REGISTRATION NO.
------------
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM SB-2
Registration Statement Under The Securities Act of 1933
THE BILTMORE GROUP OF LOUISIANA, L.L.C.
(Name of small business issuer in its charter)
Louisiana 8261 72-1423893
- --------------- --------------- --------------
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Identification Number)
incorporation or Classification Code
organization) Number)
507 Trenton Street
West Monroe, Louisiana 71291
(318) 323-2115
-----------------------
(Address and telephone number
of principal executive offices)
507 Trenton Street
West Monroe, Louisiana 71291
-----------------------
(Address of principal place of business
or intended principal place of business)
Joanne M. Caldwell-Bayles
507 Trenton Street
West Monroe, Louisiana 71291
(318) 323-2115
-----------------------
(Name, address and telephone
number of agent for service)
Copies of communications to:
Clay Carroll, Esq.
525 East Court Avenue
Jonesboro, Louisiana 71251
(318) 259-4184
Michael G. Quinn, Esq.
154 North Topeka Street
Wichita, Kansas 67202
(316) 267-0377
William Martin
MMR Investment Bankers, Inc.
550 North 159th Street East
Suite 300
Wichita, Kansas 67230
(316) 733-5081
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Approximate date of commencement of proposed sale to the public: As soon
as practicable after this Registration Statement becomes effective.
If this Form is filed to register additional securities for an offering
pusuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securitis Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, check the following box. [x]
If this Form is a post-effective amendment filed purusant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
CALCULATION OF REGISTRATION FEE
==============================================================================
Proposed Proposed
Title of Dollar maximum maximum
securities amount offering aggregate
being to be price per offering Amount of
registered registered unit price (1) registration fee
- ---------- ---------- --------- ---------- ----------
Co-First $9,900,000 100% $9,900,000 $3,000.00
Mortgage
Bonds
==============================================================================
(1) The securities to be offered may be purchased in amounts of $250 or more.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
==============================================================================
SENIOR RETIREMENT COMMUNITIES, INC.
CROSS-REFERENCE SHEET PURSUANT TO PART I OF FORM SB-2
FORM SB-2 ITEM PROSPECTUS CAPTION
--------------- ------------------
1. Front of Registration Statement Front of Registration Statement;
and Outside Front Cover Page of Outside Front Cover Page
Prospectus. . . . . . . . . . . .
2. Inside Front and Outside Back Inside Front and Outside Back Cover
Cover Pages of Prospectus . . . . Pages
3. Summary Information and Risk Prospectus Summary; Risk Factors
Factors . . . . . . . . . . . . .
4. Use of Proceeds . . . . . . . . . Prospectus Summary; Sources and Uses
of Proceeds
5. Determination of Offering Price Not Applicable
6. Dilution. . . . . . . . . . . . . Not Applicable
7. Selling Security Holders. . . . . Not Applicable
8. Plan of Distribution. . . . . . . Prospectus Summary; Underwriting
9. Legal Proceedings . . . . . . . . Legal Proceedings
10. Directors, Executive Officers, Management
Promoters and Control Persons . .
11. Security Ownership of Certain Principal Owners of the Company
Beneficial Owners and Management
12. Description of Securities . . . . Description of Bonds
13. Interest of Named Experts and Legal Matters; Experts
Counsel . . . . . . . . . . . . .
14. Disclosure of Commission Not Applicable
Position on Indemnification for
Securities Act Liabilities. . . .
15. Organization within Last Five Not Applicable
Years . . . . . . . . . . . . . .
16. Description of Business . . . . . Prospectus Summary; Risk Factors;
Sources and Uses of Proceeds;
Business; Management; Certain
Transactions; Principal Owners of the
Company; The Company's Plan of
Operation; Financial Statements
17. Management's Discussion and
Analysis of Plan of Operation . . The Company's Plan of Operation
18. Description of Property . . . . . Description of Property
19. Certain Relationships and Certain Transactions
Related Transactions. . . . . . .
20. Market for Common Equity and Not Applicable
Related Stockholder Matters . . .
21. Executive Compensation. . . . . . Management - Executive Compensation
22. Financial Statements. . . . . . . Financial Statements
23. Changes in and Disagreements Not Applicable
with Accountants on Accounting
and Financial Disclosure . .
================================================================================
PROSPECTUS Dated , 1999
-------------
$9,900,000.00
THE BILTMORE GROUP OF LOUISIANA, L.L.C.
Co-First Mortgage Bonds Consisting of:
$1,800,000 Co-First Mortgage Bonds, Series 1999-I (the "Minden Project")
$2,700,000 Co-First Mortgage Bonds, Series 1999-II (the "Oak Creek Project")
$1,800,000 Co-First Mortgage Bonds, Series 1999-III (the "Bastrop Project")
$1,800,000 Co-First Mortgage Bonds, Series 1999-IV (the "Farmerville Project")
$1,800,000 Co-First Mortgage Bonds, Series 1999-V (the "Natchitoches Project")
The Biltmore Group of Louisiana, L.L.C. (the "Company") is a newly
formed Louisiana limited liability company that will develop, acquire and
operate retirement and assisted living facilities in certain cities primarily
in the State of Louisiana and in one city in the State of Arizona. The
Company will conduct business as Arbor Retirement Community in Louisiana. In
Arizona, the Company will conduct business as The Biltmore of Oak Creek. The
Company is offering $9,900,000.00 of co-first mortgage bonds (herein
collectively referred to as the "Bonds") in five series, with the proceeds
from each series being used for a particular project as set forth above.
Herein, the Company's five projects are collectively referred to as the
"Facilities." The issue and sale of each series of bonds is not contingent
on the issue and sale of the other series of bonds, and will be separately
offered, sold and subject to minimum proceeds prior to the issuance
thereof. Pending receipt of minimum proceeds for each series of bonds, the
proceeds for the subscriptions thereto will be held in escrow pursuant to
an Escrow Agreement between the Company and Colonial Trust Company (the
"Trustee").
The Bonds are issued as fully registered bonds in denominations
of $250 or any integral multiple thereof. All Bonds will be issued in
book-entry form unless the purchaser requests a printed bond. Payments of
principal and interest thereunder will be paid by the Trustee, as paying
agent and registrar of the Bonds. A portion of the Bonds bear simple
interest payable semiannually, and some of the Bonds bear compound interest
payable at maturity. See "Maturity Schedules." Interest on the Series
1999-I, III, IV and V Bonds will accrue from their respective dates of issue
whether or not the respective minimum offering amounts have been reached.
Interest on the Series 1999-II Bonds will accrue from the date payment for
the Series 1999-II Bonds is received in the office of MMR Investment Bankers,
Inc. (the "Underwriter") whether or not the minimum offering amount for this
series of bonds has been reached. The Bonds are secured by a pledge of land and
buildings constituting the Facilities and a pledge of gross income of the
Company pursuant to the terms of the Trust Indenture (the "Trust Indenture")
between the Company and the Trustee. The Bonds are subject to redemption
prior to the respective maturities, in whole or in part, as more fully
described herein. See "Description of Bonds".
THE BONDS INVOLVE A HIGH DEGREE OF RISK. PROSPECTIVE INVESTORS SHOULD
CAREFULLY CONSIDER THE SECTION ENTITLED "RISK FACTORS" BEGINNING ON PAGE 7 OF
THIS PROSPECTUS CONCERNING THE COMPANY AND THIS OFFERING.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE BONDS ARE NOT GUARANTEED OR INSURED BY ANY GOVERNMENTAL AGENCY.
THE BONDS ARE NOT RATED BY ANY RECOGNIZED RATING AGENCY.
Series (1) Price to Underwriting Proceeds to
Public (2) Discounts and Company
Commissions (3)
Series 1999-I . . . 100% 6% 94%
Series 1999-II . . . 100% 6% 94%
Series 1999-III. . . 100% 6% 94%
Series 1999-IV . . . 100% 6% 94%
Series 1999-V. . . . 100% 6% 94%
Total. . . . . . . . 100% 6% 94%
(Notes continued on next page)
MMR INVESTMENT BANKERS, INC.
The Bonds are offered by MMR Investment Bankers, Inc. (the "Underwriter")
on a best efforts basis as agent for the Company. The Bonds are offered
subject to prior sale. The offering of the Bonds (the "Offering") will
continue until the sale of all Bonds or for a period of one year from the
date of this Prospectus. It is expected that the Bonds will be delivered
in book-entry form, subject to the sale of minimum funds for each series
of Bonds, through the facilities of the Trustee within thirty (30) days from
the date subscriptions for the Bonds are received.
(Notes continued from the front page)
(1) The Series 1999-I Bonds are subject to the sale of a minimum of
$400,000 in principal amount of Bonds. The Series 1999-II are
subject to the sale of a minimum of $600,000 in principal amount of
Bonds. The Series 1999-III Bonds are subject to the sale of a
minimum of $400,000 in principal amount of Bonds. The Series
1999-IV Bonds are subject to the sale of a minimum of $400,000 in
principal amount of Bonds. The Series 1999-V Bonds are subject to
the sale of a minimum of $400,000 in principal amount of Bonds.
Subject to the sale of all Bonds and any adjustments, the Underwriter
will receive an aggregate maximum sales commission of $594,000. See
"Underwriting." The Company, the Company's affiliates, the
Underwriter and the Underwriter's affiliates may purchase Bonds in
order to reach the minimum offering amounts for any series of the
Bonds. These parties will not be restricted to the amount of Bonds
that they may purchase. The Company has agreed to indemnify the
Underwriter against certain liabilities, including liabilities
under the Securities Act of 1933, as amended (the "Securities Act").
(2) The Bonds are issued as fully registered bonds in denominations
of $250 or any integral multiple thereof.
(3) Before deducting expenses payable by the Company estimated at
$250,000, including an investment banking fee in the amount of
$128,700 paid to the Underwriter for its technical assistance in
connection with the Offering, $60,000 to be paid by the Trustee to
the Underwriter over the terms of the Bonds and miscellaneous
expenses estimated to be $61,300 for registration fees, legal fees,
accounting fees and other costs associated with the Offering.
THESE SECURITIES ARE OFFERED FOR SALE IN THE STATES OF COLORADO, KANSAS,
LOUISIANA AND WYOMING PURSUANT TO A PERMISSIVE REGISTRATION WITH THE
SECURITIES COMMISSIONERS OF THESE STATES. THESE SECURITIES ARE ALSO OFFERED
FOR SALE IN THE STATES OF PENNSYLVANIA AND TEXAS PURSUANT TO EXEMPTIONS FROM
REGISTRATION UNDER THESE STATES' SECURITIES ACTS. THE REGISTRATIONS AND
EXEMPTIONS FROM REGISTRATION DO NOT CONSTITUTE A RECOMMENDATION OR ENDORSEMENT
BY THE COMMISSIONERS NOR DOES THE REGISTRATIONS OR EXEMPTIONS FROM
REGISTRATION SIGNIFY THAT THE COMMISSIONERS HAVE APPROVED OR PASSED UPON THE
INVESTMENT MERIT OF SUCH SECURITIES. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
PENNSYLVANIA RESIDENTS/INVESTORS
EACH PERSON WHO ACCEPTS AN OFFER TO PURCHASE SECURITIES EXEMPTED FROM
REGISTRATION BY SECTION 203(d), DIRECTLY FROM THE ISSUER OR AFFILIATE OF THE
ISSUER, SHALL HAVE THE RIGHT TO WITHDRAW HIS ACCEPTANCE WITHOUT INCURRING ANY
LIABILITY TO THE SELLER, UNDERWRITER (IF ANY) OR ANY OTHER PERSON WITHIN
2 BUSINESS DAYS FROM THE DATE OF RECEIPT BY THE ISSUER OF HIS WRITTEN BINDING
CONTRACT OF PURCHASE, OR, IN THE CASE OF A TRANSACTION IN WHICH THERE IS NO
BINDING CONTRACT OF PURCHASE, WITHIN 2 BUSINESS DAYS AFTER HE MAKES THE
INITIAL PAYMENT FOR THE SECURITIES BEING OFFERED.
TEXAS RESIDENTS/INVESTORS
THESE SECURITIES ARE OFFERED FOR SALE ONLY TO FINANCIAL INSTITUTIONS,
INSTITUTIONAL INVESTORS AND ACCREDITED INVESTORS AS DEFINED IN SECTION 109.3
OF THE TEXAS SECURITIES ACT.
(Artist rendering of a facility of the Company and Company's logo will
go in this space)
The Company intends to furnish annual reports containing audited financial
statements to its bondholders.
2
MATURITY SCHEDULES
Series 1999-I Bonds
Maturity Type Interest Principal
Date (1) Rates Retired (2)
10/01/00 S 7.00% $21,000
04/01/01 S 7.50% $21,500
10/01/01 S 7.50% $24,000
04/01/02 S 8.00% $25,000
10/01/02 S 8.00% $29,500
04/01/03 S 8.50% $30,250
10/01/03 C 8.50% $21,750
04/01/04 S 9.00% $31,500
10/01/04 C 9.00% $20,500
04/01/05 S 9.25% $33,000
10/01/05 C 9.25% $19,250
04/01/06 S 9.50% $34,750
10/01/06 S 9.50% $36,250
10/01/06 S 9.50% $1,451,750
Series 1999-II Bonds
Maturity Type Interest Principal
Date (1) Rate Retired (2)
05/01/04 S 9.00% $2,700,000
Series 1999-III Bonds
Maturity Type Interest Principal
Date (1) Rate Retired (2)
11/01/99 C 6.50% $77,000
05/01/00 C 7.00% $74,500
11/01/00 C 7.00% $81,000
05/01/01 C 7.50% $77,750
11/01/01 C 7.50% $83,500
05/01/02 C 8.00% $79,500
11/01/02 C 8.00% $84,500
05/01/03 C 8.50% $79,500
11/01/03 C 8.50% $76,500
05/01/04 C 9.00% $71,500
11/01/04 C 9.00% $68,500
05/01/05 C 9.25% $64,500
11/01/05 C 9.25% $62,000
05/01/06 C 9.50% $58,000
11/01/06 C 9.50% $55,500
11/01/06 C 9.50% $706,250
Series 1999-IV Bonds
Maturity Type Interest Principal
Date (1) Rate Retired (2)
12/01/00 S 7.00% $17,250
06/01/01 S 7.50% $18,000
12/01/01 C 7.50% $23,000
06/01/02 S 8.00% $27,750
12/01/02 C 8.00% $30,000
06/01/03 S 8.50% $39,500
12/01/03 C 8.50% $28,250
06/01/04 S 9.00% $41,250
06/01/04 S 9.00% $1,575,000
Series 1999-V Bonds
Maturity Type Interest Principal
Date (1) Rate Retired (2)
01/01/01 S 7.00% $17,250
07/01/01 S 7.50% $18,000
01/01/02 C 7.50% $23,000
07/01/02 S 8.00% $27,750
01/01/03 C 8.00% $30,000
07/01/03 S 8.50% $39,500
01/01/04 C 8.50% $28,250
07/01/04 S 9.00% $41,250
07/01/04 S 9.00% $1,575,000
Note 1: S = Simple Interest Bonds; interest payable semiannually until
maturity. C = Compound Interest Bonds; interest compounded semiannually and
payable at maturity.
Note 2: The Series 1999-I Bond Issue has a balloon payment of $1,451,750 due
on September 30, 2006. The Series 1999-II Bond Issue has a balloon payment of
$2,700,000 due on April 30, 2004. The Series 1999-III Bond Issue has a
balloon payment of $1,416,771 due on October 31, 2006 consisting of $706,250
in principal and $710,521 in accrued interest. The Series 1999-IV and Series
1999-V Bond Issues each have balloon payments of $1,575,000 due on May 31,
2004 and June 30, 2004, respectively.
3
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information, including risk factors, financial statements and notes thereto
appearing elsewhere in this Prospectus.
The Company
The Biltmore Group of Louisiana, L.L.C. is a development stage limited
liability company formed under the laws of the State of Louisiana for the
purpose of developing, acquiring and operating retirement and assisted living
facilities in four locations in Louisiana and one location in Arizona. The
Company's executive offices are located at 507 Trenton Street, West Monroe,
Louisiana, and the Company's telephone number is (318) 323-2115. See
"Business."
The Offering
Bonds Offered. . . . . . . The Company is offering $9,900,000.00 of co-first
mortgage bonds in five series, with the proceeds
from each series being used for a particular
project. The issue and sale of each series of bonds
is not contingent on the issue and sale of the other
series of bonds, and will be separately offered and
sold and subject to minimum proceeds prior to the
issuance thereof. The Bonds are secured by a pledge
of land and buildings constituting the Facilities
and a pledge of gross income of the Company pursuant
to the terms of the Trust Indenture between the
Company and the Trustee. See "Description of
Bonds - Description of Liens" and "Description of
Bonds - General."
The Series 1999-I Bonds will be dated April 1, 1999,
and are subject to the sale of a minimum of $400,000
in principal amount of Bonds. The aggregate
principal amount of the Series 1999-I Bonds is
$1,800,000 and is comprised of bonds in the
principal amount of $1,738,500 that will mature
serially and bear simple interest payable by check
mailed to the registered owners each October 1 and
April 1 until maturity and bonds in the principal
amount of $61,500 that will mature serially and
bear interest compounded semiannually each
October 1 and April 1 that is payable at maturity.
The Series 1999-II Bonds will be dated May 1, 1999,
and are subject to the sale of a minimum of
$600,000 in principal amount of Bonds. The
aggregate principal amount of the Series 1999-II
Bonds is $2,700,000. The Series 1999-II Bonds will
mature serially and bear simple interest payable by
check mailed to the registered owners each
November 1 and May 1 until maturity.
The Series 1999-III Bonds will be dated May 1, 1999,
and are subject to the sale of a minimum of $400,000
in principal amount of Bonds. The aggregate
principal amount of the Series 1999-III Bonds is
$1,800,000. The Series 1999-III Bonds will
mature serially and bear interest compounded
semiannually each November 1 and May 1 that is
payable at maturity.
The Series 1999-IV Bonds will be dated June 1, 1999,
and are subject to the sale of a minimum of $400,000
in principal amount of Bonds. The aggregate
principal amount of the Series 1999-IV Bonds is
$1,800,000 and is comprised of bonds in the
principal amount of $1,718,750 that will mature
serially and bear simple interest payable by check
mailed to the registered owners each December 1
and June 1 until maturity and bonds in the
principal amount of $81,250 that will mature
serially and bear interest compounded semiannually
each December 1 and June 1 that is payable at
maturity.
4
The Series 1999-V Bonds will be dated July 1, 1999,
and are subject to the sale of a minimum of $400,000
in principal amount of Bonds. The aggregate
principal amount of the Series 1999-VI Bonds is
$1,800,000 and is comprised of bonds in the
principal amount of $1,718,750 that will mature
serially and bear simple interest payable by check
mailed to the registered owners each January 1 and
July 1 until maturity and bonds in the principal
amount of $81,250 that will mature serially and
bear interest compounded semiannually each
January 1 and July 1 that is payable at maturity.
Interest on the Bonds is included in gross income
for federal tax purposes. See "Description of
Bonds."
Denominations. . . . . . . $250 or integral multiples thereof.
Maturity . . . . . . . . . See Maturity Schedules on page 3 hereof.
Subscription for Bonds . . Each person who wishes to purchase a Bond must
execute a subscription agreement covering the
Bond(s) being purchased. The subscription
argeement is generated by the Underwriter upon
receiving verbal indication from a subscriber for
the Bond(s) the subscriber has selected from the
available maturities. Subscribers may purchase
any of the series of Bonds. Prior to executing the
subscription agreement, the subscriber will be
provided a Prospectus by the Underwriter. See
"Underwriting - Subscription for Bonds."
Operating Funds. . . . . . Under the Trust Indenture, the Company must
establish an operating fund account for each of the
five series of bonds. The Company will make
monthly deposits into the operating fund accounts
in amounts predetermined to be sufficient at
all times to pay the principal and interest of the
Bonds. See "Description of Bonds - Operating
Fund Requirements."
Redemption . . . . . . . . The Company has reserved the right to redeem all
or a portion of the Bonds prior to their stated
maturity. The Bonds are subject to redemption
without premium at the principal amount thereof
plus accrued interest. See "Description of
Bonds - Prepayment."
Covenants. . . . . . . . . In addition to its obligation to remit the principal
and interest payments when due, the Company has
agreed to at its own cost and expense, maintain
the properties in good repair and condition and
pay or discharge all taxes, assessments and any
mechanic's or material men's liens that may become
payable. The Company covenants to keep all property
pledged under this Bond issue properly insured
against loss by fire, windstorm and explosion in an
amount equal to the outstanding balance of the
Bonds. Also, the Company has obtained a key
employee insurance policy covering the life of the
Managing Member of the Company in the amount of
$500,000 payable to the Company and $1,000,000
assignable to the Trustee for the benefit of the
Bondholders. See "Description of Bonds."
Bond Reserve Fund. . . . . The Company has agreed to establish a bond reserve
account ("Bond Reserve Account") which will be
funded by the Series 1999-I, III, IV and V Bonds.
See "Sources and Uses of Proceeds." The purpose
of the Bond Reserve Account is that in the event
the Company has not deposited the necessary funds
to pay the principal and interest due on any
semiannual payment date, the Trustee may apply
available funds to the principal and interest
due on the Bonds. If all the Bonds are sold, the
Bond Reserve Account will be funded in the amount
of $537,000. The Bond Reserve Account will remain
in place for a period of 7 1/2 years from May 1,
1999. At the end of the 7 1/2 year period said
reserve funds will be used to call any outstanding
Bonds, provided the Company is current on all
operating fund payments. See "Description of
Bonds - Bond Reserve Account."
5
Trustee. . . . . . . . . . Colonial Trust Company of Phoenix, Arizona has
agreed to serve as Trustee for the Bonds pursuant
to the Trust Indenture entered into between the
Company and the Trustee. The Trustee has also
agreed to serve as Paying Agent, Registrar,
Disbursing Agent and Escrow Agent. The Trustee
is not a guarantor or surety, does not in any way
guarantee or act assurety for payment of the Bonds
and may not be held liable under any conditions,
except for its own negligence. See "Description of
Bonds."
Trust Indenture. . . . . . The Company pledges, transfers and assigns to the
Trustee, in trust, to secure the payment of the
Bonds, all of its rights, title and interest to
the first receipts of any and all revenues of the
Facilities, the real property of the Company and
the furnishings and equipment of the Company and
all monies and securities held by the Trustee under
the terms of the Trust Indenture. The Bonds are
secured by a pledge of land and buildings
constituting the Facilities and a pledge of gross
income of the Company. The properties securing the
Bonds are located in the Northern Louisiana
communities of Minden, Bastrop and Farmerville and
Natchitoches and Sedona, Arizona. Pursuant to the
Trust Indenture, each bond will be issued on parity
with the other Bonds. See "Description of Bonds."
Proceeds Escrow. . . . . . All proceeds from the sale of Bonds will be
deposited with Colonial Trust Company as "Escrow
Agent" pursuant to an Escrow Agreement entered into
between the Company and the Escrow Agent. Pursuant
to the terms of the Escrow Agreement, all proceeds
from the sale of the Bonds will be deposited with
the Escrow Agent, subject to the sale of minimum
funds for any series of Bonds, as set forth herein.
In the event minimum funds for any series of Bonds
is not received within the time set forth herein,
the Company will promptly pay to the Escrow Agent
such sum of money as will be necessary, if any,
when added to the sums held in escrow, including
interest earned thereon, to pay to the subscribers
the principal amount of their subscription together
with the interest from the date of issue through
the escrow termination date at the rate
attributable to the Bonds subscribed to by the
subscriber. During the escrow period, the
subscriber will not have access to funds held in
the Escrow Account. See "Description of
Bonds - Escrow and Disbursement of Bond Proceeds."
Use of Proceeds. . . . . . Subject to the sale of minimum funds for each
series of Bonds, the net proceeds will be used
to fund a small portion of the operating fund
payments on the Bonds, fund a reserve account,
provide financing for the construction, furnishing
and equipping of the Company's Facilities and
payoff interim/construction financing on the
Facilities. See "Sources and Uses of Proceeds."
Risk Factors . . . . . . An investment in the Bonds are speculative and
involves a high degree of risk. Among such risks
are the following: no assurance of sale of any
series of the Bonds; sale of the Minimum Offerings
will not be sufficient to retire the
interim/construction loans; and the Company will
be required to make substantial balloon payments
at the final maturities of the Bonds. Potential
investors should carefully consider the factors
set forth under "Risk Factors."
Financial Summary
As of December 31, 1998, the Company had total assets of $3,953,961,
total liabilities of $2,174,025 and total members equity of $1,088,646. The
members of the Company have contributed a total of $1,112,762.50 in capital
to the Company. Since the Company's inception on July 1, 1998 through
December 31,1998, the Company has generated no revenues and has incurred
cumulative expenses of $24,117. See "Financial Statements" beginning on page
F-1 of the Prospectus.
6
RISK FACTORS
In addition to the other information in this Prospectus, the following
factors should be considered carefully in evaluating an investment in the
Bonds offered by this Prospectus. An investment in the Bonds is speculative
and involves a high degree of risk. Certain of these risks are set forth
below and should be considered by investors, among others, as a part of their
overall evaluation before making a decision to purchase Bonds.
No Commitment to Purchase Bonds; Deposit of Subscriptions
The Underwriter, in selling the Bonds, is acting as agent of the Company
on a "best efforts" basis. The Underwriter is only obligated to use its best
efforts to sell the Bonds, and the Company will not receive any proceeds of
any series of the Bonds unless the Underwriter sells Bonds equal to the
minimum amount of bonds applicable to a series of Bonds. During the offering
period, the Underwriter will deposit all subscriptions from the sale of the
Bonds with the Escrow Agent, which funds will be held until the minimum
offering for a series of Bonds is met. Thereafter, such funds shall be
disbursed to the Company and applied for the purposes set forth herein.
See "Sources and Uses of Proceeds." If the minimum offering for any series
of Bonds is not sold, potential investors will loose the use of their funds
during the offering period, and any extension thereof, although the Company
has agreed to promptly pay to the Escrow Agent such sum of money as shall be
necessary, if any, when added to funds held in escrow, including interest
earned thereon, to pay to the subscribers of the bonds the principal amount
of such subscriptions together with the interest applicable to such Bonds
through the escrow termination date. See "Description of Bonds - Escrow and
Disbursement of Bond Proceeds."
Risk Associated with Bonds - Co-First Mortgage
The Company has obtained and will obtain interim/construction loans
(the "Interim Loans") with The First Republic Bank of Monroe, Louisiana
("FRB") and Church Loans and Investments Trust of Amarillo, Texas ("CLT"),
hereinafter collectively referred to as the Interim Lenders, for the
construction and acquisition of the Company's Facilities. The Company
obtained the construction loan for the Minden Project ("Minden Construction
Loan") on October 2, 1998 in the amount of $1,358,520 from FRB. The Company
obtained the interim loan for the Oak Creek Project ("Oak Creek Interim
Loan") on October 20, 1998 in the amount of $2,174,025 from CLT. The Company
obtained the construction loan for the Bastrop Project ("Bastrop Construction
Loan") on November 24, 1998 in the amount of $1,220,000 from CLT. The Company
agreed to the terms of a construction loan commitment issued by CLT for the
construction financing of the Farmerville Project ("Farmerville Construction
Loan") on February 1, 1999. The Farmerville Construction Loan will be in the
amount of $1,330,000 and will be due 12 months after the initial funding of
the loan. The Company agreed to the terms of a construction loan commitment
issued by CLT for the construction financing of the Natchitoches Project
("Natchitoches Construction Loan") on February 1, 1999. The Natchitoches
Construction Loan will be in the amount of $1,450,000 and will be due 12
months after the initial funding of the loan.
Each interim/construction loan is secured by a Co-First Mortgage on the
corresponding project that will be constructed or has been construction (the
Oak Creek Project) from the proceeds of the respective interim/construction
loan. If any of the loans go into default, the lender may exercise it rights,
including Lender's right under the mortgage and the applicable Lienholder
Agreement to accelerate the defaulted interim/construction loan and the
applicable bonds and, if not paid, then foreclose the subject property
securing the applicable interim/construction loan. There is no assurance
that the Company would be able to secure alternative financing to replace the
interim/construction loan(s) on a timely basis. Notwithstanding the fact
that the security for each of the Facilities is in parity with its respective
interim/construction loan, there can be no assurance that the proceeds
arising from any sale of any of the Facilities, even though the construction
has been fully completed, would be sufficient to fully repay the respective
interim/construction loan and the then outstanding Bonds. Under the terms of
the Lienholder Agreements, all receipts from collection and foreclosure are
to be allocated between the interim/construction loan and the corresponding
series of Bonds in proportion to the respective principal balances outstanding.
See "Description of Property - Financing of the Company's Facilities",
"Description of Bonds - Escrow and Disbursement of Bond Proceeds", "Sources
and Uses of Proceeds" and "The Company's Plan of Operation."
7
Substantial Balloon Payment Requirements for the Bonds
In order to retire all of the Bonds, the Company is required to make a
substantial balloon payment on the final maturity for each series of bonds.
See "Maturity Schedules." The Company is required to make a one-time payment
of $1,451,750 on September 30, 2006, to pay principal due at that time on the
remaining outstanding Series 1999-I Bonds. The Company is required to make a
one time payment of $2,700,000 on April 30, 2004, to pay principal due at
that time on the remaining outstanding Series 1999-II Bonds. The Company is
required to make a one time payment of $1,416,771 on October 31, 2006, to pay
principal and interest due at that time on the remaining outstanding Series
1999-III Bonds. The Company is required to make a one time payment of
$1,575,000 on May 31, 2004, to pay principal due at that time on the
remaining outstanding Series 1999-II Bonds. The Company is required to make
a one time payment of $1,575,000 on June 30, 2004, to pay principal due at
that time on the remaining outstanding Series 1999-II Bonds. There is no
assurance the Company will have sufficient funds to do so, and, if not, may
have to refinance the balance of the Bonds then due. There is also no
assurance the Company will be able to refinance an amount sufficient to
retire all of the Bonds then outstanding.
Presence of Debt
The Company is newly formed and without any operating history. The
financing activities of the Company will be made primarily through the
issuance of debt. As a result, the Company will be highly leveraged.
Moreover, the Company will initially be highly dependent upon the proceeds
received as a result of the issuance of the Bonds in order to service the
debt incurred under the Bonds and, thereafter, the payment of debt will be
based upon income from the Company's operation of the Facilities. There is
no assurance that such operations will be successful. Other than a pledge of
the land and buildings constituting the Facilities and a pledge of the gross
income for the benefit of the Bonds, there are no other credit enhancements to
secure the payment of the Bonds such as personal guarantees of members,
letters of credit or other additional forms of security for the Bonds. The
obligations for the payment of principal and interest of the Bonds are
entirely the obligation of the Company. Such obligations are without
recourse to the stockholders of the Company.
No Assurance of Operating Fund Payments
Proceeds of this Offering, in part, will be used to fund the first
monthly operating fund payments on all five series of bonds in amounts
approximately equivalent to the first six month operating fund payments
assuming all of the Bonds are sold. There is no assurance that the Company
will have sufficient funds to pay the operating fund payments after the
initial operating fund payments (that are to be funded from bond proceeds)
have been expended. Failure of the Company to make the operating fund
payments constitutes an event of default upon which the Trustee may
accelerate the Bonds. See "Description of Bonds - Initial Operating Fund
Payments", "Description of Bonds - Events of Default" and "Description
of Bonds - Remedies of Default."
Proceeds of this Offering also will be used to fund the Bond Reserve
Account to be applied by the Trustee to pay the principal and interest due on
the Bonds only in an event of default. The Trustee will maintain the Bond
Reserve Account and will be in effect for 7 1/2 years from May 1, 1999.
Should the Company fail to make the required deposits into the operating fund
account necessary to pay the principal and interest due on the payment dates,
and should the Bond Reserve Account be entirely expended for said purposes,
there may not be sufficient funds available to repay bondholders in a
timely manner. At the end of the 7 1/2 year period, any funds remaining in
the Bond Reserve Account must first be used to call any outstanding Bonds,
provided the Company is current on all operating fund payments. If all of
the Bonds have been retired prior to the end of the 7 1/2 year period, then
the Bond Reserve Account will be released to the Company. See "Description
of Bonds - Bond Reserve Accounts."
If only a portion of the Bonds are sold, the operating fund payments may
be adjusted to correspond with the principal and interest then outstanding,
but at no time be less than the required amount to pay any principal and/or
interest that would be due on any interest computation date.
Possible Withdrawal of Underwriter
The Underwriter is subject to civil litigation brought by the Securities
Commissioner of Kansas on behalf of the State of Kansas. This case stems
from the Underwriter's participation in a series of church bond offerings of
a single church located in Wichita, Kansas. The Securities Commissioner of
Kansas seeks a permanent injunction restraining and enjoining the Underwriter,
its control persons and others from directly or indirectly employing any
device, scheme, or artifice
8
to defraud; engaging in an act, practice or course of business which would
operate as a fraud or deceit upon any person; and/or making any untrue
statements of material fact and/or omitting to state material facts necessary
in order to make other statements made not misleading, and, seeking
restitution jointly and/or severely in the amount of $4,825,665.24, which is
the amount in default on the last two issues of church bonds issued on
behalf of the church. It is likely that during the offering of the Bonds,
that this matter may be adjudicated, settled, or otherwise, and the authority
of the Underwriter to engage in the securities business may be suspended,
revoked or limited. Currently, this litigation is in its discovery stage,
and the Underwriter has determined to vigorously defend the case. However,
in the event the Underwriter is unable to continue its business as a broker
dealer of securities, it will have to withdraw from its participation in this
Offering and, in all likelihood, the Offering will be terminated unless and
until the Company is successful in finding another Underwriter willing to
participate in the sale of the Bonds.
Lack of Secondary Market
The Underwriter does not intend to make a market in the Bonds. There is
no quoted market for the Bonds and there is no assurance a market will
develop. There is no guarantee that all or a substantial portion of the
Bonds will be sold. The marketability of the Bonds may also be influenced by
other general market conditions, such as the overall strength of the bond
market, which is influenced by a number of factors, such as changes in
prevailing interest rates which may have an adverse effect on the price of
the Bonds upon their sale and which are beyond the control of the Company. In
addition, the Bonds have not received any credit rating by a Nationally
Recognized Statistical Rating Organization. The absence of any such rating
could adversely affect the ability of an investor to sell the Bonds or the
price at which the Bonds are sold. Therefore, the likelihood of a market
developing may be remote at best. A decision to purchase Bonds should be made
with the understanding the Bonds most likely will have to be held until
maturity, as there is no quoted secondary market for the Bonds, nor is there
the likelihood one will develop. Purchasers of the Bonds should consider
their ownership of the Bonds as an illiquid investment.
Limitations of the Trust Indenture
The Bonds will be issued pursuant and subject to the provisions of a
certain Trust Indenture (the "Trust Indenture") between the Company and
Colonial Trust Company of Phoenix, Arizona, as Trustee, Bond Registrar and
Paying Agent (the "Trustee"). The Company is not required to qualify the
Trust Indenture under The Trust Indenture Act of 1939 as amended (the "Act").
Thus, the Company has elected not to qualify the Trust Indenture under the
Act. Although the Trust Indenture utilized by this Company does not conform
entirely to the required provisions to the Trust Indenture Act of 1939, the
overall agreement of the Trust Indenture does incorporate the essential
provisions for the protection of bondholders. See "Description of Bonds."
Enforcement of Trust Indenture
The enforceability of the terms of the Trust Indenture is qualified to
the extent that enforcement of the rights and remedies created by it is
subject to bankruptcy, fraudulent conveyance, moratorium, insolvency,
reorganization, and similar laws of general application affecting the rights
and remedies of creditors and secured parties. The remedy of specific
enforcement or of injunctive relief is subject to the discretion of the court
for which any proceedings may be brought. To the extent the enforceability
of the Trust Indenture is affected by such bankruptcy, insolvency,
reorganization or similar laws, the rights of the Trustee or the Bondholders,
and their ability to make recovery, in whole or in part, could be adversely
affected.
Additional Bonds
The terms of the Trust Indenture enable the Company to further encumber
the Facilities securing the Bonds by permitting the issuance of additional
bonds at a future date. To the extent any additional bonds are issued, these
additional bonds would be issued on parity with the Bonds and would, in turn,
share proportionately with the Bonds in any proceeds that might arise from a
foreclosure or similar proceeding following a default by the Company, thereby
diminishing the proceeds available for repayment of the Bonds. See
"Description of Bonds" and "The Company's Plan of Operation."
9
Notification of Bonds Maturing
Semiannual notifications of Bond maturity may not be forwarded; each
Bondholder who has received a printed bond certificate is responsible to
present his/her Bonds for redemption at maturity. No interest will accrue
or be payable from or after the respective payment date upon any matured
installment of principal or interest. Further, the failure to present any
Bond within three years of its maturity may result in the principal and
interest due being subject to the laws of escheat in particular states.
Early Redemption of Bonds
The Bonds are subject to redemption, in whole or in part, prior to
maturity as more particularly set forth herein. If the Bonds are redeemed
prior to maturity, the owners thereof will not receive the yield to maturity
indicated, and, if so redeemed, the owners may not be able to reinvest the
proceeds thereof at comparable rates.
Lack of Operating History and Related Experience
The Company is newly formed and was organized on July 13, 1998.
Renovations of the Oak Creek Project were completed in January 1999, and the
Oak Creek Project commenced operations in January 1999. Construction of the
Minden Project commenced in November 1998 and is scheduled to be completed
and open for business in June 1999. Construction of the Bastrop Project
commenced in December 1998 and is scheduled to be completed and open for
business in July 1999. Construction of the Farmerville Project will commence
in February 1999 and is scheduled to be completed and open for business in
August 1999. Construction of the Natchitoches Project will commence in March
1999 and is scheduled to be completed and open for business in August 1999.
Therefore, the Company has no substantial operating history. However,
the Managing Member of the Company has gained previous experience in the
development and operation of similar retirement, assisted living and memory
disorder facilities in West Monroe, Ruston, Bossier City and Shreveport,
Louisiana. The West Monroe Facility commenced operations in November of 1997.
The Ruston Facility commenced operation in November 1998. The Shreveport
Facility commenced operations in January 1999, and the Bossier City Facility
will commence operations in February 1999. See "Management" and "Prior
Performance of Affiliates of the Company." There is no assurance, that once
open, the Company's Facilities will generate income sufficient to service the
Bonds.
Lack of Independent Feasibility Studies
Independent feasibility studies have not been performed for the Company
for its intended operations of the Facilities. The Company has relied upon
market research conducted by the Company and the past experience of its
Managing Member in analyzing the business opportunities of the Company. The
Company has secured independent appraisals of the Facilities partly as a
result of requests of the Underwriter and for its own purposes. See
"Description of Property - Appraisals" and "Business - Competition."
Risks Arising from Operations
Any business entity which operates retirement and assisted living
residences may be affected by adverse changes in general or local economic
and market conditions, increased costs of labor or energy, competition from
other similar businesses, poor management, limited alternative uses for the
building and improvements, changing consumer tasks and habits, changing
demographics and other factors. The Company's Facilities will be subject to
various requirements, restrictions and regulations imposed by governmental
authorities affecting the frail and elderly housing and care industry, the
violation or claimed violation of which could have a material adverse impact
upon the Company's ability to meet its business and financial obligations.
More specifically, these risks include the following:
General Economic Conditions: The financial success of the Company's
operations may be sensitive to adverse changes in general economic conditions,
such as inflation and unemployment. These changes could cause the cost of
the Facilities' operations to increase in a manner that would create serious
economic hardship. These changing conditions could also restrict the amount
of income which potential customers have available for funding housing and
care requirements such as residing at the Company's Facilities. The Company
and its management have no control over any of these changes.
10
General Risks in Property Ownership: The Company will be subject to
risks generally applicable to the ownership of real estate, including changes
in (i) general economic conditions; (ii) supply of, or demand for, similar or
competing properties; (iii) interest rates and the availability of permanent
mortgage funds which may render the refinancing of their Facilities difficult
or unattractive; and (iv) tax, real estate, environmental and zoning laws.
Competition: The Company will experience competition from other elderly
housing and care providers. The Company will compete principally on the
basis of perceived quality and service, ambiance and price-value relationship.
While the Company believes that their Facilities will be distinctive in
design and operating concept, it is aware of other companies with similar or
competitive concepts. The long-term care industry is highly competitive and
the Company expects it will become more competitive in the future. The
Company competes with numerous other companies providing similar long-term
care alternatives, such as home health agencies, life care at home,
community-based service programs, retirement communities and convalescent
centers. Nursing facilities that provide long-term care services are also a
potential source of competition to the Company. See "Business - Competition."
Rental Risk: One of the principal risks being taken by the Company is
the possibility that the Facilities will not generate sufficient cash flow to
cover operating expenses and debt service payments, and the Company may be
unable to meet its obligations. The cash flow derived from the Facilities
may be affected by a variety of factors, including but not limited to, the
following: (i) a reduction in rental income due to the Facilities inability
to maintain high occupancy levels at favorable rates; (ii) adverse changes in
local market conditions, such as over building, reduced employment
opportunities, population shifts due to demographic changes, adverse changes
in the residential quality of the surrounding neighborhood or unfavorable
zoning law changes; (iii) rent control legislation; and (iv) the destruction
of part or all of the Facilities due to fire, flooding, tornadoes or other
natural disasters.
Environmental Considerations: Certain Federal and state laws impose
liability on a landowner for the presence on the premises of improperly
disposed of hazardous substances. This liability is without regard to fault
for, or knowledge of, the presence of such substances and may be imposed
jointly or severally upon all succeeding landowners from the date of the
first improper disposal. While state law is less onerous, the practical
consequences may be the same. If in the future it is ever determined that
hazardous substances are present, the Company could be required to pay all
costs of any necessary clean up work, although under certain circumstances
claims against other responsible parties could be made by the Company.
Phase one environmental assessments were conducted on the Company's
properties from 1998 through 1999, except for the Oak Creek Project in which
no environmental assessment has been conducted. Research and visual
observation undertaken from the environmental assessments did not reveal any
former or current environmental conditions, problems or situations impacting
the sites.
Reliance on Technology - Year 2000 Risks
The Company relies on computer hardware, software and related technology,
together with data, in the operation of its business. In addition, the
Company is dependent on the same type of technology and data generated by
financial institutions, the Federal Government such as the Social Security
Administration, the State of Louisiana, investment bankers, the Trustee,
interim lenders and utility companies. The Company has initiated an
enterprise wide program to prepare for the year 2000. The Company has
created a year 2000 program office reporting to the Managing Member to
coordinate and oversee the Company's year 2000 program. All of the Company's
computer systems have been cleared to meet the year 2000 requirements by
contacting the manufacturer of the equipment and receiving written notice of
compliance. The computer software necessary for the accounting function has
also been cleared for the year 2000 requirements in writing from the developer
of the accounting software. The Company has discussed the year 2000 with
all of the above set forth companies and agencies and have been assured either
in writing or verbally that each anticipates compliance for the year 2000.
As a result of the Company's own operations already being in compliance with
the year 2000, it is dependent upon outside forces to also be in compliance.
It is impossible for the Company to be sure that all governmental agencies,
utilities, financial institutions and others with whom it does business will
also be in compliance. The failure of some or all of the above stated
agencies being in compliance with the year 2000 could adversely affect the
Company's ability to operate.
11
Construction Risks
Renovations to the Oak Creek Project are complete, and this facility
commenced operations in January 1999. Construction of the Company's other
four Facilities is not completed, and delays are common in the construction
industry. The Company anticipates the construction of its Facilities to be
completed by August 1999. Disruptive events may include shortages of, or
inability to obtain, labor or materials, the inability of the general
contractor or subcontractors to perform under their contracts, strikes,
adverse weather conditions, changes in Federal, state or local laws or
regulations, and other factors or circumstances presently unknown to or
unanticipated by the Company. The Company may have little control over such
events, and such events may adversely affect the cost and completion time of
the Facilities. See "Business - Construction of the Facilities."
Acquisition Risk - Oak Creek Project Operations
The Oak Creek Project was acquired in October 1998. The property was
previously used as a cancer treatment center. The Company's studies
indicated the highest and best use for the facility is that of a senior
independent living facility. After the Company completed renovations in
January 1999, the Oak Creek Project commenced operations. The facility has
not been in operation for a sufficient time to evaluate its success. See
"General Risks in Property Ownership," "Competition" and "Rental Risk."
Dependence on Management - Management Agreement
The success of the Company's business will be highly dependent upon the
services of Joanne M. Caldwell-Bayles, Managing Member of the Company. The
loss of her services to the Company would adversely affect the Company's
business operations. The Company has obtained a key employee insurance policy
covering the life of Mrs. Caldwell-Bayles in the amount of $500,000 payable
to the Company and $1,000,000 assignable to the Trustee for the benefit of
the Bondholders. Mrs. Caldwell-Bayles, through a company owned by her, The
Forsythe Group, Inc., has entered into a Management Agreement for the
management of the Company's Facilities. See "Business - Management
Agreement." The Management Agreement extends to the day-to-day operations of
the retirement and assisted living facilities of the Company. The Management
Agreement extends to the year 2010 and may be terminated by the mutual
agreement of the parties, bankruptcy or for cause. See "Business -
Facilities Operations."
Employees
Prior to the commencement of operations of each facility, the Company
intends to employ an average of ten employees at each facility. During the
construction and operation of the Facilities, the Company depends on The
Forsythe Group, Inc. ("Forsythe"), for support staff and office facilities.
There is no assurance that the Company or Forsythe will be able to obtain
and maintain an adequate number of competent personnel, including entry-level
and skilled positions, or that a shortage of operating personnel will not
present a serious problem to the Company or Forsythe in the future. See
"Business - Management Agreement."
Lack of Company Member's Liability
Under the Louisiana Limited Liability Company Act, all members and
managers of a limited liability company have limited liability without
regard to their participation in the management in the Company's business.
A member is only liable for his contribution and improper return of capital.
Accordingly, in the event of default in the payment of principal and interest
on the Bonds occurs, in all likelihood, the bondholders could look only to the
assets of the Company for satisfaction of such indebtedness.
Conflicts of Interest
The members of the Company, individually and/or through their ownership
of affiliated companies have or will receive fees and compensation from the
Company. These related transactions are critical to the development and
operation of the Company's Facilities. See "Certain Transactions."
Furthermore, the Managing Member of the Company has or will be negotiating
and executing agreements on behalf of the Company. The Managing Member also
has the authority to negotiate and execute agreements with entities with which
she is affiliated. This presents a conflict of interest in the fact that
affiliates
12
may realize benefits at the expense and detriment of the Company. However,
the Company intends for the terms of each of these agreements to be no less
favorable than those that might generally be obtained from third parties
providing similar services. The Company acknowledges that the conflicts of
interest are real and ongoing, and there is no assurance that the best
interest of the Company will prevail.
Government Regulations
At present there are no applicable federal regulations affecting the
operation of the Company's Facilities. The Oak Creek Project is not required
to be licenced by the State of Arizona for Senior Independent Living
Facilities. The Company's facilities that are being constructed in
Louisiana will be built to conform to state regulations governing residential
care for the elderly in the State of Louisiana. The management is
confident all state regulations regarding the size of the Facilities, health
care and environment will be met. The Company's Facilities will be designed
for full compliance with the Americans with Disabilities Act, including, but
not limited to areas such as parking, ramps, entrances, door and corridor
widths, and public toilet facilities. The Facilities will not be required to
be licensed as a nursing home, due to the fact that no 24-hour skilled medical
care will be provided to residents by the staff at the present time.
However, the facilities that are being constructed in Louisiana will be
required to be licensed by the Louisiana Department of Social Services prior
to the commencement of operations of each facility. The Company will apply
for licenses with the Louisiana Department Social Services and anticipates
getting a temporary license upon completion of construction of each facility
and a final license within 90 days after the issuance of the temporary
license. In the Company's opinion, the facilities that are being constructed
in Louisiana and these facilities' management practices and operations will
meet or exceed all residential care for the elderly regulations of the State
of Louisiana. Failure of the Company to receive and maintain the required
licensing would have a material adverse effect on the Company's financial
condition and its ability to repay the Company's debt. See "Business -
Government Regulation."
(This space is intentionally left blank)
13
SOURCES AND USES OF PROCEEDS
The sources and anticipated uses of proceeds available after the issuance
of the Series 1999-I, 1999-II, 1999-III, 1999-IV and 1999-V Bonds are set
forth below. See "Description of Property - Financing of Facilities" and
"Certain Transactions."
Series 1999-I Bonds Series 1999-II Bonds
Minden Project (1) Oak Creek Project (1)
Source of Proceeds: Minimum Maximum Minimum Maximum
Gross Offering Proceeds $400,000 $1,800,000 $600,000 $2,700,000
Less Underwriting
Concessions (2) (24,000) (108,000) (36,000) (162,000)
Less Other Offering
Costs (3) (35,000) (35,000) (50,000) (50,000)
-------- ---------- -------- ----------
Net Offering Proceeds 341,000 1,657,000 514,000 2,488,000
======== ========== ======== ==========
Use of Proceeds:
Fund Initial Operating
Fund Payments 90,000 90,000 125,000 125,000
Retire Interim Loans (4) 251,000 1,358,520 452,500 2,174,025
Fund Remaining
Construction Costs 0 0 0 0
Fund Pre-Opening Costs 0 68,480 0 0
Retire Line of Credit (5) 0 0 0 188,975
Fund Bond Reserve Account 0 140,000 0 0
-------- ---------- -------- ----------
Total Use of Proceeds 341,000 1,657,000 514,000 2,488,000
======== ========== ======== ==========
Series 1999-III Bonds Series 1999-IV Bonds
Bastrop Project (1) Farmerville Project (1)
Source of Proceeds: Minimum Maximum Minimum Maximum
Gross Offering Proceeds $400,000 $1,800,000 $400,000 $1,800,000
Less Underwriting
Concessions (2) (24,000) (108,000) (24,000) (108,000)
Less Other Offering
Costs (3) (35,000) (35,000) (35,000) (35,000)
-------- ---------- -------- ----------
Net Offering Proceeds 341,000 1,657,000 341,000 1,657,000
======== ========== ======== ==========
Use of Proceeds:
Fund Initial Operating 90,000 90,000 90,000 90,000
Fund Payments
Retire Interim Loans (4) 251,000 1,220,000 251,000 1,330,000
Fund Remaining
Construction Costs 0 132,000 0 22,000
Fund Pre-Opening Costs 0 75,000 0 75,000
Retire Line of Credit (5) 0 0 0 0
Fund Bond Reserve Account 0 140,000 0 140,000
-------- ---------- -------- ----------
Total Use of Proceeds 341,000 1,657,000 341,000 1,657,000
======== ========== ======== ==========
Series 1998-V Bonds
Natchitoches Project (1)
Source of Proceeds: Minimum Maximum
Gross Offering Proceeds $400,000 $1,800,000
Less Underwriting
Concessions (2) (24,000) (108,000)
Less Other Offering
Costs (3) (35,000) (35,000)
-------- ----------
Net Offering Proceeds 341,000 1,657,000
======== ==========
Use of Proceeds:
Fund Initial Operating
Fund Payments 90,000 90,000
Retire Interim Loans (4) 251,000 1,450,000
Fund Remaining
Construction Costs 0 0
Fund Pre-Opening Costs 0 0
Fund Bond Reserve Account 0 117,000
-------- ----------
Total Use of Proceeds 341,000 1,657,000
======== ==========
Note 1: The issue and sale of each series of bonds is not contingent on the
issue and sale of the other series of bonds, and will be separately
offered and sold and subject to minimum proceeds prior to the
issuance thereof. The order in which the proceeds will be disbursed
from each series appears above in descending order. For example, the
net proceeds from the Series 1999-I Bonds will be disbursed in the
following order and preference (based upon the sale of all of the
Series 1999-I Bonds): (1) to pay the Underwriter's concessions up to
$108,000 and related
14
financing costs estimated at $35,000; (2) to fund the initial six
month sinking fund payments up to $90,000; (3) to retire the interim
loan in the amount of $1,358,520; (4) to fund pre-opening costs in the
amount of $68,480; and (5) to fund the Bond Reserve Account in the
amount of $140,000. See "Description of Bonds - Escrow and
Disbursement of Bond Proceeds."
Note 2: Subject to the sale of the minimum offering amounts, the Underwriter
will receive concession from the sale of the Bonds as follows: (1)
the Underwriter will receive a concession of 6% on all bonds sold
through a selling group agreement with another NASD member firm; (2)
the Underwriter will receive a concession of 5% on all bonds sold
to clients of the Underwriter; and (3) the Underwriter will receive
a processing fee of 1% of the face amount of each bond purchased by
any person or entity who is currently not a client of the
Underwriter, but is affiliated with the Company or referred to the
Underwriter by the Company. See "Underwriting."
Note 3: Other offering expenses payable by the Company are estimated at a
total of $190,000 and are allocated among the five series of bonds.
Offering expenses include an investment banking fee in the amount of
$128,700 paid to the underwriter for its technical assistance offered
in connection with the Offering and $61,300 paid by the Company for
legal fees, accounting fees, appraisal fees, recording fees, mortgage
taxes, Trustee's fees and other similar fees incurred in connection
with this Offering.
Note 4: The interim loan provided by FRB bears interest at a fixed rate of
9.20% per annum. The construction loans provided by CLT bear
interest at a variable rate which is equivalent to 2.00% per annum
in excess of the lowest rate designated as the "Prime Rate" of
interest published by the Wall Street Journal (North Edition) under
the heading "Money Rates." Each interim/construction loan is
secured by a Co-First Mortgage on the corresponding project that has
been acquired or that will be built from the proceeds of the
respective interim/construction loan. See "Description of
Property - Financing of the Company's Facilities."
Note 5: The line of credit provided by FRB for the renovation of the Oak Creek
Project bears interest at a fixed rate of 9.75% per annum. A
portion of the proceeds from the sale of the Series 1999-II Bonds
will be used to retire this line of credit and accrued interest in
an amount up to $188,975. See "Description of Property - Financing
of the Company's Facilities."
BUSINESS
The Company
The concept for the Company and its affiliates began over ten years ago.
Joanne Caldwell-Bayles, Managing Member of the Company, visited her
grandmother in a facility in Arizona which provided the same basic services
as an assisted living center. Upon returning to Louisiana, Mrs. Caldwell-
Bayles began the study of senior care, as it related to the care provided in
assisted living facilities. At the time Mrs. Caldwell-Bayles started her
studies, the demographics were not at a point in Northern Louisiana in which
assisted living centers were a viable idea. As time passed, the aging
population began to reach the stage in which assisted living centers would be
necessary in the region. In 1994, Mrs. Caldwell-Bayles began the development
of the first assisted living facility in West Monroe, Louisiana under the
legal entity of The Arbor Group, L.L.C. In 1998, Mrs Caldwell-Bayles began
the development of three additional facilities in Ruston, Bossier City and
Shreveport, Louisiana under the legal entity of Senior Retirement Communities,
Inc. See "Prior Performance of Affiliates of the Company".
Mrs. Caldwell-Bayles started to consider the expansion into other areas
in Northern Louisiana and Central Arizona prior to the opening of the
facilities in Ruston, Bossier City and Shreveport, Louisiana. She decided to
build additional locations in Northern Louisiana at Minden, Bastrop,
Farmerville and Natchitoches as well as acquire a facility in Sedona, Arizona.
Accordingly, the Company was organized on July 13, 1998 as a Louisiana limited
liability company for the purpose of developing, acquiring and operating
retirement and assisted living facilities in Northern Louisiana and Central
Arizona. The
15
Company will conduct business as Arbor Retirement Community in Louisiana.
In Arizona, the Company will conduct business as The Biltmore of Oak Creek.
A limited liability company is a relatively new form of business
organization designed to allow its owners, known as members, to allocate,
participate and account for the profits, losses, and items of credit and
deduction as if the business were a partnership, but which also provides its
owners with the limited liability protection comparable to that enjoyed by
the shareholders of a corporation. The members of the Company are not
personally liable for the debts of the Company, absent their execution of a
personal guaranty of those debts, nor can the members of the Company be held
liable for the negligent actions of the Company. The responsibility for
overseeing the operations of the Company is vested in the Managing Member.
Business Concept and Clientele
The Company's business concept is based on providing elderly residents
in Northern Louisiana and Central Arizona with a broad range of cost-effective
health care and personal support services, including assisted living and
retirement living units.
Assisted Living. Assisted living care is an emerging segment of the
long-term care industry serving the rapidly growing elderly population who
may require assistance with the activities of daily living ("ADLs"), such as
dressing, bathing and eating. The Company's assisted living facilities are
intended to provide privacy and companionship in a comfortable, secure,
non-institutional living environments which are also designed to promote
interdependence between the facilities' staff and the residents, all with the
intent of providing a more positive lifestyle environment than that which has
been historically available from other congregate care providers.
Specifically, the Company's assisted living facilities are designed to house
elderly persons who do not require 24-hour skilled nursing care. For example,
typical residents might include persons suffering from occasional memory loss,
poor diet habits, arthritis or other infirmities by reason of which they
would benefit from daily assistance and supervision.
Retirement Living. Residents for independent living are usually seniors
who maintain an independent lifestyle, but desire no longer to have the
responsibility of ownership and maintenance of a family residence. Residents
usually desire one or more meals which are provided by the facility.
Activity programs are provided for residents, including water aerobics,
exercise programs and other activities which foster good health. Most
residents, if not all, will continue to own and operate their own automobiles.
They will also continue to provide their own medical and medication
maintenance, shopping and other activities which are expected of seniors who
maintain good health. Some residents may wish to travel extensively while
maintaining a secure home base in which their possessions are protected while
they are away.
Operation of the Company's Facilities
Format. The services provided to residents of the Company's assisted
living facilities will include meals, laundry, housekeeping and physical
assistance. In addition, preventive health care programs, transportation,
organized social activities, 24-hour security and medication monitoring will
also be provided. The residents will be responsible for their own personal
purchases such as toothpaste, medical prescriptions, etc. Unlike nursing homes,
however, contemplated services do not include around-the-clock skilled
nursing care. The assisted living facilities will also provide limited
social activities for residents.
The services provided for the residents of the Company's independent
living units will include meals, laundry, housekeeping and physical
assistance. Preventive health care programs, transportation, organized social
activities and 24-hour security will also be provided. Medication monitoring
and skilled nursing care will not be provided for the residents of the
Company's independent living units.
Expenses of operating the Company's Facilities will be made up of a fixed
costs and/or variable cost basis. Fixed costs will include debt service,
management and core staff, essential utilities, insurance and taxes. Variable
costs will include food costs, staffing, utilities and supplies to a small
extent. The Facilities will be able to handle emergencies only to the extent
16
of calling a doctor or hospital in behalf of the resident. Should a resident
require health care beyond that which the Facilities can reasonably provide
or assist, then a resident may be forced to move from the Facilities.
Cost of Living. The Company's Facilities will have living units priced
in a range of $1,375 to $3,500 per month based on the type of accommodations
and services provided. Residents are billed monthly for the services
rendered. Medicare/Medicaid will not pay for a resident's stay at the
Facilities. The residents may realize additional costs if they require
certain health supervision/services and meals for visitors. As the cost of
living may increase, charges to the residents may also need to be adjusted.
Resident's Lease Requirements. The residents will be required to pay a
one-time entrance fee of approximately $500 to reserve their unit or
apartment. The lease of the apartments by the residents will be on a
month-to-month basis. Residents will be required to pay only for the months
in which they are residents of the facility.
Competition
The Company will experience competition from other elderly housing and
care providers. The Company will compete principally on the basis of
perceived quality and service, ambiance and price-value relationship. While
the Company believes that the Facilities will be distinctive in design and
operating concept, it is aware of other companies with similar or competitive
concepts. The long-term care industry is highly competitive and the Company
expects that it will become more competitive in the future. The Company
competes with numerous other companies providing similar long-term care
alternatives, such as home health agencies, life care at home, community-based
service programs, retirement communities and convalescent centers. Nursing
facilities that provide long-term care services are also a potential source
of competition to the Company. There is no assurance that the Company will
not encounter increased competition in the future which could limit its
ability to attract residents and could have a material adverse effect on the
Company's financial condition, results of operations and prospects.
The following table indicates the number of units of existing competition
in assisted living, retirement living, nursing home care and memory disorder
for the five locations of the Company's Facilities. This information was
gathered through market research that was conducted by the Company.
Summary of Existing Competition
Existing Existing
Existing Private-Pay Existing Memory
1996-1997 Assisted Retirement Nursing Care Disorder
Location Population Living Units Living Units Units Units
Minden, LA
Market Area 42,181 0 0 528 0
Bastrop, LA
Market Area 32,056 0 0 614 0
Farmerville,
LA Market
Area 21,541 0 20 455 0
Natchitoches,
LA Market
Area 36,689 0 0 318 22
Sedona, AZ
Market Area 16,000 42 102 N/A 20
Management Agreement
On August 27, 1998, the Company entered into a management agreement (the
"Management Agreement") with The Forsythe Group, Inc., a company owned and
controlled by Joanne M. Caldwell-Bayles, the Managing Member and principal
owner of the Company. The Management Agreement extends to each of the
Facilities to be financed as a result of the sale
17
of the Bonds. Pursuant to the terms of the Management Agreement, The Forsythe
Group, Inc. (the "Manager" ), as agent for the Company, will perform all
services incidental to the operation of the Facilities, including the hiring
of employees, collection of payments, the paying of expenses, receiving
governmental permits and the compliance thereof, marketing, preparing budgets,
and, in general, all activities that are associated with the management of
the Facilities. The Manager will account to the Company as its agent for the
services rendered. The Manager will maintain operating receipt and expense
accounts which are approved by the Company. Prior to the opening of any
facility, the Manager will provide the Company with maintenance and operating
expense projections, provide policies and procedure manuals, implement
marketing plans, establish bookkeeping and accounting systems and identify
inventory and equipment. The Manager will participate in final inspections
of the facility before occupancy and will coordinate matters with the
architect and contractor for each facility.
The employees of each facility will be the employees of the Company.
The Manager will have no authority to make any disbursement in excess of
$15,000, unless specifically authorized by the Company, nor may the Manager
incur any liability, which would require more than one year of payment.
The Company will pay to the Manager, $1,500 per month or seven percent
(7%) of the gross collections of a facility, whichever is greater. Prior to
the opening date of a facility, the Manager shall be entitled to receive
$1,500 per month. The Management Agreement continues until January 1, 2010,
and may be terminated by the mutual consent of the parties, for cause if the
Manager shall fail to perform any of its duties pursuant to the Management
Agreement, or in the event of the Manager's bankruptcy.
Other than matters regarding the operations of the Facilities, the
Manger has no authority over the conduct of affairs of the Company or its
management and operation. The Company believes that the Management Agreement
and terms and conditions applicable thereto are the same or as similar to
other management agreements generally made for the operation of health care
facilities in the areas where these Facilities will be located.
Employees
Currently, the Company has five full time employees. Prior to the
commencement of operations of each facility, the Manager intends to employ an
average of 10 employees at each facility. There is no assurance that the
Manager will be able to obtain and maintain an adequate number of competent
personnel, including entry-level and skilled positions, or that a shortage of
operating personnel will not present a serious problem to the Company in the
future.
Government Regulation
Currently, retirement and assisted living residences are not specifically
regulated as such by the federal government. The Company's Facilities will
be subject to certain state regulations and licensing requirements. To
conform with Louisiana's regulations governing residential care for the
elderly, the Facilities will be required to be licensed by the Louisiana
Department of Social Services ("LDSS") prior to the commencement of
operations of the Facilities. The Company will apply for licenses with LDSS
and anticipates getting a temporary license upon completion of construction
of each facility and a final license within 90 days after the issuance of the
temporary license. The process for applying and obtaining a license with the
LDSS requires that upon completion of construction of a facility, the State
of Louisiana Fire Marshall conducts an inspection of the facility examining
the safety issues and compliance with the Americans With Disabilities Act
("ADA"). In general, the ADA requires businesses to accommodate the special
needs of persons with certain types of disabilities. If the facility passes
the inspection by the Fire Marshall, than a temporary license is granted that
is effective for 90 days. Shortly after the Fire Marshall's inspection and
the issuance of the temporary license, the LDSS conducts an inspection of the
facility and reviews the administration procedures governing the operation of
the facility. In addition to LDSS inspection, the Department of Health and
Hospitals ("DHH") inspects the facility for sanitation code compliance
shortly after the Fire Marshall's inspection. Any deficiencies found during
the LDSS or DHH inspection must be resolved prior to the final license being
granted by LDSS. After the final license is granted, the facility may be
subject to quarterly inspections by the DHH and annual inspections by LDSS.
The renewal of the license is granted by LDSS upon receipt of the $75 annual
licensing fee and satisfactory results from the aforementioned periodic
inspections. The Oak Creek Project is not required to be licenced by the
State of Arizona for Senior Independent Living Facilities.
In the Company's opinion, the facilities that are being constructed in
Louisiana and these facilities' management practices and operations will meet
or exceed all residential care for the elderly regulations of the State of
Louisiana. Failure
18
of the Company to receive and maintain the required licensing would have a
material adverse effect on the Company's financial condition and its ability
to repay the Company's debt.
The Company is subject to the Fair Labor Standards Act, which governs
such matters as minimum wage, overtime and other working conditions. A
portion of the Company's personnel will be paid at rates related to the
federal minimum wage, and, accordingly, increases in the minimum wage will
increase the Company's labor costs. As regulations are promulgated to
enforce this law, the Company may be required in the future to adapt the
design and format of the Facilities or otherwise incur additional capital
costs to comply with such law. Such costs could have an adverse effect on
the operation of the Company's Facilities and their ability to function
successfully.
Environmental Matters
Federal law imposes liability on a landowner for the presence on the
premises of improperly disposed of hazardous substances. This liability is
without regard to fault for, or knowledge of, the presence of such substances
and may be imposed jointly or severally upon all succeeding landowners from
the date of the first improper disposal. While state law is less onerous,
the practical consequences may be the same. If in the future it is ever
determined that hazardous substances are present, the Company could be
required to pay all costs of any necessary clean up work, although under
certain circumstances claims against other responsible parties could be made
by the Company. Phase one environmental assessments were conducted on the
Company's properties from 1998 through 1999, except for the Oak Creek Project
in which no environmental assessment has been conducted. Research and visual
observation undertaken from the environmental assessments did not reveal any
former or current environmental conditions, problems or situations impacting
the sites.
DESCRIPTION OF PROPERTY
The Company's Proposed and Existing Facilities
The Company has acquired land in Northern Louisiana and a building in
Sedona, Arizona. The Company has converted the improvements on the Arizona
property to an independent living facility. The Company intends to construct
assisted living facilities on the properties located in Northern Louisiana.
Additional information about the Company's properties is listed below.
The Minden Project. The Minden Project will be located on 5.72 acres of
land on the North side of Germantown Road just South of Country Club Drive
within the City of Minden, Louisiana. Selection of the site of the Minden
Project was based upon a location that was within an affluent residential
neighborhood with limited assisted living and retirement living services.
The Minden Project will be a 25 unit assisted living facility. The facility
will contain 22,217 square feet including 21 one bedroom units, 4 efficiency
units, one manager's apartment, common area amenities, a full service kitchen,
dining area, activity area, office, reception area, bathrooms and storage
areas. Each of the assisted living units will have one or two bedrooms, small
kitchenettes, private bathroom, closet and sitting areas.
The Series 1999-I Bonds in parity with the Minden Construction Loan are
secured by a co-first mortgage on the Minden Project (both real and personal
property). See "Description of Property - Financing of the Company's
Facilities" and "Description of Bonds." The Company has title insurance on
this 5.72 acres of land insuring good and marketable title to the property.
During construction of the Minden Project, builder's risk, general liability
and workers' compensation insurance is being provided by the general
contractor, The Forsythe Group, Inc. Upon completion of the Minden Project,
the Company will obtain fire and extended coverage insurance to insure
against loss by fire, windstorm, explosion and various other losses in an
amount equal to the outstanding balance of the Series 1999-I Bonds. The
Company will also obtain general liability and workers' compensation
insurance upon completion of the Minden Project. In the Company's opinion,
the Minden Project is adequately covered by insurance. The Company has
received the proper zoning for the project.
19
The Oak Creek Project. The Company has acquired 2.8 acres of land and
an existing building located at 78 Canyon Diablo Road just outside the City
of Sedona, Arizona and within the Village of Oak Creek. The Company acquired
the property for $2,174,025 in October 1998. The property was previously
used as a cancer treatment center. The Oak Creek Project was renovated by
the Company and opened for operations on January 17, 1999. Selection of the
property was based upon the location of the land and building and the needs
of the community for an additional independent living facility in the area.
The Oak Creek Project consists of 28 units designed and renovated as
independent living apartments. The facility contains 22,235 square feet
including common area amenities, a full service kitchen, dining area,
activity area, office and reception area, bathrooms, storage areas and an
indoor heated swimming pool. Each of the independent living units have one
or two bedrooms, small kitchenettes, private bathroom, closet and sitting
areas.
The Series 1999-II Bonds in parity with the Oak Creek Interim Loan are
secured by a co-first mortgage on the Oak Creek Project (both real and
personal property). See "Description of Property - Financing of the
Company's Facilities" and "Description of Bonds." The Company has title
insurance on this 2.8 acres of land insuring good and marketable title to the
property. During renovation of the Oak Creek Project, builder's risk,
general liability and workers' compensation insurance were provided by the
general contractor, The Forsythe Group, Inc. Upon completion of renovation
of the Oak Creek Project, the Company obtained fire and extended coverage
insurance to insure against loss by fire, windstorm, explosion and various
other losses in an amount equal to the outstanding balance of the Series
1999-II Bonds. The Company also obtained general liability and workers'
compensation insurance upon completion of the Oak Creek Project. In the
Company's opinion, the Oak Creek Project is adequately covered by insurance.
The Company has received the proper zoning for the project.
The Bastrop Project. The Bastrop Project will be located on 3.35 acres
of land at 10280 Boswell Drive outside the city limits of Bastrop,Louisiana.
Selection of the site of the Bastrop Project was based upon a location that
was within an affluent residential neighborhood with limited assisted living
units. The Bastrop Project will be a 25 unit assisted living facility. The
facility will contain 22,217 square feet including 21 one bedroom units, 4
efficiency units, one manager's apartment, common area amenities, a full
service kitchen, dining area, activity area, office, reception area,
bathrooms and storage areas. Each of the assisted living units will have
one or two bedrooms, small kitchenettes, private bathroom, closet and sitting
areas.
The Series 1999-III Bonds in parity with the Bastrop Construction Loan
are secured by a co-first mortgage on the Bastrop Project (both real and
personal property). See "Description of Property - Financing of the
Company's Facilities" and "Description of Bonds." The Company has title
insurance on this 3.35 acres of land insuring good and marketable title to
the property. During construction of the Bastrop Project, builder's risk,
general liability and workers' compensation insurance will be provided by
the general contractor, The Forsythe Group, Inc. Upon completion of the
Bastrop Project, the Company will obtain fire and extended coverage insurance
to insure against loss by fire, windstorm, explosion and various other losses
in an amount equal to the outstanding balance of the Series 1999-III Bonds.
The Company will also obtain general liability and workers' compensation
insurance upon completion of the Bastrop Project. In the Company's opinion,
the Bastrop Project is adequately covered by insurance. The Bastrop Project
conforms to the zoning ordinances of Bastrop, Louisiana.
The Farmerville Project. The Farmerville Project will be located on
approximately 4 acres of land on the West side of LA Highway 33 just outside
the city limits of Farmerville, Louisiana. Selection of the site of the
Farmerville Project was based upon a location that is near a hospital with no
assisted living units. The Farmerville Project will be a 25 unit assisted
living facility. The facility will contain 22,217 square feet including
21 one bedroom units, 4 efficiency units, one manager's apartment, common
area amenities, a full service kitchen, dining area, activity area, office,
reception area, bathrooms and storage areas. Each of the assisted living
units will have one or two bedrooms, small kitchenettes, private bathroom,
closet and sitting areas.
The Series 1999-IV Bonds in parity with the Farmerville Construction
Loan are secured by a co-first mortgage on the Farmerville Project (both real
and personal property). See "Description of Property - Financing of the
Company's Facilities" and "Description of Bonds." The Company has title
insurance on this 4 acres of land insuring good and marketable title to the
property. During construction of the Farmerville Project, builder's risk,
general liability and workers' compensation insurance will be provided by the
general contractor, The Forsythe Group, Inc. Upon completion of the
Farmerville Project, the Company will obtain fire and extended coverage
insurance to insure against loss by fire, windstorm, explosion and
20
various other losses in an amount equal to the outstanding balance of the
Series 1999-IV Bonds. The Company will also obtain general liability and
workers' compensation insurance upon completion of the Farmerville Project.
In the Company's opinion, the Farmerville Project is adequately covered by
insurance. The Farmerville Project is located in Union Parish which has no
zoning requirements.
The Natchitoches Project. The Natchitoches Project will be located on
approximately 4 acres of land on the East side of LA Highway 1 just outside
the city limits of Natchitoches, Louisiana. Selection of the site of the
Natchitoches Project was based upon a location that was within a growing
community with no existing assisted living units. The Natchitoches Project
will be a 27 unit assisted living facility. The facility will contain 22,216
square feet including 22 one bedroom units, 5 efficiency units, common area
amenities, a full service kitchen, dining area, activity area, office,
reception area, bathrooms and storage areas. Each of the assisted living
units will have one or two bedrooms, small kitchenettes, private bathroom,
closet and sitting areas.
The Series 1999-V Bonds in parity with the Natchitoches Construction Loan
are secured by a co- first mortgage on the Natchitoches Project (both real
and personal property). See "Description of Property - Financing of the
Company's Facilities" and "Description of Bonds." The Company has title
insurance on this 4 acres of land insuring good and marketable title to the
property. During construction of the Natchitoches Project, builder's risk,
general liability and workers' compensation insurance will be provided by the
general contractor, The Forsythe Group, Inc. Upon completion of the
Natchitoches Project, the Company will obtain fire and extended coverage
insurance to insure against loss by fire, windstorm, explosion, and various
other losses in an amount equal to the outstanding balance of the Series
1999-V Bonds. The Company will also obtain general liability and workers'
compensation insurance upon completion of the Natchitoches Project. In the
Company's opinion, the Natchitoches Project is adequately covered by
insurance. The Natchitoches Project conforms to the zoning ordinances of the
City of Natchitoches, Louisiana.
Appraisals
Robert M. McSherry, MAI 3760 Chelsea Drive, Baton Rouge, Louisiana 70809
(the "Appraiser"), estimated market values for each of the Company's
Facilities (the "Appraisals"). Listed below are these appraised values.
Appraised Value of the Minden Project . . . . . . $2,100,000
Appraised Value of the Oak Creek Project. . . . . $3,170,000
Appraised Value of the Bastrop Project . . . . . $2,100,000
Appraised Value of the Farmerville Project. . . . $2,030,000
Appraised Value of the Natchitoches Project . . . $2,255,000
The Appraiser, who is independent of the Company, used various appraisal
approaches, but gave the most weight to the income approach in his
reconciliation and final value estimates. The income approach is an analysis
which converts anticipated benefits to be derived from the ownership of
property into a value estimated, with consideration given to the gross income,
expense, net income, vacancy rate and capitalization. Furthermore, the
income approach is not, for example, a valuation based upon the Appraiser's
estimate of the price that would be arrived at by a willing buyer and a
willing seller in an arms-length sales transaction. Accordingly, it is
questionable that, in the event of default, the Company's Facilities could be
sold, whether voluntarily or at judicial sale, for the appraised value.
The Appraiser also estimated values for each of the Company's Facilities
based on the cost approach. Listed below are these appraised values.
Appraised Value of the Minden Project (cost approach) . . . . . .$2,255,000
Appraised Value of the Oak Creek Project (cost approach). . . . .$4,085,000
Appraised Value of the Bastrop Project (cost approach). . . . . .$2,140,000
21
Appraised Value of the Farmerville Project (cost approach). . . .$2,110,000
Appraised Value of the Natchitoches Project (cost approach) . . .$2,310,000
In contrast to the income approach, the cost approach estimates the
replacement cost of the improvements. The cost approach reflects the value of
the fee simple estate in the real estate; whereas the income approach reflects
the "going concern" value, which would most likely not exist in a default
situation.
A decision to invest in the Bonds should not be made based solely on the
Appraisals. Moreover, a purchaser of the Bonds should realize and take into
consideration the fact the Company's Facilities, if they should have to be
sold, may bring less than is necessary to pay principal and interest due on
the Bonds. This could result in the investor losing all or a portion of his
original investment, which the investor should take into consideration before
making the purchase.
Construction of the Company's Facilities
Listed below are the proposed construction schedules and
development/construction costs of the Company's Facilities. The dates and
numbers as indicated below are estimates only.
Approximate Costs of
Construction Anticipated Opening Development and
Location Start Date Date (2) Construction (3)
Minden Project November 1998 July 1999 $2,150,000
Bastrop Project December 1998 August 1999 $2,100,000
Farmerville Project February 1999 August 1999 $2,050,000
Natchitoches Project February 1999 August 1999 $2,200,000
Oak Creek Project (1) November 1998 January 1999 $2,750,000
(1) The Company acquired an existing building at the Oak Creek location and
renovated this property. See "Description of Property - The Company's
Proposed and Existing Facilities- The Oak Creek Project."
(2) Delays are common in the construction industry, and unforeseen events may
adversely affect the cost and completion time of the Company's
Facilities.
(3) The amounts shown for the Minden, Bastrop, Farmerville and Natchitoches
Projects include land, construction and service costs; architectural and
engineering costs; furniture, fixtures and equipment. The amount shown
for the Oak Creek Project includes the acquisition and service costs;
architectural and engineering costs; renovation costs; furniture,
fixtures and equipment.
Financing of the Company's Facilities
Construction and Acquisition Financing. The Company has obtained and
will obtain interim/construction loans (the "Interim Loans") with The First
Republic Bank of Monroe, Louisiana ("FRB") and Church Loans and Investments
Trust of Amarillo, Texas ("CLT"), collectively referred to as the Interim
Lenders, for the construction and acquisition of the Company's Facilities.
Each Interim Loan will be secured by a Co-First Mortgage on the corresponding
project that will be acquired/built from the proceeds of the respective
interim/construction loan. The Interim Loans are guaranteed by The Forsythe
Group, Inc., an affiliate and member of the Company, in the amount of $500,000
for each interim/construction loan. The Trustee and holders of the Bonds
will not benefit, directly or indirectly, from the guarantees of The Forsythe
Group, Inc.
22
The Company obtained the construction loan for the Minden Project
("Minden Construction Loan") in the amount of $1,358,520 from FRB. The
Minden Construction Loan closed on October 2, 1998, and the mortgage and
security agreement setting forth the terms of the Minden Construction Loan
have been filed of record. The Minden Construction Loan bears interest at
the rate of 9.20% per annum and is due September 28, 1999. The Minden
Construction Loan is secured by a Co-First Mortgage on the Minden Project
(both real and personal property) in parity with the Series 1999-I Bonds.
The Company obtained the interim loan for the acquisition of the Oak
Creek Project ("Oak Creek Interim Loan") in the amount of $2,174,025 from
CLT. The Oak Creek Interim Loan closed on October 20, 1998, and the mortgage
and security agreement setting forth the terms of the Oak Creek Interim Loan
have been filed of record. The Oak Creek Interim Loan bears interest at a
variable rate equivalent to 0.5% per annum in excess of the lowest rate
designated as the "Prime Rate" of interest as published by the Wall Street
Journal under the heading "Money Rates." The Oak Creek Interim Loan is due
May 20, 1999, unless the Company exercises its option of renewing and
extending this loan. The Oak Creek Interim Loan is secured by a Co-First
Mortgage on the Oak Creek Project (both real and personal property) in parity
with the Series 1999-II Bonds.
The Company obtained the construction loan for the Bastrop Project
("Bastrop Construction Loan") in the amount of $1,220,000 from CLT. The
Bastrop Construction Loan closed on November 24, 1998, and the mortgage and
security agreement setting forth the terms of the Bastrop Construction Loan
have been filed of record. The Bastrop Construction Loan bears interest at
a variable rate equivalent to 2.0% per annum in excess of the lowest rate
designated as the "Prime Rate" of interest as published by the Wall Street
Journal under the heading "Money Rates." The Bastrop Construction Loan is due
November 24, 1999, unless the Company exercises its option of renewing and
extending this loan. The Bastrop Construction Loan is secured by a Co-First
Mortgage on the Bastrop Project (both real and personal property) in parity
with the Series 1999-III Bonds.
The Company agreed to the terms of a construction loan commitment issued
by CLT for the construction financing of the Farmerville Project
("Farmerville Construction Loan") on February 1, 1999. The Farmerville
Construction Loan will be in the amount of $1,330,000 and will be due 12
months after the initial funding of the loan, unless the Company exercises
its option of renewing and extending this loan. The Farmerville Construction
Loan will bear interest at a variable rate equivalent to 1.5% per annum in
excess of the lowest rate designated as the "Prime Rate" of interest as
published by the Wall Street Journal under the heading "Money Rates." The
Farmerville Construction Loan will be secured by a Co-First Mortgage on the
Farmerville Project (both real and personal property) in parity with the
Series 1999-IV Bonds.
The Company agreed to the terms of a construction loan commitment issued
by CLT for the construction financing of the Natchitoches Project
("Natchitoches Construction Loan") on February 1, 1999. The Natchitoches
Construction Loan will be in the amount of $1,450,000 and will be due 12
months after the initial funding of the loan, unless the Company exercises its
option of renewing and extending this loan. The Natchitoches Construction
Loan will bear interest at a variable rate equivalent to 1.5% per annum in
excess of the lowest rate designated as the "Prime Rate" of interest as
published by the Wall Street Journal under the heading "Money Rates." The
Natchitoches Construction Loan will be secured by a Co-First Mortgage on the
Natchitoches Project (both real and personal property) in parity with the
Series 1999-V Bonds.
If the proceeds from the sale of the Series 1999-I Bonds are insufficient
to retire the Minden Construction Loan at its maturity, then The Forsythe
Group, Inc. has agreed to purchase the Minden Construction Loan, giving the
Company the option of renewing and extending the Minden Construction Loan
into a permanent loan amortized over thirteen years subject to the Company
being current on all its outstanding debt obligations. If the proceeds from
the sale of the Series 1999-II, III, IV and V Bonds are insufficient to
retire the Oak Creek Interim Loan, Bastrop Construction Loan, Farmerville
Construction Loan and Natchitoches Construction Loan at their respective
maturities, then CLT has given the Company the option of initially renewing
and extending the term of these loans for an additional one year subject to
the Company being current on all its outstanding debt obligations. If any of
these loans are extended and any of the renewed loans have not been retired
by their extended maturity dates, then CLT has given the Company the option of
renewing and extending the loan(s) into permanent loan(s) amortized over
thirteen years subject to the Company being current on all its outstanding
debt obligations.
Colonial Trust Company (acting as Trustee on behalf of holders of the
Bonds) and the Interim Lenders have entered into certain Agreements Between
Lienholders with regard to each of the interim/construction loans.
Hereinafter, the three Agreements Between Lienholders collectively will be
referred to as the "Lienholders Agreements."
The Lienholders Agreements state, among other things, (i) that the
mortgage, security agreement and other collateral documents covering each of
the Company's Facilities shall name both the respective Interim Lender and
the Trustee as lienholder and shall secure ratably as provided in the
Lienholders Agreements each interim/construction loan and the
23
corresponding series of Bonds, and (ii) that proceeds of each series of Bonds
will be used, subject to the Trust Indenture, to pay down or retire the
Interim Loans. The Lienholders Agreements also state that in the event of a
default, if either the Interim Lender or the Trustee elects to accelerate its
loan, the other party agrees to accelerate its loan to the extent permitted
under the other party's loan documents. In the event the Company was to
default, the Lienholders Agreements provide that the respective Interim
Lender and the Trustee will conduct collection and foreclosure actions and
proceedings jointly to the extent possible. In the event the Interim Lender
and the Trustee are unable to agree, however, the Interim Lender is given the
right, in its discretion, to direct and make decisions, binding on the Trustee
and the holders of Bonds, concerning maintenance, protection or disposition
of the respective project in default and enforcement of the terms of the
mortgage and security agreement. The Interim Lender may cause the defaulted
project to be sold in its then current condition or may make renovations to,
or complete construction of the defaulted project. The Interim Lender is not
required to advance any funds except by its agreement, but in the event the
Interim Lender elects to advance funds, proceeds of foreclosure will be
applied first to reimburse any such funds advanced. Either the Interim
Lender or the Trustee may purchase the defaulted project at any foreclosure
sale free and clear of the claims of the other. If any of the Company's
Facilities are sold or otherwise disposed of at foreclosure, the Lienholders
Agreements provide that the proceeds of disposition, after reimbursement of
the Interim Lender's fees and expenses as provided above, be applied to the
respective interim/construction loan in default and the payment of the
corresponding series of Bonds on a pro-rata basis. The "pro-rata"
distribution of funds mean that after reimbursement of the Interim Lender's
fees and expenses as provided above, the Interim Lender and the series of
Bonds associated with the defaulted interim/construction loan will each
receive funds from any disposal on foreclosure of the defaulted project
according to their respective percentage of the total principal balance
(including both the respective interim/construction loan in default and the
corresponding series of Bonds) on the property. Thus, depending on the net
proceeds from a foreclosure sale, each entity would receive proceeds from the
sale of property equal to the entire amount due them, or any amount equal to
their percentage of the total indebtedness against the defaulted project,
whichever is lesser.
In addition to requiring the timely payment of the Interim Loans and the
Bond payments required under the terms of the Trust Indenture, the mortgages
obligate the Company to maintain proper books and records, and refrain from
certain activities (such as altering the premises) without prior written
consent. The mortgages also dictate, in part, the permitted financial
relationships between the Company and the residents.
Lines of Credit Financing. The Company has obtained two lines of credit
from FRB. The lines of credit are secured by certificate of deposits, land
and residences owned by Joanne Caldwell-Bayles and The Forsythe Group, Inc.,
and the lines of credit are personally guaranteed by Joanne Caldwell-Bayles.
One line of credit is in the amount of $75,500 bearing interest at the rate
of 9.995% per annum. This line of credit was made available to the Company
on August 21, 1998 and is due on August 21, 1999. The Company obtained this
line of credit to help fund the initial construction of its Facilities. The
second line of credit is in the amount of $176,755 bearing interest at the
rate of 9.75% per annum. This second line of credit was made available to the
Company on November 30, 1998 and is due November 30, 1999. Proceeds from the
Series 1999-II Bonds will be used in part to retire this line of credit. See
"Sources and Uses of Proceeds." The Company obtained this line of credit for
the purpose of renovating the Oak Creek Project.
Permanent Financing. The Company has chosen to issue the Bonds to
provide the permanent financing for the Facilities. The first revenues of
the Company have been pledged to repay the principal and interest on the Bonds.
See "Sources and Uses of Proceeds" and "Description of Bonds."
MANAGEMENT
Managing Member
The day to day operation of the Company will be performed by the
Managing Member of the Company, Joanne M. Caldwell-Bayles. Pursuant to the
terms of the Operating Agreement, the Managing Member will be the chief
executive officer of the Company responsible for the general overall
supervision of the business and affairs of the Company. Mrs. Caldwell-Bayles
shall serve as the Managing Member of the Company until her resignation or
until she is removed by
24
majority vote of all the members of the Company. Upon the resignation of the
Managing Member, a successor shall be elected by a vote of the members.
Joanne M. Caldwell-Bayles, 39 years old, has been the Managing Member for
the Company since its inception in July 1998. Mrs. Caldwell-Bayles has
senior executive experience in the development and operation of assisted
living, retirement and memory disorder facilities in West Monroe, Ruston,
Bossier City and Shreveport, Louisiana where she presently serves as the
Operating Manager of The Arbor Group, L.L.C. ("Arbor") and President of
Senior Retirement Communities, Inc. ("SRC"). Mrs. Caldwell-Bayles also has
senior executive experience in hotel management, personnel, finance and
commercial and residential development. In addition to her duties with
the Company, Arbor and SRC, Mrs. Caldwell-Bayles is the President,
Chairperson of the Board of Directors and sole owner of The Forsythe Group,
Inc., the parent corporation of four subsidiaries. These subsidiaries
include: (i) Forsythe Holdings, Inc. (a commercial and residential lending
company); (ii) Format Capital, Corp. (a commercial development and equipment
leasing company); (iii) Lewis Enterprises, Inc. (a residential development
company); and (iv) Northwest Manufacturing Co., Inc. (a manufacturing company
for equipment for the construction industry). Prior to her duties with the
Company, Arbor, SRC and The Forsythe Group, Inc., she served as the
President of Oak Development Corporation (a hotel management firm) and the
general manager of Ramada Hotel in Alexandria, Louisiana. She has served on
the Board of Directors of the Alexandria Chamber of Commerce, the Louisiana
Restaurant Association and the Louisiana Hotel/Motel Association. She
also has served as President of the Tourism Commission of Rapides Parish,
Louisiana and of the Hotel/Motel Association of Alexandria, Louisiana. Mrs.
Caldwell-Bayles attended Northeast Louisiana State University in Monroe,
Louisiana.
Mrs. Caldwell-Bayles will be the person primarily responsible for
overseeing the actual operation and management of the Company. Accordingly,
the success of the Company will be dependent upon her efforts. Mrs.
Caldwell-Bayles will delegate most of the daily operational responsibilities
of the Company to on-site administrators. The administrators will be selected
from a group of candidates who must have a degree in administration and/or
gerontology. Prior to commencement of operations of each facility, Mrs.
Caldwell-Bayles will hire an administrator whose salary and employee benefits
will be an expense of operation of the Company. Mrs. Caldwell-Bayles will
also recruit all other employees. The Company anticipates that the
Management Company will employ an average of 10 employees to work at each
facility with a total of approximately 50 employees working for the Company
upon completion of the Minden, Oak Creek, Bastrop, Farmerville, and
Natchitoches Projects. Mrs. Caldwell-Bayles will devote approximately 30% of
her time to the affairs of the Companybut is willing to devote additional
time if necessary.
Executive Compensation
Joanne M. Caldwell-Bayles, Managing Member of the Company, may receive
the following compensation: (1) an annual salary in the amount of $30,000 per
year beginning when the Company's first facility is opened for business and
(2) reimbursement for reasonable costs incurred by Mrs. Caldwell-Bayles
including but not limited to automobile mileage, telephone expenses and
entertainment expenses associated with the Company's business.
PRINCIPAL OWNERS OF THE COMPANY
The following table sets forth certain information regarding the
beneficial ownership of the membership interests in the Company as of
December 31, 1998.
25
Name & Address of Percent of
Beneficial Owner Title of Class Units Class Owned
Joanne M. Caldwell Bayles Membership Interest 578,239 52%
507 Trenton Street
West Monroe, LA 71291
The Forsythe Group, Inc. (1) Membership Interest 532,524 48%
507 Trenton Street
West Monroe, LA 71291
Note 1: Joanne M. Caldwell-Bayles owns 100% of the capital stock of the
Forsythe Group, Inc.
THE COMPANY'S PLAN OF OPERATION
The primary plan of operation of the Company is to establish a local,
regional and national network of retirement and assisted living facilities
that will operate profitably. The Company has completed the renovation of
its facility in Sedona, Arizona and intends to complete construction of four
facilities in Northern Louisiana by September 1999. The Company's four
facilities in Louisiana are located in Minden, Bastrop, Farmerville and
Natchitoches. The Series 1999-I, II, III, IV and V Bonds will be secured by
the Minden, Oak Creek, Bastrop, Farmerville and Natchitoches Projects,
respectively. The Company intends to employ an average of 10 employees per
completed facility with a total of approximately 50 employees working for the
Company by September 1999. Based upon market research of the assisted living,
retirement living and memory disorder care industries within the Facilities'
market areas, the Company expects to reach stabilized occupancy within 12
months upon completion of each facility. Also, the Company's expected
occupancy stabilization period is based upon the historical operating results
of The Arbor Group, L.L.C. ("Arbor"), an affiliate of the Company. However,
actual results of the Facilities' stabilization time frames may differ from
the projected time frames due to changes in local and national market
conditions.
Arbor has completed construction and is now operating a similar assisted
living and memory disorder facility in West Monroe, Louisiana. Arbor has been
and will continue to be a model for the future development of the Company.
Senior Retirement Communities, Inc. ("SRC"), another affiliate of the Company,
has completed construction of two facilities in late 1998 and has a third
facility under construction. SRC's facilities are similar to those to be
built by the Company and are operating under the name of The Arbor Retirement
Community and The Terrace. Arbor and SRC are managed by the same
organization, The Forsythe Group, Inc., which will manage the Company's
properties. While the Company is newly formed, it will also operate its
properties in Northern Louisiana under the name of The Arbor Retirement
Community. The Arbor Retirement Community has established name recognition
in portions of Northern Louisiana through the operations of Arbor and SRC's
facilities. The Company is in the process of increasing name recognition in
the proposed communities in which the Company's Facilities will be located.
The Company's facility located in Arizona is being operated under the name of
The Biltmore of Oak Creek.
In order for the Company to fund all of its objectives of this Offering,
the maximum offering amount must be sold by the termination date of this
Offering, and the Company will need to raise additional operating funds
during the first 12 months of operation. The Company has estimated that
$500,000 will be needed for operation during the first 12 months, above and
beyond the expenses as set forth in "Sources and Uses of Funds." Currently,
the Company has two lines of credit from which the Company can access for
the use of additional operating funds. These lines of credit have been
established by the pledging of collateral not secured by the Bonds; Mrs.
Caldwell-Bayles, The Forsythe Group and Arbor also have pledged other assets
to secure the lines of credit. If additional funds are needed for the
Company's operation, The Forsythe Group, Inc., the management company of the
Company, has agreed to defer collection of its management fees. However, the
Company believes that it will not be necessary for the Company to raise
additional funds during the next 12 months other than the use of its credit
lines. There is no assurance that the Company will be able to accomplish
any or all of these objectives.
26
The Company's product is providing living accommodations for seniors who
need assistance. As the needs of the Company's residents change, the Company
is willing to modify its operations to accommodate its residents needs. The
Company is committed to continue researching the trends of senior citizens'
living accommodation needs.
PRIOR PERFORMANCE OF AFFILIATES OF THE COMPANY
The Arbor Group, L.L.C., an affiliated limited liability company of the
Company, has prior experience in the development and operation of an assisted
living and memory disorder facility similar to that of the proposed facilities.
In August 1996, Mrs. Caldwell-Bayles, Raymond Nelson and Jean Gaffney Nelson
formed The Arbor Group, L.L.C. for the purpose of developing and operating a
35-unit assisted living facility and a 24-unit memory disorder facility in
West Monroe, Louisiana. The facility was completed and opened for business
in November 4, 1997. The year 1998 was the first full year of operations for
this facility. Mrs. Caldwell-Bayles serves as the Operating Manager of The
Arbor Group, L.L.C.
The Arbor Group's gross revenues for the year ending December 31, 1998
were $738,415. The Arbor Group's expenses for the same period, including
depreciation and debt service, were $1,108,836. For the one month period
ending January 31, 1999, The Arbor Group's gross revenues were $101,197. The
Arbor Group's expenses for this same period were $104,905 including
depreciation and debt service. These amounts were provided by the
management of The Arbor Group and are not audited. As of January 31, 1999,
the occupancy rate of The Arbor Group's assisted living and memory disorder
facility was 85%.
The Arbor Group's assisted living and memory disorder facility was
financed by the issuance of bonds in the amount of $3,250,000 under terms
similar to that of the Offering. The bonds for the Arbor Group were offered
and sold by the Underwriter.
Senior Retirement Communities, Inc., an affiliate of the Company,
has completed construction of a 48-unit assisted living facility in Ruston,
Louisiana and a 24-unit memory disorder facility in Shreveport, Louisiana.
These facilities were completed in the fourth quarter of 1998. SRC has a
third facility under construction in Bossier City, Louisiana. These facilities
are similar to those to be built by the Company. These properties operate
under the name of The Arbor Retirement Community and The Terrace; they are
all located in Northern Louisiana, thereby helping to increase The Arbor
Retirement Communities' name recognition in the area.
SRC's assisted living and memory disorder facilities are being financed
by the issuance of bonds in the amount of $9,000,000 under terms similar to
that of the Offering. The bonds for SRC are being offered and sold by the
Underwriter with approximately 94% of the bonds having been subscribed for as
of February 1, 1999. The operating results of SRC can be found in their
10-QSB dated September 30, 1998 and additional reports as required, which are
filed with the Securities and Exchange Commission, Washington, D.C. 20549.
CERTAIN TRANSACTIONS
Joanne M. Caldwell-Bayles and The Forsythe Group, Inc., the members of
the Company, individually and/or through their ownership of affiliated
companies, have or intend to engage in the following transactions with the
Company. See "Principal Owners of the Company."
Land Acquisition
On October 2, 1998, the Company acquired 5.72 acres of land at the
Minden location from Senior Retirement Communities, Inc., an affiliate of the
Company. The sales price for the land was $203,739. This transaction
resulted in a gain to SRC of $86,059.
27
Construction Contracts
On November 18, 1998, the Company entered into a design/builder contract
in the amount of $1,777,000 with The Forsythe Group, Inc., one of the
Company's members, to construct the Minden Project. The contract calls for
the cash payments of $1,352,000 during the building of the Minden Project as
approved by the contract engineer and the issuance of additional units of
membership interests valued at $425,000. As of December 31, 1998, $345,245
had been paid on this contract and $174,000 of membership interests had been
issued for services rendered in connection with the project. The remainder of
the $251,000 due to be paid through the issuance of membership interests will
be issued at the completion of this project.
On November 18, 1998, the Company entered into a design/builder contract
in the amount of $1,777,000 with The Forsythe Group, Inc. to construct the
Bastrop Project. The contract calls for the cash payments of $1,352,000
during the building of the Bastrop Project as approved by the contract
engineer and the issuance of additional units of membership interests valued
at $425,000. As of December 31, 1998, $36,560 had been paid on this contract
and $175,000 of membership interests had been issued for services rendered in
connection with the project. The remainder of the $250,000 due to be paid
through the issuance of membership interest will be issued at the completion
of the project.
On November 18, 1998, the Company entered into a design/builder contract
in the amount of $1,777,000 with The Forsythe Group, Inc. to construct the
Farmerville Project. The contract calls for the cash payments of $1,352,000
during the building of the Farmerville Project as approved by the contract
engineer and the issuance of additional units membership interests valued at
$425,000. As of December 31, 1998, $0 had been paid on this contract and
$135,000 of membership interests had been issued for services rendered in
connection with the project. The remainder of the $290,000 due to be paid
through the issuance of membership interests will be issued at the completion
of this project.
On November 18, 1998, the Company entered into a design/builder contract
in the amount of $1,777,000 with The Forsythe Group, Inc. to construct the
Natchitoches Project. The contract calls for the cash payments of $1,352,000
during the building of the Natchitoches Project as approved by the contract
engineer and the issuance of additional units of membership interests valued
at $425,000. As of December 31, 1998, $0 had been paid on this contract and
$135,000 of membership interests had been issued for services rendered in
connection with the project. The remainder of the $290,000 due to be paid
through the issuance of membership interests will be issued at the completion
of this project.
Management Contract
On August 27, 1998, The Forsythe Group, Inc. entered into a Management
Agreement with the Company for the management of the Company's Facilities.
The Management Agreement extends to the year 2010, with compensation based
on each facility, paying the Manager $1,500 per month or seven percent (7%) of
the gross collections of a facility, whichever is greater. The Management
Agreement can be terminated by mutual consent of the parties, bankruptcy or
for cause. The Company anticipates the payments under the Management
Agreement to The Forsythe Group, Inc. will exceed $60,000 per year.
Other Transactions
On August 20, 1998, the Company issued 265,000 units of membership
interests to The Forsythe Group, Inc. for $91,000 cash and services rendered
in connection with developing the plans for construction, obtaining State
Fire Marshall approval of the plans and getting approval of the proper zoning
of the Minden Project.
On September 30, 1998, the Company issued 21,500 units of membership
interests to Joanne M. Caldwell-Bayles for $2,000 cash and services rendered
in connection with the formation of the Company.
On October 19, 1998, the Company issued 85,000 units of membership
interests to Joanne M. Caldwell-Bayles for services rendered in connection
with the interior design of the Facilities and market research studies for
the Facilities.
On November 10, 1998, the Company issued 203,739 units of membership
interests to Joanne M. Caldwell-Bayles for $203,739 in cash.
On November 10, 1998, the Company issued 270,000 units of membership
interests to Joanne M. Caldwell-Bayles for services rendered in connection
with selecting the location and purchasing of the land on which the Bastrop
and Farmerville Projects are to be built, developing the plans for
construction, obtaining State Fire Marshall approval of the plans and
getting approval of the proper zoning of the Bastrop and Farmerville
Projects.
28
On November 10, 1998, the Company issued 267,523.50 units of membership
interests to the Forsythe Group, Inc. for $132,523.50 in cash and services
rendered in connection with selecting the location and purchasing of the land
on which the Natchitoches Project is to be built, developing the plans for
construction, obtaining State Fire Marshall approval of the plans and getting
approval of the proper zoning of the Natchitoches Project.
DESCRIPTION OF BONDS
The Bonds will be issued in book-entry form (unless the purchaser
requests a printed bond certificate) pursuant and subject to the provisions of
a certain Trust Indenture (the "Trust Indenture") between the Company and
Colonial Trust Company of Phoenix, Arizona, as Trustee, Bond Registrar and
Paying Agent (the "Trustee"). The Company is not required to qualify the
Trust Indenture under the Trust Indenture Act of 1939 as amended (the "Act").
Thus, the Company has elected not to qualify the Trust Indenture under the
Act. Although the Trust Indenture utilized by this Company does not conform
entirely to the required provisions to the Trust Indenture Act of 1939,
the overall agreement of the Trust Indenture does incorporate the essential
provisions for the protection of bondholders. Copies of the Trust Indenture
will be deposited with the Trustee, the Company and the Underwriter. The
following is a summary of the provisions of the Trust Indenture.
Description of Liens
All of the Bonds will be secured by a mortgage and security agreement,
hereinafter called the "Lien," upon the Facilities as follows: (1) the
Series 1999-I Bonds in the amount of $1,800,000 will be secured by the
property comprising the Minden, Louisiana facility; (2) the Series 1999-II
Bonds in the amount of $2,700,000 will be secured by the property comprising
the Sedona, Arizona facility; (3) the Series 1999-III Bonds in the amount
of $1,800,000 will be secured by the property comprising the Bastrop,
Louisiana facility; (4) the Series 1999-IV Bonds in the amount of $1,800,000
will be secured by the property comprising the Farmerville, Louisiana
facility; and (5) the Series 1999-V Bonds in the amount of $1,800,000 will be
secured by the property comprising the Natchitoches, Louisiana facility.
Notwithstanding the aforementioned, the Bonds will be issued on parity, and
the provisions regarding any default on the bonds is set forth in
"Description of Bonds - Remedies of Default" in this Prospectus.
General
The Company is offering $9,900,000 of co-first mortgage bonds in five
series, with the proceeds from each series being used for the construction or
acquisition of a particular project. See "Sources and Uses of Proceeds."
The issue and sale of each series of bonds is not contingent on the issue and
sale of the other series of bonds, and will be separately offered and sold
and subject to minimum proceeds prior to the issuance thereof. The Bonds are
secured by a pledge of land and buildings constituting the Facilities and a
pledge of gross income of the Company pursuant to the terms of the Trust
Indenture between the Company and the Trustee. The Bonds will be issued in
book-entry form (unless the purchaser requests a printed bond certificate) as
registered Bonds without coupon in denominations of $250 each or any integral
multiple thereof. The Bonds will be issued to mature serially. To "mature
serially" means the Bonds will mature according to predetermined maturity
dates, beginning six months from the issue date of each series of bonds and
continuing to mature each six months thereafter until the final maturity
period of each of the series of bonds as indicated in the "Maturity
Schedules." The purchaser of a Bond should understand that in the event
he/she should need to sell the bond, the Underwriter does not make a
secondary market for the Bonds, nor is there the likelihood a secondary
market will develop. Principal and interest are payable in lawful money of
the United States by the Trustee, acting in its capacity as Paying Agent.
Certain Bonds pay interest by check semiannually ("Simple Interest Bonds").
Certain other Bonds pay the interest earned only at the maturity of the Bond
("Compound Interest Bonds"). See "Maturity Schedules."
The Series 1999-I Bonds will be dated April 1, 1999, and are subject to
the sale of a minimum of $400,000 in principal amount of Bonds. The
aggregate principal amount of the Series 1999-I Bonds is $1,800,000 and is
comprised of bonds in the principal amount of $1,738,500 that will mature
serially and bear simple interest payable by check mailed to the registered
owners each October 1 and April 1 until maturity and bonds in the principal
amount of $61,500 that will mature
29
serially and bear interest compounded semiannually each October 1 and
April 1 that is payable at maturity. The Series 1999-I Bonds will begin
accruing interest as of April 1, 1999, whether or not they have been
purchased and whether or not the minimum offering amount has been reached.
If any of the Series 1999-I Bonds are purchased after April 1, 1999, the
purchaser will be entitled to receive interest on the Bond from April 1, 1999.
The Series 1999-II Bonds will be dated May 1, 1999, and the Series
1999-II are subject to the sale of a minimum of $600,000 in principal amount
of Bonds. The aggregate principal amount of the Series 1999-II Bonds is
$2,700,000. The Series 1999-II Bonds will mature serially and bear simple
interest payable by check mailed to the registered owners each November 1
and May 1 until maturity. Interest on the Series 1999-II Bonds will accrue
from the date payment for the Series 1999-II Bonds is received in the office
of the Underwriter whether or not the minimum offering amount for this series
of bonds has been reached.
The Series 1999-III Bonds will be dated May 1, 1999, and the Series
1999-III Bonds are subject to the sale of a minimum of $400,000 in principal
amount of Bonds. The aggregate principal amount of the Series 1999-III Bonds
is $1,800,000 . The Series 1999-III Bonds will mature serially and bear
interest compounded semiannually each November 1 and May 1 that is payable at
maturity. The Series 1999-III Bonds will begin accruing interest as of
May 1, 1999, whether or not they have been purchased and whether or not the
minimum offering amount has been reached. If any of the Series 1999-III Bonds
are purchased after May 1, 1999, the purchaser will be entitled to receive
interest on the Bond from May 1, 1999.
The Series 1999-IV Bonds will be dated June 1, 1999, and the Series
1999-IV Bonds are subject to the sale of a minimum of $400,000 in principal
amount of Bonds. The aggregate principal amount of the Series 1999-IV Bonds
is $1,800,000 and is comprised of bonds in the principal amount of $1,718,750
that will mature serially and bear simple interest payable by check mailed to
the registered owners each December 1 and June 1 until maturity and bonds in
the principal amount of $81,250 that will mature serially and bear interest
compounded semiannually each December 1 and June 1 that is payable at
maturity. The Series 1999-IV Bonds will begin accruing interest as of June 1,
1999, whether or not they have been purchased and whether or not the minimum
offering amount has been reached. If any of the Series 1999-IV Bonds are
purchased after June 1, 1999, the purchaser will be entitled to receive
interest on the Bond from June 1, 1999.
The Series 1999-V Bonds will be dated July 1, 1999, and the Series 1999-V
Bonds are subject to the sale of a minimum of $400,000 in principal amount
of Bonds. The aggregate principal amount of the Series 1999-V Bonds is
$1,800,000 and is comprised of bonds in the principal amount of $1,718,750
that will mature serially and bear simple interest payable by check mailed to
the registered owners each January 1 and July 1 until maturity and bonds in
the principal amount of $81,250 that will mature serially and bear interest
compounded semiannually each January 1 and July 1 that is payable at maturity.
The Series 1999-V Bonds will begin accruing interest as of July 1, 1999,
whether or not they have been purchased and whether or not the minimum
offering amount has been reached. If any of the Series 1999-V Bonds are
purchased after July 1, 1999, the purchaser will be entitled to receive
interest on the Bond from July 1, 1999.
Tax Consequences
Interest paid on the Bonds is not exempt from federal or state income
taxes. Interest on Simple Interest Bonds is paid by check semiannually. Each
year the purchaser of a Simple Interest Bond will receive a form 1099 INT
from the Trustee/Paying Agent showing the interest earned on the Bond(s) for
that tax year. While Compound Interest Bonds pay the interest earned only at
the maturity of the Bond, a portion of the interest must be reported as income
each year even though no interest will be paid until maturity. The interest
to be reported each year is the amount of interest accruing on the Bond that
year. Each year the purchaser of a Compound Interest Bond will receive a form
1099 OID from the Trustee/Paying Agent showing the interest earned on the
Bond(s) for that tax year. For further information concerning the tax
consequences of purchasing or holding the Bonds, the investor should consult
his or her tax advisor.
30
Trust Funds Established Under the Trust Indenture
The Trust Indenture provides for the creation of the Bond Proceeds Fund,
into which the proceeds from the sale of Bonds will be deposited. The Trust
Indenture also creates the Bond Operating Funds, into which all payments of
the Company are collected prior to payment being made to the Bondholders.
Payment of Bonds
Principal and interest on the Bonds is payable at the office of the
Trustee in lawful currency of the United States of America. Payment of
interest shall be made to the registered owners of the Bonds and paid by
check or draft mailed to the registered owners at the address appearing on the
bond register of the Trustee. Each holder who has received a printed bond
certificate must send his/her matured Bonds to the Paying Agent in order
to obtain payment of the aggregate principal amount.
Events of Default
The term " event of default" when used in the Trust Indenture means the
occurrence of any one of the following events:
a) Failure or refusal to pay when due the principal and/or interest on
any Bond;
b) Failure or refusal to timely pay into the Operating Fund Accounts any
installment(s) required;
c) Failure or refusal to pay when due any taxes, assessments, insurance,
claims, liens or encumbrances upon the Facilities, or to maintain the
Facilities in good repair, or to cure the breach of any other covenant
set forth in the Trust Indenture;
d) Failure or refusal to pay when due any loan or advance by or the fees
and expenses of Trustee or of any depository or escrow agent;
e) Failure or refusal, upon written request of the Trustee, (i) to
furnish Trustee with such insurance policies, financial reports and
information concerning the Company as may be reasonably required by
Trustee, or (ii) to grant unto Trustee, its agents, accountants and
attorneys access during normal business hours to Company's offices
for the purpose of examining and, within reasonable limits,
photocopying such records;
f) Making an assignment for the benefit of creditors; or should a
receiver, liquidator, or trustee be appointed to assist in the
payment of Company's debt; or should any petition for bankruptcy,
reorganization, or arrangement of Company be filed; or should Company
be liquidated or dissolved, or its charter expire or be revoked.
Remedies of Default
Upon the occurrence and continuation of an event of default for a period
of 30 days, the Trustee may accelerate the Bonds and declare the principal of
all Bonds outstanding or any series of Bonds then in default immediately due
and payable. Additionally, upon written request of the holders of not less
than 25% of the Bonds outstanding, the Trustee is obligated to accelerate the
maturity of the Bonds in an event of default. Notwithstanding the
aforementioned, in the event that the Company is in default in the payment
of the principal and/or interest on one or more series of the Bonds, but not
all of the series of the Bonds, or the Company is in default in the timely
payment of the installments to the Operating Fund Account required on one or
more series of the Bonds, but not all of the series of the Bonds and should
such default continue for a period of 30 days, and as a result thereof, the
Trustee has declared to be immediately due and payable the principal balance
and accrued interest of only the unpaid Bonds in the series in default
and if the Company then fails to pay said amount, then the Trustee may
proceed to foreclose the lien against the property applicable to the
defaulted series of Bonds. If there remains a deficiency in the payment of
the series of Bonds in default, then the Trustee may declare to be
immediately due and payable the principal balance due and accrued interest of
any or all of the unpaid Bonds of any or all of the remaining series issued
by the Company pursuant to the Trust Indenture. If the Company then fails to
pay said amount, the Trustee then may proceed to exercise any remedy provided
for in the Trust Indenture, including a foreclosure of the lien securing the
then accelerated and unpaid Bonds.
Additional Covenants
In addition to its obligation to remit the principal and interest
payments when due the Company has agreed to at its own cost and expense,
maintain the properties in good repair and condition and pay or discharge all
taxes, assessments and any mechanic's or material men's liens that may become
payable.
31
Casualty
With respect to insurance, the Company has agreed to maintain in full
force and effect at all times fire and extended coverage insurance insuring
against losses in an amount at least equal to the balance then due on the
outstanding Bonds. The proceeds of any such insurance are to be applied for
the replacement or repair of the property damaged, to purchase additional
property secured by the Trust Indenture as originally acquired with Bond
proceeds, for construction of additional improvements on the Facilities, to
redeem outstanding Bonds, or a combination of the foregoing. If the proceeds
from the sale of the Bonds are to be used to finance the construction of
improvements, the Company agrees to furnish and maintain in full force
builder's risk insurance during the period of construction. In addition, the
Company has agreed to maintain in full force and in effect at all time
general liability insurance in such amount and with such insurers as shall be
approved by the Trustee. The Trustee is authorized to withdraw funds from
the Bond Operating Fund and to apply funds for the account of the Company of
such obligations as aforementioned, and the Company is obligated to
immediately restore the proper balance of the Bond Operating Fund.
Periodic Reporting
The Company has agreed to furnish to the Trustee, at least annually,
audited financial statements, including a balance sheet, statement of
activity and statement of changes in financial position and to permit the
Trustee to examine the books or records of accounts of the Company and the
Facilities at all reasonable times. Audited annual financial statements will
also be supplied to the investors.
Additional Bond Issues/Additional Indebtedness
The Company reserves the right to issue additional parity Bonds or
incur additional debt obligations ("additional Bonds") in any amount for any
lawful purpose, including refunding any outstanding Bonds. Such additional
Bonds along with the Bonds offered hereby should be deemed "Bonds" for all
purposes and as defined in the Trust Indenture. When issued and delivered
the additional Bonds will be secured under the terms of the Trust Indenture
and shall be on parity with all then outstanding Bonds of the Company offered
hereby. The additional Bonds may be offered in one or more series or issues,
in various principal amounts, bearing interest, maturing, and having such
redemption features and other provisions as may be provided in any
supplemental indenture or other instrument authorizing their issuance.
However, no series or issue of additional Bonds shall be issued unless:
a) Any default or event which would result in default by Company under
the Trust Indenture has been first cured;
b) Any real property acquired from the proceeds of Additional Bonds
must be subjected to and become a part of the lien of the Trust
Indenture and any mortgage or deed of trust upon the Facilities; and
c) The ratio of the total of outstanding Bonds plus the additional
bonds shall not exceed 100% of the capitalized cost of the Property,
inclusive of any new construction or improvements thereon, to secure
the payment of the Bonds.
Substitution of Collateral
If the Company is not then in default, the Trustee may execute partial
releases or accept substitution of collateral; provided, however, that in
every such instance the Trustee must receive from some disinterested person
a certificate stating that the value of the property to be substituted is of
equal or greater value to the original property.
Successor Trustee
If the Trustee resigns or is removed or dissolved or if any court or
administrative body takes control over the property or affairs of the Trustee
because of insolvency or financial difficulty or for any other reason, the
Company must appoint a Successor Trustee. If the Company fails to make such
an appointment, the majority in principal amount of Bondholders may appoint a
Successor Trustee. The Successor Trustee must then mail notice of its
appointment to the registered owners but no other notice is required.
Modification of Trust Indenture
The Trust Indenture may be amended or supplemented from time to time by
the parties thereto without the consent of or notice to the Bondholders for
any of the following purposes:
32
a) To cure any ambiguity, omission, formal defect or inconsistency; or
b) To issue additional Bonds within the guidelines described above; or
c) To make any change which, in the judgement of the Trustee in
reliance upon any opinion of counsel does not adversely affect the
rights of the holders of any Bond.
The Trust Indenture may be amended or supplemented for purposes other
than those set forth above with the consent of the holders of 66 2/3% of the
Bonds then outstanding; provided, however, that no such amendment or
supplement without the consent of the holder of any Bond affected thereby
shall:
a) Reduce the percentage of the principal amount of Bonds the holders
of which must consent to for any such amendment, supplement or
waiver;
b) Reduce the rate or extend the time of payment of interest on any
Bonds; or
c) Reduce the principal or premium, if any, on any Bond or extend the
time or times of payment thereof whether at maturity, upon
redemption or otherwise.
Prepayment
The Company has reserved the right to redeem all or a portion of the
Bonds prior to their stated maturity. The Bonds are subject to redemption
without premium at the principal amount thereof plus accrued interest. The
registered owner will be given written notice of such redemption at the
owner's address as it appears on the Bond Register. It is the owner's
responsibility to notify the Paying Agent of any change of address. Any Bond
not redeemed by its owner within three years after its maturity date is
deemed to have been paid and the funds will escheat to the benefit of the
appropriate state authority.
Security and Source of Payment for the Bonds
The Bonds will be payable primarily from the first revenues of the
Facilities. These Bonds are an obligation of the Company. The Series 1999-I,
II, III, IV and V Bonds will be secured by a co-first mortgage on the Minden,
Oak Creek, Bastrop, Farmerville and Natchitoches Projects, respectively.
Notwithstanding the aforementioned, the Bonds will be issued on parity, and
the provisions regarding any default on the bonds is set forth in
"Description of Bonds - Remedies of Default" in this Prospectus.
The Company covenants to keep all property pledged under this Bond issue
properly insured against loss by fire, windstorm and explosion in an amount
equal to the outstanding balance of the Bonds. A copy of such policy,
payable jointly to the Company and the Trustee, will be on file with the
Company and the Trustee.
Requirements of the Operating Fund Accounts
Under the Trust Indenture, the Company must establish Operating Fund
Accounts and make monthly deposits into the Operating Fund Accounts in
amounts predetermined to be sufficient at all times to pay the principal and
interest of each series of the Bonds. The required monthly deposits will be
as follows:
Series 1999-I ($1,800,000)
$14,010.01 per month for one year (12 Payments) beginning April 1, 1999
$17,450.02 per month for one year (12 Payments) beginning April 1, 2000
$17,750.02 per month for one years (12 Payments) beginning April 1, 2001
$18,270.02 per month for four and one half years (54 Payments) beginning
April 1, 2002 with a final balloon payment of $1,451,750 due on
September 30, 2006
Payments include the Paying Agent fee of $450 per month.
Series 1999-II ($2,700,000)
$20,925.01 per month for five years (60 Payments) beginning May 1, 1999
with a final balloon payment of $2,700,000 due on April 30, 2004
Payments include the Paying Agent fee of $675 per month.
33
Series 1999-III ($1,800,000)
$13,727.99 per month for one year (12 Payments) beginning May 1, 1999
$15,442.00 per month for one year (12 Payments) beginning May 1, 2000
$17,223.00 per month for one year (12 Payments) beginning May 1, 2001
$18,970.03 per month for four and one half years (54 Payments) beginning
May 1, 2002 with a final balloon payment of $1,416,771 due on
October 31, 2006
Payments include the Paying Agent fee of $450 per month.
Series 1999-IV ($1,800,000)
$13,270.00 per month for one year (12 Payments) beginning June 1, 1999
$16,119.99 per month for one year (12 Payments) beginning June 1, 2000
$17,651.00 per month for one years (12 Payments) beginning June 1, 2001
$19,434.99 per month for two years (24 Payments) beginning June 1, 2002
with a final balloon payment of $1,575,000 due on May 31, 2004
Payments include the Paying Agent fee of $450 per month.
Series 1999-V ($1,800,000)
$13,270.00 per month for one year (12 Payments) beginning July 1, 1999
$16,119.99 per month for one year (12 Payments) beginning July 1, 2000
$17,651.00 per month for one years (12 Payments) beginning July 1, 2001
$19,434.99 per month for two years (24 Payments) beginning July 1, 2002
with a final balloon payment of $1,575,000 due on June 30, 2004
Payments include the Paying Agent fee of $450 per month.
The Trustee must first draw, from the Operating Fund Accounts, the
charges due for paying agency and trustee services. Thereafter, the amounts
in the Operating Fund Accounts shall be used solely for the payment of
interest coming due or principal coming payable on the Bonds or for the
redemption of Bonds; provided however, that the Trustee may in the event
the Company fails to maintain or insure its properties, apply such funds
as may be available in the Operating Fund Accounts to perform the Company's
obligations. The Company is obligated to immediately replenish such funds so
applied.
Initial Operating Fund Payments
Initial operating fund payments in the amounts of $90,000, $125,000,
$90,000, $90,000 and $90,000 will be funded from the proceeds of the sale of
the Series 1999-I, II, III, IV and V Bonds, respectively, and will be used
only to make the initial payments on the respective series of Bonds. These
initial operating fund payment amounts are equivalent to slightly more than
the first six month operating fund payments for the five series of Bonds
assuming all of the Bonds are sold. After the initial operating fund payment
amounts have been expended, the remaining operating fund payments will be
payable primarily from the first revenues of the Facilities. If the Company
is unable to make the required operating fund payments to pay the principal
and interest due on the Bonds, then an event of default will occur. See
"Description of Bonds - Events of Default" and "Description of Bonds -
Remedies of Default."
Bond Reserve Account
The Company has agreed to establish a Bond Reserve Account which will be
funded by four of the five series of bonds as follows: $140,000 from the
Series 1999-I Bonds, $140,000 from the Series 1999-III Bonds, $140,000 from
the Series 1999-IV Bonds and $117,000 from the Series 1999-V Bonds. If all
the Bonds are sold, the Bond Reserve Account will be funded in the amount of
$537,000. The purpose of the Bond Reserve Account is that in the event the
Company has not deposited the necessary funds to pay the principal and
interest due on any semiannual payment date of any series of Bonds, the
Trustee may apply available funds to the principal and interest due on the
Bonds. In the event that the Trustee uses funds from the Bond Reserve
Account to pay the principal and interest on the Bonds due at a particular
paydate, then the Company shall pay to the Trustee, within one hundred
eighty (180) days from the date of such paydate, an amount necessary to
replenish the Bond Reserve Account. Failure to replenish the Bond Reserve
Account within one-hundred eighty (180) day period shall be an event of
default and shall entitle the Trustee to continue to hold the Bond Reserve
Account, in addition to its other remedies. The Bond Reserve Account will
remain in place for a period of seven and one half years from May 1, 1999.
At the end of the seven and one half year period, any funds remaining in the
Bond Reserve Account must first be
34
used to call any outstanding Bonds, provided the Company is current on all
operating fund payments. If all of the Bonds have been retired prior to the
end of the seven and one half year period, then the Bond Reserve Account will
be released to the Company.
Escrow and Disbursement of Bond Proceeds
All proceeds from the sale of the Bonds shall be payable to and deposited
with Colonial Trust Company of Phoenix, Arizona ("Escrow Agent" and
"Registrar") pursuant to an Escrow Agreement entered into between the Company
and the Escrow Agent. Pursuant to the terms of the Escrow Agreement, all
proceeds from the sale of the Bonds will be deposited with the Escrow Agent,
subject to the sale of minimum funds for any series of Bonds. The minimum
offering amounts for the Series 1999-I Bonds, Series 1999-II Bonds,
Series 1999-III Bonds, Series 1999-IV Bonds and Series 1999-V Bonds are
$400,000 , $600,000, $400,000, $400,000 and $400,000, respectively. No fees
still due the Underwriter related to the sale of a particular series of Bonds
shall be paid out of the escrow account until the minimum escrow amount for
that particular series of Bonds has been met. The funds shall be used only
for the purpose set forth under "Sources and Uses of Proceeds." During the
escrow period, the subscriber will not have access to funds held in the
Escrow Account. The Company, the Company's affiliates, the Underwriter and
the Underwriter's affiliates may purchase Bonds in order to reach the minimum
offering amounts for any series of the Bonds. These parties will not be
restricted to the amount of Bonds that they may purchase.
If $400,000 has not been deposited in the escrow account from the sale of
the Series 1999-I Bonds by October 1, 1999, the subscribers to the Series
1999-I Bonds will receive the return of their subscription amount plus
interest. In the event that the minimum offering amount for the Series
1999-I Bonds is not met by October 1, 1999, the Company shall promptly pay to
the Escrow Agent such sum of money as shall be necessary, if any, when added
to the amount of the Escrow Property and interest earned thereon to pay to
the subscribers of the Bonds the principal amount of such subscriptions
together with the interest from April 1, 1999 through October 1, 1999 at the
rate attributable to the Series 1999-I Bonds subscribed.
If $600,000 has not been deposited in the escrow account from the sale of
the Series 1999-II Bonds by November 1, 1999, the subscribers to the
Series 1999-II Bonds will receive the return of their subscription amount
plus interest. In the event that the minimum offering amount for the
Series 1999-II Bonds is not met by November 1, 1999, the Company shall
promptly pay to the Escrow Agent such sum of money as shall be necessary,
if any, when added to the amount of the Escrow Property and interest earned
thereon to pay to the subscribers of the Bonds the principal amount of such
subscriptions together with the interest from the date payment for the Series
1999-II Bonds is received in the office of the Underwriter through
November 1, 1999 at the rate attributable to the Series 1999-II Bonds
subscribed.
If $400,000 has not been deposited in the escrow account from the sale
of the Series 1999-III Bonds by November 1, 1999, the subscribers to the
Series 1999-III Bonds will receive the return of their subscription amount
plus interest. In the event that the minimum offering amount for the
Series 1999-III Bonds is not met by November 1, 1999, the Company shall
promptly pay to the Escrow Agent such sum of money as shall be necessary,
if any, when added to the amount of the Escrow Property and interest earned
thereon to pay to the subscribers of the Bonds the principal amount of such
subscriptions together with the interest from May 1, 1999 through
November 1, 1999 at the rate attributable to the Series 1999-III Bonds
subscribed.
If $400,000 has not been deposited in the escrow account from the sale
of the Series 1999-IV Bonds by December 1, 1999, the subscribers to the
Series 1999-IV Bonds will receive the return of their subscription amount
plus interest. In the event that the minimum offering amount for the
Series 1999-IV Bonds is not met by December 1, 1999, the Company shall
promptly pay to the Escrow Agent such sum of money as shall be necessary,
if any, when added to the amount of the Escrow Property and interest earned
thereon to pay to the subscribers of the Bonds the principal amount of such
subscriptions together with the interest from June 1, 1999 through
December 1, 1999 at the rate attributable to the Series 1999-IV Bonds
subscribed.
If $400,000 has not been deposited in the escrow account from the sale
of the Series 1999-V Bonds by January 1, 2000, the subscribers to the Series
1999-V Bonds will receive the return of their subscription amount plus
interest. In the event that the minimum offering amount for the
Series 1999-V Bonds is not met by January 1, 2000, the Company shall
promptly pay to the Escrow Agent such sum of money as shall be necessary, if
any, when added to the amount of the Escrow Property and interest earned
thereon to pay to the subscribers of the Bonds the principal amount of such
subscriptions together with the interest from July 1, 1999 through
January 1, 2000 at the rate attributable to the Series 1999-V Bonds
subscribed.
Subject to the sale of the minimum offering amount for the Series 1999-I
Bonds, the Company and Trustee will use available funds from the sale of the
Series 1999-I Bonds in the following order: (1) to pay expenses of the
Underwriter, attorney, appraiser, recording fees, mortgage taxes, Trustee's
fees, Paying Agent fees and other similar fees incurred in
35
connection with the Series 1999-I Bonds; (2) to fund an amount approximately
equivalent to the first six month operating fund payments for the Series
1999-I Bonds; (3) to retire the Minden Construction Loan; (4) to fund
pre-opening costs of the Minden Project; and (5) to fund the Series 1999-I
portion of the Bond Reserve Account. After the above has been accomplished,
any remaining funds in the Bond Proceeds Account related to the Series
1999-I Bonds will be released to the Company. See "Sources and Uses of
Proceeds."
Subject to the sale of the minimum offering amount for the Series
1999-II Bonds, the Company and Trustee will use available funds from the
sale of the Series 1999-II Bonds in the following order: (1) to pay expenses
of the Underwriter, attorney, appraiser, recording fees, mortgage taxes,
Trustee's fees, Paying Agent fees and other similar fees incurred in
connection with the Series 1999-II Bonds; (2) to fund an amount approximately
equivalent to the first six month operating fund payments for the Series
1999-II Bonds; (3) to retire the Oak Creek Interim Loan; and (4) to retire
the line of credit used for the renovation of the Oak Creek Project. After
the above has been accomplished, any remaining funds in the Bond Proceeds
Account related to the Series 1999-II Bonds will be released to the Company.
See "Sources and Uses of Proceeds."
Subject to the sale of the minimum offering amount for the Series
1999-III Bonds, the Company and Trustee will use available funds from the
sale of the Series 1999-III Bonds in the following order: (1) to pay
expenses of the Underwriter, attorney, appraiser, recording fees, mortgage
taxes, Trustee's fees, Paying Agent fees and other similar fees incurred in
connection with the Series 1999-III Bonds; (2) to fund an amount approximately
equivalent to the first six month operating fund payments for the Series
1999-III Bonds; (3) to retire the Bastrop Construction Loan; (4) to fund the
remaining construction costs on the Bastrop Project; (5) to fund pre-opening
costs of the Bastrop Project; and (6) to fund the Series 1999-III portion of
the Bond Reserve Account. After the above has been accomplished, any
remaining funds in the Bond Proceeds Account related to the Series 1999-III
Bonds will be released to the Company. See "Sources and Uses of Proceeds."
Subject to the sale of the minimum offering amount for the Series 1999-IV
Bonds, the Company and Trustee will use available funds from the sale of the
Series 1999-IV Bonds in the following order: (1) to pay expenses of the
Underwriter, attorney, appraiser, recording fees, mortgage taxes, Trustee's
fees, Paying Agent fees and other similar fees incurred in connection with the
Series 1999-IV Bonds; (2) to fund an amount approximately equivalent to the
first six month operating fund payments for the Series 1999-IV Bonds; (3) to
retire the Farmerville Construction Loan; (4) to fund the remaining
construction costs on the Farmerville Project; (5) to fund pre-opening costs
of the Farmerville Project; and (6) to fund the Series 1999-IV portion of
the Bond Reserve Account. After the above has been accomplished, any
remaining funds in the Bond Proceeds Account related to the Series
1999-IV Bonds will be released to the Company. See "Sources and Uses of
Proceeds."
Subject to the sale of the minimum offering amount for the Series 1999-V
Bonds, the Company and Trustee will use available funds from the sale of the
Series 1999-V Bonds in the following order: (1) to pay expenses of the
Underwriter, attorney, appraiser, recording fees, mortgage taxes, Trustee's
fees, Paying Agent fees and other similar fees incurred in connection with the
Series 1999-V Bonds; (2) to fund an amount approximately equivalent to the
first six month operating fund payments for the Series 1999-V Bonds; (3) to
retire the Natchitoches Construction Loan; and (5) to fund the Series 1999-V
portion of the Bond Reserve Account. After the above has been accomplished,
any remaining funds in the Bond Proceeds Account related to the Series 1999-V
Bonds will be released to the Company. See "Sources and Uses of Proceeds."
Escrow Agent
The Company has appointed Colonial Trust Company of Phoenix, Arizona, as
Escrow Agent. The duties and responsibilities of the Escrow Agent are set
forth in the Escrow Agreement between the Company and the Escrow Agent,
the provisions of which are summarized under "Description of Bonds - Escrow
And Disbursement Of Bond Proceeds."
Trustee
Colonial Trust Company of Phoenix, Arizona, has agreed to serve as
Trustee for the Bonds pursuant to the Trust Indenture entered into between
the Company and the Trustee. The Trustee has also agreed to serve as Paying
Agent, Registrar, Disbursing Agent and Escrow Agent. The Trustee is not a
guarantor or surety, does not in any way guarantee or act as surety for
payment of the Bonds and may not be held liable under any conditions, except
for its own negligence.
The Underwriter and Trustee are separate corporations organized under the
laws of the states of Kansas and Arizona respectively. The Trustee and
Underwriter share no common officer or directors. The Underwriter will
however receive a fee not to exceed $60,000 to be paid in installments over
the terms of the Bond Issues from the Trustee for its technical
36
assistance pertaining to the Bond Issues. This assistance normally includes,
but is not limited to, (1) helping ensure that all legal documents are
recorded; (2) making sure that proper documentation is forwarded to the
Trustee, including such documents as the Articles of Organization, appraisal,
financial statements and annual reports; (3) due diligence documentation of
the progress of the project and bond sales; and (4) follow-up with the
Company in the event of delinquent payments. This assistance offered by the
Underwriter presents a conflict of interest, in that the Underwriter has
underwritten other offerings for affiliates of the Company, and therefore
may not want to alienate the Company (and possibly lose future business) by
aggressively pursuing delinquent payments that are due to investors.
Dependence by the Trustee on the Underwriter to provide certain information
to the Trustee restricts the Trustee's ability to function independently as a
Trustee. This assistance offered by the Underwriter, for whom it is
compensated by the Trustee, does in no way relieve the Trustee of its duties.
Registrar
The Bonds are being issued as fully registered Bonds in book entry form
(unless the purchaser requests a printed bond certificate). The Trustee is
also acting as Registrar and Transfer Agent for the Bonds. As Bond Registrar,
the Trustee will receive and record all proceeds from the sale of the Bonds,
maintain a permanent bond register, authenticate and mail all Bonds to their
registered holders that have requested a printed Bond, cancel and reissue
Bonds which are transferred by the original holders, and replace lost, stolen
and mutilated bond certificates. All Bonds will be registered in the owner's
name. Upon registration, a bond confirmation certificate or, if the
purchaser requests, a printed Bond will be mailed directly to it's owner.
Paying Agent
The Company has also appointed the Trustee to act as Paying Agent for the
Bonds. As paying agent the Trustee will receive and hold all payments
remitted by the Company into the Operating Fund Accounts and will disburse
therefrom all payments of principal or interest on the Bonds, Trustees fees
and such other sums as provided in the Trust Indenture. The Paying Agent
holds the funds in trust, commingled with similar operating funds of other
companies, but must maintain detailed records to reflect the balances
attributable to each Company. The Paying Agent may invest the funds in any
form of account or deposit insured by depository insurance or in interest
bearing obligations issued by the United States Government or any political
subdivision thereof, or any funds comprised of the same.
As Paying Agent, the Trustee is required to furnish periodic statements
to the Company and to the Underwriter reflecting all receipts and
disbursements from the Operating Fund Accounts.
UNDERWRITING
Underwriting Agreement
Subject to the terms and conditions of the Underwriting Agreement
(the "Underwriting Agreement"), a copy of which is filed as an exhibit to the
Registration Statement of which this Prospectus is a part, between the
Company and MMR Investment Bankers, Inc. (the "Underwriter"), the Company has
retained the services of the Underwriter to offer and sell the Bonds offered
hereby on a "best efforts" basis at the public offering price of $250 per
Bond or integral multiples thereof. The Bonds will be issued in five series,
as identified herein, and each series is subject to the sale of a
minimum-offering amount as indicated under "Description of Bonds - Escrow
and Disbursement of Bond Proceeds." All proceeds from the sale of the Bonds
will be transmitted promptly to an escrow account with Colonial Trust Company
as Escrow Agent. In the event minimum funds for any series of Bonds is not
received within the time set forth herein, the Company will promptly pay to
the Escrow Agent such sum of money as will be necessary, if any, when added
to the sums held in escrow, including interest earned thereon, to pay to the
subscribers the principal amount of their subscription together with
interest through the escrow termination date at the rate attributable to the
Bonds subscribed to by the subscriber. The Company expects that the Bonds
will be delivered in book-entry form, subject to the sale of minimum funds
for each series of Bonds, through the facilities of the Trustee within thirty
(30) days from the date subscriptions for the Bonds are received.
Contingent upon the sale of the minimum principal amount of a series of
the Bonds, the Company will pay the Underwriter a concession as follows:
(1) the Underwriter will receive 6.0% of the face amount of each Bond sold by
another NASD member firm through a selling group agreement with the
Underwriter and may re-allow the full 6% to the NASD member firms
participating in this Offering; (2) the Underwriter will receive a concession
of 5.0% of the face amount of each
37
bond sold by the Underwriter to clients of the Underwriter; or (3) the
Underwriter will receive a processing fee of 1.0% of the face amount of each
Bond sold to a purchaser referred to the Underwriter by the Company, provided
such investors are not currently a client of the Underwriter. The Underwriter
or its assigns will also receive a fee not to exceed $60,000 to be paid in
installments over the term of the Bond Issues from the Trustee for services
rendered to the Trustee including the review of the financial and operating
condition of the Company on a continuing basis. In addition, the Company has
paid to the Underwriter an investment banking fee in the amount of $128,700
for the Underwriter's technical assistance in connection with this Offering.
In the event the Offering is terminated prior to the issuance of Bonds, the
Company shall be liable to the Underwriter only for the Underwriter's
out-of-pocket expenses for services rendered. The Company has agreed to pay
all expenses in connection with qualifying the Bonds for sale under such
jurisdictions as the Underwriter may designate. The Underwriting Agreement
provides for reciprocal agreements of indemnity between the Company and
the Underwriter as to certain civil liabilities, including liabilities under
the Securities Act of 1933, as amended.
The sale of the Bonds will be for a period of one year from the date of
this Prospectus. All offerings are subject to prior sale. The Underwriter
has the first right of refusal on any other financing needs of the Company
involving the Facilities for the next three years following the offering.
Additionally, the Underwriter has advised the Company that it does not intend
to make a market in the Bonds.
Pursuant to terms of the Underwriting Agreement, the Company may not
contact any person listed in the records of the Underwriter as a customer of
the Underwriter for any reason whatsoever without obtaining the prior written
consent of the Underwriter. However, this provision is not to be construed
to prohibit the Company from providing any reports or notifications to
bondholders that may be mandated by any federal or state laws or regulations.
Subscription for Bonds
Each person who wishes to purchase a Bond must execute a subscription
agreement covering the Bond(s) being purchased. The subscription agreement is
generated by the Underwriter upon receiving verbal indication from a
subscriber for the Bond(s) the subscriber has selected from the available
maturities. Subscribers may purchase any of the series of Bonds. Prior to
executing the subscription agreement, the subscriber will be provided a
Prospectus by the Underwriter.
Checks should be made payable to Colonial Trust Company as Escrow Agent
and Registrar. Completion of the subscription agreement, including proper
signature thereon is essential prior to any sale of the Bonds to potential
investors. However, the Company and Underwriter reserve the right to reject
any subscription for any reason whatsoever, in which event all monies will
then be refunded to the prospective investor without interest, deduction or
credit thereon. Subject to the sale of minimum funds for each series of Bonds,
the Registrar will register and deliver the bonds in book-entry form or
provide those registered owners who request a printed bond certificate with
the Bonds within thirty (30) days from the date subscriptions for the Bonds
are received.
Determination of Offering Price
Prior to this Offering, there has been no public market for the Bonds of
the Company. Consequently, the initial public offering price for the Bonds
has been determined arbitrarily between the Company and the Underwriter.
Possible Withdrawal of Underwriter
In June 1997, the Securities Commissioner of the State of Kansas filed a
Petition in the District Court of Shawnee County, Kansas, Case No. 97-CU-755,
styled State of Kansas, ex. rel. David R. Brant, Securities Commission of the
State of Kansas v. William Gerald Martin, Thomas Gene Trimble, and MMR
Investment Bankers, Inc. This case stems from the Underwriter's participation
in a series of church bond offerings of a single church located in Wichita,
Kansas. The Securities Commissioner of Kansas seeks a permanent injunction
restraining and enjoining each of the defendants from directly or indirectly
employing any device, scheme, or artifice to defraud; engaging in an act,
practice or course of business which would operate as a fraud or deceit upon
any person; and/or making any untrue statements of material fact and/or
omitting to state material facts necessary in order to make other statements
made not misleading, and, seeking restitution jointly and/or severely from
each of the defendants in the amount of $4,825,665.24, which is the amount in
default on the last two issues of church bonds issued on behalf of the church.
It is likely that during the offering of the Bonds, that this matter may be
adjudicated, settled, or otherwise, and the authority of the Underwriter
to engage in the securities business may be suspended, revoked or limited.
Currently, this litigation is in its discovery stage, and the Underwriter has
determined to vigorously defend the case. However, in the event the
Underwriter is unable to continue its business as a broker dealer of
securities, it will have to withdraw from its participation in this offering
and, in all likelihood, the offering will be terminated unless and until the
Company is successful in finding another Underwriter willing to participate
in the sale of the Bonds.
38
LEGAL MATTERS
The Company's counsel, Bobby L. Culpepper, Esq., Jonesboro, Louisiana,
has opined upon certain legal matters pertaining to the Bonds. Certain legal
matters have been passed upon for the Underwriter by Michael G. Quinn, Esq.,
Wichita, Kansas.
To the best knowledge of the Company, there are neither pending legal
proceedings nor any known to be threatened or contemplated to which the
Company is a party or to which any of its property may be subject.
EXPERTS
The following experts have consented to their names and to references to
their reports appearing in this Prospectus: Robert M. McSherry, MAI, of Baton
Rouge, Louisiana, has provided appraisals of the Facilities. William R.
Hulsey, CPA, of Monroe, Louisiana, has audited the financial statements dated
December 31, 1998.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission"), Washington, D.C. 20549, a Registration Statement (which term
shall include all amendments, exhibits and schedules thereto) on Form SB-2
under the Securities Act with respect to the Bonds offered hereby. This
Prospectus, which constitutes a part of the Registration Statement, omits
certain of the information contained in the Registration Statement and the
exhibits and financial schedules thereto. Reference is hereby made to the
Registration Statement and related exhibits and schedules for further
information with respect to the Company and the Bonds offered hereby. Any
statements contained herein concerning the provisions of any document are not
necessarily complete, and in each such instance reference is made to the copy
of such document filed as an exhibit to the Registration Statement. Each
such statement is qualified in its entirety by such reference. For further
information with respect to the Company and the Bonds, reference is made
to the Registration Statement and such exhibits and schedules, copies of
which may be examined or copied at the Public Reference Section of the
Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549,
and at the regional offices of the Commission located at 7 World Trade Center,
Suite 1300, New York New York 10048 and at CitiCorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661-2511.
(This space is intentionally left blank)
39
INDEX TO FINANCIAL STATEMENTS
Page
Auditor's Report . . . . . . . . . . . . . . . . . . . . . . . . . F-2
Balance Sheet at December 31, 1998 . . . . . . . . . . . . . . . . F-3
Statement of Income from July 1, 1998 until December 31, 1998. . . F-4
Statement of Members' Equity (Deficit) from July 1, 1998
until December 31, 1998 . . . . . . . . . . . . . . . . . . . . . F-5
Statement of Cash Flows from July 1, 1998 until
December 31, 1998. . . . . . . . . . . . . . . . . . . . . . . . . F-6
Notes to Financial Statements. . . . . . . . . . . . . . . . . . . F-7
F-1
WILLLIAM R. HULSEY
CERTIFIED PUBLIC ACCOUNTANT
2117 FORSYTHE AVENUE
MEMBER MONROE, LOUISIANA MAILING ADDRESS
AMERICAN INSTITUTE OF P. 0. BOX 2253
CERTIFIED PUBLIC ACCOUNTANTS MONROE, LOUISIANA 71207
SOCIETY OF LOUISIANA (318) 362-9900
CERTIFIED PUBIIC ACCOUNTANTS FAX (318) 362-9993
The Biltmore Group of Louisiana. L.L.C.
507 Trenton Street
West Monroe, Louisiana
I have audited the accompanying balance sheet of The Biltmore Group of
Louisiana, L.L.C. as December 31, 1998 and the related statements of income,
retained earnings and cash flows for the period then ended. These financial
statements are the responsibility of the Company's management. My
responsibility is to express an opinion on these financial statements based
on my audit.
I conducted my audit in accordance with generally accepted auditing standards.
Those standards require that I plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. I believe that my audit provides a reasonable basis for
my opinion.
In my opinion, the financial statements referred to above present fairly
in all material respects, the financial position of The Biltmore Group
of Louisiana, L.L.C. at December 31, 1998 and the results of its operations
and its cash flows for the period then ended in conformity with generally
accepted accounting principles.
January 21, 1999
/S/WILLIAM R HULSEY
William R. Hulsey
Certified Public Accountant
F-2
The Biltmore Group of Louisiana, L.L.C.
( A Development Stage Company )
Balance Sheet
December 31, 1998
ASSETS
Current assets:
Cash $ 21,318
Prepaid expenses 4,918
----------
Total current assets 26,236
----------
Property, plant and equipment
Building construction in progress 2,878,986
Land 938,739
----------
Total property, plant and equipment 3,817,725
----------
Other assets:
Deferred charges 110,000
----------
$ 3,953,961
----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accrued payroll taxes payable $ 1,383
Notes payable 689,907
----------
Total current liabilities 691,290
----------
Long-term debt 2,174,025
----------
Members' equity 1,088,646
----------
$ 3,953,961
----------
The notes to financial statements are an integral
part of this financial statement.
F-3
The Biltmore Group of Louisiana, L.L.C.
( A Development Stage Company )
Statement of Income
Period from July 1, 1998 until December 31, 1998
Revenues $ 0
----------
Operating expenses
Activities 685
Advertising 2,231
Bank charges 30
Dues and subscriptions 1,167
Education 498
Equipment rental 231
Housekeeping 439
Licenses 35
Miscellaneous 596
Office 21
Office supplies 869
Payroll expense 5,202
Postage 635
Printing 1,263
Promotion 15
Telephone 347
Travel and entertainment 9,389
Uniforms 7
Utilities 457
----------
Total operating expenses 24,117
----------
Net income (loss) (24,117)
----------
The notes to financial statements are an integral
part of this financial statement.
F-4
The Biltmore Group of Louisiana, L.L.C.
( A Development Stage Company )
Statement of Members' Equity
Period from July 1, 1998 until December 31, 1998
Beginning members' equity $ 0
Members, contributions 1,112,763
Net income (loss) (24,117)
----------
Ending members' equity $ 1,088,646
----------
The notes to financial statements are an integral
part of this financial statement.
F-5
The Biltmore Group of Louisiana, L.L.C.
( A Development Stage Company )
Statement of Cash Flows
Period from July 1, 1998 until December 31, 1998
Cash flows from operating activities:
Net loss $ (24,117)
Adjustments to reconcile net income to
cash used by operations:
Increase in prepaid expenses (4,918)
Increase in accrued payroll taxes 1,383
----------
Net cash used by operating activities (27,652)
----------
Cash flows from investing activities
Acquisitions land (938,739)
Payments towards construction in progress (2,878,986)
Payment of deferred charges (110,000)
----------
Net cash provided by (applied to) investing (3,927,725)
----------
Cash flows from financing activities
Contribution of membership equity 1,112,763
Interim construction loans 689,907
Land and real estate loans 2,174,025
----------
Net cash provided by (applied to) financing 3,976,695
----------
Net increase in cash 21,318
Cash at the beginning of the period 0
Cash at the end of the period $ 21,318
----------
The notes to financial statements are an integral
part of this financial statement.
F-6
The Biltmore Group of Louisiana, L.L.C.
( A Development Stage Company )
Notes to Financial Statements
Note 1 - Summary of Significant Accounting Policies
Nature of Business
The company is a Louisiana limited liability company established to
develop an assisted living center and dementia facility for the housing
and care of senior citizens in Bastrop, Farmerville, Minden, and
Natchitoches in Louisiana and in Sedona, Arizona.
Basis of Accounting
The company uses the accrual basis of accounting and will utilize the
calendar year for all reporting purposes.
Income Taxes
The company is treated as a partnership for federal income tax purposes.
Consequently, federal income taxes are not payable by, or provided for,
the Company. Members are taxed individually on their share of the
Company's earnings. The Company's income or loss is allocated among the
members in accordance with the operating agreement of the Company. The
financial statements do not reflect a provision for income taxes.
Property, Buildings, Equipment and Depreciation
Buildings and equipment are stated at cost and are to be depreciated
by the straight-line method over their estimated economic lives.
Buildings shall include capitalized construction period interest which
will be treated as a component cost of the building and depreciated over
the same economic life as the building.
Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect certain reported amounts and disclosures.
Accordingly, actual results could differ from those estimates.
Advertising
The Company follows the policy of charging the costs of advertising to
expense as incurred.
F-7
The Biltmore Group of Louisiana, L.L.C.
( A Development Stage Company )
Notes to Financial Statements
Note 1 - Summary of Significant Accounting Policies-(continued)
Deferred Charges
Deferred charges represents the costs associated with obtaining long-term
financing for the care facilities of the Company. These costs are to
amortized over the life of the bonds using the effective interest rate
method.
Note 2 - Related Party Transactions
The Company has entered into a design/builder contract in the amount of
$ 1,777,000 with The Forsythe Group, one of its members, to construct the
Bastrop facility. The contract calls for the cash payments of
$ 1,352,000 during the building of the facility as approved by the
contract engineer and the balance of $ 425,000 through the issuance of
certificates of membership equity. As of December 31, 1998, $ 36,560
has been paid on this contract and $ 175,000 of membership equity had
been issued for services rendered in connection with the project. The
remainder of the $ 250,000 due to be paid through the issuance of equity
certificates, which will be issued at the completion of the project.
The Company has entered into a design/builder contract in the amount of
$ 1,777,000 with The Forsythe Group, one of its members, to construct the
Farmerville facility. The contract calls for the cash payments of
$ 1,352,000 during the building of the facility as approved by the
contract engineer and the balance of $ 425,000 through the issuance of
certificates of membership equity. As of December 31, 1998, there have
been no cash payments on this contract and $ 135,000 of membership equity
had been issued for services rendered in connection with the project. The
remainder of the $ 290,000 due to be paid through the issuance of equity
certificates, which will be issued at the completion of the project.
The Company has entered into a design/builder contract in the amount of
$ 1,777,000 with The Forsythe Group, one of its members, to construct
the Minden facility. The contract calls for the cash payments of
$ 1,352,000 during the building of the facility as approved by the
contract engineer and the balance of $ 425,000 through the issuance of
certificates of membership equity. As of December 31, 1998, $ 348,245
has been paid on this contract and $ 174,000 of membership equity had
been issued for services rendered in connection with the project.
F-8
The Biltmore Group of Louisiana, L.L.C.
( A Development Stage Company )
Notes to Financial Statements
Note 2 - Related Party Transactions-(continued)
The remainder of the $ 251,000 due to be paid through the issuance of
equity certificates, which will be issued at the completion of the
project.
The Company has entered into a design/builder contract in the amount of
$ 1,777,000 with The Forsythe Group, one of its members, to construct
the Bastrop facility. The contract calls for the cash payments of
$ 1,352,000 during the building of the facility as approved by the
contract engineer and the balance of $ 425,000 through the issuance of
certificates of membership equity. As of December 31, 1998, there have
been no payments on this contract and $ 135,000 of membership equity had
been issued for services rendered in connection with the project. The
remainder of the $ 250,000 due to be paid through the issuance of equity
certificates, which will be issued at the completion of the project.
Note 3 - Deferred Charges
Deferred charges are summarized as follows:
Loan fees $ 110,000
The loan fees are to be amortized as interest expense over the life of
the related loan by use of the interest method.
Note 4 - Notes Payable
Notes payable at December 31, 1998 consist of a note to Church Loans
which is to provide the funding for the construction of the Bastrop
location. The loan is to be repaid from the permanent financing of the
project through the proposed issuance of bonds. This note calls for the
payment of interest at a rate of prime ( as published in the Wall Street
Journal plus two per cent but in no case shall the rate be less than ten
and one-half per cent per annum. The lender shall maintain a first
mortgage position on the Bastrop location until such time as the bonds
are sold. At that time Church Loans will maintain a co-first mortgage
position for any amounts which are not liquidated by the bond proceeds.
As of December 31, 1998, the balance on this loan is $ 196,116.
F-10
The Biltmore Group of Louisiana, L.L.C.
( A Development Stage Company )
Notes to Financial Statements
Note 4 - Notes Payable-(continued)
Notes payable at December 31, 1998 consist of a note to First Republic
Bank to provide a credit line for the funding for the construction of
the various locations. The loan is to be repaid from the permanent
financing of the project through the proposed issuance of bonds. This
note calls for the payment of interest at a rate of 9.995 per cent. As
of December 31, 1998, the balance on this loan is $ 70,500.
Notes payable at December 31, 1998 consist of a note to First Republic
Bank to provide the funding for the construction of the Minden location.
The loan is to be repaid from the permanent financing of the project
through the proposed issuance of bonds. This note calls for the monthly
payment of interest at a rate of 9.20 per cent. The lender shall
maintain a first mortgage position on the Minden location until such
time as the bonds are sold. As of December 31, 1998, the balance on
this loan is $ 351,536.
Notes payable at December 31, 1998 consist of a note to First Republic
Bank to provide the funding for the remodeling and upgrading of the Sedona
location. This note calls for the monthly payment of interest at a rate
of 9.75 per cent. The note is secured by a mortgage position on certain
real estate owned by on e of the members. As of December 31, 1998, the
balance on this loan is $ 71,755.
Note 5 - Contributions of Members' Equity
The Company has issued members' equity certificates totalling $ 1,112,763
in exchange for $ 683,500 of services and $ 429,263 of cash.
Note 6 - Development Stage Operations
The Company has begun construction of the Minden and Bastrop facilities
which have an estimated completion date of late 1999. The Company has
completed the purchase of the Sedona, Arizona facility and is in the
process of upgrading and remodeling the facility which has as estimated
completion date of early 1999. The expenditures related to these
projects are reflected as building construction in progress on the
balance sheet.
F-11
The Biltmore Group of Louisiana, L.L.C.
( A Development Stage Company )
Notes to Financial Statements
Note 7 - Long-Term Debt
Long-term debt at December 31, 1998 consist of a note to Church Loans
which is to provided the funding for the purchase of the Sedona location.
The loan is to be repaid from the permanent financing of the project
through the proposed issuance of bonds. This note calls for the payment
of interest at a rate of prime ( as published in the Wall Street Journal
plus two per cent but in no case shall the rate be less than ten and
one-half per cent per annum. The lender shall maintain a first mortgage
position on the Sedona location until such time as the bonds are sold.
At that time Church Loans will maintain a co-first mortgage position for
any amounts which are not liquidated by the bond proceeds. As of
December 31, 1998, the balance on this loan is $ 2,174,025.
F-12
No person has been authorized in connection with the Offering made
hereby to give any information or to make any representation not contained in
this Prospectus and, if given or made, such information or representation
must not be relied upon as having been authorized by the Company or any
Underwriter. This Prospectus does not constitute an offer to sell or a
solicitation of any offer to buy any of the securities offered hereby to any
person or by anyone in any jurisdiction in which it is unlawful to make such
offer or solicitation. Neither the delivery of this Prospectus nor any sale
made hereunder shall, under any circumstances, create any implication that
the information contained herein is correct as of any date subsequent to the
date hereof.
TABLE OF CONTENTS
Maturity Schedules . . . . . . . . . . . . . . . . . 3
Prospectus Summary . . . . . . . . . . . . . . . . . 4
Risk Factors . . . . . . . . . . . . . . . . . . . . 7
Use of Proceeds. . . . . . . . . . . . . . . . . . . 14
Business . . . . . . . . . . . . . . . . . . . . . . 15
Description of Property. . . . . . . . . . . . . . . 19
Management . . . . . . . . . . . . . . . . . . . . . 24
Principal Owners of the Company. . . . . . . . . . . 25
The Company's Plan of Operation. . . . . . . . . . . 26
Prior Performance of Affiliates of the Company . . . 27
Certain Transactions . . . . . . . . . . . . . . . . 27
Description of Bonds . . . . . . . . . . . . . . . . 29
Underwriting . . . . . . . . . . . . . . . . . . . . 37
Legal Matters. . . . . . . . . . . . . . . . . . . . 39
Experts. . . . . . . . . . . . . . . . . . . . . . . 39
Additional Information . . . . . . . . . . . . . . . 39
Index to Financial Statements. . . . . . . . . . . . F-1
Until _____________, 1999 (90 days after the date of this Prospectus),
all dealers effecting transactions in the Bonds offered hereby, whether or
not participating in this distribution, may be required to deliver a
Prospectus. This is in addition to the obligation of dealers to deliver a
Prospectus when acting as Underwriters and with respect to their unsold
allotments or subscriptions.
$9,900,000
Co-First Mortgage Bonds
(Company logo here)
THE BILTMORE GROUP
OF LOUISIANA, L.L.C.
-----------------------
PROSPECTUS
-----------------------
MMR INVESTMENT BANKERS, INC.
[MMR LOGO] [SIPC LOGO]
________________, 1999
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers
The Louisiana Limited Liability Company law (La. R. S. 12:1314 and 1315)
confers broad powers upon limited liability companies organized in Louisiana
with respect to limitations of liability and indemnification of any person
against liabilities incurred by reason of the fact that such person is or was
a member, manager, employee or agent of a limited liability company, or is or
was serving at the request of the company as a manager, employee or agent of
another company or other business entity. The provisions of La. R.S. 12:1314
are not exclusive of any other rights to which those seeking indemnification
may be entitled under any articles of organization or written operating
agreement as allowed pursuant to La. R.S. 12:1315.
The Operating Agreement of the Company contain a provision regarding the
limits of liability of members and managers of the Company to the fullest
extent allowed by law.
The Underwriting Agreement, filed as Exhibit 1(a) to this Registration
Statement, provides for the indemnification by the Company of the Underwriter
and each person, if any, who controls the Underwriter against certain
liabilities and expenses, as stated therein, which may include liabilities
under the Securities Act of 1933, as amended. The Underwriting Agreement also
provides that the Underwriter similarly indemnify the Company, it directors,
officers and controlling persons, as set forth therein.
Item 25. Other Expenses of Issuance and Distribution
The following is a list of the estimated expenses in connection with the
issuance and distribution of securities being registered, other than
underwriting discounts and commissions, all of which is to be paid by the
Registrant:
SEC Registration Fee. . . . . . . . . . . . . . . . . . . . . . . . . . $3,000
NASD Registration Fee . . . . . . . . . . . . . . . . . . . . . . . . . $1,490
Blue Sky Qualification Fees and Expenses. . . . . . . . . . . . . . . . $3,150
CUSIP Registration Fees . . . . . . . . . . . . . . . . . . . . . . . . $1,000
Legal Fees and Expenses . . . . . . . . . . . . . . . . . . . . . . . .$20,000
Accounting Fees and Expenses. . . . . . . . . . . . . . . . . . . . . .$20,000
Transfer Agent, Escrow Agent, Paying Agent, Registrar & Trustee Fees. . $9,900
Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,760
-------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .$61,300
=======
Item 26. Recent Sale of Unregistered Securities
The following table sets forth the Company's sales of unregistered
securities in the last three years. No underwriters were involved in any of
such sales nor were any commissions or similar fees paid by the Registrant
with respect thereto. The Company claims exemption from registration for
these issuances under Section 4(2) of the Securities Act of 1933, as amended.
These securities were sold as a private placement to the original members,
each of which is an accredited investor as defined under the Securities Act
of 1933, as amended.
Date Title Identity
of Sale of Securities Amount Sold of Purchaser Consideration
08/20/98 Membership 265,000 Units The Forsythe Issued in exchange
Interest Group for services
rendered in
connection with
developing plans for
construction,
obtaining State Fire
Marshall approval of
the plans and getting
approval of the proper
zoning of the Project
and $91,000 in cash
09/30/98 Membership 21,500 Units Joanne Issued in exchange
Interest Caldwell- for services rendered
Bayles in connection with the
formation of the
Company and $2,000 in
cash
10/19/98 Memership 85,000 Units Joanne Issued in exchange
Interest Caldwell- for services rendered
Bayles in connection with the
interior design of the
Facilities and market
research studies for
the Facilities
11/10/98 Membership 203,739 Units Joanne Issued in exchange for
Interest Caldwell- $203,739 in cash
Bayles
11/10/98 Membership 270,000 Units Joanne Issued in exchange for
Interest Caldwell- services rendered in
Bayles connection with
selecting the location
and purchasing of the
land on which the
Bastrop and Farmerville
Projects are to be
built, developing the
plans for construction,
obtaining State Fire
Marshall approval of
the plans and getting
approval of the proper
zoning of the Bastrop
and Farmerville
Projects
11/10/98 Membership 267,523.5 Units The Forsythe Issued in exchange for
Interest Group services rendered in
connection with
selecting the location
and purchasing of the
land on which the
Natchitoches Project
is to be built,
developing the plans
for construction,
obtaining Sate Fire
Marshall approval of
the plans and getting
approval of the proper
zoning of the
Natchitoches Project
and $132,523.50 in
cash
Item 27. Exhibits
Exhibit
Number Description
1(a) Form of Underwriting Agreement
1(b) Form of Selling Group Agreement
1(c) Form of Proceeds Escrow Agreement
3(a) Articles of Organization
3(b) Operating Agreement
4(a) Specimen of Bond Certificate
4(b) Form of Trust Indenture
4(c) Form of Lienholders Agreements
5(a) Opinion of Bobby L. Culpepper, Esq.
10(a) Construction Management Contract - Minden Facility
10(b) Construction Management Contract - Bastrop Facility
10(c) Construction Management Contract - Farmerville Facility
10(d) Construction Management Contract - Natchitoches Facility
10(e) Construction Loan Agreement - Minden
10(f) Interim Loan Agreement - Oak Creek
10(g) Construction Loan Agreement - Bastrop
10(h) Construction Loan Agreement - Farmerville
10(i) Construction Loan Agreement - Natchitoches
10(j) Form of Management Agreements
23(a) Consent of William R. Hulsey, CPA
23(b) Consent of Bobby L. Culpepper, Esq.
23(c) Consent of Appraiser - Minden
23(d) Consent of Appraiser - Oak Creek
23(e) Consent of Appraiser - Bastrop
23(f) Consent of Appraiser - Farmerville
23(g) Consent of Appraiser - Natchitoches
99(a) Appraisal - Minden
99(b) Appraisal - Oak Creek
99(c) Appraisal - Bastrop
99(d) Appraisal - Farmerville
99(e) Appraisal - Natchitoches
99(f) Environmental Report - Minden
99(g) Environmental Report - Bastrop
99(h) Environmental Report - Farmerville
99(i) Environmental Report - Natchitoches
Item 28. Undertakings
Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended (the "Act"), may be permitted to directors, officers
and controlling persons of the Registrant pursuant to the foregoing
provisions, or otherwise, the Registrant has been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in
the successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the
securities being registered, the Registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to
a court of appropriate jurisdiction the question whether such indemnification
by it is against public policy as expressed in the Act and will be governed
by the final adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act of 1933, the information omitted from the form of prospectus filed as
part of this registration statement in reliance upon Rule 430A and contained
in a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(3) It will file, during any period in which it offers or sells
securities, a post-effective amendment to this registration statement to:
(i) Include any prospectus required by section 10(a)(3) of the Act;
(ii) Reflect in the prospectus any facts or events which, individually
or together, represent a fundamental change in the information in the
registration statement;
(iii) Include any additional or changed material information on the plan
of distribution.
(4) File a post-effective amendment to remove from registration any of
the securities that remain unsold at the end of the offering.
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant, The Biltmore Group of Louisiana, Inc., certifies that it has
reasonable grounds to believe that it meets all of the requirements of filing
on Form SB-2 and authorized this Registration Statement to be signed on its
behalf by the undersigned, in the City of West Monroe, State of Louisiana,
on this 12th day of February , 1999.
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The Biltmore Group of Louisiana, L.L.C.
By: /s/JOANNE M CALDWELL-BAYLES
-----------------------------------
Joanne. M. Caldwell-Bayles
Managing Member
In accordance with the requirement of the Securities Act of 1933, this
Registration Statement was signed by the following persons in the capacities
indicated on February 12 , 1999.
----------------
Signature Title
/S/JOANNE M CALDWELL-BAYLES Managing Member (Chief Executive Officer
- ------------------------------ and Chief Financial Officer)
Joanne M. Caldwell-Bayles