UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Second Post Effective Amendment to Form SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
SEC File 333-42975 Form SB-2
RMX REIT, INC.
(Name of small business issuer in its charter)
WASHINGTON 6599 91-1869110
(State or jurisdiction (Primary Standard Industrial (I.R.S) Employer
of incorporation or Classification Code Number) Identification No.)
organization)
4720 200th STREET WEST, Suite 200 LYNNWOOD, WA 98046 (425)744-0386
(Address and telephone number of principal executive offices)
SAME AS ABOVE
(Address of principal place of business or intended principal place of
business)
GERALD C. VANHOOK, 4720 200TH STREET WEST, SUITE 200, LYNNWOOD, WA 98046
(425) 744-0386
(Name, address and telephone number of agent for service)
Date proposed for sale August 14, 2000
CALCULATION OF REGISTRATION FEE
Title of each Dollar Amount Proposed Maximum Proposed maximum Amount of
class of to be offering price offering price
registration
securities registered Per Unit
fees
to be
registered
__________ _____________ _________________ _______________
_______________
Common $12,000,000 $5 $12,000,000 $3,540
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The registrant hereby agrees to amend 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.
This First Post Effective Registration Statement consists of a total of 104
pages.
<PAGE>
PROSPECTUS-SECOND AMENDED
2,400,000 SHARES
RMX REIT, INC.
4720 200th Street South West, Suite 200
Lynnwood, Washington 98046
This offering is for 2,400,000 shares of common stock in a newly formed
Company. The Company is offering to sell its Common Stock at $5.00 per share
to new investors, insiders, affiliates and existing shareholders pursuant to
its Dividend Reinvestment Program, which is discussed in this prospectus. The
Company intends to use the proceeds of the offering to purchase income
producing properties and high interest bearing mortgage paper securities,
secured by real property, generally concentrated in the Pacific Northwest.
The Company intends to pay dividends on a quarterly basis.
The minimum initial investment is Ten (10) shares for a total investment of
fifty ($50.00) dollars. Insiders and affiliates may purchase shares at the
offering price to meet the initial minimum offering. Each investor must meet
certain investor suitability standards and consider this to be a long-term
investment. The only market that is expected to be available for the
shareholders to liquidate their investment is to sell their stock to a new or
an existing shareholder, which is further restricted as noted in the legend on
each certificate, in order to maintain the REIT federal tax pass through
status. The Company intends to offer a matching service to facilitate
shareholder liquidity, but makes no assurances that any shareholder will be
able to sell their stock when they desire to do so.
The Company has identified the most significant risks to the investor as
follows:
New Company - Minimal Operating Experience
No Public Market - Limited Shareholder Investment Liquidity
High Risk Borrowers are Likely to Default
Risks Related to Asset Quality
Effects of Company Borrowing
Appraisal may Overstate Value of
Security
See Risk Factors Relevant to this Investment in Common Stock beginning at page
9
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
Per unit total Price to Underwriting Proceeds to
Public Discounts the Company
Per unit $5.00 None 5.00
Maximum Offering $12,000,000 None 12,000,000(i)
(i) The Minimum Offering of $350,000 was sold on February 8, 2000; the date
the Company actually began operations. The proceeds to the Company is before
payment by the Company of legal, accounting, filing and printing expenses,
which have been $51,591 through March 31, 2000. No person has been authorized
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to give any information or to make any representations other than those
contained in this Prospectus.
If given or made, such information or representations must not be relied upon
as having been authorized by the Company. This Prospectus does not constitute
an offer to sell securities in any jurisdiction to any person to whom it is
unlawful to make such offer in such jurisdiction. Neither the delivery of
this Prospectus nor any sale made hereunder shall under any circumstances
create any implication that there has been no change in the affairs of the
Company since the date hereof. The Officers and Directors of the Company
exclusively offer the Common Stock on a best efforts basis for sale directly
to investors.
The date of this Prospectus is August 14, 2000
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AVAILABLE INFORMATION
RMX REIT, INC., UNDERTAKES TO BECOME A VOLUNTARY REPORTING COMPANY. IN
ADDITION TO THE 10Q AND 10K, EACH SHAREHOLDER WILL BE PROVIDED WITH A
QUARTERLY MANAGEMENT REPORT THAT INCLUDES A FINANCIAL SUMMARY FOR THE PAST
QUARTER, THE STATUS OF THE LOAN PORTFOLIO AND THE DIVIDEND APPROVED BY THE
BOARD OF DIRECTORS FOR THE QUARTER. THE COMPANY ALSO PROVIDES THE
SHAREHOLDERS WITH AN ANNUAL REPORT, WHICH CONTAINS THE AUDITED FINANCIAL
STATEMENTS AND THE NOTICE OF THE ANNUAL SHAREHOLDERS MEETING. THE COMPANY HAS
AND DOES INTEND TO COMPLY WITH THE NORTH AMERICAN SECURITIES ADMINISTRATORS
ASSOCIATION (referred to as "NASAA" herein)GUIDELINES ADOPTED FOR THE
MANAGEMENT AND OPERATION OF REAL ESTATE INVESTMENT TRUSTS (referred to as
"REIT" herein). IN ADDITION, THE COMPANY MUST COMPLY WITH THE PROVISIONS OF
THE INTERNAL REVENUE CODE IN ORDER TO MAINTAIN ITS FAVORABLE TAX PASS THROUGH
STATUS.
RMX REIT, INC., WILL PROVIDE WITHOUT CHARGE TO ANY PERSON WHO RECEIVES A
PROSPECTUS, UPON WRITTEN OR ORAL REQUEST OF SUCH PERSON, A COPY OF ANY OF THE
INFORMATION THAT WAS INCORPORATED BY REFERENCE IN THE PROSPECTUS (NOT
INCLUDING EXHIBITS TO THE INFORMATION THAT IS INCORPORATED BY REFERENCE UNLESS
THE EXHIBITS ARE THEMSELVES SPECIFICALLY INCORPORATED BY REFERENCE). IN ORDER
TO RECEIVE SUCH INFORMATION, PLEASE CONTACT THE FOLLOWING DEPARTMENT:
RMX REIT, INC.
ATTN: SHAREHOLDER RELATIONS
4720 200TH STREET S.W., 200
LYNNWOOD, WASHINGTON 98046
(425) 744-0386
ALL QUESTIONS AND REQUESTS FOR INFORMATION BY POTENTIAL INVESTORS SHOULD BE
DIRECTED TO THE ADDRESS AND TELEPHONE NUMBER NOTED ABOVE. INVESTMENT IN A
SMALL BUSINESS INVOLVES A HIGH DEGREE OF RISK, AND INVESTORS SHOULD NOT INVEST
ANY FUNDS IN THIS OFFERING UNLESS THEY CAN AFFORD TO LOSE THEIR INVESTMENT IN
ITS ENTIRETY.
INVESTORS SHOULD CAREFULLY REVIEW THIS PROSPECTUS, PARTICULARLY WITH REGARD TO
THE RISKS (SEE "RISK FACTORS") AND CONFLICTS OF INTEREST, (SEE "CONFLICTS OF
INTEREST") BEFORE MAKING A DECISION TO INVEST. IN MAKING AN INVESTMENT
DECISION INVESTORS MUST RELY ON THEIR OWN EXAMINATION OF THE ENTITY CREATING
THE SECURITIES AND THE TERMS OF THE OFFERING, INCLUDING THE MERITS AND RISKS
INVOLVED.
WARNING: The Company is relying on Section 3 (c)(5)(C) that it is exempt from
registration from the provisions of the Investment Company Act of 1940.
Therefore, shareholders cannot expect the Company to redeem any of its
securities.
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TABLE OF CONTENTS
Page
Summary of the Offering................................................7
The Company.......................................................7
Principle Business of the Company.................................7
Management........................................................7
Prior Experience of the Management Company
(CLS)..................7
Compensation to the Management
Company............................8
Investment Objectives and
Policies................................8
Description of Capital
Stock......................................8
Federal Income Tax
Considerations.................................8
Risk Factors and Conflicts of
Interest............................8
Annual Reports....................................................9
Board of Directors May Delay or Deny
Acceptance of Investors
Funds.....................................9
Risk Factors..........................................................9
New Company - Minimal Operating
Experience......................9
No Public Market - Limited Shareholder
Investment................9
Dividend Plan Reinvestment Decision.............................10
High Risk Borrowers.............................................10
Risks Related to Asset Quality..................................10
Effect of Company Borrowing.....................................10
Appraisal May Overstate Value of Collateral.....................10
Market Risks....................................................10
Federal Income Tax
Status.......................................11
Lack of Portfolio Geographic
Diversification....................11
Value of Real Property May
Decrease.............................11
Market Interest
Rates...........................................11
Conflicts of
Interest...........................................11
Leverage
Usury
..........................................................11
Insurance.......................................................11
Other Government
Regulation.....................................12
Use of
Proceeds......................................................12
Determination of Offering
Price.......................................12
Selling Security Holders and Matching
Service........................12
Continued Registration Aids Shareholder Investment Liquidity....12
Matching Service For Existing Shareholders to Sell Their Stock..13
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Plan of
Distribution................................................13
No Outside Selling
Agents......................................13
Shareholder Ownership
Restrictions.............................13
Investor Suitability
Standard..................................13
Long Term Investment-Funds May Not be Accepted.................13
Funds from Stock Sales are invested in real property and loans.14
Board of Directors May Delay or Deny Acceptance of
Investor
Funds.........................................14
Legal
Proceedings....................................................14
General.........................................................14
Usury and Federal Preemption of State
Law.......................14
Home Ownership and Equity Protection
Act........................14
Investment Company Act of 1940..................................14
Other
Actions...................................................15
Directors, Executive Officers, Promoters
and Control
Persons.............................................15
Officers and Directors of the
Company...........................15
Background & Education information regarding
Officers and Directors of the
Company........................15
Director
Responsibilities.......................................16
Independent Director
Responsibilities...........................16
Board approves all loans and fees paid to
CLS.....................16
Quarterly
Reports.................................................16
Annual Reports....................................................16
Board Members and Officer
Compensation..........................17
No
Employees......................................................17
Involvement in Certain Legal Proceedings..........................17
Security Ownership of Certain Beneficial Owners
and
Management...................................................17
Description of
Securities.............................................17
Interests of Named Experts and
Counsel................................18
Disclosure of Commission Position on Indemnification for
Securities Act
Liabilities.......................................18
Certain Relationships and Related Transactions........................19
General............................................................19
Compensation of
Management.........................................19
Management
Relationships...........................................19
Loan Closing and Servicing
Relationship............................19
Prohibited Lending Practices.......................................19
Summary of the Property Management Process 19
Summary of the Loan Acquisition
Process............................19
Summary of the Collection
Process..................................20
<PAGE>
Initial
Budget.....................................................21
Payment of Overhead
Expenses...................................21
Payment of Loan Acquisition
Fees..............................21
Payment of Loan Closing, Escrow and Late
Fees.................21
Fees Projected to be received by CLS..........................21
Conflicts of Interest..............................................21
Description of the
Business.............................................22
Form and Year of Organization....................................22
REIT Status........................................................22
Business of the Company............................................22
Value of Real Estate Collateral....................................22
Reliance on its Management.........................................22
Competition........................................................22
Ability to Compete.................................................23
Management's Discussion and Analysis of Financial Condition
And Results of Operations..........................................23
Overview...........................................................23
REIT Tax Status....................................................23
Source of Funds to Purchase Real Property and Loans................23
Source of Funds to Pay Expenses and Dividends......................24
Anticipated Results from Operations in 2000 and 2001...............24
Sources of Property and Loans......................................24
Security for Loans.................................................24
Loan to Value (LTV) and Underwriting Guidelines....................24
Investment Restrictions............................................25
Procedure for Enforcing Investment Policy..........................24
Plan for the Future................................................24
Projections for Stock Sales in 2000 and 2001.......................25
Capitalization.....................................................25
Description of Company Investment Objectives............................25
Investment Objectives and Policies.................................25
Market for Common Equity and Related Transactions.......................25
No Public Market...................................................25
Ownership Restrictions.............................................25
Distributions of Dividends.........................................25
Dividend Objective and Performance.................................25
Dividend Reinvestment Plan.........................................25
Executive Compensation..................................................26
1999 Year End AuditedFinancialStatements................................27
RMX REIT Inc. Balance Sheet.......................................27
RMX REIT Inc. Statement of Operations..............................28
RMX REIT Inc. Statement of Stockholders' Equity....................28
<PAGE>
RMX REIT Inc. Statement of Cash Flows..............................28
Notes to Financial Statements......................................29
1st Quarter 2000 Audited Financial Year End Audited Financial Statements.30
RMX REIT Inc. Balance Sheet........................................30
RMX REIT Inc. Statement of Operations..............................31
RMX REIT Inc. Statement of Stockholders' Equity....................31
RMX REIT Inc. Statement of Cash Flows..............................31
Notes to Financial Statements......................................32
2nd Quarter 2000 Unaudited Financial Statements..........................33
RMX REIT Inc. Balance Sheet........................................33
RMX REIT Inc. Statement of Operations..............................34
RMX REIT Inc. Statement of Stockholders' Equity....................34
RMX REIT Inc. Statement of Cash Flows..............................35
Notes to Financial Statements......................................36
Federal Income Tax Considerations.......................................37
Federal Income Taxation of the Company.............................37
Requirements for Qualification as a REIT...........................38
Taxation of the Shareholders.......................................41
Taxation of Shareholders on Disposition of Shares..................42
Capital Gains and Losses...........................................42
Glossary................................................................43
THIS PROSPECTUS CONTAINS ALL OF THE REPRESENTATIONS BY THE COMPANY CONCERNING
THIS OFFERING AND NO PERSON SHALL MAKE DIFFERENT OR BROADER STATEMENTS THAN
THOSE CONTAINED HEREIN. INVESTORS ARE CAUTIONED NOT TO RELY UPON ANY
INFORMATION NOT EXPRESSLY SET FORTH IN THIS PROSPECTUS.
This Prospectus consists of a total of 43 pages.
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THIS PAGE INTENTIONALLY LEFT BLANK
<PAGE>
SUMMARY OF THE OFFERING
The following is a summary of important information contained in this
Prospectus, but it is not complete and is qualified in its entirety by
reference to the entire Prospectus. The glossary of definitions of certain
banking, insurance and financial terms used throughout this prospectus are
located at the end and should be referred to as necessary.
The Company. The Company was incorporated in the State of Washington on June
19, 1997. The Company has issued stock and did begin operations on February
9, 2000. The Company did ratify the present directors shortly after the
minimum offering was sold. The Company originally signed a management
contract with CLS Financial Services, Inc. The contract was not ratified in
1999. There remains a risk that there could be a change in control voted by
shareholders in the future. The Company intends to issue stock to investors
and use the funds to purchase income-producing properties that will provide a
gross return on equity between 14% and 18% and fixed term interest bearing
mortgage paper securities ranging from 10% to 14% annually. The Company
intends to qualify and file its federal tax returns as a Real Estate
Investment Trust in 2000, thereby passing its net income in the form of
dividends to the shareholders without federal income taxation at the
Company level. The Company obtained a loan from CLS Financial Services, Inc.
("CLS") to pay for legal and accounting expenses incidental to this offering.
The present officers of the Company are also officers of CLS.
Principal Business of the Company. The Company intends to acquire, manage and
dispose of rental property and mortgage-collateralized financial instruments
with the objectives of earning current income and obtaining capital
appreciation. The instruments and obligations to be acquired by the Company
are expected to consist primarily of interests in income producing real
property and in the promissory notes secured by mortgages or deeds of trust on
residential and commercial real estate located in the primarily in the State
of Washington and Arizona. The primary basis for the acquisition is the income
producing and liquidation value of the real estate (See "Summary of the Asset
Acquisition Process"). The Company intends to purchase income producing real
property that will provide current income and asset appreciation over time.
In addition, the Company also intends to purchase whole or partial interests
in promissory notes secured by Deeds of Trust (See "Summary of the Loan
Acquisition Process"). The promissory notes are typically indorsed over to
the Company and the real estate security documents, primarily Deeds of Trust,
Real Estate Contracts and or Mortgages are then assigned to the Company. Upon
transfer by assignment, the Company actually owns the interests in the
Mortgage Paper Securities directly. The annual interest rates on the notes
are expected to range from 10% to 14%, with the average being 12%. CLS and
its affiliates escrow and collect on the accounts under its Custom Servicing
Agreement. (See "Summary of the Collection Process.")
Management. The Board of Directors manages the Company and establishes
investment policies and objectives, most of which have been incorporated into
the Company Bylaws. At present, the Company has only officers as employees
and will contract with third parties for most of its services. The Company
had contracted with CLS Financial Services, Inc., ("CLS" herein) to manage the
business, but that contract was not ratified in 1999. The Company expects to
<PAGE>
hire sufficient staff to support the operation and to contract with other
companies as necessary. The Company corporate records, which include the
stock records, auditor's reports, management reports etc., are maintained at
the corporate headquarters. The Company intends to remain co-located with
CLS Financial Services, Inc., and its affiliates, using staff and resources to
provide a synergistic effect for both companies. The Company also intends to
purchase loans originated by CLS.
Prior Experience of the Management. The Company management has no direct
experience in management of a Real Estate Investment Trust. However, Company
management has significant experience in managing income producing properties
and originating mortgage paper securities. The Company president, Mr. Gerald
C. Vanhook founded CLS Financial Services, Inc., in March of 1990, is the
majority shareholder and has operated as the Chief Executive Officer
continuously through the present. Mr. Melvin L. Johnson, Jr. is the Vice
President and also has significant experience in real estate management. He
is the President and shareholder of Puget Sound Investment Group, Inc.,
("PSIG"), which is an affiliated company of CLS which has operated since
1992.
PSIG owns a subsidiary company, Puget Sound Real Estate Services Group, Inc.,
(PSRESG"). CLS has registered with the State of Washington as a Consumer Loan
Act Lender and has been issued a permit by the State of Washington to sell
Mortgage Paper Securities to Washington residents.
Compensation to the Management. The Company has agreed to pay its management
and staff normal and customary salaries that will be budgeted at two percent
(2%) of its average invested assets, when the Company has sold the maximum
offering. During the interim, the Company will pay salaries that are
determined to be reasonable by the Board of Directors. The Board of Directors
is empowered to increase the budget as deemed necessary and prudent.
Management will perform all of the administrative day-to-day operations
normally associated with a business. Expenses are expected to be paid on a
monthly basis on a budget of one-twelfth of two percent (2%) of the average of
all invested assets outstanding at the end of the month. The budget does not
cover legal, auditing and other professional fees or costs pertaining to this
offering.
Investment Objectives and Policies. The Company's investment objective is to
acquire a portfolio of income producing real estate, which produce gross rents
of between a 14% to 18% aggregate return on investment for multi family
investments. The aggregate turnover rate for multi family units should not
exceed 12 months and the vacancy factor should be no more than 15%. The
maintenance and repairs cost should average less than 5% of gross rents. Upon
acquisition, maintenance will be included as part of the acquisition
expenditure for the purposes of making the purchase decision. As a result,
the Company expects an annual return on its investment in multi family income
producing real estate of between 8% to 12%. This amount will be available for
distribution to the shareholders. The Company's investment objectives for
commercial rental property is to produce annual gross rents between 14% and
16% of the initial investment. The aggregate turnover rate should be no more
than 24 months and the vacancy rate should be no more than 15%. The company
does not intend to acquire single use properties and the maintenance and
repairs should not exceed 3% of annual gross rents. The Company also expects
to invest in collateralized loans that range from 10% to 14% interest. These
<PAGE>
loans will produce a blended annual net yield in dividends to its Shareholders
of between 8% and 12%. The loans will be secured by real estate generally
located in the Pacific Northwest. Due to the relatively high interest
rates, the majority of loans will actually be paid off early. Policies on
loan to value (LTV) ratios and other investment criteria have been
incorporated into the Company Bylaws. The Board of Directors on an as needed
basis according to market conditions sets underwriting considerations
forth.
Description of Capital Stock. The authorized capital stock of the Company
consists of 2.4 million (2,400,000) common shares that will be issued at $5.00
per share. The offering price paid by all shareholders and investors who
purchase shares in this offering is Five Dollars ($5) per share. Insiders and
affiliates may purchase stock, and did so in order to meet the minimum initial
offering as reflected in the Financial Statements in the footnotes discussing
related parties (See "Financial Statements" section). Each new investor must
meet the Company suitability standards and purchase a minimum of ten (10)
shares for a minimum investment of Fifty Dollars ($50). All common shares are
voting shares, equally participating in dividends and there is no cumulative
voting. No individual shareholder, including insiders and affiliates, may own
more than 9.8% of the outstanding and issued stock in the Company at the end
of calendar year 2001.
Federal Income Tax Considerations. As a REIT, the Company is allowed to pass
through earnings to shareholders without the earnings being taxed at the
Company level. A REIT is not taxed at the Company level, provided the Company
complies with the investment, shareholder ownership and dividend payment set
forth in the Internal Revenue Code. The REIT status is dependent on many
conditions discussed in detail in the section regarding Federal Income Tax
Considerations. Should the Company fail to meet any material condition set
forth in the Code, it will be taxed as a "C" corporation, which would reduce
the profitability of the Company and net profits available for distribution as
dividends.
Risk Factors and Potential Conflicts of Interest. Investment in the shares of
the Company is subject to certain risks, including, but not limited to, the
fact that the Company is a business that has just begun operations and has
limited operating results, the fact that there is no public market for the
shares and none is likely to develop causing limited shareholder liquidity.
There is no assurance that the Company can purchase suitable income producing
property to meet the investment guidelines. The loans will be made to
relatively high-risk borrowers that are likely to default. In addition the
appraisal may overstate the value of the real estate purchased or granted as
security for the loan(s). Market interest rates may rise or fall inconsistent
with the Company's investment policy and objectives. There are potential
conflicts of interest since the management of the Company is also the
management of CLS and its affiliates. In order to mitigate the potential
conflicts of interest, the Company has adopted procedures to enforce the
company underwriting criteria (See "Conflicts of Interest" and "Enforcement of
Underwriting Policy" Sections). The Company intends to borrow money and
leverage income-producing property thereby subordinating the rights of equity
holders to creditors. The Company may be subject to the usury and consumer
protection laws of the State of Washington and other states. Insurance on
<PAGE>
Company owned real property and the underlying security for the loans might
lapse or not be available at reasonable rates to insure Company property
interests. In addition, the Company could be taxed as a "C" Corporation, in
which case the profits of the Company would be taxed by the Internal Revenue
Service thereby reducing the distributed dividends by the amount taxed.
Additionally, new shareholders could vote in new directors and a new
management team.
Annual Reports. The Company intends to provide Quarterly Reports and an
Annual Report that contains the Audited Financial Statements to the
shareholders. The Quarterly Report will include a Summary Letter signed by
the President, the Unaudited financial statements will include the Income
Statement for the Period, the Balance Sheet, the Loan Portfolio Report, the
Delinquent Account Report, the Report on Company Owned Property and
disclosures of all related party transactions. The Board of Directors has
mandated that the quarterly dividend checks be distributed to the shareholders
with the Quarterly Report not later than 30 days after the close of each
calendar quarter. This distribution may be monthly. The Annual Report will
contain a special report to the Shareholders from the Board of Directors, the
Audited Financial Statements and the Notice of the Annual Shareholder Meeting,
which contains the agenda. The reporting, certain related party transactions,
is intended to conform to the NASAA Statements of Policy regarding REIT
disclosure guidelines and Generally Accepted Accounting Principles ("GAAP"),
Accounting Research Bulletin ("ARB") number 43 Chapter 1A and Financial
Accounting Standards Board ("FASB") number 57 & 109.
Board of Directors May Delay or Deny Acceptance of Investors Funds. The
Company expects to be able to invest all available funds by purchasing
property and interests in loans that meet its investment policies. The
Company has not and does not intend to retain any outside selling agents. In
the event funds from new investors and or from paid off loans are more than
the Company can invest into suitable property, the Board of Directors intends
to delay the acceptance of new investor's funds as frequently as necessary
until the new investor proceeds can be absorbed. The Board of Directors will
make plans to use the funds when available. The maximum offering is for Two
Million Four Hundred Thousand (2,400,000) shares for an offering maximum of
Twelve Million Dollars (12,000,000). The Company expects to issue an average
of one hundred thousand shares (100,000) totaling five hundred thousand
dollars ($500,000) per month until the offering is sold out. In addition, in
event that the Company determines that an Investor is intending to invest in
the shares of the Company on a short-term basis, the Company will deny the
investment or a subsequent reinvestment.
RISK FACTORS
The purchase of the common stock in this offering involves various risks. The
material risks that prospective purchasers should consider before making a
decision to purchase the stock in RMX REIT, Inc., are set forth below. In
addition, businesses are often subject to risks not foreseen or fully
appreciated by Management. In reviewing this Prospectus, potential investors
should keep in mind other possible risks that could be important.
<PAGE>
New Company - Minimal Operating Experience. The Company was incorporated
under the laws of the State of Washington on June 19, 1997 and began
operations in February of 2000. Prior to that the Company had not conducted
any business. Accordingly, it has not been engaged in the business of
acquiring, managing and disposing of real property or mortgage-collateralized
and other financial assets and obligations, and has no history of operations
upon which prospective purchasers of the stock can rely. Although the
management has engaged in similar activities, the Board of Directors and the
Company have no history of operations in the market. In addition, the
shareholders could elect new directors and contract with another management
team or company.
No Public Market - Limited Shareholder Investment Liquidity. There is no
public market for the shares and such a market is not expected to develop.
Investors have no right of redemption from the Company and cannot expect the
Company to repurchase their stock. Investment in the shares of the Company is
and should be a long-term investment. The Secretary is empowered to void any
transfer that would preclude the Company from qualifying as a REIT for federal
tax purposes. This information is contained in the legend on each stock
certificate. The Company will attempt to assist and facilitate a shareholder
in their attempts to sell their stock by providing the selling shareholder
with the existing shareholder list and advising the selling shareholder of
existing shareholders who have expressed a desire to purchase additional
shares, including those who have elected to reinvest their quarterly dividends
as a method of improving shareholder liquidity. In order to use the matching
service, the Company intends to require existing shareholders to sell the
shares at the offering price of $5.00 per share. (See "Ownership
Restrictions" section.)
Dividend Plan Reinvestment Decision. Participants in the plan will have
limited investment information when making the decision whether to elect to
receive cash dividends or using these cash dividends ("rolling over") to
purchase stock. Company policy requires that the election must be made no
later than ten days before the end of the quarter. The financial statements
containing the book value per share and dividend declaration will not be
completed until 15-20 days after the end of the quarter. As a result,
investors must make the decision without the current quarter's financial
information. (See "Dividend Reinvestment Plan" section).
High Risk Borrowers Are Likely To Default. The Company intends to acquire
loans that are made to high or higher risk borrowers, who in many cases have
been refused loans or credit by banks and other lending institutions. Persons
indebted to the Company may default on obligations due the Company for a
variety of reasons, e.g. divorce, illness, death, loss of job, business
failure, bankruptcy, government policy changes, or other uncontrollable
factors unknown to management at the time the persons become indebted to the
Company. Although the Company will take precautions, there is no assurance
that defaults and losses will not occur in a portfolio of this type. The
Company expects that 10% of the loans in the portfolio will be at least 30
days delinquent at any point in time. (See "Description of the Business" and
"Loan Closing and Servicing" sections). In event of a foreclosure and
subsequent sale in which the net sale proceeds are less than the loan
principle, the Company would experience a loss. (See "Loss on Liquidation of
<PAGE>
REO.")
Risks Related to Asset Quality. The profitable operation of rental properties
is dependent on the supply and demand for similarly situated property in any
given area. The Company intends to purchase property and manage the property
to produce cash flow from rental income and gain long-term appreciation of the
property over the holding period. The net cash flows will be adversely
affected to the extent that the Company encounters difficulties in renting the
units at a profitable rent. The rent that the Company can obtain depends on
market factors beyond the ability of the Company to control. Any downturn in
the general economy can adversely affect rental rates. Mortgage rates and an
overabundance of supply can reduce the value of the property, all of which can
adversely affect Company distributions.
Effect of Company Borrowing. Any of the Company's assets pledged to secure
sums borrowed from the Company's lenders will not be available to the
Shareholders in the event the Company is liquidated. The monthly cash flows,
principally from rents and payments of principle and interest on the assets
acquired are expected to exceed amounts payable to the Company's lenders,
resulting in net cash flows to the Company. A decline in the performance of
these assets could reduce Company income to a level that would not be
sufficient to meet the Company's obligations to its lender(s). Similarly, a
decline in the underlying values of the real or personal property (mobile
homes) securing the assets could require the Company to pledge additional
collateral to its lender(s). The Company lender(s) will have the first
priority security interest in the assets to be purchased by the Company, and
will be senior in right of payment to the Shareholders. See "Business Effect
of Company Borrowing."
Appraisal May Overstate Value of Collateral. Since the Company bases its real
estate and loan purchases on the value of real property, the Company relies
heavily on the appraisal. The Company policy requires that a licensed and
experienced appraiser must conduct all appraisals. In distress type
purchases, the Company may not have sufficient time to obtain an appraisal and
may instead have to rely on the tax assessed valuation and a visual walk
through of the property by management. All appraisals are an estimate of
value and may overstate the actual value of the collateral when sold. The
appraisal does not guarantee future rents or that a default and subsequent
foreclosure will not produce a loss. (See "Description of the Business" and
"Financial Statements" sections.)
Market Risks. The ability of the Company to purchase suitable real property
and mortgage-backed securities and to generate income from the net cash flows
relating thereto, will be affected by various factors, some of which are
beyond the control of the Company. The results of the Company's operations
will depend on the availability of income producing real property and
mortgage-backed securities to purchase. The gross income will depend upon the
nature, terms and conditions in the rental and financial markets, which is
impacted by the fiscal and monetary policies of the United States Government
and the Federal Reserve Board, competition, regulation and other factors, none
of which can be predicted with any certainty. The Company activities will be
influenced by interest rates, which depend in large part on the ability of the
Company to respond to fluctuations in market interest rates and to utilize
<PAGE>
appropriate strategies to maximize returns to the Company while attempting to
minimize the risks.
Federal Income Tax Status. The Company intends to file its corporate tax
returns as a REIT for 1999 and beyond. Investors should note that the REIT
status is contingent upon a number of conditions. There is no assurance that
the Company will meet these conditions. If any one of the conditions are not
met, then the Company will be taxed as a "C" Corporation which would have the
effect of reducing or eliminating earnings per share and dividend
distributions. (See "Federal Income Tax Considerations" section.)
Lack of Portfolio Geographic Diversification. The substantial majority of the
Company portfolio will be invested in income producing real property and loans
secured by real property, most of which will be located in Western
Washington.
In event of a regional reduction in real property values caused by a variety
of uncontrollable market forces, the value of the property would be negatively
impacted. Tenants and borrowers could also be adversely impacted by any
regional recession causing an increase in delinquency rates. The Company does
not intend to expand its portfolio into other types of investments for
diversity purposes, e.g. stocks, bonds, mutual funds, etc. In order to
maintain its REIT tax status, the Company is limited as to its investment
options. (See "Federal Income Tax Considerations" section.)
Value of Real Property May Decrease. The real property may depreciate in
value due to conditions beyond management's control or the original appraisal
may have been inflated. In event the Company sells the real property, there
are no assurances that the Company will sell the property without absorbing a
loss. The Company intends to sell all properties selected for liquidation at
a profit; however, the market will dictate the amount of the gain or loss that
will be posted. Due to the REIT tax restrictions, the Company may not be able
to sell the property at a time that the market is at its peak and maintain the
favorable tax treatment.
Market Interest Rates. Market interest rates may rise or fall and the
interest paid to the Company may not reflect the market rates. When the
Company has funds to reinvest, it may not be able to do so at the same rate it
was previously receiving. This would negatively affect the earnings of the
Company. (See "Description of the Business" section.)
Conflicts of Interest. This offering involves potential conflicts of
interest, principally surrounding the Company being co-located with CLS and
its affiliated companies. Specifically, the management of the Company is also
the management of CLS and its affiliates. Initially, the Company will share
expenses and employees with CLS, in order to reduce the costs of doing
business, as compared with a pure stand-alone company. PSIG and CLS may sell
properties and loans to the Company and thereby earn a commission or fee from
doing so. In order to mitigate these potential conflicts of interest, the
Company has adopted procedures to enforce the company underwriting criteria.
(See "Conflicts of Interest" and "Procedure to Enforce Investment Policy.")
Leverage. The Company does plan to borrow between 50% to 65% of the funds
necessary to purchase income-producing properties. If rents collected are
insufficient to pay the lender(s), the Company will have losses. (See
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"Description of the Business" section.)
Usury. Washington and other states have usury laws that establish ceilings on
the interest rates that may be charged on certain types of loans. In
Washington the maximum rate is 12%, but that rate is subject to several
exemptions. Violation of the usury provisions may substantially reduce or
eliminate the lender's recovery of the loan principal and interest. The
Federal Depository Institution of Deregulation and Monetary Control Act of
1980 preempts state usury laws for federally related mortgage loans, which are
generally first mortgage loans on a borrower's residence made by a qualified
lender. Loans made for commercial, agricultural or investment purposes are
generally exempt from state usury laws. The Company and CLS rely on this
federal preemption. All loans purchased by the Company are expected to be
exempt from the usury laws of the state in which the property is located.
(See "Legal Proceedings" section.)
Insurance. There is always a risk that the insurance policy may lapse due to
administrative oversight, that insurance may not be available on a particular
parcel of real estate or that the property may be underinsured. In the event
of a complete or partial damage to the property in excess of the amount
insured, the Company will experience a loss. In addition, in the event of a
borrower default, it is customary in the industry to initiate legal
proceedings against the collateral rather than against the borrower. The
borrower is required to maintain adequate insurance to cover the outstanding
loan balance. In the case where the real estate granted as security for the
loan is partially or wholly destroyed, the Company would recover from the
insurance proceeds. The policy may not be sufficient to cover the total
loss.
Insurance coverage may not be available to the borrower to insure the real
estate in which the Company has a collateral property interest (uninsured).
Further, the borrower could maintain insufficient hazard insurance
(underinsured) or the security is damaged by an act for which no insuring
promise was given (e.g. flood, arson, terrorist act, etc.) (denial of
insurance coverage). (See "Description of the Business" section.)
Other Government Regulation. There are numerous landlord tenant laws that
have been enacted by state and local governments. Remaining in compliance
with building codes, zoning codes and other land use regulation will always be
a challenge. Evicting tenants who are in default on their rent requires a
Court action, which gives rise to the tenant's claims against the landlord.
All of these actions increase the risk of doing business. In 1994, Congress
passed the Home Ownership and Equity Protection Act (HOEPA), which became
effective on October 1, 1995. HOEPA defines certain loans, including some
loans originated by CLS, which may be subsequently purchased by the Company,
as "high cost mortgages." Among other provisions, the legislation prohibits
high cost mortgages from including certain terms, generally not applicable to
the Company. However, since the bill provides for increased civil liability
for violations and enables the borrower to assert such claims against both the
originator of the high cost loan (CLS) and any persons to which the loan is
assigned (the Company), it is viewed as likely that some borrowers in default
may raise the defenses, whether the defenses are proved to have merit or not.
As of the date of this prospectus, no borrowers in default have raised the
provisions of HOEPA as a defense to loans originated by CLS. (See "Legal
Proceedings" section.)
<PAGE>
USE OF PROCEEDS
The Company intends to use the proceeds of this offering to purchase income
producing real property and to purchase loans and participations in loans
secured by real property. The offering costs have been $51,591 through March
31, 2000. The Company intends to compensate its President, its officers, its
employees and its professional advisors when the services are performed. The
Company expects to pay other overhead expenses normally associated with
operating a business. (See "Summary of the Loan Acquisition process" and
"Description of the Business" sections.
DETERMINATION OF OFFERING PRICE
The Company has arbitrarily determined the offering price for each share to be
five dollars ($5.00). The Board of Directors established the price per share
at that amount since the Company was formed and expects that the policy will
remain unchanged. The Company policy is to require that all authorized shares
shall be purchased from the Treasury of the Company for five dollars ($5.00)
per share. In addition, the Company has provided that the debenture holders of
CLS Financial Services, Inc., my convert their debentures on a dollar for
dollar basis for stock in the Company. The basis for the stock cannot be
changed from the offering price of five dollars ($5.00) per share unless the
Articles of Incorporation are amended. The Company does allow the provision
for purchasing fractional shares rounded to the nearest hundred at the
prorated rate of $5.00 per whole share.
SELLING SECURITY HOLDERS & MATCHING SERVICE
Continued Registration Aids Shareholder Investment Liquidity. Each investor
must view the purchase of the Company stock as a long-term investment.
However, the Company has recognized that due to circumstances beyond the
shareholder's control, a small percentage of the shareholders will desire to
liquidate all or a portion of their investment at some future date. The
Company has no experience with investors desiring to liquidate their
investment in order to make accurate projections. Since the Company cannot
redeem any shareholder's shares, the Company will make every effort to
continue to register its stock for sale to the public and to provide a
matching service to its shareholders in order to assist them in liquidating
their investment when they desire to do so.
Matching Service For Existing Shareholders to Sell Their Stock. In the event
that an existing shareholder desires to liquidate all or a portion of their
investment, the Company acts as a facilitator on a first come, first serve
basis for the benefit of the selling shareholder. The Company will not
actively promote the matching service nor will it receive compensation in any
form for doing so. Neither the Company nor any affiliate of the Company will
use the system, directly or indirectly, to offer to buy or sell securities,
receive any compensation for creating, maintaining, or using the system, nor
be involved in any purchase or sale negotiations regarding the advisability of
buying or selling Company Securities, or receive, transfer, or hold funds or
securities as an incident of operating the system. The procedures for using
the matching service are as follows:
<PAGE>
1. Upon request, the Secretary will provide any shareholder with a list of
all existing shareholders and, in particular, those who are most likely to
be interested in purchasing the shares.
2. Upon request, the Secretary will allow an existing shareholder to sell
his or her stock to any new or existing shareholder before the Company
sells its stock to that new or existing shareholder.
3. The Company accepts no fees for the transaction and acts only in agency
capacity.
4. In event the Company determines that a given shareholder was merely
attempting to invest funds for a short term investment, or is attempting to
sell the stock with the intent of later repurchasing stock, the Company
reserves the right not to assist that selling shareholder and to deny that
investor the ability to purchase additional shares. (See "Plan of
Distribution" section.)
PLAN OF DISTRIBUTION
The Company plans to distribute the stock itself through the office of the
Secretary of the Company. The most likely investors are existing
shareholders and investors who have purchased loans and debentures from
CLS. No commission is being paid to any selling agents. (See "Selling
No Outside Selling Agents. The individuals who are acting as selling
agents are corporate Officers, who may be contacted during business hours
at the Company offices.
Shareholder Ownership Restrictions. To preserve the Company's tax status as
a REIT, Company policy restricts any shareholder from owning more than 9.8%
of the Company's outstanding shares. The Secretary may void any transfer
of shares that places the Company's REIT tax status in jeopardy. (See
"Federal Income Tax Considerations" section.)
Investor Suitability Standard. The Company has established suitability
standards that require each individual investor to have, (1) a minimum net
worth of One Hundred Fifty Thousand Dollars ($150,000), or (2) a minimum
annual income of Forty Five Thousand Dollars ($45,000) and minimum net
worth of Forty Five Thousand Dollars ($45,000). Net worth shall be
determined exclusive of home, home furnishings and automobiles. In the
case of sales to fiduciary accounts, these minimum standards shall be met
by the beneficiary, the fiduciary account, or by the donor or grantor who
directly or indirectly supplies the funds to purchase the shares if the
donor or grantor is the fiduciary. By executing the SubscriptionAgreement,
an investor represents to the Company that the Investor Suitability
Standards are met at the time the investment is made. The Company intends
to make every reasonable effort to determine that the purchase of the
shares is a suitable and appropriate investment for each shareholder, based
on the information provided by the shareholder regarding the shareholder's
financial situation and investment objectives. The Company is required to
maintain such suitability records for at least six years. (See "Market for
Common Equity and Related Transactions" section.)
<PAGE>
Long Term Investment - Funds May Not be Accepted. An investor should only
acquire the common stock issued by the Company as a long-term investment.
Investments or reinvestments of funds from an investor, who attempts to
"park funds" in the Company shares for a short-term investment, will not be
accepted. In addition, because of the various risks, the tax orientation and
the relative lack of liquidity of securities of this type of investment as
compared to other investments, each investor must be able to appraise himself
or herself of and assume the risks inherent in the purchase of common stock.
All investors, with the assistance of their investment advisor, must evaluate
whether this investment is suitable based upon their own investment
objectives, financial situation, and needs.
Funds from Stock Sales are invested in Real Property and Loans. The
Company intends to invest funds from stock sales into income producing real
property and into loans that are secured by real estate. The Company
expects to purchase property and loans that meet its investment policies.
The majority of the loans will be purchased initially from CLS. At
present, CLS has the capacity to sell the Company up to Two Million Dollars
($2,000,000) per month in loans that meet the Company's Investment
Objectives and Policies.
Board of Directors May Delay or Deny Acceptance of Investors Funds. In
event that the Company is attracting significantly more investment proceeds
from new investors or from paid off loans than the Company can invest into
new loans, the Board of Directors may delay or deny acceptance of investor
funds as frequently as necessary until the new investor proceeds can be
absorbed into new loans. No investor funds will be escrowed or otherwise
accepted for a future purchase.
LEGAL PROCEEDINGS
General. The Company is not presently involved, nor does it expect to be
involved, in any legal proceedings, except eviction and collection actions.
Since the Company will be involved in renting property and purchasing loans
secured by real property, it will, by its very nature, always be involved
in activities to enforce collection against tenants who fail to pay the
rent and borrowers who fail to make payments when due. Counsel for the
Company is of the opinion that collection actions against tenants who are
in default and on delinquent loan accounts does not constitute pending or
threatening litigation under Financial Accounting Standards Board Opinion
Number 5 (FASB 5) and is properly categorized as routine litigation
incidental to its business.
Usury and Federal Preemption of State Law. The Company loan portfolio may
contain loans that exceed the usury limits for consumer loans made to
Washington residents secured by real property located in Washington. The
position of Counsel for the Company is that the Federal Depository
Institution of Deregulation and Monetary Control Act of 1980 preempts state
usury laws for federally related mortgage loans. No Washington State
Appellate Court or Federal Court located in Washington has ruled directly on
the issue. However, there are an abundance of rulings from other states and
<PAGE>
other Federal Courts on this issue supporting counsel's position. Generally,
federally related mortgage loans are first mortgage loans on a borrower's
residence made by a qualified lender. The position of counsel is that CLS is
a qualified lender. The position of counsel for the Company is that there
will likely be no unasserted claims against the Company on this issue that are
probable of assertion and if asserted would have at least a reasonable
possibility of an unfavorable outcome.
Home Ownership and Equity Protection Act. In 1994, Congress passed the
Home Ownership and Equity Protection Act (HOEPA), which became effective on
October 1, 1995. HOEPA defines certain loans, including some loans
originated by CLS and subsequently purchased by the Company, as "high cost
mortgages." Among other provisions, the legislation prohibits high cost
mortgages from including certain terms such as prepayment penalties,
balloon payments due in less than five years, increases in the rate of
interest after default ("default interest"), negative amortization, holding
back more than two months of payments from the loan amount to make monthly
payments, and charging points on refinancing through the same lender. The
bill also provides for increased civil liability for violations of HOEPA
and enables the borrower to assert such claims against both the originator
of the high cost loan (CLS) and any persons to which the loan is assigned
(the Company). Since the loans purchased by the Company are not likely to
contain those certain terms precluded by HOEPA, the impact is viewed as
minimal. The Company will monitor the loans that are purchased for the
purpose of compliance with the terms of this act.
Investment Company Act of 1940. The Board of Directors and the Company
intend to conduct the operations of the Company so that the Company will
not be subject to regulation under the Investment Company Act of 1940 (the
"Investment Company Act") by virtue of the exception contained in Section
3(c)(5)(C) thereof. Accordingly, the Company does not expect to be subject
to the restrictive provisions of the Investment Company Act nor will the
Company redeem any shares from an existing shareholder as discussed
elsewhere in this Prospectus.
Other Actions. The Company and its counsel are not aware of any proceeding
that a governmental authority is contemplating against the Company.
However, the Company can expect that its financial records will be reviewed
or audited by the Internal Revenue Service for correctness and compliance
with the Internal Revenue Code regarding its REIT tax status. (See
"Federal Income Tax Considerations" section). The Company also expects
that its operations and Federal and or State Security Regulators regarding
its compliance with Security Regulations will review financial records.
<PAGE>
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
There are two (2) officers in the Company, namely a President and a
Secretary. The President functions as the Chief Executive and the
Secretary functions as the Chief Financial Officer. There are five (5)
members of the Board of Directors, three (3) of which are considered
outside independent members. Each Board Member must have at least three
(3) years experience with the management of real estate and or with
financial institutions and investments. All current Board Members have
more than three (3) years experience. Each director is elected for a 1
year term at the annual meeting by vote of the shareholders or until they
are replaced. The shareholders by majority vote can replace a director at
a special shareholder meeting. Current directors are expected to complete
their term of office on December 31, 2000, or until they are duly replaced
by vote at the annual meeting. Officers serve at the pleasure of the Board
of Directors, and can be replaced at any time, by majority vote at a
regular or special meeting.
Officers and Directors of the Company. The following persons are the
Officers of the Company and are also members of the Board of Directors.
Name Age Title City/State
1) Gerald C. Vanhook 1 51 President Mill Creek, WA
2) Melvin L. Johnson 1 42 Secretary Edmonds, WA
3) Dr. Joseph Zimmer 2 49 Outside Director Seattle, WA
4) Sue Cooper 2 54 Outside Director Everett, WA
5) Dr. G. Gordon Benjamin 2 35 Outside Director Gig Harbor, WA
1 Denotes Officer who is a Director
2 Denotes Outside Director
Background & Education information regarding Officers and Directors of the
Company. The following section contains the name, title, employment
history and education of all key officers and all directors of the Company.
(1)Gerald C. Vanhook is the President and Chief Executive Officer of the
<PAGE>
Company. He is also the President of CLS. He is and has been President of
CLS since its inception in 1990. Prior to that, Mr. Vanhook worked for CLS
Mortgage, Inc., in Spokane from February 1984 until November 1989, in which
he was responsible for acquiring and selling similar securities. He has
been employed in several management positions with Consumer Financial
Companies, Mortgage Banks, and Credit Unions since 1969.
(2)Melvin L. Johnson is the Secretary and Chief Financial Officer of the
Company. He was formerly the Secretary. He has been employed in a variety
of banking positions with First Interstate Bank from 1981 to 1989. He
graduated with a degree in Education from Central Washington University in
1980. He presently is the Vice President and a shareholder in CLS
Financial Services, Inc., the management company. He has been with CLS
since 1990. He is also an officer and shareholder of Puget Sound
Investment Group, Inc., an affiliated company.
(3)Dr. Joseph Zimmer is an Outside Director. He is a Seattle dentist and
in addition he teaches at the University of Washington. He is a graduate
of the University of Washington. He is an experienced real estate investor
and he is also experienced in other types of securities such as stocks,
bonds and limited partnerships. Dr. Zimmer is married and has resided in
the Seattle for most of life.
(4)Sue Cooper is an Outside Director. She has nearly two decades of
experience in real estate backed securities and has been purchasing
mortgage paper securities for nearly 10 years. Ms. Cooper represents a
number of retirement plans for the purposes of investing capital. She
currently serves on the Everett School board and also holds a variety of
leadership positions in Seattle area charitable organizations. Ms. Cooper
graduated from the College of Wooster in Wooster, Ohio and received her
M.A. from Eastern Michigan University. Ms. Cooper is married and resides
in Everett Washington.
(5)Dr. G. Gordon Benjamin is an Outside Director. He is a graduate of
Washington State University and the Wauwatosa School of Medicine in
Wauwatosa, Wisconsin. He practices medicine as a cardiovascular
radiologist with the firm of Tacoma Radiology. He is an experienced
securities investor. He is married and resides in Tacoma, Washington.
Director Responsibilities. The Company has incorporated the NASAA
Statements of Policy regarding the management of REITs into its Bylaws.
Board Members are referred to as Trustees in the NASAA section regarding
REITs. The Company and this Disclosure document interchangeably refer to
the Trustees as Board Members. A Board Member must have at least three
years of experience in financial markets. The Bylaws require that a
majority of the Board consist of independent directors. A director is
independent if he is not, directly or indirectly, employed by the Company
or in any way affiliated with CLS, employed by, having a material business,
professional relationship or ownership interest in, or serving as
<PAGE>
an officer or director of CLS or an affiliated business entity of CLS.
Independent Director Responsibilities. The independent directors are
required to monitor the relationship of the Company with the management, to
review and approve all forms of compensation paid to subcontractors, to
review the Company's portfolio to insure that all income producing
properties and loans comply with the Company's investment objectives and
policies, to declare quarterly dividends, to provide Annual Reports to the
shareholders and provide the management with direction regarding the day to
day operations of the Company.
Board approves all fees paid to third parties. The full Board reviews and
approves all fees paid to third parties on a quarterly basis. A majority
of the Independent Directors must approve all loans and fees paid to CLS or
its affiliates. The full Board of Directors has established a committee,
consisting of any two Independent Directors and the President, to review
and approve all real estate and loan acquisitions that exceed $200,000
prior to the purchase of the loan. The Committee may approve, deny or
refer the loan acquisition to the full Board. Since all loans will likely
be purchased from CLS during the first years of operation, the Board has
the option of approving or reversing any loan acquisition that is deemed
not in compliance with the Company Investment Policy at the quarterly
meeting. (See "Investment Objectives and Policies" and "Conflict of
Interest" sections.)
Quarterly Reports. The Company will provide Quarterly Financial Reports to
the shareholders along with their dividend checks and statements of stock
account balances. The Quarterly Financial Report will include a Summary
Letter signed by the President, the Unaudited Quarterly Financial
Statements which includes the Income Statement for the Period, the Balance
Sheet, the Loan Portfolio Report, the Report on Company Owned Property and
disclosures of all related party transactions. The Board of Directors has
mandated that the quarterly dividend checks be distributed to the
shareholders with the Quarterly Report not later than 30 days after the
close of each calendar quarter. The distributions may be made on a monthly
basis.
Annual Reports. Each year, the Board of Directors will retain a CPA firm
to audit the Company's Financial Statements. The Board retained the firm
of Nelson Watson and Erickson in Seattle, Washington to audit the Company
records as of May 31, 1998. The Board retained the firm of Peterson
Sullivan in Seattle, Washington to audit the Company records as of June 30,
1999 and March 31, 2000, the quarter that the minimum offering was sold.
The Company is expected to retain Peterson Sullivan to audit year-end
records through December 31, 2000. After receiving the Audit and
Management report, the Board will prepare its Annual Report, which will be
mailed to the shareholders within 120 days after year-end and at least 30
days before the Annual Shareholder Meeting. It will contain a Special
Report to the shareholders from the Board of Directors, the Audited
<PAGE>
Financial Statements and the Notice of the Annual Shareholder Meeting and
the agenda. The reporting is intended to conform to the NASAA Statements
of Policy regarding REIT disclosure guidelines and Generally Accepted
Accounting Principles ("GAAP"), Accounting Research Bulletin ("ARB") number
43 Chapter 1A and Financial Accounting Standards Board ("FASB") number 57 &
96.
Board Members and Officer Compensation. The Board of Directors is expected
to be compensated for attending regular quarterly or special meetings at an
amount deemed appropriate by the Board of Directors. The Board of
Directors are not prohibited from paying the Directors to attend meetings
and reimburse out of pocket expenses, provided said payments are approved
by the full Board of Directors. The President's annual compensation is
based on the earnings and the performance of the company. After the
offering is sold, the goal is to adhere to the 2% (of aggregate
investments) general operating budget explained elsewhere in this
prospectus. (See "Compensation of Officers"). The officers of CLS are
indirectly compensated for their services as officers, directors, and
shareholders in CLS Financial Services, Inc., and its affiliates. (See
"Certain Relationships and Related Transactions" section.)
No Employees. There are no employees other than the President and the
Secretary. However, the Company expects to hire additional staff and to
share in the cost of employees with CLS and its affiliates until such time
as the Company has sufficient revenue to justify full time staff.
Involvement in Certain Legal Proceedings. The Company, its officers and
directors, its advisors and affiliates have not filed a Petition in
Bankruptcy or Insolvency of any kind. No officer or director has been
convicted in a criminal proceeding or is the subject of a pending criminal
proceeding (excluding traffic violations and other minor offenses). No
officer or director is subject to any order, judgment or decree that would
limit his/her involvement in any type of business, securities or banking
activity. No Officer or Director has been found to have violated any
federal or state securities or commodities law. The Securities Division of
the Department of Financial Institutions in and for the State of Washington
did issue a Consent Order SDO 99-10 in Case Number 99-02-045 revoking the
effectiveness of a permit issued to CLS to sell debentures and suspending
the Broker Dealer License of CLS and Gerald C. Vanhook's securities
salesperson license and conditioning exemptions on March 1,1999. The
Department reissued a Broker Dealer permit to CLS on October 1, 1999, along
with the salesperson license to Mr. Vanhook; permit Q03792 for 1 year,
which is customary. On August 6, 1999 and again on July 18, 2000, the
Washington Securities Division renewed the registration by coordination and
issued permits to sell these securities, permit C-59482, under its
registration by coordination. The current permit expires on July 17, 2001.
The permit is expected to be renewed again in subsequent periods.
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
All Directors must be Shareholders or Officers in the Company. However, no
Officer or Director can own more than 9.8% of the outstanding and issued
stock of the Company. Furthermore, no individual shareholder can own more
than 9.8% of the issued and outstanding stock of the Company without Board
approval. Under the Internal Revenue Code, no five (5) persons can control
more than fifty percent (50%) of the outstanding and issued stock. The
Company policy effectively prohibits any shareholder from owning more than
9.8% of the outstanding and issued stock. (See "Federal Income Tax
Considerations," and "Certain Relationships and Related Transactions"
sections.), unless the ownership will not adversely effect the Company REIT
IRS reporting status. Board members are not precluded from purchasing
stock in the Company.
DESCRIPTION OF SECURITIES
The securities of the issuer being offered are common equity stock in a
Washington Corporation. All stock issued and outstanding will be issued
for Five Dollars ($5.00), the arbitrary offering price determined by the
Board of Directors, which is also the par or stated value of the stock.
The Articles of Incorporation require all stock to be issued for $5.00 in
cash consideration only. (See "Market for Common Equity and Related
Transactions" section and its subsection "Dividend Reinvestment Plan.")
The dividends will be declared on a per share basis and paid quarterly
within thirty (30) days after the end of the quarter. The Board may elect
to distribute the dividends monthly. (See "Market for Common Equity and
Related Transactions" section and its subsections "Distributions of
Dividends.")
The stock has all rights allowed at law, including equal voting rights,
except that there is no cumulative voting. There are no preemptive rights.
There are limitations applicable to the percent of ownership that any
individual person may acquire. (See "Plan of Distribution" and "Federal
Income Tax Considerations" sections.)
INTERESTS OF NAMED EXPERTS AND COUNSEL
The legality of the stock issued herein and certain securities and income
tax matters have been passed on by Douglas M. O'Coyne, Attorney at Law, of
the law firm of O'Coyne & Phillips, P.S., with offices at 9 South
Washington, Suite 612, in Spokane, Washington, 99201. Counsel is paid on
an hourly fee basis.
<PAGE>
The Financial Statements of the Company have been audited by the accounting
firm of Peterson Sullivan, PLLC, with offices at 601 Union Street Suite
2300, Seattle, Washington, 98101. The auditors are paid on an hourly fee
basis.
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR
SECURITIES ACT LIABILITIES
In general, the Directors are accountable to the shareholders as
fiduciaries and are required to perform their duties in good faith and in a
manner each Director believes to be in the best interest of the Company,
with such care, including reasonable inquiry, as a prudent person in a like
position would use under similar circumstances. Accordingly, the Directors
must supervise the relationship of the Company with CLS in the performance
of its duties under the Management Agreement, and must determine that the
compensation paid directly and indirectly to CLS is reasonable in relation
to the nature and quality of the services performed. (See "Certain
Relationships and Related Transactions" section.)
The Company has chosen, under its Articles of Incorporation and Bylaws to
indemnify its Directors, Officers, employees and other agents against
certain liabilities incurred in connection with their service in such
capacities. Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "Act") may be permitted to directors, officers
and controlling persons of the Company pursuant to the foregoing
provisions, or otherwise, the Company is aware 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 Company of expenses incurred or paid by a
director, officer or controlling person of the Company in the successful
defense of any action, suit or proceeding) is asserted by such director,
officer or controlling person in connection these securities being
registered, the Company 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.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
General. The Company officers are also officers with CLS and its
affiliates. The Company also co-located with CLS and its
<PAGE>
affiliates. The Company does plan to share in the cost of equipment, rent
and labor with CLS, on an as needed basis. The Company will likely
contract for services with property managers and escrow companies rather
than hire staff to perform the day-to-day operations. The Company will
initially rely on CLS and its affiliates to provide sufficient staffing to
perform administrative functions. The Company also retains the services of
independent professionals for accounting, legal, consulting work and real
estate management.
Compensation of Management. The President's annual compensation and the
entire operating budget will be based on 2% of the average invested assets
paid at prorata monthly after the maximum offering is sold. During the
interim, the Board of Directors is responsible to adjust the budget
according to the needs of the Company in their exclusive and collective
business judgment.
Management Relationships. Property managers will be paid a fee from the
collected rents on a contract by property basis. PSIG may also be paid such
a fee. Property managers are generally paid 4% to 8% of the collected
rents, depending on the property. The Company expects to retain the
services of several property management companies initially. On loans
originated by the Company, CLS is paid a loan acquisition fee from the loan
proceeds that the borrower is responsible to pay. (See "Summary of Loan
Acquisition Process" below). CLS is also paid a rate split and its
affiliate PSRESG, is paid a servicing fee to service the portfolio and
collect on delinquent accounts. PSIG is expected to manage some properties
and any foreclosure process involving Company interests. (See "Summary of
Collection Process.")
Loan Closing and Servicing Relationship. PSRESG is paid a closing fee by
the borrower to close the loan, escrow the funds and service the loan in
the escrow account over its term. The borrower pays the fee, which is
customarily under $100 per year. In event a collection action would be
necessary, as part of the escrow instructions, PSRESG initiates the
collection action on the defaulted loans, in which case it receives the
default interest and the late payments as its compensation for this service
to the Company. The borrower pays the service fee, the late fee and the
default interest. The Company is not charged any collection fees by
PSRESG. (See "Summary of the Collection Process" below.)
Prohibited Lending Practices. The Company has a policy of prohibiting the
originating or acquiring of any loans made to any of the Officers,
Directors, Shareholders, or other key personnel of the Company for their
individual purposes. This policy can only be changed by the Board of
Directors. Any loan made to CLS or its' affiliates will be reflected in
the Audited Financial Statements as a related party transaction and also be
reported on the 10Q and 10K.
<PAGE>
Summary of the Property Management Process. The Company is expected to
acquire and manage income producing real property. The Company intends to
acquire multi family rentals and commercial property that will produce
income from rents and appreciate in value over time. Each property is
unique, however, the acquisition criteria is to review the historical and
projected rental income of the property, the tenant turnover and vacancy
rates and the maintenance requirement. The Company plans to retain CLS to
manage the properties. For details of the investment strategy, see the
section on "Investment Goals and Objectives."
Summary of the Loan Acquisition Process. The Company does not directly
engage in the loan origination process. The Company has adopted the policy
of purchasing loans from CLS or any other mortgage broker. At the closing
of the loan purchase, the promissory note is indorsed over to the Company
and the security agreement, the Deed of Trust, Real Estate Contract or the
Mortgage is assigned to the Company. The assignments are then recorded in
the county in the state where the real estate is located and the promissory
note is stored in a fireproof area with the escrow company. The Company is
free to purchase loans originated by other mortgage brokers, however it is
not expected to do so based upon the present loan origination capacity of
CLS. The Company is not expected to have the overhead expenses commonly
associated with the loan origination process, e.g. advertising, maintaining
office space, maintaining and training personnel, answering telephone
inquiries, screening borrowers, reviewing the security, closing the loan,
setting up the escrow, etc. The Company is reliant upon CLS and it's
affiliated companies to perform the entire loan origination, closing and
escrow function. CLS is paid a loan acquisition fee (sometime referred to
as a loan origination fee or a discount fee) from the loan proceeds at
closing. The Borrower is legally obligated to repay the principal, which
includes the acquisition fee and other loan costs, over the term of the
loan. In effect, the Company does not pay any loan acquisition fee.
CLS is expected to continue to be a registered Mortgage Broker Dealer in
the State of Washington and has been in business since 1991. CLS sells
obligations secured by real estate to Washington loan purchasers, who are
typically sophisticated individuals who seek a higher return on their
investments than is available through established markets. CLS does
limited advertising for investors. However, there is no well-established
market for investors of the type of loans that the Company originates. The
investors of fractionalized interests receive a General Offering Circular
and Specific Offering Circular disclosing information about the loan. The
Company claims an exemption from Federal securities laws under Section
3(a)(11) of the Act and Rule 147. CLS meets the requirements of a
Federally Related Mortgage Lender under the Monetary Act of 1980. (See
"Legal Proceedings" section). CLS brokers and originates several different
types of loans to several different types of borrowers. In the case of
loans that are ultimately sold to the Company, CLS will actually originate
the loan to the Borrower(s) using its line(s) of credit.
<PAGE>
PSRESG or an independent closer will close the loan, recording all legal
documents as appropriate and disbursing the funds. PSRESG then sets up the
escrow account and accounts for all loan payments. The interest will then
be sold to the Company. The Company may purchase the whole loan or just a
part of the loan, which is referred to in the industry as a participation.
In a participation, a portion of the loan would be sold to the Company and
the balance to other private or institutional investors, under the same
terms that the Company receives.
The Board of Directors approves loan acquisition fees on a case-by-case
basis. The fee is actually paid by the borrower over the term of the loan.
The Borrower and CLS or any other mortgage broker negotiates the loan
acquisition fee. The average fee is generally 4% to 6% of the loan
principal. The Company and CLS have implemented a review system to account
for and approve the loan acquisition fees paid to CLS on a quarterly basis,
as is required in the NASAA Statements of Policy regarding REITs.
The loan acquisition fee paid to CLS on some loans may exceed the 6% fee
that is generally presumed reasonable by the NASAA Statements of Policy.
As specifically provided for under the NASAA Statements of Policy, the
Board of Directors are required and will likely approve the acquisition fee
paid to CLS as being commercially competitive, fair and reasonable under
the circumstances. The factors used in forming the Board's determination
are as follows: 1) The borrower is legally obligated to repay the fee,
which is included in the loan principal, over the term of the loan; 2) CLS
fronts all of the loan origination costs associated with the marketing
effort; 3) CLS originates and actually funds the loans using its own
line(s) of credit; 4) An affiliated company services the loan in event of a
default.
Summary of the Collection Process. The majority of the loans in the
Company portfolio are escrowed with an affiliated company of CLS, namely
PSRESG. There is a separate escrow agreement for each loan, which is
executed at loan closing. The borrower pays PSRESG an escrow set up fee at
loan closing and an annual fee during the term of the loan. In the event a
collection action becomes necessary, PSRESG initiates the collection action
on the defaulted loan, in which case it receives the default interest and
the late payments as its compensation for this service to the Company, when
the payment is made. The majority of the loans are expected to be covered
by the custom servicing agreement with CLS, subject to Board of Director
approval.
In the event the default of 60 days from the payment due date, and provided
no acceptable repayment arrangement is agreed upon, then CLS begins making
the payment(s) due the Company, curing any arrearage, and begins the
process to foreclose on the property according to state law pursuant to the
custom servicing agreement. Essentially, CLS brings the loan current and
pays all costs of Nonjudicial Deed of Trust or Judicial Foreclosures and
Real Estate Contract Forfeitures, including attorney fees. In the event
that a third party purchases the property at the foreclosure sale, then the
outstanding principle on the loan, plus interest, is paid to the Company.
<PAGE>
The Company may be the bidder unless the Board of Directors elects to allow
CLS to be the bidder. In the event that CLS would be the successful
bidder, then CLS will continue to make the payments due on the note to the
Company. Upon a private sale by CLS, the loan will then be paid off and
CLS will retain any excess funds from the sale.
The Company expects that 10 - 15% of the loans in the portfolio will be
delinquent at any point in time. The Company expects that CLS will
maintain the payments current on those loans covered by the custom
servicing agreement. In event that CLS fails to make any payment on a loan
covered by the custom servicing agreement, then CLS agrees to forfeit any
payments made, any rate split payments and any interest in the foreclosed
property. As a result and in that event, the Company expects that it will
experience payment delays and some losses on foreclosed property sales.
Initial Budget. The President is expected to manage the Company for the
benefit of the Shareholders. As such, the Board of Directors has approved
a budget for administrative operations, which is 2% of the average invested
assets. The majority of the staff will also be employees of CLS initially
allocated on a prorata basis. In addition, the Company expects to pay
independent property managers a fee based on the prevailing rates in the
area. The Company will pay the necessary expenses required in a business.
CLS will be paid loan acquisition fees at closing from the proceeds of
loans funded by the Company. CLS retains the rate split over the term of
the loan. PSRESG will be paid an annual escrow fee, the late payment
charges and default interest for collection action on the delinquent loans
by the borrower.
(1)Payment of Overhead Expenses: The full Board of Directors has approved
the initial budget and will approve all subcontract expenses paid to third
parties and to CLS in each quarterly director meeting. The Company has
budgeted annual expenses based on 2% of the total balance of all invested
assets and paid on a monthly basis at the rate of 1/12 of 2% of the total
basis in the property, the loans, contracts, and deposits outstanding at
the end of each month. The Company will contract with property managers,
which may also be CLS, who will be paid a fee of between 4% and 8% of the
rents collected each month. Only the net rents are typically tendered to
the landlord when an independent property management company is involved.
(2)Payment of Loan Acquisition Fees: The Board of Directors of the Company
has approved loan acquisition fees that are paid from the loan proceeds to
CLS that in some cases may exceed the standard loan acquisition fee deemed
presumptively reasonable by the North American Securities Administrators
Association (NASAA) for all REITs offering shares to the public in the
United States and Canada. CLS charges the borrower the same fee,
regardless of whether the loan is sold to the Company or other loan
purchasers. The full Board of Directors will approve the loan acquisition
fees paid to CLS in each quarterly director meeting.
(3)Payment of Loan Closing, Escrow and Late Fees: CLS funds loans on its
own line(s) of credit, then packages and sells the loan to the Company
shortly thereafter. An escrow set up fee and the borrowers will pay an
<PAGE>
annual fee over the term of the loan to PSRESG. In addition PSRESG retains
all late fees and default interest that is actually paid by the borrowers
whose accounts are delinquent. CLS or its affiliate does not charge the
Company for collection activity or for the escrow fees. The borrower pays
all fees due on the Escrow. In event that a delinquent loan is turned over
to an attorney for collection, the Company is ultimately responsible for
all costs associated with the collection action if the loan is not covered
by the custom servicing agreement. The full Board of Directors approves
all fees and collection costs at each quarterly director meeting.
(4)Fees Projected to be Received by CLS: CLS will receive expense
reimbursement for prorated expenses, a rate split and loan acquisition fees
for loans sold to the Company. The Company will pay the shared expenses
each month. The rate split is paid by the borrower and is included in
each payment. The loan closing, escrow fees, late fee and default interest
are paid to an affiliated company of CLS, in consideration for maintaining
the payment current on each loan so serviced. In the event that more that
20% of the portfolio is in a payment default status, there is no guarantee
that CLS and its affiliates will continue to maintain the payments current.
Other than forfeiting all rate splits, default interest and late fees on
the defaulted loan, CLS and its affiliates are not contractually obligated
to keep the payments current.
Conflicts of Interest. The Company has agreed to reimburse CLS on prorated
expenses on a basis to cover the overhead costs of the Company. CLS also
receives a loan acquisition fee on each loan that is sold to the Company.
CLS charges the borrower the same fee, regardless of whether the loan is
sold to the Company or other loan purchasers. CLS retains the rate split,
which is determined at the discretion of CLS based on the risk of default.
PSRESG receives a closing fee when the loan is closed and escrow, and
collection fees as a result of servicing the loans. (See "Initial Budget"
above). The loan acquisition fees are expected to be less than the amount
deemed presumptively reasonable by the NASAA Statements of Policy. The
acquisition fee will constitute the bulk of the compensation received by
CLS, and is paid regardless of the future performance of the loan. Due to
this fee structure, CLS has an incentive to encourage the acquisition of
shorter-term loans and to generally advocate a more rapid turnover of the
portfolio.
The Company expects CLS to acquiring loans for the Company. CLS also
sells loans, which it has originated, to clients other than the Company,
and may hold loans for its own account. CLS also determines the amount of
the rate split. Due to these relationships, CLS may not always place the
most profitable or otherwise desirable loans with the Company.
Additionally, CLS may recommend the percentage of the loan placed in its
respective clients' portfolios. If the Company does not hold a majority
percentage of the loan, it will be unable to control the actions taken by
the investor group with respect to the loan.
In an attempt to mitigate the conflicts of interest, CLS and the Company
have adopted the following criteria:
<PAGE>
1. CLS will determine whether the loan is consistent with the Company's
Investment Policy prior to advancing Company loan proceeds;
2. All loans are approved by the Board of Directors at each regularly
scheduled quarterly meeting;
3. CLS has agreed that the Board of Directors may reverse any loan
purchase if the Board determines that the loan does not meet the Company's
Investment Policy set forth in the Bylaws or as made more restrictive by
the Board;
4. All loans in which the Company's investment exceeds $200,000 are
approved in advance by the Special Loan committee composed of any two
Independent Directors and the President or by the full Board;
5. Where possible, CLS will place an entire loan with the Company or it
will place a loan participation which constitutes a controlling interest in
the loan.
DESCRIPTION OF THE BUSINESS
Form and Year of Organization. The Company was incorporated in the State
of Washington on June 19, 1997. After selling a minimum of $350,000 on
February 8, 2000, the Company actually began operations. The Company
intends to pass through all net profits to its shareholders, without the
Company paying any Federal Income Tax.
REIT Status. The Company intends to qualify and be taxed as a REIT in 2000
and thereafter. The REIT status is contingent upon a number of conditions.
There is no assurance that the Company will meet these conditions. The
Company will allow shareholders to purchase additional stock by "rolling
over" or "reinvesting" dividends into stock. (See Section "Requirements for
Qualification as a REIT" below.)
Business of the Company. The Company is being organized for the purpose of
acquiring and managing income producing real properties and acquiring,
managing and disposing of mortgage-collateralized loans.
The objective is to earn current income and obtain long-term capital
appreciation. The Company intends to purchase multi-family units and
commercial rental property that will yield gross rents in the range of 14%
to 18% with an average vacancy factor of less than 15%. The Company
expects to be able to provide shareholders with a return on their
investment of between 8% to 12%, and higher by leveraging. The Company
also intends to purchase loans with an annual interest rate of 10% to 14%,
with a term of 15 to 20 years and a balloon payment due in 5 to 7 years.
The loans will be purchased from CLS. The borrowers will generally lack
the credit rating necessary to qualify for the lowest market rate financing
but are willing to pay above market rates. The profits will be distributed
to the shareholders, without being taxed according to REIT tax rules. (See
"Federal Income Tax Considerations" section). Stockholder capital and loan
payoffs provide the capital base to purchase new loans. Interest income
<PAGE>
provides the liquidity to pay expenses and distribute dividends.
Value of Real Estate Collateral. The primary basis for purchasing the
property or the loan is the value of the real estate and to a lesser extent
the credit worthiness of the tenants and the borrowers. The loans are
described as "B" or "C" or sometimes as "hard money" loans in the industry.
The Loan-to-Value ratio ("LTV") ranges from a maximum of 70% for
residential property to less depending on the type and marketability of the
property. (See "Investment Objectives and Policies" section.) CLS has
profitably operated in this market since 1992 and expects to continue to do
so. There is at present no shortage of borrowers who are willing to pay
above "A" market interest rates for loans secured by real estate. However,
due to the above market interest rates the borrowers are paying, they can
be expected to pay off the loans early by either refinancing the loan at a
lower rate of interest or by selling the property. In some cases, the loan
proceeds will be necessary to start up a new business, that when
successful, is able to seek financing from a bank at a lower interest rate.
Reliance on its Management. The Company will be heavily reliant on its
management for the foreseeable future. The management of the Company is
also the management of CLS, which has been in business since 1990. (See
Certain Relationships and Related Transactions" section.) CLS is a full
service mortgage company, with the ability to service each segment of the
mortgage market. CLS and its affiliates also have several properties under
management and development. CLS has the capacity to make FHA and the VA,
conventional loans purchased by institutions and loans purchased by private
sources, such as the Company. CLS has the capacity to meet the loan
purchase requirements of the Company for the foreseeable future. The
Company may contract with other brokers, as the Board of Directors deems
necessary.
Competition. The primary competition in the Pacific Northwest for income
producing properties ranges from very large corporations to individuals.
There is no shortage of investors who will purchase income-producing
property. In addition, loans of the type contemplated to be purchased are
also available from a large number of Mortgage Companies and Investment
Groups; several Finance Companies, e.g. Associates Financial Services,
Beneficial Financial Services, ITT Financial Services etc., and individual
investors who actively purchase interests in what is commonly referred to
as Mortgage Paper Securities. The yield expectation of these lenders is
similar to the yield expectations of the Company. The competition is
financially strong, stable and well funded.
Ability to Compete. The Company believes it can effectively compete in the
market because of its management team. (See "Certain Relationships and
Related Transactions" section). As previously stated, the management has
experience in this business over the past decade. CLS and its affiliates
have engaged in property management, property development and in
originating and acquiring Loans secured by Mortgages, Deeds of Trust and
Real Estate Contracts ("Loans") which are held in its portfolio or are sold
to Loan Purchasers. The Board of Directors believes that there are
sufficient market opportunities to achieve the Company investment
<PAGE>
objectives.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND ANTICIPATED RESULTS OF OPERATIONS
Overview. The business of the Company is to purchase income-producing
properties that will yield a 14% to an 18% annual gross rent. The Company
also expects to purchase loans secured by real estate that yield market
interest rates of 10% to 14%. The loans are made based primarily on the
value of the real estate securing the loan and to a lesser extent, the
borrowers credit worthiness. The maximum Loan to Value Ratio ranges from
70% of the appraised value of residential property to 40% for undeveloped
property. (See "Description of the Business" and "Investment Objectives
and Policies" sections.)
REIT Tax Status. In order to pass through income to its shareholders
without being taxed at the Company level, it must comply with the REIT
provisions of the Internal Revenue Code. (See "Federal Income Tax
Considerations" section.)
Source of Funds to Purchase Real Property and Loans. Revenue from the sale
of stock, principal payments and loan payoffs will provide the Company with
the source of funds to invest in income producing property and to purchase
new loans. The Company believes that real estate agencies operating in the
market will be able to provide the Company with sufficient income producing
property to meet the Company investment objectives. In addition, the
Company expects that CLS will be able to provide the Company with
sufficient loans that meet the Company's Investment Objectives and
Policies, now and in the future. (See "Description of the Business" and
"Certain Relationships and Related Transactions" section.)
Source of Funds to Pay Expenses and Dividends. The rents and the interest
paid on the loans will provide the funds necessary to pay the expenses and
make dividend distributions to the shareholders. The Company's expenses
are expected to constitute approximately 20% of the revenues leaving the
balance to be paid to the shareholders in quarterly dividend distributions,
which may be distributed monthly. The Company manages its cash by not
investing property or loans toward the end of the quarter in order to
provide the necessary funds to pay the cash dividends as authorized by the
Board of Directors shortly after the end of each calendar quarter. The
Company expects to continue this type of cash management procedure for the
foreseeable future. (See "Description of the Business," "Distributions of
Dividends" and "Investment Objectives and Policies" sections.)
Anticipated Results from Operations in 2000 and 2001. The Company began
operations in February of 2000, and recorded a profit of $7,479 in its
first quarter of operations. Due to the lack of historical operating
results, management does not have a reasonable basis to make any
projections in the future quarters.
Sources of Property and Loans. Real estate agents, not affiliated with the
Company or CLS, will supply the property. The loans will be supplied by
CLS. The loans will be originated by CLS and purchased from its inventory
<PAGE>
shortly after the loan is made. The Company will purchase the entire loan
or a participation interest in the loan. If the Company purchases a
participation interest, CLS will sell the remaining interest to other
investors. The Company may also purchase real estate secured loans on the
secondary market in which the discounted yield is consistent with the
Company's investment objective.
Security for Loans. The Company expects to primarily purchase loans
secured by first liens in the form of Deeds of Trust, Mortgages, and Real
Estate Contracts on real property and Mobile Homes affixed to the land.
Occasionally, where appropriate and when in its best interest, the Company
may acquire some loans secured by a junior lien. The value of the security
is determined by an appraisal conducted by a qualified person, or in some
cases, based upon the tax valuation of the property. In either instance,
the value of the property is an informed opinion, not a precise fact. As a
result, the Company imposes loan to value (LTV) guidelines to provide for
situations when the actual market value of the property proves to be less
than the appraisal.
Loan to Value (LTV) and Underwriting Guidelines. The Board of Directors
approves all loans on a quarterly basis. (See "Director Responsibilities"
and "Summary of the Loan Acquisition Process" sections). The Company's
Board of Directors has established the following maximum loan-to-value
(LTV) guidelines for the loans it acquires which have been incorporated
into the Company Bylaws at Article XIV:
SECURITY MAX LTV
Unimproved real property 40%
Productive farm land 50%
Substandard residential and
Commercial property 60%
Quality residential property 70%
The Company's general underwriting guidelines requires a showing that the
borrower can service the debt from a stable or predictable source of
income. In essence the guidelines for B and C grade loans, is forward
looking, rather than historical, as the borrower typically has failed to
make payments in a timely manner. The Company reviews the root causes to
predict whether they will occur in the future, for example, one spouse was
not working for 6 months and now has a job, one spouse or a child was sick,
causing a reduced income and medical expenses etc. Each case is unique and
must be viewed in its totality. The Company then prices the interest rate
to the risk involved under the current market conditions. The underwriting
process cannot always predict the future with certainty; for example, a
borrower or spouse may lose their job a few months after the loan is made.
The Company expects to make loans to consumers who are selling their home
and have found another home they wish to purchase, and require funding for
the down payment. The underwriting guidelines for bridge loans under
$100,000 is an LTV up to 90% of the value of the equity of the home listed
<PAGE>
for sale. For loans over $100,000, the LTV is up to 80% of the value of
the home being sold. The borrower must have grade A or A PLUS credit, meaning
no 30 days late on any mortgage payment in the last 24 months, and
demonstrate adequate stable income to service the debt.
Investment Restrictions. The Company may not invest more than 10% of its
assets in any one property or loan or in loans secured by unimproved real
estate, under the rules pertaining to investments by a REIT. Purchases
that exceed $200,000 of Company funds must be approved in advance (See
"Director Responsibilities" section). For other restrictions, (See the
"Federal Income Tax Considerations" section.)
Procedure for Enforcing Investment Policy. The Board of Directors meets on
a quarterly basis. In event that a loan is purchased from CLS that does
not conform to the Company investment policy, the Board of Directors has
the option of reversing that loan, in which case CLS would be required to
purchase the loan back from the Company. There is no provision for the
Board to reverse any loan purchase after it has been approved at the
quarterly meeting. (See "Conflicts of Interest" section.)
Plan for the Future. The Company is committed to offer its stock for sale
to the public for the foreseeable future. The Company expects to fully
invest all available funds through the purchase of real estate and loans.
The Company expects to be able to acquire similar assets in the future.
The Company plans to leverage the financing of real property but not to
purchase loans. In the future, the Company will analyze the consumer need
for loans consistent with the Company's investment policies. At present
and for the foreseeable future, the economy in the Pacific Northwest
continues to expand. Real estate values are increasing and therefore, the
value of real estate security remains strong. The Company forecasts a
stable demand for services for the foreseeable future, evidenced by daily
loan inquiries to CLS.
The Company expects that all of the proceeds from this offering will be
immediately absorbed into property and loans that have been originated by
CLS. In the unlikely event the amount received from investors as a result
of this offering exceeds the ability of the Company to purchase loans from
CLS, the Board of Directors has directed the Secretary to delay acceptance
of new investor's funds as necessary, in order to limit the negative impact
on the earnings of the Company.
Projections for Stock Sales in 2000 and 2001. The Company projects that
investors will purchase, on average, Five Hundred Thousand Dollars
($500,000) monthly after the Minimum Offering is sold and then continuing
until the offering is sold out. The Company intends to initiate future
offerings on a two-year cycle.
Capitalization. The Company has limited debt and is entirely capitalized
through the sale of its stock on the basis of $5.00 per share.
<PAGE>
DESCRIPTION OF COMPANY INVESTMENT OBJECTIVES
Investment Objectives and Policies. The Company's principal investment
objective is to acquire a portfolio of income producing property and real
estate collateralized loans that will enable the Company to make quarterly
distributions of dividends to its shareholders. It is the Company's policy
to primarily acquire property that will provide gross rents of between 14%
to 18% of the investment. The aggregate turnover for multi family units
should not exceed 12 months and the vacancy factor should not exceed 15%.
For commercial property, the gross rents will be between 14% and 16%, the
turnover should not exceed 24 months and the vacancy factor should be no
more than 15%. Commercial properties are typically rented under a triple
net lease, wherein; the tenant is responsible for most of the maintenance
and repairs, common expenses, taxes and insurance. With respect to Multi
family properties, the Company will generally bear the burden of the
maintenance costs. The properties are expected to appreciate at above
market rates and thereby provide long-term asset appreciation. The loans
will be to borrowers who are, for a variety of reasons, considered high or
higher risk, and which are secured by real estate concentrated in the
Pacific Northwest. The Company will generally acquire loans between
$25,000 to $150,000 bearing interest rates between 10% to 14%. The loans
will generally be amortized over 15 to 20 years with a balloon payment due
in five (5) to seven (7) years. No assurance can be given that the
aforementioned investment objectives and policies will not be changed in
the future by the Board of Directors.
MARKET FOR COMMON EQUITY AND RELATED TRANSACTIONS
No Public Market. There is no public market for the Company's stock. The
stock has not and is not expected to be listed on any stock exchange. The
Company intends to continue to register its stock for sale and does offer a
matching service in order to facilitate shareholder liquidity.
Ownership Restrictions. No individual may own more than 9.8% of the shares
issued by the Company without the written authorization from the Secretary
and an opinion of Counsel in order to insure continued compliance with the
requirements of IRC Section 856(h), which mandates that no five (5)
shareholders may own 50% or more of the stock of a REIT. The Secretary may
void any transaction that places the REIT tax status in jeopardy. (See
"Federal Income Tax Considerations" section.)
Distributions of Dividends. The Dividends are expected to be declared, on
a per share basis and distributed quarterly within thirty (30) days after
the end of the quarter. All dividend calculations will be based on the
stated value of $5.00 per share. A person who is a shareholder for less
than the entire quarter will have the Dividend prorated according to the
number of days the person was a shareholder during the quarter. The
Company intends to distribute at least 95% of the net income earned each
quarter in order to maintain its REIT tax status. (See "Federal Income Tax
Considerations" section.)
Dividend Objective and Performance. The Company objective is to distribute
<PAGE>
dividends on a quarterly basis providing its shareholders with an 8% to 12%
annual return on their investment.
Dividend Reinvestment Plan. The Company allows shareholders to receive
cash dividends or elect to "roll over" or "reinvest" their quarterly
dividends into new shares of stock and take advantage of compounding their
investment. The issuing price for the shares is $5.00 per share.
Fractional shares may be purchased. The date of purchase is the first day
of the new quarter. Typically, cash dividends are paid between 20 and 30
days after the end of the quarter. Any change in the election must be made
in writing prior to the end of each quarter. No amount of shares have been
allocated to the plan. At the end of each quarter, the shareholder
receives a statement indicating the amount of dividends that have been
reinvested into new shares. The shareholder can change the election at any
time prior to the end of the quarter. There is no policy that would
prohibit a shareholder from changing the election on a quarterly basis.
The shareholder is taxed on reinvested dividends as if the dividend had
been actually paid in cash in the year it was declared. (See "Federal
Income Tax Considerations" section). The terms and conditions of the plan
are set forth in Article VIII of the Company By-Laws, which have been filed
as an exhibit to the offering.
EXECUTIVE COMPENSATION
The Company officers and overhead expenses are initially budgeted in an
amount not to exceed 2% of the average annual invested assets after the
maximum offering is sold. During the interim, the Board of Directors has
the authority to pay reasonable salaries according to their collective
business judgment. See "Initial Budget."
THIS SPACE INTENTIONALLY LEFT BLANK
<PAGE>
FINANCIAL STATEMENTS
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
RMX REIT, Inc.
Lynnwood, Washington
We have audited the accompanying balance sheets of RMX Reit, Inc., a
Washington corporation as of December 31, 1999, and the related statements of
operations and retained earnings and cash flows for the years ended December
31, 1999 and 1998. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on this
financial statement based on our audits.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the balance sheet is 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 balance sheet presentation. We believe that our audits provide
a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of RMX Reit, Inc. as of
December 31, 1999, and the results of its operations and its cash flows for
the years ended December 31, 1999 and 1998, in conformity with generally
accepted accounting principles.
Peterson, Sullivan PLLC
Seattle, Washington
August 11, 2000
<PAGE>
RMX REIT, INC.
BALANCE SHEET
December 31, 1999
<TABLE>
<S> <C>
ASSETS
Deferred costs of raising capital $49,223
LIABILITIES AND STOCKHOLDERS' EQUITY
Due to ClS $49,223
Common Stock, 2,400,000 shares authorized,
noshares issued and outstanding -------
$49,223
</TABLE>
See Notes to Financial Statements
<PAGE>
RMX REIT, INC.
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
For the Years Ended December 31, 1999 and 1998
<TABLE>
<S> <C> <C>
1999 1998
Revenues $ - $ -
Expense - -
--------- ---------
Net Income - -
Retained earnings, beginning of year - -
--------- ---------
Retained earnings, end of year $ - $ -
========= =========
</TABLE>
See Notes to Financial Statements
<PAGE>
RMX REIT, INC.
STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1999 and 1998
<TABLE>
<S> <C> <C>
Cash Flows from Operating Activities
Net income $ - $ -
--------- ---------
Net cash flows from operating activities - -
--------- ---------
Net increase in cash - -
Cash balance, beginning of year - -
--------- ---------
Cash balance, end of year $ - $ -
========= =========
</TABLE>
See Notes to Financial Statements
<PAGE>
NOTES TO FINANCIAL STATEMENTS
Note 1. Organization and Significant Accounting Policies
Organization
RMX REIT, Inc., ("RMX") is incorporated under the laws of the State of
Washington. RMX plans to operate as a real estate investment trust
("REIT").
As of December 31, 9999, RMX has had no operations.
Deferred Costs of Raising Capital
As of December 31, 1999, RMX has paid $49,223 in costs associated with
raising capital and these costs will be offset against funds raised from
the eventual release of the prospectus. Management believes all of these
costs are associated with raising capital (preparation of prospectus and
related printing costs.)
In 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-5 ("Reporting on the Costs of Start-Up
Activities"). This statement requires costs associated with start-up
activities and organization costs be expensed as incurred. It does not
require costs of raising capital to be expensed. It became effective
December 15, 1998.
Related Parties
RMX has common officers with CLS Financial Services, Inc. ("CLS") and Puget
Sound Investment Services, Inc. ("PSIG"). CLS and PSIG are active in the
real
estate industry. CLS provides facilities and certain office support
functions to RMX at no charge. In addition, as of December 31, 1999, CLS has
advanced RMX $43,223. This advance has no set repayment terms.
Income Taxes
When RMX starts REIT operations, it will be allowed to pass earnings through
to shareholders without the earnings being taxed at the REIT level. Income
taxes are not assessed at the REIT level provided it complies with various
provisions in the Internal Revenue Code.
Use of 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.
Note 2. Subsequent Event
Subsequent to December 31, 1999, RMX issued $637,000 of stock to various
investors. A CLS officer is one of these investors.
Generally, PSIG collects and holds capital contributions received from
investors on behalf of RMX. Amounts are due on demand and bear interest at
12%.
<PAGE>
FINANCIAL STATEMENTS
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
RMX REIT, Inc.
Lynnwood, Washington
We have audited the accompanying balance sheets of RMX Reit, Inc., a
Washington corporation as of March 31,2000, and the related statements of
operations, stockholders' equity, and the cash flows for the three months
then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on this
financial statement based on our audits.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the balance sheet is 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 balance sheet presentation. We believe that our audits provide
a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of RMX Reit, Inc. as of
March 31, 2000, and the results of its operations and its cash flows for
the three months then ended, in conformity with generally accepted accounting
principles.
Peterson, Sullivan PLLC
Seattle, Washington
April 19, 2000
<PAGE>
RMX REIT, INC.
Balance Sheet
March 31, 2000
<TABLE>
<S> <C>
ASSETS
Cash $ 20,000
Accrued interest receivable from PSIG 7,479
Due from PSIG 575,000
Deferred costs of raising capital 51,591
--------
$654,070
========
LIABILITIES AND STOCKHOLDERS' EQUITY
Due to ClS $ 40,591
Common Stock, 2,400,000 shares authorized,
121,200 shares issued and outstanding 606,000
Retained earnings 7,479
--------
613,479
--------
$654,070
========
</TABLE>
See Notes to Financial Statements
<PAGE>
RMX REIT, INC.
STATEMENT OF OPERATIONS
For the Three Months Ended March 31, 2000
<TABLE>
<S> <C>
Interest income and net income $7,479
======
</TABLE>
See Notes to Financial Statements
<PAGE>
RMX REIT, Inc.
STATEMENT OF STOCKHOLDERS' EQUITY
For the Three Months Ended March 31, 2000
<TABLE>
<S> <C> <C> <C>
Common Retained
Stock Earnings Total
Balance, January 1, 2000 $ - $ - $ -
Issuance of common stock 606,000 - 606,000
Net income 7,479 7,479
-------- -------- --------
Balance, March 31, 2000 $606,000 $ 7,479 $613,479
======== ======== ========
</TABLE>
See Notes to Financial Statements
<PAGE>
RMX REIT, INC.
STATEMENT OF CASH FLOWS
For the Three Months Ended March 31, 2000
<TABLE>
<S> <C>
Cash Flows from Operating Activities
Net income $ 7,479
Changes in operating assets and liabilities
Increase in accrued interest receivable from PSIG (7,479)
--------
Net cash flows from operating activities -
--------
Cash Flows from Financing Activities
Issuance of common stock 31,000
Payments on amounts due to CLS (11,000)
--------
Net increase in cash and cash balance at March 31, 2000 $
20,000
========
</TABLE>
See Notes to Financial Statements
<PAGE>
NOTES TO FINANCIAL STATEMENTS
Note 1. Organization and Significant Accounting Policies
Organization
RMX REIT, Inc., ("RMX") is incorporated under the laws of the State of
Washington. RMX plans to operate as a real estate investment trust. As of
March 31, 2000, RMX has issued common stock to eight investors. No real
estate investments have been acquired.
Deferred Costs of Raising Capital
As of March 31, 2000, RMX has paid $51,591 in costs associated with raising
capital and these costs will be offset against funds raised from the eventual
release of the prospectus. Management believes all of these costs are
associated with raising capital (preparation of prospectus and related
printing costs.)
In 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-5 ("Reporting on the Costs of Start-Up
Activities"). This statement requires costs associated with start-up
activities and organization costs be expensed as incurred. It does not
require costs of raising capital to be expensed. It became effective
December 15, 1998.
Related Parties
RMX has common officers with CLS Financial Services, Inc. ("CLS") and Puget
Sound Investment Services, Inc. ("PSIG"). One of the CLS officers is a
stockholder in RMX. PSIG is also a stockholder in RMX. CLS and PSIG are
active in the real estate industry. CLS provides facilities and certain
office support functions to RMX at no charge. In addition, as of March 31,
2000, CLS has advanced RMX $40,591. This advance has no set repayment
terms.
PSIG collects and holds capital contributions received from investors on
behalf of RMX. At March 31, 2000, PSIG owed RMX $575,000 under this
agreement. This advance is due on demand, bears interest at 12%, and is
unsecured.
Income Taxes
When RMX starts REIT operations, it will be allowed to pass earnings through
to shareholders without the earnings being taxed at the REIT level. Income
taxes are not assessed at the REIT level provided it complies with various
provisions in the Internal Revenue Code.
Use of 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.
<PAGE>
i. UNAUDITED
Interim Financial Statements prepared by the Company as of June 30, 2000
RMX REIT, INC.
BALANCE SHEET
June 30, 2000
<TABLE>
<S> <C>
ASSETS
Cash $ 288
Accrued interest receivable from PSIG 18,038
Due from PSIG 611,000
Deferred costs of raising capital 58,953
--------
Total Assets $688,279
========
LIABILITIES AND STOCKHOLDERS' EQUITY
Due to ClS $ 32,011
Common Stock, $5 par value, 2,400,000 shares
authorized, 128,112.82 shares issued and outstanding 640,564
Retained earnings 15,704
--------
Total Stockholders' Equity 656,268
--------
Total Liabilities & Stockholders' Equity $688,279
========
</TABLE>
See Notes to Unauditied Financial Statements
<PAGE>
ii. UNAUDITED
RMX REIT, INC.
STATEMENT OF OPERATIONS
For the Six Months Ended June 30, 2000
<TABLE>
<S> <C>
Interest income $25,533
Operating Expenses
Accounting 3,150
Licenses and permits 59
Postage and delivery 18
-------
3,227
-------
Net Income 22,306
=======
</TABLE>
See Notes to Unaudited Financial Statements
<PAGE>
iii. UNAUDITED
RMX REIT, Inc.
STATEMENT OF STOCKHOLDERS' EQUITY
For the Six Months Ended June 30, 2000
<TABLE>
<S> <C> <C> <C>
Common Retained
Stock Earnings Total
Balance, January 1, 2000 $ - $ - $ -
Net income - 22,306 22,306
Issuance of common stock 637,000 - 637,000
Dividends reinvested in stock 3,564 (3,564) -
Cash dividends - (3,038) (3,038)
-------- -------- --------
Balance, March 31, 2000 $640,564 $ 15,704 $656,268
======== ======== ========
</TABLE>
See Notes to Unaudited Financial Statements
<PAGE>
iv. UNAUDITED
RMX REIT, INC.
STATEMENT OF CASH FLOWS
June 30, 2000
<TABLE>
<S> <C>
Cash Flows from Operating Activities
Net income $ 22,306
Changes in operating assets and liabilities
Increase in accrued interest receivable from PSIG (18,038)
--------
Net cash flows from operating activities 4,268
--------
Cash Flows from Investing Activities
Loan to affiliated company (611,000)
--------
Cash Flows Used in Investing Activities (611,000)
Cash Flows from Financing Activities
Issuance of common stock 637,000
Payments on amounts due to CLS (17,212)
Costs of raising capital (9,730)
Dividend paid to stockholders (3,038)
--------
Cash Flows Provided by Financing Activities 607,020
--------
Net increase in cash at June 30, 2000 $ 288
Cash, beginning of year 0
--------
Cash, end of year 288
========
Schedule of Noncash Financing Activities
Issuance of common stock for stockholder reinvestment
of dividends 3,564
========
</TABLE>
See Notes to Unauditied Financial Statements
<PAGE>
v. UNAUDITED
RMX REIT, INC.
NOTES TO FINANCIAL STATEMENTS
June 30, 2000
Note 1. Organization and Significant Accounting Policies
Organization
RMX REIT, Inc., ("RMX") is incorporated under the laws of the State of
Washington. RMX plans to operate as a real estate investment trust
("REIT").
As of June 30, 2000, RMX has issued common stock to nine investors. Only
real
estate backed securities have been acquired.
Deferred Costs of Raising Capital
As of June 30, 2000, RMX has paid $58,953 in costs associated with raising
capital and these costs will be offset against funds raised from the sale of
securities. Management believes all of these costs are associated with
raising capital (preparation of prospectus and related printing costs.)
In 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-5 ("Reporting on the Costs of Start-Up
Activities"). This statement requires costs associated with start-up
activities and organization costs be expensed as incurred. It does not
require costs of raising capital to be expensed. The statement became
effective December 15, 1998.
Related Parties
RMX has common officers with CLS Financial Services, Inc. ("CLS") and Puget
Sound Investment Services, Inc. ("PSIG"). One of the CLS officers is a
stockholder in RMX. PSIG is also a stockholder in RMX. CLS and PSIG are
active in the real estate industry. CLS provides facilities and certain
office support functions to RMX on a cost sharing allocation. As of June 30,
2000, CLS has advanced RMX $32,011. The amount is expected to be fully
repayed during the next 2 years. PSIG collects and holds capital
contributions received from investors on behalf of RMX. At June 30, 2000,
PSIG owed RMX $611,000 under this agreement. This advance is due on demand,
bears interest at 12%, and is secured by real estate that was subsequently
sold.
Income Taxes
RMX is a Real Estate Investment Trust, and is allowed to pass earnings
through
to shareholders without the earnings being taxed at the REIT level. Income
taxes are not assessed at the REIT level provided it complies with various
provisions in the Internal Revenue Code.
Use of 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.
UNAUDITED
<PAGE>
FEDERAL INCOME TAX CONSIDERATIONS
The following is a general opinion prepared by Counsel to the Company, of
the material federal income tax principles applicable to the Company and
its shareholders. The opinion is based on the Internal Revenue Code,
Judicial Decisions, Treasury regulations, rulings, and other administrative
interpretations, all of which are subject to change. Investors should be
aware that the Code has been revised substantially by recent legislation,
much of which remains uninterpreted. No assurance can be given that future
legislation or administrative changes or court decisions will not be
retroactive. The Company has not requested a ruling from the Internal
Revenue Service (the "Service") with respect to any of the matters
discussed below. The federal income tax provisions governing REITs are
highly complicated. An attempt has been made in this section to discuss in
detail all of the possible tax considerations applicable to the Company and
its shareholders.
ACCORDINGLY, PROSPECTIVE INVESTORS ARE URGED TO CONSULT THEIR OWN TAX
ADVISORS CONCERNING THE FEDERAL, STATE, LOCAL AND FOREIGN (IF APPLICABLE)
TAX CONSEQUENCES OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF SHARES OF
THE COMPANY.
Federal Income Taxation of the Company. The Company intends to conduct its
operations in a manner that will permit it to qualify as a REIT for federal
income tax purposes. The Company has not requested, and does not intend to
request, a ruling from the Service that it will qualify as a REIT. The
Company will file a no business conducted federal income tax form in 1997,
and begin filing as a REIT in succeeding years, claiming its initial
election as a REIT in 1998. The REIT qualification represents the view of
the Company based on Counsel's review and analysis of existing law, which
includes very little controlling precedent. The statutory requirements for
the ownership of its shares, the nature of its assets, the sources of its
income and the amount of its distributions to shareholders all must be met.
While the Board of Directors and its Advisor, CLS, intend to cause the
Company to operate in such a manner that will enable it to comply with
those requirements, there can be no certainty that such intention will be
realized. Moreover, relevant law may change so as to make compliance with
one or more of the REIT requirements difficult or impracticable. Failure
to meet any of the REIT requirements with respect to a particular taxable
year could result in termination of the Company's election to be a REIT,
effective for the year of such failure and succeeding years.
Counsel to the Company has based his opinion and legal conclusions set
forth or referred to herein upon various documents and upon representations
by its Officers and its Advisor, CLS, that; (i) the Company will operate in
compliance with the Articles of Incorporation and the Bylaws; (ii) the
Company will conduct its operations as described in
<PAGE>
this Offering Circular and Disclosure Document; (iii) the Company will not
modify its operations so that it becomes either (a) a financial institution
referred to in Section 582(c)(5) of the Code or (b) an insurance company to
which subchapter L of the Code applies; (iv) the Company will revoke and
not subsequently elect to be treated as an S corporation, a Real Estate
Mortgage Investment Conduit, a Regulated Investment Company, or any entity
other than a REIT for federal income tax purposes; (v) the Company will
invest in Loans conforming to the Investment Policies set forth in the
Company Bylaws to the extent that acceptable loans are made available by
CLS; (vi) the Company will not invest in any assets other than the Income
Producing Real Property and Loans that are acquired by the Company to the
extent that the Company fails to satisfy (a) the nature of assets test
described in "Requirements for Qualification as a REIT" below or (b) the
sources of income test described in "Requirements for Qualification as a
REIT" below; (vii) the Company will satisfy the 30% income test set forth
in Section 856(c)(4) of the Code; (viii) the Company will use a calendar
year for federal income tax purposes and will comply with the dividend
payment and record keeping requirements of Sections 857(a)(1) and (2) of
the Code and the Treasury regulations promulgated pursuant thereto; (ix)
the Company will properly elect to be treated as a REIT and will satisfy
all relevant filing and other administrative requirements established by
the Service that must be met in order to elect and to maintain REIT status;
and (x) the Company will have at least 100 shareholders for at least 335
days to each full taxable year, or proportionate part of any shorter
taxable year, after its first taxable year. In addition, Counsel has
assumed that (i) during the construction phase of any construction loan,
the highest principal amount of the loan at no point will exceed the fair
market value of the land (or, in the case of a loan secured by a leasehold
interest, the fair market value of such interest) plus the reasonably
estimated cost (as of the time when the loan is made) of the improvements
or developments (other than personal property) that are to be constructed
from the proceeds of the loan and that are to secure the loan and (ii)
during the permanent phase of each loan, the fair market value of the real
property securing the Loan at no point will be less than such principal
amount.
As long as the Company qualifies as a REIT for federal income tax purposes,
it generally will not be subject to federal income tax on any income or
gain that is distributed to shareholders pursuant to current Company policy
and procedures. However, any undistributed income or gain will be taxed to
the Company at the regular corporate rates. In addition, the Company may
be subject to (i) a 100% tax on certain income from any "prohibited
transaction" (i.e., sales or other dispositions of property that is stock
in trade, inventory, or held primarily for sale to customers in the
ordinary course of business), (ii) a 100% tax on the greater of the amount,
if any by which it fails the 95% income test or the 75% income test
described below, (iii) a tax at the highest corporate rate on any net
income relating to "dealer" activities with respect to foreclosure
property, (iv) a potential excise tax on a portion of any undistributed
income, and
<PAGE>
(v) a minimum tax on any items of tax preference.
If the Company fails to qualify as a REIT for any taxable year, it will be
subject to federal income tax (including any applicable minimum tax) at
regular corporate rates and will not receive a deduction for dividends paid
to shareholders. As a result, the amount of after tax earnings available
for distribution to shareholders would decrease substantially. In
addition, the Company will not be eligible to elect REIT status for the
four (4) subsequent taxable years, unless its failure to qualify was due to
reasonable cause and not to willful neglect, and certain other requirements
were satisfied. In order to renew its REIT qualification at the end of the
required four year period, the Company will be required to distribute all
of its current and accumulated earnings and profits before the end of the
period. Any such distributions will be taxable as ordinary income to
shareholders. In addition, the Company will be subject to taxation on any
unrealized gain in its assets. If the Company were to lose its REIT
status, it could liquidate over a period and in the manner that the Board
of Directors deems to be in the best interest of the shareholders, and such
liquidation likely would be completed before the Company would be eligible
to reelect REIT status.
Requirements for Qualification as a REIT. In order to qualify as a REIT,
the Company must make an election to be taxed as a REIT and satisfy a
variety of complex tests relating to its Share ownership, assets, income,
and distributions. Those tests are summarized below:
1. Share Ownership. The Company must have at least 100 shareholders for
at least 335 days of each full taxable year (or proportionate part of any
shorter taxable year) after its first taxable year. In addition, no more
than 50% (in Value) of the Shares may be owned, directly or indirectly, by
five (5) or fewer individuals (or certain tax exempt entities) at any time
during the second half of each taxable year of the Company after its first
taxable year. The Company's first taxable year will begin when it acquires
significant assets and begins doing business. To assure continued
compliance with the 50% diversity of ownership requirement, the Company's
Bylaws prohibit any individual investor from acquiring, directly or
indirectly, more than 9.8% of the outstanding Shares unless the corporate
secretary so approves after making a written finding that no more than five
(5) or fewer individuals own more than 50% (ownership test) of the issued
and outstanding stock. In addition, a written Opinion of Counsel must be
on file before the Secretary can issue the stock. Treasury regulations
require the Company to maintain records of the actual ownership of its
Shares. In accordance with those regulations, the Company has the right to
demand from shareholders of record a written statement, annually or more
often, which discloses information concerning the actual ownership of the
Shares. Any record shareholder who does not provide the Company with such
information is required to include certain specified information relating
thereto in his income tax return.
2. Nature of Assets. At the close of each calendar quarter, at least
<PAGE>
75% of the value of the Company's total assets must be represented by cash
or cash items (including certain receivables), government securities, or
"real estate assets" (i.e., interests in real property, interest in
mortgages on real property to the extent the mortgage balance does not
exceed the value of the associated real property, shares of other qualified
REITs, and, in the case of certain capital contributions to the Company,
temporary investments in stock or debt instruments during the one year
period following the Company's receipt of such capital). The remainder of
the Company's assets may be invested in virtually any type of asset except
securities of any one nongovernmental issuer in which such securities
represent more than 5% of the value of the Company's total assets or more
than 10% of the outstanding voting securities of such issuer. Leasehold in
real property constitutes an interest in real property for purposes of the
asset test. These loans generally will qualify largely or entirely as real
estate assets under the 75% requirement. (See "Treatment of Loans
Containing Participation Features" and "3. Sources on Income" below). In
addition, to the extent that the Company's funds are not invested in the
Loans, the Advisor, CLS, will attempt to make investments that are
consistent with the 75% asset requirement. However, no such investments
have been identified, and no assurance can be given that the Company's
funds will be placed in such investments. If a REIT holds stock in a
wholly owned subsidiary meeting certain requirements, the assets of the
subsidiary are attributed directly to the parent REIT. The Company
currently does not plan to form such a wholly owned subsidiary, although it
may decide to do so in the future. If the Company invests as a partner in
a partnership, it will be deemed to own its proportionate share of each of
the partnership's assets for purposes of the asset requirements.
If the Company inadvertently fails to satisfy the asset requirements
at the end of a calendar quarter, such a failure would not cause it to lose
its REIT status if (i) it satisfied all of the asset tests at the close of
the preceding calendar quarter and (ii) the discrepancy between the value
of the Company's assets and the standards imposed by the asset requirements
either did not exist immediately after the acquisition of any particular
asset or was not wholly or partially caused by such an acquisition (i.e.,
if the discrepancy arose from changes in the market values of its assets).
If the condition described in clause (ii) of the preceding sentence was not
satisfied, the Company still could avoid disqualification by eliminating
any discrepancy within thirty (30) days after the close of the calendar
quarter in which it arose.
3. Sources of Income. To qualify as a REIT in any taxable year, the
Company must satisfy three distinct tests with respect to the sources of
its income: the "75% income test," the "95% income test," and the "30%
income test." The 75% income test requires that the Company derive at
least 75% of its gross income (excluding gross income from prohibited
transactions) from certain real estate related sources, e.g. (i) interest
on obligations secured by mortgages on real property or interests in real
property, (ii) certain types of rent
<PAGE>
from real property, (iii) income or gain from real property acquired
through foreclosure or similar proceedings, (iv) gains from the sale or
other disposition of certain real property or interests in real property
that are not "dealer property" (i.e., property that is stock in trade,
inventory, or held primarily for sale to customers in the ordinary course
of business), (v) commitment fees with respect to mortgage loans, (vi)
income from stock or debt instruments that were acquired as a temporary
investment of new capital, if such income is received or accrued during the
first year after the Company receives the new capital ("qualified temporary
investment income"), (vii) dividends or other distributions on shares of
other qualified REITs, (viii) abatements and refunds of taxes on real
property, and (ix) gain from the sale or other disposition of a real estate
asset that is not a prohibited transaction solely by reason of Section
857(b)(6) of the Code.
In order to satisfy the 95% income test, at least an additional 20% of the
Company's gross income for the taxable year must consist of either income that
qualifies under the 75% income test or certain types of passive income, e.g.
(i) dividends from companies other than REITs; (ii) interest on obligations
that are not secured by interests in real property; (iii) gains from the sale
or other disposition of stock, securities, or real property, if such assets
are not dealer property; and (iv) payments from certain swap or interest rate
agreements entered into by the REIT to hedge against variable rate
indebtedness incurred to acquire or carry real estate assets ("Hedging
Instruments").
The 30% income test, unlike the other income tests, prescribes a ceiling for
certain types of income. The Company may not derive more than 30% of its
gross income from the sale or other disposition of (i) stock, securities, or
Hedging Instruments held for less than one year, (ii) dealer property that is
not foreclosure property, and (iii) certain real property (including interests
in real property and interests in real property mortgages) held for less than
four years. Leasehold in real property constitutes an interest in real
property for purposes of all of the foregoing income tests.
For purposes of the foregoing income tests, if the Company invests as a
partner in a partnership it will take into account its proportionate share of
the partnership's income items, which will retain the same character (e.g.
rent, gain from "dealer property," etc.) they have at the partnership level.
If the Company fails to meet either the 75% income test or the 95% income
test, or both, in a taxable year, it nonetheless might continue to qualify as
a REIT if its items of gross income were properly disclosed to the Service.
However, in such a case, the Company would be required to pay a tax equal to
100% of any excess non-qualifying income. No analogous relief is available to
REITs that fail to satisfy the 30% income test.
If any loan made by the Company were not treated, in whole or in part,
as a real estate asset by reason of the structure of the security for such
loan, the interest income there from would be considered nonqualifying income
for purposes of the 75% income test. However, in the Opinion of Counsel to
the Company, the loans will be treated as real estate assets to the extent
that the loan amount (i.e. the highest principal amount outstanding during the
relevant taxable year) does not exceed the value of the associated real
<PAGE>
property (or the sum of the land value and the reasonable estimated cost, as
of the time when the loan is made, of the related improvements during the
period in which the loan is a construction loan). (See "Treatment of Loans
Containing Participation Features" below). In the case of any loan, made by
the Company, secured by both real property and other property: if the loan
amount exceeds the value of the real property, an apportionment of the
interest income will have to be made, which may result in some nonqualifying
income for purposes of the 75% test.
4. Loans Containing Participation Features. The Company may participate in
loans with other individuals or companies. The loans are considered as being
one of debtor and creditor for federal income tax purposes to the extent of
the principal and current interest due on the loans. The Company may share in
any appreciation in the value of the property securing the loans that will
satisfy the REIT asset and income requirements regardless of whether such
feature is treated as a separate equity interest in the properties securing
the loans. Consequently, the Participation Loans will be qualifying assets,
and the income attributable to the Participation features of such loans will
constitute qualifying incomes for purposes of the REIT asset and income
requirements. However, as described above, Opinions of Counsel and Management
are not binding on the Service and represent only Counsel's best judgment with
respect to the legal questions presented. The Company may make any other
loans with participation features only if such features would not (i) cause
the Company to be treated as a partner of, or joint venturer, with the
relevant borrower or (ii) endanger the Company's ability to maintain its
status as a REIT. However, there can be no complete assurance that the
Service will not assert successfully a position adverse to the Company with
respect to any of the loans. If the Service were to maintain successfully
that any loan represented an equity interest in whole or in part, the Company
might fail to qualify as a REIT. (See "Requirements for Qualification as a
REIT" above.).
It is contemplated that any interest from a Loan Participation feature
that is based on the gross revenues from a property securing a loan (a
"Current Participation") would qualify as "interest" for purposes of the 75%
and 95% tests because of a special rule which allows such treatment if the
interest is based on a fixed percentage or percentages of receipts or sales.
Furthermore, to the extent that a Loan Participation feature based on the
residual cash proceeds from sale of the property securing a loan (a "Terminal
Participation") constitutes a "shared appreciation provision" (as defined in
the Code), income attributable to such a participation feature will be treated
as gain from the sale of the secured property and, if held for less than four
(4) years, would have to be taken into account in determining whether the
Company meets the 30% requirement. In the opinion of the Company's Counsel,
its current participation in the loans will constitute interest for purposes
of the 75% and 95% income tests, and the terminal participation in the loans
will constitute shared appreciation provisions or otherwise will give rise to
qualifying gain or income for purposes of the 75% income test.
5. Required Distributions. For each taxable year the Company generally must
distribute to the shareholders an amount equal to at least 95% of the sum of
its "REIT taxable income" (determined without regard to the deduction for
dividends paid and by excluding any net capital gain) and any after tax net
<PAGE>
income from foreclosure property. "REIT taxable income" is generally computed
in the same manner as taxable income of ordinary corporations, with several
adjustments, e.g. a deduction is allowed for dividends paid, but not for
dividends received. A general allowance for bad debts is not tax deductible,
but is a generally accepted deduction for computing net income for financial
purposes. As a result, the Company may in fact have to distribute dividends
in excess of book net income in order to preserve its REIT pass through tax
status. The foregoing distribution requirement is based on the Company's
taxable income (with various adjustments) rather than its available cash.
Therefore, while the Company expects to meet that requirement, its ability to
make the required distributions may be impaired if it has insufficient cash
flow or otherwise has excessive noncash income or nondeductible expenditures.
Furthermore, the distribution requirement may be determined not to have been
met in a given year be reason of the Service later successfully challenging
the deductibility of a Company expenditure or the Company's computation of the
amount of original issue discount on a loan. However, in such event, it
generally will be possible to cure the failure to meet the distribution
requirement with a "deficiency dividend," as discussed below.
In general, a distribution must be made during the taxable year to which
it relates. However, any dividend that is declared by the Company in the
fourth calendar quarter of the year and payable to shareholders of record as
of a specified date in one of such months will be deemed to have been paid by
the Company and received by shareholders on the record date, if it actually is
paid before February 1, of the following calendar year. Furthermore, if the
Company declares a dividend before the due date for filing its Federal Income
Tax Return for the taxable year and actually pays the dividend before the
first regular dividend made during the year following that taxable year, it
may elect, under certain circumstances, to treat the first dividend as
relating to the earlier taxable year. Shareholders would recognize the income
from such dividend in the year of distribution, regardless of the Company's
election. If the Company fails to satisfy the distribution test for a taxable
year as a result of an adjustment in certain of its items of income, gain, or
deduction by a court or the Service, the Company generally will be permitted
to remedy such a failure by paying (i) a deficiency dividend to shareholders
and (ii) interest and a penalty to the Treasury.
The Company intends to meet all of the foregoing qualification tests and
requirements. However, if it fails to meet one or more of them and such
failure is not mitigated, its election to be a REIT will terminate, effective
for the year of such failure and all succeeding years. Furthermore, while the
Company has no intention of doing so, it may revoke its election voluntarily.
In the event of any such termination or revocation, a new election may not be
made by the Company for any taxable year prior to the fifth taxable year
following the year of termination or revocation.
Taxation of the Shareholders. Company distributions (dividends) declared
in any year (including (i) distributions that are reinvested automatically
pursuant to the Dividend Reinvestment Plan and (ii) distributions received in
such year that are taken into account in computing the Company's dividends
paid deduction for a prior year) will be taxable as ordinary dividend income
to the shareholders in the year they are declared, e.g. fourth quarter
dividends declared but actually paid in January are taxable to the shareholder
<PAGE>
in the year declared, except to the extent they are designated by the Company
as capital gain dividends or to the extent they exceed the current or
accumulated earnings and profits of the Company. Distributions designated as
capital gain dividends will be taxable to the shareholders as long-term
capital gain in an aggregate amount not to exceed the Company's actual net
capital gain for the year. Distributions (other than capital gain dividends)
that exceed current or accumulated earnings and profits of the Company will
constitute a nontaxable return of capital to the shareholders and will reduce
the tax basis of each shareholder in his shares. Any such distribution in
excess of the shareholder's tax basis in his shares will be taxable to the
shareholder as a capital gain from the sale of the shares (unless the shares
constitute "dealer property" of the shareholder, in which case such amount
will constitute ordinary income).
Corporate shareholders should note that if the Company acquires and
subsequently disposes of any equity interest in real property, they might be
required to treat up to 20% of certain capital gain dividends as ordinary
income. Furthermore, none of the distributions from the Company received by
corporate shareholders, whether characterized as ordinary income or capital
gain, will qualify for the dividends received deduction generally available to
corporations.
Although the shareholders generally will recognize the Company's income,
rather than by the Company, any net loss incurred by the Company in a
particular taxable year is not deductible by the shareholders on their
personal income tax returns. Instead, such loss would be carried over by the
Company for potential offset against its future income (subject to certain
limitations). Furthermore, if a shareholder had any losses from one or more
passive activities in a particular year (such as losses from certain types of
limited partnerships in which the shareholder is a limited partner), the
taxable portion of the distributions received by the shareholder from the
Company in that year may not be offset against such losses because the income
and gain from his investment in the Company will constitute portfolio income
(or perhaps active income if the Shares are "dealer property" of the
shareholder) for purposes of the passive activity loss rules. It should be
noted that if a shareholder receives capital gain dividends with respect to
Shares and subsequently recognizes a loss on the sale or exchange of such
Shares prior to holding them for more than six (6) months (determined with
reference to certain specified holding-period rules), such loss will be
treated as long term capital loss up to the amount of the previously received
capital gain dividends.
The alternative minimum tax is designed to impose additional federal income
tax on persons whose regular taxable income is substantially lower than their
economic income because of their use of incentive (and certain other
favorable) tax provisions. The Code authorizes regulations that apportion
income and expense adjustments affecting the computation of the alternative
minimum tax between REITs and their shareholders. The Company does not expect
to generate a significant amount of such adjustments. However, the Company may
be required to withhold and remit to the Treasury 31% of the dividends paid to
any shareholder who (i) fails to furnish the Company with a correct taxpayer
identification number, (ii) has under reported dividend or interest income to
the service, or (iii) fails to certify to the Company that he is not subject
<PAGE>
to backup withholding. An individual's taxpayer identification number is his
social security number.
Taxation of Shareholders on Disposition of Shares. In general, any gain or
loss realized upon a taxable disposition of Shares of the Company by a
shareholder who is not a dealer in securities will be treated as a long term
capital gain or loss if the Shares have been held for more than twelve (12)
months and otherwise as short-term capital gain or loss. However, any loss
realized upon a taxable disposition of Shares held for six (6) months or less
will be treated as a long- term capital loss to the extent of any capital gain
dividends received with respect to such Shares. All or a portion of any loss
realized upon a taxable disposition of Shares of the Company may be disallowed
if other Shares of the Company are purchased (under a dividend reinvestment
plan or otherwise) within thirty (30) days before or after the disposition.
Capital Gains and Losses. A capital asset generally must be held for more
than one (1) year in order for the gain of loss derived from its sale or
exchange to be treated as long-term capital gain or loss. Long-term capital
gains are taxed at 28%. Short-term capital gains are taxed at the same rate
as the taxpayers other income. Capital losses not offset by capital gains may
be deducted against an individual's ordinary income only up to a maximum
annual deduction of Fifteen Hundred Dollars ($1,500) for individual and
married couples filing separately and Three Thousand Dollars ($3,000) for
married couples filing a joint return. Unused capital losses may be carried
forward. All net capital gains of a corporate taxpayer are subject to tax at
ordinary corporate rates. A corporate taxpayer can deduct capital losses only
to the extent of capital gains, with unused losses being carried back three
(3) years and forward five (5) years. Due to the political nature of the
capital gains tax, there can be no assurance that Congress will or will not
change the tax law effective at any time.
EACH PROSPECTIVE INVESTOR IS URGED TO CONSULT HIS OR HER OWN TAX ADVISOR
WITH REFERENCE TO HIS OR HER OWN TAX SITUATION, INCLUDING THE APPLICATION AND
EFFECT OF STATE, LOCAL AND OTHER TAX LAWS AND ANY POSSIBLE CHANGES IN THE TAX
LAWS AFTER THE DATE HEREOF.
<PAGE>
GLOSSARY
The following glossary includes definitions of certain banking, insurance
and financial terms not otherwise defined in this Prospectus.
Accredited investor shall mean any person who comes within any of the
following categories, or who the issuer reasonably believes comes within any
of the following categories, at the time of the sale of the securities to that
person: (1) Any bank as defined in section 3(a)(2) of the Securities Act of
1933 ("Act"), or any savings and loan association or other institution as
defined in section 3(a)(5)(A) whether acting in its individual or fiduciary
capacity; any broker or dealer registered pursuant to section 15 of the
Securities Exchange Act of 1934; any insurance company as defined in section
2(13) of the Act; any investment company registered under the Investment
Company Act of 1940 or a business development company as defined in section
2(a)48) of that act; any small business investment company licensed by the
U.S. Small Business Administration under section 301(c) or (d) of the Small
Business Investment Act of 1958; any private business development company as
defined in section 202(a)(22) of the Investment Advisers Act of 1940; any
director, executive officer, or general partner of the issuer of the
securities being offered or sold, and any other accredited investor under Reg.
D Sec. 230.501.
Affiliate shall mean a person who "controls," is "controlled by," or "is
under common control with" another person, as these terms are defined in Rule
405 promulgated by the Securities and Exchange Commission under the Securities
Act of 1933, as amended.
Asset/liability management is the means by which financial institutions
such as banks, savings and loan associations and insurance companies control
exposure to interest rate risk and provide stable net interest income growth.
In an environment of rising interest rates, this is achieved by shortening the
average maturity of a financial institution's investment portfolio in order to
achieve a more asset sensitive position, thereby allowing quicker asset
repricing. Conversely, in a declining interest rate environment the philosophy
is to lengthen the average maturity of the investment portfolio and thereby
make the institution more sensitive to the interest rates paid on deposits and
other of its liabilities.
Capital adequacy refers generally to a financial institution's position
with respect to prescribed regulatory capital requirements. These
requirements are imposed, with respect to bank holding companies and banks, by
the Board of Governors of the Federal Reserve System ("Federal Reserve
Board"), the office of the Comptroller of the Currency ("OCC"), the Federal
Deposit insurance Corporation ("FDIC") and state regulatory authorities; with
respect to savings and loan associations, by the Federal Reserve Board, the
FDIC, the Office of Thrift Supervision ("OTS") and state regulatory
authorities; and with respect to insurance companies, by state regulatory
authorities acting in conjunction with the National Association of Insurance
Commissioners ("NAIC").
<PAGE>
CLS is the abbreviated name for CLS Financial Services, Inc., the
"Management Company", also referred to as the "Advisor".
Code shall refer to the Internal Revenue Code of 1986, as amended.
Commercial loans are loans made by financial institutions to businesses
for various purposes, and include revolving lines of credit, equipment
financing loans and letters of credit. Commercial loans generally mature
within one year, have adjustable interest rates and are secured by inventory,
accounts receivable, equipment or real property.
Commercial paper is a short-term (less than one year to maturity)
negotiable promissory note issued in bearer form at a discount from its face
value. It is one of the so-called "money market" instruments, along with
treasury bills, negotiable certificates of deposit and bankers' acceptances.
The principal issuers of commercial paper are financial institutions,
industrial and commercial enterprises, and municipalities.
The consent of a person shall mean the agreement of such person to do
the act or thing for which the approval or consent is solicited, or the act of
granting such approval, as the consent may require.
Consumer loans are made by financial institutions to enable their
individual customers to purchase automobiles, boats and other large consumer
items. Such loans generally are evidenced by promissory notes and are secured
by liens and security interests in the consumer items purchased with the loan
proceeds. Consumer loans generally have maturities of five years or less and
fixed interest rates.
A deed of trust is an instrument used in many states by which the legal
title to real property is placed in one or more trustees to secure the payment
of a sum of money or the performance of some other obligation. A deed of
trust is akin to, and serves the same purpose as, a mortgage.
The Federal Deposit Insurance Corporation or FDIC operates as a bureau
within the Department of the Treasury and insures deposits in depository
institutions such as banks and savings and loan associations. The FDIC also
acts as the receiver of certain failed institutions.
Fiscal Year shall mean the fiscal year of the Company, being the
twelve-month period ending December 31st of each year.
Foreclosure is the term applied to any of the various methods, statutory
or otherwise, of enforcing payment of a debt or other obligation secured by a
mortgage or deed of trust of real property, or a lien or security interest in
personal property, by causing such property to be sold and the proceeds
applied to the debt.
<PAGE>
Interest expense, as used in the context of a financial institution, is
the interest paid on deposits and borrowing by such institution. Interest
income is interest earned by a financial institution on its loan and
investment portfolios. Net interest income or interest income is the
difference between interest income and interest expense.
Lease financing obligations are the obligations of a lessee of equipment
or other property to pay lease rental and other sums to the lessor of such
equipment or property. Lease financing obligations are primarily incurred in
capital lease financing transactions which afford the parties to such
transactions certain tax benefits.
A lien is a charge or security or encumbrance upon real or personal
property. One whose debt or claim is secured by a lien on a particular
property is known as a lien creditor.
Liquidity measures a financial institution's ability to respond to
requirements for funds. Liquidity sources include both assets and
liabilities. Internal sources of liquidity are generally represented by the
investment portfolio, federal funds sold and current maturities of certain
categories of loans. External sources include market rate consumer deposits
generated by the institution's customer base, time deposits, federal funds
purchased and other short-term borrowing.
Loan loss allowances represent a financial institution's recognition of
the risks of extending credit and its evaluation of the quality of its loan
portfolio. The allowance, which is accounted for as a reserve on the
institution's balance sheet, is generally maintained at a level considered
adequate to provide for anticipated loan losses based on management's
assessment of various factors affecting the loan portfolio. This assessment
takes into consideration a review of problem loans, business conditions and
loss experience, and an overall evaluation of the quality of the underlying
collateral, holding and disposal costs, and the cost of funds to the
institution.
A mortgage is an interest in real estate created by a conveyance intended
to secure the payment of money or the performance of some other obligation by
the grantor of the mortgage, and which becomes void if the payment is made or
the other obligation is performed at the time prescribed.
Net interest margin or net interest spread is the difference between
gross interest earned by a financial institution less gross interest paid
during the reported period, as adjusted for loan loss allowances. Gross
interest earned and gross interest paid is typically determined by reference,
respectively, to the weighted average portfolio balances of the
interest-earning assets and interest-bearing liabilities of the institution
during such period.
Nonperforming assets of a financial institution, in general, are those
of its assets that present reasonable doubts as to the collectibility
<PAGE>
of interest. For financial and regulatory reporting purposes, these assets
consist of nonaccrual and restructures loans, other real estate owned and
other assets of questionable financial integrity.
Operating Expenses shall mean all necessary and reasonable costs and
expenses incurred in connection with the operation of the Corporation other
than organization and offering costs.
Organization and Offering Costs shall mean all costs and expenses
incurred in preparing the registration statement of which this Prospectus is a
part, offering and marketing the Units, and organizing the Corporation,
including legal and accounting fees, printing expenses, filing a recording
fees, and sales commissions and expenses.
Other real estate owned or "OREO" or "REO" is property acquired by a
financial institution in foreclosure proceedings or by acceptance of deeds in
lieu of foreclosure. A loan is treated as an "in substance foreclosure" when
the financial institution has concluded that the prospect of payment by a
borrower is remote and that its only means of collecting on the loan is
foreclosure on the collateral.
A person is any individual, partnership, corporation, unincorporated
organization or association, trust or other entity.
The profits of the Corporation and the losses of the Corporation shall
mean the profits and the losses of the Corporation for federal income tax
purposes, including, without limitation, each item of Corporation income,
gain, loss, deduction or credit, tax-exempt income and nondeductible expenses
of the Corporation.
The Prospectus means this prospectus dated December 11, 1997, which is
included as part one of the Corporation's registration statement on Form SB-2
under the Securities Act of 1933, as amended.
PSIG is the abbreviated name for Puget Sound Investment Group, Inc., an
affiliated Company of CLS.
PSRESG is the abbreviated name for Puget Sound Real Estate Service Group,
Inc., a wholly owned subsidiary of PSIG.
Real Estate Investment Trust ("REIT") is a corporation, trust or
association (other than a real estate syndication) which is engaged primarily
in investing in equity interests in real estate (including fee ownership and
leasehold interests) or in loans secured by real estate or both, as further
defined and regulated under Section 856 of the Internal Revenue Code and the
laws of the state of incorporation, namely Washington, the Administrative Code
("WAC") promulgated by the Securities Division of the Department of Financial
Institutions.
Repricing refers to the practice of a financial institution of
periodically changing the mix of its investment portfolio by selling
investments or buying investments that more closely match the institution's
interest income requirements and its assessment of economic conditions and
<PAGE>
future changes in interest rates.
Resolution Trust Corporation or RTC was established by Congress under
the Financial Institutions Reform, Recovery and Enforcement Act of 1989
("FIRREA") to act as the receiver of failed federally insured commercial banks
and savings and loan associations, among other things, and to liquidate the
assets of such institutions. The RTC operates as a bureau within the
Department of the Treasury.
Risk-based capital ratios are regulatory formulae applied to most
financial institutions that serve as an early warning tool to identify weakly
capitalized institutions for purposes of initiating further regulatory
action.
These formulae vary among the various sectors of the financial industry--for
example, the risk-based capital requirements for banks and savings and loan
associations are not necessarily the same as those for insurance
companies--but are designed generally to establish capital requirements for
various categories of risk.
A security interest is generally defined as an obligation, pledge,
deposit, mortgage, deed of trust or lien given by a debtor in order to ensure
the payment or performance of his debt or obligation, which furnished the
creditor with a resource (usually real or personal property) which can be
resorted to in case the debtor fails in his obligation.
Statutory accounting practices are those accounting practices prescribed
or permitted by an insurance company's domiciliary state insurance regulator
for purposes of financial reporting to regulators.
Statutory admitted assets are assets that are included in measuring an
insurance company's statutory surplus for statutory accounting purposes.
Other assets, consisting principally of overdue amounts, certain amounts due
from insurance agents, prepaid expenses and furniture and equipment are
non-admitted for statutory accounting purposes.
Statutory reserves are amounts established pursuant to state insurance
regulations that an insurance company must have available to provide for
future obligations with respect to all policies. Reserves are liabilities on
the balance sheets of financial statements prepared in conformity with
statutory accounting practices.
Statutory surplus is the excess of statutory admitted assets over
statutory liabilities as shown on an insurer's statutory financial statements.
The Uniform Commercial Code or UCC is a compendium of laws that have
been adopted with only slight variation in all 50 states of the United States
which focus on commercial transactions, including the creation and perfection
of liens and security interests in some types of real property and in personal
property, and the effect and negotiability of commercial paper, notes and
other financial instruments and obligations.
Unimproved Real Property means the property of a REIT which has the
following three characteristics: (1) an equity interest in property which was
not acquired for the purpose of producing rental or other operating income,
<PAGE>
(2) has no development or construction in process on such land, and (3) no
development or construction on such land is planned in good faith to commence
on such land within one year.
THIS SPACE INTENTIONALLY LEFT BLANK
<PAGE>
No person has been authorized to give any information or to make any
representations other than those contained in this Prospectus. If given or
made, such information or representations must not be relied upon as having
been authorized by the Company. This Prospectus does not constitute an offer
to sell securities in any jurisdiction to any person to whom it is unlawful to
make such offer in such jurisdiction. Neither the delivery of this Prospectus
nor any sale made hereunder shall under any circumstances create any
implication that there has been no change in the affairs of the Company since
the date hereof.
AVAILABLE INFORMATION
The Company will provide without charge to any person who receives a
Prospectus, upon written or oral request of such person, a copy of any of the
information that was incorporated by reference in the Prospectus (not
including Exhibits to the information that is incorporated by reference unless
the Exhibits are themselves specifically incorporated by reference). In order
to receive such information, please contact the following department:
RMX REIT, INC.
ATTN: SHAREHOLDER RELATIONS
4720 200TH STREET S.W., 200
LYNNWOOD, WASHINGTON 98046
(425) 744-0356
All questions and requests for information by potential investors should be
directed to the address and telephone number noted above. Investment in a
small business involves a high degree of risk, and investors should not invest
any funds in this offering unless they can afford to lose their investment in
its entirety.
Each shareholder is provided with a quarterly management report that includes
a financial summary for the past quarter, the status of the loan portfolio and
the dividend approved by the Board of Directors for the Quarter. The Company
also provides the shareholders with an annual report that contains the audited
financial statements and the notice of the annual shareholders meeting. The
Company has and does intend to comply with the North American Securities
Administrators Association (referred to as "NASAA" herein) guidelines adopted
for the management and operation of real estate investment trusts (referred to
as "REIT" herein). In addition, the Company must comply with the applicable
provisions of the Internal Revenue Code in order to maintain its favorable tax
pass through status.
INVESTORS SHOULD CAREFULLY REVIEW THIS PROSPECTUS, PARTICULARLY WITH REGARD TO
THE RISKS (SEE "RISK FACTORS") AND CONFLICTS OF INTEREST, (SEE "CONFLICTS OF
INTEREST") BEFORE MAKING A DECISION TO INVEST. IN MAKING AN INVESTMENT
DECISION INVESTORS MUST RELY ON THEIR OWN EXAMINATION OF THE ENTITY CREATING
THE SECURITIES AND THE TERMS OF THE OFFERING, INCLUDING THE MERITS AND RISKS
INVOLVED.
<PAGE>
PART II
This section contains information, list of Exhibits, undertakings and
signatures required to be set forth in Part II of Form SB-2nd.
Table of Contents
Indemnification of Directors and Officers.......................53
Other Expenses of Issuance and Distribution.....................53
Recent Sales of Unregistered Securities.........................53
Exhibits Index..................................................47
Undertakings ...................................................98
Signatures......................................................99
<PAGE>
EXHIBITS
EXHIBITS TABLE ITEM Page
1. Underwriting agreement...........................................N/A
2. Plan of Acquisition, reorg., arrngmnt, liquid, or succession.....N/A
3. Certificate of Incorporation....................................On File
Articles of Incorporation w/amendments,........................On File
Bylaws w/amendments, Resolutions,................................65
Meetings..................................................78
4. Stock Certificates, Subscription & Investment Letter...........83,85,87
5. Opinion re: Legality of Stock..................................On File
6. No Exhibit Required..............................................N/A
7. Opinion re: Liquidation Preference...............................N/A
8. Opinion re: Tax matters........................................On File
Opinion re: Usury..............................................On File
9. Voting Trust agreement...........................................N/A
10. Material contracts-Management Agreement........................Deleted
11. Statement re: Computation of per sharing earnings...............N/A
12. No exhibit required..............................................N/A
13. Annual or quarterly reports, Form 10-Q.........................On File
14. Material foreign patents.........................................N/A
15. Letter on unaudited interim financial information................N/A
16. Letter on change in certifying accountant........................N/A
17. Letter on director resignation...................................N/A
18. Letter on change in accounting principles........................N/A
19. Previously unfiled documents.....................................N/A
20. Reports furnished to security holders............................N/A
21. Other documents or statements to security holders................N/A
22. Subsidiaries of the registrants..................................N/A
23. Published report regarding matters submitted to vote.............N/A
24. Consent of experts and counsel...................................99
25. Power of attorney................................................N/A
26. Statement of eligibility of trustee..............................N/A
27. Invitations for competitive bids.................................N/A
28. Additional exhibits - . .........................................N/A
29. Information from reports furnished to
State Insurance Authorities .....................................N/A
<PAGE>
Indemnification of Directors and Officers. The Company has the authority to
indemnify its Directors and Officers pursuant to the Statutory provisions set
forth in the Revised Code of Washington Chapter 23B.08 et al.
The Company has not limited the Statutory authorization for Permissive or
Mandatory Indemnification in its Articles of Incorporation. Generally, the
Corporation would be expected to indemnify any individual made a party to a
proceeding, simply because the individual is or was a Director, against
liability incurred in the proceeding if that individual acted in good faith
and that the individual reasonably believed that his/her conduct was in the
best interest of the Corporation, or at least not opposed to its best
interests. The Company expects that it would be required to indemnify an
Officer, Director, Shareholder or Agent for actions set forth in the Chapter
23B.08.500-590 of the Revised Code of Washington as presently in force or as
hereinafter modified.
Other Expenses of Issuance and Distribution. The Company has projected that
the expenses of Issuance and Distribution will be as follows:
Legal & Accounting Fees..............$35,000
Copy & Mailing Costs...................2,500
Registration Fees......................5,000
Total................................$42,500
See "Use of Proceeds" section.
Recent Sales of Unregistered Securities. The Company has not sold any
securities previous to this offering.
<PAGE>
STATE OF WASHINGTON
SECRETARY OF STATE
CERTIFICATE OF INCORPORATION
to
RMX REIT, INC.
UBI Number: 601 799 020 Date: June 19, 1997
<PAGE>
ARTICLES OF INCORPORATION
OF
RMX REIT, INC.
ARTICLE I
The name of the corporation is RMX REIT, INC.
ARTICLE II
The term of existence of this corporation shall be perpetual.
ARTICLE III
This corporation is organized for any lawful purposes more specifically
described as follows:
(1) The general purpose of this corporation is to purchase and manage
interest in real property, whose principal income shall be derived form and
relating to those interest in real property.
(2) The corporation may conduct and perform any and all other
activities reasonably connected with, or similar to, or incidental to,
carrying out the above purpose.
(3) This corporation shall have the power:
(a)To have perpetual succession by its corporate name.
(b) To sue and be sued, complain and defend, in its corporate name.
(c) To have a corporate seal which may be altered at pleasure, and
to use the same by causing it, or a facsimile thereof, to be impressed or
affixed or in any other manner reproduced.
(d) To purchase, take, receive, lease, or otherwise acquire, own,
hold, improve, use and otherwise deal in and with, real or personal property,
or any interest therein, wherever situated.
(e) To sell, convey, mortgage, pledge, lease, exchange, transfer
and otherwise deal in and with, real or personal property, or any interest
therein, wherever situated.
(f) To lend money and use its credit to assist its stockholders.
(g) To purchase, take, receive, subscribe for, or otherwise
acquire, own, hold, vote, use, employ, sell, mortgage, lend, pledge, or
otherwise dispose of, and otherwise use and deal in and with, shares or other
interests in, or obligations of, other domestic or foreign corporations,
associations, partnerships or individuals, or foreign corporation,
associations, partnerships or individuals, or direct or indirect obligations
of the United States or of any other government, state, territory,
<PAGE>
governmental district or municipality or of any instrumentality thereof.
(h) To make contracts and incur liabilities, borrow money at such
rates of interest as the corporation may determine, issue its notes, bonds,
and other obligations, and secure any of its obligations by mortgage or pledge
of all or any of its property, franchises and income.
(i) To make guarantees respecting the contracts, securities, or
obligations of any person (including, but not limited to, any shareholder, any
affiliated or unaffiliated individual, domestic or foreign corporation,
partnership, association, joint venture or trust) if such guarantee may
reasonably be expected to benefit, directly or indirectly, the guarantor
corporation. As to the enforceability of the guarantee, the decision of the
board of directors that the guarantee may be reasonably expected to benefit,
directly or indirectly, the guarantor corporation shall be binding in respect
to the tissue of benefit to the guarantor corporation.
(j) To lend money for its corporate purposes, invest and reinvest
its funds, and take and hold real and personal property as security for the
payment of funds so loaned or invested.
(k) To conduct its business, carry on its operations, and have
offices and exercise the powers granted by these articles of statutes of the
State of Washington, within or without the State of Washington.
(l) To elect or appoint officers and agents of the corporation, and
define their duties and fix their compensation.
(m) To make and alter bylaws, not inconsistent with these articles
of incorporation or the laws of the State of Washington, for the
administration and regulation of the affairs of the corporation.
(n) To make donations for the public welfare or for charitable,
scientific or educational purposes; and in times of war to make donations in
aid of war activities.
(o) To transact any lawful business which the board of directors
finds will be of a benefit to the corporation.
(p) To pay pensions and establish pension plans, pension trusts,
profit-sharing plans, stock bonus plans, stock option plans and other
incentive plans for any or all of its directors, officers and employees.
(q) To be a promoter, partner, member, associate, or manager of any
partnership, joint venture, trust, or other enterprise.
(r) To cease its corporate activities and surrender its corporate
activities and surrender its corporate franchise.
(s) To exercise all powers necessary or convenient to effect its
purposes.
<PAGE>
PROVIDED, HOWEVER, that nothing herein contained shall be deemed to
authorize or permit the corporation to carry on any business, to exercise any
power or do any act which a corporation formed under the Washington Business
Corporation Act of the State of Washington, or any amendment thereto or
substitute therefore, may not at any time lawfully carry on or do.
ARTICLE IV
The address of the registered officer of the corporation is 220 West
Mercer Street 400, Seattle, Washington 98119, and the name of the registered
agent at such address is Richard A. Ekman.
ARTICLE V
The total authorized number of shares of the common stock in the
corporation is TWO MILLION FOUR HUNDRED THOUSAND (2,400,000) SHARES and shall
be initially issued at an offering price not less than five dollars ($5.00)
per share. In event the initial offering is ceased, those remaining
authorized but unissued shares shall be available to existing shareholders at
the offering price of five dollars ($5.00) per share. Subsequent shares may
be issued by Board of Director's resolution after amendment of these Articles
of Incorporation to existing shareholders as follows:
(1) The shares may be issued for such consideration as shall be
authorized by the Board of Directors establishing a price (in money or other
consideration) or a minimum price or a general formula or method by which the
price will be determined.
(2) Upon authorization by the Board of Directors, the corporation may
issue its own shares in exchange for or in conversion of its outstanding
shares, or distribute its own shares, pro rata to its shareholders to
effectuate stock dividends or splits, and any such transaction shall not
require consideration.
(3) Shares may be issued at a price determined by the Board of Directors,
or the Board may set a minimum price or establish a formula or method by which
the price may be determined.
(4) Consideration for shares may consist of cash, promissory notes,
services performed, contracts for services to be performed, or any other
tangible or intangible property. If shares are issued for other than cash,
the Board of Directors shall determine the value of the consideration.
(5) Shares issued when the corporation receives the consideration
determined by the board are validly issued, fully paid, and nonassessable.
(6) A good faith judgment of the Board of Directors as to the value of
the consideration received for shares is conclusive.
(7) The corporation may place shares issued for a contract for future
services or a promissory note in escrow, or make other arrangements to
restrict the transfer of the shares, and may credit distributions in respect
of the shares against their purchase price, until the services are performed
<PAGE>
or the note is paid. If the services are not performed or the note is not
paid, the shares escrowed or restricted and the distributions credited may be
canceled in whole or in part.
(8) The reasonable charges and expenses of organization or reorganization
of this corporation, and the reasonable expenses of any compensation for the
sale of its shares, and be paid or allowed by such corporation out of the
consideration received by it in payment for its shares without thereby
rendering such shares assessable. The reasonable expenses are determined in
accordance with paragraph (6) above.
ARTICLE VI
(1) The holders of the common stock of the corporation do not have any
preemptive right to purchase shares of the corporation that may be authorized
but not issued.
(2) The Board of Directors may reasonably restrict the sale or subsequent
transfer of the stock of this corporation in order to protect the favorable
tax status of the corporation, to the extent necessary to do so.
(3)In the event that any stockholder(s) disagrees, and has a legal basis
for the disagreement, the controversy shall be submitted to arbitration
pursuant to Article XII below.
ARTICLE VII
All corporate powers shall be exercised by and under authority of, and
the business and affairs of this corporation shall be managed under the
direction of, the Board of Directors according to the laws of the State of
Washington and as contained in these Articles of Incorporation.
(1) The directors of the corporation shall be five (5) in number.
(2) The first directors shall serve until the first meeting of
shareholders and until their successors are elected and qualified. There
shall be five (5) members of the Board of Directors unless a bylaw is adopted
changing the number of board members. The number of directors necessary to
constitute a quorum shall be three (3) board members or a simple majority of
the members of the board, whichever is more. The board of directors may fill
any vacancy by the affirmative vote of the majority of the remaining directors
for the unexpired term of the director whose position was vacated. Any
director may be removed and replaced by a special meeting of the shareholders
for any reason.
(3) The initial bylaws of the corporation shall be adopted by the first
directors by simply majority vote. The power to alter, amend or repeal the
bylaws or adopt new bylaws, subject to repeal or change by action of the
shareholders, shall be vested exclusively in the board of directors. The
bylaws may contain any provisions for the regulation and management of the
affairs of the corporation, including the terms of the board of director, not
inconsistent with the law or these articles of incorporation.
<PAGE>
(4) The board of directors shall have the authority to carry out the
purposes of the corporation as stated in Article III above, subject only to
the restrictions of the laws of the State of Washington or the laws of the
United States.
(5) The board of directors shall be elected by every shareholder entitled
to vote, in person or by proxy. The term of office shall be one year and all
directors shall be elected at the annual meeting of the shareholders. Each
share, entitled to be voted, shall be entitled to one vote per share on all
business matters, including the election or removal of Board Members. There
is no cumulative voting in this corporation.
(6) Three (3) directors, or a simple majority of the members of the
board, whichever is greater, constitutes a quorum sufficient to accomplish the
business of the corporation. Any director attending the meeting shall be
deemed to have waived notice of the meeting, because that person had actual
notice of the meeting. A five day notice of the meeting shall be given, if
necessary, in such a manner reasonably calculated to effectuate actual
notice.
The meeting may be held at such place within or without the State of
Washington as may be stated in or fixed in accordance with the Bylaws. If no
place is so stated in the notice, the meeting shall be held at the principal
place of business of the corporation.
(7) The directors may participate in a meeting of the directors by means
of a conference telephone or similar communications equipment by means of
which all persons participating in the meeting can hear each other at the same
time, and participation by such means shall constitute presence in person at a
meeting.
(8) Special meetings of the directors may be called by the board of
directors or by any individual director. A simple majority of those directors
present shall constitute the act of the Board of Directors.
(9) Any action required by the directors to be taken at a meeting of the
directors of this corporation, or any action which may be taken at a meeting
of the directors, may be taken without a meeting if a consent is writing,
setting forth the action so taken, is signed by a two thirds majority of the
directors entitled to vote with respect to the subject matter thereof. The
consent shall have the same force and effect as a majority vote of directors.
(10) No contracts or other transactions between the corporation and any
other corporation, and no act of the corporation shall in any way be affected
or invalidated by the fact that any of the directors of the corporation are
pecuniarily or otherwise interested in, or are directors or officers of, such
other corporation.
(11) Any director individual, or any firm in which any director may be a
member, may be a party to, or may be pecuniarily or otherwise interested in,
any contracts or transactions of the corporation, provided that eh fact that
any or such firm is so interested shall be disclosed or shall have been known
to the Board of Directors or a majority thereof.
<PAGE>
(12) Any vacancy occurring in the board of directors may be filled by the
affirmative vote of a majority of the remaining directors though less than a
quorum of the board of directors. A director elected to fill a vacancy shall
be elected for the unexpired term of his predecessor in office. Any
directorship to be filled by reason of an increase in the number of directors
may be filled by the board of directors for a term of office continuing only
until the next election of directors by the shareholders.
(13) The Board of Directors shall be empowered to take appropriate action
to maintain the REIT tax status (IRC Section 856 et. seq.) of the corporation.
(14) The Board of Directors may appoint an executive committee of at
least three (3) Board members who shall be empowered to conduct all corporate
business except the following:
(a) Amend these Articles of Incorporation:
(b) Making recommendations to the shareholders without full Board of
Directors concurrence;
(c) Approving any act contrary to the general purpose of the corporation.
ARTICLE VIII
There shall be only one type of Common Stock, that being TWO MILLION FOUR
HUNDRED THOUSAND (2,400,000) shares of common stock unless these Articles of
Incorporation be duly amended. The Board of Directors shall have the
authority to issue any other type of stock allowed by law, provided these
Articles of Incorporation shall be first duly amended.
ARTICLE IX
(1) There shall be at least one annual stockholders meeting, notice of
which shall be given according to the laws of the State of Washington. The
percentage of shares entitled to vote shall be at least thirty three percent
(33%) in order to constitute a quorum sufficient to accomplish the business of
the corporation. Any shareholder attending the meeting shall be deemed to
have waived notice of the meeting, because that person had actual notice of
the meeting. Notice of the meeting shall be given according to the laws of
the State of Washington. The meeting may be held at such place within or
without the State of Washington as may be stated in or fixed in accordance
with the bylaws. If no place is so stated in the notice, the meeting shall be
held at the principal place of business of the corporation.
(2) The shareholders may participate in a meeting of the shareholders by
means of a conference telephone or similar communications equipment by means
of which all persons participating the meeting can hear each other at the same
time, and participation by such means shall constitute presence in person a
meeting.
(3) Special meetings of the shareholders may be called by the board of
directors or the holders of not less than one-tenth (1/10th) of all the shares
entitled to vote at the meeting.
(4) Any action required by the shareholders to be taken at a meeting of
<PAGE>
the shareholders of this corporation, or any action which may be taken at a
meeting of the shareholders, may be taken without a meeting if a consent in
writing, setting forth the action so taken, is signed by all of the
shareholders entitled to vote with respect to the subject matter thereof. The
consent shall have the same force and effect as a unanimous vote of
shareholders.
ARTICLE X
The Board of Directors, upon ratification of a majority of the
shareholders of record, shall have the right to amend, alter, change or repeal
any provision constrained in these Articles of Incorporation.
ARTICLE XI
The directors shall be deemed to be in a fiduciary relationship to the
shareholders. The directors shall be indemnified and held harmless by the
company for losses arising from the operations of the Company if all of the
following conditions are met;
(1) The director has determined, in good faith, that the course of
conduct which caused the loss of liability was in the best interest of the
company, and
(2) Such liability or loss was not the result of negligence or misconduct
by the director, and
(3) Such indemnification or agreement to hold harmless is recoverable
only out of the assets of the company and not from the shareholders.
Indemnification will not be allowed for any liability imposed by judgment, and
costs associated therewith, including reasonable attorney fees, arising from
or out of any violation of state or federal securities laws associated with
the offer and sale of company shares. Indemnification shall be allowed for
settlements and related expenses of lawsuits alleging securities law
violations, and for expenses incurred in successfully defending such lawsuits,
provided that a court either;
(a) Approve the settlement and find the indemnification of the settlement
and related costs should be made, or
(b) Approve indemnification of litigation costs if a successful defense
is made.
(4) Every application for registration must contain an undertaking that
the director seeking indemnification will appraise the court of the position
of the Administrator of the Securities Division of the Department of Financial
Institutions for the State of Washington.
ARTICLE XII
Any controversy or claim arising out of or relating to these Articles of
Incorporation or the By-Laws of this corporation, including but not limited to
the interpretation of any term herein contained, any voting deadlock regarding
the Board of Directors or the Stockholders, or the breach thereof, shall be
<PAGE>
settled by arbitration in accordance with the Commercial Arbitration Rules of
the American Arbitration Association, and the judgment upon the award rendered
by the Arbitrator(s) shall be binding and may be entered in any court having
jurisdiction thereof. Jurisdiction for all internal corporate disputes shall
be in the State of Washington and venue shall be in Spokane County (or the
Federal Court for the Eastern District of Washington only if that Court has
proper jurisdiction as established by law or custom.)
ARTICLE XIII
The Corporation shall make every effort to qualify as a Real Estate
Investment Trust pursuant to the Internal Revenue Code Section 846 et.seq. as
presently in adopted and in force in 1997, or as amended thereafter. In order
to comply with IRC Code Section 856(h), no individual shareholder shall be
entitled to won more than 9.8% of the outstanding and issued stock of the
corporation unless the Corporate Secretary affirms in writing that the company
will be in full compliance with the Internal Revenue Code Sections regarding
closely held determinations and also obtain an opinion of Counsel, to be
placed in the records of the corporation prior to the issuance of said stock.
The Board of Directors shall also insure that the Bylaws and management of the
corporation conforms to the relevant provisions of the Internal Revenue Code,
the NASAA guidelines and the Washington Administrative Code regarding the
operations of this company as a Real Estate Investment Trust. In event of a
conflict between the provisions of the Internal Revenue Code,the NASAA
guidelines and the Washington Administrative Code, the directors shall adhere
to the provisions contained int eh Internal Revenue Code to maintain the REIT
status for the company.
ARTICLE IX
The name and address of the incorporator is: Douglas M. O'Coyne, Sr.,
South 9 Washington, Suite 612, Spokane, Washington, 99201.
IN WITNESS WHEREOF, the incorporator has affixed his signature below
this
12 day of June, 1997.
DOUGLAS M. O'COYNE, SR.,
Incorporator
STATE OF WASHINGTON
) ss.
County of Spokane )
On this day personally appeared before me, DOUGLAS M. O'COYNE, SR. to me known
to be the individual described herein and who executed these Articles of
Incorporation, and acknowledged that he signed the same as his free and
voluntary act and deed for the uses and purposes therein mention.
GIVEN under my hand and official seal this 12 day of June 1997.
Original Document Notarized
Notary Public in and for the State
of Washington, residing at Spokane
Print Name: Shari L. Holdren
My Commission Expires: 8/26/98.
<PAGE>
CONSENT TO APPOINTMENT AS REGISTERED AGENT
I, Gerald C. Vanhook, hereby consent to serve as Registered Agent, in the
State of Washington, for the corporation herein named, RMX REIT, INC. I
understand that as agent for the corporation, it will be my responsibility to
accept service of process in the name of the corporation; to forward corporate
license renewal mailings to the corporation; and to immediately notify the
Office of the Secretary of State in the event of my resignation or of any
change in the Registered Office address of the corporation for which I am
agent.
DATED this 18 day of June, 1999.
RMX REIT, INC.
/S/
By: Gerald C. Vanhook
Registered Agent for the Corporation
STATE OF WASHINGTON)
)ss.
County of Spokane )
On this day personally appeared before me, Gerald C. Vanhook to me known
to be the individual described herein and who hereby consented to serve as the
registered agent for service of process as stated above by affixing his
signature above, and he did acknowledge that he signed the same as his free
and voluntary act and deed, for the uses and purposes therein mentioned.
GIVEN under my hand and official seal this 18 day of June, 1999.
Original Document Notarized
Notary Public in and for the State
of Washington, residing at Seattle
Print Name: Robbie D. Goodrich
My Commission Expires: 9-29-2000
<PAGE>
BY-LAWS OF RMX REIT, INC.
Amendment Number 1
Under the authority of Article III, paragraph 3(m) of the Articles of
Incorporation, the Board of Directors hereby amend Article VIII dividends to
read as follows:
Article VIII
DIVIDENDS
8.1 General Policy. The Board of Directors may, from time to time,
declare and the Corporation may pay dividends on its outstanding shares in the
manner and upon the terms and conditions provided by law and its Articles of
Incorporation. The policy shall be to declare and pay quarterly dividends,
provided profits are available for distribution.
8.2 Cash Dividends. Cash dividends shall be paid on a per day owned
basis by Company check mailed to the last known mailing address of each
shareholder, not later than 30 days after the end of each calendar quarter,
i.e., April 30, July 30, October 30, and January 30.
8.3 Reinvested Dividends. Shareholders may elect to be paid stock
dividends based on the per share issue price of $5.00 per share. The stock
issuance shall be effective on the first day of the next succeeding quarter,
e.g., the first calendar quarter ends on March 31 and the stock shall be
issued effective on the 1st day of April. Any change in the election must be
made in writing and transmitted to the Secretary not later than 10 days prior
to the end of the calendar quarter. Any change in said election shall remain
automatically effective until subsequently changed.
8.4 Stock Dividend Restrictions. The Secretary shall restrict
reinvested dividends in the company stock in the event that the policy is
inconsistent with any State of Federal Securities Law.
8.5 Taxation. The Shareholders shall be taxed on the stock dividends
the same as on cash dividends as provided for in any applicable State and
Federal Income Tax Code.
<PAGE>
ADOPTED BY RESOLUTION OF THE BOARD OF DIRECTORS on the 27 day of May,
1998.
ATTEST:
/S/ Melvin L. Johnson, Jr.
Secretary
/S/ William R. Sanden
President
APPROVED:
/S/ Sue M. Cooper, Vicke L. Swanson & Joe Zimmer
Independent Members of the Board of Directors
/S/ Jerry Vanhook
Other Members of the Board of Directors
THIS SPACE INTENTIONALLY LEFT BLANK
<PAGE>
BY-LAWS OF RMX REIT, INC.
PREAMBLE
RMX REIT, Inc. is a Real Estate Investment Trust organized for the
purposes of aggregating equity capital from investors and purchasing loans
secured by real estate, which provide as high a rate of return as possible
consistent with the risk factors associated with the loan. It is the intent
of the Board of Directors that this Company shall continue to meet the
Internal Revenue Service definition for a Real Estate Investment Trust as set
forth in 26 USC 856, in order for the Company to be able to deduct the
dividends paid to the investors from gross income as set forth in 26 USC
857.
It is the further intent of the Board of Directors that these By-laws of the
Company shall conform to the WAC 460-16A-205(e), which adopts the NASAA
statements of policy as set forth in Sections 3401 et. seq. regarding the
management and operations of Real Estate Investment Trusts. In event of a
conflict between the Internal Revenue Service Code and the Washington
Administrative Code regarding Real Estate Investment Trusts, the Internal
Revenue Service Code shall be deemed to preempt the provisions of the
Washington Administrative Code. The Board of Directors shall be authorized to
take any action necessary to preserve the REIT Federal Income Tax Status of
the Company.
Article I
OFFICES
1.1 The principal office of the Corporation is in the State of Washington
and shall be located at 220 West Mercer Street 400, in the City of Seattle,
and the County of King with a zip code of 98119. The Corporation may have
such other offices, either within or without the State of Washington, as the
Board of Directors may designate or as the business of the Corporation may
require from time to time.
1.2 The registered office of the Corporation, required by the Washington
Business Corporations Act to be maintained in the State of Washington, is the
same as the principal office in the State of Washington. The principle office
and the registered office of the Corporation may be changed from time to time
by the Board of Directors.
Article II
STOCKHOLDERS
2.1 Annual Meeting. The annual meeting of the Stockholders shall be held
on the Thirtieth (30th) day of November in each year, beginning with the year
1997, at the hour of 10:00 o'clock a.m., or such other time on such day within
such month as shall be fixed by the Board of Directors, for the purpose of
electing Directors and for the transaction of such other business as may come
before the meeting. If the day fixed for the annual meeting shall be a legal
holiday in the State of Washington, such meeting shall be held when directed
by the Board of Directors shall cause the election to be held at a special
meeting of the Stockholders as soon thereafter as conveniently may be.
<PAGE>
2.2 Special Meetings. Special meetings of the Stockholders, for any
purpose or purposes, unless otherwise prescribed by statute, may be called by
the Chairman of the Board of Directors, and shall be called by the Chairman at
the request of the holders of not less than one-tenth of all outstanding
shares of the Corporation entitled to vote at the meeting.
2.3 Place of Meeting. The Board of Directors may designate any place,
either within or without the State of Washington, as the place of meeting for
any annual meeting or for any special meeting called by the Board of
Directors. A waiver of notice signed by all Stockholders entitled to vote at
a meeting may designate any place, either within or without the State of
Washington, as the place for the holding of such meeting. If no designation
is made, or if a special meeting be otherwise called, the place of meeting
shall be the principal office of the Corporation in the State of Washington.
2.4 Notice of Meeting. Written notice stating the place, day and hour of
the meeting and, in case of a special meeting, the purpose or purposes for
which the meeting is called, shall, unless otherwise prescribed by statute, be
delivered not less than ten nor more than fifty days before the date of the
meeting, either personally or by mail, by or at the direction of the
President, or the Secretary, or the Officer or other persons calling the
meeting, to each Stockholder of record entitled to vote at such meeting. If
mailed, such notice shall be deemed to be delivered when deposited in the U.S.
mail, addressed to the Stockholder at his address as it appears on the stock
transfer books of the Corporation, with postage thereon prepaid.
2.5 Closing of Transfer Books or Fixing of Record Date. For any purpose
of determining Stockholders entitled to notice of or to vote at any meeting of
Stockholders or any adjournment thereof, or Stockholders entitled to receive
payment of any dividend, or in order to make a determination of Stockholders
for any other proper purpose, the Board of Directors of the Corporation may
provide that the stock transfer books of the Corporation may provide that the
stock transfer books shall be closed for a stated period but not to exceed, in
any case, fifty days. If the stock transfer books shall be closed for the
purpose of determining Stockholders entitled to notice of or to vote at a
meeting of Stockholders, such books shall be closed for at least ten days
immediately preceding such meeting. In lieu of closing the stock transfer
books, the Board of Directors may fix in advance a date as the record date of
any such determination of Stockholders, such date in any case to be not more
than fifty days, and in case of a meeting of Stockholders, not less than ten
days prior to the date of which the particular action requiring such
determination of Stockholders entitled to notice of or to vote at a meeting of
Stockholders, or Stockholders entitled to receive payment of a dividend, the
date on which notice of the meeting is mailed or the date on which the
resolution of the Board of Directors declaring such dividend is adopted, as
the case may be, shall be the record date for such determination of
Stockholders. When a determination of Stockholders entitled to vote at any
meeting of Stockholders has been made as provided in this section, such
determination shall apply to any adjournment thereof.
2.6 Voting Record. The officer or agent having charge of the stock
transfer books for shares of the Corporation shall make a complete record of
<PAGE>
the Stockholders entitled to vote at each meeting of Stockholders or any
adjournment thereof, arranged in alphabetical order, with the address of and
the number of shares held by each. Such record shall be produced and kept
open at the time and place of the meeting and shall be subject to the
inspection of any Stockholder during the whole time of the meeting for the
purposes thereof.
2.7 Quorum. A simple majority of the outstanding shares of the
Corporation entitled to vote, represented in person or by proxy, shall
constitute a quorum at a meeting of Stockholders. A majority of the shares so
represented may adjourn the meeting from time to time without further notice.
At such adjourned meeting at which a quorum shall be present or represented,
any business may be transacted which might have been transacted at the meeting
as originally noticed. The Stockholders present at a duly organized meeting
may continue to transact business until adjournment, notwithstanding the
withdrawal of enough Stockholders to comprise less than a quorum.
2.8 Proxies. At all meetings of Stockholders, a Stockholder may vote in
person or by proxy executed in writing by the Stockholder or by his duly
authorized attorney-in-fact. Such proxy shall be filed with the Secretary of
the Corporation before or at the time of the meeting. No proxy shall be valid
after eleven months from the date of its execution, unless otherwise provided
in the proxy.
2.9 Voting of Shares. Subject to the provisions of Section 12 of this
Article II, each outstanding share entitled to vote shall be entitled to one
vote upon each matter submitted to a vote at a meeting of Stockholders.
2.10 Voting of Shares by Certain Holders. Shares standing in the name of
another Corporation may be voted by such officer, agent or proxy as the
By-laws of such Corporation may prescribe, or, in the absence of such
provision, as the Board of Directors of such other Corporation may determine.
Shares held by an administrator, executor, guardian or conservator may be
voted by him, either in person or by proxy, without a transfer of such shares
into his name. Shares standing in the name of a trustee may be voted by him,
either in person or by proxy, but no trustee shall be entitled to vote shares
held by him without a transfer of such shares into his name.
Shares standing in the name of a receiver may be voted by such receiver,
and shares held by or under the control of a receiver may be voted by such
receiver without the transfer thereof into his name if authority so to do be
contained in an appropriate order of the court by which such receiver was
appointed.
A Stockholder whose shares are pledged shall be entitled to vote such
shares until the shares have been transferred into the name of the pledgee,
and thereafter the pledgee shall be entitled to vote the shares so
transferred.
Neither treasury shares of its own stock held by the Corporation, nor
<PAGE>
shares held by another Corporation if a majority of the shares entitled to
vote for the election of Directors of such other Corporation are held by the
Corporation, shall be voted at any meeting or counted in determining the total
number of outstanding shares at any given time for purposes of any meeting.
2.11 Informal Action by Shareholders. Any action required or permitted
to be taken at a meeting of the Stockholders may be taken without a meeting if
a consent in writing, setting forth the action so taken, shall be signed by
all of the Stockholders entitled to vote with respect to the subject matter
thereof.
2.12 Stock Transfer Restriction. The authorized and issued stock in this
Corporation is not restricted. However, the Corporation retains the right to
refuse to recognize or to void any stock transfer that would make the
Corporation ineligible to meet the Internal Revenue Code provisions for
maintaining the favorable Real Estate Investment Trust profit pass through
provisions.
2.13 Redemption of Shares. The Secretary shall not redeem shares from
existing shareholders, in order to preserve its exemption from compliance with
the provisions of the Investment Company Act of 1940. In event a shareholder
desires to sell his/her stock, the Secretary shall provide the selling
Shareholder with a by name list of all Shareholders, and the addresses, and
may inform other Shareholders or potential Shareholders that the stock is for
sale. The Secretary may also authorize the dividend roll overs to be
aggregated toward their purchase of the selling Shareholders stock, but must
do so on advise and consent of counsel.
Article III
BOARD OF DIRECTORS
3.1 General Powers. The business and affairs of the Corporation shall
be managed by the Board of Directors.
3.2 Number, Tenure and Qualifications. The number of Directors of the
Corporation shall be five (5), at least three (3) shall be Independent Board
Members as defined by the NASAA statements of policy as adopted by the
Washington Administrative Code and as interpreted by the written opinion of
Counsel in the event of a disagreement by Board Members. Each Director shall
hold office until the next annual meeting of Stockholders and until their
successors have been elected and qualified. Directors need not be residents
of the State of Washington but must be shareholders of the Corporation.
3.3 Regular Meetings. A regular meeting of the Board of Directors shall
be held without other notice than this By-law immediately after, and at the
same place as, the annual meeting of Stockholders or the Company Offices or
other designated meeting place. The Board shall meet at a minimum of once
each quarter, during the months of January, April, July and October for the
purposes of discussing the financial performance during the preceding
quarter,
<PAGE>
to declare dividends, to formally approve loans acquired during the preceding
quarter, to approve payments made to the management company and to discuss
other business. The Board of Directors may provide, by resolution, the time
and place, either within or without the State of Washington, for the holding
of additional regular meetings without other notice than such resolution. The
meeting may be held by telephone conference or by written instrument as
authorized by the Articles of Incorporation.
3.4 Special Meetings. Special meetings of the Board of Directors may be
called by or at the request of the President or by any individual Director.
The person or persons authorized to call special meetings of the Board of
Directors may fix any place, either within or without the State of Washington,
as the place for holding any special meeting of the Board of Directors called
by them. The meeting may be held by telephone conference or by written
instrument as authorized by the Articles of Incorporation.
3.5 Notice. Notice of any special meeting shall be given at least two
days previously thereto by written notice delivered personally or mailed to
each Director at his business address, or by telegram. If mailed, such notice
shall be deemed to be delivered when deposited in the United States mail, so
addressed, with postage thereon prepaid. If notice be given by telegram, such
notice shall be deemed to be delivered when the telegram is delivered to the
telegraph company. Any Director may waive notice of any meeting. The
attendance of a Director at a meeting shall constitute a waiver of notice of
such meeting, except where a Director attends a meeting for the express
purpose of objecting to the transaction of any business because the meeting is
not lawfully called or convened. Neither the business to be transacted at,
nor the purpose of, any regular or special meeting of the Board of Directors
need be specified in the notice or waiver of notice of such meeting.
3.6 Quorum. A majority of the number of Directors fixed by Section 2 of
this Article III shall constitute a quorum for the transaction of business at
any meeting of the Board of Directors, but if less than such majority is
present at a meeting, a majority of the Directors present may adjourn the
meeting from time to time without further notice.
3.7 Manner of Acting. The act of the majority of the Directors present
at a meeting at which a quorum is present shall be the act of the Board of
Directors.
3.8 Action Without a Meeting. Any action required or permitted to be
taken by the Board of Directors at a meeting may be taken without a meeting if
a consent in writing, setting forth the action so taken, shall be signed by
all of the Directors.
3.9 Vacancies. Any vacancy occurring in the Board of Directors may be
filled by the affirmative vote of a majority of the remaining Directors though
less than a quorum of the Board of Directors. A Director elected to fill a
vacancy shall be elected for the unexpired term of his predecessor in office.
Any directorship to be filled by election by the Board of Directors for a term
of office continuing only until the next election of Directors by the
Stockholders.
<PAGE>
3.10 Compensation. By resolution of the Board of Directors, each
Director may be paid for out of pocket expenses, if any, of attendance at
each
meeting of the Board of Directors, and may be paid a stated salary as director
or a fixed sum for attendance at each meeting of the Board of Director or
both. No such payment shall preclude any Director from serving the
Corporation in any other capacity and receiving compensation therefor.
3.11 Presumption of Assent. A Director of the Corporation who is
present at a meeting of the Board of Directors at which action on any
corporate matter is taken shall be presumed to have assented to the action
taken unless his dissent shall be entered in the minutes of the meeting or
unless he shall file his written dissent to such action with the person acting
as the secretary of the meeting before the adjournment thereof or shall
forward such dissent by registered mail to the Secretary of the Corporation
immediately after the adjournment of the meeting. Such right to dissent shall
not apply to a Director who voted in favor of such action.
Article IV
OFFICERS
4.1 Number. The Officers of the Corporation shall be a President, one
or more Vice Presidents (the number thereof to be determined by the Board of
Directors), a Secretary, and a Treasurer, each of whom shall be elected by the
Board of Directors. The President of the Corporation shall also be the
Chairman of the Board of Directors. Any two or more Offices may be held by
the same person, except the Offices of President and Secretary.
4.2 Election and Term of Office. The Officers of the Corporation to be
elected by the Board of Directors shall be elected annually by the Board of
Directors at the first meeting of the Board of Directors held after each
annual meeting of the Stockholders. If the election of Officers shall not be
held at such meeting, such election shall be held as soon thereafter as
conveniently may be. Each Officer shall hold office until his successor shall
have been duly elected and shall have qualified or until his death or until he
shall resign or shall have been removed in the manner hereinafter provided.
4.3 Removal. Any Officer or agent may be removed by the Board of
Directors whenever in its judgment the best interest of the Corporation will
be served thereby, but such removal shall be without prejudice to the contract
rights, if any, of the person so removed. Election or appointment of an
Officer or agent shall not of itself create contract rights.
4.4 Vacancies. A vacancy in any office because of death, resignation,
removal, disqualification or otherwise, may be filled by the Board of
Directors for the unexpired portion of the term.
4.5 President. The president shall be the Principal Executive Officer
of the Corporation and, subject to the control of the Board of Directors,
<PAGE>
shall in general supervise and control all of the businesses and affairs of
the Corporation. He shall, when present, preside at all meetings of the
Stockholders and of the Board of Directors. He shall also have the title of
Chairman of the Board of Directors and therefore, the title of President and
Chairman may be used interchangeably. He may sign, with the Secretary or any
other property Officer of the Corporation thereunto authorized by the Board of
Directors, certificates for shares of the Corporation and deeds, mortgages,
bonds, contracts, or other instruments which the Board of Directors has
authorized to be executed, except in cases where the signing and execution
thereof shall be expressly delegated by the Board of Directors or by these
By-laws to some other Officer or agent of the Corporation, or shall be
required by law to be otherwise signed or executed; and in general shall
perform all duties incident to the office of President and such other duties
as may be prescribed by the Board of Directors from time to time.
4.6 The Vice Presidents. In the absence of the President or in the
event of his death, inability or refusal to act, the Vice President (or in the
event there be more than one Vice President, the Vice Presidents in the order
designated at the time of their election, or in the absence of any
designation, then in the order of their election) shall perform the duties of
the President, and when so acting, shall have all the powers of and be subject
to all the restrictions upon the President. Any Vice President may sign, with
the Secretary or an Assistant Secretary, certificates for shares of the
Corporation; and shall perform such other duties as from time to time may be
assigned to him by the President or by the Board of Directors.
4.7 The Secretary. The Secretary shall: (a) keep the minutes of the
proceedings of the Stockholders and of the Board of Directors in one or more
books provided for that purpose; (b) see that all notices are duly given in
accordance with the provision of these By-laws or as required by the law; (c)
be custodian of the corporate records and of the seal of the Corporation and
see that the seal of the Corporation is affixed to all documents the execution
of which on behalf of the Corporation under its seal duly authorized; (d) keep
a register of the post office address of each Stockholder which shall be
furnished to the Secretary by such Stockholder; (e) sign with the President,
or a Vice President, certificates for shares of the Corporation, the issuance
of which shall have been authorized by resolution of the Board of Directors;
(f) have general charge of the stock transfer books of the Corporation; (g) in
general perform all duties incident to the office of Secretary and such other
duties as from time to time may be assigned to by the President or by the
Board of Directors.
4.8 The Treasurer. The Treasurer shall: (a) have charge and custody of
and be responsible for all funds and securities of the Corporation; (b)
receive and give receipts for monies due and payable to the Corporation from
any source whatsoever, and deposit all such monies in the name of the
Corporation in such banks, trust companies or other depositories as shall be
selected in accordance with the provision of Article V of these By-laws; and
(c) in general perform all of the duties incident to the office of Treasurer
<PAGE>
and such other duties as from time to time may be assigned to him by the
President or by the Board of Directors. If required by the Board of
Directors, the Treasurer shall give a bond for the faithful discharge of his
duties in such sum and with such surety of sureties as the Board of Directors
shall determine.
4.9 Assistant Secretaries and Assistant Treasurer. The Assistant
Secretaries, when authorized by the Board of Directors, may sign with the
President or Vice President certificates for shares of the Corporation the
issuance of which shall have been authorized by a resolution of the Board of
Directors. The Assistant Treasurer shall respectively, if required by the
Board of Directors, give bonds for the faithful discharge of their duties in
such sums and with such sureties as the Board of Directors shall determine.
The Assistant Secretaries and Assistant Treasurer, in general, shall perform
such duties as shall be assigned to them by the Secretary or the Treasurer,
respectively, or by the President of the Board of Directors.
4.10 Salaries. The salaries of the Officers shall be fixed from time to
time by the Board of Directors and no Officer shall be prevented from
receiving such salary by reason of the fact that he is also a Director of the
Corporation.
Article V
CONTRACTS, LOANS, CHECKS AND DEPOSITS
5.1 Contracts. The Board of Directors may authorize any Officer or
Officers, agent or agents, to enter into any contract or execute and deliver
any instrument in the name of and on behalf of the Corporation, such authority
may be general or confined to specific instances.
5.2 Loans. No loans shall be contracted on behalf of the Corporation
and no evidences of indebtedness shall be issued in its name unless authorized
by a resolution of the board of Directors. Such authority may be general or
confined to specific instances.
5.3 Checks, Drafts, etc. All checks, drafts or other orders for the
payment of money, notes or other evidences of indebtedness issued in the name
of the Corporation shall be signed by such Officer or Officers, agent or
agents of the Corporation and in such manner as shall from time to time be
determined by resolution of the Board of Directors.
5.4 Deposits. All funds of the Corporation not otherwise employed shall
be deposited from time to time to the credit of the Corporation in such banks,
trust companies or other depositories as the Board of Directors may select.
Article VI
CERTIFICATES FOR SHARES AND THEIR TRANSFER
6.1 Certificates for Shares. Certificates representing shares of the
Corporation shall be in such form as shall be determined by the Board of
Directors. Such certificates shall be signed by the President or a Vice
<PAGE>
President and by the Secretary or an Assistant Secretary and sealed with the
corporate seal or a facsimile thereof. The signatures of such Officers upon a
certificate is manually signed on behalf of a transfer agent or a registrar,
other than the Corporation itself or one of its employees. Each certificate
for shares shall be consecutively numbered or otherwise identified. The name
and address of the person to whom the shares represented thereby are issued,
with the number of shares and date of issue, shall be entered on the stock
transfer books of the Corporation. All certificates surrendered to the
Corporation for transfer shall be canceled and no new certificates shall be
issued until the former certificate for a like number of shares shall have
been surrendered and canceled, except that in case of a lost, destroyed or
mutilated certificate a new one may be issued therefor upon such terms and
indemnity to the Corporation as the Board of Directors may prescribe.
6.2 Transfer of Shares. The transfer of shares of the corporation shall
be made only on the stock transfer books of the corporation by the holder of
record thereof or by his/her legal representation, who shall furnish proper
evidence of authority to transfer, or be his attorney thereunto authorized by
power of attorney duly executed and filed with the Secretary of the
Corporation, and on surrender for cancellation of the certificate for such
shares. The person in whose name shares stand on the books of the Corporation
shall be deemed by the Corporation to be the owner thereof for all purposes.
The Secretary shall approve all transfers prior to said transfers being
recorded on the Corporate Stock Record. The Corporate Board of Directors
hereby empowers the Secretary to void any transfer of stock for the purpose of
maintaining the REIT tax status of the Corporation (IRC 856 et seq).
Article VII
FISCAL YEAR
The fiscal year of the Corporation shall begin on the first day of
January and end on the thirty-first day of December in each year.
Article VIII
DIVIDENDS
The Board of Directors may, from time to time, declare and the
Corporation may pay dividends on its outstanding shares in the manner and upon
the terms and conditions provided by law and its Articles of Incorporation.
The policy shall be to declare and pay quarterly dividends, provided profits
are available for distribution.
Article IX
CORPORATE SEAL
The Board of Directors shall provide a corporate seal which shall be
circular in form and shall have inscribed thereon the name of the Corporation
and the state of incorporation and the words "Corporate Seal".
<PAGE>
Article X
WAIVER OF NOTICE
Whenever any notice is required to be given to any Stockholder or
Director of the Corporation under the provisions of these By-laws or under the
provisions of the Articles of Incorporation or under the provisions of the
Washington Business Corporation Act, a waiver thereof in writing signed by the
person or persons entitled to such notice, whether before or after the stated
therein, shall be deemed equivalent to the giving of such notice.
Article XI
AMENDMENTS
These By-laws may be altered, amended or repealed and new By-laws may be
adopted by the Board of Directors or by the Stockholders at any regular or
special meeting.
Article XII
EXECUTIVE COMMITTEE AUTHORIZED AND ADOPTED BY RESOLUTION
12.1 Appointment. The Board of Directors by resolution adopted by a
majority of the full Board, may designate three or more of its members to
constitute an executive committee, which shall include a majority of
Independent Members. The designation of such committee and the delegation
thereto of authority shall not operate to relieve the board of Directors, or
any member thereof, of any responsibility imposed by law.
12.2 Authority. The executive committee, when the Board of Directors is
not in session shall have and may exercise all of the authority of the Board
of Directors except to the extent, if any, that such authority shall be
limited by the resolution appointing the executive committee and except also
that the executive committee shall not have the authority of the Board of
Directors in reference to amending the Articles of Incorporation, adopting a
plan of merger of consolidation, recommending to the Stockholders the sale,
lease or other disposition of all or substantially all of the property and
assets of the Corporation otherwise than in the usual and regular course of
its business, recommending to the Stockholders a voluntary dissolution of the
Corporation or a revocation thereof, or amending the By-laws of the
Corporation.
12.3 Tenure and Qualifications. Each member of the executive committee
shall hold office until the next regular annual meeting of the Board of
Directors following his designation and until his successor is designated as a
member of the executive committee and is elected and qualified.
12.4 Meetings. Regular meetings of the executive committee may be held
without notice at such times and places as the executive committee may fix
from time to time by resolution. Special meetings of the executive committee
may be called by any member thereof upon not less than one day's notice
stating the place, date and hour of the meeting, which notice may be written
<PAGE>
or oral, and if mailed, shall be deemed to be delivered when deposited in the
United States mail addressed to the member of the executive committee at his
business address. Any member of the executive committee may waive notice of
any meeting and no notice of any meeting need be given to any member thereof
who attends in person. The notice of a meeting of the executive committee
need not state the business proposed to be transacted at the meeting.
12.5 Quorum. A majority of the members of the executive committee shall
constitute a quorum for the transaction of business at any meeting thereof,
and action of the executive committee must be authorized by the affirmative
vote of a majority of the members present at a meeting at which a quorum is
present.
12.6 Action Without a Meeting. Any action required or permitted to be
taken by the executive committee at a meeting may be taken without a meeting
if a consent in writing, setting forth the action so taken, shall be signed by
all of the members of the executive committee.
12.7 Vacancies. Any vacancy in the executive committee may be filled by
a resolution adopted by a majority of the full Board of Directors.
12.8 Resignations and Removal. Any member of the executive committee
may be removed at any time with or without cause by resolution adopted by a
majority of the full Board of Directors. Any member of the executive
committee may resign from the executive committee at any time by giving
written notice to the President or Secretary of the Corporation, and unless
otherwise specified therein, the acceptance of such resignation shall not be
necessary to make it effective.
12.9 Procedure. The executive committee shall elect a presiding officer
from its members and may fix its own rules of procedure which shall not be
inconsistent with these By-laws. It shall keep regular minutes of its
proceedings and report the same to the Board of Directors for its information
at the meeting thereof held next after the proceedings shall have been taken.
Article XIII
EMERGENCY BY-LAWS
The Emergency By-laws provided in this Article XIII shall be operative
during any emergency in the conduct of the business of the Corporation
resulting from an attack on the United States or any nuclear or atomic
disaster, notwithstanding any different provision in the preceding Articles of
the By-laws or in the Articles of Incorporation of the Corporation or in the
Washington Business Corporation Act. To the extent not inconsistent with the
provisions of this Article, the By-laws provided in the preceding Articles
shall remain in effect during such emergency and upon its termination the
Emergency By-laws shall cease to be operative.
During any such emergency:
(a) A meeting of the Board of Directors may be called by any
<PAGE>
Officer or Director of the Corporation. Notice of the time and place of the
meeting shall be given by the person calling the meeting to such of the
Directors as it may be feasible to reach by any available means of
communication. Such notice shall be given at such time in advance of the
meeting as circumstances permit in the judgment of the person calling the
meeting.
(b) At any such meeting of the Board of Directors, a quorum shall
consist of two (2) Directors or two fifths (2/5) of the Directors.
(c) The Board of Directors, either before or during any such
emergency, may provide, and from time to time modify, lines of succession in
the event that during such an emergency any or all Officers or agents of the
Corporation shall for any reason be rendered incapable of discharging their
duties.
(d) The Board of Directors, either before or during any such
emergency, may, effective in the emergency, change the head office or
designate several alternative head offices or regional offices, or authorize
the Officers to do so.
No Officer, Director or employee acting in accordance with these
Emergency By-laws shall be liable except for willful misconduct.
These Emergency By-laws shall be subject to repeal or change by further
action of the Board of Directors or by action of the Stockholders, but no such
repeal or change shall modify the provisions of the next preceding paragraph
with regard to action taken prior to the time of such repeal or change. Any
amendment of the Emergency By-laws may make any further or different provision
that may be practical and necessary for the circumstances of the emergency.
Article XIV
INVESTMENT POLICY
The Investment Policy adopted by the Shareholders are incorporated herein
as follows.
(a) The Company shall purchase loans with investors' funds and proceeds
from the pay-off of loans, which shall be secured with equity income or an
interest in real property and personal property. The security for the loan
shall be land located in the Pacific Northwest (Washington, Oregon and Idaho),
unless approved by the Board of Directors by specific resolution or any
continuing resolution. The loans and monthly payments shall generally be
amortized over fifteen (15) to thirty (30) years at fixed interest rates.
Balloon payments at (5) to (7) years are to be encouraged, so as to reduce the
interest rate risk. All loan fees shall be paid by the borrowers including
the acquisition fee paid to the management company or any other loan
originator.
(b) The investment criteria shall be as follows, loans (i) on
unimproved
<PAGE>
real property, which is defined as that property not acquired for the purpose
of producing rental or other operating income, has no development or
construction in progress on the land and has no development construction
planned on the land to commence within one year, a maximum of forty percent
(40%) loan to value ratio, (ii) on productive farm land, fifty percent (50%)
loan to value ratio, (iii) on substandard residential and commercial property,
sixty percent (60%) loan to value ratio, and (iv) on real property and
residential and commercial property up to seventy percent (70%) loan to value
ratio.
(c) The Board of Directors and advisors shall purchase loans with a
target annual return of 8% to 10% to the shareholders in the form of regular
quarterly dividend distributions.
(d) The Company shall not invest more than ten percent (10%) of its
total assets in unimproved real property or loans secured by unimproved real
property. The Company shall not commit more than twenty five percent (25%) of
its total assets in any one loan until the total assets reach four million
dollars ($4,000,000), then no more than twenty percent (20%) of its total
assets in any one loan until the total assets reach five million dollars
($5,000,000), then no more than fifteen percent (15%) of its total assets in
any one loan until the total assets reach seven million dollars ($7,000,000,
then no more than ten percent (10%) of its total assets after the total assets
total more than ten million dollars ($10,000,000).
(e) The Board of Directors shall approve all loans made during the
calendar quarter at the quarterly meeting of the Board of Directors. A
special committee composed of any two (2) Independent Board Members shall
approve in advance by a written resolution all loans acquired that exceed
$200,000 of company funds.
ADOPTED BY RESOLUTION OF THE BOARD OF DIRECTORS on this 12 day of
September, 1997.
ATTEST:
/S/ Melvin L. Johnson, Jr.
Secretary
/S/ William R. Sanden
President
APPROVED:
/S/ Sue M. Cooper, Vicke L. Swanson & Joe Zimmer
Independent Members of the Board of Directors
/S/ Jerry Vanhook
Other Members of the Board of Directors
<PAGE>
MINUTES OF THE ORGANIZATIONAL MEETING
OF THE BOARD OF DIRECTORS
OF
RMX REIT, INC.
TIME AND PLACE
The organizational meeting of the Board of Directors named in the
Articles of Incorporation of RMX REIT, INC. was held at CLS Financial
Services, Inc., 4720 200th Street SW, Suite 200, in the City of Lynnwood, in
the State of Washington at 11:00 a.m., on September 12, 1997, pursuant to a
Waiver of Notice signed by each Director.
PRESENT
William R. Sanden presided over the meeting and appointed Mel Johnson
to act as Secretary of the meeting. Present was Ralph Ripley, Jerry Vanhook,
Vickie L. Swanson, Joe Zimmer and Sue Cooper. Also present was DOUGLAS M.
O'COYNE, SR. and RICHARD A. EKMAN, the attorneys for the Corporation. All
persons by their presence did waive notice of the meeting.
ARTICLES OF INCORPORATION
The Chairman reported that the Company's Articles of Incorporation
had been filed in the office of the Secretary of State of the State of
Washington, on June 19, 1997. A counterpart of the Articles, bearing the
approval of the Secretary of State and having attached the Certificate of
Incorporation, was presented to the meeting, and the Secretary was instructed
to place the copy of the Articles in the minute book of the Company. The
corporate registration number is 601 799 020.
BYLAWS
A set of proposed Bylaws for the regulation and government of the
affairs of the Company was presented to the meeting. After discussion, and
upon motion duly made and seconded, the following resolution was unanimously
adopted:
RESOLVED, that the Bylaws in the form presented to this meeting
are hereby approved and adopted as the Bylaws of the Company, and that the
Secretary is directed to file them in the minute book.
<PAGE>
APPOINTMENT OF DIRECTORS
The meeting was declared open for the appointment of directors of the
Corporation. After discussion, upon motion duly made and seconded the
following directors were unanimously appointed to serve until December 31,
1998, or until their respective successors are elected and qualified, provided
each director signs an affidavit stating that he has had no criminal charges
or bankruptcy charges.
Director and Chairman of the Board Ralph Ripley
Director Jerry Vanhook
Independent Director Vickie L. Swanson
Independent Director Joe Zimmer
Independent Director Sue Cooper
ELECTION OF OFFICERS
The meeting was declared open for the election of officers. After
discussion, upon motion duly made and seconded, the following officers
were unanimously elected to serve until the next annual meeting and until
their respective successors are elected and qualified.
President and Chief Executive Officer William R. Sanden
Secretary Mel Johnson
STOCK CERTIFICATES
A form of stock certificate was submitted to be utilized by the
Company in issuing its stock.
After discussion, and upon motion duly made and recorded, the
following resolution was unanimously adopted:
RESOLVED, that the form of stock certificate presented is hereby
approved and adopted as the form of certificate to be utilized by the
corporation in issuing its stock, and the Secretary is directed to file a copy
of such stock certificate with the minutes of this meeting.
STOCK OFFERING
The Chairman discussed the advantages and disadvantages of
registering the stock under Federal Regulation SB. After discussion, and upon
motion duly made and recorded, the following resolution was unanimously
adopted:
RESOLVED, that the Corporation is authorized to complete the
administrative requirements for issuance of not more than two million four
hundred thousand (2,400,000) shares at the offering price of five dollars
($5.00) per share pursuant to Rule SB. After review of the offering as
completed, and after discussion and upon motion duly made and recorded.
<PAGE>
IT WAS FURTHER RESOLVED, that the Registration Statement as proposed
is approved to be filed with the SEC in Washington, D.C., and with the
Securities Division of the Department of Financial Institutions in the State
of Washington.
IT WAS FURTHER RESOLVED, that the officers shall open an interest
bearing FDIC insured escrow account for deposit of all offering funds until
the minimum offering is collected and on deposit.
BANK ACCOUNT
It was considered advisable for the Company to establish a bank
account. The Board authorized the President and Secretary to establish an
appropriate bank account for checking and an appropriate bank account for
savings on behalf of the Corporation.
The Chairman presented to the meeting that the Stockholders proposed
that each Stock Certificate be issued in/not in Joint Tenancy with the Right
of Survivorship to the other stockholder. Upon motion duly made the
seconded, the following resolution was unanimously adopted:
RESOLVED, that the Directors shall establish a corporate bank account
for the uses and purposes deemed commercially necessary by the Directors.
MANAGEMENT CONTRACT
The Chairman presented the Management Contract with CLS Financial
Services, Inc. After discussion, upon motion duly made and recorded, the
following resolution was adopted:
RESOLVED, that the Contract as negotiated between RMX REIT, INC. and
CLS Financial Service, Inc. is authorized to be executed by the Corporate
Officers and the Secretary is directed to file a copy of such agreement with
the minutes of this meeting.
COMPENSATION OF DIRECTORS
The Chairman discussed the pros and cons for compensating directors.
After discussion, upon motion duly made and recorded, the following resolution
was adopted:
RESOLVED, that the Directors shall not be entitled to be compensated
for attendance at meetings.
COMPENSATION OF OFFICERS
The Chairman presented the Employment Contracts with the President.
After discussion, upon motion duly made and recorded, the following resolution
was adopted:
RESOLVED, that the Employment Contract as negotiated between the
Company and its President, regarding compensation and the performance of his
<PAGE>
duties, as further agreed to by the Employment Contract is authorized to be
executed by the Corporate Officers and the Directors, and the Secretary is
directed to file a copy of such agreement with the minutes of this meeting.
FISCAL YEAR
The Corporation's fiscal year was discussed. Upon motion duly made
and seconded, the following resolution was unanimously adopted:
RESOLVED, that this Corporation adopt a fiscal year, ending December
31st of each calendar year.
SUBSCRIPTION AGREEMENT
The Chairman then exhibited to the directors a proposed Stock
Subscription Agreement form and Investment Letter. Upon motion duly made and
seconded, the following motion was unanimously adopted:
RESOLVED, that the Stock Subscription Agreement form and Investment
Letter examined by the directors at this meeting is adopted as the Stock
subscription Agreement form and Investment Letter of the Corporation. The
Secretary is directed to insert a copy of the form in the form and letter
in the minute book and attach it to the minutes of this meeting.
There being no further business to come before the meeting, the
meeting was adjourned.
Executed on the 12 day of September, 1997.
ATTEST:
/S/
MELVIN L. JOHNSON, Jr.
Secretary
/S/
WILLIAM R. SANDEN
President
APPROVED:
Original Document Signed by: Sue M. Cooper, Vicke Swanson and Joe Zimmer
Independent Members of the Board of Directors
Original Document Signed by: Jerry Vanhook
Chairman and other Members of the Board of Directors
<PAGE>
ANNUAL MEETING OF THE SHAREHOLDERS
AND DIRECTORS OF
RMX REIT, INC.
On December 15, 1997, the Annual Meeting of the Shareholders and
Directors was convened of RMX REIT, INC. All members of the Board of
Directors and all Shareholders were present, and by their presence did waive
notice of the meeting. Present: Gerald C. Vanhook President and Melvin L.
Johnson acted as Secretary. The Chairman noted the first item of business was
to approve all acts executed on behalf of the Corporation by the Corporate
Officers and Directors during 1997. The company has not yet begun business.
After full discussion and review of all relevant facts, evidenced in the
records of the Corporation pertinent to the issue, it was moved, seconded and
unanimously;
RESOLVED, that all acts executed on behalf of the Corporation by the
Corporate Officers and Directors during 1997 are hereby approved.
The second item of business was to approve the continued offering of
the company stock. After full discussion and review of all relevant facts
pertinent to the issue, it was moved, seconded and unanimously;
RESOLVED, that the Company stock shall continue to be offered to the
public.
The third item of business was to approve the financial statements of
the Company. After full discussion and review of all relevant facts pertinent
to the issue, it was moved, seconded and unanimously;
RESOLVED, that the financial statements are approved.
The fourth item of business was to discuss the general business
enviroment for 1997 and for upcoming years. No resolution was necessary.
There being no further business, the meeting was then adjourned by
unanimous vote of all parties present.
ATTEST:
______________________________
MELVIN L. JOHNSON
Secretary
APPROVED:
______________________________
GERALD C. VANHOOK
Chairman / President
<PAGE>
ANNUAL MEETING OF THE SHAREHOLDERS
AND DIRECTORS OF
RMX REIT, INC.
On December 15, 1998, the Annual Meeting of the Shareholders and
Directors was convened of RMX REIT, INC. All members of the Board of
directors and all Shareholders were present, and by their presence did waive
notice of the meeting. Present: Gerald C. Vanhook President and Melvin L.
Johnson acted as Secretary. The Chairman noted the first item of business was
to approve all acts executed on behalf of the Corporation by the Corporate
Officers and Directors during 1998. The Company has not yet begun business.
After full discussion and review of all relevant facts, evidenced in the
records of the Corporation pertinent to the issue, it was moved, seconded and
unanimously;
RESOLVED, that all acts executed on behalf of the Corporation by the
Corporate Officers and Directors during 1998 are hereby approved.
The second item of business was to approve the continued offering of
the company stock. After full discussion and review of all relevant facts
pertinent to the issue, it was moved, seconded and unanimously;
RESOLVED, that the Company stock shall continue to be offered to the
public.
The third item of business was to approve the financial statements of
the Company. After full discussion and review of all relevant facts pertinent
to the issue, it was moved, seconded and unanimously;
RESOLVED, that the financial statements are approved.
The fourth item of business was to discuss the general business
environment for 1998 and for upcoming years. No resolution was necessary.
There being no further business, the meeting was then adjourned by
unanimous vote of all parties present.
ATTEST:
_______________________
MELVIN L. JOHNSON
Secretary
APPROVED:
_______________________
GERALD C. VANHOOK
Chairman / President
<PAGE>
ANNUAL MEETING OF THE SHAREHOLDERS
AND DIRECTORS OF
RMX REIT, INC.
On December 15, 1999, the Annual Meeting of the Shareholders and
Directors was convened of RMX REIT, INC. All members of the Board of
Directors and all Shareholders were present, and by their presence did waive
notice of the meeting. Present: Gerald C. Vanhook President and Melvin L.
Johnson acted as Secretary. The Chairman noted the first item of business was
to approve all acts executed on behalf of the Corporation by the Corporate
Officers and Directors during 1999. The company has not yet begun business.
After full discussion and review of all relevant facts, evidenced in the
records of the Corporation pertinent to the issue, it was moved, seconded and
unanimously;
RESOLVED, that all acts executed on behalf of the Corporation by the
Corporate Officers and Directors during 1999 are hereby approved.
The second item of business was to approve the continued offering of
the company stock. After full discussion and review of all relevant facts
pertinent to the issue, it was moved seconded and unanimously;
RESOLVED, that the Company stock shall continue to be offered to the
public.
The third item of business was to approve the financial statements of
the Company. After full discussion and review of all relevant facts pertinent
to the issue, it was moved, seconded and unanimously;
RESOLVED, that the financial statements are approved.
The fourth item of business was to discuss the general business
environment for 1999 and for upcoming years. No resolution was necessary.
There being no further business, the meeting was then adjourned by
unanimous vote of all parties present.
ATTEST:
________________________
MELVIN L. JOHNSON
Secretary
APPROVED:
______________________
GERALD C. VANHOOK
Chairman / President
<PAGE>
RMX REIT, INC.
Common Stock
Incorporated Under the Laws of
the State of Washington
Certificate Number:
Shares:
This certifies that SSN; , is the owner of ( ) fully paid and
nonassessable shares of the common stock of RMX REIT, INC., transferable
on the books of the Corporation by the holder hereof in person or by duly
authorized attorney upon surrender of this Certificate properly endorsed.
This certificate is not valid until signed by the Corporation President.
This restrictions on the reverse side of this Certificate are an integral
part hereof. Said Stock is/is not held in Joint Tenancy with the right of
survivorship with spouse; SSN;
IN WITNESS WHEREOF, the Corporation has caused this Certificate to be
signed by its duly authorized officers.
DATED this day of ,2000.
GERALD C. VANHOOK, President
MELVIN JOHNSON, Secretary
A full statement of the designation, relative rights, preferences,
and limitations of the shares of the class authorized to be issued; and the
designation, relative rights, preferences, and limitations of the shares
of this class so far as the same have been fixed by the Board of Directors
will be furnished to any shareholder upon request and without charge.
This stock is "Section 1244 Stock" under the definitions provided for
under Section 1244 of the Internal Revenue Code of the United States.
This stock may be pledged according to the Bylaws of the Corporation,
however, the record owner of these shares represented by this Certificate
shall retain all voting rights. Said shares shall not be transferred on
the Corporate records without the written acknowledgment of the Secretary of
the Corporation. The Secretary of the Corporation is empowered to VOID any
transfer or attempted transfer of these shares that would preclude the
<PAGE>
Company from electing to file its Federal Income Tax Return as a Real Estate
Investment Trust (REIT).
Record of Stock Transfer
For value received, I hereby sell, assign and transfer unto (name,
address, and social security or other identifying number of assignee) share(s)
of the common stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint , as attorney to
transfer the said stock on the books of the within-named Corporation with full
power of substitution in the premises.
DATED this day of , 200__ .
, Stockholder
APPROVED this day of , 200__.
Secretary of the Corporation
NOTICE: The signature to this assignment must correspond with the
name as written upon the fact of this Certificate in every particular, without
alteration or enlargement, or any change whatever.
<PAGE>
RMX REIT, INC.
STOCK SUBSCRIPTION AGREEMENT
The undersigned hereby subscribes for _________________ shares of the
common stock, par value $5.00 per share, of RMX REIT, INC., a Washington
Corporation (the "Corporation") and agrees to pay the Corporation the sum of
$________________ for such shares.
The undersigned agrees that prior to being bound to purchase the shares that
the undersigned will be provided with a copy of the prospectus and then
and only when the undersigned executes the investment letter on the reverse
side of this agreement and actually tenders the funds to purchase said stock.
DATED this ______ day of __________________, 200_.
Shareholder Signature
Name
Address
City/State
Zip Code
Telephone
SSN
Joint Shareholder Signature
(if applicable) Name
Address
City/State
Zip Code
Telephone
SSN
Please Circle: JTWROS Yes No
Certificate Desired Yes No
Reinvest Dividends Yes No
ACCEPTANCE
The foregoing subscription agreement and the consideration reflected
therein are hereby accepted. Certificate ____ is authorized for issue.
DATED this ______ day of _________________, 200_.
RMX REIT, INC.
By:
Its:
<PAGE>
RMX REIT, INC.
STOCK SUBSCRIPTION AGREEMENT
The undersigned hereby subscribes for _________________ shares of the
common stock, par value $5.00 per share, of RMX REIT, INC., a Washington
Corporation (the "Corporation") and agrees to pay the Corporation the sum of
$_________________ for such shares.
The undersigned agrees that prior to the issuance of the shares, he/she
will execute an investment letter in the form attached hereto to reflect that
he/she is acquiring such shares for the term of the investment.
DATED this ______ day of __________________, 200_.
Shareholder Signature _______________________________________
Name _______________________________________
Address _______________________________________
City/State _______________________________________
Zip Code _______________________________________
Telephone _______________________________________
SSN _______________________________________
Joint Shareholder Signature__________________________________
(if applicable) Name __________________________________
Address __________________________________
City/State __________________________________
Zip Code __________________________________
Telephone __________________________________
SSN __________________________________
Please Circle: JTWROS Yes No
Certificate Desired Yes No
Reinvest Dividends Yes No
ACCEPTANCE
The foregoing subscription agreement and the consideration reflected
therein are hereby accepted. Certificate ____ is being held for issue .
DATED this ___ day of _________, 200__.
RMX REIT, INC.
By:______________________________
Its:_____________________________
<PAGE>
RMX REIT, INC.
INVESTMENT LETTER
Gentlemen:
I acknowledge receipt of the Prospectus regarding the Issuance of Common
Stock in RMX REIT, INC., a Washington Corporation (the "Company"). In
connection with my acquisition of these securities, I acknowledge that I have
been delivered a copy of the Prospectus.
I acknowledge that the Company has established investor suitability standards
and that I meet those standards. I certify that I have, (1) a minimum annual
gross income of Forty Five Thousand Dollars ($45,000) and a minimum NET WORTH
of Forty Five Thousand Dollars ($45,000) or (2) a minimum NET WORT of One
Hundred Fifty Thousand Dollars ($150,000). All computations of NET WORTH shall
be determined exclusive of home, home furnishings and automobiles. In the
event that I am a fiduciary, I certify that these minimum standards are met by
the beneficiary, the fiduciary account or by the donor or grantor. I
understand that I am not being asked, nor am I surrendering any right that I
may have under federal and state security laws.
I am acquiring this common stock as a long term investment. I understand
that I may exercise the option to reinvest the dividends on a quarterly basis
and to change the option any time before the quarter ends.
I further understand that I have the choice to receive my shares
electronically or I may receive a stock certificate by regular mail. I
understand that it is my duty to advise the Company that I want a stock
certificate, otherwise the Company will not issue me a hard copy certificate.
I acknowledge that the Company is relying on Section 3(c)(5)(c) that it is
exempt from registration from the provisions of the INVESTMENT ACT OF 1940 and
cannot redeem any of the securities. I acknowledge that the Company will not
redeem the stock represented by this certificate. Initial _____
DATED this ____ day of ________, 200__.
_____________________________________
Print Name and Sign, Shareholder
_____________________________________
Print Name and Sign, Joint Shareholder
(if applicable)
<PAGE>
O'COYNE & PHILLIPS P.S.
ATTORNEYS & COUNSELORS AT LAW
A Professional Services Corporation
DOUGLAS M. O'COYNE, SR. LEGAL ASSISTANTS:
DEBORAH A. MORTEN
ROBERT F. PHILLIPS 1929-1991
Admitted to practice in Washington,
Idaho & the U.S. Tax Court
June 30, 2000
RMX REIT, Inc.
Attn: Board of Directors
4720 200th Street South West, Suite 200
Lynnwood, Washington 98046
RE:RMX REIT, Inc.
Federal SB Offering 1st Post Effective Amendment
Legality of Stock And Legal Proceedings Opinion
Gentlemen:
This opinion is furnished to you in connection with the federal registration
under Rule SB of RMX REIT, Inc. ("RMX" hereinafter) regarding the legality of
stock being issued in connection with the federal offering.
In connection with our Opinion, we have reviewed:
The Articles of Incorporation filed with the Corporation Division of the
Office of the Secretary of State in and for the State of Washington on June
19, 1997; and,
The Bylaws dated September 12, 1997, and,
The Records contained in the Corporate Book; and,
Such other information, including the representations made by the Officers
of the Company, as deemed necessary to adequately form the basis for the
opinion expressed herein.
In such examination, we have assumed the genuineness and authenticity of
all signatures on the original documents, the authenticity of all items
submitted to us and reviewed by us as originals and the conformity with
original documents of all items submitted to us as copies.
<PAGE>
Our opinion is expressed only with respect to the laws governing
corporations
incorporated in the State of Washington and we express no opinion with
respect to the incorporation laws of any other jurisdiction.
Based upon the foregoing, and subject to the further qualifications set
forth below, we are of the opinion that;
1. The Company is a Washington Corporation, duly organized and validly
existing under the laws of the State of Washington, and has authority to carry
on its business as described in the pending Registration Statement.
2. The Company stock to be issued in connection with the Federal
Registration under Rule SB represents shares authorized for issue by the
Shareholders pursuant to RCW 23B.06.010 at the arbitrary offering price of
five dollars ($5.00) per share is allowed under RCW 23B.06.210.
3. The restriction on the transfer of the shares for the purposes of
preserving the company's ability to elect to file its Federal Income Tax
Returns as a REIT under IRC 856 et. seq. is permitted under RCW
23B.06.270(3)(a).
4. The Shares may be issued without certificates pursuant to RCW
23B.06.260. The Company policy not to issue Certificates unless the
Shareholder requests that a Certificate be issued in writing, is allowable
under Washington Corporation Law. The Certificate form to be issued in
connection with the Federal Registration under Rule SB meets the requirements
of RCW 23B.06.250.
5. The Company is not presently involved nor does it expect to be involved
in any legal proceedings, excepting collection actions on loans that are in
default. Since the Company will be involved in purchasing loans secured by
real property, it will, by its very nature always be involved in collection
activities to enforce collection on past due loans, including but not limited
to Judicial and Nonjudicial Foreclosure of Deeds of Trusts, Mortgage
Foreclosures and Real Estate Contract Forfeitures. The undersigned Counsel is
of the opinion that collection actions on delinquent accounts does not
constitute pending or threatening litigation under Financial Accounting
Standards Board Opinion Number 5 (FASB 5) and is properly categorized as
routine litigation incidental to its business.
6. Counsel is not aware of any proceeding that a governmental authority
is contemplating against the Company. However, the Company can expect that
its financial records will be reviewed or audited by the Internal Revenue
Service for correctness and compliance with the Internal Revenue Code
regarding its REIT tax status. The Company can also expect that its
operations and financial records will be reviewed by Federal and or State
Security Regulators regarding its compliance with Security Regulations.
7. The position of Counsel for the Company is that there are no
unasserted claims against the Company that are probable of assertion and if
asserted would have at least a reasonable possibility of an unfavorable
outcome.
<PAGE>
This opinion is delivered to you for use with your registration
filing with the Security and Exchange Commission pursuant to Rule SB and is
not to be used or relied on by you or any other person for any other purpose.
Sincerely yours,
By: /S/
DOUGLAS M. O'COYNE, SR.
Attorney at Law
DOC/rs
cc: Company Officers, RMX REIT, Inc.
<PAGE>
O'COYNE & PHILLIPS P.S.
ATTORNEYS & COUNSELORS AT LAW
A Professional Services Corporation
DOUGLAS M. O'COYNE, SR. LEGAL ASSISTANTS:
DEBORAH A. MORTEN
ROBERT F. PHILLIPS 1929-1991
Admitted to practice in Washington,
Idaho & the U.S. Tax Court
June 30, 2000
RMX REIT, Inc.
Attn: Board of Directors
4720 200th Street South West, Suite 200
Lynnwood, Washington 98046
RE: RMX REIT, Inc.
Federal SB Offering 1st Post Effective Amendment
Opinion on Federal Income Tax Consequences
Gentlemen:
This opinion is furnished to you in connection with the federal
registration under Rule SB of RMX REIT, Inc. ("RMX" hereinafter) regarding the
Federal Income Tax Consequences associated with this stock being issued in
connection with the federal offering.
In connection with our Opinion, we have reviewed the Articles of
Incorporation, the By-laws, the Certified Stock Register, the Records
contained in the Corporate Book and such other information, including the
representations made by the Officers of the Company, as deemed necessary to
adequately form the basis for the opinion expressed herein.
In such examination, we have assumed the genuineness and authenticity of
all signatures on the original documents, the authenticity of all items
submitted to us and reviewed by us as originals and the conformity with
original documents of all items submitted to us as copies.
Our opinion is expressed only with respect to the laws governing
Corporations incorporated in the State of Washington which has no Income Tax,
and the provision applicable to a Real Estate Investment Trust (REIT) in the
Internal Revenue Code of the United States.
<PAGE>
Based upon the foregoing, and subject to the further qualifications set
forth below, we are of the opinion that;
1. The Company qualifies as a REIT for Federal Income Tax purposes so
long as it meets and continues to meet the definition set forth in the
Internal Revenue Code for the Company to make the election to file its Federal
Income Tax as a REIT.
2. The Opinion regarding the Federal Income Tax Consequences related to
the Issuer and its shareholders is attached hereto and incorporated herein as
if fully set forth and is incorporated into the body of the Disclosure
Document.
This opinion is delivered to you for use with your registration filing
with the Securities and Exchange Commission pursuant to Rule SB and is not to
be used or relied on by you or any other person for any other purpose.
Sincerely yours,
By: /S/
DOUGLAS M. O'COYNE, SR.
Attorney at Law
DOC/trs
cc: Company Officers, RMX REIT, Inc.
<PAGE>
O'COYNE & PHILLIPS P.S.
ATTORNEYS & COUNSELORS AT LAW
A Professional Services Corporation
DOUGLAS M. O'COYNE, SR. LEGAL ASSISTANTS:
SCOTT A. NIEBLING MICHELLE L. HUNT
ROBERT F. PHILLIPS 1929-1991 THERESA SANDERSON
Admitted to practice in Washington,
Idaho & the U.S. Tax Court
Admitted to practice in Washington
June 30, 2000
RMX REIT, Inc.
Attn: Board of Directors
4720 200th Street South West, Suite 200
Lynnwood, Washington 98046
RE: RMX REIT, Inc.
Federal SB Offering
Usury Opinion
Gentlemen:
This opinion is furnished to you in connection with the federal registration
under Rule SB of RMX REIT, Inc. ("RMX" hereinafter). CLS Financial Services,
Inc., ("CLS" hereinafter), is the management company for RMX under a
Management Contract. Under the marketing provisions of the Management
Contract, CLS has agreed to sell Mortgage Paper Securities (the "loans") to
RMX. CLS advertises and negotiates the terms of the loans, including the
discount fee, directly with the Borrowers. CLS then originates the loans
using its line of credit with a Bank and/or a private investor, closes the
loans, escrows the loans with its affiliate company, Puget Sound Real Estate
Services Group, Inc., ("PSRESG" hereinafter). Shortly thereafter a portion of
the loans will be sold to RMX. All of the loans sold to RMX will consist of
Promissory Notes secured by Deeds of Trust, Real Estate Contracts, Mortgages,
and undivided fractional interests therein. Some of the loans will be secured
either by (a) first lien on one to four family residential real properties
located in the State of Washington, ("first lien loans") or junior liens on
real property located in the State of Washington ("junior lien loans").
You have asked whether the interest rate charged on loans will be limited
by the Washington State Usury Statute (Chapter 19.52 of the Revised Code of
Washington). In expressing our opinion, we have (a) relied, as to matters of
fact, on the representations contained in the Registration Statement of the
Mortgage Paper Securities Offering on file with the Securities Division, of
the Department of Financial Institutions for the State of Washington made by
CLS Financial Services, Inc; and (b) we have reviewed the proposed forms of
<PAGE>
the Promissory Note, Deeds of Trust, Real Estate Contract, Mortgage and
business purpose affidavit (the loan documents), which have been delivered to
the Securities Division of the Department of Financial Institutions in and for
the State of Washington; and (c)assumed (i) with respect to each loan, that
the loan was originated by CLS and it was documented using those loan
documents, and (ii) with respect to each junior lien loan, that the junior
lien loan has been made primarily for an agricultural, commercial, investment,
or a business purpose (hereinafter referred to as "Business Purpose") and
(iii) with respect to each first lien loan, that the first lien is secured by
a first lien on a one to four family residential property and (iv) that CLS is
in fact in the business of brokering and otherwise conducting a lending
business and (v) that the total annual volume of new loans made by CLS and
secured by residential real property (regardless of lien position), exceeds
$1,000,000; and assumed that the Promissory Note is properly indorsed and
delivered to RMX and the Deed of Trust, Mortgage or Real Estate Contract
are properly assigned to RMX and Recorded in the County Auditor's Office.
Based on and subject to the foregoing, and so long as all of the
assumptions set forth in the preceding paragraphs remain true, it is our
opinion with regard to first lien loans that (1) CLS meets the definition of
a creditor contained in 15 USC 1602(f), which is incorporated into the
definition of federally related mortgage loans by 12 USC 1735(f)-5(b)(2)(D),
and that (2) said loans are federally preempted from Washington Usury Law
under the provisions of the Depository Institution of Deregulation and
Monetary Control Act of 1980 ("DIDMA"). Consequently after the loan is
properly assigned to RMX and in the event of a default by a borrower in
performing certain obligations set forth in one of the loans described above,
the borrower would not be entitled to raise usury as a defense under RCW 19.52
et seq. It is our opinion with regard to second lien loans that, in event of
a default by a borrower in performing the obligations set forth above in one
of the second lien loans, the borrower would not be entitled to raise the
defense of usury under RCW 19.52 et seq. RMX would be able to enforce the
terms of the Promissory Note or elect to foreclose on the real property
nonjudicially or judicially consistent with the applicable provisions of
Chapter 61 of the Revised Code of Washington.
Any questions regarding this Opinion should be directed to the
undersigned. The opinions expressed in this letter are limited to matters
governed by the Federal Laws of the United States and the laws of the State of
Washington, and we express no opinion as to the laws of any other
jurisdiction. This Opinion is delivered to CLS Financial Services, Inc., and
the Board of Directors of RMX REIT, Inc. in connection with the federal
offering under Rule SB. This Opinion is not to be used or relied on by you or
any other person for any other purpose.
Sincerely yours,
By: /S/
DOUGLAS M. O'COYNE, SR.
Attorney at Law
DOC/trs
cc: Board of Directors, RMX REIT, Inc.
<PAGE>
O'COYNE & PHILLIPS P.S.
ATTORNEYS & COUNSELORS AT LAW
A Professional Services Corporation
DOUGLAS M. O'COYNE, SR. LEGAL ASSISTANT:
SCOTT A. NIEBLING RACHEL M. SMESTAD
ROBERT F. PHILLIPS 1929-1991
Admitted to practice in Washington,
Idaho & the U.S. Tax Court
Admitted to practice in Washington
June 30, 2000
Securities and Exchange Commission
Attn: Examiner
Washington, D.C. 20549
Re: RMX Real Estate Investment Trust, Inc.
SB-2 Registration First Post Effective Amendment
Consent to inclusion in disclosure document of attorney's opinion
File No. 333-42975
Dear Gentlemen:
As the attorneys for RMX Real Estate Investment Trust, Inc., we hereby
consent to the use of our name in the above referenced matter and to all
references to our firm included in or made a part of the Offering Circular and
Disclosure Document for the sale of its Common Stock.
Sincerely yours,
/S/
DOUGLAS M. O'COYNE, SR.
Attorney at Law
<PAGE>
PETERSON SULLIVAN PLLC
Certified Public Accountants
June 30, 2000
Securities and Exchange Commission
Attn: Examiner
Washington, D.C. 20549
Re: RMX Real Estate Investment Trust, Inc.
SB-2 Registration First Post Effective Amendment
Consent to inclusion in disclosure document of accountant's opinion
File No. 333-42975
Dear Gentlemen:
As the accountants for RMX Real Estate Investment Trust, Inc., we hereby
consent to use of our name in the above referenced matter and to all
references to our firm included in or made a part of the Offering Circular and
Disclosure Document for the sale of its Common Stock. We consent to the
inclusion in and incorporation by reference in the RMX Reit, In., offering our
audit, dated July 20, 1999, of the financial statement of RMX Reit, Inc., as
of June 30, 1999 and our audit dated April 19, 2000 of the financial
statements of RMX Reit, Inc., as of March 31, 2000.
Sincerely yours,
/S/
PETERSON, SULLIVAN PLLC
Certified Public Accountant
<PAGE>
UNDERTAKINGS. The Company did register and is registering these Securities
under Rule SB of the Securities Act. The Company has and will continue to
file, during any period which it offers or sells securities, a post-effective
amendment to this registration statement to:
(a) Include any prospectus required by section 10(a)(3) of the
Securities Act; and
(b) Reflect in the prospectus any facts or events which, individually or
together, represent a fundamental change in the information in the
registration statement; and
(c) Include any additional or changed material information on the plan
of distribution, including the most recent Unaudited Quarterly Financial
Statements, the Annual Report and the Annual Audited Financial Statements.
(d) The Company will voluntarily file periodic reports as required under
the applicable reporting rules.
THIS SPACE INTENTIONALLY LEFT BLANK
<PAGE>
SIGNATURES OF COMPANY OFFICERS
In accordance with the requirements of the Securities Act of 1933, the
registrant 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 Spokane, State of Washington, on this 30th day of June, 2000.
RMX REIT, Inc.
by:/S/
Gerald C. Vanhook, its President
The Chief Financial Officer signing this form does hereby certify that the
financial statements submitted fairly state the Company's financial
position and results of operations, or receipts and disbursements, as of the
dates and periods indicated, all in accordance with generally accepted
accounting principals consistently applied (except as stated in the notes
thereto) and (with respect to year-end figures) including all adjustments
necessary for fair presentation under the circumstances as of this 30th
day of June, 2000.
RMX REIT, Inc.
by:/S/
Melvin L. Johnson, its Secretary
and Chief Financial Officer
<PAGE>
SIGNATURES OF BOARD OF DIRECTORS
A majority of the Directors and the Chief Executive and Financial Officers
of the Company have signed this Disclosure Document on behalf of the Company
and by so doing thereby certify that each has made diligent efforts to verify
the material accuracy and completeness of the information herein contained.
By signing this Disclosure Document, the Chief Executive and Chief Financial
Officers agree to make themselves, the Company's books and records, copies of
any contract, lease or other document referred to in the Disclosure Document,
or any other material contract or lease (including stock options and employee
benefit plans), except any proprietary or confidential portions thereof, and a
set of the exhibits to this Disclosure Document, available to each investor
prior to the time of investment, and to respond to questions and otherwise
confirm the information contained herein prior to the making of any investment
by such investor.
/S/ /S/ /S/
Melvin L. Johnson Gerald C. Vanhook G. Gordon Benjamin
Director 1/1/99 Director 12/11/97 Director 1/1/99
/S/ /S/
Joseph R. Zimmer Susan M. Cooper
Director 12/11/97 Director 12/11/97
