-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Fhl0+h0bjafDuoKUizBEtCojPAknxpJvfeGTePjivhRCGzx8D1V6eOidiw/2KEpO daE0L2afOSZNzj1Nq8Evbw== 0001079450-99-000003.txt : 19990419 0001079450-99-000003.hdr.sgml : 19990419 ACCESSION NUMBER: 0001079450-99-000003 CONFORMED SUBMISSION TYPE: SB-2/A PUBLIC DOCUMENT COUNT: 8 FILED AS OF DATE: 19990416 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BILTMORE GROUP OF LOUISIANA LLC CENTRAL INDEX KEY: 0001079450 STANDARD INDUSTRIAL CLASSIFICATION: OPERATORS OF APARTMENT BUILDINGS [6513] IRS NUMBER: 721423893 FILING VALUES: FORM TYPE: SB-2/A SEC ACT: SEC FILE NUMBER: 333-72379 FILM NUMBER: 99595580 BUSINESS ADDRESS: STREET 1: 507 TRENTON ST CITY: W MONROE STATE: LA ZIP: 71291 BUSINESS PHONE: 3183232115 MAIL ADDRESS: STREET 1: 507 TRENTON ST CITY: W MONROE STATE: LA ZIP: 71291 SB-2/A 1 FORM SB-2/A FOR THE BILTMORE GROUP OF LOUISIANA LLC REGISTRATION NO. 333-72379 ---------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM SB-2/A Registration Statement Under The Securities Act of 1933 THE BILTMORE GROUP OF LOUISIANA, L.L.C. (Name of small business issuer in its charter) Louisiana 8261 72-1423893 - --------------- --------------- -------------- (State or other (Primary Standard (I.R.S. Employer jurisdiction of Industrial Identification Number) incorporation or Classification Code organization) Number)
507 Trenton Street West Monroe, Louisiana 71291 (318) 323-2115 ----------------------- (Address and telephone number of principal executive offices) 507 Trenton Street West Monroe, Louisiana 71291 ----------------------- (Address of principal place of business or intended principal place of business) Joanne M. Caldwell-Bayles 507 Trenton Street West Monroe, Louisiana 71291 (318) 323-2115 ----------------------- (Name, address and telephone number of agent for service) Copies of communications to: Clay Carroll, Esq. 525 East Court Avenue Jonesboro, Louisiana 71251 (318) 259-4184 Michael G. Quinn, Esq. 5120 E Central Ste B Wichita, Kansas 67208 (316) 267-0377 William Martin MMR Investment Bankers, Inc. 550 North 159th Street East Suite 300 Wichita, Kansas 67230 (316) 733-5081 ----------------------- Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective. If this Form is filed to register additional securities for an offering pusuant to Rule 462(b) under the Securities Act, please check the following box and list the Securitis Act registration statement number of the earlier effective registration statement for the same offering. [_] If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. [x] If this Form is a post-effective amendment filed purusant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [_] CALCULATION OF REGISTRATION FEE ============================================================================== Proposed Proposed Title of Dollar maximum maximum securities amount offering aggregate being to be price per offering Amount of registered registered unit price (1) registration fee - ---------- ---------- --------- ---------- ---------- Co-First $9,900,000 100% $9,900,000 $3,000.00 Mortgage Bonds
============================================================================== (1) The securities to be offered may be purchased in amounts of $250 or more. THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. ============================================================================== THE BILTMORE GROUP OF LOUISIANA LLC. CROSS-REFERENCE SHEET PURSUANT TO PART I OF FORM SB-2/A
FORM SB-2/A ITEM PROSPECTUS CAPTION ----------------- ------------------ 1. Front of Registration Statement Front of Registration Statement; and Outside Front Cover Page of Outside Front Cover Page Prospectus. . . . . . . . . . . . 2. Inside Front and Outside Back Inside Front and Outside Back Cover Cover Pages of Prospectus . . . . Pages 3. Summary Information and Risk Prospectus Summary; Risk Factors Factors . . . . . . . . . . . . . 4. Use of Proceeds . . . . . . . . . Prospectus Summary; Sources and Uses of Proceeds 5. Determination of Offering Price Not Applicable 6. Dilution. . . . . . . . . . . . . Not Applicable 7. Selling Security Holders. . . . . Not Applicable 8. Plan of Distribution. . . . . . . Prospectus Summary; Underwriting 9. Legal Proceedings . . . . . . . . Legal Proceedings 10. Directors, Executive Officers, Management Promoters and Control Persons . . 11. Security Ownership of Certain Principal Owners of the Company Beneficial Owners and Management 12. Description of Securities . . . . Description of Bonds 13. Interest of Named Experts and Legal Matters; Experts Counsel . . . . . . . . . . . . . 14. Disclosure of Commission Not Applicable Position on Indemnification for Securities Act Liabilities. . . . 15. Organization within Last Five Not Applicable Years . . . . . . . . . . . . . . 16. Description of Business . . . . . Prospectus Summary; Risk Factors; Sources and Uses of Proceeds; Business; Management; Certain Transactions; Principal Owners of the Company; The Company's Plan of Operation; Financial Statements 17. Management's Discussion and Analysis of Plan of Operation . . The Company's Plan of Operation 18. Description of Property . . . . . Description of Property 19. Certain Relationships and Certain Transactions Related Transactions. . . . . . . 20. Market for Common Equity and Not Applicable Related Stockholder Matters . . . 21. Executive Compensation. . . . . . Management - Executive Compensation 22. Financial Statements. . . . . . . Financial Statements 23. Changes in and Disagreements Not Applicable with Accountants on Accounting and Financial Disclosure . . ============================================================================ Prospectus Dated , 1999 --------- The Biltmore Group of Louisiana, L.L.C. $9,900,000 of Co-First Mortgage Bonds The bonds will be issued by the Biltmore Group of Louisiana, L.L.C. We refer to ourselves as the Biltmore Group. We intend to develop, acquire and operate retirement and assisted living facilities in five separate cities, and the bonds will be issued in five series with each series applicable to a facility in a different city. The bonds will be secured by co-first mortgages with liens upon our five facilities and a pledge of our gross income and will be governed under the provisions of a trust indenture administered by the trustee. The bonds will be offered in denominations of $250 or any integral multiple of this amount, and will be fully registered bonds, without coupons. In offering the bonds, for each series we will require a minimum amount of bonds offered to be sold. As a result, funds received for the subscription of the bonds will be held in escrow until the minimum amount of bonds for any series are subscribed. The offering of a series of bonds is not contingent on the issue and sale of the other series of bonds. We do not intend to list the bonds on any securities exchange nor include them for quotation on any quotation system. We are offering the following series of bonds for sale:
Series 1999-I Series 1999-II Series 1999-III Principal Amount $1,800,000 $2,700,000 $1,800,000 Price $250 $250 $250 Underwriting Commission $108,000 $162,000 $108,000 Proceeds to the Biltmore Group $1,692,000 $2,538,000 $1,692,000
Series 1999-IV Series 1999-V Principal Amount $1,800,000 $1,800,000 Price $250 $250 Underwriting Commission $108,000 $108,000 Proceeds to the Biltmore Group $1,692,000 $1,692,000
- Each series of bonds requires a sale of a minimum of $400,000 in bonds, except for the Series 1999-II Bonds which require that at least $600,000 in bonds be sold. - Subject to the sale of the minimum amount of bonds, interest on such series of bonds accrues from the date of issuance, except that the interest on the Series 1999-II Bonds will accrue from the date of payment without regard to the minimum sale of such bonds. - The proceeds to the Biltmore Group do not include expenses and fees payable by and on behalf of the Biltmore Group, estimated at $35,000 for each series, except for the series 1999-II Bonds which is estimated to be $50,000. We have agreed with MMR Investment Bankers, Inc. that they will offer the bonds on a best efforts basis as our agent and will be paid a commission not to exceed six percent for all bonds sold subject to the sale of the minimum amount of bonds required for a particular series of bonds. In order to reach the minimum offering for any series of bonds, they may offer and sell bonds to the Biltmore Group and our affiliates, to themselves or to their affiliates. In addition to their commission, we have also agreed to pay them an investment banking fee of $128,700 for their assistance in connection with our offering of the bonds. See "Underwriting". The bonds involve a great deal of risk. Before you purchase any bonds, be sure you understand their structure and the risks. See "Risk Factors" beginning on page 6 of this prospectus for a discussion of those risks. Please note that these bonds: - Are not guaranteed or assured by any governmental agency; - Are not federally insured by the Federal Deposit Insurance Corporation; and - Are not rated by any recognized rating agency. Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense. We expect, subject to the sale of the minimum bonds of each series, to deliver the bonds in book-entry form through the trustee, Colonial Trust Company of Phoenix, Arizona, within thirty days from the date subscriptions for the bonds are received. MMR Investment Bankers, Inc. [Artist rendering of a facility of the Biltmore Group will go in this space] Prospectus Summary This summary contains a brief description of the bonds and other selected information from this prospectus. These brief descriptions are only intended to provide an overview to aid you in understanding and are qualified by the full descriptions in this prospectus. This summary does not contain all of the information that you need to consider in making an investment decision. To understand all of the terms of the offering, please carefully read the entire prospectus. Our Company The Biltmore Group is a Louisiana limited liability company that was recently formed through the efforts of Joanne M. Caldwell-Bayles who has experience in the development and operation of assisted living, retirement and memory disorder facilities. We were formed solely to construct, operate and own four assisted living facilities in the state of Louisiana and to acquire an existing facility in Arizona and convert it to a retirement living facility. We will maintain our executive offices at 507 Trenton Street, West Monroe, Louisiana, and our telephone number is (318) 323-2115. The Offering Bonds Offered. . . . . . We are offering $9,900,000 of co-first mortgage bonds in five series. Each series of bonds is allocated to a specific assisted living facility which we are going to construct or we have acquired. A co-first mortgage bond provides us that, in the event all of the bonds in a particular series are not sold, the remaining funds necessary to complete our construction or acquisition of a facility will be made through other lending institutions. We will give such lending institutions the same collateral that we do our bondholders so that each has a prior first mortgage on our properties. Series 1999-I. . . . . . These bonds will be: - Dated June 1, 1999; - Issued in the aggregate amount of $1,800,000,subject to a minimum sale of $400,000 in principal amount; - Used for the construction of an assisted living facility in Minden, Louisiana; - Will mature serially from December 1, 2000 through December 1, 2006; - $1,738,500 in principal amount of bonds will bear simple interest and $61,500 will bear interest compounded semi- annually; and - Interest on the bonds will be paid to you by the trustee by mail on each December 1 and June 1, until maturity, however, please note that interest that is compounded on any bond is payable at maturity. Series 1999-II . . . . . . These bonds will be: - Dated July 1, 1999; - Issued in the aggregate amount of $2,700,000, subject to a minimum sale of $600,000 in principal amount; 3 - Used for the acquisition of the retirement living facility in Oak Creek, Arizona; - Will mature on July 1, 2004; and - Interest on the bonds will be paid to you by the trustee by mail on each January 1 and July 1, until maturity. Series 1999-III. . . . . . These bonds will be: - Dated July 1, 1999; - Issued in the aggregate amount of $1,800,000, subject to a minimum sale of $400,000 in principal amount; - Used for the construction of an assisted living facility in Bastrop, Louisiana; - Will mature serially from January 1, 2000 through January 1, 2007; and - Will bear interest compounded semi-annually each January 1 and July 1 and is payable at maturity. Series 1999-IV . . . . . These bonds will be: - Dated August 1, 1999; - Issued in the aggregate amount of $1,800,000, subject to a minimum sale of $400,000 in principal amount; - Used for the construction of an assisted living facility in Farmerville, Louisiana; - Will mature serially from February 1, 2001 through August 1, 2004; - $1,718,750 in principal amount of the bonds will bear simple interest and $81,250 in principal amount will bear interest compounded semi-annually; and - Interest on the bonds will be paid to you by the trustee by mail on each February 1 and August 1, however, please note that interest that is compounded is payable at maturity. Series 1999-V. . . . . . These bonds will be: - Dated September 1, 1999; - Issued in the aggregate amount of $1,800,000, subject to a minimum sale of $400,000 in principal amount; - Used to for the construction of an assisted living facility in Natchitoches, Louisiana; 4 - Will mature serially from March 1, 2001 through September 1, 2004; - $1,718,750 in principal amount of the bonds will bear simple interest and $81,250 in principal amount will bear interest compounded semi-annually; and - Interest on the bonds will be paid to you by the trustee by mail on each March 1 and September 1, however, please note that interest that is compounded is payable at maturity. Bond Reserve Fund. . . . . . . We have agreed with the trustee that the trust indenture may provide for a bond reserve account which will be funded from the sale of four of the five series of bonds. This bond reserve account will be funded in the total amount of $537,000 once all of the bonds offered by us are sold. In the event that we fail to pay any principal or interest due on any of the bonds, the trustee may apply funds in this bond reserve account for such payments. Redemption . . . . . . . . . . We may redeem your bond at our option, in whole or in part, at any time before your bond matures. We will give you notice of our intent to redeem your bond. However, such redemption will be without any premium and will be made at the principal amount of your bond plus interest that has accrued on your bond. Security . . . . . . . . . . . The bonds will be secured by a first mortgage on the properties and their improvements. If any lending institution joins the funding of the construction, your bond will be secured as a co-first mortgage together with this other lending institution. According to our agreement with the trustee under the trust indenture, we have also pledged all the gross revenues from our facilities for the benefit of paying the principal and interest that are due under the bonds. Trust Indenture. . . . . . . . We have entered into an agreement with Colonial Trust Company of Phoenix, Arizona under a trust indenture which defines all of the rights, conditions and obligations which effect the issuance of the bonds. This agreement gives the trustee rights in order to protect the bondholders and to oversee our operations to assure our performance of our obligation under the bonds. Trustee. . . . . . . . . . . . Colonial Trust Company of Phoenix, Arizona. Financial Summary Since the Biltmore Group was formed, we have received contributions to our capital of $1,112,762 and through December 31, 1998, we have generated no revenues and incurred expenses of $24,117. At December 31, 1998, our total assets were $3,953,961 and our total liabilities were $2,174,025. 5 Risk Factors Some of the statements contained in this prospectus are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Exchange Act. The words "anticipate", "believe", "estimate", "may", "intend", "expect" and other similar expressions identify forward-looking statements. Actual results could differ materially from those suggested by these forward-looking statements. These forward-looking statements are based largely on our expectations and are subject to a number of risks and uncertainties, including: - Our limited sources of funds from which we may meet our obligations; - Economic factors, both generally and particularly in areas where we will operate our assisted living facilities; - The highly competitive nature of our business; - Failure to maintain occupancy levels in our facilities; - Regulatory limitations imposed on the operations of our assisted living facilities; and - Loss of qualified management and skilled personnel. Many of these factors are beyond our control. We have limited operating history upon which you may evaluate us. We formed the Biltmore Group on July 13, 1998. Since our formation, we have been involved in the acquisition of land and property and in some cases have commenced the initial preparation and construction for our assisted living facilities. We have had no significant revenues, and our expenses continue. Until our assisted living facilities are operational, which we generally believe to be a six month construction period, we will receive no revenues except for our acquired facility in Oak Creek which commenced operations in January of 1999 and has earned only nominal revenues. Even after construction is complete for all of our facilities, such revenues will be limited until occupancy reaches a stabilized level. If we do not generate adequate revenue from our facilities, our business, financial condition and operating results will be materially adversely affected. Our financing activities are primarily through the issuance of debt, and we are highly leveraged. In order for us to construct and acquire our facilities, we will borrow from lending institutions and issue the bonds offered in this prospectus. This use of borrowed funds will make the Biltmore Group highly leveraged. Though such leverage will allow us to construct and acquire our facilities without us providing a larger amount of capital, it will cause us to be highly obligated for the repayment of the principal and interest of such debt. Payment of principal and interest on the bonds will be highly dependent upon our revenues. From bond proceeds, we will utilize funds for payment of the first six months of principal and interest due you on your bond, regardless of the series of bonds in which you invest. After the first six months, our revenues from operations will be utilized for such purposes and for making the balloon payments due under the bonds on the final maturity dates. In the event that we cannot make adequate payments for the principal and interest on any of the bonds, we will be in default on such bonds and the trustee will exercise his duties under the trust indenture. Your bonds may be affected by a default in payment on other outstanding bonds. Each series of bonds according to the terms of the trust indenture are subject to an event of default. See "Description of Bonds - Events of Default". Should any such event occur and we are in default of the payment on one or more series of bonds and the default should continue for a period of thirty days, then, under the provisions of our trust indenture, the trustee may proceed to foreclose on the property applicable to the defaulted series of bonds, and the funds received will be first applied to the payment of these defaulted bonds. If any deficiency should remain for the payment of such bonds, our 6 trustee may declare the principal balance and accrued interest due on any or all of the other bonds that are outstanding. If we cannot cure the payment of such default, the trustee may then exercise its right of foreclosure on any or all of the property securing the bonds and apply the proceeds against the bonds on which a property is foreclosed, then for payment of all other bonds and, after this, as the trustee may determine in its discretion. As a result, a default on any series of bonds may affect the security of any other bonds outstanding even if they are not in default, and the determination of such bonds is left to the discretion of our trustee. See "Description of Bonds - Remedies of Default". A co-first mortgage presents special risks of which you should be apprised. We have obtained interim/construction loans for our five facilities. These loans are secured by co-first mortgages and will be reduced by proceeds received from the sale of our bonds. To the extent that such co-first mortgages remain outstanding with other lenders, any default on that lender's mortgage will grant such lender the right to exercise its collection, including possible foreclosure of such property secured by the defaulted mortgage. In such event, there is no assurance that we can obtain alternative financing on a timely basis in order to replace such interim loan or that such amount of bonds will be sold in order to pay off such interim loan. Further, there is no assurance that the sale of any such facility will produce proceeds sufficient to pay in full the interim lender and the applicable series of bonds. The enforceability of our trust indenture and certain of its terms and conditions may affect your investment in the bonds. Our bonds will be qualified to the extent that enforcement of their rights and remedies may be affected by other laws such as bankruptcy, insolvency or re-organization which are applicable to the rights and remedies of creditors and secured parties, thus affecting the rights of the trustee and the bondholders and their ability to make recovery of your investment as a result of such events. Additionally, our trust indenture has not been prepared to qualify under the Trust Indenture Act of 1939. Therefore, certain provisions such as the qualification of the trustee and its financial condition, remedies upon default, investments by the trustee and voting and notice provision contained in our trust indenture may not be the same as would be required under the Trust Indenture Act of 1939. The failure of us to incorporate these provisions in our trust indenture may limit your rights as a bondholder. The successful operation of our assisted living and retirement living facilities is affected by several factors applicable to senior care facilities, including: - Attracting a sufficient number of residents to achieve high levels of occupancy; - Competition from presently existing and operating facilities in our service areas; - Adoption of new legislation or regulation affecting the operation of our facilities and increasing our operating costs; - Establishment of wage, rent or price controls; - Availability and cost of liability, casualty and malpractice insurance; - Scarcity in personnel required for proper staffing; - Increase in utility costs; - Changes in tax, pension, social security or other laws and regulations affecting the provision of senior care and other services; and - Property risks such as fire or other casualty, condemnation, increase in property taxes, water and sewer rates and operating costs. You may have difficulty selling your bonds. The underwriter does not intend to make a market in the bonds, and the bonds will not be listed on any securities exchange. As a result, if you want to sell your bonds, you must locate a purchaser that is willing to purchase the bonds. You may not be able to sell your bonds when you want to do so, 7 or you may not be able to obtain the price that you wish to receive upon any sale of your bonds. Currently, there is no secondary market for the bonds. We cannot assure you that a secondary market will develop. The underwriter has advised us of matters that may affect its operations and this offering. The underwriter has related to us that it is a defendant in civil action brought by the Securities Commissioner of Kansas on behalf of the State of Kansas stemming from its participation in a series of church bond offerings of a single church. If the underwriter is unable to continue its business as a result of this litigation, then the underwriter will have to withdraw from its participation in this offering, and we will either have to terminate this offering or find another underwriter who is willing to participate in the sale of the bonds. Additionally, the underwriter has advised us that it has limited experience in the underwriting of debt securities in an initial public offering. There can be no assurance with the underwriter's lack of experience would not adversely affect this offering. The underwriter has made no commitment to purchase any of the bonds, but only to use its best efforts as our agent to offer for sale the bonds to the public. See "Underwriting". Our success is dependent on our key personnel who we may not be able to retain, and we may not be able to hire enough additional personnel to meet our staffing needs. We believe that our success will depend upon our continued employment of our management and technical personnel. If one or more members of our management were unable or unwilling to continue in their present positions, our business, financial condition and operating results could be materially adversely affected. Our management does not have employment agreements. We do carry key person life insurance on Ms.Caldwell- Bayles, but not on all of our management personnel. Our success also depends on having a highly trained senior care staff. We will need to hire such personnel as our business grows. A shortage of the number of these highly trained personnel could limit our ability to successfully operate our facilities. We have planned to expand our employee base and manage our anticipated growth. Competition for personnel, particularly for highly trained senior care personnel, is intense. Our business, financial condition and operations will also be materially adversely affected if we cannot hire and retain suitable personnel. The interests of our managing member may conflict with our interest and the interest of our bondholders. As a result of her ownership of the Biltmore Group, Joanne M. Caldwell-Bayles has dealt with us and with others on terms she has determined individually and has received fees and compensation directly and indirectly as a result of her ownership of the Biltmore Group and its affiliates. Such arrangements and amounts involved include: - Acquisition of land for one of our facilities resulting in a gain of $86,059 to an affiliate; - Construction contracts for four of our facilities and other related services resulting in the issuance of membership units of our company to an affiliate and our managing member amounting to $1,081,000; - A management agreement with our company by an affiliate which could amount, after the second full year of operations of our facilities, to an estimated $210,000 per year. None of these arrangements were determined in an arms length bargaining by Ms. Caldwell-Bayles, nor do we have any policy relating to future transactions to be on a basis as favorable as we could receive from unaffiliated third parties. See "Certain Transactions". We are subject to certain regulatory oversight. Our facilities in Louisiana will be required to conform to state regulations governing residential care for the elderly. Prior to our operation of such facilities, we must be licensed by the Louisiana Department of Social Services which generally requires us to maintain health and safety procedures. Once we have been licensed in Louisiana, we must maintain such licenses, and periodic inspections will be made by the State for such purposes. Any loss of a license would have a material adverse affect on our operations in Louisiana. Currently, there are no applicable Federal or Arizona regulations affecting the operation of our company and our facilities. 8 Sources and Uses of Proceeds The sources and anticipated uses of proceeds available after the issuance of the Series 1999-I, 1999-II, 1999-III, 1999-IV and 1999-V Bonds are set forth below. See "Description of Property - Financing of Facilities" and "Certain Transactions."
Series 1999-I Series 1999-II Bonds Bonds Minden project Oak Creek project Minimum Maximum Minimum Maximum Source of Proceeds: Gross Offering Proceeds $400,000 $1,800,000 $600,000 $2,700,000 Less Underwriting Concessions (24,000) (108,000) (36,000) (162,000) Less Other Offering Costs (35,000) (35,000) (50,000) (50,000) -------- --------- ------- --------- Net Offering Proceeds 341,000 1,657,000 514,000 2,488,000 ======== ========= ======= ========= Use of Proceeds: Fund Initial Operating Fund Payments 90,000 90,000 125,000 125,000 Retire Interim Loans 251,000 1,358,520 452,500 2,174,025 Fund Remaining Construction Costs 0 0 0 0 Fund Pre-Opening Costs 0 68,480 0 0 Retire Line of Credit 0 0 0 188,975 Fund Bond Reserve Account 0 140,000 0 0 -------- --------- ------- --------- Total Use of Proceeds 341,000 1,657,000 514,000 2,488,000 ======== ========= ======= =========
Series 1999-III Series 1999-IV Bonds Bonds Bastrop project Farmerville project Minimum Maximum Minimum Maximum Source of Proceeds: Gross Offering Proceeds $ 400,000 $1,800,000 $400,000 $1,800,000 Less Underwriting Concessions (24,000) (108,000) (24,000) (108,000) Less Other Offering Costs (35,000) (35,000) (35,000) (35,000) ---------- --------- ------- --------- Net Offering Proceeds 341,000 1,657,000 341,000 1,657,000 ========== ========= ======= ========= Use of Proceeds: Fund Initial Operating Fund Payments 90,000 90,000 90,000 90,000 Retire Interim Loans 1,220,000 1,358,520 251,000 1,330,000 Fund Remaining Construction Costs 0 132,000 0 22,000 Fund Pre-Opening Costs 0 75,000 0 75,000 Retire Line of Credit 0 0 0 188,975 Fund Bond Reserve Account 0 140,000 0 140,000 --------- --------- ------- --------- Total Use of Proceeds 341,000 1,657,000 341,000 1,657,000 ========= ========= ======= =========
Series 1998-V Bonds Natchitoches project Minimum Maximum Source of Proceeds: Gross Offering Proceeds $ 400,000 $1,800,000 Less Underwriting Concessions (24,000) (108,000) Less Other Offering Costs (35,000) (35,000) ---------- --------- Net Offering Proceeds 341,000 1,657,000 ========== ========= Use of Proceeds: Fund Initial Operating Fund Payments 90,000 90,000 Retire Interim Loans 251,000 1,450,000 Fund Remaining Construction Costs 0 0 Fund Pre-Opening Costs 0 0 Retire Line of Credit 0 0 Fund Bond Reserve Account 0 117,000 --------- --------- Total Use of Proceeds 341,000 1,657,000 ========= =========
The issue and sale of each series of bonds is not contingent on the issue and sale of the other series of bonds, and will be separately offered and sold and subject to minimum proceeds prior to being issued. The proceeds from each series will be allocated to a particular facility. The order in which the proceeds will be disbursed from each series appears in descending order on the previous page. For example, the net proceeds from the Series 1999-I Bonds will be disbursed in the following order and preference, assuming all of the Series 1999-I Bonds are sold: 1. To pay the underwriter's concessions up to $108,000 and related financing costs estimated at $35,000; 2. To fund the initial six month sinking fund payments up to $90,000; 3. To retire the interim loan in the amount of $1,358,520; 4. To fund pre-opening costs in the amount of $68,480; and 5. To fund the bond reserve account in the amount of $140,000. Subject to the sale of the minimum offering amounts, the underwriter will receive concession from the sale of the bonds as follows: - The underwriter will receive a concession of 6% on all bonds sold through a selling group agreement with another NASD member firm; - The underwriter will receive a concession of 5% on all bonds sold to clients of the underwriter; and - The underwriter will receive a processing fee of 1% of the face amount of each bond purchased by any person or entity who is currently not a client of the underwriter, but is affiliated with the Biltmore Group or referred to the underwriter by the Biltmore Group. Our other offering expenses payable as shown on the previous page are estimated at a total of $190,000 and are allocated among the five series of bonds. Offering expenses include an investment banking fee in the amount of $128,700 paid to the underwriter for its technical assistance offered in connection with the offering and $61,300 paid by us for legal fees, accounting fees, appraisal fees, recording fees, mortgage taxes, trustee's fees and other similar fees incurred in connection with this offering. The interim loan provided by First Republic Bank for the Minden project bears interest at a fixed rate of 9.20% per annum and matures on September 28, 1999. The interim loan provided by Church Loans for the Oak Creek project bears interest at a variable rate which is equivalent to 0.5% per annum in excess of the lowest rate designated as the "Prime Rate" of interest published by the Wall Street Journal, North Edition, under the heading "Money Rates." This loan matures May 20, 1999 unless extended. The interim loans provided by Church Loans for the Bastrop, Farmerville and Natchitoches projects bear interest at a variable rate which is equivalent to 1.50% per annum in excess of the lowest rate designated as the "Prime Rate" of interest published by the Wall Street Journal, North Edition, under the heading "Money Rates." The Bastrop loan matures November 24, 1999. The Farmerville and Natchitoches loans mature on February 25, 2000. Each of these interim loans have the option of being extended. These loans are secured by a co-first mortgage on the corresponding project that has been acquired or that will be built from the proceeds of the respective interim loan. The line of credit provided by First Republic Bank for the renovation of the Oak Creek project bears interest at a fixed rate of 9.75% per annum and matures November 30, 1999. A portion of the proceeds from the sale of the Series 1999-II Bonds will be used to retire this line of credit and accrued interest in an amount up to $188,975. 10 Our Business Our History The concept for the Biltmore Group and its affiliates began over ten years ago. Joanne Caldwell-Bayles, our managing member, visited her grandmother in a facility in Arizona which provided the same basic services as an assisted living center. Upon returning to Louisiana, Mrs. Caldwell-Bayles began the study of senior care, as it related to the care provided in assisted living facilities. At the time Mrs. Caldwell-Bayles started her studies, the demographics were not at a point in Northern Louisiana in which assisted living centers were a viable idea. As time passed, the aging population began to reach the stage in which assisted living centers would be necessary in the region. In 1994, Mrs. Caldwell-Bayles began the development of the first assisted living facility in West Monroe, Louisiana under the legal entity of The Arbor Group, L.L.C. In 1998, Mrs Caldwell-Bayles began the development of three additional facilities in Ruston, Bossier City and Shreveport, Louisiana under the legal entity of Senior Retirement Communities, Inc. Mrs. Caldwell-Bayles started to consider the expansion into other areas in Northern Louisiana and Central Arizona prior to the opening of the facilities in Ruston, Bossier City and Shreveport, Louisiana. She decided to build additional locations in Northern Louisiana at Minden, Bastrop, Farmerville and Natchitoches as well as acquire a facility in Oak Creek, Arizona. Accordingly, we were organized on July 13, 1998 as a Louisiana limited liability company for the purpose of developing, acquiring and operating retirement and assisted living facilities in Northern Louisiana and Central Arizona. We will conduct business as Arbor Retirement Community in Louisiana. In Arizona, we will conduct business as The Biltmore of Oak Creek. Our Form of Organization A limited liability company is a relatively new form of business organization designed to allow its owners, known as members, to allocate, participate and account for the profits, losses, and items of credit and deduction as if the business were a partnership, but which also provides its owners with the limited liability protection comparable to that enjoyed by the shareholders of a corporation. Our members are not personally liable for our debts, absent their execution of a personal guaranty of those debts, nor can our members be held liable for the negligent actions of our company. Our managing member is responsible for overseeing our operations. Our Business Concept and Clientele Our business concept is based on providing elderly residents in Northern Louisiana and Central Arizona with a broad range of cost-effective health care and personal support services, including assisted living and retirement living. Assisted Living. Assisted living care is an emerging segment of the long-term care industry serving the rapidly growing elderly population who may require assistance with the activities of daily living, such as dressing, bathing and eating. Our assisted living facilities are intended to provide privacy and companionship in a comfortable, secure, non-institutional living environments which are also designed to promote interdependence between the facilities' staff and the residents, all with the intent of providing a more positive lifestyle environment than that which has been historically available from other congregate care providers. Specifically, our assisted living facilities are designed to house elderly persons who do not require 24-hour skilled nursing care. For example, typical residents might include persons suffering from occasional memory loss, poor diet habits, arthritis or other infirmities by reason of which they would benefit from daily assistance and supervision. Retirement Living. Residents for independent living are usually seniors who maintain an independent lifestyle, but desire no longer to have the responsibility of ownership and maintenance of a family residence. Residents usually desire one or more meals which are provided by the facility. Activity programs are provided for residents, including water aerobics, exercise programs and other activities which foster good health. Most residents, if not all, will continue to own and operate their own automobiles. They will also continue to provide their own medical and medication maintenance, shopping and other activities which are expected of seniors who maintain good health. Some residents may 11 wish to travel extensively while maintaining a secure home base in which their possessions are protected while they are away. Operation of Our Assisted Living and Retirement Living Facilities Our Services. The general services provided to residents of our assisted living and retirement living facilities will include: - meals, - laundry, - housekeeping and - physical assistance. In addition, preventive health care programs, transportation, organized social activities and 24-hour security will also be provided. Our assisted living facilities will offer medication monitoring; our retirement living units will not offer this service. The residents will be responsible for their own personal purchases such as toothpaste, medical prescriptions, etc. Unlike nursing homes, however, contemplated services do not include around-the-clock skilled nursing care. Expenses of operating our facilities will be made up of a fixed costs and/or variable costs. Fixed costs will include debt service, management and core staff, essential utilities, insurance and taxes. Variable costs will include food costs, staffing, utilities and supplies to a small extent. The facilities will be able to handle emergencies only to the extent of calling a doctor or hospital in behalf of the resident. Should a resident require health care beyond that which the facilities can reasonably provide or assist, then a resident may be forced to move from our facilities. Our Pricing Structure. Our facilities will have living units priced in a range of $1,375 to $3,500 per month based on the type of accommodations and services provided. Residents are billed monthly for the services rendered. Medicare/Medicaid will not pay for a resident's stay at our facilities. The residents may realize additional costs if they require certain health supervision/services and meals for visitors. As the cost of living may increase, charges to the residents may also need to be adjusted. The residents will be required to pay a one-time entrance fee of approximately $500 to reserve their unit or apartment. The lease of the apartments by the residents will be on a month-to-month basis. Residents will be required to pay only for the months in which they are residents of the facility. Our Competition We will experience competition from other elderly housing and care providers. We will compete principally on the basis of perceived quality and service, ambiance and price-value relationship. While we believe that our facilities will be distinctive in design and operating concept, we are aware of other companies with similar or competitive concepts. The long-term care industry is highly competitive and we expect that it will become more competitive in the future. We compete with numerous other companies providing similar long-term care alternatives, such as home health agencies, life care at home, community-based service programs, retirement communities and convalescent centers. Nursing facilities that provide long-term care services are also a potential source of competition for us. There is no assurance that we will not encounter increased competition in the future which could limit our ability to attract residents and could have a material adverse effect on our financial condition, results of operations and prospects. The table on the next page indicates the number of units of existing competition in assisted living, retirement living, nursing home care and memory disorder for the five locations of our facilities. We gathered this information through in-house market research. Specifically, the research consisted of the following activities: - We contacted the state regulatory agencies governing assisted living, retirement living, nursing homes and memory disorder facilities to obtain a list of existing facilities in operation or those which were applying for licenses in each market area being studied. 12 - We contacted the local zoning departments, where zoning existed, to determine if any facilities were under development or expanding. - We searched the Internet for information about facilities in our market areas. - We obtained telephone books from each area and checked the yellow pages for any projects in the area. - We visited each community interviewing local businesses, political subdivisions and realtors about any companies looking at the area for possible senior care facility development. - We contacted each existing facility to determine number of units, occupancy and pricing. - We collected the population data by gathering information from the Census Bureau and local chambers of commerce. All of this information was compiled into a report for each market area. These reports were prepared in order for us to determine the need for assisted living and retirement living in Minden, Bastrop, Farmerville and Natchitoches, Louisiana and Oak Creek, Arizona. We have provided the underwriter with copies of these reports. The information in the following table was summarized from the reports . Summary of Our Existing Competition
1996-1997 1996-1997 Existing Existing Population Market Assisted Private-Pay 75 Years Potential Living Retirement and Older Units Living Units Location Minden Market Area 3,270 191 0 0 Bastrop Market Area 1,993 101 0 0 Farmerville Market Area 1,491 79 0 20 Natchitoches Market Area 2,011 121 0 0 Oak Creek Market Area 1,481 289 42 102
Existing Existing Nursing Memory Care Disorder Units Units Location Minden Market Area 528 0 Bastrop Market Area 614 0 Farmerville Market Area 455 0 Natchitoches Market Area 318 22 Oak Creek Market Area N/A 20
Market potential for assisted living as shown for the Minden, Bastrop, Farmerville and Natchitoches market areas is based on a national average of 7% of the seventy-five and over population less existing nursing home residents. This national average takes into consideration that approximately 50% of this senior population will remain at home or be taken care of by their family members. This national average also takes into consideration that approximately 25% of the target population will live in some form of institutional setting other than assisted or retirement living facilities. The market potential for retirement living as shown for the Oak Creek market area is based on a national average of 8.5% of the sixty-five and over population. The 65 years and older population in the Oak Creek market area is 3,398. Management Agreement On August 27, 1998, we entered into a management agreement with The Forsythe Group, Inc., a company owned and controlled by Joanne M. Caldwell-Bayles, our managing member and principal owner. The management agreement extends to each of our facilities to be financed as a result of the sale of the bonds. According to the terms of the management agreement, The Forsythe Group will perform all services incidental to the operation of our facilities, including: 13 - the hiring of employees, - collection of payments, - the paying of expenses, - receiving governmental permits and the compliance thereof, marketing, - preparing budgets, and - all general activities that are associated with the management of our facilities. The Forsythe Group will account to us as its agent for the services rendered. They will maintain operating receipt and expense accounts which are approved by us. Prior to the opening of any facility, The Forsythe Group will provide us with maintenance and operating expense projections, provide policies and procedure manuals, implement marketingplans, establish bookkeeping and accounting systems and identify inventory and equipment. The Forsythe Group will participate in final inspections of the facility before occupancy and will coordinate matters with the architect and contractor for each facility. The employees of each facility will be our employees. The Forsythe Group will have no authority to make any disbursement in excess of $15,000, unless specifically authorized by us, nor may they incur any liability, which would require more than one year of payment. We will pay to The Forsythe Group, $1,500 per month or seven percent of the gross collections of a facility, whichever is greater. Prior to the opening date of a facility, the Forsythe Group shall be entitled to receive $1,500 per month. The management agreement continues until January 1, 2010, and may be terminated by the mutual consent of the parties, for cause if The Forsythe Group shall fail to perform any of its duties according to the management agreement, or in the event of The Forsythe Group's bankruptcy. Other than matters regarding the operations of our facilities, The Forsythe Group has no authority over our conduct of affairs or our management and operation. We believe that the management agreement and its terms and conditions are the same or as similar to other management agreements generally made for the operation of health care facilities in the areas where our facilities will be located. Employees Currently, we have five full time employees. Prior to the commencement of operations of each facility, The Forsythe Group intends to employ an average of 10 employees at each facility. There is no assurance that The Forsythe Group will be able to obtain and maintain an adequate number of competent personnel, including entry-level and skilled positions, or that a shortage of operating personnel will not present a serious problem to us in the future. Government Regulation Currently, retirement and assisted living residences are not specifically regulated as such by the federal government. Our facilities will be subject to certain state regulations and licensing requirements. To conform with Louisiana's regulations governing residential care for the elderly, our facilities will be required to be licensed by the Louisiana Department of Social Services prior to the commencement of operations of the facilities. We will apply for such licenses and anticipate getting a temporary license upon completion of construction of each facility and a final license within 90 days after the issuance of the temporary license. The process for applying and obtaining a license with the Louisiana Department of Social Services requires that upon completion of construction of a facility, the State of Louisiana Fire Marshall conducts an inspection of the facility examining the safety issues and compliance with the Americans With Disabilities Act. In general, the Americans With 14 Disabilities Act requires businesses to accommodate the special needs of persons with certain types of disabilities. If the facility passes the inspection by the fire marshall, than a temporary license is granted that is effective for 90 days. Shortly after the fire marshall's inspection and the issuance of the temporary license, the Louisiana Department of Social Services conducts an inspection of the facility and reviews the administration procedures governing the operation of the facility. In addition to their inspection, the Department of Health and Hospitals inspects the facility for sanitation code compliance shortly after the fire marshall's inspection. Any deficiencies found during the Louisiana Department of Social Services or the Department of Health and Hospitals inspection must be resolved prior to the final license being granted by the Louisiana Department of Social Services. After the final license is granted, the facility may be subject to quarterly inspections by the Department of Health and Hospitals and annual inspections by the Louisiana Department of Social Services. The renewal of the license is granted by the Louisiana Department of Social Services upon receipt of the $75 annual licensing fee and satisfactory results from the aforementioned periodic inspections. The Oak Creek project is not required to be licenced by the State of Arizona for senior independent living facilities. In our opinion, the facilities that are being constructed in Louisiana and our facilities' management practices and operations will meet or exceed all residential care for the elderly regulations of the State of Louisiana. Failure on our part to receive and maintain the required licensing would have a material adverse effect on our financial condition and our ability to repay our debt. We are subject to the Fair Labor Standards Act, which governs such matters as minimum wage, overtime and other working conditions. A portion of our personnel will be paid at rates related to the federal minimum wage, and, accordingly, increases in the minimum wage will increase our labor costs. As regulations are enacted to enforce this law, we may be required in the future to adapt the design and format of our facilities or otherwise incur additional capital costs to comply with such law. Such costs could have an adverse effect on the operation of our facilities and our ability to function successfully. Environmental Matters Federal law imposes liability on a landowner for the presence on the premises of improperly disposed of hazardous substances. This liability is without regard to fault for, or knowledge of, the presence of such substances and may be imposed jointly or severally upon all succeeding landowners from the date of the first improper disposal. While state law is less onerous, the practical consequences may be the same. If in the future it is ever determined that hazardous substances are present, we could be required to pay all costs of any necessary clean up work, although under certain circumstances claims against other responsible parties could be made by us. Phase one environmental assessments were conducted on our properties from 1998 through 1999, except for the Oak Creek facility in which no environmental assessment has been conducted. Research and visual observation undertaken from the environmental assessments did not reveal any former or current environmental conditions, problems or situations impacting the sites. Description of Our Property Our Proposed and Existing Facilities We have acquired land in Northern Louisiana and a building in Oak Creek, Arizona. We have converted the improvements on the Arizona property to an independent living facility. We intend to construct assisted living facilities on the properties located in Northern Louisiana. Additional information about our properties is listed below. The Minden Project. This facility will be located on 5.72 acres of land on the North side of Germantown Road just South of Country Club Drive within the City of Minden, Louisiana. Selection of this site was based upon a location that was within an affluent residential neighborhood with limited assisted living and retirement living services. The Minden facility will have 25 assisted living units. Each of the assisted living units will have one or two bedrooms, small kitchenettes, private bathroom, closet and sitting areas. The facility will contain 22,217 square feet including 21 one 15 bedroom units, 4 efficiency units, one manager's apartment, common area amenities, a full service kitchen, dining area, activity area, office, reception area, bathrooms and storage areas. The Series 1999-I Bonds with the Minden construction loan are secured by a co-first mortgage on the Minden facility. We have title insurance on this 5.72 acres of land insuring good and marketable title to the property. During construction of this facility, builder's risk, general liability and workers' compensation insurance is being provided by the general contractor, The Forsythe Group, Inc. Upon completion of the Minden facility, we will obtain fire and extended coverage insurance to insure against loss by fire, windstorm, explosion and various other losses in an amount equal to the outstanding balance of the Series 1999-I Bonds. We will also obtain general liability and workers' compensation insurance upon completion of this facility. In our opinion, the Minden facility is adequately covered by insurance. We have received the proper zoning for the project. The Oak Creek Project. We acquired 2.8 acres of land and an existing building located at 78 Canyon Diablo Road just outside the City of Sedona, Arizona and within the Village of Oak Creek. We acquired the property for $2,174,025 in October 1998. The property was previously used as a cancer treatment center. We renovated this facility, and it opened for operations on January 17, 1999. Selection of the property was based upon the location of the land and building and the needs of the community for an additional independent living facility in the area. The Oak Creek project consists of 28 units designed and renovated as independent living apartments. Each of the independent living units have one or two bedrooms, small kitchenettes, private bathroom, closet and sitting areas. The facility contains 22,235 square feet including common area amenities, a full service kitchen, dining area, activity area, office and reception area, bathrooms, storage areas and an indoor heated swimming pool. The Series 1999-II Bonds with the Oak Creek interim loan are secured by a co-first mortgage on the Oak Creek project. We have title insurance on this 2.8 acres of land insuring good and marketable title to the property. During renovation of the Oak Creek project, builder's risk, general liability and workers' compensation insurance were provided by the general contractor, The Forsythe Group, Inc. Upon completion of renovation of the Oak Creek project, we obtained fire and extended coverage insurance to insure against loss by fire, windstorm, explosion and various other losses in an amount equal to the outstanding balance of the Series 1999-II Bonds. We also obtained general liability and workers' compensation insurance upon completion of this facility. In our opinion, the Oak Creek project is adequately covered by insurance. We have received the proper zoning for the project. The Bastrop Project. This facility will be located on 3.35 acres of land at 10280 Boswell Drive outside the city limits of Bastrop, Louisiana. Selection of the site of the Bastrop Project was based upon a location that was within an affluent residential neighborhood with limited assisted living units. The Bastrop project will be a 25 unit assisted living facility. Each of the assisted living units will have one or two bedrooms, small kitchenettes, private bathroom, closet and sitting areas. The facility will contain 22,217 square feet including 21 one bedroom units, 4 efficiency units, one manager's apartment, common area amenities, a full service kitchen, dining area, activity area, office, reception area, bathrooms and storage areas. The Series 1999-III Bonds with the Bastrop construction loan are secured by a co-f irst mortgage on the Bastrop project. We have title insurance on this 3.35 acres of land insuring good and marketable title to the property. During construction of the Bastrop facility, builder's risk, general liability and workers' compensation insurance will be provided by the general contractor, The Forsythe Group, Inc. Upon completion of the Bastrop project, we will obtain fire and extended coverage insurance to insure against loss by fire, windstorm, explosion and various other losses in anamount equal to the outstanding balance of the Series 1999-III Bonds. We will also obtain general liability and workers' compensation insurance upon completion of the Bastrop Project. In our opinion, the Bastrop project is adequately covered by insurance. The Bastrop project conforms to the zoning ordinances of Bastrop, Louisiana. The Farmerville Project. This project will be located on approximately 4 acres of and on the West side of LA Highway 33 just outside the city limits of Farmerville, Louisiana. Selection of the site of the Farmerville project was based upon a location that is near a hospital with no assisted living units. The Farmerville facility will be a 25 unit assisted living facility. Each of the assisted living units will have one or two bedrooms, small kitchenettes, private bathroom, closet and sitting areas. The facility will contain 22,217 square feet including 21 one bedroom units, 4 16 efficiency units, one manager's apartment, common area amenities, a full service kitchen, dining area, activity area, office, reception area, bathrooms and storage areas. The Series 1999-IV Bonds with the Farmerville construction loan are secured by a co-first mortgage on the Farmerville project. We have title insurance on this 4 acres of land insuring good and marketable title to the property. During construction of the Farmerville facility, builder's risk, general liability and workers' compensation insurance will be provided by the general contractor, The Forsythe Group, Inc. Upon completion of the Farmerville project, we will obtain fire and extended coverage insurance to insure against loss by fire, windstorm, explosion and various other losses in an amount equal to the outstanding balance of the Series 1999-IV Bonds. We will also obtain general liability and workers' compensation insurance upon completion of the Farmerville project. In our opinion, the Farmerville project is adequately covered by insurance. The Farmerville project is located in Union Parish which has no zoning requirements. The Natchitoches Project. This project will be located on approximately 4 acres of land on the East side of LA Highway 1 just outside the city limits of Natchitoches, Louisiana. Selection of the site of the Natchitoches project was based upon a location that was within a growing community with no existing assisted living units. The Natchitoches facility will be a 27 unit assisted living facility. Each of the assisted living units will have one or two bedrooms, small kitchenettes, private bathroom, closet and sitting areas. The facility will contain 22,216 square feet including 22 one bedroom units, 5 efficiency units, common area amenities, a full service kitchen, dining area, activity area, office, reception area, bathrooms and storage areas. The Series 1999-V Bonds with the Natchitoches construction loan are secured by a co- first mortgage on the Natchitoches project. We have title insurance on this 4 acres of land insuring good and marketable title to the property. During construction of the Natchitoches facility, builder's risk, general liability and workers' compensation insurance will be provided by the general contractor, The Forsythe Group, Inc. Upon completion of the Natchitoches project, we will obtain fire and extended coverage insurance to insure against loss by fire, windstorm, explosion, and various other losses in an amount equal to the outstanding balance of the Series 1999-V Bonds. We will also obtain general liability and workers' compensation insurance upon completion of the Natchitoches Project. In our opinion, the Natchitoches project is adequately covered by insurance. The Natchitoches project conforms to the zoning ordinances of the City of Natchitoches, Louisiana. For additional information, see "Description of Our Property - Financing of Our Facilities" and "Description of Bonds". Appraisals Robert M. McSherry, MAI 3760 Chelsea Drive, Baton Rouge, Louisiana 70809, estimated market values for each of our facilities. Listed below are these appraised values. Appraised value of the Minden project . . . . . . $2,100,000 Appraised value of the Oak Creek project. . . . . $3,170,000 Appraised value of the Bastrop project . . . . . $2,100,000 Appraised value of the Farmerville project. . . . $2,030,000 Appraised value of the Natchitoches Project . . . $2,255,000 The appraiser, who is independent of the Biltmore Group, used various appraisal approaches, but gave the most weight to the income approach in his reconciliation and final value estimates. The income approach is an analysis which converts anticipated benefits to be derived from the ownership of property into a value estimated, with consideration given to the gross income, expense, net income, vacancy rate and capitalization. Furthermore, the income approach is not, for example, a valuation based upon the appraiser's estimate of the price that would be arrived at by a willing buyer 17 and a willing seller in an arms-length sales transaction. Accordingly, it is questionable that, in the event of default, our facilities could be sold, whether voluntarily or at judicial sale, for the appraised value. The appraiser also estimated values for each of our facilities based on the cost approach. Listed below are these appraised values. Appraised value of the Minden project . . . . . . $2,255,000 Appraised value of the Oak Creek project. . . . . $4,085,000 Appraised value of the Bastrop project. . . . . . $2,140,000 Appraised value of the Farmerville project. . . . $2,110,000 Appraised value of the Natchitoches project . . . $2,310,000 In contrast to the income approach, the cost approach estimates the replacement cost of the improvements. The cost approach reflects the value of the fee simple estate in the real estate; whereas the income approach reflects the "going concern" value, which would most likely not exist in a default situation. A decision to invest in the bonds should not be made based solely on the appraisals. Moreover, a purchaser of the bonds should realize and take into consideration the fact our facilities, if they should have to be sold, may bring less than is necessary to pay principal and interest due on the bonds. This could result in the investor losing all or a portion of his original investment, which the investor should take into consideration before making the purchase. Construction of Our Facilities Listed below are the proposed construction schedules and development/construction costs of our facilities. The dates and numbers as indicated below are estimates only.
Approximate Costs of Construction Anticipated Opening Development and Location Start Date Date Construction Minden project November 1998 July 1999 $2,150,000 Bastrop project December 1998 August 1999 $2,100,000 Farmerville project March 1999 October 1999 $2,050,000 Natchitoches project March 1999 October 1999 $2,200,000 Oak Creek project November 1998 January 1999 $2,750,000
The approximate costs of development and construction as shown for the Minden, Bastrop, Farmerville and Natchitoches projects include land, construction and service costs; architectural and engineering costs; furniture, fixtures and equipment. The amount shown for the Oak Creek project includes the acquisition and service costs; architectural and engineering costs; renovation costs; furniture, fixtures and equipment. Financing of Our Facilities Construction and Acquisition Financing. We have obtained and will obtain interim/construction loans with The First Republic Bank of Monroe, Louisiana and Church Loans and Investments Trust of Amarillo, Texas for the 18 construction and acquisition of our facilities. Each interim loan will be secured by a co-first mortgage on the corresponding project that will be acquired/built from the proceeds of the respective interim/construction loan. The interim loans are guaranteed by The Forsythe Group, Inc., an affiliate and member of the Biltmore Group, in the amount of $500,000 for each interim/construction loan. The trustee and holders of the bonds will not benefit, directly or indirectly, from the guarantees of The Forsythe Group, Inc. We obtained the construction loan for the Minden project in the amount of $1,358,520 from First Republic Bank. This loan closed on October 2, 1998, and the mortgage and security agreement setting forth the terms of the loan have been filed of record. The Minden construction loan bears interest at the rate of 9.20% per annum and is due September 28, 1999. This loan is secured by a co-first mortgage on the Minden project with the Series 1999-I Bonds. We obtained the interim loan for the acquisition of the Oak Creek project in the amount of $2,174,025 from Church Loans. This loan closed on October 20, 1998, and the mortgage and security agreement setting forth the terms of the loan have been filed of record. The Oak Creek interim loan bears interest at a variable rate equivalent to 0.5% per annum in excess of the lowest rate designated as the "Prime Rate" of interest as published by the Wall Street Journal under the heading "Money Rates." This loan is due May 20, 1999, unless we exercise our option of renewing and extending this loan. The loan is secured by a co-first mortgage on the Oak Creek project with the Series 1999-II Bonds. We obtained the construction loan for the Bastrop project in the amount of $1,220,000 from Church Loans. This loan closed on November 24, 1998, and the mortgage and security agreement setting forth the terms of the loan have been filed of record. The Bastrop construction loan bears interest at a variable rate equivalent to 1.5% per annum in excess of the lowest rate designated as the "Prime Rate" of interest as published by the Wall Street Journal under the heading "Money Rates." The loan is due November 24, 1999, unless we exercise our option of renewing and extending this loan. The Bastrop construction loan is secured by a co-first mortgage on the Bastrop project with the Series 1999-III Bonds. We obtained the construction loan for the Farmerville project in the amount of $1,330,000 from Church Loans. This loan closed on February 25, 1999, and the mortgage and security agreement setting forth the terms of the loan have been filed of record. The Farmerville construction loan bears interest at a variable rate equivalent to 1.5% per annum in excess of the lowest rate designated as the "Prime Rate" of interest as published by the Wall Street Journal under the heading "Money Rates." The loan is due February 25, 2000, unless we exercise our option of renewing and extending this loan. The Farmerville construction loan is secured by a co-first mortgage on the Farmerville project with the Series 1999-IV Bonds. We obtained the construction loan for the Natchitoches project in the amount of $1,450,000 from Church Loans. This loan closed on February 25, 1999, and the mortgage and security agreement setting forth the terms of the loan have been filed of record. The Natchitoches construction loan bears interest at a variable rate equivalent to 1.5% per annum in excess of the lowest rate designated as the "Prime Rate" of interest as published by the Wall Street Journal under the heading "Money Rates." The loan is due February 25, 2000, unless we exercise our option of renewing and extending this loan. The Natchitoches construction loan is secured by a co-first mortgage on the Natchitoches project with the Series 1999-V Bonds. If the proceeds from the sale of the Series 1999-I Bonds are insufficient to retire the Minden construction loan at its maturity, then Church Loans has agreed to loan us sufficient funds to retire the Minden construction loan, giving us the option of renewing and extending Church Loans' loan on the Minden project into a permanent loan amortized over thirteen years subject to the Biltmore Group being current on all its outstanding debt obligations. If the proceeds from the sale of the Series 1999-II, III, IV and V Bonds are insufficient to retire the Oak Creek interim loan, Bastrop construction loan, Farmerville construction loan and Natchitoches construction loan at their respective maturities, then we have been given the option by Church Loans of initially renewing and extending the term of these loans for an additional one year subject to our company being current on all its outstanding debt obligations. If any of these loans are extended and any of the renewed loans have not been retired by their extended maturity dates, then we have been given the option by Church Loans of renewing and extending the loan(s) into permanent loan(s) amortized over thirteen years subject to our company being current on all its outstanding debt obligations. 19 Colonial Trust Company, acting as trustee on behalf of holders of the Bonds, and the interim lenders have entered into lienholders agreements with regard to each of the interim/construction loans. The lienholders agreements state, among other things that: 1. The mortgage, security agreement and other collateral documents covering each of our facilities shall name both the corresponding interim lender and the trustee as lienholder; 2. The mortgage, security agreement and other collateral documents shall secure ratably as provided in the lienholders agreements each interim/construction loan and the corresponding series of Bonds; and 3. The proceeds of each series of bonds will be used, subject to the trust indenture, to pay down or retire the interim loans. The lienholders agreements also state that in the event of a default, if either the interim lender or the trustee elects to accelerate its loan, the other party agrees to accelerate its loan to the extent permitted under the other party's loan documents. If we were to default, the lienholders agreements provide that the corresponding interim lender and the trustee will conduct collection and foreclosure actions and proceedings jointly to the extent possible. In the event the interim lender and the trustee are unable to agree, then the interim lender is given the right to direct and make decisions, binding on the trustee and the holders of bonds. These decisions may concern maintenance, protection or disposition of the respective project in default and enforcement of the terms of the mortgage and security agreement. The interim lender may cause the defaulted project to be sold in its then current condition or may make renovations to, or complete construction of the defaulted project. The interim lender is not required to advance any funds except by its agreement, but in the event the interim lender elects to advance funds, proceeds of foreclosure will be applied first to reimburse any such funds advanced. Either the interim lender or the trustee may purchase the defaulted project at any foreclosure sale free and clear of the claims of the other. If any of our facilities are sold or otherwise disposed of at foreclosure, the lienholders agreements provide that the proceeds of disposition be applied to the respective interim/construction loan in default and the payment of the corresponding series of bonds on a pro-rata basis. The "pro-rata" distribution of funds mean that after reimbursement of the interim lender's fees and expenses as provided above, the interim lender and the series of bonds associated with the defaulted interim/construction loan will each receive funds from any disposal on foreclosure of the defaulted project according to their respective percentage of the total principal balance, including both the respective interim/construction loan in default and the corresponding series of Bonds, on the property. Thus, depending on the net proceeds from a foreclosure sale, each entity would receive proceeds from the sale of property equal to the entire amount due them, or any amount equal to their percentage of the total indebtedness against the defaulted project, whichever is lesser. In addition to requiring the timely payment of the interim loans and the bond payments required under the terms of the trust indenture, the mortgages obligate us to maintain proper books and records, and refrain from certain activities such as altering the premises without prior written consent. The mortgages also dictate, in part, the permitted financial relationships between our company and the residents. Lines of Credit Financing. We have access to two lines of credit from First Republic Bank. The lines of credit are secured by certificate of deposits, land and residences owned by Joanne Caldwell-Bayles and The Forsythe Group, Inc., and the lines of credit are personally guaranteed by Joanne Caldwell-Bayles. One line of credit is in the amount of $604,000 bearing interest at the rate of 9.75% per annum. The Forsythe Group has secured this line of credit for the purpose of funding construction costs on our facilities at the first of each month until reimbursed by the interim loans at the end of each month. The Forsythe Group also has agreed to let us use this line of credit for operations and other uses as needed. This line of credit was made available on March 5, 1999 and is due on September 5, 2000. As of April 1, 1999, there was approximately $525,000 in funds available in this line of credit. The second line of credit is in the amount of $176,755 bearing interest at the rate of 9.75% per annum. This line of credit was made available to us on November 30, 1998 and is due November 30, 1999. This line of credit has been 20 fully funded. Proceeds from the Series 1999-II Bonds will be used in part to retire this line of credit. We obtained this line of credit for the purpose of renovating the Oak Creek project. Permanent Financing. We have chosen to issue the bonds to provide the permanent financing for our facilities. Our first revenues have been pledged to repay the principal and interest on the Bonds. See "Sources and Uses of Proceeds" and "Description of Bonds." Our Management Managing Member The day to day operation of the Biltmore Group will be performed by our managing member, Joanne M. Caldwell-Bayles. According to the terms of our operating agreement, the managing member will be the chief executive officer of our company responsible for the general overall supervision of the business and affairs of the Biltmore Group. Mrs. Caldwell-Bayles shall serve as our managing member until her resignation or until she is removed by majority vote of all our members. Upon the resignation of the managing member, a successor shall be elected by a vote of our members. Joanne M. Caldwell-Bayles, 39 years old, has been our managing member since its inception in July 1998. Mrs.Caldwell-Bayles has senior executive experience in the development and operation of assisted living, retirement and memory disorder facilities in West Monroe, Ruston, Bossier City and Shreveport, Louisiana where she has served as the Operating Manager of The Arbor Group, L.L.C. since August of 1996 and President of Senior Retirement Communities, Inc. since September of 1997. Mrs. Caldwell-Bayles also has senior executive experience in hotel management, personnel, finance and commercial and residential development. In addition to her duties with the Biltmore Group, The Arbor Group and Senior Retirement Communities, Mrs. Caldwell-Bayles has served since January of 1989 as the President, Chairperson of the Board of Directors and sole owner of The Forsythe Group, Inc., the manager and developer of our facilities and the parent corporation of four subsidiaries. These subsidiaries of The Forsythe Group include: Forsythe Holdings, Inc., a commercial and residential lending company; Format Capital, Corp., a commercialdevelopment and equipment leasing company; Lewis Enterprises, Inc., a residential development company; and Northwest Manufacturing Co., Inc., a manufacturing company for equipment for the construction industry. She has served on the Board of Directors of the Alexandria Chamber of Commerce, the Louisiana Restaurant Association and the Louisiana Hotel/Motel Association. She also has served as President of the Tourism Commission of Rapides Parish, Louisiana and of the Hotel/Motel Association of Alexandria, Louisiana. Mrs. Caldwell-Bayles attended Northeast Louisiana State University in Monroe, Louisiana. Mrs. Caldwell-Bayles will be the person primarily responsible for overseeing our actual operation and management. Accordingly, our success as a company will be dependent upon her efforts. Mrs. Caldwell-Bayles will delegate most of the daily operational responsibilities of the Biltmore Group to on-site administrators. The administrators will be selected from a group of candidates who must have a degree in administration and/or gerontology. Prior to commencement of operations of each facility, Mrs. Caldwell-Bayles will hire an administrator whose salary and employee benefits will be our expense of operation. Mrs. Caldwell-Bayles will also recruit all other employees. We anticipate that we will employ an average of 10 employees to work at each facility with a total of approximately 50 employees working for us upon completion of the Minden, Oak Creek, Bastrop, Farmerville, and Natchitoches Projects. Mrs. Caldwell-Bayles will devote approximately 30% of her time to the affairs of the Biltmore Group but is willing to devote additional time if necessary. Executive Compensation Joanne M. Caldwell-Bayles, our managing member, may receive the following compensation: - an annual salary in the amount of $30,000 per year beginning when our first facility is opened for business and 21 - reimbursement for reasonable costs incurred by Mrs. Caldwell-Bayles including but not limited to automobile mileage, telephone expenses and entertainment expenses associated with the Company's business. Our Principal Owners The following table sets forth information about the beneficial ownership of our membership interests as of December 31, 1998.
Name & Address Percent of of Beneficial Owner Title of Class Units Class Owned Joanne M. Caldwell Bayles Membership Interest 578,239 52% 507 Trenton Street West Monroe, LA 71291 The Forsythe Group, Inc. Membership Interest 532,524 48% 507 Trenton Street West Monroe, LA 71291
Joanne M. Caldwell-Bayles owns 100% of the capital stock of the Forsythe Group, Inc. Our Plan of Operation Our primary plan of operation is to establish a local, regional and national network of retirement and assisted living facilities that will operate profitably. We have completed the renovation of our facility in Oak Creek, Arizona and intend to complete construction of four facilities in Northern Louisiana by October 1999. Our four facilities in Louisiana are located in Minden, Bastrop, Farmerville and Natchitoches. We intend to employ an average of 10 employees per completed facility with a total of approximately 50 employees working for us by September 1999. Based upon market research of the assisted living, retirement living and memory disorder care industries within the facilities' market areas, we expect to reach stabilized occupancy within 12 months upon completion of each facility. "Stabilized occupancy" means an occupancy rate of 90% - 95% that is maintained at this level for at least three months. Our expected occupancy stabilization period is based upon the historical operating results of The Arbor Group, one of our affiliates. However, actual results of our facilities' stabilization time frames may differ from the projected time frames due to changes in local and national market conditions. The Arbor Group has completed construction and is now operating a similar assisted living and memory disorder facility in West Monroe, Louisiana. The Arbor Group has been and will continue to be a model for the future development of the Biltmore Group. Senior Retirement Communities, another of our affiliates, has completed construction of two facilities in late 1998 and a third facility in early 1999. Senior Retirement Communities' facilities are similar to those to be built by the Biltmore Group and are operating under the name of The Arbor Retirement Community and The Terrace. The Arbor Group and Senior Retirement Communities are managed by the same organization, The Forsythe Group, Inc., which will also manage our properties. While we are newly formed, we will also operate our properties in Northern Louisiana under the name of The Arbor Retirement Community. The Arbor Retirement Community has established name recognition in portions of Northern Louisiana through the operations of The Arbor Group and Senior Retirement Communities' facilities. We are in the process of increasing name recognition 22 in the proposed communities in which our Facilities will be located. Our facility located in Arizona is being operated under the name of The Biltmore of Oak Creek. In order for us to fund all of our objectives of this offering, the maximum offering amount must be sold by the termination date of this offering, and we will need to raise additional operating funds during the first 12 months of operation. We have estimated that $500,000 will be needed for operation during the first 12 months, above and beyond the expenses as set forth in "Sources and Uses of Funds." Currently, The Forsythe Group has one line of credit from which we can access for the use of additional operating funds. Once construction of our facilities have been completed, we should have access to over $600,000 in funds available from this line of credit. Advances on this line of credit will be made by the Forsythe Group to us until our cash flow reaches an amount where advances are not necessary. At this point, we will repay the advances out of the excess cash flow to be applied first to accrued interest and then to the outstanding principal. Interest will accrue at the rate of 9.75%. This line of credit has been established by the pledging of collateral not secured by the bonds; Mrs. Caldwell-Bayles, The Forsythe Group and The Arbor Group also have pledged other assets to secure the line of credit. If additional funds are needed for our operation, The Forsythe Group, our management company, has agreed to defer collection of its management fees. However, we believe that it will not be necessary for us to raise additional funds during the next 12 months other than the use of the credit line, unless all of the bonds are not sold. In such event, we intend to proceed as follows based upon how many bonds have been sold: - If the minimum offering amount is not reached for a series of bonds, then the subscribers to this series of bonds will receive the return of their subscription amount plus interest. If this occurs, we will convert the interim loan applicable to this series of bonds into a permanent loan as provided for in the interim loan agreement. - If all of the bonds are not sold for a series of bonds but the minimum amount has been met for this series,then we would convert the unpaid balance of the interim loan applicable to this series of bonds into a permanent loan as provided for in the interim loan agreement. If this occurs, the sold bonds for this series of bonds will remain outstanding on a co-first mortgage position with the converted interim loan. If either the minimum offering amount is not reached or not all of the bonds are sold for a series of bonds, then we may need to secure additional funds beyond the use of the credit line for the completion and/or operation of the facility related to the affected series of bonds. Presently, we do not have other sources of financing, nor may we be able to secure additional financing if needed in the future. Our product is providing living accommodations for seniors who need assistance. As the needs of our residents change, we are willing to modify our operations to accommodate our residents needs. We are committed to continue researching the trends of senior citizens' living accommodation needs. There is no assurance that we will be able to accomplish any or all of these objectives. Prior Performance of Our Affiliates The Arbor Group, L.L.C., an affiliated limited liability company of the Biltmore Group, has prior experience in the development and operation of an assisted living and memory disorder facility similar to that of our proposed facilities. In August 1996, Mrs. Caldwell-Bayles, Raymond Nelson and Jean Gaffney Nelson formed The Arbor Group, L.L.C. for the purpose of developing and operating a 35-unit assisted living facility and a 24-unit memory disorder facility in West Monroe, Louisiana. The facility was completed and opened for business on November 4, 1997. The year 1998 was the first full year of operations for this facility. Mrs. Caldwell-Bayles serves as the operating manager of The Arbor Group, L.L.C. 23 The Arbor Group's gross revenues for the year ending December 31, 1998 were $738,415. The Arbor Group's expenses for the same period, including depreciation and debt service, were $1,108,836. For the one month period ending January 31, 1999, The Arbor Group's gross revenues were $101,197. The Arbor Group's expenses for this same period were $104,905 including depreciation and debt service. These amounts were provided by the management of The Arbor Group and are not audited. As of March 31, 1999, the occupancy rate of The Arbor Group's assisted living and memory disorder facility was 91%. The Arbor Group's assisted living and memory disorder facility was financed by the issuance of bonds in the amount of $3,250,000 under terms similar to that of this offering. The bonds for the Arbor Group were offered and sold by MMR Investment Bankers. Senior Retirement Communities, Inc., an affiliate of the Biltmore Group, has completed a 48-unit assisted living facility in Ruston, Louisiana and a 24-unit memory disorder facility in Shreveport, Louisiana. These facilities were completed in the fourth quarter of 1998. Senior Retirement Communities completed a third assisted living and memory disorder facility in Bossier City in the first quarter of 1999. These facilities are similar to our proposed facilities. These properties operate under the name of The Arbor Retirement Community and The Terrace; they are all located in Northern Louisiana, thereby helping to increase The Arbor Retirement Communities' name recognition in the area. Senior Retirement Communities' assisted living and memory disorder facilities are being financed by the issuance of bonds in the amount of $9,000,000 under terms similar to that of this offering. The bonds for Senior Retirement Communities are being offered and sold by MMR Investment Bankers with approximately 96% of the bonds having been subscribed for as of April 1, 1999. The operating results of Senior Retirement Communities can be found in their 10-KSB dated December 31, 1998 and additional reports as required, which are filed with the Securities and Exchange Commission, Washington, D.C. 20549. Certain Transactions Joanne M. Caldwell-Bayles, our managing member, owns or controls each affiliated company of the Biltmore Group. She has entered into certain transactions with us which have not been determined by arms length negotiations. We do not have any procedures or policies, nor will be putting any in place, which can assure that transactions with our affiliates will be on terms no less favorable than those which could be obtained from unaffiliated third parties. Furthermore, the terms of these transactions are or may be substantially different from the terms of transactions negotiated with third parties. Units of our membership interests were issued to Ms. Caldwell-Bayles and her affiliates for some of the following transactions. A unit of our membership interest represents an ownership interest in the Biltmore Group. Each unit was issued for either a dollar of cash, assets or services contributed to the Biltmore Group. See "Our Principal Owners." Land Acquisition On October 2, 1998, we acquired 5.72 acres of land at the Minden location from Senior Retirement Communities, one of our affiliates. The sales price for the land was $203,739. Senior Retirement Communities acquired this land plus an additional 4 acres on April 30, 1998 from an unrelated party. Senior Retirement Communities basis in this property was $203,739. We did not purchase the entire tract of land, because the portion that we did not acquire required extensive site work and was less desirable for development. Since we acquired only a portion of the 9.72 acres from Senior Retirement Communities, this transaction resulted in a gain to Senior Retirement Communities of $86,059. Construction Contracts On November 18, 1998, we entered into a design/builder contract in the amount of $1,777,000 with The Forsythe Group, one of our members and affiliates, to construct the Minden project. The contract calls for the cash payments of 24 $1,352,000 during the building of the Minden project as approved by the contract engineer and the issuance of additional units of membership interests valued at $425,000. As of December 31, 1998, $345,245 had been paid on this contract and $174,000 of membership interests had been issued for services rendered in connection with the project. The remainder of the $251,000 due to be paid through the issuance of membership interests will be issued at the completion of this project. On November 18, 1998, we entered into a design/builder contract in the amount of $1,777,000 with The Forsythe Group to construct the Bastrop project. The contract calls for the cash payments of $1,352,000 during the building of the Bastrop project as approved by the contract engineer and the issuance of additional units of membership interests valued at $425,000. As of December 31, 1998, $36,560 had been paid on this contract and $175,000 of membership interests had been issued for services rendered in connection with the project. The remainder of the $250,000 due to be paid through the issuance of membership interest will be issued at the completion of the project. On November 18, 1998, we entered into a design/builder contract in the amount of $1,777,000 with The Forsythe Group to construct the Farmerville project. The contract calls for the cash payments of $1,352,000 during the building of the Farmerville project as approved by the contract engineer and the issuance of additional units membership interests valued at $425,000. As of December 31, 1998, $0 had been paid on this contract and $135,000 of membership interests had been issued for services rendered in connection with the project. The remainder of the $290,000 due to be paid through the issuance of membership interests will be issued at the completion of this project. On November 18, 1998, we entered into a design/builder contract in the amount of $1,777,000 with The Forsythe Group to construct the Natchitoches project. The contract calls for the cash payments of $1,352,000 during the building of the Natchitoches project as approved by the contract engineer and the issuance of additional units of membership interests valued at $425,000. As of December 31, 1998, $0 had been paid on this contract and $135,000 of membership interests had been issued for services rendered in connection with the project. The remainder of the $290,000 due to be paid through the issuance of membership interests will be issued at the completion of this project. Management Contract On August 27, 1998, The Forsythe Group entered into a management agreement with the Biltmore Group for the management of our facilities. The management agreement extends to the year 2010, with compensation based on each facility, paying the Manager $1,500 per month or seven percent of the gross collections of a facility, whichever is greater. The management agreement can be terminated by mutual consent of the parties, bankruptcy or for cause. We anticipate the payments under the management agreement to The Forsythe Group will be approximately $90,000 in 1999. For the first full year of operations after all the facilities have been opened, we estimate the management fees to total approximately $163,000. In the second full year of operations, we estimate these fees to total approximately $199,000 per year. After the second full year of operations, we estimate these fees to total approximately $210,000 per year. Other Transactions On August 20, 1998, we issued 265,000 units of membership interests to The Forsythe Group for $91,000 cash and services rendered in connection with developing the plans for construction, obtaining State Fire Marshall approval of the plans and getting approval of the proper zoning of the Minden project. On September 30, 1998, we issued 21,500 units of membership interests to Joanne M. Caldwell-Bayles for $2,000 cash and services rendered in connection with the formation of the Biltmore Group. On October 19, 1998, we issued 85,000 units of membership interests to Joanne M. Caldwell-Bayles for services rendered in connection with the interior design of our facilities and market research studies for our facilities. On November 10, 1998, we issued 203,739 units of membership interests to Joanne M. Caldwell-Bayles for $203,739 in cash. 25 On November 10, 1998, we issued 270,000 units of membership interests to Joanne M. Caldwell-Bayles for services rendered in connection with selecting the location and purchasing of the land on which the Bastrop and Farmerville projects are to be built, developing the plans for construction, obtaining State Fire Marshall approval of the plans and getting approval of the proper zoning of the Bastrop and Farmerville projects. On November 10, 1998, we issued 267,523.50 units of membership interests to the Forsythe Group for $132,523.50 in cash and services rendered in connection with selecting the location and purchasing of the land on which the Natchitoches project is to be built, developing the plans for construction, obtaining State Fire Marshall approval of the plans and getting approval of the proper zoning of the Natchitoches project. Description of Bonds The bonds will be issued in book-entry form, unless the purchaser requests a printed bond certificate, according and subject to the provisions of the trust indenture between the Biltmore Group and Colonial Trust Company of Phoenix, Arizona. Colonial Trust Company will serve as trustee, bond registrar and paying agent. We are not required to qualify the trust indenture under the Trust Indenture Act of 1939. Thus, we have elected not to qualify the trust indenture under the this act. Certain provisions such as the qualification of the trustee and its financial condition, remedies upon default, investments by the trustee and voting and notice provision contained in our trust indenture may not be the same as would be required under the Trust Indenture Act of 1939. Copies of the trust indenture will be deposited with the trustee, the Biltmore Group and the underwriter. The following is a summary of the provisvions f the trust indenture. Security and Source of Payment for the Bonds All of the bonds will be secured by co-first mortgages upon our facilities as follows: - The Series 1999-I Bonds in the amount of $1,800,000 will be secured by a co-first mortgage against the property comprising the Minden, Louisiana facility; - The Series 1999-II Bonds in the amount of $2,700,000 will be secured by a co-first mortgage against the property comprising the Oak Creek, Arizona facility; - The Series 1999-III Bonds in the amount of $1,800,000 will be secured by a co-first mortgage against the property comprising the Bastrop, Louisiana facility; - The Series 1999-IV Bonds in the amount of $1,800,000 will be secured by a co-first mortgage against the property comprising the Farmerville, Louisiana facility; and - The Series 1999-V Bonds in the amount of $1,800,000 will be secured by a co-first mortgage against the property comprising the Natchitoches, Louisiana facility. Furthermore, we pledge our first revenues and receipts from each of the above described properties and facilities to secure the payment of the bonds. These revenues and receipts shall be first applied to the payment of the bonds of which the proceeds were used to obtain or construct the facility or property producing such revenues and receipts. Then, the revenues and receipts will be applied to any other bonds the payment of which is in default and if none, or after this has been done, to the payment of other of our bonds as the trustee, in the trustee's discretion, may select. General We are offering $9,900,000 of co-first mortgage bonds in five series, with the proceeds from each series being used for the construction or acquisition of a particular project. The issue and sale of each series of bonds is not contingent on 26 the issue and sale of the other series of bonds, and will be separately offered and sold and subject to minimum proceeds prior to their issuance. The bonds will be issued in book-entry form, unless the purchaser requests a printed bond certificate, as registered bonds without coupon in denominations of $250 each or any integral multiple thereof. The bonds will be issued to mature serially. To "mature serially" means the bonds will mature according to predetermined maturity dates, beginning six months from the issue date of each series of bonds and continuing to mature each six months thereafter until the final maturity period of each of the series of bonds as indicated in the "Maturity Schedules." The purchaser of a bond should understand that in the event he/she should need to sell the bond, the underwriter does not make a secondary market for the bonds, nor is there the likelihood a secondary market will develop. Principal and interest are payable in lawful money of the United States by the trustee, acting in its capacity as paying agent. Some bonds pay interest by check semiannually and are called simple interest bonds. Other bonds pay the interest earned only at the maturity of the bond and are called compound interest bonds. The Series 1999-I Bonds will be dated June 1, 1999, and are subject to the sale of a minimum of $400,000 in principal amount of bonds. The aggregate principal amount of the Series 1999-I Bonds is $1,800,000 and is comprised of bonds in the principal amount of $1,738,500 that will mature serially and bear simple interest payable by check mailed to the registered owners each December 1 and June 1 until maturity and bonds in the principal amount of $61,500 that will mature serially and bear interest compounded semiannually each December 1 and June 1 that is payable at maturity. The Series 1999-I Bonds will begin accruing interest as of June 1, 1999, whether or not they have been purchased and whether or not the minimum offering amount has been reached. If any of the Series 1999-I Bonds are purchased after June 1, 1999, the purchaser will be entitled to receive interest on the Bond from June 1, 1999. The Series 1999-II Bonds will be dated July 1, 1999, and the Series 1999-II are subject to the sale of a minimum of $600,000 in principal amount of bonds. The aggregate principal amount of the Series 1999-II Bonds is $2,700,000. The Series 1999-II Bonds will mature serially and bear simple interest payable by check mailed to the registered owners each January 1 and July 1 until maturity. Interest on the Series 1999-II Bonds will accrue from the date payment for the Series 1999-II Bonds is received in the office of the underwriter whether or not the minimum offering amount for this series of bonds has been reached. The Series 1999-III Bonds will be dated July 1, 1999, and the Series 1999-III Bonds are subject to the sale of a minimum of $400,000 in principal amount of bonds. The aggregate principal amount of the Series 1999-III Bonds is $1,800,000 . The Series 1999-III Bonds will mature serially and bear interest compounded semiannually each January 1 and July 1 that is payable at maturity. The Series 1999-III Bonds will begin accruing interest as of July 1, 1999, whether or not they have been purchased and whether or not the minimum offering amount has been reached. If any of the Series 1999-III Bonds are purchased after July 1, 1999, the purchaser will be entitled to receive interest on the bond from July 1, 1999. The Series 1999-IV Bonds will be dated August 1, 1999, and the Series 1999-IV Bonds are subject to the sale of a minimum of $400,000 in principal amount of bonds. The aggregate principal amount of the Series 1999-IV Bonds is $1,800,000 and is comprised of bonds in the principal amount of $1,718,750 that will mature serially and bear simple interest payable by check mailed to the registered owners each February 1 and August 1 until maturity and bonds in the principal amount of $81,250 that will mature serially and bear interest compounded semiannually each February 1 and August 1 that is payable at maturity. The Series 1999-IV Bonds will begin accruing interest as of August 1, 1999, whether or not they have been purchased and whether or not the minimum offering amount has been reached. If any of the Series 1999-IV Bonds are purchased after August 1, 1999, the purchaser will be entitled to receive interest on the bond from August 1, 1999. The Series 1999-V Bonds will be dated September 1, 1999, and the Series 1999-V Bonds are subject to the sale of a minimum of $400,000 in principal amount of bonds. The aggregate principal amount of the Series 1999-V Bonds is $1,800,000 and is comprised of bonds in the principal amount of $1,718,750 that will mature serially and bear simple interest payable by check mailed to the registered owners each March 1 and September 1 until maturity and bonds in the principal amount of $81,250 that will mature serially and bear interest compounded semiannually each March 1 and 27 September 1 that is payable at maturity. The Series 1999-V Bonds will begin accruing interest as of September 1, 1999, whether or not they have been purchased and whether or not the minimum offering amount has been reached. If any of the Series 1999-V Bonds are purchased after September 1, 1999, the purchaser will be entitled to receive interest on the bond from September 1, 1999. Tax Consequences Interest paid on the bonds is not exempt from federal or state income taxes. Interest on simple interest bonds is paid by check semiannually. Each year the purchaser of a simple interest bond will receive a form 1099 INT from the trustee/paying agent showing the interest earned on the bond(s) for that tax year. While compound interest bonds pay the interest earned only at the maturity of the bond, a portion of the interest must be reported as income each year even though no interest will be paid until maturity. The interest to be reported each year is the amount of interest accruing on the bond that year. Each year the purchaser of a compound interest bond will receive a form 1099 OID from the trustee/paying agent showing the interest earned on the bond(s) for that tax year. For further information concerning the tax consequences of purchasing or holding the bonds, the investor should consult his or her tax advisor. Trust Funds Established Under the Trust Indenture The trust indenture provides for the creation of bond proceeds funds, into which the proceeds from the sale of bonds will be deposited for each series of bonds. The trust indenture also creates the bond operating funds, into which payments for each series of bonds of the Biltmore Group are collected prior to payments being made to the bondholders. Payment of Bonds Principal and interest on the bonds is payable at the office of the trustee in lawful currency of the United States of America. Payment of interest shall be made to the registered owners of the bonds and paid by check or draft mailed to the registered owners at the address appearing on the bond register of the trustee. Each holder who has received a printed bond certificate must send his/her matured bonds to the paying agent in order to obtain payment of the aggregate principal amount. Events of Default The term "event of default" when used in the trust indenture means the occurrence of any one of the following events in regard to the series of bonds to which such default should occur: - Failure or refusal to pay when due the principal and/or interest on any of the bonds in such series; - Failure or refusal to timely pay into the operating fund accounts any installment(s) required to pay any of the bonds in such series; - Failure or refusal to pay when due any taxes, assessments, insurance, claims, liens or encumbrances upon our facilities securing the bonds of such series, or to maintain such facilities in good repair, or to cure the breach of any other covenant set forth in the trust indenture as to such series of bonds; - Failure or refusal to pay when due any loan or advance by or the fees and expenses of trustee or of any depository or escrow agent incurred in regard to such series; - Failure or refusal, upon written request of the trustee to furnish trustee with such insurance policies, financial reports and information concerning the Biltmore Group as may be reasonably required by trustee, or to grant unto trustee, its agents, accountants and attorneys access during normal business hours to our offices for the purpose of examining and, within reasonable limits, photocopying such records; 28 - Making an assignment for the benefit of creditors; or should a receiver, liquidator, or trustee be appointed to assist in the payment of our debt; or should any petition for bankruptcy, reorganization, or arrangement of the Biltmore Group be filed; or should we be liquidated or dissolved, or its charter expire or be revoked. In the event that we should default in the payment of any required operating fund payment and/or payment of principal or interest upon any outstanding bond(s), then the trustee shall apply any of our revenues and receipts received by the trustee: - First, to the payment of the bonds of which the proceeds were used to construct or obtain the facility from which the revenues or receipts were received; - Second, to the payment of any other bonds, the payment of which are then in default; and - Third, as the trustee may determine, in the trustee's sole discretion. Remedies of Default Upon the occurrence and continuation of an event of default for a period of 30 days, the trustee may accelerate the bonds and declare the principal of all bonds outstanding of such series of bonds then in default. Additionally, upon written request of the holders of not less than 25% of the bonds outstanding of such series of bonds then in default, the trustee is obligated to accelerate the maturity of such series of bonds then in default in an event of default. In the event that: - We are in default in the payment of the principal and/or interest on one or more series of the bonds, but not all of the series of the bonds, - Or we are in default in the timely payment of the installments to the operating fund account required on one or more series of the bonds, but not all of the series of the bonds, - And should such default continue for a period of 30 days, - And as a result, the trustee has declared to be immediately due and payable the principal balance and accrued interest of only the unpaid bonds in the series in default, - And if we then fail to pay this amount, Then the trustee may proceed to foreclose the lien against the property applicable to the defaulted series of bonds. If this occurs, the proceeds from the sale of the property so foreclosed, after the payment of all expenses and amounts due the trustee, shall be first applied to the payment of such defaulted bonds. If there remains a deficiency in the payment of the series of bonds in default, then the trustee may declare to be immediately due and payable the principal balance due and accrued interest of any or all of the unpaid bonds of any or all of the remaining series issued by the Biltmore Group according to the trust indenture. If we then fail to pay said amount, the trustee then may proceed to exercise any remedy provided for in the trust indenture, including a foreclosure of the lien securing the then accelerated and unpaid bonds. Upon the foreclosure of any property securing a series of bonds, the proceeds received from any such foreclosure, after the payment of all expenses and amounts due the trustee, shall be applied: - First to the payment of the bonds so foreclosed; - Secondly, to the payment of the bonds, then in default; and 29 - After this, as the trustee may determine, in the trustee's discretion. Additional Covenants In addition to our obligation to remit the principal and interest payments when due, we have agreed to at our own cost and expense, maintain the properties in good repair and condition and pay or discharge all taxes, assessments and any mechanic's or material men's liens that may become payable. Casualty Insurance With respect to insurance, we have agreed to maintain in full force and effect at all times fire and extended coverage insurance insuring against losses in an amount at least equal to the balance then due on the outstanding bonds. The proceeds of any such insurance are to be applied: - For the replacement or repair of the property damaged, - To purchase additional property secured by the trust indenture as originally acquired with bond proceeds, - For construction of additional improvements on our facilities, - To redeem outstanding bonds, - Or a combination of the foregoing. If the proceeds from the sale of the bonds are to be used to finance the construction of improvements, we agree to furnish and maintain in full force builder's risk insurance during the period of construction. In addition, we have agreed to maintain in full force and in effect at all time general liability insurance in such amount and with such insurers as shall be approved by the trustee. The trustee is authorized to withdraw funds from the bond operating fund and to apply funds for the our account of such obligations as aforementioned, and we are obligated to immediately restore the proper balance of the bond operating fund. Periodic Reporting We have agreed to furnish to the trustee, at least annually, audited financial statements, including a balance sheet, statement of activity and statement of changes in financial position and to permit the trustee to examine our books or records of accounts and our facilities at all reasonable times. Audited annual financial statements will also be supplied to the investors. Additional Bond Issues/Additional Indebtedness We reserve the right to issue additional parity bonds or incur additional debt obligations for any lawful purpose, including refunding any outstanding bonds. Such additional bonds along with these bonds that are currently being offered should be deemed "Bonds" for all purposes and as defined in the trust indenture. When issued and delivered the additional bonds will be secured under the terms of the trust indenture and shall be on parity with all then outstanding bonds of the Biltmore Group as offered in this prospectus. The additional bonds may be offered in one or more series or issues, in various principal amounts, bearing interest, maturing, and having such redemption features and other provisions as may be provided in any supplemental indenture or other instrument authorizing their issuance. However, no series or issue of additional bonds shall be issued unless: - Any default or event which would result in default by the Biltmore Group under the trust indenture has been first cured; 30 - Any real property acquired from the proceeds of additional bonds must be subjected to and become a part of the lien of the trust indenture and any mortgage or deed of trust upon our facilities; and - The ratio of the total of outstanding bonds plus the additional bonds shall not exceed 100% of the capitalized cost of the property, inclusive of any new construction or improvements to secure the payment of the bonds. Also, no additional debt as allowed by the trust indenture shall be incurred by the Biltmore Group without the written consent of the Kansas Securities Commissioner. Substitution of Collateral If we are not then in default, the trustee may execute partial releases or accept substitution of collateral; provided, however, that in every such instance the trustee must receive from some disinterested person a certificate stating that the value of the property to be substituted is of equal or greater value to the original property. Successor Trustee If the trustee resigns or is removed or dissolved or if any court or administrative body takes control over the property or affairs of the trustee because of insolvency or financial difficulty or for any other reason, then we must appoint a successor trustee. If we fail to make such an appointment, the majority in principal amount of bondholders may appoint a successor trustee. The successor trustee must then mail notice of its appointment to the registered owners but no other notice is required. Modification of Trust Indenture The trust indenture may be amended or supplemented from time to time by the parties thereto without the consent of or notice to the bondholders for any of the following purposes: - To cure any ambiguity, omission, formal defect or inconsistency; or - To issue additional bonds within the guidelines described above; or - To make any change which, in the judgement of the trustee in reliance upon any opinion of counsel does not adversely affect the rights of the holders of any bond. The trust indenture may be amended or supplemented for purposes other than those set forth above with the consent of the holders of 66 2/3% of the bonds then outstanding; provided, however, that no such amendment or supplement without the consent of the holder of any bond affected shall: - Reduce the percentage of the principal amount of bonds the holders of which must consent to for any such amendment, supplement or waiver; - Reduce the rate or extend the time of payment of interest on any bonds; or - Reduce the principal or premium, if any, on any bond or extend the time or times of payment thereof whether at maturity, upon redemption or otherwise. 31 Prepayment We have reserved the right to redeem all or a portion of the bonds prior to their stated maturity. The bonds are subject to redemption without premium at their stated principal amount plus accrued interest. The registered owner will be given written notice of such redemption at the owner's address as it appears on the bond register. It is the owner's responsibility to notify the paying agent of any change of address. Any bond not redeemed by its owner within three years after its maturity date is deemed to have been paid, and the funds will escheat to the benefit of the appropriate state authority. Requirements of the Operating Fund Accounts Under the trust indenture, we must establish operating fund accounts and make monthly deposits into the operating fund accounts in amounts predetermined to be sufficient at all times to pay the principal and interest of each series of the bonds. The required monthly deposits will be as follows: Series 1999-I ($1,800,000) - $14,010.01 per month for one year beginning June 1, 1999 - $17,450.02 per month for one year beginning June 1, 2000 - $17,750.02 per month for one years beginning June 1, 2001 - $18,270.02 per month for four and one half years beginning June 1, 2002 - With a final balloon payment of $1,451,750 due on November 30, 2006 - Payments include the paying agent fee of $450 per month. Series 1999-II ($2,700,000) - $20,925.01 per month for five years beginning July 1, 1999 - With a final balloon payment of $2,700,000 due on June 30, 2004 - Payments include the paying agent fee of $675 per month. Series 1999-III ($1,800,000) - $13,727.99 per month for one year beginning July 1, 1999 - $15,442.00 per month for one year beginning July 1, 2000 - $17,223.00 per month for one year beginning July 1, 2001 - $18,970.03 per month for four and one half years beginning July 1, 2002 - With a final balloon payment of $1,416,771 due on December 31, 2006 - Payments include the paying agent fee of $450 per month. Series 1999-IV ($1,800,000) - $13,270.00 per month for one year beginning August 1, 1999 - $16,119.99 per month for one year beginning August 1, 2000 - $17,651.00 per month for one years beginning August 1, 2001 - $19,434.99 per month for two years beginning August 1, 2002 - With a final balloon payment of $1,575,000 due on July 31, 2004 - Payments include the paying agent fee of $450 per month. Series 1999-V ($1,800,000) - $13,270.00 per month for one year beginning September 1, 1999 - $16,119.99 per month for one year beginning September 1, 2000 - $17,651.00 per month for one years beginning September 1, 2001 - $19,434.99 per month for two years beginning September 1, 2002 - With a final balloon payment of $1,575,000 due on August 31, 2004 - Payments include the paying agent fee of $450 per month. 32 The trustee must first draw, from the operating fund accounts, the charges due for paying agency and trustee services. Thereafter, the amounts in the operating fund accounts shall be used solely for the payment of interest coming due or principal coming payable on the bonds or for the redemption of bonds. However, the trustee may, in the event we fail to maintain or insure our properties, apply such funds as may be available in the operating fund accounts to perform our obligations. We are obligated to immediately replenish such funds so applied. Initial Operating Fund Payments Initial operating fund payments will be funded from the sale bonds as follows: - $90,000 will be funded from the proceeds of the sale of the Series 1999-I Bonds; - $125,000 will be funded from the proceeds of the sale of the Series 1999-II Bonds; - $90,000 will be funded from the proceeds of the sale of the Series 1999-III Bonds; - $90,000 will be funded from the proceeds of the sale of the Series 1999-IV Bonds and - $90,000 will be funded from the proceeds of the sale of the Series 19999-V Bonds. These initial operating funds will be used only to make the initial payments on the respective series of bonds. They are equivalent to slightly more than the first six month operating fund payments for the five series of bonds assuming all of the bonds are sold. After the initial operating fund payment amounts have been expended, the remaining operating fund payments will be payable primarily from the first revenues of our facilities. If we are unable to make the required operating fund payments to pay the principal and interest due on a series of bonds, then an event of default will occur in this series of bonds. See "Description of Bonds - Events of Default" and "Description of Bonds - Remedies of Default." Bond Reserve Account We have agreed to establish a bond reserve account which will be funded by four of the five series of bonds as follows: - $140,000 from the Series 1999-I Bonds, - $140,000 from the Series 1999-III Bonds, - $140,000 from the Series 1999-IV Bonds and - $117,000 from the Series 1999-V Bonds. If all the bonds are sold, the bond reserve account will be funded in the amount of $537,000. The purpose of the bond reserve account is that in the event we have not deposited the necessary funds to pay the principal and interest due on any semiannual payment date of any series of bonds, the trustee may apply available funds to the principal and interest due on the bonds. In the event that the trustee uses funds from the bond reserve account to pay the principal and interest on the Bonds due at a particular paydate, then we shall pay to the trustee, within 180 days from the date of such paydate, an amount necessary to replenish the bond reserve account. Failure to replenish the bond reserve account within 180 day period shall be an event of default and shall entitle the trustee to continue to hold the bond reserve account, in addition to its other remedies. The bond reserve account will remain in place for a period of seven and one half years from July 1, 1999. At the end of the seven and one half year period, any funds remaining in the bond reserve account must first be used to call any outstanding bonds, provided we are current on all operating fund payments. If all of the bonds have been retired prior to the end of the seven and one half year period, then the bond reserve account will be released to the Biltmore Group. 33 Escrow and Disbursement of Bond Proceeds All proceeds from the sale of the bonds shall be payable to and deposited with Colonial Trust Company of Phoenix, Arizona according to an escrow agreement entered into between the Biltmore Group and Colonial Trust Company, as escrow agent. According to the terms of the escrow agreement, all proceeds from the sale of the bonds will be deposited with the escrow agent, subject to the sale of minimum funds for any series of bonds. A separate escrow account will be maintained for each series of bonds. The minimum offering amounts for the bonds is as follows: - $400,000 for the Series 1999-I Bonds, - $600,000 for the Series 1999-II Bonds, - $400,000 for the Series 1999-III Bonds, - $400,000 for the Series 1999-IV Bonds and - $400,000 for the Series 1999-V Bonds. No fees still due the underwriter related to the sale of a particular series of bonds shall be paid out of an escrow account until the minimum escrow amount for that particular series of bonds has been met. The funds shall be used only for the purpose set forth under "Sources and Uses of Proceeds." During the escrow period, the subscriber will not have access to funds held in the escrow accounts. The Biltmore Group, our affiliates, the underwriter and the underwriter's affiliates may purchase bonds in order to reach the minimum offering amounts for any series of the bonds. These parties will not be restricted to the amount of bonds that they may purchase. If $400,000 has not been deposited in the escrow account from the sale of the Series 1999-I Bonds by December 1, 1999, the subscribers to the Series 1999-I Bonds will receive the return of their subscription amount plus interest. In the event that the minimum offering amount for the Series 1999-I Bonds is not met by December 1, 1999, we shall promptly pay to the escrow agent such sum of money as shall be necessary to pay for accrued interest on the bonds, if any, when added to the amount of the escrow property and interest earned thereon to pay to the subscribers of the bonds the principal amount of such subscriptions together with the interest from June 1, 1999 through December 1, 1999 at the rate attributable to the Series 1999-I Bonds subscribed. If $600,000 has not been deposited in the escrow account from the sale of the Series 1999-II Bonds by January 1, 2000, the subscribers to the Series 1999-II Bonds will promptly receive the return of their subscription amount plus interest. In the event that the minimum offering amount for the Series 1999-II Bonds is not met by January 1, 2000, we shall promptly pay to the escrow agent such sum of money as shall be necessary to pay for accrued interest on the bonds, if any, when added to the amount of the escrow property and interest earned thereon to pay to the subscribers of the bonds the principal amount of such subscriptions together with the interest from the date payment for the Series 1999-II Bonds is received in the office of the underwriter through January 1, 2000 at the rate attributable to the Series 1999-II Bonds subscribed. If $400,000 has not been deposited in the escrow account from the sale of the Series 1999-III Bonds by January 1, 2000, the subscribers to the Series 1999-III Bonds will promptly receive the return of their subscription amount plus interest. In the event that the minimum offering amount for the Series 1999-III Bonds is not met by January 1, 2000, we shall promptly pay to the escrow agent such sum of money as shall be necessary to pay for accrued interest on the bonds, if any, when added to the amount of the escrow property and interest earned thereon to pay to the subscribers of the bonds the principal amount of such subscriptions together with the interest from July 1, 1999 through January 1, 2000 at the rate attributable to the Series 1999-III Bonds subscribed. 34 If $400,000 has not been deposited in the escrow account from the sale of the Series 1999-IV Bonds by February 1, 2000, the subscribers to the Series 1999-IV Bonds will promptly receive the return of their subscription amount plus interest. In the event that the minimum offering amount for the Series 1999-IV Bonds is not met by February 1, 2000, we shall promptly pay to the escrow agent such sum of money as shall be necessary to pay for accrued interest on the bonds, if any, when added to the amount of the escrow property and interest earned thereon to pay to the subscribers of the bonds the principal amount of such subscriptions together with the interest from August 1, 1999 through February 1, 2000 at the rate attributable to the Series 1999-IV Bonds subscribed. If $400,000 has not been deposited in the escrow account from the sale of the Series 1999-V Bonds by March 1, 2000, the subscribers to the Series 1999-V Bonds will promptly receive the return of their subscription amount plus interest. In the event that the minimum offering amount for the Series 1999-V Bonds is not met by March 1, 2000, we shall promptly pay to the escrow agent such sum of money as shall be necessary to pay for accrued interest on the bonds, if any, when added to the amount of the escrow property and interest earned thereon to pay to the subscribers of the bonds the principal amount of such subscriptions together with the interest from September 1, 1999 through March 1, 2000 at the rate attributable to the Series 1999-V Bonds subscribed. Subject to the sale of the minimum offering amount for the Series 1999-I Bonds, the Biltmore Group and the trustee will use available funds from the sale of the Series 1999-I Bonds in the following order: 1. To pay expenses of the underwriter, attorney, appraiser, recording fees, mortgage taxes, trustee's fees, paying agent fees and other similar fees incurred in connection with the Series 1999-I Bonds; 2. To fund an amount approximately equivalent to the first six month operating fund payments for the Series 1999-I Bonds; 3. To retire the Minden construction loan; 4. To fund pre-opening costs of the Minden project; 5. To fund the Series 1999-I portion of the bond reserve account; and 6. After the above has been accomplished, any remaining funds in the bond proceeds account related to the Series 1999-I Bonds will be released to the Biltmore Group. Subject to the sale of the minimum offering amount for the Series 1999-II Bonds, the Biltmore Group and the trustee will use available funds from the sale of the Series 1999-II Bonds in the following order: 1. To pay expenses of the underwriter, attorney, appraiser, recording fees, mortgage taxes, trustee's fees, paying agent fees and other similar fees incurred in connection with the Series 1999-II Bonds; 2. To fund an amount approximately equivalent to the first six month operating fund payments for the Series 1999-II Bonds; 3. To retire the Oak Creek interim loan; 4. To retire the line of credit used for the renovation of the Oak Creek project; and 5. After the above has been accomplished, any remaining funds in the bond proceeds account related to the Series 1999-II Bonds will be released to the Biltmore Group. Subject to the sale of the minimum offering amount for the Series 1999-III Bonds, the Biltmore Group and the trustee will use available funds from the sale of the Series 1999-III Bonds in the following order: 35 1. To pay expenses of the underwriter, attorney, appraiser, recording fees, mortgage taxes, trustee's fees, paying agent fees and other similar fees incurred in connection with the Series 1999-III Bonds; 2. To fund an amount approximately equivalent to the first six month operating fund payments for the Series 1999-III Bonds; 3. To retire the Bastrop construction loan; 4. To fund the remaining construction costs on the Bastrop project; 5. To fund pre-opening costs of the Bastrop project; 6. To fund the Series 1999-III portion of the bond reserve account; and 7. After the above has been accomplished, any remaining funds in the bond proceeds account related to the Series 1999-III Bonds will be released to the Biltmore Group. Subject to the sale of the minimum offering amount for the Series 1999-IV Bonds, the Biltmore Group and the trustee will use available funds from the sale of the Series 1999-IV Bonds in the following order: 1. To pay expenses of the underwriter, attorney, appraiser, recording fees, mortgage taxes, trustee's fees, paying agent fees and other similar fees incurred in connection with the Series 1999-IV Bonds; 2. To fund an amount approximately equivalent to the first six month operating fund payments for the Series 1999-IV Bonds; 3. To retire the Farmerville construction loan; 4. To fund the remaining construction costs on the Farmerville project; 5. To fund pre-opening costs of the Farmerville project; 6. To fund the Series 1999-IV portion of the bond reserve account; and 7. After the above has been accomplished, any remaining funds in the bond proceeds account related to the Series 1999-IV Bonds will be released to the Biltmore Group. Subject to the sale of the minimum offering amount for the Series 1999-V Bonds, the Biltmore Group and the trustee will use available funds from the sale of the Series 1999-V Bonds in the following order: 1. To pay expenses of the underwriter, attorney, appraiser, recording fees, mortgage taxes, trustee's fees, Paying agent fees and other similar fees incurred in connection with the Series 1999-V Bonds; 2. To fund an amount approximately equivalent to the first six month operating fund payments for the Series 1999-V Bonds; 3. To retire the Natchitoches construction loan 4. To fund the Series 1999-V portion of the bond reserve account; and 5. After the above has been accomplished, any remaining funds in the bond proceeds account related to the Series 1999-V Bonds will be released to the Biltmore Group. See "Sources and Uses of Proceeds." 36 Escrow Agent We have appointed Colonial Trust Company of Phoenix, Arizona, as escrow agent. The duties and responsibilities of the escrow agent are set forth in the escrow agreement between the Biltmore Group and Colonial Trust Company, the provisions of which are summarized under "Description of Bonds - Escrow And Disbursement Of Bond Proceeds." Trustee Colonial Trust Company of Phoenix, Arizona, has agreed to serve as trustee for the bonds pursuant to the trust indenture entered into between the Biltmore Group and the trustee. The trustee has also agreed to serve as paying agent, registrar, disbursing agent and escrow agent. The trustee is not a guarantor or surety, does not in any way guarantee or act as surety for payment of the bonds and may not be held liable under any conditions, except for its own negligence. The underwriter and trustee are separate corporations organized under the laws of the states of Kansas and Arizona respectively. The trustee and underwriter share no common officer or directors. The underwriter will however receive a fee not to exceed $60,000 to be paid in installments over the terms of the bond issues from the trustee for its technical assistance pertaining to the bond issues. This assistance normally includes, but is not limited to: - Helping ensure that all legal documents are recorded; - Making sure that proper documentation is forwarded to the Trustee, including such documents as the articles of organization, appraisal, financial statements and annual reports; - Due diligence documentation of the progress of the project and bond sales; and - Follow-up with the Biltmore Group in the event of delinquent payments. This assistance offered by the underwriter presents a conflict of interest, in that the underwriter has underwritten other offerings for our affiliates, and therefore may not want to alienate us, and possibly lose future business, by aggressively pursuing delinquent payments that are due to investors. Dependence by the trustee on the underwriter to provide certain information to the trustee restricts the trustee's ability to function independently as a trustee. This assistance offered by the underwriter, for whom it is compensated by the trustee, does in no way relieve the trustee of its duties. Registrar The bonds are being issued as fully registered bonds in book entry form, unless the purchaser requests a printed bond certificate. The trustee is also acting as registrar and transfer agent for the bonds. As bond registrar, the trustee will: - Receive and record all proceeds from the sale of the bonds, - Maintain a permanent bond register, - Authenticate and mail all bonds to their registered holders that have requested a printed bond, - Cancel and reissue bonds which are transferred by the original holders, and - Replace lost, stolen and mutilated bond certificates. All bonds will be registered in the owner's name. Upon registration, a bond confirmation certificate or, if the purchaser requests, a printed bond will be mailed directly to it's owner. 37 Paying Agent We have also appointed the trustee to act as paying agent for the bonds. As paying agent the trustee will receive and hold all payments remitted by the company into the operating fund accounts and will disburse therefrom all payments of principal or interest on the bonds, trustees fees and such other sums as provided in the trust indenture. The paying agent holds the funds in trust, commingled with similar operating funds of other companies, but must maintain detailed records to reflect the balances attributable to each company. The paying agent may invest the funds in any form of account or deposit insured by depository insurance or in interest bearing obligations issued by the United States Government or any political subdivision thereof, or any funds comprised of the same. As paying agent, the trustee is required to furnish periodic statements to the Biltmore Group and to the underwriter reflecting all receipts and disbursements from the operating fund accounts. Underwriting Underwriting Agreement Subject to the terms and conditions of the underwriting agreement, a copy of which is filed as an exhibit to the registration statement of which this prospectus is a part, between the Biltmore Group and MMR Investment Bankers, Inc., the Biltmore Group has retained the services of the underwriter to offer and sell the bonds offered hereby on a "best efforts" basis at the public offering price of $250 per bond or integral multiples thereof. The bonds will be issued in five series, as identified in this prospectus, and each series is subject to the sale of a minimum-offering amount as indicated under "Description of Bonds - Escrow and Disbursement of Bond Proceeds." All proceeds from the sale of the bonds will be transmitted promptly to an escrow account with Colonial Trust Company as escrow agent. A separate escrow account will be maintained for each series of bonds. In the event minimum funds for any series of bonds is not received within the time set forth in this prospectus, we will promptly pay to the escrow agent such sum of money as will be necessary to pay for accrued interest on the bonds, if any, when added to the sums held in escrow, including interest earned thereon, to pay to the subscribers the principal amount of their subscription together with interest through the escrow termination date at the rate attributable to the bonds subscribed to by the subscriber. If the minimum offering amount for any series of bonds in not reached, the subscribers will promptly receive the return of their subscription amount plus interest. We expect that the bonds will be delivered in book-entry form, subject to the sale of minimum funds for each series of bonds, through the facilities of the trustee within 30 days from the date subscriptions for the bonds are received. The Biltmore Group, our affiliates, the underwriter and the underwriter's affiliates may purchase bonds in order to reach the minimum offering amounts for any series of the bonds. These parties will not be restricted to the amount of bonds that they may purchase. If any of these parties purchase bonds, the purchases by these parties will be on the same terms as purchases by public investors and will be with investment intent. There presently are no plans for any of these parties to purchase bonds. Contingent upon the sale of the minimum principal amount of a series of the bonds, we will pay the underwriter a concession as follows: - The underwriter will receive 6.0% of the face amount of each bond sold by another NASD member firm through a selling group agreement with the underwriter and may re-allow the full 6% to the NASD member firms participating in this offering; - The underwriter will receive a concession of 5.0% of the face amount of each bond sold by the underwriter to clients of the underwriter; or 38 - The underwriter will receive a processing fee of 1.0% of the face amount of each bond sold to a purchaser referred to the underwriter by the Biltmore Group, provided such investors are not currently a client of the underwriter. The underwriter or its assigns will also receive a fee not to exceed $60,000 to be paid in installments over the term of the bond issues from the trustee for services rendered to the trustee including the review of our financial and operating condition on a continuing basis. In addition, we have paid to the underwriter an investment banking fee in the amount of $128,700 for the underwriter's technical assistance in connection with this offering. In the event the offering is terminated prior to the issuance of bonds, we shall be liable to the underwriter only for the underwriter's out-of-pocket expenses for services rendered. We have agreed to pay all expenses in connection with qualifying the bonds for sale under such jurisdictions as the underwriter may designate. The underwriting agreement provides for reciprocal agreements of indemnity between the Biltmore Group and the underwriter as to certain civil liabilities, including liabilities under the Securities Act of 1933, as amended. The sale of the bonds will be for a period of one year from the date of this prospectus. All offerings are subject to prior sale. The underwriter has the first right of refusal on any other of our financing needs involving our facilities for the next three years following the offering. Additionally, the underwriter has advised us that it does not intend to make a market in the bonds. According to terms of the underwriting agreement, we may not contact any person listed in the records of the underwriter as a customer of the underwriter for any reason whatsoever without obtaining the prior written consent of the underwriter. However, this provision is not to be construed to prohibit us from providing any reports or notifications to bondholders that may be mandated by any federal or state laws or regulations. Subscription for Bonds Each person who wishes to purchase a bond must execute a subscription agreement covering the bond(s) being purchased. The subscription agreement is generated by the underwriter upon receiving verbal indication from a subscriber for the bond(s) the subscriber has selected from the available maturities. Subscribers may purchase any of the series of bonds. Prior to executing the subscription agreement, the subscriber will be provided a prospectus by the Underwriter. Checks should be made payable to Colonial Trust Company as escrow agent and registrar. Completion of the subscription agreement, including containing a proper signature is essential prior to any sale of the bonds to potential investors. However, we and the underwriter reserve the right to reject any subscription for any reason whatsoever, in which event all monies will then be refunded to the prospective investor without interest, deduction or credit thereon. Subject to the sale of minimum funds for each series of bonds, the registrar will register and deliver the bonds in book-entry form or provide those registered owners who request a printed bond certificate with the bonds within 30 days from the date subscriptions for the bonds are received. Determination of Offering Price Prior to this offering, there has been no public market for our bonds. Consequently, the initial public offering price for the bonds has been determined arbitrarily between us and the underwriter. Possible Withdrawal of Underwriter In June 1997, the Securities Commissioner of the State of Kansas filed a Petition in the District Court of Shawnee County, Kansas, Case No. 97-CU-755, styled State of Kansas, ex. rel. David R. Brant, Securities Commission of the State of Kansas v. William Gerald Martin, Thomas Gene Trimble, and MMR Investment Bankers, Inc. This case stems from the underwriter's participation in a series of church bond offerings of a single church located in Wichita, Kansas. The Securities Commissioner of Kansas seeks a permanent injunction restraining and enjoining each of the defendants from directly or indirectly employing any device, scheme, or artifice to defraud; engaging in an act, practice or course of 39 business which would operate as a fraud or deceit upon any person; and/or making any untrue statements of material fact and/or omitting to state material facts necessary in order to make other statements made not misleading, and, seeking restitution jointly and/or severely from each of the defendants in the amount of $4,825,665.24, which is the amount in default on the last two issues of church bonds issued on behalf of the church. It is likely that during the offering of the bonds, that this matter may be adjudicated, settled, or otherwise, and the authority of the underwriter to engage in the securities business may be suspended, revoked or limited. Currently, this litigation is in its discovery stage, and the underwriter has determined to vigorously defend the case. However, in the event the underwriter is unable to continue its business as a broker dealer of securities, it will have to withdraw from its participation in this offering and, in all likelihood, the offering will be terminated unless and until we are successful in finding another underwriter willing to participate in the sale of the bonds. Legal Matters Our counsel, Bobby L. Culpepper, Esq., Jonesboro, Louisiana, has opined upon certain legal matters pertaining to the bonds. Certain legal matters have been passed upon for the underwriter by Michael G. Quinn, Esq., Wichita, Kansas. To our best knowledge, there are neither pending legal proceedings nor any known to be threatened or contemplated to which we are a party or to which any of our property may be subject. Experts The following experts have consented to their names and to references to their reports appearing in this prospectus: Robert M. McSherry, MAI, of Baton Rouge, Louisiana, has provided appraisals of our facilities. William R. Hulsey, CPA, of Monroe, Louisiana, has audited our financial statements dated December 31, 1998. Additional Information We have filed with the Securities and Exchange Commission, Washington, D.C. 20549, a registration statement, including all amendments, exhibits and schedules, on Form SB-2 under the Securities Act with respect to these bonds. This prospectus, which constitutes a part of the registration statement, omits some of the information contained in the registration statement and the exhibits and financial schedules. Reference is made to the registration statement and related exhibits and schedules for further information with respect to the Biltmore Group and the bonds. Any statements contained in this prospectus concerning the provisions of any document are not necessarily complete, and in each instance that reference is made to a copy of the document filed as an exhibit to the registration statement. Each such statement is qualified in its entirety by such reference. For further information with respect to the Biltmore Group and the bonds, reference is made to the registration statement and such exhibits and schedules, copies of which may be examined or copied at the Public Reference Section of the Securities and Exchange Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the regional offices of the Securities and Exchange Commission located at 7 World Trade Center, Suite 1300, New York New York 10048 and at CitiCorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511. Also, information about the Biltmore Group is available at the Securities and Exchange Commission's Web site at http://www.sec.gov. 40 INDEX TO FINANCIAL STATEMENTS Page Auditor's Report . . . . . . . . . . . . . . . . . . . . . . . . . F-2 Balance Sheet at December 31, 1998 . . . . . . . . . . . . . . . . F-3 Statement of Income from July 1, 1998 until December 31, 1998. . . F-4 Statement of Members' Equity (Deficit) from July 1, 1998 until December 31, 1998 . . . . . . . . . . . . . . . . . . . . . F-5 Statement of Cash Flows from July 1, 1998 until December 31, 1998. . . . . . . . . . . . . . . . . . . . . . . . . F-6 Notes to Financial Statements. . . . . . . . . . . . . . . . . . . F-7 F-1 WILLLIAM R. HULSEY CERTIFIED PUBLIC ACCOUNTANT 2117 FORSYTHE AVENUE MEMBER MONROE, LOUISIANA MAILING ADDRESS AMERICAN INSTITUTE OF P. 0. BOX 2253 CERTIFIED PUBLIC ACCOUNTANTS MONROE, LOUISIANA 71207 SOCIETY OF LOUISIANA (318) 362-9900 CERTIFIED PUBIIC ACCOUNTANTS FAX (318) 362-9993 The Biltmore Group of Louisiana. L.L.C. 507 Trenton Street West Monroe, Louisiana I have audited the accompanying balance sheet of The Biltmore Group of Louisiana, L.L.C. as December 31, 1998 and the related statements of income, retained earnings and cash flows for the period then ended. These financial statements are the responsibility of the Company's management. My responsibility is to express an opinion on these financial statements based on my audit. I conducted my audit in accordance with generally accepted auditing standards. Those standards require that I plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. I believe that my audit provides a reasonable basis for my opinion. In my opinion, the financial statements referred to above present fairly in all material respects, the financial position of The Biltmore Group of Louisiana, L.L.C. at December 31, 1998 and the results of its operations and its cash flows for the period then ended in conformity with generally accepted accounting principles. January 21, 1999 /S/WILLIAM R HULSEY William R. Hulsey Certified Public Accountant F-2 The Biltmore Group of Louisiana, L.L.C. ( A Development Stage Company ) Balance Sheet December 31, 1998 ASSETS Current assets: Cash $ 21,318 Prepaid expenses 4,918 ---------- Total current assets 26,236 ---------- Property, plant and equipment Building construction in progress 2,878,986 Land 938,739 ---------- Total property, plant and equipment 3,817,725 ---------- Other assets: Deferred charges 110,000 ---------- $ 3,953,961 ---------- LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Accrued payroll taxes payable $ 1,383 Notes payable 689,907 ---------- Total current liabilities 691,290 ---------- Long-term debt 2,174,025 ---------- Members' equity 1,088,646 ---------- $ 3,953,961 ---------- The notes to financial statements are an integral part of this financial statement. F-3 The Biltmore Group of Louisiana, L.L.C. ( A Development Stage Company ) Statement of Income Period from July 1, 1998 until December 31, 1998 Revenues $ 0 ---------- Operating expenses Activities 685 Advertising 2,231 Bank charges 30 Dues and subscriptions 1,167 Education 498 Equipment rental 231 Housekeeping 439 Licenses 35 Miscellaneous 596 Office 21 Office supplies 869 Payroll expense 5,202 Postage 635 Printing 1,263 Promotion 15 Telephone 347 Travel and entertainment 9,389 Uniforms 7 Utilities 457 ---------- Total operating expenses 24,117 ---------- Net income (loss) (24,117) ---------- The notes to financial statements are an integral part of this financial statement. F-4 The Biltmore Group of Louisiana, L.L.C. ( A Development Stage Company ) Statement of Members' Equity Period from July 1, 1998 until December 31, 1998 Beginning members' equity $ 0 Members, contributions 1,112,763 Net income (loss) (24,117) ---------- Ending members' equity $ 1,088,646 ---------- The notes to financial statements are an integral part of this financial statement. F-5 The Biltmore Group of Louisiana, L.L.C. ( A Development Stage Company ) Statement of Cash Flows Period from July 1, 1998 until December 31, 1998 Cash flows from operating activities: Net loss $ (24,117) Adjustments to reconcile net income to cash used by operations: Increase in prepaid expenses (4,918) Increase in accrued payroll taxes 1,383 ---------- Net cash used by operating activities (27,652) ---------- Cash flows from investing activities Acquisitions land (938,739) Payments towards construction in progress (2,878,986) Payment of deferred charges (110,000) ---------- Net cash provided by (applied to) investing (3,927,725) ---------- Cash flows from financing activities Contribution of membership equity 1,112,763 Interim construction loans 689,907 Land and real estate loans 2,174,025 ---------- Net cash provided by (applied to) financing 3,976,695 ---------- Net increase in cash 21,318 Cash at the beginning of the period 0 Cash at the end of the period $ 21,318 ---------- The notes to financial statements are an integral part of this financial statement. F-6 The Biltmore Group of Louisiana, L.L.C. ( A Development Stage Company ) Notes to Financial Statements Note 1 - Summary of Significant Accounting Policies Nature of Business The company is a Louisiana limited liability company established to develop an assisted living center and dementia facility for the housing and care of senior citizens in Bastrop, Farmerville, Minden, and Natchitoches in Louisiana and in Sedona, Arizona. Basis of Accounting The company uses the accrual basis of accounting and will utilize the calendar year for all reporting purposes. Income Taxes The company is treated as a partnership for federal income tax purposes. Consequently, federal income taxes are not payable by, or provided for, the Company. Members are taxed individually on their share of the Company's earnings. The Company's income or loss is allocated among the members in accordance with the operating agreement of the Company. The financial statements do not reflect a provision for income taxes. Property, Buildings, Equipment and Depreciation Buildings and equipment are stated at cost and are to be depreciated by the straight-line method over their estimated economic lives. Buildings shall include capitalized construction period interest which will be treated as a component cost of the building and depreciated over the same economic life as the building. Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. Advertising The Company follows the policy of charging the costs of advertising to expense as incurred. F-7 The Biltmore Group of Louisiana, L.L.C. ( A Development Stage Company ) Notes to Financial Statements Note 1 - Summary of Significant Accounting Policies-(continued) Deferred Charges Deferred charges represents the costs associated with obtaining long-term financing for the care facilities of the Company. These costs are to amortized over the life of the bonds using the effective interest rate method. Note 2 - Related Party Transactions The Company has entered into a design/builder contract in the amount of $ 1,777,000 with The Forsythe Group, one of its members, to construct the Bastrop facility. The contract calls for the cash payments of $ 1,352,000 during the building of the facility as approved by the contract engineer and the balance of $ 425,000 through the issuance of certificates of membership equity. As of December 31, 1998, $ 36,560 has been paid on this contract and $ 175,000 of membership equity had been issued for services rendered in connection with the project. The remainder of the $ 250,000 due to be paid through the issuance of equity certificates, which will be issued at the completion of the project. The Company has entered into a design/builder contract in the amount of $ 1,777,000 with The Forsythe Group, one of its members, to construct the Farmerville facility. The contract calls for the cash payments of $ 1,352,000 during the building of the facility as approved by the contract engineer and the balance of $ 425,000 through the issuance of certificates of membership equity. As of December 31, 1998, there have been no cash payments on this contract and $ 135,000 of membership equity had been issued for services rendered in connection with the project. The remainder of the $ 290,000 due to be paid through the issuance of equity certificates, which will be issued at the completion of the project. The Company has entered into a design/builder contract in the amount of $ 1,777,000 with The Forsythe Group, one of its members, to construct the Minden facility. The contract calls for the cash payments of $ 1,352,000 during the building of the facility as approved by the contract engineer and the balance of $ 425,000 through the issuance of certificates of membership equity. As of December 31, 1998, $ 348,245 has been paid on this contract and $ 174,000 of membership equity had been issued for services rendered in connection with the project. F-8 The Biltmore Group of Louisiana, L.L.C. ( A Development Stage Company ) Notes to Financial Statements Note 2 - Related Party Transactions-(continued) The remainder of the $ 251,000 due to be paid through the issuance of equity certificates, which will be issued at the completion of the project. The Company has entered into a design/builder contract in the amount of $ 1,777,000 with The Forsythe Group, one of its members, to construct the Bastrop facility. The contract calls for the cash payments of $ 1,352,000 during the building of the facility as approved by the contract engineer and the balance of $ 425,000 through the issuance of certificates of membership equity. As of December 31, 1998, there have been no payments on this contract and $ 135,000 of membership equity had been issued for services rendered in connection with the project. The remainder of the $ 250,000 due to be paid through the issuance of equity certificates, which will be issued at the completion of the project. Note 3 - Deferred Charges Deferred charges are summarized as follows: Loan fees $ 110,000 The loan fees are to be amortized as interest expense over the life of the related loan by use of the interest method. Note 4 - Notes Payable Notes payable at December 31, 1998 consist of a note to Church Loans which is to provide the funding for the construction of the Bastrop location. The loan is to be repaid from the permanent financing of the project through the proposed issuance of bonds. This note calls for the payment of interest at a rate of prime ( as published in the Wall Street Journal plus two per cent but in no case shall the rate be less than ten and one-half per cent per annum. The lender shall maintain a first mortgage position on the Bastrop location until such time as the bonds are sold. At that time Church Loans will maintain a co-first mortgage position for any amounts which are not liquidated by the bond proceeds. As of December 31, 1998, the balance on this loan is $ 196,116. F-10 The Biltmore Group of Louisiana, L.L.C. ( A Development Stage Company ) Notes to Financial Statements Note 4 - Notes Payable-(continued) Notes payable at December 31, 1998 consist of a note to First Republic Bank to provide a credit line for the funding for the construction of the various locations. The loan is to be repaid from the permanent financing of the project through the proposed issuance of bonds. This note calls for the payment of interest at a rate of 9.995 per cent. As of December 31, 1998, the balance on this loan is $ 70,500. Notes payable at December 31, 1998 consist of a note to First Republic Bank to provide the funding for the construction of the Minden location. The loan is to be repaid from the permanent financing of the project through the proposed issuance of bonds. This note calls for the monthly payment of interest at a rate of 9.20 per cent. The lender shall maintain a first mortgage position on the Minden location until such time as the bonds are sold. As of December 31, 1998, the balance on this loan is $ 351,536. Notes payable at December 31, 1998 consist of a note to First Republic Bank to provide the funding for the remodeling and upgrading of the Sedona location. This note calls for the monthly payment of interest at a rate of 9.75 per cent. The note is secured by a mortgage position on certain real estate owned by on e of the members. As of December 31, 1998, the balance on this loan is $ 71,755. Note 5 - Contributions of Members' Equity The Company has issued members' equity certificates totalling $ 1,112,763 in exchange for $ 683,500 of services and $ 429,263 of cash. Note 6 - Development Stage Operations The Company has begun construction of the Minden and Bastrop facilities which have an estimated completion date of late 1999. The Company has completed the purchase of the Sedona, Arizona facility and is in the process of upgrading and remodeling the facility which has as estimated completion date of early 1999. The expenditures related to these projects are reflected as building construction in progress on the balance sheet. F-11 The Biltmore Group of Louisiana, L.L.C. ( A Development Stage Company ) Notes to Financial Statements Note 7 - Long-Term Debt Long-term debt at December 31, 1998 consist of a note to Church Loans which is to provided the funding for the purchase of the Sedona location. The loan is to be repaid from the permanent financing of the project through the proposed issuance of bonds. This note calls for the payment of interest at a rate of prime ( as published in the Wall Street Journal plus two per cent but in no case shall the rate be less than ten and one-half per cent per annum. The lender shall maintain a first mortgage position on the Sedona location until such time as the bonds are sold. At that time Church Loans will maintain a co-first mortgage position for any amounts which are not liquidated by the bond proceeds. As of December 31, 1998, the balance on this loan is $ 2,174,025. F-12 Maturity Schedules
Series 1999-I Bonds Maturity Type Interest Principal Date Rates Retired 12/01/00 S 7.00% $ 21,000 06/01/01 S 7.50% $ 21,500 12/01/01 S 7.50% $ 24,000 06/01/02 S 8.00% $ 25,000 12/01/02 S 8.00% $ 29,500 06/01/03 S 8.50% $ 30,250 12/01/03 C 8.50% $ 21,750 06/01/04 S 9.00% $ 31,500 12/01/04 C 9.00% $ 20,500 06/01/05 S 9.25% $ 33,000 12/01/05 C 9.25% $ 19,250 06/01/06 S 9.50% $ 34,750 12/01/06 S 9.50% $ 36,250 12/01/06 S 9.50% $1,451,750
Series 1999-II Bonds Maturity Type Interest Principal Date Rate Retired 07/01/04 S 9.00% $2,700,000
Series 1999-III Bonds Maturity Type Interest Principal Date Rate Retired 01/01/00 C 6.50% $ 77,000 07/01/00 C 7.00% $ 74,500 01/01/01 C 7.00% $ 81,000 07/01/01 C 7.50% $ 77,750 01/01/02 C 7.50% $ 83,500 07/01/02 C 8.00% $ 79,500 01/01/03 C 8.00% $ 84,500 07/01/03 C 8.50% $ 79,500 01/01/04 C 8.50% $ 76,500 07/01/04 C 9.00% $ 71,500 01/01/05 C 9.00% $ 68,500 07/01/05 C 9.25% $ 64,500 01/01/06 C 9.25% $ 62,000 07/01/06 C 9.50% $ 58,000 01/01/07 C 9.50% $ 55,500 01/01/07 C 9.50% $ 706,250
Series 1999-IV Bonds Maturity Type Interest Principal Date Rate Retired 02/01/01 S 7.00% $ 17,250 08/01/01 S 7.50% $ 18,000 02/01/02 C 7.50% $ 23,000 08/01/02 S 8.00% $ 27,750 02/01/03 C 8.00% $ 30,000 08/01/03 S 8.50% $ 39,500 02/01/04 C 8.50% $ 28,250 08/01/04 S 9.00% $ 41,250 08/01/04 S 9.00% $1,575,000
Series 1999-V Bonds Maturity Type Interest Principal Date Rate Retired 03/01/01 S 7.00% $ 17,250 09/01/01 S 7.50% $ 18,000 03/01/02 C 7.50% $ 23,000 09/01/02 S 8.00% $ 27,750 03/01/03 C 8.00% $ 30,000 09/01/03 S 8.50% $ 39,500 03/01/04 C 8.50% $ 28,250 09/01/04 S 9.00% $ 41,250 09/01/04 S 9.00% $1,575,000
S = simple interest bonds; interest payable semiannually until maturity. C = compound interest bonds; interest compounded semiannually and payable at maturity. M-1 (This page is intentionally left blank) You should rely only on the information contained in this prospectus. We have not authorized anyone to provide you with different information. You should not assume that the information in this prospectus is accurate as of any date other than the date appearing on the front page. We include cross-references in this prospectus to captions in these materials where you can find further related discussions. The following table of contents provides the pages on which these captions are located. TABLE OF CONTENTS Prospectus Summary . . . . . . . . . 3 Risk Factors . . . . . . . . . . . . 6 Use of Proceeds. . . . . . . . . . . 9 Our Business . . . . . . . . . . . .11 Description of Our Property. . . . .15 Our Management . . . . . . . . . . .21 Our Principal Owners . . . . . . . .22 Our Plan of Operation. . . . . . . .22 Prior Performance of Our Affiliates.23 Certain Transactions . . . . . . . .24 Description of Bonds . . . . . . . .26 Underwriting . . . . . . . . . . . .38 Legal Matters. . . . . . . . . . . .40 Experts. . . . . . . . . . . . . . .40 Additional Information . . . . . . .40 Index to Financial Statements. . . F-1 Maturity Schedules . . . . . . . . M-1 Until , 1999, all dealers that effect transactions in the ------- bonds, whether or not participating in this offer, may be required to deliver a prospectus. This requirement is in addition to the dealers obligation to deliver a prospectus when acting as underwriters with respect to their unsold allotments or subscriptions. $9,900,000 Co-First Mortgage Bonds THE BILTMORE GROUP OF LOUISIANA, L.L.C. PROPECTUS MMR INVESTMENT BANKERS, INC. [MMR LOGO HERE] [SIPC LOGO HERE] , 1999 ---------- [/R] Part II Information Not Required in Prospectus Item 24. Indemnification of Directors and Officers The Louisiana Limited Liability Company law (La. R. S. 12:1314 and 1315) confers broad powers upon limited liability companies organized in Louisiana with respect to limitations of liability and indemnification of any person against liabilities incurred by reason of the fact that such person is or was a member, manager, employee or agent of a limited liability company, or is or was serving at the request of the company as a manager, employee or agent of another company or other business entity. The provisions of La. R.S. 12:1314 are not exclusive of any other rights to which those seeking indemnification may be entitled under any articles of organization or written operating agreement as allowed pursuant to La. R.S. 12:1315. The Operating Agreement of the Biltmore Group contains a provision regarding the limits of liability of members and managers of the Biltmore Group to the fullest extent allowed by law. The Underwriting Agreement, filed as Exhibit 1(a) to this Registration Statement, provides for the indemnification by the Biltmore Group of the underwriter and each person, if any, who controls the underwriter against certain liabilities and expenses, as stated therein, which may include liabilities under the Securities Act of 1933. The underwriting agreement also provides that the underwriter similarly indemnify the Biltmore Group, its directors, officers and controlling persons, as set forth therein. Item 25. Other Expenses of Issuance and Distribution The following is a list of the estimated expenses in connection with the issuance and distribution of securities being registered, other than underwriting discounts and commissions, all of which is to be paid by the Registrant: SEC Registration Fee. . . . . . . . . . . . . . . . . . . .$3,000 NASD Registration Fee . . . . . . . . . . . . . . . . . . .$1,490 Blue Sky Qualification Fees and Expenses. . . . . . . . . .$3,150 CUSIP Registration Fees . . . . . . . . . . . . . . . . . .$1,000 Legal Fees and Expenses . . . . . . . . . . . . . . . . . $20,000 Accounting Fees and Expenses. . . . . . . . . . . . . . . $20,000 Transfer Agent, Escrow Agent, Paying Agent, Registrar & Trustee Fees. . . . . . . . . . . . . . . . .$9,900 Miscellaneous . . . . . . . . . . . . . . . . . . . . . . .$2,760 -------- Total. . . . . . . . . . . . . . . . . . . . . . . . $61,300 ======== Item 26. Recent Sale of Unregistered Securities The following table sets forth the Biltmore Group's sales of unregistered securities in the last three years. No underwriters were involved in any of such sales nor were any commissions or similar fees paid by the Registrant with respect thereto. The Biltmore Group claims exemption from registration for these issuances under Section 4(2) of the Securities Act of 1933. These securities were sold as a private placement to the original members, each of which is an accredited investor as defined under the Securities Act of 1933. II-1
Date Title Identity of Sale of Securities Amount Sold of Purchaser Consideration 08/20/98 Membership 265,000 Units The Forsythe Issued in exchange Interest Group for services rendered in connection with developing plans for construction, obtaining State Fire Marshall approval of the plans and getting approval of the proper zoning of the Project and $91,000 in cash 09/30/98 Membership 21,500 Units Joanne Issued in exchange Interest Caldwell- for services rendered Bayles in connection with the formation of the Company and $2,000 in cash 10/19/98 Memership 85,000 Units Joanne Issued in exchange Interest Caldwell- for services rendered Bayles in connection with the interior design of the Facilities and market research studies for the Facilities 11/10/98 Membership 203,739 Units Joanne Issued in exchange for Interest Caldwell- $203,739 in cash Bayles 11/10/98 Membership 270,000 Units Joanne Issued in exchange for Interest Caldwell- services rendered in Bayles connection with selecting the location and purchasing of the land on which the Bastrop and Farmerville Projects are to be built, developing the plans for construction, obtaining State Fire Marshall approval of the plans and getting approval of the proper zoning of the Bastrop and Farmerville Projects 11/10/98 Membership 267,523.5 Units The Forsythe Issued in exchange for Interest Group services rendered in connection with selecting the location and purchasing of the land on which the Natchitoches Project is to be built, developing the plans for construction, obtaining Sate Fire Marshall approval of the plans and getting approval of the proper zoning of the Natchitoches Project and $132,523.50 in cash
II-3 Item 27. Exhibits Exhibit Number Description 1(a) * Form of Underwriting Agreement 1(b) * Form of Selling Group Agreement 1(c) * Form of Proceeds Escrow Agreement 3(a) * Articles of Organization 3(b) * Operating Agreement 4(a) * Specimen of Bond Certificate 4(b) ** Form of Trust Indenture 4(c) * Form of Lienholders Agreements 5(a) ** Opinion of Bobby L. Culpepper, Esq. 10(a) * Construction Management Contract - Minden Facility 10(b) * Construction Management Contract - Bastrop Facility 10(c) * Construction Management Contract - Farmerville Facility 10(d) * Construction Management Contract - Natchitoches Facility 10(e) ** Construction Loan Agreement - Minden 10(f) * Interim Loan Agreement - Oak Creek 10(g) * Construction Loan Agreement - Bastrop 10(h) * Construction Loan Agreement - Farmerville 10(i) * Construction Loan Agreement - Natchitoches 10(j) * Form of Management Agreements 10(k) ** Biltmore Promisory Note 10(l) ** Forsythe Promisory Note 23(a) ** Consent of William R. Hulsey, CPA 23(b) ** Consent of Bobby L. Culpepper, Esq. 23(c) * Consent of Appraiser - Minden 23(d) * Consent of Appraiser - Oak Creek 23(e) * Consent of Appraiser - Bastrop 23(f) * Consent of Appraiser - Farmerville 23(g) * Consent of Appraiser - Natchitoches 99(a) * Appraisal - Minden 99(b) * Appraisal - Oak Creek 99(c) * Appraisal - Bastrop 99(d) * Appraisal - Farmerville 99(e) * Appraisal - Natchitoches 99(f) * Environmental Report - Minden 99(g) * Environmental Report - Bastrop 99(h) * Environmental Report - Farmerville 99(i) * Environmental Report - Natchitoches * Previously filed ** Filed as part of this amendment Item 28. Undertakings Insofar as indemnification for liabilities arising under the Securities Act of 1933, as amended (the "Act"), may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. The undersigned Registrant hereby undertakes that: (1) For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this Registration Statement as of the time it was declared effective. (2) For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) It will file, during any period in which it offers or sells securities, a post-effective amendment to this registration statement to: (i) Include any prospectus required by section 10(a)(3) of the Act; (ii) Reflect in the prospectus any facts or events which, individually or together, represent a fundamental change in the information in the registration statement; and notwithstanding th foregoing, anyu increase or decrease in volume of securities offered (if the total value of securities offered would not exceed that which was registered) any deviation form the low of high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission purusant to Rule 242(b) if, in the aggregate, the changes in hte volume and price represent no more than 20% change in maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective registration statement; and (iii) Include any additional or changed material information on the plan of distribution. (4) File a post-effective amendment to remove from registration any of the securities that remain unsold at the end of the offering. II-4 In accordance with the requirements of the Securities Act of 1933, the Registrant, The Biltmore Group of Louisiana, Inc., certifies that it has reasonable grounds to believe that it meets all of the requirements of filing on Form SB-2 and authorized this Registration Statement to be signed on its behalf by the undersigned, in the City of West Monroe, State of Louisiana, on this 15th day of April , 1999. ------ ---------- The Biltmore Group of Louisiana, L.L.C. By: /S/JOANNE M CALDWELL-BAYLES --------------------------------- Joanne. M. Caldwell-Bayles Managing Member In accordance with the requirement of the Securities Act of 1933, this Registration Statement was signed by the following persons in the capacities indicated on April 15th , 1999. --------------- Signature Title /s/JOANNE M CALDWELL-BAYLES Managing Member (Chief Executive Officer - ------------------------------ and Chief Financial Officer) Joanne M. Caldwell-Bayles II-5 EX-4.2 2 FORM OF TRUST INDENTURE TRUST INDENTURE THE BILTMORE GROUP OF LOUISIANA, L.L.C. Name of Issuer ------------------ Trust Number COLONIAL TRUST COMPANY As Trustee TABLE OF CONTENTS PAGE I. Capacities of Colonial . . . . . . . . . . . . . . . . . . . . . 1 II. Issue of Bonds and Security . . . . . . . . . . . . . . . . . . . 1 III. Description of Bonds and Liens . . . . . . . . . . . . . . . . . 2 A. Registration of Bonds and Liens . . . . . . . . . . . . . . 2 B. Bondholders' Pro Rata Lien . . . . . . . . . . . . . . . . 2 C. Trustee's Reimbursement Lien . . . . . . . . . . . . . . . 3 IV. Disbursement of Bond Proceeds . . . . . . . . . . . . . . . . . . 3 A. Bond Proceeds Account . . . . . . . . . . . . . . . . . . . 3 B. Preference of Payments Out of Bond Proceeds Account . . . . . . . . . . . . . . . . . . . . . 4 C. Construction Draws . . . . . . . . . . . . . . . . . . . . 8 D. Surplus Bond Proceeds . . . . . . . . . . . . . . . . . . . 10 E. Overpayments . . . . . . . . . . . . . . . . . . . . . . . 10 F. Abandonment of Project . . . . . . . . . . . . . . . . . . 11 V. Payment of Bonds . . . . . . . . . . . . . . . . . . . . . . . . 11 A. Priorities of Issuer's Payments . . . . . . . . . . . . . . 11 B. Priority of Charges against Sinking Fund . . . . . . . . . 12 C. Method of Payments into Sinking Fund . . . . . . . . . . . 12 D. Expenses of Default . . . . . . . . . . . . . . . . . . . . 13 E. Issuer's Payment Secured by its Revenues . . . . . . . . . 13 F. When Sinking Fund Balance May Be Paid to Issuer . . . . . . . . . . . . . . . . . . . . . . . . . 13 G. Bond Reserve Account . . . . . . . . . . . . . . . . . . . 13 H. First Six Month Operating Fund Reserve Account . . . . . . 15 VI. Bondholders' Failure to Surrender Matured Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 A. No Interest After Maturity . . . . . . . . . . . . . . . . 16 B. Escheat After Three Years . . . . . . . . . . . . . . . . . 16 VII. Issuer's Covenants . . . . . . . . . . . . . . . . . . . . . . . 17 A. Issuer Shall Maintain and Insure the Property . . . . . . . . . . . . . . . . . . . . . . . . . 17 B. Trustee May Cure . . . . . . . . . . . . . . . . . . . . . 18 C. Issuer May Not Merge . . . . . . . . . . . . . . . . . . . 18 D. Issuer's . . . . . . . . . . . . . . . . . . . . . . . . . 19 VIII. Defaults and Remedies . . . . . . . . . . . . . . . . . . . . . . 19 A. Events of Default Defined . . . . . . . . . . . . . . . . . 19 B. Waiver of Notice by Issuer; Trustee's Remedies . . . . . . . . . . . . . . . . . . . . . . . . . 20 C. Legal Ownership of Rights to Prosecution and Enforcement in Trustee Alone . . . . . . . . . . . . . 24 i D. Trustee's Discretion to Advise Bond- holders of Default . . . . . . . . . . . . . . . . . . . . 24 E. Bondholders' Rights in Event of Trustee's Failure to Act . . . . . . . . . . . . . . . . . 24 F. Trustee's Right to Stop Payment on Outstanding Checks . . . . . . . . . . . . . . . . . . . . 25 G. Penalty Interest . . . . . . . . . . . . . . . . . . . . . 25 H. Trustee Has No Duty to Cure; Trustee's Rights in Event of Overdraft or Overpayment . . . . . . . . . . . . . . . . . . . . . . . . 25 I. Application of Sinking Fund Balances Upon Default . . . . . . . . . . . . . . . . . . . . . . . 26 IX. Issuer's Prepayment Privileges . . . . . . . . . . . . . . . . . 28 A. Entire Series in Full or Partial at Random . . . . . . . . . . . . . . . . . . . . . . . . . . 28 B. No Pre-Payment Penalty; Additional Trustee's Fee . . . . . . . . . . . . . . . . . . . . . . . 28 C. Disposition of Unpresented Bonds . . . . . . . . . . . . . 28 D. Over- and Under-Deposit of Funds . . . . . . . . . . . . . 28 E. Trustee's Release of Lien . . . . . . . . . . . . . . . . . 29 X. Replacement of Bonds . . . . . . . . . . . . . . . . . . . . . . 29 A. Exchange of Mutilated or Defaced Bonds . . . . . . . . . . 29 B. Lost, Stolen or Destroyed Bonds . . . . . . . . . . . . . . 29 C. Remedies are Exclusive . . . . . . . . . . . . . . . . . . 29 XI. Additional Parity Bonds . . . . . . . . . . . . . . . . . . . . . 30 A. Conditions for Issuance . . . . . . . . . . . . . . . . . . 30 B. Right of First Refusal . . . . . . . . . . . . . . . . . . 31 XII. Sale of Property . . . . . . . . . . . . . . . . . . . . . . . . 31 A. For Fair Market Value Only . . . . . . . . . . . . . . . . 31 B. Application of Sale Proceeds . . . . . . . . . . . . . . . 32 C. Value of Pledged Property to be Sufficient to Secure Bonds Then Outstanding . . . . . . . . . . . . . . . . . . . . . . . . 32 XIII. Substitution of Collateral . . . . . . . . . . . . . . . . . . . 32 A. For Fair Market Value Only . . . . . . . . . . . . . . . . 33 B. Must Become Part of the Lien . . . . . . . . . . . . . . . 33 XIV. Condemnation of Property . . . . . . . . . . . . . . . . . . . . 33 A. Condemnation of All the Property . . . . . . . . . . . . . 33 B. Condemnation of a Portion of the Property . . . . . . . . . 33 XV. Duties of Trustee, Paying Agent and Registrar . . . . . . . . . . 34 A. Trustee's Administrative Duties . . . . . . . . . . . . . . 34 B. Paying Agent's Duties . . . . . . . . . . . . . . . . . . . 35 C. Registrart's Duties . . . . . . . . . . . . . . . . . . . 36 XVI. Limitation of Trustee's Liability . . . . . . . . . . . . . . . . 36 XVII. Ancillary/Co-Trustee; Resignation and Removal; Successor Trustee . . . . . . . . . . . . . . . . . . . . . . . . 39 A. Trustee May Appoint Ancillary and Co-Trustees . . . . . . . . . . . . . . . . . . . . . . . . 39 B. Voluntary Resignation and Involuntary Removal of Trustee . . . . . . . . . . . . . . . . . . . . 39 XVIII. Illegal Interest . . . . . . . . . . . . . . . . . . . . . . . . 42 XIX. Release of the Lien . . . . . . . . . . . . . . . . . . . . . . . 43 XX. Investment of Funds; Trustee's Fees . . . . . . . . . . . . . . . 43 A. Permitted Investments . . . . . . . . . . . . . . . . . . . 43 B. Base Fees of Trustee, Paying Agent and Registrar . . . . . . . . . . . . . . . . . . . . . . . . . 43 C. Additional Fees to be Charged for Extraordinary Services . . . . . . . . . . . . . . . . . . 43 XXI. Supplemental Indentures . . . . . . . . . . . . . . . . . . . . . 44 A. Not Requiring Bondholder Consent . . . . . . . . . . . . . 44 B. Requiring Bondholder Consent . . . . . . . . . . . . . . . 44 C. Requisites of Notice to Bondholders . . . . . . . . . . . . 45 D. Only Substantial Consent Required . . . . . . . . . . . . . 46 XXII. Bondholder Lists and Reports; Evidence of Rights of Bondholders . . . . . . . . . . . . . . . . . . . . 46 A. Form of Bondholder Action . . . . . . . . . . . . . . . . . 46 B. Issuer Owned or Controlled Bonds to be Disregarded . . . . . . . . . . . . . . . . . . . . . . . . 47 C. Third-Party Communiques to Bondholders . . . . . . . . . . 47 D. Bondholder Identities Not to be Disclosed . . . . . . . . . . . . . . . . . . . . . . . . . 48 XXIII. Miscellaneous Provisions . . . . . . . . . . . . . . . . . . . . 48 iii TRUST INDENTURE STATE OF ARIZONA COUNTY OF MARICOPA THIS TRUST INDENTURE made and entered into between THE BILTMORE GROUP OF LOUISIANA, L.L.C., a Louisiana limited liability company, c/o Arbor Group, L.L.C., 507 Trenton Street, West Monroe, Louisiana 71291, acting through its duly authorized agents and representatives, hereinafter called "Issuer," and COLONIAL TRUST COMPANY, a trust company organized under the laws of the state of Arizona, having its principal office and post office address respectively at 5336 North 19th Avenue, Phoenix, Arizona 85015, and P.O. Box 33487, Phoenix, Maricopa County, Arizona 85067-3487, hereinafter called either "Colonial" or "Trustee," WITNESSETH: I. CAPACITIES OF COLONIAL Colonial will serve in the multiple capacities of Trustee for the benefit of the Bondholders (hereinafter called "Trustee"), Registrar with respect to the transfer of the Bonds and maintenance of the Bond Register (hereinafter called "Registrar"), and Paying Agent with respect to distribution of interest and principal payments to or for the Bondholders (hereinafter called "Paying Agent"). The duties and responsibilities of Colonial for its service in each of such capacities, as well as the compensation to be paid to Colonial therefor, are hereinafter set forth; provided that, unless the context otherwise requires, all such terms are used interchangeably and collectively, the term for one capacity including as well the other two terms and capacities. II. ISSUE OF BONDS AND SECURITY Issuer has agreed and does hereby agree to issue Bonds of serial maturities in the total amount of $9,900,000.00, hereinafter called the "Bonds," secured, in accordance with the terms and provisions of this Trust Indenture by a deed of trust(s) or mortgage(s) and security agreement(s), hereinafter called the "Lien," recorded in the proper State and County or Parish or other recording office, on and covering properties of Issuer more Trust Indenture Page 1 of 51 described in such mortgage(s) or deed(s) of trust executed or to be executed by Issuer and filed of record to secure the Bond Issue governed by this Trust Indenture (hereinafter called the "Property"), and incorporated herein by reference. The Property shall include the following projects: (A)The Minden, Louisiana Project; (B)The Sedona, Arizona Project; (C)The Bastrop, Louisiana Project; (D)The Natchitoches, Louisiana Project; and (E)The Farmerville, Louisiana Project. The Mortgage(s) and/or Deeds of Trust relative to each of the above-mentioned projects as originally executed and as amended or modified, from time to time, are incorporated herein by reference and made a part hereof. All moneys received and maintained by the Trustee hereunder shall be trust funds held for the benefit of the Bondholders and shall not be subject to lien or attachment of any creditor of Issuer or Trustee. III. DESCRIPTION OF BONDS AND LIENS (A) All of the Bonds shall be issued pursuant to the prospectus or offering circular in the names of the holders thereof as registered on the books and records of the Registrar. No principal or interest payable upon the Bonds shall be paid to any persons other than the registered holders. Payments of principal and/or interest upon the Bonds shall be made by check drawn upon the Sinking Fund Account to be maintained by Trustee, which check shall be mailed, postage prepaid, to the registered holders of the Bonds at their registered addresses. (B) The Bonds will be secured by a lien upon the property and facility acquired with the proceeds of the bonds, as follows: (1) Series 1999-I bonds in the amount of $1,800,000.00 will be secured by a first and superior lien against the property comprising the Minden, Louisiana facility; (2) Series 1999-II bonds in the amount of $2,700,000.00 will be secured by a first and superior lien against the property comprising the Sedona, Arizona facility; Trust Indenture Page 2 of 51 (3) Series 1999-III bonds in the amount of $1,800,000.00 will be secured by a first and superior lien against the property comprising the Bastrop, Louisiana facility; (4) Series 1999-IV bonds in the amount of $1,800,000.00 will be secured by a first and superior lien against the property comprising the Natchitoches, Louisiana facility; and (5) Series 1999-V bonds in the amount of $1,800,000.00 will be secured by a first and superior lien against the property comprising the Farmerville, Louisiana facility. Futhermore, issuer pledges the first revenues and receipts from each of the above described properties and facilities to secure the payment of the bonds. Such revenues shall be first applied to the payment of the bonds the proceeds of which were used to obtain or construct the facility or property producing such revenues and receipts and thereafter to the payment of the remaining bonds; first to any other bonds the payment of which is in default and if none, or thereafter, to the payment of such other bonds as the Trustee, in the Trustee's discretion, may select. Notwithstanding the above, the Bonds are cross-collateralized to the extent and at the option of Trustee as provided in Paragraph VIII(B) (5) hereof. (C) Hereinafter the phrase "Reimbursement Lien" will be used to identify a lien against the Property in favor of Trustee securing Trustee's right to reimbursement for its own or borrowed funds advanced or expended, said Reimbursement Lien being likewise secured by the Property but being superior to the Lien securing the Bondholders until such funds advanced or expended are repaid in full. All such advances and expenditures secured by the Reimbursement Lien shall, subject to Article XVIII, bear interest at the rate equal to two (2%) percent per annum in excess of the "Prime Rate" quoted daily in the money rate column of the Wall Street Journal as said note may from day to day in Trustee's sole discretion be adjusted upward and downward. All such principal and interest accrued and/or collected by Trustee in reimbursement from Issuer shall be Trustee's sole property. Trust Indenture Page 3 of 51 IV. DISBURSEMENT OF BOND PROCEEDS (A) As the Bonds are sold (or if the Bond proceeds are placed in an escrow account to be released to Trustee only after the conditions of the escrow agreement have been met), the proceeds from the sale of the Bonds shall be delivered to Trustee to be deposited into a Bond Proceeds Account in the name and under the exclusive control of Trustee in a depository selected by Trustee, including its own commercial banking division. Trustee shall disburse the Bond proceeds in accordance with the provisions of paragraph (B) below. (B) Out of the proceeds from the sale of the Bonds, Trustee shall first pay the following items in the order and preference listed: (1) The Series 1999-I Bonds (being used for the Minden, Louisiana project) as follows: (a) The Dealer's fee, commissions and related financing costs due the broker/dealer assisting Issuer in the sale of the Bonds (hereinafter called "Broker") under the terms of a written agreement between Issuer and Broker. (b) The reimbursement to Trustee of any expenses incurred by Trustee including attorney's fees incurred in the examination by its legal counsel of all documents required to issue the Bonds. (c) The establishment of a First Six Month Operating Fund Payments Reserve in the amount of $90,000.00 to be used to pay the sinking fund payments during the first six months of the project. (d) The principal and interest payable by Issuer upon promissory notes or other obligations of Issuer or others secured by existing liens upon the Property, including any interim construction loans secured by an equal parity lien with the bonds. Upon payment of such obligations, Trustee shall be subrogated to the rights of the prior owners thereof. (e) The payment of remaining costs of construction. Trust Indenture Page 4 of 51 (f) To reimburse Issuer pre-opening costs not to exceed $75,000.00. (g) To the Bond Reserve Account in the amount of $140,000.00 for a period of time as disclosed in the offering circular pursuant to which the bonds were sold. (h) After the payment of the foregoing, the Trustee shall, subject to statutory retainage, disburse the funds remaining in Issuer's Bond Proceeds Account (hereinafter called the "Net Bond Proceeds") for the remaining purposes of the Bond offering as set forth and described in the prospectus or offering circular used in connection with the Bond offering, if any, and the balance to the Issuer; provided, that in the event of any conflict in this regard between the terms of said prospectus or offering circular and this Trust Indenture, this Trust Indenture shall be deemed to control. (2) The Series 1999-II Bonds (being used for the Sedona, Arizona as follows: (a) The Dealer's fee, commissions and related financing costs due the broker/dealer assisting Issuer in the sale of the Bonds (hereinafter called "Broker") under the terms of a written agreement between Issuer and Broker. (b) The reimbursement to Trustee of any expenses incurred by Trustee, including attorney's fees incurred in the examination by its legal counsel of all documents required to issue the Bonds. (c) The establishment of a First Six Month Operating Fund Payments Reserve in the amount of $125,000.00 to be used to pay the sinking fund payments during the first six months of the project. (d) The principal and interest payable by Issuer upon promissory notes or other obligations of Issuer or others secured by existing liens upon the Property, including any interim loan secured by an equal parity lien with the bonds owing to Church Loans & Investments Trust. Upon payment of such obligations, Trustee shall be subrogated to the rights of the prior owners thereof. (e) The payment of a line of credit in the amount of $189,000.00 used for interim loan interest costs and renovations. Trust Indenture Page 5 of 51 (f) After the payment of the foregoing, the Trustee shall, subject to statutory retainage, disburse the funds remaining in Issuer's Bond Proceeds Account (hereinafter called the "Net Bond Proceeds") for the remaining purposes of the Bond offering as set forth and described in the prospectus or offering circular used in connection with the Bond offering, if any, and the balance to the Issuer; provided, that in the event of any conflict in this regard between the terms of said prospectus or offering circular and this Trust Indenture, this Trust Indenture shall be deemed to control. (3) The Series 1999-III Bonds (being used for the Bastrop, Louisiana project) as follows: (a) The Dealer's fee, commissions and related financing costs due the broker/dealer assisting Issuer in the sale of the Bonds (hereinafter called "Broker") under the terms of a written agreement between Issuer and Broker. (b) The reimbursement to Trustee of any expenses incurred by Trustee, including attorney's fees incurred in the examination by its legal counsel of all documents required to issue the Bonds. (c) The establishment of a First Six Month Operating Fund Payments Reserve in the amount of $90,000.00 to be used to pay the sinking fund payments during the first six months of the project. (d) The principal and interest payable by Issuer upon promissory notes or other obligations of Issuer or others secured by existing liens upon the Property, including any interim construction loans secured by an equal parity lien with the bonds. Upon payment of such obligations, Trustee shall be subrogated to the rights of the prior owners thereof. (e) The payment of remaining costs of construction. (f) To reimburse Issuer pre-opening costs not to exceed $75,000.00. (g) To the Bond Reserve Account in the amount of $140,000.00 for a period of time as disclosed in the offering circular pursuant to which the bonds were sold. Trust Indenture Page 6 of 51 (h) After the payment of the foregoing, the Trustee shall, subject to statutory retainage, disburse the funds remaining in Issuer's Bond Proceeds Account (hereinafter called the "Net Bond Proceeds") for the remaining purposes of the Bond offering as set forth and described in the prospectus or offering circular used in connection with the Bond offering, if any, and the balance to the Issuer; provided, that in the event of any conflict in this regard between the terms of said prospectus or offering circular and this Trust Indenture, this Trust Indenture shall be deemed to control. (4) The Series 1999-IV bonds (being used for the Natchitoches, Louisiana Project) as follows: (a) The Dealer's fee, commissions and related financing costs due the broker/dealer assisting Issuer in the sale of the Bonds (hereinafter called "Broker") under the terms of a written agreement between Issuer and Broker. (b) The reimbursement to Trustee of any expenses incurred by Trustee, including attorney's fees incurred in the examination by its legal counsel of all documents required to issue the Bonds. (c) The establishment of a First Six Month Operating Fund Payments Reserve in the amount of $90,000.00 to be used to pay the sinking fund payments during the first six months of the project. (d) The principal and interest payable by Issuer upon promissory notes or other obligations of Issuer or others secured by existing liens upon the Property, including any interim construction loans secured by an equal parity lien with the bonds. Upon payment of such obligations, Trustee shall be subrogated to the rights of the prior owners thereof. (e) The payment of remaining costs of construction. (f) To reimburse Issuer pre-opening costs not to exceed $75,000.00. (g) To the Bond Reserve Account in the amount of $140,000.00 for a period of time as disclosed in the offering circular pursuant to which the bonds were sold. Trust Indenture Page 7 of 51 (h) After the payment of the foregoing, the Trustee shall, subject to statutory retainage, disburse the funds remaining in Issuer's Bond Proceeds Account (hereinafter called the "Net Bond Proceeds") for the remaining purposes of the Bond offering as set forth and described in the prospectus or offering circular used in connection with the Bond offering, if any, and the balance to the Issuer; provided, that in the event of any conflict in this regard between the terms of said prospectus or offering circular and this Trust Indenture, this Trust Indenture shall be deemed to control. (5) The Series 1999-V bonds (being used for the Farmerville, Louisiana Project) as follows: (a) The Dealer's fee, commissions and related financing costs due the broker/dealer assisting Issuer in the sale of the Bonds (hereinafter called "Broker") under the terms of a written agreement between Issuer and Broker. (b) The reimbursement to Trustee of any expenses incurred by Trustee, including attorney's fees incurred in the examination by its legal counsel of all documents required to issue the Bonds. (c) The establishment of a First Six Month Operating Fund Payments Reserve in the amount of $90,000.00 to be used to pay the sinking fund payments during the first six months of the project. (d) The principal and interest payable by Issuer upon promissory notes or other obligations of Issuer or others secured by existing liens upon the Property, including any interim construction loans secured by an equal parity lien with the bonds. Upon payment of such obligations, Trustee shall be subrogated to the rights of the prior owners thereof. (e) The payment of remaining costs of construction. (f) To reimburse Issuer pre-opening costs not to exceed $75,000.00. (g) To the Bond Reserve Account in the amount of $140,000.00 for a period of time as disclosed in the offering circular pursuant to which the bonds were sold. Trust Indenture Page 8 of 51 (h) After the payment of the foregoing, the Trustee shall, subject to statutory retainage, disburse the funds remaining in Issuer's Bond Proceeds Account (hereinafter called the "Net Bond Proceeds") for the remaining purposes of the Bond offering as set forth and described in the prospectus or offering circular used in connection with the Bond offering, if any, and the balance to the Issuer; provided, that in the event of any conflict in this regard between the terms of said prospectus or offering circular and this Trust Indenture, this Trust Indenture shall be deemed to control. (C) The disbursement by Trustee of the Net Bond Proceeds from Issuer's Bond Proceeds Account shall be subject to and in accordance with the following provisions: (1) Issuer shall furnish to Trustee at Issuer's expense and Trustee's election an attorney's title opinion or a mortgagee's title policy in favor of Trustee reflecting that Trustee holds the Lien on the Property as trustee for the benefit of the Bondholders, subject to no prior liens or encumbrances other than those agreed upon in writing between Issuer and Trustee. (2) If Issuer is remodeling and/or constructing new improvements with all or any portion of the Net Bond Proceeds, Issuer shall file with Trustee a written estimate of the cost of such construction, and Issuer shall provide builder's risk insurance during the period of construction with loss payable clause in favor of Trustee. (a) If Issuer enters into a contract for such construction which provides for (or if Issuer later determines such construction will actually result in) a total cost greater than the Net Bond Proceeds, Issuer will promptly notify Trustee of such fact. (b) Should Trustee be so advised or determine in its sole discretion that the Net Bond Proceeds will be insufficient to complete the contemplated use thereof, Trustee shall not be required to disburse any funds from Issuer's Bond Proceeds Account until such time as Issuer demonstrates to Trustee's satisfaction that the amount necessary for completion of the project as originally contemplated is equal to or less than the Net Bond Proceeds. (c) Provided that, notwithstanding the foregoing, Trustee may make such construction and/or purchase disbursements from the Net Bond Proceeds as it deems in its sole Trust Indenture Page 9 of 51 discretion to be in the best collective interest of the Bondholders. (3) Together with such supporting photographs and contractor's and architect's affidavits and other information and material as Trustee may from time to time require, Trustee shall be furnished an affidavit which shall be signed and approved by an authorized representative of Issuer, showing the estimate of the improvements completed in accordance with the plans and specifications up to the date of such affidavit. (a) Such affidavit shall be accompanied by Issuer's duly executed written request for Trustee to make a construction payment, whereupon Trustee is authorized to pay out of Issuer's Bond Proceeds Account the amount of the estimate shown to be due for such labor performed or materials furnshed or such other percentage of such estimate, less any applicable retainage. (b) When the representative of Issuer certifies that all improvements have been completed in accordance with the plans and specifications therfor and have been accepted by Issuer, Trustee is authorized to pay out of Issuer's Bond Proceeds Account the final balance shown by the affidavit to be due and owing. (c) Disbursements may be made to the contractor and/or Issuer, as Trustee may determine to be in the best interest of the Bondholders. (4) Trustee shall be subrogated to the rights of all laborers', materialmen's and contractors' liens which it may reduce or discharge by such payments, and the acceptance of any such payments shall be binding and conclusive upon the recipients and Issuer as to such rights of Trustee. (5) If Issuer is purchasing real property with all or any portion of the proceeds from the sale of such Bonds, Trustee shall, upon like certification, disburse such funds as are necessary to close such purchase, provided that such purchased real property shall be subjected to and become a part of the Lien and any mortgage or deed of trust upon the Property, as evidenced at Trustee's election and at Issuer's sole expense by an attorney's title opinion or a mortgagee's title policy in favor of Trustee reflecting no liens or encumbrances prior to the Lien other than as agreed upon in writing between Issuer and Trustee. Trust Indenture Page 10 of 51 (D) Any funds remaining in Issuer's Bond Proceeds Account after all the aforesaid payments, if not usable in further improvement of the Property, shall in the sole discretion of Trustee be distributed to Issuer, or may be retained by Trustee in the Bond Proceeds Account until so usable or until such remaining funds, together with any additional funds delivered to Trustee under the provisions of Article IX hereof, are used to redeem Bonds. (E) If for any reason other than the gross negligence or willful misconduct of Trustee, more funds are disbursed from the Bond Proceeds Account for the items listed in this Article IV than are deposited into said Account: (1) Trustee shall promptly upon discovery thereof notify Issuer of such fact by furnishing a statement showing how said overexpenditure occurred; (2) Within thirty (30) days of the receipt of such notice, Issuer shall remit to Trustee funds sufficient to cover the overexpenditure; and (3) Until such time, Trustee shall have its Reimbursement Lien therefor. (F) If after receipt by Trustee of the proceeds from the sale of all or any portion of Issuer's Bonds, Issuer abandons or for any reason is legally restrained or prohibited from undertaking or proceeding with the purposes for which such Bonds were issued or any series of Bonds: (1) Before any disbursements are made by Trustee therefrom, Issuer shall be obligated to pay and agrees promptly to pay all dealer's fees due and expenses the broker/dealer assisting Issuer in the sale of the bonds and any expenses incurred by the Trustee, including attorney's fees, in regard to the offering, and Trustee shall return the gross bond proceeds to the holders of such Bonds in full payment and redemption thereof. (2) After any disbursements have been made therefrom in good faith by Trustee, the provisions of subparagraphs IV(B), (C), (D), (E) and this subparagraph (F) shall then be applicable to the disbursement and return of the excess funds remaining, if any. In neither event shall the Bondholders be entitled, in addition to the principal so returned after payment of such Trust Indenture Page 11 of 51 costs and expenses, to interest on such principal. Return of such principal to the Bondholders, net of any applicable expenses, shall operate as a complete discharge of the Trustee; and Issuer hereby indemnities and agrees to hold Trustee from any and all claims therefor, including all costs of maintaining a legal defense. V. PAYMENT OF BONDS (A) Issuer shall pay directly and in the order and preference listed: (1) All expenses incurred by Broker and any escrow agent in connection with the escrowing of the Bond proceeds; (2) The charges of any depository bank selected by Trustee; (3) The service charges and fees of Trustee described in Article XX; and (4) The Sinking Fund Account maintained by Trustee for payment of the principal and interest on the Bonds as such indebtedness matures on successive Bondholder payment dates. (B) Issuer shall remit to Trustee amounts (hereinafter collectively referred to as "Sinking Fund Payments") as set forth in the Schedule of Payments set forth in the Offering Circular pursuant to which the bonds were sold and a copy of which said schedule may also be attached hereto, and if so, as EXHIBIT "C", which said amounts, if timely paid, will accumulate to be sufficient on each Bondholder payment date to pay the following in the order and preference listed: (1) Any unpaid charges of the depository bank; (2) Any unpaid Trustee, Registrar and Paying Agent fees and charges and any other compensation, repayment or reimbursement payable to Trustee hereunder; and (3) The installments of principal and interest on all Bonds then due for payment. (C) Issuer shall deliver to Trustee its required Sinking Fund Payments to be deposited into a Sinking Fund Account in the Trust Indenture Page 12 of 51 name of and under the exclusive control of Trustee in a depository or depositories selected by Trustee, including its own commercial banking division. Trustee shall cause disbursement of the sinking funds for the purpose of paying the items described above and such other items as are expressly provided to be paid from the Sinking Fund Account by other provisions of this Trust Indenture. Issuer shall remit the Sinking Fund Payments to Trustee by one of the following exclusive methods: (1) Monthly installments to be transmitted electronically through the Automated Clearing House ("ACH") network; or (2) Monthly installments to be paid by check or bank draft. (D) In the event Issuer defaults in the payment of the principal and/or interest upon any outstanding Bond(s) issued hereunder or any of the other requirements of this Trust Indenture, and Trustee consequently resorts to its remedies, Issuer hereby agrees to pay the reasonable costs of cure, collection and/or foreclosure upon the Property, including without limitation court costs, the fees of attorneys, legal stenographers, expert witnesses, appraisers, surveyors and realtors, the travel expenses of such persons and Trustee's own personnel and the costs of preserving, maintaining, insuring and paying taxes on the Property; and Trustee shall have its Reimbursement Lien therefor. (E) Issuer agrees to pay the required installments into the Sinking Fund Account as required herein before it disburses funds for any other purposes whatsoever. (1) To further secure the timely payment of the sinking fund installments and Issuer's other obligations hereunder, Issuer hereby unconditionally assigns, sets over, and pledges its first revenues from any and all sources. (2) So long as the sinking fund installments and other expenditures required of Issuer are promptly and properly made, the first revenues received by Issuer shall be handled by Issuer without any interference by Trustee; but should Issuer fail to make the required sinking fund installments, then Trustee may elect to demand payment to it of Issuer's first revenues; and after receipt of such written demand Issuer shall, promptly and without contest, deliver all of its receipts directly to Trustee until the Sinking Fund Account delinquency is remedied, after which Issuer may again deal with its receipts as before such default. Trust Indenture Page 13 of 51 (3) In the event that issuer shall default in the payment of any required sinking fund payment and/or any payment of principal or interest upon any outstanding Bond(s), then Trustee shall apply any revenues and receipts received by Trustee, first, to the payment of the bonds the proceeds of which were used to construct or obtain the facility from which the revenues or receipts were received; second, to the payment of any other bonds the payment of which are then in default; and, third, as the Trustee may determine, in the Trustee's sole discretion. (F) Any balance remaining in the Sinking Fund Account shall be paid to Issuer whenever (i) all matured principal and interest (including any unforgiven penalty interest) on the Bonds has been paid in full or provision for such payment satisfactory to Trustee has been made, (ii) all obligations, expenses, fees, costs and charges of Trustee, Paying Agent, Registrar and all depositories incurred hereunder have been paid, and (iii) Issuer is current in its installments required to be paid into the Sinking Fund Account. (G) In regard to the Series 1999-I, 1999-III, 1999-IV and 1999-V offerings, Issuer agrees to maintain with the Trustee a Bond Reserve account funded in the amounts set forth above for the periods disclosed in the offering circular pursuant to which the bonds were sold, which shall be for the purpose of providing for, in part, the debt service requirements to pay the principal and interest due on any semiannual payment date of the bonds herein authorized. Such account shall be held, administered and distributed as follows: (1) The Issuer shall fund from the proceeds of the sale of the bonds and the Trustee will accept and maintain in the Bond Reserve Account (hereinafter referred to as the "Reserve Account") the applicable amounts as set forth above in Article IV pursuant to the terms and conditions hereof. (2) During the applicable period of the Reserve Account, the Reserve Account shall be applied only to the payment of principal and interest on the bonds in the event that as of a semiannual payment date the Issuer has failed to deposit with the Trustee in the Sinking Fund Account sufficient sums to enable the Trustee to pay the principal and interest due as of such payment date. In the event that as of a certain semiannual payment date the Issuer has not deposited sufficient sums with the Trustee to pay the principal and interest then due, as defined in the Trust Indenture, but the total bonds owing have not been accelerated, then Trustee shall apply, to the extent available, funds from the Trust Indenture Page 14 of 51 Reserve Account to the payment of the principal and interest then owing on the bonds as of such payment date. (3) In the event that there are not sufficient funds in the Reserve Account to remedy any existing default in the payment of the sinking fund payments required to pay the bonds and as a result, the total amount owing on the bonds or a series of bonds has been accelerated, then the funds held in the Reserve Account shall be held, administered and distributed for the benefit of all bondholders whose bonds have been accelerated as part of the proceeds from the collateral. No portion of the Reserve Account shall inure to or benefit any interim note holder who is in a co-first mortgage position with the Trustee, unless and except that the Issuer and the Trustee may agree to use funds available in the Reserve Account to pay off any such interim lender. (4) Any interest earned on the Reserve Account shall be retained in the Reserve Account. (5) Provided that the Issuer is current in the payment of its sinking fund obligation, all funds on hand in the Reserve Account after the term provided for in the Prospectus for the maintaining of the applicable Reserve Account ("the term of the Reserve") shall be transferred by the Trustee into the Sinking Fund Account to be used to pay off existing bonds. In the event that the Issuer is not current in its sinking fund payments as of the date of the termination of the term of a Reserve Account, then the Trustee shall continue to hold the funds in the Reserve Account pursuant to the terms and conditions hereof until the Issuer is current in its sinking fund payments and maintains a current status for six (6) consecutive months. (6) In the event that the Trustee uses funds from the Reserve Account to pay the principal and interest on the bonds due at a particular paydate, then the Issuer shall pay to the Trustee, within one hundred eighty (180) days from the date of such paydate, an amount necessary to replenish such Reserve Account. Failure to replenish such Reserve Account within such one hundred eighty (180) day period shall be an event of default hereunder and shall entitle the Trustee to continue to hold such Reserve Account, in addition to its other remedies. (7) In addition to the payment of the principal and interest due the bondholders, Trustee may pay from the Reserve Account before transferring a Reserve Account to the Sinking Fund Account any and all late charges, trustees fees, collection charges, attorney's fees and other out-of-pocket expenses due and Trust Indenture Page 15 of 51 owing to the Trustee or incurred by the Trustee in regard to this issue. (8) Although the Reserve Account is funded by a specific amount from the proceeds of the four series of bonds issued, the Trustee may use any amount toward the payment of maturities of any of the five offerings. (H) Issuer agrees to maintain with the Trustee the First Six Month Operating Fund reserve accounts in the amounts set forth in Article IV above which shall be for the purpose of providing for the debt service requirements to pay the principal and interest due on the first semiannual payment date of the bonds herein authorized. During the applicable period of such reserve accounts, monies from such applicable accounts shall be applied only to the payment of principal and interest on the bonds in the event that as of the first semiannual payment date the Issuer has failed to deposit with the Trustee in the Sinking Fund Account sufficient sums to enable the Trustee to pay the principal and interest due as of such first payment date. In the event that as of the first semiannual payment date the Issuer has not deposited sufficient sums with the Trustee to pay the principal and interest then due, as defined in the Trust Indenture, but the total bonds owing have not been accelerated, then Trustee shall apply, to the extent available, funds from the applicable account to the payment of the principal and interest then owing on the bonds as of such payment date. In the event that the total amount owing on the bonds or a series of bonds has been accelerated, then the funds held in such accounts shall be held, administered and distributed for the benefit of all bondholders where bonds have been accelerated as part of the proceeds from the collateral. No portion of the accounts shall inure to or benefit any interim note holder who is in a co-first mortgage position with the Trustee, unless and except that the Issuer and the Trustee may agree to use funds available in the accounts to pay off any such interim lender. Any interest earned on the accounts shall be retained in the accounts. Provided that the Issuer is current in the payment of its sinking fund obligation, all funds on hand in these accounts after the first six month payment date shall be disbursed by the Trustee for the purposes and in the order set forth for the disbursement of bond proceeds as provided in the appropriate provision of Article IV above. Trust Indenture Page 16 of 51 VI. FAILURE TO SURRENDER MATURED BONDS FOR PAYMENT As to checks representing payments of principal and/or interest mailed by Paying Agent to the registered holders of the Bonds which are not thereafter presented for payment, Trustee shall set aside and retain in a separate account a sum equal to such maturing installment of principal or interest. (A) No interest shall accrue or be payable from or after such payment date either upon such matured installment or such funds in said separate account. (B) After three (3) years from such separation of funds, any separated funds remaining unclaimed shall be escheated and delivered by Trustee to the appropriate state which delivery shall operate as a complete discharge of Trustee; and Issuer hereby indemnifies and agrees to hold Trustee harmless from any and all subsequent claims therefor or resulting therefrom asserted by any Bondholder(s) and/or governmental agency or agencies, including all costs of maintaining a legal defense. VII. ISSUER'S COVENANTS REGARDING MAINTENANCE OF PROPERTY AND STATUS (A) At its own cost and expense, Issuer shall: (1) Obtain and maintain certification from all applicable authorities, federal, state and local, of Issuer's corporate existence and exemptions from income tax and from ad valorem taxes on all eligible property, provide same to Trustee upon request and promptly notify Trustee of any cancellation or revocation thereof, and pay all license or other fees and timely make all returns and reports necessary for that purpose; (2) Maintain the Property in good repair and condition; (3) Pay or discharge all taxes and assessments and any mechanics' and materialmen's lien indebtedness that are or may become payable with respect to the Property as same become due and payable under any law, ordinance or regulation; and Trust Indenture Page 17 of 51 (4) Secure from a reputable insurance company or companies acceptable to Trustee, and maintain in full force and effect at all times while any of said Bonds are outstanding, fire and extended coverage insuring the Property against such losses in an amount at least equal to the balance outstanding on the outstanding Bonds hereunder, including accrued interest, and in no event less than eighty (80%) percent of the fair market value of the improvements located thereon, which policy or policies shall contain a loss payable clause in favor of Trustee and shall be delivered to Trustee to be kept by it until the Bonds are paid in full. (a) In the event of any losses, the proceeds of insurance paid to Trustee shall be applied: (i) for the replacement and/or repair of the improvements damaged; (ii) toward the purchase of additional property, subjected to and become a part of the Lien and any mortgage or deed of trust upon the Property, as evidenced at Trustee's election and at Issuer's sole expense by an attorney's title opinion or a mortgagee's title policy in favor of Trustee reflecting no liens or encumbrances prior to the Lien other than as agreed upon in writing between Issuer and Trustee; (iii) for the construction of additional improvements on the Property; and/or (iv) to call and repay outstanding Bonds in the same manner as partial prepayments are to be applied under the provisions of Article IX without prepayment penalty. (b) Subject to the approval of Trustee, Issuer has the right to select which of these alternatives it desires to exercise and shall notify Trustee in writing in advance as to the alternatives selected. (B) In the event that Issuer defaults in its performance of any of the undertakings set out in paragraph VII(A) above: (1) Trustee is hereby authorized to withdraw funds from Issuer's Sinking Fund Account and to apply same in curing such default for the account of Issuer. Notwithstanding anything herein to the contrary, n the event there are no funds in Issuer's Sinking Fund Account or same are insufficient for such purpose, Trustee may in its sole discretion withdraw funds from any reserve account held in regard to the applicable facility or the Trustee may borrow for and/or advance into the Sinking Fund Account such amounts as are required for compliance, secure such loan with or be secured for such advance by the Reimbursement Lien, and repay such withdrawal, loan or advance, together with interest accruing thereon at the Reimbursement Lien rate, from future payments made into Issuer's Trust Indenture Page 18 of 51 Sinking Fund Account; provided, that Trustee shall never, under any circumstances whatsoever, be obligated to borrow for or advance funds to or for Issuer's account. (2) Issuer shall be obligated to immediately restore the proper balance of its Sinking Fund Account by prompt payment of the amount so withdrawn and expended. (3) The time, amount and nature of such withdrawal and expenditure by Trustee shall be fully established by a written notice from Trustee to Issuer of such actions by Trustee. The exercise of this right of withdrawal and expenditure by Trustee, however, shall not be considered or constitute a waiver of Trustee's cumulative right hereinafter set out to declare the entire indebtedness represented by such Bonds to be and become due and payable at once by reason of such default on the part of Issuer. (C) Issuer covenants that it will not merge or consolidate with or into any other organization or corporation unless Issuer is the surviving corporation or the surviving corporation assumes all obligations of Issuer under this Indenture. So long as any Bonds are outstanding, Issuer shall not merge or consolidate with any other organization without the prior written consent of Trustee. Issuer further covenants that it will not sell, lease or otherwise dispose of all or substantially all of its properties as an entirety. (D) Issuer covenants that so long as any Bonds are outstanding and unpaid to the extent of its financial dealings or transactions in relation to its business and the revenues derived therefrom, Issuer will keep or cause to be kept proper books of record and account. Such books shall at all times be open to the inspection of such accountants or other agencies as Trustee may from time to time designate. In addition, Issuer shall provide Trustee upon request with financial statements within ninety (90) days of the close of Issuer's fiscal year. VIII. DEFAULT AND REMEDIES (A) For purposes hereof, any one or more of the following by Issuer shall constitute an event of default in regard to the Series of Bonds to which such default should occur: Trust Indenture Page 19 of 51 (1) Failure or refusal to pay when due the principal and/or interest on any of the Bonds in such Series; (2) Failure or refusal to timely pay into the Sinking Fund Account any installments required to pay any of the Bonds in such Series; (3) Failure or refusal to pay when due any taxes, assessments, insurance, claims, liens or encumbrances upon the Property securing the Bonds of such Series, or to maintain the Property in good repair; or to cure the breach of any other covenant set forth in Article VII as to such Series of Bonds; (4) Failure or refusal to pay when due any loan or advance by or the fees and expenses of Trustee or of any depository or escrow agent incurred in regard to such Series; (5) Failure or refusal, upon any written request of Trustee, (i) to furnish Trustee with such insurance policies, financial reports and information concerning Issuer as may be reasonably required by Trustee, or (ii) to grant unto Trustee, its agents, accountants and attorneys access during normal business hours to Issuer's offices for the purpose of examining and, within reasonable limits, photocopying such records. (6) Making an assignment for the benefit of creditors; or should a receiver, liquidator, or trustee be appointed to assist in the payment of Issuer's debt; or should any petition for the bankruptcy, reorganization, or arrangement of Issuer be filed; or should Issuer be liquidated or dissolved, or its charter expire or be revoked; (B) Should an event of default occur, Issuer expressly hereby waives: demand and presentment for payment, notice of default and of intent to accelerate and of acceleration, and protest, notice of protest, presentment and notice of dishonor. Trustee shall be entitled to exercise the following remedies which shall be cumulative and not exclusive; and the waiver or forbearance by Trustee, whether mandatory or discretionary, as to any one or more events of default shall not under any circumstances be deemed or construed as: (i) a waiver or estoppel as to any subsequent event of default, (ii) impairing any rights or remedies consequent thereon, or (iii) establishing a course of dealing with Issuer: (1) Should the default continue for a period of thirty (30) days, Trustee may, or Trustee shall upon the receipt of Trust Indenture Page 20 of 51 (i) written request from the registered holders of twenty-five (25%) percent in principal amount of the Bonds then outstanding and unpaid and (ii) satisfactory proof of indemnity, declare to be immediately due and payable the principal balance of all unpaid Bonds of such Series of Bonds then in default together with all accrued interest thereon and all such loans, advances, taxes, assessments and insurance monies unpaid applicable to such Series then in default. This provision, however, is subject to the condition that if at any time after the principal of said Bonds shall have been so declared due and payable, and before any sale of the Property shall have been made, all defaults under this Trust Indenture have been cured and all expenses incurred by Trustee in any attempted correction of such default and acceleration of such indebtedness have been fully paid or reimbursed by Issuer, then Trustee shall waive such default and its consequences. (2) Should the default continue for a period of thirty (30) days, upon demand of Trustee, Issuer shall forthwith peaceably surrender the Property securing the payment of the Series of Bonds then in default and so accelerated to Trustee, and it shall be lawful for Trustee by such officers, agents, servants and employees as it may appoint, (i) to take possession of the Property (with the relevant books, papers and accounts of Issuer), to lock-out Issuer's employees and agents and/or to hold, operate and manage such Property, any or all without having thereby committed trespass or violated any statute otherwise applicable (which claim(s) Issuer expressly hereby waives), (ii) to pay taxes, insurance and assessments thereon, (iii) to make such repairs, alterations, additions, and improvements thereto as Trustee in its sole discretion deems necessary; and (iv) to receive the rents, income, issues and profits therefrom and out of them to pay all proper costs and expenses of so taking, holding and managing such Property, including without limitation reasonable compensation to and expenses of Trustee, its agents, employees and counsel, for which Trustee shall have its Reimbursement Lien. The remainder of the monies so received by Trustee, if any, shall be utilized to pay interest and principal on the Bonds. Provided, however, that it shall not be obligatory upon Trustee to take such possession in the event of default. (3) Should the default continue for a period of thirty (30) days, Trustee may, or Trustee shall upon receipt of (i) written request from the registered holders of twenty-five (25%) percent in principal amount of the Bonds outstanding and unpaid and (ii) satisfactory proof of indemnity, proceed to sell the Property securing the Series of Bonds then in default, in one or more parcels, as provided by law for foreclosure under the terms and Trust Indenture Page 21 of 51 provisions of the Lien. Anyone may bid and/or purchase at such sale, including Trustee or any Bondholder. (4) Should the default continue for a period of thirty (30) days, Trustee may, with or without entry upon the Property as hereinbefore provided, proceed by suit or suits at law or in equity or by any other appropriate remedy: (a) To recover all payments of principal, interest and other sums which are due but have not been paid; (b) To recover the entire principal sum of all Bonds then outstanding which are then in default together with all accrued interest thereon (irrespective of whether the principal and/or interest of such Bonds shall then be due and payable as therein expressed and irrespective of whether Trustee shall have made any demand on Issuer for the payment of overdue principal and/or interest; (c) To enforce payment of the Bonds then in default; and/or (d) To foreclose the Lien and to sell the Property securing the Bonds then in default under the judgment or decree of a court or courts of competent jurisdiction. It shall be obligatory upon Trustee to take action either by such proceedings or by the exercise of its powers with respect to entry or sale as it in its sole discretion may determine, upon being requested so to do in writing by the holders of twenty-five (25%) percent in principal amount of the Bonds then in default which are then outstanding and unpaid and upon receipt of satisfactory indemnity. (5) Notwithstanding anything herein to the contrary, in the event that the Issuer is in default in the payment of the principal and/ or interest on one or more series of the Bonds, but not all of the series of the Bonds, or the Issuer is in default in the timely payment of the installments to the Sinking Fund Account required on one or more series of the Bonds, but not all of the series of the Bonds and should such default continue for a period of thirty (30) days, and as a result thereof, the Trustee has declared to be immediately due and payable the principal balance and accrued interest of only the unpaid Bonds in the Series in default and if the Issuer then fails to pay said amount, then the Trustee may proceed to foreclose the lien against the property applicable to the defaulted Series of Bonds. In such event, the Trust Indenture Page 22 of 51 proceeds from the sale of the property so foreclosed, after the payment of all expenses and amounts due the Trustees, shall be first applied to the payment of the bonds in the series secured by a superior mortgage against the property so foreclosed as set forth in paragraph III. (B) of this Indenture. If there remains a deficiency in the payment of the Series of Bonds in default, then the Trustee may declare to be immediately due and payable the principal balance due and accrued interest of any or all of the unpaid Bonds of any or all of the remaining Series issued by the Issuer pursuant to this Trust Indenture and any supplement hereto and if the Issuer then fails to pay said amount, the Trustee then may proceed to exercise any remedy provided for herein or in the mortgage securing the Bonds, including a foreclosure of the lien securing the then accelerated and unpaid Bonds. Upon the foreclosure of any property securing a Series of Bonds, the proceeds received from any such foreclosure, after the payment of all expenses and amounts due the Trustee, shall be applied first to the payment of the Bonds secured by a superior mortgage against the property so foreclosed as set forth in paragraph III. (B) of this Indenture; and, secondly, to the payment of any other bonds, then in default; and, thereafter, as the Trustee may determine, in the Trustee's discretion. The rights contained herein, however, shall not prohibit the Trustee from releasing any lien against any property upon the full payment of the series of bonds secured by said property. (6) Trustee may in good faith, if it deems such to be in the best collective interest of the Bondholders, agree with Issuer upon a temporarily reduced level of performance and/or payments into the Sinking Fund Account, during which time Trustee will forbear from resorting to other remedies even though Issuer continues in formal default; provided that such forbearance agreement shall immediately be terminated upon Trustee's receipt of written request from the registered holders of twenty-five percent (25%) in principal amount of the Bonds then outstanding and unpaid directing Trustee to resort to any other remedy. (7) Upon a filing of a bill in equity or other commencement of judicial proceedings to enforce the rights of Trustee on behalf of the Bondholders, Trustee, as a matter of right and without regard to the sufficiency of the security, shall be entitled at its sole election to the appointment (immediately and without notice to Issuer, which is hereby waived) of a receiver of the Property and of the income, rents, issues and profits thereof pending such proceedings, with such powers as may be required to Trust Indenture Page 23 of 51 protect the interest of the Bondholders as the court making such appointment shall confer. (8) In case of the pendency of any receivership, insolvency, liquidation, bankruptcy, reorganization, arrangement, adjustment, composition or other judicial proceeding relative to Issuer, or of any other obligor upon the Bonds or the Property or of such other obligor or their creditors, Trustee (irrespective of whether the principal and/or interest of the Bonds shall then be due and payable as therein expressed or by declaration or otherwise, and irrespective of whether Trustee shall have made any demand on Issuer for the payment of overdue principal and/or interest) shall be entitled and empowered, by intervention in such proceeding or otherwise: (i) to represent the interests of the Bondholders as a class in any such judicial proceedings; (ii) to file and prove a claim for the whole amount of principal and interest owing and unpaid in respect of the Bonds and to file such other papers or documents as may be necessary or advisable in order to have the claims of Trustee (including any claim for the reasonable compensation, expenses, disbursements and advances of Trustee, its agents, employees and counsel) and of the Bondholders allowed in such judicial proceedings; and (iii) to collect and receive monies or other property payable or deliverable on any such claims and to distribute the same. Any receiver, assignee, trustee, liquidator, sequestrator (or other similar official) in any such judicial proceeding is hereby authorized by each Bondholder to make such payments to Trustee, and in the event that Trustee shall consent to the making of such payments directly to the Bondholders, to pay to Trustee any amount due to it for the reasonable compensation, expenses, disbursements and advances due Trustee, its agents, employees and counsel, and any other amount due Trustee hereunder. Nothing herein contained shall be deemed to authorize Trustee to authorize or consent to or accept or adopt on behalf of any Bondholder any plan of reorganization, arrangement, adjustment or compensation affecting the Bonds or the rights of any Bondholder thereof, or to authorize Trustee to vote in respect of the claim of any Bondholder in any such proceeding. (9) In the event Trustee determines in good faith that Issuer and any other actual or potential obligor(s) upon the Bonds (e.g., obligor's personnel and members of its governing body in the event of defalcation, fraud or other malfeasance) have no other material assets worth more than the costs and expenses of obtaining and executing upon any judgment which might result from a foreclosure sale of the Property and/or a suit for damages, each Bondholder hereby expressly authorizes Trustee to bid on the Property at any foreclosure sale the total amount of indebtedness Trust Indenture Page 24 of 51 then secured by the Lien, in full and complete discharge of the liability of Issuer and any such obligor(s) upon the Bonds; and Trustee shall thereby be relieved of any duty whatsoever to pursue a deficiency against Issuer or any person. This clause shall under no circumstances be construed as limiting the liability of Issuer and/or its principals or sureties to the collateral or otherwise waiving personal recourse against such persons should Trustee elect to pursue same. (C) It is the intention of Issuer, the Bondholders and Trustee to create hereby an express trust as defined by the Arizona Trust Statutes and to which said Arizona Trust Statutes are applicable as they now exists or may hereafter be amended; and to that end legal ownership of the collective rights and choses in action created hereunder is vested in Trustee for the equitable benefit of the Bondholders, including the rights to repayment and to proceed against any and all collateral securing same and any and all persons liable therefor, of which the bonds are only an indicia of each individual Bondholder's equitable ownership. All rights of action and claims under this Trust Indenture or the Bonds may be prosecuted and enforced by Trustee as legal owner thereof without the possession of any of the Bonds or the production thereof in any proceeding relating thereto; and any such proceeding instituted by Trustee shall be brought in its own name as Trustee of this express trust. (D) After the occurrence of any event of default hereunder of which Trustee has knowledge or is required to notice, Trustee may, but shall not be obligated to, transmit by mail to all Bondholders, as their names and addresses appear in the Bond register, notice of such default and Trustee's intentions with respect thereto. Trustee shall be protected in withholding such notice so long as Trustee in good faith determines that the withholding of such notice is in the best collective interest of the Bondholders. (E) No bondholder individually or as part of group may institute any proceeding (judicial or otherwise) with respect to the Bonds and/or the Indenture or seek any remedy thereunder, unless: (i) such Bondholder(s) has notified Trustee of an event of default continuing thirty (30) days or more, (ii) the Bondholders of at least twenty-five (25%) percent in principal amount of the Bonds then in default which are then outstanding and unpaid have given written notice to Trustee to institute proceedings in respect of such event of default, (iii) such Bondholder in subparagraph (i) and/or Bondholders in subparagraph (ii) have offered in writing and demonstrated to Trustee's satisfaction the ability to indemnify Trust Indenture Page 25 of 51 Trustee against the costs Trustee may incur in complying with such request, and (iv) during the sixty (60) day period following Trustee's receipt of the notice in subparagraphs (i) - (iii) , Trustee fails to institute a proceeding or take action as permitted hereunder in respect to such event of default. (F) If, at any Bondholder payment date, Issuer has failed to make the sinking fund installments required to pay all of the principal and/or interest maturing on said date, Trustee shall have the right, among other remedies, to authorize and direct the depository bank to stop payment on any and all checks therefor which may have been issued by Trustee to the Bondholders and which are outstanding at such time even though the funds which are on deposit are sufficient to pay some of those checks. When Issuer has deposited with Trustee sums sufficient to permit payment in full of all such Bondholders, Trustee's compensation and any reimbursement then due, and any charges of the depository bank, Trustee may revoke its stop payment instructions and authorize said bank to proceed to honor any checks drawn upon such Sinking Fund Account. (G) Notwithstanding any provisions) of the Bonds to the contrary, should Issuer fail for any reason to timely pay the principal and/or interest upon the Bonds at the time such payment becomes due, and should Trustee elect not to loan or advance the requisite funds and secure same with its Reimbursement Lien, Issuer shall pay as a penalty for the benefit of the Bondholders additional interest upon the past due principal and/or interest of said Bonds at the rate, subject to Article XVIII, equal to two (2%) percent per annum in excess of the highest rate of interest payable by said Issuer upon the Bonds from and after the date that said indebtedness becomes due and payable until such time as said indebtedness is paid in full; provided that Trustee may waive such penalty interest for additional consideration or if Trustee otherwise determines in its sole discretion that to do so is in the best collective interest of the Bondholders. (H) Trustee shall have no duty, obligation or liability under any circumstances whatsoever to pay any principal and/or interest upon the Bonds issued hereunder nor to correct or cure any default. Should Trustee, however, for any reason pay any principal and/or interest upon said Bonds, whether intentionally or inadvertently (excluding only overpayment), or in its sole discretion incur any expenses, including without limitation attorney fees and other legal costs, in attempting to correct or cure such default or collect any delinquent payment or foreclose upon the Lien, Trustee shall have its Reimbursement Lien to secure Trust Indenture Page 26 of 51 the repayment of such sum advanced or expended to be repayable by Issuer and otherwise from Issuer's Sinking Fund Account and, to the extent then necessary, from Issuer's Bond Proceeds Account, anything to the contrary herein notwithstanding. In the event of an overpayment to a Bondholder(s), Trustee shall look to the Bondholder(s) and not Issuer for repayment, but shall have the right of offset against other funds at any time held for distribution to such individual overpaid Bondholder(s). (I) All moneys received by Trustee pursuant to any right given or action taken under the provisions of this Article in respect of an event of default shall, after payment of the costs and expenses of the proceedings resulting in the collection of such moneys and of the fees, expenses, liabilities and advances incurred or made by Trustee or at its discretion, be deposited into the Sinking Fund Account applicable to the Series of Bonds secured by the superior mortgage against the Property from which such moneys were derived; and all such moneys in the Sinking Fund Account (other than moneys for the payment of Bonds which have matured or otherwise become payable prior to such event of default, which moneys shall be applied to such payment) shall during the continuance of an event of default be applied as follows: (1) Unless the principal of all the bonds of such Series shall have become or shall have been declared due and payable, all such moneys shall be applied: FIRST -- To the payment in full of all series of interest payments then due on the applicable Series of Bonds, in order of maturity, and if the amount available shall not be sufficient to pay in full the eligible series having the most recent maturity, then to the ratable payment of such series, without other discrimination or privilege; and SECOND -- To the payment in full of all series of principal payments then due on the applicable Series of Bonds, in order of maturity, and if the amount available shall not be sufficient to pay in full the latest series having the most recent maturity, then to the ratable payment of such series, without other discrimination or privilege. (2) If the principal of all of such Series of Bonds shall have become due or shall have been declared due and payable, Trust Indenture Page 27 of 51 all such moneys shall be applied to the payment of the principal and interest then accrued and unpaid upon all unpaid Bonds of such Series, without preference or priority of principal over interest or of interest over principal, or of any series or maturity over any other series or maturity, or of any bond over any other bond, whether simple or compound, ratably, according to the combined amount respectively due thereon for both principal and interest, to the persons entitled thereto without any discrimination or privilege. Whenever moneys are to be applied pursuant to the provisions of this paragraph (I), such moneys may be applied at such times and from time to time, as Trustee may determine in its sole discretion, having due regard to the amount of such moneys available for such application and the likelihood of additional moneys becoming available for such application in the future. Whenever Trustee so applies funds, it shall fix the date (which shall be a principal and/or interest payment date unless Trustee in its sole discretion deems another date more suitable) upon which such application is to be made, and upon such date interest on the amounts of principal and interest to be paid on such dates shall cease to accrue. Trustee may give such notice as it deems appropriate of the deposit with it of any such moneys and of the fixing of any such date, and Trustee shall not be required to make payment to the holder of any unpaid Bond until such Bond shall be presented to Trustee for appropriate endorsement or cancellation. Notwithstanding anything herein to the contrary, in the event that a Bondholder paydate distribution shall not have been made because of insufficient funds in Issuer's Sinking Fund Account, should funds thereafter accumulate in the Sinking Fund Account sufficient to meet such prior Bondholder payment in whole or in part, Trustee may nonetheless continue to hold such funds until it is able to make a good faith determination, based in its sole discretion upon its negotiations with Issuer and its perception of Issuer's ability to meet Issuer's future obligations hereunder:(i) to disburse such funds pursuant to subparagraph (I)(1), or (ii) to accelerate the entire indebtedness effective as of either the date of the event of default or the Bondholder payment date, as Trustee elects, and later disburse such funds along with other proceeds pursuant to subparagraph (I)(2). Trust Indenture Page 28 of 51 IX. PREPAYMENT PRIVILEGES (A) If Issuer is not in default and upon thirty (30) days written notice from the Issuer to the Trustee, accompanied by payment in full of all moneys required to effect the redemption, the Bonds shall be subject to redemption at any time in whole or in part (in such manner as the Trustee deems appropriate) at the redemption price of 100% of the principal amount redeemed plus accrued interest to the redemption date. Provided that the Issuer has made available moneys to effect the redemption, the Trustee shall give notice to the bondholders by first class mail at least fifteen (15) days prior to the redemption date. After the redemption date, no interest shall accrue on the Bonds. The Trustee shall pay the principal and accrued interest on the Bonds to the holders thereof as soon as practical, such payment to be made by check mailed by first class mail. All expenses of redemption shall be paid by the Issuer. (B) Except as may be otherwise provided in the prospectus, offering circular and/or Bonds themselves, there shall be no penalty for prepayment of all or any portion of the Bonds, but Issuer may be charged a reasonable fee therefor in addition to and notwithstanding those fees set forth in Article XX. (C) As to any Bonds called for prepayment which are not presented to Trustee for payment, Trustee shall set aside and retain in a separate account a sum equal to the unpaid principal and accrued interest thereof. (1) No interest shall accrue or be payable from or after such payment date either upon such called Bonds or such funds in said separate account. (2) After three (3) years from such separation of funds, any separated funds remaining unclaimed shall be escheated and delivered by Trustee to the State of Arizona; such delivery shall operate as a complete discharge of Trustee as between the Bondholders and Issuer; and Issuer hereby indemnifies and agrees to hold Trustee harmless from any and all subsequent claims therefor or resulting therefrom asserted by any Bondholder(s) or governmental agency or agencies, including all costs of maintaining a legal defense. (D) Should Issuer deposit funds for the prepayment of outstanding bonds in an amount which Trustee ultimately determines Trust Indenture Page 29 of 51 to be in excess of the funds actually required to effect said prepayment, then Trustee, immediately upon discovering this fact, shall remit such excess payment to Issuer or to such other persons or firms to whom Issuer is obligated with respect thereto. Should Issuer deposit funds for such prepayment which are insufficient to accomplish same, Issuer shall immediately remit to Trustee such additional funds as may be required to complete the prepayment, even if such underpayment was the result of the reliance by Issuer on prepayment calculations furnished it by Trustee. In the event that Issuer does not promptly remit such additional funds, then Trustee may, at its option, stop payment on the checks given by it to pay the principal and interest upon said Bonds which have not been paid, or it may borrow and/or advance such additional funds as will permit said Bonds to be prepaid. In the latter event Issuer agrees to promptly reimburse Trustee, and Trustee shall have its Reimbursement Lien therefor. (E) Trustee is authorized to execute a release of the Lien in the event of complete prepayment of all Bonds issued pursuant to this Trust Indenture. Such release will be prepared by or on behalf of Issuer at its expense and submitted to Trustee for execution. X. REPLACEMENT OF BONDS (A) In the event any Bond shall become mutilated or defaced, Registrar in its discretion may, upon presentment and cancellation thereof, issue a new Bond of like kind, maturity and date in exchange and in substitution therefor. (B) In the event any Bond is destroyed, lost or stolen, Registrar in its discretion may issue, in lieu of and in substitution therefor, a new Bond of like kind, maturity and date upon the registered holder of such Bond (i) filing with Registrar evidence satisfactory to it that he is the true owner of same and that such Bond has in fact been destroyed, lost or stolen; and (ii) indemnifying through a reputable surety and holding harmless both Issuer and Registrar and Paying Agent against any loss resulting, directly or indirectly, from issuance of the substitute Bond. (C) All Bonds issued under this Trust Indenture shall be held and owned upon the express condition that the provisions of this Article are exclusive in respect to the replacement and payment of mutilated, defaced, destroyed, lost or stolen Bonds, and shall preclude any and all other rights and remedies, Trust Indenture Page 30 of 51 notwithstanding any law or statute now existing or hereafter enacted to the contrary respecting such replacement or payment of bonds, notes, negotiable instruments or other securities without their surrender. XI. ADDITIONAL PARITY BONDS AND OTHER BORROWINGS (A) Subject to the following, Issuer reserves the right to issue additional parity bonds or to incur additional debt obligations (hereinafter collectively called "Additional Bonds" even though such debt obligations are not in bond form) for any lawful purpose, including without limitation refunding or prepaying any outstanding Bonds, construction of improvements and/or the acquisition of additional real property. Such Additional Bonds, along with the original Bonds issued under this Indenture, shall be deemed "Bonds" for all purposes as defined in this Indenture unless the context otherwise requires. Once issued and delivered, such Additional Bonds and the interest thereon shall be payable from the sources described in this Indenture and secured by the Indenture and the Lien to the same extent and priority as, and on a parity with, all then Outstanding Bonds of the applicable original series, regardless of the date and order of recording of the deed(s) of trust or mortgage(s), as if such Additional Bonds had been part of the original offering. Such Additional Bonds may be made or issued in one or more obligations, series or issues, in various principal amounts, bearing interest, maturing, and having such redemption features and other provisions as may be provided in any supplemental indenture or other instrument authorizing their making or issuance. As to such Additional Bonds, whether a debt obligation such as a note or a series or a separate issue of bonds, and whether governed by a note or supplement to the Indenture or a separate indenture, a default as to any one note, bond, series or issue shall constitute a default as to any and all other notes, bonds, series and/or issues totally or partially secured by such a parity lien on the same collateral. (1) Provided, no such note or series or issue of Additional Bonds shall be made or issued unless: (a) Any default or event which would result in default by Issuer under the Indenture has been first cured; (b) Any real property acquired from the proceeds of Additional Bonds shall be subjected to and become a part Trust Indenture Page 31 of 51 of the applicable lien and any applicable mortgage or deed of trust upon the Property securing the series of bonds related to the offering of Additional Bonds, as evidenced at Trustee's election and at Issuer's sole expense by an attorney's title opinion or a mortgagee's title policy in favor of Trustee reflecting no liens or encumbrances prior to the Lien other than as agreed upon in writing between Issuer and Trustee; and (c) The ratio of the total Outstanding series of Bonds plus the Additional Bonds related thereto shall not exceed one hundred percent (100%) of the capitalized cost of the applicable Property, inclusive of any new construction or improvements thereon, to secure the payment of the Bonds. (2) Further provided that for a period of three years from the effective date of the offering, MMR Investment Bankers, Inc. shall have a first right of refusal to provide investment banking services for any additional borrowings of Issuer relative to the subject property or any refinancing of this indebtedness. (B) Furthermore, notwithstanding anything herein to the contrary, Issuer has the right to obtain interim construction loans in order to purchase/or build the five projects referred to herein and any such interim construction loans shall be secured in parity with lien securing the applicable series of bonds. In such event, the Trustee is authorized to execute and deliver such instruments and documents as is necessary to effect in any such interim construction lender a lien of equal parity to the lien securing the bonds. XII SALE OF PROPERTY Should Issuer desire to convey all or any portion of the Property, Trustee is authorized in its sole discretion to execute a release or partial release thereof, provided that: (A) Any consideration received other than cash for such conveyance must be equal to or greater than the fair market value of the property conveyed at the time of sale and becomes part of the Lien, as evidenced at Trustee's election and at Issuer's sole expense by an attorney's title opinion or a mortgagee's title policy in favor of Trustee reflecting no liens or encumbrances Trust Indenture Page 32 of 51 prior to the Lien other than as agreed upon in writing between Issuer and Trustee, or is applied as in (B); (B) Any cash proceeds derived from such conveyance shall be delivered to Trustee to be applied either: (1) To call and prepay outstanding Bonds in the same manner as partial prepayments are to be applied under the provisions of Article IX; or (2) Paid into a trust or escrow account in a depository designated by Trustee, to be applied: (a) To purchase additional property subjected to and becoming a part of the Lien and any mortgage or deed of trust upon the Property, as evidenced at Trustee's election and at Issuer's sole expense by an attorney's title opinion or a mortgagee's title policy in favor of Trustee reflecting no liens or encumbrances prior to the Lien other than as agreed upon in writing between Issuer and Trustee; (b) To construct additional improvements on the property remaining under the Lien; and/or (c) To reduce any other lien indebtedness existing against the Property. Issuer, subject to the approval of Trustee, has the right to select from the foregoing alternatives, and shall notify Trustee in writing and in advance which alternatives it has selected and the respective amounts. (C) The value of the remaining property covered by the Lien is sufficient, in the opinion of Trustee, to secure the outstanding Bonds after application of the sale proceeds as in (B) above. Trustee shall not be liable for mistakes of judgment made in good faith in reliance upon any appraisals or other information furnished which forms a reasonable basis for Trustee's decision. XIII. SUBSTITUTION OF COLLATERAL Should Issuer desire to substitute the Property, in whole or in part, Trustee is authorized in its sole discretion to execute Trust Indenture Page 33 of 51 such releases, partial releases and other legal documents as may be necessary to do so, provided that: (A) The fair market value of the substituted property shall be equal to or greater than the fair market value of the Property released from the Lien at the time of substitution; and (B) The Property substituted shall be subjected to and become a part of the Lien and any mortgage or deed of trust upon the Property, as evidenced at Trustee's election and at Issuer's sole expense by an attorney's title opinion or a mortgagee's title policy in favor of Trustee reflecting no liens or encumbrances prior to the Lien other than as agreed upon in writing between Issuer and Trustee. Trustee shall not be liable for mistakes of judgment made in good faith in reliance upon any appraisals or other information furnished which forms a reasonable basis for Trustee's decision. XIV. CONDEMNATION OF PROPERTY (A) Should any governmental agency undertake to acquire by eminent domain all of the property comprising a project, Trustee is authorized to join with Issuer in negotiating with such governmental agency, and to execute any and all instruments necessary or required to convey said Property to such governmental agency, without requiring formal condemnation; provided, that the sums received for such condemnation shall be at least sufficient to pay the principal balance of the Bonds and accrued interest to date of pay-off. Trustee is not authorized to agree to any non-judicial total condemnation which will not provide funds sufficient to pay all of the Bonds then outstanding, with accrued interest thereon. (B) Should any governmental agency undertake to acquire by eminent domain a portion of the property comprising a project, Trustee is authorized to join with Issuer in negotiating with such governmental agency and to execute such documents as may be necessary or required to transfer title of such portion to such governmental agency without requiring formal condemnation; provided, that any cash proceeds derived from such acquisition shall be delivered to Trustee to be applied either: (1) To call and prepay outstanding Bonds in the same manner as partial prepayments are to be applied under the provisions of paragraph IX(B); or Trust Indenture Page 34 of 51 (2) To be paid into a trust account maintained by Trustee to be applied: (a) For the purchase of additional property which shall be subjected to and become a part of the Lien and any mortgage or deed of trust upon the Property, as evidenced at Trustee's election and at Issuer's sole expense by an attorney's title opinion or a mortgagee's title policy in favor of Trustee reflecting no liens or encumbrances prior to the Lien other than as agreed upon in writing between Issuer and Trustee; (b) To construct additional improvements on the property remaining under the Lien; and/or (c) To reduce any other lien indebtedness existing against the Property. Issuer, subject to the approval of Trustee, has the right to select which of the foregoing alternatives it desires to exercise, and shall notify Trustee in writing and in advance which alternative is selected by Issuer. XV. DUTIES OF TRUSTEE, PAYING AGENT AND REGISTRAR The following services will be provided for the benefit of Issuer and the Bondholders: (A) Trustee shall: (1) Maintain the legal file containing Issuer's application for financing, resolution for financing, appraisal, Issuer's organizational documents, trust indenture, escrow instructions and agreement (if applicable), commitment(s) for title insurance, policy(s) of title insurance or attorney's title opinion, opinion(s) of counsel (if applicable), current fire and extended coverage insurance policy(s), builder's risk insurance policy(s) (if applicable), and any other written agreements that may be entered into between Issuer and Trustee simultaneously with or after execution hereof. (2) Hold for the benefit of the Bondholders their legal rights to repayment and in and under the Lien; and in the event of default by Issuer, Trustee may (or shall when required) pursue in its name on their collective behalf all lawful remedies. Trust Indenture Page 35 of 51 (3) Provide Issuer an amortization schedule(s) for the payment of the Bonds. If electronic banking is available, Trustee will provide Issuer instructions for its use. If electronic banking is not available, Trustee will provide Issuer a sinking fund installment book(s). (4) Monitor all sinking fund installments and if Issuer is in arrears, give written and/or oral notification of the delinquency. (5) Disburse all Bond proceeds to Issuer at such time as all the legal requirements have been met. (6) Endorse insurance settlement checks, if any, for damages to the insured Property when satisfied that the proceeds will be used as required herein. (7) Execute a release of the Lien when all Bonds have been paid or canceled under the terms and provisions hereof. (B) Paying Agent shall: (1) Record all proceeds received from the sale of Bonds. (2) Provide Issuer after the final project disbursement from the Bond Proceeds Account with an accounting showing the deposits to and charges against the Bond Proceeds Account. (3) Receive and record weekly or monthly sinking fund installments from Issuer. (4) Provide Issuer semi-annual statements showing the deposits to and charges against the Sinking Fund Account. (5) Prepare and mail as required interest checks to the registered owners of simple-interest Bonds. (6) Prepare and mail principal checks to the registered owners of simple-interest Bonds at maturity. (7) Prepare and mail principal and interest checks to the registered owners of compound-interest Bonds at maturity. Trust Indenture Page 36 of 51 (8) Provide Issuer with information and forms for notification of the Bond owners in the event of a prepayment of all or a portion of the outstanding Bonds. (9) Prepare and mail principal and interest checks to the registered Bond owners of Bonds that are called for prepayment prior to maturity (10) Prepare and mail Internal Revenue Service Form 1099's to inform each registered owner of the Bonds of the respective amount of interest earned and required to be reported by Trustee to the Internal Revenue Service for that taxable year (which may be different figures from those applicable to and reportable for income tax purposes by individual Bondholders). (11) Prepare and forward to applicable taxing authorities all required information pertaining to the interest income of Bondholders. (C)Registrar shall: (1) Upon receipt by the Trustee of all documentation which is prerequisite, print, issue, authenticate and mail all Bonds to the registered owners. (2) Record and reissue Bonds subsequently transferred to a new owner. (3) Maintain a permanent Bond register which reflects the serial or other identification number, maturity date, face value, interest rate, name and address of owner, date bought, and price reported paid (if any) for each Bond issued. (4) Reissue mutilated, defaced, destroyed, lost and stolen Bonds if prior to maturity, and if matured, direct the payment of the principal and accrued interest to the registered Bond owners, subject to all terms and conditions hereof. XVI. LIMITATION OF LIABILITY Trustee, Paying Agent and Registrar (for purposes of this Article jointly and severally called "Trustee") accept their respective duties and responsibilities as set forth under the terms of this Trust Indenture upon the express conditions (to which Issuer and the Bondholders by the acceptance of the Bonds agree) Trust Indenture Page 37 of 51 that Trustee shall not be responsible for any act or omission hereunder unless due to its own gross negligence or willful default; and no implied covenants, obligations or warranties whatsoever shall be read into this debenture against Trustee. Without limiting the generality of the foregoing: (A) Trustee shall not be responsible or liable for any recitals, statements or representations whatsoever in any prospectus or offering circular used in connection with the sale of the Bonds. Trustee makes no representation or warranty whatsoever, express or implied, (i) that the terms, conditions or provisions of this Trust Indenture are, will remain or will become in compliance with any state or federal statute or regulations applicable or relating to this Indenture or the transactions contemplated herein or related hereto, or (ii) regarding any individual Bondholder's reportable amount of income from the Bonds, his tax liability thereon or the tax consequences of any transaction relating to the Bonds, their repayment and/or the collection thereof pursuant to Issuer's default whether through a forbearance agreement, a court-ordered or bondholder-approved restructure of the debt, or foreclosure and sale of the Property. (B) Trustee shall have no liability for any losses resulting from its reliance upon any instrument, writing or communication believed by it in good faith to be genuine and properly authorized, nor for forgery of any bond or unauthorized delivery by Issuer of any Bond. Trustee shall be under no duty to investigate or inquire into any statements contained or matters referred to in any such item. (C) Trustee shall not be liable upon the Bonds for the payment of the principal and/or interest due thereon. (D) Notwithstanding any applicable statutes or regulations relating to registered Bonds, Trustee shall have no duty to recognize any person as a Bondholder unless such person is shown as the registered Bondholder on the books and records of Trustee. (E) Trustee may accept as correct any written statement made to it by the person or persons who sign this Trust Indenture for and on behalf of Issuer or by such other representatives of Issuer as may be from time to time designated by Issuer to act for it, and Trustee will be fully protected in acting upon and in conformity with such opinion. Trust Indenture Page 38 of 51 (F) Trustee may request and act upon the opinion or advice of its counsel. If Trustee acts on an opinion of counsel concerning matters relating hereto and its duties hereunder, it shall be relieved of all liability in connection with the matters referenced herein and its duties hereunder when acting in conformity therewith. (G) If an event of default has occurred and is continuing, Trustee shall, in exercising its rights and powers hereunder, use the same degree of care and skill as a prudent person would exercise or use under the circumstances in the conduct of his own affairs. (H) Trustee shall not be bound to ascertain or inquire into the performance or observances of any covenants, conditions, or agreements of Issuer hereunder. However, Trustee may require of Issuer full information and advice about such performance or observance. (I) Trustee need not consider the ability to respond in damages when selecting or approving any person or entity to render opinions, advice and/or services pertaining hereto. (J) Trustee shall not be responsible for recording or re-recording or filing or re-filing this Indenture, for the validity of the execution by Issuer of this Indenture, for the sufficiency or maintenance of the security for the Bonds, or for the validity or enforceability of this Indenture, the Lien or any security rights or remedies granted to Trustee or the Bondholders hereunder or in any other Bond document. Trustee shall have no obligation to perform any of the duties of Issuer under the Indenture. (K) Moneys and securities held by Trustee in trust need not be segregated from other assets except to the extent required by law or this Indenture. Trustee shall not be liable for interest on any moneys received by it hereunder. Trustee shall not be accountable for the use or application of funds from Issuer's Bonds Proceeds Account after same have been disbursed in accordance herewith. (L) Notwithstanding anything to the contrary, if in the sole judgment of Trustee any action it desires or is requested or demanded to take hereunder may tend to involve liability, loss or expense, Trustee shall not be obligated to so act unless and until it is furnished with indemnity satisfactory to it. Trust Indenture Page 39 of 51 (M) The permissive right of Trustee to do certain things, whether express or implied, shall not be construed as a duty or obligation to take such action. (N) Trustee shall not be required to give any bond or security in respect hereof. (0) Upon delivery of an executed release of the Lien to Issuer pursuant to Article IX(G) or upon restructure of the debt or foreclosure and final distribution of the net proceeds therefrom to the Bondholders, Trustee shall have thereby discharged in full all its liabilities and obligations hereunder, and this trust shall terminate along with any further duties, obligations or liabilities of Trustee hereunder. (P) Should liability for any of the foregoing nonetheless be unsuccessfully judicially asserted against Trustee, it shall be reimbursed and have the Reimbursement Lien for costs and expenses incurred in defending itself, including without limitation attorney, stenographer and witness fees and travel expense and court costs. (Q) By purchasing and accepting delivery of the Bonds, each Bondholder shall hold same subject to all terms of this Trust Indenture. XVII. ANCILLARY/CO-TRUSTEE; RESIGNATION AND REMOVAL; SUCCESSOR TRUSTEES (A) Trustee may in its sole discretion appoint an additional individual or institution as a Co-Trustee or a separate ancillary Trustee hereunder. Trustee will so notify Issuer of such appointment, as well as any applicable regulatory authority. Each power or right vested in Trustee hereunder shall be exercisable by and vest in such Co-Trustee or separate ancillary Trustee to the extent necessary or desirable to enable it to exercise the powers and rights necessary to carry out the purposes of this Indenture. Provided, such Co-Trustee or ancillary Trustee may not be Issuer, Broker nor an affiliate of either. (B) No resignation or removal of the Trustee and no appointment of a successor Trustee pursuant to this Article shall become effective until the acceptance of such appointment in writing by such successor Trustee as hereinafter provided. Trust Indenture Page 40 of 51 (1) Subject to the foregoing, the Trustee may, at its election, resign at any time by either: (a) Giving to Issuer written notice thereof; or (b) Petitioning a court of competent jurisdiction for both (i) the permission to resign and (ii) the appointment of a qualified successor trustee. Provided: (i) if the Trustee shall elect to resign while Issuer is in default hereunder, the Trustee must so petition a court as set forth in (b) above, as Issuer may not in such event select the successor Trustee; and provided further, no successor Trustee shall in any event be the Broker or Issuer, or a subsidiary, affiliate or under the control of either; and (ii) every successor Trustee appointed or succeeding pursuant to any of the foregoing provisions shall be either a trust company or a national or state bank with trust powers, in good standing and having combined capital, surplus and undivided profits of at least $500,000, or a corporation, individuals or mixture approved by a court of competent jurisdiction. (2) If at any time (i) the Trustee shall be adjudged a bankrupt, (ii) a receiver shall be appointed therefor by a court of competent jurisdiction, or (iii) an authorized regulatory agency shall take charge or control thereof, Issuer may, if not in default hereunder, appoint a qualified successor Trustee. (3) If at any time the Trustee shall become incapable of acting or ineligible to act under any state or federal law or this Indenture, it shall tender its resignation as in subparagraph (2) above, failing which Issuer may, if not in default, petition a court of competent jurisdiction for both (i) the removal of the Trustee and (ii) the appointment of a qualified successor Trustee. (4) In the event Issuer shall be disqualified by its default from exercising its rights under subparagraphs (B)(2) or (3) above, or shall fail to exercise such rights within thirty (30) days from occurrence of the event giving rise to such rights, such rights shall devolve upon: (a) Under subparagraph (B)(2), such bankruptcy Trustee, receiver or government agency; and Trust Indenture Page 41 of 51 (b) Under subparagraph (B)(3), any Bondholder as set forth in subparagraph (5) below. (5) If, in a proper case, a successor Trustee has not been appointed pursuant to the foregoing provisions within six months after the resignation or removal of Trustee, any Bondholder may apply to any District Court in and for Maricopa County, Arizona or to any succeeding court of competent jurisdiction to appoint a successor Trustee. Such Court may thereupon, after such notice, if any, as it may be deem proper, appoint a successor Trustee. (6) Any Trustee may be removed at any time by an instrument appointing a successor Trustee executed by the holders of not less than a majority in aggregate principal amount of all Bonds then outstanding. (7) All provisions of this Article which refer to the "Trustee" shall likewise always include the positions of Paying Agent and Bond Registrar, except that the Trustee, acting voluntarily pursuant to subparagraph (2) above, may resign as Trustee while retaining its appointments and continuing as Paying Agent and/or Bond Registrar; or vice versa. (8) Issuer shall give notice or cause notice to be given of each resignation and each removal of the Trustee and each appointment of a successor Trustee, Paying Agent and/or Registrar by mailing written notice of such event by first-class mail, postage prepaid, to the Registered Holders of Bonds as their names and addresses appear in the Bond Register. Each notice shall include the name of the successor Trustee, Paying Agent and/or Registrar, as the case may be, and its principal address. (9) Should Trustee change its name, or voluntarily merge or consolidate with or its business be taken over by another corporation chartered to exercise trust powers and legally competent to perform such duties, then such other corporation shall succeed to all of the powers and duties of Trustee as herein set out, without any further act. (10) Any successor Trustee appointed hereunder shall execute and deliver to Issuer or the Court, whichever is applicable, an instrument accepting such appointment. Thereupon such successor Trustee, without any further act, shall become duly vested with all of the trust estate and the rights, powers, trusts, duties and obligations of its predecessor. Trust Indenture Page 42 of 51 (11) The name of any duly appointed and qualified successor trustee shall be substituted wherever "Trustee" is used throughout this Indenture. XVIII. ILLEGAL INTEREST It is the intention of the parties hereto to comply With applicable usury laws; notwithstanding any provisions herein to the contrary or in any of the documents securing payment or otherwise relating to the Bonds, in no event shall this Trust Indenture, including provisions relating to penalty interest in the event of default or to the Reimbursement Lien rate, the Bonds or such documents require the payment or permit the collection of interest in excess of the maximum amount permitted by such laws. (A) If any such excess of interest is contracted for, charged or received under the Bonds or under any of the instruments securing payment thereof or otherwise relating thereto, including this Trust Indenture or in the event the maturity of the indebtedness evidenced by the Bonds is accelerated in whole or in part, or in the event that all or part of the principal or interest of the Bonds shall be prepaid, so that under any of such circumstances the amount of interest contracted for, charged or received therefrom or under any of the instruments securing payment thereof or otherwise relating thereto, on the amount of principal actually outstanding from time to time under the Bonds, shall exceed the maximum amount of interest permitted by applicable usury laws, then in any such event: (i) the provisions of this Article shall govern and control; (ii) neither Issuer nor any other person or entity now or hereafter liable for the payment of the Bonds shall be obligated to pay the amount of such interest to the extent that it is in excess of the maximum amount of interest permitted by applicable usury laws; (iii) any such excess which may have been charged and/or collected shall be either applied as of the date charged or collected as a credit against the then unpaid principal amount of the Bonds or refunded to Issuer, at Issuer's option, and (iv) the effective rate of interest shall be automatically, immediately and retroactively reduced to the maximum lawful contract rate allowed under applicable usury laws as now or hereafter construed by the courts having jurisdiction thereof. (B) Without limiting the foregoing, all calculations of the rate of interest contracted for, charged upon or received from the Bonds or under such other documents, which calculations are made for the purpose of determining whether such rate exceeds the Trust Indenture Page 43 of 51 maximum lawful contract rate, shall be made, to the extent permitted by applicable laws, by amortizing, prorating, allocating and spreading in equal parts during the period of the full stated term of the respective indebtedness, all interest at any time contracted for, charged or received by Trustee from Issuer or otherwise. XIX. RELEASE OF THE LIEN When Issuer has duly made all of the payments required to be made under the provisions of this Trust Indenture and/or the offering circular to retire a Series of Bonds, Trustee is authorized to execute a release of the lien securing the series of bonds so retired even if there are checks issued for the payment of the principal and/or interest upon the Bonds which are still uncashed; provided, that Trustee shall first satisfy itself that the funds remaining on deposit in the Sinking Fund Account are sufficient to pay such outstanding checks upon presentment. XX. INVESTMENT OF BOND PROCEEDS AND SINKING FUND ACCOUNT FUNDS; FEES OF TRUSTEE, ET. AL. (A) Upon the receipt by Trustee of the proceeds from the sale of Bonds, and upon receipt of the sinking fund installments required of Issuer, it is expressly agreed by Issuer that Trustee may invest all or part of such funds in United States government and government agency obligations, federally insured time and/or demand deposits of banks and savings and loan associations mutual and/or money market funds which invests only in the foregoing instruments; and an investment in any such instruments and/or fund(s) shall be deemed prudent. All moneys required to be deposited with or paid to Trustee under any provision of the Indenture, until disbursed or directed as permitted by the Indenture, shall be held by Trustee in trust and may be commingled with other trust funds held by the Trustee. (B) The fees of Trustee, Paying Agent and Registrar, the payment of which is secured by the Reimbursement Lien and to which Issuer has agreed, are set forth on EXHIBIT "A" attached hereto. (C) Notwithstanding the amount of fees to be paid to Trustee as set forth on EXHIBIT "A", should Trustee, Paying Agent Trust Indenture Page 44 of 51 or Registrar be required to perform extraordinary services, it shall have the right to assess reasonable charges against Issuer for said extraordinary services in addition to the service charges otherwise described on EXHIBIT "A". Such services occasioned by Issuer' s prepayment under Article IX or default shall by definition be extraordinary. Without limiting the foregoing, Trustee shall have the right to be reimbursed by Issuer for any fees or expenses incurred for any unusual services required of Trustee, either in the event of prepayment, default or otherwise, and shall specifically have the right of reimbursement and the Reimbursement Lien for any fees, compensation or documented travel expenses paid by Trustee to or for licensed attorneys, accountants, appraisers, realtors surveyors, court stenographers, Trustee's own personnel or any other persons whose services are necessary or required in order to perform such extraordinary services. The hourly compensation of Trustee's personnel shall be computed as base annual salary divided by two thousand (2,000) hours. XXI. SUPPLEMENTAL INDENTURES (A) Issuer and Trustee, without the consent of the Bondholders, from time to time may enter into one or more indentures supplemental hereto for any of the following purposes: (1) To add to the covenants of Issuer for the benefit of the Bondholders, or to surrender any right or power herein conferred upon Issuer; (2) To cure any vagueness or ambiguity or to correct or supplement any inconsistent or defective provision contained herein or in any supplemental indenture; provided, such action shall not adversely affect the interest of the Bondholders; or (3) To make any change which, in the judgment of Trustee in reliance upon opinion of counsel, does not adversely affect the rights of any Bondholder. (B) With the foregoing limited exceptions which permit modification of the Trust Indenture by Issuer and Trustee alone, the Trust Indenture, the rights and obligations of Issuer, and the rights and obligations of the Bondholders may be modified by Issuer with the consent of the respective holders of not less than sixty-six and two-thirds percent (66 2/3%) in principal of the Bonds then outstanding; provided that no such modification may be made without Trust Indenture Page 45 of 51 the consent of the holders of each Bond affected if such modification would: (1) Change the stated maturity date of the principal or of any installment of interest on any Bond; or (2) Reduce the principal amount or rate of interest on any Bond; or (3) Impair the right as herein set out to institute suit for the enforcement of payment on or with respect to the Bonds; or (4) Reduce the percentage and principal amount of the Bonds of which the holders' collective consent is required for any such supplemental indenture; (5) Except as permitted under this Indenture, permit the creation of any lien ranking prior to or on a parity with the Lien; or (6) Modify any of the provisions of this Article. (C) Whenever the consent of Bondholders is required for any proposed change, modification, addition, elimination or subordination of the Trust Indenture or otherwise, Trustee may cause a notice specifying the, action proposed to be mailed, first-class, postage prepaid, to the owner of each outstanding Bond at the address shown on the Bond Register maintained by the Registrar. Trustee shall be entitled to treat the failure of any Bondholder to respond within thirty (30) days after completion of the mailing of such notice as either a consent or a rejection, as indicated in the notice, of the proposed action specified in the notice. (1) Except as hereinafter provided in Article XXII(B), Trustee shall be the sole judge of the validity and regularity of all consents filed under this paragraph, and may require evidence satisfactory to it that the signer of such consent is lawfully entitled to execute the same. (2) Any required action or consent of Bondholders may also be obtained by a vote of Bondholders representing the requisite percentage of principal then outstanding who are present or represented by proxy at a meeting called by Trustee for such purpose to be held at Trustee's principal offices at a time and Trust Indenture Page 46 of 51 date specified in a notice mailed to the Bondholders as above not less than thirty (30) days prior to such meeting. (D) It shall not be necessary for any consent of Bondholders to approve the particular form of any proposed supplemental indenture; rather, it shall be sufficient if such consent approves the substance thereof. XXII. BONDHOLDER LISTS AND REPORTS EVIDENCE OF RIGHTS OF BONDHOLDERS (A) Any request, consent or other instrument which the Indenture may require or permit to be signed and executed by the Bondholders may be in any number of concurrent instruments of similar tenor, and may be signed or executed by such Bondholders in person or by an attorney appointed in writing or by a committee constituted by an agreement to which any portion of the Bonds shall have been made subject by deposit or otherwise. Proof of the execution of any such request or other instrument or of a writing appointing any such agent or the holder of the Bonds shall be sufficient for any purpose of the Indenture, if made in the following manner: (1) The fact and date of the execution by any person of such request in writing may be provided by any of the following documents in form satisfactory to Trustee: (a) The certificate under his official seal of any notary public or other officer in any jurisdiction who by the laws thereof has power to take acknowledgements of documents to be recorded within such jurisdiction, that the person signing such request or other instrument acknowledged to him the execution thereof; (b) An affidavit of a witness of such execution; or (c) The certification or guarantee of the authenticity of such signature by an officer of any duly chartered trust company or commercial bank. (2) The ownership of registered Bonds shall be proved by the Bond Register as hereinbefore provided. Trust Indenture Page 47 of 51 (3) Trustee may, nevertheless, in its discretion, (i)accept other proof in cases where it deems such other proof sufficient or (ii) require further proof in cases where it deems further proof desirable. The foregoing provisions of this paragraph shall not be construed to abrogate, modify or affect any of the exemptions or rights of Trustee set out in Article XVI of this Indenture. (B) For the purposes of this Indenture, in determining whether the holders of the required percentage of the principal amount of Bonds have concurred in any directive, amendment, modification, consent, waiver or other action, Bonds deemed by Trustee to be owned by Issuer, or under direct or indirect common control of Issuer or by an officer, director, trustee, eider or member thereof, shall be disregarded, except that for the purpose of determining whether Trustee shall be protected in relying upon any such directive, amendment, modification, consent, waiver or other action, only Bonds as to which Trustee has actual knowledge of such ownership or control must be so disregarded. (C) If either (i) Issuer or (ii) three or more Bondholders (hereinafter referred to as "Applicant(s)") apply in writing to Trustee, and, exclusive of Issuer, furnish to Trustee reasonable proof that each such Applicant has owned a Bond for a period of at least six (6) months preceding the date of such application, and such application further states that the Applicant(s) desire to communicate with all Bondholders with respect to their rights under this Indenture or under the Bonds and is accompanied by a copy of the form of proxy or other communication which such Applicant(s) propose to transmit, then Trustee shall, within ten (10) business days after the receipt of such application, at its election, either: (1) Afford such Applicant(s) access to such information; (2) Inform such Applicant(s) as to the approximate number of registered Bondholders and as to the approximate cost of mailing to such Bondholders the form of proxy or other communication, if any, specified in such application, in which latter event Trustee shall further elect either: (a) Within ten (10) days after tender to Trustee of the material to be mailed and of payment of the reasonable expenses of mailing, to mail to such Applicants, together with a return of the material to have been mailed to the Trust Indenture Page 48 of 51 Bondholders, a written statement to the effect that, in the opinion of Trustee, such mailing would be contrary to the best collective interest of the Bondholders or would be in violation of applicable law, such written statement specifying the basis of such opinion; or (b) Mail, with reasonable promptness, to each registered Bondholder a copy of the form of proxy or other communication which is specified in such request. (D) Issuer, Broker, and each and every holder of the Bonds by receiving and holding the same, agrees with Trustee and Registrar that: (1) Each Bondholder's identity is privileged information not subject to disclosure and such Bondholder may receive communications from Issuer, other Bondholders or any third party only in accordance with this Article; and (2) Neither Trustee nor Registrar shall be held accountable by reason of mailing any material pursuant to a request made pursuant to this Article which Trustee in its sole discretion determines to grant. XXIII. MISCELLANEOUS PROVISIONS (A) When the context requires, the singular includes the plural, the masculine includes the female and neuter, and vice versa. Except within a series, the conjunctive includes the disjunctive and vice versa. (B) The headings contained in the Table of Contents and body hereof are for convenience only and shall in no manner be construed as a part of this Indenture. (C) All notices required hereby as between Issuer and Trustee, Paying Agent and/or Registrar shall be sufficient if such notices are in writing and mailed by either registered or certified mail, return receipt requested, postage prepaid, or by delivering in person or causing the delivery thereof by commercial courier to such party at the address shown on the last page or at such other address as either party may hereafter furnish in writing to the other. Trust Indenture Page 49 of 51 (D) This Indenture constitutes the entire agreement between the parties and supersedes any and all other prior agreements or understandings, if any, whether oral or in writing, relating to the rights and liabilities arising out of the subject matter hereof. (E) This agreement may be amended or modified only in accordance with the terms of this Indenture by a written instrument of even or subsequent date hereto signed by both parties. (F) Neither the waiver of any provision or breach hereof nor the forbearance, failure or delay, whether intentional or inadvertent, in exercising any right or remedy hereunder, nor the partial exercise thereof, by either party shall be deemed a waiver of any other provision or breach or of the subsequent or further exercise of such right or remedy or as establishing a course of dealing. (G) If any provision of this Trust Indenture is held to be illegal or unenforceable, the remaining provisions shall nevertheless remain in full force and effect. In addition, the illegal or unenforceable provisions shall be modified so as to conform, to the greatest extent legally permissible, to the original intent of such provision. (H) This agreement will be binding upon and will inure to the benefit of each party's respective successors and assigns. (I) Each person signing below represents and warrants that he is authorized to act in the capacity stated. (J) ISSUER AND TRUSTEE EACH ACKNOWLEDGES AND AGREES THAT ITS REPRESENTATIVES AND ATTORNEYS HAVE HAD THE OPPORTUNITY TO PARTICIPATE IN THE DRAFTING AND CONSTRUCTION OF THIS INDENTURE AND THAT THE PROVISIONS HEREOF SHALL NOT BE CONSTRUED AGAINST OR IN FAVOR OF EITHER PARTY. (K) This Indenture shall be construed in accordance with and governed by the laws of Arizona, with the exception of the terms and conditions pertaining to the foreclosure of the Property set forth in Article VIII which shall be construed in accordance with and governed by the laws of the State in which the Property is located. (L) As used throughout, the words or phrases "legal costs," "collection costs," "collection expenses, "costs of maintaining a legal defense," "Reimbursement Lien" and words and Trust Indenture Page 50 of 51 phrases of like import shall be liberally construed to include all costs and expenses reasonably incurred by Trustee, directly or indirectly, as compensation or reimbursement to its own personnel, licensed legal counsel, accountants, surveyors, appraisers, court reporters and other experts, including their fees or other compensation and travel expenses, in carrying out the purposes of this Indenture and holding Trustee harmless from such costs and expenses. IN TESTIMONY WHEREOF, Issuer and Trustee have caused this instrument to be signed in duplicate originals by their duly authorized agents and representatives this 2nd day of October, 1998. ISSUER: THE BILTMORE GROUP OF LOUISIANA, L.L.C. By: ------------------------------ JoAnne M. Caldwell-Bayles, Managing Member Colonial: COLONIAL TRUST COMPANY, TRUSTEE By: ------------------------------ Its Vice-President Trust Indenture Page 51 of 51 STATE OF ARIZONA > COUNTY OF MARICOPA > This instrument was acknowledged before me on the day of , 19 , by --- ------ ---- John Johnson, President of COLONIAL TRUST COMPANY, an Arizona corporation with trust powers. ---------------------------------- Notary Public, State of Arizona ---------------------------------- Notary's Name, Printed or Typed STATE OF > ---------------- PARISH OF > --------------- This instrument was acknowledged before me on the day of , ------ ---------- 19 , by JoAnne M. Caldwell-Bayles, Managing Member of The Biltmore Group ----- of Louisiana, L.L.C., a Louisiana limited liability company. ---------------------------------- Notary Public, State of Louisiana ---------------------------------- Notary's Name, Printed or Typed Trust Indenture Page 52 of 51 EXHIBIT "A" TRUSTEE, PAYING AGENT & BOND REGISTRAR/TRANSFER AGENT SCHEDULE OF FEES EX-5.1 3 OPINION OF BOBBY CULPEPPER ESQ. BOBBY L CULPEPPER & ASSOCLATES A PROFESSIONAL LAW CORPORATION 205 WEST ALABAMA BOBBY L. CULPEPPER 525 EAST COURT AVENUE RUSTON, LA 71270 JONESBORO, LOUISLANA 71251-3497 318-251-0701 TERRY CULPEPPER CARROLL 318/259-4184 J. CLAY CARROLL FAX #318/259-6278 233 SOUTH GRAND MONROE, LA 71201 PLEASE REFER ALL CORRESPONDENCE 318/325-3884 TO THE JONESBORO OFFICE File April 5, 1999 MMR Investment Bankers 550 North 159th Street East P.0. Box 781440 Wichita, Kansas 67278-1440 Re: Authorization of $9,900,000.00 First Mortgage Bond Issue Gentlemen: The Biltmore Group of Louisiana L.L.C. (hereinafter called "company"), is a duly organized and existing limited liability company organized under the laws of the State of Louisiana and authorized to do business therein. The correct name to be used on the first mortgage bonds and all legal instruments is The Biltmore Group of Louisiana L.L.C. Effective as of January 26, 1999, the members of the company signed resolutions authorizing the issuance of up to $9,900,000.00 of first mortgage bonds and the execution of certain instruments in connection with the bond issue by Joanne Caldwell-Bayles, as manager. I have duly examined the Articles of Organization and Operating Agreement of the company and find that the resolutions passed effective January 26, 1999, a copy of which is attached hereto as Exhibit A and made a part of this opinion, were passed in accordance with the Articles of organization, Operating Agreement and the laws of the State of Louisiana, and I do hereby certify that said resolutions constitute a valid and legal authorization for the issuance of up to $9,900,000.00 of first mortgage bonds for the purposes set out in said resolutions and for the execution of a trust indenture, setting out the terms and conditions of the bond issue and placing a lien on the company's real property in order to secure payment of the first mortgage bonds. I further certify the following person is the proper person to sign the trust indenture in accordance with the Articles of organization and operating Agreement of the company: MMR Investment Bankers Page 2 April 5, 1999 Name: Joanne Caldwell-Bayles Title: Manager I further certify that when the first mortgage bonds have been paid for by the purchaser and signed by the manager, the first mortgage bonds will be a legal and binding indebtedness of the company. The opinions expressed above are subject in their entirety to (i) the effect of any applicable bankruptcy, insolvency, reorganization or similar laws affecting creditors' rights generally; and (ii) the rights of the United States government under the Federal Tax Lien Act of 1966, as amended; and (iii) the discretionary power of the courts to make available remedies of specific performance, injunctive relief or other equitable remedies. This opinion is limited to the matters stated herein, and no opinions may be implied or inferred beyond the matters stated. In giving this opinion we have assumed the authenticity of all signatures to the Operating Agreement and the resolutions and that those persons signing on behalf of a corporate or other entity that is not an individual have the requisite authority. With kindest personal regards, I remain Yours very /S/J CLAY CARROLL J CLAY CARROLL JCC:bb CC:The Biltmore Group of Louisiana L.L.C. EX-10.5 4 CONSTRUCTION LOAN AGREEMENT FOR MINDEN CHURCH LOANS & INVESTMENTS A Real Estate Investment Trust March 30, 1999 The Biltmore Group of Louisiana, LLC Attn: Joanne Caldwell-Bayles 507 Trenton St West Monroe, LA 71291 Re: Minden, LA Project Dear Mrs. Caldwell-Bayles: This will constitute the cimmitment of Church Loans & Investments Trust ("Church Loans") to loan to The Biltmore Group, W. Monroe, LA ("Borrower") the sum of $1,368,520, or any amount less than that amount as the Borrower may need less any title insurance, appraisal costs, mortgage registration tax and all other closing costs and expense that may be incurred by Church Loans in connection with the funding and collection of the loan. This commitment shall be subject to the following conditions: 1. That the Borrower pay to Church Loans a commitment fee equal to 1/2% (one-half percent) of the principal amount of the funds to be advanced to the Borrower under, the terms of this commitment. Such commitment fee is due and payable upon Borrower's acceptance and execution of this commitment letter. Such fee is not interest, but is paid and payable to Church Loans to induce Church Loans to enter into this loan commitment and to compensate Church Loans for making available the funds necessary to fund the entire amount of the committed loan whether or not such amount is advanced. 2. That should the proceeds from the sale of the bonds through MMR Investment Bankers ("MMR") and other participating broker/dealers, after the payment of the expenses associated with the bond offering and the establishment of the first six months sinking fund reserve, be insufficient to pay the unpaid principal and interest upon the loan made by First Republic Bank, Monroe, LA ("'First National"), at the option of the Borrower said loan by Church Loans shall be as follows: (a) The term of this loan shall be for a period of one (1) year upon the following terms and conditions: The Biltmore Group of Louisiana, LLC Attn: Joanne Caldwell-Bayles West Monroe, LA Minden, LA Project March 30, 1999 Page 2 (1) The Borrower shall be current upon all of its outstanding debt obligations, to include, but not necessarily restricted to all sinking fund payments payable to the trustee in connection with the bonds to be offered through MMR and other participating broker/dealers. (2) The amount of this loan shall be the lesser of (i) the unpaid principal upon the loan made by First National, or (ii) the unpaid principal amount of all unsold bonds offered through MMR and other participating broker/dealers described above. Any principal amount of the First National loan in excess of the amount of the unsold bonds must be paid in full by Borrower, prior to the funding of this loan. (3) The Borrower sha11 submit the Feasibilty Study regarding this project, along with related financial data. Funding of this loan shall be contingent upon the review and acceptance as to quality by Church Loans based on its own criteria. (4) The interest rate upon this loan shall be at a variable rate equal to 2% per annum in excess of the "Prime Rate" of interest published by the Wall Street Journal under heading "Money Rates". (5) The interest upon the unpaid principal balance of this loan shall be payable monthly. (6) The principal upon this loan shall be paid on or before one year from date. (7) The Borrower shall pay Church Loins a loan fee equal to 2% (two points) of the principal amount of this loan. (8) The Borrower shall deposit with Church Loans the additional sum of $2,500.00 which are the legal fees, to be incurred by Church Loans in connection with this loan. (9) The total amount Of this loan and the sold bonds shall not exceed 66 2/3% of the appraised market value of the collateral. The Biltmore Group of Louisiana, LLC Attn: Joanne Caldwell-Bayles West Monroe, LA Minden, LA Project March 30, 1999 Page 3 (b) If on the maturity of this one year loan, should the proceeds from the sale of the bonds to be offered by the Borrower through MMR and other participating broker/dealers be insufficient to pay the unpaid princpal and interest upon this loan then, at the option of the Borrower, the principal amount of this loan in regard to the Minden issue, shall be renewed and extended by Church Loans into a permanent loan upon the following terms and conditions: (1) The Borrower shall be current upon all of its outstanding debt obligations, to include. but not necessarily restricted to to all sinking fund payments payable to the trustee in connection with the bonds to be offered through MMR and other participating broker/dealers, and all interest payments upon the loan to be made by Church Loans to the Borrower under the terms of this commitment. (2) The permanent loan shall bear interest at the same rate as described in paragraph (a) (3) above. (3) The amount of the permanent loan shall be payable in equal, or as equal as possible due to the variable rate of interest on the loan, monthly installments of principal and interest over a period of thirteen years, however, the loan shall be due and payable in full, with interest, at the date of the final maturity of the bonds. Borrower shall have the right to prepay the loan at any time without penalty. (4) The Borrower shall pay to Church Loans an additional loan renewal fee equal to 5% (five points) of the principal amount of the permanent loan. (5) The Borrower shall deposit with Church Loans an additional sum of $2,500.00 which are the legal fees to be incurred by Church Loans in connection with the permanent loan. (6) The loan shall continue to be secured on are equal basis with the outstanding bonds to be issued by the borrower through MMR and other participating broker/dealers upon all property to be given by the Borrower to secure the loan committed herein. The Biltmore Group of Louisiana, LLC Attn: Joanne Caldwell-Bayles West Monroe, LA Minden, LA Project March 30, 1999 Page 4 (7) The total amount Of the loan and sold bonds shall not excced 66 2/3% of the appraised market value of the property. (c) Until such time as the loans committed herein are paid in full, the Borrower shall not further encumber the property security the payment of said loans, either by placing additional mortgages or deeds of trust upon said property, or by increasing the indebtedness of the Borrower under any Trust Indenture, mortgage or deed of trust or other security documents associated with the sale of bonds secured by said property. Should the Borrower additionally encumber the property securing the loans committed hereby prior to their payment in full, Church Loans shall have the right to declare the unpaid principal and interest upon said loans immediately due and payable upon thirty days notice to the Borrower. (d) The term "bonds" as used herein shall mean and refer to the series of bonds dedicated to the Minden, Louisiana project. The acceptance of this commitment must be indicated by the Borrower's signing and returning the original copy of this letter within fifteen (15) days from the date hereof. Sincerely yours, /S/KELLY ARCHER Kelly Archer Manager of Operations/CFO The Biltmore Group of Louisiana, LLC Attn: Joanne Caldwell-Bayles West Monroe, LA Minden, LA Project March 30, 1999 Page 5 The above commitment has been agreed to and accepted by the undersigned Managing Member of The Biltmore Group of Louisiana, LLC. Date 4/6/99 ----------- /S/SUNSHINE GANTT THE BILTMORE GROUP OF LOUISIANA, LLC. - ---------------------------- --------------------------------------- CORPORATE SECRETARY /S/JOANNE CALDWELL-BAYLES MG MEMBER - ---------------------------- --------------------------------------- EX-10.11 5 PROMISSORY NOTE FOR THE BILTMORE GROUP OF LOUSISANA LLC. PROMISSORY NOTE Principal Loan Date Maturity Loan No Call Collateral Account $176,755.00 11-30-1998 11-30-1999 93327 41 2 2690 Officer Initials 3 References in the shaded area are for Lender's use only and do not limit the applicability of this document to any particular loan or item. Borrower: THE BILTMORE GROUP, LLC. (TIN: 72-1423893) 507 TRENTON ST. WEST MONROE, LA 71291 Lender: FIRST REPUBLIC BANK TIN: 72-0442767 1220 NORTH 18TH STREET P.O. BOX 2066 MONROE, LA 71201 Principal Amount: $176,755.00 Interest Rate: 9.750% Date of Note: November 30, 1998 PROMISE TO PAY. THE BILTMORE GROUP, LLC. ("Borrower") promises to pay to the order of FIRST REPUBLIC BANK ("Lender"), In law money of the United States of America the sum of One Hundred Seventy Six Thousand Seven Hundred Fifty Five & 00/100 Dollars (U.S.$176,755.00) or such other or lesser amounts as may be reflected from time to time on the books and records of Lender as evidencing the aggregate unpaid principal balance loan advances made to Borrower on a revolving line of credit basis as provided below, together with simple Interest at the rate of 9.750% annum assessed on the unpaid principal balance of this Note as outstanding from time to time, commencing on November 30, 1998 and continue until this Note Is paid In full, or until default under this Note with Interest thereafter being subject to the default Interest rate provisions forth herein. LINE OF CREDIT. This Note evidences a revolving line of credit "master note'. Advances under this Note, as well as directions for payment from Borrower's accounts, may be requested orally or In writing by Borrower or by an authorized person. Lender may, but need not, require that all oral requests be confirmed in writing. The following party or parties are authorized to request advances under the line of credit until Lender receives from Borrower at Lender's address shown above written notice of revocation of their authority: JOANNE M. BAYLES. Borrower agrees to be liable for all sums either: (a) advanced in accordance with the instructions of an authorized person or (b) credited to any of Borrower's deposit accounts with Lender. The unpaid principal balance owing on this Note at any time may be evidenced by endorsements on this Note or Lender's internal records, including daily computer print-outs. Lender will have no obligation to advance funds under this Note if: (a) Borrower or guarantor is in default under the terms of this Note or any agreement that Borrower or any guarantor has with Lender, Including any agreement made connection with the signing of his Note; (b) Borrower or any guarantor ceases doing business or Is Insolvent; (c) any guarantor seeks, claims otherwise attempts to limit, modify or revoke such guarantor's guarantee of this Note or any other loan with Lender; (d) Borrower has applied fun provided pursuant to this Note for purposes other than those acceptable to Lender; or (a) Lender In good faith deems itself Insecure under this Note any other agreement between Lender and Borrower. PAYMENT. Borrower will pay this loan on demand, or If no demand Is made, In one payment of all outstanding principal plus all accrued unpaid Interest on November 30, 1999. In addition, Borrower will pay regular monthly payments of accrued unpaid Interest beginning December 30, 1998, and all subsequent Interest payments are due on the same day of each month after that until this Note Is paid In full. The annual interest rate for this Note Is computed on a 365/360 basis; that is, by applying the ratio of the annual interest rate over a year of 360 days, multiplied by the outstanding principal balance, multiplied by the actual number of days the principal balance Is outstanding. Borrower will pay Lender at Lend address shown above or at such other place as Lender may designate In writing. Unless otherwise agreed or required by applicable law, payments be applied first to any unpaid collection costs and any late charges, then to any unpaid Interest, and any remaining amount to principal. PREPAYMENT; MINIMUM INTEREST CHARGE. Borrower may prepay this Note In full at any time by paying the then unpaid principal balance of t Note, plus accrued simple Interest and any unpaid late charges through date of prepayment. It Borrower prepays this Note in full, or if Lender accelerates payment, Borrower understands that, unless otherwise required by law, any prepaid fees or charges will not be subject to rebate and be earned by Lender at the time this Note Is signed. Unless otherwise agreod to In writing, early payments under this Note will not relieve Borrower's obligation to continue to make regularly scheduled payments under the above payment schedule. Early payments will Instead reduce the principal balance due, and Borrower may be required to make fewer payments under this Note. LATE CHARGE. It Borrower fails to pay any payment under this Note In full within 10 days of when due, Borrower agrees to pay Lender a late payment for In an amount equal to U.S. $ 100.00. Late charges will not be assessed following declaration of default and acceleration of maturity of this Note. DEFAULT. The following actions and/or reactions shall constitute default events under this Note: Default Under Loan Agreement. Should an event of default occur or exist under the terms of Borrowor's Loan Agreement In favor of Lender. Default Under This Note. Should Borrower default In the payment of principal and/or Interest under this Note. Default Under Security Agreements. Should Borrower or any guarantor violate, or fall to comply fully with any of the terms and conditions of, or default under any security right, Instrument, document, or agreement directly or Indirectly securing repayment of this Note. Other Defaults In Favor of Lender. Should Borrower or any guarantor of this Note default under any other loan, extension of credit, security right, instrument, document, or agreement, or obligation In favor of Lender. Default In Favor of Third Parties. Should Borrower or any guarantor default under any loan, extension of credit, security agreement, purchase sales agreement, or any other agreement, In favor of any other creditor or person that may affect any property or other collateral directly lndirectly securing repayment of this Note. Insolvency. Should the suspension or Insolvency, However evidenced, of Borrower or any guarantor of this Note occur or exist. Death or Interdiction. Should any guarantor of this Note die or Interdicted. Readjustment of Indebtedness. Should proceedings for readjustment of indebtedness, reorganization,bankruptcy, composition or extention under any insolvency law be brought by or against Borrower or any gauantor Assignment for Benefit of Creditors. Should Borrower or any guarantor file proceedings for a respite or make a general assignment for the benefit of creditors. Receivership. Should a receiver of all or any part of Borrowor's property, or the property of any guarantor, be applied for or appointed. Dissolution Proceedings. Should proceedings for the dissolution or appointment of a liquidator of Borrower or any guarantor be commenced. False Statements. Should any representation, warranty, or material statement of Borrower or any guarantor made in connection with the obtaining of the loan evidenced by this Note or any security agreement directly or Indirectly securing repayment of this Note, prove to be incorre or misleading in any respect. Material Adverse Change. Should any material adverse change occur in the financial condition of Borrower or any guarantor of this Note should any material discrepancy exist between the financial statements submitted by Borrower or any guarantor and the actual financial condition of Borrower or such guarantor. Insecurity. Should Lender deem itself to be Insecure with regard to repayment of this Note. LENDER'S RIGHTS UPON DEFAULT. Should any one or more default events occur or exist under this Note as provided above, Lender shall have the right, at its sole option, to declare formally this Note to be in default and to accelerate the maturity and insist upon immediate payment in full of the unpaid principal balance then outstanding under this Note, plus accrued interest, together with reasonable attorneys' fees, costs, expenses and other fees and charges as provided herein. Lender shall have the further right, again at its sole option, to declare formal default and to accelerate the maturity and to insist upon immediate payment in full of each and every other loan, extension of credit, debt, liability and/or obligation of every nature and kind that Borrower may then owe to Lender, whether direct or indirect or by way of assignment, and whether absolute or contingent, liquidated or unliquidated, voluntary or involuntary, determined or undetermined, secured or unsecured, whether Borrower is obligated alone or with others on a "solidary" or "joint and several" basis, as a principal obligor or otherwise, all without further notice or demand, unless Lender shall otherwise elect. INTEREST AFTER DEFAULT. If Lender declares this Note to be in default, Lender has the right prospectively to adjust and fix the simple interest rate under this Note until this Note is paid in full, as follows: (1) If the original principal amount of this Note is $250,000 or less, the fixed default interest rate shall be equal to eighteen (18%) percent per annum, or three (3%) per cent per annum in excess of the interest rate under this Note, whichever is greater. (2) If the original principal amount of this Note is more than $250,000, the fixed default interest rate shall be equal to twenty-one (21%) percent per annum, or three (3%) per cent per annum in excess of the interest rate under this Note at the time of default, whichever is greater. ATTORNEY'S FEES. If Lender refers this Note to an attorney for collection, or files suit against Borrower to collect this Note, or if Borrower files for bankruptcy or other relief from creditors, Borrower agrees to pay Lender's reasonable attorneys' fees in an amount not exceeding 25.000% of the unpaid debt then owing under this Note. NSF CHECK CHARGES. In the event that Borrower makes any payment under this Note by check and Borrower's check is returned to Lender unpaid due to nonsufficient funds in my deposit account, Borrower agrees to pay Lender an additional NSF check charge equal to $18.00. DEPOSIT ACCOUNTS. As collateral security for repayment of this Note and all renewals and extensions, as well as to secure any and all other loans, PROMISSORY NOTE (Continued) 11-30-1998 Page 2 notes, indebtedness and obligations that Borrower (or any of them) may now and in the future owe to Lender or incur In Lender's favor, whether direct or Indirect, absolute or contingent, due or to become due, of any nature and kind whatsoever (with the exception of any Indebtedness under a consumer credit card account), Borrower is granting Lender a continuing security Interest in any and all funds that Borrower may now and In the future have on deposit with Lender or In certificates of deposit or other deposit accounts as to which Borrower Is an account holder (with the exception of IRA. pension, and other tax-deferred deposits). Borrower further agrees that Lender may at any time apply any funds that Borrower may have on deposit with Lender or In certificates of deposit or other deposit accounts as to which Borrower Is an account holder against the unpaid balance of this Note and any and all other present and future indebtedness and obligations that Borrower (or any of them) may then owe to Lender, in principal, interest, fees, costs, expenses, and attorneys' fees. COLLATERAL. This Note is secured by: Possessory Collateral. Collateral securing other loans with Lender may also secure this Note as the result of cross-collateralization. FINANCIAL STATEMENTS. Borrower agrees to provide Lender with such financial statements and other related Information at such frequencies and in such detail as Lender may reasonably request. GOVERNING LAW. Borrower agrees that this Note and the loan evidenced hereby shall be governed under the laws of the State of Louisiana. Specifically, this business or commercial Note Is subject to La.R.S.9:3509 et seq. WAIVERS. Borrower and each guarantor of this Note hereby waive demand, presentment for payment, protest, notice of protest and notice of nonpayment, and all pleas of division and discussion, and severally agree that their obligations and liabilities to Lender hereunder shall be on a "solidary" or "joint and several" basis. Borrower and each guarantor further severally agree that discharge or release of any party who Is or may be liable to Lender for the Indebtedness represented hereby, or the release of any collateral directly or indirectly securing repayment hereof, shall not have the effect of releasing any other party or parties, who shall remain liable to Lender, or of releasing any other collateral that Is not expressly released by Lender. Borrower and each guarantor additionally agree that Lender's acceptance of payment other than In accordance with the terms of this Note, or Lender's subsequent agreement to extend or modify such repayment terms, or Lender's failure or delay In exercising any rights or remedies granted to Lender, shall likewise not have the effect of releasing Borrower or any other party or parties from their respective obligations to Lender, or of releasing any collateral that directly or Indirectly secures repayment hereof. In addition, any failure or delay on the part of Lender to exercise any of the rights and remedies granted to Lender shall not have the effect of waiving any of Lender's rights and remedies. Any partial exercise of any rights and/or remedies granted to Lender shall furthermore not be construed as a waiver of any other rights and remedies; It being Borrower's Intent and agreement that Lender's rights and remedies shall be cumulative In nature. Borrower and each guarantor further agree that, should any default event occur or exist under this Note, any waiver or forbearance on the part of Lender to pursue the rights and remedies available to Lender, shall be binding upon Lender only to the extent that Lender specifically agrees to any such waiver or forbearance In writing. A waiver or forbearance on the part of Lender as to one default event shall not be construed as a waiver or forbearance as to any other default. Borrower and each guarantor of this Note further agree that any late charges provided for under this Note will not be charges for deferral of time for payment and will not and are not Intended to compensate Lender for a grace or cure period, and no such deferral, grace or cure period has or will be granted to Borrower In return for the lmpositon of any late charge. Borrower recognizes that Borrower's failure to make timely payment of amounts due under this Note will result In damages to Lender, Including but not limited to Lander's loss of the use of amounts due, and Borrower agrees that any late charges Imposed by Lender hereunder will represent reasonable compensation to Lender for such damages. Failure to pay In full any Installment or payment timely when due under this Note, whether or not a late charge Is assessed, will remain and shall constitute an Event of Default hereunder. SUCCESSORS AND ASSIGNS LIABLE. Borrower's and each guarantor's obligations and agreements under this Note shall be binding upon Borrower's and each guarantor's respective successors, heirs, legatees, devisees, administrators, executors and assigns. The rights and remedies granted to Lender under this Note shall inure to the benefit of Lender's successors and assigns, as well as to any subsequent holder or holders of this Note. CAPTION HEADINGS. Caption headings of the sections of this Note are for convenience purposes only and are not to be used to Interpret or to define their provisions. In this Note, whenever the context so requires, the singular Includes the plural and the plural also includes the singular. SEVERABILITY. If any provision of this Note is hold to be invalid, illegal or unenforceable by any court, that provision shall be deleted from this Note and the balance of this Note shall be interpreted as it the deleted provision never existed. PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF THIS NOTE. BORROWER: THE BILTMORE GROUP LLC BY /S/JOANNE CALDWELL-BAYLES ----------------------------------- JOANE CALDWELL-BAYLES, MEMBER EX-10.12 6 PROMISSORY NOTE FOR THE FORSYTHE GROUP INC. PROMISSORY NOTE Principal Loan Date Maturity Loan No Call Collateral Account $604,000.00 03-05-1999 09-05-2000 95141 41 1 310638 Officer Initials 3 References in the shaded area are for Lender's use only and do not limit the applicability of this document to any particular loan or item. Borrower: THE FORSYTHE GROUP, INC. (TIN: 72-1331423) 507 TRENTON ST. WEST MONROE, LA 71291 Lender: FIRST REPUBLIC BANK TIN: 72-0442767 1220 NORTH 18TH STREET P.O. BOX 2066 MONROE, LA 71201 Principal Amount: $604,000.00 Interest Rate: 9.750% Date of Note: March 5,1999 PROMISE TO PAY. THE FORSYTHE GROUP, INC. ("Borrower") promises to pay to the order of FIRST REPUBLIC BANK ("Lender"), In law money of the United States of America the sum of Six Hundred Four Thousand & 00/100 Dollars (U.S.$604,000.00) or such other or lesser amounts as may be reflected from time to time on the books and records of Lender as evidencing the aggregate unpaid principal balance loan advances made to Borrower on a revolving line of credit basis as provided below, together with simple Interest at the rate of 9.750% annum assessed on the unpaid principal balance of this Note as outstanding from time to time, commencing on March 6, 1999 and continue until this Note Is paid In full, or until default under this Note with Interest thereafter being subject to the default Interest rate provisions forth herein. LINE OF CREDIT. This Note evidences a revolving line of credit "master note'. Advances under this Note, as well as directions for payment from Borrower's accounts, may be requested orally or In writing by Borrower or by an authorized person. Lender may, but need not, require that all oral requests be confirmed in writing. The following party or parties are authorized to request advances under the line of credit until Lender receives from Borrower at Lender's address shown above written notice of revocation of their authority: JOANNE M. CALDWELL BAYLES, PRESIDENT. Borrower agrees to be liable for all sums either: (a) advanced in accordance with the instructions of an authorized person or (b) credited to any of Borrower's deposit accounts with Lender. The unpaid principal balance owing on this Note at any time may be evidenced by endorsements on this Note or Lender's internal records, including daily computer print-outs. Lender will have no obligation to advance funds under this Note if: (a) Borrower or guarantor is in default under the terms of this Note or any agreement that Borrower or any guarantor has with Lender, Including any agreement made connection with the signing of this Note; (b) Borrower or any guarantor ceases doing business or Is Insolvent; (c) any guarantor seeks, claims otherwise attempts to limit, modify or revoke such guarantor's guarantee of this Note or any other loan with Lender; (d) Borrower has applied fun provided pursuant to this Note for purposes other than those acceptable to Lender; or (a) Lender In good faith deems itself Insecure under this Note any other agreement between Lender and Borrower. PAYMENT. Borrower will pay this loan on demand, or If no demand Is made, In one payment of all outstanding principal plus all accrued unpaid Interest on September 5, 2000. In addition, Borrower will pay regular monthly payments of accrued unpaid Interest beginning April 1999, and all subsequent Interest payments are due on the same day of each month after that until this Note Is paid In full. The annual interest rate for this Note Is computed on a 365/360 basis; that is, by applying the ratio of the annual interest rate over a year of 360 days, multiplied by t outstanding principal balance, multiplied by the actual number of days the principal balance Is outstanding. Borrower will pay Lender at Lend address shown above or at such other place as Lender may designate In writing. Unless otherwise agreed or required by applicable law, payments be applied first to any unpaid collection costs and any late charges, then to any unpaid Interest, and any remaining amount to principal. PREPAYMENT; MINIMUM INTEREST CHARGE. Borrower may prepay this Note In full at any time by paying the then unpaid principal balance of t Note, plus accrued simple Interest and any unpaid late charges through date of prepayment. It Borrower prepays this Note in full, or if Lender accelerates payment, Borrower understands that, unless otherwise required by law, any prepaid fees or charges will not be subject to rebate and be earned by Lender at the time this Note Is signed. Unless otherwise agreod to In writing, early payments under this Note will not relieve Borrower's obligation to continue to make regularly scheduled payments under the above payment schedule. Early payments will Instead reduce the principal balance due, and Borrower may be required to make fewer payments under this Note. LATE CHARGE. It Borrower fails to pay any payment under this Note In full within 10 days of when due, Borrower agrees to pay Lender a late payment for In an amount equal to U.S. $ 100.00. Late charges will not be assessed following declaration of default and acceleration of maturity of this Note. DEFAULT. The following actions and/or reactions shall constitute default events under this Note: Default Under Loan Agreement. Should an event of default occur or exist under the terms of Borrowor's Loan Agreement In favor of Lender. Default Under This Note. Should Borrower default In the payment of principal and/or Interest under this Note. Default Under Security Agreements. Should Borrower or any guarantor violate, or fall to comply fully with any of the terms and conditions of, or default under any security right, Instrument, document, or agreement directly or Indirectly securing repayment of this Note. Other Defaults In Favor of Lender. Should Borrower or any guarantor of this Note default under any other loan, extension of credit, security right, instrument, document, or agreement, or obligation In favor of Lender. Default In Favor of Third Parties. Should Borrower or any guarantor default under any loan, extension of credit, security agreement, purchase sales agreement, or any other agreement, In favor of any other creditor or person that may affect any property or other collateral directly lndirectly securing repayment of this Note. Insolvency. Should the suspension or Insolvency, However evidenced, of Borrower or any guarantor of this Note occur or exist. Death or Interdiction. Should any guarantor of this Note die or Interdicted. Readjustment of Indebtedness. Should proceedings for readjustment of indebtedness, reorganization,bankruptcy, composition or extention under any insolvency law be brought by or against Borrower or any gauantor Assignment for Benefit of Creditors. Should Borrower or any guarantor file proceedings for a respite or make a general assignment for the benefit of creditors. Receivership. Should a receiver of all or any part of Borrowor's property, or the property of any guarantor, be applied for or appointed. Dissolution Proceedings. Should proceedings for the dissolution or appointment of a liquidator of Borrower or any guarantor be commenced. False Statements. Should any representation, warranty, or material statement of Borrower or any guarantor made in connection with the obtaining of the loan evidenced by this Note or any security agreement directly or Indirectly securing repayment of this Note, prove to be incorre or misleading in any respect. Material Adverse Change. Should any material adverse change occur in the financial condition of Borrower or any guarantor of this Note should any material discrepancy exist between the financial statements submitted by Borrower or any guarantor and the actual financial condition of Borrower or such guarantor. Insecurity. Should Lender deem itself to be Insecure with regard to repayment of this Note. LENDER'S RIGHTS UPON DEFAULT. Should any one or more default events occur or exist under this Note as provided above, Lender shall have the right, at its sole option, to declare formally this Note to be in default and to accelerate the maturity and insist upon immediate payment in full of the unpaid principal balance then outstanding under this Note, plus accrued interest, together with reasonable attorneys' fees, costs, expenses and other fees and charges as provided herein. Lender shall have the further right, again at its sole option, to declare formal default and to accelerate the maturity and to insist upon immediate payment in full of each and every other loan, extension of credit, debt, liability and/or obligation of every nature and kind that Borrower may then owe to Lender, whether direct or indirect or by way of assignment, and whether absolute or contingent, liquidated or unliquidated, voluntary or involuntary, determined or undetermined, secured or unsecured, whether Borrower is obligated alone or with others on a "solidary" or "joint and several" basis, as a principal obligor or otherwise, all without further notice or demand, unless Lender shall otherwise elect. INTEREST AFTER DEFAULT. If Lender declares this Note to be in default, Lender has the right prospectively to adjust and fix the simple interest rate under this Note until this Note is paid in full, as follows: (1) If the original principal amount of this Note is $250,000 or less, the fixed default interest rate shall be equal to eighteen (18%) percent per annum, or three (3%) per cent per annum in excess of the interest rate under this Note, whichever is greater. (2) If the original principal amount of this Note is more than $250,000, the fixed default interest rate shall be equal to twenty-one (21%) percent per annum, or three (3%) per cent per annum in excess of the interest rate under this Note at the time of default, whichever is greater. ATTORNEY'S FEES. If Lender refers this Note to an attorney for collection, or files suit against Borrower to collect this Note, or if Borrower files for bankruptcy or other relief from creditors, Borrower agrees to pay Lender's reasonable attorneys' fees in an amount not exceeding 25.000% of the unpaid debt then owing under this Note. NSF CHECK CHARGES. In the event that Borrower makes any payment under this Note by check and Borrower's check is returned to Lender unpaid due to nonsufficient funds in my deposit account, Borrower agrees to pay Lender an additional NSF check charge equal to $18.00. DEPOSIT ACCOUNTS. As collateral security for repayment of this Note and all renewals and extensions, as well as to secure any and all other loans, PROMISSORY NOTE (Continued) 03-05-1999 Page 2 notes, indebtedness and obligations that Borrower (or any of them) may now and in the future owe to Lender or incur In Lender's favor, whether direct or Indirect, absolute or contingent, due or to become due, of any nature and kind whatsoever (with the exception of any Indebtedness under a consumer credit card account), Borrower is granting Lender a continuing security Interest in any and all funds that Borrower may now and In the future have on deposit with Lender or In certificates of deposit or other deposit accounts as to which Borrower Is an account holder (with the exception of IRA. pension, and other tax-deferred deposits). Borrower further agrees that Lender may at any time apply any funds that Borrower may have on deposit with Lender or In certificates of deposit or other deposit accounts as to which Borrower Is an account holder against the unpaid balance of this Note and any and all other present and future indebtedness and obligations that Borrower (or any of them) may then owe to Lender, in principal, interest, fees, costs, expenses, and attorneys' fees. COLLATERAL. This Note is secured by: Possessory Collateral. Collateral securing other loans with Lender may also secure this Note as the result of cross-collateralization. FINANCIAL STATEMENTS. Borrower agrees to provide Lender with such financial statements and other related Information at such frequencies and in such detail as Lender may reasonably request. GOVERNING LAW. Borrower agrees that this Note and the loan evidenced hereby shall be governed under the laws of the State of Louisiana. Specifically, this business or commercial Note Is subject to La.R.S.9:3509 et seq. WAIVERS. Borrower and each guarantor of this Note hereby waive demand, presentment for payment, protest, notice of protest and notice of nonpayment, and all pleas of division and discussion, and severally agree that their obligations and liabilities to Lender hereunder shall be on a "solidary" or "joint and several" basis. Borrower and each guarantor further severally agree that discharge or release of any party who Is or may be liable to Lender for the Indebtedness represented hereby, or the release of any collateral directly or indirectly securing repayment hereof, shall not have the effect of releasing any other party or parties, who shall remain liable to Lender, or of releasing any other collateral that Is not expressly released by Lender. Borrower and each guarantor additionally agree that Lender's acceptance of payment other than In accordance with the terms of this Note, or Lender's subsequent agreement to extend or modify such repayment terms, or Lender's failure or delay In exercising any rights or remedies granted to Lender, shall likewise not have the effect of releasing Borrower or any other party or parties from their respective obligations to Lender, or of releasing any collateral that directly or Indirectly secures repayment hereof. In addition, any failure or delay on the part of Lender to exercise any of the rights and remedies granted to Lender shall not have the effect of waiving any of Lender's rights and remedies. Any partial exercise of any rights and/or remedies granted to Lender shall furthermore not be construed as a waiver of any other rights and remedies; It being Borrower's Intent and agreement that Lender's rights and remedies shall be cumulative In nature. Borrower and each guarantor further agree that, should any default event occur or exist under this Note, any waiver or forbearance on the part of Lender to pursue the rights and remedies available to Lender, shall be binding upon Lender only to the extent that Lender specifically agrees to any such waiver or forbearance In writing. A waiver or forbearance on the part of Lender as to one default event shall not be construed as a waiver or forbearance as to any other default. Borrower and each guarantor of this Note further agree that any late charges provided for under this Note will not be charges for deferral of time for payment and will not and are not Intended to compensate Lender for a grace or cure period, and no such deferral, grace or cure period has or will be granted to Borrower In return for the lmpositon of any late charge. Borrower recognizes that Borrower's failure to make timely payment of amounts due under this Note will result In damages to Lender, Including but not limited to Lander's loss of the use of amounts due, and Borrower agrees that any late charges Imposed by Lender hereunder will represent reasonable compensation to Lender for such damages. Failure to pay In full any Installment or payment timely when due under this Note, whether or not a late charge Is assessed, will remain and shall constitute an Event of Default hereunder. SUCCESSORS AND ASSIGNS LIABLE. Borrower's and each guarantor's obligations and agreements under this Note shall be binding upon Borrower's and each guarantor's respective successors, heirs, legatees, devisees, administrators, executors and assigns. The rights and remedies granted to Lender under this Note shall inure to the benefit of Lender's successors and assigns, as well as to any subsequent holder or holders of this Note. CAPTION HEADINGS. Caption headings of the sections of this Note are for convenience purposes only and are not to be used to Interpret or to define their provisions. In this Note, whenever the context so requires, the singular Includes the plural and the plural also includes the singular. SEVERABILITY. If any provision of this Note is hold to be invalid, illegal or unenforceable by any court, that provision shall be deleted from this Note and the balance of this Note shall be interpreted as it the deleted provision never existed. PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF THIS NOTE. BORROWER: THE FORSYTHE GROUP, INC BY /S/JOANNE CALDWELL-BAYLES ----------------------------------- JOANE CALDWELL-BAYLES, PRESIDENT Loan Agreement State of Louisiana Parish of Quachita Before the undersigned witnesses came and appeared The Forsythe Group. Inc. a Louisiana Corporation with offices at 507 Trenton Street, West Monroe, Louisiana represented herein by its Secretary Sunshine Gantt, hereinafter referred to as 'the Forsythe", and The Biltmore Group of Louisiana, a Louisiana Limited Liability Company with offices at 507 Trenton Street, West Monroe, Louisiana represented herein by its Managing Member, Joanne M. Caldwell-Bayles, hereinafter refereed to as "the Biltmore', who by those present enter into the following loan agreement, to wit: Background I. Biltmore owns or is building Independent and Assisted Living Centers in Oak Creek Arizona, Bastrop, Farmerville, Minden, Natchitoches, Louisiana (the facilities"). II. Forsythe is the manager of the facilities owned by Biltmore. III. From time to time the cash flow of the facilities may not be sufficient to pay all or part of the operating cost and/or debt service for the facilities. IV. Forsythe has arranged a line of credit, which it will make, advances to cover the cost, if necessary, set forth in paragraph III above, V. Advances to be made by Forsythe will be under the same terms and conditions as set forth in the Forsythe loan with First Republic Bank of Monroe, Louisiana (Exhibit A). VI. As the facilities produce excess cash flow from operations the facilities will repay any loan advance, including interest. Thus done and signed on this 1st day of March 1999. The Forsythe Group, Inc. /S/MIKE BAYLES /S/SUNSHINE GANTT - ----------------------------- -------------------------------- Witness By it Secretary /S/FRED BAYLES - ----------------------------- Witness The Biltmore Group, Inc. of Louisiana, L.L.C. /S/JOANNE CALDWELL-BAYLES ------------------------------- Managing Member EX-23.1 7 CONSENT OF WILLIAM R HULSEY WILLIAM R. HULSEY CERTIFIED PUBLIC ACCOUNTANT 2117 FORSYTHE AVENUE MEMBER MONROE, LOUISIANA MAILING ADDRESS AMERICAN INSTITUTE OF CERTIFIED PUBIIC ACCOUNTANTS P. 0, BOX 2259 SOCIETY OF LOUISIANA MONROE, LOUISIANA 71207 CERTIFIED PUBLIC ACCOUNTANTS (318) 362-9900 FAX (318) 362-9993 April 15, 1999 The Biltmore Group of Lousisana LLC. 507 Trenton Street West Monroe, LA 71291 Dear Sirs: I, William R. Hulsey serve as the accountant for The Biltmore Group of Louisiana, L.L.C. and do hereby give permission to use my name and/or values concerning the audited financial statements dated December 31, 1998 in the registration statement on Form SB-2 of The Biltmore Group of Louisiana, L.L.C. Respectively Submitted, /S/WILLIAM R HULSEY William R Hulsey Certified Public Accountant EX-23.2 8 CONSENT OF BOBBY CULPEPPER ESQ. BOBBY L. CULPEPPER & ASSOCIATES A PROFESSIONAL LAW CORPORATION 525 EAST COURT AVENUE JONESBORO, LOUISIANA 71251-3497 BOBBY L CULPEPPER 318/259-418 4210 WEST ALABAMA TERESA CULPEPPER CARROLL FAX #318/259-6278 RUSTON, LA 71270 J. CLAY CARROLL 318-251-0701 223 SOUTH GRAND MONROE, LA 71201 318-325-3884 PLEASE REFER ALL CORRESPONDENCE TO THE JONESBORO OFFICE File 98-19,013 April 9, 1999 MMR Investment Bankers 550 North 159th Street East P.0. Box 781440 Wichita, Kansas 67278-1440 Gentlemen: Bobby L. Culpepper &, Associates, a PLC, serves as the attorney for The Biltmox-e Group of Louisiana, L.L.C., and does hereby give permission to lase its opinion letter hereby furnished to you concerning our client's incurrence of debt in the principal amount of $9,900,000.00 and the issuance of first mortgage bonds in connection 'with development, construction and purchase of property in Louisiana and AriZona, in the Prospectus for Bond Issue of The Biltmore Group of Louisiana, L.L.C. With kindest personal regards, I remain Yours very truly /S/J CLAY CARROLL J. Clay Carroll JCC:bb cc: The Biltmore Group of Louisiana, L.L.C. -----END PRIVACY-ENHANCED MESSAGE-----