REGISTRATION NO. 033-61077
================================================
U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
POST EFFECTIVE AMENDMENT NO. 1 TO
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
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(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)
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
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(Counsel for the Registrant)
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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 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.[ _ ]
<PAGE>
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CALCULATION OF REGISTRATION FEE
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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
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(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.
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<PAGE>
CHURCH LOANS & INVESTMENTS TRUST
CROSS REFERENCE SHEET PURSUANT TO RULE 404(C)
<TABLE>
<CAPTION>
LOCATION, HEADING OR SUBHEADING IN
FORM SB-2/A ITEM REGISTRATION STATEMENT OR PROSPECTUS
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<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 CERTAIN BENEFICIAL OWNERS SECURITY OWNERSHIP OF TRUST MANAGERS AND
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 PROPERTY
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>
i
<PAGE>
PROSPECTUS
$20,000,000
CHURCH LOANS AND INVESTMENTS TRUST
A REAL ESTATE INVESTMENT TRUST ("TRUST")
SECURED SAVINGS CERTIFICATES, SERIES O
(HEREINAFTER REFERRED TO AS "CERTIFICATES")
SEE "RISK FACTORS" ON PAGE 5 FOR CERTAIN CONSIDERATIONS
RELEVANT TO AN INVESTMENT IN THE CERTIFICATES.
THERE IS NO ESTABLISHED TRADING MARKET FOR THE CERTIFICATES OFFERED HEREBY
AND THE TRUST DOES NOT ANTICIPATE THAT AN ACTIVE TRADING MARKET WILL BE
ESTABLISHED. THE TRUST WILL NOT VOLUNTARILY REDEEM ANY OF THE CERTIFICATES PRIOR
TO MATURITY. THE CERTIFICATES OFFERED HEREBY ARE DEBT SECURITIES OF THE TRUST
WHICH WILL BE OFFERED AT VARIOUS RATES OF INTEREST AS DESCRIBED BELOW.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
THE CERTIFICATES ARE NOT GUARANTEED OR ISSUED BY ANY GOVERNMENTAL
AGENCY.
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DISCOUNTS & PROCEEDS
PRICE TO PUBLIC COMMISSIONS TO THE TRUST
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Minimum Purchase.............$ 1,000(1) $ 7.50(2) $ 992.50(2)
Total Certificates Offered...$20,000,000 $1,500,000(2) $18,500,000(2)(3)
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(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. 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. The interest rate payable on a Certificate will fluctuate based upon the
amount of the Certificate purchased and the length of the Certificate purchased.
The current rate of interest payable by the Trust upon Certificates offered
hereby are as follows:
Duration $1,000 & $99,999 $100,000 & up $250,000 & UP
------------------ ---------------- ------------- -------------
Less than 6 months 5.25% 5.75% 6.00%
6 months 5.50% 6.00% 6.25%
12 months 5.75% 6.50% 6.75%
18 months 6.00% 6.75% 7.00%
30 months and over 6.25% 7.25% 7.50%
<PAGE>
The proceeds from the sale of Certificates offered hereby will be held in
escrow with Boatmen's First National Bank of Amarillo, Amarillo, Texas until
Certificates in the total principal amount of $387,000 have been sold.
THE TRUST RESERVES THE RIGHT TO REJECT ANY ORDER IN WHOLE IN OR IN PART.
THIS OFFERING OF CERTIFICATES WILL TERMINATE SEPTEMBER 7, 1997.
THE CERTIFICATES BEING OFFERED ARE BEING DISTRIBUTED BY
GREAT NATION INVESTMENT CORPORATION
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The Date of this Prospectus is __________________, 1996.
This space left blank intentionally.
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<PAGE>
TABLE OF CONTENTS
PAGE
----
Available Information............................................ 3
Documents Incorporated by Reference.............................. 3
Prospectus Summary............................................... 4
Summary Selected Financial Data.................................. 5
Risk Factors..................................................... 5
Use of Proceeds.................................................. 11
Plan of Distribution............................................. 11
Legal Proceedings................................................ 12
Directors and Executive Officers................................. 12
Security Ownership of Trust Managers and Management.............. 13
Description of Certificates...................................... 13
Legal Opinions................................................... 17
Experts.......................................................... 17
Indemnification.................................................. 17
The Trust........................................................ 18
Business of the Trust............................................ 18
Management's Discussion and Analysis or Plan of Operation........ 19
Description of Property.......................................... 22
Certain Relationships and Related Transactions................... 23
Market for Common Equity......................................... 23
Executive Compensation........................................... 24
Changes in Accountants........................................... 24
Index to Financial Statements.................................... 26
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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.
Furthermore, the Trust is an electronic filer. Therefore, the Commission
maintains a Web site that contains reports, proxy's and information statements
and other information regarding issues that file electronically with the
Commission. The address of such Web site is http://www.sec.gov.
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, 1996 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.
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<PAGE>
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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 18)
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 18)
Offices....................................5305 I-40 West, Amarillo, Texas 79106
(806) 358-3666 (The Trust, page 18)
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<PAGE>
Years Ended March 31,
-----------------------------
1996 1995
INCOME STATEMENT: ---------- ----------
Interest and fees on mortgage loans, church
bonds and interim construction loans.........$4,174,217 4,387,244
Net interest income........................... 3,014,332 2,987,843
Net income.................................... 2,359,130 2,344,026
BALANCE SHEET:
(at end of period)
Mortgage loans, church bonds and in-
terim construction loans, net of allow-
ance for possible credit losses..............31,804,559 38,586,448
Total assets..................................33,717,320 40,171,261
Total liabilities.............................12,366,591 18,937,293
Shareholders' equity..........................21,350,729 21,233,968
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING 7,007,402 7,007,402
PER SHARE:
Net income (1) and (2)......................$ .34 .33
Dividends (2) and (3)....................... .32 .34
- ------------
(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 5 to Financial Statements.
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, 1996, 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
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<PAGE>
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, 1996, the prime interest rate charged by banks in the
geographical area of the office of the Trust is 8.25% 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 6% 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
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, or for the construction of assisted
living centers. 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
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<PAGE>
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, 1996, the Trust had discontinued the accrual of interest
upon mortgage loans and church bonds totaling $2,769,345. Of these non-earning
loans, one is an interim loan with a principal balance of $1,335,977 as of March
31, 1996 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
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>
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1992 1993 1994 1995 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Nonaccrual mortgage loans and church bonds........... $1,334,578 1,641,561 1,519,340 3,405,793 2,769,345
Loans past due over 90 days not included above....... 23,047 48,622 -- -- --
---------- --------- --------- --------- ---------
Total nonperforming loans.......... $1,357,625 1,690,183 1,519,340 3,405,793 2,769,345
========== ========= ========= ========= =========
</TABLE>
The approximate amount of interest income which would have been recorded
under the original terms of nonaccrual loans and the interest income actually
recognized are summarized below: below:
<TABLE>
<CAPTION>
-------------------------------------------------------------
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Interest income which would have been recorded...... $150,897 186,266 171,367 282,551 310,000
Interest income recognized.......................... -- -- -- -- --
-------- ------- ------- ------- -------
Interest income foregone............................ $150,897 186,266 171,367 282,551 310,000
======== ======= ======= ======= =======
</TABLE>
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<PAGE>
On June 27, 1996, because of recent deteriation or past due status, the
Trust added additional loans in the total principal balance of $1,652,514 to
non-accrual status. One interim loan represented $979,320 of such amount. Such
interim loan was moved to non-accrual status after the maker of loan filed for
protection under Chapter 11 of the U.S. Bankruptcy Code during June, 1996.
Management believes that potential losses related to such loans have been
provided for in the Trust's allowance for possible credit losses.
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, 1996, the Trust had
outstanding loan commitments (by contract amounts) of approximately $9,841,000.
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.
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, 1996,
the Trust had pledged mortgage loans totaling $19,115,713 to secure the
indebtedness of the Trust. The pledged loans constituted 56.69% of the total
assets of the Trust. At March 31, 1996, the total liabilities of the Trust were
36.68% of its total assets.
INTEREST INCOME AND EXPENSE OF THE TRUST
As of March 31, 1996, the principal balance of the permanent and interim
loans and church bonds extended by the Trust to churches and other non-profit
organizations totaled $32,533,224. The weighted
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average interest rate upon this loan portfolio mortgage loans and church bonds
was 11.21% per annum. At such time the debt outstanding of the Trust was
$12,101,455. The weighted average interest rate upon this indebtedness was 7.10%
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, a portion 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, 1996 was approximately 13.1 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
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.
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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 1996 the
interest paid by the Trust upon its bank debt averaged from a low of 8.25% to a
high of 10.0%. The bank credit line of the Trust provides for an interest rate
equal to the prevailing prime rate (8.25% at March 31, 1996) 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, 1996, 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 $18,500,000 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, 1996 are
approximately as follows:
Payment of outstanding Secured Savings Certificates............. $ 7,545,375
Payment of demand notes, if and when required .................. 4,006,079
Fund future loan commitments of the Trust....................... 8,448,546
The weighted average interest rate of the liabilities of the Trust to be
discharged with the proceeds of this offering is approximately 7.04% per annum.
The maturities of these liabilities vary from on demand through January, 1999.
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.
GNIC will be paid a 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.
The interest rates payable on the unsold Certificates will be revised or
changed unilaterally by the Trust as and when necessary, in the opinion of the
Trust, based upon changes in the prime rate of interest and the Trust's need for
funds.
If and when interest rates are revised or changed, then a new cover page to
the prospectus will be prepared which sets forth the new rates and terms of the
Certificates. Such new cover page will be supplemented for the previous cover
page. All prospective purchasers will be provided a prospectus which contains a
cover page which provides for the then current rates and terms.
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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.
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 69, is a consulting engineer. He has served as a
Trust Manager since 1963. He serves as Chairman of the Board of Trust
Managers.
Robert E. Martin, age 46, is the President/CEO of Santa Fe Federal
Credit Union. He has served as a Trust Manager since 1990. He serves
as Vice-Chairman of the Board of Trust Managers.
Larry Brown, age 53, 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.
Foy W. Shackelford, age 81, is a retired dentist. He has served as a
Trust Manager since 1963.
Everett B. Blanton, Jr., age 74, is a retired dentist. He has served
as a Trust Manager since 1963.
Jack R. Vincent, age 66, is engaged in farming and ranching
operations. He has served as a Trust Manager since 1989.
Steve Rogers, age 48, 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 44, 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
14 years.
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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 351,913 5.022%
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 ....................... 351,913 5.022%
Robert E. Martin ...................... 3,012 0.043%
Larry Brown ......................... 27,254 0.389%
Foy W. Shackelford ..................... 22,909 0.327%
Everett B. Blanton, Jr .................... 2,602 0.037%
Jack R. Vincent ....................... 5,564 0.079%
Steve Rogers ........................ 1,300 0.019%
M. Kelly Archer ....................... 66,164 0.944%
All Trust Managers and
Executive Officers ..................... 480,718 6.860%
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.
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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 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
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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)).
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).
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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 662/3% 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
also the primary lender to the Trust. At March 31, 1996, Trust owed the Trustee
$550,001 on its $10,000,000 line of credit with the Trustee.
REPORTS TO CERTIFICATE HOLDERS
The Trust will furnish to the Certificate holders all quarterly reports
which it furnishes to holders of its Shares. Such quarterly reports include
unaudited financial statements of the Trust.
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.
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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.
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 216,338 shares of beneficial interest in the Trust.
EXPERTS
The financial statements of Church Loans and Investments Trust as of March
31, 1996, and for the year then ended, have been included herein in reliance
upon the report of Clifton Gunderson P.L.L.C., independent certified public
accountants, appearing elsewhere herein and upon the authority of said firm as
experts in accounting and auditing.
The financial statements of Church Loans and Investments Trust as of March
31, 1995, and for the year then ended, have been included herein 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
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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.
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.
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MORTGAGE LOANS, INVESTMENTS IN CHURCH BONDS AND INTERIM CONSTRUCTION LOANS
As of March 31, 1996, the Trust has 173 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
$33,680,044. The original principal amount of these loans varies from $2,500 to
$3,000,000, with the average principal amount thereof being $194,682. The
interest rates on these loans vary from 7.0% to 17.0% per annum with the
weighted average interest rate of mortgage loans and church bonds being 11.21%
per annum at March 31, 1996. 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 1996
During the fiscal year of the Trust ending March 31, 1996, the net income
of the Trust was $2,359,130, as compared to $2,344,026 in fiscal 1995, an
increase of .006%. The increase in net income of the Trust was due primarily to
the increase in net interest income in fiscal 1996 as compared to fiscal 1995.
The net income of the Trust for each of the quarters during fiscal 1996 was
as follows: first quarter--$644,032; second quarter--$596,635; third
quarter--$587,838; and fourth quarter--$530,625.
Other operating expenses of the Trust increased from $553,444 during fiscal
1995 to $554,397 in fiscal 1996. Other operating expenses of the Trust were
approximately 13.18% of its gross income for the year ended March 31, 1996 as
compared to 12.56% for the year ended March 31, 1995. Other operating expenses
of the Trust include general and administrative expenses and compensation to
members of the Board of Trust Managers.
During fiscal 1996, the Trust advanced loan proceeds of $11,424,033 on 34
different loans. 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 (1) to Financial Statements, pages 37-39, for
a more detailed description of the Trust's loan portfolio.
During fiscal 1996, the Trust employed a total of 4 full time employees and
employed, as needed, one additional part-time employee.
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
RESULTS OF OPERATIONS--1996 COMPARED TO 1995
During the fiscal year ended March 31, 1996, interest income and fees of
the Trust decreased by $199,754 (4.53%) over the previous fiscal year. Such
decrease was primarily attributable to a decrease in the amount of both mortgage
loans and interim construction loans held by the Trust. Earning interim
construction loans decreased from $10,148,958 as of March 31, 1995 to $7,877,489
as of March 31, 1996.
Furthermore, earning mortgage loans and church bonds decreased from
$25,676,746 as of March 31, 1995 to $21,886,390 as of March 31, 1996. Such
decrease in mortgage loans and church bonds 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 decrease in interest income and fees
was somewhat offset by an increase in the average annual interest rate on loans
and church bonds from 10.94% at March 31, 1995 to 11.21% at March 31, 1996.
In fiscal 1996, the average aggregate amount of total debt outstanding was
$3,946,475 less than in fiscal 1995. Furthermore, interest expense decreased by
$223,743. Such decrease was primarily due to a decrease in the debt of the Trust
and secondarily to a decrease in the Trust's cost of funds. The decrease in
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the debt of the Trust was primarily due to an decrease in interim loans made by
the Trust. The approximate weighted average annual interest rate upon the
aggregate outstanding debt increased from 7.29% during fiscal 1995 to 7.72%
during fiscal 1996.
The net income of the Trust increased $15,104 (0.006%) from the previous
fiscal year. Such increase was primarily attributable to an increase in net
interest income in fiscal 1996 as compared to fiscal 1995.
During fiscal 1996, the prime interest rate decreased from 9.00% at March
31, 1995 to 8.25% per annum at March 31, 1996. Should the prime interest rate
decrease during fiscal 1997, 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 1997, 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 increased from $15,623,167 during fiscal 1995
to $18,434,281 during fiscal 1996, an increase of 17.99%. This increase was
primarily attributable to the increase in interim loans held by the Trust as of
March 31, 1995 which were paid off during the fiscal year and to a decrease in
the amount of non-performing loans of the Trust from $3,405,793 as of March 31,
1995 to $2,769,345 as of March 31, 1996. The non-performing loans of the Trust
as compared to the entire loan portfolio of the Trust decreased slightly from
8.68% as of March 31, 1995 to 8.51% as of March 31, 1996.
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. The operational expense of the
Trust is comprised of the maintenance of its office building, the payment of the
salaries of its management and clerical staff 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 1999.
The annual maturities upon all debt obligations of the Trust outstanding as
of March 31, 1996 for the next three fiscal years are: 1997--$7,176,063;
1998-$2,865,068; and 1999-$2,060,324. These debt obligations primarily consist
of the Trust's bank line of credit and Certificates which have been previously
issued by the Trust. Certificates outstanding as of March 31, 1996 that will
mature during the next three years are: 1997--$2,619,983; 1998--$2,865,068; and
1999-$2,060,324.
At March 31, 1996 loans to the Trust under Master Note Agreements which are
in effect demand notes total $4,006,079. 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.
At March 31, 1996, the balance which could be borrowed by the Trust upon
its bank line of credit was $9,449,999. The principal payments scheduled to be
received by the Trust upon its loan portfolio for the years ending March 31,
1997, 1998 and 1999 are $11,557,673, $2,105,685, and $1,890,629, 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.
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During fiscal 1996 and 1995 the Trust sold Certificates in the principal
amounts of $4,595,999 and $5,239,231, 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.
Therefore, effective July 18, 1994, the Trust decided not to register
Certificates. As a result of such action, the Trust was unable to sell
Certificates from such date until September 7, 1995, when the registration of
additional Certificates became effective. 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, 1996, the principal balance of the loan and church bond portfolio of
the Trust was $32,533,224. The weighted average interest rate on loans and
church bonds was 11.21% 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 $30,391,450, $26,049,814, and
$22,793,588, 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.
Principal payments scheduled to be received by the Trust upon its permanent
loan portfolio during the years ending March 31, 1997, 1998 and 1999, 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, 1996, 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, 1996 promissory notes in the principal
amount of $9,424,292 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 in Series A-N and a ratio of 1.0 to 1 for Certificates in
Series O) was $8,282,719, leaving an excess of promissory notes which have been
pledged by the Trust to secure said Certificates of $1,141,573. Additionally,
promissory notes totalling $9,691,421 were pledged against the bank line of
credit which had a total outstanding balance of $550,001. The required
collateral for this bank loan was $605,001, leaving an excess of promissory
notes which have been pledged to secure said bank notes of $9,086,420. 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 $10,227,993 and other additional promissory
notes in the approximate amount of $13,417,511 (for a total amount of
$23,645,504) 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
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and the bank line of credit would continue to be secured by the required ratio
of notes pledged to the principal balance of these Certificates and the bank
line of credit. 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. The amount of non-performing loans as
of March 31, 1996 compared to March 31, 1995 decreased. 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. Based upon 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.
INFLATION
At March 31, 1996, the weighted average interest rate on the mortgage loan
and church bond portfolio of the Trust was 11.21% per annum while the weighted
average interest rate upon all borrowings of the Trust was 7.10% 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, a
portion 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
approximately 34.77% per annum, the interest income and the interest expense of
the Trust would be substantially equal.
DESCRIPTION OF PROPERTY
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
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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, 1996, the Trust had entered into Demand Notes Payable
with B. R. McMorries, Chairman of the Board of Trust Managers and related
persons, in the amount of $569,167; and with Foy W. Shackelford, a Member of the
Board of Trust Managers, in the amount of $241,961. Furthermore, as of March 31,
1996, 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 $290,000; Larry
Brown, Secretary of the Board of Trust Managers, and related persons, in the
amount of $70,000; and Jack Vincent, Member of the Board of Trust Managers, and
related persons, in the amount of $125,692.19. 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.
MARKET FOR COMMON EQUITY
MARKET INFORMATION
There is no established public trading market for the shares of beneficial
interest of the Trust. During fiscal 1996 a total of 81,805 shares were sold in
the secondary market at prices ranging from $2.25 to $2.31 per share. The last
sale during the fiscal year was at $2.25 per share. During fiscal year 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 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:
FISCAL 1996 FISCAL 1995
----------- -----------
QUARTER HIGH LOW HIGH LOW
- -------------------------------- ----- ----- ------ ----
April-June .................. 2.30 2.25 2.20 2.00
July-September ................ 2.30 2.25 2.30 2.10
October-December ............... 2.31 2.25 2.30 2.20
January-March ................. 2.30 2.25 2.50 2.25
HOLDERS
At March 31, 1996 there were 2,838 shareholders of the Trust.
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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 1995 the Trust paid a cash
dividend of $.34 per share. In fiscal 1996 the Trust paid a total cash dividend
of $.32 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 1996 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 1996 $110,333 0 $ 6,665
Manager of Operations 1995 112,200 0 6,050
1994 105,800 0 5,516
TRUST MANAGERS' COMPENSATION
The Board of Trust Managers of the Trust were paid $39,700 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 P.L.L.C. 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 1995
and 1994 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.
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The Board of Trust Managers engaged Clifton Gunderson P.L.L.C., 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.
This space left blank intentionally.
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INDEX TO FINANCIAL STATEMENTS
Annual Financial Statements PAGE
----
Independent Auditors' Reports............................................27-28
Balance Sheets as of March 31, 1996 and 1995 ............................ 29
Statements of Income for the years ended
March 31, 1996 and 1995 ................................................ 31
Statements of Shareholders' Equity for the
years ended March 31, 1996 and 1995..................................... 32
Statements of Cash Flows for the years ended
March 31, 1996 and 1995................................................. 33
Summary of Significant Accounting Policies............................... 34
Notes to Financial Statements............................................ 37
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The Board of Trust Managers and Shareholders
Church Loans & Investments Trust
Amarillo, Texas
INDEPENDENT AUDITORS' REPORT
We have audited the accompanying balance sheet of Church Loans & Investments
Trust (a real estate investment trust) as of March 31, 1996, and the related
statements of income, shareholders' equity, and cash flows for the year then
ended. 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 audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the 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 audit provides 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, 1996, and the results of its operations and its cash flows
for the year then ended, in conformity with generally accepted accounting
principles.
/s/ Clifton Gunderson P.L.L.C.
Amarillo, Texas
May 1, 1996
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<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Trust Managers and Shareholders
Church Loans & Investments Trust:
We have audited the accompanying balance sheet of Church Loans & Investments
Trust (a real estate investment trust) as of March 31, 1995, and the related
statements of income, shareholders' equity, and cash flows for the year then
ended. 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 audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the 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 audit provides 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 the results of its operations and its cash flows
for the year then ended in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
Amarillo, Texas
May 5, 1995
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<PAGE>
CHURCH LOANS & INVESTMENTS TRUST
(A REAL ESTATE INVESTMENT TRUST)
BALANCE SHEETS
MARCH 31, 1996 AND 1995
ASSETS
1996 1995
---- ----
CASH AND CASH EQUIVALENTS ...................... $ 722,430 $ 366,977
RECEIVABLES
Mortgage loans and church bonds - earning .. 21,886,390 25,676,746
Interim construction loans - earning ....... 7,877,489 10,148,958
Nonearning mortgage loans, church bonds
and interim construction loans ........... 2,769,345 3,405,793
Less: Allowance for possible credit losses . (728,665) (645,049)
------------ ------------
31,804,559 38,586,448
------------ ------------
Accrued interest receivable ................ 307,291 339,633
Notes receivable ........................... 483,631 481,878
Other receivables .......................... -- 2,576
------------ ------------
Total receivables ............ 32,595,481 39,410,535
------------ ------------
PROPERTY AND EQUIPMENT, net of accumulated
depreciation of $429,377 and $413,707 in
1996 and 1995, respectively ................ 228,965 244,635
PROPERTY HELD FOR INVESTMENT ................... 83,714 83,714
UNAMORTIZED DEBT EXPENSE, net and other assets . 86,730 65,400
------------ ------------
TOTAL ASSETS .................. $ 33,717,320 $ 40,171,261
============ ============
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<PAGE>
CHURCH LOANS & INVESTMENTS TRUST
(A REAL ESTATE INVESTMENT TRUST)
BALANCE SHEETS
MARCH 31, 1996 AND 1995
LIABILITIES AND SHAREHOLDERS' EQUITY
1996 1995
LIABILITIES ----- ----
Notes payable and line of credit:
Related party ......................... $ 1,482,250 $ 706,577
Other ................................. 3,073,830 11,032,781
------------ ------------
4,556,080 11,739,358
Secured savings certificates:
Related party ......................... 485,692 665,375
Other ................................. 7,059,683 6,118,356
------------ ------------
7,545,375 6,783,731
Accrued interest payable .................. 37,817 94,423
Federal income taxes payable .............. 7,060 5,010
Other ..................................... 220,259 314,771
------------ ------------
Total current liabilities .... 12,366,591 18,937,293
------------ ------------
SHAREHOLDERS' EQUITY
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 ...................... 726,863 610,102
------------ ------------
Total shareholders' equity ... 21,350,729 21,233,968
------------ ------------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY ...................... $ 33,717,320 $ 40,171,261
============ ============
These financial statements should be read only in connection with
the accompanying summary of significant accounting policies and
notes to financial statements.
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CHURCH LOANS & INVESTMENTS TRUST
(A REAL ESTATE INVESTMENT TRUST)
STATEMENTS OF INCOME
YEARS ENDED MARCH 31, 1996 AND 1995
1996 1995
---- ----
INTEREST INCOME AND FEES
Interest and fees on mortgage loans, church
bonds and interim construction loans ...... $4,174,217 $4,387,244
Interest on temporary investments .......... 32,959 19,686
---------- ----------
Total interest income and fees 4,207,176 4,406,930
DEBT EXPENSE
Interest ................................... 1,121,311 1,345,054
Amortization of:
Registration costs ....................... 21,321 9,250
Commissions paid to brokers .............. 50,212 64,783
---------- ----------
Total debt expense ............ 1,192,844 1,419,087
---------- ----------
Net interest income ........... 3,014,332 2,987,843
PROVISION FOR POSSIBLE
CREDIT LOSSES .............................. 85,000 80,000
---------- ----------
Net interest income less provision
for possible credit losses ..... 2,929,332 2,907,843
---------- ----------
OTHER INCOME .................................... 11,683 12,164
OTHER OPERATING EXPENSES
General and administrative ................. 513,689 514,793
Board of Trust Managers' fees .............. 40,708 38,651
---------- ----------
Total other operating expenses 554,397 553,444
---------- ----------
Income before provision for
income taxes ................. 2,386,618 2,366,563
PROVISION FOR INCOME TAXES ...................... 27,488 22,537
---------- ----------
NET INCOME ...................................... $2,359,130 $2,344,026
========== ==========
NET INCOME PER SHARE ............................ $ .34 $ .33
========== ==========
These financial statements should be read only in connection with
the accompanying summary of significant accounting policies and
notes to financial statements.
-31-
<PAGE>
CHURCH LOANS & INVESTMENTS TRUST
(A REAL ESTATE INVESTMENT TRUST)
STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED MARCH 31, 1996 AND 1995
SHARES OF BENEFICIAL INTEREST
---------------------------- UNDISTRIBUTED
SHARES AMOUNT NET INCOME
----------- ----------- -----------
BALANCE, MARCH 31, 1994 ............ 7,007,402 $20,623,866 $ 648,593
Cash dividends ($.34 per share) -- -- (2,382,517)
Net income .................... -- -- 2,344,026
----------- ----------- -----------
BALANCE, MARCH 31, 1995 ............ 7,007,402 20,623,866 610,102
Cash dividends ($.32 per share) -- -- (2,242,369)
Net income .................... -- -- 2,359,130
----------- ----------- -----------
BALANCE, MARCH 31, 1996 ............ 7,007,402 $20,623,866 $ 726,863
=========== =========== ===========
These financial statements should be read only in connection with
the accompanying summary of significant accounting policies and
notes to financial statements.
-32-
<PAGE>
CHURCH LOANS & INVESTMENTS TRUST
(A REAL ESTATE INVESTMENT TRUST)
STATEMENTS OF CASH FLOWS
YEARS ENDED MARCH 31, 1996 AND 1995
1996 1995
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
Net income ................................. $ 2,359,130 $ 2,344,026
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation ......................... 15,670 15,672
Amortization of debt expense ......... 71,533 74,033
Amortization of loan discounts ....... (311,975) (248,914)
Provision for possible loan losses ... 85,000 80,000
Changes in:
Accrued interest receivable ........ 32,342 (9,799)
Accrued interest payable ........... (56,606) 28,267
Federal income taxes payable ....... 2,050 (789)
Other liabilities .................. (94,512) 135,712
Other, net ........................... (2,590) 20,520
------------ ------------
Net cash provided by
operating activities ........... 2,100,042 2,438,728
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Investment in mortgage and interim
construction loans and church bonds ...... (11,424,033) (17,971,292)
Payments received on mortgage and
interim construction loans and
church bonds .............................. 18,434,281 15,623,167
Advances on notes receivable ............... (321,598) (211,108)
Payments received on notes receivable ...... 319,845 280,008
------------ ------------
Net cash provided (used) by
investing activities ........... 7,008,495 (2,279,225)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Sale of secured savings certificates ....... 4,595,999 5,239,231
Borrowings on notes payable and line
of credit ................................. 9,059,755 15,086,352
Principal payments on:
Secured savings certificates ............ (3,834,355) (6,405,059)
Notes payable and line of credit ........ (16,243,033) (11,672,644)
Registration costs of secured savings
certificates ............................. (22,321) (8,290)
Commissions paid to brokers on issuance
of secured savings certificates ......... (66,760) (79,030)
Cash dividends paid ........................ (2,242,369) (2,382,517)
------------ ------------
Net cash used by
financing activities ........... (8,753,084) (221,957)
------------ ------------
Increase (decrease) in cash and
cash equivalents ............... 355,453 (62,454)
CASH AND CASH EQUIVALENTS,
BEGINNING OF YEAR .......................... 366,977 429,431
------------ ------------
CASH AND CASH EQUIVALENTS,
END OF YEAR ................................ $ 722,430 $ 366,977
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for interest ......... $ 1,177,917 $ 1,316,787
============ ============
Income taxes paid were not material in 1996 and 1995.
These financial statements should be read only in connection with
the accompanying summary of significant accounting policies and
notes to financial statements.
-33-
<PAGE>
CHURCH LOANS & INVESTMENTS TRUST
(A REAL ESTATE INVESTMENT TRUST)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
YEARS ENDED MARCH 31, 1996 AND 1995
NATURE OF OPERATIONS
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.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
CURRENT OPERATING ENVIRONMENT
Church Loans has historically invested in long-term, fixed-rate mortgage loans,
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, 1996 and 1995 as
follows:
LOAN AND CHURCH TOTAL NET INTEREST
BOND PORTFOLIO INDEBTEDNESS RATE MARGIN
-------------- ------------ -----------
March 31, 1996 .................... 11.21 7.10 4.11
March 31, 1995 .................... 10.94 8.02 2.92
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.
-34-
<PAGE>
CHURCH LOANS & INVESTMENTS TRUST
(A REAL ESTATE INVESTMENT TRUST)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
YEARS ENDED MARCH 31, 1996 AND 1995
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. 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. The allowance is subjective in nature and may be
adjusted in the near term because of changes in 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 each of the years in
the two-year period ended March 31, 1996.
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.
-35-
<PAGE>
CHURCH LOANS & INVESTMENTS TRUST
(A REAL ESTATE INVESTMENT TRUST)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
YEARS ENDED MARCH 31, 1996 AND 1995
UNAMORTIZED DEBT EXPENSE
Commissions paid to brokers 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.
INCOME TAXES
Income taxes are accounted for under 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.
CASH FLOWS
For purposes of reporting cash flows, cash and cash equivalents include
cash-on-hand and investment in a money market mutual fund and certificates of
deposit with maturities of less than 90 days at the time of acquisition.
This information is an integral part of the accompanying financial statements.
-36-
<PAGE>
CHURCH LOANS & INVESTMENTS TRUST
(A REAL ESTATE INVESTMENT TRUST)
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED MARCH 31, 1996 AND 1995
NOTE 1 - MORTGAGE AND INTERIM CONSTRUCTION LOANS
Mortgage loans receivable consist of conventional loans of $23,637,917 and
$26,604,107 and church bonds due principally from congregations of Churches of
Christ of $828,661 and $957,455 at March 31, 1996 and 1995, respectively.
Interim construction loans of $9,213,466 and $11,669,935 at March 31, 1996 and
1995, 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 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% to 17% at March 31, 1996.
The weighted average annual interest rates of Church Loans' loan and church bond
portfolio were 11.21% and 10.94% at March 31, 1996 and 1995, respectively. The
weighted average annual interest rates for the loan and church bond portfolios
were 11.0% for both years ended March 31, 1996 and 1995.
The following schedule is a summary of the combined mortgage, church bonds and
interim construction loan portfolios by size of loan at March 31, 1996 and 1995:
1996 1995
----------------- -------------------
No. of Carrying No. of Carrying
Description loans amount loans amount
----------- ----- ------ ----- ------
Over $1,500,000 .... 3 $ 5,567,500 6 $10,663,047
$1,300,000-1,499,999 1 1,335,977 2 2,748,334
$1,000,000-1,299,999 2 2,586,120 1 1,251,964
$900,000-999,999 ... 3 2,840,559 1 942,152
$800,000-899,999 ... 2 1,718,141 2 1,665,971
$700,000-799,999 ... 3 2,355,791 2 1,561,730
$600,000-699,999 ... 1 614,969 2 1,258,067
$500,000-599,999 ... 1 542,000 5 2,691,005
$400,000-499,999 ... 6 2,643,844 3 1,335,956
$300,000-399,999 ... 8 2,738,050 8 2,851,470
$200,000-299,999 ... 10 2,365,192 19 4,593,451
$100,000-199,999 ... 31 4,593,366 34 4,887,705
Under $100,000 ..... 102 3,778,535 109 4,090,472
----------- ----------- ----------- -----------
173 33,680,044 194 40,541,324
=== ===
Less: unamortized purchase discounts
on mortgage loans 1,146,820 1,309,827
Less: allowance for possible credit
losses 728,665 645,049
--------------- ----------------
TOTAL $ 31,804,559 $ 38,586,448
=============== ================
-37-
<PAGE>
CHURCH LOANS & INVESTMENTS TRUST
(A REAL ESTATE INVESTMENT TRUST)
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED MARCH 31, 1996 AND 1995
NOTE 1 - MORTGAGE AND INTERIM CONSTRUCTION LOANS (CONTINUED)
The mortgage and interim construction loan portfolios included the following
loans at March 31, 1996, 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 ................................... $ 2,365,818
First United Pentecostal Church of Arnold, Arnold, Maryland;
interest at 11.00%; monthly payments of $16,225 to
maturity on September 1, 2020 .......................... 1,645,643
New Jerusalem Church, Lansing, Michigan; interest at prime
+ 2%(10.25% at March 31, 1996); monthly payments of
$17,686 to maturity on December 1, 1995 ................ 1,556,039
St. Stevens Church of God in Christ, San Diego, California;
interest at prime + 2% (10.25% at March 31, 1996);
principal and interest due at maturity on October 25,
1994 (included in nonearning assets at March 31, 1996) . 1,335,977
Bethany Baptist Church, Melbourne, Florida; interest at
10.50%; monthly payments of $14,371 to maturity on
January 1, 2010 ........................................ 1,293,982
Duncanville Church of Christ, Duncanville, Texas; interest
at 8.25%; monthly payments of $27,000 to maturity on
February 1, 1998 ....................................... 1,292,139
Sedona Assisted Living, LLC, San Antonio, Texas; interest
at prime + 2%(10.25% at March 31, 1996); principal and
interest due at maturity on June 1, 1996 ............... 979,320
-----------
$10,468,918
===========
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, 1996, Church Loans had outstanding loan commitments (by
contract amounts) of approximately $9,841,000. Church Loans has no other
financial instruments with off-balance sheet risk.
Nonaccrual mortgage loans, church bonds and interim construction loans at March
31, 1996 and 1995 were $2,769,345 and $3,405,793, respectively. Interest income
which would have been recorded under the original terms of nonaccrual loans and
church bonds amounted to approximately $310,000 and $283,000 for the years ended
March 31, 1996 and 1995, respectively. No interest income was actually
recognized.
In addition to the nonaccrual loans previously mentioned, management has doubts
as to a certain interim loan's ability to comply with present repayment terms.
Such loan had a balance of approximately $1,556,000 at March 31, 1996 and was
not classified as nonearning at that date.
-38-
<PAGE>
CHURCH LOANS & INVESTMENTS TRUST
(A REAL ESTATE INVESTMENT TRUST)
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED MARCH 31, 1996 AND 1995
NOTE 1 - MORTGAGE AND INTERIM CONSTRUCTION LOANS (CONTINUED)
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, 1996, are:
1997 ............. $11,557,673
1998 ............. 2,105,685
1999 ............. 1,890,629
2000 ............. 1,464,009
2001 ............. 1,318,325
At March 31, 1996, mortgage loans were pledged to support indebtedness of Church
Loans as follows:
Line of credit payable to bank ......... $ 9,691,421
Secured savings certificates ........... 9,424,292
-----------
TOTAL MORTGAGE LOANS PLEDGED ........... $19,115,713
===========
A summary of transactions in the allowance for possible credit losses for the
years ended March 31, 1996 and 1995 follows:
1996 1995
---- ----
BALANCE AT BEGINNING OF YEAR ................ $ 645,049 $ 563,824
Provisions charged to operating expenses .... 85,000 80,000
Charge offs, net ............................ (1,384) 1,225
---------- --------
BALANCE AT END OF YEAR ...................... $ 728,665 $645,049
========= ========
In May 1993, the Financial Accounting Standards Board (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.
At March 31, 1996, the recorded investment and the related allowance for credit
losses for loans for which impairment was recognized in accordance with
Statement No. 114 were approximately $2,300,000 and $270,000, respectively.
-39-
<PAGE>
CHURCH LOANS & INVESTMENTS TRUST
(A REAL ESTATE INVESTMENT TRUST)
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED MARCH 31, 1996 AND 1995
NOTE 2 - DEBT OBLIGATIONS
Information relating to debt obligations follows:
<TABLE>
<CAPTION>
WEIGHTED MAXIMUM WEIGHTED
AVERAGE AMOUNT AVERAGE 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, 1996
Term notes payable to banks ....... $ -- -- $ 2,666,667 $ 1,861,111 9.45%
Line of credit payable to bank .... 550,001 8.25%* 5,606,001 2,194,522 8.98%
Other demand notes payable ........ 4,006,079 7.25% 4,006,079 3,453,192 7.69%
----------- ====== =========== =========== ======
4,556,080
Secured savings certificates ...... 7,545,375 6.93% 7,545,375 6,723,844 6.67%
----------- ====== =========== =========== ======
TOTAL .................... $12,101,455 7.10% $18,523,089 $14,232,669 7.72%
=========== ====== =========== =========== ======
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% $20,368,990 $18,035,983 7.29%
=========== ====== =========== =========== ======
<FN>
* Does not consider commitment fees.
</FN>
</TABLE>
Maturities of debt for each of the three years subsequent to March 31, 1996,
are:
1997 ............ $ 7,176,063
1998 ............ 2,865,068
1999 ............ 2,060,324
-----------
$12,101,455
===========
Included in maturities for the year ended March 31, 1996 are other demand notes
payable of $4,006,079.
All debt obligations, except for other demand notes payable, are secured by the
pledge of specific mortgage notes receivable.
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.
-40-
<PAGE>
CHURCH LOANS & INVESTMENTS TRUST
(A REAL ESTATE INVESTMENT TRUST)
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED MARCH 31, 1996 AND 1995
NOTE 2 - DEBT OBLIGATIONS (CONTINUED)
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. Effective July 18, 1994, Church Loans decided not
to register and was not able to sell additional SSCs after that date. However,
during April 1995, the Board of Trust Managers decided to register $20,000,000
of SSCs on Form SB-2 and during the quarter ended December 31, 1995, such
registration was effective and SSCs were being issued.
The certificates are secured under the terms of certain indentures that require,
among other things, the pledge of mortgage notes receivable with total unpaid
principal amounts not less than 100% or 125% of the aggregate principal amount
of certain respective SSC registrations 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 ratios 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 respective Indenture. As of March 31, 1996
and 1995, Church Loans was in compliance with the requirement.
Church Loans has an agreement with Great Nation Investment Corporation (Great
Nation) whereby Great Nation will use its best efforts to sell SSCs registered
by Church Loans. The agreement provides that Church Loans will 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.
LINE OF CREDIT PAYABLE TO BANK
The line of credit payable to bank consists of borrowings under a loan agreement
effective through September 1, 1996, 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 (9.25% at March 31, 1996), of not less than
110% of all indebtedness owed to the bank. Interest accrues at the prime rate
and is payable semiannually.
Additionally, the line of credit requires 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, 1996, Church Loans' total indebtedness was approximately
$19,900,000 less than the maximum amount permitted under the agreement. The line
of credit agreement also limits demand notes payable to $4,000,000 ($2,000,000
in 1995).
-41-
<PAGE>
CHURCH LOANS & INVESTMENTS TRUST
(A REAL ESTATE INVESTMENT TRUST)
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED MARCH 31, 1996 AND 1995
NOTE 2 - DEBT OBLIGATIONS (CONTINUED)
DEMAND NOTES PAYABLE
The demand notes payable bear interest at 1% less than the prime rate (payable
monthly) and are unsecured (see note 6).
NOTE 3 - 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.
Deferred taxes were not significant to Church Loans' 1996 and 1995 financial
statements.
Total income tax expense for the years ended March 31, 1996 and 1995 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:
1996 1995
---- ----
Computed "expected" federal income tax expense . $ 835,316 $ 828,297
Increases (decreases) in taxes resulting from:
Dividends .................................. (809,355) (809,355)
Graduated rate differential ................ (11,983) (12,478)
Difference in provision for loan losses for
financial and tax purposes .............. (69,784) (70,690)
Difference in accounting for interest
recognized for financial and tax purposes 83,294 86,763
-------- -------
ACTUAL TAX EXPENSE ............................. $ 27,488 $ 22,537
========= =========
NOTE 4 - 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 each of the years ended
March 31, 1996 and 1995. There were no share equivalents or other potentially
dilutive securities outstanding during any of the periods presented.
-42-
<PAGE>
CHURCH LOANS & INVESTMENTS TRUST
(A REAL ESTATE INVESTMENT TRUST)
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED MARCH 31, 1996 AND 1995
NOTE 5 - 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, 1996
and 1995 follows:
Divdend amount
-------------------------
Date of record Date paid Per share Total
-------------- --------- --------- ----------
March 31, 1994 ............... May 1994 $.09 $ 630,666
December 31, 1994 ............... January 1995 .25 1,751,850
March 31, 1995 ............... May 1995 .08 560,592
December 31, 1995 ............... January 1996 .24 1,681,777
In April 1996, a dividend of $630,666 ($.09 per share) was declared for
stockholders of record on March 31, 1996.
NOTE 6 - RELATED PARTY TRANSACTIONS
Other demand notes payable at March 31, 1996 and 1995 included notes totaling
$1,482,250 and $706,577, 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 1996 or 1995.
Secured savings certificates at March 31, 1996 and 1995 include certificates
totaling $485,692 and $665,375, respectively, which represent liabilities to
related parties. Interest expense incurred on savings certificates of related
parties was not significant for 1996 or 1995.
NOTE 7 - DISCLOSURE ABOUT THE FAIR VALUE OF FINANCIAL
INSTRUMENTS
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments, the results of applying such methods and
assumptions to the financial instruments and limitations inherent in fair value
estimates:
CASH AND CASH EQUIVALENTS
The assets are considered short-term instruments for which the carrying amount
is a reasonable estimate of fair value.
-43-
<PAGE>
CHURCH LOANS & INVESTMENTS TRUST
(A REAL ESTATE INVESTMENT TRUST)
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED MARCH 31, 1996 AND 1995
NOTE 7 - DISCLOSURE ABOUT THE FAIR VALUE OF FINANCIAL
INSTRUMENTS (CONTINUED)
MORTGAGE LOANS, INTERIM CONSTRUCTION LOANS AND CHURCH BONDS
Fair values are estimated for portfolios of loans with similar financial
characteristics. Loans are segregated by type, such as mortgage and interim
construction loans and church bonds. Each loan category is further segmented
into fixed and adjustable rate interest terms. For variable-rate loans,
primarily interim construction loans, that reprice frequently and with no
significant change in credit risk, fair values are based on carrying amounts.
The fair value of fixed-rate mortgage loans and bonds is estimated by
discounting the future cash flows through the estimated maturity using the
current rates at which similar loans would be made to borrowers with similar
credit ratings. The estimate of maturity is based on Church Loans' historical
experience with repayments for each loan classification, modified, as required,
by an estimate of the effect of current economic and lending conditions. The
carrying value of loans, net of the allowance for loan losses was $31,804,559
and the fair value of loans was approximately $33,164,000 at March 31, 1996.
NOTES PAYABLE AND LINE OF CREDIT
The fair value of notes payable and the line of credit are equal to the carrying
value as such liabilities are deemed to be short-term borrowings.
SECURED SAVINGS CERTIFICATES
The fair value of secured savings certificates is estimated using the rates
currently offered for financial instruments of similar characteristics. At March
31, 1996, the carrying value of secured savings certificates was $7,545,375 and
the fair value of secured savings certificates was approximately $7,549,000.
COMMITMENTS TO EXTEND CREDIT
Generally, Church Loans enters into commitments to extend credit at adjustable
interest terms. Accordingly, the commitment amount is a reasonable estimate of
fair value.
LIMITATIONS
Fair value estimates are made at a specific point in time, based on relevant
market information and information about the financial instrument. These
estimates do not reflect any premium or discount that could result from offering
for sale at one time Church Loans' entire holdings of a particular financial
instrument. Because no market exists for a significant portion of Church Loans'
financial instruments, fair value estimates are based on judgments regarding
future expected loss experience, current economic conditions, risk
characteristics of various financial instruments, and other factors. These
estimates are subjective in nature and involve uncertainties and matters of
significant judgment and, therefore, cannot be determined with precision.
Changes in assumptions could significantly affect the estimates.
-44-
<PAGE>
CHURCH LOANS & INVESTMENTS TRUST
(A REAL ESTATE INVESTMENT TRUST)
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED MARCH 31, 1996 AND 1995
NOTE 8 - 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, 1996
Interest income and fees ..... $1,183,485 $1,034,747 $ 983,793 $1,005,151
Debt expense ................. 342,644 304,055 261,022 285,123
Net interest income .......... 840,841 730,692 722,771 720,028
Net income ................... 644,032 596,635 587,838 530,625
Net income per share ......... .09 .09 .08 .08
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
This information is an integral part of the accompanying financial statements.
-45-
<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 8 persons or entities. There is no underwriter involved in
such transactions and therefore no discounts or commissions paid. The date,
persons and amounts of such Demand Notes Payable for the last three years are as
follows:
DATE PERSON OR ENTITY FACE AMOUNT
- ----------------- -------------------------------------- -----------
February 9, 1996 Colonial Trust Co. FBO Kim McMorries $259,888.40
January 18, 1996 Fred and Betty Langham Trusts $114,763.68
December 28, 1995 High Plains Childrens Home Endowment $102,547.27
August 14, 1995 Colonial Trust Co. FBO Larry Brown $ 18,648.89
August 14, 1995 Colonial Trust Co. FBO Linda Kay Brown $ 12,695.05
July 3, 1995 Colonial Trust Co. FBO B.R. McMorries $253,058.81
II-1
<PAGE>
January 4, 1995 Joe L. Young $ 60,000
November 15, 1994 William K. Johnson, Trustee $ 300,000
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.
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 4 thereto.
* 13. 1996 Annual Report on Form 10-KSB405
23.
** 23.1 Consent of Clifton Gunderson P.L.L.C.--page II-5 of Registration
Statement.
** 23.2 Consent of KPMG Peat Marwick LLP - page II-6 of Registration
Statement.
** 23.3 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 POST EFFECTIVE AMENDMENT NO. 1. TO FORM SB 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 11TH DAY OF JULY, 1996.
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
- ------------------------------- ---------------------------
B.R. McMorries, Everett B. Blanton, Jr.,
Chairman of the Board of Trust Manager
Trust Managers (Principal executive officer)
Date: July ____, 1996
Date: July 11, 1996
/S/ FOY W. SHACKELFORD /S/ STEVE ROGERS
- ------------------------------- ---------------------------
Foy W. Shackelford, Steve Rogers,
Vice Chairman of the Trust Manager
Board of Trust Managers
Date: July 11, 1996
Date: July 11, 1996
/S/ LARRY BROWN
- ------------------------------- ---------------------------
Larry Brown, Jack R. Vincent,
Secretary of the Board of Trust Managers Trust Manager
Date: July ____, 1996
Date: July 11, 1996
/S/ M. KELLY ARCHER /S/ ROBERT E. MARTIN
- ------------------------------- ---------------------------
M. Kelly Archer Robert E. Martin,
(Principal financial and accounting officer) Trust Manager
Date: July 11, 1996
Date: July 11, 1996
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.
CLIFTON GUNDERSON P.L.L.C.
Amarillo, Texas
July 11, 1996
II-5
<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 11, 1996
II-6
<PAGE>
EXHIBIT INDEX
Sequential
Numbering
EXHIBIT PAGE NO.
- ------- ----------
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 Boatmen's First National Bank of Amarillo, Texas ......10.1
23.1 Consent of Clifton Gunderson P.L.L.C. - page II-5 of
Registration Statement
23.2 Consent of KPMG Peat Marwick LLP - page II-6 of
Registration Statement
July 11, 1996
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.
5.1
July 11, 1996
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.
8.1
**********************************************
LOAN AGREEMENT
BY AND BETWEEN
CHURCH LOANS & INVESTMENTS TRUST
("TRUST")
AND
BOATMEN'S FIRST NATIONAL BANK OF AMARILLO
("BANK")
DATED
SEPTEMBER 1, 1995
**********************************************
10.1
<PAGE>
AGREEMENT MADE as of September 1, 1995, 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 Agreements"). 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
10.2
<PAGE>
(1) year subsequent to the maturity date of the
Promissory Note delivered pursuant to paragraph
1.4(b).
(d) This commitment is issued in part for the purpose of
renewing and extending that credit arrangement
evidenced by the "1990 Loan Agreement," which has
been annually renewed and extended, 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.
10.3
<PAGE>
(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 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
1994 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.
10.4
<PAGE>
(a) To evidence loans made and outstanding hereunder
prior to September 1, 1995, 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
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
10.5
<PAGE>
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 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:
10.6
<PAGE>
(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.
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.
10.7
<PAGE>
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.
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
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<PAGE>
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.
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;
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<PAGE>
(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 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 Securi-
ties Act of 1933;
(g) as to such other matters incident to the transactions
contemplated by this Agreement as the Bank may
reasonably desire;
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<PAGE>
(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 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,
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<PAGE>
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 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
10.12
<PAGE>
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 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
10.13
<PAGE>
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.
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
10.14
<PAGE>
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
10.15
<PAGE>
assigned and pledged to Bank constitute an Eligible
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
10.16
<PAGE>
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 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
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<PAGE>
(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
(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:
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<PAGE>
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.
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
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<PAGE>
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 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
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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 one
certain term note in the original principal sum of $5,000,000, being dated on or
about June 1, 1992 and being due in five years from the date thereof, (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.
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.
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 Boatmen's 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.
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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.
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:
(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
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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 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 Boatmen's First National Bank of Amarillo as Boatmen's 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.
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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
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
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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 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
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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 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
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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 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
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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 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
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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: BOATMEN'S FIRST NATIONAL BANK
OF AMARILLO
By:/S/ DENNIS W. FALK
---------------------
Dennis W. Falk, Senior Vice President
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