SUPPLEMENT DATED OCTOBER 14, 2015 TO OFFICIAL STATEMENT DATED SEPTEMBER 23, 2015
RELATING TO
$8,165,000 CITY OF SILOAM SPRINGS, ARKANSAS PUBLIC EDUCATION FACILITIES BOARD (JOHN BROWN UNIVERSITY) REFUNDING REVENUE BONDS SERIES 2015
The Official Statement dated September 23, 2015 (the “Official Statement”), relating to the above-referenced bonds (the “Bonds”) is hereby amended and supplemented as described below. This Supplement constitutes an integral part of the Official Statement and should be attached to and read together with the Official Statement, which is incorporated herein by reference.
The Official Statement is amended and supplemented by replacing the first sentence in the third paragraph under the heading THE SERIES 2015 BONDS – General Description with the following:
“Each Series 2015 Bond shall be dated as of the date of delivery, shall mature as set forth on the inside cover page hereof, and shall bear interest from the date of delivery or, if authenticated on an interest payment date, from such date, payable semiannually on June 1 and December 1 of each year, commencing December 1, 2015.”
DATED: October 14, 2015 CITY OF SILOAM SPRINGS, ARKANSAS PUBLIC EDUCATION FACILITIES BOARD (JOHN BROWN UNIVERSITY)
By: /s/ Tim McCord Chair
JOHN BROWN UNIVERSITY
By: /s/ Charles Pollard President OFFICIAL STATEMENT NEW ISSUE NOT RATED In the opinion of Kutak Rock LLP, Bond Counsel, under existing laws, regulations, rulings and judicial decisions and assuming the accuracy of certain representations and continuing compliance with certain covenants, interest on the Series 2015 Bonds is excluded from gross income for federal income tax purposes and is not a specific preference item for purposes of the federal alternative minimum tax; however, with respect to corporations, interest on the Series 2015 Bonds will be taken into account in determining adjusted current earnings for purposes of computing the federal alternative minimum tax. Bond Counsel is also of the opinion that the Series 2015 Bonds are "qualified tax-exempt obligations" within the meaning of Section 265(6)(3) of the internal Revenue Code of 1986, as amended. In Bond Counsel's further opinion, under existing laws, regulations, rulings and judicial decisions, the Series 2015 Bonds and the interest thereon are exempt from all Arkansas state, county and municipal taxes. See the caption "TAX MATTERS" herein
$8,165,000 CITY OF SILOAM SPRINGS, ARKANSAS PUBLIC EDUCATION FACILITIES BOARD (JOHN BROWN UNIVERSITY) REFUNDING REVENUE BONDS SERIES 2015
Dated: Date of Delivery Due: December 1, as shown on inside cover The Series 2015 Bonds will be issued only as fully registered bonds in denominations of $5,000 or any integral multiple thereof, and, when issued, will be registered in the name of Cede & Co., as nominee of The Depository Trust Company ("DTC"), New York, New York, to which principal, premium, if any, and interest payments on the Series 2015 Bonds will be made so long as DTC or its nominee is the registered owner of the Series 2015 Bonds. Individual purchasers of the Series 2015 Bonds will not receive physical delivery of bond certificates. See the caption "BOOK-ENTRY ONLY SYSTEM" herein. The Series 2015 Bonds are being issued pursuant to and are secured by an Indenture of Trust dated as of October 1, 2015 (the "Indenture"), under which Bank of the Ozarks, in Little Rock, Arkansas, is trustee, paying agent and bond registrar (the "Trustee"). Principal of the Series 2015 Bonds is payable at the principal corporate trust office of the Trustee. Interest on the Series 2015 Bonds is payable each June 1 and December 1, commencing December 1, 2015. All such interest payments shall be payable to the person in whose name such Series 2015 Bond is registered on the bond registration books maintained by the Trustee as of the close of business on the fifteenth day of the calendar month immediately preceding the interest payment date on which interest is due. So long as DTC or its nominee is the registered owner of the Series 2015 Bonds, disbursement of such payments to DTC or its nominee is the responsibility of the Trustee. Disbursement of such payments to DTC Participants is the responsibility of DTC, and disbursement of such payments to Beneficial Owners is the responsibility of DTC Participants or Indirect Participants, as more fully described herein. The Series 2015 Bonds are special and limited obligations of the City of Siloam Springs, Arkansas Public Education Facilities Board (John Brown University) (the "Issuer"). Neither the general credit of the Issuer nor the general credit or the taxing power of the City of Siloam Springs, Arkansas or the State of Arkansas or any other political subdivision thereof is pledged for the payment of the Series 2015 Bonds. The Series 2015 Bonds are payable from and secured by a pledge of certain revenues and other amounts to be received by the Issuer pursuant to a Loan Agreement and Security Agreement dated as of October 1, 2015 (the "Loan Agreement"), between the Issuer and John Brown University, an Arkansas nonprofit corporation (the "Corporation"). The obligations of the Corporation under the Loan Agreement are secured by a pledge of student tuition and fee revenues. See the caption "SECURITY FOR THE BONDS" herein. The proceeds of the Series 2015 Bonds will be used, together with other available moneys, (i) to refund the Issuer's Refunding Revenue Bonds, Series 2009, in the outstanding principal amount of $7,905,000, (ii) to fund a debt service reserve, and (iii) to pay the costs of issuance of the Series 2015 Bonds. See the captions "REFUNDING PROGRAM" and "SOURCES AND USES OF FUNDS" herein. The Series 2015 Bonds will be subject to optional and extraordinary redemption prior to maturity, as more fully described under the caption "THE SERIES 2015 BONDS" herein.
MATURITY SCHEDULE ON INSIDE COVER
The Series 2015 Bonds are offered when, as and if issued and received by the Underwriter, subject to the approval of validity by Kutak Rock LLP, Little Rock, Arkansas, Bond Counsel, and subject to certain other conditions. Certain matters will be passed upon for the Corporation by Conner & Winters, LLP, Fayetteville, Arkansas, counsel to the Corporation. It is expected that the Series 2015 Bonds will be available for delivery through the facilities of DTC in New York, New York on or about October 7, 2015. Stephens Inc.
The date of this Official Statement is September 23, 2015. MATURITY SCHEDULE
Due Principal Interest (December 1) Amount Rate Yield
2015 $ 30,000 2.000% 0.500% 2016 460,000 2.000% 0.750% 2017 465,000 2.000% 1.200% 2018 475,000 2.000% 1.600% 2019 485,000 2.000% 1.900% 2020 490,000 2.250% 2.250% 2021 505,000 2.500% 2.500% 2022 515,000 2.700% 2.700% 2023 530,000 2.850% 2.850% 2024 545,000 2.950% 2.950% 2025 560,000 3.050% 3.050% 2026 580,000 3.200% 3.200% 2027 600,000 3.300% 3.300% 2028 620,000 3.400% 3.400% 2029 640,000 3.450% 3.450% 2030 665,000 3.550% 3.550% No dealer, broker, salesman or other person has been authorized by the Issuer, the Corporation or the Underwriter to give any information or to make any representations other than those contained in this Official Statement, and if given or made, such other information or representations must not be relied upon as having been authorized by the foregoing. This Official Statement does not constitute an offer to sell or a solicitation of an offer to buy nor shall there be any sale of the Series 2015 Bonds by any person in any jurisdiction in which it is unlawful for such person to make such offer, solicitation or sale. The information and expressions of opinion are subject to change without notice, and neither the delivery of this Official Statement nor any sale hereunder shall under any circumstances create any implication that there has been no change in the affairs of the Issuer or the Corporation since the date hereof.
NO REGISTRATION STATEMENT RELATING TO THE SERIES 2015 BONDS HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION, NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS OFFICIAL STATEMENT.
THE INFORMATION SET FORTH HEREIN HAS BEEN FURNISHED BY THE ISSUER, THE CORPORATION AND FROM OTHER SOURCES THAT ARE BELIEVED TO BE RELIABLE. THE UNDERWRITER HAS REVIEWED THE INFORMATION IN THIS OFFICIAL STATEMENT IN ACCORDANCE WITH, AND AS PART OF, ITS RESPONSIBILITIES TO INVESTORS UNDER THE FEDERAL SECURITIES LAWS AS APPLIED TO THE FACTS AND CIRCUMSTANCES OF THIS TRANSACTION, BUT THE UNDERWRITER DOES NOT GUARANTEE THE ACCURACY OR COMPLETENESS OF SUCH INFORMATION.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVERALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SERIES 2015 BONDS AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
TABLE OF CONTENTS Page No.
Introductory Statement 1 The Series 2015 Bonds 2 Security for the Bonds 5 Book-Entry Only System 6 The Issuer 8 Refunding Program 8 Summary of Enrollments and Student Revenues 9 Sources and Uses of Funds 10 Debt Service Requirements 10 Estimated Debt Service Coverage 11 The Corporation and University 11 Summary of Portions of the Loan Agreement 16 Summary of Portions of the Indenture 21 Summary of Portions of the Continuing Disclosure Agreement 24 Underwriting 29 Tax Matters 29 Legal Matters 30 Financial Statements 31 Miscellaneous 31
Appendix A — Definitions of Certain Terms A-1 Appendix B Audited Consolidated Financial Statements of the Corporation and its affiliates as of and for the fiscal years ended June 30, 2015 and 2014 B-1 Appendix C — Form of Approving Opinion C-1 OFFICIAL STATEMENT
$8,165,000 CITY OF SILOAM SPRINGS, ARKANSAS PUBLIC EDUCATION FACILITIES BOARD (JOHN BROWN UNIVERSITY) REFUNDING REVENUE BONDS SERIES 2015
INTRODUCTORY STATEMENT
The following Introductory Statement is subject in all respects to the more complete information set forth in this Official Statement. All descriptions and summaries of documents hereinafter set forth are qualified in their entirety by reference to each document. This Official Statement, including the cover page and Appendices hereto, is furnished in connection with the issuance and sale of $8,165,000 principal amount of Refunding Revenue Bonds, Series 2015 (the "Series 2015 Bonds"), by the City of Siloam Springs, Arkansas Public Education Facilities Board (John Brown University) (the "Issuer"). The Issuer is a body politic and corporate and a public instrumentality of the City of Siloam Springs, Arkansas (the "City"), organized and existing under the laws of the State of Arkansas (the "State") to finance, acquire, own, lease, contract concerning and dispose of educational facilities. The Series 2015 Bonds are being issued pursuant to the laws of the State, including particularly the Public Facilities Boards Act, Arkansas Code Annotated Sections 14-137-101 et seq. (1998 Repl. and Supp. 2013) (the "Act"), an ordinance of the Board of Directors of the City creating the Issuer, resolutions duly adopted by the Issuer, and an Indenture of Trust dated as of October 1, 2015 (the "Indenture"), by and between the Issuer and Bank of the Ozarks, in the City of Little Rock, Arkansas, as trustee (the "Trustee"). The proceeds of the Series 2015 Bonds will be used (i) to refund $7,905,000 outstanding principal amount of the Issuer's Refunding Revenue Bonds, Series 2009 (the "Series 2009 Bonds"), (ii) to fund a debt service reserve, and (iii) to pay the costs of issuance of the Series 2015 Bonds. See the captions "REFUNDING PROGRAM" and "SOURCES AND USES OF FUNDS" herein. The Series 2009 Bonds were issued to refund prior bonds of the Issuer originally issued to finance certain capital improvements at John Brown University, an independent four year university located in the City (the "University"), which is owned and operated by John Brown University, an Arkansas nonprofit corporation (the "Corporation"). Pursuant to a Loan Agreement and Security Agreement dated as of October 1, 2015 (the "Loan Agreement"), between the Issuer and the Corporation, the Issuer is lending the proceeds of the Series 2015 Bonds to the Corporation in return for payments sufficient to pay principal of and interest on the Series 2015 Bonds as and when the same become due and payable, to make deposits into the Debt Service Reserve Fund (hereinafter defined) as and when required pursuant to the Loan Agreement, and to pay the fees, charges and expenses of the Issuer and Trustee. The obligations of the Corporation under the Loan Agreement are secured by a pledge of and lien on all student tuition and fee revenues received by the Corporation (the "Pledged Revenues"). See the caption "SECURITY FOR THE BONDS - Pledged Revenues" herein. The Series 2015 Bonds are not secured by a mortgage on or security interest in any real or tangible personal property. The Indenture permits, under certain conditions, the issuance of additional bonds (the "Additional Bonds") by the Issuer, which will be secured on a parity basis with the Series 2015 Bonds. The Series 2015 Bonds and any subsequently issued Additional Bonds are collectively referred to herein as the "Bonds". See the caption "THE SERIES 2015 BONDS - Additional Bonds" herein. Pursuant to the Indenture, all right, title and interest of the Issuer in and to the Loan Agreement (except for certain rights to indemnification and payment of expenses), including the Issuer's right to receive payments and the pledge of the Pledged Revenues, are assigned to the Trustee to secure the payment of the Bonds. The Bonds are special limited obligations of the Issuer. Neither the City, the State nor any political subdivision thereof shall in any event be liable for the payment of the principal of, premium or interest on the Bonds or for the performance of any pledge, mortgage, obligation or agreement of any kind whatsoever which may be undertaken by the Corporation. None of the Bonds or any of the agreements or obligations of the Corporation shall be construed to constitute an indebtedness, liability, general or moral obligation, pledge of the faith, loan of credit or charge against the taxing power of the City, the State or any political subdivision thereof within the meaning of any constitutional or statutory provision. The Issuer has no taxing power. This Official Statement contains descriptions of, among other matters, the Series 2015 Bonds, the Refunding Program, the Corporation and the University, the Indenture, the Loan Agreement and a Continuing Disclosure Agreement dated as of the date of delivery of the Series 2015 Bonds (the "Continuing Disclosure Agreement"), by and between the Corporation and the Trustee. Such descriptions and information do not purport to be comprehensive or definitive. Definitions of certain words and terms used in this Official Statement are set forth in Appendix A hereto. All references herein to the Indenture, the Loan Agreement and the Continuing Disclosure Agreement are qualified in their entirety by reference to such documents, and references herein to the Series 2015 Bonds are qualified in their entirety by reference to the form thereof included in the Indenture. Copies of such documents may be obtained from the Trustee, and during the initial offering period only, from the Underwriter and Bond Counsel.
THE SERIES 2015 BONDS General Description The Series 2015 Bonds are issuable only as fully registered bonds in denominations of $5,000 or any integral multiple thereof, and, when issued, will be registered in the name of Cede & Co., as nominee of The Depository Trust Company ("DTC"), New York, New York, to which principal, premium, if any, and interest payments on the Series 2015 Bonds will be made so long as DTC or its nominee is the registered owner of the Series 2015 Bonds. Individual purchases of the Series 2015 Bonds will be made only in book-entry form. Individual purchasers ("Beneficial Owners") of the Series 2015 Bonds will not receive physical delivery of bond certificates. See the caption "BOOK-ENTRY ONLY SYSTEM" herein. Bank of the Ozarks, Little Rock, Arkansas, is trustee, paying agent and bond registrar (the "Trustee") for the Bonds. Additional paying agents may be appointed, and the bond registrar and any paying agent may be removed or replaced by the Issuer in accordance with the Indenture. Each Series 2015 Bond shall be dated as of the date of delivery, shall mature as set forth on the inside cover page hereof, and shall bear interest from October 1, 2015 or, if authenticated on an interest payment date, from such date, payable semiannually on June 1 and December 1 of each year, commencing December 1, 2015. All interest payments on the Series 2015 Bonds shall be payable to the persons in whose names such Series 2015 Bonds are registered as of the Record Date on the bond registration books maintained by the Trustee. Principal of and premium, if any, on the Series 2015 Bonds shall be payable at the principal corporate trust office of the Trustee. So long as DTC or its nominee is the registered owner of the Series 2015 Bonds, disbursement of such payments to DTC is the responsibility of the Trustee. Disbursement of such payments to DTC Participants is the responsibility of DTC, and the disbursement of such payments to Beneficial Owners is the responsibility of DTC Participants or Indirect Participants, as more fully described herein.
Optional Redemption On and after December 1, 2020, the Series 2015 Bonds are callable for redemption by the Issuer at the option of the Issuer (which option shall be exercised only on the request of Corporation) in whole or in part at any time (and if in part, in such maturities as shall be selected by the Corporation, and by lot within a maturity), at a redemption price equal to one hundred percent (100%) of the principal amount being redeemed plus accrued interest to the date of redemption.
2 Extraordinary Redemption Partial Redemption from Unexpended Insurance Proceeds and Condemnation Awards. The Series 2015 Bonds will be redeemable in part, in inverse order of maturities, less than all of the Series 2015 Bonds of any maturity to be selected by lot in such manner as the Trustee shall determine, at one hundred percent (100%) of the principal amount thereof plus accrued interest to the date of redemption, on any interest payment date, from the Net Proceeds of any insurance or condemnation award resulting from the damage or destruction of the University or any portion thereof by fire or other casualty, or from the taking through condemnation by any governmental body or by any person, firm or corporation acting under governmental authority, of title to or any interest in, or the temporary use of, the University or any portion thereof, to the extent such insurance proceeds or condemnation award are not utilized for the repair, restoration, modification or improvement of the University; provided, however, that the Corporation shall furnish to the Issuer and the Trustee a certificate stating that the portion of the University so damaged or destroyed or taken is not essential to the use or possession of the University by the Corporation or that the University has been repaired, restored, modified or improved to enable the University to operate as designed. Redemption in Whole. The Series 2015 Bonds will be redeemable in whole on any interest payment date, at one hundred percent (100%) of the principal amount thereof plus accrued interest to the redemption date, upon the exercise by the Corporation of its option to prepay the amounts payable under the Loan Agreement prior to the full payment of the Series 2015 Bonds (or provision for payment thereof having been made in accordance with the provisions of the Indenture) if any of the following events shall have occurred: (a) The University shall have been damaged or destroyed (i) to such extent that it cannot be reasonably restored within a period of six (6) months to the condition thereof immediately preceding such damage or destruction, or (ii) to such extent that the Corporation is thereby prevented, in the Corporation's judgment, from carrying on its normal operations at the University for a period of six (6) months or more, or (iii) to such extent that the cost of restoration thereof would exceed the Net Proceeds from the insurance required under the Loan Agreement; (b) Title to, or the temporary use for a period of six (6) months or more of all or substantially all of the University, or such part thereof as shall materially interfere, in the Corporation's judgment, with the operation of the University for the purpose for which it is designed, shall have been taken under the exercise of the power of eminent domain by any governmental body or by any person, firm or corporation acting under governmental authority (including such a taking or takings as results in the Corporation being thereby prevented from carrying on its normal operations at the University for a period of six (6) months or more); or (c) As a result of any changes in the Constitution of the State or the Constitution of the United States of America or of legislative or administrative action (whether state or federal) or by final decree, judgment or order of any court or administrative body (whether state or federal) entered after the contest thereof by the Corporation in good faith, the Loan Agreement shall have become void or unenforceable or impossible of performance in accordance with the intent and purposes of the parties as expressed in the Loan Agreement, or unreasonable burdens or excessive liabilities shall have been imposed on the Corporation in respect to the University, including, without limitation, federal, state or other ad valorem, property, income or other taxes not being imposed on the date of the Loan Agreement.
Notice and Effect of Redemption Any notice of call for redemption will be given by mailing (at least thirty (30) days but not more than sixty (60) days before the redemption date) a copy of the redemption notice to each Registered Owner of a Series 2015 Bond to be redeemed. In no case will the failure to give such notice by mailing, or any defect therein, affect the validity of any proceeding for the redemption of any Series 2015 Bond or portion thereof with respect to which no such failure has occurred. So long as DTC or its nominee is effecting book-entry transfers of the Series 2015 Bonds, the Trustee shall provide redemption notices only to DTC. It is expected that DTC shall, in turn, notify its participants and that the participants, in turn, will notify or cause to notified the beneficial owners. Any failure on the part of DTC or a participant, or failure on the part of the nominee of a beneficial owner of a Series 2015 Bond to notify the beneficial owner of the Series 2015 Bond so affected, shall not affect the validity of the redemption of such Series 2015 Bond.
3 Notwithstanding the foregoing with respect to the selection of particular Series 2015 Bonds to be redeemed in the event of a partial redemption, so long as DTC or its nominee is the sole Registered Owner of the Series 2015 Bonds, the Trustee shall follow the procedure for redemption and notice as set forth in DTC's operational arrangements, as in effect at the time. No further interest shall accrue on the principal of any Series 2015 Bond called for redemption after the redemption date if funds sufficient for such redemption have been deposited with the Trustee.
Additional Bonds So long as the Loan Agreement is in effect and there is no Default existing under the Loan Agreement or the Indenture, one or more series of Additional Bonds may be issued to pay (i) the costs of making at any time and from time to time such substitutions, additions, modifications and improvements in, on or to the University as authorized by the Act and as the Corporation shall deem necessary or desirable, (ii) the costs of refunding, to the extent permitted by law, any Outstanding Bonds, (iii) the costs of making any required deposit to the Debt Service Reserve Fund as a result of the issuance of such Additional Bonds, and (iv) the costs of issuance and sale of Additional Bonds and capitalized interest and certain other costs related to such financing. Any such Additional Bonds shall be payable solely from the amounts derived from the Loan Agreement. The Additional Bonds shall be delivered to the Trustee only upon the filing of certain documents with the Trustee, including:
(i) a supplemental Indenture and an amendment to the Loan Agreement; (ii) a written opinion of nationally recognized bond counsel to the effect that the issuance of Additional Bonds and the execution thereof have been duly authorized, that all conditions precedent to the delivery thereof have been fulfilled, and the exemption from federal income taxation of the interest on the Series 2015 Bonds and any Additional Bonds theretofore issued will not be affected by the issuance of any such Additional Bonds; (iii) a written order to the Trustee from the Issuer to authenticate and deliver the Additional Bonds; and (iv) (a) if the Additional Bonds are to be issued to construct capital improvements to the University, a written opinion of an Accountant that the Pledged Revenues collected by the Corporation in the Fiscal Year immediately prior to the Fiscal Year in which the Additional Bonds are proposed to be issued were at least 150% of the maximum Annual Debt Service on all Outstanding Bonds, plus the Additional Bonds proposed to be issued, or (b) if the Additional Bonds are to be issued to refund any series of Outstanding Bonds, either (I) the written opinion of an Accountant described in (a) above, or (II) a certificate from a Corporation Representative that total Debt Service on the Additional Bonds proposed to be issued does not exceed total remaining Debt Service on Bonds which would have been Outstanding had the same not been refunded. Each series of Additional Bonds shall be equally and ratably secured under the Indenture with the Series 2015 Bonds and all other series of Additional Bonds, without preference, priority or distinction of any Bonds over any other thereof.
Subordinate Indebtedness So long as there is no Default existing under the Loan Agreement or the Indenture, the Corporation may issue or incur junior lien debt ("Subordinate Indebtedness") if any lien on Pledged Revenues securing such Subordinate Indebtedness is expressly made subordinate to the lien on Pledged Revenues securing the Corporation's Loan Payment obligations under the Loan Agreement, and the Pledged Revenues received by the Corporation in the Fiscal Year immediately preceding the Fiscal Year in which the Subordinate Indebtedness is to be issued or incurred were at least 120% of the maximum Annual Debt Service on all Outstanding Bonds and any outstanding Subordinate Indebtedness, plus the Subordinate Indebtedness to be issued or incurred.
4 SECURITY FOR THE BONDS
The Series 2015 Bonds will be special and limited obligations of the Issuer and will be payable solely from certain amounts payable by the Corporation to the Issuer under the Loan Agreement and certain other available moneys specified in the Indenture (except to the extent paid out of moneys attributable to the proceeds derived from the sale of the Series 2015 Bonds and income from the investment thereof). Under the Indenture, the Issuer has pledged and assigned all of its right, title and interest in and to the Loan Agreement and all revenues and receipts payable thereunder (other than certain indemnification rights and certain fees and expenses of the Issuer) to the Trustee for the benefit of the owners of the Series 2015 Bonds. The Series 2015 Bonds are not secured by a mortgage on or security interest in any real or tangible personal property. The Series 2015 Bonds are not an obligation, general or special debt, liability or moral obligation of the City, the State or any political subdivision thereof, and neither the faith and credit nor the taxing power of the City, the State or any political subdivision thereof is pledged to the payment of the principal of or the interest on the Series 2015 Bonds. The Series 2015 Bonds are not a general obligation of the Issuer (which has no taxing power and receives no funds from any governmental body), but are limited and special revenue obligations of the Issuer payable solely from the revenues pledged therefor in the Indenture. No covenant, stipulation, obligation or agreement contained in the Indenture or in the Series 2015 Bonds shall be deemed to be a covenant, stipulation, obligation or agreement of any present or future member, officer, agent or employee of the Issuer in his or her individual capacity. Neither the City, the State nor any political subdivision thereof shall be liable for the performance of any agreement or covenant of any kind, which may be undertaken by the Issuer, and no breach by the Issuer of any agreement or covenant shall create any obligation upon the City, the State or any political subdivision thereof.
Pledged Revenues The Corporation, pursuant to the Loan Agreement, has pledged all student tuition and fee revenues received by the Corporation in the operation of the University (the "Pledged Revenues") to the repayment of the principal of and interest on the Bonds, the maintenance of the Debt Service Reserve Fund at the required level, and the payment of fees and expenses of the Trustee and any Paying Agent for the Bonds. The Pledged Revenues are also subject to subordinate pledge subject to satisfaction of the conditions set forth in the Indenture. See the caption "THE SERIES 2015 BONDS — Subordinate Indebtedness" herein. Pursuant to the Loan Agreement, the Corporation is obligated to deliver to the Trustee, on a semiannual basis, Pledged Revenues in amounts sufficient to meet the Corporation's obligations under the Loan Agreement. However, if a Default occurs or exists under the Indenture, the Trustee will receive all Pledged Revenues until such time as the Default has been cured, including reestablishment of the Debt Service Reserve Fund to the required level. The security interest in the Pledged Revenues may be subject to limitation or rights of other parties imposed by statute or court order and to the requirements that appropriate filings be made from time to time to maintain the protection of the security interest.
Rate Covenant In the Loan Agreement, the Corporation has agreed to fix, maintain and charge student tuition and fees for use of the University and for services provided by the University such that Pledged Revenues in each Fiscal Year will not be less than 150% of the maximum Annual Debt Service on all Outstanding Bonds in the current Fiscal Year and in the Fiscal Year thereafter.
Debt Service Reserve Fund There is established with the Trustee a Debt Service Reserve Fund. Certain proceeds of the Series 2015 Bonds will be deposited in the Debt Service Reserve Fund. The Indenture requires that the Debt Service Reserve Fund for each series of Outstanding Bonds be maintained in an amount equal to 50% of the maximum Annual Debt Service on such series of Outstanding Bonds (the "Debt Service Reserve Requirement").
5 BOOK-ENTRY ONLY SYSTEM
The Series 2015 Bonds will be issued only as one fully registered Series 2015 Bond for each maturity, in the name of Cede & Co., as nominee for The Depository Trust Company, New York, New York ("DTC"), as registered owner of all the Series 2015 Bonds. The fully registered Series 2015 Bonds will be retained and immobilized in the custody of DTC. DTC (or any successor securities depository) or its nominee will be considered by the Issuer and the Trustee to be the owner or holder of the Series 2015 Bonds for all purposes under the Indenture. Owners of any book entry interests in the Series 2015 Bonds (the "book entry interest owners") described below, will not receive or have the right to receive physical delivery of the Series 2015 Bonds, and will not be considered by the Issuer and the Trustee to be, and will not have any rights as, owners or holders of the Series 2015 Bonds under the bond proceedings and the Indenture except to the extent, if any, expressly provided thereunder. CERTAIN INFORMATION REGARDING DTC AND DIRECT PARTICIPANTS IS SET FORTH BELOW. THIS INFORMATION HAS BEEN PROVIDED BY DTC. THE ISSUER, THE CORPORATION, THE UNDERWRITER AND BOND COUNSEL ASSUME NO RESPONSIBILITY FOR THE ACCURACY OF SUCH STATEMENTS. DTC, the world's largest depository, is a limited-purpose trust company organized under the New York Banking Law, a "banking organization" within the meaning of the New York Banking Law, a member of the Federal Reserve System, a "clearing corporation" within the meaning of the New York Uniform Commercial Code, and a "clearing agency" registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934. DTC holds and provides asset servicing for over 3.5 million issues of U.S. and non-U.S. equity issues, corporate and municipal debt issues and money market instruments (from over 100 countries) that DTC's participants ("Direct Participants") deposit with DTC. DTC also facilitates the post-trade settlement among Direct Participants of sales and other securities transactions in deposited securities, through electronic computerized book- entry transfers and pledges among Direct Participants' accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation ("DTCC"). DTCC is the holding company for DTC, the National Securities Clearing Corporation and the Fixed Income Clearing Corporation, all of which are registered agencies. DTCC is owned by the users of its regulated subsidiaries. Access to the DTC system is also available to others such as both U.S. and non-U.S. securities brokers and dealers, banks, trust companies and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly ("Indirect Participants"). The DTC Rules applicable to its Direct and Indirect Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at www.dtcc.com and www.dtc.org. Purchases of Series 2015 Bonds under the DTC system must be made by or through Direct Participants, which will receive a credit for the Series 2015 Bonds on DTC's records. The ownership interest of each actual purchaser of each Series 2015 Bond ("Beneficial Owner") is in turn to be recorded on the Direct and Indirect Participants' records. Beneficial Owners will not receive written confirmation from DTC of their purchase, but Beneficial Owners are expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the Series 2015 Bonds are to be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in Series 2015 Bonds, except in the event that use of the Book-Entry System for the Series 2015 Bonds is discontinued. To facilitate subsequent transfers, all Series 2015 Bonds deposited by Direct Participants with DTC are registered in the name of DTC's partnership nominee, Cede & Co. or such other name as may be requested by an authorized representative of DTC. The deposit of Series 2015 Bonds with DTC and their registration in the name of Cede & Co. or such other nominee do not effect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Series 2015 Bonds; DTC's records reflect only the identity of the Direct Participants to whose accounts such Series 2015 Bonds are credited, which may or may not be the Beneficial Owners. The Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers.
6 Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. Redemption notices shall be sent to DTC. If less than all of the Series 2015 Bonds within a maturity are to be redeemed, DTC's practice is to determine by lot the amount of the interest of each Direct Participant in such maturity to be redeemed. Neither DTC nor Cede & Co. (nor such other DTC nominee) will consent or vote with respect to the Series 2015 Bonds unless authorized by a Direct Participant in accordance with DTC's Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to the Issuer as soon as possible after the Record Date. The Omnibus Proxy will assign Cede & Co.'s consenting or voting rights to those Direct Participants to whose accounts the Series 2015 Bonds are credited on the Record Date (identified in a listing attached to the Omnibus Proxy). Payment of debt service and redemption proceeds with respect to the Series 2015 Bonds will be made to Cede & Co., or such other nominee as may be requested by an authorized representative of DTC. DTC's practice is to credit Direct Participants' accounts upon DTC's receipt of funds and corresponding detail information from the Issuer or the Trustee on payable date in accordance with their respective holdings shown on DTC's records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in "street name," and will be the responsibility of such Participant and not of DTC, the Trustee or the Issuer, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of redemption proceeds and debt service to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of the Issuer or the Trustee, disbursement of such payments to Direct Participants will be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants. BENEFICIAL OWNERS SHOULD CONSULT WITH THE DIRECT PARTICIPANTS OR INDIRECT PARTICIPANTS FROM WHOM THEY PURCHASE A BOOK ENTRY INTEREST TO OBTAIN INFORMATION CONCERNING THE SYSTEM MAINTAINED BY SUCH DIRECT PARTICIPANTS OR INDIRECT PARTICIPANTS TO RECORD SUCH INTERESTS, TO MAKE PAYMENTS, TO FORWARD NOTICES OF REDEMPTION AND OF OTHER INFORMATION. THE ISSUER AND THE TRUSTEE HAVE NO RESPONSIBILITY OR LIABILITY FOR ANY ASPECTS OF THE RECORDS OR NOTICES RELATING TO, OR PAYMENTS MADE ON ACCOUNT OF, BOOK ENTRY INTEREST OWNERSHIP, OR FOR MAINTAINING, SUPERVISING OR REVIEWING ANY RECORDS RELATING TO THAT OWNERSHIP. The Trustee and the Issuer, so long as a book entry method of recording and transferring interest in the Series 2015 Bonds is used, will send any notice of redemption or of any Indenture amendment or supplement or other notices to Bondholders under the Indenture only to DTC (or any successor securities depository) or its nominee. Any failure of DTC to advise any Direct Participants, or of any Direct Participants or Indirect Participants to notify any Beneficial Owner, of any such notice and its content or effect will not affect the validity of the redemption of the Series 2015 Bonds called for redemption, the Indenture amendment or supplement, or any other action premised on notice given under the Indenture. The Issuer and the Trustee cannot and do not give any assurances that DTC, Direct Participants, Indirect Participants or others will distribute payments of debt service on the Series 2015 Bonds made to DTC or its nominee as the registered owner of the Series 2015 Bonds, or any redemption or other notices, to the Beneficial Owners, or that they will do so on a timely basis, or that DTC will serve and act in a manner described in this Official Statement. DTC may discontinue providing its services as securities depository with respect to the Series 2015 Bonds at any time by giving reasonable notice to the Issuer or the Trustee. Under such circumstances, in the event that a successor securities depository is not obtained, bond certificates are required to be printed and delivered. In addition, the Issuer may decide to discontinue use of the system of book-entry transfers through DTC (or a successor securities depository). In that event, bond certificates will be printed and delivered.
7 THE ISSUER
The City of Siloam Springs, Arkansas Public Education Facilities Board (John Brown University) (the "Issuer") was created by Ordinance No. 87-9 of the City Board of Directors of City of Siloam Springs, Arkansas adopted on July 7, 1987, pursuant to the Act. The Issuer is authorized by the Ordinance No. 87-9 and the Act to own, acquire, construct, reconstruct, extend, equip, improve, sell, lease, contract concerning or otherwise deal in or dispose of educational facilities or any interest therein (including leasehold interests and mortgages). The Issuer is authorized to issue revenue bonds from time to time and to use the proceeds to finance or refinance its authorized functions. The Issuer is to consist of five board members serving staggered terms of up to five years each. The initial members of the Issuer were appointed in the Ordinance creating the Issuer and successor members are to be appointed by the City's Mayor and confirmed by the City's Board of Directors. Members are eligible to succeed themselves and serve until replaced. The current members of the Issuer, the years in which their terms expire and their principal occupations are as follows: Name Term Expires Principal Occupation
Tim McCord, Chairman December 31, 2018 Banker, First Bank David Glass, Vice Chairman December 31, 2016 Banking Consultant Mike Moss, Secretary December 31, 2017 Insurance Agent, Moss Insurance Group Ron Mooney December 31, 2015 Insurance Agent, State Farm Insurance Roger Holroyd December 31, 2019 Banker, Arvest Bank
REFUNDING PROGRAM Purpose A portion of the proceeds of the Series 2015 Bonds will be utilized, along with other available moneys, to effect a current refunding of the entire $7,905,000 outstanding principal amount of the Series 2009 Bonds, thereby releasing the lien on Pledged Revenues securing the Series 2009 Bonds and restructuring the debt of the Corporation.
Refunded Bonds The Series 2009 Bonds will be called for redemption by the Issuer on December 1, 2015, and will be paid from funds deposited with Bank of the Ozarks, Little Rock, Arkansas, as escrow trustee (the "Escrow Trustee") under the provisions of an Escrow Deposit Agreement to be dated as of the date of delivery of the Series 2015 Bonds (the "Escrow Agreement"), between the Issuer and the Escrow Trustee. The indenture of trust securing the Series 2009 Bonds (the "2009 Indenture") provides that a portion of the proceeds from the sale of the Series 2015 Bonds, together with moneys released from the debt service reserve fund relating to the Series 2009 Bonds, will be held by the Escrow Trustee under the Escrow Agreement in an Escrow Fund and (i) invested in Governmental Obligations and/or (ii) held in a money market fund fully collateralized with Governmental Obligations. The Underwriter will verify at the time of delivery of the Series 2015 Bonds that the Escrow Fund is sufficient, without any investment income thereon, to pay, when due and upon redemption on December 1, 2015, the principal of and interest on the Series 2009 Bonds. Pursuant to the terms of the Escrow Agreement, the Escrow Fund is irrevocably pledged to the payment of the principal of and interest on the Series 2009 Bonds. By the deposit of the proceeds and other moneys described in the preceding paragraph with the Escrow Trustee pursuant to the Escrow Agreement, the Issuer will have defeased the Series 2009 Bonds. In the opinion of Bond Counsel, the Series 2009 Bonds will no longer be payable from, or secured by a lien on, the Pledged Revenues, but will be payable solely from the moneys in the Escrow Fund held for such purpose by the Escrow Trustee, and the lien of the Series 2009 Bonds on the Pledged Revenues, together with all other obligations of the Issuer to the holders of the Series 2009 Bonds under the 2009 Indenture will be discharged.
8 SUMMARY OF ENROLLMENTS AND STUDENT REVENUES
The Pledged Revenues, which secure the repayment of the Bonds, consist of student tuition and fees received by the Corporation. The University operates on a fiscal year commencing each July 1 and ending June 30 of the following year. Students attend the University for yearly terms which are currently divided into two semesters. Semesters generally commence during the months of August and January. Set forth below is historical data for the University regarding enrollment and student revenues. Tuition & Fiscal Year Enrollment()) Fee Revenues(2) 2007 1,883 $16,943,529 2008 1,865 17,650,130 2009 1,838 17,904,418 2010 1,657 18,280,312 2011 1,768 18,001,554 2012 1,823 19,062,823 2013 1,838 20,016,096 2014 1,904 21,969,985 2015 1,941 23,547,367 2016 2,054 26,919,685(3)
Full-time equivalent enrollment for the fall semester. Revenues for the periods indicated are net of grants and scholarships granted by the University. Projected tuition and fee revenues for the fiscal year ending June 30, 2016.
The following table lists tuition and general fee charges for students at the University for the years indicated: Fiscal Year Tuition()) Fees(2) 2006 $14,544 $836 2007 15,412 846 2008 16,296 880 2009 17,256 910 2010 18,032 948 2011 18,844 986 2012 19,834 1,032 2013 20,796 1,078 2014 21,736 1,098 2015 22,552 1,136 2016 23,398 1,170
(1) Per year. (2) Includes semester activities fees and excludes course and administrative processing fees.
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9 SOURCES AND USES OF FUNDS
The proceeds of the Series 2015 Bonds will be used as follows: Sources of Funds
Par Amount of the Series 2015 Bonds $ 8,165,000 Original Issue Premium 22,234 Series 2009 Reserve Fund 346,087
Total: $ 8,533 321
Uses of Funds(1)
Escrow Fund Deposit $ 8,062,153 Debt Service Reserve Fund Deposit 344,323 Underwriter's Discount and Other Costs of Issuance 123,437 Contingency 3,408
Total: $ 8,533 321
DEBT SERVICE REQUIREMENTS
The following table sets forth the amounts required to pay scheduled principal and interest on the Series 2015 Bonds during the fiscal years indicated: Fiscal Year Series 2015 Ended Series 2015 Series 2015 Total Debt June 30 Principal Interest Service
2016 $ 30,000 $ 148,709 $ 178,709 2017 460,000 224,045 684,045 2018 465,000 214,795 679,795 2019 475,000 205,395 680,395 2020 485,000 195,795 680,795 2021 490,000 185,433 675,433 2022 505,000 173,607 678,607 2023 515,000 160,343 675,343 2024 530,000 145,837 675,837 2025 545,000 130,246 675,246 2026 560,000 113,668 673,668 2027 580,000 95,847 675,847 2028 600,000 76,668 676,668 2029 620,000 56,227 676,227 2030 640,000 34,648 674,648 2031 665,000 11,804 676,804 Totals: $8,165,000 $2,173,067 $10 338 067
10 ESTIMATED DEBT SERVICE COVERAGE
Set forth below is historical debt coverage information on the Series 2015 Bonds based on Pledged Revenues for the years indicated: Three Fiscal Year Most Recent Average Fiscal Year (2013-15) (2015) Total Pledged Revenues(1) $21,884,483 $23,547,367 Maximum Annual Debt Service on Series 2015 Bonds (2) $ 684,045 $ 684,045 Coverage(3) 31.99 X 34.42 X
Net of grants and scholarships provided by the University. Assumes retirement at maturity as described under the caption "DEBT SERVICE REQUIREMENTS" above.
THE CORPORATION AND UNIVERSITY General The Corporation, an Arkansas nonprofit corporation incorporated on June 13, 1934, owns and operates the University. The University, which was founded in 1919, is an independent, four-year college of arts and sciences providing educational opportunities as preparation for graduate study, professional training, or immediate career entry in certain fields.
Location and Facilities The University's main campus is located on approximately 200 acres in Siloam Springs, Arkansas, a city situated in Benton County in the northwest corner of the State, approximately 90 miles east of Tulsa, Oklahoma. In addition, the Corporation owns and operates several University satellite facilities. The University's main campus and satellite facilities consist of 63 buildings, which, together with tennis courts and building contents, are valued at approximately $75 million. The following table details population of the City and Benton County for the years indicated: Year Siloam Springs Benton County 1950 3,270 38,076 1960 3,953 36,272 1970 6,009 50,476 1980 7,940 78,115 1990 8,151 95,600 2000 10,843 153,406 2010 15,039 221,339
Source: U. S. Census Bureau Major area employers and their approximate number of employees include:
McKee Foods (Snack Foods), 1,400 employees; Simmons Foods (Food Products), 1,206 employees; Cherokee Casino (Casino), 804 employees; Siloam Springs School District (Public Education), 550 employees; Gates Corporation (Rubber Belts & Hose), 465 employees; Sager Creek Vegetable Company (Canned Vegetables), 427 employees); John Brown University (Higher Education Institution), 405 employees; Walmart Supercenter (Retailer), 375 employees; DaySpring Cards (Christian Greeting Cards), 340 employees; La-Z-Boy Arkansas (Furniture), 311 employees); Siloam Springs Regional Hospital (Healthcare Services), 259 employees; Cobb- Vantress (Pedigree Broiler), 236 employees; City of Siloam Springs (City), 232 employees; PipeLife JetStream (PVC Pipe), 110 employees; and Ozark Electronics & Repair, Inc. (Electronic Repair), 100 employees.
Source: Siloam Springs Chamber of Commerce
11 Governing Body The Corporation is governed by a Board of Trustees composed of 31 members. Each member is appointed for a three-year, staggered term, with approximately one-third of the members completing their terms each year. The current voting members of the Board of Trustees, the years in which their terms expire and their principal occupations are as follows: Name Term Expires Principal Occupation Michael R. Kairis (I) June 30, 2018 Principal/Owner, Legacy Portion, LLC Susan Barrett (2) June 30, 2016 Retired (CEO Health System Administration) Lee R. Sale (3) June 30 2018 Retired (Volunteers Coordinator/Museum Docent) Holly Robason Beitel June 30, 2018 CPA, Homemaker Sharon J. Bell June 30, 2017 Attorney & Managing Partner, Rogers & Bell Marc Boatwright June 30, 2017 Managing Partner, Covenant Credit Partners, LLC John E. Brown, III June 30, 2018 Executive Director, Windgate Charitable Foundation James Congdon June 30, 2018 Lead Pastor, Topeka Bible Church Roger L. Cross June 30, 2018 President, Children's Music Academy Franchising, Inc. Rollin L. Ford June 30, 2016 Executive Vice President & CAO, Walmart Stephen R. Genheimer June 30, 2018 Administrative Pastor, Covenant Community Church Wayne Hardy June 30, 2016 Senior Pastor, Kirk of the Hills Lawson Hembree, IV June 30, 2018 Financial Advisor, Merrill Lynch Keith E. Holmberg June 30, 2016 Retired (British Petroleum) Michael S. King June 30, 2018 Secretary of Transportation, State of Kansas Alan L. Lee June 30, 2016 Partner, Price Waterhouse Coopers, LLC David H. LeVan June 30, 2016 CEO, Advantax Group T. Richard Medlock June 30, 2016 Retired (Nephrology Associates) Alfonso Mendez June 30, 2017 President & General Mgr, Interam Coffee, Inc. William C. Naramore, Sr. June 30, 2017 Financial Advisor, Granite Financial Services Doug Neufeld June 30, 2018 President/CEO, PrairieLand Partners, Inc. Nick Petelski June 30, 2016 President, NP International Phillip 0. Porter June 30, 2017 COO, Arvest Bank Mark C. Simmons June 30, 2017 Chairman of the Board, Simmons Foods, Inc. April Smith June 30, 2018 Attorney, Catholic Charities Lavenski R. Smith June 30, 2017 U.S. Circuit Judge Ruth H. Smith June 30, 2016 Intel Officer, Naval Reserves Marvin G. Spees June 30, 2017 President, Capital City Oil, Inc. Wendell Stratton June 30, 2018 President, Stratton Seed Co. Sharon S. Wasson June 30, 2016 Secretary-Treasurer, Wasson Funeral Home, Inc. Diane N. Willits June 30, 2016 Owner, illuminations Outdoor Lighting Specialists
(1) Serves as Chairman of the Board. (2) Serves as Vice Chairman of the Board. (3) Serves as Secretary of the Board. Business Transactions with Members of Board of Trustees. The Corporation has from time to time invested certain of its funds with, and procured goods and services from, institutions and corporations affiliated with or controlled by various members of the Board of Trustees. In the opinion of management of the Corporation, fees and compensation paid to such persons as a result of such business transactions, along with the other material terms and conditions of agreements or arrangements with such persons, have been no less favorable to the Corporation than those which would have been obtained in transactions with unrelated or unaffiliated persons. The Corporation intends to continue to engage in business transactions with members of the Board of Trustees, and their affiliated firms and institutions, where the Corporation has a need for goods and services offered by any such persons or firms,
12 and where the terms and conditions with respect to such goods or services and the compensation paid therefor would be as favorable in all material respects as the Corporation could obtain from unaffiliated or unrelated persons.
Administration Set forth below are the names, titles, the year each took office as a member of the University Cabinet, and educational degrees of the principal members of the administrative staff of the University. Charles Pollard: President, 2004; B.A., Wheaton College (1985); J.D., Harvard Law School; (1988); M.Phil, Oxford University (1990); Ph.D., University of Virginia (1999). Steve Beers: Vice President for Student Development, 1998; B.A., Taylor University (1982); A.S.P., Moody Bible Institute (1984); M.S., Wright State University (1986); Ed.D., Ball State University (1999). Don Crandall: Vice President for Enrollment Management, 1993; B.A., Aurora University (1978); M.S., Aurora University (1983). Ed Ericson III: Vice President for Academic Affairs, 2002; B.A., Calvin College (1987); M.A., Indiana University (1989); Ph.D., Indiana University (1996). Kim Hadley, CPA: Vice President for Finance and Administration, 2009; BSBA, University of Arkansas (1991); MBA, University of Arkansas (1996). James Krall: Vice President for University Advancement, 2002; B.A., Taylor University (1982); M.A., Ball State University (1983); Ed.D., University of Tennessee (1997).
Students Although approximately 38.9% of the University's 1,339 traditional undergraduate students enrolled in the fall term of the 2015-16 academic year are Arkansas residents, the University enrolls students from 42 states and 39 foreign countries. Approximately 22.1% of the University's traditional undergraduate students currently enrolled are from Benton County. The entrance requirements for student enrollment are as follows: Minimum SAT score of 950 or ACT score at or above 20 and a high school grade point average of at least 2.5. In addition to the academic criteria described in the preceding sentence, the admissions counselor may request two references: one from a high school counselor or teacher and the other from a church leader. The following table lists mean ACT scores of freshmen enrolled at the University for the last five academic years: 2011-12 2012-13 2013-14 2014-15 2015-16 Composite Score 25.4 25.1 25.6 25.5 26.3
Academic Programs Forty majors are offered, some with multiple emphases. Four two-year programs are offered leading to Associate of Arts or Associate of Science degrees. Minors are offered in 52 fields. In addition, 9 masters degree programs and 4 adult degree completion programs are offered. Bachelor Degree Programs
Field Degree Accounting B.S. Art and Illustration B.S. Biblical and Theological Studies B.A. Biochemistry B.S. Biology B.S. Business Administration B.S. Chemistry B.S. Child and Family Studies B.S. Communication B.S.
13 Field Degree Construction Management B.S. Digital Cinema B.S. Elementary Education B.S.E. Engineering B.S.Eng. English B.A. English Education B.S.E. Family and Human Services B.S. Graphic Design B.S. History B.A. Intercultural Studies B.A., B.S. Interdisciplinary Studies B.A., B.S. International Business B.A., B.S. Kinesiology B.S. Management B.S. Marketing B.S. Mathematics B.S. Mathematics Education B.S.E. Music-Applied B.A. Music-General B.A., B.S. Music Education B.Mus.Ed. Nursing B.S.N. Outdoor Leadership Ministries B.S. Philosophy B.A., B.S. Photography B.S. Political Science B.A. Psychology B.S. Social Studies Education B.S.E. Spanish B.A. Worship Arts B.S. Youth and Worship Ministries B.S. Youth Ministries B.S. Associate Degree Programs Degree Construction Management A.S. Electromechanical Technology A.S. General Education A.A. Interdisciplinary Studies A.A. Masters Degree Programs Degree Business Administration M.B.A. Clinical Mental Health Counseling M.S. Collaborative Design M.F.A. Curriculum and Instruction M.Ed. Higher Education Leadership M.S. Leadership and Ethics M.S. Marriage and Family Therapy M.S. School Counseling M.S. Secondary Education M.A.T.
Professional Studies Degree Programs (Adult Degree Completion) Degree Business Administration B.S.B.A Liberal Arts B.S.L.A. Management Accounting B.S.M.A. Organizational Management B.S.
14 Employees As of September 15, 2015, the University employed 1,400 employees, including both full and part-time employees. A breakdown of the employees by area of service is as follows: Number of Area of Service Employees
Administration 17 Faculty 89 Non-Professionally Skilled and Clerical 153 Technical/Skilled(1) 80 Maintenance 46 Part-Time(2) L015 Total: 1,400 w Non-administrative professionally skilled employees from information technology, accounting, human resources, development, radio broadcasting, and executive and relational training centers. (2) All part-time employees, including adjunct professors and work-study student employees.
Student Financial Aid Approximately 98% of the University's traditional undergraduate student body receives assistance from federal, state, college or private sources. The majority of students eligible for financial aid receive an "aid package" consisting of grants, loans and work assistance which supplements each family's contribution to the student's total educational expenses. A student's financial need and a particular program's funding level are reviewed in conjunction with the student's academic and personal records as the basis for determining the combination of aid forms offered. The following table presents the sources of student financial aid for the fiscal years indicated: 2011 2012 2013 2014 2015
Federal Divest $ $ 5,746,967 $ 5,481,568 $ 5,448,016 $ 5,457,819 Stafford 4,365,113 PLUS/SLS/ALAS 1,161,273 Perkins 154,222 161,470 283,164 220,475 253,504 State Aid 1,430,386 1,576,994 1,726,133 1,606,899 1,524,774 PELL (Grants) 2,614,057 2,640,115 2,618,362 2,655,648 2,745,693 FSEOG (Grants) 128,899 110,456 96,225 60,975 87,036 FSEOG (JBU-Matching) 42,966 36,819 32,075 20,325 29,012 FWS (Work Study) 149,454 149,454 149,454 155,721 149,454 FWS (JBU-Matching) 49,125 49,289 49,289 48,531 48,972 John Brown University 8,249,933 9,141,573 9,959,993 10,845,210 11,124,928 Work Study-JBU 505,679 613,557 603,657 586,435 651,096 Restricted Scholarships(1) 1,986,182 2,230,068 2,336,285 2,481,025 2,156,797 TOTALS: $20 837 289 $22,456,762 $23 336 205 $24,129,260 $24,229 085
(i) Includes funded, international and endowed.
Financial Statements The Corporation maintains its financial records on the basis of a fiscal year ending June 30. Set forth in Appendix B to this Official Statement are the audited consolidated financial statements of the Corporation as of and for the two fiscal years ended June 30, 2015 and June 30, 2014, which have been audited by Capin Crouse LLP, Certified Public Accountants, Colorado Springs, Colorado. The notes set forth in Appendix B are an integral part of the financial statements, and the audited statements and notes should be read in their entirety.
15 SUMMARY OF PORTIONS OF THE LOAN AGREEMENT
The following is a summary, which does not purport to be comprehensive and definitive, of certain provisions of the Loan Agreement.
Issuance of the Series 2015 Bonds Pursuant to the Loan Agreement, the Issuer agrees to issue the Series 2015 Bonds to provide funds for the refunding of the Series 2009 Bonds and to deposit the proceeds therefrom with the Trustee and the Escrow Trustee. An amount equal to the accrued interest, if any, to be paid for the Series 2015 Bonds shall be deposited in the Bond Fund, an amount sufficient to fulfill the Debt Service Reserve Requirement with respect to the Series 2015 Bonds shall be deposited in the Debt Service Reserve Fund, an amount not exceeding 2% of the face amount of the Series 2015 Bonds shall be deposited in the Issuance Cost Fund, and the balance of the proceeds from the sale of the Series 2015 Bonds shall be transferred to the Escrow Trustee for deposit in the Escrow Fund.
Investment of Moneys The Trustee shall, upon written direction of the Corporation, continuously invest and reinvest moneys held for the credit of the funds and accounts created under the Indenture and held by the Trustee in Permitted Investments maturing, or subject to redemption at the option of the owner thereof, not later than the date or dates on which the money held for credit of the particular fund or account shall be required for the purposes intended. The Trustee shall so invest and reinvest only pursuant to written direction from the Corporation. Term of Loan Agreement and Installment Loan Payments The Term of Agreement shall commence as of October 1, 2015, and, unless sooner terminated as provided in the Loan Agreement, shall expire on December 1, 2030, or on the date that all of the Bonds and all fees and charges of the Issuer, the Trustee and any Paying Agents have been fully paid or provision made for such payment, whichever is later; provided, however, that the Loan Agreement may be terminated prior to such date if the Corporation exercises its option to prepay the amounts payable under the Loan Agreement pursuant to the terms thereof (see "SUMMARY OF PORTIONS OF THE LOAN AGREEMENT - Options and Obligations to Prepay"). The Corporation has agreed to pay to the Issuer during the Term of Agreement on or before one (1) Business Day prior to any interest payment date for the Bonds, such being June 1 and December 1 of each year with respect to the Series 2015 Bonds, or any other date fixed for the redemption of any or all of the Series 2015 Bonds pursuant to the Indenture, in immediately available funds, until the principal of and interest on the Series 2015 Bonds shall have been fully paid or provision for the payment thereof shall have been made in accordance with the Indenture, a sum which, together with other moneys available therefor in the Bond Fund, will enable the Trustee to pay the amount payable on such date as principal of (whether at maturity or upon redemption or acceleration or otherwise) and interest on the Series 2015 Bonds as provided in the Indenture. In addition, during the Term of Agreement, the Corporation shall pay the reasonable fees and expenses of the Trustee and any Paying Agents and the reasonable fees and expenses of the Issuer related to the Bonds. The Corporation will also pay the amount, if any, required to be deposited to cure a deficiency in the Debt Service Reserve Fund in order to cause the amount on deposit therein to equal the Debt Service Reserve Requirement with respect to each series of Bonds. The obligation of the Corporation to make payments is absolute and unconditional, and in the event the Corporation should fail to make any payments, the item or installment so in default shall continue as an obligation of the Corporation until the amount in default shall have been fully paid.
Taxes and Governmental and Utility Charges The Corporation agrees to pay or cause to be paid, during the Term of the Agreement, as the same become due, all taxes and governmental charges of any kind lawfully assessed against or with respect to the University or any part thereof (including any taxes levied against the University which, if not paid, will become a charge on the receipts from the University prior to or on a parity with the charge thereon and the pledge or assignment thereof created and made in the Indenture, or a lien against the Pledged Revenues or any interest therein prior to or on a parity with the lien of the Loan Agreement); all utility and other charges incurred in the operation, maintenance, use, occupancy and upkeep of the University; and all assessments and charges lawfully made by any governmental body for public improvements that may be secured by a lien on the University, provided that with respect to special
16 assessments or other governmental charges that may lawfully be paid in installments over a period of years, the Corporation shall be obligated to pay only such installments as are required to be paid during the Term of the Agreement. The Corporation may, at the Corporation's expense and in the Corporation's name, in good faith, contest any such taxes, assessments and other charges and, in the event of any such contest, may permit the taxes, assessments or other charges so contested to remain unpaid during the period of such contest and any appeal therefrom unless by such nonpayment the security afforded pursuant to the Loan Agreement will be materially endangered or the University or any part thereof will be subject to loss or forfeiture, in which event such taxes, assessments or charges shall be paid forthwith.
Maintenance and Modification of University The Corporation agrees that at all times during the Term of the Agreement it will, at its own expense, maintain, preserve and keep the University, or cause the University to be maintained, preserved and kept, with the appurtenances and every part and parcel thereof, in good repair, working order and condition, and that the Corporation will from time to time make or cause to be made all necessary and proper repairs, replacements and renewals deemed proper and necessary by it. In addition, the Corporation shall have the privilege of remodeling the University or making substitutions, additions, modifications and improvements to the University from time to time as the Corporation, in its sole discretion, may deem to be desirable for its use for such purposes as are permitted by the Act, the costs of which remodeling, substitutions, additions, modifications and improvements shall be paid by the Corporation; provided, however, that such remodeling, substitutions, modifications and improvements shall not interfere with the operation of the University or in any way damage the University, and provided that the University, as remodeled, improved or altered, upon completion of such remodeling, substitutions, modifications and improvements shall be of a value not less than the value of the University immediately prior to the remodeling or the making of substitutions, modifications and improvements. The Corporation will not permit any mechanic's or other lien to be established or remain against the University for labor or materials furnished in connection with any remodeling, substitutions, additions, modifications, improvements, repairs, renewals or replacements, provided that the Corporation may in good faith contest any such lien and not pay the same unless by such nonpayment the lien of the Loan Agreement as to the Pledged Revenues and the Indenture as to the payments will be materially endangered or the University or any part thereof will be subject to loss or forfeiture, in which event the Corporation shall promptly pay and cause to be satisfied and discharged all such unpaid items.
Insurance The Corporation agrees to insure or cause to be insured the University against loss or damage of the kinds usually insured against by companies similarly situated, by means of policies issued by reputable insurance companies duly qualified to do such business in the State, with uniform standard coverage endorsement limited only as may be provided in the standard form of extended coverage endorsement at that time in use in the State, in amounts that are not less than the full insurable value (as that term is defined in the Loan Agreement) of the University, and with such deductible provisions as are customarily included by companies similarly situated, or at the option of the Corporation any lesser amount which is equal to or greater than the amount of all of the Bonds then Outstanding. Alternatively, the Corporation may insure such property under a blanket insurance policy or policies which cover not only such property but also other properties. Notwithstanding the foregoing paragraph, if the Corporation shall insure similar properties by self-insurance, the Corporation, at its election, may insure the University partially or wholly by means of an adequate self-insurance fund set aside and maintained out of its earnings, or in conjunction with other companies through an insurance trust or other arrangements. The Corporation also agrees to carry public liability insurance with respect to the University with one or more reputable insurance companies in minimum amounts of $500,000 for the death or personal injury to one person and $1,000,000 for personal injury or death for each occurrence in connection with the University and $500,000 for property damage for any occurrence in connection with the University. The Trustee and the Issuer shall be made additional insureds under such policy or policies. Notwithstanding the foregoing, if the Corporation shall insure similar properties by self-insurance, the Corporation, at its election, may insure the University, partially or wholly, by means of an adequate self-insurance
17 fund set aside and maintained out of its earnings, or in conjunction with other companies through an insurance trust or other arrangements.
Damage, Destruction and Condemnation Unless the Corporation shall have exercised its option to prepay the amounts payable under the Loan Agreement pursuant to certain provisions of the Loan Agreement (see "SUMMARY OF PORTIONS OF THE LOAN AGREEMENT - Options and Obligations to Prepay"), if the University or any portion thereof is destroyed in whole or in part or is damaged by fire or other casualty, or title to or any interest in, or the temporary use of, the University or any portion thereof shall be taken under the exercise of the power of eminent domain, the Corporation shall be obligated to continue to pay the amounts specified in the Loan Agreement. The Issuer, the Trustee and the Corporation will cause the Net Proceeds of any insurance proceeds or any condemnation award resulting from any of the foregoing events to be deposited in a separate trust fund, provided that Net Proceeds in an amount less than $100,000 shall be paid directly to the Corporation. Net Proceeds shall be applied in one or more of the following ways, as directed by the Corporation: (1) To the prompt repair, restoration, modification or improvement of the University by the Corporation; or (2) To the redemption of the Bonds on the next succeeding allowable redemption date, provided that no part of the Net Proceeds may be applied for such redemption unless: (a) all of the Bonds are to be redeemed in accordance with the Indenture upon the prepayment of the amounts payable under the Loan Agreement, or (b) if less than all of the Bonds are to be redeemed, the Corporation shall furnish to the Issuer and the Trustee an acceptable certificate stating (i) that the portion of the University that was damaged or destroyed or was taken by such condemnation proceedings is not essential to the use or possession of the University by the Corporation or (ii) that the University has been repaired, restored, modified or improved to enable the University to operate as designed. In the event the Net Proceeds are insufficient to pay in full the cost of any repair, restoration, modification or improvement, the Corporation will nonetheless complete the work and will pay any cost in excess of the amount of the Net Proceeds. Any balance of the Net Proceeds deposited in the separate trust fund and remaining after the repair, restoration, modification or improvement has been completed shall be transferred to the Bond Fund, or if the Bonds have been fully paid (or provisions for payment thereof have been made in accordance with the provisions of the Indenture), the balance shall be paid to the Corporation.
Removals from University; Gifts The Corporation may not dispose of its cash or demolish, remove or dispose of any real property, structures, furnishings, machinery, equipment or other improvements now or hereafter existing as part of the University, except as stated below: (a) The Corporation, free of any obligation to make any replacement thereof, may demolish, remove or dispose of any real property, structure, furnishing, machinery, equipment or other improvement now or hereafter existing as part of the University, and may make any donation, gift or transfer of its cash without fair and adequate consideration or compensation, to any individual, partnership, corporation or other entity provided the net book value of all such demolitions and removals plus the donations, gifts or transfers of cash made pursuant to this provision during any Fiscal Year shall not exceed 15% of the total assets of the Corporation as shown on its books as of the beginning of such Fiscal Year. The net proceeds, if any, arising from any such actions may be used by the Corporation as it shall in its sole discretion determine. (b) Except as provided in (a) above, if the Corporation in its sole discretion determines that (i) any real property, structure, furnishing, machinery, equipment or other improvement now or hereafter constituting a part of the University has become inadequate, obsolete, worn out, unsuitable, undesirable or unnecessary, or its disposal as hereinafter provided is in the best interests of operation of the University, or (ii) a donation, gift or transfer of its cash to another entity is desirable, the Corporation may give written notice thereof to the Trustee, and then demolish or remove such property from the University, and may, to the extent permitted by law, sell,
18 trade-in, exchange or otherwise dispose of same, in whole or in part, or may donate, give away or transfer such cash provided that either: (1) The Corporation shall, at its own cost and expense, acquire, construct or install replacement or substitute real property, structures, furnishings, machinery, equipment or other improvements having a usefulness, as determined by the Corporation, to the operations of the Corporation (but not necessarily the same function) at least equal to the usefulness, prior to demolition, removal or disposal of the property demolished, removed or disposed of; or (2) The Corporation shall demolish, remove or dispose of any such property from time to time at its own cost and expense, without any obligation on the part of the Corporation to provide any property in replacement of or substitution for that demolished, removed or disposed of, or may donate, give away or transfer such cash upon the following terms and conditions: (i) prior to such demolition, removal, disposal, donation, gift or transfer, the Corporation must give to the Trustee written notice thereof setting forth a brief description of the property to be demolished, removed or disposed of and the net book value thereof as shown on the books of the Corporation or the amount of cash to be donated, given away or transferred; and (ii) the Corporation must submit to the Trustee a certificate of its chief executive officer and its chief financial officer and acceptable to the Trustee determining that the property to be demolished, removed or disposed of has become obsolete, inadequate, worn out, unsuitable, undesirable or unnecessary or its disposal is in the best interests of the Corporation's operation of University and that its demolition, removal or disposal will not impair the structural soundness, efficiency or economic value of the University and to the effect that the demolition, removal or disposal of the property to be demolished, removed or disposed of, or the donation, gift or transfer of cash will not cause the Pledged Revenues available for Debt Service in the Fiscal Year following the Fiscal Year in which the demolition, removal or disposal of such property occurs to be less than 150% of the maximum Annual Debt Service for any subsequent Fiscal Year.
Covenants of the Corporation The Corporation covenants as follows: (1) The Corporation agrees to fix, maintain and charge tuition and fees for use of the University and for services provided by the University such that Pledged Revenues in each Fiscal Year will not be less than 150% of the maximum Annual Debt Service on all Outstanding Bonds and Subordinate Indebtedness in the current Fiscal Year and in the Fiscal Year thereafter. (2) The Corporation agrees that during the Term of the Agreement it will maintain its corporate existence, will continue to be a nonprofit corporation in good standing under the laws of the State, will not dissolve or otherwise dispose of all or substantially all of its assets, and will not consolidate with or merge into another legal entity or permit one or more other legal entities to consolidate with or merge into it, provided that the Corporation may, without violating the foregoing, consolidate with or merge into another legal entity, or permit one or more legal entities to consolidate with or merge into it, or sell or otherwise transfer to another legal entity all or substantially all of its assets as an entirety and thereafter dissolve, provided (i) that the Trustee shall have received a report by an Accountant determining that the surviving, resulting or transferee legal entity, as the case may be, shall have a net asset balance (excluding restricted net asset balances), as determined in accordance with generally accepted accounting principles, immediately subsequent to such acquisition, consolidation, merger or transfer equal to at least that of the Corporation immediately prior to such acquisition, consolidation, merger or transfer; (ii) that such acquisition, consolidation, merger or transfer will not affect the tax-exempt status of the interest on the Bonds; and (iii) that if the surviving, resulting or transferee legal entity, as the case may be, is not the Corporation, then such legal entity shall be a legal entity organized and existing under the laws of one of the states of the United States of America, shall be qualified to do business in the State, shall be a Tax-Exempt Organization and shall assume all of the obligations of the Corporation under the Loan Agreement, in which event the Issuer shall release the Corporation in writing, concurrently with and contingent upon such acquisition, consolidation, merger or transfer, and the Trustee shall be furnished a certificate from the chief financial officer of the Corporation stating that, in the opinion of such officer,
19 none of the covenants contained in the Loan Agreement will be violated as a result of such acquisition, consolidation, merger or transfer.
Security Interest in the Pledged Revenues The Corporation grants to the Trustee a security interest in the Pledged Revenues in order to secure payment of the Loan Payments, and such security interest will be assigned by the Issuer to the Trustee. The Corporation agrees that in the event of a Default under the Loan Agreement and acceleration of payment of the Bonds by the Trustee pursuant to the Indenture, the Trustee may foreclose its security interest in the Pledged Revenues and cause the Corporation to pay any Pledged Revenues directly to the Trustee and use any proceeds therefrom for payment of principal of and interest on the Bonds irrespective of any other remedies exercised by the Issuer or the Trustee. The security interest in the Pledged Revenues shall remain in effect until the Corporation shall have satisfied its obligations under the Loan Agreement, at which time the Issuer will cause the execution and delivery to the Corporation of such documents as shall be necessary to effect or evidence the termination of such security interest. Notwithstanding the security interest in the Pledged Revenues granted in the Loan Agreement, the Corporation shall have the right, so long as it is not in Default under the Loan Agreement, to use Pledged Revenues for any proper corporate purpose to the extent not prohibited or restricted by the terms of the Loan Agreement; provided, however, that the Pledged Revenues may not be otherwise pledged, nor a security interest granted therein, other than as permitted by the Loan Agreement and the Indenture with respect to Additional Bonds and Subordinate Indebtedness.
Leasing and Operating Contracts The Corporation may lease any part of the capital improvements financed or refinanced with Bond proceeds or contract for the performance by others of operations or services of or in connection with said improvements or any part thereof for any lawful purpose which is consistent with the requirements of the Act, provided that (a) such lease or operating contract shall not be inconsistent with the provisions of the Loan Agreement or the Indenture and (b) the Corporation shall remain fully obligated and responsible under the provisions of the Loan Agreement to the same extent as if such lease or operating contract had not been executed. In addition, each such lease or contract shall be expressly conditional upon an opinion of Bond Counsel acceptable to Trustee that the exclusion from gross income of the interest on the Bonds shall not be adversely affected by such lease or contract.
Defaults The Loan Agreement provides that any one or more of the following events will constitute a "Default": (a) Failure by the Corporation to pay the amounts required to be paid under the Loan Agreement relating to the payment of the principal of and interest on the Bonds as the same become due, to cure any deficiency in the Debt Service Reserve Fund, or to pay any required rebate with respect to the Bonds to the United States of America, all at the times specified therein; (b) Failure by the Corporation to observe and perform any covenant, condition or agreement on its part to be observed or performed, other than as referred to in paragraph (a) above, for a period of thirty (30) Business Days after written notice, specifying such failure and requesting that it be remedied, shall have been given to the Corporation by the Issuer or the Trustee, unless the Issuer and the Trustee shall agree in writing to an extension of such time prior to its expiration; provided, however, if the failure stated in the notice cannot be corrected within the applicable period, the Issuer and the Trustee will not unreasonably withhold their consent to an extension of such time if corrective action is instituted by the Corporation within the applicable period and diligently pursued until the default is corrected; or (c) Certain events of bankruptcy, dissolution, liquidation or reorganization with respect to the Corporation. The Corporation will not be deemed to be in default under paragraph (b) above if due to force majeure, as defined in the Loan Agreement, it is unable in whole or in part to carry out any agreement in the Loan Agreement, other than the agreement to pay taxes and other governmental charges, to carry insurance, and to maintain the University.
20 Remedies Whenever any Default under the Loan Agreement shall have happened and be continuing, the Issuer (or the Trustee pursuant to the assignment of rights and remedies contained in the Indenture) may take one or any combination of the following remedial steps: (1) By written notice to the Corporation, declare an amount equal to all amounts then due and payable on the Bonds, whether by acceleration of maturity (as provided in the Indenture) or otherwise, to be immediately due and payable as liquidated damages and not as a penalty; (2) Have reasonable access to and inspect, examine and make copies of the books and records and any and all accounts, data and income tax and other tax returns of the Corporation during regular business hours of the Corporation if reasonably necessary in the opinion of the Trustee; (3) Take whatever action at law or in equity may appear necessary or desirable to collect the amounts then due and thereafter to become due, or to enforce performance and observance of any obligation, agreement or covenant of the Corporation under the Loan Agreement; and/or (4) Proceed by appropriate judicial action to foreclose the security interest in the Pledged Revenues. Any amounts collected pursuant to action taken upon the happening of an event of Default shall be paid into the Bond Fund.
Options and Obligations to Prepay The Corporation has the option to terminate the Term of the Agreement at any time prior to full payment of the Bonds (or provision for payment thereof having been made in accordance with the provisions of the Indenture). The Corporation may terminate the Term of the Agreement (i) by paying to the Trustee an amount which, when added to the amount on deposit and available in the Bond Fund and Debt Service Reserve Fund, will be sufficient to pay, retire and redeem all the Outstanding Bonds in accordance with the provisions of the Indenture (including, without limiting the generality of the foregoing, principal and interest to maturity or applicable redemption date, as the case may be, and expenses of redemption and the Trustee's and Paying Agents' fees and expenses), and, in case of redemption, by making arrangements satisfactory to the Trustee for the giving of the required notice of redemption, and (ii) by giving the Issuer notice in writing of such termination, and such termination shall forthwith become effective. The Corporation also has the option to prepay the amounts payable under the Loan Agreement upon the occurrence of any of the events described under "THE SERIES 2015 BONDS - Extraordinary Redemption." In such a case, the prepayment amount shall be the sum of the following: (1) An amount of money which, when added to the amount then on deposit and available in the Bond Fund, will be sufficient to retire and redeem all the Outstanding Bonds on the earliest possible redemption date after notice as provided in the Indenture, including, without limitation, the principal amount thereof, all interest to accrue to said redemption date, and expenses, plus (2) An amount of money equal to the Trustee's and Paying Agents' fees and expenses under the Indenture accrued and to accrue until such final payment and redemption of the Bonds, plus (3) An amount of money equal to the Issuer's fees and expenses under the Loan Agreement accrued and to accrue until such final payment and redemption of the Bonds.
SUMMARY OF PORTIONS OF THE INDENTURE
The following is a summary, which does not purport to be comprehensive and definitive, of certain provisions of the Indenture.
Assignment and Security Pursuant to the Indenture, the Issuer's interest in the Loan Agreement and all amounts payable by the Corporation to the Issuer under the Loan Agreement (other than certain indemnification rights and certain fees and expenses of the Issuer) are assigned to the Trustee by the Issuer to secure the payment of the principal of and interest on the Bonds.
21 Application of Bond Fund The Bond Fund, into which the payments made pursuant to the Loan Agreement and certain other amounts specified in the Indenture will be deposited, will be maintained with the Trustee. Moneys in the Bond Fund shall be used for the payment of the principal of and interest on the Bonds and for the redemption of the Bonds prior to maturity.
Repayment to the Corporation Any amounts remaining in the Bond Fund, Debt Service Reserve Fund, or any other fund created under the Indenture after payment in full of the principal of and interest on the Bonds, the fees, charges and expenses of the Trustee, amounts required to be rebated to the United States, and all other amounts required to be paid under the Indenture, shall be paid immediately to the Corporation.
Investment Any moneys held as part of the Bond Fund, the Debt Service Reserve Fund or any other fund created under the Indenture shall be invested and reinvested by the Trustee in Permitted Investments as provided in the Loan Agreement (see the caption "SUMMARY OF PORTIONS OF THE LOAN AGREEMENT - Investment of Moneys").
Discharge of Lien The lien of the Indenture shall be discharged if: (1) The principal of and interest due or to become due on the Bonds at the time and in the manner stipulated therein have been paid or provision for payment has otherwise been made to or for the owners of the Bonds; (2) There shall be no Default in any of the covenants and promises in the Bonds and in the Indenture; and (3) The Issuer shall cause to be paid to the Trustee and any Paying Agents all sums of money due or to become due according to the provisions of the Indenture. Any Bond shall be deemed to be paid when (a) payment of the principal of such Bond, plus interest thereon to the due date thereof (whether such due date be by reason of maturity or upon redemption as provided in the Indenture) either (i) shall have been made or caused to be made in accordance with the terms thereof, or (ii) shall have been provided for by irrevocably depositing with the Trustee, in trust and irrevocably set aside exclusively for such payment, (1) moneys sufficient to make such payment and/or (2) Governmental Obligations maturing as to principal and interest in such amounts and at such times as will insure the availability of sufficient moneys to make such payment, and (b) all necessary and proper fees, compensation and expenses of the Trustee pertaining to the Bonds with respect to which such deposit is made shall have been paid or the payment thereof provided for to the Trustee's satisfaction. At such time as a Bond shall be deemed to be paid as aforesaid, it shall no longer be secured by or entitled to the benefits of the Indenture, except for the purposes of any such payment from such moneys or Governmental Obligations. Notwithstanding the foregoing, no deposit under clause (a)(ii) of the immediately preceding paragraph shall be deemed a payment of such Bonds as aforesaid until (a) proper notice of redemption of such Bonds shall have been previously given in accordance with the Indenture or, in the event said Bonds are not by their terms subject to redemption within the next succeeding sixty (60) days, until the Corporation shall have given the Trustee on behalf of the Issuer, in form satisfactory to the Trustee, irrevocable instructions to notify, as soon as practicable, the owners of the Bonds in accordance with the requirements of the Indenture, that the deposit required by (a)(ii) above has been made with the Trustee and that said Bonds are deemed to have been paid and stating the maturity or redemption date upon which moneys are to be available for the payment of the principal of said Bonds, plus interest thereon to the due date thereof; or (b) the maturity of such Bonds. The Issuer and the Trustee have agreed that no deposit will be made or accepted under the Indenture and no use made of any such deposit which would cause the Bonds to be treated as "arbitrage bonds" within the meaning of Section 148 of the Code.
22 Defaults and Remedies Any of the following events will constitute a Default under the Indenture: (1) Default in the due and punctual payment of interest on any Bond; (2) Default in the due and punctual payment of the principal of any Bond, whether at the stated maturity thereof, or upon proceedings for redemption thereof, or upon the maturity thereof by declaration; (3) Default in the performance or observance of any other of the covenants, agreements or conditions on the part of the Issuer contained in the Indenture or in the Bonds and failure to remedy the same after notice as provided in the Indenture; or (4) The occurrence of a "Default" under the Loan Agreement (see the caption "SUMMARY OF PORTIONS OF THE LOAN AGREEMENT - Defaults"). In the event of a Default, the Trustee may, and shall at the written request of Bondowners of not less than 25% in principal amount of Bonds Outstanding, by written notice to the Issuer and the Corporation, declare the principal of the Bonds to be immediately due and payable, whereupon that portion of the principal of the Bonds thereby coming due and the interest thereon accrued to the date of payment shall, without further action, become and be immediately due and payable, anything in the Indenture or in the Bonds to the contrary notwithstanding. Upon any such declaration of acceleration, the Trustee shall immediately declare an amount equal to all amounts then due and payable on the Bonds to be immediately due and payable under the Loan Agreement. The Trustee may also or as an alternative pursue any available remedy by suit at law or in equity to enforce the payment of the principal of and interest on, the Bonds then Outstanding.
Waiver of Default The Trustee may waive any Default under the Indenture and its consequences and rescind any declaration of acceleration of principal, and shall do so upon the written request of the owners of (1) more than two-thirds (2/3) in aggregate principal amount of all the Bonds then Outstanding in respect of which Default in the payment of principal or interest, or both, exists or (2) more than two-thirds (2/3) in aggregate principal amount of all Bonds then Outstanding in the case of any other Default; provided, however, that there may not be waived any Default in the payment of the principal of or interest on any Outstanding Bonds unless prior to such waiver or rescission all arrearages of principal and interest (other than principal of or interest on the Bonds which became due and payable by declaration of acceleration), with interest to the extent permitted by law at the Late Payment Rate on overdue installments, and all expenses of the Trustee in connection with such Default shall have been paid or provided for. In case of any such waiver or rescission, or in case any proceeding taken by the Trustee on account of any such Default shall have been discontinued or abandoned or determined adversely, then and in every such case the Issuer, the Trustee, and the owners of the Bonds shall be restored to their former positions and rights under the Indenture, but no such waiver or rescission shall extend to any subsequent or other Default or impair any right consequent thereon.
Supplemental Indentures The Issuer and the Trustee may enter into indentures supplemental to the Indenture without notice to or the approval of the owners of the Bonds for any one or more of the following purposes: (1) To cure any ambiguity or formal defect or omission in the Indenture; (2) To grant to or confer upon the Trustee for the benefit of the owners of the Bonds any additional rights, remedies, powers, or authorities that may lawfully be granted to or conferred upon the owners of the Bonds or the Trustee; (3) To subject to the lien of the Indenture additional revenues, properties, or collateral; (4) To modify, amend, or supplement the Indenture or any indenture supplemental thereto in such manner as to permit the qualification thereof under the Trust Indenture Act of 1939, as amended, or any similar federal statute then in effect, or to permit the qualification of the Bonds for sale under the securities laws of any of the states of the United States of America; (5) To provide for the issuance of Additional Bonds pursuant to the provisions of the Indenture;
23 (6) To evidence the appointment of a separate Trustee or a Co-Trustee or the succession of a new Trustee under the Indenture; or (7) To make such additions, deletions, or modifications as may be necessary to assure compliance with Section 145 of the Code relating to qualified 501(c)(3) obligations, Section 148(f) of the Code relating to required rebate of excess investment earnings to the United States, or otherwise as may be necessary to assure exemption from federal income taxation of interest on the Bonds. Exclusive of supplemental indentures for the purposes set forth in the previous paragraph, the consent of the owners of not less than two-thirds (2/3) in aggregate principal amount of the Bonds then Outstanding is required to approve any supplemental indenture, except no supplemental indentures shall permit without the consent of the owners of all Bonds Outstanding (1) an extension of the maturity of the principal of or the interest on any Bond issued under the Indenture, (2) a reduction in the principal amount of any Bond or the rate of interest thereon, (3) a privilege or priority of any Bond or Bonds over any other Bond or Bonds, (4) a reduction in the aggregate principal amount of the Bonds required for consent to such supplemental indentures or any modification or waiver of the provisions of the Loan Agreement, (5) the creation of any lien ranking prior to or on a parity with the lien of the Indenture or the Trust Estate, or any part thereof, except as permitted by the Indenture, or (6) the deprivation of the owner of any Outstanding Bond of the lien of the Indenture. No supplemental indenture will become effective unless and until the Corporation shall have consented to the execution and delivery thereof.
Amendments to the Loan Agreement Except as otherwise provided in the Loan Agreement or the Indenture, no amendment, change, or modification of the Loan Agreement is permissible without the written consent of the Trustee. Pursuant to the provisions of the Indenture, the consent of the owners of at least two-thirds (2/3) of the principal amount of all Bonds then Outstanding is also required for any such amendment, change, or modification of the Loan Agreement, except for amendments, changes, or modifications required (i) by the provisions of the Loan Agreement or the Indenture, (ii) for the purpose of curing any ambiguity or formal defect or omission, (iii) to enter into an indenture or indentures supplemental to the Indenture as provided in the Indenture, (iv) to provide for the issuance of Additional Bonds for the purposes set forth in the Loan Agreement and in accordance with the provisions of the Indenture, (v) to make such additions, deletions, or modifications as may be necessary to assure compliance with Section 145 of the Code relating to qualified 501(c)(3) obligations, Section 148(f) of the Code relating to required rebate of excess investment earnings to the United States, or otherwise as may be necessary to assure exemption from federal income taxation of interest on the Bonds, or (vi) in connection with any other change which, in the judgment of the Trustee, is not to the prejudice of the Trustee or the owners of the Bonds. However, the consent of the owners of all Bonds Outstanding is required for any amendment, change, or modification of the Loan Agreement that would permit the termination or cancellation of the Loan Agreement or a reduction in or a postponement of the payments under the Loan Agreement or any change in the provisions relating to the payment thereunder.
SUMMARY OF PORTIONS OF THE CONTINUING DISCLOSURE AGREEMENT
The following statements are brief summaries of certain provisions of the Continuing Disclosure Agreement. The statements do not purport to be complete, and reference is made to the Continuing Disclosure Agreement, copies of which are available for examination at the offices of the Corporation, for a full statement thereof.
Purpose of the Agreement The Continuing Disclosure Agreement is executed and delivered by the Corporation and Bank of the Ozarks, Little Rock, Arkansas, as dissemination agent (the "Dissemination Agent") for the benefit of the Beneficial Owners of the Series 2015 Bonds and in order to assist the Underwriter in complying with, and constitutes the written undertaking for the benefit of the Beneficial Owners of the Series 2015 Bonds required by, Securities and Exchange Commission Rule 15c2-12(b)(5). The Corporation and the Dissemination Agent acknowledge that the Issuer has undertaken no responsibility with respect to reports, notices or disclosures provided or required under the Continuing Disclosure Agreement, and has no liability to any person, including any Beneficial Owner, with respect to any such reports, notices or disclosures.
24 Definitions In addition to the definitions set forth in Appendix A to this Official Statement, the following capitalized terms shall have the following meanings when used under this caption "SUMMARY OF PORTIONS OF THE CONTINUING DISCLOSURE AGREEMENT." "Annual Report" shall mean any Annual Report provided by the Corporation, as described hereinafter under the subheading "Provision of Annual Reports." "Beneficial Owner" shall mean any person which (a) has the power, directly or indirectly, to vote or consent with respect to, or dispose of ownership of, any Series 2015 Bonds (including persons holding Series 2015 Bonds through nominees, depositories or other intermediaries), or (b) is treated as the owner of any Series 2015 Bonds for federal income tax purposes. "Disclosure Representative" shall mean the Vice President for Finance and Administration of the Corporation or his or her designee, or such other person as the Corporation shall designate in writing to the Dissemination Agent from time to time. "Dissemination Agent" shall mean Bank of the Ozarks, Little Rock, Arkansas, acting in its capacity as Dissemination Agent under the Continuing Disclosure Agreement, or any successor Dissemination Agent designated in writing by the Corporation and which has filed with the Issuer and the Trustee a written acceptance of such designation. "EMMA" shall mean the Electronic Municipal Market Access system as described in 1934 Act Release No. 59062 and maintained by the MSRB for purposes of the Rule. "Fiscal Year" shall mean any period of twelve (12) consecutive months adopted by the Corporation as its fiscal year for financial reporting purposes. The Corporation's Fiscal Year presently ends on June 30 of each year. "Listed Events" shall mean any of the events listed hereinafter under the subheading "Reporting of Significant Events." "MSRB" shall mean the Municipal Securities Rulemaking Board. "Rule" shall mean Rule 15c2-12(b)(5) adopted by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as the same may be amended from time to time.
Provision of Annual Reports The Corporation shall, or shall cause the Dissemination Agent to, not later than 180 days after the end of each of the Corporation's Fiscal Years (presently ending on June 30 in each year), commencing with the Fiscal Year ending June 30, 2016, provide to the MSRB, through its continuing disclosure service portal provided through EMMA at http://www.emma.msrb.org or any similar system acceptable to the Securities and Exchange Commission, an Annual Report which is consistent with the requirements of the Continuing Disclosure Agreement. The Annual Report shall be filed in electronic format as prescribed by the MSRB and shall be accompanied by identifying information as prescribed by the MSRB. Not later than fifteen (15) Business Days prior to said date, the Corporation shall provide the Annual Report to the Dissemination Agent and the Trustee (if the Trustee is not the Dissemination Agent). Annual Reports may be submitted as single documents or as separate documents comprising a package, and may cross-reference other information; provided that the annual financial statements of the Corporation may be submitted separately from the balance of the Annual Reports and later than the date set forth above for the filing of such Annual Reports if they are not available by that date.
Content of Annual Reports The Corporation's Annual Report shall contain or include by reference the following: (1) The following general categories of financial information and operating data with respect to the Corporation for the prior Fiscal Year: (a) Enrollment figures, tuition and fee revenues, and tuition and fee charges, as set forth under the caption "SUMMARY OF ENROLLMENTS AND STUDENT REVENUES" in the Official Statement for the Series 2015 Bonds; and
25 (b) Information regarding the sources of student financial aid as set forth under the caption "THE CORPORATION AND THE UNIVERSITY — Student Financial Aid" in the Official Statement for the Series 2015 Bonds. (2) The Corporation's audited financial statements for the prior Fiscal Year, prepared in accordance with GAAP as promulgated by the Financial Accounting Standards Board ("FASB"). If the Corporation's audited financial statements are not available by the time its Annual Report is required to be filed, the Annual Report shall contain unaudited financial statements in a format similar to the financial statements contained in the Official Statement for the Series 2015 Bonds, and the audited financial statements shall be filed in the same manner as such Annual Report when they become available. Any or all of the items listed above may be included by specific reference to other documents, including official statements of debt issues with respect to which the Corporation is an "obligated person" (as defined by the Rule), which are available on the MSRB internet website or which have been submitted to the Securities and Exchange Commission. If the document included by reference is a final official statement, it must be available from the MSRB. The Corporation shall clearly identify each such other document so included by reference.
Reporting of Significant Events (a) The Corporation shall give, or cause to be given, notice of the occurrence of any of the following events with respect to the Series 2015 Bonds: Principal and interest payment delinquencies. Non-payment related defaults, if material. Unscheduled draws on debt service reserves reflecting financial difficulties. Unscheduled draws on credit enhancements reflecting financial difficulties. Substitution of credit or liquidity providers, or their failure to perform. Adverse tax opinions, the issuance by the Internal Revenue Service of proposed or final determinations of taxability, Notices of Proposed Issue (IRS Form 5701-TEB) or other material notices or determinations with respect to the tax status of the security, or other material events affecting the tax-exempt status of the security. Modification to rights of security holders, if material. Bond calls (excluding mandatory sinking fund redemptions), if material. Defeasances and tender offers. Release, substitution, or sale of property securing repayment of the securities, if material. Rating changes. Bankruptcy, insolvency, receivership or similar event of the obligated person. The consummation of a merger, consolidation or acquisition involving an obligated person or the sale of all or substantially all of the assets of the obligated person, other than in the ordinary course of business, the entry into a definitive agreement to undertake such action or the termination of a definitive agreement relating to any such actions, other than pursuant to its terms, if material. Appointment of a successor or additional trustee or the change of name of a trustee, if material. (b) After the occurrence of a Listed Event (excluding an event described in (a)(viii) above), the Corporation shall promptly notify the Dissemination Agent (if other than the Corporation) in writing. Such notice shall instruct the Dissemination Agent to report the occurrence. (c) After the occurrence of a Listed Event (excluding an event described in (a)(viii) above), the Corporation shall file (or shall cause the Dissemination Agent to file), in a timely manner not in excess of ten (10) Business Days after the occurrence of such Listed Event, a notice of such occurrence with the MSRB, through its continuing disclosure service portal provided through EMMA at http://www.msrb.emma.org or any other similar system that is acceptable to the Securities and Exchange Commission, with a copy to the Trustee (if the Trustee is not the Dissemination Agent). Each notice of the occurrence of a Listed Event shall be captioned "Notice of Listed Event" and shall be filed in electronic format as prescribed by the MSRB and shall be accompanied by identifying information as prescribed by the MSRB. In the event of a Listed Event described in (a)(viii) above, the Trustee shall make the filing in compliance with the Indenture and notice thereof need not be given any earlier than the notice for the underlying event is given to registered owners of affected Series 2015 Bonds pursuant to the terms of the Indenture.
26 Termination of Reporting Obligation The obligations of the Corporation under the Continuing Disclosure Agreement shall terminate upon the legal defeasance, prior redemption or payment in full of all of the Series 2015 Bonds. If the Corporation's obligations under the Loan Agreement are assumed in full by some other entity, such entity shall be responsible for compliance with the Continuing Disclosure Agreement in the same manner as if it were the Corporation, and the Corporation shall have no further responsibility thereunder. If such termination or substitution occurs prior to the final maturity of the Series 2015 Bonds, the Corporation shall give notice of such termination or substitution in the same manner as for a Listed Event.
Dissemination Agent The Corporation may, from time to time, appoint or engage a Dissemination Agent to assist it in carrying out its obligations under the Continuing Disclosure Agreement, and may discharge any such Dissemination Agent, with or without appointing a successor Dissemination Agent. A Dissemination Agent shall not be responsible in any manner for the content of any notice or report prepared by the Corporation pursuant to the Continuing Disclosure Agreement and has no duty to review the contents thereof. If at any time there is not any other designated Dissemination Agent, the Corporation shall be the Dissemination Agent.
Amendment and Waiver Notwithstanding any other provision of the Continuing Disclosure Agreement, the Corporation and the Dissemination Agent may amend the Continuing Disclosure Agreement (and the Dissemination Agent shall agree to any amendment so requested by the Corporation so long as it is not adverse or prejudicial to the Dissemination Agent), and any provision of the Continuing Disclosure Agreement may be waived, provided that the following conditions are satisfied: (a) If such amendment or waiver relates to the provisions requiring the filing of Annual Reports by certain dates, the content of Annual Reports or the Listed Events to be reported, it may only be made in connection with a change in circumstances that arises from a change in legal requirements, change in law, or change in the identity, nature or status of an "Obligated Person" (as defined in the Rule) with respect to the Series 2015 Bonds, or the type of business conducted; (b) The undertaking, as amended or taking into account such waiver, would, in the opinion of nationally recognized bond counsel, have complied with the requirements of the Rule at the time of the original issuance of the Series 2015 Bonds, after taking into account any amendments or interpretations of the Rule, as well as any change in circumstance; and (c) The amendment or waiver either (i) is approved by the holders of the Series 2015 Bonds in the same manner as provided in the Indenture for amendments to the Indenture with the consent of the Bondholders, or (ii) does not, in the opinion of nationally recognized bond counsel, materially impair the interests of the Bondholders or the Beneficial Owners of the Series 2015 Bonds. In the event of any amendment or waiver of a provision of the Continuing Disclosure Agreement, the Corporation shall describe such amendment or waiver in its next Annual Report, and shall include, as applicable, a narrative explanation of the reason for the amendment or waiver and its impact on the type (or, in the case of a change of accounting principles, on the presentation) of financial information or operating data being presented with respect to the Corporation. In addition, if the amendment relates to the accounting principles to be followed in preparing financial statements, (i) notice of such change shall be given in the same manner as for a Listed Event, and (ii) the Annual Report for the year in which the change is made should present a comparison (in narrative form and also, if feasible, in quantitative form) between the financial statements prepared on the basis of the new accounting principles and those prepared on the basis of the former accounting principles.
Additional Information Nothing in the Continuing Disclosure Agreement shall be deemed to prevent the Corporation from disseminating any other information, using the means of dissemination set forth in the Continuing Disclosure Agreement or any other means of communication, or including any other information in any Annual Report or notice of occurrence of a Listed Event, in addition to that which is required by the Continuing Disclosure Agreement. If the Corporation chooses to include any information in any Annual Report or notice of occurrence of a Listed Event, in addition to that which is specifically required by the Continuing Disclosure Agreement, it shall
27 have no obligation under the Continuing Disclosure Agreement to update such information or include it in any future Annual Report or notice of occurrence of a Listed Event.
Default In the event of a failure of the Corporation or the Dissemination Agent (if the Trustee is not the Dissemination Agent) to comply with any provision of the Continuing Disclosure Agreement, any Beneficial Owner or the Trustee may (and, at the request of the Bondholders of at least 25% aggregate principal amount of Outstanding Series 2015 Bonds, the Dissemination Agent shall), take such actions as may be necessary and appropriate, including seeking mandamus or specific performance by court order, to cause the Corporation or the Dissemination Agent, as the case may be, to comply with its obligations under the Continuing Disclosure Agreement. In the event of any failure of the Dissemination Agent to comply with any provision of the Continuing Disclosure Agreement, the Corporation or any Beneficial Owner may take such actions as may be necessary and appropriate, including seeking mandamus or specific performance by court order, to cause the Dissemination Agent to comply with its obligations under the Continuing Disclosure Agreement. A default under the Continuing Disclosure Agreement shall not be deemed a Default under the Indenture or the Loan Agreement, and the sole remedy under the Continuing Disclosure Agreement in the event of any failure of the Corporation or the Dissemination Agent to comply with the Continuing Disclosure Agreement shall be an action to compel performance. Without limiting the generality of the foregoing, neither the commencement nor the successful completion of an action to compel performance described under this caption shall entitle any person to attorneys' fees, financial damages of any sort or any other relief other than an order or injunction compelling performance.
Duties, Immunities and Liabilities of Dissemination Agent The Dissemination Agent (if other than the Trustee or the Trustee in its capacity as Dissemination Agent) shall have only such duties as are specifically set forth in the Continuing Disclosure Agreement and the Corporation agrees to indemnify and save the Dissemination Agent, its officers, directors, employees and agents harmless against any loss, expense and liabilities which it may incur arising out of or in the exercise or performance of its powers and duties under the Continuing Disclosure Agreement, including the costs and expenses (including attorneys' fees) of defending against any claim of liability, but excluding liabilities due to the Dissemination Agent's gross negligence or willful misconduct. Such indemnification obligation of the Corporation shall survive resignation or removal of the Dissemination Agent and payment of the Series 2015 Bonds.
Compliance with Prior Undertakings The Corporation is a party to prior undertakings pursuant to the Rule requiring that it file certain financial and operating information and financial statements and notice of the occurrence of certain listed events with the MSRB through its EMMA system. During the past five years, the Corporation has identified certain instances in which filings were not made as required by such undertakings. A listing of such instances, which may not be exhaustive, is set forth below:
(i) filing certain annual financial and operating information later than the dates required for the years 2010 (1,631 days) and 2013 (34 days); (ii) filing certain financial statements later than the date required for the year 2010 (3 days) and 2013 (34 days); (iii) failure to make filings in connection with certain listed events (notices of late filings); and (iv) failure of certain filed annual financial and operating information and certain filed financial statements to be associated with all appropriate CUSIPs for the years 2010, 2011 and 2012. The Corporation makes no representation as to the materiality of the instances set forth above. The Corporation has undertaken steps to ensure future compliance with its continuing disclosure responsibilities.
28 UNDERWRITING
Under a bond purchase agreement entered into by and among the Issuer, the Corporation and Stephens Inc. (the "Underwriter"), the Series 2015 Bonds are being purchased at a purchase price of $8,117,831.15 (representing the stated principal amount of the Series 2015 Bonds plus original issue premium of $22,233.65 and less an underwriting discount of $69,402.50). The bond purchase agreement provides that the Underwriter will purchase all of the Series 2015 Bonds if any are purchased. The obligation of the Underwriter to accept delivery of the Series 2015 Bonds is subject to various conditions contained in the bond purchase agreement, including the absence of pending or threatened litigation questioning the validity of the Series 2015 Bonds or any proceedings in connection with the issuance thereof, and the absence of material adverse changes in the financial or business condition of the Corporation. The Underwriter intends to offer the Series 2015 Bonds to the public initially at the offering prices as set forth on the inside cover page of this Official Statement, which offering prices (or bond yields establishing such offering prices) may subsequently change without any requirement of prior notice. The Underwriter reserves the right to join with dealers and other underwriters in offering the Series 2015 Bonds to the public, and may offer the Series 2015 Bonds to such dealers and other underwriters at a price below the public offering price. The Corporation has agreed to indemnify the Underwriter against certain civil liabilities in connection with the offering and sale of the Series 2015 Bonds, including certain liabilities under federal securities laws.
TAX MATTERS Federal Income Taxes In the opinion of Kutak Rock LLP, Bond Counsel, under existing laws, regulations, rulings and judicial decisions, interest on the Series 2015 Bonds (including any original issue discount treated as interest) is excludable from gross income for federal income tax purposes and is not a specific preference item for purposes of the federal alternative minimum tax. The opinions described in the preceding sentence assume the accuracy of certain representations and compliance by the Issuer and the Corporation with certain covenants designed to satisfy the requirements of the Code that must be satisfied subsequent to the issuance of the Series 2015 Bonds. Failure to comply with certain of such requirements may cause interest on the Series 2015 Bonds to be included in gross income for federal income tax purposes retroactive to the date of issuance of the Series 2015 Bonds. The Issuer and the Corporation have covenanted to comply with such requirements. Notwithstanding Bond Counsel's opinion that interest on the Series 2015 Bonds is not a specific preference item for purposes of the federal alternative minimum tax, such interest will be included in adjusted current earnings of certain corporations, and such corporations are required to include in the calculation of alternative minimum taxable income 75% of the excess of such corporations' adjusted current earnings over the alternative minimum taxable income (determined without regard to such adjustment and prior to reduction for certain net operating losses). Bank Qualification. The Issuer and the City have represented that neither reasonably anticipates issuing greater than $10,000,000 of tax-exempt obligations in calendar year 2015 (excluding certain private activity and refunding bonds). The Issuer has designated the Series 2015 Bonds as "qualified tax-exempt obligations" within the meaning of Section 265(b)(3) of the Code. Accordingly, Bond Counsel is of the opinion that in the case of certain banks, thrift institutions or other financial institutions owning the Series 2015 Bonds, a deduction is allowed for 80% of that portion of such institutions' interest expense allocable to interest on the Series 2015 Bonds. Bond Counsel has expressed no opinion with respect to any deduction for federal income tax purposes of interest incurred or continued by a holder of the Series 2015 Bonds or a related person to purchase or carry the Series 2015 Bonds. Original Issue Premium. The Series 2015 Bonds maturing December 1, 2015, 2016, 2017, 2018 and 2019 (collectively, the "Premium Bonds") are being sold at a premium. An amount equal to the excess of the issue price of a Premium Bond over its stated redemption price at maturity constitutes premium on such Premium Bond. An initial purchaser of a Premium Bond must amortize any premium over such Premium Bond's term using constant yield principles, based on the purchaser's yield to maturity (or, in the case of Premium Bonds callable prior to their maturity, by amortizing the premium to the call date, based on the purchaser's yield to the call date and giving effect to the call premium). As premium is amortized, the amount of the amortization offsets a corresponding amount of interest for the period and the purchaser's basis in such Premium Bond is reduced by a corresponding amount resulting in an increase in the gain (or decrease in the loss) to be recognized for federal income tax purposes upon a
29 sale or disposition of such Premium Bond prior to its maturity. Even though the purchaser's basis may be reduced, no federal income tax deduction is allowed. Purchasers of the Premium Bonds should consult their tax advisors with respect to the determination and treatment of premium for federal income tax purposes and with respect to the state and local tax consequences of owning a Premium Bond. Bond Counsel has expressed no opinion regarding other federal tax consequences arising with respect to the Series 2015 Bonds. The accrual or receipt of interest on the Series 2015 Bonds may otherwise affect the federal income tax liability of the owners of the Series 2015 Bonds. The extent of these other tax consequences will depend upon such owner's particular tax status and other items of income or deduction. Bond Counsel has expressed no opinion regarding any such consequences. Purchasers of the Series 2015 Bonds, particularly purchasers that are corporations (including S corporations and foreign corporations operating branches in the United States), property or casualty insurance companies, banks, thrifts or other financial institutions, certain recipients of Social Security or Railroad Retirement benefits, taxpayers otherwise entitled to claim the earned income credit, and taxpayers who may be deemed to have incurred or continued indebtedness to purchase or carry tax-exempt obligations, should consult their tax advisors as to the tax consequences of purchasing or owning the Series 2015 Bonds. Backup Withholding. As a result of the enactment of the Tax Increase Prevention and Reconciliation Act of 2005, interest on tax-exempt obligations such as the Series 2015 Bonds is subject to information reporting in a manner similar to interest paid on taxable obligations. Backup withholding may be imposed on payments made after March 31, 2007 to any bondholder who fails to provide certain required information, including an accurate taxpayer identification number, to any person required to collect such information pursuant to Section 6049 of the Code. The new reporting requirement does not in and of itself affect or alter the excludability of interest on the Series 2015 Bonds from gross income for federal income purposes or any other federal tax consequence of purchasing, holding or selling tax-exempt obligations. Changes in Federal Tax Law. From time to time, there are legislative proposals in the Congress and in the states that, if enacted, could alter or amend the federal and state tax matters referred to above or adversely affect the market value of the Series 2015 Bonds. It cannot be predicted whether or in what form any such proposal might be enacted or whether if enacted it would apply to bonds issued prior to enactment. In addition, regulatory actions are from time to time announced or proposed and litigation is threatened or commenced which, if implemented or concluded in a particular manner, could adversely affect the market value of the Series 2015 Bonds. It cannot be predicted whether any such regulatory action will be implemented, how any particular lawsuit will be resolved, or whether the Series 2015 Bonds or the market value thereof would be impacted thereby. Purchasers of the Series 2015 Bonds should consult their tax advisors regarding any pending or proposed legislation, regulatory initiatives or litigation. The opinions expressed by Bond Counsel are based upon existing legislation and regulations as interpreted by relevant judicial authorities as of the date of issuance and delivery of the Series 2015 Bonds, and Bond Counsel has expressed no opinion as of any date subsequent thereto or with respect to any pending legislation, regulatory initiatives or litigation. State Taxes Bond Counsel is of the opinion that, under existing law, the interest on the Series 2015 Bonds is exempt from all state, county and municipal taxes in the State of Arkansas.
LEGAL MATTERS Legal Opinions Legal matters incident to the authorization and issuance of the Series 2015 Bonds are subject to the unqualified approving opinion of Kutak Rock LLP, Little Rock, Arkansas, Bond Counsel, whose approving opinion will be delivered with the Series 2015 Bonds. Certain matters will be passed upon for the Corporation by Conner & Winters, LLP, Fayetteville, Arkansas. Bond Counsel has participated in the preparation and has reviewed those portions of this Official Statement pertaining to the Series 2015 Bonds, the tax status of interest on the Series 2015 Bonds, and the provisions of the Loan Agreement, the Indenture and the Continuing Disclosure Agreement, including the materials and matters of law discussed under the captions "THE SERIES 2015 BONDS," "SECURITY FOR THE BONDS," SUMMARY OF PORTIONS OF THE LOAN AGREEMENT," "SUMMARY OF PORTIONS OF THE INDENTURE," "SUMMARY OF PORTIONS OF THE CONTINUING DISCLOSURE" and "TAX MATTERS" and in
30 "DEFINITIONS OF CERTAIN TERMS" in Appendix A and "FORM OF APPROVING OPINION" in Appendix D. Bond Counsel has not been retained to pass upon, and will not express any opinion upon, any other information contained in this Official Statement.
Litigation There is no litigation pending seeking to restrain or enjoin the issuance or delivery of the Series 2015 Bonds, or questioning or affecting the legality of the Series 2015 Bonds or the proceedings and authority under which the Series 2015 Bonds are to be issued, or questioning the right of the Issuer to enter into the Indenture and the Loan Agreement or to issue the Series 2015 Bonds. In addition there is no litigation currently pending, or to management's knowledge threatened, against the Corporation or its properties.
FINANCIAL STATEMENTS
The consolidated financial statements of the Corporation and its affiliates for the fiscal years ended June 30, 2015 and 2014, as set forth in Appendix B to this Official Statement, have been audited by Capin Crouse LLP, Colorado Springs, Colorado, independent certified public accountants, for the periods indicated in their report thereon, which report is also included in Appendix B. The notes set forth in Appendix B are an integral part of the financial statements, and the audited financial statements and the notes should be read in their entirety.
MISCELLANEOUS
The Corporation has furnished the information in this Official Statement relating to its operations and the University. The Underwriter has furnished the information in this Official Statement with respect to the public offering price of the Series 2015 Bonds and the information under the caption "UNDERWRITING." Any statements made in this Official Statement involving matters of opinion or of estimates, whether or not so expressly stated, are set forth as such and not as representations of fact, and no representation is made that any of the estimates will be realized. The information contained in this Official Statement has been taken from sources considered to be reliable, but is not guaranteed. To the best of the knowledge of the undersigned this Official Statement does not include any untrue statement of a material fact; nor does it omit the statement of any material fact required to be stated herein, or necessary to make the statements herein, in light of the circumstances under which they were made, not misleading.
31 The execution and delivery of this Official Statement has been duly authorized by the Issuer and the Corporation.
CITY OF SILOAM SPRINGS, ARKANSAS PUBLIC EDUCATION FACILITIES BOARD (JOHN BROWN UNIVERSITY)
By: /s/ Tim McCord Chair
JOHN BROWN UNIVERSITY
By: /s/ Charles Pollard President
32 APPENDIX A
DEFINITIONS OF CERTAIN TERMS
The following are definitions of some of the words and terms used in this Official Statement: "Accountant" or "Accountants" means an independent certified public accountant or a firm of independent certified public accountants to whom the Trustee makes no reasonable objection. "Act" means the "Public Facilities Boards Act," Arkansas Code Annotated Sections 14-137-101 et seq. (1998 Repl. and Supp. 2013), and all acts supplemental thereto or amendatory thereof. "Additional Bonds" means bonds of the Issuer (other than the Series 2015 Bonds) issued on a parity of security with the Series 2015 Bonds pursuant to the Indenture. "Annual Debt Service" means, for any Fiscal Year as applied to any Outstanding Bonds, the sum of all amounts required to pay principal (at maturity or upon mandatory redemption) and interest due in such Fiscal Year on all Bonds Outstanding. "Annual Debt Service" with respect to any specified type of obligation for any Fiscal Year means the sum of all amounts required to pay principal (at maturity or upon mandatory redemption) and interest due in such Fiscal Year on all of the specified type of obligation. "Authorizing Ordinance" means Ordinance No. 87-9 of the Board of Directors of the City, duly adopted on July 7, 1987. "Bond Fund" means the fund by that name created in the Indenture. "Bondowner" or "owner of the Bonds" means the Registered Owner of any Bond. "Bonds" means the Series 2015 Bonds and any Additional Bonds. "Business Day" means a day on which banking business is transacted, but not including any day on which banks are authorized to be closed, in the city in which the Trustee has its principal corporate trust office. "City" means the City of Siloam Springs, Arkansas. "Code" means the Internal Revenue Code of 1986, as amended, and Regulations of the United States Treasury Department promulgated thereunder. "Continuing Disclosure Agreement" means the Continuing Disclosure Agreement dated as of the date of delivery of the Series 2015 Bonds, by and between the Corporation and the Dissemination Agent. "Corporation" means (i) John Brown University, a nonprofit corporation described in Section 501(c)(3) of the Code and exempt from federal income taxation under Section 501(a) of the Code, and (ii) any surviving, resulting, or transferee entity as provided in the Loan Agreement. "Corporation Representative" means the person or persons at the time designated to act on behalf of the Corporation by written certificate furnished to the Issuer and the Trustee containing the specimen signatures of such person or persons and signed on behalf of the Corporation by the President or any Vice President thereof. Such certificate may designate an alternate or alternates. "Debt Service" means, with respect to each series of Bonds, the scheduled amount of interest and amortization of principal payable on such series of Bonds during the period of computation, excluding amounts scheduled during such period which relate to principal which has been retired before the beginning of such period. "Debt Service Reserve Fund" means the fund by that name created in the Indenture. "Debt Service Reserve Requirement" means, with respect to each series of Outstanding Bonds, 50% of the maximum Annual Debt Service on all Outstanding Bonds of such series. "Default" means, with respect to the Indenture, any occurrence or event specified in and defined by Section 9.01 of the Indenture, and with respect to the Loan Agreement, any occurrence or event specified in and defined by Section 8.1 of the Loan Agreement. "Escrow Agreement" means the Escrow Deposit Agreement to be dated as of the date of delivery of the Series 2015 Bonds, by and between the Issuer and the Escrow Trustee, and providing for the defeasance of the Series 2009 Bonds.
A-1 "Escrow Fund" means the fund established pursuant to the Escrow Agreement and into which proceeds of the Series 2015 Bonds and other available moneys shall be deposited for the purpose of defeasing and redeeming the Series 2009 Bonds. "Escrow Trustee" means Bank of the Ozarks, Little Rock, Arkansas, and any successor at any time service as escrow trustee under the Escrow Agreement. "Fiscal Year" means the year ending June 30. "Governmental Obligations" means direct obligations of (including obligations issued or held in book entry form on the books of) the Department of the Treasury of the United States of America), or obligations the payment of the principal of and interest on which is unconditionally guaranteed by, the United States of America. "Indenture" means the Indenture of Trust dated as of October 1, 2015, pursuant to which the Bonds are authorized to be issued, by and between the Issuer and the Trustee, and any further amendments and supplements thereto. "Issuance Cost Fund" means the fund by that name created by the Indenture. "Issuance Costs" means all costs and expenses of issuance of the Bonds. "Issuer" means the City of Siloam Springs, Arkansas Public Education Facilities Board (John Brown University), a body corporate and politic of City of Siloam Springs, Arkansas, created by the Authorizing Ordinance, duly organized and existing under the laws of the State, and its successors and assigns. "Late Payment Rate" means (i) with respect to the Bondowners, the applicable rate of interest payable on the Bonds, and (ii) for all other purposes, five percent (5.00%) per annum. "Loan Agreement" means the Loan Agreement and Security Agreement dated as of October 1, 2015, by and between the Issuer and the Corporation, and any further amendments and supplements thereto. "Loan Payments" means the amounts payable by the Corporation pursuant to Section 4.2(a), (b) and (e) of the Loan Agreement. "Moody's" means Moody's Investors Service. "Net Proceeds" means, with respect to any insurance proceeds from policies required by the Loan Agreement or any condemnation award, the amount of proceeds or award remaining after deducting from the gross proceeds or award or sale price all expenses (including attorneys' fees) incurred in the collection of such proceeds or award. "Outstanding" or "Bonds Outstanding" means all Bonds which have been authenticated and delivered by the Trustee under the Indenture, except: (a) Bonds canceled after purchase in the open market because of payment at, or redemption prior to, maturity; (b) Bonds paid or deemed to be paid pursuant to the Indenture; (c) Bonds canceled after exchanges or transfers pursuant to the Indenture; and (d) Bonds in lieu of which others have been issued, authenticated, and delivered pursuant to the Indenture. "Paying Agent" or "Paying Agents" means the Trustee and such financial institutions as are appointed additional Paying Agents pursuant to the Indenture. "Permitted Investments" means: (a) Cash deposits, certificates of deposits or money market deposits (insured at all times by the Federal Deposit Insurance Corporation or otherwise collateralized with Governmental Obligations); (b) Governmental Obligations;
(c) Obligations of any of the following federal agencies which obligations represent the full faith and credit of the United States of America: U.S. Export-Import Bank (Eximbank); Rural Economic Community Development Administration; Federal Financing Bank; General Services Administration; U.S. Maritime Administration; U.S. Department of Housing and Urban Development (PHAs); Small Business Administration; Government National Mortgage Association (GNMA); Federal Housing Administration; and Farm Credit System Financial Assistance Corporation; (d) Direct obligations of any of the following federal agencies which obligations are not fully guaranteed by the full faith and credit of the United States of America:
A-2 (i) Senior debt obligations rated in the highest long-term rating category by at least two nationally recognized rating agencies issued by the Federal National Mortgage Association (FNMA) or the Federal Home Loan Mortgage Corporation (FHLMC); and (ii) Senior debt obligations of the Federal Home Loan Bank System; (e) U.S. dollar denominated deposit accounts, federal funds and bankers' acceptances with domestic commercial banks which either (i) have a rating on their short-term certificates of deposit on the date of purchase in the highest short-term rating category of at least two nationally recognized rating agencies, (ii) are insured at all times by the Federal Deposit Insurance Corporation, or (iii) are collateralized with direct obligations of the United States of America at 102% valued daily. All such certificates must mature no more than 360 days after the date of purchase. (Ratings on holding companies are not considered as the rating of the bank);
(f) Commercial paper which is rated at the time of purchase in the highest short-term rating category of at least two nationally recognized rating agencies and which matures no more than 270 days after the date of purchase;
(g) Investments in (i) money market funds subject to SEC Rule 2a-7 and rated in the highest short-term rating category of at least one of S&P and Moody's and (ii) public sector investment pools operated pursuant to SEC Rule 2a-7 in which the Corporation's deposit shall not exceed 5% of the aggregate pool balance at any time and such pool is rated in one of the two highest short-term rating categories of at least one of S&P and Moody's; (h) Pre-refunded municipal obligations defined as follows: Any bonds or other obligations of any state of the United States of America or of any agency, instrumentality or local governmental unit of any such state which are not callable at the option of the obligor prior to maturity or as to which irrevocable instructions have been given by the obligor to call on the date specified in the notice, and (i) Which are rated, based on an irrevocable escrow account or fund (the "Escrow"), in the highest long-term rating category of at least two nationally recognized rating agencies; or (ii) (I) which are fully secured as to principal and interest and redemption premium, if any, by an escrow consisting only of cash or direct obligations of the United States of America, which escrow may be applied only to the payment of such principal of and interest and redemption premium, if any, on such bonds or other obligations on the maturity date or dates thereof or the specified redemption date or dates pursuant to such irrevocable instructions, as appropriate, and (II) which escrow is sufficient, as verified by a nationally recognized independent certified public accountant, to pay principal of and interest and redemption premium, if any, on the bonds or other obligations described in this paragraph on the maturity date or dates specified in the irrevocable instructions referred to above, as appropriate;
(i) General obligations of states with a short-term rating in one of the two highest rating categories and a long-term rating in one of the two highest rating categories of at least two nationally recognized rating agencies. In the event such obligations are variable rate obligations, the interest rate on such obligations must be reset not less frequently than annually; and Any "cash sweep account" maintained by the Trustee and consisting of investments described in clauses (a) through (i). "Pledged Revenues" means all student tuition and fee revenues received by the Corporation. "Record Date" means with respect to any interest payment date of the Bonds, the fifteenth day of the calendar month next preceding the month in which such interest payment date falls. "Registered Owner" means the person or persons in whose name or names a Bond shall be registered on the books of the Issuer kept by the Trustee for that purpose in accordance with provisions of the Indenture. "S&P" means Standard & Poor's Ratings Services, a Division of The McGraw-Hill Companies.
A-3 "Series 2009 Bonds" means the $9,540,000 original aggregate principal amount of the Issuer's Refunding Revenue Bonds (John Brown University Project), Series 2009. "Series 2015 Bonds" means the $8,165,000 original aggregate principal amount of the Issuer's Refunding Revenue Bonds (John Brown University Project), Series 2015, issued pursuant to the Indenture. "State" means the State of Arkansas. "Subordinate Indebtedness" means indebtedness of the Corporation secured by the Pledged Revenues on a junior and subordinate basis to the lien on Pledged Revenues securing the Loan Payments. "Tax-Exempt Organization" means a nonprofit corporation organized and existing under the laws of one of the states of the United States which is an organization described in Section 501(c)(3) of the Code, exempt from federal income taxes under Section 501(a) of the Code or any successor provision of similar import hereafter enacted. "Term of the Agreement" means the term of the Loan Agreement as specified in the Loan Agreement. "Trustee" means Bank of the Ozarks, in Little Rock, Arkansas, and its successors and any entity resulting from or surviving any conversion, sale, transfer, consolidation, or merger to which it or its successors may be a party and any successor trustee at the time serving as successor trustee under the Indenture. "Trust Estate" means the property conveyed to the Trustee pursuant to the Granting Clauses of the Indenture. "University" means the four-year, degree-granting institution of post-secondary education operated by the Corporation in the City under the name "John Brown University."
A-4 APPENDIX B
AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF THE CORPORATION AND ITS AFFILIATES AS OF AND FOR THE FISCAL YEARS ENDED JUNE 30, 2015 AND 2014
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B-2 JOHN BROWN UNIVERSITY
JOHN BROWN UNIVERSITY and AFFILIATES
CONSOLIDATED FINANCIAL STATEMENTS With Independent Auditors' Report
June 30, 2015 and 2014
CAPINCRousE B-3 JOHN BROWN UNIVERSITY and AFFILIATES
Table of Contents
Page
Independent Auditors' Report 1
Financial Statements Consolidated Statements of Financial Position 3 Consolidated Statement of Activities-2015 4 Consolidated Statement of Activities-2014 6 Consolidated Statements of Cash Flows 8
Notes to Consolidated Financial Statements 10
B-4 CAPINCROUSE
INDEPENDENT AUDITORS' REPORT
Board of Trustees John Brown University and Affiliates Siloam Springs, Arkansas
We have audited the accompanying consolidated financial statements of John Brown University and Affiliates, which comprise the consolidated statements of financial position as of June 30, 2015 and 2014, and the related consolidated statements of activities and cash flows for the years then ended, and the related notes to the consolidated financial statements.
Management's Responsibility for the Consolidated Financial Statements Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.
Auditors' Responsibility Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
2435 Research Parkway, Suite 200 Colorado Springs, CO 80920 719.528.6225 capincrouse.com
B-5 Board of Trustees John Brown University and Affiliates Siloam Springs, Arkansas
Opinion In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of John Brown University and Affiliates as of June 30, 2015, and 2014, and the changes in their net assets and cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America.
Colorado Springs, Colorado September 18, 2015
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Consolidated Statements of Financial Position
June 30, 2015 2014
ASSETS: Cash and cash equivalents $ 9,921,768 $ 5,680,102 Investments 11,203,881 11,937,700 Student accounts receivable—net of allowance of $156,266 and $173,401, for 2015 and 2014, respectively 566,840 278,633 Other receivables 954,324 954,417 Contributions receivable—net of allowance and discount of $100,103 and $120,428, for 2015 and 2014, respectively 3,208,510 8,263,061 Other assets 591,116 746,576 Student loans—net of allowance of $126,243 for 2015 and 2014 1,710,860 1,771,969 Charitable trust investments 1,286,350 1,348,203 Beneficial interest in trusts held by others 1,106,863 1,251,460 Property, plant, and equipment—net 86,030,819 88,435,077 Long-term investments 99,515,941 92,843,034
Total Assets $ 216,097,272 $ 213,510,232
LIABILITIES AND NET ASSETS: Liabilities: Accounts payable and accrued expenses $ 2,380,349 $ 2,392,224 Deferred revenue 1,585,717 1,246,475 Annuity and trusts payable 1,407,160 1,389,340 Government loans and grants 1,642,068 1,553,153 Asset retirement obligations 96,850 91,431 Bonds payable 7,905,000 8,270,000 15,017,144 14,942,623
Net assets: Unrestricted 101,994,338 96,242,868 Temporarily restricted 20,653,541 28,792,009 Permanently restricted 78,432,249 73,532,732 201,080,128 198,567,609
Total Liabilities and Net Assets $ 216,097,272 $ 213,510,232
See notes to consolidated financial statements B-7
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Consolidated Statement of Activities
Year Ended Year Ended June 30, 2015 June 30, 2014 Temporarily Permanently Summarized Unrestricted Restricted Restricted Total Totals
REVENUE, SUPPORT, RECLASSIFICATIONS, AND NET GAINS: Tuition and fees—net of discounts ($17,196,870 in 2015) $ 23,547,367 $ $ 23,547,367 $ 21,969,985 Sales and services of auxiliaries—net of discounts ($641,816 in 2015) 7,303,648 7,303,648 7,211,966 Contributions 869,725 2,929,840 3,799,565 3,352,599 Annual gifts from Chapman trusts 1,507,445 1,542,524 3,049,969 2,886,062 Allowable endowment spending 4,168,028 4,168,028 3,896,922 Other income 2,456,542 2,456,542 2,312,415 Federal and state governmental grants 3,829,564 3,829,564 3,828,014 Other investment income and gains (52,320) (52,320) 570,400 Net assets released from purpose restrictions 6,971,090 (6,971,090)
Total Revenue, Support, Reclassifications, and Net Gains 50,601,089 (2,498,726) 48,102,363 46,028,363
EXPENSES: Instruction 13,628,847 13,628,847 12,751,804 Institutional support 7,752,240 7,752,240 7,566,857 Student services 7,465,814 7,465,814 7,423,908 Operation and maintenance of plant 5,218,059 5,218,059 4,920,748 Academic support 4,891,654 4,891,654 4,743,318 Auxiliary services 2,667,789 - 2,667,789 2,676,546 Depreciation expense 4,296,045 4,296,045 3,971,285 Public service 4,221,657 4,221,657 3,939,551
Total Expenses 50,142,105 50,142,105 47,994,017
Change in Net Assets from Operating Activity 458,984 (2,498,726) (2,039,742) (1,965,654)
(continued) 00 See notes to consolidated financial statements
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Consolidated Statement of Activities
(continued)
Year Ended Year Ended June 30, 2015 June 30, 2014 Temporarily Permanently Summarized Unrestricted Restricted Restricted Total Totals
NON-OPERATING ACTIVITY: Contributions 2,041,227 6,011,867 8,053,094 8,542,588 Change in value of annuities and trusts - (55,657) (15,726) (71,383) 54,380 Endowment income, net of spending 379,104 (3,808,554) (3,429,450) 8,685,629 Gain on sale of property held for sale 123,566 Net assets released from purpose restrictions 4,913,382 (3,816,758) (1,096,624)
Change in Net Assets from Non-Operating Activity 5,292,486 (5,639,742) 4,899,517 4,552,261 17,406,163
Change in Net Assets 5,751,470 (8,138,468) 4,899,517 2,512,519 15,440,509
Net Assets, Beginning of Year 96,242,868 28,792,009 73,532,732 198,567,609 183,127,100
Net Assets, End of Year $ 101,994,338 $ 20,653,541 $ 78,432,249 $ 201,080,128 $ 198,567,609
See notes to consolidated financial statements
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Consolidated Statement of Activities
Year Ended Year Ended June 30, 2014 June 30, 2013 Temporarily Permanently Summarized Unrestricted Restricted Restricted Total Totals
REVENUE, SUPPORT, RECLASSIFICATIONS, AND NET GAINS: Tuition and fees—net of discounts ($16,801,518 in 2014) $ 21,969,985 $ $ 21,969,985 $ 20,016,096 Sales and services of auxiliaries—net of discounts ($590,366 in 2014) 7,211,966 7,211,966 7,052,024 Contributions 962,336 2,390,263 3,352,599 6,345,027 Annual gifts from Chapman trusts 1,492,650 1,393,412 2,886,062 2,787,801 Allowable endowment spending 3,896,922 3,896,922 3,966,732 Other income 2,312,415 2,312,415 2,246,270 Federal and state governmental grants 3,828,014 3,828,014 3,846,542 Other investment income and gains (losses) 570,400 570,400 121,661 Net assets released from purpose restrictions 5,978,580 (5,978,580)
Total Revenue, Support, Reclassifications, and Net Gains 48,223,268 (2,194,905) 46,028,363 46,382,153
EXPENSES: Instruction 12,751,804 12,751,804 12,250,885 Institutional support 7,566,857 7,566,857 7,419,699 Student services 7,423,908 - 7,423,908 6,454,657 Operation and maintenance of plant 4,920,748 4,920,748 4,705,376 Academic support 4,743,318 4,743,318 4,166,502 Auxiliary services 2,676,546 2,676,546 2,456,831 Depreciation expense 3,971,285 3,971,285 3,423,367 Public service 3,939,551 - 3,939,551 3,868,640
Total Expenses 47,994,017 47,994,017 44,745,957
Change in Net Assets from Operating Activity 229,251 (2,194,905) (1,965,654) 1,636,196
(continued) See notes to consolidated financial statements
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Consolidated Statement of Activities
(continued)
Year Ended Year Ended June 30, 2014 June 30, 2013 Temporarily Permanently Summarized Unrestricted Restricted Restricted Total Totals
NON-OPERATING ACTIVITY: Contributions 5,965,583 2,577,005 8,542,588 5,431,644 Change in value of annuities and trusts - 46,785 7,595 54,380 320,252 Endowment income, net of spending 2,458,349 6,227,280 8,685,629 3,849,813 Gain on sale of property held for sale 123,566 123,566 Net assets released from purpose restrictions 2,222,410 (4,663,804) 2,441,394
Change in Net Assets from Non-Operating Activity 4,804,325 7,575,844 5,025,994 17,406,163 9,601,709
Change in Net Assets 5,033,576 5,380,939 5,025,994 15,440,509 11,237,905
Net Assets, Beginning of Year 91,209,292 23,411,070 68,506,738 183,127,100 171,889,195
Net Assets, End of Year $ 96,242,868 $ 28,792,009 $ 73,532,732 $ 198,567,609 $ 183,127,100
See notes to consolidated financial statements
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Consolidated Statements of Cash Flows
Year Ended June 30, 2015 2014
CASH FLOWS FROM OPERATING ACTIVITIES: Change in net assets $ 2,512,519 $ 15,440,509 Adjustments to reconcile change in net assets to net cash provided (used) by operating activities: Depreciation 4,296,045 3,971,285 Change in asset retirement obligation 5,419 (7,652) Change in value of annuities and trusts 37,605 22,236 Contributions restricted for permanent investment and property, plant, and equipment (8,053,094) (8,542,588) Net loss (gain) on investments 1,580,852 (10,759,870) Gain on sale of property held for sale (123,566) Change in operating assets and liabilities: Student accounts receivable (288,114) 87,932 Contributions receivable 5,054,551 1,337,795 Beneficial interest in trusts held by others 144,597 (105,195) Other assets 155,460 35,890 Accounts payable and accrued expenses (11,875) (745,900) Deferred revenue 339,242 (125,234) Net Cash Provided by Operating Activities 5,773,207 485,642
CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from sale of investments 10,035,599 541,385 Purchase of investments (17,513,471) (2,415,788) Proceeds from sale of property held for sale 1,623,566 Purchases of property, plant, and equipment (1,891,787) (8,203,793) Change in government loans and grants 150,024 283,604 Net Cash Used by Investing Activities (9,219,635) (8,171,026)
(continued)
See notes to consolidated financial statements B-12
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Consolidated Statements of Cash Flows
(continued)
Year Ended June 30, 2015 2014
CASH FLOWS FROM FINANCING ACTIVITIES: Contributions restricted for permanent investment 6,011,867 2,577,005 Contributions restricted for property, plant, and equipment 2,041,227 5,965,583 Repayment of bonds payable (365,000) (355,000) Net Cash Provided by Financing Activities 7,688,094 8,187,588
Change in Cash and Cash Equivalents 4,241,666 502,204
Cash and Cash Equivalents, Beginning of Year 5,680,102 5,177,898
Cash and Cash Equivalents, End of Year $ 9,921,768 $ 5,680,102
SUPPLEMENTAL DISCLOSURE: Cash paid for interest ($48,904 and $44,156 was capitalized for the years ended June 30, 2015 and 2014, respectively) $ 317,808 $ 281,771
See notes to consolidated financial statements B-13
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Notes to Consolidated Financial Statements
June 30, 2015 and 2014
1. NATURE OF ORGANIZATION: John Brown University (the University) is an independent Christian university of arts and sciences located in Siloam Springs, Arkansas. Evangelist, author, and radio pioneer John E. Brown founded the University in 1919 as an interdenominational Christian school with an educational philosophy dedicated to the integration of academic excellence (Head), moral and spiritual development (Heart), and professional education (Hand). In 1934, the state of Arkansas chartered the institution as a university. Today, the University continues the founder's Head, Heart, and Hand philosophy with a strong academic emphasis to prepare students to focus their lives toward service through their professions. Therefore, the University provides a balanced emphasis of liberal arts and career orientation for its students. The student body is diverse and unique. The University serves over 2,800 students from 40 nations and 42 states. It has approximately fifty undergraduate programs, nine graduate degrees, and three degree-completion programs for working adults. The University is classified as a tax-exempt 501(c)(3) educational organization by the Internal Revenue Service. As such, it is exempt from federal and state income tax, and contributions by the public are deductible for income tax purposes. The University does have some unrelated business activities due to community usage of the wellness center and the rental of communication tower space. There has been no tax liability related to these activities during the years ended June 30, 2015 and 2014.
ACCREDITATION In 1962, the University received its first accreditation from the North Central Association of Schools and Colleges Commission on Institutions of Higher Education (now the Higher Learning Commission). Subsequently, the University has received full approval of its accreditation every 10 years. The University is approved by the Arkansas State Department of Education for the preparation of teachers. The engineering program, including electrical and mechanical concentrations, is accredited by the Accreditation Board for Engineering and Technology (ABET). The construction management program has secondary accreditation from the American Council for Construction Education (ACCE). The University is accredited for the preparation of teachers by the National Council for the Accreditation of Teacher Education (NCATE). The business degrees have secondary accreditation from the International Assembly for Collegiate Business Education (IACBE). The United States Department of Justice has approved the University for the education of foreign students.
2. SIGNIFICANT ACCOUNTING POLICIES: The consolidated financial statements have been prepared on the accrual basis. The significant accounting policies followed are described below to enhance the usefulness of the consolidated statements to the reader. The University uses estimates and assumptions in preparing financial statements in accordance with accounting principles generally accepted in the United States of America. These estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of any contingent assets and liabilities, and the reported revenues and expenses. Actual results could vary from the estimates that were assumed in preparing the consolidated financial statements.
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Notes to Consolidated Financial Statements
June 30, 2015 and 2014
2. SIGNIFICANT ACCOUNTING POLICIES, continued:
PRINCIPLES OF CONSOLIDATION These consolidated financial statements include the balances and activities of the University and its affiliates. The University established a foundation to serve as a supporting organization to hold and invest endowment funds on behalf of the University. The John Brown University Foundation received notification of its 501(c)(3) status as of May 5, 2003. During the year ended June 30, 2014, John Brown University Northern Ireland was formed as an foreign non-profit entity. The entity has received its tax exempt status. These entities are consolidated in the financial statements as the University controls them and has a financial interest. All significant intercompany balances and transactions are eliminated.
RECLASSIFICATIONS Certain prior year amounts have been reclassified to conform to current year presentation.
COMPARATIVE FINANCIAL INFORMATION The consolidated financial statements include certain prior year summarized comparative information in total but not by net asset class. Such information does not include sufficient detail to constitute a presentation in conformity with accounting principles generally accepted in the United States of America. Accordingly, such information should be read in conjunction with the University's financial statements for the year ended June 30, 2014 from which the summarized information was derived.
NET ASSETS The consolidated financial statements report amounts separately by class of net assets.
Unrestricted net assets are those currently available at the direction of the board for use in the University's operations, board designated assets for scholarships, and those resources invested in property and equipment—net.
Temporarily restricted net assets are those which are stipulated by donors for specific operating purposes or for the acquisition of property, plant, and equipment and those that are time restricted. It also includes positive investment income balances from permanently restricted endowments.
Permanently restricted net assets are those contributed with donor restrictions requiring they be held in perpetuity.
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Notes to Consolidated Financial Statements
June 30, 2015 and 2014
2. SIGNIFICANT ACCOUNTING POLICIES, continued:
CASH AND CASH EQUIVALENTS For purposes of the consolidated statements of cash flows, the University considers cash on hand, bank checking accounts, money market accounts, and certificates of deposit with original maturities of three months or less to be cash and cash equivalents. The University maintains its cash and cash equivalents in bank accounts which may, at times, exceed federally insured limits. The University has not experienced any material losses in such accounts.
INVESTMENTS Investments in mutual funds and debt and equity securities are stated at fair value. Investments in real estate and artwork are stated at the lower of cost or market. In the event real estate which was initially acquired as an investment is subsequently used to support current operations, such real estate is reclassified from investments to property, plant, and equipment in the year in which it is first used to support current operations. The alternative investments, which are not readily marketable, are carried at estimated fair values as provided by the investment managers. The University reviews and evaluates the values provided by the investment managers and agrees with the valuation methods and assumptions used in determining the fair value of the alternative investments. Those estimated fair values may differ significantly from the values that would have been used had a readily available market for these investments existed. Cash surrender value of life insurance and oil and gas rights and are carried at estimated fair value.
Investment securities are exposed to various risks, such as changes in interest rates or credit ratings and market fluctuations. Due to the level of risk associated with certain investment securities and the level of uncertainty related to changes in the value of investment securities, it is possible that the value of the University's investments and total net assets balance could fluctuate materially.
PROPERTY, PLANT, AND EQUIPMENT Plant facilities are stated at cost if acquired or at fair market or appraised amounts at the date of gift, if donated. The capitalization policy is $5,000. Depreciation is provided over estimated useful lives of the assets on a straight-line basis. Upon retirement or other disposal of property, the cost and accumulated depreciation are removed, and the resulting gain or loss, if any, is recognized. The costs of repairs and maintenance are charged to expenditures as incurred, and the costs of replacements, renewals, and betterments are capitalized.
CONTRIBUTIONS RECEIVABLE Contributions receivable are unconditional promises to give and are recognized as assets and support in the period made. An allowance for doubtful contributions receivable has been recorded based on estimates of uncollectible amounts using historical trends and knowledge of the donor.
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Notes to Consolidated Financial Statements
June 30, 2015 and 2014
2. SIGNIFICANT ACCOUNTING POLICIES, continued:
STUDENT ACCOUNTS RECEIVABLE Student accounts receivable consist primarily of amounts due from students for tuition and fees and are recorded at the estimated net realizable value. An allowance for doubtful accounts has been offset against accounts receivable based on estimates of uncollectible amounts. The allowance for doubtful accounts related to student accounts receivable as of June 30, 2015 and 2014, was $156,266 and $173,401, respectively. After a student is no longer in attendance at the University, the student receives a letter each month if no payment is received. After two or three letters, the account is turned over to a collection agency. Interest and collection fees are recognized as revenue when charged to a student's account. When a student's account is turned over to a collection agency, interest is no longer charged to the account. If the collection agency is unable to collect from the student, the account is returned to the University. The University will take legal action or turn the account over to a second collection agency. The account is written-off once there is no further action to receive collateral.
STUDENT LOANS The University's student loans consist of a revolving loan fund for the Federal Perkins Loan Program (the Program) for which the University acts as an agent for the federal government in administering the loan program and an institutional loan fund created by the University to assist students in funding their education. Institutional loans are recorded at the estimated net realizable value. The allowance for loan losses in the student loan fund is computed using a historical default rate and analyzing the aging of the past due loans. Program loans (in default) assigned to the U.S. Department of Education are charged to the allowance in the year in which they are assigned. Student loans are considered past due if full principal payments are not received in accordance with the contractual terms. The Program's loans stipulate that the federal government provide 75 percent of the total funds available with the University providing the remaining 25 percent. The Program provides for cancellation of a note at rates of 12.5 percent to 30 percent per year up to a maximum of 100 percent if the debtor complies with certain requirements of the program.
Interest income from student loans is recorded when earned. The University's student loans do not serve as collateral for borrowings.
PROPERTY HELD FOR SALE Property held for sale is valued at lower of cost or fair market value, less estimated selling costs. The University does not depreciate assets when they are held for sale. During the year ended June 30, 2014, the property held for sale was sold. The gain on the sale is recording in the non-operating section of the consolidated statements of activities.
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Notes to Consolidated Financial Statements
June 30, 2015 and 2014
2. SIGNIFICANT ACCOUNTING POLICIES, continued:
DEBT ISSUANCE COSTS Debt issuance costs are recorded at cost and are amortized over the term of the debt agreements using the straight-line method, which approximates the effective-interest method. Such amounts are recorded as other assets on the consolidated statements of financial position.
ANNUITY CONTRACTS AND ANNUITY TRUSTS Annuity contracts and annuity trusts are recorded as liabilities at the present value of the aggregate payments due to annuitants and income beneficiaries, based upon acceptable life expectancy tables. Remainder interests to the University are reported in net assets based on purpose and intent of the donor. The majority of charitable trust investments are comprised of mutual funds.
BENEFICIAL INTEREST IN TRUSTS HELD BY OTHERS Beneficial interest in trusts held by others includes irrevocable perpetual trusts which are not trusteed by the University. The University's interest is measured at the present value of the future cash receipts and is included in temporarily or permanently restricted net assets based on the purpose of the donor. Adjustments to the amounts reported as assets are reported in nonoperating activity of annuities and trusts in the consolidated statements of activities.
ASSET RETIREMENT OBLIGATIONS Asset retirement obligations (ARO) are legal obligations associated with the retirement of long-lived assets. These liabilities are initially recorded at fair value and the related asset retirement costs are capitalized by increasing the carrying amount of the related assets by the same amount as the liability. Asset retirement costs are subsequently depreciated over the useful lives of the related assets. Subsequent to initial recognition, the University records period-to-period changes in the ARO liability resulting from the passage of time and revisions to either the timing of the amount of the original estimate or undiscounted cash flows. The University derecognizes ARO liabilities when the related obligations are settled.
CONTRIBUTIONS, REVENUE, AND EXPENSES Tuition revenue is recognized when earned, which is when classes occur. Tuition payments made in advance are deferred as a liability, titled deferred tuition revenue. Tuition revenue is recorded net of discounts for scholarships of $17,196,870 and $16,801,518 for the years ended June 30, 2015 and 2014, respectively. Of the scholarships awarded, $11,739,131 and $11,461,319 were unfunded for the years ended June 30, 2015 and 2014, respectively.
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Notes to Consolidated Financial Statements
June 30, 2015 and 2014
2. SIGNIFICANT ACCOUNTING POLICIES, continued:
CONTRIBUTIONS, REVENUE, AND EXPENSES, continued Contributions are recorded when made, which may be when cash is received, unconditional promises are made, or ownership of other assets is transferred to the University. Gifts of cash and other assets are recognized as restricted contributions if they are received with donor stipulations that limit the use of the donated assets. When a stipulated time restriction ends or purpose restriction is accomplished, temporarily restricted net assets are reclassified to unrestricted net assets and reported in the consolidated statements of activities as net assets released from restrictions.
The University reports gifts of property and equipment as unrestricted support unless explicit donor stipulations specify how the donated assets must be used. Gifts of long-lived assets with explicit restrictions that specify how the assets are to be used and gifts of cash or other assets that must be used to acquire long- lived assets are reported as restricted support. Absent explicit donor stipulations about how those long-lived assets must be maintained, the University reports expirations of donor restrictions when the donated or acquired long-lived assets are placed in service.
Auxiliary services consist primarily of food services income and housing fees. These amounts are recorded when earned, which is when refunds are no longer available. Other income consists primarily of event revenue from the Soderquist Center for Leadership and Ethics, health club memberships, missions trip revenue, and other miscellaneous income. Other income is recorded when earned. Federal and state governmental grants consist of tuition aid received from federal or state governments. Federal and state governmental grants are recognized when earned, which is when they are received. The allowable endowment spendable and the endowment income, net of spending is the investment income earned on endowment assets during the year and is recognized as income when earned.
Expenses are recognized when an obligation is incurred.
ADVERTISING COSTS Advertising costs for the years ended June 30, 2015 and 2014 of $983,765 and $1,003,091, respectively, are expensed as incurred and included in the consolidated statements of activities.
OPERATING AND NON-OPERATING ACTIVITIES The activity of the University has been reported in the consolidated statements of activities in the following two categories: operating and non-operating. Operating includes the core educational activities of the organizations. Non-operating includes all other activity that is not considered to be "core educational," such as contributions restricted for capital projects, actuarial adjustment for certain split interest agreements, and endowment income, net of spending.
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Notes to Consolidated Financial Statements
June 30, 2015 and 2014
2. SIGNIFICANT ACCOUNTING POLICIES, continued:
FUNCTIONAL ALLOCATION OF EXPENSES Note 14 presents expenses by functional classification in accordance with the overall mission of the University. Each functional classification displays most expenses related to the underlying natural classification. Depreciation expense (stated separately) is allocated based on square footage occupancy in the functional expense note. Interest expense on external debt is allocated to the functional categories which have benefited from the proceeds of the external debt. Plant operations and maintenance (stated separately) represents space-related costs which are allocated to the functional categories directly and/or based on the square footage occupancy. Fund-raising costs for the years ended June 30, 2015 and 2014, of $1,698,644 and $1,650,425, respectively, are included in institutional support. The University had no identified joint costs for the years ended June 30, 2015 and 2014.
UNCERTAIN TAX POSITIONS The financial statement effects of a tax position taken or expected to be taken are recognized in the consolidated financial statements when it is more likely than not, based on the technical merits, that the position will be sustained upon examination. Interest and penalties, if any, are included in expenses in the consolidated statements of activities. As of June 30, 2015, the University had no uncertain tax positions that qualify for recognition or disclosure in the financial statements.
The University is generally no longer subject to U.S. federal and state income tax examinations by tax authorities for years before 2012.
3. INVESTMENTS: Investments with trustees, including deposits, consist of:
June 30, 2015 2014
Bonds $ 4,198,919 $ 8,248,467 Certificates of deposit and cash equivalents 6,424,232 2,522,329 Mutual funds 563,730 1,149,904 Real estate 17,000 17,000
$ 11,203,881 $ 11,937,700
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Notes to Consolidated Financial Statements
June 30, 2015 and 2014
3. INVESTMENTS, continued: As of June 30, 2014, the University held a line of credit with a financial institution with $1,645,000 available, which was secured by investments with trustees. The line of credit bore interest at a rate of 1.8% plus LIBOR and expired on October 31, 2014. There were no draws on this line of credit during the year ended June 30, 2015.
4. CONTRIBUTIONS RECEIVABLE: Unconditional promises to give are included in the consolidated financial statements as contributions receivable and revenue of the appropriate net asset category. Contributions receivable are recorded after discounting to the present value of the future cash flows. A discount rate of 1.63% and 2.27% was used at June 30, 2015 and 2014, respectively. Contributions receivable expected to be realized in the following periods are:
June 30, 2015 2014
One year or less $ 2,595,863 $ 6,401,134 Between one year and five years 712,750 1,982,355 Less: present value discount (20,069) (71,048) Less: allowance for uncollectible promises (80,034) (49,380)
$ 3,208,510 $ 8,263,061
Contributions receivable are for the following purposes:
June 30, 2015 2014
Endowments/programming $ 1,998,045 $ 4,048,229 Building construction 1,310,568 4,335,260 Less: discount and allowance for uncollectible promises (100,103) (120,428)
$ 3,208,510 $ 8,263,061
The University also receives a Student Support Services (SSS) grant of $220,000 annually for five years from the U.S. Department of Education. Funding began during the year ended June 30, 2011. No receivable was recorded for the remaining years as there are several conditions that must be met each year to receive the funding. SSS focuses on low-income students, first-generation college students, and students with disabilities. B-21
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Notes to Consolidated Financial Statements
June 30, 2015 and 2014
4. CONTRIBUTIONS RECEIVABLE, continued: On November 26, 2012, the University was informed that a foundation had approved a new five-year challenge grant to raise new funds for endowments. The grant will match dollar for dollar current gifts as they are received or irrevocable deferred gifts as they are completed up to $1,000,000 annually for a five year period. If the University raises less than $1,000,000 allocated each year, the balance of the challenge will be carried over to the following years, until the full $5,000,000 is matched within the five-year challenge term. The matched funds will be placed into scholarship funds, plus other endowed programs as outlined in the proposal. One of the conditions of the match is that the matched endowment funds will be subject to a spending policy of no more than five percent of the market value of the funds unless the University Board amends its spending policy. The University received matching funds of no less than $1,000,000 for the year ended June 30, 2015. The remaining balance of the grant for approximately $2,000,000 has not been recorded as a contribution receivable because it is contingent upon future events.
The University also received a grant of approximately $724,400 per year for three years from the U.S. Department of Health and Human Services. Funding for Northwest Arkansas Healthy Marriages was provided by The U.S. Department of Health and Human Services (US DHHS), The Administration for Children and Families (ACF), Office of Family Assistance (OFA), Grant: 90FM0023. Funding began during the year ended June 30, 2012. No receivable was recorded for the remaining months, as there are several conditions that must be met each year to receive the funding. The grant has been extended for one year through September 2015. The Center for Healthy Relationships (CHR) is responsible for administering this grant to support research and development of healthy marriages in Northwest Arkansas.
The Walton International Scholarship program began in the fall of 1985 and provides educational opportunities to students from Central America. The Walton Family Charitable Support Foundation, Inc., sole supporter of this program, has contributed gifts totaling approximately $35,638,000 since inception of the project. For the years ended June 30, 2015 and 2014, Central American students were brought to the University and educated for total project costs of $2,516,311 and $2,401,517, respectively. During the year ended June 30, 2012, $7,333,023 was pledged toward funding the project and the discounted value still outstanding of $427,841 and $2,844,952 as of June 30, 2015 and 2014, respectively, is included in contributions receivable, as all conditions of the pledge have been satisfied. In 2013, the University received a grant to provide support for the full four-year commitment of the Walton International Scholarship freshmen classes of 2013, 2014, and 2015. The grant will provide up to $9,146,497 based upon actual cost of the Walton International Scholars Program. The grant is contingent upon the Foundation's approval of the previous year's activities including expenditures of grant funds, the GPA of Walton International Scholars, participation in campus programs, graduation rates, and costs of the upcoming semester, and it has not been recorded as a contribution receivable because it is conditional upon future events.
B-22
-18- JOHN BROWN UNIVERSITY and AFFILIATES
Notes to Consolidated Financial Statements
June 30, 2015 and 2014
5. STUDENT LOANS: As an agent for the federal government, the University's program loan portfolio is guaranteed by the United States Department of Education. There are, therefore, no impaired loans, no nonperforming loans, and no modifications to loan terms executed by the University, because amounts that become old or past due are in due course turned back over to the Department of Education. At June 30, 2015 and 2014, approximately $1,486,685 and $1,540,457, respectively, of the Program's loans were outstanding. The allowance for possible loan losses of the Program approximates $73,550 as of June 30, 2015 and 2014. Institutional loan funds of $322,444 and $357,755 were outstanding as of June 30, 2015 and 2014, respectively, with allowances for possible loan losses of $52,690 as of June 30, 2015 and 2014. Funds advanced by the Federal government of $1,553,153 at June 30, 2015 are ultimately refundable to the government and are classified as liabilities in the consolidated statements of financial position.
The aging of the student loan portfolio by classes of loans as of June 30, 2015 is:
% of total Perkins Institutional Total loan portfolio
Good Standing Deferred $ 116,770 $ 29,515 $ H6,285 8% Not in Repayment 791,243 107,600 898,843 50% Repayment on Schedule 415,055 132,069 547,124 30% 1,323,068 269,184 1,592,252 88%
Past Due Not defaulted: Less than 240 days 52,139 7,918 60,057 4% Default: Greater than 240 days but less than 2 years 20,008 18,116 38,124 2% Default: Greater than 2 years but less than 5 years 74,192 23,882 98,074 5% Greater than 5 years 17,279 3,354 20,633 1% 163,618 53,270 216,888 12%
$ 1,486,686 $ 322,454 $ 1,809,140 100%
B-23
-19- JOHN BROWN UNIVERSITY and AFFILIATES
Notes to Consolidated Financial Statements
June 30, 2015 and 2014
5. STUDENT LOANS, continued: Changes in allowance for estimated losses on student loans in aggregate are:
June 30, 2015 2014
Beginning balance $ 126,240 $ 175,724 Loans charged off (49,484)
$ 126,240 $ 126,240
6. LONG-TERM INVESTMENTS: Long-term investments consist of:
June 30, 2015 2014
Mutual funds $ 68,854,358 $ 70,266,203 Private investment companies 12,772,236 10,104,249 Fixed income 7,507,402 3,605,296 Cash and cash equivalents 4,855,487 4,001,919 Private equity investments 3,639,921 2,819,536 Real estate 838,198 838,198 Oil and gas rights 798,344 965,806 Cash surrender value of life insurance 192,678 184,510 Artwork 57,317 57,317
$ 99,515,941 $ 92,843,034
Investments in Private Investment Companies— are valued by management in those companies at fair value utilizing the latest audited and unaudited financial statements provided by the underlying private investment companies, unless management of those companies determines that some other valuation is more appropriate.
The private investment companies have invested in certain securities whose values have been estimated by the management of the private investment companies in the absence of readily ascertainable market values. A majority of the remaining underlying assets of the private investments in investment companies are comprised of readily marketable securities, which are valued on a mark-to-market basis.
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-20- JOHN BROWN UNIVERSITY and AFFILIATES
Notes to Consolidated Financial Statements
June 30, 2015 and 2014
6. LONG-TERM INVESTMENTS, continued: Private Equity Investments — consist primarily of limited partnerships, and are recorded based on the proportionate share of the equity of the underlying investment vehicles, as reported. Net unrealized appreciation (depreciation) of investments is recorded based on the proportionate share of the aggregate amount of appreciation (depreciation) recorded by each underlying limited partnership. It includes a share of interest and dividend income, and realized and unrealized gains and losses on securities held by the underlying limited partnerships, net of operating expenses and fees by the general partner. Realized gains and losses are recognized on a cost recovery basis.
The University has committed a total of approximately $17,390,000 to various investment funds listed above. These amounts are due to a fund when the fund makes a capital call. Total capital calls, made and funded, as of June 30, 2015 were approximately $15,361,546.
Total investment income consists of:
Year Ended June 30, 2015 2014
Investment income from investments with fair value determined by quoted market prices: Dividend and interest income $ 2,184,136 $ 1,847,884 Net realized and unrealized gains (losses) (2,292,920) 10,561,981 Investment and broker fees (444,801) (349,965) (553,585) 12,059,900
Investment income from investments with fair value determined by other methods: Interest and rental income 493,927 1,034,347 Net realized and unrealized gains 972,761 217,446 Investment and broker fees (226,845) (158,742) 1,239,843 1,093,051
$ 686,258 $ 13,152,951
B-25
-21- JOHN BROWN UNIVERSITY and AFFILIATES
Notes to Consolidated Financial Statements
June 30, 2015 and 2014
6. LONG-TERM INVESTMENTS, continued: Total investment income consists of, continued:
Year Ended June 30, 2015 2014
Reported on consolidated financial statements: Allowable endowment spending $ 4,168,028 $ 3,896,922 Other investment income and gains (losses) (52,320) 570,400 Endowment income, net of spending (3,429,450) 8,685,629
$ 686,258 $ 13,152,951
7. FAIR VALUE MEASUREMENTS: The University uses appropriate valuation techniques to determine fair value based on inputs available. When available, the University measures fair value using Level I inputs because they generally provide the most reliable evidence of fair value. Level 3 inputs are only used when Level I or Level 2 inputs are not available.
The following table presents the fair value measurements of assets and liabilities recognized in the accompanying consolidated statements of financial position, which are measured at the fair value on a recurring basis, and the level within the fair value measurement hierarchy in which the fair value measurements fall:
Fair Value Measurements Using: Quoted Prices Significant in Active Other Significant Markets for Observable Unobservable Identical Assets Inputs Inputs Fair Value (Level I) (Level 2) (Level 3)
June 30, 2015: Investments with trustees: Bonds: Government bonds $ 2,400,785 $ 2,400,785 $ Corporate bonds 1,798,134 1,798,134 Mutual funds: Fixed income funds 563,730 563,730 Real estate 17,000 17,000 B-26
-22- JOHN BROWN UNIVERSITY and AFFILIATES
Notes to Consolidated Financial Statements
June 30, 2015 and 2014
7. FAIR VALUE MEASUREMENTS, continued:
Fair Value Measurements Using: Quoted Prices Significant in Active Other Significant Markets for Observable Unobservable Identical Assets Inputs Inputs Fair Value (Level 1) (Level 2) (Level 3)
June 30, 2015, continued: Charitable trust investments: Mutual funds: Equity mutual funds 990,351 990,351 Fixed income funds 290,875 290,875
Long-term investments: Mutual funds: Equity: International equity 30,138,957 30,138,957 - Growth equity 13,885,663 13,885,663 - Value equity 9,247,299 9,247,299 - Commodity equity 4,019,571 4,019,571 Small cap equity 1,779,106 1,779,106 Equity investment 1,058,037 1,058,037 Fixed income 8,725,725 8,725,725 Bonds: Corporate 3,755,478 3,755,478 Mortgage-backed 2,345,716 2,345,716 - Government 1,406,208 1,406,208 - Private investment companies: Fixed income hedge funds 6,842,038 - - 6,842,038 Equity hedge funds 4,632,096 - 4,632,096 Special opportunities 1,298,102 - 1,298,102 Private equity investments* 3,639,921 3,639,921 Real estate 838,198 - 838,198 Oil and gas rights 798,344 798,344 Cash surrender value of life insurance 192,678 - 192,678 B-27
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JOHN BROWN UNIVERSITY and AFFILIATES
Notes to Consolidated Financial Statements
June 30, 2015 and 2014
7. FAIR VALUE MEASUREMENTS, continued:
Fair Value Measurements Using: Quoted Prices Significant in Active Other Significant Markets for Observable Unobservable Identical Assets Inputs Inputs Fair Value (Level I) (Level 2) (Level 3)
June 30, 2014: Investments with trustees: Bonds: Corporate $ 5,660,454 $ 5,660,454 $ Government 2,588,013 2,588,013 Mutual funds: fixed income 1,149,904 1,149,904 Real estate 17,000 17,000
Charitable trust investments: Mutual funds: Equity mutual 1,075,502 1,075,502 Fixed income 248,914 248,914
Long-term investments: Mutual funds: International equity 31,876,580 31,876,580 Growth equity 12,911,062 12,911,062 Fixed income 9,113,175 9,113,175 Value equity 8,802,784 8,802,784 Commodity equity 4,868,348 4,868,348 Small cap equity 1,487,874 1,487,874 Equity investment 1,206,380 1,206,380 Fixed income: Corporate 1,550,085 1,550,085 Mortgage-backed 1,255,498 1,255,498 Government 799,713 799,713 Private investment companies: Fixed income hedge funds 6,544,838 6,544,838 Equity hedge funds 2,836,506 2,836,506 Special opportunities 722,506 506 72228
-24- JOHN BROWN UNIVERSITY and AFFILIATES
Notes to Consolidated Financial Statements
June 30, 2015 and 2014
7. FAIR VALUE MEASUREMENTS, continued:
Fair Value Measurements Using: Quoted Prices Significant in Active Other Significant Markets for Observable Unobservable Identical Assets Inputs Inputs Fair Value (Level I) (Level 2) (Level 3)
June 30, 2014, continued: Long-term investments, continued: Private equity investments* 2,819,536 2,819,536 Real estate 838,198 838,198 Oil and gas rights 965,806 965,806 Cash surrender value of life insurance 184,510 184,510
* Based on its analysis of the nature and risk of these investments, the University has determined that presenting them as a single class is appropriate.
Valuation techniques: Fair values for mutual funds, equities, and bonds are determined by reference to quoted market prices and other relevant information generated by market transactions. Fair value for the cash surrender value of life insurance policies is based on the University's share of the cash surrender value of the respective life insurance policy as represented by the insurance company. Investments in private investment companies, real estate, private equity companies, and oil and gas rights are valued using level 3 inputs. The underlying investments in real estate are generally valued using a mixture of external and internal appraisals, based on current market information available for comparable properties. Private investment companies are valued at monthly NAV, calculated by an independent administrator. For private equity investments, managers seek public market comparables of companies of similar industry, size, and product mix and determine an applicable valuation multiple, generally of EBITDA, which is then applied to the portfolio holdings to determine a total portfolio value. External purchase or sale offers or subsequent financings are also incorporated into the process for determining valuation and tend to be more prevalent in venture capital where public comparables are more difficult to find and apply. For oil and gas rights, a multiple of four times the oil and gas net income for the period was used for valuation. The non-producing mineral interests are valued by multiplying the net mineral acres by the most common lease bonus dollars reported by the Lierle U. S. Price Report for May-June 2014.
Changes in valuation techniques: None.
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-25- JOHN BROWN UNIVERSITY and AFFILIATES
Notes to Consolidated Financial Statements
June 30, 2015 and 2014
7. FAIR VALUE MEASUREMENTS, continued: The University has a number of financial instruments, consisting of investments, accounts receivable, property held for sale, and bonds payable. None of the financial instruments are held for trading purposes. At June 30, 2015 and 2014, the University estimates the fair value of these financial instruments does not materially differ from the aggregate carrying values of its financial instruments recorded in the accompanying consolidated statements of financial position.
The following tables provide further details of the Level 3 fair value measurements:
Oil and Gas Private Private Rights and Equity Investment Limited Investments Real Estate Companies Partnerships
Year Ended June 30, 2015
Beginning balance $ 2,819,536 $ 855,198 $ 10,104,249 $ 965,806 Transfers into Level 3 - - 1,800,000 Total gains and losses (realized and unrealized) 1,112,914 - 373,112 (167,469) Purchases 358,194 - 850,641 Issuances (650,723) (355,759) Sales - -
Ending balance $ 3,639,921 $ 855,198 $ 12,772,243 $ 798,337
Year Ended June 30, 2014
Beginning balance $ 3,054,781 $ 846,198 $ 7,516,14 $ 837,182 Total gains and losses (realized and unrealized) 2,594 (51,061) 41,887 M4,934 Purchases 315,730 180,000 2,176,248 Issuances (553,569) - (16,310) Sales (H9,939)
Ending balance $ 2,819,536 $ 855,198 $ 10,104,249 $ 965,806
Losses (realized and unrealized) related to private investment companies, limited partnerships, real estate funds, and oil and gas rights are reported in the allowable endowment spending or endowment income.B_30
-26- JOHN BROWN UNIVERSITY and AFFILIATES
Notes to Consolidated Financial Statements
June 30, 2015 and 2014
7. FAIR VALUE MEASUREMENTS, continued: The University uses the NAV to determine the fair value for all hedge funds which (a) do not have a readily determinable fair value and (b) prepare their financial statements consistent with the measurement principles of an investment company or have attributes of an investment company. The following table lists investments in other investment companies (in partnership format) by major category at June 30, 2015.
Redemption Fair Value $ Amount Timing to Restrictions Investment Determined of Unfunded Draw Down Redemption Redemption In Place Category Strategy Using NAV Commitments Commitments Terms Restrictions at Year End
Hedge (a) $ 6,842,045 $ (b) (c) (d) No Funds
Hedge (e) 4,632,096 (b) (c) (d) No Funds
Special (t) 1,298,102 473,111 (o) (p) (q) (r) Opport.
Private (f) 719,060 142,500 (g) (h) (i) (j) Equity
Private (k) 1,040,941 375,750 (I) (h) (j) Equity
Private (m) 734,965 40,000 (1) (h) (i) (j) Equity
Private (n) 634,689 977,093 (o) (p) (q) (r) Equity
Private (s) 510,266 20,000 (1) (h) (i) (j) Equity
$ 16,412,164 $ 2,028,454
(a) Achieve risk-adjusted returns with low volatility and low correlation to both the equity and fixed income markets (b) Funded at time of investment (c) With 60 days notice prior to redemption on December 31 or last day of calendar quarter (d) The fund may adopt a deferred redemption system if illiquid investments do not reasonably permit immediate realization (e) Maximize risk-adjusted returns and achieve low correlation to the equity markets
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-27- JOHN BROWN UNIVERSITY and AFFILIATES
Notes to Consolidated Financial Statements
June 30, 2015 and 2014
7. FAIR VALUE MEASUREMENTS, continued:
(f) Generate superior long-term return through private equity investment in real estate and natural resources (g) 7 days advance notice until commitment is met (h) By consent of general partner (i) Restricted by regularly rules for private placement and the availability of cash to meet the general obligations of the limited partnership (j) Normal consent of general partner (k) Generate superior long-term return through diversified private equity investment in buyouts, venture capital, special situations and secondaries (1) 5 days advance notice until commitment is met (m) Generate superior long-term return through private equity investments in venture and buyouts (n) Realize attractive long-term total return by investing in private equity funds that in turn invest in a variety of private equity disciplines (o) Funded upon call until commitment is met (p) By consent of fund manager (q) The fund does not contemplate having assets available to fund redemptions prior to liquidation of the fund. (r) Normal consent of fund manager (s) Generate superior long-term return through secondary private equity investments in venture and buyouts (t) Realize attractive long-term total return by investing in opportunistic investments in a broad universe of investment opportunities.
B-32
-28- JOHN BROWN UNIVERSITY and AFFILIATES
Notes to Consolidated Financial Statements
June 30, 2015 and 2014
8. PROPERTY, PLANT, AND EQUIPMENT—NET: The following is a summary of the property, plant, and equipment at cost, or amounts recorded at dates of gift, less accumulated depreciation.
June 30, 2015 2014
Land $ 242,691 $ 242,691 Building and improvements 123,325,418 117,316,527 Equipment 16,945,896 15,879,839 Library books 1,281,827 1,257,193 141,795,832 134,696,250 Less accumulated depreciation (56,121,428) (51,900,699) 85,674,404 82,795,551 Construction in progress 356,415 5,639,526
$ 86,030,819 $ 88,435,077
Depreciation is computed using the following estimated useful lives:
Buildings 40-50 years Building improvements 15-25 years Equipment 3-10 years Library books 10 years
9. FEDERAL FINANCIAL ASSISTANCE: The federal government awards the University various monies restricted for student financial aid. The monies are awarded through three federal programs: Pell Grant (Pell), Federal Supplemental Educational Opportunity Grant (FSEOG), and Federal Work Study (FWS).
Pell provides eligible students a foundation of financial aid to assist with defraying the costs of post-secondary education. Because the grants are classified as pass-through grants in the amount of $2,745,693 and $2,705,593 for the years ending June 30, 2015 and 2014, respectively, they are excluded from income and expense on these consolidated statements.
The FSEOG program provides need-based grants to low income undergraduate students to promote access to post-secondary education. The University received and disbursed $87,036 and $60,975 of FSEOG awards during the years ended June 30, 2015 and 2014, respectively.
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-29- JOHN BROWN UNIVERSITY and AFFILIATES
Notes to Consolidated Financial Statements
June 30, 2015 and 2014
9. FEDERAL FINANCIAL ASSISTANCE, continued: The FWS program provides part-time employment to students who need the earnings to help meet their post- secondary education costs. The program is also intended to broaden the range of worthwhile job opportunities to qualified students. The University received and disbursed $149,454 and $152,434 of FWS awards during the years ended June 30, 2015 and 2014, respectively.
10. BONDS PAYABLE: Bonds payable are comprised of:
Amount Interest June 30, Authorized Rates 2015 2014 Series 2002 bonds (a) $ 2,445,000 2.00% - 4.50% $ Series 2009 bonds (b) 9,540,000 2.00% - 4.60% 7,905,000 8,270,000
$ 11,985,000 $ 7,905,000 $ 8,270,000
(a) On June 1, 2002, the Facilities Board issued $2,455,000 in Refunding Revenue Bonds (Series 2002), with an average interest rate of 3.25 percent. The University used the Series 2002 proceeds to advance refund $2,665,000 of outstanding Capital Improvement Revenue Bonds, Series 1995, and Series 1995B bonds with an average interest rate of 4.9 percent. The net proceeds of $2,455,000 (after payment of $58,227 in issuance costs and contingency of $3,126), plus an additional $182,486 of Series 1995 and 1995B monies released by defeasement were used to purchase U.S. government securities. Those securities were deposited in an irrevocable trust with an escrow agent to provide for all future debt service payments on the Series 1995 and 1995B bonds defeased on September 1, 2002. As a result, the Series 1995 and 1995B bonds are considered to be defeased, and the liability for those bonds has been removed from the consolidated financial statements. The Series 2002 bonds are payable annually through September 1, 2013. Interest is payable semiannually. During the year ended June 30, 2014, the bonds were paid in full.
(b) On December 1, 2009, the Facilities Board issued $9,540,000 in Refunding Revenue Bonds (Series 2009), with an average interest rate of 3.30%. The University used the Series 2009 proceeds to advance refund $8,535,000 of outstanding Capital Improvement Revenue Bonds, Series 2000 bonds with an average interest rate of 4.85%, to fund a debt service reserve and pay the bond issuance costs. The net proceeds of $8,950,930 (after an original issue discount of $78,189, payment of $165,400 in issuance costs, $3,406 for contingency, and funding of a debt service reserve fund deposit of $342,075) were used to purchase U.S. government securities. Those securities were deposited in an irrevocable trust with an escrow agent to provide for all future debt service payments on the Series 2000 bonds defeased on December 1, 2010. As a result, the Series 2000 bonds are considered to be defeased, and the liability for those bonds has been removed from the consolidated financial statements of the University. The Series 2009 bonds are payable annually through September 1, 2030. Interest is payable semiannually and are secured by pledged tuition and fee revenues from the University. B-34
-30- JOHN BROWN UNIVERSITY and AFFILIATES
Notes to Consolidated Financial Statements
June 30, 2015 and 2014
10. BONDS PAYABLE, continued: (b) The agreements between the University and the issuers of the various bonds provide for the establishment and maintenance of various special funds under the control of the trustee for the bonds.
Annual debt maturities are:
Year Ending June 30, 2016 $ 375,000 2017 385,000 2018 395,000 2019 410,000 2020 420,000 Thereafter 5,920,000
$ 7,905,000
The University was in compliance with, or had received waivers for, all bond covenants as of June 30, 2015.
11. CHAPMAN TRUSTS: The University is one of seven educational and charitable organizations designated to receive income from three charitable trusts established by Mr. and Mrs. James A. Chapman. From inception of the trusts, the trustee (a board member of the University), who has discretionary powers as to distribution, has distributed the maximum percentage (five percent) to the University. During the fiscal years ended June 30, 2015 and 2014, the University received $3,049,969 and $2,886,062, respectively, from the Chapman Trusts.
12. RETIREMENT PLAN: The University participates in the Teachers' Insurance and Annuity Association - College Retirement Equities Fund (TIAA-CREF), which is a defined contribution plan under code 403(b). Under the qualified retirement plan, employee authorized payroll deductions are remitted to TIAA-CREF. Employer matching contributions to these retirement programs for the years ended June 30, 2015 and 2014 totaled $1,231,534 and $1,1178,334, respectively.
13. MEDICAL BENEFIT PLANS: The University provides major medical and dental benefits through a partially self-funded health insurance plan for all eligible employees. The plan provides an aggregate stop loss point of 125 percent of expected claims, which is calculated annually by the insurance company. The plan also provides specific stop loss coverage of $130,000 per covered individual per year. Employer contributions to the plan for the years ended June 30, 2015 and 2014, were approximately $2,100,099 and $2,039,068, respectively.
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-31- JOHN BROWN UNIVERSITY and AFFILIATES
Notes to Consolidated Financial Statements
June 30, 2015 and 2014
14. FUNCTIONAL EXPENSES: The expenses of the University are classified in the following functional categories:
Year Ended June 30, 2015 Operation and Maintenance Functional Department of Plant Depreciation Total
Program services: Instruction $ 13,628,847 $ 1,503,858 $ 1,620,835 $ 16,753,540 Student services 7,465,814 701,357 576,378 8,743,549 Auxiliary services 2,667,789 2,135,581 1,412,467 6,215,837 Academic support 4,891,654 336,319 249,511 5,477,484 Public service 4,221,657 157,738 143,290 4,522,685 32,875,761 4,834,853 4,002,481 41,713,095 Supporting activities: Institutional support 7,752,240 383,206 293,564 8,429,010
$ 40,628,001 $ 5,218,059 $ 4,296,045 $ 50,142,105
Year Ended June 30, 2014 Operation and Maintenance Functional Department of Plant Depreciation Total
Program services: Instruction $ 12,751,804 $ 1,523,663 $ 1,552,098 $ 15,827,565 Student services 7,423,908 695,547 555,868 8,675,323 Auxiliary services 2,676,546 1,889,380 1,124,204 5,690,130 Academic support 4,743,318 284,453 284,097 5,311,868 Public service 3,939,551 149,371 158,195 4,247,117 31,535,127 4,542,414 3,674,462 39,752,003 Supporting activities: Institutional support 7,566,857 378,334 296,823 8,242,014
$ 39,101,984 $ 4,920,748 $ 3,971,285 $ 47,994,017
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-32- JOHN BROWN UNIVERSITY and AFFILIATES
Notes to Consolidated Financial Statements
June 30, 2015 and 2014
15. NET ASSETS: Net assets consist of:
June 30, 2015 2014
Unrestricted net assets: Undesignated $ 7,960,037 $ 5,419,978 Quasi-endowment net assets 15,908,482 10,862,330 Net investment in property, plant, and equipment 78,125,819 79,960,560
$ 101,994,338 $ 96,242,868
Temporarily restricted net assets: Endowment income $ 6,639,265 $ 13,568,990 Contributions held for building 8,042,294 4,260,748 Contributions receivable for building activities 1,218,357 4,252,922 Contributions receivable for instruction 2,721,741 4,010,139 Contributions held for scholarships 24,628 1,511,798 Trust net assets 511,247 570,904 Contributions held for radio station 574,762 531,285 Other purpose and time restricted funds 921,247 85,223
$ 20,653,541 $ 28,792,009
Permanently restricted net assets: Scholarships $ 39,308,487 $ 35,885,526 Instruction 30,132,502 27,144,733 Building endowment 5,640,660 5,640,660 Trust net assets 2,229,085 2,362,435 Property 250,003 2,045,839 Other 871,512 453,539
$ 78,432,249 $ 73,532,732
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-33- JOHN BROWN UNIVERSITY and AFFILIATES
Notes to Consolidated Financial Statements
June 30, 2015 and 2014
16. ENDOWMENT FUNDS: The State of Arkansas enacted the Uniform Prudent Management of Institutional Funds Act of 2006 (UPMIFA) effective February 26, 2009, the provisions of which apply to endowment funds existing on or established after that date. The board has determined that the University's permanently restricted net assets meet the definition of endowment funds under UPMIFA.
The University's endowment consists of approximately 300 individual funds established for a variety of purposes. Its endowment includes both donor-restricted endowment funds and funds designated by the board to function as endowments. As required by accounting principles generally accepted in the United States of America, net assets associated with endowment funds, including funds designated by the board to function as endowments, are classified and reported based on the existence or absence of donor-imposed restrictions.
The board of trustees of the University has interpreted the Uniform Prudent Management of Institutional Funds Act (UPMIFA) as requiring the preservation of the fair value of the original gift as of the gift date of the donor- restricted endowment funds absent explicit donor stipulations to the contrary. As a result of this interpretation, the University classifies as permanently restricted net assets (a) the original value of gifts donated to the permanent endowment, (b) the original value of subsequent gifts to the permanent endowment, and (c) accumulations to the permanent endowment made in accordance with the direction of the applicable donor gift instrument at the time the accumulation is added to the fund. The remaining portion of the donor-restricted endowment fund that is not classified in permanently restricted net assets is classified as temporarily restricted net assets until those amounts are appropriated for expenditures by the organization in a manner consistent with the standard of prudence prescribed by UPMIFA. In accordance with UPMIFA, the University considers the following factors in making a determination to appropriate or accumulate donor-restricted endowment funds:
1. The duration and preservation of the endowment fund; 2. The purposes of the institution and the endowment fund; 3. General economic conditions; 4. The possible effect of inflation or deflation; 5. The expected total return from income and the appreciation of investments; 6. Other resources of the institution; and 7. The investment policy of the institution.
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-34- JOHN BROWN UNIVERSITY and AFFILIATES
Notes to Consolidated Financial Statements
June 30, 2015 and 2014
16. ENDOWMENT FUNDS, continued: Endowment net asset composition by type of fund as of June 30, 2015:
Temporarily Permanently Unrestricted Restricted Restricted Total
Donor restricted endowment funds $ - $ 6,639,265 $ 78,432,249 $ 85,071,514 Board-designated endowment funds 15,908,482 - 15,908,482
Total endowment funds $ 15,908,482 $ 6,639,265 $ 78,432,249 $ 100,979,996
Changes in endowment net assets for the year ended June 30, 2015:
Temporarily Permanently Unrestricted Restricted Restricted Total
Endowment net assets, July 1, 2014 $ 10,862,330 $ 13,568,990 $ 73,532,732 $ 97,964,052
Investment return: Interest and dividend income - 1,669,371 1,669,371 Realized and unrealized losses (1,309,897) (1,309,897) Change in actuarial value (55,657) (15,726) (71,383) Total investment return 303,817 (15,726) 288,091
Contributions - - 6,011,867 6,011,867
Other changes: Transfers to create quasi- endowment funds 4,771,120 - - 4,771,120 Release of designation - (3,887,106) - (3,887,106) Transfers to satisfy donor intent 275,032 821,592 (1,096,624) 5,046,152 (3,065,514) (1,096,624) 884,014
Expenditure of endowment assets (4,168,028) (4,168,028)
Endowment net assets, June 30, 2015 $ 15,908,482 $ 6,639,265 $ 78,432,249 $ 100,979,996 B-39
-35- JOHN BROWN UNIVERSITY and AFFILIATES
Notes to Consolidated Financial Statements
June 30, 2015 and 2014
16. ENDOWMENT FUNDS, continued: Endowment net asset composition by type of fund as of June 30, 2014:
Temporarily Permanently Unrestricted Restricted Restricted Total
Donor restricted endowment funds $ $ 7,341,710 $ 68,506,738 $ 75,848,448 Board-designated endowment funds 10,862,330 - 10,862,330
Total endowment funds $ 10,862,330 $ 7,341,710 $ 68,506,738 $ 86,710,778
Changes in endowment net assets for the year ended June 30, 2014:
Temporarily Permanently Unrestricted Restricted Restricted Total
Endowment net assets, July 1, 2013 $ 10,862,330 $ 7,341,710 $ 68,506,738 $ 86,710,778
Investment return: Interest and dividend income 1,616,512 1,616,512 Realized and unrealized gains - 10,902,299 - 10,902,299 Change in actuarial value - 46,785 7,595 54,380 Total investment return 12,565,596 7,595 12,573,191
Contributions 2,577,005 2,577,005
Transfers to satisfy donor intent (2,441,394) 2,441,394
Expenditure of endowment assets (3,896,922) (3,896,922)
Endowment net assets, June 30, 2014 $ 10,862,330 $ 13,568,990 $ 73,532,732 $ 97,964,052
B-40
-36- JOHN BROWN UNIVERSITY and AFFILIATES
Notes to Consolidated Financial Statements
June 30, 2015 and 2014
16. ENDOWMENT FUNDS, continued: Funds with deficiencies: From time to time, the fair value of assets associated with individual donor-restricted endowment funds may fall below the level that the donor or UPMIFA requires the University to retain as a fund of perpetual duration. In accordance with GAAP, deficiencies of this nature that are reported in unrestricted net assets were $2,978,619 and $2,184,275, as of June 30, 2015 and 2014, respectively. These deficiencies resulted from unfavorable market fluctuations that occurred shortly after the investment of new permanently restricted contributions and continued appropriation for certain programs that were deemed prudent by the board.
Return objectives and risk parameters: The University's Endowment exists to provide student aid support to qualified students and to ensure that the quality of that education remains excellent in the eyes of peers, accrediting associations, regional and national ratings of like institutions by third parties, and among the University's publics. The long-term objective of the Endowment is to earn a return sufficient to preserve the purchasing power of the Endowment for generations to come, as well as to provide for current spending needs. As a result, the annual return should at least equal the annual sum of spending, inflation, administrative costs, and management fees. Actual returns in any given year may vary.
Strategies employed for achieving objectives: To satisfy its long-term rate-of-return objectives, the University relies on a total return strategy in which investment returns are achieved through both capital appreciation (realized and unrealized) and current yield (interest and dividends). The University targets a diversified asset allocation that places a greater emphasis on equity-based and alternative investments to assist in achieving its long-term return objectives within prudent risk constraints.
Spending policies and how the investment objectives relate to spending policy: the University has a policy of appropriating for distribution each year a percent of each endowment fund's average fair value measured over a five-year rolling period. A five year average unit market value is inferred for new gifts that have not been in the endowment for the full five years. The blended rate for the year ended June 30, 2015 was 4.89 percent. In establishing this policy, the University considered both the long-term expected return and the long-term objective to maintain the purchasing power of the endowment assets held in perpetuity, understanding that the short-run returns may fluctuate.
B-41 -37- JOHN BROWN UNIVERSITY and AFFILIATES
Notes to Consolidated Financial Statements
June 30, 2015 and 2014
17. RELATED PARTY TRANSACTIONS: The President of the University is on the board of a local financial institution where the University has multiple bank accounts, investment accounts, and access to a line of credit. A trustee of the University is also an executive of the financial institution. The total balance of the bank accounts and investment accounts held with this institution at June 30, 2015 and 2014 was $23,473,633 and $13,911,154, respectively. The line of credit available to the University as of June 30, 2015 and 2014 is a maximum amount of $2,000,000. The stated interest rate was 4.5% as of June 30, 2015. The agreement matures on August 15, 2015. Subsequent to the year ended June 30, 2015, the line of credit agreemnt was extended through September 2017. There were no outstanding amounts as of June 30, 2015 or 2014.
A member of the board of trustees is also a director of a separate financial institution when the University holds investment accounts. As of June 30, 2015 and 2014, the University held $524,639 and $3,348,760, respectively, with the financial institution.
18. SUBSEQUENT EVENTS: Subsequent events have been evaluated through the report date, which represents the date the financial statements were available to be issued. Subsequent events after that date have not been evaluated.
B-42
-38- APPENDIX C
FORM OF APPROVING OPINION
October , 2015
City of Siloam Springs, Arkansas Public Education Facilities Board (John Brown University) Siloam Springs, Arkansas John Brown University Siloam Springs, Arkansas Bank of the Ozarks, as trustee Little Rock, Arkansas Stephens Inc. Little Rock, Arkansas
$8,165,000 City of Siloam Springs, Arkansas Public Education Facilities Board (John Brown University) Refunding Revenue Bonds Series 2015
Ladies and Gentlemen We have acted as Bond Counsel in connection with the issuance and sale by the City of Siloam Springs, Arkansas Public Education Facilities Board (John Brown University) (the "Issuer") of $8,165,000 aggregate principal amount of its Refunding Revenue Bonds, Series 2015 (the "Series 2015 Bonds"). The Series 2015 Bonds are being issued pursuant to the provisions of the Constitution and laws of the State of Arkansas, including particularly Arkansas Code Annotated §§14-137-101 et seq. (1998 Repl. & Supp. 2013) (the "Act"), pursuant to a resolution adopted by the Issuer on September 23, 2015 (the "Bond Resolution"), and pursuant to an Indenture of Trust dated as of October 1, 2015 (the "Indenture"), between the Issuer and Bank of the Ozarks, Little Rock, Arkansas, as trustee (the "Trustee"). The Series 2015 Bonds are being issued for the purpose of (i) refunding $7,905,000 outstanding principal amount of the Issuer's Refunding Revenue Bonds, Series 2009 (the "Series 2009 Bonds"), (ii) funding a debt service reserve, and (iii) paying the costs of issuance of the Series 2015 Bonds. The Series 2009 Bonds were issued to refund a prior series of the Issuer's bonds originally issued to finance certain capital improvements to John Brown University, a four-year university located in the City of Siloam Springs, Arkansas, and owned and operated by John Brown University, an Arkansas nonprofit corporation (the "Corporation"). Pursuant to the terms and provisions of a Loan Agreement and Security Agreement dated as of October 1, 2015 (the "Agreement"), between the Issuer and the Corporation, the Issuer will loan the proceeds of the Series 2015 Bonds to the Corporation. Pursuant to the Agreement, the Corporation has granted a security interest to the Issuer in all student tuition and fee revenues received by the Corporation in connection with the operation of the University (the "Pledged Revenues"). As provided in the Indenture, bonds of other series ranking on a parity of security with the Series 2015 Bonds may be issued upon satisfaction of certain conditions set forth in the Indenture, and such bonds may vary in such manner as is provided and permitted in the Indenture. The Series 2015 Bonds are subject to optional and
C-1 extraordinary redemption prior to maturity at the times, in the manner and upon the terms provided in the Series 2015 Bonds and in the Indenture. Reference may be made to the Indenture and the Agreement for a detailed statement of the terms and conditions thereof and of the rights and obligations of the parties thereto. Reference is hereby made to the Indenture and to all indentures supplemental thereto for the provisions, among others, with respect to the nature and extent of the security for the Series 2015 Bonds and the terms upon which the Series 2015 Bonds are issued. Reference is made to an opinion of even date herewith of Conner & Winters, LLP, Fayetteville, Arkansas, Counsel to the Corporation, a copy of which is on file with the Trustee, with respect, among other matters, to the status, good standing and qualification to do business of the Corporation, the power of the Corporation to enter into and perform the Agreement, the due authorization, execution and delivery of the Agreement by the Corporation, and with respect to the Agreement being enforceable upon the Corporation. We have examined the law and such certified proceedings and other papers as we have deemed necessary to render this opinion. As to questions of fact material to our opinion, we have relied upon representations of the Issuer and the Corporation contained in the Indenture and the Agreement, respectively, the certified proceedings and other certifications of public officials furnished to us, and certifications furnished to us by or on behalf of the Corporation, without undertaking to verify the same by independent investigation. Based upon the foregoing, it is our opinion, under existing law, that: 1. The Issuer is duly created and validly existing as a body corporate and politic and public facilities board under the laws of the State of Arkansas. Pursuant to the Constitution and laws of the State of Arkansas, including particularly the Act, the Issuer has the power to adopt the Bond Resolution, to enter into and perform the Indenture and the Agreement, and to issue the Series 2015 Bonds. 2. The Bond Resolution has been duly adopted by the Issuer and is in full force and effect. 3. The Series 2015 Bonds have been duly authorized, executed, issued and delivered by the Issuer and are valid and binding limited obligations of the Issuer, payable solely from amounts received under the Agreement. 4. The Agreement and the Indenture have been duly authorized, executed and delivered by the Issuer and are valid and binding obligations of the Issuer enforceable in accordance with their respective terms. Pursuant to the Indenture, all right, title and interest of the Issuer in the amounts received by it from or in connection with the Agreement (except certain rights to indemnification and reimbursement) have been duly and legally assigned and pledged by the Issuer to the Trustee as security for the Series 2015 Bonds. 5. In order to secure its obligations pursuant to the Agreement, the Corporation has assigned and granted a security interest to the Issuer in the Pledged Revenues. 6. The Series 2015 Bonds are limited obligations of the Issuer. Neither the City of Siloam Springs, Arkansas, the State of Arkansas, nor any other political subdivision or agency of the State of Arkansas shall be obligated to pay the Series 2015 Bonds or the interest thereon, and neither the faith and credit nor the taxing power of the State of Arkansas, the City of Siloam Springs, Arkansas, nor any political subdivision or agency thereof is pledged to the payment of the principal of or interest on the Series 2015 Bonds. The Issuer has no taxing power. 7. Interest on the Series 2015 Bonds (including any original issue discount properly allocable to the Series 2015 Bonds) is excludable from gross income for federal income tax purposes. In addition, interest on the Series 2015 Bonds is not a specific preference item, although it is included in adjusted current earnings for purposes of the federal alternative minimum tax. The opinions described in the preceding sentences assume the accuracy of certain representations and compliance by the Issuer and the Corporation with covenants designed to satisfy the requirements of the Internal Revenue Code of 1986, as amended (the "Code"), that must be met subsequent to the issuance of the Series 2015 Bonds. Failure to comply with certain of such requirements could cause interest on the Series 2015 Bonds to be included in gross income for federal income tax purposes retroactive to the date of issuance of the Series 2015 Bonds. The Issuer and the Corporation have covenanted to comply with such requirements. The Series 2015 Bonds are "qualified tax-exempt obligations" within the meaning of Section 265(b)(3) of the Code, and, in the case of certain financial institutions (within the meaning of Section 265(b)(5) of the Code), a deduction is allowed for eighty percent (80%) of that portion of such financial institution's interest expense allocable to the Series 2015 Bonds. We express no opinion regarding other federal tax consequences arising with respect to the Series 2015 Bonds.
C-2 8. The Series 2015 Bonds and the interest thereon are exempt from all state, county and municipal taxes in the State of Arkansas. 9. The Series 2015 Bonds are exempt from registration pursuant to the Securities Act of 1933, as amended, and the Indenture is not required to be qualified under the Trust Indenture Act of 1939, as amended, in connection with the offer and sale of the Series 2015 Bonds. The obligations of the parties, and the enforceability thereof, with respect to the documents and other items described above are subject, in part, to the provisions of the bankruptcy laws of the United State of America and to other applicable bankruptcy, insolvency, reorganization, moratorium or similar laws relating to or affecting creditors' rights generally, now or hereafter in effect. Certain of the obligations, and the enforcement thereof, contained in the Indenture are also subject to general equity principles, which may limit the specific enforcement of certain remedies but which do not affect the validity of such item.
Very truly yours,
C-3