<PAGE>
Registration No. _____________
================================================
U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM SB-2
Registration Statement Under The Securities Act of 1933
CHURCH LOANS & INVESTMENTS TRUST
(Name of small business issuer in its charter)
Texas 75-6030254
- ------------------------------- ----------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
6798
----------------------------
(Primary Standard Industrial
Classification Code Number)
5305 I-40 West
Amarillo, Texas 79106
806-358-3666
-----------------------------
(Address and telephone number
of principal executive offices)
Gerald G. Morgan, Jr.
5700 S.W. 45th
Amarillo, Texas 79109
806-358-8116
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(Name, address and telephone number of agent for service)
Copies of communications to:
Gerald G. Morgan, Jr.
P.O. Box 19300
Amarillo, Texas 79114
----------------------------
(Counsel for the Registrant)
================================================
Approximate date of commencement of proposed sale to the public:
As soon as practicable after the effective date of this registration statement.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ _ ]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ X ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ _ ]
If delivery of the prospectus is expected be made pursuant to Rule 434,
please check the following box.[ _ ]
================================================
CALCULATION OF REGISTRATION FEE
================================================================================
Proposed Proposed maximum
Title of Amount maximum aggregate Amount of
securities being offering offering registration
being registered registered price per unit price(1) fee
- --------------------------- ---------- -------------- ------------ -------------
Secured Savings Certificates Unknown(1) Unknown(1) $20,000,000 $6,897
================================================================================
(1) The number of units and the proposed maximum offering price per unit cannot
be determined due to the fact that the securities to be offered may be
purchased in amounts of $1,000 or more.
The Registrant hereby amends this Registration Statement on such 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 Section 8(a) may
determine.
===============================================
<PAGE>
CHURCH LOANS & INVESTMENTS TRUST
CROSS REFERENCE SHEET PURSUANT TO RULE 404(c)
<TABLE>
<CAPTION>
Location, Heading or Subheading in
FORM SB-2 ITEM REGISTRATION STATEMENT OR PROSPECTUS
-------------- ------------------------------------
<S> <C>
1. Front of Registration Statement and Outside Front Front of Registration Statement and Outside Front
Cover Page of Prospectus............................. Cover Page of Prospectus
2. Inside Front and Outside Back Cover Pages of Pro- Inside Front and Outside Back Cover Pages of Pro-
spectus.............................................. spectus
3. Summary Information and Risk Factors ................ Prospectus Summary; Risk Factors; The Trust
4. Use of Proceeds...................................... Use of Proceeds
5. Determination of Offering Price...................... Not Applicable
6. Dilution............................................. Not Applicable
7. Selling Security Holders............................. Not Applicable
8. Plan of Distribution................................. Plan of Distribution
9. Legal Proceedings.................................... Legal Proceedings
10. Directors, Executive Officers, Promoters, and
Control Persons...................................... Directors and Executive Officers
11. Security Ownership of Trust Managers and Beneficial Security Ownership of Trust Managers and
Owners and Management................................ Management
12. Description of Securities............................ Description of Certificates
13. Interest of Named Experts and Counsel................ Legal Opinions; Experts
14. Disclosure of Commission Position on
Indemnification for Securities Act Liabilities....... Indemnification
15. Organization Within Last Five Years.................. Not Applicable
16. Description of Business.............................. The Trust; Business of the Trust; Summary Selected
Financial Data; Management's Discussion and
Analysis or Plan of Operation; Financial Statements
17. Management's Discussion and Analysis
or Plan of Operation................................. Management's Discussion and Analysis or Plan of
Operation
18. Description of Property.............................. Description of Properties
19. Certain Relationships and Related Transactions....... Certain Relationships and Related Transactions
20. Market for Common Equity and Related
Stockholder Matters.................................. Market for Common Equity
21. Executive Compensation............................... Executive Compensation
22. Financial Statements................................. Financial Statements
23. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.................. Changes in Accountants
</TABLE>
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PROSPECTUS
$20,000,000
CHURCH LOANS AND INVESTMENTS TRUST
A Real Estate Investment Trust ("Trust")
Secured Savings Certificates, Series O
(hereinafter referred to as "Certificates")
SEE "RISK FACTORS" FOR CERTAIN CONSIDERATIONS
RELEVANT TO AN INVESTMENT IN THE CERTIFICATES.
There is no established trading market for the Certificates offered hereby
and the Trust does not anticipate that an active trading market will be
established. The Trust will not voluntarily redeem any of the Certificates prior
to maturity. The Certificates offered hereby are debt securities of the Trust
which will be offered at various rates of interest as described below.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
THE CERTIFICATES ARE NOT GUARANTEED OR ISSUED BY ANY GOVERNMENTAL AGENCY.
- --------------------------------------------------------------------------------
DISCOUNTS & PROCEEDS
PRICE TO PUBLIC COMMISSIONS TO THE TRUST
- --------------------------------------------------------------------------------
Minimum Purchase.............$ 1,000(1) $ 7.50(2) $ 992.50(2)
Total Certificates Offered...$20,000,000 $150,000(2) $19,850,000(2)(3)
- --------------------------------------------------------------------------------
(1) Certificates may be purchased only in amounts of $1,000 or any amount in
excess of said amount.
(2) The discount or selling commission is not based upon a fixed percentage of
the principal amount of the Certificates sold but is computed on the basis
of an annualized rate of .75 of 1% per annum of the principal amount of the
Certificates sold from the date of issuance to the date of maturity. For
this reason the exact amount of the discount and commissions cannot be
determined and is an estimate only.
(3) Such proceeds are an estimate, assuming all Certificates are sold, but
before deducting expenses of the Offering payable by the Trust, expenses
estimated to be $57,897, including registration fees, legal and accounting
fees, printing and other miscellaneous fees.
Certificates may be purchased for periods from 30 days to 10 years.
Interest rates upon Certificates offered hereby may vary from time to time, but
the interest rate upon each Certificate shall remain constant at the rate upon
the date issued during the term of the Certificate. See attachment to cover page
of this Prospectus for the current rate of interest payable by the Trust upon
Certificates offered hereby. The rate of interest to be paid upon Certificates
offered hereby may be changed by the Trust for Certificates of similar
maturities and amounts over the term of the offering period.
Interest rates upon Certificates issued for a term less than six months are
negotiable and are based upon the amount and the term of the Certificate
purchased. Interest rates on these certificates are less than the rates on
Certificates in comparable amounts with terms of six (6) months.
THE TRUST RESERVES THE RIGHT TO REJECT ANY ORDER IN WHOLE IN OR IN PART.
THIS OFFERING OF CERTIFICATES WILL TERMINATE _____________.
THE CERTIFICATES BEING OFFERED ARE BEING DISTRIBUTED BY
GREAT NATION INVESTMENT CORPORATION
-----------------------------------------------
The Date of this Prospectus is __________, 1995.
===============================================
<PAGE>
TABLE OF CONTENTS
PAGE
----
Available Information................................................... 2
Documents Incorporated by Reference..................................... 2
Prospectus Summary...................................................... 3
Summary Selected Financial Data......................................... 4
Risk Factors............................................................ 5
Use of Proceeds......................................................... 11
Plan of Distribution.................................................... 11
Legal Proceedings....................................................... 11
Directors and Executive Officers........................................ 12
Security Ownership of Trust Managers and Management..................... 12
Description of Certificates............................................. 13
Legal Opinions.......................................................... 17
Experts................................................................. 17
Indemnification......................................................... 17
The Trust............................................................... 17
Business of the Trust................................................... 18
Management's Discussion and Analysis or Plan of Operation............... 19
Description of Properties............................................... 23
Certain Relationships and Related Transactions.......................... 23
Market for Common Equity................................................ 24
Executive Compensation.................................................. 24
Changes in Accountants.................................................. 25
Index to Financial Statements........................................... 26
-----------------------------------------------
AVAILABLE INFORMATION
Church Loans & Investments Trust (the "Trust") is subject to the
informational requirements of the Securities and Exchange Act of 1934 and in
accordance therewith files reports and other information with the Securities and
Exchange Commission. Certain information, as of particular dates concerning its
trust managers and officers, their remuneration and any material interest of
such persons in transactions with the Trust has been disclosed in proxy
statements distributed to shareholders of the Trust and filed with the
Commission. Such reports, proxy statements and other information can be
inspected at the office of the Commission at Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549; and at Room 1204, 411 West Seventh St., 8th Floor,
Ft. Worth, Texas 76102; copies of such material can be obtained from the Public
Reference Section of the Commission, 450 Fifth Street, N.W., Washington, D.C.
20549 at prescribed rates.
This prospectus does not contain all the information as set forth in the
Registration Statement and the Exhibits thereto which the Trust has filed with
the Securities and Exchange Commission, Washington, D.C., under the Securities
Act of 1933, to which Registration Statement reference is hereby made. For
further information pertaining to the Trust and the Certificates offered hereby,
reference is made to the Registration Statement, including the Exhibits and the
financial statements and notes filed as part thereof. Copies of the Exhibits are
on file at the offices of the Securities and Exchange Commission in Washington,
D.C., and may be obtained at rates prescribed by the Commission upon request to
the Commission.
DOCUMENTS INCORPORATED BY REFERENCE
The Trust hereby incorporates by reference into the Prospectus its Annual
Report on Form 10-KSB405 for the fiscal year ended March 31, 1995 as filed with
the Commission. Any statement contained herein and incorporated by reference
herein shall be deemed to be modified or superceded for purposes of this
Prospectus to the extent that a statement contained herein modifies or
supersedes such statement.
The Trust hereby undertakes to provide, without charge, to each person to
whom a Prospectus is delivered, upon written or oral request of such person, a
copy of any and all information that has been incorporated by reference, other
than exhibits to such documents. Requests should be made to Kelly Archer, 5305
I-40 West, Amarillo, Texas 79106, telephone number 806-358-3666.
2
<PAGE>
- --------------------------------------------------------------------------------
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE DETAILED
INFORMATION AND FINANCIAL STATEMENTS APPEARING ELSEWHERE IN THE PROSPECTUS AND
IN THE DOCUMENTS INCORPORATED HEREIN BY REFERENCE.
THE OFFERING
Issuer.....................Church Loans & Investments Trust (The Trust, page 17)
Securities Offered......................$20,000,000 Secured Savings Certificates
(Description of Certificates, page 13)
Interest Payment Dates..........Monthly, quarterly, semi-annually or at maturity
as selected by investor (Description of Certificates, page 13)
Use of Proceeds................Refinance maturing Certificates and certain other
indebtedness presently outstanding
and fund future loan commitments of the Trust
(Use of Proceeds, page 11)
Risk Factors.....................A purchase of the Certificates involves certain
risks. Potential purchasers should carefully
consider the information set forth under the
heading "RISK FACTORS" which follows this
Summary (Risk Factors, page 5)
THE TRUST
Business..........................Real estate investment trust engaged primarily
in making conventional loans to churches and other
non-profit organizations (The Trust, page 17)
Offices....................................5305 I-40 West, Amarillo, Texas 79106
(806) 358-3666 (The Trust, page 17)
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3
<PAGE>
SUMMARY SELECTED FINANCIAL DATA
The following table summarizes certain financial data and is qualified
in its entirety by the more detailed Financial Statements included herein.
Years Ended March 31,
-----------------------------
1995 1994
INCOME STATEMENT: ---------- ----------
Interest and fees on mortgage loans, church
bonds and interim construction loans.........$4,387,244 4,291,973
Net interest income........................... 2,987,843 2,964,585
Net income.................................... 2,344,026 2,288,342
BALANCE SHEET:
(at end of period)
Mortgage loans, church bonds and in-
terim construction loans, net of allow-
ance for possible credit losses..............38,586,448 36,070,634
Total assets..................................40,171,261 37,798,682
Total liabilities.............................18,937,293 16,526,223
Shareholders' equity..........................21,233,968 21,272,459
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING 7,007,402 7,007,402
PER SHARE:
Net income (1) and (2)......................$ .33 .33
Dividends (2) and (3)....................... .34 .31
- ------------
(1) There were no extraordinary items included in the determination of net
income for any of the periods presented.
(2) There were no share equivalents or other potentially dilutive securities
outstanding during any of the periods presented.
(3) See Note 7 to Financial Statements.
This space left blank intentionally
4
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RISK FACTORS
MATURING OBLIGATIONS OF THE TRUST
From the time of its organization the Trust has borrowed funds to assist in
its business operations of making loans to churches and other non-profit
organizations. These borrowed funds have consisted generally of Certificates
which have been previously sold by the Trust, a credit line agreement with a
bank, term notes payable to banks, and loans under master note agreements with
other creditors.
At March 31, 1995, the annual maturities of all net obligations of the
Trust were such that the principal payments scheduled to be received by the
Trust from its loan portfolio, together with the balance available to the Trust
under its bank line of credit, would be sufficient for the Trust to meet all of
its debt obligations without the necessity of the Trust selling additional
Certificates. See "Management's Discussion and Analysis or Plan of Operation."
It is the intent of the Trust to extend the bank line of credit.
Should the Trust increase its debt obligations by the sale of additional
Certificates or by the commitment of additional loans or the purchase of
additional loans, it may be necessary for the Trust to continue to sell
additional Certificates in order for the Trust to have funds necessary to meet
all of its financial obligations. There is no assurance that the Trust would be
able to sell additional Certificates should it be necessary to do so, in which
event it would be necessary for the Trust to obtain a loan from a bank or other
financial institution, or sell a portion of its investment portfolio of
promissory notes of churches or secure a loan or loans from a lender, or both.
There is no assurance that the Trust would be able to obtain a loan from a
lender or sell any of its investment portfolio upon terms satisfactory to the
Trust. To the extent that Certificates are sold having maturity dates of one
year, or less, the financial condition of the Trust would not be substantially
improved since the proceeds received by the Trust from the sale of these
Certificates would of necessity be used to pay the principal and interest upon
Certificates previously sold by the Trust which would mature during this period.
In the event a loan could not be obtained and it became necessary for the Trust
to sell a portion of its investment portfolio of promissory notes of churches,
it would probably be necessary that such notes be sold at a discount, which
would reduce the equity of the Trust to the detriment of its shareholders. The
extent, if any, which the Trust would have to discount its investment portfolio
should it be required to sell such notes cannot be determined at this time. See
"Management's Discussion and Analysis or Plan of Operation."
BEST EFFORTS OFFERING OF CERTIFICATES
The Certificates offered herein are to be offered upon a best efforts
basis. There is no assurance that all, or any portion, of this offering will be
sold. As of March 31, 1995, the prime interest rate charged by banks in the
geographical area of the office of the Trust is 9% per annum. In order for the
Certificates offered hereby to be an attractive investment at this time, the
Trust anticipates that it will be necessary to pay interest upon said
Certificates at an average rate of approximately 7% per annum. During the period
that the Certificates offered hereby are being offered, the amount of interest
which may be required by the Trust to be paid upon said Certificates may vary
either upward, or downward, to meet the competition in the market.
LIMITED TIME OF TRUST MANAGERS
At the present time, no Trust Manager devotes his full time to the business
of the Trust. The Trust Managers shall devote only such time to the business of
the Trust as their duty in this regard may require. The day-to-day operation of
the Trust is handled by four full-time employees, and such part-time employees
as, from time to time, may be necessary.
RISK OF DEFAULT ON LOANS
GENERAL
All real property investments are subject to some degree of risk. The
mortgage loans in which the Trust intends to invest will not be insured. In the
event of a default by a borrower it may be necessary for the Trust to foreclose
its mortgage or engage in negotiations which may involve further outlays to
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protect the Trust's investment. The mortgages securing the Trust's loans may be
or become, in some cases, subordinated to mechanics' or materialmen's liens. In
such cases it may become necessary, in order to protect a particular investment,
for the Trust to make payments in order to maintain the current status of a
prior line or discharge it entirely. It is possible that the total amount
recovered by the Trust in such cases may be less than its total investment,
resulting in losses to the Trust.
INDIVIDUAL GUARANTORS OF LOANS
In some cases, loans made by the Trust are guaranteed by individual members
of the congregation to whom a loan is made. Since no financial statements of
individual members of the congregation are required, the Trust does not
presently know the ability of such guarantors to repay the loan in case of
default. In the event it becomes necessary for the Trust to foreclose upon the
real estate securing a loan to a congregation, such security would be sold at
public or private sale as provided in the mortgage or deed of trust given by
such congregation to the Trust. Should the proceeds from such sale be
insufficient to pay in full the principal and interest upon the note together
with all expenses of foreclosure, the individual members of the congregation
would be called upon by the Trust to pay any such deficiency pursuant to the
terms of the guaranty agreement. Whether the Trust would file suit against any
or all of the individual guarantors of the note would depend upon certain
factors existing at such time, including, but not necessarily restricted to the
following: the amount of deficiency, if any, existing after the individual
guarantors were called upon to pay the same, the availability of the guarantors
for judicial process, and the financial condition of the guarantors.
INTERIM LOANS
Although the Trust is engaged in the business of making both long-term
permanent loans and short-term interim loans to churches and other non-profit
organizations, during the past several years the majority of the loans made by
the Trust were interim loans. Most of these loans were for the purpose of
financing the purchase and/or construction of church buildings and facilities,
or for the renovation of these facilities. Most of these interim loans were
associated with bond offerings of the borrowers whereby the proceeds from the
sale of the bonds would be used to repay the interim loan by the Trust. The
timely repayment of these interim loans is primarily dependent upon the success
of the borrower in selling its bonds. Since these bonds are generally sold on a
best efforts basis, with no firm underwriting or commitment by the broker-dealer
to purchase any of the bonds, there is no assurance that bonds in sufficient
amounts will be sold in order to timely repay the interim loan by the Trust. All
permanent and interim loans by the Trust are secured by a first mortgage or deed
of trust on the property of the borrower. In situations where the Trust makes an
interim loan to be repaid from the proceeds of a bond offering of the borrower,
if any of the bonds of the offering are sold, the mortgage or deed of trust lien
securing the interim loan by the Trust would be of equal priority with the
mortgage or deed of trust liens securing the payment of the bonds which are
actually sold. Should the borrower be unable to sell bonds in a sufficient
amount to repay the interim loan, the Trust would have the option to either
foreclose on the property securing the interim loan, or to extend the term of
the loan over a longer period. In either case, the interest of the Trust in the
property securing the payment of its loan by virtue of its mortgage or deed of
trust would be in proportion to the respective indebtedness of the borrower to
the Trust and the bondholders, as the indebtedness of each bears to the total
indebtedness to both.
DELINQUENT LOANS
It is generally the practice of the Trust to discontinue the accrual of
interest upon mortgage loans which are 90 days or more past due, and to
discontinue the accrual of interest upon church bonds where the issuer of the
bonds fails to make a semi-annual payment of principal or interest upon the
bonds. At March 31, 1995, the Trust had discontinued the accrual of interest
upon mortgage loans and church bonds totaling $3,405,793. Of these non-earning
loans, one is an interim loan with a principal balance of $1,520,977 as of March
31, 1995 and the balance of these mortgage loans and church bonds represent
separate churches located throughout the country. These churches are located in
small and medium size cities as well as in the inner city of large metropolitan
areas. There is no single reason for the failure of these churches to meet their
financial obligations as the reasons for such defaults vary in each situation.
The most common causes for a church to fail to meet its permanent mortgage loan
obligations are (i) an economic downturn in the geographical area of the church
resulting in a loss of its members and (ii) the over extension by a church of
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its borrowings based upon its ability to repay these borrowings from its
contributions and other receipts. Default by churches in the payment of interim
loans is usually caused by a church's failure to meet its obligations during a
pending bond program resulting in an inability of the Broker to sell the bonds
in a timely manner or causing the Broker to remove the bonds, in their entirety,
from the market.
Virtually all payments which are received by the Trust from churches upon
mortgage loans or bonds where the accrual of interest has been discontinued is
currently being applied by the Trust to the reduction of the principal of the
debt obligation of the church and not to the accrued interest thereof.
The following schedule summarizes the Trust's nonperforming assets:
<TABLE>
<CAPTION>
-------------------------------------------------------------
1991 1992 1993 1994 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Nonaccrual mortgage loans and church bonds........... $1,528,141 1,334,578 1,641,561 1,519,340 3,405,793
Loans past due over 90 days not included above....... -- 23,047 48,622 -- --
------------ ---------- ----------- -------------- ---------
Total nonperforming loans.......... $1,528,141 1,357,625 1,690,183 1,519,340 3,405,793
========== ========= ========= ========= =========
</TABLE>
Interest income which would have been recorded under the original terms of
nonaccrual loans and the interest income actually recognized are summarized
below:
<TABLE>
<CAPTION>
-------------------------------------------------------------
1991 1992 1993 1994 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Interest income which would have been recorded...... $184,630 150,897 186,266 171,367 282,551
Interest income recognized.......................... -- -- -- -- --
-------- ------- ------- ------- -------
Interest income foregone............................ $184,630 150,897 186,266 171,367 282,551
======== ======= ======= ======= =======
</TABLE>
COMMITMENTS EXCEEDING CASH ON HAND
The Trust's commitments to make loans to churches and other non-profit
organizations may exceed its cash on hand. The Trust believes that the funds
available to the Trust, from future sales of Certificates of the Trust,
short-term borrowings under its line of credit and available cash flows from the
operations of the Trust, will enable it to meet its obligations under these
commitments. The availability of cash flows from the operations of the Trust is,
however, dependent upon the ability of the borrowers to repay loans. In the
event that a significant portion of the Trust's outstanding mortgage loans were
to become delinquent, the Trust might be unable to meet its obligations under
its outstanding commitments without additional financing, the terms and
availability of which cannot be predicted. Should additional financing be
unavailable, the Trust would be required to liquidate certain of its
investments, which would have an adverse effect upon its operations. Loan
commitments by the Trust are legally enforceable obligations of the Trust and if
not timely funded, would subject the Trust to claims for damages by borrowers to
whom such commitments were made but not funded. At March 31, 1995, the Trust had
outstanding loan commitments (by contract amounts) of approximately $1,824,000.
The proceeds received by the Trust in the sale of the Certificates offered
hereby will be used primarily for the purpose of meeting the present financial
obligations of the Trust and, secondarily, for the purpose of funding new loan
commitments which the Trust may make in the future. See "Use of Proceeds," page
11. It is contemplated that any loans which may be made by the Trust in the near
future will either be based upon an adjustable interest rate tied to the prime
rate of interest charged by large domestic banks, or at a fixed rate of interest
for loans which will be repayable over a relatively short term of from six
months to five years.
7
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COMPETITION
In the field of long-term mortgage financing, the Trust will be competing
against church bond programs, commercial banks, savings and loan associations,
and other lenders to make long-term loans to churches for the purpose of
providing funds for financing the cost of the construction of church buildings
and facilities. Loans to churches, as in the case of commercial loans, generally
are competitive as to rate of interest and other costs associated with the loan,
the term of the loan, and the security to be given by the borrower for the
payment of the loan. Any loans which may be made by the Trust will be
competitive with other lending institutions as to the rate of interest to be
paid by the borrower and as to the term which the loan is to be repaid. An
increase in the availability of investment funds may increase competition for
suitable investment opportunities, resulting in a reduced yield on those
available.
LEVERAGING
The Trust uses leveraging (borrowing of funds for lending purposes) to
increase its assets available for investment. The resulting higher level of
obligations may increase commensurately the Trust's exposure of risk of loss. In
order to repay such borrowings, the Trust may be required to liquidate certain
of its investments, which may have an adverse effect upon the Trust's
operations. The Declaration of Trust authorizes the Trust to incur indebtedness
in an amount not to exceed 800% of the total value of the assets of the Trust
which may be pledged to secure such indebtedness. It is the present intention of
the Trust to incur indebtedness not to exceed 150% of the value of the assets of
the Trust which are pledged to secure such indebtedness. As of March 31, 1995,
the Trust had pledged mortgage loans totaling $24,129,001 to secure the
indebtedness of the Trust. The pledged loans constituted 60.07% of the total
assets of the Trust. At March 31, 1995, the total liabilities of the Trust were
47.14% of its total assets.
INTEREST INCOME AND EXPENSE OF THE TRUST
As of March 31, 1995, the principal balance of the permanent and interim
loans and church bonds extended by the Trust to churches and other non-profit
organizations totaled $39,231,497. The weighted average interest rate upon this
loan portfolio mortgage loans and church bonds was 10.94% per annum. At such
time the debt outstanding of the Trust was $18,523,089. The weighted average
interest rate upon this indebtedness was 8.02% per annum. Since all of the
indebtedness of the Trust is either directly or indirectly tied to the prime
rate of interest charged by major domestic banks and is subject to the
day-to-day fluctuation of such prime rate, it is impossible to compute with any
degree of accuracy the interest expense to be incurred by the Trust upon its
outstanding obligations.
As shown above the weighted average interest rate upon the loans of the
trust is more than the weighted average interest rate on the outstanding debts
of the Trust. Although a majority of the loans of the Trust have been made at
variable rates of interest that generally reprice annually, 23.3% of the loans
constituting the Trust's loan portfolio have been made at fixed rates of
interest and therefore are not subject to being increased or decreased during
the term of the loan. All permanent and interim loans presently being made by
the Trust are based upon a variable interest rate tied to the prime rate. The
average remaining term upon the loans comprising the permanent loan portfolio of
the Trust at March 31, 1995 was approximately 12.76 years.
Since a portion of the loans of the Trust have been made at a fixed rate of
interest, as the prime rate of interest increases causing an increase in the
interest rate upon the indebtedness of the Trust, the net income of the Trust
will generally decrease. However, interest income should subsequently increase
as variable rate loans reprice. Correspondingly, as the prime rate of interest
decreases, the net income of the Trust will generally increase. However,
interest income should subsequently decrease as variable rate loans reprice.
COMPENSATION TO DEALER
Great Nation Investment Corporation ("GNIC"), the dealer associated with
this offering, is currently engaged in the business of assisting churches and
other non-profit organizations in obtaining the necessary financing of the cost
of constructing buildings and improvements primarily through the offering and
issuance of bonds by such organizations. Because of its continuous contacts with
churches and other non-profit organizations who are contemplating the
construction of buildings and improvements, GNIC may assist in the organization
of a loan by the Trust to such organizations. Should the Trust make a loan to a
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borrower which has been referred by GNIC, the borrower may pay GNIC a brokerage
fee in connection with such loan. A fee or other compensation may also be paid
by the Trust to GNIC in connection with such loan. Any loans which may be
originated with the assistance of GNIC would not differ in any material respect
from loans which may be made directly by the Trust to the borrower. Any other
party may assist in the origination of a loan by the Trust to a borrower for
which such party may be paid a brokerage fee by the borrower and/or other
compensation from the Trust. GNIC would be in no better position than any other
party engaged in the same or similar business in assisting in the negotiation of
a loan by the Trust.
CONFLICTS OF INTEREST
The Trust has contracted with GNIC for GNIC to assist the Trust in offering
the Certificates offered hereby to the public. GNIC is primarily engaged in the
business of assisting churches and other non-profit organizations in obtaining
financing primarily through the offering and issuance of bonds by such
organizations. These bonds are sold not only to the members and friends of the
issuer but also to the public at large. The commissions which are generally
received by GNIC in connection with the bond offerings are normally in excess of
the commissions to be paid by the Trust to GNIC in connection with the sale of
the Certificates offered hereby. Since GNIC, and its registered sales
representatives, will receive a larger commission for the sale of bonds of the
churches and other non-profit organizations than they would receive for the sale
of the Certificates offered hereby, they would be more inclined to sell such
bonds rather than sell the Certificates. Should it be necessary in the future
for the Trust to sell Certificates in order for it to have sufficient funds to
meet its financial obligations, the fact that GNIC is the sole broker-dealer
involved in the offering of the Certificates to the public, and since GNIC would
receive a larger commission for the sale of bonds of churches and other
non-profit organizations, the Trust may be unable to sell sufficient
Certificates, should it be necessary to do so, to meet its financial obligations
without increasing the commissions to be paid GNIC in connection with such
sales. There is no assurance that the Trust would be able to sell Certificates
in sufficient amounts, if necessary to meet its financial obligations,
regardless of the amount of commission which the Trust would pay to GNIC or any
other broker-dealer.
The Trust is engaged in the business of making both long-term permanent
loans to churches and other non-profit organizations as well as making
short-term interim loans to these borrowers. GNIC is also engaged in the
business of assisting churches and other non-profit organizations in obtaining
the necessary financing to purchase property, to construct church buildings and
facilities, and to make additions to or to renovate the present facilities of
such organizations. Although the Trust shall pay GNIC a fee in connection with a
loan made by the Trust which is originated by GNIC, the compensation which GNIC
would receive in connection with a bond offering by such organizations would be
substantially more than any fee which would be paid by the Trust to GNIC in
connection with the loan. Because of the additional compensation to be received
by GNIC for assisting a church or other non-profit organization in obtaining
financing through the offer and sale of its bonds, rather than obtaining a loan
from the Trust, GNIC will be more inclined to pursue a bond offering for the
benefit of such organization rather than negotiate a permanent loan from the
Trust.
Although the Trust has only contracted with GNIC to sell the Certificates,
the Trust is not precluded from contracting with other broker-dealers to sell
the Certificates.
Any permanent loans which may be made by the Trust will more than likely
come to the Trust directly from the borrowers, or from sources other than
through GNIC. It is expected that GNIC will originate short-term interim loans
by the Trust to be repaid from the proceeds of bond offerings in which GNIC
serves as the broker-dealer.
PRIME INTEREST RATE CHANGES
The Trust's profitability depends, in part, upon its ability to borrow
funds from outside sources and make loans at rates of return in excess of such
borrowed funds. It is contemplated that any loans which may be made by the Trust
in the near future will be based upon a variable interest rate tied to the prime
rate of interest charged by large domestic banks. During fiscal 1995 the
interest paid by the Trust upon its bank debt averaged from a low of 6.25% to a
high of 10.0%. The bank credit line of the Trust provides for an interest rate
equal to the prevailing prime rate (9% at March 31, 1995) not to exceed the
highest legal rate. The Trust is also obligated under two term notes with a
total principal owing as of March 31, 1995 of $2,666,667.
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Such term notes bear interest at 1% over the bank's prevailing prime rate of
interest, not to exceed the highest legal rate.
AMENDMENT OF DECLARATION OF TRUST AND REMOVAL OF TRUST MANAGERS
The Trust is organized pursuant to the provisions of the Texas Real Estate
Investment Trust Act. Under the Act, the affirmative vote of owners of not less
than two-thirds of the outstanding shares of the Trust is required to amend the
Declaration of Trust or to dissolve the Trust. The By-Laws of the Trust provide
that the Trust Managers shall be elected annually by the affirmative vote of a
majority of the owners of shares of the Trust at the annual meeting thereof. The
By-Laws further provide, as required by the Declaration of Trust, that (i) no
Trust Manager can be removed prior to the next annual meeting of the
shareholders except by the affirmative vote of the owner of not less than
two-thirds of the outstanding shares of the Trust, and (ii) the By-Laws can be
amended only with the affirmative vote of the owners of not less than two-thirds
of the outstanding shares of the Trust.
FAILURE TO MAINTAIN REQUIRED COLLATERAL FOR CERTIFICATES
The Trust Indenture under which prior series of the Certificates were
offered requires that promissory notes secured by first lien mortgages or deeds
of trust upon real estate of the makers of the notes shall at all times be not
less than the ratio of 1.25 to 1 of notes pledged to the principal balance of
all outstanding Certificates. This Series O of the Certificates offered hereby
shall provide that promissory notes secured by a first lien mortgage or deeds of
trust upon real estate of the makers of the notes shall at all times be not less
than the ratio of 1.0 to 1.0 of notes pledged to the principal balance of all
outstanding Series O Certificates. The failure of the Trust to maintain the
required ratio of pledged notes constitutes a default under the Trust Indenture
authorizing the Indenture Trustee to take certain actions to protect the holders
of the outstanding Certificates. Due to the fluctuations in the amount of sales
of Certificates as well as in the repayment of notes pledged to secure the
Certificates, the Trust has on occasion failed to maintain the required ratio of
pledge notes to outstanding Certificates for a short period of time until the
deficiency could be corrected. The Indenture Trustee has been aware of these
temporary technical defaults of the Trust and has not elected to declare a
default under the Indenture. As of March 31, 1995, the Trust was in compliance
with the collateral requirement.
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USE OF PROCEEDS
The gross proceeds to be received by the Trust from this offering in the
maximum amount of $20,000,000 (net $19,850,000 after commissions), when and to
the extent received in the descending order of priority, will be used to pay the
following anticipated obligations of the Trust which at March 31, 1995 are
approximately as follows:
Payment of outstanding Secured Savings Certificates............. $ 6,783,731
Payment of demand notes, if and when required .................. 3,472,690
Fund future loan commitments of the Trust....................... 9,593,579
The weighted average interest rate of the liabilities of the Trust to be
discharged with the proceeds of this offering is approximately 6.98% per annum.
The maturities of these liabilities vary from on demand through July 1997.
PLAN OF DISTRIBUTION
The Trust has contracted with GNIC, as its agent for the sale to the public
of the Certificates offered herein. There is no obligation on the part of GNIC
to take down or pay for any Certificates, but it has agreed to use its best
efforts to sell the Certificates to the public through licensed salespersons,
less a discount or selling commission equal to an annualized rate of .75 of 1%
per annum of the principal amount of the Certificates sold from the date of
issuance to the date of maturity.
The Certificates offered herein shall be offered for sale to the public
generally and not to any specific or specialized group of investors.
There are no options to purchase Certificates of the Trust which are
outstanding.
GNIC is a registered NASD Broker-Dealer organized in June of 1987. GNIC is
a corporation organized under the laws of the State of Texas and until June 19,
1989, was a wholly owned subsidiary of the Trust. On June 19, 1989, the Trust
sold all of the outstanding common stock in GNIC to a third party. Since the
sale of said stock no officer or director of GNIC is an affiliate of the Trust,
and no manager of the Trust is an affiliate of GNIC.
As mentioned previously, the Trust has only contracted with GNIC to sell
the Certificates, but the Trust is not precluded from contracting with other
broker-dealers to sell the Certificates. The Certificates may be offered by
broker-dealers other than GNIC.
LEGAL PROCEEDINGS
The Trust is not a party to any pending legal proceeding nor is its
property the subject of any pending legal proceeding other than possible routine
litigation incidental to the business of the Trust.
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DIRECTORS AND EXECUTIVE OFFICERS
BOARD OF TRUST MANAGERS
The following information is furnished as to each individual who now serves
as a member of the Board of Trust Managers of the Trust:
B. R. McMorries, age 68, is a consulting engineer. He has served as a Trust
Manager since 1963. He serves as Chairman of the Board of Trust Managers.
Foy W. Shackelford, age 80, is a retired dentist. He has served as a Trust
Manager since 1963. He serves as Vice-Chairman of the Board of Trust
Managers.
Everett B. Blanton, Jr., age 73, is a retired dentist. He has served as a
Trust Manager since 1963.
Larry Brown, age 52, is the President of Larry Brown Realtors, Inc. and is
a licensed realtor. He has served as a Trust Manager since 1981. He serves
as Secretary of the Board of Trust Managers.
Jack R. Vincent, age 65, is engaged in farming and ranching operations. He
has served as a Trust Manager since 1989.
Robert E. Martin, age 45, is the President/CEO of Santa Fe Federal Credit
Union. He has served as a Trust Manager since 1990.
Steve Rogers, age 47, is the President of Steve Rogers Co., a real estate
appraisal firm. He has served as a Trust Manager since 1990.
EXECUTIVE OFFICERS
The following information is furnished as to each individual who now serves
as an executive officer of the Trust who is not mentioned under "Board of Trust
Managers" above:
M. Kelly Archer, age 43, serves as Manager of Operations and Chief
Financial Officer of the Trust. As such Mr. Archer functions as the
Executive Officer of the Trust. Mr. Archer has held this position for 13
years.
SECURITY OWNERSHIP OF TRUST MANAGERS AND MANAGEMENT
FIVE PERCENT OWNER(S)
The following table indicates the persons known by the Trust to own
beneficially more than 5 percent of the shares of beneficial interest in the
Trust:
Name and Address of Amount of and Nature Percent
Beneficial Owner of Beneficial Ownership of Class
------------------- ----------------------- --------
B. R. McMorries 354,057 5.053%
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TRUST MANAGERS AND EXECUTIVE OFFICERS
The following table indicates the number of shares of beneficial ownership
interest in the Trust owned by the Board of Trust Managers and Executive
Officers, individually and as a group:
Name and Address of Amount of and Nature Percent
Beneficial Owner of Beneficial Ownership of Class
- ------------------------------------------- ----------------------- --------
B. R. McMorries ....................... 354,057 5.053%
Foy W. Shackelford ..................... 22,909 0.327%
Everett B. Blanton, Jr .................... 2,602 0.037%
Larry Brown ......................... 27,254 0.389%
Jack R. Vincent ....................... 5,564 0.079%
Robert E. Martin ...................... 3,012 0.043%
Steve Rogers ........................ 1,300 0.019%
M. Kelly Archer ....................... 59,589 0.850%
All Trust Managers and
Executive Officers ..................... 476,287 6.797%
as a Group
DESCRIPTION OF CERTIFICATES
GENERAL
The Certificates offered hereby shall be offered pursuant to the terms of a
Trust Indenture dated June 1, 1974 entered into between the Trust and The
Panhandle Bank and Trust Company, as Indenture Trustee. Boatmen's First National
Bank of Amarillo, Amarillo, Texas is presently serving as the successor
Indenture Trustee under the Trust Indenture.
The Certificates offered hereby shall be in an aggregate principal amount
of $20,000,000. However, the Trust may from time to time enter into one or more
supplemental indentures, without the consent of the holders of the Certificates,
providing for the issuance of Certificates under the Indenture in addition to
the $20,000,000 principal amount presently authorized (Section 9.01). The
Certificates will be issued in denominations of $1,000 or any amount in excess
thereof. The Certificates will be issued in registered form only, without
coupons. Certificates are to mature from thirty days to ten years from date of
issue, as selected by the investor.
Interest rates upon the Certificates are set at the time of purchase and
are based upon the interest rates that are competitive to the interest rates
payable upon certificates of deposit and money market certificates issued by
commercial banks and savings and loan associations. Interest rates upon the
Certificates are therefore subject to being changed by the Trust from time to
time in relation to the various ranges of maturities. Once issued, the interest
rate upon each Certificate will not change and will continue until the maturity
date of the Certificate (Section 3.01). No notification will be given by the
Trust to the holders of outstanding Certificates of the rate of interest being
paid by the Trust upon Certificates currently being offered.
Principal and interest at maturity will be payable at the office of the
Trust, I-40 West, Amarillo, Texas 79106. Interest payments will be paid by check
mailed to the person entitled thereto. (Sections 3.01 and
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10.02). Certificates may be presented at the above office of the Trust for
registration or transfer or exchange. Certificates will be transferred or
exchanged without service charge, but the Trust may require payment to cover
taxes or other governmental charges (Section 3.05).
There is no established trading market for the Certificates, and the Trust
does not anticipate that an active trading market will be established.
REDEMPTION
The Trust will not voluntarily redeem any of these Certificates prior to
their stated maturity.
The registered owners of any of the Certificates shall have the option to
require the Trust to redeem these Certificates upon the following terms: (a)
Upon the death of one or more of the registered owners, the estate of the
deceased owner may present the Certificate for early redemption without penalty.
Upon proper presentation, the Trust will pay to the estate of the deceased owner
the principal amount of the Certificate together with all accrued and unpaid
interest payable thereon to the date of presentment. (b) At any time the
registered owner of any Certificate may present the Certificate to the Trust for
early redemption with penalty equal to one-half of the interest to be earned on
the Certificate from the date of issue to the date of presentment. Upon proper
presentation, the Trust will pay to the registered owner the principal amount of
the Certificate together with all accrued and unpaid interest to the date of
presentment, less the penalty described above.
COLLATERAL
The Certificates will be secured by the assignment by the Trust to the
Indenture Trustee, as Trustee for the benefit of the owners and holders of the
Certificates, of specific promissory notes of churches, which notes are secured
by mortgages or deeds of trust upon real estate owned by such churches. The
Indenture requires that the principal balance of the promissory notes assigned
to the Indenture Trustee shall at all times be not less than a 1 to 1 ratio of
notes pledged to the amount of the principal balance of all outstanding
Certificates issued by the Trust (Section 11.02). Should the maker of any
promissory note assigned by the Trust to the Indenture Trustee to secure the
Certificates default in the payment of the principal and/or interest upon such
assigned note, and should such default continue for a period of ninety days, or
more, and should the principal balance upon such defaulted note when subtracted
from the total principal balance of all promissory notes assigned to the
Indenture Trustee reduce the ratio of notes pledged to the amount of the
principal balance outstanding upon all Certificates issued by the Trust below
the ratio of 1 to 1, then the Trust would be obligated to substitute such
defaulted note with a promissory note having a principal balance in an amount
sufficient to maintain said ratio of notes pledged to the total principal
balance of Certificates issued. Substantially the same requirements for
substituting defaulted promissory notes which have been pledged to secure the
Certificates offered hereby are required under the credit line agreements with
the other lenders to the Trust.
The Trust shall furnish the Indenture Trustee the following in reference to
the collateral securing the notes: (i) promptly after the execution and delivery
of the Indenture, an opinion of counsel (who may be counsel for the Trust) that
all necessary action has been taken and all the provisions of the Indenture have
been complied with to make effective the lien intended to be created by the
Indenture; (ii) annual opinions of counsel (who may be counsel for the Trust)
that all necessary action has been taken and all provisions of the Indenture
have been complied with to maintain the lien intended to be created by the
indenture; (iii) certificates or opinions of officers of the Trust and counsel
(who may be counsel for the Trust) that all provisions of the indenture relating
to the release and substitution of collateral have been complied with; (iv)
certificates or opinions of independent appraisers that the release or
substitution of any collateral will not impair the security of the Certificate
holders under the Indenture in contravention of the provisions thereof (Section
11.04 and 11.07).
The Indenture Trustee shall, within ninety days from such time, provide a
brief report to the Certificate holders concerning the release or substitution
of any collateral securing the notes issued pursuant to the Indenture unless the
fair value of such collateral is less than 10% of the principal balance of all
outstanding Notes (Section 7.04(b)).
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EVENTS OF DEFAULT AND NOTICE THEREOF
The following events are defined in the Indenture as "Events of Default":
(i) failure to pay interest for 30 days after becoming due; (ii) failure to pay
principal when due at maturity or by declaration; (iii) failure to perform any
other covenants for 60 days after notice; and (iv) certain events of bankruptcy,
insolvency or reorganization (Section 5.01).
The Indenture provides that the Indenture Trustee shall, within 90 days
after the occurrence of a default, give the Certificate holders notice of all
uncured defaults (the term default to include the events specified above without
grace periods); provided that, except in the case of default in the payment of
principal or interest on any of the Certificates, the Indenture Trustee shall be
protected in withholding of such notice if it in good faith determines that the
withholding of such notice is in the interest of the Certificate holders
(Section 6.02).
The Trust will be required to furnish to the Indenture Trustee annually a
statement of certain officers of the Trust stating whether or not to the best of
their knowledge the Trust is in default in the performance and observance of the
terms of the Indenture and, if the Trust is in default, specifying such default
(Section 10.06).
The holders of a majority in aggregate principal amount of all outstanding
Certificates will have the right to waive certain defaults (but not defaults in
the payment of principal or interest) and, subject to certain limitations, to
direct the time, method and place of conducting any proceeding for any remedy
available to the Trust or exercising any trust or power conferred on the
Indenture Trustee (Sections 5.12 and 5.13). The Indenture provides that, in case
an Event of Default shall occur (which shall not have been cured or waived), the
Indenture Trustee will be required to exercise such of its rights and powers
under the Indenture, and to use the degree of care and skill in their exercise,
that a prudent man would exercise or use in the conduct of his own affairs, but
otherwise need only perform such duties as are specifically set forth in the
Indenture (Section 6.01). Subject to such provisions, the Indenture Trustee will
be under no obligation to exercise any of its rights or powers under the
Indenture at the request of any of the Certificate holders unless they shall
have offered to the Indenture Trustee reasonable security or indemnity (Section
6.03).
Should the Trust default under any of the terms and provisions of the
Indenture, and should it be necessary for the Indenture Trustee to sell the
collateral securing the payment of the principal and interest upon Certificates,
there would probably be a significant delay in time before the proceeds received
by the Indenture Trustee from the sale of the collateral can be distributed to
the Certificate holders. Due to the uncertainty of the amount of proceeds which
the Indenture Trustee may receive from the sale of the collateral (the amount of
the proceeds from the sale of the collateral to be primarily dependent upon
whether or not the Indenture Trustee would have to discount the principal
balance of the promissory notes), and the attendant expenses which may be
incurred in the sale of the collateral, there is no assurance that the
Certificate holders would be paid the full amount of principal and interest to
be paid by the Trust upon the Certificates.
The Trust is currently in compliance with all the provisions of the
Indenture and is current in the payment of all of its financial obligations.
MODIFICATION OF THE INDENTURE
With certain exceptions, the Indenture, the rights and obligations of the
Trust and the rights of the Certificate holders may be modified by the Trust
with the consent of the holders of not less than 66 2/3% in aggregate principal
amount of the Certificates then outstanding; but no such modification may be
made which would (i) extend the fixed maturity of any Certificate, or reduce the
principal amount thereof, or reduce the rate or extend the time of payment of
interest thereon, without the consent of the holders of each Certificate so
affected; or (ii) reduce the above-stated percentage of Certificates, the
consent of the holders of which is required to modify or alter the Indenture,
without the consent of the holders of all Certificates then outstanding (Section
9.02).
CONCERNING THE TRUSTEE
Boatmen's First National Bank of Amarillo, Amarillo, Texas is the Indenture
Trustee and may perform other services for the Trust. Presently the Trustee is
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also the primary lender to the Trust. At March 31, 1995, Trust owed the Trustee
$5,600,001 on its $10,000,000 line of credit with the Trustee. The Trustee also
services two term loans with a total outstanding principal balance of $2,666,667
as of March 31, 1995.
REPORTS TO CERTIFICATE HOLDERS
The Trust will furnish to the Certificate holders all quarterly reports
which it furnishes to holders of its Shares.
Additionally, the Indenture Trustee shall transmit to the Certificate
holders at least annually a report with respect to (i) its continued eligibility
and qualifications as the Indenture Trustee; (ii) the character and amount of
any advances made by it, as Indenture Trustee, which remain unpaid on the date
of such report, and for the reimbursement of which it claims or may claim a lien
or charge, prior to that of the Certificate holders on the trust estate or on
property or funds held or collected by it as trustee, if such advances so
remaining unpaid aggregate more than 1/2 of 1% of the principal amount of the
Certificates outstanding on such date; (iii) the amount, interest rate, and
maturity date of all other indebtedness owing to it in its individual capacity,
on the date of such report by the Trust upon the Certificates, with a brief
description of any property held as collateral security therefor; (iv) the
property and funds physically in its possession as Indenture Trustee on the date
of such reports; (v) any release, or release and substitution, of property
subject to the lien of the Trust Indenture which it has not previously reported;
(vi) any additional issue of Certificates which it has not previously reported;
and (vii) any action taken by it in the performance of its duties under the
Trust Indenture which it has not previously reported and which in its opinion
materially affects the Certificates or the trust estate.
SUBSTITUTION AND RELEASE OF COLLATERAL SECURING CERTIFICATES
The Trust may release collateral or substitute collateral assigned to the
Indenture Trustee for like collateral so long as at all times the principal
balance of the promissory notes assigned to the Indenture Trustee shall be in an
amount not less than the ratio of 1 to 1 of notes pledged to the principal
balance of all outstanding Certificates.
Upon the Trust's furnishing the Indenture Trustee with satisfactory
evidence that all principal and interest payable upon the Certificates issued
have been paid in full, the indenture Trustee shall release and reassign all
security assigned by the Trust to the Indenture Trustee to secure the payment of
the Certificates.
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LEGAL OPINIONS
Certain legal matters in connection with the Certificates offered hereby
have been passed upon for the Trust by Burdett, Morgan & Thomas, L.L.P., 5700
S.W. 45th Street, Amarillo, Texas 79109.
No expert or counsel was hired on a contingent basis, nor shall any expert
or counsel receive a direct or indirect interest in the Trust, nor is any expert
or counsel a promoter, voting trustee, director, trust manager, officer, or
employee of the Trust. However, members of the law firm of Burdett, Morgan &
Thomas, L.L.P. own 181,571 shares of beneficial interest in the Trust.
EXPERTS
The financial statements of Church Loans and Investments Trust as of March
31, 1995 and 1994, and for each of the years in the two-year period ended March
31, 1995, have been included herein and in the registration statement in
reliance upon the report of KPMG Peat Marwick LLP, independent certified public
accountants, appearing elsewhere herein and upon the authority of said firm as
experts in accounting and auditing.
INDEMNIFICATION
The Trust has not entered into any indemnification agreements or similar
provisions for the benefit of directors, officers or controlling persons of the
Trust. However, the By-Laws of the Trust provide that the Board of Trust Manages
may waive any liability of any member of the Board of Trust Managers, employee,
agent, attorney-in-fact or independent contractor arising from any such person's
error of judgment, mistake, inadvertence or ordinary negligence.
There is no indemnification provision contained in the underwriting
agreement.
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 Trust pursuant to the foregoing provisions, or otherwise, the
Trust has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than payment of expenses incurred in the
successful defense of any action) is asserted by a director, trust manager,
officer or controlling person in connection with the securities being
registered, the Trust will, unless in the opinion of counsel of the Trust the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by the Trust
is against public policy as expressed in the Securities Act and will be governed
by the final adjudication of such issue.
THE TRUST
The Trust is a real estate investment trust organized under the laws of the
State of Texas in March 1963. Although the Trust has the authority to engage in
business of buying, selling and leasing of real estate, the Trust has heretofore
restricted its business activities primarily to making loans to churches and
other non-profit organizations which are secured by a first mortgage on real
estate owned by such borrowers.
The period of duration of the Trust, unless dissolved in accordance with
law, or by the consent of the owners of shares of beneficial interest in the
Trust, is perpetual. The Trust may be dissolved by the affirmative vote of not
less than two-thirds of the owners of outstanding shares of the Trust. Owners of
Certificates have no vote in regard to any activities of the Trust, including
dissolution.
The control and management of the Trust properties, and all powers
necessary or appropriate to effect any and all of the purposes for which the
Trust is organized, is vested in the Board of Trust Managers. All managers are
members of a congregation of the Church of Christ.
The number of shares of beneficial interest in the Trust which the Trust is
authorized to issue is unlimited.
From its organization the Trust has qualified as a "real estate investment
trust" under Section 856-858 of the Internal Revenue Code of 1986 as amended
(the "Internal Revenue Code" or "Code"). In the opinion of Messrs. Burdett,
Morgan & Thomas under those sections of the Code, if certain conditions are met
and if at least ninety-five percent of its real estate investment trust taxable
income is distributed to the shareholders each year, the Trust will not be taxed
on that portion of its taxable income which is distributed to its shareholders.
It is the intention of the Trust to continue to qualify as a real estate
investment trust under the Code.
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The Trust maintains an office located at 5305 I-40 West, Amarillo, Texas
79106 (telephone (806/358-3666).
BUSINESS OF THE TRUST
GENERAL
The Trust is primarily engaged in the business of making mortgage loans to
churches and other non-profit organizations. The Declaration of Trust restricts
the investments of the Trust to loans secured by a first mortgage, deed of trust
or other lien covering real property with the amount of such loans not to exceed
66 2/3% of the value of the real property securing such loan as determined by a
competent independent appraiser. Although the Trust has been primarily in the
business of making long-term mortgage loans, during the past several years it
has been more involved in making short-term interim or construction loans to
finance the construction of church buildings or to finance the purchase of real
estate. Most of the interim loans presently being made by the Trust are
associated with bond offerings of churches and other non-profit organizations
for which GNIC, or some other party, is acting as the Broker-Dealer in
connection with such offerings. These interim loans are scheduled to be repaid
from the proceeds of the bond offerings.
The Trust is not limited to the location of the property securing any loans
in which it may invest and seeks to spread its investments in areas of the
United States where favorable yields prevail.
MORTGAGE LOANS, INVESTMENTS IN CHURCH BONDS AND INTERIM CONSTRUCTION LOANS
As of March 31, 1995, the Trust has 194 mortgage loans, investments in
church bonds and interim construction loans having a principal balance (prior to
unamortized purchase discounts and allowance for possible credit losses) of
$40,541,324. The original principal amount of these loans varies from $2,500 to
$3,000,000, with the average principal amount thereof being $208,976. The
interest rates on these loans vary from 7.0% to 15.75% per annum with the
weighted average interest rate of mortgage loans and church bonds being 10.94%
per annum at March 31, 1995. The original terms of these loans vary from one to
thirty years, with the majority being for a term of twenty years.
BUSINESS DURING FISCAL 1995
During the fiscal year of the Trust ending March 31, 1995, the net income
of the Trust was $2,344,026, as compared to $2,288,342 in fiscal 1994, an
increase of 2.43%. The increase in net income of the Trust was due primarily to
the increase in the interest income and fees in fiscal 1995 as compared to
fiscal 1994 and in a decrease in other operating expenses in fiscal 1995
compared to fiscal 1994.
The net income of the Trust for each of the quarters during fiscal 1995 was
as follows: first quarter--$623,903; second quarter--$637,656; third
quarter--$590,371; and fourth quarter--$492,096.
Other operating expenses of the Trust decreased from $579,850 during fiscal
1994 to $553,444 in fiscal 1995. Other operating expenses of the Trust were
approximately 12.56% of its gross income for the year ended March 31, 1995 as
compared to 13.41% for the year ended March 31, 1994. Other operating expenses
of the Trust include general and administrative expenses and compensation to
members of the Board of Trust Managers.
During fiscal 1995, the Trust made 36 loans for approximately $18,000,000.
All such loans bear interest at a variable rate equal to 2% per annum in excess
of the prime rate of interest known as the "Wall Street Journal Prime" rate of
interest. See Note (3) to Financial Statements, pages 35-38, for a more detailed
description of the Trust's loan portfolio.
During fiscal 1995, the Trust employed a total of 4 full time employees and
employed, as needed, one additional part-time employee.
18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
RESULTS OF OPERATIONS--1995 COMPARED TO 1994
During the fiscal year ended March 31, 1995, interest income and fees of
the Trust increased by $83,825 (1.94%) over the previous fiscal year. Such
increase was primarily attributable to an increase in the amount of interim
construction loans held by the Trust. Earning interim construction loans
increased from $7,035,506 as of March 31, 1994 to $10,148,958 as of March 31,
1995. However, earning mortgage loans and church bonds decreased from
$28,079,612 as of March 31, 1994 to $25,676,746 as of March 31, 1995. Such
decrease is primarily a result of the normal payoff upon maturity of loans held
by the Trust as well as the payoff prior to maturity of loans held by the Trust.
Such increase in interest income and fees was also attributable to an increase
in the average annual interest rate on loans and church bonds from 10.46% at
March 31, 1994 to 10.94% at March 31, 1995.
In fiscal 1995, the average aggregate amount of total debt outstanding was
$91,365 more than in fiscal 1994. Furthermore, interest expense increased by
$112,870. Such increase was primarily due to an increase in the Trust's cost of
funds. The increase in the debt of the Trust was primarily due to an increase in
interim loans made by the Trust. The approximate weighted average annual
interest rate upon the aggregate outstanding debt increased from 6.61% during
fiscal 1994 to 7.29% during fiscal 1995.
The net income of the Trust increased $55,684 (2.43%) from the previous
fiscal year. Such increase was primarily attributable to an increase in interest
income and fees in fiscal 1995 as compared to fiscal 1994 and in a decrease in
other operating expenses in fiscal 1995 compared to fiscal 1994.
During fiscal 1995, the prime interest rate increased from 6.25% at March
31, 1994 to 9.0% per annum at March 31, 1995. Should the prime interest rate
decrease during fiscal 1996, the interest expense of the Trust will generally
decrease and the net income of the Trust will in turn generally increase. Should
the prime interest rate increase during fiscal 1996, the interest expense of the
Trust will generally increase and the net income of the Trust will in turn
generally decrease.
Principal payments received on the interim and permanent loan portfolio and
the church bonds held by the Trust decreased from $16,055,666 during fiscal
1994, to $15,623,167 during fiscal 1995, a decrease of 2.69%. This decrease was
primarily attributable to the decrease in mortgage loans held by the Trust
during these respective periods and to an increase in the amount of
non-performing loans as compared to the entire loan portfolio of the Trust
during fiscal 1995 as compared to the previous fiscal year. The non-performing
loans of the Trust as compared to the entire loan portfolio of the Trust
increased from 4.15% as of March 31, 1994 to 8.68% as of March 31, 1995. This
increase is primarily attributable to one interim construction loan which had a
principal balance of $1,520,977 at March 31, 1995. The loan became delinquent
during the latter part of 1994 and was placed on nonaccrual status and all
accrued interest was written-off. The loan is collateralized by a church
building and management believes that the potential loss, if any, is adequately
provided in the allowance for possible credit losses at March 31, 1995.
Management has initiated proceedings to foreclose the collateral securing such
loan.
LIQUIDITY AND CAPITAL RESOURCES
The Trust is engaged in the business of making permanent and interim loans
to churches and other non-profit organizations. The assets of the Trust
primarily consist of its loan portfolio with the Trust owning no real property
other than its office building and facilities. Other operating expenses of the
Trust are comprised of the maintenance of its office building, the payment of
the salaries of its management and clerical staff, trust managers fees and the
payment for legal and accounting services. Substantially all of the Trust assets
are invested in the permanent and interim loans made by the Trust. The only
potential liquidity problems of the Trust are related to the timely and proper
repayment by the Trust of the leveraged funds it has borrowed to make loans in
excess of its capital. All of the indebtedness of the Trust is generally
classified as short term having maturities ranging from "on demand" to
maturities repayable over various periods extending through 1998.
19
<PAGE>
The annual maturities upon all debt obligations of the Trust outstanding as
of March 31, 1995 for the next three fiscal years are: 1996--$14,322,712;
1997--$2,915,377; and 1998-$1,285,000. These debt obligations primarily consist
of the Trust's bank line of credit, bank term loans and Secured Savings
Certificates ("Certificates") which have been previously issued by the Trust.
Certificates outstanding as of March 31, 1995 that will mature during the next
three years are: 1996--$3,833,354; 1997--$1,915,377; and 1998- $1,035,000. The
principal amount of the Trust's bank term notes which will mature in each of the
next three years are 1996--$1,416,667; 1997--$1,000,000; and 1998-$250,000.
At March 31, 1995 loans to the Trust under Master Note Agreements which are
in effect demand notes total $3,472,690. In the past, the Trust has utilized its
bank line of credit, principal paid to the Trust upon its outstanding loan
portfolio, and the proceeds received from the sale of Certificates in order to
meet its maturing obligations. Effective July 18, 1994, the Trust decided not to
register Certificates and therefore the Trust is presently unable to sell and
has been unable to sell Certificates since July 18, 1994. However, the Trust has
decided to register additional Certificates in the summer of 1995.
At March 31, 1995, the balance which could be borrowed by the Trust upon
its bank line of credit was $4,399,999. The principal payments scheduled to be
received by the Trust upon its loan portfolio for the years ending March 31,
1996, 1997 and 1998 are $16,618,243, $2,546,974, and $2,376,248, respectively.
Assuming all of these scheduled principal payments are received, these payments,
together with the balance available to Church Loans on its bank line of credit,
would allow Church Loans to have sufficient funds to meet its maturing
obligation without the necessity for Church Loans having to sell any additional
Certificates or borrow funds from other sources.
During fiscal 1995, 1994 and 1993 the Trust sold Certificates in the
principal amounts of $5,239,231, $5,185,803, and $9,619,445, respectively. Due
to the cost of registration and of sales of such Certificates, the cost of these
funds are normally higher than the cost of borrowing from bank sources or master
notes. As mentioned above, effective July 18, 1994, the Trust decided not to
register Certificates. Therefore, the Trust was unable to sell Certificates
since such date and is presently unable to sell Certificates. However, the Trust
has decided to register additional Certificates during the summer of 1995. Based
upon the success of the Trust to sell Certificates in the past, the Trust is
confident that, should it be necessary, it will be able to sell Certificates in
the future in sufficient amounts for the Trust to timely meet all of its
obligations. To the extent that Certificates sold by the Trust have maturity
dates of one year, or less, the financial condition of the Trust would not be
substantially improved since the proceeds received by the Trust from the sale of
Certificates will, of necessity, be used to pay the principal and interest upon
Certificates maturing in this period.
Should all the scheduled principal payments upon loans made by the Trust
not be received, and should the Trust be unable to sell Certificates with
maturity dates and in amounts described above or should the Trust be unable to
borrow against its line of credit, and should loans from other sources not be
available it would be necessary for the Trust to sell a portion of its mortgage
loan portfolio in order for it to meet all of its financial obligations. At
March 31, 1995, the principal balance of the loan and church bond portfolio of
the Trust was $39,231,497. The weighted average interest rate on loans and
church bonds was 10.94% per annum. In view of the normal marketability of
conventional loans, the Trust would probably be required to discount the great
majority of these loans in order for them to be attractive for purchase. The
principal amount of these loans if discounted to yield a weighted average
interest rate of 12%, 14% and 16% would be $35,766,050, $30,656,614, and
$26,824,538, respectively. There is no assurance that the Trust would be able to
sell all, or a portion of, its portfolio of loans, in which event, it would be
necessary for the Trust to secure a loan, or loans, from a lender in order for
the Trust to meet its financial obligations. There is no assurance that the
Trust would be able to secure a loan in such instance. The Trust has sold only
one of the loans in its mortgage loan portfolio and therefore has limited
experience in this area.
20
<PAGE>
Principal payments scheduled to be received by the Trust upon its permanent
loan portfolio during the years ending March 31, 1996, 1997 and 1998, if not
used to fund new loan commitments, would be used to reduce the outstanding
indebtedness of the Trust. Should the Trust use the payments of principal which
shall be received upon its loan portfolio to reduce its outstanding
indebtedness, the interest expense of the Trust will decrease. In such instance,
whether the decrease in the interest income will exceed, or be less than, the
decrease in the interest expense will largely be dependent upon the prime rate
of interest prevailing at such time due to the fact that the interest to be
earned by the Trust upon its mortgage loan portfolio is generally based upon a
fixed rate of interest or a variable rate of interest that periodically
reprices, while the interest to be paid by the Trust upon its outstanding debts
is directly, or indirectly, tied to the prime rate of interest charged by major
domestic banks.
As of March 31, 1995, a substantial portion of the promissory notes
evidencing the loans made by the Trust have been pledged to secure its
outstanding indebtedness. At March 31, 1995 promissory notes in the principal
amount of $9,676,303 had been pledged to secure Certificates which had been
previously sold by the Trust. The required collateral for these Certificates
(based on the ratio of 1.25 to 1 of notes pledged to the principal balance of
the Certificates) was $8,479,664, leaving an excess of promissory notes which
have been pledged by the Trust to secure said Certificates of $1,196,639.
Additionally, promissory notes totalling $14,452,698 were pledged against a line
of credit and notes payable to banks which had a total outstanding balance of
$8,266,668. The required collateral for these bank loans was $9,360,001, leaving
an excess of promissory notes which have been pledged to secure said bank notes
of $5,092,697. These excess promissory notes may be reassigned by the Indenture
Trustee or bank to the Trust to be sold in order for the Trust to meet its
financial obligations. Should it be necessary in order for the Trust to meet its
financial obligations, these excess notes amounting to $6,289,336 and other
additional promissory notes in the approximate amount of $15,102,496 (for a
total amount of $21,391,832) would be available to be sold by the Trust to meet
its financial obligations. Should the excess promissory notes be assigned by the
Indenture Trustee or bank to the Trust as heretofore described, all outstanding
Certificates sold by the Trust, bank line of credit, and bank term loans, would
continue to be secured by the required ratio of notes pledged to the principal
balance of these Certificates, bank line of credit, and bank term loans. There
is no assurance that the Trust would be able to sell all, or any portion of
these notes.
Cash flows from operating activities consists primarily of net income. The
primary components of net income are interest income and expense. Interest
income should continue to be the main source of cash provided by operating
activities; however, the availability of this cash flow is dependent upon the
ability of the borrowers to repay loans. Although there was an increase in the
amount of non-performing loans of the Trust as of March 31, 1995 compared to
March 31, 1994, this increase is primarily attributable to one interim
construction loan and management does not expect material increases in such
loans in the future. Accordingly, cash provided by operating activities has been
and is expected to be a relatively stable source of cash flow.
Cash flows from investing activities results primarily from investment in
and payments received on mortgage and interim construction loans and church
bonds.
Cash flows from financing activities relate primarily to the sale of and
payments on Certificates and borrowings and payments on notes payable and the
line of credit. Certificates are sold and borrowings are made as funds are
needed to make loans or as current obligations become due. Although the Trust
has not sold Certificates since July 18, 1994, based upon the Trust's decision
to register Certificates during the summer of 1995 and the success of the Trust
to sell Certificates and obtain borrowings in the past, the Trust is confident
that it will be able to sell Certificates and obtain borrowings in the future in
sufficient amounts, along with payments to be received on loans, to timely meet
its obligations.
DISCLOSURE OF IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
See Note (3) to the Financial Statements on page 38 for information
regarding the expected impact of recently issued accounting standards.
21
<PAGE>
INFLATION
At March 31, 1995, the weighted average interest rate on the mortgage loan
and church bond portfolio of the Trust was 10.94% per annum while the weighted
average interest rate upon all borrowings of the Trust was 8.02% per annum.
Although a majority of the loans constituting the loan portfolio of the Trust
have been made at variable rates of interest that generally reprice annually,
23.3% of the loans constituting the Trust's loan portfolio have been made at
fixed rates of interest and therefore are not subject to being increased or
decreased during the term of the loan. All of the indebtedness of the Trust is
either directly or indirectly tied to the prime rate of interest charged by
major banking institutions and therefore is subject to fluctuation. During
periods of inflation, the prime rate of interest charged by major banking
institutions, as well as the interest rate or cost of borrowing money from any
lender, generally increases. Consequently, during an inflationary period the
interest expense of the Trust would increase. Since the interest income of the
Trust would not increase as rapidly, an increase in the interest expense of the
Trust would decrease the net income of the Trust. However, interest income
should subsequently increase as variable rate loans reprice. Should the amount
of the loans and the amount of the indebtedness of the Trust remain constant,
and should the weighted average interest rate upon the indebtedness increase to
23.79% per annum, the interest income and the interest expense of the Trust
would be substantially equal.
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22
<PAGE>
DESCRIPTION OF PROPERTIES
The Trust maintains as its only place of business its offices located at
5305 I-40 West, in Amarillo, Texas. Such building is owned by the Trust and is
occupied solely by the Trust. There is no debt owed by Trust in regard to its
real property. The Trust also owns certain vacant land adjacent to the trust
property that is held for investment.
The real properties of the Trust are not a significant portion of the
Trust's assets, representing less than 1% of the Trust's total assets.
As previously mentioned, the Trust's primary business is the making of
mortgage loans to churches and other nonprofit organizations. The Declaration of
Trust restricts the investments of the Trust to loans secured by a first
mortgage, deed of trust, or other lien covering real property with the amount of
such loans not to exceed 66 2/3% of the value of the real property securing such
loan. The Declaration of Trust may not be amended without the vote of two-thirds
(2/3 rds) of the Certificates of Beneficial Interest entitled to vote. The Board
of Trust Managers' general policy is to limit investment of Trust assets in any
one mortgage loan to not more than $2,000,000. All such investment in mortgage
loans is for the purpose of earning income for the Trust.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Trust issues a limited number of "Demand Notes Payable" which are
unsecured debt instruments of the Trust. The Trust pays the obligee of such
notes interest at the rate of one percent per annum (1%) less than the prime
lending rate of Boatmen's First National Bank of Amarillo, the Trust's primary
lender. As of March 31, 1995, the Trust had entered into Demand Notes Payable
with McMorries Trust, a trust established by and for the benefit of B. R.
McMorries, Chairman of the Board of Trust Managers, in the amount of $260,728;
and with Foy W. Shackelford, Vice-Chairman of the Board of Trust Managers, in
the amount of $188,912. Furthermore, as of March 31, 1995, the Trust had issued
and outstanding certificates issued to the following related parties and in the
following amounts: B. R. McMorries, Chairman of the Board of Trust Managers, and
related persons, in the amount of $500,000; and Larry Brown, Secretary of the
Board of Trust Managers, and related persons, in the amount of $140,000. The
terms of such Demand Notes Payable and Certificates are the same as Demand Notes
Payable and Certificates entered into with other unrelated persons, except as to
the amounts thereof.
This space left blank intentionally
23
<PAGE>
MARKET FOR COMMON EQUITY
MARKET INFORMATION
There is no established public trading market for the shares of beneficial
interest of the Trust. During fiscal 1995 a total of 171,610 shares were sold in
the secondary market at prices ranging from $2.00 to $2.50 per share. The last
sale during the fiscal year was at $2.25 per share. During fiscal year 1994 a
total of 222,319 shares were sold in the secondary market at prices ranging from
$1.80 to $2.40 per share.
The range of high and low bid information for shares of beneficial interest
of the Trust for each quarter within the last two fiscal years is as follows:
QUARTER FISCAL 1995 FISCAL 1994
----------- -----------
HIGH LOW HIGH LOW
- -------------------------------- ----- ----- ------ ----
April-June .................. 2.20 2.00 2.00 1.80
July-September ................ 2.30 2.10 2.10 1.85
October-December ............... 2.30 2.20 2.10 2.00
January-March ................. 2.50 2.25 2.40 2.00
HOLDERS
At March 31, 1995 there were 2,880 shareholders of the Trust.
DIVIDENDS
Cash dividends on all outstanding shares of beneficial interest in the
Trust are declared twice annually, for the 3 month period ending March 31, and
the 9 month period ending December 31. In fiscal 1994 the Trust paid a cash
dividend of $.31 per share. In fiscal 1995 the Trust paid a total cash dividend
of $.34 per share.
EXECUTIVE COMPENSATION
EXECUTIVE OFFICERS
The following table sets forth certain information regarding compensation
paid during each of the Trust's last three fiscal years to the Trust's Manager
of Operations (CEO). The Trust has no other executive officers whose salary,
bonuses and other compensation earned during fiscal 1995 exceeded $100,000 for
services rendered in all capacities.
Annual Compensation
----------------------------------
Fiscal Other Annual
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION
- -------------------------------- ---- -------- ----- ------------
CEO-M. Kelly Archer 1995 $112,200 0 $ 6,050
Manager of Operations 1994 105,800 0 5,516
1993 96,733 0 4,893
24
<PAGE>
TRUST MANAGERS' COMPENSATION
The Board of Trust Managers of the Trust were paid $37,700 in cash as a
group during the last fiscal year for services as Trust Managers. The Chairman
of the Board of Trust Managers, B. R. McMorries, is paid $400 per month for
serving in such capacity. The remaining members of the Board of Trust Managers
are paid $200 per month for serving as a member of the board. All Trust Mangers
are paid an additional $100 per board or committee meeting attended.
The members of the Board of Trust Managers of the Trust are not otherwise
employed or compensated by the Trust.
CHANGES IN ACCOUNTANTS
KPMG Peat Marwick LLP was previously the principal accountants for the
Trust. As of June 1, 1995, KPMG Peat Marwick LLP sold its Amarillo, Texas office
to Clifton, Gunderson & Co. Therefore, on June 14, 1995 the Trust dismissed KPMG
Peat Marwick LLP as the Trust's independent auditors. The decision to change
accountants was approved by the Board of Trust Managers.
The KPMG Peat Marwick LLP report on the financial statements for the past
two fiscal years did not contain any adverse opinion, disclaimer of opinion, nor
any qualification or modification as to uncertainty, audit scope, or accounting
principles.
Furthermore, there were no disagreements with KPMG Peat Marwick LLP on any
matter of accounting principles or practices, financial statement disclosure, or
auditing scope or procedures, which disagreements if not resolved to their
satisfaction would have caused them to make reference in connection with their
opinion to the subject matter of the disagreement in regard to the audits of the
fiscal years ended March 31, 1994 and March 31, 1995 and the subsequent interim
period through June 14, 1995. A letter from KPMG Peat Marwick LLP is attached as
Exhibit "16".
The Board of Trust Managers engaged Clifton, Gunderson & Co., independent
certified public accountants, on June 14, 1995, as the auditors of the financial
statements of the Trust for the fiscal year ending March 31, 1996.
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25
<PAGE>
INDEX TO FINANCIAL STATEMENTS
PAGE
----
Independent Auditors' Report............................................. 27
Balance Sheets as of March 31, 1995 and 1994 ............................ 28
Statements of Income for the years ended
March 31, 1995 and 1994 ................................................ 29
Statements of Shareholders' Equity for the
years ended March 31, 1995 and 1994..................................... 30
Statements of Cash Flows for the years ended
March 31, 1995 and 1994................................................. 31
Notes to Financial Statements............................................ 33
26
<PAGE>
Independent Auditors' Report
The Board of Trust Managers and Shareholders
Church Loans & Investments Trust:
We have audited the accompanying balance sheets of Church Loans & Investments
Trust (a real estate investment trust) as of March 31, 1995 and 1994, and the
related statements of income, shareholders' equity, and cash flows for each of
the years in the two-year period ended March 31, 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our 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 Church Loans & Investments
Trust as of March 31, 1995 and 1994, and the results of its operations and its
cash flows for each of the years in the two-year period ended March 31, 1995, in
conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Amarillo, Texas
May 5, 1995
27
<PAGE>
CHURCH LOANS & INVESTMENTS TRUST
(A Real Estate Investment Trust)
Balance Sheets
March 31, 1995 and 1994
Assets 1995 1994
------ ---- ----
Cash and cash equivalents ...................... $ 366,977 429,431
Receivables (notes 3 and 4):
Mortgage loans and church bonds - earning .. 25,676,746 28,079,612
Interim construction loans - earning ....... 10,148,958 7,035,506
Nonearning mortgage loans, church bonds
and interim construction loans ........... 3,405,793 1,519,340
Less: Allowance for possible credit losses . (645,049) (563,824)
------------ ------------
38,586,448 36,070,634
------------ ------------
Accrued interest receivable ................ 339,633 329,834
Notes receivable ........................... 481,878 550,778
Other receivables .......................... 2,576 17,942
------------ ------------
Total receivables ............ 39,410,535 36,969,188
Property and equipment, net of accumulated
depreciation of $413,707 and $398,035 in
1995 and 1994, respectively ................ 244,635 260,307
Property held for investment ................... 83,714 83,714
Unamortized debt expense, net and other assets . 65,400 56,042
------------ ------------
$ 40,171,261 37,798,682
============ ============
Liabilities and Shareholders' Equity
Liabilities:
Notes payable and line of credit (note 4):
Related party (note 8) ................... $ 706,577 364,155
Other .................................... 11,032,781 7,961,495
------------ ------------
11,739,358 8,325,650
Secured savings certificates (note 4):
Related party (note 8) ................... 665,375 834,000
Other .................................... 6,118,356 7,115,559
------------ ------------
6,783,731 7,949,559
Accrued interest payable ................... 94,423 66,156
Federal income taxes payable ............... 5,010 5,799
Other ...................................... 314,771 179,059
------------ ------------
18,937,293 16,526,223
------------ ------------
Shareholders' equity (note 7):
Shares of beneficial interest, no par value;
authorized shares unlimited, 7,007,402
shares issued and outstanding ............ 20,623,866 20,623,866
Undistributed net income ................... 610,102 648,593
------------ ------------
Total shareholders' equity ... 21,233,968 21,272,459
Commitments (note 3)
$ 40,171,261 37,798,682
============ ============
See accompanying notes to financial statements.
28
<PAGE>
CHURCH LOANS & INVESTMENTS TRUST
(A Real Estate Investment Trust)
Statements of Income
Years ended March 31, 1995 and 1994
1995 1994
---- ----
Interest income and fees:
Interest and fees on mortgage loans, church
bonds and interim construction loans ............. $4,387,244 4,291,973
Interest on temporary investments ................. 19,686 31,132
---------- ----------
Total interest income and fees ............ 4,406,930 4,323,105
Debt expense:
Interest .......................................... 1,345,054 1,232,184
Amortization of:
Registration costs .............................. 9,250 62,332
Commissions paid to brokers (note 2) ............ 64,783 64,004
---------- ----------
Total debt expense ........................ 1,419,087 1,358,520
---------- ----------
Net interest income ....................... 2,987,843 2,964,585
Provision for possible credit losses (note 3) ........ 80,000 90,000
---------- ----------
Net interest income less provision
for possible credit losses .............. 2,907,843 2,874,585
---------- ----------
Other income ......................................... 12,164 13,112
Other operating expenses:
General and administrative ........................ 514,793 540,862
Board of Trust Managers' fees ..................... 38,651 38,988
---------- ----------
Total other operating expenses ............ 553,444 579,850
---------- ----------
Income before provision for income taxes .. 2,366,563 2,307,847
Provision for income taxes (note 5) .................. 22,537 19,505
---------- ----------
Net income ................................ $2,344,026 2,288,342
========== ==========
Net income per share (note 6) ..................... $ .33 .33
==== ===
See accompanying notes to financial statements.
29
<PAGE>
CHURCH LOANS & INVESTMENTS TRUST
(A Real Estate Investment Trust)
Statements of Shareholders' Equity
Years ended March 31, 1995 and 1994
Shares of beneficial interest
----------------------------- Undistributed
Shares Amount net income
------ ------ ----------
Balance, March 31, 1993 ............. 7,007,402 $20,623,866 532,545
Cash dividends ($.31 per share) ..... -- -- (2,172,294)
Net income .......................... -- -- 2,288,342
----------- ----------- -----------
Balance, March 31, 1994 ............. 7,007,402 20,623,866 648,593
Cash dividends ($.34 per share) ..... -- -- (2,382,517)
Net income .......................... -- -- 2,344,026
----------- ----------- -----------
Balance, March 31, 1995 ............. 7,007,402 $20,623,866 610,102
=========== =========== ===========
See accompanying notes to financial statements.
30
<PAGE>
Continued
CHURCH LOANS & INVESTMENTS TRUST
(A Real Estate Investment Trust)
Statements of Cash Flows
Years ended March 31, 1995 and 1994
1995 1994
---- ----
Cash flows from operating activities:
Net income .................................. $ 2,344,026 2,288,342
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation ............................ 15,672 15,672
Amortization of debt expense ............ 74,033 126,336
Amortization of loan discounts .......... (248,914) (387,971)
Provision for possible loan losses ...... 80,000 90,000
Changes in:
Accrued interest receivable ........... (9,799) 50,043
Accrued interest payable .............. 28,267 (21,936)
Federal income taxes payable .......... (789) 42
Other liabilities ..................... 135,712 63,165
Other, net .............................. 20,520 12,649
------------ ------------
Net cash provided by
operating activities ............. 2,438,728 2,236,342
------------ ------------
Cash flows from investing activities:
Investment in mortgage and interim
construction loans and church bonds ....... (17,971,292) (12,673,517)
Payments received on mortgage and interim
construction loans and church bonds ....... 15,623,167 16,055,666
Advances on notes receivable ................ (211,108) (406,800)
Payments received on notes receivable ....... 280,008 179,389
------------ ------------
Net cash provided (used) by
investing activities ............. (2,279,225) 3,154,738
------------ ------------
31
<PAGE>
CHURCH LOANS & INVESTMENTS TRUST
(A Real Estate Investment Trust)
Statements of Cash Flows, Continued
1995 1994
---- ----
Cash flows from financing activities:
Sale of secured savings certificates ........ $ 5,239,231 5,185,803
Borrowings on notes payable and line
of credit ................................. 15,086,352 7,458,524
Principal payments on:
Secured savings certificates .............. (6,405,059) (8,055,474)
Notes payable and line of credit .......... (11,672,644) (7,687,316)
Registration costs of secured savings
certificates .............................. (8,290) (19,714)
Commissions paid to brokers on issuance
of secured savings certificates ........... (79,030) (46,346)
Cash dividends paid ......................... (2,382,517) (2,172,294)
------------ ------------
Net cash used by financing activities ... (221,957) (5,336,817)
------------ ------------
Increase (decrease) in cash and
cash equivalents ................ (62,454) 54,263
Cash and cash equivalents at beginning of year . 429,431 375,168
------------ ------------
Cash and cash equivalents at end of year ....... $ 366,977 429,431
============ ============
Supplemental disclosure of cash flow information:
Cash paid during the year for interest ......... $ 1,316,787 1,254,120
============ ============
Income taxes paid were not material in 1995 and 1994.
See accompanying notes to financial statements.
32
<PAGE>
Continued
CHURCH LOANS & INVESTMENTS TRUST
(A Real Estate Investment Trust)
Notes to Financial Statements
Years ended March 31, 1995 and 1994
(1) Summary of Significant Accounting Policies
General
Church Loans & Investments Trust (Church Loans) is a real estate
investment trust that invests primarily in mortgage loans to churches
across the United States, particularly in the southern portion of the
U.S. During 1995, Church Loans also began making certain interim real
estate construction loans to entities other than churches. Church Loans
requires that real estate properties be pledged against mortgage loans
as security which could be foreclosed by Church Loans should the
borrower default. Repayment of each borrower's obligations is generally
expected to be repaid from contributions from church members, or in the
case of interim construction loans, by permanent financing provided by
others.
Current Operating Environment
Church Loans has historically invested in long-term, fixed-rate
mortgage loans and variable-rate mortgage loans that periodically
reprice, generally funded by relatively short-term secured savings
certificates (SSCs) and debt obligations. The volatility of interest
rates and increased competition to attract customers' funds have caused
Church Loans' liability structure to become short-term and rate
sensitive. Church Loans reflected an average interest yield on its loan
and church bond portfolio, an average interest rate on its total
indebtedness and a net interest rate margin at March 31, 1995 and 1994
as follows:
Loan and church Total Net interest
bond portfolio indebtedness rate margin
--------------- ------------ -----------
March 31, 1995 ............. 10.94% 8.02 2.92
March 31, 1994 ............. 10.46 6.25 4.21
Church Loans finances maturities of SSCs and debt obligations through
its available lines of credit, the issuance of SSCs and principal
payments received on its mortgage loans.
Church Bonds
Church bonds, secured by first mortgage liens on church facilities, are
stated at cost, as there is no traded market for the bonds and
management intends to hold such securities until maturity.
Allowance for Possible Credit Losses
The allowance for possible credit losses is established through a
provision for possible credit losses charged to expense. Loans and
church bonds are charged against the allowance when management believes
that the collectibility of the principal is unlikely.
33
<PAGE>
CHURCH LOANS & INVESTMENTS TRUST
(A Real Estate Investment Trust)
Notes to Financial Statements
Recoveries of amounts previously charged off are credited to the
allowance. The charge to operations is based on management's evaluation
of the loan and church bond portfolio, including such factors as the
security collateralizing the loans or church bonds, past credit loss
experience and general economic conditions.
Recognition of Interest Income, Origination and Commitment Fees and
Loan Discounts
Interest income on mortgage loans and church bonds is recognized when
earned. The accrual of interest income is generally discontinued on
mortgage loans and church bonds more than 90 days past due or when
there is sufficient doubt as to the collection of interest.
Loan origination fees are collected only on a few permanent loans and
generally recognized as income when received and the associated loan
origination costs are expensed when incurred. The effect on the
accompanying financial statements is not materially different from
generally accepted accounting principles which require that loan fees,
net of origination costs, be deferred and amortized into interest
income over the life of the related loan.
Commitment fees received on interim construction loans are recognized
over the interim commitment period for loans that are not permanently
financed by Church Loans and over the life of the mortgage loan for
loans that are permanently financed by Church Loans. Amounts are being
amortized using the straight-line method. This method was not
materially different from the method of deferring commitment fees until
the commitment is exercised and recognizing such fees as an adjustment
to yield by the interest method over the related loans' lives as
prescribed by generally accepted accounting principles for the years
ended March 31, 1995 and 1994.
Purchase discounts on loans are amortized based on the interest method.
Property and Equipment
Property and equipment are stated at cost, less accumulated
depreciation. Depreciation is provided on the straight-line method over
the estimated useful lives of the assets, which range from 3 to 18
years.
Unamortized Debt Expense
Commissions paid to brokers (see note 2) in connection with the sale of
SSCs are deferred and amortized over the terms of the related
certificates on the interest method. Costs incurred in connection with
the registration of SSCs are deferred and amortized on the
straight-line method over the period the related certificates are sold,
but no longer than two years from the date the registration becomes
effective.
34
<PAGE>
CHURCH LOANS & INVESTMENTS TRUST
(A Real Estate Investment Trust)
Notes to Financial Statements
Income Taxes
In February 1992, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards No. 109, Accounting
for Income Taxes. Statement 109 requires a change from the deferred
method of accounting for income taxes of APB Opinion 11 to the asset
and liability method of accounting for income taxes. Under the asset
and liability method of Statement 109, deferred tax assets and
liabilities are recognized for the future tax consequences attributable
to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases.
Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. Under
Statement 109, the effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes
the enactment date.
Pursuant to the deferred method under APB Opinion 11, which was applied
in 1993 and prior years, deferred income taxes were recognized for
income and expense items that were reported in different years for
financial reporting purposes and income tax purposes using the tax rate
applicable for the year of the calculation. Under the deferred method,
deferred taxes were not adjusted for subsequent changes in tax rates.
Statement 109 was adopted effective April 1, 1993 on a prospective
basis and the effect of adoption was not significant to Church Loans'
financial statements.
Cash Flows
For purposes of reporting cash flows, cash and cash equivalents include
cash-on-hand, investment in a money market mutual fund and certificates
of deposit with maturities of less than 90 days at the time of
acquisition.
(2) Broker Fees
Church Loans had an agreement with Great Nation Investment Corporation
(Great Nation) whereby Great Nation used its best efforts to sell SSCs
registered by Church Loans. The agreement provided that Church Loans
would pay Great Nation a commission on the basis of an annualized rate
equal to three-fourths of one percent per annum of the face amount of
each certificate sold by Great Nation. Effective July 18, 1994, Church
Loans decided not to register and is presently unable to sell
additional SSCs (see note 4).
(3) Mortgage and Interim Construction Loans
Mortgage loans receivable consist of conventional loans of $26,604,107
and $28,564,372 and interest-bearing church bonds due principally from
congregations of Churches of Christ of $957,455 and $1,034,580 at March
31, 1995 and 1994, respectively. Interim construction loans of
$11,669,935 and $7,035,506 at March 31, 1995 and 1994, respectively,
consist primarily of loans to churches for the construction of church
facilities. Mortgage loans, church bonds and interim construction loans
are generally secured by first liens on real estate comprised primarily
of church buildings, ministers' residences and other real estate. The
amount of a loan is generally limited to 66-2/3% of the appraised value
35
<PAGE>
CHURCH LOANS & INVESTMENTS TRUST
(A Real Estate Investment Trust)
Notes to Financial Statements
of the related property. Certain loans are guaranteed by individual
members of the congregations or other individuals or congregations,
depending on the circumstances. The individual endorsements are usually
for a specific amount with the sum of all such guarantees being an
amount at least equal to the loan amount.
Church Loans' portfolio included mortgage loans, church bonds and
interim construction loans with interest rates ranging from 7.00% to
15.75% at March 31, 1995. The weighted average annual interest rates of
Church Loans' loan and church bond portfolio were 10.94% and 10.46% at
March 31, 1995 and 1994, respectively. The weighted average annual
interest rates for the loan and church bond portfolios were 11.0% and
11.2% for the years ended March 31, 1995 and 1994, respectively.
The following schedule is a summary of the combined mortgage, church
bonds and interim construction loan portfolios by size of loan at March
31, 1995 and 1994:
<TABLE>
<CAPTION>
1995 1994
---------------------- -----------------------
No. of Carrying No. of Carrying
Description loans amount loans amount
----------- ----- ------ ----- ------
<S> <C> <C> <C> <C>
Over $1,500,000 ............................ 6 $10,663,047 4 $ 8,716,029
$1,300,000-1,499,999 ....................... 2 2,748,334 -- --
$1,000,000-1,29x,999 ....................... 1 1,251,964 1 1,283,454
$900,000-999,999 ........................... 1 942,152 3 2,806,059
$800,000-899,999 ........................... 2 1,665,971 2 1,655,977
$700,000-799,999 ........................... 2 1,561,730 2 1,478,995
$600,000-699,999 ........................... 2 1,258,067 1 692,478
$500,000-599,999 ........................... 5 2,691,005 4 2,162,176
$400,000-499,999 ........................... 3 1,335,956 5 2,262,770
$300,000-399,999 ........................... 8 2,851,470 7 2,515,406
$200,000-299,999 ........................... 19 4,593,451 21 4,626,660
$100,000-199,999 ........................... 34 4,887,705 27 3,863,283
Under $100,000 ............................. 109 4,090,472 167 5,945,646
---- ----------- ---- -----------
194 40,541,324 244 38,008,933
Less: unamortized purchase discounts
on mortgage loans ........................ 1,309,827 1,374,475
Less: allowance for possible
credit losses ............................ 645,049 563,824
----------- -----------
$38,586,448 $36,070,634
=========== ===========
</TABLE>
36
<PAGE>
CHURCH LOANS & INVESTMENTS TRUST
(A Real Estate Investment Trust)
Notes to Financial Statements
The mortgage and interim construction loan portfolios included the
following loans at March 31, 1995, with individual balances in excess
of 3% of the total carrying amount of the combined portfolios:
Arlington Baptist Church, Baltimore, Maryland; interest at
11.25%; monthly payments of $24,265 to maturity on
September 1, 2017 .............................................. $2,379,883
The Living Word Church, Middletown, Ohio; interest at 9.75%;
monthly payments of $40,256 to maturity on May 1, 2009 ........ 1,803,168
Great Plains Assisted Living, LLC, Olathe, Kansas; interest at
prime + 2% (11.00% at March 31, 1995); principal and
interest due at maturity on May 2, 1995 ....................... 1,736,815
First United Pentecostal Church of Arnold, Arnold, Maryland;
interest at 11.00%; monthly payments of $16,225 to
maturity on September 1, 2020 ................................. 1,657,707
New Jerusalem Church, Lansing, Michigan; interest at prime + 2%
(11.00% at March 31, 1995); monthly payments of $17,686 to
maturity on December 1, 1995 .................................. 1,564,496
St. Stevens Church of God in Christ, San Diego, California;
interest at prime + 2% (11.0% at March 31, 1995); principal and
interest due at maturity on October 25, 1994 (included in
nonearning assets at March 31, 1995) .......................... 1,520,977
Sedona Assisted Living, LLC, San Antonio, Texas; interest at
prime + 2% (11.00% at March 31, 1995); principal and interest
due at maturity on June 1, 1995 ............................... 1,382,710
Duncanville Church of Christ, Duncanville, Texas;interest at 8.25%;
monthly payments of $27,000 to maturity on February 1, 1998 ... 1,365,624
Sterling Partners, LLC, Ponca City, Oklahoma; interest at prime +
2% (11.00% at March 31, 1995); principal and interest due at
maturity on August 1, 1995 .................................... 1,251,964
----------
$ 14,663,344
==========
In the normal course of business, Church Loans makes commitments to
extend credit which are not reflected in the financial statements.
These commitments involve elements of credit risk, interest rate risk,
liquidity risk and market risk. At March 31, 1995, Church Loans had
outstanding loan commitments (by contract amounts) of approximately
$1,824,000. Church Loans has no other financial instruments with
off-balance sheet risk.
37
<PAGE>
CHURCH LOANS & INVESTMENTS TRUST
(A Real Estate Investment Trust)
Notes to Financial Statements
Nonaccrual mortgage loans, church bonds and interim construction loans
at March 31, 1995 and 1994 were $3,405,793 and $1,519,340,
respectively. Interest income which would have been recorded under the
original terms of nonaccrual loans and church bonds amounted to
$282,551 and $171,367 for the years ended March 31, 1995 and 1994,
respectively. No interest income was actually recognized.
The original terms of the individual loans included in the loan
portfolio generally vary from 1 to 30 years. Scheduled maturities
during the five years subsequent to March 31, 1995, are:
1996 .............................. $16,618,243
1997 .............................. 2,546,974
1998 .............................. 2,376,248
1999 .............................. 2,160,259
2000 .............................. 1,516,973
===========
At March 31, 1995, mortgage loans were pledged to support indebtedness
of Church Loans as follows:
Term notes payable to banks and
line of credit payable to bank .... $14,452,698
Secured savings certificates ....... 9,676,303
-----------
Total mortgage loans pledged ... $24,129,001
===========
A summary of transactions in the allowance for possible credit losses
for the years ended March 31, 1995 and 1994 follows:
1995 1994
Balance at beginning of year ...... $563,824 478,345
Provisions charged to operating
expenses ........................ 80,000 90,000
Amounts recovered (charged off) ... 1,225 (4,521)
-------- --------
Balance at end of year ............ $645,049 563,824
======== ========
In May 1993, the FASB issued Statement of Financial Accounting
Standards No. 114, Accounting by Creditors for Impairment of a Loan.
This Statement amends FASB Nos. 5, Accounting for Contingencies, and
15, Accounting by Debtors and Creditors for Troubled Debt
Restructurings, and prescribes the recognition criterion for loan
impairment and the measurement methods for certain impaired loans and
loans whose terms are modified in troubled-debt restructurings. The
objective of Statement 114 is to provide consistent guidance to all
creditors with loans included in the scope of the Statement. Statement
114 is effective for financial statements for fiscal years beginning
after December 15, 1994 and is required to be adopted prospectively. In
October 1994, the FASB issued Statement No. 118, Accounting by
Creditors for Impairment of a Loan - Income Recognition and
Disclosures. Statement No. 118 amends Statement No. 114 to allow a
creditor to use existing methods for recognizing interest income on an
impaired loan and amends certain disclosure requirements. The adoption
of Statements No. 114 and No. 118 on April 1, 1995 did not have a
material effect on Church Loans financial statements.
38
<PAGE>
CHURCH LOANS & INVESTMENTS TRUST
(A Real Estate Investment Trust)
Notes to Financial Statements
(4) Debt Obligations
Information relating to debt obligations follows:
<TABLE>
<CAPTION>
Weighted average Maximum amount Average Weighted average
Balance at interest rate outstanding at month-end interest rate
end of period at end of period any month-end balance for the period
------------- ---------------- -------------- ---------- --------------
<S> <C> <C> <C> <C> <C>
March 31, 1995
Term notes payable
to banks ...................................... $ 2,666,667 10.00% $ 5,333,333 $ 4,000,000 8.81%
Line of credit payable
to bank ....................................... 5,600,001 9.00%* 5,600,001 3,383,463 8.03%
Other demand notes
payable ....................................... 3,472,690 8.00% 3,472,690 2,060,075 7.50%
----------- ===== =========== ============ ====
11,739,358
Secured savings
certificates .................................. 6,783,731 6.45% $10,629,662 $ 8,592,445 6.24%
----------- ===== =========== ============ ====
Total .................................... $18,523,089 8.02% $25,035,686 $18,035,982 7.29%
=========== ===== =========== ============ ====
March 31, 1994
Term notes payable
to banks ...................................... $ 5,333,333 7.25% $ 7,777,778 6,666,666 7.12%
Line of credit payable
to bank ....................................... 1,000,001 6.25%* 2,000,001 580,770 6.01%
Other demand notes
payable ....................................... 1,992,316 6.65% 2,134,147 1,715,084 5.10%
----------- ===== =========== ========== ====
8,325,650
Secured savings
certificates .................................. 7,949,559 5.82% $10,697,992 $ 8,982,097 6.58%
----------- ===== =========== =========== ====
Total .................................... $16,275,209 6.25% $22,609,918 $17,944,617 6.61%
=========== ===== =========== =========== ====
</TABLE>
* Does not consider commitment fees.
Maturities of debt for each of the three years subsequent to
March 31, 1995, are:
1996 ....................... $14,322,712
1997 ....................... 2,915,377
1998 ....................... 1,285,000
-----------
$18,523,089
===========
Included in maturities for the year ended March 31, 1996 are other
demand notes payable of $3,472,690.
39
<PAGE>
CHURCH LOANS & INVESTMENTS TRUST
(A Real Estate Investment Trust)
Notes to Financial Statements
All debt obligations, except for other demand notes payable, are
secured by the pledge of specific mortgage notes receivable (see note
3).
Maturities of SSCs and debt obligations are financed through principal
payments received on mortgage loans, advances on other demand notes
payable and advances on the $10,000,000 line of credit which is
expected to be renewed on an annual basis.
Descriptions of the various categories of debt obligations follow:
Secured Savings Certificates
SSCs are issued in amounts of $1,000 or more and have single maturity
dates from 30 days to 10 years from date of issue. With respect to an
individual certificate, interest rate and frequency of payment of
interest (either monthly, quarterly, semiannually, annually or at
maturity) are fixed at the time of issuance of the certificate. As
discussed in note 2, effective July 18, 1994, Church Loans decided not
to register and is presently unable to sell additional SSCs. However,
during April 1995, the Board of Trust Managers decided to register
additional SSCs in the summer of 1995.
The certificates are secured under the terms of an indenture that
requires, among other things, the pledge of mortgage notes receivable
with total unpaid principal amounts not less than 125% of the aggregate
principal amount of SSCs outstanding. Due to the fluctuations in the
amount of sales of certificates as well as in the repayment of notes
pledged to secure the certificates, Church Loans has on occasion failed
to maintain the required ratio of pledged notes to outstanding
certificates for a short period of time until the deficiency could be
corrected. The indenture trustee has been aware of these temporary
technical defaults of Church Loans and has waived declaration of a
default under the Indenture. As of March 31, 1995 and 1994, Church
Loans was in compliance with the requirement.
Term Notes Payable to Banks
Church Loans has two term notes payable to banks that each had an
original principal sum of $5,000,000. One note has a term of three
years and is payable in monthly installments of $138,889. The other
note has a term of five years and is payable in monthly installments of
$83,333.
Both term notes payable to banks bear interest at prime plus 1% (10% at
March 31, 1995) and are collateralized by mortgage loans receivable
with carrying values equal to at least 120% of the aggregate principal
amount of the outstanding notes, subject to certain limitations. All
collateral is cross-pledged against the Line of Credit Payable to Bank.
The term notes are subject to loan agreements that require, among other
things, that Church Loans' net worth not be less than $18,000,000 and
its total indebtedness shall not exceed 150% of its net worth. At March
31, 1995, Church Loans' total indebtedness was approximately
$13,400,000 less than the maximum amount permitted under the agreement.
40
<PAGE>
CHURCH LOANS & INVESTMENTS TRUST
(A Real Estate Investment Trust)
Notes to Financial Statements
Line of Credit Payable to Bank
Line of credit payable to bank consists of borrowings under a loan
agreement effective through September 1, 1995, that provides for a
$10,000,000 line of credit with a commitment fee of 1/4% to 3/8% per
annum on the unadvanced portion. The loan agreement requires Church
Loans to pledge mortgage loans receivable having unpaid principal
balances with an aggregate present value, discounted at 1% over the
prime rate (10% at March 31, 1995), of not less than 110% of all
indebtedness owed to the bank. Such pledged loans are also
cross-pledged against the Term Notes Payable to Banks. Interest accrues
at the prime rate and is payable semiannually.
The loan agreement contains restrictions similar to those limits
contained in the loan agreements relating to the Term Notes Payable to
Banks and also limits demand notes payable to $4,000,000 ($2,000,000 in
1994).
Demand Notes Payable
The demand notes payable bear interest at 1% less than the prime rate
(payable monthly) and are unsecured (see note 8).
(5) Income Tax Provision
Church Loans has elected to be taxed as a real estate investment trust
under the provisions of the Internal Revenue Code. To qualify as a real
estate investment trust under the Code, Church Loans must, among other
things, distribute at least 95% of its taxable income to its
shareholders through dividends. Church Loans is required to pay
dividends of at least 85% of its calendar year undistributed income by
February 1 or be subject to a special federal excise tax of 4% on the
undistributed amount.
As discussed in note 1, Church Loans adopted Statement 109 as of April
1, 1993. The cumulative effect of this change in accounting for income
taxes and the related deferred taxes were not significant to Church
Loans' financial statements.
Total income tax expense for the years ended March 31, 1995 and 1994 is
less than the amount computed by applying the applicable statutory
federal income tax rate (35%) to income before provision for income
taxes as follows:
1995 1994
---- ----
Computed "expected" federal income tax expense ..... $ 828,297 807,746
Increases (decreases) in taxes resulting from:
Dividends ....................................... (809,355) (784,829)
Graduated rate differential ..................... (12,478) (12,750)
Difference in provision for loan losses for
financial and tax purposes .................... (70,690) (22,582)
Difference in accounting for interest
recognized for financial and tax purposes ..... 86,763 31,920
--------- ---------
Actual tax expense ................................. $ 22,537 19,505
========= =========
41
<PAGE>
CHURCH LOANS & INVESTMENTS TRUST
(A Real Estate Investment Trust)
Notes to Financial Statements
(6) Net Income Per Share
Net income per share of beneficial interest is based on the weighted
average number of shares outstanding, which was 7,007,402 for both of
the years ended March 31, 1995 and 1994. There were no share
equivalents or other potentially dilutive securities outstanding during
either of the years presented.
(7) Dividends
All dividends paid by Church Loans are taxable as ordinary income to
the recipient. A schedule of dividends paid during the years ended
March 31, 1995 and 1994 follows:
Dividend amount
Date of record Date paid Per share Total
-------------- --------- --------- -----
March 31, 1993 ................ May 1993 $ .08 560,592
December 31, 1993 ............. January 1994 .23 1,611,702
March 31, 1994 ................ May 1994 .09 630,667
December 31, 1994 ............. January 1995 .25 1,751,850
In April 1995, a dividend of $560,592 ($.08 per share) was declared for
stockholders of record on March 31, 1995.
(8) Related Party Transactions
Other demand notes payable at March 31, 1995 and 1994 included notes
totaling $706,577 and $364,155, respectively, which represent
borrowings from related parties. The notes bear interest at 1% less
than the prime rate and are unsecured. Interest expense incurred on
related party other demand notes payable was not significant for 1995
or 1994 (see note 4).
Secured savings certificates at March 31, 1995 and 1994 include
certificates totaling $665,375 and $834,000, respectively, which
represent liabilities to related parties. Interest expense incurred on
savings certificates of related parties was not significant for 1995 or
1994 (see note 4).
42
<PAGE>
CHURCH LOANS & INVESTMENTS TRUST
(A Real Estate Investment Trust)
Notes to Financial Statements
(9) Quarterly Operating Results (Unaudited)
The following quarterly operating results are unaudited, but, in the
opinion of management, include all adjustments (consisting of normal
recurring accruals) necessary for a fair presentation of Church Loans'
operating results for the periods indicated:
Quarter Ended
June 30 September 30 December 31 March 31
------- ------------ ----------- --------
Year ended March 31, 1995
Interest income and fees .. $1,092,240 1,132,631 1,089,328 1,092,731
Debt expense .............. 315,023 367,250 357,845 378,969
Net interest income ....... 777,217 765,381 731,483 713,762
Net income ................ 623,903 637,656 590,371 492,096
Net income per share ...... .09 .09 .08 .07
Quarter Ended
June 30 September 30 December 31 March 31
------- ------------ ----------- --------
Year ended March 31, 1994
Interest income and fees .. $1,228,979 1,024,269 1,021,687 1,048,170
Debt expense .............. 390,425 350,936 308,740 308,419
Net interest income ....... 838,554 673,333 712,947 739,751
Net income ................ 652,662 527,230 572,809 535,641
Net income per share ...... .09 .08 .08 .08
43
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Neither the Declaration of Trust nor the Bylaws of the Trust indemnifies
any member of the Board of Trust Managers from any liability which may be
incurred due to the negligence or misconduct in the performance of any duty by
such board member in such capacity, except that the Board of Trust Managers may
waive any liability of any member of the Board of Trust Managers or an employee
if such liability arose from such person's error of judgment, mistake,
inadvertence or ordinary negligence.
Article 6138A, Texas Real Estate Investment Trust Act, provides that a
trust manager of the Trust shall not be liable for any claims or damages that
may result from his acts in the discharge of any duty imposed or power conferred
upon him by the Trust, if, in the exercise of ordinary care, he acted in good
faith and in reliance upon the written opinion of an attorney for the Trust; and
shall not be liable for any act, omission, loss, damage, or expense arising from
the performance of his duty under a real estate investment trust, save only for
his own willful misfeasance or malfeasance or negligence.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Estimated expenses of Church Loans & Investments Trust in connection with
the sale of the securities being registered are as follows:
S.E.C. Registration Fees.................................................$ 6,897
Printing Costs........................................................... 5,000
Accounting Fees and Expenses............................................. 10,000
Legal Fees and Expenses.................................................. 15,000
State Blue Sky Qualifications Fees and Expenses.......................... 20,000
Miscellaneous............................................................ 1,000
-------
Total...............................................................$57,897
=======
The expense of the issuance and distribution of the Certificates is to be
amortized upon a percentage basis as the Certificates of this offering are
distributed.
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
During the past three years the Trust entered into unregistered "Demand
Notes Payable" with 3 persons or entities. The date, persons and amounts of such
Demand Notes Payable for the last three years are as follows:
DATE PERSON OR ENTITY FACE AMOUNT
- ----------------- --------------------------------- -----------
January 4, 1995 Joe L. Young $ 60,000
November 15, 1994 William K. Johnson, Trustee $300,000
July 9, 1992 Bill R. McMorries and
Billie Jean, McMorries, Trustees $250,000
The Trust claims exemption from registration of such Demand Notes Payable
under Rule 506 of Regulation D. The total number of purchasers of such Demand
Notes Payable to date are 19.
II-1
<PAGE>
ITEM 27. EXHIBITS
** 1. Agreement between Church Loans & Investments Trust and Great
Nation Investment Corporation.
* 3. Declaration of Trust of Church Loans & Investments Trust, as
amended, has previously been filed under File No. 2-51235 and is
incorporated by reference. By-Laws of Church Loans & Investments
Trust, as amended, has previously been filed under File No.
2-51235 and is incorporated by reference.
4.
** 4.1 Form of Secured Savings Certificates of Church Loans &
Investments Trust.
* 4.2.1 Trust Indenture dated June 1, 1974, between Church Loans &
Investments Trust and The Panhandle Bank & Trust Company,
together with the Table of Contents and Cross Reference Sheet.
(See Trust Indenture--File No. 2-51235 incorporated herein by
reference)
** 4.2.2 Fourteenth Supplemental Indenture
** 5. Opinion of counsel, Burdett, Morgan & Thomas, L.L.P.
** 8. Opinion of Counsel, Burdett, Morgan & Thomas, L.L.P.
** 10. Line of Credit Agreement between Church Loans & Investments
Trust and Boatmen's First National Bank of Amarillo, Texas.
11. Statement regarding computation of per share earnings--omitted
since information necessary to make the computations is included
in the financial statements and Note 6 thereto.
* 13. 1995 Annual Report on Form 10-KSB405
* 16. Letter dated June 28, 1995 from KPMG Peat Marwick LLP
23.
** 23.1 Consent of KPMG Peat Marwick LLP--page II-5 of Registration
Statement and page 23.1.1 of the Exhibits.
** 23.2 Consent of Burdett, Morgan & Thomas, L.L.P.--opinion of
counsel--Exhibit 8
* 25. Statement of eligibility--Boatmen's First National Bank of
Amarillo
* 27. Financial Data Schedule
- -----------------
* Previously filed.
** Filed herewith.
II-2
<PAGE>
ITEM 28. UNDERTAKINGS
The undersigned registrant hereby undertakes:
To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement;
To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate, represent a
fundamental change in the information set forth in the registration statement.
To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
That for the purpose of determining any liability under the Securities
Act of 1933, each new post-effective amendment shall be deemed to be a new
Registration Statement relating to the securities offered hereby therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
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 Trust pursuant to the foregoing provisions, or otherwise, the
Trust has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than payment of expenses incurred in the
successful defense of any action) is asserted by a director, trust manager,
officer or controlling person in connection with the securities being
registered, the Trust will, unless in the opinion of counsel of the Trust the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by the Trust
is against public policy as expressed in the Securities Act and will be governed
by the final adjudication of such issue.
To place an attachment to the cover of the prospectus to reflect any
change in the terms of the Certificates offered by the Trust during the offering
period.
To sticker the prospectus to reflect any changes in the rates of
interest to be paid by the Trust upon the Certificates.
II-3
<PAGE>
SIGNATURES
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 FOR FILING ON FORM SB-2 AND AUTHORIZED THIS REGISTRATION
STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY
AUTHORIZED IN THE CITY OF AMARILLO, STATE OF TEXAS, ON THE 12TH DAY OF JULY,
1995.
CHURCH LOANS & INVESTMENTS TRUST
By:/S/ B. R. MCMORRIES
-------------------
B. R. McMorries
Chairman of the Board
of Trust Managers
IN ACCORDANCE WITH THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT WAS SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND
ON THE DATES STATED.
/S/ B. R. MCMORRIES /S/ EVERETT B. BLANTON, JR.
- ------------------------------- ---------------------------
B. R. McMorries, Everett B. Blanton, Jr.,
Chairman of the Board of Trust Manager
Trust Managers (Principal executive officer)
Date: July 12, 1995
Date: July 12, 1995
/S/ FOY W. SHACKELFORD
- ------------------------------- ---------------------------
Foy W. Shackelford, Steve Rogers,
Vice Chairman of the Trust Manager
Board of Trust Managers
Date: July 12, 1995
Date: July 12, 1995
/S/ JACK R. VINCENT
- ------------------------------- ---------------------------
Larry Brown, Jack R. Vincent,
Secretary of the Board of Trust Managers Trust Manager
Date: July 12, 1995
Date: July 12, 1995
/S/ M. KELLY ARCHER /S/ ROBERT E. MARTIN
- ------------------------------- ---------------------------
M. Kelly Archer Robert E. Martin,
(Principal financial and accounting officer) Trust Manager
Date: July 12, 1995
Date: July 12, 1995
II-4
<PAGE>
INDEPENDENT AUDITORS' CONSENT
The Board of Trust Managers
Church Loans & Investments Trust:
We consent to the use of our report included herein and to the reference to
our firm under the heading "Experts" in the Prospectus.
KPMG Peat Marwick LLP
Fort Worth, Texas
July 12, 1995
II-5
<PAGE>
EXHIBIT INDEX
Sequential
Numbering
EXHIBIT PAGE NO.
- ------- ----------
1. Agreement between Church Loans & Investments Trust and Great
Nation Investment Corporation. ...................................1.1
4.1 Form of Secured Savings Certificates of Church Loans &
Investments Trust. .............................................4.1.1
4.2.2 Fourteenth Supplemental Indenture ............................4.2.2.1
5. Opinion of counsel, Burdett, Morgan & Thomas, L.L.P. .............5.1
8. Opinion of counsel, Burdett, Morgan & Thomas, L.L.P. .............8.1
10. Line of Credit Agreement between Church Loans & Investments
Trust and The First National Bank of Amarillo, Texas ............10.1
23.1 Consent of KPMG Peat Marwick LLP ..............................23.1.1
BEST EFFORTS SECURED SAVINGS CERTIFICATE
----------------------------------------
OFFERING AGREEMENT
------------------
This Agreement is entered into between CHURCH LOANS & INVESTMENT TRUST, a
real estate investments trust organized under the laws of the State of Texas,
hereinafter referred to as "Issuer", and GREAT NATION INVESTMENT CORPORATION, a
Texas corporation, hereinafter referred to as "Dealer".
RECITALS
1. Issuer is to sell secured savings certificates (certificates) to be
issued by Issuer in the total principal amount of $20,000,000.
2. Dealer desires to assist Issuer in the sale of the certificates upon a
best efforts basis.
AGREEMENT
In consideration of the covenants and conditions hereinafter set forth, it
is agreed by Issuer and Dealer as follows:
1. Issuer shall issue certificates in the total principal amount of
$20,000,000. These certificates shall:
(a) Bear interest at multiple rates depending upon the
dates of maturity as designated by Issuer;
(b) Have maturities from six months to ten years as
designated by Issuer;
(c) Provide for interest to be paid quarterly, semiannually
or annually prior to maturity as designated by Issuer.
2. The certificates will be issued pursuant to the terms and provisions of
a Trust Indenture entered into between Issuer and the Boatmen's First National
Bank of Amarillo, Amarillo, Texas, as the Indenture Trustee.
3. The Certificates shall be registered under the Securities Act of 1933,
as amended, and shall be qualified for
1.1
<PAGE>
sale with the state regulatory agencies of the state where said certificates
shall be offered. All expense of such registration and qualification shall be
paid by Issuer.
4. The purchase price for the certificates shall be in the amount of
$1,000, or any amount in excess thereof, as designated by the Issuer.
5. Dealer will offer the certificates for sale on a nonexclusive best
efforts basis. The term "nonexclusive" means that Issuer may in it sole
discretion contract with one or more other dealers for the purpose of offering
the certificates to the public. The term "best efforts" means that Dealer will
endeavor to sell the certificates through its registered sales representatives,
and through selected members of the National Association of Securities Dealers,
Inc. ("NASD"). There is no assurance that any or all of the certificates to be
offered by Issuer will be sold, and Dealer is under no obligation to purchase or
take down any certificates on its own behalf, or upon the behalf of others.
6. Issuer shall pay Dealer a selling commission computed on the basis of an
annualized rate of .75 of 1% per annum of the face amount of each certificate
sold by Dealer through its registered sales representatives, or through selected
members of NASD, from the date of issuance to the date of maturity.
7. The proceeds received by Dealer from the sale of the certificates shall
be forthwith remitted to Issuer, less the discount or selling commission payable
by Issuer to Dealer.
8. Dealer shall comply with all of the rules and regulations of the
Securities & Exchange Commission and the state regulatory agencies where the
certificates shall be offered. If
1.2
<PAGE>
at any time during the term of this Agreement Dealer should, for any reason, be
disqualified or precluded from offering to the public the certificates, then
Issuer shall have the option to terminate this Agreement upon three (3) days
written notice to Dealer, in which event this Agreement shall be void and of no
further force and effect.
9. This Agreement, unless sooner terminated as heretofore provided, shall
be for a term commencing on the date of Registration Statement to be filed with
the Securities & Exchange Commission pertaining to the offering of the
certificates shall become effective, and shall continue until all certificates
registered under such registration statement are either sold or withdrawn by
Issuer from registration, whichever event first occurs.
10. Dealer shall pay all expenses attributable to furnishing broker-dealer
services to Issuer in connection with the offering and sale of the certificates.
Issuer shall serve as a transfer agent in connection with all certificates sold
pursuant to the terms of this Agreement and shall pay all expenses attributable
thereto.
11. The Issuer hereby represents and warrants as follows:
(a) The Issuer has been duly organized and is validly existing as a
real estate investment trust under the laws of the State of Texas and
has full power and authority to own its properties and conduct its
business as described in the Prospectus.
(b) Since the respective dates as of which information is given in the
Registration Statement and the Prospectus, there has not been any
materially adverse change in the business, properties, financial
condition or earnings of the Issuer, other than as set forth in the
Registration Statement and the Prospectus, and since such dates,
except in the ordinary course of business, the Issuer has not entered
into any material
1.3
<PAGE>
transaction not referred to in the Registration Statement and
Prospectus.
(c) On the date when the Registration Statement becomes effective, the
Registration Statement and the Prospectus will comply in all material
respects with the provisions of the Securities Act of 1933 and the
rules and regulations of the Securities and Exchange Commission
thereunder; on such effective date, the Registration Statement will
not contain any untrue statement of material fact and will not omit to
state any material fact required to be stated therein not misleading;
and on such effective date, the Prospectus will not contain any untrue
state-ment of material fact and will not omit to state any material
fact necessary in order to make the circumstances under which they
were made not misleading.
12. The Issuer covenants and agrees as follows:
(a) The Issuer will notify Dealer in the event the Issuer is notified
or becomes aware of (i) the issuance by the Commission of any stop
order suspending the effectiveness of the Registration Statement, (ii)
the institution or intended initiation of any action or proceeding for
that purpose, (iii) the suspension of the qualifications of the savings
certificates for sale in any jurisdiction, or (iv) the institution or
intended initiation of any proceeding for such purpose. The Issuer will
make every reasonable effort to prevent the issuance of such stop order
and, if such an order shall at any time be issued, to obtain the
withdrawal thereof at the earliest practicable moment.
(b) If at any time during the nine-month period after the Registration
Statement becomes effective any event relating to or affecting the
Issuer, or of which the Issuer shall be advised in writing by Dealer
shall occur as a result of which it is necessary, in the opinion of
counsel for the Issuer or of counsel for the Dealer, to supplement or
amend the Prospectus in order to make the Prospectus not misleading in
the light of the circum-stances existing at the time it is delivered to
a purchaser of secured savings certificates, the Issuer will forthwith
prepare and file with the Commission a supplement to the Prospectus or
an amended Prospectus so that the Prospectus as so supplemented or
amended will not contain any untrue statement of a material fact or
omit to state any material fact necessary in order to make the
statements therein, in the light of the circumstances existing at the
time such Prospectus is delivered to such purchaser, not misleading.
1.4
<PAGE>
13. The owners and holder of shares of beneficial interest in Issuer shall
not be personally liable under or by virtue of this Agreement.
EXECUTED this 12th day of July, 1995.
CHURCH LOANS & INVESTMENTS TRUST
By:/S/ BILL R. MCMORRIES
------------------------
Bill R. McMorries, Chairman
Board of Trust Managers
GREAT NATION INVESTMENT CORPORATION
By:/S/ PAT TREAT
------------------------
Its President
1.5
CHURCH LOANS & INVESTMENTS TRUST
Secured Savings Certificate
Series O
(herein referred to as "Note")
No. _________________________ Date Issued ___________________
Registered Holder____________ Principal Amount ______________
Address _____________________ Interest Rate _________________
City ________________________ Stated Maturity _______________
State _______________________ Interest Payable ______________
Church Loans & Investments Trust, an unincorporated business trust duly
organized and existing under the laws of Texas pursuant to a Declaration of
Trust dated February 22, 1963, as amended (hereinafter called the "Trust", which
term includes any successor Trust or corporation under the Indenture hereinafter
referred to), for value received, hereby promises to pay to the Registered Owner
shown above, or registered assigns, the Principal Amount shown above on the
Stated Maturity shown above, in such coin or currency of the United States of
America as at the time of payment shall be legal tender for the payment of
public and private debts, and to pay interest on said Principal Amount at the
per annum Interest Rate shown above, in like coin or currency, quarterly,
monthly, semi-annually, annually or at Stated Maturity from and after the date
of this Note as shown above until the principal hereof has been paid. Interest
for periods of less than one calendar year will be computed on the basis of
actual number of days and a 365- or 366-day year as the case may be. The
interest so payable, and punctually paid, will be paid by check mailed to the
registered address of such person. Any such interest not so punctually paid
shall forthwith cease to be payable to the Registered Holder on such Interest
Payment Date, and may be paid to the person in whose name this Note is
registered at the close of business on a Special Record Date for the payment of
such defaulted interest to be fixed by the Indenture Trustee (as hereinafter
defined), notice whereof shall be given to Noteholders not less than 10 days
prior to such Special Record Date, or may be paid, at any time in any lawful
manner not inconsistent with the requirements of the Indenture. Payment of the
Principal Amount of and any accrued interest on this Note due at maturity will
be paid at the office of the Trust, 5305 I-40 West, P.O. Box 8203, Amarillo,
Texas 79114-8203.
Reference is here made to further provisions of this Note set forth on the
reverse hereof which further provisions shall for all purposes have the same
effect as if set forth at this place.
This Note shall not be valid or become obligatory for any purpose until it
shall have been signed manually or by a facsimile signature of the Chairman of
the Board of Trust
4.1.1
<PAGE>
Managers of the Trust, and signed manually or by a facsimile signature of its
agent and bears the seal of the Trust, its Secretary, or Assistant Secretary.
IN WITNESS WHEREOF, the Trust has caused this Instrument to be duly
executed.
CHURCH LOANS & INVESTMENTS TRUST
By:_____________________________
Chairman
Board of Trust Managers
Authenticated:
______________________________
Agent
4.1.2
<PAGE>
(Reverse Side of Note)
This Note is one of the duly authorized issue of Notes of the Trust
designated as Secured Savings Certificates to be issued under an Indenture dated
July 10, 1995 (herein called the "Indenture") between the Trust and Boatmen's
First National Bank of Amarillo, Amarillo, Texas, as Indenture Trustee (herein
called the "Indenture Trustee", which term includes any successor Indenture
Trustee under the Indenture), to which Indenture and all Indentures supplemental
thereto reference is hereby made for a statement of the respective rights
thereunder of the Trust, the Indenture Trustee and the holders of the Notes.
This Note will not be subject to redemption by the Note prior to its Stated
Maturity, but will be subject to early redemption at the option of the
Registered Owner upon the following terms:
(a) Upon the death of one or more of the Registered Owners, the estate
of the deceased owner may present this Note to the Trust for early
redemption without penalty. Upon proper presentation, the Trust
shall pay to the estate of the deceased owner the Principal Amount
of this Note together with all accrued and unpaid interest at the
annual Interest Rate to the date of presentment.
(b) At any time the Registered owner may present this Note to the
Trust for early redemption with penalty equal to one-half (1/2) of
the interest to be earned on this Note from the Issue Date to the
date of presentment at the annual Interest Rate. Upon proper
presentation, the Trust shall pay to the Registered owner the
Principal Amount together with all accrued and unpaid interest to
the date of presentment, less the penalty described above.
If an Event of Default, as defined in the Indenture, shall have occurred
and be continuing, the principal hereof may be declared due and payable in the
manner and with the effect provided in the Indenture. As provided in the
Indenture and subject to certain limitations therein set forth, this Note is
transferable on the Note Register of the Trust, upon surrender of this Note for
transfer at the office of the Trust, duly endorsed by, or accompanied by a
written instrument of transfer in form satisfactory to the Trust duly executed
by the Registered Holder hereof or his attorney duly authorized in writing; and
thereupon one or more new Notes of authorized denominations and for the same
aggregate principal amount, interest rate and maturity date will be issued to
the designated transferee or transferees.
The Notes are issuable only as registered Notes, without coupons in
denominations of $1,000 or more.
4.1.3
<PAGE>
No service charge will be made for any transfer or exchange of the Note,
but the Trust may require payment of a sum sufficient to cover any tax or other
governmental charge payable in connection therewith.
The Trust and any agent of the Trust may treat the person in whose name
this Note is registered as the owner hereof for the purpose of receiving payment
as herein provided and for all other purposes whether or not this Note be
overdue, and neither the Trust nor any such agent shall be affected by notice to
the contrary.
No recourse shall be had for the payment of the principal of or the
interest on this Note, or for any claim based hereon, or otherwise in respect
hereof, or based on or in respect of the Indenture or any indenture supplemental
thereto, personally, against any organizer of the Trust, holder of shares of
beneficial interest of the Trust, officer or trustee, past, present or future,
as such, of the Trust or of any predecessor or successor of the Trust whether by
virtue of any constitution, statute or rule of law or equity, or by the
enforcement of any assessment or penalty or otherwise, all consideration for the
issuance hereof, expressly waived and released.
4.1.4
<PAGE>
----------------------------------------------------------------
----------------------------------------------------------------
CHURCH LOANS & INVESTMENTS TRUST
AND
BOATMEN'S FIRST NATIONAL BANK OF AMARILLO
---------------------
FOURTEENTH
SUPPLEMENTAL INDENTURE
Dated July 10, 1995
---------------------
$20,000,000
SECURED SAVINGS CERTIFICATES
-----------------------------------------------------------------
-----------------------------------------------------------------
4.2.2.1
<PAGE>
THIS FOURTEENTH SUPPLEMENTAL INDENTURE, dated July 10, 1995, between CHURCH
LOANS & INVESTMENTS TRUST, an unincorporated business trust organized under the
Texas Real Estate Investment Act pursuant to a Declaration of Trust dated
February 22, 1963, as amended, a copy of which is filed in the Deed Records of
Randall County, Texas (hereinafter the "Trust"), having its principal office at
5305 I-40 West, Amarillo, Texas 79106, and BOATMEN'S FIRST NATIONAL BANK OF
AMARILLO (hereinafter the "Indenture Trustee"), having its principal corporate
trust office at the date hereof at 701 South Taylor, Amarillo, Texas 79101.
WITNESSETH THAT:
WHEREAS, the Trust heretofore executed and delivered to The Panhandle Bank
& Trust Company (hereinafter generally called the "Original Trustee") dated as
of June 1, 1974, whereby the Trust has pledged, transferred and assigned to the
Original Trustee all and singular the property therein specified, whether owned
at the time of execution or thereafter acquired by the Trust, to secure its
Secured Savings Certificates (hereinafter generally called "Notes") of an
unlimited aggregate principal amount to be issued as provided in the Original
Indenture; and
WHEREAS, the Original Trustee became incapable of acting as Trustee and
pursuant to the provisions of Section 6.10(e) of the Original Indenture, and the
Trust, pursuant to the provisions of said Original Indenture, upon December 16,
1986, appointed the First National Bank of Tulia, Texas, as successor Indenture
Trustee under said Indenture; and
WHEREAS, THE FIRST NATIONAL BANK OF TULIA resigned its trust powers and
therefore resigned as Indenture Trustee as of June 30, 1992 and pursuant to the
provisions of Section 6.10(e) of the original Trust Indenture, and the Trust
pursuant to the provisions of said original Indenture, upon June 30, 1992,
appointed The First National Bank of Amarillo, Amarillo, Texas as successor
Indenture Trustee under said Indenture; and
WHEREAS, thereafter The First National Bank of Amarillo, Amarillo, Texas
changed its name to BOATMEN'S FIRST NATIONAL BANK OF AMARILLO; and
WHEREAS, Section 9.01 of the Original Indenture provides, among other
things, that the Trust and the Indenture Trustee from time to time may enter
into indentures supplemental to the Original Indenture for, among other things,
the purpose of providing for the issuance of Notes other than the Notes which
were authorized to be issued under the Original Indenture; and
WHEREAS, the Trust desires to create and to issue under and to secure by
the Indenture its additional Notes to be designated as Secured Savings
Certificates, Series O (hereinafter generally called "Series O Notes"), of an
unlimited (except as herein and in the Original Indenture provided) permitted
aggregate principal amount, the initial issue of the Series O Notes being
limited to an authorized aggregate principal amount of Twenty Million Dollars
($20,000,000), the issue whereof and the execution
4.2.2.2
<PAGE>
and delivery of this Fourteenth Supplemental Indenture having been
duly approved by the Board of Trust Managers of the Trust; and
WHEREAS, the Series O Notes are to be substantially in the following form:
CHURCH LOANS & INVESTMENTS TRUST
Secured Savings Certificate
Series O
(herein referred to as "Note")
No. _________________________ Date Issued ___________________
Registered Holder____________ Principal Amount ______________
Address _____________________ Interest Rate _________________
City ________________________ Stated Maturity _______________
State _______________________ Interest Payable ______________
Church Loans & Investments Trust, an unincorporated business trust duly
organized and existing under the laws of Texas pursuant to a Declaration of
Trust dated February 22, 1963, as amended (hereinafter called the "Trust", which
term includes any successor Trust or corporation under the Indenture hereinafter
referred to), for value received, hereby promises to pay to the Registered Owner
shown above, or registered assigns, the Principal Amount shown above on the
Stated Maturity shown above, in such coin or currency of the United States of
America as at the time of payment shall be legal tender for the payment of
public and private debts, and to pay interest on said Principal Amount at the
per annum Interest Rate shown above, in like coin or currency, quarterly,
monthly, semi-annually, annually or at Stated Maturity from and after the date
of this Note as shown above until the principal hereof has been paid. Interest
for periods of less than one calendar year will be computed on the basis of
actual number of days and a 365- or 366-day year as the case may be. The
interest so payable, and punctually paid, will be paid by check mailed to the
registered address of such person. Any such interest not so punctually paid
shall forthwith cease to be payable to the Registered Holder on such Interest
Payment Date, and may be paid to the person in whose name this Note is
registered at the close of business on a Special Record Date for the payment of
such defaulted interest to be fixed by the Indenture Trustee (as hereinafter
defined), notice whereof shall be given to Noteholders not less than 10 days
prior to such Special Record Date, or may be paid, at any time in any lawful
manner not inconsistent with the requirements of the Indenture. Payment of the
Principal Amount of and any accrued interest on this Note due at maturity will
be paid at the office of the Trust, 5305 I-40 West, P.O. Box 8203, Amarillo,
Texas 79114-8203.
4.2.2.3
<PAGE>
Reference is here made to further provisions of this Note set forth on the
reverse hereof which further provisions shall for all purposes have the same
effect as if set forth at this place.
This Note shall not be valid or become obligatory for any purpose until it
shall have been signed manually or by a facsimile signature of the Chairman of
the Board of Trust Managers of the Trust, and signed manually or by a facsimile
signature of its agent and bears the seal of the Trust, its Secretary, or
Assistant Secretary.
IN WITNESS WHEREOF, the Trust has caused this Instrument to be duly
executed.
CHURCH LOANS & INVESTMENTS TRUST
By:_____________________________
Chairman
Board of Trust Managers
Authenticated:
______________________________
Agent
(Reverse Side of Note)
This Note is one of the duly authorized issue of Notes of the Trust
designated as Secured Savings Certificates to be issued under an Indenture dated
July 10, 1995 (herein called the "Indenture") between the Trust and Boatmen's
First National Bank of Amarillo, Amarillo, Texas, as Indenture Trustee (herein
called the "Indenture Trustee", which term includes any successor Indenture
Trustee under the Indenture), to which Indenture and all Indentures supplemental
thereto reference is hereby made for a statement of the respective rights
thereunder of the Trust, the Indenture Trustee and the holders of the Notes.
This Note will not be subject to redemption by the Note prior to its Stated
Maturity, but will be subject to early redemption at the option of the
Registered Owner upon the following terms:
(a) Upon the death of one or more of the Registered Owners, the estate
of the deceased owner may present this Note to the Trust for early
redemption without penalty. Upon proper presentation, the Trust
shall pay to the estate of the deceased owner the Principal Amount
of this Note together with all accrued and unpaid interest at the
annual Interest Rate to the date of presentment.
4.2.2.4
<PAGE>
(b) At any time the Registered owner may present this Note to the
Trust for early redemption with penalty equal to one-half (1/2) of
the interest to be earned on this Note from the Issue Date to the
date of presentment at the annual Interest Rate. Upon proper
presentation, the Trust shall pay to the Registered owner the
Principal Amount together with all accrued and unpaid interest to
the date of presentment, less the penalty described above.
If an Event of Default, as defined in the Indenture, shall have occurred
and be continuing, the principal hereof may be declared due and payable in the
manner and with the effect provided in the Indenture. As provided in the
Indenture and subject to certain limitations therein set forth, this Note is
transferable on the Note Register of the Trust, upon surrender of this Note for
transfer at the office of the Trust, duly endorsed by, or accompanied by a
written instrument of transfer in form satisfactory to the Trust duly executed
by the Registered Holder hereof or his attorney duly authorized in writing; and
thereupon one or more new Notes of authorized denominations and for the same
aggregate principal amount, interest rate and maturity date will be issued to
the designated transferee or transferees.
The Notes are issuable only as registered Notes, without coupons in
denominations of $1,000 or more.
No service charge will be made for any transfer or exchange of the Note,
but the Trust may require payment of a sum sufficient to cover any tax or other
governmental charge payable in connection therewith.
The Trust and any agent of the Trust may treat the person in whose name
this Note is registered as the owner hereof for the purpose of receiving payment
as herein provided and for all other purposes whether or not this Note be
overdue, and neither the Trust nor any such agent shall be affected by notice to
the contrary.
No recourse shall be had for the payment of the principal of or the
interest on this Note, or for any claim based hereon, or otherwise in respect
hereof, or based on or in respect of the Indenture or any indenture supplemental
thereto, personally, against any organizer of the Trust, holder of shares of
beneficial interest of the Trust, officer or trustee, past, present or future,
as such, of the Trust or of any predecessor or successor of the Trust whether by
virtue of any constitution, statute or rule of law or equity, or by the
enforcement of any assessment or penalty or otherwise, all consideration for the
issuance hereof, expressly waived and released; and
WHEREAS, all things necessary to make the issue of the Series O Notes, when
executed and delivered by the Trust, as in the Indenture provided, valid, legal
and binding, obligations of the Trust according to their tenor, and this
Fourteenth Supplemental Indenture a valid, legal and binding instrument
supplemental
4.2.2.5
<PAGE>
to and conformatory of the Original Indenture enforceable in accordance with its
terms for the uses and purposes therein set forth, have been in all respects
duly authorized;
NOW, THEREFORE, in consideration of the premises, and the purchase and
acceptance of the issue of the Series O Notes, of the sum of Ten Dollars
($10.00) duly paid to the Trust by the Indenture Trustee, and of other good and
valuable considerations, receipt whereof upon the execution and delivery of this
Fourteenth Supplemental Indenture the Trust hereby acknowledges, and for the
purpose of confirming the Original Indenture, as an Indenture hereby expressly
stated to be supplemental to the Original Indenture in order to secure equally
the pro rata payment of both the principal and interest of all the Notes at any
time issued and outstanding under the Indenture, according to their tenor,
purport and effect and the provisions of the Indenture, and to secure the
faithful performance and observance of all covenants, obligations, conditions
and provisions therein and in the Indenture contained, and in order to provide
for the form, provisions and issue of the Series O Notes, and to declare further
the terms and conditions upon which the Notes are to be secured, issued,
delivered, transferred and exchanged, and upon which the Trust whereof are to be
administered by the Indenture Trustee, and upon which the property assigned and
transferred to secure the payment of the Notes are to be held and disposed of,
all as hereinafter provided:
ARTICLE ONE
The Notes shall be designated as Secured Savings Certificates - Series O.
The initial aggregate principal amount of notes which may be authenticated and
delivered under this Fourteenth Supplemental Indenture is limited to $20,000,000
except for Notes delivered upon transfer of, or in exchange for, or in lieu of,
other Notes pursuant to Sections 3.04, 3.05, 3.06 and 9.06 of the Original
Indenture. Additional Notes in excess of such aggregate principal amount may be
issued pursuant to supplemental indentures as provided in Section 9.01 of the
Original Indenture.
ARTICLE TWO
The Notes authenticated and delivered upon this Fourteenth Supplemental
Indenture shall have stated maturity dates as selected by the investor and
stated on the face thereof which shall vary from 30 days to ten years. Said
Notes shall be in substantially the forms hereinabove set forth with such
appropriate insertions, omissions, substitutions and other variations as
required or permitted by the Original Indenture and shall have such letters,
numbers or other marks of identification and such legends or endorsements placed
thereon as may be required to comply with the rules of any Securities Exchange,
or as may consistently herewith, be determined by the officers executing such
Notes, as evidenced by their execution of the Notes.
4.2.2.6
<PAGE>
ARTICLE THREE
All Notes authenticated and delivered under this Fourteenth Supplemental
Indenture shall be identical in every respect (except as to the designation of
the particular series of said Notes) to the Notes authenticated and delivered by
the Trust pursuant to the terms of the Original, the First, the Second, the
Third, the Fourth, the Fifth, the Sixth, the Seventh, the Eighth, the Ninth, the
Tenth, the Eleventh, the Twelfth and the Thirteenth Supplemental Indentures. All
terms, conditions and provisions of the Original indenture in respect of the
Notes authenticated and delivered pursuant to the terms and provisions thereof
are hereby adopted in full and made applicable in respect to the Series O Notes
to be authenticated and delivered pursuant to the terms and provisions of this
Supplemental Indenture as fully as if said terms, conditions and provisions were
set forth herein at length.
Notwithstanding anything contained herein to the contrary, Section 11.01
and Section 11.02 of the Original Indenture as applicable to this Fourteenth
Supplemental Indenture shall provide as follows:
SECTION 11.01 GENERAL.
All Notes issued by the Trust pursuant to this Indenture shall be
secured by promissory notes payable to the order of the Trust, which such
promissory notes shall be secured by mortgages or deeds of trust upon real
estate owned by the Maker of said promissory notes. The promissory notes
and mortgages or deeds of trust heretofore described shall hereafter be
referred to as "Collateral."
SECTION 11.02 AMOUNT OF COLLATERAL SECURING NOTE.
At all times during the time that there are outstanding Notes issued
by the Trust pursuant to this Fourteenth Supplemental Indenture, the Trust
shall assign, and shall continue to assign and pledge to the Indenture
Trustee for the benefit of the Noteholders, Collateral, the principal
balance of which shall not be less that the principal balance of all
outstanding Notes issued by the Trust pursuant to this Fourteenth
Supplemental Indenture. Nothing contained in this provision shall change,
modify or effect the collateral requirement of Notes issued pursuant to
prior Supplemental Indentures.
ARTICLE FOUR
SECTION 1. This Fourteenth Supplemental Indenture is executed and
shall be construed as an indenture supplemental to the Original Indenture
and, as provided in the Original Indenture, this Fourteenth Supplemental
Indenture forms a part thereof and, except as herein expressly otherwise
defined, the use of terms and expressions therein is in accordance with the
definitions, uses and constructions contained in the Original Indenture.
4.2.2.7
<PAGE>
SECTION 2. All covenants and provisions of this Fourteenth
Supplemental Indenture and of the Series O Notes are for the sole and
exclusive benefit of the parties hereto and the holder of the Notes, and no
others shall have any legal, equitable or other right, remedy or claim
under or by reason of this Fourteenth Supplemental Indenture or of the
Series O Notes.
This instrument may be executed in any number of counterparts, each of
which so executed shall be deemed to be an original, but all of such
counterparts shall together constitute but one and the same instrument.
IN WITNESS WHEREOF, BOATMEN'S FIRST NATIONAL BANK OF AMARILLO,
Amarillo, Texas, has caused this Fourteenth Supplemental Indenture to be
duly executed and attested, and CHURCH LOANS & INVESTMENTS TRUST has caused
this Indenture to be duly executed, and attested in Amarillo, Texas, all as
of the day and year first above written.
BOATMEN'S FIRST NATIONAL BANK OF
AMARILLO, Amarillo, Texas
By:/S/ FRED HANCOCK
--------------------------
Fred Hancock, Vice President
and Senior Trust Officer
ATTEST:
/S/ JOE HOWELL
- -----------------------
Corporate Trust Officer
CHURCH LOANS & INVESTMENTS TRUST
By:/S/ BILL R. MCMORRIES
------------------------
Bill R. McMorries, Chairman,
Board of Trust Managers
ATTEST:
/S/ KELLY ARCHER
- -----------------------
Chief Financial Officer
4.2.2.8
<PAGE>
STATE OF TEXAS )
)
COUNTY OF POTTER )
This instrument was acknowledged before me on the 10th day of
July, 1995, by Bill R. McMorries, Chairman of the Board of Trust Managers of
CHURCH LOANS & INVESTMENTS TRUST, on behalf of such Trust.
/S/ GERALD G. MORGAN, JR.
-----------------------------
Notary Public, State of Texas
STATE OF TEXAS )
)
COUNTY OF POTTER )
This instrument was acknowledged before me on the 13th day of
July, 1995, by Fred Hancock, Vice President of BOATMEN'S FIRST NATIONAL BANK OF
AMARILLO, a corporation, on behalf of said corporation.
/S/ ANDI WARDLAW
-----------------------------
Notary Public, State of Texas
4.2.2.9
July 12, 1995
Church Loans & Investments Trust
P.O. Box 8203
Amarillo, TX 79114
RE: Registration of Secured Savings Certificates in
the aggregate principal amount of $20,000,000
with the Securities & Exchange Commission
Gentlemen:
In regard to the Registration Statement to be filed by you with the
Securities & Exchange Commission concerning the registration of Secured Savings
Certificates of the Trust referred to above, we have examined the Texas Real
Estate Investment Trust Act, the Declaration of Trust, Bylaws, Indenture between
the Trust and Boatmen's First National Bank of Amarillo, Amarillo, Texas,
resolutions of the Board of Trust Managers, and a specimen copy of a Secured
Savings Certificate of the Trust.
Based upon our examination of the above described materials, we are of the
opinion that the Secured Savings Certificates of the Trust described in Form
SB-2 of the Registration Statement to be filed with the Securities & Exchange
Commission shall, when sold, be legally issued and shall be a legally binding
obligation of Church Loans & Investments Trust.
We consent to the reference to our firm under the heading "Legal Opinions"
in the Prospectus.
Very truly yours,
BURDETT, MORGAN, & THOMAS, L.L.P.
/s/ Gerald G. Morgan, Jr.
-------------------------
Gerald G. Morgan, Jr.
GGMjr/cb
5.1
July 12, 1995
Church Loans & Investments Trust
P.O. Box 8203
Amarillo, TX 79114
RE: Registration of Secured Savings Certificates in the
aggregate principal amount of $20,000,000 with the
Securities & Exchange Commission
Gentlemen:
We have examined the promissory notes executed and delivered by various
congregations and churches to the Trust evidencing loans made by the Trust;
statutes, statutory summaries and opinion of counsel concerning the usury laws
of the jurisdictions where real estate securing the loans of the Trust and the
congregations to whom such loans of the Trust are located; loan commitment
letters issued by the Trust; and financial statements prepared by independent
accountants concerning the operation of the Trust.
Based upon our examination of these materials, and in computing the total
amount of interest received by the Trust from its loans together with commitment
fees, if any, received by the Trust in respect to such loans, we are of the
opinion that the Trust is presently operating in conformity with the Internal
Revenue Code and Treasury Regulations for qualification as a real estate
investment trust.
We are of the further opinion that conditioned upon the Trust continuing to
operate in the future so as to comply with the requirements and limitations of
the Internal Revenue Code and the Treasury Regulations, it will continue to
qualify as a real estate investment trust.
We consent to the reference to our firm under the heading "Legal Opinions"
in the prospectus.
Very truly yours,
BURDETT, MORGAN, & THOMAS, L.L.P.
/s/ Gerald G. Morgan, Jr.
-------------------------
Gerald G. Morgan, Jr.
GGMjr/cb
8.1
AMENDMENT TO LOAN AGREEMENT
WHEREAS, CHURCH LOANS & INVESTMENTS TRUST, a Texas real estate investment
trust (herein called "the Trust"), and BOATMEN'S FIRST NATIONAL BANK OF AMARILLO
(herein called "the Bank") did enter into a Loan Agreement dated September 1,
1994 (herein called "the Agreement"); and
WHEREAS, the Trust and the Bank wish to amend paragraph 6.12 (iii) in order
to raise the limit of indebtedness owing on Master Note Agreements from
$2,500,000.00 to $4,000,000.00;
NOW, THEREFORE, the Trust and the Bank do hereby agree that paragraph 6.12,
subsection (iii) of the Agreement is hereby amended to read as follows:
"(iii) any sums which may now or hereafter be borrowed under one or more
Master Note Agreements with such individuals, partnerships, corporations or
other legal entities as the Trust may from time to time determine in a
total amount not to exceed $4,000,000.00; provided, however, that the total
indebtedness of the Trust shall not exceed the restrictions hereinabove set
forth."
Except as amended as set forth above, the parties hereto confirm that the
Agreement shall continue in full force and effect as originally executed.
DATED this 24th day of January, 1995.
CHURCH LOANS & INVESTMENTS TRUST,
a real estate investment trust
By /S/ BILL R. MCMORRIES
------------------------
Bill R. McMorries, Chairman
BOATMEN'S FIRST NATIONAL BANK OF AMARILLO
By /S/ DENNIS W. FALK
------------------------
Dennis W. Falk, Senior Vice-President
10.1
<PAGE>
AGREEMENT MADE as of September 1, 1994, by and between CHURCH LOANS &
INVESTMENTS TRUST, a Texas real estate investment trust (herein called the
"Trust") and BOATMEN'S FIRST NATIONAL BANK OF AMARILLO (herein called "Bank").
W I T N E S S E T H:
That the Trust has requested that the Bank extend credit to the Trust to
enable it to borrow, at any time or from time to time during the initial or any
extended term hereof, a sum not exceeding Ten Million Dollars ($10,000,000) at
any one time outstanding, and the Bank is willing to extend such credit to the
Trust upon the terms and conditions hereinafter set forth.
NOW, THEREFORE, the parties hereto, in consideration of the mutual
covenants hereinafter set forth, and the conditions herein contained, hereby
agree as follows:
SECTION 1. LOANS
1.1 BANK'S COMMITMENT.
(a) Upon the terms and conditions stated herein and relying upon the
representations and warranties set forth herein, Bank agrees to
make loans to the Trust, at any time or from time to time during
the term hereof, in an aggregate principal amount not exceeding
at any one time outstanding the sum of $10,000,000.
(b) It is contemplated that all or a portion (the "Reserved
Portion") of the commitment of the Bank hereunder may, from time
to time, be reserved for the benefit of third parties who may
from time to time loan funds to the Trust, under the terms of
one or more agreements ("Reservation Agree- ments"). To the
extent of the Reserved Portion of Bank's commitment, Bank shall
have no obligation to make Advances hereunder except to the
beneficiary of such Reserved Portion of Bank's commitment under
the terms of the Reservation Agreement with such beneficiary.
(c) Unless terminated as provided in paragraph 1.5 hereof, the term
of the Bank's commitment hereunder shall automatically be
extended each year, each such extension being evidenced by the
execution and delivery by the Trust and acceptance by the Bank
of a Promissory Note described in paragraph 1.4(b) below. Each
such extension shall extend the term of the Bank's commitment
hereunder to a date one (1) year subsequent to the maturity date
of the Promissory Note delivered pursuant to paragraph 1.4(b).
10.2
<PAGE>
(d) This commitment is issued in part for the purpose of renewing
and extending that credit arrangement evidenced by the "1990
Loan Agreement," by and between the Trust, as Borrower, and the
Bank, as Lender.
(e) Unless the context indicates otherwise, a reference herein to
"the Note" shall mean that Note held by the Bank at the time in
question.
1.2 ADVANCES. Each loan made hereunder (herein called "Advances") may be
made either at the request of the beneficiary of a Reservation Agreement such as
provided in paragraph 1.1(b) hereof, or at the request of the Trust made by a
duly authorized agent or officer thereof (whose authority shall be stated in
writing by the Trust, which shall be deemed to continue until written notice of
revocation of such authority has been given by the Trust and actually received
by Bank). Advances may be made at various times prior to the termination of
Bank's commitment here under, upon proper request by the Trust therefor, subject
to the Trust's compliance with all terms and provisions hereof and of any
Security Agreement, Deed of Trust or other agreement providing security for the
repayment of or being otherwise relevant to the Loans hereby committed, provided
that the outstanding and unpaid principal balance owing hereunder shall not at
any time exceed (or be caused by such requested Advance to exceed) the
unreserved portion of the Bank's commitment hereunder. Advances may be made at
various times at the request of a beneficiary of a Reservation Agreement prior
to the earlier of (i) the scheduled expiration of the term of Bank's commitment
hereunder, or (ii) if this Agreement be terminated by Bank prior to its
scheduled expiration date, then upon that date, five days after such beneficiary
receives notice of such termination, or (iii) termination of such Reservation
Agreement, subject to the beneficiary's compliance with all terms hereof
applicable to it and with all terms of the Reservation Agreement, provided that
such Advance to such beneficiary shall not exceed (nor cause the aggregate total
of Advances made to such beneficiary to exceed) the amount reserved for such
beneficiary.
(a) Requests for Advances made by the Trust and meeting the
requirements hereof shall, if received by Bank on or before
10:00 o'clock a.m. of any banking day, be funded by Bank at its
main banking house in available funds on the day of receipt;
otherwise, same shall be funded on the next following banking
day.
(b) Requests for Advances made by the beneficiary of a Reservation
Agreement (executed by a person duly authorized in writing by
said beneficiary, a copy of which authorization shall be
furnished to bank) shall be accompanied by such certification
and documentation as may be required under the terms of such
Reservation Agreement, and shall not exceed the lesser of (i)
the principal and interest owed by the Trust to such
beneficiary, or (ii) an amount which, when added to all prior
Advances made to
10.3
<PAGE>
such beneficiary, shall not exceed the total amount reserved for
such beneficiary. Bank shall be entitled to rely on any
certification or documentation presented in connection with such
request and shall not be required to obtain the confirmation of
the Trust of any such matters or the consent of the Trust to
such requested advance.
(c) A first Advance shall be made hereunder, without further
request therefor by Trust, in an amount equal to the principal
balance owed to the Bank under the 1993 Loan Agreement. The
Trust agrees to pay, at the time of such first Advance, all
accrued but unpaid interest owed to the Bank, failing which such
first Advance may be in such amount as needed to permit the
payment of both principal and interest owed to the Bank.
1.3 PAYMENTS, PREPAYMENTS AND APPLICATION OF RECEIPTS.
(a) The Trust may, from time to time, repay all or any portion of
the loan made hereunder without penalty. Principal amounts
prepaid shall cease to bear interest upon receipt and may be
re-advanced upon the same terms and conditions as set forth
above for the making of Advances.
(b) As between the Bank and the Trust, all payments and prepayments
made hereunder, all Collateral proceeds, proceeds of setoff, and
all other amounts received by the Bank for application to the
debt of the Trust to the Bank hereunder shall be applied first
to costs owing hereunder until all costs owing to the Bank are
paid in full, then to outstanding commitment fees payable
hereunder until all such commitment fees owing to the Bank are
paid in full, then to accrued interest due on the Note until all
accrued interest due upon the Note is paid in full, and the
balance to principal.
1.4 NOTES.
(a) To evidence loans made and outstanding hereunder prior to
September 1, 1994, the Trust shall execute and deliver to the
Bank a Promissory Note in form similar to Exhibit "A" attached
hereto and made a part hereof for all purposes, with blanks
appropriately completed, and being payable and bearing interest
as provided therein. The Note shall be in a maximum principal
amount equal to the commitment of Bank.
(b) At maturity of any Note then evidencing the debt created
hereunder, if the commitment of the Bank is extended as provided
in paragraph 1.1(c), the Trust shall execute and deliver to the
Bank a subsequent Note in terms identical to Exhibit "A"
attached
10.4
<PAGE>
hereto and made a part hereof for all purposes, except that each
such Note shall bear the date of issue and recite appropriate
dates and renewal data, if any. Each such renewal Note shall
evidence loans made and outstanding hereunder prior to the
maturity date of such renewal Note, which date shall be
determined by mutual agreement of the Trust and the Bank. There
shall be endorsed upon each such subsequent Note, to evidence
the first Advance thereunder, the principal balance outstanding
hereunder at the time of issue. Upon acceptance of same by the
Bank, each such renewal Note shall be subject to all terms
hereof and shall be deemed the "Note" hereunder.
(c) If the term of this Agreement is not extended by the parties at
maturity of the notes described in paragraphs in 1.4(a) or (b),
then evidencing the debt created hereunder, the Trust shall
execute and deliver to Bank a promissory note in form similar to
Exhibit "B" attached hereto and made a part hereof for all
purposes, to evidence loans made and outstanding hereunder,
which said note shall recite the appropriate dates and shall be
amortized over a period of time and in such a way that the
principal and interest shall be paid in equal quarterly
installments in amounts as are required to retire the
indebtedness over a term, not to exceed five (5) years, which
shall be equal to the weighted average remaining term of all
real estate lien notes of Trust which are pledged as collateral
on this loan and held by Bank at the time of the execution of
such Exhibit "B" type note.
There shall be endorsed upon such note, to evidence the first
advance thereunder, the principal balance outstanding hereunder
at the time of issue and upon acceptance of same by bank, shall
be subject to all terms hereof and shall be deemed the note
hereunder.
(d) Each Advance made and payment received hereunder by Bank shall
be deemed made or received upon the Note held by Bank and shall
be evidenced by an appropriate entry thereon or on an attachment
thereto, or upon Bank's records as in other like cases, at
Bank's option. Unless the context indicates otherwise, a
reference herein to "the Note" shall mean such Note (of those
described in this Section 1.4) held by Bank at the time in
question.
(e) The advancing Notes as provided for under paragraph 1.4(a) and
(b) shall each provide that advancements of principal may be
made thereunder at various times prior to maturity at the
request of the Trust, subject however the outstanding balance of
10.5
<PAGE>
same shall not exceed at any time the face amount of such notes;
that interest shall accrue thereunder only from the date
principal amounts are advanced; and that prepayments may be made
at any time, without penalty, and any sum prepaid may be
re-borrowed.
1.5 NON-EXTENSION AND TERMINATION. The Trust may elect not to extend this
Loan Agreement at any time by giving written notice of same to the Bank. If such
election is made by the Trust during the term of a note as described in
paragraphs 1.4(a) or (b) hereof, then at the Trust's election, the Trust may
proceed to enter into the note and resulting payoff provisions as provided in
paragraph 1.4(c) hereof.
The Bank may elect not to extend the term of this Agreement by giving
written notice to the Trust at least six (6) months prior to the maturity date
of the note provided in paragraph 1.4(a) or (b) then in existence evidencing the
debt created hereunder. Upon Bank giving such notice as required hereby, the
Trust may elect to enter into the note and resulting payoff provisions as
described in paragraph 1.4(c) hereof and the loan shall be extinguished
according to the provisions of paragraph 1.4(c).
The Bank may also elect to terminate this agreement upon the failure by
Trust to cure an event of default as more particularly set forth herein.
1.6 COMMITMENT FEES. In consideration of Bank's agreement and commitment to
make the loans contemplated hereby, the Trust agrees to pay to Bank a commitment
fee as follows:
(a) An amount equal to one-fourth (1/4) of one percent (1%) per
annum (based on a 360 day year of twelve 30-day months) of the
unadvanced portion of Bank's commitment hereunder upon all
unadvanced amounts up to $6,000,000; plus
(b) An amount equal to three-eights (3/8) of one percent (1%) per
annum of the unadvanced portion of Bank's commitment upon all
unadvanced amounts from $6,000,000 up to $10,000,000.
Advanced amounts shall be considered as first advanced out of the
$6,000,000 portion which incurs an unadvanced portion commitment fee of
one-fourth (1/4) of one percent (1%) and thereafter as an advance of the
$4,000,000 portion incurring an unadvanced portion commitment fee of
three-eights (3/8) of one percent (1%). Until an Advance is actually made to a
beneficiary, any funds reserved under a Reservation Agreement shall be
considered unadvanced for the purpose of this paragraph. Such fee shall be
computed beginning on the effective date of this Agreement on the basis of the
daily unadvanced portion of the commitment and shall be payable semi-annually on
March 1 and September 1 of each calendar year during the term of Bank's
commitment.
10.6
<PAGE>
1.7 RESERVATION AGREEMENT. Any Reservation Agreements to be binding upon
the bank, must be in writing and executed by the Trust, and delivered to the
Bank, and the beneficiary of the Reservation Agreement. Once a valid Reservation
Agreement is entered into and delivered to the Bank, this Agreement shall be
interpreted and the loan administered with provision for such Reservation
Agreement.
SECTION 2. REPRESENTATIONS AND WARRANTIES
The Trust represents and warrants that:
2.1 FINANCIAL STATEMENTS. The Bank has been furnished with current
statements of the financial condition of the Trust, and related statements of
income and expense, accompanied in each case by the opinion of independent
public accountants. Said financial statements are correct and complete and
fairly present (a) the financial condition of the Trust, as of the respective
dates of such balance sheets and statements of financial condition, and (b) the
results of the operations of the Trust, for the fiscal periods ended on said
dates, all in conformity with generally accepted accounting principles applied
on a consistent basis throughout the periods involved except as noted therein.
2.2 NO MATERIAL CHANGES. There has been no material or adverse change in
the business or the condition, financial or otherwise, of the Trust subsequent
to the closing date indicated by such statements.
2.3 BUSINESS. The Trust is engaged in, and intends to engage in, the
business of making loans to churches and other non-profit organizations to
finance the acquisition of real property and the construction or improvements of
church buildings and improvements. The Trust is not required to be qualified to
do business in any state other than Texas.
2.4 LITIGATION. There are no actions, suits or proceedings (whether or not
purportedly on behalf of the Trust) pending or, to the knowledge of the Trust,
threatened against or affecting the Trust at law or in equity, or before or by
any governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, which involve any of the transactions
herein contemplated or the possibility of any judgment or liability which may
result in any material and adverse change in the business, operations,
prospects, properties or assets or in the condition, financial or otherwise, of
the Trust; and the Trust is not in default with respect to any judgment, order,
writ, injunction, decree, rule or regulation of any court or governmental
department, commission, board, bureau, agency or instrumentality, domestic or
foreign.
2.5 BURDENSOME PROVISIONS. The Trust is not a party to any agreement or
instrument or subject to any charter or other restriction or any judgment,
order, writ, injunction, decree, rule or regulation which materially and
adversely affects or in the future may (so far as the Trust can now foresee)
materially and adversely affect the business, operations, prospects, properties
or assets, or condition, financial or otherwise, of the Trust.
10.7
<PAGE>
2.6 COMPLIANCE WITH OTHER INSTRUMENTS. The Trust is not in default in the
performance, observance or fulfillment of any of the obligations, covenants or
conditions contained in any bond, debenture, note or other evidence of
indebtedness of the Trust or contained in any instrument under or pursuant to
which any thereof has been issued or made and delivered. Neither the execution
and delivery of this Agreement, the consummation of the transactions herein
contemplated, nor compliance with the terms, conditions and provisions hereof
and of the Notes will conflict with or result in a breach of any of the terms,
conditions or provisions of the Declaration of Trust dated February 22, 1963,
pursuant to which the Trust was created, as amended, or the bylaws of the Trust
or of any agreement or instrument to which the Trust is now a party, or
constitute a default thereunder, or result in the creation or imposition of any
mortgage, lien, charge or encumbrance of any nature whatsoever upon any of the
properties or assets of the Trust.
2.7 FORCE MAJEURE. Since the date as of which the last financial reports
were furnished to the Bank, the business, properties or assets of the Trust
(including, without limitation, the real properties securing the Trust's notes
receivable) have not been materially and adversely affected in any way as the
result of any fire, explosion, earthquake, accident, strike, lockout,
combination of workmen, flood, drought, embargo, condemnation, confiscation,
riot, activities of armed forces, or act of God, or act of the public enemy.
2.8 TAX LIABILITY. The Trust has filed all tax returns which are required
to be filed, and has paid all taxes which have become due pursuant to such
returns or pursuant to any assessment received by it. In the opinion of the
Trust all tax liabilities were adequately provided for as of the closing date of
the financial statements submitted to Bank and are now so provided for on the
books of the Trust.
2.9 GOVERNMENTAL ACTION. No action of, or filing with, any governmental or
public body or authority is required to authorize, or is otherwise required in
connection with, the execution, delivery and performance by the Trust of this
Agreement or the Notes.
2.10 DISCLOSURE. Neither the financial statements referred to in Section
2.1 hereof nor any certificate or statement furnished to Bank by the Trust, nor
this Agreement, contains any untrue statement of a material fact or omits to
state any material fact necessary in order to make the statements contained
therein or in this Agreement not misleading.
2.11 USE OF PROCEEDS. The proceeds will be applied to increase funds
available for use in the Trust's church mortgage financing operations and to
reduce current secured borrowings from banks or others, no part of which was
incurred for the purpose of purchasing or carrying any registered security.
10.8
<PAGE>
SECTION 3. CONDITIONS OF CLOSING
3.1. FIRST CLOSING. Prior to the initial Advance of funds hereunder (the
making of which is herein termed "first closing"), the Trust shall have
performed all of its agreements required to be performed hereunder, and the Bank
shall have received from Trust's counsel in connection with this transaction,
addressed to the Bank, a favorable opinion in form, scope and substance
satisfactory to Bank and its counsel, delivered prior to the first Advance on
the Notes:
(a) to the effect that the Trust is a duly organized and existing
real estate investment trust in good standing under the laws of
the State of Texas and has the power and authority to own its
property and to carry on its business as set forth in paragraph
2.3 hereof;
(b) to the effect that this Agreement has been duly authorized,
executed and delivered by the Trust and constitutes a legal
valid and binding obligation of the Trust, enforceable against
the Trust in accordance with its terms;
(c) to the effect that each Note delivered by the Trust to the Bank
has been duly authorized, executed and delivered by the Trust
and constitutes the legal, valid and binding obligation of the
Trust, enforceable against the Trust in accordance with its
terms;
(d) to the effect that each Note is secured by valid, binding and
enforceable first liens in favor of the Bank, subject to no
rights, equities or encumbrances outstanding in favor of any
party other than Bank which are or could become prior to or on
parity with Bank's liens, on all Collateral (including where
such Collateral constitutes notes receivable, the real estate or
other collateral securing such notes receivable) that has been
pledged as security therefor pursuant to Section 5 hereof;
(e) to the effect that no action of, or filing with, any
governmental or public body or authority is required to
authorize, or is otherwise required in connection with, the
execution, delivery and performance by the Trust of this
Agreement or any Note;
(f) to the effect that it is not necessary in connection with the
delivery of any Note under the circumstances contemplated by
this Agreement to register such Note under the Securities Act of
1933, as amended and then in effect, or to qualify an indenture
in respect thereof under the Trust Indenture Act of 1939, as
amended and then in effect, and that if Bank should in the
future
10.9
<PAGE>
deem it expedient to sell the Note (or any Note delivered in
exchange therefor as in such Note or in this Agreement
permitted), which the Bank does not now contemplate or foresee,
such sale would not of itself require registration of such Note
under said Securities Act of 1933 or qualification of an
indenture in respect of such Note under said Trust Indenture
Act, provided that at the time of such sale, such Bank neither
controls, nor is controlled by, nor is under common control
with, the Trust, either directly or indirectly, or, if any such
control then exists, that such sale is not made through an
underwriter as defined in said Securities Act of 1933;
(g) as to such other matters incident to the transactions
contemplated by this Agreement as the Bank may reasonably
desire;
(h) to the effect that neither the execution and delivery of this
Agreement, the consummation of the transactions herein
contemplated, the fulfillment of the terms hereof, nor
compliance with the provisions hereof and of the Note will
result in a breach of any of the terms, conditions or provisions
of, or constitute a default under, or result in the creation or
imposition of any lien, charge or encumbrance of any nature
whatsoever upon any of the properties or assets of the Trust
pursuant to the terms of the Declaration of Trust dated February
22, 1963, as amended, or the bylaws of the Trust, or any
agreement or instrument of which such counsel (having made
inquiry with respect thereto) has knowledge, to which the Trust
is a party;
(i) to the effect that with respect to such persons as shall have
been identified in writing to the Bank as being duly authorized
agents or officers of the Trust, all actions required to be
taken by the Trust to clothe such persons with such authority
have been taken, and the actions of such persons as contemplated
herein will be and constitute and legal, valid and binding acts
of the Trust; and
(j) to the effect that all conditions for lending have been met.
3.2. SUBSEQUENT CLOSING. Prior to subsequent Advances (the making of which
are herein termed "subsequent closings"), the Trust shall have performed all of
its agreements theretofore to be performed hereunder, and if additional
Collateral is offered to Bank at the time of any such subsequent closing date,
the Bank shall have received, on each subsequent closing date, from Trust's
counsel, a favorable opinion in form, scope and substance satisfactory to Bank
to the effect that the Note is secured by a valid, binding and enforceable first
lien
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<PAGE>
in Bank's favor on all Collateral, including such new Collateral as may be
offered at that time, subject to no rights, equities or encumbrances outstanding
in favor of any party other than Bank which are or could become prior to or on
parity with Bank's liens. If no prior opinion of counsel has been rendered with
respect to the Note then evidencing the indebtedness created hereunder, the Bank
shall receive on such subsequent closing date from Trust's counsel a favorable
opinion in form, scope and substance satisfactory to Bank to the same effect as
that required by paragraph 3.1 above, with respect to such Note.
3.3. EACH CLOSING. Prior to each Advance, the Trust shall have satisfied
the following:
(a) Officer's Certificate. The Trust shall have delivered to Bank
at least quarterly a certificate or certificates, signed by an
authorized officer of the Trust, to the effect that the facts
required to exist by paragraph 3.3(b) and paragraph 3.3(c)
hereof exist on such closing date.
(b) Representations True. The representations and warranties
contained in paragraphs 2.1 and 2.11 hereof, inclusive, as from
time to time amended, shall be true on and as of each subsequent
closing date until further amended with the same effect as
though such representations and warranties had been made on and
as of such closing date.
(c) Events of Default. No event shall have occurred which
constitutes an event of default or which, with notice or lapse
of time or both, would become such an event of default.
(d) Qualified Collateral on Deposit. On each closing date, the
Trust shall have on deposit with Bank Qualified Collateral
having a Pledge Value at least equal to 110% of the sum of (a)
the aggregate principal balance outstanding (including, for the
purpose of this computation, the amount of the Advance
requested) on the Note on such closing date, (b) the aggregate
amount of all other indebtedness owed to Bank, and (c) an amount
equal to the sum of all amounts subject to Reservation
Agreements; and the Bank shall have received such certificates
or other evidence as it may reasonably request to establish
compliance with this condition.
(e) Proceedings, Instruments, Etc. All proceedings to be taken in
connection with the transactions contemplated by this Agreement,
and all documents incidental thereto, shall be satisfactory in
form, scope and substance to the Bank and its counsel; and the
Bank shall have received copies of all documents which the Bank
may reasonably request in
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<PAGE>
connection with said transactions and copies of the records of
all proceedings in connection therewith in form, scope and
substance satisfactory to the Bank and its counsel.
(f) Delivery of Note. The Note shall have been duly authorized,
executed and delivered to the Bank.
SECTION 4. FINANCIAL STATEMENTS;
COMPLIANCE CERTIFICATIONS;
ADDITIONAL INFORMATION AND INSPECTION
4.1 FINANCIAL STATEMENTS AND REPORTS. So long as Bank (or a nominee
designated by Bank) shall hold the Note, the Trust will deliver to the Bank:
(a) as soon as practicable, and in any event within 60 days after
the end of the first six month period of each fiscal year of the
Trust, statements of income and expense of the Trust for such
period and for that part of the fiscal year ending with such
monthly period and statements of financial condition of the
Trust as of the end of such period, setting forth in each case
in comparative form the corresponding figures for and as at the
end of the corresponding period of the preceding fiscal year, in
reasonable detail, and certified by an authorized financial
officer of the Trust subject to year-end audit adjustments;
(b) as soon as practicable, and in any event within 90 days after
the end of each fiscal year of the Trust, statements of income
and expense of the Trust for such year, and statements of
financial condition of the Trust as at the end of such year,
setting forth in each case in comparative form the corresponding
figures of the previous annual audit, all in reasonable detail
and accompanied by a report or opinion of independent
accountants of recognized standing selected by the Trust;
(c) concurrently with the aforesaid financial statements delivered
pursuant to Section 4.1(a) hereof, a schedule prepared by said
authorized officer of the Trust listing the Qualified Collateral
and any other Collateral on deposit pursuant to Section 5 hereof
and the Pledge Value thereof as of the end of the first six
month period of each fiscal year, and concurrently with the
financial statements delivered pursuant to Section 4.1(b)
hereof, (i) a schedule prepared by said accountants listing the
Qualified Collateral and any other Collateral on deposit
pursuant to Section 5 hereof at the end of each fiscal year and
Pledge Value thereof as at the end of such fiscal year, and (ii)
the written statement of said accountants that in making the
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<PAGE>
examination necessary for their report or opinion on said
financial statements they have obtained no knowledge of any
default by the Trust in the fulfillment of any of the terms,
covenants, provisions or conditions of the Notes, or if such
accountants shall have obtained knowledge of any such default
they shall disclose in such statement the default or defaults
and the nature thereof; but such accountants shall not be liable
directly or indirectly to anyone for any failure to obtain
knowledge of any such default;
(d) concurrently with the aforesaid financial state- ments
delivered pursuant to paragraph 4.1(a) and paragraph 4.1(b)
hereof, a certificate of an authorized financial officer of the
Trust to the effect that the Trust is not in default in the
fulfillment of any of the terms, covenants, provisions or
conditions of the Note or this Agreement, or, if any such
default exists, specifying such default or defaults and the
nature and status thereof, and, in the case of the aforesaid
financial statements delivered pursuant to paragraph 4.1(b)
hereof, to the effect that said financial statements are correct
and complete and truly present the financial condition of the
Trust as at the end of and for the fiscal year to which they
relate;
(e) promptly upon receipt thereof, copies of any detailed reports
submitted to the Trust by independent accountants in connection
with each annual examination of the financial statements of the
Trust made by such accountants;
(f) as soon as practicable, all such financial statements and
reports as the Trust shall send to its shareholders and all
regular and periodic reports which it may file with the
Securities & Exchange Commission, or any governmental agency or
agencies substituted therefor; and
(g) such other information as to the business and properties of the
Trust, including financial statements and other reports filed
with any governmental department, bureau, commission or agency,
as the Bank may, from time to time, reasonably request.
4.2 INSPECTION. So long as Bank (or a nominee designated by Bank) shall
hold the Note, the Bank shall have the right to visit and inspect, under the
guidance of the Trust, any of its properties, to examine its books of account
and to discuss the affairs, finances and accounts of the Trust with its
officers, all at such reasonable times and as often as the Bank may reasonably
request.
10.13
<PAGE>
4.3 REAPPRAISALS. The Bank may demand, and Trust shall be obligated to
cause, reappraisal of any specific real property constituting security for the
collateral hereunder at any time the Bank in good faith believes or Trust has
reason to believe that an existing appraisal is not representative of the true
value of such property. Such reappraisals shall be made by an Appraiser and
furnished to the Bank within a reasonable time after the Trust makes such
determination, or the Bank makes such request, and same shall be made at the
expense of the Trust.
SECTION 5. COLLATERAL
5.1 INITIAL PLEDGES. Prior to any Advance the Trust will pledge, as
security for the Note and the performance of all covenants and obligations of
the Note and this Agreement, Qualified Collateral (as defined in paragraph 7.2
hereof) having a Pledge Value (as defined in paragraph 7.4 hereof) equal to at
least 110% of the sum of (a) the principal amount outstanding on the Note on the
date of such Advance, (b) the aggregate amount of all other indebtedness owed to
Bank, and (c) an amount (herein called the "Reserved Portion") equal to the sum
of all amounts subject to Reservation Agreements. The Trust shall execute and
deliver to Bank, as security for indebtedness now owed and hereafter to be owed
to Bank, a Security Agreement which shall initially be in form as contained in
Exhibit "C" which is attached hereto and made a part hereof by reference, and
shall execute and deliver to Bank such other security agreements, financing
statements or other instruments as Bank may reasonably require in order to
perfect and maintain the perfection of Bank's security interest.
5.2 DELIVERY OR DEPOSIT OF COLLATERAL. Each Collateral Note and Eligible
Mortgage (as defined in paragraph 7.3 hereof) pledged as Qualified Collateral
hereof shall be delivered to the Bank (properly endorsed) and accompanied by:
(a) an instrument describing the Collateral Note and Eligible
Mortgage and assigning and pledging the same to Bank, as
security for the Notes and the performance of all covenants and
obligations of the Notes and this Agreement;
(b) a certificate of the Trust identifying the payor of such Note
by proper name and current address and stating (i) the Pledge
Value of the Eligible Mortgage at the date of the certificate
and (ii) that it is an Eligible Mortgage as defined in Section
7.3 hereof;
(c) policies of title insurance or an opinion of counsel acceptable
to Bank, as the case may be, complying with the provisions of
paragraph 7.3(e) hereof;
(d) an opinion of counsel for the Trust to the effect that (i) the
Mortgage and/or Deed of Trust being assigned and pledged to Bank
constitute an Eligible
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<PAGE>
Mortgage as defined in paragraph 7.3 hereof, (ii) the assignment
and pledge of the Eligible Mortgage is enforceable by Bank,
valid and legal, and (iii) all necessary recordings and/or
filings have been made with respect to the transfer and
assignment of the eligible Mortgage to grant to Bank and perfect
a valid first security interest in, and to protect and preserve
in Bank (subject to the terms of this Agreement), all of the
Trust's title to, and ownership of, the Collateral Note and
Eligible Mortgage;
(e) any instrument(s) taken by the Trust to guarantee such
Collateral Note.
Any cash deposited as security for the Notes pursuant to paragraphs 5.3 or 6.9
(hereinafter called "Deposited Cash") shall be deposited in trust with the Bank
and held as part of the Collateral.
5.3 SERVICING OF PLEDGED MORTGAGES. Unless (a) the Trust shall be in
default under the Note, or (b) the payments scheduled to be received by the
Trust on such Collateral Notes are such that the continued receipt of such
payment by the Trust will (in the absence of a reduction in the outstanding
balance owed on the Note) result in a deficiency of Collateral under the terms
of paragraph 6.9 hereof during the remainder of the then current quarter or the
quarter immediately following, then the Trust shall be entitled to collect all
payments on account of the Collateral, but the Trust may not, without the Bank's
written consent, modify or renew or extend a Collateral Note or an Eligible
Mortgage pledged as security for the Note or postpone the time of any payment
relating thereto. In case of default or impending default as under (b) last
above by the Trust under the Note, the Bank shall be entitled to collect all
payments on account of the Collateral; provided, however, that if there be only
an impending default, as under (b) last above, the Trust may retain the right to
collect such payments by making an appropriate prepayment of the Note or posting
additional Collateral in substitution for such payments, as set forth in
paragraph 5.4 below. Any such payments received by the Trust during the
continuance of any such default or impending default shall be deposited with
Bank and until so paid over shall be held in trust for Bank by the Trust. Until
written notice to the contrary is given by Bank to the Trust, the Trust shall be
obligated, at its own expense, to service all loans evidenced by Collateral
pledged as security for the Note, which includes, without limitation of the
generality thereof, the obligation (i) to pay or cause to be paid all taxes and
other governmental charges relating to the encumbered properties, (ii) to keep
adequate books and records reflecting all transactions relating to the loans
(which books and records, together with all files, papers and policies relating
to the loans, shall, if an event of default hereunder has occurred and is
continuing, be delivered to Bank upon written request), and (iii) otherwise to
take such action with respect to each Eligible Mortgage so as to preserve the
rights of each present or future holder thereof and
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<PAGE>
the lien status thereof. An amount equal to all insurance proceeds, condemnation
awards, title insurance proceeds and similar payments collected by the Trust in
respect of any of the Collateral shall be deposited with Bank within 60 days
after collection (unless the Collateral with respect to which such payments are
collected shall have been withdrawn pursuant to paragraph 5.4), and until so
paid over, shall be held in trust for Bank by the Trust, except that in the case
of fire or casualty insurance proceeds, the money may be used to pay for the
cost of restoring the improvements on the affected property.
5.4 ADDITIONS, WITHDRAWALS AND SUBSTITUTIONS OF COLLATERAL. The Trust shall
be entitled to withdraw Collateral on the basis of its being in excess of that
required or to substitute Qualified Collateral, but in each case only with the
prior written approval of the Bank, which approval shall not be unreasonably
withheld. If at any time and for any reason any Collateral on deposit with Bank
fails to meet the requirements set forth for Qualified Collateral, Bank may
demand a substitution of Qualified Collateral therefor, or addition thereto,
which demand shall be complied with within 10 days thereafter by the deposit of
Qualified Collateral or payment on the Note in such amount as to place the Trust
once again in compliance with the requirements of paragraph 6.9 hereof. If at
any time the Pledge Value of Qualified Collateral on deposit with Bank falls
below that required by paragraph 6.9 hereof, or if the continued receipt by the
Trust of payments due and to become due upon the Qualified Collateral will or
might cause the Pledge Value of Qualified Collateral remaining after the receipt
of such payments by the Trust to fall below that required by paragraph 6.9
hereof (and the Trust agrees to continuously monitor and review the status of
compliance and prospective compliance with paragraph 6.9), then, without notice
or demand by Bank, the Trust will, within such time as may be required in order
to prevent a violation of paragraph 6.9, at its option, take and perform such
one or more of the following actions as may be required to insure the continued
compliance with paragraph 6.9:
(a) The Trust will (and should it fail to do so, the Bank may)
promptly notify both the Bank and the respective payors of
amounts scheduled to be received in payments upon Qualified
Collateral that all payments to be made thereon shall be made
payable to and delivered directly to the Bank rather than to the
Trust until further notice by the Bank to such payors, and any
amounts thereafter received by the Trust shall be received and
held in trust for Bank; and/or
(b) In consideration for Bank's forbearance of the right to demand
the payment by payors directly to Bank, as set forth in (a)
above, the Trust will, prior to the scheduled dates of such
payments by payors, deposit with Bank additional Qualified
Collateral having a Pledge Value of not less than that required
to maintain compliance with paragraph 6.9, notwithstanding the
continued receipt by the Trust of scheduled payments by such
payors; and/or
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<PAGE>
(c) The Trust will make a prepayment of principal and interest then
outstanding in such an amount that compliance with paragraph 6.9
will be assured for a period of 45 days, notwithstanding the
prospective reduction in Pledge Value of Qualified Collateral
scheduled to occur within that period.
5.5. DOCUMENTATION. All instruments of assignment and pledge, all
certificates and all requests to be delivered by the Trust pursuant to this
Section 5 shall be signed by a duly authorized officer of the Trust and shall be
in form and substance satisfactory to Bank and Bank's counsel.
5.6 EXPENSES. The Trust hereby agrees to pay the fees of any agent the Bank
may appoint for the purpose of enforcement of the rights of Bank under this
Section 5 and to pay all expenses incurred by either of them in connection with
the transactions contemplated by this Section 5 and the cost of any necessary
recordation or filing of documents in connection with such transactions.
5.7 RETURN OF COLLATERAL. Upon the payment in full of a pledged Eligible
Mortgage, and upon the withdrawal of any pledged Mortgage and/or Deed of Trust
as provided in paragraph 5.4, the Bank shall, upon request of the Trust,
transfer back to the Trust the Note and Mortgage and/or Deed of Trust so paid or
withdrawn.
5.8 SETOFF. In addition to other security for the payment of the
indebtedness of the Trust to the Bank hereunder, the Trust hereby grants to Bank
and to any other bank now or hereafter holding an interest in loans made
hereunder an express, contractual right of setoff in any and all deposit
accounts held by any such bank to secure payment of all funds loaned hereunder.
Such right of setoff shall not be limited to the amount of indebtedness of the
Trust to any particular bank, but shall secure all indebtedness created
hereunder.
SECTION 6. COVENANTS
The Trust covenants and agrees that on and after the date of this Agreement
and so long as the Note shall be outstanding:
6.1 MAINTENANCE OF TRUST OFFICE. The Trust will maintain an office or
agency in or near the City of Amarillo, Texas, where notices, presentations and
demands to or upon the Trust in respect to the Notes and this Agreement may be
given or made. Such office shall be the office of the Trust at 5305 I-40 West,
Amarillo, Texas 79106, unless and until another address is designated by the
Trust in a written notice to the Bank.
6.2 TO KEEP BOOKS. The Trust will keep proper books of record and account
in which full, true and correct entries will be made of its transactions in
accordance with sound accounting principles.
10.17
<PAGE>
6.3 PAYMENT OF TAXES; EXISTENCE. The Trust will:
(a) pay and discharge promptly or cause to be paid and discharged
promptly all taxes, assessments and governmental charges or
levies imposed upon it or upon its income or profits or upon any
of its property, real, person or mixed, or upon any part
thereof, before the same shall become in default, as well as
lawful claims for labor, materials and supplies which, if
unpaid, might by law become a lien or charge upon its property
or any part thereof; provided, however, that the Trust shall not
be required to pay any such tax, assessment, charge, levy or
claim if the amount, applicability or validity thereof shall
currently be contested in good faith by appropriate proceedings
and if the Trust shall have set aside on its books reserves
(segregated to the extent required by sound accounting
principles) deemed by it adequate with respect thereto; and
(b) do or cause to be done all things necessary to preserve and
keep in full force and effect its existence, rights and
franchises; provided that nothing in this paragraph 6.3 shall
prevent the abandonment or termination of the rights and
franchises of the Trust if, in the opinion of the Board of Trust
Managers of the Trust, such abandonment or termination is in the
best interest of the Trust and further provided that such
termination be not prejudicial in any material respect to the
holders of the Notes, who shall have been given reasonable
advance notice in writing of the action proposed to be taken.
6.4 TO INSURE. The Trust will keep adequately insured, by financially sound
and reputable insurers, all properties of a character usually insured by
institutions engaged in the same or a similar business against loss or damage of
the kinds customarily insured against by such institutions, and carry such other
adequate insurance as is usually carried by institutions engaged in the same or
a similar business.
6.5 LIMITATION ON LIENS ON COLLATERAL. Except as contemplated by this
Agreement, the Trust will not create, assume, incur or suffer or permit to be
created, assumed or incurred or to exist any mortgage, lien, charge or
encumbrance of any kind upon, or pledge of, any of the Collateral.
6.6 LIMITATION ON SALE, LEASE, MERGER OR CONSOLIDATION BY TRUST. The Trust
will not sell, lease, transfer or otherwise dispose of all or any substantial
part of its properties and assets or consolidate with or merge into any other
person or permit another person to merge into it.
6.7 TRANSFER OF BUSINESS OF THE TRUST. The Trust will not transfer or cause
to be transferred, by any method whatsoever, any material segment of the present
or future business of the Trust to
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any affiliated person present or future, or make any arrangement whereby any
affiliated person will assume or take over any material segment of the present
or future business of the Trust.
6.8 MANAGEMENT CONTRACT. The Trust will not enter into a contract for
management services with any person or persons without the prior written consent
of the Bank, which consent will not be unreasonably withheld.
6.9 QUALIFIED COLLATERAL. The Note and all other indebtedness now or
hereafter owed to Bank shall at all times be secured by a valid first lien on
Qualified Collateral having a Pledge Value at least equal to 110% of the sum of
(a) the aggregate principal amount of the Notes then outstanding, (b) the
aggregate amount of all other indebtedness owed to Banks, and (c) an amount
equal to the Reserved Portion.
6.10 FURTHER ASSURANCE. The Trust, at its expense, will execute and deliver
such instruments and take such further action (including recordation and filing)
as may be necessary or as may be requested by the Bank for the purpose of
perfecting and protecting the lien contemplated by paragraph 6.9 hereof.
6.11 NET WORTH AND INDEBTEDNESS. The net worth of the Trust shall not at
any time be less than $18,000,000; and the total indebtedness of the Trust shall
not at any time exceed a sum equal to 1.5 times the total net worth of the
Trust.
6.12 OTHER BORROWING. The Trust will not, at any time during the term of
this Loan Agreement, borrow funds from any lender other than the Bank through
any financing arrangements, without first obtaining written consent of the Bank,
which consent shall not be unreasonably withheld, this restriction not being
applicable to: (i) any sums which may now or hereafter be borrowed under Secured
Savings Certificates now issued by the Trust and presently outstanding, or as
hereinafter issued; (ii) any sums which may now be borrowed from The First
National Bank of Amarillo (now known as Boatmen's First National Bank of
Amarillo) or such other banks through arrangements with The First National Bank
of Amarillo (now known as Boatmen's First National Bank of Amarillo) on two
certain term notes in the original principal sum of $5,000,000 each, one being
dated on or about June 1, 1992 and the other being dated on or about May 29,
1992, (iii) any sums which may now or hereafter be borrowed under one or more
Master Note Agreements with such individuals, partnerships, corporations or
other legal entities as the Trust may from time to time determine in a total
amount not to exceed $2,500,000.00; provided, however, that the total
indebtedness of the Trust shall not exceed the restrictions hereinabove set
forth.
6.13 CONTINGENT LIABILITIES. The Trust will not, at any time during the
term of this Loan Agreement, create, incur or permit to exist any guaranty or
other contingent liability with respect to the debt or obligations of any other
person or entity without the prior written consent of the Bank, which consent
will not be unreasonably withheld.
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<PAGE>
6.14 AMENDMENTS TO INDENTURE AGREEMENT. The Trust will not, without the
prior consent of the Bank, amend or permit the amendment of the Indenture
Agreement by and between the Trust and the First National Bank of Amarillo,
Amarillo, Texas, (successor trustee to the First National Bank of Tulia, Tulia,
Texas which was successor in interest to Panhandle Bank & Trust Company of
Borger, Texas), in any manner so as to increase the amount or value of
collateral required to be maintained with the Indenture Trustee from time to
time under the terms thereof. The Trust further understands and agrees that the
Bank's trust department as Trustee under the Indenture will give the Bank's
commercial lending department thirty (30) days notice prior to any proposed
amendment to the Indenture Agreement.
SECTION 7. DEFINITIONS
For all purposes of this Agreement, unless the context otherwise requires,
the following definitions shall be applicable hereto:
7.1 COLLATERAL. The term "Collateral" shall mean and include all Promissory
Notes payable to Trust (whether evidencing an interim or permanent loan by the
Trust), and the Mortgages and Deeds of Trust securing payment of same assigned
and pledged to Bank, all Bonds issued by churches or other non-profit
organizations which are secured by a Mortgage or Deed of Trust upon the property
of the Issuer, and all cash deposited with the Bank in trust, as security for
the Notes.
7.2 QUALIFIED COLLATERAL. The term "Qualified Collateral" shall mean and
include all Collateral secured by Eligible Mortgages and all cash deposited with
Bank in trust as security for the Notes. Such Notes shall have been endorsed by
Trust to Bank and placed in Bank's possession under written instrument of pledge
constituting a first lien, and shall be secured by Eligible Mortgages which have
been transferred and assigned to the Bank by instrument in recordable form and
recorded in the proper real estate records of the jurisdiction in which the
property covered therein is situated. Such Bonds shall have been assigned by
Trust to Bank and placed in Bank's possession under written instrument of pledge
constituting a first lien, and shall be secured by Eligible Mortgages which
shall not have been transferred or assigned to the Bank upon the property of the
Issuer of the Bonds.
7.3 ELIGIBLE MORTGAGE. The term "Eligible Mortgage" shall mean (in addition
to any First Mortgage or Deed of Trust specifically approved in writing by the
Bank) any First Mortgage or Deed of Trust on improved real property owned by a
church or other non-profit organization located within the continental limits of
the United States of America or Canada, securing a valid and subsisting
Promissory Note, or valid and subsisting Bonds of an issuing church or other
non-profit organization, of which the Trust is the legal and equitable owner and
holder, provided that:
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(a) the principal amount of the obligation secured by such First
Mortgage or Deed of Trust shall not be in excess of sixty-six
and two-thirds per cent (66 2/3%) of the appraised value of the
real property subject thereto;
(b) the obligation secured by such First Mortgage or Deed of Trust
shall bear interest at no less than 6% per annum, shall mature
not more than twenty years subsequent to the date on which such
obligation was created, shall provide for regular periodic
payments sufficient to pay accrued interest thereon and to
retire the principal amount thereof in approximately level
payments over the original life of such obligation and shall not
at the time of its deposit with the Bank be in default for any
reason; thereafter, the occurrence of any default in the terms
of the Mortgage or the obligation secured shall render such
Mortgage ineligible and the Trust shall promptly notify the Bank
of such ineligibility; provide that if such default be only a
lateness of payment thereunder (not in excess of 90 days), then
such default shall not render such Mortgage ineligible unless
such lateness shall have been of a recurring nature, in which
event the Bank may, at its option, declare such Mortgage
ineligible and demand substitution under the provisions of
paragraph 5.4 hereof;
(c) all contemplated improvements on the real property subject to
such First Mortgage or Deed of Trust shall have been completed
and insured to the full extent of their insurable value against
damage by fire and other risks customarily included under
extended coverage, and in the case of a Mortgage or Deed of
Trust securing a Promissory Note, with a standard mortgagee
clause attached making the loss, if any, payable to the Trust
and the Bank, as their interests may appear, and in the case of
a Mortgage or Deed of Trust securing bonds, with a standard
mortgagee clause attached making the loss, if any, payable to
the Indenture Trustee for the benefit of the bondholders; and
(d) customary title insurance shall have been obtained from an
insurer selected by the Trust and satisfactory to the Bank,
insuring the validity and priority of the lien of such First
Mortgage or Deed of Trust in favor of the Trust and its
assignees in an amount equal to the full amount of the
Promissory Note secured thereby, or in favor of the Indenture
Trustee in an amount equal to the full principal amount of all
outstanding bonds of the offering in which the Bonds are a part,
or an opinion of counsel shall have been obtained from counsel
selected by the Trust and acceptable to
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Bank to the effect that such Mortgage or Deed of Trust
constitutes a direct and valid first lien in favor of the Trust
and its assignees, or the Indenture Trustee, upon the real
property subject thereto, enforceable in accordance with its
terms.
7.4 PLEDGE VALUE. The term "Pledge Value", when used with respect to
Collateral (including Qualified Collateral), shall mean, as of the date of
determination, in the case of Notes secured by Mortgages and Deeds of Trust, the
outstanding principal amount of the obligation secured thereby (but, unless
otherwise approved in writing by the Bank, only to the extent that such
principal amount is not in excess of $2,000,000), discounted to a value such
that, based upon the interest rate payable thereunder, the effective annual
yield upon such Note will be not less than a rate 2% per annum in excess of that
rate of interest announced or published on the first day of each calendar
quarter by The First National Bank of Amarillo as the First National Bank of
Amarillo's Base Rate, whether or not said rate as announced or published by said
bank is the lowest rate of interest charged by said bank to its borrowers.
Pledge Value of Notes shall be determined quarterly as of the first day of each
calendar quarter and shall not in any event exceed the unpaid principal balance
of the Collateral Note being valued. The purpose of the above stated $2,000,000
limitation is to avoid undue concentration of the Collateral into only a few
loans and to promote diversification of the Collateral. Consistent with this
purpose, consent will not be unreasonably withheld for loans in excess of
$2,000,000 where, in the judgment of Bank, exercised in good faith, there is no
such undue concentration and lack of diversification.
7.5 APPRAISER. The term "Appraiser" means a person selected by the Trust
who is qualified to appraise real property and who shall not have been
disapproved in writing by Bank.
SECTION 8. DEFAULTS AND REMEDIES
8.1 EVENTS OF DEFAULT. The occurrence of any of the following events for
any reason whatsoever (and whether such occurrence shall be voluntary or
involuntary or come about or be effected by operation of law or pursuant to or
in compliance with any judgment, decree or order of any court or any order, rule
or regulation of any administrative or governmental body) shall be deemed an
"Event of Default", that is to say:
(a) if default shall be made in due and punctual payment of the
principal of, or premium on, the Note when and as the same shall
become due and payable, whether at the maturity or at a date
fixed for prepayment or by acceleration or otherwise;
(b) if default shall be made in the due and punctual payment of any
installment of interest on the Note, when and as such interest
installment shall become
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due and payable, and such default shall have continued for a
period of 10 days;
(c) if default shall be made in the performance or observance by
the Trust of any covenant, agreement or condition contained in
paragraph 6.4 to paragraph 6.12, inclusive, of this Agreement;
(d) if default shall be made in the performance or observance by
the Trust of any other of the covenants, agreements or
conditions contained in this Agreement, and such default shall
have continued for a period of 30 days after written notice
thereof by the Bank to Trust or if default shall be made in the
performance or observance by Trust of any of the covenants,
agreements, terms or conditions of the Security Agreement or any
other instrument furnishing security for this or any other
indebtedness now or hereafter owed by Trust to Bank;
(e) if default shall occur with respect to any evidence of
indebtedness (other than the Note) of the Trust or under any
agreement under which any evidence of indebtedness may be issued
by the Trust and such default shall continue for more than the
period of grace, if any, therein specified;
(f) if the Trust shall (i) admit in writing its inability to pay
its debts generally as they become due, (ii) file a petition in
bankruptcy or a petition to take advantage of any insolvency
act, (iii) make an assignment for the benefit of its creditors,
(iv) seek or consent to the appointment of a receiver of itself
or of the whole or any substantial part of its property, (v)
file a petition or answer seeking reorganization, arrangement or
winding-up under the federal bankruptcy laws or any other
applicable law or statute of the United States of America or any
state thereof, or any other jurisdiction, or (vi) if the Trust
shall, upon the filing of a petition in bankruptcy against it,
fail to contest such petition within 30 days thereafter, or at
any time be adjudicated a bankrupt;
(g) if a court of competent jurisdiction shall enter an order,
judgment or decree appointing, without the consent of the Trust,
a receiver or other representative of the Trust or of the whole
or any substantial part of its properties, or approving a
petition filed against the Trust seeking reorganization,
arrangement or winding-up of the Trust under the federal
bankruptcy laws or any other applicable law or statute of the
United States of America or any state thereof or any other
jurisdiction, and such order, judgment or
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decree shall not be vacated or set aside or stayed within 60
days from the date of the entry thereof;
(h) if, under the provisions of any other law for the relief or aid
of debtors, any court of competent jurisdiction shall assume
custody or control of the Trust or of the whole or any
substantial part of its properties and such custody or control
shall not be terminated or stayed within 60 days from the date
of assumption of such custody or control; or
(i) if final judgment for the payment of money in excess of $25,000
shall be rendered by a court of record against the Trust and the
Trust shall not discharge the same or provide for its discharge
in accordance with its terms, or procure a stay of execution
thereon within 60 days from the date of entry thereof and within
said period of 60 days, or such longer period during which
execution of such judgment shall have been stayed, appeal
therefrom and cause the execution thereof to be stayed during
such appeal.
8.2 REMEDIES. If any one or more of the Events of Default specified in
paragraph 8.1 above shall occur and be continuing, Bank may, at its option,
exercise any one or more of the following:
(a) Terminate its commitment and cease to make advances hereunder;
or
(b) Declare its Note and all other indebtedness of the Trust to
such Bank to be immediately due and payable; or
(c) Exercise all rights of setoff to which it may be entitled
hereunder or otherwise; or
(d) Proceed to protect and enforce its rights either by suit in
equity or by action at law, or both, whether for specific
performance of any covenant, condition or agreement contained in
this Agreement or in aid of the exercise of any power granted in
this Agreement; or
(e) Proceed to enforce the payment of its Note or to enforce any
other legal or equitable right of Bank.
8.3 REMEDIES PERTAINING TO COLLATERAL. If any one or more of the Events of
Default specified in paragraph 8.1 shall occur and be continuing, the Bank may
forthwith apply any Deposited Cash to the payment of the principal of, and
interest and premium, if any, on the Note and may exercise any and all rights or
remedies of the Bank with respect to the Collateral granted under the terms of
the Security Agreement or otherwise and without limitation of the generality of
the foregoing, may, after 5 days notice to the Trust, sell, transfer, assign or
otherwise dispose of, give
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options to purchase, and deliver the Collateral or any part thereof at public or
private sale or sales at any exchange, broker's board or elsewhere for cash or
credit, or for future delivery without assumption of any credit risk. The Bank
shall have the right upon such sale or sales, public or private, to purchase the
whole or any part of the Collateral free from any right or equity of redemption
in the Trust, which right or equity is hereby waived and released, and to apply
the necessary proceeds of any such realization to the payment of the principal
of and interest and premium, if any, on the Note and all other sums payable by
the Trust to the Bank hereunder, under the Note or under the Security Agreement
described in paragraph 5.1 above.
8.4 REMEDIES CUMULATIVE. No remedy herein conferred upon the holder of the
Note is intended to be exclusive of any other remedy and each and every such
remedy shall be cumulative and shall be in addition to every other remedy given
hereunder or now or hereafter existing at law or in equity, or by statute,
contract or otherwise.
8.5 REMEDIES NOT WAIVED. No course of dealing between the Trust and the
holder of the Note or any delay on the part of the holder thereof in exercising
any rights hereunder shall operate as a waiver of any rights of any holder
thereof.
SECTION 9. MISCELLANEOUS
9.1 EXPENSES. Whether or not the transaction contemplated by this Agreement
shall be consummated, the Trust agrees to pay the fees of the Bank and counsel
for the Bank and the out-of-pocket disbursements of such counsel in connection
therewith, and to pay all printing and other expenses in connection with such
transactions, and to reimburse Bank for any out-of-pocket expenses in connection
therewith.
9.2 SUCCESSORS AND ASSIGNS. All covenants, agreements representations and
warranties made herein or in certificates delivered in connection herewith by or
on behalf of the Trust shall bind and inure to the benefit of the successors and
assigns of the Trust, whether so expressed or not, and all such covenants,
agreements, representations and warranties shall inure to the benefit of Bank's
successors and assigns. In this connection, it is recognized that Bank may enter
into an agreement with one or more other lending institutions granting to it or
them a participation in the Note and Collateral, and it is agreed and understood
that all provisions hereof shall inure to the benefit of any and all such
participants to which Bank might sell, assign, or transfer an interest in the
Note.
9.3 HOME OFFICE PAYMENT. Notwithstanding any provision to the contrary in
the Note contained, the Trust will promptly and punctually pay to Bank at its
banking house or such other address as may be designated in writing by Bank, all
amounts payable in respect of the principal of, premium, if any, or interest on,
the Note or other evidence of indebtedness then held by Bank, without any
presentment thereof and without any notation of such payment being made thereon.
In the event that Bank shall sell, transfer
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and assign the Note evidencing its loan hereunder, Bank will notify the Trust of
such sale and of the name and address of the transferee of such Note, and Bank
will, prior to the delivery of such Note, make or cause to be made a notation
thereon, of the date to which interest has been paid thereon and, if not
theretofore made, a notation on such Note of the outstanding principal balance
owed thereon.
9.4 COMMUNICATIONS. All communications provided for hereunder shall be in
writing, and if to Bank, mailed or delivered to Bank addressed to the address
set forth at the beginning of this Agreement, or if to the Trust, mailed or
delivered to the Trust at its office at 5305 I-40 West, Amarillo, TX 79106, or
addressed to either party at any other address in the United States of America
that such party may hereafter designate by written notice to the other party.
9.5 LAW GOVERNING. Subject to the provisions of paragraph 9.9 hereof, this
Agreement shall be construed in accordance with and governed by the laws of the
State of Texas. No provision of this Agreement may be waived, changed or
modified, or the discharge thereof acknowledged, orally, but only by an
agreement in writing, signed by the party against whom the enforcement of any
waiver, change, modification or discharge is sought.
9.6 HEADINGS. The headings of the sections and subsections of this
Agreement are inserted for convenience only and do not constitute a part of this
Agreement.
9.7 TERM. Unless sooner terminated as herein elsewhere set forth, or
extended pursuant to paragraph 1.1(c) hereof, the commitment of the Bank shall
expire as set forth in paragraph 1.1(c) hereof. Notwithstanding the prior
termination of the commitment of the Bank, it is agreed that the warranties,
representations, covenants, obligations, rights and duties of the parties shall
remain in full force and effect until all indebtedness created hereunder is paid
in full.
9.8 USURY. It is the intention of Bank and the Trust that this Agreement,
the Note and all provisions hereof and all documents securing payment thereof
and all other agreements by Bank and the Trust conform in all respects to the
federal usury law applicable to national banks domiciled in the State of Texas,
so that no payment of interest or other sum construed to be interest shall
exceed the highest lawful rate permissible. If from any circumstances whatsoever
the maker contracts for the payment or pays any sum as interest or construed to
be interest which would exceed the highest lawful rate applicable to this
transaction, then, ipso facto, the amount contracted for shall be automatically
reduced to the highest lawful rate authorized for this transaction. Excess
interest, if any, shall be applied to the reduction of the principal balance of
the Notes, if any, and if the principal balance has been fully paid, the excess
interest shall be refunded to the Trust. To the extent permitted by law,
thereupon Bank shall not be subject to any penalty provided for the contracting
for, charging or receiving interest in excess of such highest lawful rate
regardless of when or the
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circumstances under which such refund or application was made. To the extent
that the maximum rate of interest may at any time be determinable by reference
to the laws of the State of Texas, the parties designate as the ceiling
governing all transactions hereunder the Indicated Rate ceiling as announced
from time to time by the Consumer Credit Commission of the State of Texas,
pursuant to the provisions of Article 5069-1.04, Vernons' Texas Civil Statutes.
9.9 SEVERABILITY. If any term, provision, covenant or commission of this
Agreement is held by a court of competent jurisdiction to be invalid, void or
unenforceable, the remainder of this Agreement shall remain in full force and
effect and shall in no way be affected, impaired or invalidated.
9.10 RELIANCE BY BANK. The Bank shall be entitled to rely upon any writing,
telegram, telex or teletype message, resolution, notice, consent, certificate,
letter, cablegram, statement, order or other document or conversation by
telephone or otherwise believed by it to be genuine and correct and to have been
signed, sent or made by an authorized person and upon opinions of counsel and
other professional advisers selected by the Bank.
SECTION 10. ADDITIONAL PROVISION
Notwithstanding anything to the contrary contained herein, it is understood
and agreed that the owners of Certificates of Beneficial Interest of the Trust,
irrespective of whether said Certificates of Beneficial Interest are owned by
any person in such person's individual capacity or in any representative
capacity, shall not be personally liable under or by virtue of this Agreement or
under any Note executed pursuant hereto, or on any Note endorsed by the Trust
and delivered to the Bank as security for payment of the loans advanced pursuant
to this Agreement. The foregoing provisions shall be deemed a limitation on
personal liability only to the extent that such liability, if any, arises by
virtue of the ownership of said Certificates of Beneficial Interest. Nothing
contained in this paragraph shall be deemed to limit, release or modify the
liability, if any, of any such owner of Certificates of Beneficial Interest
arising in any manner other than because of such ownership, including by way of
example, but not limitation, the liability, if any, of any person having
executed a Guaranty or of any member of the Board of Trust Managers or any
officer thereof for willful misconduct or gross negligence in connection with
any representation, warranty, or certificate made by such person in performance
of this Agreement. This paragraph shall not be deemed to create or imply the
existence of personal liability on the part of any person by virtue of any
office or otherwise, but rather shall be deemed solely a statement of the
limitation of personal liability, if any, arising by virtue of the ownership to
said Certificates of Beneficial Interest.
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IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
day and year first above written.
TRUST: CHURCH LOANS & INVESTMENTS TRUST
By:/S/ BILL R. MCMORRIES
------------------------
Bill R. McMorries, Chairman
BANK: THE FIRST NATIONAL BANK OF AMARILLO
By:/S/ DENNIS W. FALK
---------------------
Dennis W. Falk, Senior Vice President
10.28
INDEPENDENT AUDITORS' CONSENT
The Board of Trust Managers
Church Loans & Investments Trust:
We consent to the use of our report included herein and to the reference to
our firm under the heading "Experts" in the Prospectus.
KPMG Peat Marwick LLP
Fort Worth, Texas
July 12, 1995
23.1.1
