extent not previously
reimbursed to the Credit Enhancement Provider by the Trustee from Revenues,
unless a default by the Credit Enhancement Provider has occurred and is
continuing under the Credit Enhancement, in which event such amount shall remain
in the Revenue Fund until such default has been cured or otherwise waived by the
Trustee, at which time such amount shall be paid to the Credit Enhancement
Provider; provided that Revenues received under the Development Agreement shall
be used first for item (5) that follows;
(5) To the Revenue Interest Account to the extent necessary for the payment
of Additional Interest or any other interest constituting Extra Payments, to be
applied to pay such interest in the order in which it accrued;
(6) To the extent necessary to pay any other Extra Payments in the order in
which such Extra Payments become due and payable;
(7) To the extent necessary to pay any Trustee and other fees and expenses
then due and payable under the Indenture in the order that such amounts become
due and payable.
Any moneys remaining in the Revenue Fund after the foregoing transfers may
be used by the Authority for any lawful purpose.
REBATE FUND
The Indenture creates and establishes, with the Trustee, a Rebate Fund in
the name of the Authority which shall be expended in accordance with the
provisions of the Indenture and the Tax Certificate. The Trustee shall make
deposits to and disbursements from the Rebate Fund based upon the instructions
of the Authority pursuant to the Indenture and the Tax Certificate. The
Authority shall be responsible for making all such deposits in the Rebate Fund
as required in the Indenture. The Trustee shall invest the Rebate Fund at the
direction of the Authority subject to the restrictions set forth in the tax
certificate to be delivered at the time of issuance of the Bonds.
INVESTMENT OF FUNDS
Subject to the provisions of the Indenture regarding the deposit of and use
of moneys in the Rebate Fund, all moneys in any of the funds and accounts
established pursuant to the Indenture and held by the
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Trustee shall be invested by the Trustee as directed by the Authority in writing
solely in Investment Securities. Investment Securities may be purchased at such
prices determined by the Authority. The Authority shall direct such investment
so that all Investment Securities shall be acquired subject to the Authority's
tax covenants contained in the Indenture, the limitations as to maturities set
forth in the Indenture and such additional limitations or requirements
consistent with the foregoing as may be established by written request of the
Authority. Absent the direction of the Authority in the time and manner set
forth above, the Trustee shall invest only in Federal Securities.
All interest, profits and other income received from the investment of
moneys in the Project Fund shall be deposited to the Revenue Fund. All interest,
profits and other income received from the investment of moneys in any other
fund or account established pursuant to the Indenture shall be credited to the
fund or account for the credit of which such Investment Security was acquired.
DISCHARGE OF THE INDENTURE
When all Bonds secured by the Indenture shall be paid in accordance with
their terms (or payment of such Bonds has been provided for in the manner set
forth in the following paragraph) together with all other sums payable
thereunder, including, amounts due and payable to the Trustee, then the
Indenture and the Trust Estate and all rights granted thereunder (except for any
provisions which may continue to apply as described in the following paragraph)
shall thereupon cease, terminate and become void and be discharged and
satisfied. In such event the Trustee shall assign and transfer to the Authority
(or to the Credit Enhancement Provider if amounts are then due under the
Reimbursement Agreement or the Deed of Trust) all property then held by the
Trustee thereunder and shall execute such documents as may be reasonably
required by the Authority (or by the Credit Enhancement Provider if amounts are
then due under the Reimbursement Agreement or the Deed of Trust) or shall turn
over to the Authority (or to the Credit Enhancement Provider if amounts are then
due under the Reimbursement Agreement or the Deed of Trust) any surplus in any
fund, except the Rebate Fund.
Payment of any outstanding Bond prior to the maturity or redemption date
thereof shall be deemed to have been provided for if (i) in case said Bond is to
be redeemed on any date prior to its maturity, the Authority shall have given to
the Trustee in form satisfactory to it irrevocable instructions to give on a
date in accordance with the provisions of the Indenture notice of redemption of
such Bond on said redemption date, (ii) there shall have been deposited with the
Trustee either Available Moneys in an amount which shall be sufficient or
noncallable Federal Securities the principal of and the interest on which when
due, and without any reinvestment thereof, will provide moneys which, together
with the Available Moneys, if any, deposited with or held by the Trustee at the
same time and available therefor, shall be sufficient, as verified by an
Accountant's report, to pay when due the principal of, premium, if any, and
interest due and to become due on said Bond on and prior to the redemption date
or maturity date thereof, as the case may be, (iii) the Trustee shall have a
valid first priority security interest in such Federal Securities and all
proceeds thereof and distributions thereon and such Federal Securities shall be
in the name of the Trustee for the benefit of the Holders, (iv) the Trustee
shall have received an opinion of counsel to the effect that (1) the Federal
Securities have been duly and validly assigned and delivered to the Trustee for
the benefit of the Holders, and (2) the security interest of the Trustee for the
benefit of the Holders is a first priority security interest perfected to the
extent perfection is permissible under the laws of the state where the
collateral is located, (v) the Trustee will receive an opinion of bond counsel
to the effect that defeasance in accordance with the provisions of the Indenture
shall not adversely affect the exclusion from gross income of interest on the
Bonds for federal income tax purposes, (vi) the Trustee shall have received
written confirmation from the Rating Agency that the defeasance will not result
in a downgrade, withdrawal or qualification of the ratings then assigned to the
Bonds, and (vii) in the event said Bond is not by its terms subject to
redemption within the next 35 days, the Authority shall have given the Trustee
in form satisfactory to it irrevocable instructions to give, as soon as
practicable in the same manner as the notice of redemption is given pursuant
hereto, a notice to the registered owner of such Bond that the deposit
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required by (ii) above has been made with the Trustee and that payment of said
Bond has been provided for in accordance with the Indenture.
DISTRICT RIGHTS
The Authority covenants and agrees that all activities of the Authority
shall be undertaken for the benefit of the District. Upon termination of the
Indenture and discharge of the obligations of the Authority, the District shall
be entitled to acquire title to the Project without cost.
The District is granted the right to obtain, at any time, unencumbered fee
title and exclusive possession of property financed by obligations of the
Authority (including the Bonds), and any additions to such property by (1)
placing into escrow an amount that will be sufficient to defease such
obligations, (2) paying reasonable costs incident to the defeasance, (3) paying
any amount then due by the Authority to the Credit Enhancement Provider pursuant
to the Reimbursement Agreement and the Deed of Trust, and (4) paying or
defeasing any subordinate obligation issued or incurred pursuant to the
Indenture. The District, at any time before it defeases such obligations, shall
not agree or otherwise be obligated to convey any interest in the Project to any
person (including the United States of America or its agencies or
instrumentalities) for any period extending beyond or beginning after the
District defeases such obligations. In addition, the District shall not agree or
otherwise be obligated to convey a fee interest in the Project to any person who
was a user thereof (or a related person) before the defeasance within 90 days
after the District defeases such obligations.
The Authority shall immediately cancel all encumbrances on the Project,
including all leases and management agreements. Any lease, management contract,
or similar encumbrance on the Project will be considered immediately cancelled
if the lessee, management company, or other user vacates the Project within a
reasonable time, generally not to exceed 90 days, after the date the District
exercises its rights under the immediately preceding paragraph.
In addition to the foregoing, if the Authority defaults in its payment
obligations, the District is granted an exclusive option to purchase the Project
for the amount of the outstanding indebtedness and accrued interest to the date
of default. The Trustee shall provide notice to the District of any Event of
Default within 30 days of the occurrence thereof. The District shall have (a) 90
days from the date it is notified by the Trustee of the default in which to
exercise the option (which shall be exercised by giving written notice of such
exercise to the Trustee and the Authority), and (b) 90 days from the date it
exercises the option to purchase the Project.
Unencumbered fee title to the Project and any additions thereto and
exclusive possession and use thereof will vest in the District without demand or
further action on its part when all obligations issued under the Indenture
(including the Bonds) are discharged.
EVENTS OF DEFAULT
Each of the following is defined as and shall be deemed an "Event of
Default" under the Indenture:
a. Default shall be made in the due or punctual payment (other than Extra
Payments prior to the maturity of the Bonds) of the principal of, or premium (if
any) on, any Bond when and as the same shall become due and payable, whether at
maturity as therein expressed, by proceedings for redemption, by declaration or
otherwise;
b. Default shall be made in the due and punctual payment (other than Extra
Payments prior to the maturity of the Bonds) of any installment of interest on
any Bond, when and as such interest installment shall become due and payable;
c. Default shall be made by the Authority in the performance or observance
of any other of the covenants, agreements or conditions on its part in the
Indenture or in the Bonds contained, and such
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default shall have continued for a period of 45 days after written notice
thereof, specifying such default and requiring the same to be remedied, shall
have been given to the Authority and the Credit Enhancement Provider by the
Trustee, or to the Authority and the Trustee by the Credit Enhancement Provider;
d. The Authority shall (1) admit in writing its inability to pay its debts
generally as they become due, (2) file a petition in bankruptcy or to take
advantage of any insolvency act, (3) make an assignment for the benefit of its
creditors, (4) consent to the appointment of a receiver of itself or of the
whole or any substantial part of its property, or (5) on a petition in
bankruptcy filed against the Authority, be adjudicated a bankrupt;
e. The Authority shall file a petition or answer seeking reorganization or
arrangement under the federal bankruptcy laws or any other applicable law of the
United States of America or any State thereof;
f. A court of competent jurisdiction shall enter an order, judgment or
decree appointing, without the consent of the Authority, a receiver of the
Authority, or of the whole or any substantial part of its property, or approving
a petition filed against the Authority seeking reorganization of the Authority
under the federal bankruptcy laws or any other applicable law of the United
States of America or any State thereof, and such order, judgment or decree shall
not be vacated or set aside and stayed within 60 days from the date of the entry
thereof;
g. Under the provisions of any other law for the relief or aid of debtors,
any court of competent jurisdiction shall assume custody or control of the
Authority or of the whole or any substantial part of its property, and such
custody or control shall not be terminated or stayed within 60 days from the
date of assumption of such custody or control; or
h. There is a breach of a covenant or a material representation by the
Credit Enhancement Provider under the Credit Enhancement.
Notwithstanding the foregoing, so long as the Bondholders are being paid and
no default exists under the Credit Enhancement, the occurrences described in
paragraphs (c) through (h) above shall not be deemed to be Events of Default
unless and until the Credit Enhancement Provider has consented thereto.
ACCELERATION
Subject to certain rights of the District set forth in the Indenture, upon
the occurrence of any Event of Default, the Trustee, by notice in writing to the
Authority may, and upon written request of the Credit Enhancement Provider or
the Holders of not less than 25% in aggregate principal amount of the Bonds at
the time outstanding, shall, declare the principal of all the Bonds then
outstanding, and the interest accrued thereon, to be due and payable
immediately, and upon any such declaration the same shall become and shall be
immediately due and payable, but only if Available Money sufficient to pay such
Bonds shall be deposited with the Trustee on or before the date specified for
such acceleration. The foregoing is subject to the limitation that (i) no
acceleration shall occur without the consent of the Credit Enhancement Provider
while the Credit Enhancement Provider has continued to meet its obligations to
the Trustee pursuant to the Credit Enhancement and is otherwise not in breach of
a covenant or a material representation by the Credit Enhancement Provider under
the Credit Enhancement and (ii) neither the consent of the Credit Enhancement
Provider nor the deposit of Available Money shall be required for acceleration
if the Credit Enhancement Provider has failed to meet such obligations or is
otherwise in breach of a covenant or material representation by the Credit
Enhancement Provider under the Credit Enhancement.
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OTHER REMEDIES; RIGHTS OF BONDHOLDERS
Upon the happening and continuance of an Event of Default the Trustee may
pursue any available remedy to enforce the performance of or compliance with any
other obligation or requirement of the Indenture. Further, upon the happening of
an Event of Default resulting in acceleration, the Trustee shall have the right
to (a) foreclose on the mortgage created by the Deed of Trust through judicial
proceedings or through the exercise of a power of sale; and (b) by suit, action,
or proceeding in any court of competent jurisdiction cause possession of the
Project or any part thereof to be awarded to the Trustee or to obtain the
appointment of a receiver of the Project.
The Holders of a majority in aggregate principal amount of the Bonds at the
time outstanding shall have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee, or exercising
any trust or power conferred on the Trustee, under the Indenture. In the event
that the Trustee, upon the happening of an Event of Default, shall have taken
some action, by judicial proceedings or otherwise, pursuant to its duties under
the Indenture, whether upon its own discretion or upon the request of the Credit
Enhancement Provider and the Holders of 25% in aggregate principal amount of
Bonds then outstanding, it shall have full power, in the exercise of its
discretion for the best interests of the Bondholders, with the consent of the
Credit Enhancement Provider so long as there are no defaults under the Credit
Enhancement, with respect to the continuance, discontinuance, withdrawal,
compromise, settlement or other disposal of such action; provided, however, that
the Trustee shall not, unless there no longer continues an Event of Default,
discontinue, withdraw, compromise, settle or otherwise dispose of any litigation
pending at law or in equity, if at the time there has been filed with it a
written request signed by the Credit Enhancement Provider or the Holders of at
least a majority in aggregate principal amount of the Bonds at the time
outstanding opposing such discontinuance, withdrawal, compromise, settlement or
other disposal of such litigation.
LIMITATION ON BONDHOLDERS' RIGHT TO SUE
No Holder of any Bond issued under the Indenture shall have the right to
institute any suit, action or proceeding at law or in equity, for the execution
of any trust or power of the Indenture or for any other remedy under or upon the
Indenture, unless (a) such Holder shall have previously given to the Trustee and
the Credit Enhancement Provider written notice of the occurrence of an Event of
Default; (b) the Holders of at least 25% in aggregate principal amount of the
Bonds then outstanding shall have made written request to the Trustee to
exercise the powers hereinbefore granted or to institute such action, suit or
proceeding in its own name; (c) such Holder or said Holders shall have tendered
to the Trustee reasonable indemnity against the costs, expenses and liabilities
to be incurred in compliance with such request; and (d) the Trustee shall have
refused or omitted to comply with such request for a period of 30 days after
such written request shall have been received by, and said tender of indemnity
shall have been made to, the Trustee.
DISTRICT'S RIGHT TO PURCHASE PROJECT
Anything to the contrary in the Indenture notwithstanding, if an Event of
Default shall occur, the District shall have an exclusive option to purchase all
properties, equipment or other assets financed by the Bonds and any and all
additions to that property, equipment or assets for an amount equal to the
unpaid principal amount of all Bonds then outstanding and accrued interest
thereon to the date of the Event of Default.
SUPPLEMENTAL INDENTURES NOT REQUIRING CONSENT OF BONDHOLDERS
The Authority, when authorized by resolution of the District, and the
Trustee, from time to time and at any time, but with the consent of the Credit
Enhancement Provider (so long as the Credit Enhancement Provider is not in
default under the Credit Enhancement), subject to the conditions and
restrictions in the
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Indenture contained, may enter into an indenture or indentures supplemental
thereto, which indenture or indentures thereafter shall form a part thereof, for
any one or more or all of the following purposes:
a. to add to the covenants and agreements of the Authority in the Indenture
contained, other covenants and agreements thereafter to be observed, or to
surrender any right or power therein reserved to or conferred upon the
Authority, provided, that no such covenant, agreement or surrender shall
adversely affect the interests of the Holders of the Bonds;
b. to evidence the succession of another corporation to the Authority, or
successive successions, and the assumption by a successor corporation of the
covenants and obligations of the Authority in the Bonds and in the Indenture
contained;
c. to make such provisions for the purpose of curing any ambiguity, or of
curing, correcting or supplementing any defective provision contained in the
Indenture, or in regard to other matters or questions arising under the
Indenture, as the Authority may deem necessary or desirable and not inconsistent
with the Indenture and which shall not materially adversely affect the interests
of the Holders of the Bonds; or
d. to modify, amend or supplement the Indenture or any indenture
supplemental thereto in such manner as to permit the qualification thereof under
the Trust Indenture Act of 1939 or any similar federal statute hereafter in
effect, and, if they so determine, to add to the Indenture or any indenture
supplemental thereto such other terms, conditions and provisions as may be
permitted by said Trust Indenture Act of 1939 or similar federal statute, and
which shall not adversely affect the interests of the Holders of the Bonds.
Any Supplemental Indenture authorized by the provisions of this Section may
be executed by the Authority and the Trustee without the consent of the Holders
of any of the Bonds at the time outstanding but the Trustee shall not be
obligated to enter into any such Supplemental Indenture which affects the
Trustee's own rights, duties or immunities under the Indenture or otherwise.
SUPPLEMENTAL INDENTURES REQUIRING CONSENT OF BONDHOLDERS
With the consent of the Credit Enhancement Provider (so long as the Credit
Enhancement Provider is not in default under the Credit Enhancement) and the
Holders of not less than 60% in aggregate principal amount of the Bonds at the
time Outstanding, the Authority, when authorized by a resolution of the
District, and the Trustee may from time to time and at any time enter into an
indenture or indentures supplemental to the Indenture for the purpose of adding
any provisions to or changing in any manner or eliminating any of the provisions
of the Indenture or of any Supplemental Indenture; provided, however, that no
such Supplemental Indenture shall (1) extend the fixed maturities of the Bonds
or reduce the rate of interest thereon or extend the time of payment of
interest, or reduce the amount of the principal thereof, or reduce any premium
payable on the redemption thereof, without the consent of the Holder of each
Bond so affected, or (2) reduce the aforesaid percentage of Holders of Bonds
whose consent is required for the execution of any such Supplemental Indenture,
or permit the creation of any lien on the Trust Estate prior to or on a parity
with the lien of the Indenture or deprive the Holders of the Bonds of the lien
created by the Indenture upon the Trust Estate, without the consent of the
Holders of all of the Bonds then Outstanding and the Credit Enhancement
Provider. Upon receipt by the Trustee of a certified resolution authorizing the
execution of any such Supplemental Indenture, and upon the filing with the
Trustee of evidence of the consent of the Credit Enhancement Provider and
Bondholders, as aforesaid, the Trustee shall join with the Authority in the
execution of such Supplemental Indenture unless such Supplemental Indenture
affects the Trustee's own rights, duties or immunities under the Indenture or
otherwise, in which case the Trustee may in its discretion, but shall not be
obligated to, enter into such Supplemental Indenture.
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AMENDMENTS TO OPERATING AGREEMENT AND INTERGOVERNMENTAL AGREEMENT
The Operating Agreement and the Intergovernmental Agreement may be amended
only with the consent of the Trustee and the Credit Enhancement Provider (so
long as the Credit Enhancement Provider is not in default under the Credit
Enhancement). The Trustee shall consent to such amendments on the same basis as
it consents to amendments to the Indenture.
COLLATERALIZED CREDIT ENHANCEMENT AGREEMENT
In order to provide credit enhancement for the Bonds, the Credit Enhancement
Provider and the Trustee have entered into a Collateralized Credit Enhancement
Agreement dated as of March 1, 1996 (the "Collateralized Credit Enhancement
Agreement"). Under the Collateralized Credit Enhancement Agreement, the Credit
Enhancement Provider is required to provide the Trustee with all amounts
necessary to pay the principal of and interest on the Bonds when due (the
"Indebtedness"). The Indebtedness does not include any Extra Payments. This
obligation of the Credit Enhancement Provider has been secured by the pledge and
delivery to the Trustee of the Collateral. The obligation of the Credit
Enhancement Provider to pay principal of and interest on the Bonds as described
above continues until such time as the Indebtedness has been paid in full, but
the Credit Enhancement Provider's liability therefor is limited to the
Collateral.
Pursuant to the provisions of the Collateralized Credit Enhancement
Agreement, the Trustee may not, without the consent of the Credit Enhancement
Provider, change any of the terms of the Bonds contained in the Indenture,
modify or waive any of the terms of any agreement with the Authority with
respect to the Bonds or take and hold any security for the payment of the Bonds
or performance of the Credit Enhancement Provider's obligations thereunder.
Under the Collateralized Credit Enhancement Agreement, the obligations of
the Authority to the Credit Enhancement Provider or any other person controlled
by or owned in whole or in part by the Credit Enhancement Provider are
subordinated to the Authority's obligations on the Indebtedness during any
period that a default exists under the Indebtedness. The Collateralized Credit
Enhancement Agreement also provides that, without the prior written consent of
the Trustee, any such subordinated indebtedness may not be paid, nor may the
Credit Enhancement Provider accept or cause or permit any other person
controlled by or owned in whole or in part by it to accept any payment of such
subordinated indebtedness, at any time after default exists under the
Indebtedness.
REIMBURSEMENT AGREEMENT
In connection with the Credit Enhancement Provider providing the Credit
Enhancement to secure the payment of the principal of and interest on the Bonds,
the Authority and the Credit Enhancement Provider entered into a Reimbursement
Agreement dated as of March 1, 1996 ("Reimbursement Agreement") establishing the
terms and conditions of the payment by the Authority to the Credit Enhancement
Provider of any amounts paid by it under the Credit Enhancement. In accordance
with the Reimbursement Agreement, the Authority is required to pay to the Credit
Enhancement Provider all amounts paid by the Credit Enhancement Provider under
the Credit Enhancement. Such amounts are payable on the day on which such a
payment is made pursuant to the Credit Enhancement, together with interest on
any amounts not timely paid at the rate of 9% per annum. The Authority is not
obligated to pay interest on any payment under the Credit Enhancement if it has
deposited with the Trustee the total amount of the payment to be made pursuant
to the Credit Enhancement prior to the date of payment thereof. In addition, the
Authority has agreed to pay to the Credit Enhancement Provider, on the date of
the issuance of the Bonds, a commitment fee of 6% of the principal amount of the
Bonds.
The Authority is required under the Reimbursement Agreement to: comply with
all laws, ordinances, orders, rules and regulations applicable to it; take all
reasonable efforts and diligently proceed to complete the Recreational
Facilities (as defined in the Reimbursement Agreement), including the golf
course;
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maintain and preserve all of its properties; not amend, modify or supplement
certain documents related to the Credit Enhancement without the Credit
Enhancement Provider's prior consent; maintain its existence as a non-profit
corporation under the laws of the State of Colorado; and provide certain
financial information to the Credit Enhancement Provider, including the
Authority's annual budget, annual mill levy certifications of each of the
Districts and the assessed valuation of all property owned by the Authority. The
Authority has also agreed to charge and collect such rents, rates, fees or
charges for the use of the Project as will be sufficient, together with certain
other revenues, to produce Net Income Available for Debt Service (as defined in
the Indenture) equal to at least 1.30 times Aggregate Annual Debt Service (as
defined in the Indenture) on all Bonds Outstanding for the next fiscal year.
Under the Reimbursement Agreement, the following constitute Events of
Default:
1. If any representation or warranty is made by the Authority thereunder or
in any related document or in any other certificate or statement furnished by
the Authority thereunder or pursuant to any related document is false or untrue
or incomplete in any material respect when made;
2. If the Authority fails to observe or perform any of the covenants,
conditions or provisions of the Reimbursement Agreement, and such failure
continues for ten days after notice from the Credit Enhancement Provider to the
Authority;
3. If a default by the Authority occurs under the Indenture and continues
for a period of ten days, or a default by the Authority occurs and any
applicable grace period lapses under any other related documents to which the
Authority is a party;
4. If the Reimbursement Agreement or any other related document to which
the Authority is a party is no longer valid and binding on the Authority;
5. If the Authority becomes insolvent or bankrupt or certain other related
bankruptcy actions are taken by or with respect to the Authority; and
6. If the Authority fails to pay any amounts due and owing under the
Reimbursement Agreement.
If an Event of Default occurs under the Reimbursement Agreement, the Credit
Enhancement Provider may exercise any of the following remedies;
1. Foreclose on the Deed of Trust, subject to the limitations thereof;
2. Institute an action of mandamus or other proceeding to enforce its
rights under the Reimbursement Agreement;
3. Require the Authority to account for funds as if it were the trustee of
an express trust for the benefit of the Credit Enhancement Provider;
4. Institute an injunction action;
5. Declare all obligations of the Authority under the Reimbursement
Agreement to be immediately due and payable; and
6. Select whatever other action at law or equity is necessary to enforce
its rights under the Reimbursement Agreement or any related document.
To the extent permitted by law, the Authority has also agreed to indemnify
and hold harmless the Credit Enhancement Provider from and against certain
claims, damages, losses, liabilities and reasonable costs and expenses by reason
of, or in connection with, the execution and delivery of or payment or failure
to pay under the Credit Enhancement and the issuance and sale of the Bonds,
except for the willful misconduct or gross negligence of the Credit Enhancement
Provider.
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THE DEED OF TRUST
The following description of the Deed of Trust is subject in all respects to
the provisions of, and is qualified in its entirety by, reference to the Deed of
Trust, copies of which are available from the Trustee.
The Authority delivered the Deed of Trust for the purpose of securing (i)
repayment of the indebtedness evidenced by the Bonds, the Note (as defined
therein) and the Credit Enhancement Note (as defined therein) (collectively, the
"Indebtedness"); (ii) the payment of all other sums, with interest thereon,
advanced in accordance with the Deed of Trust; (iii) the performance of the
covenants and agreements of the Authority contained in the Deed of Trust, the
Note, the Credit Enhancement Note, the Reimbursement Agreement and the Indenture
(collectively, the "Secured Obligations"); and (iv) the repayment of any future
disbursements, with interest thereon, made to the Authority by the Trustee or
the Credit Enhancement Provider. The Deed of Trust irrevocably grants and
conveys to the Public Trustee of Douglas County, Colorado, in trust, with power
of sale, the interests of the Authority in the Property, together with all
buildings and improvements, and fixtures or appurtenances, now and hereafter
erected thereon, construction material, supplies and equipment intended to be
incorporated and installed therein or used in construction thereon; all building
permits, construction contracts, claims and warranties under construction
contracts, tap fees, architectural plans and specifications relating to
construction of improvements on the Real Estate and trademarks and logos
relating to marketing the Property and any and all rents and leases (subject to
the rights to collect and apply such rents), profits, royalties, claims to
water, water rights, minerals, geothermal resources, oil and gas rights and
profits, easements and access rights, less any of said property which may be
released from the Deed of Trust (together, the "Pledged Property").
COVENANTS OF THE AUTHORITY
The Authority covenants and agrees in the Deed of Trust to promptly pay the
Trustee and the Credit Enhancement Provider (collectively, the "Beneficiary")
all principal and interest and all other sums of money payable by virtue of the
Bonds, the Note, the Credit Enhancement Note, the Reimbursement Agreement, the
Indenture and the Deed of Trust, which the Trustee or the Credit Enhancement
Provider is entitled to receive, and to perform each and every covenant and
agreement in the Bonds, the Credit Enhancement Note, the Reimbursement
Agreement, the Deed of Trust, the Indenture, the Note or any other documents
relating to the loan represented by the Bonds or the Note.
The Authority covenants and agrees in the Deed of Trust to do all things
necessary to preserve and keep in full force and effect its existence under the
laws of the State of Colorado and to comply with all regulations, rules,
ordinances, statutes, orders and decrees of any governmental authority or court
applicable to the Authority or to the Pledged Property or any part thereof.
The Authority agrees to pay all taxes, assessments and other charges, fines
and impositions attributable to the Pledged Property as well as leasehold
payments or ground rents, if any, when due and payable, before they become
delinquent and before any interest attaches or any penalty is incurred. If any
tax, assessment or other charge, fine or imposition becomes of record, the
Authority agrees that such shall be satisfied and discharged of record within
thirty days of becoming of record, and a certified copy of the official document
evidencing such satisfaction and discharge shall be sent to the Beneficiary
within ten days after such discharge. However, the Authority shall not be
required to discharge any lien if (a) the Authority shall, in good faith,
contest such lien by, or defend enforcement of such lien in, legal proceedings
which operate to prevent the enforcement of the lien or forfeiture of the
Pledged Property or any part thereof and (b) the Authority shall give the
Beneficiary notice of such contest and the Beneficiary is provided with an
opinion of competent counsel that the failure to discharge the lien will not
have a materially detrimental effect on the security provided by the Deed of
Trust.
The Authority agrees to procure and maintain, or cause to be procured and
maintained, continuously in effect until the Bonds are paid in full, insurance
as provided for in the Indenture. The Authority covenants to maintain the
Pledged Property in good repair as provided in the Indenture.
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If the Authority fails to perform the covenants and agreements contained in
the Deed of Trust, or if any action or proceeding is commenced which materially
affects, or may materially affect, the Beneficiary's respective interests in the
Project, then the Beneficiary, at the Beneficiary's option, may make such
appearances, disburse such sums and take such actions as the Beneficiary
determines are necessary to protect its respective interest and the interest of
the holders of the Bonds, including, but not limited to, disbursement for
reasonable attorney's fees and entry upon the Project to make repairs. Any
amounts disbursed pursuant to this paragraph, together with interest thereon,
shall become additional indebtedness of the Authority, secured by the Deed of
Trust. Unless the Authority and the Beneficiary agree in writing to other terms
of payment, such amounts shall be payable upon notice to the Authority
requesting payment thereof. Nothing contained in this paragraph shall require
the Beneficiary to incur any expense or take any action. The Beneficiary, on
making good and performing following any default or defaults on the part of the
Authority, shall be thereby subrogated to any and all rights of the person or
persons to whom payment is made by the Beneficiary. The rights of the
Beneficiary shall be exercised by the Credit Enhancement Provider so long as the
Credit Enhancement Provider is not in default of its obligations under the
Credit Enhancement.
EVENTS OF DEFAULT; ACCELERATION; POWER OF SALE; UCC REMEDIES
The following shall constitute "Events of Default" under the Deed of Trust:
(a) A default or breach of the terms, conditions and provisions of the Deed
of Trust (other than as provided in (b), (c) or (d) below) for a period of 60
days after written notice, specifying such default and requesting that it be
remedied, is given to the Authority by the Beneficiary, unless the Beneficiary
shall agree in writing to an extension of such time period prior to its
expiration, or such longer period as may be reasonably necessary to remedy such
default, provided that the Authority is proceeding with reasonable diligence to
remedy the same;
(b) An Event of Default as such term is defined in the Indenture shall occur
and be continuing;
(c) Any Indebtedness which is not promptly and fully paid when due and such
default continues for 10 days (except that no default under the Deed of Trust
shall occur on the failure to make any payment under the Note or the Indenture
where such failure is not an Event of Default under the Indenture); or
(d) If the Authority shall:
(i) admit in writing its inability to pay its debts generally as they
become due; or
(ii) file a petition in bankruptcy to be adjudicated a voluntary
bankrupt or file a similar petition under any insolvency act, or approve or
consent to any such petition filed against it; or
(iii) make an assignment for the benefit of its creditors; or
(iv) consent to the appointment of a receiver of itself or of the whole
or any substantial part of its property; or
(v) on a petition in bankruptcy filed against it, be adjudicated
bankrupt or if a court of competent jurisdiction shall enter an order or
decree appointing a receiver or trustee of the Authority or of the whole or
substantially all of its property, and such adjudication, order or decree
shall not be vacated or set aside or stayed within 90 days from the date of
the entry thereof.
Following an Event of Default, the Beneficiary may declare all of the sums
secured by the Deed of Trust to be immediately due and payable and may invoke
the power of sale and any other remedies permitted by applicable law. The
Beneficiary shall be entitled to collect all reasonable costs and expenses
incurred in pursuing any remedies, including, but not limited to, reasonable
attorney's fees.
Following an Event of Default, the Beneficiary may exercise any rights and
remedies of a secured party under the Colorado Uniform Commercial Code or other
applicable laws and require the Authority
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to assemble any collateral covered by the Deed of Trust and constituting
personal property at a place to be designated by the Beneficiary which is
reasonably convenient to both parties.
Notwithstanding the foregoing, foreclosure of the Deed of Trust shall not be
permitted unless the Beneficiary shall have received an opinion of Special Tax
Counsel that such foreclosure shall not adversely affect the exclusion of
interest on the Bonds from gross income for federal income tax purposes, and the
Credit Enhancement Provider shall not be entitled to foreclose on the Deed of
Trust or accelerate the Indebtedness secured thereby following the occurrence
and continuance of a default by the Credit Enhancement Provider under the Credit
Enhancement.
ASSIGNMENT OF RENTS; APPOINTMENT OF RECEIVER
As additional security under the Deed of Trust, the Authority assigns to the
Beneficiary the rents, issues and profits of the Project, provided that until a
default under the Deed of Trust occurs, the Authority shall have the right to
collect and retain such rents, issues and profits as they become due and
payable, except to the extent otherwise provided in the Indenture. In the event
of default under the Deed of Trust, the Beneficiary shall be entitled to enter
upon, take possession of and manage the Project and to collect the rents, issues
and profits of the Project, including those past due. All rents collected by the
Beneficiary shall be applied first to payment of the costs of management of the
Project and collection of rents and then to the sums secured by the Deed of
Trust.
In the Event of Default under the Deed of Trust, the Beneficiary may apply
for and obtain, either in its own name, or through the Trustee, ex parte and
without notice (notice being expressly waived), the appointment of a receiver
for the Pledged Property and for the rents, issues and profits therefrom and may
have such receiver appointed as a matter of right without regard to the solvency
of the Authority or any other person or corporation, or the adequacy of any
security or the existence of waste. The Beneficiary may have sums received by
such receiver, after deduction and payment of the costs and expenses of the
receivership, including the Beneficiary's attorney's fees, applied to the sums
secured by the Deed of Trust in such manner and order as specified by the
Beneficiary; provided that following the occurrence and continuance of a default
by the Credit Enhancement Provider under the Credit Enhancement, such amounts
shall be applied as provided in the Indenture.
NONRECOURSE
Notwithstanding any other agreement or instrument relating to the Bonds, the
Note or the Project, neither the Authority, its officers or directors, employees
and agents, nor its or their heirs, successors or assigns, shall have any
liability for payment or performance of the covenants or obligations set forth
in the Indenture, in the Reimbursement Agreement or in any other agreement or
instrument securing the indebtedness and obligations created or secured under
the Deed of Trust, except from Revenues described and pledged under the
Indenture, Pledged Property, other money derived from the foreclosure of the
Project, and moneys in the Funds created under the Indenture, and the
Beneficiary and the Bondholders may not then assert or claim a deficiency or
other personal money judgment against the Authority, its officers or directors,
employees and agents of the Authority, or its or their heirs, successors or
assigns, but rather agree to look absolutely, strictly and solely to the Project
(including any proceeds from any foreclosure thereof), the Revenues and the
moneys in the Funds under the Indenture, for payment of the principal of and
interest on all indebtedness and obligations secured by the Deed of Trust and to
any other of the Authority's property, rights, accounts, general intangibles,
leases, rents, issues, profits, income, insurance premiums, awards, payments and
consideration conveyed, mortgaged, assigned or pledged under the Deed of Trust
or under any other instrument which secures the indebtedness secured by the Deed
of Trust or in which a security interest has been granted to or for the benefit
of the Beneficiary to secure the Bonds or the Note. The foregoing shall not be
deemed or construed to be a release of the indebtedness secured by the Deed of
Trust or in any way to impair, limit or otherwise affect the lien of the
Indenture or of the Deed of Trust or of any such other instrument on the
property, funds or rights covered thereby as
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security for the payment of the indebtedness secured by the Deed of Trust and
for the performance of the covenants in the Indenture or in the Deed of Trust,
or prevent the Beneficiary from naming the Authority as a defendant in any
action to enforce any remedy for a default, so long as no monetary judgment or
other judgment is sought or entered therein against the Authority, its officers
or directors, employees and agents, or its heirs, successors or assigns, or
against any property of the Authority other than the Revenues, the Trust Estate
described in the Indenture and all other property described in the foregoing
sentence. Notwithstanding the foregoing, it is expressly understood and agreed
that the aforesaid limitation on liability shall in no way affect or apply to
the Authority's continued liability for the payment to the Beneficiary arising
while the Project is owned by the Authority of (a) any rents, issues, profits
and income actually collected by the Authority from the Project after an Event
of Default not applied to the operation of the Project; (b) security deposits
made by tenants of the Project; or (c) insurance proceeds and condemnation
awards, payments and consideration which the Authority actually receives and to
which the Beneficiary is entitled pursuant to the Deed of Trust or the
Indenture. It is further expressly understood and agreed that the aforesaid
limitation on liability shall in no way affect or apply to the Authority's
continued liability throughout and after its ownership of the Project to the
Beneficiary for payment, indemnification, and reimbursement of all obligations
and liabilities, whether legal or equitable, arising under any federal, state,
or local environmental law, statute, regulation, ordinance, order, by-law, code,
requirement, or directive or under common law regarding the presence,
generation, use, management, transport, treatment, release, discharge, emission
or disposal of any Hazardous Substances to, at or from the Project, to the
extent caused by the Authority, all as further set forth in the Indenture.
RELEASE
Upon payment of all sums secured by the Deed of Trust and upon full
performance thereof by the Authority, the Beneficiary shall promptly, after
written notice from the Authority, execute and deliver to the Authority a
request for the release of the Deed of Trust directed to the Beneficiary. The
Authority shall, however, pay all costs and expenses in connection with the
recordation and execution of said release. In addition, property subject to the
Deed of Trust may be released from the Deed of Trust upon the mutual agreement
of the Borrower and the Beneficiary or as provided in the Indenture.
THE OPERATING AGREEMENT
The following description of the Operating Agreement is subject in all
respects to the provisions of, and is qualified in its entirety by, reference to
the Operating Agreement, copies of which are available from the Trustee.
The Authority will be the owner of the Project and the District will have no
fee title thereto until such time as a deed to all or any portion of the
property and the Project is delivered to the District. The Authority will be
responsible for the acquisition, construction and completion of the Project.
PROJECT CONTRACTS
The Authority has executed or shall execute, or has awarded or shall award,
all contracts and purchase orders needed to complete the Project.
TERM
The Operating Agreement term shall commence as of the date that either (i)
the Town of Castle Rock, Colorado shall have approved an amendment to the
service plan of the District specifically authorizing the mill levy imposition
described below under "Operating Agreement Payments", or (ii) the District shall
have received an opinion acceptable to the District of counsel acceptable to the
District that such mill levy may be imposed without regard to any service plan
amendment. Each of the Districts has covenanted in the Recreational Facilities
Agreement to take all reasonable action necessary to effect such
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service plan amendment or to obtain such opinion. The Operating Agreement shall
terminate on payment of all obligations secured by the Deed of Trust.
OPERATING AGREEMENT PAYMENTS
(a) The District covenants to pay to the Authority, its successors and
assigns, the following Operating Agreement Payments: (i) all Operations and
Maintenance Expenses to the extent not paid from Revenue, and (ii) any
deficiencies of Revenue required to pay obligations secured by the Deed of
Trust, subject to the limitations in (c) below.
(b) Overdue Operating Agreement Payments shall continue as an obligation of
the District until the amount in default has been fully paid and shall bear
interest at the rate of 15% per annum.
(c) The provisions of (a) and (b) above are limited to amounts (i) collected
from a mill levy against taxable real and personal property within the District
not to exceed 35 mills, and subject to other limitations specified in the
questions voted upon by the election of the District on November 7, 1995; and
(ii) amounts collected by the District from the Related Districts pursuant to
the Intergovernmental Agreement. See "DEFINITIONS OF CERTAIN TERMS AND
DESCRIPTIONS OF PRINCIPAL DOCUMENTS--THE INTERGOVERNMENTAL AGREEMENT--Payments
and Nature of Obligations" herein. In the event amounts collected from such
sources shall be insufficient in any year, the amount of such deficiency shall
nevertheless be a continuing obligation of the District payable from such
sources in subsequent years. The District agrees to include in its annual
certification to the Board of County Commissioners of Douglas County, Colorado,
a mill levy sufficient, when combined with other revenues reasonably anticipated
to be available, to satisfy its obligations under the Operating Agreement.
(d) Notwithstanding the foregoing, the District will be under no obligation
to pay Operating Agreement Payments unless and until the date that either (i)
the Town of Castle Rock, Colorado shall have approved an amendment to the
service plan of the District specifically authorizing the mill levy imposition
described in (c) above, or (ii) the District shall have received an opinion
acceptable to the District of counsel acceptable to the District that such mill
levy may be imposed without regard to any service plan amendment. Each of the
Districts has covenanted in the Recreational Facilities Agreement to take all
reasonable action necessary to effect such service plan amendment or to obtain
such opinion.
TITLE
During the term of the Operating Agreement, the Authority shall hold title
to and ownership of each of the Project facilities and any and all additions
thereto which comprise repairs, replacements, modifications, improvements and
substitutions until such Project facility is transferred to the District. The
District agrees that any damage to the Project that would materially impact the
operation of the Project and that is occasioned by the removal of fixtures and
improvements shall be promptly repaired. Notwithstanding anything to the
contrary in the Operating Agreement, it is understood that title to personal
property permanently attached to the Project by the District or any other
entity, instrumentality, authority or department of the District shall become a
part of the Project.
MAINTENANCE, UTILITIES AND TAXES
The Authority and the District each agree that during the term of the
Operating Agreement it will itself at its own expense or will cause others to
(a) keep the Project facilities which it owns in as reasonably safe condition as
its operations will reasonably permit, and (b) keep the Project facilities which
it owns in good repair and in good operating condition, making from time to time
all necessary repairs thereto and renewals and replacements thereof, which may
be necessary for this purpose, so that the Project facilities which it owns will
remain suitable and efficient for use of the character described in and
contemplated by the Indenture.
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Throughout the term of the Operating Agreement all improvement, repair and
maintenance of the Project facilities shall be the responsibility of the party
owning such facilities, and such party shall pay for or otherwise arrange for
the payment of all utility services supplied to such facilities, which may
include (without limitation) cleaning services, maintenance, security, power and
electricity, gas, telecommunications and radio equipment and all utilities and
services supplied to or in connection with the Project, and shall pay for or
otherwise arrange for the payment of the cost of the repair and replacement of
such facilities or any part thereof resulting from ordinary wear and tear.
Each party shall also pay or cause to be paid, without abatement, deduction
or offset, all property taxes and general and special assessments (collectively,
"property taxes") of any type or nature levied, assessed or charged by an
authorized governmental authority to and against the Project facilities which it
owns, the improvements thereto from time to time and the respective interests or
estates therein; provided that with respect to special assessments or other
governmental charges that may lawfully be paid in installments over a period of
years, each party shall be obligated to pay only such installments as are
required to be paid during the term of the Operating Agreement as and when the
same become due.
The foregoing provisions are not a limitation on the obligations of the
District to pay Operating Agreement Payments to the Authority.
Each party may, at its expense and in its name, in good faith contest any
such taxes, assessments, utility and other charges and, in the event of any such
contest, may permit the taxes, assessments or other charges so contested to
remain unpaid during the period of such contest and any appeal therefrom unless,
by nonpayment of any such items, the Project or any part thereof will be subject
to loss or forfeiture, in which event the responsible party shall promptly pay
such taxes, assessments or charges or provide full security against any loss
which may result from nonpayment, in form satisfactory to the Credit Enhancement
Provider and the Trustee.
Any payments by the Authority of the foregoing amounts with respect to
Recreational Facilities shall be considered Operating Agreement Payments due
from the District under the Operating Agreement.
DAMAGE, DESTRUCTION AND CONDEMNATION
Unless the District shall have exercised its option to terminate the
Operating Agreement (see "Option to Terminate" below), if prior to full payment
of the Bonds (or provisions for payment thereof having been made in accordance
with the provisions of the Indenture) (i) the Project or any portion thereof is
damaged or destroyed (in whole or in part) by fire or other casualty or (ii)
title to, or the temporary use of, the Project or any part thereof shall be
taken under the exercise of the power of eminent domain by any governmental body
or by any person, firm or corporation acting under governmental authority, the
District shall be obligated to continue to pay all Operating Agreement Payments
with no abatement or reduction in such amounts whatsoever.
The proceeds of any award resulting from any damage to or destruction or
condemnation of the Project shall be deposited with the Trustee, as described
and provided for in the Indenture. See "THE INDENTURE."
The amount of Operating Agreement Payments for the Project shall not be
abated or diminished during any period in which by reason of damage or
destruction there is substantial interference with the use by the District of
the Project, or any portion thereof or for any other reason whatsoever;
provided, however, that if any insurance proceeds shall be deposited with the
Trustee under the Indenture, they shall be treated as Revenues and credited
against Operating Agreement Payments due and payable under the Operating
Agreement to the extent applied to the payment of principal of or interest on
the Bonds or to reimburse the Credit Enhancement Provider with respect to
amounts paid under the Credit Enhancement and so applied. In the event of any
such damage or destruction, the Operating Agreement shall
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nonetheless continue in full force and effect and the District waives any right
to terminate the Operating Agreement by virtue of any such damage and
destruction.
ASSIGNMENT
The Authority's rights under the Operating Agreement (except for certain of
the Authority's indemnification rights and rights to attorney's fees and
expenses), including the right to receive and enforce payment of the Operating
Agreement Payments to be made by the District under the Operating Agreement, may
be assigned by the Authority to the Trustee or the Credit Enhancement Provider
without the consent of the District.
The Operating Agreement may be assigned as a whole or in part, by the
District with the written consent of the Authority, the Credit Enhancement
Provider and the Trustee (which consents shall not be unreasonably withheld),
subject, however, to each of the following conditions:
(a) No assignment shall relieve the District from primary liability for any
obligations under the Operating Agreement, and in the event of any such
assignment the District shall continue to remain primarily liable for payment of
the amounts specified in the Operating Agreement and for performance and
observance of each of the other agreements to be performed and observed by the
District to the same extent as though no assignment had been made.
(b) In the case of an assignment, the assignee shall assume the obligations
of the District under the Operating Agreement to the extent of the interest
assigned.
(c) The District shall, within 30 days after the delivery thereof, furnish
or cause to be furnished to the Authority and the Trustee a true and complete
copy of each such assumption or assignment as the case may be.
(d) No such assignment by the District shall cause the Project to be used
for a purpose other than as may be authorized under applicable law and under the
Indenture and the Reimbursement Agreement.
AMENDMENT OF OPERATING AGREEMENT
The Operating Agreement may not be effectively changed, amended or modified
except with the written consent of the Trustee and the Credit Enhancement
Provider.
EVENTS OF DEFAULT
Each of the following shall be and constitute an "Event of Default" by the
District and a breach of the Operating Agreement:
(a) Failure by the District to pay any Operating Agreement Payment when due
and payable, and the continuation of any such failure for a period of 3 Business
Days after any such payment is due, unless such failure occurs as the result of
the application of clause (c) above under the subheading "Operating Agreement
Payments";
85
(b) Failure by the District to pay when due any other amounts required to be
paid by the District under the Operating Agreement, unless such failure occurs
as the result of the application of clauses (c) and (d) above under "Operating
Agreement Payments", or to observe and perform any covenant, condition,
agreement or provision (other than as specified in paragraph (a) above or this
paragraph (b)) contained in the Operating Agreement or in documents executed in
connection therewith on the part of the District to be observed or performed,
which failure shall continue for a period of 30 days after written notice
thereof, specifying such failure and requesting that it be remedied, shall have
been given to the District by the Authority, the Trustee or the Credit
Enhancement Provider by first class mail or hand delivery, any of which may give
such notice in their discretion, unless the Person giving such notice shall
agree in writing to an extension of such thirty day period prior to expiration;
provided, however, that the Authority, the Trustee and the Credit Enhancement
Provider, as the case may be, shall be deemed to have agreed to an extension of
such period if corrective action is initiated by the District within such
period, is being diligently pursued, and can be continued and completed in such
manner as to not adversely affect the rights of the Owners of the Bonds, the
Credit Enhancement Provider or the normal operations of the Project or the use
thereof for the purposes for which such operations are and were originally
intended;
(c) The District shall (i) apply for or consent to the appointment of or
taking of possession by a receiver, trustee, custodian, liquidator or other
similar official of itself or of all or a substantial part of its properties or
assets, (ii) admit in writing its inability to pay its debts as they become due
or generally become unable to pay its debts as they become due, (iii) make a
general assignment for the benefit of creditors, or (iv) commence a voluntary
case as debtor under the federal bankruptcy laws (whether under any Title of the
United States Code or otherwise under any federal law) as now or hereafter
constituted or file a petition seeking to take advantage of any other law
relating to bankruptcy, reorganization, insolvency, winding up, or composition
or adjustment of debts, or acquiesce in writing to, or fail to controvert in a
timely manner, a petition filed against it in any involuntary case under such
federal bankruptcy laws, as the case may be, or any action shall be taken by it
for the purpose of effecting any of the foregoing;
(d) A case or proceeding shall be commenced, without the application or
consent of the District in any court of competent jurisdiction, seeking the
liquidation, reorganization, dissolution, winding up, or composition or
readjustment of debts, of the District, or the appointment of a receiver,
trustee, custodian, liquidator or any similar official of the District or of all
or a substantial part of the assets of the District, or similar relief with
respect to the District under any federal laws relating to bankruptcy (including
under any Title of the United States Code or otherwise under any federal law),
insolvency, liquidation, reorganization, winding up, or composition or
adjustment of debts, shall be commenced against the District and such case or
proceeding shall continue undismissed or unstayed and in effect for any period
of 60 consecutive days, or an order for relief against the District shall be
entered in an involuntary case under such federal or other bankruptcy laws;
(e) If (i) the District is adjudged insolvent by a court of competent
jurisdiction, or (ii) an order, judgment or decree is entered by any court of
competent jurisdiction appointing, without the consent of the District, a
receiver, trustee or custodian of the District or of the whole or any part of
its property and any of the aforesaid adjudications, orders, judgments or
decrees shall not be vacated or set aside or stayed within 60 days from the date
of entry thereof;
(f) If, under the provisions of any other law for the relief or aid of
debtors, any court of competent jurisdiction shall assume custody or control of
the District or of the whole or any substantial part of the property of the
District and such custody or control shall not be terminated within 60 days from
the date of assumption of such custody or control; or
(g) Any warranty, representation or other statement of the District
contained in the Operating Agreement or in any instrument furnished in
compliance with or in reference to the Operating Agreement shall prove to have
been false or misleading in any material respect on the date as of which it was
made.
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In case the Authority (or the Credit Enhancement Provider, as the assignee
of the Authority) shall have proceeded to enforce any right under the Operating
Agreement and such proceedings shall have been discontinued or abandoned for any
reason or shall have been determined adversely to the Authority or the Trustee,
then and in every such case the District, the Authority, the Trustee and the
Credit Enhancement Provider shall be restored to their respective positions and
rights thereunder, and all rights, remedies and powers of the District, the
Authority, the Trustee and the Credit Enhancement Provider shall continue as
though no such proceeding had been taken, but subject to the limitations of any
such adverse determination.
REMEDIES
Whenever any Event of Default referred to above shall have happened and be
continuing the Authority, the Trustee and the Credit Enhancement Provider shall
have the right (a) to inspect, examine and make copies of the books and records
and any and all accounts, data and income tax and other tax returns of the
District during regular business hours of the District if reasonably necessary
in the opinion of the Trustee, the Credit Enhancement Provider, or the
Authority, and (b) to take whatever action at law or in equity may appear
necessary or desirable to collect the amounts then due and thereafter to become
due, or to enforce performance and observance of any obligation, agreement or
covenant of the District under the Operating Agreement.
In case the District shall fail forthwith to pay such amounts upon such
demand, the Credit Enhancement Provider shall be entitled, following payment of
the Bonds or provision therefor, as provided in the Indenture, to liquidate and
sell investments held by the Credit Enhancement Provider or the Trustee in any
account within the Bond Fund and apply the proceeds thereof to payment of such
amounts and the Credit Enhancement Provider shall further be entitled and
empowered to otherwise institute any actions or proceedings at law or in equity
for the collection of the sums so due and unpaid, and may prosecute any such
action or proceeding to judgment or final decree, and may enforce any such
judgment or final decree against the District and collect in the manner provided
by law out of the property of the District the moneys adjudged or decreed to be
payable.
Any amounts collected pursuant to action taken under the above provisions
shall be applied in accordance with the provisions of the Indenture and the
Reimbursement Agreement.
The foregoing provisions are subject to the limitation that, except for the
rights specified in clause (a) of the third preceding paragraph, the Trustee
shall be entitled to exercise its rights under the Operating Agreement only if
the Credit Enhancement Provider has failed to provide payments to the Trustee
pursuant to the Credit Enhancement, or if the Trustee's failure to exercise such
rights could be anticipated to materially adversely effect the holders of the
Bonds.
RIGHT TO ACQUIRE PROJECT
The District is granted the right to obtain, at any time, unencumbered fee
title and exclusive possession of property (including the Project) financed by
obligations of the Authority (including the Bonds and obligations arising under
the Reimbursement Agreement), and any additions to such property, by (1) placing
into escrow an amount that will be sufficient to defease such obligations, and
(2) paying reasonable costs incident to the defeasance, in the manner provided
in the Operating Agreement and the Indenture. The District, at any time before
it defeases such obligations, shall not agree or otherwise be obligated to
convey any interest in such property to any person (including the United States
of America or its agencies or instrumentalities) for any period extending beyond
or beginning after the District defeases such obligations. In addition, the
District shall not agree or otherwise be obligated to convey a fee interest in
such property to any person who was a user thereof (or a related person) before
the defeasance within 90 days after the District defeases such obligations.
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DEFAULT RIGHTS
In addition to the foregoing, if the Authority defaults in its payments
under obligations described in the Indenture, the District is granted an
exclusive option to purchase the property financed thereby (including the
Project) for the amount of the outstanding indebtedness of the Authority and
accrued interest to the date of default. The District shall have (a) not less
than 90 days from the date it is notified by the Authority of the default in
which to exercise the option, and (b) not less than 90 days from the date it
exercises the option to purchase the property.
INDENTURE RIGHTS
The Authority covenants that it will take no action to amend or supplement
the Indenture in any manner which would materially affect the obligations of the
District under the Operating Agreement without obtaining the prior written
consent of the District to such amendment or supplement.
OPTION TO TERMINATE
The District shall have the following options to terminate the Operating
Agreement:
(i) At any time prior to full payment of the Bonds, the District may make
provision for payment of the Bonds in accordance with the provisions of the
Indenture (see "THE INDENTURE"), and the District may terminate the Operating
Agreement, regardless of whether the Bonds are then subject to optional
redemption, (A) by paying to Trustee an amount which, when added to all amounts
then on deposit in the Bond Fund, will be sufficient to pay, retire and redeem
all the Outstanding Bonds in accordance with the provisions of the Indenture
(including, without limiting the generality of the foregoing, principal of the
Outstanding Bonds and interest to maturity or earliest applicable redemption
date, as the case may be, and premium, if any, expenses of redemption and all
fees and expenses of the Trustee and the District) and, in case of redemption,
by giving notice and making arrangements satisfactory to the Trustee for the
giving of the required notice of redemption under the Indenture, (B) by giving
the Authority, the Trustee and the Credit Enhancement Provider notice in writing
of such termination, and (C) by paying all amounts unpaid under the
Reimbursement Agreement and the Deed of Trust, and such termination shall
forthwith become effective.
(ii) After full payment of the Bonds (or provision for payment thereof
having been made in accordance with the provisions of the Indenture), and after
payment of all amounts arising under the Reimbursement Agreement and the Deed of
Trust, the District may terminate the Operating Agreement by giving the
Authority, the Trustee and the Credit Enhancement Provider notice in writing of
such termination and such termination shall forthwith become effective.
The prepayment amount payable by the District in the event of any prepayment
to be made pursuant to paragraphs (i) or (ii) above shall be the sum of the
following:
(1) An amount of money which, when added to amounts then on deposit in the
Bond Fund, will be sufficient to retire and redeem all the then Outstanding
Bonds in the manner required by the Indenture and on the earliest possible date
after notice of redemption is given as provided in the Indenture, whether or not
such date is an Interest Payment Date, including, without limitation, the
principal amount thereof, all interest to accrue to said redemption date, the
applicable redemption premium and expenses, if any, plus
(2) An amount of money equal to the administrative fees and expenses of the
Trustee and the Authority accrued and to accrue until such final payment and
redemption or purchase of the Bonds, plus
(3) An amount equal to all amounts then accrued and to accrue until such
final payment and redemption or purchase of the Bonds, plus
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(4) An amount of money equal to all sums then due the Authority under the
Operating Agreement, plus
(5) To the extent not included in the foregoing, an amount sufficient to pay
all obligations under the Reimbursement Agreement and the Indenture.
The District shall have the extraordinary option to terminate the Operating
Agreement and prepay the amounts sufficient to provide for the full payment of
the Bonds (or to make provision for such payment in accordance with the
provisions of the Indenture) and all amounts due under the Reimbursement
Agreement and the Deed of Trust, upon damage, destruction or condemnation of the
Project.
THE INTERGOVERNMENTAL AGREEMENT
The following description of the Intergovernmental Agreement is subject in
all respects to the provisions of, and is qualified in its entirety by,
reference to the Intergovernmental Agreement, copies of which are available from
the Trustee.
GENERAL INTENT
It is the purpose and intent of the Districts to coordinate and assist in
the financing of the acquisition of the property, and to coordinate all related
activities and to affirmatively cooperate with each other in order to best
accomplish the goals stated in the Intergovernmental Agreement.
TERM
The Intergovernmental Agreement shall not be effective as to any District
until either (A) the Town of Castle Rock, Colorado, has approved the amendment
to the service plan of such District specifically authorizing the imposition of
the mill levy described below under "Limitation on Obligations" by such District
or (B) such District shall have received an opinion acceptable to the District
of counsel acceptable to the District that such mill levy may be imposed without
regard to any service plan amendment. Each of the Districts has covenanted in
the Recreational Facilities Agreement to take all reasonable action necessary to
effect such service plan amendment or to obtain such opinion. Once effective as
to any District, the Intergovernmental Agreement shall continue in effect as to
such District until all of the Operating Agreement Payments have been satisfied;
provided that if such Operating Agreement Payments shall be satisfied pursuant
to a refinancing of the Bonds or the refinancing or discharge of the obligations
under the Reimbursement Agreement, the obligation of the Authority with respect
to any such refinancing or discharge shall be considered Operating Agreement
Payments for purposes of the Intergovernmental Agreement.
ASSESSMENT OF FEES AND CHARGES
Each District shall, subject to limitations of any other agreement
theretofore or thereafter executed by such District, be free to assess
facilities development fees, service charge surcharges, and other fees, rates,
tolls, charges, and taxes in amounts determined to be required by each such
District in order to meet its Financing Obligations under the Intergovernmental
Agreement.
PAYMENTS
Each Related District promises to pay to the District all of its Expense
Obligations and Revenue Obligations in accordance with the terms of the
Intergovernmental Agreement. With respect to any particular District, the
Revenue Obligation of such District evidenced thereby shall be general
obligation indebtedness to which such District pledges its full faith and
credit, subject to the provisions described in "Limitation on Obligations"
below, and shall be incurred and exist from and after the effective date of the
Intergovernmental Agreement. Notwithstanding anything contained in the
Intergovernmental Agreement
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to the contrary, in compliance with the limitations imposed by the November 7,
1995 resolutions adopted by the voters of the Districts, the maximum principal
amount of the general obligation represented by the Intergovernmental Agreement
shall not exceed $100,000,000 in principal amount or $500,000,000 in maximum
debt service, subject to the limitations described below under "Limitations on
Obligations". The Revenue Obligations and indebtedness incurred shall be payable
only in accordance with the terms of the Intergovernmental Agreement. Interest
shall be paid by each District on the principal amount of its Revenue
Obligation, which interest shall also be a Revenue Obligation. The maximum net
effective interest rate accruing on any particular District's indebtedness shall
be 45%.
NATURE OF OBLIGATIONS
It is recognized by the Districts that the Revenue Obligations imposed upon
the Districts under the Intergovernmental Agreement constitute "indebtedness"
within the meaning of the Constitution of the State of Colorado. At duly called
and noticed elections held for each District on November 7, 1995, the electorate
of each District authorized the incurrence of indebtedness by each District of
an amount sufficient to fund the various Revenue Obligations expressed in the
Intergovernmental Agreement, and also approved execution of the
Intergovernmental Agreement by each District. In addition, it is recognized by
the District that the Expense Obligations constitute a multiple fiscal year
obligation as to which each District is obligated to increase taxes in an amount
not to exceed $1,500,000 annually, in compliance with the limitations imposed by
the November 7, 1995 resolutions adopted by the voters of the Districts. In no
event shall any commitment, covenant, promise or other obligation under the
Intergovernmental Agreement require the issuance or incurrence of the
indebtedness by the Districts in excess of their respective voted indebtedness
authorization.
PROPORTIONATE SHARE OF REVENUE OBLIGATIONS
The Proportionate Share of the total Revenue Obligations for each District
shall be determined by the District in the preparation of an annual budget for
each year. The "Proportionate Share" for each District shall be the ratio of the
estimated assessed value of all taxable real and personal property in such
District to the total assessed value of all taxable real and personal property
in all of the Districts.
LIMITATION ON OBLIGATIONS
Notwithstanding any provision of the Intergovernmental Agreement to the
contrary, the obligation of a District to pay any or all amounts thereunder in
any year shall be limited to amounts collected under a maximum mill levy
imposition of 35 mills. Any Proportionate Share in excess of the amounts
collected pursuant to such mill levy limit shall continue to be due from such
District, and shall bear interest at the rate of 15% per annum, subject to the
provisions described above under "Payments" and "Nature of Obligations", until
the end of the term of the Intergovernmental Agreement, and shall thereupon be
forgiven. In the event the method for determining assessed value or mill levies
for the State of Colorado is hereafter amended, the District shall provide a
statement of revised procedures to each of the Related Districts so the amounts
collected under such revised method shall equal as closely as reasonably
possible the amounts which would have been collected absent such revision. In
addition, no District shall have any obligation to pay its Proportionate Share
until either (A) the Town of Castle Rock, Colorado, has approved the amendment
to the service plan of such District specifically authorizing the imposition of
such mill levy, or (B) such District shall have received an opinion acceptable
to such District of counsel acceptable to such District that such mill levy may
be imposed without regard to any service plan amendment. Each of the Districts
has covenanted in the Recreational Facilities Agreement to take all reasonable
action necessary to effect such service plan amendment or to obtain such
opinion.
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BUDGET AND APPROPRIATIONS
On or before September 1 of each year, the District shall prepare a proposed
Project budget, specifying the anticipated Proportionate Share to be paid in the
ensuing fiscal year by each of the Related Districts. On or before September 10
of each year, the Related Districts shall either approve budget documents
prepared by the District or propose to the District, in writing, additions to
and/or deletions from the proposed budgets. Absent receipt by the District of a
written proposal for additions and/or deletions by September 15 of such year,
the Related Districts shall be deemed to have approved the items included in the
proposed budgets. In the event the Related Districts propose additions and/or
deletions to the proposed budgets for consideration by the District and for
inclusion in the budget documents prepared by the District, and if such
additions and/or deletions are not agreed to by the District, the issue shall be
submitted to the Arbitrator (as defined in the Intergovernmental Agreement) who
shall accept and/or reject such proposed additions and/or deletions pursuant to
the provisions of the Intergovernmental Agreement. Following the Arbitrator's
decision, the District shall approve its budget for the next ensuing year.
Each Related District shall adopt budgets, and make appropriations therefor,
sufficient to pay its Proportionate Share of Revenue Obligations as required
under the Intergovernmental Agreement, subject to the provisions described above
under "Limitation on Obligations." Each District shall include such amounts in
its budget for the ensuing year, and shall certify an ad valorem tax levy in an
amount sufficient, together with other revenues of such District, to pay the
full amounts required under the Intergovernmental Agreement, subject to the
provisions described above under "Limitation on Obligations."
BREACH OF INTERGOVERNMENTAL AGREEMENT
The Districts agree that no breach of the Intergovernmental Agreement shall
justify or permit termination of the continuing obligations under the
Intergovernmental Agreement.
In addition to any other available remedies, in the event of a breach of the
Intergovernmental Agreement, any District may ask a court of competent
jurisdiction to enter a writ of mandamus to compel the board of directors of the
breaching District to perform its duties under the Intergovernmental Agreement,
and any District may seek from a court of competent jurisdiction temporary
and/or permanent restraining orders, or orders of specific performance, to
compel the other to perform in accordance with the obligations set forth under
the Intergovernmental Agreement.
ASSIGNMENT
Neither the Intergovernmental Agreement, nor any of any District's rights,
obligations, duties or authorities thereunder may be assigned in whole or in
part without the prior written consent of each of the other Districts and the
Trustee. Any purported attempt to assign the Intergovernmental Agreement or any
rights thereunder shall be void and of no force and effect. Consent to one
assignment shall not be consent to any subsequent assignment. The foregoing is
subject to the limitation that the District has assigned or shall be entitled to
assign all or any portion of its rights thereunder to the Authority (which may
similarly assign its rights to the Trustee) or the Trustee, or any successor to
the foregoing, or to any other party without the consent of the Related
Districts.
AMENDMENT
The Intergovernmental Agreement may not be modified, amended, changed or
terminated, in whole or in part, except by an agreement in writing duly
authorized and executed by each of the Districts and consented to in writing by
the Authority, the Trustee and the Credit Enhancement Provider.
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THE LEASE
The following description of the Lease is subject in all respects to the
provisions of, and is qualified in its entirety by, reference to the Lease,
copies of which are available from the Trustee.
GENERAL
Parcel 49C Limited Partnership (the "Partnership") has entered into a lease
(the "Lease") with the United States Government, acting by and through the
General Services Administration (the "Government"), pursuant to which the
Government has agreed to lease all of the net usable square feet (535,130) of
space in the Project. Rent payments under the Lease will commence on March 1,
1998.
LEASE PAYMENT OBLIGATIONS
The base rent payable under the Lease shall be based on an initial annual
rental rate of $38.85 per net usable square foot for the first 287,483 of net
usable square feet of space leased and $37.95 per net usable square foot for the
remaining 162,376 of net usable square feet leased for a total initial amount of
$17,330,883.75 per year or $1,444,240.31 per month. The Government may deduct
from the base rent during any year of the term of the Lease an amount which will
not exceed $8.50 per net usable square foot (which amount may be increased each
year in accordance with a formula set forth in the Lease using the same
methodology for calculating the increase in the rent for operating costs set
forth in the Lease) for the Lessor's failure to perform its obligations under
the Lease, but the Government has agreed pursuant to an attornment agreement
(the "Attornment Agreement") to give the REMIC Trustee notice of and an
opportunity to cure the Partnership's failure to perform its obligations under
the Lease prior to deducting amounts from the base rent, unless the
Partnership's failure to perform has caused a life or health-threatening
condition. Consequently, the total base rent not subject to set-off is
$13,507,082.22 per year, or $1,125,590.19 per month. Rent is payable in equal
monthly installments in arrears. Counsel for the Government rendered an opinion
that the obligations of the Government to pay rent under the Lease constitutes
an absolute and unconditional obligation of the Government. As is the case with
most federal agencies, the Government's access to funds requires an annual
appropriation by Congress. The Government's ability to make payments under the
Lease requires such an appropriation to the Federal Buildings Fund, the fund
from which all the Government's long-term leases are paid. In the event Congress
fails to make such appropriation, or in the event any payments that are properly
due and owing the Partnership under the Lease are not made, the Partnership or
the Trustee would be entitled, in the opinion of the counsel for the Government,
to enforce the payment obligations of the United States in accordance with the
terms of the Lease, or as otherwise may be available at law or in equity.
COMPLETION OF CONSTRUCTION
In the event that the space rented to the Government is not completed as
scheduled (which is to occur in six phases) and the delay is attributable to the
Partnership, rather than an adjustment to the rent commencement date or any
other provisions for liquidated damages, the Partnership is required to pay the
Government liquidated damages equal to the rent payable with respect to each
phase for the period of time from the applicable rent commencement date until
the phase has been determined to be substantially complete. The imposition of
such liquidated damages does not relieve the Government of its obligation to pay
rent or in any way affect the assignment of such rent to the REMIC Trustee.
CASUALTY OR CONDEMNATION
If the premises leased to the Government are totally destroyed by fire or
other casualty, the Government will have the right to terminate the Lease by
providing written notice to the Partnership within 120 days after the occurrence
of such event. In case of partial destruction or damage, so as to render all or
a portion of the premises unrentable, as reasonably determined by the
Government, the rent will be
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reduced proportionately from the date of such partial destruction or damage. The
Government may not terminate the Lease as a result of such partial destruction
or damage so long as the Partnership diligently commences and pursues the repair
and restoration of the premises. Although not specifically covered by the Lease,
in the event of a condemnation of the building, the Government may have the
right to terminate the Lease.
PARTNERSHIP RESPONSIBILITIES
The Partnership has various obligations under the Lease, including
obligations regarding hazardous waste, asbestos, illegal activities, kickbacks
and compliance with certain statutes regarding contractors' employment
practices. Failure of the Partnership to comply with such obligations may give
the Government valid claims against the Partnership, but the Government has
agreed pursuant to the Attornment Agreement not to terminate the Lease for such
failure. The Lease also requires that the Partnership as lessor to certify that
it has no knowledge of any illegal or improper activity in the procurement of
the Lease. The Partnership delivered such a certificate at the date of issuance
of the REMIC Bonds. If the Government determines that such a violation exists,
the Government may elect to (i) reduce the amount of its monthly rent payments
by five percent for each month of the remaining term of the Lease, including any
option periods, and recover up to five percent of the rent already paid; (ii)
reduce payments for alterations not included in monthly rental payments by five
percent of the amount of the alterations agreement; or (iii) reduce the rent
payments for violations by the Partnership's subcontractor by an amount not
exceeding the amount of profit or fee reflected in the subcontract at the time
the subcontract was placed.
The Lease also provides that if any price negotiated in connection with any
construction contract of the Partnership relating to the Project is increased by
any significant amount because the Partnership or a subcontractor furnished cost
or pricing data that was not complete, accurate and current, the price or cost
shall be reduced accordingly and the contract shall be modified to reflect such
reduction. The Lease also provides that the Government may seek a reduction in
the contract price if defective cost or pricing data previously submitted
indicates that the price or cost should be reduced accordingly and that the
Lease should be modified.
OPTIONS TO LEASE ADDITIONAL SPACE
The Government was granted three options to lease additional space,
aggregating an additional 85,271 of net usable square feet, at an annual rental
rate of $37.95 per net usable square foot, upon the same terms and conditions
set forth in the Lease. The deadline for the Government's exercise of these
options was December 31, 1996, which deadline was met by the Government and the
Government has exercised its options to lease the additional space. See "CREDIT
ENHANCEMENT--The Portals II Building."
THE DEVELOPMENT AGREEMENT
The following description of the Development Agreement does not purport to
be complete and is subject in all respects to the provisions of, and is
qualified in its entirety by, reference to the Development Agreement, copies of
which are available from the Trustee.
GENERAL
Until the mill levy described in the Operating Agreement and the
Intergovernmental Agreement is imposed, certain charges (payments in lieu of
taxes) will be assessed pursuant to the Development Agreement upon the property
owned by Douglas County Development Corporation ("DCDC") and certain others
located within the Districts (such charges are referred to as the "Development
Charges") and subsequent owners of such property, in an amount equivalent to
that which would be generated by a
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mill levy against all of the taxable real and personal property in the Districts
pursuant to the Operating Agreement and the Intergovernmental Agreement.
Under the Development Agreement, DCDC has granted to the Authority, for the
purpose of providing security for the payment of the Development Charges, a good
and sufficient lien upon the property, subject to no encumbrances other than the
permitted encumbrances described in the Development Agreement.
ESTABLISHMENT AND ACCEPTANCE OF THE DEVELOPMENT CHARGE OBLIGATION
Each parcel, lot or tract constituting a portion of the property shall have
a Development Charge obligation under the Development Agreement equal to the
amount of the Development Charges payable in respect of such parcel, lot or
tract in accordance with the terms of the Development Agreement, which
obligation shall be secured by the Development Charge lien created under the
Development Agreement. DCDC for and on behalf of itself, its successors and
assigns, accepts and acknowledges the Development Charge obligation with respect
to the property, and agrees that the property and each such parcel, lot or tract
shall be bound thereby.
GRANT AND RELEASE OF DEVELOPMENT CHARGE LIEN
In consideration of the Authority's issuance of the Bonds and undertaking
the financial obligations set forth therein relating to the Project which will
benefit the property and the owners, residents, tenants and occupants thereof,
and to secure the payment of the Development Charge obligation in accordance
with the Development Agreement and the performance of any and all other
covenants, agreements, warranties and conditions of DCDC contained in the
Development Agreement, DCDC has, under the terms of the Development Agreement,
encumbered and mortgaged unto the Authority, its successors and assigns, the
property, together with all improvements, fixtures and other property, real and
personal, owned by DCDC, which may belong to, or be or thereafter become a part
thereof; subject, however, to the condition that the Development Charge lien
thereby granted shall automatically cease, terminate and be released upon the
occurrence of any of the following events: (i) the Bonds are no longer
outstanding and the Credit Enhancement Provider has consented to the release of
the Development Charge lien; (ii) the Credit Enhancement Provider has consented
to the release of the Development Charge lien and if, in the opinion of
nationally recognized bond counsel, the release of the Development Charge lien
will not cause interest on the Bonds to be includable in gross income for
federal income tax purposes, (iii) the amendment to the Districts' service plan
authorizing the imposition of the mill levy provided for in the Operating
Agreement and the Intergovernmental Agreement has been formally approved by the
Town; or (iv) if, in the opinion acceptable to the District of counsel
acceptable to the District, the imposition of the mill levy as described in the
Operating Agreement and the Intergovernmental Agreement is otherwise valid and
enforceable without regard to such service plan amendment. Upon the cessation of
the Development Charge lien, the Authority or its assigns shall execute and
record all documents necessary to evidence the release of the Development Charge
lien of record.
DEVELOPMENT CHARGES
Until such time as the Development Charge lien is released, the Authority
shall be entitled to collect the Development Charges payable in respect of the
property or any parcel, lot or tract constituting a portion of the property,
which charges are to be assessed and paid within fifteen (15) days after any
applicable payment date.
Development Charges shall be assessed by the Authority against the property
in an annual amount equivalent to the amount the District or a Related District
would collect if it were to impose a mill levy not to exceed 35 mills against
the property. In the event of a change in the method for determining assessed
value or the ratio of valuation for assessment, the maximum mill levy shall be
adjusted to account for such
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revision so that the Development Charges imposed by the Authority shall be
determined as if such change had not occurred. The total Development Charges to
be imposed in any year by the Authority against the property shall be determined
by its Board of Directors.
In the event that additional parcels, lots or tracts of land become a part
of the property by amendment or supplement to the Development Agreement, the
Development Charge obligation shall be assessed against each parcel, lot or
tract relative to all Included property served by the Project.
Each owner of the property or any parcel, lot or tract constituting a
portion of the property shall pay its allocable share (as determined by the
District) of the Development Charge within fifteen (15) days after the
applicable payment date. The Authority shall cause billings to be sent to each
owner of the property or any parcel, lot or tract constituting a portion of the
property, setting forth the amount of the Development Charges required to be
paid and the applicable payment date.
SALE OR LEASE OF THE PROPERTY
The Development Charge lien will remain a lien upon each parcel of the
property, subject to no encumbrances or lease of such parcel of the property to
any third party except the permitted encumbrances, whether such transaction is
by lease, deed, contract for deed or other conveyance.
LIMITATIONS ON DEVELOPMENT CHARGE OBLIGATIONS
The Authority covenants, agrees and consents that if at any time the
property is comprised of more than one parcel, lot or tract, then each parcel,
lot or tract constituting a portion of the property shall be security for, and
subject to a Development Charge lien with respect to, only the Development
Charges attributable to such parcel, lot or tract constituting a portion of the
property. The Authority further covenants, agrees and consents that the
Development Charges collected by the Authority shall be used solely in a manner
which would satisfy the financial obligations of the District under the
Operating Agreement and the Intergovernmental Agreement.
DEFAULTS BY ANY OWNER OF THE PROPERTY AND REMEDIES OF THE AUTHORITY
Any one or more of the following shall be deemed to be a default with
respect to any portion of the property to which the same is applicable:
any default in the payment or satisfaction of the Development Charges or any
part thereof with respect to such portion of the property;
the attachment of, seizure of or levy upon such portion of the property that
is then subject to the Development Charge lien pursuant to any legal
process, if the same is not cured within thirty (30) days, except to the
extent the Development Charge lien is prior to the lien giving rise to such
attachment, seizure or levy; or
a failure by any owner of such portion of the property to pay, prior to
delinquency, all taxes, assessments, whether general or special,
governmental charges, utility charges, and all other charges of any kind
whatsoever that may at any time be lawfully charged, assessed or levied with
respect to such portion of the property then owned by such Person, and which
are secured by any prior lien or encumbrance thereon, or any portion
thereof, or which may result in the creation of a prior lien or encumbrance
upon such portion of the property, in the event of nonpayment thereof
(collectively, "Charges"); provided, however, that such failure shall not
constitute a default while such owner is contesting in good faith such
Charges and takes such action as may be reasonably necessary to prevent
issuance of a county treasurer's deed or other action that would defeat the
Development Charge lien.
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Upon the occurrence of any one or more of the foregoing defaults, the
Authority may exercise certain remedies under the Development Agreement,
including but not limited to, the right to foreclose upon the portion of the
property in default.
THE RECREATIONAL FACILITIES AGREEMENT
The following description of the Recreational Facilities Agreement does not
purport to be complete and is subject in all respects to the provisions of, and
is qualified in its entirety by, reference to the Recreational Facilities
Agreement, copies of which are available from the Trustee.
To provide for the ownership and operation of the Project until the
Operating Agreement becomes effective, the Authority and the District will enter
into the Recreational Facilities Agreement. Pursuant to the terms of the
Recreational Facilities Agreement, the Authority will be the owner of the
Project and the District will have no fee title thereto until such time as a
deed to all or any portion of the Project is delivered to the District.
The Recreational Facilities Agreement will be replaced (except to the extent
provided therein) by the Operating Agreement and the Intergovernmental Agreement
when such agreements become effective pursuant to their respective terms. See
"THE OPERATING AGREEMENT" and "THE INTERGOVERNMENTAL AGREEMENT" above.
During the Term of the Recreational Facilities Agreement, the Authority
shall hold title to and ownership of each of the Project facilities and any and
all additions thereto which comprise repairs, replacements, modifications,
improvements and substitutions until such Project facility is transferred to the
District. The District agrees that any damage to the Project that would
materially impact the operation of the Project that is occasioned by the
District's removal of fixtures and improvements shall be promptly repaired by
the District. Notwithstanding anything to the contrary in the Recreational
Facilities Agreement, it is understood that title to personal property
permanently attached to the Project by the District or any other entity,
instrumentality, authority or department of the District shall become a part of
the Project.
96
CASTLE ROCK RANCH PUBLIC IMPROVEMENTS AUTHORITY
FINANCIAL STATEMENTS AND AUDIT REPORT
DECEMBER 31, 1996
CASTLE ROCK RANCH PUBLIC IMPROVEMENTS AUTHORITY
CONTENTS
- -----------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS 1
BALANCE SHEET 2
STATEMENT OF REVENUES, EXPENSES AND
CHANGES IN FUND DEFICIT 3
STATEMENT OF CASH FLOWS 4
NOTES TO FINANCIAL STATEMENTS 5/8
A TENNESSEE REGISTERED LIMITED LIABILITY PARTNERSHIP
- -------------------------------------------------------------------------------
PRIVATE COMPANIES PRACTICE SECTION MEMBER AICPA DIVISION FOR CPA FIRMS SEC PRACTICE SECTION
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors
Castle Rock Ranch Public Improvements Authority
Castle Rock, Colorado
We have audited the accompanying financial statements of Castle Rock Ranch
Public Improvements Authority as of December 31, 1996, and for the period from
March 29, 1996 (date operations commenced) to December 31, 1996. These
financial statements are the responsibility of Castle Rock Ranch Public
Improvements Authority's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards
and generally accepted government auditing standards issued by the Comptroller
General of the United States and Office of Management and Budget (OMB) Circular
A-128, "Audits of State and Local Governments." Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
The financial statements present only Castle Rock Ranch Public Improvements
Authority and are not intended to present fairly the financial position of the
Dawson Ridge Metropolitan Districts and the results of operations and cash flows
of its fund types in conformity with generally accepted accounting principles.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Castle Rock Ranch Public
Improvements Authority as of December 31, 1996, and the results of its
operations and cash flows for the period from March 29, 1996 to December 31,
1996, in conformity with generally accepted accounting principles.
Chattanooga, Tennessee
February 18, 1997, except
for the subsequent events
note as to which the date
is February 24, 1997
1
CASTLE ROCK RANCH PUBLIC IMPROVEMENTS AUTHORITY
BALANCE SHEET
DECEMBER 31, 1996
- -------------------------------------------------------------------------------
ASSETS
LAND AND WATER RIGHTS $ 54,550,000
------------
OTHER ASSETS
Restricted Cash and Investments 4,917,238
Accrued Interest - Restricted Investments 23,228
Deferred Commitment Fee - Related Party -
less accumulated amortization of $153,965 3,864,535
Deferred Bond Issuance Costs - less accumulated
amortization of $61,751 1,722,178
------------
Total Other Assets 10,527,179
------------
TOTAL ASSETS $ 65,077,179
------------
------------
LIABILITIES AND FUND DEFICIT
LIABILITIES
Bonds Payable, plus unamortized
bond premium of $691,820 $ 67,666,820
Accrued Interest Payable 344,350
------------
Total Liabilities 68,011,170
FUND DEFICIT ( 2,933,991)
------------
TOTAL LIABILITIES AND FUND DEFICIT $ 65,077,179
------------
------------
The accompanying notes are an integral part of the financial statements.
2
CASTLE ROCK RANCH PUBLIC IMPROVEMENTS AUTHORITY
STATEMENT OF REVENUES, EXPENSES AND CHANGES IN FUND DEFICIT
PERIOD FROM MARCH 29, 1996 TO DECEMBER 31, 1996
- -------------------------------------------------------------------------------
OPERATING EXPENSES
Amortization of Bond Issuance Costs $ (61,751)
Amortization of Deferred Commitment Fee - Related Party (153,965)
------------
OPERATING LOSS (215,716)
------------
NONOPERATING REVENUE (EXPENSE)
Interest Income 310,033
Interest Expense (3,028,308)
------------
(2,718,275)
------------
NET LOSS (2,933,991)
FUND DEFICIT - beginning of period -
------------
FUND DEFICIT - end of period $(2,933,991)
------------
------------
The accompanying notes are an integral part of the financial statements.
3
CASTLE ROCK RANCH PUBLIC IMPROVEMENTS AUTHORITY
STATEMENT OF CASH FLOWS
PERIOD FROM MARCH 29, 1996 TO DECEMBER 31, 1996
- -------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Operating Loss $ (215,716)
Amortization of Bond Issuance Costs 61,751
Amortization of Deferred Commitment Fee - Related Party 153,965
-------------
NET CASH PROVIDED BY OPERATING ACTIVITIES -
-------------
CASH FLOWS FROM CAPITAL AND RELATED
FINANCING ACTIVITIES
Capital Expenditures (54,550,000)
Issuance of Bonds, plus accrued interest sold 68,082,015
Commitment Fee Paid (4,018,500)
Deposit to Restricted Cash (7,729,586)
Decrease in Restricted Cash 2,790,658
Payment of Debt Issuance Costs (1,783,929)
Interest Paid (3,099,152)
-------------
NET CASH USED BY CAPITAL AND RELATED
FINANCING ACTIVITIES (308,494)
-------------
CASH FLOWS FROM INVESTING ACTIVITIES
Interest Received 308,494
-------------
NET INCREASE IN CASH -
CASH - beginning of period -
-------------
CASH - end of period $ -
-------------
-------------
The accompanying notes are an integral part of the financial statements.
4
CASTLE ROCK RANCH PUBLIC IMPROVEMENTS AUTHORITY
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
- -------------------------------------------------------------------------------
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies and practices followed by Castle Rock
Ranch Public Improvements Authority are as follows:
REPORTING ENTITY - Castle Rock Ranch Public Improvements Authority (the
Authority) is a Colorado nonprofit corporation created March 11, 1996, to be
operated as an instrumentality of Dawson Ridge Metropolitan District No. 5
(the District). The Authority was created to issue Guaranteed Public
Facilities Revenue Bonds Series 1996 (the Bonds) to purchase certain land and
water rights in the Dawson Ridge development of Castle Rock, Douglas County,
Colorado and to pay the debt service on the bonds. Operations of the
Authority commenced March 29, 1996.
The District appoints all board members and is primarily responsible for
retirement of the bonds recorded as a liability of the Authority. The
Authority is considered to be a discrete component unit of the District.
The accounting policies of the Authority conform to the generally accepted
accounting principles applicable to governmental entities. The more
significant accounting policies of the Authority are summarized as follows:
BASIS OF ACCOUNTING - The financial statements of the Authority have been
prepared on the accrual basis of accounting. Accordingly, revenues are
recognized when earned and expenses are recognized when they are incurred.
BUDGETS - The Authority has established no formal budget procedures as its
primary function is as a debt service fund for the District.
LAND AND WATER RIGHTS - Land and water rights are recorded at cost. When the
bonds are paid off or mature, title to the land and water rights transfers to
the District.
BOND ISSUANCE COSTS - Bond issuance costs are amortized on a straight-line
basis over the term of the Bonds.
DEFERRED COMMITMENT FEE - The deferred commitment fee is recognized on a
straight-line basis over the term of the Bonds.
RESTRICTED INVESTMENTS - Restricted investments are considered
held-to-maturity and are recorded at cost adjusted for the amortization of
premiums and accretion of discounts, which are recognized as adjustments to
interest income using the interest method.
5
CASTLE ROCK RANCH PUBLIC IMPROVEMENTS AUTHORITY
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
- -------------------------------------------------------------------------------
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
BOND PREMIUM - The premium recorded on issuance of the Bonds is recorded as
an adjustment to the par value of the Bonds and is amortized over the term of
the Bonds and recognized as an adjustment to interest expense using the
interest method.
INCOME TAXES - As a nonprofit corporation and instrumentality of the
District, the Authority is exempt from federal and state income taxes.
ESTIMATES AND UNCERTAINTIES - The preparation of financial statements in
conformity with generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
RESTRICTED CASH AND INVESTMENTS
Restricted cash and investments as of December 31, 1996, consist of the
following:
BOOK VALUE FAIR VALUE
5.375% - 6.125% United States Treasury Notes -
maturing at various dates from May 31, 1997
through May 31, 1998 $4,911,822 $4,904,743
Money Market Fund 5,416 5,416
---------- ----------
$4,917,238 $4,910,159
---------- ----------
---------- ----------
BONDS PAYABLE
The Bonds were issued March 29, 1996, at coupon rates ranging from 5.7% to
6.5% and maturing at varying amounts beginning December 1, 1999 and ending
December 1, 2017. Par value of the Bonds is $66,975,000 and the proceeds
from issuance were $67,760,621 plus accrued interest of $321,394. The
proceeds were used to acquire 876 acres of real property and 900 acre feet of
water rights in Dawson Ridge development in the town of Castle Rock, Douglas
County, Colorado. The land and water rights were purchased from a related
party, Douglas County Development Corporation (DCDC), an affiliate of The
Franklin L. Haney Company. Mr. Haney is a director of the Authority. The
land acquired will be used to develop a golf course and other recreational
facilities for the benefit of the Dawson Ridge Metropolitan Districts. The
Bonds have a debt service reserve retained from the proceeds from their
issuance sufficient to fund interest payments on the Bonds until March 1,
1998.
6
CASTLE ROCK RANCH PUBLIC IMPROVEMENTS AUTHORITY
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
- -------------------------------------------------------------------------------
BONDS PAYABLE - continued
BFC Guaranty Corp., a related company controlled by Mr. Haney, entered into a
collateralized credit enhancement agreement for the benefit of the Trustee of
the Bonds. Under the terms of the agreement, BFC Guaranty Corp. will
guarantee complete payment of the Bonds for the period commencing March 1,
1998, until the Bonds are redeemed or mature.
In order to secure its obligations under the Collateralized Credit
Enhancement Agreement, BFC Guaranty Corp. has pledged and delivered to the
Trustee, Series B REMIC Bonds with a par value of $67,075,000, and coupon
rates ranging from 5.7% to 6.5%. The Series B REMIC Bonds mature at varying
amounts beginning December 1, 1998 and ending December 1, 2017. The Series B
REMIC Bonds will be issued to BFC Guaranty Corp. on March 1, 1998, at no cost.
The Series B REMIC Bonds, along with another series of bonds representing a
regular interest in the REMIC Trust Estate (the "Series A REMIC Bonds"), were
issued under an indenture of trust between BFC Finance Corp. and SouthTrust
Bank of Alabama. The proceeds from the Series A REMIC Bonds will be used to
fund the acquisition and construction of an office building in the District
of Columbia to be leased by the U.S. Government. Scheduled lease payments
will be sufficient to retire all principal and interest payments on the
Series A and Series B REMIC Bonds.
Debt service requirements and sinking fund requirements as of December 31,
1996, are as follows:
PRINCIPAL INTEREST
YEAR ENDING
December 31, 1997 $ - $ 4,132,203
December 31, 1998 - 4,132,203
December 31, 1999 1,980,000 4,132,203
December 31, 2000 2,095,000 4,018,353
December 31, 2001 2,215,000 3,897,890
Later Years 60,685,000 37,100,612
----------- -----------
Total $66,975,000 $57,413,464
----------- -----------
----------- -----------
The fair value of the bonds payable approximates book value.
REIMBURSEMENT AGREEMENT
The Authority also entered into a Reimbursement Agreement with BFC Guaranty
Corp. that requires the Authority to reimburse BFC Guaranty Corp. for any
principal and interest payments made by BFC Guaranty Corp. under the
provisions of the Collateralized Credit Enhancement Agreement. Interest at
the rate of 9% will be charged on the payments. In addition, the Authority
paid BFC Guaranty Corp. a commitment fee of 6% of the Bond proceeds which
totaled $4,018,500.
7
CASTLE ROCK RANCH PUBLIC IMPROVEMENTS AUTHORITY
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
- -------------------------------------------------------------------------------
OPERATING AND DEVELOPMENT AGREEMENTS
The Authority has entered into an operating agreement obligating the Dawson
Ridge Metropolitan Districts to provide funds to the extent that revenues
from the golf course and recreational facilities are insufficient to fund the
debt service on the Bonds. Such funds would be derived from a mill levy on
taxable property in the Dawson Ridge districts. The levy would be subject to
certain limitations including a 35-mill limitation. In order to provide an
alternate source of revenue, the Authority entered into a development
agreement with DCDC providing for a payment in lieu of taxes by DCDC in an
amount equivalent to the amount which would be generated by the mill levy
pursuant to the operating agreement. DCDC owns approximately 75% of the
taxable property in the Dawson Ridge districts. As of December 31, 1996,
there were no obligations owed to the Authority pursuant to the development
agreement.
SUBSEQUENT EVENT
On February 24, 1997, the Authority filed an amended Registration Statement
on Form S-4 with the Securities and Exchange Commission offering to exchange
the entire issue of Guaranteed Public Facilities Revenue Bonds, (Series 1996)
for an identical issue of Guaranteed Public Facilities Bonds, (Series 1996B).
The Series 1996B Bonds and the Credit Enhancement of BFC Guaranty Corp. will
be registered under the Securities Act of 1933 and as a result, the Series
1996B Bonds will not be subject to the transfer restrictions associated with
the Series 1996 Bonds. No gain or loss will be recognized for financial
statement purposes on the exchange.
8
BFC GUARANTY CORP.
FINANCIAL STATEMENTS AND AUDIT REPORT
DECEMBER 31, 1996
BFC GUARANTY CORP.
CONTENTS
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS 1
BALANCE SHEET 2
STATEMENT OF INCOME AND RETAINED EARNINGS 3
STATEMENT OF CASH FLOWS 4
NOTES TO FINANCIAL STATEMENTS 5/8
A TENNESSEE REGISTERED LIMITED LIABILITY PARTNERSHIP
- ---------------------------------------------------------------------------------------------------
PRIVATE COMPANIES PRACTICE SECTION MEMBER AICPA DIVISION FOR CPA FIRMS SEC PRACTICE SECTION
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors and Stockholder
BFC Guaranty Corp.
Washington, D.C.
We have audited the accompanying balance sheet of BFC Guaranty Corp. as of
December 31, 1996, and the related statements of income and retained earnings
and cash flows for the period from March 29, 1996 (date operations commenced)
to December 31, 1996. These financial statements are the responsibility of
the company's management. Our responsibility is to express an opinion on
these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of BFC Guaranty Corp. as of
December 31, 1996, and the results of its operations and its cash flows for
the period from March 29, 1996 to December 31, 1996, in conformity with
generally accepted accounting principles.
Chattanooga, Tennessee
February 18, 1997, except for the
Subsequent Events note as to which
the date is February 24, 1997
1
BFC GUARANTY CORP.
BALANCE SHEET
December 31, 1996
- --------------------------------------------------------------------------------
ASSETS
Cash $ 1,000
Advances to Parent Company 4,018,500
Accrued Interest on Advances to Parent Company 271,249
Deferred Tax Asset 1,313,942
----------
TOTAL ASSETS $5,604,691
----------
----------
LIABILITIES AND STOCKHOLDER'S EQUITY
LIABILITIES
Income Taxes Payable $1,458,515
Deferred Income - Related Party 3,864,535
----------
Total Liabilities 5,323,050
----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDER'S EQUITY
Common Stock - no par value - 1,500 shares
authorized and issued 1,000
Retained Earnings 280,641
----------
Total Stockholder's Equity 281,641
----------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $5,604,691
----------
----------
The accompanying notes are an integral part of the financial statements.
2
BFC GUARANTY CORP.
STATEMENT OF INCOME AND RETAINED EARNINGS
PERIOD FROM MARCH 29, 1996 TO DECEMBER 31, 1996
- --------------------------------------------------------------------------------
INCOME
Commitment Fee Income - Related Party $153,965
Interest Income - Related Party 271,249
--------
INCOME BEFORE PROVISION FOR INCOME TAXES 425,214
Provision for Income Taxes 144,573
--------
NET INCOME 280,641
RETAINED EARNINGS - beginning of period -
--------
RETAINED EARNINGS - end of period $280,641
--------
--------
PRIMARY AND FULLY DILUTED EARNINGS
PER COMMON SHARE $ 187.09
--------
--------
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 1,500
--------
--------
The accompanying notes are an integral part of the financial statements.
3
BFC GUARANTY CORP.
STATEMENT OF CASH FLOWS
PERIOD FROM MARCH 29, 1996 TO DECEMBER 31, 1996
- --------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 280,641
Deferred Income Taxes (1,313,942)
Increase in Deferred Income 3,864,535
Increase in Accrued Interest - Related Party ( 271,249)
Increase in Income Taxes Payable 1,458,515
-----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 4,018,500
CASH FLOWS FROM INVESTING ACTIVITIES
Advances to Parent Company (4,018,500)
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of Common Stock 1,000
-----------
NET INCREASE IN CASH 1,000
CASH - beginning of period -
-----------
CASH - end of period $ 1,000
-----------
-----------
The accompanying notes are an integral part of the financial statements.
4
BFC GUARANTY CORP.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
- -------------------------------------------------------------------------------
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies and practices followed by the company are
as follows:
DESCRIPTION OF BUSINESS - The company was organized on March 21, 1996, as a
wholly-owned subsidiary of Building Finance Company of Tennessee. The
company was formed solely to provide credit enhancement for the Castle Rock
Ranch Public Improvement Authority Guaranteed Public Facilities Revenue
Bonds, Series 1996 (the "Castle Rock Bonds"), acquire assets in connection
with the provision of credit enhancement for the Castle Rock Bonds and enter
into agreements related thereto. Operations of the company commenced March 29,
1996, with the issuance of 1,500 shares of no par value common stock to
BFC Finance Company of Tennessee for $1,000.
DEBT SECURITIES - Debt securities are considered held-to-maturity and are
stated at cost in accordance with Statement of Financial Accounting Standards
Number 115.
DEFERRED INCOME - Deferred income is recognized on a straight-line basis over
the term of the Castle Rock Bonds and Collateralized Credit Enhancement
Agreement.
INCOME TAXES - Deferred tax assets and liabilities are recognized for the
future tax effects attributed to temporary differences between book and tax
bases of assets and liabilities. The measurement of current and deferred tax
assets and liabilities is based on enacted tax law.
ESTIMATES AND UNCERTAINTIES - The preparation of financial statements in
conformity with generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
EARNINGS PER COMMON SHARE - Earnings per common share is computed by dividing
the net income for the period by the weighted average number of common shares
outstanding during the period.
DEBT SECURITIES
Debt securities consist of $67,075,000 par value REMIC Federal Lease-Backed
Bonds (Series 1996, Class B) issued by a related party, BFC Finance Corp.
The bonds are currently pledged as collateral for the Castle Rock Bonds and
are held in trust by the Bond Trustee. The bonds will be issued on March 1,
1998, to the company at no cost.
5
BFC GUARANTY CORP.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
- -------------------------------------------------------------------------------
DEBT SECURITIES - continued
The bonds will be issued with varying maturity dates at an aggregate discount
of $5,738,773 and accrued interest of $1,034,574. Aggregate maturities and
cash payments to be received by the company are as follows:
COUPON PRINCIPAL INTEREST
RATE PAYMENTS PAYMENTS
Within 1 Year - $ - $ -
1 Year through 5 Years 5.75% 6,310,000 15,168,726
After 5 Years through
10 Years 5.7% - 6.1% 13,190,000 17,414,168
After 10 Years 6.25% - 6.5% 47,575,000 19,728,970
----------- -----------
$67,075,000 $52,311,864
----------- -----------
----------- -----------
The fair value of the bonds as of December 31, 1996, approximates
$67,600,000, the carrying value of the Castle Rock Bonds as of December 31,
1996.
COLLATERALIZED CREDIT ENHANCEMENT AGREEMENT
The company has entered into a collateralized credit enhancement agreement
for the benefit of the Trustee of the Castle Rock Bonds. Under the terms of
the agreement, the company will guarantee complete payment of the Castle Rock
Bonds for the period commencing March 1, 1998, until the Bonds are redeemed
or mature.
The Castle Rock Bonds were issued March 29, 1996, by Castle Rock Ranch Public
Improvements Authority (the Authority) at coupon rates ranging from 5.7% to
6.5% and maturing at varying amounts beginning December 1, 1999 and ending
December 1, 2017. Par value of the Castle Rock Bonds is $66,975,000 and the
proceeds from issuance were $67,760,621. The proceeds were used to acquire
real property and water rights in Dawson Ridge development in the town of
Castle Rock, Douglas County, Colorado. The land and water rights were
purchased from a related party, Douglas County Development Corporation
(DCDC), an affiliate of The Franklin L. Haney Company. Mr. Haney is the
President of BFC Guaranty Corp. The land acquired will be used to develop a
golf course and other recreational facilities for the benefit of the Dawson
Ridge Metropolitan Districts. The Castle Rock Bonds have a debt service
reserve retained from the proceeds from their issuance sufficient to fund
interest payments on the Bonds until March 1, 1998.
6
BFC GUARANTY CORP.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
- -------------------------------------------------------------------------------
COLLATERALIZED CREDIT ENHANCEMENT AGREEMENT - continued
In order to secure its obligations under the Collateralized Credit
Enhancement Agreement, the company has pledged and delivered to the Trustee
Series B REMIC Bonds with a par value of $67,075,000, and coupon rates
ranging from 5.7% to 6.5%. The Series B REMIC Bonds mature at varying
amounts beginning December 1, 1998 and ending December 1, 2017. The Series B
REMIC Bonds will be issued to the company on March 1, 1998, at no cost.
The Series B REMIC Bonds, along with another series of bonds representing a
regular interest in the REMIC Trust Estate (the "Series A REMIC Bonds"), were
issued under an indenture of trust between BFC Finance Corp. and SouthTrust
Bank of Alabama. The proceeds from the Series A REMIC Bonds will be used to
fund the acquisition and construction of an office building in the District
of Columbia to be leased by the U.S. Government. Scheduled lease payments
will be sufficient to retire all principal and interest payments on the
Series A and Series B REMIC Bonds.
REIMBURSEMENT AGREEMENT
In conjunction with the Collateralized Credit Enhancement Agreement, the
company also entered into a Reimbursement Agreement with Castle Rock Ranch
Public Improvements Authority that requires the Authority to reimburse the
company for any principal and interest payments made by the company under the
provisions of the Collateralized Credit Enhancement Agreement. Interest at
the rate of 9% will be charged on the payments. In addition, the Authority
paid the company a commitment fee of 6% of the Castle Rock Bond proceeds
which totaled $4,018,500. The company advanced the fee to its parent company,
Building Finance Corporation of Tennessee.
The Authority has entered into an operating agreement obligating the Dawson
Ridge Metropolitan Districts to provide funds to the extent that revenues
from the golf course and recreational facilities are insufficient to fund the
debt service on the Castle Rock Bonds. Such funds would be derived from a
mill levy on taxable property in the Dawson Ridge districts. The levy would
include a 35 mill limitation. In order to provide an alternate source of
revenue, the Authority entered into a development agreement with DCDC
providing for a payment in lieu of taxes by DCDC in an amount equivalent to
the amount which would be generated by the mill levy pursuant to the
operating agreement. DCDC owns approximately 75% of the taxable property in
the Dawson Ridge districts.
7
BFC GUARANTY CORP.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
- -------------------------------------------------------------------------------
INCOME TAXES
The provision for income taxes is as follows:
Current Provision $ 1,458,515
Deferred Provision (1,313,942)
-----------
$ 144,573
-----------
-----------
The deferred tax provision and the related deferred tax asset result from
income recognized when received for tax purposes, but deferred for financial
statement purposes.
SUBSEQUENT EVENT
On February 24, 1997, the Authority filed an amended Registration Statement
on Form S-4 with the Securities and Exchange Commission offering to exchange
the entire issue of Guaranteed Public Facilities Revenue Bonds, (Series 1996)
for an identical issue of Guaranteed Public Facilities Bonds, (Series 1996B).
The Series 1996B Bonds and the Credit Enhancement of the company will be
registered under the Securities Act of 1933 and as a result, the Series 1996B
Bonds will not be subject to the transfer restrictions associated with the
Series 1996 Bonds. No gain or loss will be recognized for financial
statement purposes by the Authority on the exchange.
8
BFC FINANCE CORP.
FINANCIAL STATEMENTS AND AUDIT REPORT
December 31, 1996
BFC FINANCE CORP.
CONTENTS
- -------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS 1
BALANCE SHEETS 2
STATEMENTS OF INCOME AND RETAINED EARNINGS 3
STATEMENTS OF CASH FLOWS 4
NOTES TO FINANCIAL STATEMENTS 5/9
A TENNESSEE REGISTERED LIMITED LIABILITY PARTNERSHIP
- --------------------------------------------------------------------------------------------------
Private Companies Practice Section Member AICPA Division for CPA Firms SEC Practice Section
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors and Stockholder
BFC Finance Corp.
Washington, D.C.
We have audited the accompanying balance sheet of BFC Finance Corp. as of
December 31, 1996, and the related statements of income and retained earnings
and cash flows for the period from March 29, 1996 (date operations commenced) to
December 31, 1996. These financial statements are the responsibility of the
company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of BFC Finance Corp. as of
December 31, 1996, and the results of its operations and its cash flows for the
period from March 29, 1996 to December 31, 1996, in conformity with generally
accepted accounting principles.
Chattanooga, Tennessee
May 9, 1997
1
BFC FINANCE CORP.
BALANCE SHEETS
- -------------------------------------------------------------------------------
DECEMBER 31, APRIL 30,
1996 1997
(UNAUDITED)
ASSETS
Notes Receivable from Related Parties, net of
unearned discount of $4,919,602 as of
December 31, 1996 and $1,580,355 (unaudited)
as of April 30, 1997 $ 126,488,158 $ 129,827,406
Bond Issue Costs, net of accumulated
amortization of $76,548 as of December 31,
1996 and $110,569 (unaudited) as of
April 30, 1997 2,134,833 2,100,812
------------- -------------
TOTAL ASSETS $ 128,622,991 $ 131,928,218
------------- -------------
------------- -------------
LIABILITIES AND STOCKHOLDER'S EQUITY
LIABILITIES
Bonds Payable, net of unearned discount of
$13,829,730 as of December 31, 1996 and
$12,382,089 (unaudited) as of April 30, 1997 $ 128,170,270 $ 129,617,911
Accrued Interest Payable 413,809 2,187,273
Income Taxes Payable to Parent 12,720 41,320
------------- -------------
Total Liabilities 128,596,799 131,846,504
------------- -------------
STOCKHOLDER'S EQUITY
Common Stock - no par value - 1,500 shares
authorized and issued 1,500 1,500
Retained Earnings 24,692 80,214
------------- -------------
Total Stockholder's Equity 26,192 81,714
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 128,622,991 $ 131,928,218
------------- -------------
------------- -------------
The accompanying notes are an integral part of the financial statements.
2
BFC FINANCE CORP.
STATEMENTS OF INCOME AND RETAINED EARNINGS
- ------------------------------------------------------------------------------
PERIOD FROM
MARCH 29, 1996 FOUR MONTHS
TO DECEMBER 31, ENDED APRIL 30,
1996 1997
(UNAUDITED)
INCOME
Interest Income - Related Parties $ 7,340,218 $ 3,339,248
----------- -----------
EXPENSES
Interest Expense 7,226,258 3,221,105
Amortization Expense 76,548 34,021
----------- -----------
7,302,806 3,255,126
----------- -----------
INCOME BEFORE PROVISION FOR
INCOME TAXES 37,412 84,122
Provision for Income Taxes 12,720 28,600
----------- -----------
NET INCOME 24,692 55,522
RETAINED EARNINGS - beginning of period - 24,692
----------- -----------
RETAINED EARNINGS - end of period $ 24,692 $ 80,214
----------- -----------
----------- -----------
PRIMARY AND FULLY DILUTED
INCOME PER COMMON SHARE $ 16.46 $ 37.01
----------- -----------
----------- -----------
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING 1,500 1,500
----------- -----------
----------- -----------
The accompanying notes are an integral part of the financial statements.
3
BFC FINANCE CORP.
STATEMENTS OF CASH FLOWS
- ------------------------------------------------------------------------------
PERIOD FROM
MARCH 29, 1996 FOUR MONTHS
TO DECEMBER 31, ENDED APRIL 30,
1996 1997
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 24,692 $ 55,522
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating Activities -
Interest Expense 7,226,258 1,447,641
Interest Income (7,340,218) ( 3,339,248)
Amortization Expense 76,548 34,021
Proceeds from Issuance of Bonds Payable 72,395,525 -
Increase in Accrued Interest Payable - 1,773,464
Increase in Income Taxes Payable
to Parent Company 12,720 28,600
------------- ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 72,395,525 -
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of Notes Receivable (72,397,025) -
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of Common Stock 1,500 -
------------- ------------
NET INCREASE IN CASH - -
CASH - beginning of period - -
------------- ------------
CASH - end of period $ - $ -
------------- ------------
------------- ------------
SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING AND FINANCING ACTIVITIES
Payments from Notes Receivable Used to
Pay Interest Expense on Bonds Payable $ 3,990,295 $ -
Bonds Issued in Exchange for Notes Receivable $ 67,075,000 $ -
The accompanying notes are an integral part of the financial statements.
4
BFC FINANCE CORP.
NOTES TO FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies and practices followed by the company are as
follows:
DESCRIPTION OF BUSINESS - The company was organized on March 21, 1996, as a
wholly-owned subsidiary of Building Finance Company of Tennessee. The company
was formed to purchase certain loans from its parent pursuant to a Sale
Agreement dated March 1, 1996, and to assign such loans, pledged securities,
mortgages and other assets delivered in connection with the Sale Agreement to
SouthTrust Bank of Alabama, N.A. as trustee in connection with the issuance of
the company's REMIC Lease-Backed Bonds, Series 1996, Classes A and B.
Operations commenced on March 29, 1996, with the issuance of $74,925,000 par
value Class A REMIC Bonds and the subsequent exchange of certain proceeds from
these bonds, all of the outstanding and issued shares of common stock of the
company and the placement of the Class B REMIC Bonds with a related company for
notes receivable totaling $126,087,367 from a related partnership.
DISCOUNT ON FINANCIAL INSTRUMENTS - The discount recorded on loans assigned to
the company by its parent and on bonds payable issued by the company is recorded
as an adjustment to the par value of the instruments and is accreted or
amortized over the term of the instruments as income or expense using the
interest method.
BOND ISSUANCE COSTS - Bond issuance costs are amortized on a straight-line basis
over the term of the bonds.
ESTIMATES AND UNCERTAINTIES - The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
EARNINGS PER COMMON SHARE - Earnings per common share is computed by dividing
the net income for the period by the weighted average number of common shares
outstanding during the period.
INCOME TAXES - The provision for income taxes is computed under the provisions
of Statement of Financial Accounting Standards Number 109 (SFAS 109). Under
SFAS 109, deferred tax assets and liabilities are recognized for the future tax
effects attributed to temporary differences between book and tax bases of assets
and liabilities. The measurement of current and deferred tax assets and
liabilities is based on enacted tax law. The company files a consolidated
federal tax return with its parent company, Building Finance Company of
Tennessee.
INTERIM FINANCIAL STATEMENTS - The unaudited balance sheet presented as of April
30, 1997, and the unaudited statements of income and retained earnings and cash
flows for the period then ended contain all adjustments that, in the opinion of
management, are necessary to provide a fair statement of the results for the
interim period presented. All such adjustments are considered of a normal and
recurring nature.
5
BFC FINANCE CORP.
NOTES TO FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
NOTES RECEIVABLE
Notes receivable consist of the following:
DECEMBER 31, APRIL 30,
1996 1997
(UNAUDITED)
8.5% Note Receivable from a Related Partnership -
principal and interest payments of $863,305
per month beginning March 1, 1998. Maturity date
December 1, 2017. Unearned discount $1,868,916
as of December 31, 1996, and unamortized
premium of $627,731 (unaudited) as of April 30,
1997. Collateralized by an assignment of lease
payments from the related partnership. $ 97,131,084 $ 99,627,731
9% Note Receivable from a Related Partnership -
principal and interest payments of $244,820 per
month beginning March 1, 1998. Maturity date
December 1, 2017. Unearned discount of $2,863,767
as of December 31, 1996 and $2,114,026 (unaudited)
as of April 30, 1997. Collateralized by an
assignment of lease payments from the related
partnership. 24,223,600 24,973,341
0% Note Receivable from a Related Company - principal
payments of $3,990,295, $2,660,197 and $2,660,197
due December 1, 1996, June 1, 1997 and December 1,
1997, respectively. Unearned discount of $186,919
as of December 31, 1996 and $94,059 (unaudited)
as of April 30, 1997. Collateralized by real
estate and U.S. Government securities. 5,133,474 5,226,334
------------- -------------
$ 126,488,158 $ 129,827,406
------------- -------------
------------- -------------
The 8.5% and 9% notes were assigned to the company by its parent, Building
Finance Company of Tennessee, in exchange for certain proceeds from the Class A
REMIC Bonds, all of the company's issued and outstanding common stock and the
placement of the Class B REMIC Bonds with a related company, BFC Guaranty Corp.
BFC Guaranty Corp. issued all of its issued and outstanding shares of common
stock as consideration for the Class B REMIC Bonds. Interest on the notes for
the period from April 1, 1996, the issuance date, through February 1, 1998, was
prepaid at 4% and 9%, respectively, and retained by Building Finance Company of
Tennessee. Payments beginning March 1, 1998, will be received from lease
payments received by 49C Partnership (the Partnership). The Partnership is
using the proceeds from these notes to construct an office building in
Washington, D.C. that will be leased by the United States government. Minimum
lease payments over the term of the lease are sufficient to cover the scheduled
payments on the notes. The notes are pledged as collateral for the Class A and
B REMIC Bonds issued by the company.
6
BFC FINANCE CORP.
NOTES TO FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
NOTES RECEIVABLE - continued
The 0% note was received from a related company, DCDC II, Inc. (DCDC II), in
consideration for the sale and assignment to DCDC II of the capitalized interest
reserve of $8,780,284 on the Class A REMIC Bonds. The capitalized interest
reserve covers interest payments on the bonds for the period from March 1, 1996
through December 1, 1997. All future principal and interest payments on the
Class A REMIC Bonds will be paid from the payments received on the 8.5% and 9%
notes. This note is also pledged as collateral for the Class A and B REMIC
Bonds.
Future principal and interest payments on the notes receivable as of December
31, 1996, are as follows:
PRINCIPAL INTEREST
YEAR ENDING
December 31, 1997 $ 8,780,284 $ -
December 31, 1998 2,104,187 8,977,063
December 31, 1999 2,731,689 10,565,811
December 31, 2000 2,976,187 10,321,313
December 31, 2001 3,242,581 10,054,919
Later Years 115,032,723 96,619,151
------------- -------------
$ 134,867,651 $ 136,538,257
------------- -------------
------------- -------------
BONDS PAYABLE
Bonds payable consist of the following:
DECEMBER 31, APRIL 30,
1996 1997
(UNAUDITED)
6.125% - 7.375% Class A, Series 1996 REMIC
Leased-Backed Bonds, Par Value $74,925,000 -
interest payments are made semiannually
beginning December 1, 1996 and ending
December 1, 2017. Principal payments are made
serially beginning December 1, 1998 and ending
December 1, 2017. Unamortized discount $555,724
as of December 31, 1996 and $510,947 (unaudited)
as of April 30, 1997. Collateralized by the
company's notes receivable. $ 74,369,276 $ 74,414,053
5.7% - 6.5% Class B, Series 1996 REMIC Leased-
Backed Bonds, Par Value $67,075,000 - interest
payments made semiannually beginning June 1,
1998 and ending December 1, 2017. Principal
payments are made serially beginning December 1,
1998 and ending December 1, 2017. Unamortized
discount $13,274,006 as of December 31, 1996 and
$11,871,142 (unaudited) as of April 30, 1997.
Collateralized by the company's notes receivable. 53,800,994 55,203,858
------------- -------------
$ 128,170,270 $ 129,617,911
------------- -------------
------------- -------------
7
BFC FINANCE CORP.
NOTES TO FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
BONDS PAYABLE - continued
The Class A REMIC Bonds were sold in a public offering effective March 29, 1996.
The Class B REMIC Bonds were placed with a related company, BFC Guaranty Corp.,
as partial consideration for the acquisition of the notes receivable from
Building Finance Company of Tennessee. The Class B REMIC Bonds are held in
trust and pledged as collateral for bonds issued by Castle Rock Ranch Public
Improvement Authority.
Debt service requirements as of December 31, 1996, are as follows:
PRINCIPAL INTEREST
YEAR ENDING
December 31, 1997 $ - $ 5,320,394
December 31, 1998 2,635,000 8,424,117
December 31, 1999 3,975,000 9,297,316
December 31, 2000 4,215,000 9,058,804
December 31, 2001 4,470,000 8,803,223
Later Years 126,705,000 84,562,184
------------- -------------
$ 142,000,000 $ 125,466,038
------------- -------------
------------- -------------
FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair values of the company's financial instruments are as follows:
DECEMBER 31, 1996 APRIL 30, 1997
CARRYING AMOUNT FAIR VALUE CARRYING AMOUNT FAIR VALUE
(UNAUDITED) (UNAUDITED)
FINANCIAL ASSETS
Notes Receivable $ 126,488,158 $ 126,488,158 $ 129,827,406 $ 129,827,406
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
FINANCIAL LIABILITIES
Bonds Payable $ 128,170,270 $ 129,850,459 $ 129,617,911 $ 131,265,934
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments:
NOTES RECEIVABLE - The carrying amount is based on proceeds received from
issuance adjusted for amortization of premium or accretion of discount at
implicit rates. The fair value is estimated by discounting future cash flows at
current rates. Current rates are not materially different from the implicit
rates of the instruments.
BONDS PAYABLE - The carrying amount is based on proceeds received from issuance
adjusted for amortization of premium or accretion of discount at implicit rates.
The fair value is estimated by discounting future cash flows at current rates.
Current rates are not materially different from the implicit rates of the
instruments.
8
BFC FINANCE CORP.
NOTES TO FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
PROVISION FOR INCOME TAXES
The provision for income taxes consists of the following:
DECEMBER 31, APRIL 30,
1996 1997
(UNAUDITED)
Current Provision $ 12,720 $ 28,600
--------- ---------
--------- ---------
CONCENTRATION
The company's sole source of cash to make principal and interest payments on the
bonds payable is from the collection of the 8.5% and 9% notes receivable from
49C Partnership. Collection of these notes receivable is dependent on the
collection of lease payments from the United States government by 49C
Partnership.
SUBSEQUENT EVENT
Subsequent to December 31, 1996, Castle Rock Ranch Public Improvement Authority
filed a Registration Statement on Form S-4 with the Securities and Exchange
Commission offering to exchange its entire issue of Guaranteed Public Facilities
Revenue Bonds, (Series 1996) for an identical issue of Guaranteed Public
Facilities Bonds, (Series 1996B). The Series 1996B Bonds, the credit
enhancement of the bonds and the Class A and B REMIC Bonds will be registered
under the Securities Act of 1933. The Class B REMIC Bonds serve as collateral
for the Series 1996 and Series 1996B Bonds.
9
CASTLE ROCK RANCH PUBLIC IMPROVEMENTS AUTHORITY
FINANCIAL STATEMENTS AND AUDIT REPORT
December 31, 1996
CASTLE ROCK RANCH PUBLIC IMPROVEMENTS AUTHORITY
CONTENTS
- ------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS 1
BALANCE SHEETS 2
STATEMENTS OF REVENUES, EXPENSES AND
CHANGES IN FUND DEFICIT 3
STATEMENTS OF CASH FLOWS 4
NOTES TO FINANCIAL STATEMENTS 5/8
A TENNESSEE REGISTERED LIMITED LIABILITY PARTNERSHIP
- ------------------------------------------------------------------------------
Private Companies Practice Section SEC Practice Section
Member AICPA Division for CPA Firms
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors
Castle Rock Ranch Public Improvements Authority
Castle Rock, Colorado
We have audited the accompanying financial statements of Castle Rock Ranch
Public Improvements Authority as of December 31, 1996, and for the period from
March 29, 1996 (date operations commenced) to December 31, 1996. These
financial statements are the responsibility of Castle Rock Ranch Public
Improvements Authority's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards
and generally accepted government auditing standards issued by the Comptroller
General of the United States and Office of Management and Budget (OMB) Circular
A-128, "Audits of State and Local Governments." Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
The financial statements present only Castle Rock Ranch Public Improvements
Authority and are not intended to present fairly the financial position of the
Dawson Ridge Metropolitan Districts and the results of operations and cash flows
of its fund types in conformity with generally accepted accounting principles.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Castle Rock Ranch Public
Improvements Authority as of December 31, 1996, and the results of its
operations and cash flows for the period from March 29, 1996 to December 31,
1996, in conformity with generally accepted accounting principles.
Chattanooga, Tennessee
February 18, 1997
1
CASTLE ROCK RANCH PUBLIC IMPROVEMENTS AUTHORITY
BALANCE SHEETS
- ------------------------------------------------------------------------------
DECEMBER 31, APRIL 30,
1996 1997
(UNAUDITED)
ASSETS
LAND AND WATER RIGHTS $54,550,000 $54,550,000
----------- -----------
OTHER ASSETS
Restricted Cash and Investments 4,917,238 4,916,384
Accrued Interest - Restricted Investments 23,228 116,142
Deferred Commitment Fee - Related Party -
less accumulated amortization of $153,965 as
of December 31, 1996 and $215,552 (unaudited)
as of April 30, 1997 3,864,535 3,802,948
Deferred Bond Issuance Costs - less accumulated
amortization of $61,751 as of December 31,
1996 and $89,197 (unaudited) as of April 30,
1997 1,722,178 1,694,732
----------- -----------
Total Other Assets 10,527,179 10,530,206
----------- -----------
TOTAL ASSETS $65,077,179 $65,080,206
=========== ===========
LIABILITIES AND FUND DEFICIT
LIABILITIES
Bonds Payable, plus unamortized
bond premium of $691,820 as of December 31,
1996 and $658,526 (unaudited) as of April 30,
1997 $67,666,820 $67,633,526
Accrued Interest Payable 344,350 1,721,751
----------- -----------
Total Liabilities 68,011,170 69,355,277
FUND DEFICIT (2,933,991) (4,275,071)
----------- -----------
TOTAL LIABILITIES AND FUND DEFICIT $65,077,179 $65,080,206
=========== ===========
The accompanying notes are an integral part of the financial statements.
2
CASTLE ROCK RANCH PUBLIC IMPROVEMENTS AUTHORITY
STATEMENTS OF REVENUES, EXPENSES AND CHANGES IN FUND DEFICIT
- -------------------------------------------------------------------------------
PERIOD FROM
MARCH 29, 1996 FOUR MONTHS
TO ENDED
DECEMBER 31, APRIL 30,
1996 1997
(UNAUDITED)
OPERATING EXPENSES
Amortization of Bond Issuance Costs $( 61,751) $( 27,446)
Amortization of Deferred Commitment Fee -
Related Party ( 153,965) ( 61,587)
------------ ------------
OPERATING LOSS ( 215,716) ( 89,033)
------------ ------------
NONOPERATING REVENUE (EXPENSE)
Interest Income 310,033 92,059
Interest Expense (3,028,308) (1,344,106)
------------ ------------
(2,718,275) (1,252,047)
------------ ------------
NET LOSS (2,933,991) (1,341,080)
FUND DEFICIT - beginning of period - (2,933,991)
------------ ------------
FUND DEFICIT - end of period $(2,933,991) $(4,275,071)
------------ ------------
The accompanying notes are an integral part of the financial statements.
3
CASTLE ROCK RANCH PUBLIC IMPROVEMENTS AUTHORITY
STATEMENTS OF CASH FLOWS
- -------------------------------------------------------------------------------
PERIOD FROM
MARCH 29, 1996 FOUR MONTHS
TO ENDED
DECEMBER 31, APRIL 30,
1996 1997
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES
Operating Loss $( 215,716) $( 89,033)
Amortization of Bond Issuance Costs 61,751 27,446
Amortization of Deferred Commitment Fee -
Related Party 153,965 61,587
------------ ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES - -
------------ ------------
CASH FLOWS FROM CAPITAL AND RELATED
FINANCING ACTIVITIES
Capital Expenditures (54,550,000) -
Issuance of Bonds, plus accrued interest sold 68,082,015 -
Commitment Fee Paid ( 4,018,500) -
Deposit to Restricted Cash ( 7,729,586) -
Decrease (Increase) in Restricted Cash 2,790,658 ( 117)
Payment of Debt Issuance Costs ( 1,783,929) -
Interest Paid ( 3,099,152) -
------------ ------------
NET CASH USED BY CAPITAL AND RELATED
FINANCING ACTIVITIES ( 308,494) ( 117)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Interest Received 308,494 117
------------ ------------
NET INCREASE IN CASH - -
CASH - beginning of period - -
------------ ------------
CASH - end of period $ - $ -
------------ ------------
------------ ------------
The accompanying notes are an integral part of the financial statements.
4
CASTLE ROCK RANCH PUBLIC IMPROVEMENTS AUTHORITY
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies and practices followed by Castle Rock Ranch
Public Improvements Authority are as follows:
REPORTING ENTITY - Castle Rock Ranch Public Improvements Authority (the
Authority) is a Colorado nonprofit corporation created March 11, 1996, to be
operated as an instrumentality of Dawson Ridge Metropolitan District No. 5 (the
District). The Authority was created to issue Guaranteed Public Facilities
Revenue Bonds Series 1996 (the Bonds) to purchase certain land and water rights
in the Dawson Ridge development of Castle Rock, Douglas County, Colorado and to
pay the debt service on the bonds. Operations of the Authority commenced March
29, 1996.
The District appoints all board members and is primarily responsible for
retirement of the bonds recorded as a liability of the Authority. The Authority
is considered to be a discrete component unit of the District.
The accounting policies of the Authority conform to the generally accepted
accounting principles applicable to governmental entities. The more significant
accounting policies of the Authority are summarized as follows:
BASIS OF ACCOUNTING - The financial statements of the Authority have been
prepared on the accrual basis of accounting. Accordingly, revenues are
recognized when earned and expenses are recognized when they are incurred.
BUDGETS - The Authority has established no formal budget procedures as its
primary function is as a debt service fund for the District.
LAND AND WATER RIGHTS - Land and water rights are recorded at cost. When the
bonds are paid off or mature, title to the land and water rights transfers to
the District.
BOND ISSUANCE COSTS - Bond issuance costs are amortized on a straight-line basis
over the term of the Bonds.
DEFERRED COMMITMENT FEE - The deferred commitment fee is recognized on a
straight-line basis over the term of the Bonds.
RESTRICTED INVESTMENTS - Restricted investments are considered held-to-maturity
and are recorded at cost adjusted for the amortization of premiums and accretion
of discounts, which are recognized as adjustments to interest income using the
interest method.
5
CASTLE ROCK RANCH PUBLIC IMPROVEMENTS AUTHORITY
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
BOND PREMIUM - The premium recorded on issuance of the Bonds is recorded as an
adjustment to the par value of the Bonds and is amortized over the term of the
Bonds and recognized as an adjustment to interest expense using the interest
method.
INCOME TAXES - As a nonprofit corporation and instrumentality of the District,
the Authority is exempt from federal and state income taxes.
ESTIMATES AND UNCERTAINTIES - The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
INTERIM FINANCIAL STATEMENTS - The unaudited balance sheet presented as of April
30, 1997, and the unaudited statements of revenues, expenses and changes in fund
deficit and cash flows for the period then ended contain all adjustments that,
in the opinion of management, are necessary to provide a fair statement of the
results for the interim period presented. All such adjustments are considered
of a normal and recurring nature.
RESTRICTED CASH AND INVESTMENTS
Restricted cash and investments consist of the following:
DECEMBER 31, 1996 APRIL 30, 1997
(UNAUDITED)
BOOK VALUE FAIR VALUE BOOK VALUE FAIR VALUE
---------- ---------- ---------- ----------
5.375% - 6.125% United States
Treasury Notes - maturing at
various dates from May 31,
1997 through May 31, 1998 $4,911,822 $4,904,743 $4,910,851 $4,904,182
Money Market Fund 5,416 5,416 5,533 5,533
---------- ---------- ---------- ----------
$4,917,238 $4,910,159 $4,916,384 $4,909,715
========== ========== ========== ==========
BONDS PAYABLE
The Bonds were issued March 29, 1996, at coupon rates ranging from 5.7% to 6.5%
and maturing at varying amounts beginning December 1, 1999 and ending December
1, 2017. Par value of the Bonds is $66,975,000 and the proceeds from issuance
were $67,760,621 plus accrued interest of $321,394. The proceeds were used to
acquire 876 acres of real property and 900 acre feet of water rights in Dawson
Ridge development in the town of Castle Rock, Douglas County, Colorado. The
land and water rights were purchased from a related party, Douglas County
Development Corporation (DCDC), an affiliate of The Franklin L. Haney Company.
Mr. Haney is a director of the Authority. The land acquired will be used to
develop a golf course and other recreational facilities for the benefit of the
Dawson Ridge Metropolitan Districts. The Bonds have a debt service reserve
retained from the proceeds from their issuance sufficient to fund interest
payments on the Bonds until March 1, 1998.
6
CASTLE ROCK RANCH PUBLIC IMPROVEMENTS AUTHORITY
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
BONDS PAYABLE - continued
BFC Guaranty Corp., a related company controlled by Mr. Haney, entered into a
collateralized credit enhancement agreement for the benefit of the Trustee of
the Bonds. Under the terms of the agreement, BFC Guaranty Corp. will guarantee
complete payment of the Bonds for the period commencing March 1, 1998, until the
Bonds are redeemed or mature.
In order to secure its obligations under the Collateralized Credit Enhancement
Agreement, BFC Guaranty Corp. has pledged and delivered to the Trustee, Series B
REMIC Bonds with a par value of $67,075,000, and coupon rates ranging from 5.7%
to 6.5%. The Series B REMIC Bonds mature at varying amounts beginning December
1, 1998 and ending December 1, 2017. The Series B REMIC Bonds were issued to
BFC Guaranty Corp. along with $1,000 on March 29, 1996, in exchange for all of
BFC Guaranty Corp.'s authorized and issued shares of no par value stock.
The Series B REMIC Bonds, along with another series of bonds representing a
regular interest in the REMIC Trust Estate (the "Series A REMIC Bonds"), were
issued under an indenture of trust between BFC Finance Corp. and SouthTrust Bank
of Alabama. The proceeds from the Series A REMIC Bonds will be used to fund the
acquisition and construction of an office building in the District of Columbia
to be leased by the U.S. Government. Scheduled lease payments will be
sufficient to retire all principal and interest payments on the Series A and
Series B REMIC Bonds.
Debt service requirements and sinking fund requirements as of December 31, 1996,
are as follows:
PRINCIPAL INTEREST
----------- -----------
YEAR ENDING
December 31, 1997 $ - $ 4,132,203
December 31, 1998 - 4,132,203
December 31, 1999 1,980,000 4,132,203
December 31, 2000 2,095,000 4,018,353
December 31, 2001 2,215,000 3,897,890
Later Years 60,685,000 37,100,612
----------- -----------
Total $66,975,000 $57,413,464
=========== ===========
The fair value of the bonds payable approximates book value.
REIMBURSEMENT AGREEMENT
The Authority also entered into a Reimbursement Agreement with BFC Guaranty
Corp. that requires the Authority to reimburse BFC Guaranty Corp. for any
principal and interest payments made by BFC Guaranty Corp. under the provisions
of the Collateralized Credit Enhancement Agreement. Interest at the rate of 9%
will be charged on the payments. In addition, the Authority paid BFC Guaranty
Corp. a commitment fee of 6% of the Bond proceeds which totaled $4,018,500.
7
CASTLE ROCK RANCH PUBLIC IMPROVEMENTS AUTHORITY
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
OPERATING AND DEVELOPMENT AGREEMENTS
The Authority has entered into an operating agreement obligating the Dawson
Ridge Metropolitan Districts to provide funds to the extent that revenues from
the golf course and recreational facilities are insufficient to fund the debt
service on the Bonds. Such funds would be derived from a mill levy on taxable
property in the Dawson Ridge districts. The levy would be subject to certain
limitations including a 35-mill limitation. In order to provide an alternate
source of revenue, the Authority entered into a development agreement with DCDC
providing for a payment in lieu of taxes by DCDC in an amount equivalent to the
amount which would be generated by the mill levy pursuant to the operating
agreement. DCDC owns approximately 75% of the taxable property in the Dawson
Ridge districts. As of December 31, 1996, there were no obligations owed to the
Authority pursuant to the development agreement.
CONCENTRATION
The credit enhancement for the Authority's bonds payable is dependent on
collection of lease payments by a related partnership from the United States
Government.
SUBSEQUENT EVENT
Subsequent to December 31, 1996, the Authority filed a Registration Statement on
Form S-4 with the Securities and Exchange Commission offering to exchange the
entire issue of Guaranteed Public Facilities Revenue Bonds, (Series 1996) for an
identical issue of Guaranteed Public Facilities Bonds, (Series 1996B). The
Series 1996B Bonds, Credit Enhancement of BFC Guaranty Corp. and the Class A and
B REMIC Bonds will be registered under the Securities Act of 1933 and as a
result, the Series 1996B Bonds will not be subject to the transfer restrictions
associated with the Series 1996 Bonds. No gain or loss will be recognized for
financial statement purposes on the exchange.
8
BFC GUARANTY CORP.
FINANCIAL STATEMENTS AND AUDIT REPORT
December 31, 1996
BFC GUARANTY CORP.
CONTENTS
- -------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS 1
BALANCE SHEETS 2
STATEMENTS OF INCOME AND RETAINED EARNINGS 3
STATEMENTS OF CASH FLOWS 4
NOTES TO FINANCIAL STATEMENTS 5/8
A TENNESSEE REGISTERED LIMITED LIABILITY PARTNERSHIP
- --------------------------------------------------------------------------------------------------
Private Companies Practice Section Member AICPA Division for CPA Firms SEC Practice Section
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors and Stockholder
BFC Guaranty Corp.
Washington, D.C.
We have audited the accompanying balance sheet of BFC Guaranty Corp. as of
December 31, 1996, and the related statements of income and retained earnings
and cash flows for the period from March 29, 1996 (date operations commenced) to
December 31, 1996. These financial statements are the responsibility of the
company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of BFC Guaranty Corp. as of
December 31, 1996, and the results of its operations and its cash flows for the
period from March 29, 1996 to December 31, 1996, in conformity with generally
accepted accounting principles.
Chattanooga, Tennessee
April 9, 1997
1
BFC GUARANTY CORP.
BALANCE SHEETS
- -------------------------------------------------------------------------------
DECEMBER 31, APRIL 30,
1996 1997
(UNAUDITED)
ASSETS
Cash $ 1,000 $ 1,000
Debt Securities - less unamortized bond
discount of $13,274,006 as of December 31,
1996 and $11,871,142 (unaudited) as of
April 30, 1997 53,800,994 55,203,858
Advances to Parent Company 4,018,500 4,018,500
Accrued Interest on Advances to Parent Company 271,249 391,804
Deferred Tax Asset 1,313,942 1,293,002
------------ ------------
TOTAL ASSETS $ 59,405,685 $ 60,908,164
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDER'S EQUITY
LIABILITIES
Income Taxes Payable $ 2,498,841 $ 3,016,804
Deferred Income - Related Party 3,864,535 3,802,948
------------ ------------
Total Liabilities 6,363,376 6,819,752
------------ ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDER'S EQUITY
Common Stock - no par value - 1,500 shares
authorized and issued 1,000 1,000
Additional Paid-In Capital 50,741,210 50,741,210
Retained Earnings 2,300,099 3,346,202
------------ ------------
Total Stockholder's Equity 53,042,309 54,088,412
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 59,405,685 $ 60,908,164
------------ ------------
------------ ------------
The accompanying notes are an integral part of the financial statements.
2
BFC GUARANTY CORP.
STATEMENTS OF INCOME AND RETAINED EARNINGS
- ------------------------------------------------------------------------------
PERIOD FROM
MARCH 29, 1996 FOUR MONTHS
TO DECEMBER 31, ENDED APRIL 30,
1996 1997
(UNAUDITED)
INCOME
Commitment Fee Income - Related Party $ 153,966 $ 61,586
Interest Income - Related Party 271,249 120,555
Accretion of Discount on Debt Securities 3,059,784 1,402,864
----------- ----------
INCOME BEFORE PROVISION FOR INCOME TAXES 3,484,999 1,585,005
Provision for Income Taxes 1,184,900 538,902
----------- ----------
NET INCOME 2,300,099 1,046,103
RETAINED EARNINGS - beginning of period - 2,300,099
----------- ----------
RETAINED EARNINGS - end of period $ 2,300,099 $ 3,346,202
----------- ----------
----------- ----------
PRIMARY AND FULLY DILUTED EARNINGS
PER COMMON SHARE $ 1,533.40 $ 697.40
----------- ----------
----------- ----------
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 1,500 1,500
----------- ----------
----------- ----------
The accompanying notes are an integral part of the financial statements.
3
BFC GUARANTY CORP.
STATEMENTS OF CASH FLOWS
- ------------------------------------------------------------------------------
PERIOD FROM
MARCH 29, 1996 FOUR MONTHS
TO DECEMBER 31, ENDED APRIL 30,
1996 1997
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 2,300,099 $ 1,046,103
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating Activities -
Deferred Income Taxes ( 1,313,942) 20,939
Accretion of Discount on Debt Securities ( 3,059,784) (1,402,864)
Increase (Decrease) in Deferred Income 3,864,535 ( 61,586)
Increase in Accrued Interest - Related Party ( 271,249) ( 120,555)
Increase in Income Taxes Payable 2,498,841 517,963
------------- -------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 4,018,500 -
CASH FLOWS FROM INVESTING ACTIVITIES
Advances to Parent Company ( 4,018,500) -
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of Common Stock 1,000 -
------------- -------------
NET INCREASE IN CASH 1,000 -
CASH - beginning of period - 1,000
------------- -------------
CASH - end of period $ 1,000 $ 1,000
------------- -------------
------------- -------------
SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING AND FINANCING ACTIVITIES
Issuance of Common Stock for Debt Securities $ 50,741,210 $ -
The accompanying notes are an integral part of the financial statements.
4
BFC GUARANTY CORP.
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies and practices followed by the company are as
follows:
DESCRIPTION OF BUSINESS - The company was organized on March 21, 1996, as a
wholly-owned subsidiary of Building Finance Company of Tennessee. The company
was formed solely to provide credit enhancement for the Castle Rock Ranch Public
Improvement Authority Guaranteed Public Facilities Revenue Bonds, Series 1996
(the "Castle Rock Bonds"), acquire assets in connection with the provision of
credit enhancement for the Castle Rock Bonds and enter into agreements related
thereto. Operations of the company commenced March 29, 1996, with the issuance
of 1,500 shares of no par value common stock to BFC Finance Company of Tennessee
for $1,000 plus $67,075,000 par value REMIC Federal Lease-Backed Bonds (Series
1996, Class B).
DEBT SECURITIES - Debt securities consist of $67,075,000 par value REMIC Federal
Lease-Backed Bonds (Series 1996, Class B), and were originally recorded at the
cost basis of its parent company and the original holder of the bonds, Building
Finance Company of Tennessee.
DISCOUNT ON DEBT SECURITIES - The discount recorded on issuance of the debt
securities is recorded as an adjustment to the par value of the securities and
is accreted over the term of the securities and recognized as income using the
interest method.
DEFERRED INCOME - Deferred income is recognized on a straight-line basis over
the term of the Castle Rock Bonds and Collateralized Credit Enhancement
Agreement.
INCOME TAXES - Deferred tax assets and liabilities are recognized for the future
tax effects attributed to temporary differences between book and tax bases of
assets and liabilities. The measurement of current and deferred tax assets and
liabilities is based on enacted tax law.
ESTIMATES AND UNCERTAINTIES - The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
EARNINGS PER COMMON SHARE - Earnings per common share is computed by dividing
the net income for the period by the weighted average number of common shares
outstanding during the period.
INTERIM FINANCIAL STATEMENTS - The unaudited balance sheet presented as of April
30, 1997, and the unaudited statements of income and retained earnings and cash
flows for the period then ended contain all adjustments that, in the opinion of
management, are necessary to provide a fair statement of the results for the
interim period presented. All such adjustments are considered of a normal and
recurring nature.
5
BFC GUARANTY CORP.
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
DEBT SECURITIES
Debt securities consist of $67,075,000 par value REMIC Federal Lease-Backed
Bonds (Series 1996, Class B) issued by a related party, BFC Finance Corp. The
bonds are currently pledged as collateral for the Castle Rock Bonds and are held
in trust by the Bond Trustee.
Aggregate maturities and cash payments to be received by the company are as
follows:
COUPON PRINCIPAL INTEREST
RATE PAYMENTS PAYMENTS
Within 1 Year - $ - $ -
1 Year through 5 Years 5.75% 6,310,000 15,168,726
After 5 Years through
10 Years 5.7% - 6.1% 13,190,000 17,414,168
After 10 Years 6.25% - 6.5% 47,575,000 19,728,970
------------ ------------
$ 67,075,000 $ 52,311,864
------------ ------------
------------ ------------
The fair value of the Class B REMIC Bonds calculated as the net present value of
future cash flows using current interest rates is estimated to be $55,481,000 as
of December 31, 1996, and $56,852,000 (unaudited) as of April 30, 1997.
COLLATERALIZED CREDIT ENHANCEMENT AGREEMENT
The company has entered into a collateralized credit enhancement agreement for
the benefit of the Trustee of the Castle Rock Bonds. Under the terms of the
agreement, the company will guarantee complete payment of the Castle Rock Bonds
for the period commencing March 1, 1998, until the Bonds are redeemed or mature.
The Castle Rock Bonds were issued March 29, 1996, by Castle Rock Ranch Public
Improvements Authority (the Authority) at coupon rates ranging from 5.7% to
6.5% and maturing at varying amounts beginning December 1, 1999 and ending
December 1, 2017. Par value of the Castle Rock Bonds is $66,975,000 and the
proceeds from issuance were $67,760,621. The proceeds were used to acquire
real property and water rights in Dawson Ridge development in the town of
Castle Rock, Douglas County, Colorado. The land and water rights were
purchased from a related party, Douglas County Development Corporation
(DCDC), an affiliate of The Franklin L. Haney Company. Mr. Haney is the
President of BFC Guaranty Corp. The land acquired will be used to develop a
golf course and other recreational facilities for the benefit of the Dawson
Ridge Metropolitan Districts. The Castle Rock Bonds have a debt service
reserve retained from the proceeds from their issuance sufficient to fund
interest payments on the Bonds until March 1, 1998.
6
BFC GUARANTY CORP.
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
COLLATERALIZED CREDIT ENHANCEMENT AGREEMENT - continued
In order to secure its obligations under the Collateralized Credit Enhancement
Agreement, the company has pledged and delivered to the Trustee Series B REMIC
Bonds with a par value of $67,075,000, and coupon rates ranging from 5.7% to
6.5%. The Series B REMIC Bonds mature at varying amounts beginning December 1,
1998 and ending December 1, 2017. The Series B REMIC Bonds were issued to the
company along with $1,000 on March 29, 1996, in exchange for all of the
company's authorized and issued shares of no par value common stock.
The Series B REMIC Bonds, along with another series of bonds representing a
regular interest in the REMIC Trust Estate (the "Series A REMIC Bonds"), were
issued under an indenture of trust between BFC Finance Corp. and SouthTrust Bank
of Alabama. The proceeds from the Series A REMIC Bonds will be used to fund the
acquisition and construction of an office building in the District of Columbia
to be leased by the U.S. Government. Scheduled lease payments will be
sufficient to retire all principal and interest payments on the Series A and
Series B REMIC Bonds.
REIMBURSEMENT AGREEMENT
In conjunction with the Collateralized Credit Enhancement Agreement, the company
also entered into a Reimbursement Agreement with Castle Rock Ranch Public
Improvements Authority that requires the Authority to reimburse the company for
any principal and interest payments made by the company under the provisions of
the Collateralized Credit Enhancement Agreement. Interest at the rate of 9%
will be charged on the payments. In addition, the Authority paid the company a
commitment fee of 6% of the Castle Rock Bond proceeds which totaled $4,018,500.
The company advanced the fee to its parent company, Building Finance Corporation
of Tennessee.
The Authority has entered into an operating agreement obligating the Dawson
Ridge Metropolitan Districts to provide funds to the extent that revenues from
the golf course and recreational facilities are insufficient to fund the debt
service on the Castle Rock Bonds. Such funds would be derived from a mill levy
on taxable property in the Dawson Ridge districts. The levy would include a 35
mill limitation. In order to provide an alternate source of revenue, the
Authority entered into a development agreement with DCDC providing for a payment
in lieu of taxes by DCDC in an amount equivalent to the amount which would be
generated by the mill levy pursuant to the operating agreement. DCDC owns
approximately 75% of the taxable property in the Dawson Ridge districts.
7
BFC GUARANTY CORP.
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
INCOME TAXES
The provision for income taxes is as follows:
PERIOD FROM
MARCH 29, 1996 FOUR MONTHS
TO DECEMBER 31, ENDED
1996 APRIL 30, 1997
(UNAUDITED)
Current Provision $ 2,498,842 $ 517,963
Deferred Provision (1,313,942) 20,939
----------- -----------
$ 1,184,900 $ 538,902
----------- -----------
----------- -----------
The deferred tax provision and the related deferred tax asset result from income
recognized when received for tax purposes, but deferred for financial statement
purposes.
CONCENTRATION
Collection of the company's debt securities is dependent on collection of lease
payments by a related partnership from the United States government.
SUBSEQUENT EVENT
Subsequent to December 31, 1996, the Authority filed a Registration Statement on
Form S-4 with the Securities and Exchange Commission offering to exchange the
entire issue of Guaranteed Public Facilities Revenue Bonds, (Series 1996) for an
identical issue of Guaranteed Public Facilities Bonds, (Series 1996B). The
Series 1996B Bonds, the Credit Enhancement of the company and the Class A and B
REMIC Bonds will be registered under the Securities Act of 1933 and as a result,
the Series 1996B Bonds will not be subject to the transfer restrictions
associated with the Series 1996 Bonds. No gain or loss will be recognized for
financial statement purposes by the Authority on the exchange.
8
- -------------------------------------------
-------------------------------------------
- -------------------------------------------
-------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO
WHICH IT RELATES OR AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY SUCH
SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER
ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE CREDIT ENHANCEMENT PROVIDER SINCE THE DATE HEREOF OR THAT THE
INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
------------------------
TABLE OF CONTENTS
PAGE
----
AVAILABLE INFORMATION..................................................... iv
PROSPECTUS SUMMARY........................................................ 1
RISK FACTORS.............................................................. 12
USE OF PROCEEDS........................................................... 16
CAPITALIZATION............................................................ 17
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.............................................................. 18
THE PROJECT............................................................... 18
THE AUTHORITY............................................................. 21
THE DISTRICTS............................................................. 24
TAX EXEMPTION............................................................. 30
DESCRIPTION OF EXCHANGE BONDS............................................. 32
SECURITY AND SOURCE OF PAYMENT............................................ 36
CREDIT ENHANCEMENT........................................................ 37
DESCRIPTION OF SERIES B REMIC BONDS....................................... 42
THE EXCHANGE OFFER........................................................ 50
MANAGEMENT................................................................ 58
OWNERSHIP OF THE AUTHORITY................................................ 59
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS............................ 60
PLAN OF DISTRIBUTION...................................................... 60
RATING.................................................................... 61
LEGAL MATTERS............................................................. 61
INDEPENDENT ACCOUNTANTS................................................... 61
DEFINITIONS OF CERTAIN TERMS AND DESCRIPTIONS OF PRINCIPAL DOCUMENTS...... 62
THE INDENTURE............................................................. 69
COLLATERALIZED CREDIT ENHANCEMENT AGREEMENT............................... 77
REIMBURSEMENT AGREEMENT................................................... 77
THE DEED OF TRUST......................................................... 79
THE OPERATING AGREEMENT................................................... 82
THE INTERGOVERNMENTAL AGREEMENT........................................... 89
THE LEASE................................................................. 92
THE DEVELOPMENT AGREEMENT................................................. 93
THE RECREATIONAL FACILITIES AGREEMENT..................................... 96
INDEX TO FINANCIAL STATEMENTS............................................. F-1
CASTLE ROCK RANCH
PUBLIC IMPROVEMENTS AUTHORITY
---------------------
PROSPECTUS
---------------------
OFFER TO EXCHANGE ITS PUBLIC FACILITIES REVENUE BONDS, SERIES 1996 B FOR ANY AND
ALL OF ITS OUTSTANDING PUBLIC FACILITIES REVENUE BONDS, SERIES 1996
- -------------------------------------------
-------------------------------------------
- -------------------------------------------
-------------------------------------------
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS.
1.1 Purchase Agreement dated as of March 26, 1996, between Castle Rock Ranch
Public Improvements Authority (the "Authority") and Lehmann Brothers, Inc.*
3.1 Certificate of Incorporation of BFC Guaranty Corp.*
3.2 By-laws of BFC Guaranty Corp.*
3.3 Certificate of Incorporation of Castle Rock Ranch Public Improvements
Authority (the "Authority").*
3.4 Bylaws of the Authority.*
3.5 Certificate of Incorporation of BFC Finance Corp.**
3.6 Bylaws of BFC Finance Corp.**
4.1 Indenture of Trust dated as of March 1, 1996 between the Authority and
SouthTrust Bank of Alabama, National Association, as Trustee (the
"Trustee").*
4.2 Indenture of Trust dated as of March 1, 1996 between BFC Finance Corp. and
SouthTrust Bank of Alabama, National Association, as Trustee (the
"Trustee").**
5.1 Opinion and consent of Brownstein Hyatt Farber & Strickland, P.C.**
8.1 Opinion and consent of Brownstein Hyatt Farber & Strickland, P.C.**
10.1 Collateralized Credit Enhancement Agreement dated as of March 1, 1996, from
the Registrant for the benefit of the Trustee.*
10.2 Reimbursement Agreement dated as of March 1, 1996 between the Authority and
the Registrant.*
10.3 Bond Pledge and Security Agreement dated as of March 1, 1996 between the
Registrant and the Trustee.*
10.4 Agreement for Purchase and Sale of Real Property dated as of March 1, 1996
between Douglas County Development Corporation (the "DCDC") and the
Authority.*
10.5 Intergovernmental Agreement dated as of March 1, 1996 between Dawson Ridge
Metropolitan Districts No. 1, No. 2, No. 3, No. 4 and No. 5.*
10.6 Development Agreement dated as of March 1, 1996 between the Authority and
the DCDC.*
10.7 Operating Agreement dated as of March 1, 1996 between the Authority and
Dawson Ridge Metropolitan District No. 5.*
10.8 Recreational Facilities Agreement dated as of March 1, 1996 between the
Authority and Dawson Ridge Metropolitan District No. 5.*
10.9 General Services Administration Lease No. GS-11B-40155, GSA Supplemental
Lease Agreement No. 1 and GSA Supplemental Lease Agreement No. 2, each
between the United States Government acting through the General Services
Administration and Parcel 49C Limited Partnership.*
10.10 Memorandum of Agreement by and between Building Finance Company of
Tennessee, Inc., BFC Finance Corp. And BFC Guaranty Corp., dated April
9, 1997.**
12.1 Statements of Computation of Ratios.**
21.1 Subsidiaries of the Registrants. The Registrants have no subsidiaries.
23.1 Consent of Joseph DeCosimo & Co.**
23.2 Consent of Brownstein Hyatt Farber & Strickland, P.C. (included in
Exhibits 5.1 and 8.1).**
24.1 Power of Attorney for BFC Guaranty Corp.*
24.2 Power of Attorney for BFC Finance Corp. (included in signature page).**
25.1 Statement of Eligibility of Exchange Bonds Trustee on Form T-1.*
25.2 Statement of Eligibility of Series B REMIC Bonds Trustee on Form T-1.**
27.1 Financial Data Schedule for BFC Guaranty Corp.**
27.2 Financial Data Schedule for BFC Finance Corp.**
27.3 Financial Data Schedule for Castle Rock Ranch Public Improvements
Authority.**
99.1 Form of Letter of Transmittal.**
99.2 Form of Notice of Guaranteed Delivery.**
99.3 Form of Tender Instructions.**
- -------------
* Previously filed
** Filed with Amendment No. 2
(B) FINANCIAL STATEMENT SCHEDULES.
Not Applicable.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, BFC Guaranty Corp.
has duly caused this Amendment to Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of
Chattanooga, State of Tennessee, on June 25, 1997.
BFC GUARANTY CORP.
By: /s/ Franklin L. Haney
------------------------------
Franklin L. Haney
President
Pursuant to the requirements of the Securities Act, this Amendment to
Registration Statement has been signed on June 25, 1997 by the following
persons in the capacities indicated.
SIGNATURE CAPACITY
/s/ Franklin L. Haney President and Director
- ------------------------ (Principal Executive Officer)
Franklin L. Haney
/s/ Roger D. Bailey* (Principal Financial Officer and
- ------------------------ Principal Accounting Officer)
Roger D. Bailey
/s/ Emeline W. Haney* Director
- ------------------------
Emeline W. Haney
/s/ Chris E. Zahnd* Director
- ------------------------
Chris E. Zahnd
* By: /s/ Franklin L. Haney
------------------------
Attorney in Fact
Pursuant to the requirements of the Securities Act of 1933, BFC Finance Corp.
has duly caused this Amendment to Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of
Chattanooga, State of Tennessee, on June 25, 1997.
BFC FINANCE CORP.
By: /s/ Franklin L. Haney
-------------------------------
Franklin L. Haney
President
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Franklin L. Haney his true and lawful
attorney-in-fact, with full power of substitution and revocation, for him and
in his name, place and stead, in any and all capacities to sign any and all
amendments (including post-effective amendments) to this Registration
Statement, and to file the same with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange
Commission, granting unto such attorney-in-fact full power and authority to
do and perform each and every act and thing requisite and necessary to be
done as fully to all intents and purposes as such person might or could do in
person, hereby ratifying and confirming all that such attorney-in-fact or his
substitute may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act, this Amendment to
Registration Statement and Power of Attorney have been signed on June 25,
1997 by the following persons in the capacities indicated.
SIGNATURE CAPACITY
/s/ Franklin L. Haney President and Director
- ------------------------- (Principal Executive Officer)
Franklin L. Haney
/s/ Roger D. Bailey (Principal Financial Officer and
- ------------------------- Principal Accounting Officer)
Roger D. Bailey
/s/ Emeline W. Haney Director
- -------------------------
Emeline W. Haney
/s/ Chris E. Zahnd Director
- -------------------------
Chris E. Zahnd