FORM 10-KSB
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Fiscal Year Ended March 31, 1998
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _______to_______.
Commission File No. 000-18887
COLONIAL TRUST COMPANY
(Name of small business issuer in its charter)
Arizona 75-2294862
(State of Incorporation) (IRS Employer Identification Number)
5336 N. 19th Avenue, Phoenix, Arizona 85015
(Address of principal executive offices)
602-242-5507
(Issuer's telephone number)
Securities registered under Section 12(b) of the Exchange Act:
None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, no par value
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 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. [X]
Issuers' revenues for its most recent fiscal year: $2,346,610.
The aggregate market value of the Common Stock held by non-affiliates of the
Registrant was $2,316,253 as of June 1, 1998.
As of June 1, 1998, 7,720,842 shares of the Registrant's Common Stock were
outstanding.
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TABLE OF CONTENTS
Page
PART I
Item 1: Description of Business................................... 3
Item 2: Description of Properties................................. 12
Item 3: Legal Proceedings......................................... 12
Item 4: Submission of Matters to a Vote of
Security Holders ......................................... 12
PART II
Item 5: Market for Common Equity and Related
Stockholder Matters....................................... 13
Item 6: Management's Discussion and Analysis
or Plan of Operation...................................... 13
Item 7: Financial Statements...................................... 22
Item 8: Changes in and Disagreements with
Accountants on Accounting and
Financial Disclosure...................................... 36
PART III
Item 9: Directors, Executive Officers, Promoters
and Control Persons; Compliance with
Section 16(a) of the Exchange Act......................... 36
Item 10: Executive Compensation.................................... 38
Item 11: Security Ownership of Certain Beneficial
Owners and Management..................................... 41
Item 12: Certain Relationships and Related
Transactions.............................................. 42
Item 13: Exhibits and Reports on Form 8-K.......................... 43
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PART I
ITEM 1. DESCRIPTION OF BUSINESS.
Forward Looking Statements
This report contains forward looking statements relating to Colonial Trust
Company (the "Company"). Additional written or oral forward looking statements
may be made by the Company from time to time by filings with the Securities and
Exchange Commission or otherwise. Such forward looking statements are with the
meaning of that term in Section 27A of the Securities Act, and Section 21E of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Such
statements may include, but not be limited to, projection of revenues, income,
or loss, estimates of capital expenditures, plans for the future operations,
products or services, and financing needs or plans, as well as assumptions
relating to the foregoing. The words "believe", "expect", "anticipate",
"estimate", "project" and similar expressions identify forward looking
statements, which speak only as of the date the statement was made. Forward
looking statements are inherently subject to risks and uncertainties, some of
which cannot be predicted or quantified. Future events and actual results could
differ materially from those set forth in, contemplated by, or underlying the
forward looking statements. The Company undertakes no obligation to publicly
update or revise any forward looking statements, whether as a result of new
information , future events, or otherwise. The following disclosures, as well as
other statements in this Report on Form 10-KSB, including but not limited to
those contained below in "Item 1: Description of Business-Growth Plans," and
"Item 6: Management's Discussion and Analysis or Plan of Operation," describe
factors, among others, that could contribute to or cause such differences, or
that could affect the Company's stock price.
General
The Company was incorporated under the laws of the State of Arizona on
August 15, 1989. The business operations of the Company commenced on September
11, 1989. From the time of its organization through September 30, 1990, the
Company was a wholly-owned subsidiary of Church Loans and Investments Trust
("Church Loans"), a real estate investment trust located in Amarillo, Texas. On
October 1, 1990, all of the capital stock of the Company was distributed to the
stockholders of Church Loans on the basis of one share of common stock of the
Company for each share of Church Loans stock owned on such date.
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On September 11, 1989, the Company began providing trust services to the
public. These services included serving as trustee on inter vivos and
testamentary trusts, serving as the legal representative of estates of decedents
and wards, serving as the custodian under individual retirement accounts ("IRA
Accounts"), and serving as trustee for bond offerings of churches and other
non-profit organizations. The Company is presently primarily engaged in the
business of serving as trustee and paying agent on bond programs of churches and
other non-profit organizations. The Company also serves as trustee for IRA
Accounts. Through its Personal Trust Division, the Company provides traditional
investment management, administration and custodial services for customers with
trust assets. See "Trust Services, Personal Trust Division."
Bond Offering Services
The Company's primary business historically has been serving as trustee and
paying agent for bond offerings of churches and other non-profit organizations.
According to the National Association of Securities Dealers, the total principal
amount of bonds issued in the U.S. by non-profit organizations in 1997 and 1996
was approximately $360 million and $352 million, respectively. The overwhelming
majority of these bonds are sold by broker-dealers in offerings which are exempt
from registration under federal and state securities laws.
In its capacity as trustee for bond offerings of non-profit organizations,
the Company receives proceeds from the sale of the bonds and distributes those
proceeds according to the purposes of the bond offering. The Company invests
such proceeds in U.S. Treasury Obligation Money Market Mutual Funds according to
the terms of the Company's investment policy and the applicable trust indenture.
The Company also receives periodic sinking fund payments (payments of interest
on the bonds by the non-profit organizations, typically made on a weekly basis)
on their respective due dates. In its capacity as paying agent, the Company
distributes the sinking fund payments to bondholders pursuant to a trust
indenture between the Company and the non-profit organization. If the non-profit
organization defaults under the terms of the trust indenture, the Company
forecloses on the property securing the payment of the bonds (typically real
estate and related improvements owned by the non-profit organization, such as a
church), attempts to sell the property, and thereafter distributes the proceeds
(if any) received from the foreclosure sale to bondholders.
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The Company is compensated for its services as trustee and paying agent in
one of three ways. The first fee structure allows the Company to invest trust
funds held for disbursement and retain the gains and earnings therefrom. The
second fee structure requires the issuing institution to pay a percentage of the
bond proceeds to the Company for set-up and bond printing costs during the first
year. Additionally, an annual maintenance fee is required each year. The third
fee structure entitles the Company to interest earnings up to 2.5% of daily
trust funds held in bond proceeds accounts in lieu of a set-up fee. Annual
maintenance fees and bond printing costs are charged as a percentage of the
related bond issue. The Company's policy is to allow the non-profit issuer to
choose between the three fee structures. The Company believes that the third fee
structure is currently utilized by a majority of the Company's competitors.
As of March 31, 1998, the Company had served as trustee and paying agent on
486 bond offerings totaling approximately $390 million in original principal
amount. The foregoing includes a total of 79 bond offerings in original
principal amount of approximately $71 million originated in the fiscal year
ended March 31, 1998. The Company's revenues from these activities represented
approximately 67% of the Company's aggregate revenues for the year ended March
31, 1998. See "Item 6- Management's Discussion and Analysis or Plan of Operation
- - Results of Operations for the Years Ended March 31, 1998 and 1997."
As of March 31, 1998, all bond programs for which the Company was serving
as trustee and paying agent had been originated by fourteen broker/dealers, and
four of those broker/dealers had originated bonds representing approximately 70%
of the aggregate principal amount of all bonds for which the Company was serving
as trustee and paying agent. The Company's ability to generate bond servicing
fees is dependent upon the ability of broker/dealers to originate bond offerings
for non-profit organizations and the Company's ability to maintain or develop a
relationship with broker/dealers who are successful in originating such bond
offerings.
The Company intends to attempt to develop relationships with additional
broker/dealers who are active in the non-profit bond financing market. To that
end, in February 1996 the Company entered into an employment agreement with Marv
Hoeflinger pursuant to which Mr. Hoeflinger currently serves as the Company's
Vice President of Marketing. Until joining the Company, Mr. Hoeflinger was
employed as Senior Vice President with Reliance Trust Company, one of the
Company's primary competitors in the non-profit bond servicing business. Mr.
Hoeflinger is primarily responsible for attempting to procure additional
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business from the broker/dealers with whom the Company currently has a
relationship, and for attempting to develop relationships with and procure
business from broker/dealers with whom the Company does not currently have a
relationship.
IRA Account Services
The Company also serves as trustee for IRA Accounts. As trustee, the
Company receives all contributions to these accounts, invests the contributions
as directed by the account participant and distributes the funds of the accounts
pursuant to the terms of each individual account. For its services as trustee,
the Company receives an annual base fee of $40 and a transaction fee of $5 per
transaction for each transaction in excess of 12 per year. The Company also
retains, as a portion of its fee, earnings up to 2% of the daily uninvested
balance in each IRA Account.
At March 31, 1998, the Company was serving as trustee for 6,644 IRA
Accounts with an aggregate value of approximately $143 million, including 141
IRA Accounts with an aggregate value of approximately $26 million serviced by
the Company's Personal Trust Division. Revenue from the Company's activities in
this area represented approximately 19% of the Company's aggregate revenues for
the year ended March 31, 1998. See "Item 6-Management's Discussion and Analysis
or Plan of Operation - Results of Operations for the Years Ended March 31, 1998
and 1997."
The majority of the IRA Accounts serviced by the Company have been
originated by the broker/dealers who originate the bond offerings for which the
Company serves as trustee and paying agent. Currently, there are a limited
number of IRA trustees who allow church bonds as an investment in their IRA
accounts. The Company has been able to grow its IRA servicing business primarily
through marketing efforts directed at the broker/dealers with whom the Company
has a bond servicing relationship.
The Company intends to attempt to grow this business primarily through
marketing efforts of Mr. Hoeflinger directly to non-profit organizations. Mr.
Hoeflinger promotes the Company's IRA services through investment seminars
emphasizing the Company's ability and willingness to allow church bonds as a
self-directed IRA investment.
Traditional Trust Services; Personal Trust Division
On November 1, 1995, the Company purchased all of the issued and
outstanding common stock of Camelback Trust Company ("Camelback"). Camelback was
merged with and into the Company on July 31, 1996. Camelback now operates as the
Company's Personal Trust Division.
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The Personal Trust Division provides traditional investment management,
administration and custodial services for customers with assets (cash,
securities, real estate or other assets) held in trust or in an investment
agency account. It also serves as custodian for self-directed IRA Accounts. At
March 31, 1998, the Personal Trust Division served as trustee or agent for 183
trust, other accounts, or investment agency accounts with a fair market value of
approximately $51 million, and served as custodian for approximately 141 IRA
Accounts with a fair market value of approximately $26 million.
The Personal Trust Division generates revenues based on two fee structures.
The first fee structure represents a percentage of the fiduciary assets which
the Company holds as trustee or agent. Fees are assessed on a quarterly basis to
individual accounts according to the fair market value of the supporting
fiduciary assets in such account at the end of each quarter. Under the second
fee structure, the Personal Trust Division charges a flat annual fee based on
the type of asset and the services rendered for its services. The fee varies
depending the level of investment management the customer desires. The Personal
Trust Division charges a flat annual fee of $500 and a fee of $25 per special
asset held in the account for IRA Accounts for which it serves as custodian.
The Company is party to an investment advisory agreement dated September
1995 with Hackett Investment Advisors, Inc. ("HIA"), an investment advisor
located in Scottsdale, Arizona. Pursuant to this agreement, the Company
designates HIA, and HIA serves for the Company, as investment advisor on a
portion of the investment accounts of the Personal Trust Division. HIA further
refers to the Personal Trust Division all business opportunities for which an
independent corporate fiduciary is necessary or appropriate. The Company pays
HIA 30% of the gross fees collected by the Company from the Company's investment
management accounts receiving HIA advisory services. The agreement with HIA was
scheduled to terminate on January 31, 1998. The parties have extended the
agreement while they negotiate a new agreement. As of the date hereof, such
negotiations were continuing.
The Company is also party to an investment advisory agreement dated January
2, 1997 with Wright Investors Services ("WIS"). WIS is an investment advisor
located in Bridgeport, Connecticut. Pursuant to this agreement, the Company
designates WIS, and WIS serves for the Company, as investment advisor on a
portion of the designated investment accounts of the Personal Trust Division.
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The Company pays WIS 30% or 10%, depending upon the type of account, of the
gross fees collected by the Company from the Company's investment management
accounts for which WIS serves as investment advisor. The initial term of the
agreement continued in effect through January 31, 1998. The agreement
automatically renews for subsequent terms of one year each, unless either party
notifies the other in writing, at least three months in advance of the
anniversary date of its intent to terminate the agreement. The agreement was
automatically renewed on January 2, 1998 and continues in effect until January
2,1999.
The Company was formerly a party to an employment agreement with A. R.
"Bud" Olson, who has primary responsibility for developing trust business for
the Personal Trust Division. By mutual agreement, the Company and Mr. Olson
decided not to renew the employment agreement (which terminated on December 31,
1997), and Mr. Olson currently serves as an at-will employee of the Company. Mr.
Olson has 38 years of experience as a trust professional, including 8 years of
experience as a trust professional in Phoenix. The profitability of the Personal
Trust Division is dependent in large part on the efforts of Mr. Olson and, to a
lesser extent, HIA, to generate new trust business and upon the ability of HIA
and WIS to manage the trust accounts resulting from these efforts. Revenues from
the Personal Trust Division, including IRA servicing fees-personal, represented
approximately 16% of the Company's aggregate gross revenues for the year ended
March 31, 1998. See "-Growth Plans", "Item 10 Executive Compensation-Employment
Agreements" and "Management's Discussion and Analysis or Plan of Operation -
Results of Operations for the Years Ended March 31, 1998 and 1997."
Growth Plans
The Company intends to attempt to expand its non-profit bond servicing
operations, its IRA Account servicing operations, and the Personal Trust
Division's traditional trust and investment agency servicing operations.
Although the Company may make additional acquisitions in the event opportunities
arise on favorable terms, the Company anticipates that expansion will result
primarily from internal development.
The Company intends to attempt to expand its non-profit bond servicing
operations by(i) attempting to increase the number of bond offerings it services
which are initiated by broker/dealers with whom the Company has an existing
relationship, and (ii) attempting to develop relationships with additional
broker/dealers from whom the Company will receive bond servicing referrals. The
Company also intends to attempt to develop additional sources of revenue by
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serving as paying agent for non-profit loan funds established by denominations
of various religious organizations. The Company may establish a bond loan
program whereby a bond issuer meeting certain financial criteria could borrow
funds from the Company by pledging unsold bonds of the offering as collateral
for such loan in an amount equal to the loan. Bonds held as collateral for the
loan would accrue interest to the Company offsetting the interest charged for
the loan. In addition to the interest earned on the loaned funds, the Company
would earn a loan commitment fee. Mr. Hoeflinger will bear significant
responsibility for such matters. See "Item 9-Directors, Executive Officers,
Promoters and Control Persons-Employment Agreements." There may be no assurance
that the Company will be successful in its efforts to increase bond servicing
revenues or to develop additional sources of revenue. See "Management's
Discussion and Analysis or Plan of Operation Results of Operations for the Years
Ended March 31, 1998 and 1997."
The Company intends to attempt to expand its IRA Account servicing business
through (i) attempting to develop relationships with new broker/dealers with
whom the Company has not previously had a relationship, and (ii) investment
seminars emphasizing the
Company's ability and willingness to allow church bonds as a self-directed IRA
investment. There may be no assurance that the Company will be successful in its
efforts to increase IRA Account servicing revenues. See "Management's Discussion
and Analysis or Plan of Operation - Results of Operations for the Year Ended
March 31, 1998 and 1997."
The Company also intends to attempt to expand its traditional trust account
and investment agency account business by (i) attempting to procure additional
business from lawyers, accountants and other trust professionals in the Phoenix
area with whom the Company has an existing relationship, and (ii) attempting to
develop relationships with additional trust professionals in the Phoenix area
who will serve as referral sources for the Company. The Company will be
dependent primarily upon the efforts of Bud Olson, the Personal Trust Division's
Vice President of Marketing, and HIA, with whom the Company has an investment
advisory agreement, with respect to these matters. There may be no assurances
that the Company will be successful in its efforts to increase trust account and
investment agency account servicing revenues. See "Management's Discussion and
Analysis or Plan of Operation - Results of Operations for the Years Ended March
31, 1998 and 1997."
THE FOREGOING DISCUSSION ENTITLED "GROWTH PLANS" CONTAINS FORWARD LOOKING
STATEMENTS WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT, AS AMENDED,
AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, AND IS
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SUBJECT TO THE SAFE HARBORS CREATED THEREBY. THE COMPANY'S ACTUAL FUTURE
OPERATIONS COULD DIFFER MATERIALLY BECAUSE OF THE FOLLOWING FACTORS, AMONG
OTHERS: THE COMPANY'S CONTINUED INVOLVEMENT IN EACH OF ITS CURRENT BUSINESSES;
THE CONTINUED EMPLOYMENT OF KEY MANAGEMENT, INCLUDING MESSRS. HOEFLINGER, OLSON
AND JOHN JOHNSON, THE COMPANY'S CHIEF EXECUTIVE OFFICER; THE SUCCESS OF MESSRS.
HOEFLINGER AND OLSON IN THEIR RESPECTIVE BUSINESS DEVELOPMENT EFFORTS; THE
COMPANY'S SUCCESS IN MAINTAINING ITS EXISTING RELATIONSHIPS WITH BROKER/ DEALERS
WHO SERVE AS REFERRAL SOURCES FOR THE COMPANY; THE COMPANY'S SUCCESS IN
DEVELOPING ADDITIONAL RELATIONSHIPS WITH BROKER/DEALERS WHO CAN SERVE AS NEW
SOURCES OF REFERRALS FOR THE COMPANY; THE CONTINUATION OF THE COMPANY'S
INVESTMENT ADVISORY AGREEMENTS WITH WIS AND HIA AND THEIR SUCCESS IN MANAGING
THE TRUST AND IRA ACCOUNTS FOR WHICH IT PROVIDES SERVICES; NO MATERIAL CHANGES
IN EXISTING LAWS, RULES OR REGULATIONS AFFECTING THE COMPANY'S OPERATIONS;
COMPETITIVE FACTORS, SUCH AS INCREASED COMPETITION FOR THE COMPANY'S SERVICES IN
ONE OR MORE OF THE ABOVE BUSINESSES; AN INCREASE IN INTEREST RATES OR OTHER
ECONOMIC FACTORS HAVING AN ADVERSE IMPACT ON THE COMPANY'S NON-PROFIT BOND
SERVICING BUSINESS; AND OTHER FACTORS SET FORTH IN "MANAGEMENT'S DISCUSSION AND
ANALYSIS OR PLAN OF OPERATION."
Competition
The Company's primary competitors in the non-profit bond servicing business
are Reliance Trust Company, Herring Bank, American Church Trust Company and
National City Bank. Some of these companies have significantly greater financial
and other resources than the Company. Increased success by these competitors or
increased competition from additional sources could have a material adverse
effect on the Company's financial condition and results of operations.
Competition in the IRA Account servicing business is intense. However, to
date the Company has focused its efforts on procuring IRA Account servicing
business from non-profit organizations and their members. Thus, the Company's
primary competition comes from the relatively small number of trustees who will
allow church bonds as a self-directed investment. The Company's primary
competitors in this business include Reliance Trust Company, American Church
Trust, First National Bank of Onaga and, to a lesser extent, broker/dealers,
banks and other financial institutions, investment advisors, money management
firms and other trust companies, many of which have significantly greater
financial and other resources than the Company.
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The Company competes with the trust departments of large banks (and other
financial institutions) and, to a lesser extent, with other independent trust
companies for trust account and investment agency account business. Although the
Company has focused its efforts on trust accounts which are smaller than those
typically serviced by large banks, increased competition by large banks for
these accounts and/or increased success by other independent trust companies
could have a material adverse impact on the Company's financial condition and
results of operations. The large banks, and some of the independent trust
companies located in the Phoenix area, have significantly greater financial and
other resources than the Company.
Regulation, Licensing and Supervision
The Company's operations are subject to ongoing regulation, licensing and
supervision under various federal, state and local statutes, ordinances and
regulations, including but not limited to regulation by the Arizona Department
of Banking. Under applicable rules and regulations of the Arizona Department of
Banking, the Company files periodic reports with the Department and is subject
to periodic examinations of that Department.
Under legislation effective on July 20, 1996, the Company is required to
maintain net capital of at least $500,000; the Company's net capital was
approximately $1,756,469 on March 31, 1998. The legislation also requires that
the Company's net capital meet certain liquidity requirements. Specifically,
$166,666, $333,332 and $500,000 of such net capital must meet the Department's
liquidity requirements by December 31, 1997, December 31, 1998 and December 31,
1999, respectively. At March 31, 1998, $168,206 of the Company's net capital met
the Department's liquidity requirements. The Company believes that it will be
able to satisfy the foregoing liquidity requirements from cash on hand and other
assets of the Company.
The Company believes that it is currently in substantial compliance with
all applicable federal, state and local laws and regulations.
Employees
At March 31, 1998, the Company employed 31 persons. None of the Company's
employees are covered by a collective bargaining agreement. The Company
considers its relations with its employees to be good.
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ITEM 2. DESCRIPTION OF PROPERTIES.
On March 15, 1995, the Company purchased an office building located at 5336
N. 19th Avenue in Phoenix, Arizona. The building is approximately 10,000 square
feet in size and serves as the Company's executive offices. Prior to March 15,
1995, the Company leased approximately 1,500 square feet of office space for its
executive offices at 2510 West Dunlap, Suite 232, in Phoenix, Arizona. On March
15, 1995, the lease was assigned to an unrelated third party. The lease
terminated in September 1996.
The Company was also a party to a lease for commercial office space
formerly occupied by Camelback as its executive office in Scottsdale, Arizona.
The office lease terminated on February 14, 1998.
ITEM 3. LEGAL PROCEEDINGS.
On November 1, 1996, a former employee of the Company filed a charge of
race discrimination before the Civil Rights Division of the Arizona Attorney
General's office (the "Agency"). The action was filed subsequent to the
employee's discharge by the Company. The Company filed its statement of position
on December 12, 1996, in which the Company denied all allegations of
discrimination or wrongdoing with respect to the former employee, and on January
27, 1997, the Company also filed responses to the Agency's interrogatories. The
Agency failed to take action before the expiration of the Arizona statute of
limitations. The matter has therefore been referred to the United States Equal
Employment Opportunity Commission (" EEOC") and is pending before that agency.
At the present time, the Company has been advised by its counsel in this matter
that, in the opinion of such counsel, it is too early in the administrative
process to make a determination concerning the potential outcome of such
proceeding or the potential liability of the Company as a result of this
proceeding or other potential proceedings. While management does not believe
that the ultimate resolution of this matter will have a material adverse effect
on the Company, there can be no assurance how the EEOC will ultimately rule on
this matter and whether subsequent litigation will be filed.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
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Part II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
On June 1, 1998, the Company had approximately 3,200 stockholders of
record. There is no established public trading market for the Company's Common
Stock. The Company does not expect to pay dividends in the foreseeable future
but instead intends to retain future earnings, if any, to increase stockholders'
equity and to satisfy the capital and liquidity requirements of the Arizona
Banking Department. See "Business-Regulation, Licensing and Supervision".
Initial purchases and sales of the Company's Common Stock occurred in
January 1991. See Item 1 - "Description of Business." The high and low sales
prices for the Company's Common Stock during the year ended March 31, 1998, were
$.30 and $.23 per share, respectively. Such prices represent negotiated sales
between buyers and sellers without mark-up, mark-down or retail commission. The
Company served as transfer agent in connection with all such transactions.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Results of Operations for the Years Ended March 31, 1998 and 1997.
The Company had net earnings of $214,358, or $.03 per share, for the fiscal
year ended March 31, 1998, compared to net earnings of $163,725, or $.02 per
share, for the year ended March 31, 1997, an increase of 31%. The Company had
total revenue of $2,346,610 for the year ended March 31, 1998, compared to total
revenue of $1,786,245 for the prior year, an increase of 31%.
The Company's bond servicing income increased to $1,582,917 for the year
ended March 31, 1998, compared to $1,226,591 for the year ended March 31, 1997
an increase of 29%. The increase in bond servicing income was primarily
attributable to the increase in the number of bond accounts serviced by the
Company. At March 31, 1998, the Company was serving as trustee and paying agent
on 418 bond offerings totaling approximately $315,000,000 in original principal
amount; at March 31, 1997, the Company was serving as trustee and paying agent
on 360 bond offerings totaling approximately $267,000,000 in original principal
amount. The Company anticipates that its bond servicing income will increase in
the year ending March 31, 1999, by approximately 15% - 25% over current year
levels as a result of an increase in the number and principal amount of bond
offerings for which the Company serves as trustee and paying agent.
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Revenue from the Company's IRA Account servicing activities increased to
$443,991 for the year ended March 31, 1998 compared to $352,018 for the fiscal
year ended March 31, 1997, an increase of 26% due primarily to an increase in
the number of IRA Accounts serviced by the Company. At March 31, 1998, the
Company serviced 6,644 IRA Accounts with an aggregate value of approximately
$143,000,000, including 141 IRA Accounts with an aggregate value of
approximately $26,000,000 serviced by the Personal Trust Division; at March 31,
1997, the Company serviced 6,186 IRA Accounts with an aggregate value of
approximately $124,000,000. The Company anticipates that its IRA servicing
revenue will increase in the fiscal year ending March 31, 1999 by approximately
10% - 20% over current-year levels as a result of an increase in the number of
IRA Accounts serviced by the Company.
Trust income derived from the Personal Trust Division increased to $279,903
for the fiscal year ended March 31, 1998, compared to 173,603 for the prior
fiscal year , an increase of 61%. At March 31, 1998, the Personal Trust Division
served as trustee or agent for 183 trust, other accounts, or investment accounts
with a fair market value of approximately $51 million. The Company anticipates
that trust income will increase by approximately 20-40% in fiscal 1999.
Interest income increased slightly to $39,799 for the fiscal year ended
March 31, 1998, compared to $34,033 in the prior fiscal year, an increase of
17%. The increase was primarily attributable to a larger balance held for
investment.
The Company's general and administrative expenses increased in the
aggregate to $1,984,485 for the fiscal year ended March 31, 1998, compared to
$1,522,020 for the prior fiscal year, and decreased to 84.5% of revenues for the
fiscal year ended March 31, 1998, from 85.2% of revenues in the prior fiscal
year. The Company anticipates that general and administrative expenses will
increase in the aggregate in fiscal 1999 but will remain relatively constant or
decrease slightly as a percentage of revenues from fiscal 1998 levels as a
result of spreading these increased costs over a larger revenue base.
THE FOREGOING DISCUSSION CONTAINS VARIOUS FORWARD LOOKING STATEMENTS WITHIN
THE MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED, AND
SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, AND IS SUBJECT
TO THE SAFE HARBORS CREATED THEREBY. ACTUAL RESULTS COULD DIFFER MATERIALLY
BECAUSE OF THE FOLLOWING FACTORS, AMONG OTHERS: THE COMPANY'S CONTINUED
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INVOLVEMENT IN EACH OF ITS CURRENT LINES OF BUSINESS; THE COMPANY'S SUCCESS IN
MAINTAINING RELATIONSHIPS WITH THE BROKER/DEALERS WITH WHOM IT CURRENTLY DOES
BUSINESS; THE SUCCESS OF THE COMPANY'S EFFORTS TO DEVELOP RELATIONSHIPS WITH
OTHER BROKER/DEALERS WHO CAN SERVE AS A SOURCE OF REFERRALS FOR THE COMPANY; THE
CONTINUED EMPLOYMENT OF KEY MANAGEMENT; THE SUCCESS OF MESSRS. HOEFLINGER AND
OLSON IN THEIR BUSINESS DEVELOPMENT EFFORTS ON BEHALF OF THE COMPANY; THE
CONTINUATION OF THE COMPANY'S INVESTMENT ADVISORY AGREEMENT WITH HIA AND THE
SUCCESS OF HIA IN MANAGING THE TRUST AND INVESTMENT AGENCY ACCOUNTS FOR WHICH IT
PROVIDES SERVICES; INCREASED STAFFING OR OFFICE NEEDS NOT CURRENTLY ANTICIPATED;
INCREASED COMPETITION FOR THE COMPANY'S SERVICES, COMPETITIVE PRESSURES OR
PRICES FOR THE COMPANY'S SERVICES; AND CHANGES IN RULES AND REGULATIONS
ADVERSELY IMPACTING THE COMPANY'S LINES OF BUSINESS.
Results of Operations for the Years Ended March 31, 1997 and 1996.
The Company had net earnings of $163,725, or $.02 per share, for the fiscal
year ended March 31, 1997, compared to net earnings of $142,360, or $.02 per
share, for the year ended March 31, 1996, an increase of 15%. The Company had
total revenue of $1,786,245 for the year ended March 31, 1997, compared to total
revenue of $1,190,356 for the fiscal year ended March 31, 1996, an increase of
50%.
The Company's bond servicing income increased to $1,226,591 for the fiscal
year ended March 31, 1997, compared to $889,601 for the fiscal year ending March
31, 1996, an increase of 38%. The increase in bond servicing income was
primarily attributable to the increase in the number of bond accounts serviced
by the Company. At March 31, 1997, the Company was serving as trustee and paying
agent on 360 bond offerings totaling approximately $267,000,000 in principal
amount; at March 31, 1996, the Company was serving as trustee and paying agent
on 314 bond offerings totaling approximately $243,000,000 in principal amount.
Revenue from the Company's IRA servicing activities increased to $352,018
for the fiscal year ended March 31, 1997, compared to $212,033 for the fiscal
year ended March 31, 1996, an increase of 66%, due primarily to an increase in
the number of IRA Accounts serviced by the Company. At March 31, 1997, the
Company serviced 6,186 IRA Accounts with an aggregate value of $124,000,000,
including 104 self-directed IRA accounts with an aggregate value of $26,000,000
serviced by Camelback Trust Company; at March 31, 1996, the Company serviced
4,723 IRA Accounts with an aggregate value of approximately $90,000,000.
15
<PAGE>
Trust income increased to $173,603 for fiscal year ended March 31, 1997,
compared to $56,088 for the fiscal year ended March 31, 1996. The trust income
for fiscal 1996 represents revenues derived from Camelback's investment
management accounts for the period November 1, 1995 to March 31, 1996.
Interest income increased to $34,033 for the fiscal year ended March 31,
1997, compared to $32,634 for the fiscal year ended March 31, 1996. The increase
was primarily attributable to a larger balance held for investment.
The Company's general and administrative expenses increased in the
aggregate to $1,522,020 for the fiscal year ended March 31, 1997, compared to
$951,092 for the fiscal year ended March 31, 1996 and increased to 85.2% of
revenues in the fiscal 1997 from 79.8% of revenues in the previous fiscal year.
This increase was attributable to the following factors: (i) salary and related
costs attributable to the addition of Mr. Hoeflinger and nine administrative
staff members; and (ii) other additional expenses related to administering the
Company's increased bond servicing business.
Liquidity and Capital Resources
Under legislation effective on July 20, 1996, the Company is required to
maintain net capital of at least $500,000; the Company's net capital was
$1,756,469 on March 31, 1998. The legislation also requires that the Company's
net capital meet certain liquidity requirements. Specifically, $166,666,
$333,332 and $500,000 of such net capital must meet the Department's liquidity
requirements by December 31, 1997, December 31, 1998 and December 31, 1999,
respectively. At March 31, 1998, $168,206 of the Company's net capital met the
Department's liquidity requirements. The Company believes that it will be able
to satisfy the foregoing liquidity requirements from cash on hand and other
assets of the Company. Net cash provided by operating activities was $150,482
for the year ended March 31, 1998. The Company also believes that it will be
able to satisfy its working capital and capital expenditure requirements for the
foreseeable future from existing cash balances, from anticipated cash flow from
operating activities, and from funds available under the Company's Master Note
with its former parent, Church Loans and Investments Trust.
Accounting Matters
Earnings per share: In February 1997, the Financial Accounting Standards Board
issued SAS No. 128, "Earnings Per Share". This Statement establishes standards
for computing and presenting earnings per share ("EPS"), and supersedes APB
16
<PAGE>
Opinion No. 15. This Statement replaces primary EPS with basic EPS and requires
dual presentation of basic and diluted EPS. This Statement is effective for
periods ending after December 15, 1997. Basic and diluted EPS, as calculated
under SAS No. 128, would have been $.03 and $.03 for the fiscal year ended March
31, 1998. Basic and diluted EPS, as calculated under SAS No. 128, would have
been $.02 and $.02 for the fiscal year ended March 31, 1997.
Risk Factors
No Trading Market for Common Stock
The Company's Common Stock is not listed on the Nasdaq Stock Market
("Nasdaq") or on any national or regional securities exchange, and there is no
established trading market for the Common Stock. The Company intends to pursue
the listing of its Common Stock on Nasdaq or a securities exchange in the
future. However, the Company currently does not meet the listing requirements of
Nasdaq or any securities exchange, and there may be no assurance that the
Company will qualify for such a listing in the future. Until the Company is
successful in procuring a listing for its Common Stock on Nasdaq or a securities
exchange, the Company will attempt to match shareholders who wish to sell
Company Common Stock with persons who wish to buy such Common Stock. However,
based on historical trading volume in the Company's Common Stock, a shareholder
who owns a substantial number of shares of Company Common Stock will likely be
unable to sell his shares in a short period of time should he need or wish to do
so.
Dependence on Key Personnel and Management of Growth
The Company's future success will depend upon the continued services of the
Company's senior management. The unexpected loss of the services of any of the
Company's senior management personnel could have a material adverse effect upon
the Company. The Company has entered into employment agreements with certain of
its senior management. See "Item 10: Executive Compensation-Employment
Agreements." The Company's future success will depend in part upon its
continuing ability to attract and retain highly qualified personnel to manage
the future growth of the Company. There may be no assurance that the Company
will be successful in attracting and retaining such personnel. Further, the
Company's ability to manage growth successfully will require the Company to
continue to improve its management and financial controls. Failure to do so
could have a material adverse effect upon the Company's operating results and
financial condition.
17
<PAGE>
Non-Profit Bond Servicing Market; Ability to Increase Bond Servicing
Revenues
The Company's future financial performance will depend in part upon the
size of the non-profit bond market. According to the NASD, approximately $360
million and $352 million in bonds were issued by non-profit organizations in the
years 1997 and 1996, respectively. However, the market for bonds issued by
non-profit organizations is subject to fluctuation due to a number of factors
beyond the control of the Company. Moreover, there can be no assurance that the
market for bonds issued by non-profit organizations will continue at or near the
levels reached in 1997 or 1996. Based on the foregoing figures, the Company's
share of the non-profit bond servicing market was approximately 18% and 23% in
1997 and 1996, respectively. The Company's ability to increase its market share
will be dependent upon a number of factors, including the Company's ability to
develop and maintain relationships with the broker/dealers who are primarily
responsible for the sale of such non-profit bonds. See "Dependence Upon Certain
Business Relationships." Revenues from the Company's bond servicing activities
accounted for approximately 67% of the Company's total revenues in the fiscal
year ended March 31, 1998.
Market for Personal Trust Services; Ability to Increase Personal Trust
Service Revenues
The Company intends for the foreseeable future to limit the activities of
its Personal Trust Division to the metropolitan Phoenix area. Therefore, the
Company's future financial performance will depend in part upon the size of the
market for personal trust services in the metropolitan Phoenix area. Revenues
from such activities accounted for approximately 16% of the Company's total
revenues in the fiscal year ended March 31, 1998. The Company's ability to
continue to increase its revenues from personal trust services will be dependent
upon a number of factors, including the Company's ability to develop and
maintain relationships with professionals (such as attorneys and accountants)
who serve as a referral source for these services and the Company's continuing
ability to service personal trust accounts. See "Item 1: Business-Personal Trust
Services."
18
<PAGE>
Dependence Upon Certain Business Relationships
The Company depends to a significant extent on its relationships with
broker/dealers who are involved in the sale of bonds for non-profit
organizations to refer business to the Company for bond servicing duties
associated with such offerings. As of March 31, 1998, all bond programs for
which the Company was serving as trustee and paying agent had been originated by
14 broker/dealers, and four of those broker/dealers had originated bonds
representing approximately 70% of the aggregate principal amount of all
outstanding bonds for which the Company was serving as trustee and paying agent.
The loss of or damage to any one of these relationships, or the failure or
inability of any one of these broker/dealers to initiate a similar number of
non-profit bond offerings in the future, could have a material adverse impact on
the Company and its operations. The Company also depends, to a great extent,
upon its relationships with trust professionals (such as attorneys and
accountants) in the metropolitan Phoenix area to refer opportunities to the
Company to provide personal trust services. The loss of or damage to existing
relationships, or the Company's inability to continue to develop additional
relationships with trust professionals, could have a material adverse impact on
the Company and its operations.
Competition
The principal businesses in which the Company is involved are highly
competitive. The Company currently competes with a number of other trust
companies to serve as trustee and paying agent for non-profit bond financings,
including Reliance Trust Company, Herring Bank, American Church Trust Company,
and National City Bank. The Company also competes with large banks and other
financial institutions for these services. Other companies that do not currently
provide these services may enter this business. The Company also competes with
large banks and other financial institutions, including other trust companies,
located in the metropolitan Phoenix area for the business of providing personal
trust services. Other companies that do not currently provide these services may
enter this business.
19
<PAGE>
Regulation, Licensing and Supervision; Net Capital Requirements
The Company's operations are subject to ongoing regulation, supervision and
licensing under various federal, state and local statutes, ordinances and
regulations, including but not limited to regulation by the Arizona Department
of Banking. Under applicable rules and regulations of the Arizona Department of
Banking, the Company files periodic reports with the Department and is subject
to periodic examinations by the Department. Additionally, under legislation
effective on July 20, 1996, the Company is required to maintain net capital of
at least $500,000; the Company's net capital was $1,756,469 million at March 31,
1998. The foregoing legislation also requires that the Company's net capital
meet certain liquidity requirements. Specifically, $166,666, $333,332 and
$500,000 of the Company's net capital must meet the Department's definition of
liquidity by July 20, 1997, July 20, 1998 and July 20, 1999, respectively. At
March 31, 1998, $168,206 of the Company's net capital met the Department's
liquidity requirements. The Company believes that it will be able to satisfy the
foregoing liquidity requirements from cash on hand and other assets of the
Company. The Company also believes that it is currently in substantial
compliance with all applicable federal, state and local laws and regulations.
Change in Securities Laws Affecting Non-Profit Bond Finance Market
Most bond offerings for which the Company serves as trustee and/or paying
agent are made in reliance upon an exemption from registration provided by
Section 3(a)(4) of the Securities Act of 1933, as amended, and similar
exemptions from registration provided for under applicable state securities
laws. In the event such federal and/or state exemptions become unavailable for
any reason, the Company believes that the market for non-profit bond financings
would be materially and adversely affected due primarily to the increased costs
associated with registration of such bonds under federal and/or state laws. The
foregoing would have a material adverse impact on the Company's fees generated
from bond servicing activities and, thus, the Company's results of operations.
20
<PAGE>
Lack of Dividends
The Company has never paid dividends on its Common Stock. The Company
intends for the foreseeable future to retain any earnings to support the growth
of the Company's business. The Company therefore does not contemplate paying
cash dividends on its Common Stock in the foreseeable future.
Year 2000
The Company has commenced a study of its computer systems in order to
assess its exposure to Year 2000 issues. The Company expects to make the
necessary modifications or changes to its computer information systems to enable
proper processing of transactions relating to the Year 2000 and beyond. The
Company estimates that expenditures will be minimal to modify its existing
systems, should it choose to do so. The Company will evaluate appropriate
courses of action, including replacement of certain systems whose associated
costs would be recorded as assets and subsequently amortized or modification of
its existing system which costs would be expensed as incurred. However, failure
of the Company to fully address and resolve its Year 2000 issues could have a
material adverse effect on the Company.
ITEM 7. FINANCIAL STATEMENTS.
The Company's audited financial statements, containing balance sheets as of
March 31, 1998 and 1997, and related statements of earnings, stockholders'
equity and cash flows for each of the years in the three-year period ended March
31, 1998, are set forth on the following pages.
21
<PAGE>
COLONIAL TRUST COMPANY
Financial Statements
March 31, 1998, 1997 and 1996
(With Independent Auditors' Report Thereon)
22
<PAGE>
[LETTERHEAD OF KPMG PEAT MARWICK]
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Colonial Trust Company:
We have audited the accompanying balance sheets of Colonial Trust Company
(Company) as of March 31, 1998 and 1997, and the related statements of earnings,
stockholders' equity and cash flows for each of the years in the three-year
period ended March 31, 1998. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Colonial Trust Company as of
March 31, 1998 and 1997, and the results of its operations and its cash flows
for each of the years in the three-year period ended March 31, 1998 in
conformity with generally accepted accounting principles.
/s/ KPMG Peat Marwick LLP
Phoenix, Arizona
May 22, 1998
23
<PAGE>
COLONIAL TRUST COMPANY
Balance Sheets
March 31, 1998 and 1997
ASSETS
1998 1997
---- ----
Cash and cash equivalents $ 28,475 $ 132,426
Receivables 300,857 150,228
Note receivable (note 2) 389,489 361,057
Property and equipment, net (note 3) 712,482 739,456
Excess of cost over fair value acquired, net 153,420 165,590
Restricted cash 168,206 --
Other assets 195,350 166,443
---------- ----------
$1,948,279 $1,715,200
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued liabilities $ 132,375 $ 113,610
Income taxes payable (note 5) 47,605 25,617
Deferred income taxes (note 5) 11,830 19,429
---------- ----------
191,810 158,656
---------- ----------
Stockholders' equity (notes 6 and 8):
Common stock, no par value; 10,000,000
shares authorized, 7,729,288 and
7,777,401 shares issued and outstanding
at March 31, 1998 and March 31, 1997,
respectively 554,942 554,942
Additional paid-in capital 505,347 505,347
Retained earnings 696,180 496,255
---------- ----------
Total stockholders' equity 1,756,469 1,556,544
Commitments and contingencies (notes 4 and 8)
---------- ----------
$1,948,279 $1,715,200
========== ==========
See accompanying notes to financial statements.
24
<PAGE>
COLONIAL TRUST COMPANY
Statements of Earnings
Years ended March 31, 1998, 1997 and 1996
1998 1997 1996
---- ---- ----
Revenue (note 1):
Bond servicing income $1,582,917 1,226,591 889,601
IRA servicing fees - corporate 348,660 297,631 152,599
IRA servicing fees - personal 95,331 54,387 59,434
Trust income 279,903 173,603 56,088
Interest income 39,799 34,033 32,634
---------- --------- ---------
Total revenue 2,346,610 1,786,245 1,190,356
General and administrative expenses 1,984,485 1,522,020 951,092
---------- --------- ---------
Income before income taxes 362,125 264,225 239,264
Income taxes (note 5) 147,767 100,500 96,904
---------- --------- ---------
Net earnings $ 214,358 163,725 142,360
========== ========= =========
Basic earnings per share $ .03 .02 .02
========== ========= =========
Diluted earnings per share $ .03 .02 .02
========== ========= =========
Weighted average shares outstanding--
basic 7,764,868 7,777,401 7,328,059
========== ========= =========
Weighted average shares outstanding--
diluted 7,901,250 7,777,401 7,328,059
========== ========= =========
See accompanying notes to financial statements.
25
<PAGE>
COLONIAL TRUST COMPANY
Statements of Stockholders' Equity
Years ended March 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
Unrealized
Holding
Gains On
Common Stock Additional Securities Total
-------------------- Paid-in Retained Available Stockholders'
Shares Amount Capital Earnings For Sale Equity
------ ------ ------- -------- -------- ------
<S> ` <C> <C> <C> <C> <C> <C>
Balances at March 31, 1995 7,007,402 $500,000 390,889 190,170 -- 1,081,059
Issuance of stock in an acquisition 769,999 54,942 114,458 -- -- 169,400
Net earnings -- -- -- 142,360 -- 142,360
Change in unrealized holding gains
on securities available for sale -- -- -- -- 602 602
---------- -------- ------- -------- ---- ----------
Balances at March 31, 1996 7,777,401 554,942 505,347 332,530 602 1,393,421
Net earnings -- -- -- 163,725 -- 163,725
Change in unrealized holding gains
on securities available for sale -- -- -- -- (602) (602)
---------- -------- ------- -------- ---- ----------
Balances at March 31, 1997 7,777,401 554,942 505,347 496,255 -- 1,556,544
Common stock acquired and retired (48,113) -- -- (14,433) -- (14,433)
Net earnings -- -- -- 214,358 -- 214,358
---------- -------- ------- -------- ---- ----------
Balances at March 31, 1998 7,729,288 $554,942 505,347 696,180 -- 1,756,469
========== ======== ======= ======== ==== ==========
</TABLE>
See accompanying notes to financial statements.
26
<PAGE>
COLONIAL TRUST COMPANY
Statements of Cash Flows
Years ended March 31, 1998, 1997 and 1996
1998 1997 1996
---- ---- ----
Cash flows from operating activities:
Net earnings $ 214,358 163,725 142,360
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Loss on sale of investments -- 1,702 --
Depreciation and amortization 82,506 70,475 51,331
Deferred income taxes (7,599) (1,893) 1,888
Increase in receivables (150,629) (39,983) (25,282)
Increase in other assets (28,907) (61,692) (69,704)
Increase in accounts payable and accrued
liabilities 18,765 61,089 14,591
Increase (decrease) in income taxes payable 21,988 (10,216) 11,997
--------- -------- --------
Net cash provided by operating activities
150,482 183,207 127,181
--------- -------- --------
Cash flows from investing activities:
Cash acquired in Camelback acquisition -- -- 71,702
Costs incurred in Camelback acquisition -- -- (56,389)
Additions to note receivable (28,432) (25,513) --
Proceeds from sale of investments -- 462,579 --
Purchase of property and equipment (43,362) (165,485) (60,646)
Proceeds from sale of furniture and equipment -- -- 3,441
Increase in restricted cash (168,206) -- --
--------- -------- --------
Net cash provided by (used in) investing
activities (240,000) 271,581 (41,892)
--------- -------- --------
Cash flows from financing activity:
Repayment of note payable -- (540,000) --
Purchase and retirement of common stock (14,433) -- --
--------- -------- --------
Net cash used in financing activities (14,433) (540,000) --
--------- -------- --------
(Decrease) increase in cash and cash equivalents (103,951) (85,212) 85,289
Cash and cash equivalents at beginning of year 132,426 217,638 132,349
--------- -------- --------
Cash and cash equivalents at end of year $ 28,475 132,426 217,638
========= ======== ========
SUPPLEMENTAL DISCLOSURES:
Interest paid $ -- 27,195 --
========= ======== ========
Income taxes paid $ 133,378 100,813 83,062
========= ======== ========
See accompanying notes to financial statements.
27
<PAGE>
COLONIAL TRUST COMPANY
Notes to Financial Statements
March 31, 1998, 1997 and 1996
(1) SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
Colonial Trust Company (Colonial or Company) was incorporated on August
15, 1989 in the state of Arizona for the purpose of engaging in the
business of acting as a fiduciary. The Company is domiciled in the state
of Arizona, is regulated by the Arizona State Banking Department, and the
Company's common stock is registered under the Securities Exchange Act of
1934.
Colonial serves as trustee under various bond indentures for issuers of
bonds in 38 states. The issuers are primarily churches and other
religious organizations. As trustee, the Company receives, holds,
invests, and disburses the bond proceeds as directed by the applicable
trust indenture and receives weekly or monthly sinking fund payments from
the issuer of bonds, and in turn, pays the semiannual principal and
interest payments to the bondholders. As of March 31, 1998, Colonial was
serving as trustee for the benefit of the bondholders on 418 bond
offerings totaling approximately $315,000,000 in original principal
amount. The amount of sold and unmatured bonds total approximately
$252,000,000 at March 31, 1998. Colonial also serves as a trustee of
6,503 self-directed individual retirement accounts for certain
bondholders or employees of religious organizations totaling
approximately $117,000,000 at March 31, 1998.
Colonial also serves as trustee or agent, provides investment management,
administration, and custodial services. As trustee or agent, Colonial
receives, holds, invests and tracks the performance of the various
securities held in trust, or investment agency accounts. Colonial was
serving as trustee or agent for 183 accounts with a fair market value
totaling approximately $51,000,000 at March 31, 1998. Colonial also acts
as custodian for self-directed IRA accounts. Colonial held 141 accounts
as custodian with a fair market value of approximately $26,000,000 at
March 31, 1998.
BASIS OF PRESENTATION
During 1996, Colonial acquired 100% of the outstanding common stock of
Camelback Trust Company (Camelback). All significant intercompany
balances and transactions were eliminated in the 1996 consolidation.
During fiscal 1997, the asset and liabilities of Camelback were
transferred to Colonial and Camelback was dissolved.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
28
<PAGE>
COLONIAL TRUST COMPANY
Notes to Financial Statements, Continued
REVENUE RECOGNITION
Under the trust indentures with organizations issuing bonds, Colonial,
for its services, principally earns revenues based on three fee
structures. The first fee structure allows Colonial to invest trust funds
held for disbursement and retain the gains and earnings therefrom. The
second fee structure requires the issuing institution to pay a percentage
of the bond proceeds to the Company for set-up and printing costs during
the first year. Additionally, an annual maintenance fee is required each
succeeding year. The third fee structure entitles Colonial to interest
earnings up to 2.5% of daily trust funds held in bond program fund
accounts in lieu of a set-up fee. Annual maintenance fees and bond
printing costs are charged as a percentage of the related bond issuance.
Colonial also receives fees for services provided as custodian for
self-directed individual retirement accounts.
The profitability of Colonial is dependent upon the ability of investment
broker-dealers to originate bond programs for which Colonial serves as
trustee. At March 31, 1998, approximately 70% of the total bond issues
processed were originated by 4 broker-dealers.
In connection with providing investment management, administration and
custodial services, Colonial earns revenue based on two-fee structures.
The first fee structure is established as a percentage of the fiduciary
assets which Colonial holds as trustee or agent. Fees are assessed on a
quarterly basis to individual accounts according to the quarter's end
fair market value of the supporting fiduciary assets. The second fee
structure relates to an annual fee which is set up to cover the
maintenance of fiduciary assets which Colonial holds in both trust and
self-directed IRA accounts.
At March 31, 1998, 30% of Colonial's trust account assets were held in
trust for members of one family. The combined trust accounts approximated
21% of Colonial's trust income revenues.
CASH EQUIVALENTS, NONCASH SUPPLEMENTAL DISCLOSURE AND CONCENTRATION OF
CREDIT RISK
Colonial considers all highly liquid debt instruments with original
maturities at the date of purchase of three months or less to be cash
equivalents. Cash equivalents at March 31, 1998 and 1997 consist
primarily of money market accounts which invest primarily in short-term
government securities.
During fiscal 1996, Colonial acquired Camelback. In connection with the
acquisition, excess of cost over fair value acquired was recorded:
Fair value of assets acquired $ 594,008
Common stock issued (169,400)
Note payable assumed (540,000)
Liabilities assumed (74,726)
---------
Excess of cost over fair value acquired $ 190,118
=========
During fiscal 1997, the excess of cost over fair value of $190,118 was
reduced by $7,288 to reflect the fair market value of assets and
liabilities assumed.
29
<PAGE>
COLONIAL TRUST COMPANY
Notes to Financial Statements, Continued
Colonial places its cash in insured financial institutions and United
States government securities with original maturities of three months or
less. At March 31, 1998, Colonial had no deposits at financial
institutions in excess of the FDIC insurance limit of $100,000.
NOTE RECEIVABLE
Colonial considers a note to be impaired when it is probable that the
Company will be unable to collect all amounts due according to the
contractual terms of the note. When a loan is considered to be impaired,
the amount of the impairment is measured based on the present value of
expected future cash flows discounted at the note's effective interest
rate. Impairment losses are charged to expense. The Company had no
impaired notes receivable during fiscal 1998, 1997 and 1996.
PROPERTY AND EQUIPMENT
Property and equipment is recorded at cost less accumulated depreciation.
Depreciation on furniture and equipment is recorded on the straight-line
method over the estimated useful lives of the assets ranging from 3 to 5
years. Colonial's building is depreciated over 39.5 years using the
straight-line method.
EXCESS OF COST OVER FAIR VALUE ACQUIRED (GOODWILL)
Goodwill arose in connection with the acquisition of Camelback by
Colonial on November 1, 1995 and is amortized using the straight-line
method over 15 years. Goodwill is carried net of accumulated amortization
of $29,410 and $17,240 at March 31, 1998 and 1997, respectively.
INCOME TAXES
Colonial uses the asset and liability method of accounting for income
taxes. Deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years
in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in
tax rates is recognized in income in the period that includes the
enactment date.
COMPUTATION OF EARNINGS PER COMMON SHARE
During fiscal 1998, the Company adopted the provisions of Statement of
Financial Accounting Standards (SFAS) No. 128, Earnings Per Share. This
statement establishes standards for computing and presenting earnings per
share (EPS). Under this new statement, Basic EPS is computed based on
weighted average shares outstanding and excludes any potential dilution
from stock options, warrants and other common stock equivalents. Diluted
EPS reflects potential dilution from the exercise or conversion of
securities into common stock or from other contracts to issue common
stock. The fiscal 1997 and 1996 earnings per share amounts have been
restated to reflect the adoption of SFAS No. 128.
30
<PAGE>
COLONIAL TRUST COMPANY
Notes to Financial Statements, Continued
STOCK OPTION PLAN
In accordance with the provisions of Accounting Principles Board ("APB")
Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES, the Company
measures stock based compensation expense as the excess of the market
price at the grant date over the underlying stock exercise price. In
accordance with the provisions of SFAS No. 123, Accounting for
Stock-Based Compensation, the Company provides pro forma net earnings and
pro forma earnings per share disclosures for employee stock option grants
as if the fair value of all stock-based awards on the date of the grant
was recognized as expense over the vesting period.
IMPAIRMENT OF LONG-LIVED ASSETS
Colonial reviews long-lived assets and certain identifiable intangibles
for impairment whenever events or changes in circumstances indicate that
the carrying amount of an asset may not be recoverable. Recoverability of
assets to be held and used is measured by a comparison of the carrying
amount of an asset to future undiscounted net cash flows expected to be
generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the
carrying amount of the assets exceed the fair value of the assets. Assets
to be disposed of are reported at the lower of the carrying amount or
fair value less costs to sell.
RECLASSIFICATIONS
Certain reclassifications have been made to prior year balances to
conform to the current year presentation.
(2) NOTE RECEIVABLE
On December 1, 1990, Colonial entered into a Master Note and Letter
Agreement with Church Loans, a real estate investment trust and
Colonial's former parent corporation. The Master Note in the maximum
amount of $1,000,000 is due on demand, bears interest payable monthly at
1% less than the prime interest rate and is unsecured. Amounts advanced
to Church Loans may be repaid and reborrowed.
(3) PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
1998 1997
---- ----
Land 157,241 157,241
Building 433,238 428,545
Furniture 111,210 108,329
Equipment 307,249 271,461
---------- --------
1,008,938 965,576
Less accumulated depreciation 296,456 226,120
---------- --------
$ 712,482 $739,456
========== ========
31
<PAGE>
COLONIAL TRUST COMPANY
Notes to Financial Statements, Continued
(4) LEASE COMMITMENTS
During fiscal 1998, Colonial leased office space and certain equipment
under various noncancelable operating lease arrangements. As of March 31,
1998, Colonial no longer leases office space. Rent expense totaled
$14,181 for 1998, $17,507 for 1997, and $7,876 for 1996.
(5) INCOME TAXES
Income taxes amounted to $147,767, $100,500 and $96,904 for 1998, 1997
and 1996, respectively. The actual income tax expense differs from
"expected" income taxes for those years (computed by applying the U.S.
federal corporate statutory income tax rate of 34% to earnings before
income taxes) as follows:
1998 1997 1996
---- ---- ----
Computed "expected" income
taxes $123,123 $89,837 $81,350
State taxes (net of federal
income tax benefit) 20,055 12,458 13,111
Other items, net 4,589 (1,795) 2,443
-------- -------- -------
$147,767 $100,500 $96,904
======== ========= =======
Effective income tax rate 40.8% 38.0% 40.5%
======== ======== =======
Components of income taxes consist of:
Current Deferred Total
------- -------- -----
1998:
Federal $123,085 $(5,705) $117,380
State 32,281 (1,894) 30,387
-------- ------- --------
$155,366 $(7,599) $147,767
======== ======= ========
1997:
Federal $ 83,026 $(1,401) $ 81,625
State 19,367 (492) 18,875
-------- ------- --------
$102,393 $(1,893) $100,500
======== ======= ========
1996:
Federal $ 75,646 $ 1,393 $ 77,039
State 19,370 495 19,865
-------- ------- --------
$ 95,016 $ 1,888 $ 96,904
======== ======= ========
32
<PAGE>
COLONIAL TRUST COMPANY
Notes to Financial Statements, Continued
The tax effects of temporary differences that give rise to significant
portions of the deferred tax liabilities at March 31, 1998 and 1997 are
presented below:
1998 1997
---- ----
Deferred tax liability:
Property and equipment, principally due
to differences in depreciation and deductions $11,830 $19,429
======= =======
(6) STOCK OPTION PLANS
Colonial's shareholders approved Colonial's Incentive Stock Option Plan
for employees of the Company (the "ISOP") and Colonial's Non-Employee
Directors Stock Option Plan (the "Directors Plan") on April 25, 1996.
Pursuant to the ISOP, the Colonial's Board of Directors is authorized to
grant either incentive stock options or nonstatutory stock options. The
exercise price of incentive stock options granted under the ISOP must be
equal to the fair market value per share on the date of grant, and the
exercise price of nonstatutory stock options must be at least 50% of the
fair market value per share on the date of grant. A total of 2,000,000
shares have been reserved for issuance under the ISOP.
Pursuant to the Directors Plan, each non-employee director received an
option to purchase 50,000 shares on the date the Directors Plan was
approved by Colonial's stockholders and options to purchase 15,000 shares
are automatically granted on January 1, 1997 and on each January 1
thereafter to each person then serving as a non-employee director of
Colonial. The exercise price of all options granted under the Directors
Plan must be equal to the fair market value per share on the date of
grant. A total of 500,000 shares have been reserved for issuance under
the Directors Plan.
At March 31, 1998, there were 1,014,232 shares available for grant under
the ISOP Plan and 260,000 shares available for grant under the Directors
Plan. The per share weighted average fair value of stock options granted
during 1998 and 1997 was $.09 and $.08, respectively, on the date of
grant using the Black Scholes Model with the following weighted average
assumptions: expected dividend yield of 0%, volatility of 10%, risk free
interest rate of 6.5% and an expected life of 6 years for both 1998 and
1997.
33
<PAGE>
COLONIAL TRUST COMPANY
Notes to Financial Statements, Continued
Colonial applies APB Opinion No. 25 in accounting for its plans and,
accordingly, no compensation cost has been recognized for its stock
options in the financial statements. Had Colonial determined compensation
cost based on the fair value at the grant date for its stock options
under SFAS No. 123, the Company's net earnings would have been reduced to
the pro forma amount indicated below for the years ended March 31, 1998
and 1997:
1998 1997
---- ----
Net earnings:
As reported $214,358 $ 163,725
======== =========
Pro forma $205,918 $ 160,619
======== =========
Earnings per share:
As reported - basic $ .03 $ .02
======== =========
As reported - diluted $ .03 $ .02
======== =========
Pro forma - basic $ .03 $ .02
======== =========
Pro forma - diluted $ .03 $ .02
======== =========
The full impact of calculating compensation cost for stock options under
SFAS No. 123 is not reflected in the pro forma net earnings amounts
presented above because compensation cost is reflected over the options'
vesting period of six years.
A summary of the aforementioned stock option plans follows:
<TABLE>
<CAPTION>
Year Ended March 31, 1998 Year Ended March 31, 1997
---------------------------------- ---------------------------------
Weighted Average Weighted Average
Number Of Shares Exercise Price Number Of Shares Exercise Price
---------------- -------------- ---------------- --------------
<S> <C> <C> <C> <C>
Balance at the beginning
of the year 818,290 $0.25 -- $ --
Granted 407,478 0.30 818,290 0.25
Forfeited -- -- -- --
Exercised -- -- -- --
-------- ----- -------- -----
Balance at the end of the
year 1,225,768 $0.27 818,290 $ 0.25
========= ===== ======== ======
Exercisable at the end of
the year 805,768 $0.26 528,290 $ 0.25
========= ===== ======== ======
</TABLE>
34
<PAGE>
COLONIAL TRUST COMPANY
Notes to Financial Statements, Continued
(7) FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosures about
Fair Value of Financial Instruments," requires that the Company disclose
estimated fair values for its financial instruments. The following
summary presents a description of the methodologies and assumptions used
to determine such amounts.
CASH AND CASH EQUIVALENTS
The carrying amount is assumed to be the fair value because of the
liquidity of these instruments.
RECEIVABLES AND NOTES RECEIVABLE
Fair value is considered to be equal to the carrying value of the
accounts and notes receivables, as they are generally short-term in
nature and the related amounts approximate fair value or are receivable
on demand.
LIMITATIONS
Fair value estimates are made at a specific point in time and are based
on relevant market information and information about the financial
instrument. These estimates do not reflect any premium or discount that
could result from offering for sale at one time the Company's entire
holdings of a particular financial instrument. Changes in assumptions
could significantly affect these estimates. Since the fair value is
estimated as of March 31, 1998 and 1997, the amounts that will actually
be realized or paid at settlement or maturity of the instruments could be
significantly different.
(8) COMMITMENTS AND CONTINGENCIES
In fiscal 1998, the Company developed a plan to deal with the Year 2000
problem and began converting its computer systems to be Year 2000
compliant. The plan provides for the conversion efforts to be completed
by the end of March 31, 1999. The Year 2000 problem is the result of
computer programs being written using two digits rather than four to
define the applicable year. The Company does not believe expenditures to
be Year 2000 compliant will be material, and is expensing all costs
associated with these systems changes as the costs are incurred.
Colonial is subject to the maintenance of a minimum capital requirement
of $500,000 pursuant to State of Arizona (the State) banking regulations
of which $166,666 must be "liquid" (as defined by the State) as of March
31, 1998. To satisfy this requirement, Colonial owns a $168,206
certificate of deposit held with a bank at March 31, 1998. This asset is
classified as restricted cash in the accompanying balance sheet as of
March 31, 1998.
Colonial is involved in lawsuits and claims incidental to the ordinary
course of its operations. In the opinion of management, based on
consultation with legal counsel, the effect of such matters will not have
a material adverse effect on the Company.
35
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(A) OF THE EXCHANGE
Act.
The following table contains information regarding the directors and
executive officers of the Company at March 31, 1998:
Name Position Age
---- -------- ---
Lynn R. Camp Chairman of the Board and Director 61
Michael W. Borger Director 43
Gerald G. Morgan Director 42
John K. Johnson President and Chief Executive Officer 40
and Director
Cecil E. Glovier Sr. Vice President Secretary 46
Marvin D. Hoeflinger Vice President 55
Christopher J. Olson Vice President/Treasurer 32
A.R. Olson Vice President 62
All directors hold office until the next annual meeting of shareholders and
the election and qualification of their successors. Both Messrs. Camp and Borger
were members of the Board of Directors of Church Loans prior to becoming
directors of the Company.
Lynn R. Camp has served as a director of the Company since June 1990 and as
Chairman of the Board since October 1990. Mr. Camp is President, Chief Executive
Officer and a director of Turnkey Computer Systems, Inc. ("Turnkey Computer").
Mr. Camp has served in these capacities for in excess of five years. Turnkey
Computer sells computer equipment and software and furnishes computer
maintenance and repair services in Amarillo, Texas.
36
<PAGE>
Michael W. Borger has served as a director of the Company since June 1990.
He previously served the Company as Vice President of the Company from August
1991 until November 1995. From June 1990 to August 1991 he served as President
of the Company. Mr. Borger is President, Chief Executive Officer and a director
of Turnkey Leasing Corp. ("Turnkey Leasing"). Mr. Borger has served in these
capacities for in excess of five years. Turnkey Leasing, located in Amarillo,
Texas, leases computers, general office equipment and construction equipment to
business users. Turnkey Leasing is also engaged in the business of making
business loans.
Gerald G. Morgan has served as a director of the Company since October
1990. Mr. Morgan is a partner in the law firm of Burdett, Morgan and Thomas,
located in Amarillo, Texas. Mr. Morgan has served in this capacity for a period
in excess of 5 years.
John K. Johnson has served as the Company's President since August 1991. He
previously served as the Company's Vice President from June 1990 to August 1991.
Mr. Johnson was Vice President of Trust Company of America, a trust company
engaged in the business of furnishing trust services in connection with bond
offerings by churches and other non-profit organizations, from June 1979 until
December 1989. Mr. Johnson is employed pursuant to the terms of an employment
agreement with the Company. See "Item 10-Executive Compensation - Employment
Agreements" and Exhibit 10 (f) hereto.
Cecil E. Glovier has served as Senior Vice President/Secretary of the
Company since August 1996. He previously served as the Company's Vice
President/Secretary from November 1995 to August 1996. Prior to that time, he
served as the Company's Secretary/Treasurer from June 1990 to November 1995.
Prior to his employment with the Company, Mr. Glovier was engaged in the
business of furnishing computer programming services for a period in excess of 5
years. During this period he also was engaged as a mutual fund and life
insurance sales representative. Mr. Glovier is employed pursuant to the terms of
an employment agreement with the Company. See "Item 10 - Executive Compensation
- - Employment Agreements" and Exhibit 10(g) hereto.
Marvin D. Hoeflinger has served as Vice President of the Company since
February 1996. Prior to his employment with the Company, Mr. Hoeflinger was
Senior Vice President and a Managing Principal of Reliance Trust Company, a
Georgia full service trust company, from October 1984 until February 1996. Mr.
Hoeflinger is employed pursuant to the terms of an employment agreement with the
Company. See "Item 10 - Executive Compensation - Employment Agreements" and
Exhibit 10(e) hereto.
37
<PAGE>
Christopher J. Olson has served as Vice President/Treasurer of the Company
since November 1995. Prior to his employment with the Company, he served as
President and Chief Executive Officer of Camelback Trust Company from January
1993 to November 1995.
A. R. Olson has served as Vice President of the Company since January 1996.
Prior to his employment with the Company, he was Vice President of Norwest Trust
in St. Cloud, Minnesota from April 1993 to January 1996. Mr. Olson was Sr. Vice
President for Administration of Harris Trust Bank in Scottsdale, Arizona from
September 1986 to April 1993.
Based on information provided to it, the Company believes that all of its
directors and executive officers have complied with Section 16(a) of the
Exchange Act during the fiscal year ended March 31, 1998.
ITEM 10. EXECUTIVE COMPENSATION
The following table sets forth certain information concerning compensation
paid during each of the Company's last three fiscal years to John K. Johnson,
the Company's Chief Executive Officer (the "Named Executive Officer"). The
Company has no executive officer whose salary, bonuses and other compensation
earned during the fiscal year ended March 31, 1998 exceeded $100,000:
SUMMARY COMPENSATION TABLE
Annual Compensation Long-term Compensation
---------------------------- ----------------------
Name and Fiscal Securities Underlying
Principal Position Year Salary Bonus Option/SARS (#)
- ------------------ ---- ------ ----- ---------------------
CEO-John K. Johnson 1998 $80,000 $19,444 0
President 1997 80,000 12,872 300,000(a)
1996 55,000 8,811 0
(a) On July 1, 1996, Mr. Johnson was granted an option to purchase 300,000
shares of Common Stock of the Company at an exercise price of $.25 per
share. The option to purchase 150,000 of such shares vested immediately
upon grant. The option to purchase the remaining 150,000 shares vests in
three equal installments of 50,000 each on July 1, 1997, 1998 and 1999,
respectively.
38
<PAGE>
The following table sets forth certain information concerning option grants
during the Company's last fiscal year to the Company's Named Executive Officer:
OPTION/SAR GRANTS IN LAST FISCAL YEAR
(Individual Grants)
Percent of Total
Number of Securities Options Granted
Name and Underlying Options to Employees in Exercise or
Principal Position Granted (#) Fiscal Year Base Price($/sh) Date
- ------------------ -------------------- --------------- ---------------- ----
CEO-John K. Johnson 0 0 N/A N/A
President
The following table sets forth certain information concerning (a) stock
option exercises during the Company's last fiscal year by the Company's Named
Executive Officer, and (b) the value of unexercised stock options held by the
Named Executive Officer at March 31, 1998:
AGGREGATE OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END
OPTION/SAR VALUES
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options
Shares Options at FY-End at FY-End ($)
Name and Acquired On Value (#)Exercisable/ Exercisable/
Principal Position Exercise(#) Realized($) Unexercisable Unexercisable
- ------------------ ----------- ----------- ------------- -------------
<S> <C> <C> <C> <C>
CEO-John K. Johnson 0 $0 200,000/100,000 $10,000/$5,000
President
</TABLE>
Employment Agreements
The Company has entered into employment agreements with Mr. Johnson, the
Company's President, Mr. Glovier, the Company's Senior Vice President, and Mr.
Hoeflinger, the Company's Vice President of
Marketing.
Mr. Johnson's agreement has a three-year term which runs through June 30,
1999. Under the agreement, Mr. Johnson's base salary is $80,000 per year. Mr.
Johnson is also entitled to an annual bonus each year in which the Company
generates after-tax net earnings, calculated according to the following formula:
39
<PAGE>
(y) after- tax net earnings per share, multiplied by (z) a number of shares
equal to 10% of the Company's issued and outstanding shares of Common Stock at
March 31, 1998. Such bonus, if any, is payable 100 days from the end of the
Company's fiscal year. The agreement also provided for 300,000 incentive stock
options with an exercise price of $.25 per share, a total of 150,000 of which
vested immediately upon grant. The remaining 150,000 options vest in three equal
installments of 50,000 each on July 1, 1997, 1998 and 1999, respectively. The
agreement also contains confidentiality and non-compete covenants.
Under the agreement with Mr. Glovier, entered into in August 1997, Mr.
Glovier is paid a base salary of $72,000 per year plus an annual bonus in each
fiscal year that the Company generates after-tax net earnings (after payment of
income taxes) calculated according to the following formula: (a) for before-tax
net income of less than $100,000, a bonus amount equal to five percent of the
total after-tax net income; (b)for before-tax net income from $100,000 to
$200,000, a bonus amount equal to six percent of the total after-tax net income;
(c) for before-tax net income from $200,000 to $300,000, a bonus amount equal to
seven percent of the total after-tax net income; and (d) for before-tax net
income over $300,000, a bonus amount equal to seven and one-half percent of the
total after-tax net income. Such bonus, if any, shall be paid within 90 days
from the end of the Company's fiscal year. The agreement also provided for
150,000 in incentive stock options with an exercise price of $.25 per share,
which vest in three equal installments of 50,000 each on August 11, 1998, 1999
and 2000, respectively. Mr. Glovier is also entitled to health and other
insurance benefits on the same basis as the Company's other executive officers.
The agreement also contains confidentiality and non-compete covenants.
Mr. Hoeflinger's agreement, entered into in February 1996, calls for a base
salary of $65,000 per year, plus potential bonuses payable annually in the event
stated performance goals are met. Mr. Hoeflinger also received an option to
purchase 35,000 shares of the Company's Common Stock on January 1, 1997 and an
option to purchase a like number of shares on January 1, 1998; the exercise
price of the option granted on January 1, 1997 was $.25 per share, and the
exercise price of the option granted on January 1, 1998 was $.30 per share. Mr.
Hoeflinger is also entitled to receive options to purchase an additional 35,000
shares of the Company's Common Stock on January 1, 1999 and on each successive
January 1 thereafter during the term of the agreement. The exercise price for
any options granted in the future will be the fair market value of the Company's
Common Stock on the date such options are granted. Mr. Hoeflinger is also
entitled to health and other insurance benefits, reimbursement of reasonable
40
<PAGE>
business expenses, and other benefits on the same basis as the Company's other
executive officers. The agreement with Mr. Hoeflinger runs through December 31,
2000, unless terminated earlier by the Company for "cause" or for Mr.
Hoeflinger's failure to meet certain objective performance goals contained in
the agreement.
Directors' Compensation
The Company's non-employee directors were paid $16,600 in cash as a group
during the fiscal year ended March 31, 1998 for services as directors. Each
director is paid $200 per month for serving as a director and $200 for each
meeting attended. The Chairman is paid an additional $100 per month for serving
as Chairman. The Company's non-employee directors also receive an annual grant
of
15,000 stock options with an exercise price equal to the then-current exercise
price of the Company's Common Stock on the date of grant. The exercise price of
the options granted to such directors during the fiscal year ended March 31,
1998 was $.30 per share. Directors who are also officers of the Company are not
compensated for their services as directors.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth information as of June 1, 1998, concerning
the Common Stock beneficially owned by each director of the Company, by the
Company's Named Executive Officer, by all officers and directors of the Company
as a group, and by all persons known by the Company to own more than 5% of the
Company's issued and outstanding Common Stock.
Name and Address Amount and Nature Percent
of Beneficial Owner of Beneficial Owner(1) of Class
------------------- ---------------------- --------
Lynn R. Camp 151,604 shares 2.0%
3517 Tripp
Amarillo, Texas 79121
Michael W. Borger 100,718 shares 1.4%
1602 S. Travis
Amarillo, Texas 79102
Gerald G. Morgan, Jr. 100,100 shares 1.3%
4705 Olsen
Amarillo, Texas 79106
41
<PAGE>
John K. Johnson(2) 330,781 shares 4.3%
3414 E. Clark Road
Phoenix, Arizona 85024
William and Sue Johnson 436,581 shares 5.7%
14001 Interstate 27
Amarillo, Texas 79119
Directors and Executive
Officers as a Group(4) 1,676,572 shares 21.7 %
(1) A person is deemed to be the beneficial owner of securities that can be
acquired within 60 days from the date set forth above through the exercise of
any option, warrant, or right. Shares of Common Stock subject to options,
warrants, or rights which are currently exercisable within 60 days are deemed
outstanding for computing the percentage of the person holding such options,
warrants or rights, but are not deemed outstanding for computing the percentage
of any other person. The amounts and percentages are based upon 7,720,842 shares
of Common Stock outstanding on June 1, 1998.
(2) The total for Mr. Johnson includes 200,000 shares of Common Stock
subject to immediately exercisable options which have an exercise price of $.25
per share, and 50,000 shares of Common Stock subject to options which vest and
become exercisable on July 1, 1998, and which have an exercise price of $.25 per
share.
(3) Includes 350,323 shares owned by Amberwood Management Company. Mr. and
Mrs. Johnson, through trusts of which they are the sole trustees, own all of the
issued and outstanding shares of capital stock of Amberwood. Mr. and Mrs.
Johnson, therefore, control the disposition of the shares owned by Amberwood and
may be deemed the beneficial owners of such shares.
(4) The total for all directors and executive officers as a group includes
578,290 shares subject to unexercised options that are exercisable on June 1,
1998 or within 60 days thereafter.
The Company has no knowledge of any arrangement which may result in a
change of control of the Company.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
None.
42
<PAGE>
Item 13. Exhibits and Reports on Form 8-K.
(a)(1) Financial Statements of the Company are set forth in Part II,
Item 7.
(2) Exhibits
Exhibit Number Method of Filing
- -------------- ----------------
3. (i) Articles of Incorporation *
(ii) By-Laws *
10. (a) Agreement with Great Nation Investment
Corporation **
(b) Form of IRA Account Agreement **
(c) Form of Trust Indenture Agreement **
(d) Agreements between Church Loans & ***
Investments Trust, Ben C. Powell
and Secured Investors Securities, Inc.
(e) Employment Agreement with Marvin ****
Hoeflinger
(f) Employment Agreement with John K. Johnson *****
(g) Employment Agreement with Cecil Glovier *****
11. Schedule of Computation of Earnings Per Share *****
27. Financial Data Schedule *****
* Incorporated by reference to Exhibit No. 3 to the Registrant's Form 10
dated October 24, 1990.
** Incorporated by reference to Exhibit No.10 to Registrant's Annual Report
on Form 10-KSB dated June 21, 1991.
*** Incorporated by reference to Exhibit No.10 to Registrant's Form 10 dated
October 24, 1990.
**** Incorporated by reference to Exhibit No.10 to Registrant's Annual Report
on Form 10-KSB dated June 27, 1996.
***** Filed Herewith
(b) Reports on Form 8-K
None.
43
<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.
COLONIAL TRUST COMPANY
BY:/s/ Cecil E. Glovier
----------------------------
Cecil E. Glovier
Sr. Vice President/Secretary
(Principal Financial Officer)
Date: June 29, 1998
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.
Signature Title Date
--------- ----- ----
/s/ Lynn R. Camp Chairman of the Board June 29, 1998
- -------------------------
Lynn R. Camp
/s/ Michael W. Borger Director June 29, 1998
- -------------------------
Michael W. Borger
/s/ Gerald G. Morgan Director June 29, 1998
- -------------------------
Gerald G. Morgan
/s/ John K. Johnson President and June 29, 1998
- ------------------------- Director
John K. Johnson (Principal Executive
Officer)
44
EXHIBIT 10f
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement" is entered into as of July 1, 1996,
by and between COLONIAL TRUST COMPANY, an Arizona corporation with its principal
place of business in Phoenix, Arizona (the "Company"), and JOHN K. JOHNSON, a
resident of the State of Arizona ("Johnson").
RECITALS
A. Johnson is the President and Chief Executive Officer of the Company.
B. Johnson is currently an at-will employee of the Company.
C. The Company is engaged in the following businesses: (i) the Company
serves as trustee and paying agent on bond financings for churches and other
non-profit organizations located throughout the United States; (ii) the Company
serves as trustee of self-directed individual retirement accounts for certain
bondholders or employees of non-profit organizations located throughout the
United States; and (iii) the Company serves as trustee or agent, providing
investment management, administration and custodial services for trust or
investment agency accounts, most of which accounts are located in Arizona.
D. The Company and Johnson desire to continue Johnson's relationship
with the Company and to memorialize the terms of Johnson's employment with the
Company.
AGREEMENT
1. EMPLOYMENT. The Company hereby continues to employ Johnson and
Johnson hereby accepts such employment upon the terms and conditions set forth
herein. Johnson shall continue to reside in Phoenix, Arizona.
2. DUTIES OF EMPLOYMENT. Johnson shall continue to serve as President
and Chief Executive Officer of the Company. In such capacities, Johnson shall
continue to perform such duties and services, consistent with Johnson's role as
the Company's senior executive officer, as the Board of Directors may assign or
delegate to him from time to time. Johnson also currently serves as a director
of the Company; during the term of this Agreement, the Company shall nominate
Johnson for election as a director and shall use its best efforts to cause the
shareholders of the Company to re-elect Johnson as a director of the Company for
so long as Johnson remains President and Chief Executive Officer under this
Agreement. In the event that Johnson voluntarily terminates his employment with
the Company or the Company terminates Johnson's employment with the Company
pursuant to Section 5 of this Agreement, then Johnson agrees to resign
immediately as a director of the Company.
<PAGE>
Throughout the term of this Agreement, Johnson shall devote his entire working
time, energy, skill and best efforts to the performance of his duties hereunder
in a manner which will faithfully and diligently further the business interests
of the Company. Notwithstanding the foregoing, Johnson shall be permitted to
serve as a director of additional organizations and participate in other
activities for other groups upon the prior approval of the Board of Directors.
3. Term. This Agreement shall commence on July 1, 1996 and shall
continue in effect until June 30, 1999. The Agreement shall automatically be
extended for one year terms commencing as of July 1, 1999 and thereafter at the
end of each successive year commencing on July 1 unless either the Company or
Johnson notifies the other party in the manner provided herein of his or its
intention not to renew the Agreement at least sixty (60) days prior to the end
of the then-current term.
4. COMPENSATION AND BENEFITS. Johnson will receive the following
compensation for his services during his term of employment hereunder:
(a) Salary. Johnson shall receive a base salary of $80,000 per
year, payable in accordance with the standard payroll policies of the Company.
Additionally, Johnson shall receive an annual performance and salary review from
the Board of Directors.
(b) BONUSES. Johnson shall be entitled to receive an annual
bonus each fiscal year in which the Company generates net income (after the
payment of income taxes), calculated according to the following formula: (y)
after-tax net income per share of Common Stock, multiplied by (z) a number of
shares equal to ten percent (10%) of the Company's total issued and outstanding
Common Stock at March31, 1997. Shares of Common Stock which are issuable upon
the exercise of issued and outstanding (but unexercised) stock options as of
March 31, 1997 shall be excluded for purposes of calculating the Company's
issued and outstanding Common Stock in the foregoing formula. Such bonus, if
any, shall be paid one hundred (100) days from the end of the Company's fiscal
year. The Company and Johnson shall use their best efforts to cause such bonus
to be treated as an expense of the Company during the fiscal year in which such
bonus is earned, not the year in which such bonus is paid.
As an example of the above formula, if the Company earns $01 per share during a
particular year in which this Agreement is in effect, and the Company has
8,000,000 shares of Common Stock issued and outstanding at March 31, 1997, then
Johnson's bonus would be $8,000: (y) $.01, multiplied by (z) 800,000(10% of the
total number of issued and outstanding shares).
(c) STOCK OPTIONS. Concurrently with the execution of this
Agreement, the Company has granted to Johnson options to purchase 300,000 shares
of the Company's Common Stock pursuant to the Company's Employee Stock Option
Plan at an exercise price of $25 per share. Options to purchase 150,000 shares
shall vest immediately. Options to purchase the remaining 150,000 shares shall
vest in three equal increments of 50,000 shares on July I, 1997, 1998 and 1999,
2
<PAGE>
respectively; the exercise price for all such options shall be $25 per share.
Notwithstanding the foregoing, however, all options which are subject to the
above vesting schedule shall vest immediately in the event that Johnson's
employment is terminated by the Company for any reason other than a breach by
Johnson of Section 5 hereof
(d) MEDICAL INSURANCE. The Company will provide coverage for
Johnson and his dependents under the Company's health insurance policy.
(e) LIFE INSURANCE. The Company will procure and maintain in
effect a $1,000,000 term life insurance policy insuring Johnson's life;
provided, however, if Johnson is not insurable at regular rates, the Company
will purchase a term life insurance policy only in such amount as it rnay
purchase by paying a premium equal to the amount it would have paid for a
$1,000,000 policy had Johnson been insurable at regular rates. In the event of
Johnson's death, one-half of the face amount of the policy shall be payable to
the Company and the other half of the face amount of the policy shall be payable
to beneficiaries designated by Johnson.
(f) DISABILITY INSURANCE: DISABILITY PAYMENTS BY COMPANY. The
Company is in the process of developing a policy concerning disability insurance
coverage for its senior executives. The Company agrees to develop such a policy
within twelve (12) months of the date hereof When such a policy is developed,
the Company agrees that Johnson will be provided the same level of disability
coverage as the Company provides for its other senior executives. Until
disability insurance is provided for Johnson as described above, the Company
agrees that if Johnson becomes unable to perform his duties under this Agreement
due to partial or total disability. the Company will continue to pay Johnson's
base salary set forth in Section 4(a) hereof at its then-current rate for a
period of twenty-six (26) weeks following such disability.
5. TERMINATION. The Company may terminate this Agreement upon the
occurrence of any of the following:
(a) The death of Johnson; or
(b) Subject to Section 4(t) above, Johnson's inability to
perform his duties under this Agreement for a period of more than ninety (90)
consecutive days due to total or partial disability; or
(c) If Johnson fails to perform his duties to the Company
hereunder to the satisfaction of the Company's Board of Directors; commits such
acts of dishonesty, theft or fraud as would prevent the effective performance of
his duties hereunder; breaches the terms of Section 6 or 7 of this Agreement; or
is convicted of a crime which would prevent the effective performance of this
duties hereunder.
Any termination of Johnson's employment will be effective upon Johnson's receipt
of written notice of such termination, and such termination shall be without
prejudice to any other remedy to which the Company may be entitled either at
law, in equity or under this Agreement.
3
<PAGE>
6. CONFIDENTIALITY, All information furnished to Johnson by the
Company, learned by Johnson from the Company or developed by Johnson on behalf
of the Company or at the Company's direction or for the Company's use or
otherwise in connection with Johnson's employment hereunder, are and shall
remain the sole and confidential property of the Company; provided, however,
that the foregoing shall not apply to any such information in the public domain
other than by reason of a breach of this Section 6. During the term of this
Agreement and at all times thereafter, Johnson shall not use for his own
personal benefit, or disclose, communicate or divulge to, or use for the direct
or indirect benefit of any person, firm, association or company other than the
Company, any information or material referred to in this Section 6 or any
confidential information regarding the business methods, business policies,
procedures, techniques, trade secrets or other knowledge or processes of or
developed by the Company or any names and addresses of customers or clients or
any other confidential information relating to past, present or prospective
business operations or activities of the Company, made known to Johnson or
learned or acquired by Johnson while in the employ of the Company.
Johnson further agrees that at the expiration of his employment for any
reason whatsoever, he shall surrender and deliver to the Company all documents,
correspondence and any other data, of any type whatsoever relating to the
business of the Company or its customers or potential customers.
7. NON-COMPETITION. During the term of his employment and for a period
of twelve (12) months following the termination of Johnson's employment with the
Company, Johnson shall not directly or indirectly, either as an employee,
employer, consultant, agent, principal, partner, shareholder, corporate officer,
director, or in any other individual or representative capacity, engage or
participate in any business that is in competition in any manner with the
business of the Company. Notwithstanding the foregoing, however, this Section 7
shall automatically terminate and be of no further force or effect whatsoever in
the event that the Company terminates Johnson's employment with the Company for
any reason other than a breach by Johnson of Section 5 of this Agreement.
8. INJUNCTIVE RELIEF Johnson acknowledges that the restrictions
contained in Sections 6 and 7 hereof in view of the nature of the business in
which the Company is engaged, are reasonable and necessary in order to protect
the legitimate interests of the Company, and that any violation thereof would
result in irreparable injuries to the Company, and Johnson therefore
acknowledges that, in the event of his violation of any of the restrictions set
forth in Sections 6 or 7 hereofor, the Company shall be entitled to obtain from
any court of competent jurisdiction preliminary and permanent injunctive relief
as well as any other relief to which the Company may be entitled.
9. GOVERNING LAW. This Agreement shall be interpreted and construed
under the laws of the State of Arizona, which laws shall prevail in the event of
any conflict of law. This Agreement and the obligations hereunder are made and
performable in Maricopa County, Arizona, which shall be the exclusive venue for
any litigation hereunder.
4
<PAGE>
10. MODIFICATION OF CONTRACT. No waiver or modification of this
Agreement shall be valid unless it is in writing and duly executed by both
parties.
11. JUDICIAL MODIFICATION OF AGREEMENT. If the period of time or the
area specified in Sections 6 or 7 herein should be adjudged unreasonable in any
proceeding, then the period of time shall be reduced by such number of months or
the area shall be reduced by the elimination of such portion thereof or both so
that such restrictions may be enforced in such area and for such time and is
adjudged to be reasonable. If Johnson violates any of the restrictions contained
in Sections 6 or 7 of this Agreement, then the restrictive period shall not run
in favor of Johnson from the time of the commencement of any such violation
until such time as such violation shall be cured by Johnson to the satisfaction
of the Company.
12. NOTICES. Any notice to be given hereunder by either party to the
other shall be in writing and may be transmitted by personal delivery or by
mail, registered or certified, postage prepaid with return receipt requested.
Notices shall be addressed to the parties at the following addresses:
If to the Company: Colonial Trust Company
5336N. l9thAvenue
Phoenix, Arizona 85015
Attention: Chairman of the Board of Directors
If to Johnson: Mr. John K. Johnson
3414 E. Clark Road
Phoenix, Arizona 85024
13. ENTIRE AGREEMENT. This Agreement contains the complete agreement
concerning the employment arrangement between the Company and Johnson, The
parties acknowledge that any statements or representations that may have been
made previously by either of them to the other are of no effect and that neither
of them has relied on such considerations in executing this Agreement.
14. ATTORNEYS' FEES, In the event of a dispute or litigation arising
hereunder, the successful party in such dispute or litigation shall be entitled
to recover its costs and reasonable attorneys' fees from the other parties to
such dispute or litigation.
5
<PAGE>
DATED as of July 1, 1996.
COLONIAL TRUST COMPANY
By /s/ Lynn R. Camp /s/ John K. Johnson
--------------------------- ----------------------------
Lynn R. Camp
Its Chairman of the Board
6
EXHIBIT 10g
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (hereinafter called the "Agreement") is
entered into as of August 11, 1997, by and between COLONIAL TRUST COMPANY, an
Arizona corporation (hereinafter called the "Company"), with its principal
office located at 5336 N. 19th Avenue, Phoenix, Arizona 85015, and Cecil E.
Glovier, residing at 16925 Roadrunner Road, Mayer, Arizona 86333 (hereinafter
referred to as "Glovier").
Glovier is presently employed by the Company as Senior Vice President
and Secretary. The Company and Glovier desire to formalize their relationship.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements hereinafter set forth, the parties do hereby agree as follows:
1. EMPLOYMENT. The Company hereby continues to employ Glovier and
Glovier hereby accepts continued employment by the Company as Senior Vice
President and Secretary to perform such duties and services of a senior
executive nature as may from time to time be assigned or delegated to him by the
Board of Directors and President of the Company.
Throughout the term of this Agreement, Glovier will devote his entire
working time, energy, skill and best efforts to the performance of his duties
hereunder in a manner which will faithfully and diligently further the business
interests of the Company. Notwithstanding the foregoing, Glovier shall be
permitted to serve as a director of additional organizations and participate in
other activities for other groups upon the prior approval by the Company, which
approval shall not unreasonable be withheld.
2. TERM. This Agreement shall be fora term of three (3) years,
commencing on August 11,1997, and ending on August 10, 2000, unless sooner
terminated as hereinafter provided. Unless either party elects to terminate this
Agreement at the end of the original or any renewal term by giving the other
party notice of such election at least sixty (60) days before the expiration of
the then current term, this Agreement shall be deemed to have been renewed for
an additional term of one (1) year commencing on the day after the expiration of
the then current term.
3. COMPENSATION AND BENEFITS.
(a) SALARY, For the services rendered by Glovier to Company, Glovier
shall receive a base salary at the rate of $72,000 per year, payable in
accordance with the standard payroll practices of the Company. Additionally,
Glovier shall receive an annual performance and salary review from the President
of the Company.
(b) BONUS. Glovier shall be entitled to receive an annual bonus each
fiscal year in which the Company generates net income (after the payment of
income taxes), calculated according to the following formula: for before-tax net
income of less than $100,000, a bonus amount equal to five percent of the total
after-tax net income; for before-tax net income from $100,000 to $200,000, a
bonus amount equal to six percent of the total after-tax net income; for
<PAGE>
before-tax net income from $200,000 to $300,000, a bonus amount equal to seven
percent of the total after-tax net income; for before-tax net income over
$300,000, a bonus amount equal to seven and one-half percent of the total
after-tax net income. Such bonus, if any, shall be paid within ninety (90) days
from the end of the Company's fiscal year. The Company and Glovier shall use
their best efforts to cause such bonus to be treated as an expense of the
Company during the fiscal year in which such bonus is earned, not the year in
which bonus is paid.
(c.) STOCK OPTIONS. In addition to the monetary compensation set forth
above, Glovier will have the opportunity to acquire up to 150,000 shares of
Common Stock of the Company pursuant to the Company's Employee Stock Option
Plan. Options shall vest in three increments of 50,000 shares on August 11,
1998, 1999 and 2000, respectively; the exercise price for all such options shall
be $25 per share.
(d) MEDICAL INSURANCE. The Company will provide coverage for Glovier
and his dependents under the Company's health insurance policy.
(e) LIFE INSURANCE. The Company will procure and maintain in effect a
$500,000 term life insurance policy insuring Glovier's life; provided, however,
if Glovier is not insurable at regular rates, the Company will purchase a term
life policy only in such amount as it may purchase by paying a premium equal to
the amount it would have paid for a $500,000 policy had Glovier been insurable
at regular rates, In the event of Glovier's death, one-half of the face amount
of the policy shall be payable to the Company and the other half of the face
amount of the policy shall be payable to beneficiaries designated by Glovier.
(f) DISABILITY INSURANCE. DISABILITY PAYMENTS BY COMPANY. The Company
agrees that Glovier will be provided the same level of disability coverage as
the Company provides for its other senior executives.
4. TERMINATION FOR CAUSE. The Company may terminate this Agreement upon
the occurrence of any of the following:
(a) The death of Glovier; or
(b) Subject to Section 3(f) above, Glovier's inability to perform his
duties under this Agreement for a period of more than ninety (90) consecutive
days due to total or partial disability; or
(c) If Glovier fails to perform his duties to the Company hereunder to
the satisfaction of the Company's Board of Directors; commits such acts of
dishonesty, theft or fraud as would prevent the effective performance of his
duties hereunder; breaches the terms of Section 6 of this Agreement; or is
convicted of a crime which would prevent the effective performance of his duties
hereunder.
2
<PAGE>
Any termination of Glovier's employment will be effective upon Glovier's receipt
of written notice of such termination, and such termination shall be without
prejudice to any other remedy to which the Company may be entitled either at
law, in equity or under this Agreement.
6. CONFIDENTIAL INFORMATION. NON-SOLICITATION.
(a) CONFIDENTIAL INFORMATION, NON-SOLICITATION, All information
furnished to Glovier by the Company, learned by Glovier from the Company or
developed by Glovier on behalf of the Company or at the Company's direction or
for the Company's use or otherwise in connection with Glovier's employment
hereunder, are and shall remain the sole and confidential property of the
Company; provided, however, the foregoing shall not apply to any such
information in the public domain other than by reason of a breach of this
Paragraph 5. If the Company requests the return of information or any such
materials at any time during or at the termination of Glovier's employment,
Glovier shall immediately deliver the same to the Company. During the term of
this Agreement and at all times thereafter, Glovier shall not use for his
personal benefit, or disclose, communicate or divulge to, or use for the direct
or indixcct benefit of any person, firm association or company other than the
Company, any material referred to in this Paragraph 5 or any confidential
information regarding the business methods, business policies, procedures,
techniques, trade secrets or other knowledge or processes of or developed by the
Company or any names and addresses of customers or clients or any other
confidential information relating to past, present or prospective business
operations or activities of the Company, made known to Glovier or learned or
acquired by Glovier while in the employ of the Company.
(b) NON-SOLICITATION. During the term of this Agreement and for a
period of one (1) year after the termination of his employment with the Company
for any reason whatsoever, Glovier shall not, directly or indirectly, solicit,
induce, encourage or attempt to influence any client, customer, employee,
consultant, independent contractor, salesman or supplier of the Company
(including without limitation any broker/dealer with whom the Company does or
has done business) to cease to do business with or to terminate his employment
with the Company and shall not utilize for any such purpose any names and
addresses of customers or clients of the Company or any data on or relating to
past, present or prospective (at the time of termination of Gloviers'
employment) customers or clients of the Company.
7. ARBITRATION OF DISPUTES. Any controversy or claim arising out of or
relating to this Agreement or the breach thereof shall be settled by arbitration
in accordance with the rules of the American Arbitration Association. Judgement
upon the award rendered by the arbitrator may be interred in any court having
jurisdiction thereof.
8. MODIFICATION OF CONTRACT. No waiver or modification of this
Agreement shall be valid unless it is in writing and duly executed by both
parties.
9. SEVERABILITY. All agreements and covenants contained herein are
severable, and in the event any of them shall be held to be invalid by any court
of competent jurisdiction, this Agreement shall be interpreted as if such
invalid agreements and covenants were not contained herein.
3
<PAGE>
10. GOVERNING LAW, VENUE FOR ARBITRATION. This Agreement takes effect
upon its acceptance and execution by the Company in Phoenix, Arizona, and shall
be interpreted and construed under the laws of the State of Arizona, which laws
shall prevail in the event of any conflict of law. This Agreement and the
obligations hereunder are made and performable in Maricopa County, Arizona,
which shall be the exclusive venue for any arbitration hereunder.
11. NOTICE. Any notice to be given hereunder by either party to the
other shall be in writing and may be transmitted by personal delivery or by
mail, registered or certified, postage prepaid with return receipt requested to
their respective addresses hereinabove provided, or to the Company or Glovier at
it's or his last known address.
12. ENTIRE AGREEMENT. This Agreement contains the complete agreement
between the Company and Glovier concerning the employment arrangement between
the Company and Glovier. The parties acknowledge that any statements or
representations that may have been made previously by either one of them to the
other (other than those contained in this Agreement) are of no effect and that
neither of them has relied on such considerations in executing this Agreement.
IN WITNESS WHEREOF, the parties have executed or caused this Agreement
to be executed as of the day, month and year first above written.
COLONIAL TRUST COMPANY
BY /s/ John K. Johnson
---------------------------------
John K. Johnson
President and Chief Executive Officer
COMPANY
/s/ Cecil E. Glovier
---------------------------------
Cecil E. Glovier
4
11. SCHEDULE OF COMPUTATION OF EARNINGS PER SHARE
Formula: Net Income/Weighted Average Shares Outstanding = Net
Income per Common Share
Twelve-month period ended (without stock options):
March 31, 1996 $142,360 / 7,328,059 shares = $.02 Net Income
per Common Share.
March 31, 1997 $163,725 / 7,777,401 shares = $.02 Net Income
per Common Share.
March 31, 1998 $214,358 / 7,764,868 shares = $.03 Net Income
per Common Share
Calculation of Earnings Per Share for the Common Stock Equivalent using the
Treasury Stock Method:
Market price per share at March 31, 1998 = $.30
Option price per share = $.25
Weighted average of shares outstanding using the Treasury Stock Method of
calculating Earnings Per Share = 7,901,250
March 31, 1996 $142,360/7,328,059 shares = $.02 Net Income per Common Share
March 31, 1997 $163,725/7,777,401 shares = $.02 Net Income per Common Share
March 31, 1998 $214,358/7,901,250 shares = $.03 Net Income per Common Share
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> APR-01-1997
<PERIOD-END> MAR-31-1998
<CASH> 196,681
<SECURITIES> 0
<RECEIVABLES> 690,346
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,082,377
<PP&E> 1,008,938
<DEPRECIATION> (296,456)
<TOTAL-ASSETS> 1,948,279
<CURRENT-LIABILITIES> 191,810
<BONDS> 0
0
0
<COMMON> 554,942
<OTHER-SE> 1,201,527
<TOTAL-LIABILITY-AND-EQUITY> 1,948,279
<SALES> 2,346,610
<TOTAL-REVENUES> 2,346,610
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,984,485
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 362,125
<INCOME-TAX> 147,767
<INCOME-CONTINUING> 214,358
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 214,358
<EPS-PRIMARY> .03
<EPS-DILUTED> .03
</TABLE>
