U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [Fee Required]
For the fiscal year ended December 31, 1995
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [No Fee Required]
Commission file number: 33-26036
--------
PROPERTY SECURED INVESTMENTS, INC.
----------------------------------------------
(Name of small business issuer in its charter)
CALIFORNIA 95-4075422
------------------------ -----------------------
(State of Incorporation) (I.R.S. Employer ID #)
445 South Figueroa Street, Ste. 2600,
Los Angeles, CA 90071-1630
----------------------------------------
(Address of principal executive offices)
Issuer's telephone no.: (213) 612-7714 (Andrew K. Proctor)
Securities Registered Under Section 12(b) of the Exchange Act:
Title of Class: Common Stock
Name of each Exchange on which Registered: None
Check whether the issuer (1) filed all reports
required to be filed by Section 13 or 15(d) of the Exchange Act
during the past 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes...X... No......
Check if there is no disclosure of delinquent filers
in response to Item 405 of Regulation S-B, not contained in
this form, and no disclosure will be contained, to the best of
registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this
Form 10-KSB or any amendment to this Form 10-KSB. [ ]
State issuer's revenues for its most recent fiscal
year: $20,323.
________________________
Page 1 of 65 <PAGE>
State the aggregate market value of the voting stock
held by non-affiliates computed by reference to the price at
which the stock was sold, or the average bid and asked prices
of such stock, as of a specified date within the past 60 days.
At March 22, 1996 -- None -- Stock not traded
State the number of shares outstanding of each of the
issuer's classes of common equity, as of the latest practicable
date.
At March 22, 1996 - 176,980 shares of Common Stock,
no par value
DOCUMENTS INCORPORATED BY REFERENCE:
-----------------------------------
None.
Transitional Small Business Disclosure Format (check one):
Yes ......; No ...X...
EXHIBIT INDEX AT PAGE 23
Page 2 of 65 <PAGE>
PART I
Item 1. Description of Business
-----------------------
(a) History.
-------
Property Secured Investments, Inc. (the "Company") is
a California corporation. The Company was organized in 1986,
began operations in 1987, and elected in its 1987 Federal
Income Tax Return to be taxed as a Real Estate Investment
Trust, a REIT. The Company was formed to invest in fixed and
variable rate promissory notes ("Notes") secured by first and
second deeds of trust on real property located in Southern
California. The Company has also invested in notes which were
secured by other promissory notes. Such other promissory notes
were in all cases secured by deeds of trust and all-inclusive
trust deeds. On September 12, 1994, the Company's shareholders
approved a modification of the Company's Bylaws which had the
effect of permitting the Company to make equity investments in
real property as well as investing in Notes secured by real
property. The Company's Board of Directors has not as yet made
any investments for the Company under this policy.
The Company ceased acquiring Notes in 1991 and
shortly thereafter began to distribute the proceeds of the
Company's Note portfolio to its shareholders as payments were
received. At the Company's annual shareholders meeting for
1994, the shareholders approved a proposal to sell substan-
tially all of the Company's real estate assets. Most of the
Notes in the Company's portfolio were either sold or paid off
in the fourth quarter of 1994 or first quarter of 1995. In the
first quarter of 1995, the Company terminated the Purchase and
Sale Agreement pursuant to which the Company had disposed of
the majority of its assets, leaving it with three assets in its
portfolio, one Note and two pieces of real estate. By
terminating the Purchase and Sale Agreement, Jess Kent &
Company's right to purchase the remaining assets of the Company
was terminated.
Pursuant to a vote of shareholders at the annual
meeting held in September, 1994, the Company effected a one-
for-four reverse stock split on July 7, 1995.
In September, 1995, the Company sold one of its two
pieces of real property for net proceeds of $69,369 which were
paid in cash. The Company realized a loss of $25,899 on the
sale of such property which was acquired by foreclosure. The
property is located in Acton, California.
On December 30, 1995, the Company accepted $102,000
from the borrower under its remaining Note in full settlement
of the borrower's obligations under the Note. At the time of
such payment, $240,000 in principal and accrued interest was
due under such Note. Given the history of defaults under such
Note and the Company's junior position to a senior secured
Page 3 of 65 <PAGE>
lender, the Company accepted the borrower's payment offer which
was made in connection with a refinancing of the property
securing the Note.
The Company is marketing for sale its sole remaining
piece of real property, which is located in Inglewood,
California.
(b) Environmental Protection.
------------------------
Federal, state and local provisions relating to
environmental protection and the discharge of material into the
environment have not had any effect on the Company; the Company
does not anticipate making any capital expenditures for
environmental control.
(c) Employees.
---------
The Company has no employees.
Item 2. Description of Property
-----------------------
(a) Investment Policies.
-------------------
On September 12, 1994, the Company's shareholders
approved a modification of the Company's Bylaws which had the
effect of permitting the Company to make equity investments in
real property as well as invest in Notes secured by real
property. The Company has from its inception had the ability
to invest in other REITs or partnerships primarily engaged in
real estate investment activities. The Company may not invest
more than ten percent (10%) of its total assets in unimproved
property or Notes secured by deeds of trust on unimproved
property. This restriction may not be changed without
shareholder approval. There are no other restrictions on the
type of real estate in which the Company may invest or which
may secure the Notes the Company acquires. The Company may
invest either primarily for capital gain or for income. The
Company's Board of Directors has not as yet made any new
investments for the Company.
(b) Real Estate Owned.
-----------------
The Company's December 31, 1995 balance sheet lists
real estate held for sale in the amount of $200,000. That line
item represents a property that the Company obtained through
foreclosure on a trust deed in its Note portfolio. The
property is recorded at its estimated fair value less estimated
selling costs which is lower than cost. Costs of maintaining
such foreclosed property are expensed as incurred.
Such property consists of a two-story office building
located at 11011 Crenshaw Boulevard in Inglewood, California,
that has recently been repaired following a fire and which is
currently uninsured. The property is located in an
Page 4 of 65 <PAGE>
economically disadvantaged, inner-city area with a high level
of commercial vacancies. The property is currently vacant.
The Company is currently marketing it for sale.
Item 3. Legal Proceedings
-----------------
There are no material legal proceedings pending
against the Company. In the third quarter of 1995, the Company
prevailed in its unlawful detainer action with respect to the
Crenshaw Boulevard property and obtained possession of such
property. The Company filed a declaratory relief action on
October 11, 1994 in the California Superior Court for the
County of Los Angeles to recover approximately $57,000 in
insurance proceeds resulting from a fire which damaged the
Inglewood property in 1992. The insurance carrier, Crusader
Insurance Company, made its check payable not only to the
Company but also to the former owner of the property and
several former lienholders on the property and has refused to
reissue the check in the Company's name alone without an
assignment from each of the other payees or appropriate court
order. The Company has been unable to locate the other payees.
As a result, it was compelled to file an action for declaratory
relief to confirm the Company's right to the insurance
proceeds.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
The Company did not submit any matters to a vote of
its security holders during the fourth quarter of 1995.
Page 5 of 65 <PAGE>
PART II
Item 5. Market for Common Equity and Related Stockholder
Matters
------------------------------------------------
As of March 22, 1996, the Company's common stock was
held by approximately 200 shareholders of record. There is no
established public trading market for that stock.
There are no outstanding options or warrants to
purchase shares of the Company's common stock issued by the
Company, and there are no outstanding securities convertible
into shares of the Company's common stock.
The Company has declared the following dividends on
shares of stock during the two most recent fiscal years.
Declaration Date Dividend Per Share Amount
---------------- ------------------ --------
March 21, 1994 $0.10 $ 70,792
December 7, 1994 $1.40 $991,085
During 1994, all of the distributions made by the
Company represented a return of capital.
FUTURE DIVIDEND POLICY
----------------------
Future distributions, if any, and the timing and
amount of such distributions by the Company will depend upon
its operating expenses, cash flow from the sale of its
remaining real estate asset and, if determined to be a viable
alternative by the Board of Directors, its capital needs in
connection with a recapitalization, as well as the proceeds of
any such recapitalization.
Item 6. Management's Discussion and Analysis of Financial
Condition and Results of Operations
-------------------------------------------------
(a) Liquidity.
---------
The liquidity of the Company is a function of:
(i) its collections of the principal and interest from its Note
portfolio, (ii) proceeds from the sale of assets, (iii) its
operating expenses and (iv) dividends declared. During the
fourth quarter of 1995, the Company sold one of its two
remaining pieces of real property and received an early payoff
on its sole remaining Note. The Company is marketing for sale
its sole remaining real property asset. The Company's Board of
Directors is currently exploring opportunities for
recapitalizing the Company through, among other things, a
public or private offering of the Company's common stock. If
the Company is not successful in raising new capital to fund
its operations in 1996, the Company will be dependent upon its
Page 6 of 65 <PAGE>
reserves and its ability to sell or otherwise liquidate its
remaining real property to meet its cash requirements.
At December 31, 1995, the Company had cash of
$262,055. The cash held by the Company at year end was in
excess of the amount required under Company policy to be held
in cash reserves. Company policy requires it to maintain cash
reserves of at least 3% of its net asset value. At
December 31, 1995, the net asset value (Shareholders' Equity)
was $436,868.
(b) Capital Resources.
-----------------
The Company has no plans or commitments for any
future capital expenditures.
(c) Results of Operations.
---------------------
The Company's income in 1995 decreased to $20,323
from $215,946 in 1994, a decrease of $195,621, primarily as the
result of the reduction in interest earned on the Company's
Note portfolio of $151,821 which resulted from the liquidation
of that portfolio. Expenses in 1995 decreased to $304,781 from
$457,627 in 1994, a decrease of $152,846, primarily as a result
of a $201,730 decrease in operating expenses resulting
primarily from a decrease in non-recurring legal fees and costs
relating to the sale of the Company's assets. Such decrease in
operating expenses was partially offset by increases in the
provisions for losses on notes receivable and real estate of
$26,787 and $22,097, respectively, over 1994. In 1995, the
Company realized a net loss of $132,008 upon the sale of Notes
receivable. The Company also realized a net loss of $25,899 on
the sale of real property located in Acton, California. Such
factors resulted in a net loss for 1995 of $310,357 compared to
a net loss of $691,055 in 1994. The Company's total operating
expenses exceeded both two percent (2%) of the Company's
average invested assets and twenty-five percent (25%) of its
net income for 1995. The Company's independent directors have
determined that the Company's operating expenses for 1995 were
justified in light of the continued liquidation of its assets.
The Company's Board of Directors is exploring the
Company's prospects for raising new capital and the
opportunities currently available for investment in real estate
structured either as equity or secured debt. If the Board
determines that it is in the best interests of the Company and
its shareholders to raise new capital for further investment,
it is not currently possible to project the overall effect of
such activities on the Company's net income for 1996. If the
Board does not decide to raise new capital and resume
investment activities, it will seek to sell or otherwise
liquidate the Company's remaining asset and distribute the
proceeds of such liquidation and all of the Company's reserves,
after the payment of expenses, to the Company's shareholders.
Page 7 of 65 <PAGE>
The Company does not expect inflation to be a
material factor in its operations in 1996.
Item 7. Financial Statements and Supplemental Data
------------------------------------------
The following financial statements are furnished as
part of this report:
(a) Balance Sheet as of December 31, 1995;
(b) Statements of Operations for the years ended
December 31, 1995 and 1994;
(c) Statements of Stockholders' Equity for the years
ended December 31, 1995 and 1994;
(d) Statements of Cash Flows for the years ended
December 31, 1995 and 1994;
(e) Notes to Financial Statements; and
(f) Independent Auditor's Report.
Item 8. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
------------------------------------------------
Not applicable.
Page 8 of 65 <PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of
Property Secured Investments, Inc.:
We have audited the accompanying balance sheet of Property
Secured Investments, Inc. (the "Company") as of December 31,
1995 and the related statements of operations, stockholders'
equity and cash flows for each of the two years in the period
ended December 31, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility
is to express an opinion on the financial statements based on
our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform our audits to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used
and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such financial statements present fairly, in
all material respects, the financial position of the Company as
of December 31, 1995, and the results of its operations and
its cash flows for each of the two years in the period ended
December 31, 1995, in conformity with generally accepted
accounting principles.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
Los Angeles, California
March 18, 1996
Page 9 of 65 <PAGE>
Property Secured Investments, Inc.
BALANCE SHEET
December 31, 1995
ASSETS
Cash $ 262,055
Real estate held for sale 200,000
---------
$ 462,055
=========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accrued expenses and other liabilities $ 25,187
---------
Stockholders' Equity
Common stock, 20,000,000 shares
authorized, 176,980 shares issued
and outstanding 6,298,479
Additional paid-in capital 2,970
Distributions in excess of earnings (5,864,581)
---------
Total Stockholders' Equity 436,868
---------
$ 462,055
=========
The accompanying notes are an integral part
of these financial statements
Page 10 of 65 <PAGE>
Property Secured Investments, Inc.
STATEMENTS OF OPERATIONS
For the years ended December 31, 1995 and 1994
1995 1994
Income
Interest $ 11,440 $ 163,261
Loan origination fees 8,163 50,103
Other 720 2,582
------- -------
Total income 20,323 215,946
Expenses
Operating 150,676 352,406
Provision for losses on notes
receivable 132,008 105,221
Provision for losses on real estate 22,097 -
------- -------
Total expenses 304,781 457,627
------- -------
Net loss before loss on sale of
notes receivable and real estate (284,458) (241,681)
Loss on sale of notes receivable -
related party (note 2) (446,678)
Loss on sale of real estate (25,899) (2,696)
------- -------
Net loss $(310,357) $(691,055)
======= =======
Per common share information:
Net loss $ (1.75) $ (3.90)
======= =======
Return of capital dividends $ 0.00 $ 6.00
======= =======
Weighted average number of shares
outstanding 176,980 176,980
======= =======
The accompanying notes are an integral part
of these financial statements
Page 11 of 65 <PAGE>
<TABLE>
Property Secured Investments, Inc.
STATEMENTS OF STOCKHOLDERS' EQUITY
For the years ended December 31, 1995 and 1994
<CAPTION>
Common Stock Additional Distributions
------------------- Paid-In In Excess
Shares Amount Capital of Earnings Total
------- --------- ------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Balance,
January 1, 1994 176,980 $6,298,479 $ 2,970 $(3,801,292) $2,500,157
Net loss (691,055) (691,055)
Dividends (1,061,877) (1,061,877)
------- --------- ------ --------- ---------
Balance,
December 31, 1994 176,980 6,298,479 2,970 (5,554,224) 747,225
Net loss (310,357) (310,357)
------- --------- ------ --------- ---------
Balance,
December 31, 1995 176,980 $6,298,479 $ 2,970 $(5,864,581) $ 436,868
======= ========= ====== ========= =========
</TABLE>
The accompanying notes are an integral part
of these financial statements
Page 12 of 65 <PAGE>
Property Secured Investments, Inc.
STATEMENTS OF CASH FLOWS
For the years ended December 31, 1995 and 1994
1995 1994
-------- --------
Cash flows from operating activities:
Interest received $ 13,936 $ 193,042
Operating expenses paid (160,528) (363,667)
Other income received 720 2,582
-------- ---------
Net cash used in operating activities (145,872) (168,043)
Cash flows from investing activities:
Principal payments received on
notes receivable 168,235 442,049
Proceeds from sale of notes receivable 728,309
Proceeds from sale of real estate 69,369 303,797
-------- ---------
Net cash provided by investing activities 237,604 1,474,155
Cash flows from financing activities:
Cash distributions to stockholders (1,486,628)
Payments on trust deed note payable (137,530)
-------- ---------
Net cash used in financing activities (1,624,158)
-------- ---------
Net increase (decrease) in cash 91,732 (318,046)
Cash, beginning of year 170,323 488,369
-------- ---------
Cash, end of year $ 262,055 $ 170,323
======== =========
Cash flows from operating activities:
Net loss $(310,357) $ (691,055)
Adjustments to reconcile net loss
to net cash used in operating
activities:
Loss on sale of notes receivable 446,678
Loss on sale of real estate 25,899 2,696
Amortization of loan fees (8,163) (50,103)
Provision for losses on notes
receivable and real estate 154,105 105,221
Decrease in accrued interest
receivable 2,496 29,781
Decrease in accrued expenses and
other liabilities (9,852) (11,261)
-------- ---------
Net cash used in operating activities $(145,872) $(168,043)
======== =========
The accompanying notes are an integral part
of these financial statements
Page 13 of 65 <PAGE>
NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Organization
------------
Property Secured Investments, Inc. (the "Company" or "PSI")
was incorporated in 1986 and began operations in 1987. The
Company has elected to be taxed as a Real Estate Investment
Trust ("REIT"). The Company had investments in promissory
notes collateralized principally by deeds of trust on
California real property. In 1994, the Company obtained
stockholder approval to convert to a perpetual life REIT.
Estimates
---------
In preparing financial statements in conformity with
generally accepted auditing principles, management makes
estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosures of contingent
assets and liabilities at the date of the financial
statements, as well as the reported amounts of revenues and
expenses during the reporting period. Actual results could
differ from those estimates.
Real Estate
-----------
Real Estate represents one property that the Company has
obtained through foreclosure on a trust deed that was in its
portfolio and is held for sale. The property is recorded at
its estimated fair value less estimated selling costs which
is lower than cost. Costs of maintaining the foreclosed
property and preparing it for sale are expensed as incurred.
The property is located in Inglewood, California.
Federal Income Taxes
--------------------
The Company qualifies as a REIT under the Internal Revenue
Code and, accordingly, is not subject to Federal income
taxes on amounts distributed to stockholders, providing it
distributes at least 95% of its taxable income and meets
certain other conditions. The Company believes that it has
met the requirements for continued qualification as a REIT
for the years ended December 31, 1994 and 1995.
Cash dividends paid or accrued to stockholders for Federal
income tax purposes amounted to $1,061,877 for the year
ended December 31, 1994. These dividends were a return of
capital to the stockholders.
Net Loss Per Share
------------------
Net loss per share is based on the weighted average number
of common shares outstanding.
Page 14 of 65 <PAGE>
Stock Split
-----------
In July 1995, the Company effected a one-for-four reverse
stock split of its common stock. Pursuant to the terms of
such stock split, in lieu of the issuance of any fractional
shares that would otherwise result from the reverse stock
split, the Company shall issue one additional share of
common stock. Note that the 176,980 outstanding share
balance is subject to adjustments based on the actual 1 for
4 reverse split calculation of each individual account, with
the fractional share interest rounded up to the next full
share. The common stock outstanding and weighted average
shares outstanding for all periods presented have been
adjusted to reflect this stock split.
NOTE 2 - RELATED PARTY TRANSACTIONS
In 1995, certain expenses in the amount of $54,514 were
incurred on behalf of the Company by an officer and were
reimbursed by the Company.
On September 12, 1994, the Company entered into an agreement
to sell substantially all of its notes receivable and real
estate portfolio. The sale price was $728,309, which
resulted in a $446,678 loss. The notes and real estate
portfolio were sold to a company owned by the current
president and member of the board of directors of the
Company, which was pursuant to an agreement approved by the
board of directors and stockholders of the Company prior to
this individual becoming an officer and a member of the
board of directors of the Company. The agreement was
terminated by agreement of the parties effective as of March
17, 1995. By terminating the agreement, Jess Kent &
Company's right to purchase the remaining assets of the
Company was terminated.
Page 15 of 65 <PAGE>
PART III
Item 9. Directors, Executive Officers, Promoters and Control
Persons; Compliance with Section 16(a) of the Exchange
Act
------------------------------------------------------
Directors
---------
The Company currently has four directors: David A.
Hilliard, Elbert R. Lewis, Andrew K. Proctor and Hubert
Scheffy, Jr. The Company's directors voted to approve a
reduction of the number of directors from nine to five. There is
currently one vacancy on the Board. The entire Board of
Directors is elected on an annual basis.
Elbert R. Lewis - Age: 85
---------------
Mr. Lewis served as an independent director of the
Company from June of 1986 to March of 1992. He is currently
serving as a member of the Board of Directors and Secretary of
the Company. He succeeded Irving Kellogg as Chairman of the
Board of the Company on March 24, 1994, a position he held until
September 26, 1994. Between March 19, 1992 and April 12, 1994,
Mr. Lewis served as the Treasurer of the Company, and from
April 12, 1994 to September 26, 1994, he was President. From
1960 to his retirement in 1975, Mr. Lewis served as the Senior in
Charge of the Condemnations Section, Los Angeles District,
California Division of Highways. He was responsible for hiring
outside appraisers where required for litigation and for
reviewing appraisals by the City of Los Angeles where the city
sought state approval of city applications for federal funding.
Andrew K. Proctor - Age: 39
-----------------
Mr. Proctor was elected to the Board of Directors at
the Company's Annual Meeting on September 12, 1994 and is
currently serving as a member of the Board of Directors,
President and Treasurer. Mr. Proctor is the Chief Executive
Officer and sole shareholder of Jess Kent & Company ("JK&CO") and
is the Managing Principal of its wholly-owned investment banking
subsidiary, Jess Kent Capital Markets, Inc., a SEC registered
broker/dealer and member of the National Association of
Securities Dealers, Inc. In 1994, the Company entered into that
certain Purchase and Sale Agreement as of August 31, 1994 and
amended September 12, 1994 ("Purchase Agreement") with JK&CO
pursuant to which JK&CO purchased most of the Company's real
estate assets for a total purchase price paid of $703,308. The
Purchase Agreement was terminated by agreement of JK&CO and the
Company effective as of March 17, 1995. JK&CO's principal
offices are located at 445 South Figueroa Street, Suite 2600, Los
Angeles, California, the same location as the Company's principal
offices. Mr. Proctor has managed JK&CO since 1990. He is a
graduate economist with a B.A. from the University of Southern
California, an M.A. from the Peter F. Drucker Graduate Management
Center at the Claremont Graduate School, and an M.B.A. from the
Page 16 of 65 <PAGE>
Anderson Graduate School of Management at UCLA. From 1986 to
1990, Mr. Proctor was a Vice President of Dominick & Dominick,
Incorporated, a New York Stock Exchange member firm, where he was
responsible for managing the western U.S. and Pacific Rim
corporate finance group. From 1979 to 1986, Mr. Proctor held
various investment banking positions with New York Stock Exchange
member firms. He serves as Chairman of the Alumni Advisory
Council at the Peter F. Drucker Graduate Management Center at the
Claremont Graduate School.
David A. Hilliard - Age: 44
-----------------
Mr. Hilliard was elected to the Board of Directors as
an independent director at the Company's Annual Meeting on
September 12, 1994 and was appointed chairman of the Investment
Committee on September 26, 1994. He is the Principal of Hilliard
Properties, an institutional real estate advisory and development
firm he founded in 1988. Mr. Hilliard received a B.A. in
Economics from Carnegie Mellon University, and a M.M. from the
Kellogg School of Management at Northwestern University.
Mr. Hilliard began his banking and real estate career at
Manufacturers Bank in 1970, where he eventually became an
Assistant Vice President in the Bank's commercial construction
group from 1976 to 1981. In 1981 Mr. Hilliard joined Security
Pacific National Bank. At Security Pacific, he served as First
Vice President and Regional Manager in the Real Estate Industries
Group. He subsequently founded Hilliard Properties in 1988.
Mr. Hilliard currently serves as the President of Sonhill, Inc.,
a private property management company which manages the assets of
Prairie Properties, a California limited partnership. He is the
President of Armacost Construction Corporation, the Treasurer of
AJIA Consulting Group, Inc., a Director of Wolff Sesnon Buttery,
and a Vice President of Maritz, Wolff and Company, all of which
are real estate development and investment businesses.
Hubert Scheffy, Jr. - Age: 55
-------------------
Mr. Scheffy was elected to the Board of Directors as an
independent director at the Company's Annual Meeting on
September 12, 1994, and was appointed chairman of the Company's
Compensation/Audit Committee on September 26, 1994. Mr. Scheffy
is the Vice-President/Controller of Lewis Homes Management Corp.,
a position he has held since 1985. Mr. Scheffy received a B.A.
from Harvard College, an M.B.A. from the Harvard Business School,
and an AEMBA from the Peter F. Drucker Graduate Management Center
at the Claremont Graduate School. He became a Certified Public
Accountant in 1965 while associated with Arthur Anderson & Co.
From 1970 to 1985, Mr. Scheffy held various financial and
managerial positions with companies engaged in the mortgage
lending, real estate, and manufacturing industries.
Messrs. Proctor, Hilliard and Scheffy did not file a
Form 3 with the Securities and Exchange Commission or the Company
when they became directors and/or officers of the Company in
1994. Such Form 3s have subsequently been filed with the
Securities and Exchange Commission and the Company. To the
Page 17 of 65 <PAGE>
knowledge of the Company, based upon its review of such Forms,
none of such individuals have ever owned any securities of the
Company.
Executive Officers
------------------
Mr. Lewis served as the Treasurer of the Company
between March 19, 1992 and April 12, 1994, as President from
April 12, 1994 to September 26, 1994 and as Secretary from
September 26, 1994 to the present. Mr. Proctor has served as the
President and Treasurer of the Company since September 26, 1994.
The officers of the Company serve at the pleasure of
the Board of Directors and may be removed from office at any
time. The Board of Directors generally considers the status of
the officers at the organizational meeting of the Board following
each annual meeting of Shareholders. There are no family
relations between any director or executive officer of the
company.
Item 10. Executive Compensation
----------------------
The Company's directors received no compensation during
1995 and are not currently receiving any compensation.
The following table shows, for the fiscal years ending
December 31, 1995, 1994, and 1993, the compensation (Director's
fees) paid by the Company to its executive officers for those
years:
Page 18 of 65 <PAGE>
<TABLE>
SUMMARY COMPENSATION TABLE
<CAPTION>
Name and
Principal Long Term All Other
Position Year Salary Bonus Other Compensation Compensation
----------------- ---- ------ ----- ----- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Andrew K. Proctor 1995 -0- -0- -0- -0- -0-
President and 1994 -0- -0- -0- -0- -0-
Treasurer 1993 N/A N/A N/A N/A N/A
Elbert R. Lewis 1995 -0- -0- -0- -0- -0-
Secretary 1994 -0- -0- $11,000 -0- -0-
1993 -0- -0- $12,000 -0- -0-
</TABLE>
No director or officer of the Company received any compensation for
services rendered to the Company in 1995, and no directors other than
those listed received compensation for services rendered to the
Company in 1994.
Page 19 of 65 <PAGE>
Item 11. Security Ownership of Certain Beneficial Owners and
Management
---------------------------------------------------
OWNERSHIP OF PRINCIPAL SHAREHOLDERS AND MANAGEMENT
The following table sets forth certain information, as of
March 22, 1996, with respect to all those known by the Company to
be beneficial owners of more than five percent (5%) of its outstanding
stock, directors, and directors and officers of the Company as a
group. All share numbers reflect the Company's one-for-four reverse
stock split effected on July 7, 1995.
Name and Address Amount and Nature Percent
Title of of Beneficial of Beneficial of
Class Owner Ownership <F*> Class
------- ---------------- ----------------- -------
Common The Irving Kellogg 11,200 shares 6.4%
stock Individual Retirement Evelyn Kellogg,
Account Beneficiary
821 Monte Leon Drive
Beverly Hills, CA 90210
Common The Evelyn & Irving Kellogg 2,200 shares 1.2%
stock Foundation, Inc., Evelyn Kellogg,
A Nonprofit Corporation Director
821 Monte Leon Drive
Beverly Hills, CA 90210
Common Elbert R. Lewis 50 shares <F**>%
stock 410 North Citrus Avenue
Los Angeles, CA 90036
Common All directors and 50 shares <F***> <F**>%
stock officers as a group
[FN]
<F*> Except as noted, the persons named in the table have sole
voting power and investment power with respect to all shares
of common stock shown as beneficially owned by them subject
to community property laws where applicable.
<F**> The percentage of shares beneficially owned is less than 1%
of the shares outstanding.
<F***> Comprised of the shares listed as owned by Elbert R. Lewis
in this table.
Item 12. Certain Relationships and Related Transactions
----------------------------------------------
See discussion in Item 1(a) and Item 9 under the description
of Andrew K. Proctor.
Page 20 of 65 <PAGE>
Item 13. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
--------
No. Description
---- -----------
3.1 Articles of Incorporation of Property Secured Investments,
Inc., as amended
3.2 Restated Bylaws of Property Secured Investments, Inc.
27 Financial Data Schedule
(b) No Form 8-K was filed during the fourth quarter of the
fiscal year ended December 31, 1995.
Page 21 of 65 <PAGE>
SIGNATURES
In accordance with section 13 or 15(d) of the Exchange Act,
the registrant caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PROPERTY SECURED INVESTMENTS, INC.
----------------------------------
By: /s/ Andrew K. Proctor Dated: March 29, 1996
--------------------------------
Andrew K. Proctor, President &
Treasurer
In accordance with the Exchange Act, this report has been
signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
By /s/ Andrew K. Proctor Dated: March 29, 1996
--------------------------------
Andrew K. Proctor, President
(principal executive officer),
Treasurer (principal financial
officer and principal accounting
officer) and Director
By /s/ Hubert Scheffy Dated: March 28, 1996
--------------------------------
Hubert Scheffy, Jr., Director
By /s/ David Hilliard Dated: March 26, 1996
--------------------------------
David Hilliard, Director
By /s/ Elbert Lewis Dated: March 22, 1996
--------------------------------
Elbert Lewis, Director
Page 22 of 65 <PAGE>
EXHIBIT INDEX
-------------
No. Description Page
------ ----------- ----
3.1 Articles of Incorporation of Property
Secured Investments, Inc., as amended 24
3.2 Restated Bylaws of Property Secured
Investments, Inc. 30
27 Financial Data Schedule 65
Page 23 of 65 <PAGE>
EXHIBIT 3.1
-----------
ARTICLES OF INCORPORATION
OF
PROPERTY SECURED INVESTMENTS, INC.
I
The name of this corporation is PROPERTY SECURED
INVESTMENTS, INC.
II
The purpose of this corporation is to engage in any lawful
act or activity for which a corporation may be organized under
the General Corporation Law of California other than the
banking business, the trust company business or the practice of
a profession permitted to be incorporated by the California
Corporations Code.
III
The name and address in the State of California of this
corporation's initial agent for service of process is:
Mr. Stanley Glickman, 14724 Ventura Boulevard, Suite 918,
Sherman Oaks, California 91403.
IV
This corporation is authorized to issue only one class of
shares of stock; and the total number of shares which this
corporation is authorized to issue is five million (5,000,000).
This corporation may not issue: (1) securities which are
nonvoting or assessable, (2) securities which are redeemable at
the option of the holders, or (3) warrants, options or similar
evidences of a right to buy its securities, unless (a) issued
to all of its shareholders ratably, (b) as part of a financing
arrangement or (c) as part of a stock option plan to directors,
officers or employees of this corporation which meets the
conditions of Section 260.140.41 (or any successor section) of
the Rules of the California Corporations Commissioner.
V
These articles may not be amended unless approved by the
vote or written consent of the holders of a majority of the
outstanding shares of this corporation; no amendment which
would change any rights with respect to any outstanding
securities of this corporation by reducing the amount payable
-1-
Page 24 of 65 <PAGE>
thereon upon liquidation of this corporation, or by diminishing
or eliminating any voting rights pertaining thereto, may be
made unless also approved by the vote of the holders of two-
thirds of the outstanding securities so affected.
VI
The existence of this corporation is limited to May 1,
2006.
Dated: March 6, 1986.
/s/ STANLEY GLICKMAN
---------------------------------
STANLEY GLICKMAN
Incorporator
-2-
Page 25 of 65 <PAGE>
CERTIFICATE OF AMENDMENT
OF
ARTICLES OF INCORPORATION
STANLEY GLICKMAN and ELLIOT FINE certify that:
1. They are the President and the Secretary,
respectively, of PROPERTY SECURED INVESTMENTS, INC., a
California corporation.
2. The Board of Directors of PROPERTY SECURED
INVESTMENTS, INC. has approved the amendment of Article IV of
the Articles of Incorporation of this corporation to read as
follows:
"This corporation is authorized to issue only
one class of shares of stock; and the total number of
shares which this corporation is authorized to issue
is Ten Million (10,000,000). Upon the amendment of
this Article to read as herein set forth, each
outstanding share is split up and converted into two
(2) shares.
This corporation may not issue: (1) securities
which are nonvoting or assessable, (2) securities
which are redeemable at the option of the holders, or
(3) warrants, options or similar evidences of a right
to buy its securities, unless (a) issued to all of
its shareholders ratably, (b) as part of a financing
arrangement or (c) as part of a stock option plan to
directors, officers or employees of this corporation
which meets the conditions of Section 260.140.41 (or
any successor section) of the Rules of the California
Corporations Commissioner."
3. The corporation has only one class of shares
outstanding. The amendment affects only a stock split, as that
term is defined in Section 188 of the California Corporations
Code, and is therefore an amendment which may be adopted by the
Board alone pursuant to Section 902(c) of the California
Corporations Code.
Dated: January 30, 1989 /s/ Stanley Glickman
---------------------------------
Stanley Glickman, President
/s/ Elliot Fine
---------------------------------
Elliot Fine, Secretary
-1-
Page 26 of 65 <PAGE>
We further declare under penalty of perjury under the
laws of the State of California that the matters set forth in
this Certificate are true and correct of our own knowledge.
Dated: January 30, 1989 /s/ Stanley Glickman
---------------------------------
Stanley Glickman, President
/s/ Elliot Fine
---------------------------------
Elliot Fine, Secretary
-2-
Page 27 of 65 <PAGE>
CERTIFICATE OF AMENDMENT
OF
ARTICLES OF INCORPORATION
ANDREW K. PROCTOR and ELBERT R. LEWIS certify that:
1. They are the president and the secretary, respec-
tively, of PROPERTY SECURED INVESTMENTS, INC., a
California corporation.
2. Article IV of the articles of incorporation of this
corporation is amended to read as follows:
"This corporation is authorized to issue only one
class of shares of stock; and the total number of
shares which this corporation is authorized to issue
is Twenty Million (20,000,000). Upon the amendment
of this Article to read as herein set forth, each
outstanding share will be changed into one-fourth
(1/4) of one share. In lieu of the issuance of any
fractional shares that would otherwise result from
the reverse stock split effected by the preceding
sentence, the corporation shall issue to any
shareholder that would otherwise receive fractional
shares one additional share.
This corporation may not issue: (1) securities which
are nonvoting or assessable, (2) securities which are
redeemable at the option of the holders, or (3)
warrants, options or similar evidences of a right to
buy its securities, unless (a) issued to all of its
shareholders ratably, (b) as part of a financing
arrangement or (c) as part of a stock option plan to
directors, officers or employees of this corporation
which meets the conditions of Section 260.140.41 (or
any successor section) of the Rules of the California
Corporations Commissioner."
3. Article VI of the articles of incorporation of this
Corporation is deleted in its entirety.
4. The foregoing amendments of articles of incorporation
have been duly approved by the board of directors.
5. The foregoing amendments of articles of incorporation
have been duly approved by the required vote of
shareholders in accordance with Section 902 of the
Corporations Code. The total number of outstanding
-1-
Page 28 of 65 <PAGE>
shares of the corporation is 707,918. The number of
shares voting in favor of the amendment equaled or
exceeded the vote required. The percentage vote
required was more than 50%.
We further declare under penalty of perjury under the
laws of the State of California that the matters set forth in
this certificate are true and correct of our own knowledge.
Date: June 30, 1995
/s/ Andrew K. Proctor
--------------------------------------
Andrew K. Proctor, President
/s/ Elbert R. Lewis
--------------------------------------
Elbert R. Lewis, Secretary
-2-
Page 29 of 65 <PAGE>
EXHIBIT 3.2
-----------
RESTATED
BYLAWS
OF
PROPERTY SECURED INVESTMENTS, INC.
(A California Corporation)
ARTICLE I.
OFFICES, PURPOSES AND POWERS
----------------------------
Section 1. PRINCIPAL OFFICE. The Board of Directors
shall fix the location of the principal executive office of the
corporation at any place within or outside the State of
California. If the principal executive office is located outside
this state, and the corporation has one or more business offices
in this state, the Board of Directors shall likewise fix and
designate a principal business office in the State of California.
Unless and until redesignated by resolution of the Board of
Directors, the principal executive office of the corporation
shall be within the County of Los Angeles.
Section 2. OTHER OFFICES. The Board of Directors may
at any time establish branch or subordinate offices at any place
or places where the corporation is qualified to do business.
Section 3. PURPOSES AND POWERS. The corporation shall
have such general purposes as are now or may hereafter be set
forth in the articles of incorporation and shall have and
exercise such powers in furtherance of its purposes as are now or
may hereafter be set forth in the articles of incorporation and
in these bylaws.
The specific purpose of the corporation is to invest in
fixed and variable rate promissory notes secured by deeds of
trust on improved and unimproved California real property in
order to provide its shareholders with as high a level of current
income as is consistent with the preservation of capital. The
corporation also may invest in participating mortgages or deeds
of trust (providing equity or interest enhancements) and in
promissory notes which are themselves secured by other promissory
notes which are secured by deeds of trust on improved and
unimproved California real property. The corporation will invest
in promissory notes by making loans directly to borrowers and by
purchasing existing promissory notes at discounts. For
administrative and liquidity purposes, the corporation will
regularly hold some portion of its net assets in certain money
market instruments on which it will receive additional interest
income.
When engaging in activities related to its general or
specific purposes, the corporation shall abide by the following
restrictions on its investments. The corporation shall not:
-1-
Page 30 of 65 <PAGE>
(1) Invest in commodities or commodity futures
contracts.
(2) Make short sales of securities.
(3) Borrow money on an unsecured basis if such
borrowing will result in an asset coverage of less than
300%. "Asset coverage" as used herein means the ratio which
the value of the total assets of the corporation, less all
liabilities and indebtedness except indebtedness for
unsecured borrowings, bears to the aggregate amount of all
unsecured borrowings of the corporation. If, for any
reason, the aggregate amount borrowed by the corporation at
any time results in an asset coverage of less than 300%, the
corporation will, within three business days, reduce its
borrowings below that percentage.
(4) Engage in the underwriting of securities of
other issuers or the agency distribution of securities.
(5) Invest in contracts for the sale of real
estate, other than the promissory notes and certain equity
or interest enhancements described above.
(6) Engage in trading, as compared with
investment activities.
(7) Acquire securities in any company holding
investments or engaging in activities prohibited by
Section 260.140.93 of the California Corporate Securities
Rules.
(8) Issue debt or other senior securities.
(9) Offer securities on a deferred payment or
other similar basis.
(10) Repurchase or otherwise reacquire its shares
or other securities.
(11) Invest more than 10% of its total assets in
unimproved real property or indebtedness secured by a deed
of trust or mortgage loans on unimproved real property.
(12) Incur any indebtedness which would result in
an aggregate amount of indebtedness in excess of 300% of the
adjusted net worth. "Adjusted net worth" as used herein
shall mean the amount obtained by subtracting the
corporation's total liabilities from its total assets as
adjusted. The total asset figure used shall be calculated
by deduction of any reasonable cash reserves but before
provision for depreciation or non-cash reserves. All
-2-
Page 31 of 65 <PAGE>
figures used shall be as shown on the corporation's books in
accordance with generally accepted accounting principles.
(13) Elect to terminate the status of the Company
as a "Real Estate Investment Trust" as defined in
sections 856 through 860 of the Internal Revenue Code or
engage in a course of activities causing revocation of such
status.
(14) Invest in a promissory note secured by a
deed of trust unless an appraisal is obtained on the
underlying property and all notes secured by deeds of trust,
including construction loans, on such property do not exceed
in the aggregate 85% of the appraised value of the property,
unless substantial justification exists because of the
presence of other underwriting criteria such as the net
worth of the borrower, the credit rating of the borrower
based on his historical financial performance, other
collateral, or the assignment of rents under a lease to the
property where a tenant or tenants have demonstrated through
historical net worth and cash flow the ability to satisfy
the terms of the lease.
(15) Invest in any promissory note secured by a
deed of trust unless a mortgagee's or owner's title
insurance policy or commitment as to the priority of such
deed of trust or the condition of the title is first
obtained.
(16) Invest in any promissory note secured by a
deed of trust that is subordinate to any deed of trust or
equity interest of the Advisor, any director or any other
Affiliate of the corporation.
(17) Issue options or warrants to purchase its
shares to Property Mortgage Co., Inc., the Advisor, any
director or any other Affiliate of the corporation except on
the same terms as such options or warrants are sold to the
general public and then not in an amount greater than 10% of
the outstanding shares of the corporation on the date of
grant of any such options or warrants.
(18) Issue options or warrants to purchase the
corporation's shares at exercise prices less than the fair
market value of such securities on the date of grant or for
consideration (which may include services) that in the
judgment of the Independent Directors has a market value
less than the value of such option or warrants on the date
of grant.
(19) Invest in the equity securities of any
issuer affiliated with Property Mortgage Co., Inc., the
-3-
Page 32 of 65 <PAGE>
Advisor or a director or an Affiliate thereof unless a
majority of the Directors (including a majority of the
Independent Directors) not otherwise interested in such
transaction approve the transaction as being fair and
reasonable to the corporation and such investment is on,
substantially the same terms and conditions as those
received by other investors in such issuer.
The term "Advisor" means any person or persons
responsible for directing or performing the day-to-day business
affairs of the corporation.
The term "Affiliate" means (i) any person directly or
indirectly controlling, controlled by or under common control
with another person, (ii) any person owning or controlling 10% or
more of the outstanding voting securities or beneficial
interests of such other person, (iii) any officer, director,
trustee or general partner of such person and (iv) if such other
person is an officer, director, trustee. or partner of another
entity, then the entity for which that person acts in any such
capacity.
The term "Independent Director" shall mean a director
of the corporation who is not affiliated, directly or indirectly,
with an Advisor to the corporation, whether by ownership of,
ownership interest in, employment by, any material business or
professional relationship with, or serves as an officer or
director of, the Advisor or any affiliated business entity of the
Advisor. A director shall not be considered independent if he or
she is serving as a director for more than three real estate
investment trusts organized by Property Mortgage Co., Inc. No
director shall be independent if he or she performs other
services for the corporation, except as a director. An indirect
relationship shall include circumstances in which a member of the
immediate family of a director has one of the foregoing
relationships with an Advisor to the corporation or the
corporation. A director's immediate family shall include such
person's spouse, parents, children, siblings, mothers and
fathers-in-law, sons- and daughters-in-law, and brothers and
sisters-in-law.
ARTICLE II
MEETINGS OF SHAREHOLDERS
------------------------
Section 1. PLACE OF MEETINGS. Meetings of
shareholders shall be held at such place within or outside the
State of California as designated by the Board of Directors. In
the absence of any such designation, shareholder meetings shall
be held at the principal executive office of the corporation.
-4-
Page 33 of 65 <PAGE>
Section 2. ANNUAL MEETING. The annual meeting of
shareholders shall be held each year on a date and at a time
designated by the Board of Directors. The location of the annual
meeting shall be at a place convenient to the shareholders and
the date of the annual meeting shall be a reasonable period of
time following the distribution of the annual report referred to
in Section 5 of Article VII of these bylaws. At each annual
meeting directors shall be elected and any other proper business
may be transacted.
Section 3. SPECIAL MEETINGS. A special meeting of the
shareholders may be called at any time by the Board of Directors,
or by a majority of the Independent Directors, or by the chairman
of the board, or by the president, or by one or more shareholders
holding shares in the aggregate entitled to cast not less than
10% of the votes at that meeting.
Section 4. NOTICE OF SPECIAL MEETINGS. If a special
meeting is called by any person or persons other than the Board
of Directors, the request shall be in writing, specifying the
time of such meeting and the general nature of the business
proposed to be transacted, and shall be delivered personally or
sent by registered mail or by telegraphic or other facsimile
transmission to the chairman of the board, the president, any
vice president or the secretary of the corporation. The officer
receiving the request shall cause notice to be normally given to
the shareholders entitled to vote, in accordance with the
provisions of Sections 5 and 6 of this Article II, that a meeting
will be held at the time requested by the person or persons
calling the meeting, not less than thirty-five (35) nor more than
sixty (60) days after the receipt of the request. If the notice
is not given within twenty (20) days after receipt of the
request, the person or persons entitled to call the meeting may
give the notice or the superior court of the proper county shall
summarily order the giving of the notice. Nothing contained in
this Section 4 shall be construed as limiting, fixing or
affecting the time when a meeting of shareholders called by
action of the Board of Directors may be held.
Section 5. NOTICE OF SHAREHOLDERS' MEETINGS. All
notices of meetings of shareholders shall be sent or otherwise
given in accordance with Section 5 of this Article II not less
than ten (10) (or, if sent by third class mail thirty (30)) nor
more than sixty (60) days before the date of the meeting. The
notice shall specify the place, date and hour of the meeting and
(i) in the case of a special meeting, the general nature of the
business to be transacted and that no other business will be
transacted, or (ii) in the case of the annual meeting, those
matters which the Board of Directors, at the time of giving the
notice, intends to present for action by the shareholders. The
notice of any meeting at which directors are to be elected shall
-5-
Page 34 of 65 <PAGE>
include the names of the nominees intended at the time of the
notice to be presented by the Board of Directors for election.
If action is proposed to be taken at any meeting for
approval of (i) a contract or transaction in which a director has
a direct or indirect financial interest, pursuant to Section 310
of the California Corporations Code (the "Code"), (ii) an
amendment of the articles of incorporation, pursuant to
Section 902 of the Code, (iii) a reorganization of the
corporation, pursuant to Section 1201 of the Code, (iv) a
voluntary dissolution of the corporation, pursuant to Section
1900 of the Code, or (v) a distribution in dissolution other than
in accordance with the rights of outstanding preferred shares,
pursuant to Section 2007 of the Code, the notice shall also state
the general nature of that proposal.
Section 6. MANNER OF GIVING NOTICE; AFFIDAVIT OF
NOTICE. Notice of any meeting of shareholders shall be given
either personally or by first-class mail or telegraphic or other
written communication, charges prepaid, addressed to the
shareholder at the address of that shareholder appearing on the
books of the corporation or given by the shareholder to the
corporation for the purpose of notice. If no such address
appears on the corporation's books or is given, notice shall be
deemed to have been given if sent to that shareholder by
first-class mail or telegraphic or other written communication to
the corporation's principal executive office, or if published at
least once in a newspaper of general circulation in the county
where that office is located. Notice shall be deemed to have
been given at the time when delivered personally or deposited in
the mail or sent by telegram or other means of written
communication.
If any notice addressed to a shareholder at the address
of that shareholder appearing on the books of the corporation is
returned to the corporation by the United States Postal Service
marked to indicate that the United States Postal Service is
unable to deliver the notice to the shareholder at that address,
all future notices or reports shall be deemed to have been duly
given without further mailing if these shall be available to the
shareholder on written demand of the shareholder at the principal
executive office of the corporation for a period of one year from
the date of the giving of the notice.
An affidavit of the mailing or other means of giving
any notice of any shareholders' meeting shall be executed by the
secretary, assistant secretary or any transfer agent of the
corporation giving the notice, and shall be filed and maintained
in the minute book of the corporation.
Section 7. QUORUM. The presence in person or by proxy
of the holders of a majority of the shares entitled to vote at
-6-
Page 35 of 65 <PAGE>
any meeting of shareholders shall constitute a quorum for the
transaction of business. The shareholders present at a duly
called or held meeting at which a quorum is present may continue
to do business until adjournment, notwithstanding the withdrawal
of enough shareholders to leave less than a quorum, if any action
taken (other than adjournment) is approved by at least a majority
of the shares required to constitute a quorum.
Section 8. ADJOURNED MEETING; NOTICE. Any
shareholders' meeting, annual or special, whether or not a quorum
is present, may be adjourned from time to time by the vote of the
majority of the shares represented at that meeting, either in
person or by proxy, but in the absence of a quorum, no other
business may be transacted at that meeting, except as provided in
Section 7 of this Article II.
When any meeting of shareholders, either annual or
special, is adjourned to another time or place, notice need not
be given of the adjourned meeting if the time and place are
announced at a meeting at which the adjournment is taken, unless
a new record date for the adjourned meeting is fixed, or unless
the adjournment is for more than forty-five (45) days from the
date set for the original meeting, in which case the Board of
Directors shall set a new record date. Notice of any such
adjourned meeting shall be given to each shareholder of record
entitled to vote at the adjourned meeting in accordance with the
provisions of Sections 5 and 6 of this Article II. At any
adjourned meeting the corporation may transact any business which
might have been transacted at the original meeting.
Section 9. VOTING. The shareholders entitled to vote
at any meeting of shareholders shall be determined in accordance
with the provisions of Section 12 of this Article II, subject to
the provisions of sections 702 to 704, inclusive, of the
California Corporations Code (relating to voting shares held by a
fiduciary, in the name of a corporation, or in joint ownership).
The shareholders' vote may be by voice vote or by ballot;
provided, however, that any election for directors must be by
ballot if demanded by any shareholder before the voting has
begun. On any matter other than elections of directors, any
shareholder may vote part of the shares in favor of the proposal
and refrain from voting the remaining shares or vote them against
the proposal, but, if the shareholder fails to specify the number
of shares which the shareholder is voting affirmatively, it will
be conclusively presumed that the shareholder's approving vote is
with respect to all shares that the shareholder is entitled to
vote. If a quorum is present, the affirmative vote of the
majority of the shares represented at the meeting and entitled to
vote on any matter (other than the election of directors) shall
be the act of the shareholders, unless the vote of a greater
number or voting by classes is required by the Code, by the
articles of incorporation, or these bylaws.
-7-
Page 36 of 65 <PAGE>
At a shareholders' meeting at which directors are to be
elected, no shareholder shall be entitled to cumulate votes
(i.e., cast for any candidate a number of votes greater than the
number of votes which such shareholder normally is entitled to
cast) unless such candidate or candidates' names have been placed
in nomination prior to commencement of the voting and the
shareholder has given notice prior to commencement of the voting
of the shareholder's intention to cumulate votes. If any one
shareholder has given such notice, all shareholders entitled to
vote may cumulate votes for candidates in nomination and give one
candidate a number of votes equal to the number of directors to
be elected multiplied by the number of votes to which that
shareholder's shares are entitled, or distribute the
shareholder's votes on the same principle among any or all of the
candidates, as the shareholder thinks fit. The candidates
receiving the highest number of affirmative votes, up to the
number of directors to be elected, shall be elected.
Section 10. WAIVER OF NOTICE OR CONSENT BY ABSENT
SHAREHOLDERS. The transactions of any meeting of shareholders,
either annual or special, however called and noticed, and
wherever held, shall be as valid as though had at a meeting duly
held after regular call and notice, if a quorum is present in
person or by proxy, and if, either before or after the meeting,
each person entitled to vote who was not present in person or by
proxy signs a written waiver of notice or a consent to a holding
of the meeting or an approval of the minutes. The waiver of
notice or consent need not specify either the business to be
transacted or the purpose of any annual or special meeting of
shareholders, except that if action is taken or proposed to be
taken for approval of any of those matters specified in the
second paragraph of Section 5 of this Article II, the waiver of
notice or consent shall state the general nature of the proposal.
All such waivers, consents or approvals shall be filed with the
corporate records or made part of the minutes of the meeting.
Attendance of a person at a meeting shall also
constitute a waiver of notice of that meeting and presence at
such meeting, except when the person objects, at the beginning of
the meeting, to the transaction of any business because the
meeting is not lawfully called or convened, and except that
attendance at a meeting is not a waiver of any right to object to
the consideration of matters not included in the notice of the
meeting if that objection is expressly made at the meeting.
Section 11. SHAREHOLDER ACTION BY WRITTEN CONSENT
WITHOUT A MEETING. Any action which may be taken at any annual
or special meeting of shareholders may be taken without a meeting
and without prior notice, if a consent in writing, setting forth
the action so taken, is signed by the holders of outstanding
shares having not less than the minimum number of votes that
-8-
Page 37 of 65 <PAGE>
would be necessary to authorize or take such action at a meeting
at which all shares entitled to vote thereon were present and
voted. In the case of election of directors, such a consent
shall be effective only if signed by the holders of all
outstanding shares entitled to vote for the election of
directors; provided, however, that a director may be elected at
any time to fill a vacancy on the Board of Directors that has not
been filled by the directors, by the written consent of the
holders of a majority of the outstanding shares entitled to vote
for the election of directors. All such consents shall be filed
with the secretary of the corporation and shall be maintained in
the corporate records. Any shareholder giving a written consent,
or the shareholder's proxy holders, or a transferee of the shares
or a personal representative of the shareholder or their
respective proxy holders, may revoke the consent by a writing
received by the secretary of the corporation before written
consents of the number of shares required to authorize the
proposed action have been filed with the secretary but may not do
so thereafter.
If the consents of all shareholders entitled to vote
have been solicited in writing, and if the unanimous written
consent of all such shareholders shall not have been received,
the secretary shall give prompt notice of the corporate action
approved by the shareholders without a meeting. This notice
shall be given in the manner specified in Section 6 of this
Article II. In the case of approval of (i) contracts or
transactions in which a director has a direct or indirect
financial interest, pursuant to Section 310 of the Code,
(ii) indemnification of agents of the corporation, pursuant to
Section 317 of the Code, (iii) a reorganization of the
corporation, pursuant to Section 1201 of the Code, and (iv) a
distribution in dissolution other than in accordance with the
rights of outstanding preferred shares, pursuant to Section 2007
of the Code, the notice shall be given at least ten (10) days
before the consummation of any action authorized by that
approval.
Section 12. RECORD DATE FOR SHAREHOLDER NOTICE, VOTING
AND GIVING CONSENTS. For purposes of determining the
shareholders entitled to notice of any meeting or to vote or
entitled to give consent to corporate action without a meeting,
the Board of Directors may fix, in advance, a record date, which
shall not be more than sixty (60) days nor less than ten
(10) days before the date of any such meeting nor more than sixty
(60) days before any such action without a meeting, and in this
event only shareholders of record on the date so fixed are
entitled to notice and to vote or to give consents, as the case
may be, notwithstanding any transfer of any shares on the books
of the corporation after the record date, except as otherwise
provided in the California Corporations Code.
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If the Board of Directors does not so fix a record
date:
(a) The record date for determining shareholders
entitled to notice of or to vote at a meeting of shareholders
shall be at the close of business on the business day next
preceding the day on which notice is given or, if notice is
waived, at the close of business on the business day next
preceding the day on which the meeting is held.
(b) The record date for determining shareholders
entitled to give consent to corporate action in writing without a
meeting (i) when no prior action by the Board of Directors has
been taken shall be the day on which the first written consent is
given, or (ii) when prior action of the board has been taken,
shall be at the close of business on the day on which the board
adopts the resolution relating to that action, or the sixtieth
(60th) day before the date of such other action, whichever is
later.
Section 13. PROXIES. Every person entitled to vote
for directors or on any other matter shall have the right to do
so either in person or by one or more agents authorized by a
written proxy signed by the person and filed with the secretary
of the corporation. A proxy shall be deemed signed if the
shareholder's name is placed on the proxy (whether by manual
signature, typewriting, telegraphic transmission or otherwise) by
the shareholder or the shareholder's attorney in fact. A validly
executed proxy which does not state that it is irrevocable shall
continue in full force and effect unless (i) revoked by the
person executing it, before its next exercise, by a writing
delivered to the corporation stating that the proxy is revoked,
or by a subsequent proxy executed by, or attendance at the
meeting and voting in person by, the person executing the proxy;
or (ii) written notice of the death or incapacity of the maker of
that proxy is received by the corporation before the vote
pursuant to that proxy is counted; provided, however, that no
proxy shall be valid after the expiration of eleven (11) months
from the date of the proxy, unless otherwise provided in the
proxy. The revocability of a proxy that states on its face that
it is irrevocable shall be governed by the provisions of
Sections 705(e) and 705(f) of the Code.
Section 14. INSPECTORS OF ELECTION. Before any
meeting of shareholders, the board of directors may appoint any
persons other than nominees for office to act as inspectors of
election at the meeting or its adjournment. If no inspectors of
election are so appointed, the chairman of the meeting may, and
on the request of any shareholder or a shareholder's proxy shall
appoint inspectors of election at the meeting. The number of
inspectors shall be either one (1) or three (3). If inspectors
are appointed at a meeting on the request of one or more
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shareholders or proxies, the holders of a majority of shares or
their proxies present at the meeting shall determine whether
one (1) or three (3) inspectors are to be appointed. If any
person appointed as inspector fails to appear or fails or refuses
to act, the chairman of the meeting may, and upon the request of
any shareholder or a shareholder's proxy shall, appoint a person
to fill that vacancy.
These inspectors shall:
(a) Determine the number of shares outstanding and the
voting power of each, the shares represented at the meeting, the
existence of a quorum and the authenticity, validity and effect
of proxies;
(b) Receive votes, ballots or consents;
(c) Hear and determine all challenges and questions in
any way arising in connection with the right to vote;
(d) Count and tabulate all votes or consents;
(e) Determine when the polls shall close;
(f) Determine the result; and
(g) Do any other acts that may be proper to conduct
the election or vote with fairness to all shareholders.
ARTICLE III
DIRECTORS
---------
Section 1. POWERS. Subject to the provisions of the
California Corporations Code and any limitations in the articles
of incorporation and these bylaws relating to action required to
be approved by the shareholders or by the outstanding shares, the
business and affairs of the corporation shall be managed and all
corporate powers shall be exercised by or under the direction of
the Board of Directors. The Board of Directors shall, among
other things, monitor the administrative procedures, investment
operations and performance of the corporation and the Advisor to
assure that the corporation's policies on investment and
borrowing are followed. The Independent Directors shall review
the investment policies of the corporation at least annually to
determine that the policies being followed by the corporation are
in the best interests of its shareholders. Any such
determination and the basis therefor shall be set forth in the
minutes of the Board of Directors.
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The Board of Directors shall also review the aggregate
borrowings of the corporation at least quarterly to ensure their
reasonableness in relation to the adjusted net worth of the
corporation. The Board of Directors may delegate the day-to-day
operation of the business to a management company or other person
provided that the business and affairs of the corporation shall
be managed and all corporate powers shall be exercised under the
ultimate direction of the Board of Directors.
Without prejudice to such general powers, but subject
to the same limitations, it is hereby expressly declared that the
directors shall have the power and authority to:
(a) Select and remove all officers, agents, and
employees of the corporation, prescribe such powers and duties
for them as may not be inconsistent with law, with the articles
of incorporation or these bylaws, fix their compensation, and
require from them security for faithful service.
(b) Change the principal executive office or the
principal business office in the State of California from one
location to another; cause the corporation to be qualified to do
business in any other state, territory, dependency, or foreign
country and conduct business within or outside the State of
California; designate any place within or without the State of
California for the holding of any shareholders' meeting, or
meetings, including annual meetings; adopt, make and use a
corporate seal, and prescribe the forms of certificates of stock,
and alter the form of such seal and of such certificates from
time to time as in their judgment they may deem best, provided
that such forms shall at all times comply with the provisions of
law.
(c) Authorize the issuance of shares of stock of the
corporation from time to time, upon such terms as may be lawful,
in consideration of money paid, labor done or services actually
rendered, debts or securities cancelled or tangible or intangible
property actually received.
(d) Borrow money and incur indebtedness for the
purposes of the corporation, and cause to be executed and
delivered therefor, in the corporate name, promissory notes,
bonds, debentures, deeds of trust, mortgages, pledges,
hypothecations, or other evidences of debt and securities
therefor.
(e) Subject to the approval and review process set
forth in Section 16 of this Article III, engage one or more
investment advisors to provide investment advisory services.
Section 2. NUMBER AND QUALIFICATION OF DIRECTORS.
The authorized number of directors shall be not less than
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five (5) nor more than nine (9). The exact number of directors
within such limits shall be fixed by the Board of Directors by
vote or written consent. If the Board of Directors has not so
fixed the exact number of directors, the number of directors
shall be eight (8). Any amendment to these Bylaws reducing the
then authorized number of directors to a number less than
five (5) cannot be adopted if the votes cast against its adoption
at a meeting, or the shares not consenting in the case of action
by written consent, are equal to more than 16-2/3% of the
outstanding shares entitled to vote. Directors need not be
shareholders of the corporation. No one may be elected to the
Board of Directors if after such election one-half or more of the
total number of directors on the Board of Directors are not
independent directors. A director shall have had at least
three (3) years of relevant experience demonstrating the
knowledge and experience required to successfully acquire and
manage the type of assets to be acquired by the corporation. At
least one of the Independent Directors shall have three (3) years
of relevant real estate experience. For purposes of this
Section, the term "relevant real estate experience" shall mean
actual direct experience by the director in acquiring or managing
the type of real estate or trust deed notes to be acquired by the
corporation for his or her own account or as an agent.
Section 3. ELECTION AND TERM OF OFFICE OF DIRECTORS.
Directors shall be elected at each annual meeting of the
shareholders to hold office until the next annual meeting. Each
director, including a director elected to fill a vacancy, shall
hold office until the expiration of the term for which elected
and until a successor has been elected and qualified.
Section 4. REMOVAL OF DIRECTORS. Any director may be
removed from office with or without cause, at a meeting called
expressly for that purpose, by the vote or written consent of the
holders of a majority of the outstanding shares of the
corporation. No director shall be removed if the number of votes
cast against his removal would be sufficient to elect him at an
annual meeting of the shareholders.
Section 5. VACANCIES. Vacancies in the Board of
Directors may be filled by approval of the Board of Directors or,
if the number of directors then in office is less than a quorum,
by (a) the unanimous written consent of the directors then in
office, (b) the affirmative vote of a majority of the remaining
directors at a meeting of the Board of Directors held in
accordance with these bylaws or (c) a sole remaining director;
provided that a vacancy in the Board of Directors may be filled
by approval of the Board of Directors only if the replacement
Director is nominated for approval by the Board of Directors by
an Independent Director; and provided further that a vacancy
created by the removal of a director by the vote or written
consent of the shareholders or by court order may be filled only
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by the vote of a majority of the shares entitled to vote
represented at a duly held meeting at which a quorum is present,
or by the written consent of shareholders of a majority of the
outstanding shares entitled to vote. Each director so elected
shall hold office until the next annual meeting of the
shareholders and until a successor has been elected.
A vacancy or vacancies in the Board of Directors shall
be deemed to exist in the event of the death, resignation or
removal of any director, or if the Board of Directors by
resolution declares vacant the office of a director who has been
declared of unsound mind by an order of court or convicted of a
felony, or if the authorized number of directors is increased, or
if the shareholders fail, at any meeting of shareholders at which
any director or directors are elected, to elect the number of
directors to be voted for at that meeting.
The shareholders may elect a director or directors at
any time to fill any vacancy or vacancies not filled by the
directors, but any such election by written consent other than to
fill a vacancy created by removal shall require the consent of a
majority of the outstanding shares entitled to vote.
Any director may resign effective on giving written
notice to the chairman of the Board of Directors, the president,
the secretary or the Board of Directors, unless the notice
specifies a later time for that resignation to become effective.
If the resignation of a director is effective at a future time,
the Board of Directors may elect a successor to take office when
the resignation becomes effective.
No reduction of the authorized number of directors
shall have the effect of removing any director before that
director's term of office expires. Except as provided in
Sections 302, 303 and 304 of the Code, a director may not be
removed prior to the expiration of such director's term of
office.
Each director shall comply with the written conflict of
interest policy which is adopted by the corporation pursuant to a
resolution of the Board of Directors.
Section 6. PLACE OF MEETINGS AND MEETINGS BY
TELEPHONE. Regular meetings of the Board of Directors may be
held at any place within or outside the State of California that
has been designated in the notice of the meeting, or, if not
stated in the notice or there is no notice, designated in these
bylaws or from time to time by resolution of the Board of
Directors. In the absence of such a designation, regular
meetings shall be held at the principal executive office of the
corporation. Special meetings of the board shall be held at any
place within or outside the State of California that has been
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designated in the notice of the meeting or, if not stated in the
notice or there is no notice, at the principal executive office
of the corporation. Any meeting, regular or special, may be held
by conference telephone or similar communication equipment, so
long as all directors participating in the meeting can hear one
another, and all such directors shall be deemed to be present in
person at the meeting.
Section 7. ANNUAL MEETING. Immediately following each
annual meeting of shareholders, the Board of Directors shall hold
a regular meeting for the purpose of organization, any desired
election of officers and the transaction of other business.
Notice of this meeting shall not be required.
Section 8. OTHER REGULAR MEETINGS. Other regular
meetings of the Board of Directors shall be held without call at
such time as shall from time to time be fixed by the Board of
Directors. Such regular meetings may be held without notice.
Meetings of the Board of Directors (whether regular or special)
shall be held as often as necessary but not less than annually.
Section 9. SPECIAL MEETINGS AND NOTICE THEREOF.
Special meetings of the Board of Directors for any purpose or
purposes may be called at any time by the chairman of the board
or the president or any vice president or the secretary or any
two directors.
Notice of the time and place of special meetings shall
be delivered personally or by telephone to each director or sent
by first-class mail or telegram, charges prepaid, addressed to
each director at that director's address as it is shown on the
records of the corporation. In case the notice is mailed, it
shall be deposited in the United States mail at least four (4)
days before the time of the holding of the meeting. In case the
notice is delivered personally, or by telephone or telegram, it
shall be delivered personally or by telephone or to the telegraph
company at least forty-eight (48) hours before the time of the
holding of the meeting. Any oral notice given personally or by
telephone may be communicated either to the director or to a
person at the office of the director who the person giving the
notice has reason to believe will promptly communicate it to the
director. The notice need not specify the purpose of the meeting
nor the place if the meeting is to be held at the principal
executive office of the corporation.
Section 10. QUORUM. A majority of the authorized
number of directors shall constitute a quorum for the transaction
of business, except to adjourn as provided in Section 12 of this
Article III. Every act or decision done or made by a majority
of the directors present at a meeting duly held at which a quorum
is present shall be regarded as the act of the Board of
Directors, subject to the provisions of Section 310 of the Code
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(as to approval of contracts or transactions in which a director
has a direct or indirect material financial interest),
Section 311 of the Code (as to appointment of committees), and
Section 317(e) of the Code (as to indemnification of directors).
A meeting at which a quorum is initially present may continue to
transact business notwithstanding the withdrawal of directors, if
any action taken is approved by at least a majority of the
required quorum for that meeting.
Section 11. WAIVER OF NOTICE. The transactions of any
meeting of the Board of Directors, however called and noticed or
wherever held, shall be as valid as though had at a meeting duly
held after regular call and notice if a quorum is present and if,
either before or after the meeting, each of the directors not
present signs a written waiver of notice, a consent to holding
the meeting or an approval of the minutes. The waiver of notice
or consent need not specify the purpose of the meeting. All such
waivers, consents and approvals shall be filed with the corporate
records or made a part of the minutes of the meeting. Notice of
a meeting need not be or have been given to any director who
attends the meeting without protesting before or at its
commencement, the lack of notice to that director.
Section 12. ADJOURNMENT. A majority of the directors
present, whether or not constituting a quorum, may adjourn any
meeting to another time and place.
Section 13. NOTICE OF ADJOURNMENT. Notice of the time
and place of holding an adjourned meeting need not be given,
unless the meeting is adjourned for more than twenty-four hours,
in which case notice of the time and place shall be given before
the time of the adjourned meeting, in the manner specified in
Section 9 of this Article III, to the directors who were not
present at the time of the adjournment.
Section 14. ACTION WITHOUT MEETING. Any action
required or permitted to be taken by the Board of Directors may
be taken without a meeting, if all members of the board shall
individually or collectively consent in writing to that action.
Such action by written consent shall have the same force and
effect as a unanimous vote of the Board of Directors. Such
written consent or consents shall be filed with the minutes of
the proceedings of the board.
Section 15. FEES AND COMPENSATION OF DIRECTORS.
Directors and members of committees may receive such
compensation, if any, for their services, and such reimbursements
of expenses, as may be fixed or determined by resolution of the
Board of Directors. This Section 15 shall not be construed to
preclude any director from serving the corporation in any other
capacity as an officer, agent, employee or otherwise, and
receiving compensation for those services.
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Section 16. SPECIAL APPROVAL FOR INVESTMENT ADVISORY
SERVICES. It is the duty of the Board of Directors to supervise
the relationship of the corporation to the Advisor and to
evaluate the performance of the Advisor before entering into or
renewing an advisory contract. The criteria used in such
evaluation shall be reflected in the minutes of the Board of
Directors' meeting at which such evaluation is made. Each
contract for the services of an Advisor entered into by the Board
of Directors shall have a term of no more than one year. Each
advisory contract shall be terminable by a majority of the
Independent Directors. Each advisory contract shall be
terminable by the advisor. Termination may be without cause. At
least sixty (60) days written notice shall be given by the party
wishing to terminate the contract. In the event of the
termination of such contract, the Advisor will cooperate with the
corporation and take all reasonable steps requested to assist the
Board of Directors making an orderly transition of the advisory
function. The qualifications of the advisor shall be set forth
in the prospectus relating to the initial public offering of the
shares and the Board of Directors shall determine that any
successor advisor possesses sufficient qualifications (a) to
perform the advisory function for the corporation, and (b) to
justify the compensation provided for in its contract with the
corporation.
The Independent Directors shall determine at least
annually that the compensation which the corporation contracts to
pay to the Advisor is reasonable in relation to the nature and
quality of services performed and that such compensation is
within limits prescribed by applicable law. The Independent
Directors shall also supervise the performance of the Advisor and
the compensation paid to it by the corporation to determine that
the provisions of such contract are being carried out. Each such
determination shall be based on the factors set forth below and
all other factors such Independent Directors may deem relevant
and the findings of such directors on each of such factors shall
be recorded in the minutes of the Board of Directors:
(a) The size of the advisory fee in relation to the
size, composition and profitability of the portfolio of the
corporation;
(b) The success of the Advisor in generating
opportunities that meet the investment objectives of the
corporation;
(c) The rates charged to other real estate investment
trusts and to investors other than real estate investment trusts
by advisors performing similar services;
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(d) Additional revenues realized by the Advisor and
its Affiliates through their relationship with the corporation,
including note servicing, loan, brokerage, and other fees,
whether paid by the corporation or by others with whom the
corporation does business;
(e) The quality and extent of service and advice
furnished by the Advisor;
(f) The performance of the investment portfolio of the
corporation, including income conservation, frequency of problem
investments and competence in dealing with distressed situations;
and
(g) The quality of the portfolio of the corporation in
relationship to the investments generated by the Advisor for its
own account.
Section 17. TRANSACTIONS WITH AFFILIATES. The
corporation shall not:
(a) Purchase property from any Advisor or director or
any Affiliate of any such person at a price to the corporation
greater than the cost to such Advisor or director or Affiliate of
such person unless there is found to be substantial justification
for such excess by a majority of the directors (including a
majority of the Independent Directors) not otherwise interested
in and not affiliated with the Advisor or director or Affiliate
thereof who is a party to such transaction.
(b) Sell property to Property Mortgage Co., Inc., any
other Advisor, or any director or any Affiliate of any such
person except pursuant to an obligation on the part of Property
Mortgage Co., Inc. or another Advisor to repurchase a promissory
note from the corporation which does not comply with the
corporation's investment criteria.
(c) Make loans to or borrow money from Property
Mortgage Co., Inc., any other Advisor or any director or any
Affiliate of any such person.
(d) Invest in joint ventures with Property Mortgage
Co., Inc., any other Advisor, or any director or any Affiliate of
any such person.
(e) Engage in any transactions with Property Mortgage
Co., Inc., any other Advisor or any director, officer or any
Affiliate of any such person, except to the extent that each such
transaction has, after disclosure of such affiliation, been
approved or ratified by the affirmative vote of a majority of the
directors (including a majority of the Independent Directors) not
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otherwise interested in and not affiliated with the person who is
a party to the transaction and:
(1) The transaction is fair and reasonable to the
corporation and its shareholders.
(2) The terms of such transaction are at least as
favorable as the terms of any
comparable transactions made on arms length basis and known
to the directors.
(3) The total consideration is not in excess of
the appraised value of the property being acquired, if an
acquisition is involved.
(4) Payments to the investment advisor, its
affiliates and the directors for services rendered in a
capacity other than that as investment advisor or directors
may only be made upon a determination that:
(i) The compensation is not in excess of
their compensation paid for any comparable services;
and
(ii) The compensation is not greater than the
charges for comparable services available from others
who are competent and not affiliated with any of the
parties involved.
If an Advisor, director or Affiliate of either provides a
substantial amount of the services in the effort to sell real
estate acquired by the corporation upon foreclosure of a deed of
trust securing a note held by the corporation, such person may
receive up to one-half of the brokerage commission paid in
connection with such sale but in no event more than 3% of the
contracted for sales price. The amount paid when added to the
sums paid to unaffiliated parties in such a capacity must be
comparable, reasonable, customary and competitive in light of the
size, type and location of such property and in no event shall it
exceed 6% of the contracted for sales price.
Section 18. TOTAL EXPENSES. It shall be the
responsibility of the Independent Directors to determine at least
annually the total fees and expenses of the corporation are
reasonable in light of the investment experience of the
corporation, its net assets, its net income and the fees and
expenses of other comparable advisors. Each such determination
shall be reflected in the minutes of the meeting of the Board of
Directors at which such determination is made. The total of all
Acquisition Fees and Expenses paid by the corporation in
connection with the acquisition of a promissory note by the
corporation shall be reasonable and shall in no event exceed an
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amount equal to 6% of the funds advanced by the corporation for
that note, unless a majority of the Board of Directors (including
a majority of the Independent Directors) not otherwise interested
in the transaction approve the transaction as being commercially
competitive, fair and, reasonable to the corporation. For
purposes of this section, the term "Acquisition Fees and
Expenses" shall not be limited to all fees and commissions paid
by any party in connection with the making or investing in
promissory notes by the corporation (including any loan or
brokerage fee paid to the Advisor), legal fees and expenses,
travel and communication expenses, costs of appraisal, accounting
fees and expenses, title insurance and miscellaneous expenses
related to selection and acquisition of notes, whether or not
acquired. The Independent Directors shall also have the
fiduciary responsibility of limiting the total operating expenses
of the corporation to amounts that do not exceed in any fiscal
year the greater of 2% of the average invested assets of the
corporation or 25% of its net income for that year unless such
Independent Directors shall have made a finding that, based on
such unusual and non-recurring factors as they deem sufficient, a
higher level of expenses is justified for such year. Any such
finding and the reasons in support thereof shall be reflected in
the minutes of the meeting of the Board of Directors at which
shall finding was made. Within 60 days after the end of any
fiscal quarter of the corporation for which total operating
expenses (for the 12 months then ended) exceed 2% of average
invested assets or 25% of net income, whichever is greater, there
shall be sent to the shareholders of the corporation a written
disclosure of such fact, together with an explanation of the
factors the Independent Directors considered in arriving at the
conclusion that such higher operating expenses were justified.
All agreements entered into by the corporation with an Advisor
shall require at the end of any year for which the Independent
Directors do not determine that expenses in excess of 2% of
average invested assets or 25% of net income, whichever is
greater, are not justified the Advisor shall return to the
corporation or waive any servicing fee paid or have reduced any
servicing fee otherwise due to such Advisor with respect to such
year to the extent necessary to reduce such expenses within such
limit.
ARTICLE IV
COMMITTEES
----------
Section 1. COMMITTEES OF DIRECTORS. Committees are of
two kinds, those having legal authority to act for the
corporation and advisory committees. Except as otherwise
specifically provided in these bylaws, all committees of
directors shall meet as often as necessary, but at least
annually. The Board of Directors may, by resolution adopted by
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a majority of the authorized number of directors, designate one
or more committees having legal authority to act for the
corporation, each consisting of two or more directors, to serve
at the pleasure of the board, provided that a majority of the
members of each such committee be Independent Directors. The
board may designate one or more directors as alternate members of
any such committee, who may replace any absent member at any
meeting of the committee. Any committee having legal authority
to act for the corporation, to the extent provided in the
resolution of the board, shall have all authority of the board,
except with respect to:
(a) The approval of any action which, under the
California Corporations Code, also requires shareholders'
approval or approval of the outstanding shares;
(b) The filling of vacancies on the board of directors
or in any committee;
(c) The fixing of compensation of the directors for
serving on the Board of Directors or on any committee;
(d) The amendment or repeal of bylaws or the adoption
of new bylaws;
(e) The amendment or repeal of any resolution of the
Board of Directors which by its express terms is not so amendable
or repealable;
(f) A distribution except at a rate or in a periodic
amount or within a price range set forth in the articles or
determined by the Board of Directors; or
(g) The appointment of any other committees of the
Board of Directors or the members of these committees.
Section 2. MEETINGS AND ACTIONS OF COMMITTEES WITH
AUTHORITY. Meetings and actions of committees having legal
authority to act for the corporation shall be governed by, and
held and taken in accordance with, the provisions of Article III
of these bylaws, Section 6 (place of meetings), 8 (regular
meetings), 9 (special meetings and notice), 10 (quorum), 11
(waiver of notice), 12 (adjournment), 13 (notice of adjournment),
and 14 (action without meeting), with such changes in the context
of those bylaws as are necessary to substitute the committee and
its members for the Board of Directors and its members, except
that the time of regular meetings of committees may be determined
either by resolution of the Board of Directors or by resolution
of the committee; special meetings of committees may also be
called by resolution of the Board of Directors; and notice of
special meetings of committees shall also be given to all
alternate members, who shall have the right to attend all
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meetings of the committee. The Board of Directors may adopt
rules for the government of any committee not inconsistent with
the provisions of these bylaws.
Section 3. ADVISORY COMMITTEES. The Board of
Directors may appoint one or more advisory committees. Advisory
Committee membership may consist of directors only or both
directors and nondirectors or nondirectors only, and also may
include nonvoting members and alternate members. The chairman
and members of advisory committees shall be appointed by the
chairman of the board or the directors of the corporation.
Advisory Committees have no legal authority to act for the
corporation, but shall report their findings and recommendations
to the Board of Directors. Members of Advisory Committees shall
receive such compensation, if any, as may be established by
resolution of the Board of Directors.
ARTICLE V
OFFICERS
--------
Section 1. OFFICERS. The officers of the corporation
shall be a president, a vice president, a secretary, and a chief
financial officer. The corporation may also have, at the
discretion of the Board of Directors, a chairman of the board,
one or more additional vice presidents, one or more assistant
secretaries, one or more assistant treasurers, and such other
officers as may be appointed in accordance with the provisions of
Section 3 of this Article V. Any number of offices may be held by
the same person.
Section 2. APPOINTMENT OF OFFICERS. The officers of
the corporation, except such officers as may be appointed in
accordance with the provisions of Section 3 or Section 5 of this
Article V, shall be appointed by the Board of Directors, and each
shall serve at the pleasure of the board, subject to the rights,
if any, of an officer under any contract of employment.
(a) Any officer appointed by the Board of Directors
may be removed from office at any time by the Board of Directors,
with or without cause or prior notice. Any officer not appointed
by the Board of Directors may be removed from office at any time
by the officer by whom appointed or by the Board of Directors
with or without cause or prior notice.
(b) When authorized by the Board of Directors, any
officer may be appointed for a specified term under a contract of
employment. Notwithstanding that such officer is appointed for a
specified term or under the contract of employment, any such
officer may be removed from office at any time pursuant to
paragraph (a) above and shall have no claim against the
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corporation on account of such removal other than for such
monetary compensation as the officer may be entitled to under the
terms of the contract of employment.
Section 3. SUBORDINATE OFFICERS. The Board of
Directors may appoint, and may empower the president to appoint,
such other officers as the business of the corporation may
require, each of whom shall hold office for such period, have
such authority and perform such duties as are provided in the
bylaws or as the Board of Directors may from time to time
determine.
Section 4. REMOVAL AND RESIGNATION OF OFFICERS.
Subject to the rights, if any, of an officer under any contract
of employment, any officer may be removed, either with or without
cause, by the Board of Directors, at any regular or special
meeting of the board, or, except in case of an officer chosen by
the Board of Directors, by any officer upon whom such power of
removal may be conferred by the Board of Directors.
Any officer may resign at any time by giving written
notice to the corporation. Any resignation shall take effect at
the date of the receipt of that notice or at any later time
specified in that notice; and, unless otherwise specified in that
notice, the acceptance of the resignation shall not be necessary
to make it effective. Any resignation is without prejudice to
the rights, if any, of the corporation under any contract to
which the officer is a party.
Section 5. VACANCIES IN OFFICES. A vacancy in any
office because of death, resignation, removal, disqualification
or any other cause shall be filled in the manner prescribed in
these bylaws for regular appointments to that office.
Section 6. CHAIRMAN OF THE BOARD. The chairman of the
board, if there shall be such an officer, shall, if present,
preside at meetings of the Board of Directors and exercise and
perform such other powers and duties as may be assigned to him
from time to time by the Board of Directors or prescribed by the
bylaws. If there is no president, the chairman of the board
shall in addition be the chief executive officer of the
corporation and shall have the powers and duties prescribed in
Section 7 of this Article V.
Section 7. PRESIDENT. Subject to such supervisory
powers, if any, as may be given by the Board of Directors to the
chairman of the board, if there be such an officer, the president
shall be the chief executive officer of the corporation and
shall, subject to the control of the Board of Directors, have
general supervision, direction and control of the business and
the officers of the corporation. He shall preside at all
meetings of the shareholders and, in the absence of the chairman
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of the board, or if there be none, at all meetings of the Board
of Directors. He shall have the general powers and duties of
management usually vested in the office of president of a
corporation, and shall have such other powers and duties as may
be prescribed by the Board of Directors or the bylaws.
Section 8. VICE PRESIDENTS. In the absence or
disability of the president, the vice president, if any, in order
of their rank as fixed by the Board of Directors or, if not
ranked, a vice president designated by the Board of Directors,
shall perform all the duties of the president, and when so acting
shall have all the powers of, and be subject to all the
restrictions upon, the president. The vice presidents shall have
such other powers and perform such other duties as from time to
time may be prescribed for them respectively by the Board of
Directors or the bylaws, and the president, or the chairman of
the board.
Section 9. SECRETARY. The secretary shall keep or
cause to be kept, at the principal executive office or such other
place as the Board of Directors may direct, a book of minutes of
all meetings and actions of directors, committees of directors,
and shareholders, with the time and place of holding, whether
regular or special, and, if special, how authorized, the notice
given, the names of those present at directors' meetings or
committee meetings, the number of shares present or represented
at shareholders' meetings, and a summary of the proceedings.
The secretary shall keep, or cause to be kept, at the
principal executive office or at the office of the corporation's
transfer agent or registrar, as determined by resolution of the
Board of Directors, a share register, or a duplicate share
register, showing the names of all shareholders and their
addresses, the number and classes of shares held by each, the
number and date of certificates issued for the same, and the
number and date of cancellation of every certificate surrendered
for cancellation.
The secretary shall give, or cause to be given, notice
of all meetings of the shareholders and of the Board of Directors
required by the bylaws or by law to be given, and he shall keep
the seal of the corporation if one be adopted, in safe custody,
and shall have such other powers and perform such other duties as
may be prescribed by the Board of Directors or by the bylaws.
Section 10. CHIEF FINANCIAL OFFICER. The chief
financial officer shall keep and maintain, or cause to be kept
and maintained, adequate and correct books and records of
accounts of the properties and business transactions of the
corporation, including accounts of its assets, liabilities,
receipts, disbursements, gains, losses, capital, retained
earnings and shares. The books of account shall at all
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reasonable times be open to inspection by any director and as
provided in Article VII of these bylaws.
The chief financial officer shall deposit all moneys
and other valuables in the name and to the credit of the
corporation with such depositaries as may be designated by the
Board of Directors. He shall disburse the funds of the
corporation as may be ordered by the Board of Directors, shall
render to the president and directors, whenever they request it,
an account of all of his transactions as chief financial officer
and of the financial condition of the corporation, and shall have
such other powers and perform such other duties as may be
prescribed by the Board of Directors or the bylaws. The chief
financial officer may also be known as the treasurer.
Section 11. REIMBURSEMENT OF CORPORATION. Any
payments made to an officer of the corporation such as a salary,
commission, bonus, interest, or rent, or entertainment expense
incurred by him, which shall be disallowed in whole or in part as
a deductible expense by the Internal Revenue Service, shall be
reimbursed by such officer to the corporation to the full extent
of such disallowance. It shall be the duty of the board to
enforce payment of each such amount disallowed. In lieu of
payment by the officer, subject to the determination of the
board, proportionate amounts may be withheld from his future
compensation payments until the amount owed to the corporation
has been recovered.
ARTICLE VI
INDEMNIFICATION OF DIRECTORS, OFFICERS,
EMPLOYEES AND OTHER AGENTS
---------------------------------------
Section 1. AGENTS, PROCEEDINGS AND EXPENSES. For the
purposes of this Article, "agent" means any person who is or was
a director, officer, employee or other agent of the corporation,
or is or was serving at the request of the corporation as a
director, officer, employee or agent of another foreign or
domestic corporation, partnership, joint venture, trust or other
enterprise, or was a director, officer, employee or agent of a
foreign or domestic corporation which was a predecessor
corporation of the corporation or of another enterprise at the
request of such predecessor corporation; "proceeding" means any
threatened, pending or completed action or proceeding, whether
civil, criminal, administrative or investigative; and "expenses"
includes, without limitation, attorneys' fees and any expenses of
establishing a right to indemnification under Section 4 or
Section 5(c) of this Article.
Section 2. ACTIONS OTHER THAN BY THE CORPORATION. The
corporation shall indemnify any person who was party, or is
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threatened to be made a party, to any proceeding (other than an
action by or in the right of the corporation to procure a
judgment in its favor) by reason of the fact that such person is
or was an agent of the corporation, against expenses, judgments,
fines, settlements and other amounts actually and reasonably
incurred in connection with such proceeding if such person acted
in good faith and in a manner such person reasonably believed to
be in the best interests of the corporation and, in the case of a
criminal proceeding, had no reasonable cause to believe the
conduct of such person was unlawful and, if such person is a
Director or Advisor, such expenses, judgments, fines, settlements
or other amounts were not the result of negligence or misconduct
by such person. The termination of any proceeding by judgment,
order, settlement, conviction or upon a plea of nolo contenders
or its equivalent shall not, of itself, create a presumption that
the person did not act in good faith and in a manner which the
person reasonably believed to be in the best interests of the
corporation or that the person had reasonable cause to believe
that the person's conduct was unlawful.
Section 3. ACTIONS BY THE CORPORATION. The
corporation shall indemnify any person who was or is a party, or
is threatened to be made a party, to any threatened, pending or
completed action by or in the right of the corporation to procure
a judgment in its favor by reason of the fact that such person is
or was an agent of the corporation, against expenses actually and
reasonably incurred by such person in connection with the
defense or settlement of such action if such person acted in good
faith, in a manner such person believed to be in the best
interests of the corporation and with such care, including
reasonable inquiry, as an ordinarily prudent person in a like
position would use under similar circumstances and, if such
person is a Director or Advisor, such expenses were not the
result of negligence or misconduct by such person. No
indemnification shall be made under this Section 3:
(a) In respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the
corporation in the performance of such person's duty to the
corporation, unless and only to the extent that the court in
which such proceeding is or was pending shall determine upon
application that, in view of all the circumstances of the case,
such person is fairly and reasonably entitled to indemnity for
the expenses which such court shall determine;
(b) Of amounts paid in settling or otherwise disposing
of a threatened or pending action, with or without court
approval; or
(c) Of expenses incurred in defending a threatened or
pending action which is settled or otherwise disposed of without
court approval.
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Section 4. SUCCESSFUL DEFENSE BY AGENT. To the extent
that an agent of the corporation has been successful on the
merits in defense of any proceeding referred to in Sections 2
or 3 of this Article, or in defense of any claim, issue or matter
therein, the agent shall be indemnified against expenses actually
and reasonably incurred by the agent in connection therewith.
Section 5. REQUIRED APPROVAL. Except as provided in
Section 4 of this Article, any indemnification under this Article
shall be made by the corporation only if authorized in the
specific case, upon a determination that indemnification of the
agent is proper in the circumstances because the agent has met
the applicable standard of conduct set forth in Sections 2 or 3
of this Article, by:
(a) A majority vote of a quorum consisting of
directors who are not parties to such proceeding;
(b) Approval by the affirmative vote of a majority of
the shares of the corporation entitled to vote represented at a
duly held meeting at which a quorum is present or by the written
consent of holders of a majority of the outstanding shares
entitled to vote. For such purpose, the shares owned by the
person to be indemnified shall not be considered outstanding or
entitled to vote thereon; or
(c) The court in which such proceeding is or was
pending, upon application made by the corporation or the agent or
the attorney or other person rendering services in connection
with the defense, whether or not such application by the agent,
attorney or other person is opposed by the corporation.
Section 6. ADVANCE OF EXPENSES. Expenses incurred in
defending any proceeding may be advanced by the corporation prior
to the final disposition of such proceeding upon receipt of an
undertaking by or on behalf of the agent to repay such amount
unless it shall be determined ultimately that the agent is
entitled to be indemnified as authorized in this Article.
Section 7. OTHER CONTRACTUAL RIGHTS. Nothing
contained in this Article shall affect any right to
indemnification to which person other than directors and officers
and Advisors of the corporation or any subsidiary hereof may be
entitled by contract or otherwise.
Section 8. LIMITATIONS. No indemnification or advance
shall be made under this Article, except as provided in section 4
or Section 5(c), in any circumstance where it appears:
(a) That it would be inconsistent with a provision of
the articles, a resolution of the shareholders or an agreement
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in effect at the time of the accrual of the alleged cause of
action asserted in the proceeding in which the expenses were
incurred or other amounts were paid, which prohibits or otherwise
limits indemnification; or
(b) That it would be inconsistent with any condition
expressly imposed by a court in approving a settlement.
Moreover, no indemnification shall be made for any liability
imposed by judgment, or for the costs associated therewith,
including attorneys fees, arising from or out of a violation of
state or federal securities laws associated with the offer and
sale of the corporation's shares. Indemnification for
settlements and related expenses of lawsuits alleging securities
law violations, and for expenses incurred in successfully
defending such lawsuits, may be indemnified only if a court
either approves the settlement and finds that indemnification of
the settlement and related costs should be made or approves
indemnification of litigation costs if a successful defense is
made.
Section 9. INSURANCE. Upon and in the event of a
determination by the Board of Directors of the corporation to
purchase such insurance, the corporation shall purchase and
maintain insurance on behalf of any agent of the corporation
against any liability asserted against or incurred by the agent
in such capacity or arising out of the agent's status as such
whether or not the corporation would have the power to indemnify
the agent against such liability under the provisions of this
section.
Section 10. FIDUCIARIES OF CORPORATE EMPLOYEE BENEFIT
PLAN. This Article does not apply to any proceeding against
any trustee, investment manager or other fiduciary of an employee
benefit plan in such person's capacity as such, even though such
person may also be an agent of the corporation as defined in
Section 1 of this Article. Nothing contained in this Article
shall limit any right to indemnification to which such a trustee,
investment manager or other fiduciary may be entitled by contract
or otherwise, which shall be enforceable to the extent permitted
by applicable law.
ARTICLE VII
RECORDS AND REPORTS
-------------------
Section 1. MAINTENANCE AND INSPECTION OF SHARE
REGISTER. The corporation shall keep at its principal executive
office, or at the office of its transfer agent or registrar, if
either be appointed and as determined by resolution of the Board
of Directors, a record of its shareholders, giving the names and
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addresses of all shareholders and the number and class of shares
held by each shareholder.
A shareholder or shareholders, of the corporation
holding at least five percent (5%) in the aggregate of the
outstanding voting shares of the corporation or who hold at least
one percent (1%) of such voting shares and have filed a Schedule
14B with the United States Securities and Exchange Commission
shall have an absolute right to do either or both of the
following: (i) inspect and copy the records of shareholders'
names and addresses and shareholdings during usual business hours
on five (5) days prior written demand on the corporation, and
(ii) obtain from the transfer agent of the corporation, on
written demand and on the tender of such transfer agent's usual
charges for such list, a list of the names and addresses of the
shareholders who are entitled to vote for the election of
directors, and their shareholdings, as of the most recent record
date for which that list has been compiled or as of a date
specified by the shareholder subsequent to the date of demand.
This list shall be made available to any such shareholder by the
transfer agent on or before the later of five (5) business days
after the demand is received or the date specified in the demand
as the date as of which the list is to be compiled. The record
of shareholders shall also be open to inspection on the written
demand of any shareholder or holder of a voting trust
certificate, at any time during usual business hours for a
purpose reasonably related to the holder's interests as a
shareholder or as the holder of a voting trust certificate. Any
inspection and copying under this section 1 may be made in person
or by an agent or attorney of the shareholder or holder of a
voting trust certificate making the demand.
Section 2. MAINTENANCE AND INSPECTION OF BYLAWS. The
corporation shall keep at its principal executive office the
original or a copy of the bylaws as amended to date, which shall
be open to inspection by the shareholders at all reasonable times
during office hours. If the principal executive office of the
corporation is outside the State of California and the
corporation has no principal business office in this state, the
Secretary shall, upon the written request of any shareholder,
furnish to that shareholder a copy of the bylaws as amended to
date.
Section 3. MAINTENANCE AND INSPECTION OF OTHER
CORPORATE RECORDS. The accounting books and records of
proceedings of the shareholders and the Board of Directors and
any committee or committees of the Board of Directors shall be
kept at such place or places designated by the Board of
Directors, or, in the absence of such designation, at the
principal executive office of the corporation. The minutes shall
be kept in written form and the accounting books and records
shall be kept either in written form or in any other form capable
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of being converted into written form. The minutes and accounting
books and records shall be open to inspection upon the written
demand of any shareholder or holder of a voting trust
certificate, at any reasonable time during usual business hours,
for a purpose reasonably related to the holder's interests as a
shareholder or as the holder of a voting trust certificate. The
inspection may be made in person or by an agent or attorney, and
shall include the right to copy and make extracts. These rights
of inspection shall extend to the records of each subsidiary
corporation of the corporation.
Section 4. INSPECTION BY DIRECTORS. Every director
shall have the absolute right at any reasonable time to inspect
all books, records and documents of every kind and the physical
properties of the corporation and each of its subsidiary
corporations. This inspection by a director may be made in
person or by an agent or attorney and the right of inspection
includes the right to copy and make extracts of documents.
Section 5. ANNUAL REPORT TO SHAREHOLDERS. The Board
of Directors shall cause an annual report to be sent to the
shareholders not later than one hundred twenty (120) days after
the close of the fiscal year adopted by the corporation. Such
report shall be sent at least thirty (30) days prior to the
annual meeting of shareholders to be held during the next fiscal
year and in the manner specified in Section 5 of Article II of
these bylaws for giving notice to shareholders of the
corporation. The annual report shall comply with California
Corporations Code Section 1501, as amended from time to time, and
shall contain a balance sheet as of the end of such fiscal year
and an income statement and statement of changes in financial
position for such fiscal year, all prepared in accordance with
generally accepted accounting principles and accompanied by a
report thereon of independent certified public accountants. The
annual report shall also contain: (1) the ratio of the cost of
raising capital during the year to the capital raised; (2) the
aggregate amount of advisory fees and the aggregate amount of
other fees paid to the Advisor and all Affiliates of the Advisor
by the corporation and including fees or charges paid to the
Advisor and all Affiliates of the Advisor by third parties doing
business with the corporation during the year; (3) full
disclosure of all material terms, factors and circumstances
surrounding any and all transactions involving the corporation
and Property Mortgage Co., Inc., any other Advisor, or any
director or any Affiliate of any such person occurring during
the year, accompanied by a report of the Independent Directors on
the fairness of such transactions; and (4) a discussion of the
effect of reinvesting distributions under the corporation's
dividend reinvestment plan, including the tax consequences
thereof.
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Section 6. FINANCIAL STATEMENTS. A copy of any annual
financial statement and any income statement of the corporation
for each quarterly period of each fiscal year, and any
accompanying balance sheet of the corporation as of the end of
each such period, that has been prepared by the corporation shall
be kept on file in the principal executive office of the
corporation for twelve (12) months and each such statement shall
be exhibited at all reasonable times to any shareholder demanding
an examination of any such statement or a copy shall be mailed to
any such shareholder.
If a shareholder or shareholders holding at least five
percent (5%) of the outstanding shares of any class of stock of
the corporation makes a written request to the corporation for an
income statement of the corporation for the three-month,
six-month or nine-month period of the then current fiscal year
ended more than thirty (30) days before the date of the request,
and a balance sheet of the corporation as of the end of such
period, the chief financial officer shall cause that statement to
be prepared, if not already prepared, and shall deliver
personally or mail that statement or statements to the person
making the request within thirty (30) days after the receipt of
the request. If the corporation has not sent to the shareholders
its annual report for the last fiscal year, this report shall
likewise be delivered or mailed to the shareholder or
shareholders within thirty (30) days after the request.
The corporation shall also, on the written request of
any shareholder, mail to the shareholder a copy of the last
annual, semi-annual or quarterly income statement which it has
prepared, and a balance sheet as of the end of that period.
The quarterly income statements and balance sheets
referred to in this section shall be accompanied by the report,
if any, of any independent accountants engaged by the corporation
or the certificate of an authorized officer of the corporation
that the financial statements were prepared without audit from
the books and records of the corporation.
Section 7. ANNUAL STATEMENT OF GENERAL INFORMATION.
The corporation shall file annually with the Secretary of State
of the State of California, on the prescribed form, a statement
setting forth the authorized number of directors, the names and
complete business or residence addresses of all incumbent
directors, the names and complete business or residence addresses
of the chief executive officer, secretary, and chief financial
officer, the street address of its principal executive office or
principal business office in this state, and the general type of
business constituting the principal business activity of the
corporation, together with a designation of the agent of the
corporation for the purpose of service of process, all in
compliance with Section 1502 of the California Corporations Code.
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ARTICLE VIII
GENERAL CORPORATE MATTERS
-------------------------
Section 1. RECORD DATE FOR PURPOSES OTHER THAN NOTICE
AND VOTING. For purposes of determining shareholders entitled
to receive payment of any dividend or other distribution or
allotment of any rights, or entitled to exercise any rights in
respect of any other lawful action (other than action by
shareholders by written consent without a meeting), the Board of
Directors may fix, in advance, a record date, which shall not be
more than sixty (60) days before any such action, and in that
case only shareholders of record on the date so fixed are
entitled to receive the dividends, distribution or allotment of
rights or to exercise the rights, as the case may be,
notwithstanding any transfer of any shares on the books of the
corporation after the record date so fixed, except as otherwise
provided in the Code.
If the Board of Directors does not so fix a record
date, the record date for determining shareholders for any such
purpose shall be at the close of business on the day on which the
board adopts the applicable resolution or the sixtieth (60th) day
before the date of that action, whichever is later.
Section 2. CHECKS, DRAFTS, EVIDENCES OF INDEBTEDNESS.
All checks, drafts, or other orders for payment of money, notes,
or other evidences of indebtedness, issued in the name of or
payable to the corporation, shall be signed or endorsed by such
person or persons and in such manner as, from time to time, shall
be determined by resolution of the Board of Directors.
Section 3. CORPORATE CONTRACTS AND INSTRUMENTS; HOW
EXECUTED. The Board of Directors, except as otherwise provided
in these bylaws, may authorize any officer or officers, agent or
agents, to enter into any contract or execute any instrument in
the name of and on behalf of the corporation, and this authority
may be general or confined to specific instances; and, unless so
authorized or ratified by the Board of Directors or within the
agency power of an officer, no officer, agent, or employee shall
have any power or authority to bind the corporation by any
contract or engagement or to pledge its credit or to render it
liable for any purpose or for any amount.
Section 4. CERTIFICATES FOR SHARES. A certificate or
certificates for shares of the capital stock of the corporation
shall be issued to each shareholder when any of these shares are
fully paid, and the Board of Directors may authorize the issuance
of certificates or shares as partly paid provided that these
certificates shall state the amount of the consideration to be
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paid for them and the amount paid. All certificates shall be
signed in the name of the corporation by the chairman of the
board or vice chairman of the board or the president or a vice
president and by the chief financial officer or an assistant
treasurer or the secretary or any assistant secretary, certifying
the number of shares and the class or series of shares owned by
the shareholder. Any or all of the signatures on the certificate
may be facsimile. In case any officer, transfer agent or
registrar who has signed or whose facsimile signature has been
placed on a certificate shall have ceased to be such officer,
transfer agent, or registrar before such certificate is issued,
it may be issued by the corporation with the same effect as if
that person were an officer, transfer agent or registrar at the
date of issue. The Board of Directors may refuse to transfer
shares of the capital stock of the corporation when the transfer
would result in five or fewer shareholders owning more than 50
percent of such shares or such shares being owned by fewer than
100 shareholders.
Section 5. LOST CERTIFICATES. Except as provided in
this Section 5, no new certificates for shares shall be issued to
replace an old certificate unless the latter is surrendered to
the corporation and cancelled at the same time. The Board of
Directors may, in case any share certificate or certificate for
any other security is lost, stolen or destroyed, authorize the
issuance of a replacement certificate on such terms and
conditions as the board may require, including provision for
indemnification of the corporation secured by a bond or other
adequate security sufficient to protect the Corporation against
any claim that may be made against it, including any expense or
liability, on account of the alleged loss, theft or destruction
of the certificate or the issuance of the replacement
certificate.
Section 6. REPRESENTATION OF SHARES OF OTHER
CORPORATIONS. The chairman of the board, the president, or any
vice president, or any other person authorized by resolution of
the Board of Directors or by any of the foregoing designated
officers, is authorized to vote on behalf of the corporation any
and all shares of any other corporation or corporations, foreign
or domestic, standing in the name of the corporation. The
authority granted to these officers to vote or represent on
behalf of the corporation any and all shares held by the
corporation in any other corporation or corporations may be
exercised by any of these officers in person or by any person
authorized to do so by a proxy duly executed by these officers.
Section 7. CONSTRUCTION AND DEFINITIONS. Unless the
context requires otherwise, the general provisions, rules of
construction, and definitions in the California Corporations Code
shall govern the construction of these bylaws. The singular, and
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the term "person" includes both a corporation and a natural
person.
ARTICLE IX
DISTRIBUTIONS TO SHAREHOLDERS
-----------------------------
The corporation shall distribute quarterly to its
shareholders substantially all of the corporation's net
investment income; provided, however, that the Board of directors
may, in its sole discretion, elect to make such distributions
each month. Each distribution will include all previously
undistributed income, prepayment and late payment charges, and
that portion of any repayment of principal on a note made prior
to the determination date for the distribution which is
attributable to the discount obtained upon the acquisition of
that note by the corporation. Each distribution will be reduced
by the corporation's quarterly operating expenses plus any losses
realized by the corporation. All gains realized upon foreclosure
upon and subsequent sale of property subject to a deed of trust
or the sale of money market instruments, or otherwise will be
distributed annually following the close of the last quarter of
the corporation's fiscal year. Any distribution to shareholders
of the corporation's fiscal year. Any distribution to
shareholders of the corporation of income or capital assets of
the corporation shall be accompanied by a written statement
disclosing the source of the funds distributed. If, at the time
of distribution, this information is not available, a written
explanation of the relevant circumstances shall accompany the
distribution and the written statement disclosing the source of
the funds distributed shall be sent to the shareholders not later
than sixty (60) days after the close of the fiscal year in which
the distribution was made.
ARTICLE X
AMENDMENTS
----------
Section 1. REVIEW OF BYLAWS. The bylaws of the
corporation shall be reviewed by the Board of Directors at least
every two years and revised as necessary and pursuant to the
limitations set forth below.
Section 2. AMENDMENT BY SHAREHOLDERS. New bylaws may
be adopted or these bylaws may be amended or repealed by the vote
or written consent of holders of a majority of the outstanding
shares entitled to vote; provided, however, that (a) no amendment
which would change any rights with respect to any outstanding
class of securities of the corporation, by reducing the amount
payable thereon upon liquidation of the corporation, or by
-34-
Page 63 of 65 <PAGE>
diminishing or eliminating any voting rights pertaining thereto,
may be made unless approved by the vote or written consent of the
holders of two-thirds (2/3) of the outstanding securities of such
class and (b) if the articles of incorporation of the corporation
set forth the number of authorized directors of the corporation,
the authorized number of directors may be changed only by an
amendment of the articles of incorporation.
Section 3. AMENDMENT BY DIRECTORS. Subject to the
rights of the shareholders as provided in Section 2 of this
Article X, bylaws, other than a bylaw or an amendment of a bylaw
changing the authorized number of directors, may be adopted,
amended or repealed by the Board of Directors; provided that the
Board of Directors may not adopt any amendment which would
change: (a) any of the specific restrictions set forth in
Section 3 of Article I of these bylaws; (b) any provision of
Sections 2 through 5 of Article II, Sections 1 through 5 or 16
through 18 of Article III, Section I of Article IV, Section 2, 3,
7 or 8 of Article VI, Section 5 or 6 of Article VII, Article IX,
or Section 2 or 3 of Article X of these bylaws; or (c) any rights
with respect to any outstanding class of securities of the
corporation, by reducing the amount payable thereon on
liquidation of the corporation, or by diminishing or eliminating
any voting rights pertaining thereto.
-35-
Page 64 of 65 <PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 262,055
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 262,055
<PP&E> 200,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 462,055
<CURRENT-LIABILITIES> 25,187
<BONDS> 0
0
0
<COMMON> 6,298,479
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 462,055
<SALES> 0
<TOTAL-REVENUES> 20,323
<CGS> 0
<TOTAL-COSTS> 150,676
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 154,105
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (310,357)
<INCOME-TAX> 0
<INCOME-CONTINUING> (310,357)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (310,357)
<EPS-PRIMARY> (1.75)
<EPS-DILUTED> (1.75)
</TABLE>
