<PAGE> 1
As filed with the Securities and Exchange Commission on September ___, 1996.
Registration No. 33-87570
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
POST-EFFECTIVE
AMENDMENT NO. 3
TO
FORM S-11
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
AMERICAN CHURCH MORTGAGE COMPANY
(Exact name of registrant as specified in governing instruments)
10237 Yellow Circle Drive
Minneapolis, Minnesota 55343
(Address of principal executive offices of registrant)
V. James Davis, President
American Church Mortgage Company
10237 Yellow Circle Drive
Minneapolis, Minnesota 55343
(Name and address of agent for service)
Copies to:
Philip T. Colton, Esq.
Maun & Simon, PLC
2000 Midwest Plaza Building West
801 Nicollet Mall
Minneapolis, MN 55402
(Counsel for Company)
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<PAGE> 2
AMERICAN CHURCH MORTGAGE COMPANY
PART 1
INFORMATION REQUIRED IN PROSPECTUS
CROSS REFERENCE SHEET
Required by Item 501(b) of Regulation S-K
<TABLE>
<CAPTION>
Item Number and Caption in Form S-11 Heading in Prospectus
------------------------------------ ---------------------
<S> <C>
1. Forepart of Registration Statement and Cover Page of Registration Statement; Outside Cover
Outside Front Cover Page of Prospectus. Page of Prospectus
2. Inside Front and Outside Back Cover Pages Inside Front and Outside Back Cover Pages of
of Prospectus Prospectus
3. Summary Information, Risk Factors and Front Cover Page; Prospectus Summary;
Ratio of Earnings to Fixed Charges Risk Factors
4. Determination of Offering Price Front Cover Page (Notes to table)
5. Dilution Not Applicable
6. Selling Security Holders Not Applicable
7. Plan of Distribution Front and Inside Front Cover Page;
Plan of Distribution
8. Use of Proceeds Use of Proceeds; Business of the Company Financing
Business
9. Selected Financial Data Summary--Summary Financial Information;
Capitalization; Selected Financial Data.
10. Management's Discussion and Analysis of Management's Discussion and Analysis of Financial
Financial Condition and Results of Condition and Results of Operations
Operations
11. General Information as to Registrant Business of the Company; Management; Security
Ownership of Management and Others; Certain
Relationships and Transactions with Management;
Description of Capital Stock
12. Policy with Respect to Certain Activities Business of the Company--The Proposed Business
Activities; --Financing Business; --Mortgage Loan
Processing and Underwriting; --Loan Funding and
Bank Borrowing; --Financing Policies; --Prohibited
Investments and Activities; --Policy Changes;
Prospectus Summary--Business Objectives and
Policies
13. Investment Policies of Registrant Business of the Company--Financing Policies;
Prospectus Summary--Business Objectives and
Policies
14. Description of Real Estate Not Applicable
</TABLE>
2
<PAGE> 3
<TABLE>
<CAPTION>
Item Number and Caption in Form S-11 Heading in Prospectus
------------------------------------ ---------------------
<S> <C>
15. Operating Data Not Applicable
16. Tax Treatment of Registrant and Its Summary--Tax Status of Company; Risk Factors--Risks
Security Holders Related to Federal Income Taxation; Federal Income
Tax Considerations
17. Market Price of and Dividends on Inside Front Cover; Summary--Dividends and
Registrant's Common Equity and Related Distributions; Distributions
Shareholder Matters
18. Description of Registrant's Securities Description of Capital Stock
19. Legal Proceedings Not Applicable
20. Security Ownership of Certain Beneficial Security Ownership of Management and Others
Owners and Management
21. Directors and Executive Officers Management; The Advisor and the Advisory Agreement
22. Executive Compensation Management
23. Certain Relationships and Related Risk Factors--Risks Relating to Management;
Transactions Management; Security Ownership of Management and
Others; Business of the Company; Certain
Relationships and Transactions with Management; The
Advisor and the Advisory Agreement; Compensation to
Advisor and Affiliates; Conflicts of Interest;
Reports to Shareholders, Rights of Examination and
Additional Information
24. Selection, Management and Custody of Risk Factors; Use of Proceeds; Conflicts of
Registrant's Investments Interest; Compensation to Advisor and Affiliates;
Business of the Company; Management; The Advisor
and the Advisory Agreement
25. Policies with Respect to Certain Risk Factors; Use of Proceeds; Conflicts of
Transactions Interest; Compensation to Advisor and Affiliates;
Business of the Company; Management; The Advisor
and the Advisory Agreement; Plan of Distribution
26. Limitations of Liability Risk Factors; The Advisor and the Advisory
Agreement; Plan of Distribution; Management--
Fiduciary Responsibility of Board of Directors,
Possible Inadequacy of Remedies
27. Financial Statements and Information Financial Statements
28. Interests of Named Experts and Counsel Legal Matters; Experts
29. Disclosure of Commission Position on Management--Fiduciary Responsibility of Board of
Indemnification of Securities Act Directors, Possible Inadequacy of Remedies
Liabilities
</TABLE>
3
<PAGE> 4
PROSPECTUS
American Church Mortgage Company
Common Stock
2,000,000 Shares
The shares of Common Stock offered hereby (the "Shares") are being sold
on a best efforts basis by American Church Mortgage Company (the "Company").
American Investors Group, Inc., an affiliate of the Company, is the Dealer
Manager of this Offering. See "Conflicts of Interest." The Company is a
Minnesota corporation operating as an infinite life real estate investment trust
("REIT") and is organized for the purpose of making mortgage loans to churches
and other non-profit religious organizations located throughout the United
States. The Company may also invest up to 30% of its assets in mortgage-secured
bonds issued by churches and other non-profit religious organizations. Such
bonds may be purchased or sold by or through the Dealer Manager. See "Conflicts
of Interest." The Company's investment objectives are to provide investors
preservation of capital through diversification, greater security through
investment in only mortgage-backed loans and securities, and a higher level of
distributable income than attainable through an investment in guaranteed or
government-backed fixed-income securities. See "Distributions."
INVESTMENT IN THE SHARES INVOLVES CERTAIN RISKS AND CONFLICTS OF
INTEREST. SEE "RISK FACTORS" AND "CONFLICTS OF INTEREST." Among such risks are
the following:
- Risks associated with making mortgage loans, including fluctuations in
interest rates or default in payment by borrowers, which could adversely
affect the Company's ability to make distributions to its Shareholders and
its ability to continue to qualify as a REIT.
- Potential conflicts of interest and mutual benefits to affiliates of the
Company, the Dealer Manager and the Advisor in connection with the formation
of the Company, offering of the Shares, and on-going business operations of
the Company.
- Risks associated with the "best efforts" underwriting of the Shares, which
include there being no assurance that all or a material amount of the
Shares will be sold and consequently no assurance that the Company will be
capitalized at any anticipated level, which could cause the Company's
assets to be less diversified and increase the risk that an investor may
not recoup his or her investment.
- Risks associated with the current lack of a public market and lack of
liquidity of the Shares.
- Taxation of the Company as a corporation if it fails to qualify as a REIT.
- The Company is managed by an Advisor and neither the Company nor the Advisor
have any experience operating or managing a REIT. The Company relies on the
Advisor for daily operation and management of the Company's assets and pays
a fixed fee equal to 1 1/4% of the Company's Average Invested Assets,
regardless of the performance of the Company's portfolio.
- Potential anti-takeover of limiting ownership to 9.8% of outstanding Shares
of the Company.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
Price to Public (1) Selling Commission (1) Proceeds to Company (2)
<S> <C> <C> <C>
Per Share.................................. $10.00 $.43 $9.57
Total ..................................... $20,000,000 $860,000 $19,140,000
</TABLE>
(footnotes on following page)
AMERICAN INVESTORS GROUP, INC.
The date of this Prospectus is September 6, 1996.
<PAGE> 5
(FOOTNOTES FROM PREVIOUS PAGE)
(1) The Shares are being offered on a "best efforts" basis. The
Company will pay the Dealer Manager selling commissions equal to
4.3% of the gross proceeds from the sale of the Shares, and one
Soliciting Dealer Warrant for every 10 Shares sold, all or any part
of which commissions or warrants may be reallowed to Soliciting
Dealers. The Company has also agreed to pay the non-accountable
expenses of the Dealer Manager in the amount of $35,000, plus
$1,000 for each 100,000 Shares sold over 200,000 Shares (a maximum
of $53,000). In addition, the Company has agreed to indemnify the
Dealer Manager against certain civil liabilities, including
liabilities under the Securities Act of 1933. The public offering
price of the Shares was determined by the Company based on the
price paid ($10.00 per share) by the Company's initial shareholder.
See "Plan of Distribution." The Dealer Manager is an affiliate of
the Company and of the Advisor. See "Transactions With Management"
and "Conflicts of Interest."
(2) Before deducting other expenses of issuance and distribution,
estimated at up to $147,000, payable by the Company, including the
Dealer Manager's non-accountable expenses of up to $53,000. See
"Plan of Distribution."
The Company has registered 2,200,000 Shares of common stock, $.01
par value per share of which 200,000 Shares are available only to shareholders
(investors who purchase the Shares offered hereby) who participate in the
Company's dividend reinvestment plan. The Shares offered hereby (the
"Offering") will be sold by securities broker-dealers (the "Soliciting
Dealers") who are members of the National Association of Securities Dealers,
Inc. ("NASD"). American Investors Group, Inc., an affiliate of the Advisor,
serves as Dealer Manager of the Offering. The Offering commenced July 11,
1995, and the Company began active business operations April 15, 1996 and as of
the date hereof has Average Invested Assets of $2,389,805, having sold 266,175
Shares in this Offering.* The Company intends to continue to deploy net
proceeds from the sale of Shares as they are sold and on a regular basis
pursuant to its investment and operating strategy. The Company intends to
continue the Offering to November 8, 1996, subject to requalification in
certain states. See "Plan of Distribution."
THERE IS CURRENTLY NO MARKET FOR THE SHARES, AND THERE CAN BE NO
ASSURANCE THAT A FAVORABLE MARKET WILL DEVELOP OR, IF DEVELOPED, WILL BE
SUSTAINED. FURTHER, THERE ARE CURRENTLY NO MARKET-MAKERS FOR THE SHARES;
HOWEVER, THE DEALER MANAGER INTENDS TO APPLY ITS EFFORTS TO IDENTIFY AND SECURE
BROKER-DEALERS CAPABLE OF MAKING A MARKET IN THE SHARES, AND INTENDS TO BECOME
A MARKET-MAKER IN THE FUTURE. THERE CAN BE NO ASSURANCE THAT THE SHARES CAN BE
RESOLD AT OR ABOVE THE PUBLIC OFFERING PRICE.
THE USE OF FORECASTS IN THE OFFERING IS PROHIBITED. ANY
REPRESENTATIONS TO THE CONTRARY AND ANY PREDICTIONS, WRITTEN OR ORAL, AS TO THE
AMOUNT OR CERTAINTY OF ANY CASH BENEFIT OR TAX CONSEQUENCES WHICH MAY FLOW FROM
AN INVESTMENT IN THE COMPANY IS PROHIBITED.
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED
IN CONNECTION WITH THIS OFFERING TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS. IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY, DEALER MANAGER OR ANY SOLICITING DEALER. NEITHER THE DELIVERY
OF THIS PROSPECTUS NOR ANY SALE EFFECTED PURSUANT HERETO SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED IN THIS
PROSPECTUS IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
THE SECURITIES DESCRIBED HEREIN ARE OFFERED BY THE DEALER MANAGER
AND SOLICITING DEALERS ON BEHALF OF THE COMPANY SUBJECT TO PRIOR SALE,
WITHDRAWAL, CANCELLATION OR MODIFICATION OF THE OFFERING BY THE COMPANY AND THE
DEALER MANAGER WITHOUT NOTICE. THE OFFERING CAN ONLY BE MODIFIED BY MEANS OF
AN AMENDMENT OR SUPPLEMENT TO THE PROSPECTUS. OFFERS TO PURCHASE AND
CONFIRMATIONS OF SALES ISSUED BY THE DEALER MANAGER AND SOLICITING DEALERS ARE
SUBJECT TO (1) ACCEPTANCE BY THE COMPANY, (2) RELEASE AND DELIVERY OF THE
PROCEEDS OF THE OFFERING TO THE COMPANY, (3) DELIVERY OF THE SECURITIES AND (4)
THE RIGHT OF THE COMPANY TO REJECT ANY AND ALL OFFERS TO PURCHASE AND TO CANCEL
ANY AND ALL CONFIRMATIONS OF SALE OF THE SECURITIES OFFERED HEREBY, AT ANY TIME
PRIOR TO RECEIPT OF FUNDS FROM THE PURCHASERS, IF THE OFFERING IS NOT
REGISTERED, EXEMPT FROM REGISTRATION OR OTHERWISE QUALIFIED IN THE JURISDICTION
OF SALE OR IF ANY REGULATION OF THE SECURITIES AND EXCHANGE COMMISSION, ANY
STATE SECURITIES ADMINISTRATOR OR THE NATIONAL ASSOCIATION OF SECURITIES
DEALERS, INC. PROHIBITS THE SALE.
The Company intends to furnish Shareholders with annual reports containing
financial statements audited by the Company's independent accountants,
quarterly reports for the first three quarters of each year containing
unaudited summary financial and other information, and such other reports as
the Company deems appropriate or as required by law.
* As of the Date of this Prospectus, the Company has received $2,661,750 in
gross proceeds from the sale of 266,175 Shares in this Offering.
<PAGE> 6
--- TABLE OF CONTENTS ---
<TABLE>
<S> <C> <C>
THE OFFERING SUMMARY . . . . . . . . . . . . . . . 4 MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . 32
RISK FACTORS . . . . . . . . . . . . . . . . . . . 9 General . . . . . . . . . . . . . . . . . . . . . . . 32
Best Efforts Offering . . . . . . . . . . . . . . 9 Fiduciary Responsibility of Board of Directors;
Intent to Qualify as a Real Estate Investment Possible Inadequacy of Remedies . . . . . . . 34
Trust . . . . . . . . . . . . . . . . . . . . 9 Warrants and Options . . . . . . . . . . . . . . . . 34
Terms of Certain of the Formation Transactions SECURITY OWNERSHIP OF MANAGEMENT AND OTHERS . . . . . 35
Not Determined By Arm's Length Negotiation . . 9 CERTAIN RELATIONSHIPS AND TRANSACTIONS WITH
Price of Shares Arbitrarily Determined . . . . . 10 MANAGEMENT . . . . . . . . . . . . . . . . . . . . . 36
Risks Related to Management . . . . . . . . . . 10 THE ADVISOR AND THE ADVISORY AGREEMENT . . . . . . . . 37
Risks Related to Organization, Offering, Loan Church Loan Advisors, Inc. . . . . . . . . . . . . . 37
and Advisor Expenses . . . . . . . . . . . . 11 The Advisory Agreement . . . . . . . . . . . . . . . 37
Risks Related to Mortgage Lending Generally . . . 11 Prior Performance of Advisor and Affiliates . . . . . 39
Risks Related to Mortgage Lending to Churches 12 FEDERAL INCOME TAX CONSIDERATIONS . . . . . . . . . . . 44
Use of Borrowed Funds . . . . . . . . . . . . . . 12 Qualification as a Real Estate Investment Trust . . . 44
Potential Liability Under Federal and State Failure of the Company to Qualify as a Real
Environmental Laws . . . . . . . . . . . . . 13 Estate Investment Trust . . . . . . . . . . . 48
Future Dividends . . . . . . . . . . . . . . . . 13 Taxation of the Company's Shareholders . . . . . . . 48
Reliance on Management . . . . . . . . . . . . . 13 Taxation of Tax-Exempt Shareholders . . . . . . . . . 49
Certain Restrictions on Transfer of Shares . . . 13 Tax Considerations of Foreign Investors . . . . . . . 49
Risks Related to Federal Income Taxation . . . . 14 Backup Withholding . . . . . . . . . . . . . . . . . 50
Changes in Tax Laws . . . . . . . . . . . . . . . 14 State and Local Taxes . . . . . . . . . . . . . . . . 50
Liquidity and Market Price . . . . . . . . . . . 14 Other Tax Considerations . . . . . . . . . . . . . . 50
WHO MAY INVEST . . . . . . . . . . . . . . . . . . 14 ERISA CONSIDERATIONS . . . . . . . . . . . . . . . . . 50
USE OF PROCEEDS . . . . . . . . . . . . . . . . . . 15 Fiduciary Considerations . . . . . . . . . . . . . . 51
COMPENSATION TO ADVISOR AND AFFILIATES . . . . . . 16 Plan Assets Issue . . . . . . . . . . . . . . . . . . 51
CONFLICTS OF INTEREST . . . . . . . . . . . . . . . 18 DESCRIPTION OF CAPITAL STOCK . . . . . . . . . . . . . 52
Transactions with Affiliates and Related General . . . . . . . . . . . . . . . . . . . . . . . 52
Parties . . . . . . . . . . . . . . . . . . . . 18 Repurchase of Shares and Restrictions on Transfer . . 52
Compensation to the Advisor and Conflicts of
Interest . . . . . . . . . . . . . . . . . . 19 Soliciting Dealer Warrants . . . . . . . . . . . . . 53
Competition by the Company with Affiliates . . . 19 Dividend Reinvestment Program . . . . . . . . . . . . 53
Non-Arm's-Length Agreements . . . . . . . . . . . 20 Transfer Agent and Registrar . . . . . . . . . . . 54
Lack of Separate Representation . . . . . . . . . 20 SUMMARY OF THE ORGANIZATIONAL DOCUMENTS . . . . . . . . 54
Shared Operations Facilities . . . . . . . . . . 20 Certain Article and Bylaw Provisions . . . . . . . . 54
DISTRIBUTIONS . . . . . . . . . . . . . . . . . . . 20 Board of Directors . . . . . . . . . . . . . . . . . 54
CAPITALIZATION . . . . . . . . . . . . . . . . . . 21 Limitations on Director Actions . . . . . . . . . . . 54
SELECTED FINANCIAL DATA . . . . . . . . . . . . . . 22 Minnesota Anti-Takeover Law . . . . . . . . . . . . . 55
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL Restrictions on Roll-Ups . . . . . . . . . . . . . . 55
CONDITION AND RESULTS OF OPERATIONS . . . . . 23 Limitation on Total Operating Expenses . . . . . . . 56
Plan of Operations . . . . . . . . . . . . . . . 23 Transactions with Affiliates . . . . . . . . . . . . 56
Results of Operations . . . . . . . . . . . . . . 23 Restrictions on Investments . . . . . . . . . . . . . 56
Liquidity and Capital Resources . . . . . . . . . 24 Advisory Arrangements . . . . . . . . . . . . . . . . 58
BUSINESS OF THE COMPANY . . . . . . . . . . . . . . 25 PLAN OF DISTRIBUTION . . . . . . . . . . . . . . . . . 58
General . . . . . . . . . . . . . . . . . . . . . 25 General . . . . . . . . . . . . . . . . . . . . . . . 58
The Company's Business Activities . . . . . . . . 25 Compensation . . . . . . . . . . . . . . . . . . . . 58
Financing Business . . . . . . . . . . . . . . . 26 Subscription Process . . . . . . . . . . . . . . . . 58
Current First Mortgage Loan Terms . . . . . . . . 26 Determination of Investor Suitability . . . . . . . . 59
Property Portfolio of the Company . . . . . . . . 27 Suitability of the Investment . . . . . . . . . . . . 60
Mortgage Loan Processing and Underwriting . . . . 28 Capital Contribution by Affiliate of Advisor . . . . 60
Loan Commitments . . . . . . . . . . . . . . . . 28 COMMISSION POSITION ON INDEMNIFICATION FOR
Loan Portfolio Management . . . . . . . . . . . . 29 SECURITIES ACT LIABILITIES . . . . . . . . . . . . . 60
Loan Funding and Bank Borrowing . . . . . . . . . 28 LEGAL MATTERS . . . . . . . . . . . . . . . . . . . . . 61
Financing Policies . . . . . . . . . . . . . . . 29 EXPERTS . . . . . . . . . . . . . . . . . . . . . . . . 61
Prohibited Investments and Activities . . . . . . 30 REPORTS TO SHAREHOLDERS, RIGHTS OF EXAMINATION
Policy Changes . . . . . . . . . . . . . . . . . 31 AND ADDITIONAL INFORMATION . . . . . . . . . . . . . 61
Competition . . . . . . . . . . . . . . . . . . . 31 GLOSSARY . . . . . . . . . . . . . . . . . . . . . . . 62
Employees . . . . . . . . . . . . . . . . . . . . 31 FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . F-1
Operations . . . . . . . . . . . . . . . . . . . 32 APPENDIX I . . . . . . . . . . . . . . . . . . . . . . A-1
</TABLE>
3
<PAGE> 7
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the detailed
information and financial statements appearing elsewhere in this Prospectus.
THE COMPANY
The Company is a newly-formed, start-up corporation organized to qualify
as a REIT, and is engaged in the business of making mortgage loans from
$100,000 to $1,000,000 to churches and other non-profit religious organizations
throughout the United States. The Company's business is limited to making (or
participating through the purchase of bonds) mortgage-backed loans to churches
and other non-profit religious organizations for the purchase, construction or
refinancing of real estate and improvements. As of the date of this
Prospectus, the Company has funded six mortgage loans in the aggregate
principal amount of $2,317,000, and has purchased for $72,805 church bonds
having a face value of $100,000. The Company intends to continue to deploy net
proceeds from the sale of the Shares through lending funds pursuant to its
business plan as funds from the sale of the Shares become available for such
purpose. See "Business of the Company."
Subject to the supervision of the Company's Board of Directors (a majority
of whom are Independent Directors), the business of the Company is managed by
Church Loan Advisors, Inc. (the "Advisor"), which is owned by V. James Davis,
David G. Reinhart and Philip J. Myers. Messrs. Davis, Reinhart and Myers have
a combined 31 years of experience in the area of mortgaged-backed lending to
churches as principals of the Dealer Manager (American Investors Group, Inc.),
of which Mr. Davis is also President and Director, Mr. Myers is Senior
Vice-President, and Mr. Reinhart is a Director. Messrs. Davis and Reinhart
are officers and directors of the Company and Directors of the Advisor. The
Company has entered into an agreement with the Advisor (the "Advisory
Agreement") which details the terms for the provision of services to the
Company by the Advisor. Pursuant to the Advisory Agreement, the Company must
pay the Advisor certain advisory fees and expenses, as defined in the Advisory
Agreement, and one-half of any origination fees collected by the Company with
respect to mortgage loans made by the Company. See "The Advisor and the
Advisory Agreement," "Compensation to the Advisor and Affiliates" and
"Distributions." The Advisor is neither a registered investment advisor under
the Investment Advisors Act of 1940, nor a registered investment company under
the Investment Company Act of 1940.
The executive offices of the Company and the Advisor are located at 10237
Yellow Circle Drive, Minneapolis, Minnesota 55343 and their telephone number
is (612) 945-9455.
THE OFFERING
<TABLE>
<S> <C>
Common Stock Offered (1) ................................. 2,000,000 Shares
Common Stock Outstanding After Offering (2)............... 2,020,000 Shares
Percentage Owned by Non-Affiliates After Offering......... 99%
Net Proceeds of Offering (3) ............................. $19,140,000
Use of Proceeds .......................................... Principally, to Make Mortgage-Backed Loans
to Churches. See "Use of Proceeds."
</TABLE>
- --------------
(1) All of the Shares of Common Stock are being offered by the
Company on a "best efforts" basis through the Dealer Manager.
(2) Assumes sale of all Shares being offered hereby. Excludes
(i) 3,000 Shares which each Director and the President of the
Advisor (7 individuals) have an option to purchase at a price of
$10.00 per share, pursuant to the Stock Option Plan for Directors
and the Advisor, which vest and are thus exercisable on or after
November 15, 1995 and expire November 15, 1999 (See "Management --
Warrants and Options"); and (ii) up to 200,000 Shares which may be
purchased, at a price of $10.00 per share, pursuant to Soliciting
Dealer Warrants to be issued to the Dealer Manager and Soliciting
Dealers in connection with this Offering. See "Plan of
Distribution."
(3) Before deducting other expenses of issuance and distribution
payable by the Company, estimated at $147,000. See "Use of
Proceeds."
4
<PAGE> 8
RISK FACTORS
An investment in the Shares is highly speculative and involves a high
degree of risk, including the risk of loss of an investor's entire investment.
See "Risk Factors" for a more complete discussion of factors that investors
should consider before purchasing any of the Shares. Some of the significant
considerations include:
- - Fluctuations in interest rates or default in payment by borrowers could
adversely affect the Company's ability to make distributions to its
Shareholders and its ability to qualify as a REIT.
- - Mortgage foreclosure by the Company in connection with a defaulted loan
may not necessarily result in the recovery of the entire loan balance,
which may impair the Company's assets.
- - Potential conflicts of interest and mutual benefits to Affiliates of the
Company, the Dealer Manager and the Advisor in connection with the
formation of the Company, offering of the Shares, and on-going business
operations of the Company.
- - There is no market for the Shares and no assurance that any market will
develop after the Offering. Trading in the Shares may be limited.
- - Risks associated with the "best efforts" underwriting of the Shares, which
include there being no assurance that all or a material amount of the
Shares will be sold and consequently no assurance that the Company will be
capitalized at any anticipated level, which could cause the Company's
assets to be less diversified and increase the risk that an investor may
not recoup his or her investment.
- - Taxation of the Company as a corporation if it fails to qualify as a REIT.
- - The Company will be managed by an Advisor, and neither the Company nor the
Advisor have any experience operating or managing a REIT. The Company
will rely on the Advisor for daily operation and management of the
Company's assets and will pay a fixed fee equal to 1 1/4% of the Company's
Average Invested Assets and receive other amounts for its services
regardless of the performance of the Company's portfolio.
- - Potential anti-takeover effects of limiting ownership of any single
Shareholder to 9.8% of the outstanding shares of the Company.
- - The Company is a start up business and has a limited history of operating
revenues to date.
BUSINESS OBJECTIVES AND POLICIES
The objective of the Company is to provide cash distributions or current
income to its Shareholders through the implementation of its investment and
operating strategy, which is limited to the business of making mortgage loans
from $100,000 to $1,000,000 to churches and other non-profit religious
organizations throughout the United States. Mortgage loans will be made only
for the purchase and/or construction of real estate and improvements thereon,
and for refinancing existing mortgage debt. The Company will seek to enhance
returns by (i) emphasizing shorter-term (0-5 years) and mid-term (5-15 years)
loans and construction loans (although there is no limit on the term of loans
the Company will make); (ii) seeking origination fees (i.e. "points") from the
borrower at the outset of a loan and upon any renewal of a loan; (iii) making a
limited amount of higher-interest rate second mortgage loans to qualified
borrowers; and (iv) purchasing a limited amount of mortgage-secured debt
securities issued by churches and other non-profit religious organizations.
The Company's policies limit the amount of second mortgage loans to 20% of the
Company's Average Invested Assets on the date any second mortgage loan is
closed and limit the amount of mortgage-secured debt securities to 30% of
Average Invested Assets on the date of their purchase. All other mortgage
loans made by the Company will be secured by a first mortgage (or deed of
trust) lien in favor of the Company. Although the Company will attempt to make
mortgage loans for terms of short (0-5 years) or medium (5-15 years) duration,
or those having variable interest rates, in order to reduce the risk to the
Company of rising interest rates, it may determine to make longer-term
fixed-interest rate loans under certain circumstances. The Company may borrow
up to 50% of its Average Invested Assets. See "Business of the Company."
5
<PAGE> 9
The Company's objective is to provide its Shareholders with current
income and an attractive yield through quarterly distributions, while protecting
their principal investment by following specified lending guidelines and
applying identified criteria in making determinations as to the credit
worthiness of potential borrowers. These criteria include:
- - All loans made by the Company will be secured by mortgages with
loan-to-value ratios not to exceed 75% of valuation of the real property
and improvements serving as collateral.
- - The maximum amount of a loan or loans by the Company to a single borrower
will be limited to $1,000,000.
- - Real property valuation will be determined based on a written appraisal
acceptable to the Advisor. On loans over $500,000, the Company will
require a written appraisal issued by a member of the Appraisal Institute
("MAI"), or a state-certified appraiser.
- - An ALTA (American Land Title Association) or equivalent Mortgagee Title
Policy must be furnished to the Company by the borrower, which policy
insures the mortgage interest of the Company.
- - The borrower's total long-term debt (including the proposed loan) as of
the date of the mortgage loan may not exceed the multiple of four (4)
times the borrower's gross income for its most recent twelve (12) months.
- - The borrower must furnish to the Company financial statements (balance
sheet and income and expense statement) for the last two (2) complete
fiscal years and financial statements for the period within ninety (90)
days of the loan closing date. On loans of $500,000 or less, the
financial statements for the prior fiscal year must be reviewed by an
independent accounting firm. On loans in excess of $500,000, the last
complete fiscal year statements must be audited by an independent auditor.
- - In its discretion, the Advisor may require the borrower to grant to the
Company a security interest in all personal property (excluding leased
personal property) located and to be located upon the mortgaged premises.
- - In its discretion, the Advisor may require that the borrower arrange for
automatic electronic or drafting of monthly payments to the Company.
- - In its discretion, the Advisor may require (i) key-man life insurance on
the life of the senior pastor of a borrowing church; (ii) personal
guarantees of church members and/or Affiliates; and (iii) such other
security enhancements for the benefit of the Company as it deems
appropriate.
- - The borrower must agree to provide to the Company annual reports
(including financial statements) within 120 days of each fiscal year end
beginning with the fiscal year end next following the funding of the loan.
See "Business of the Company -- Financing Policies."
6
<PAGE> 10
DIVIDENDS AND DISTRIBUTIONS
The Company intends to make regular quarterly distributions to its
Shareholders. In order to qualify for the beneficial tax treatment afforded
REITs by the Internal Revenue Code, the Company is required to pay dividends to
Shareholders in annual amounts equal to at least 95% of the Company's REIT
taxable income. HOWEVER, THERE IS NO ASSURANCE THAT THE COMPANY WILL BE ABLE
TO PAY DIVIDENDS AT THIS OR ANY LEVEL. Dividends will be determined by the
Company's Board of Directors and will be dependent upon a number of factors,
including but not limited to, earnings and financial condition of the Company,
maintenance of REIT tax status, funds available for distribution, results of
operations, economic conditions and other facts and circumstances which the
Board of Directors deems relevant. Further, during the start-up phase of its
operations the capital of the Company, represented principally by the proceeds
from the sale of the Shares, will be held in relatively low-yield secure
investments pending application to fund loans made by the Company. The
relative yield generated by such capital, and, thus, dividends (if any) to
Shareholders could be less than could be expected once the Company has fully
invested its capital in accordance with its business plan.
To date, the Company has deployed approximately $2,390,000 in net proceeds
from the sale of 266,175 Shares and pre-existing capital in accordance with its
investment and operating strategy. For the first quarter of the Company's
operations, ended June 30, 1996, the Company's Board of Directors declared a
dividend of $.1927 per Share, payable on July 30, 1996 to shareholders of
record on June 30, 1996. This dividend represents an annualized effective
yield of 9.25%. This distribution was based on the Company's performance
during the period from approximately April 15, 1996 (commencement of active
business operations) through June 30, 1996, and there can be no assurance that
subsequent distributions will equal the first quarterly distribution. See
"Distributions."
TAX STATUS OF THE COMPANY
The Company intends to elect to be taxed as a REIT under Sections 856
through 860 of the Internal Revenue Code of 1986, as amended (the "Code"), for
its taxable year ending December 31, 1996 and subsequent taxable years. If the
Company qualifies for taxation as a REIT, the Company generally will not be
subject to federal income tax to the extent it distributes at least 95% of its
REIT taxable income to its Shareholders. REITs are subject to a number of
organizational and operational requirements. If the Company fails to qualify
as a REIT in any taxable year, the Company will be subject to federal income
tax (including any applicable alternative minimum tax) on its taxable income at
regular corporate rates. See "Federal Income Tax Considerations" for a more
detailed discussion of the consequences of a failure of the Company to qualify
as a REIT. Even if the Company qualifies for taxation as a REIT, the Company
may be subject to certain state and local taxes on its income and property.
WHO MAY INVEST
The section of this Prospectus entitled "Who May Invest" describes minimum
net worth and income requirements, as well as a detailed explanation of other
suitability requirements which investors must meet prior to subscription. In
particular, investors must have either: (i) a minimum annual gross income of
$45,000 and a net worth (exclusive of home, home furnishings and automobiles)
of $45,000; or (ii) a net worth (determined with the foregoing exclusions) of
$150,000. Suitability standards may be higher in certain states. See "Who May
Invest."
Balance of page intentionally left blank.
7
<PAGE> 11
SUMMARY FINANCIAL INFORMATION
The selected financial data presented below under the captions "Statement
of Operations Data" and "Balance Sheet Data" have been derived from the
Company's audited financial statements as of and for the period from inception
(May 27, 1994) to December 31, 1994, and the year ended December 31, 1995, and
the unaudited financial statements as of and for the six-month periods ended
June 30, 1995 and 1996. The financial statements are included elsewhere in this
Prospectus. Reference is made to the financial statements, and notes thereto,
for a more detailed presentation of financial information.
<TABLE>
<CAPTION>
PERIOD FROM SIX MONTHS SIX MONTHS
MAY 27, 1994 YEAR ENDED ENDED ENDED
TO DECEMBER 31, DECEMBER 31, JUNE 30, JUNE 30,
1994 1995 1995 1996
--------------- ------------ -------- --------
STATEMENT OF OPERATIONS DATA: (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Revenues
Interest Income Loans..................... $ -0- $ -0- $ -0- $ 22,661
Interest Income Other..................... 731 4,436 1,991 7,179
Origination Income........................ -0- -0- -0- 3,027
Escrow Interest Income.................... -0- -0- -0- 37,477
-------- -------- -------- ----------
Total Revenues.............................. 731 4,436 1,991 70,344
Operating Expenses
Professional Fees......................... 1,404 -0- -0- 5,778
Director Fees............................. 2,000 -0- -0- -0-
Amortization.............................. 177 303 152 152
Advisory Fee.............................. -0- -0- -0- 3,714
Other..................................... 1,672 5,456 567 39,908
-------- -------- -------- ----------
Total Expenses.............................. 5,253 5,759 719 49,552
Net Income (loss)........................... $ (4,522) $ (1,323) $ 1,272 $ 20,792
======== ======== ======== ==========
Income (loss) per Common Share.............. $ (.23) $ (.07) $ .06 $ .18
Weighted Average Common
Shares Outstanding (1).................... 20,000 20,000 20,000 112,341
Dividends Declared Per Share................ $ -0- $ -0- $ -0- $ .1927
<CAPTION>
DECEMBER 31, DECEMBER 31, JUNE 30, JUNE 30,
1994 1995 1995 1996
--------------- ------------ -------- --------
BALANCE SHEET DATA: (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Assets:
Cash and Cash Equivalents................. $149,023 $135,282 $134,297 $ 428,025
Deferred Offering Costs................... 59,916 107,295 90,687 -0-
Organizational Expenses (net)............. 1,339 1,071 1,188 920
Prepaid Expenses.......................... -0- -0- 348 695
Loans Receivable.......................... -0- -0- -0- 1,806,031
Bonds..................................... -0- -0- -0- 72,805
-------- -------- -------- ----------
Total Assets:............................... $210,278 $243,648 $226,520 $2,308,476
======== ======== ======== ==========
Liabilities and Shareholder's Equity:
Accounts Payable.......................... $ 14,800 $ 49,493 $ 29,770 $ 4,379
Deferred Income........................... -0- -0- -0- 30,028
Dividends Payable......................... -0- -0- -0- 46,667
Shareholder's Equity (net of
deficit accumulated during
development stage)...................... 195,478 194,155 196,750 2,227,402
-------- -------- -------- ----------
$210,278 $243,648 $226,520 $2,308,476
======== ======== ======== ==========
</TABLE>
(1) Excludes (i) 3,000 Shares which each Director and the President of the
Advisor (7 individuals) have an option to purchase, at a price of $10.00
per share, pursuant to the Stock Option Plan for Directors and the Advisor,
which vest and are thus exercisable on or after November 15, 1995 and
expire November 15, 1999 (See "Management -- Warrants and Options" and
"Security Ownership of Management and Others"); and (ii) up to 200,000
Shares which may be purchased, at a price of $10.00 per share, pursuant to
Soliciting Dealer Warrants to be issued to the Dealer Manager and
Soliciting Dealers in connection with this Offering. See "Plan of
Distribution."
8
<PAGE> 12
RISK FACTORS
An investment in the Shares involves various risks. In addition to
general investment risks and those factors set forth elsewhere in the
Prospectus, investors should consider the following factors before making a
decision to purchase the Shares.
BEST EFFORTS OFFERING
The Shares are being sold by the Dealer Manager on a "best efforts"
basis whereby the Dealer Manager is required to use its best efforts to locate
purchasers of the Shares on behalf of the Company, but is under no obligation
to purchase any Shares. Therefore, no assurance is given as to the amount of
proceeds that will be available for investment by the Company. In the event
materially less than all the Shares are sold during the Offering Period (which
ends November 8, 1996) the Company would have fewer cash assets to apply toward
its business plan of extending mortgage loans to churches and other religious
organizations. In such event, the fixed operating expenses of the Company, as
a percentage of gross income, would be higher and consequently reduce the
taxable income distributable to Shareholders. Further, in such event, the
Company's assets invested would be less diversified and increase the risk that
an investor may not recoup his or her investment upon liquidation of the
Company. As of the date of this Prospectus, 266,175 Shares have been sold in
this Offering for gross proceeds of $2,661,750. See "Plan of Distribution."
INTENT TO QUALIFY AS A REAL ESTATE INVESTMENT TRUST
The Company intends to operate so as to qualify as a real estate
investment trust under the Internal Revenue Code of 1986, as amended (the
"Code"). Although the Company believes that it is organized and operates in
such a manner, no assurance can be given that the Company will qualify or
remain qualified as a REIT. Qualification as a REIT involves the application
of highly technical and complex Code provisions for which there are only
limited judicial or administrative interpretations, including a requirement
that the Company must retain at least 100 Shareholders. The determination of
various factual matters and circumstances not entirely within the Company's
control may affect its ability to qualify as a REIT. In addition, no assurance
can be given that legislation, new regulations, administrative interpretations
or court decisions will not significantly change the tax laws with respect to
qualification as a REIT or the federal income tax considerations of such
qualification. See "Federal Income Tax Considerations."
If in any taxable year the Company failed to qualify as a REIT, or
failed to retain at least 100 Shareholders, the Company would not be allowed a
deduction for distributions to Shareholders in computing its taxable income and
would be subject to federal income tax on its taxable income at regular
corporate rates. Unless entitled to relief under certain statutory provisions,
the Company also would be disqualified from treatment as a REIT for the four
taxable years following the year during which qualification was lost. As a
result, the funds available for distribution to the Company's Shareholders
would be reduced for each of the years involved. Although the Company
currently intends to operate in a manner designed to qualify as a REIT, it is
possible that future economic, market, legal, tax or other considerations may
cause the Company's Board of Directors to revoke the REIT election. See
"Federal Income Tax Considerations."
TERMS OF CERTAIN OF THE FORMATION TRANSACTIONS NOT DETERMINED BY ARM'S-LENGTH
NEGOTIATION
The terms of certain of the transactions involving the formation of the
Company and the Advisor, and the contractual relationship between them, were
determined by inside (non-independent) Directors and Officers of the Company
who have mutual ownership interests in the Company, the Advisor and the Dealer
Manager. Therefore, the terms of such transactions were not the result of
arm's length negotiation. While serving in dual capacities as both Directors
or Officers of the Company and as partners and/or shareholders of the Advisor
(and the Dealer Manager) these persons may have conflicts of interest in
enforcing agreements between and among such companies and the Company. Various
fees will be paid to these companies pursuant to the terms of such agreements,
including (i) fees to the Dealer-Manager in connection with the offer and sale
of the Shares in this Offering, and (ii) direct and indirect fees to the
Advisor in connection with its administration of the Company's business affairs
and in connection with the Company's making of mortgage loans. Future business
arrangements and agreements between the Company and the Advisor and its
affiliates must be approved by the Board of Directors, including a majority of
the Independent Directors. See "Management," "The Advisor and the Advisory
Agreement," and "Conflicts of Interest."
9
<PAGE> 13
PRICE OF SHARES ARBITRARILY DETERMINED
The initial price of the Shares has been determined by negotiations
between the Dealer Manager and the Company and is the same price paid by DRM
Holdings, Inc., an affiliate of the Advisor, which purchased 20,000 Shares
prior to the Offering. The public offering price set forth on the cover page
of this Prospectus should not, however, be considered an indication of the
actual value of the Shares. See "Plan of Distribution."
RISKS RELATED TO MANAGEMENT
Limited Operating History. Neither the Company nor the Advisor have any
prior experience operating or managing a REIT. The Officers, Shareholders and
Directors of the Advisor have a combined experience of 31 years in the business
of lending to churches and have managed the Company since its inception in
1994. Shareholders must rely upon the judgment of the Company's Directors and
the Advisor for investment decisions of the Company. The ability of the
Company to accomplish its stated investment objectives will depend, in part, on
the success of the Advisor in locating and negotiating the Company's loans to
qualified churches and other religious organizations throughout the United
States. The Company is a "start-up" business enterprise and has a limited
history of operating revenues. As a result, the business of the Company
carries with it those risks normally attendant to a new start-up enterprise,
including, among others, those identified elsewhere herein. See "The Advisor
and the Advisory Agreement" and "Business of the Company."
Dependence Upon Advisor. The Company is dependent upon the Advisor for
essentially all aspects of its business operations, including but not limited
to mortgage loan underwriting and services, marketing and advertising,
generation and follow-up of business leads, maintaining business relationships
with other persons in the business in which the Company is engaged, maintaining
any "goodwill" developed by the Company or the Advisor, and corporate
management (including bookkeeping, filing reports with state, federal and tax
and other regulatory authorities, reports to Shareholders, etc.). Because the
Advisor has experience in the specialized business segment in which the Company
intends to operate, the loss of the services of the Advisor, for any reason,
would likely have a material adverse effect upon its business operations.
Conflicts of Interest. Numerous affiliations exist among certain
members of the Board of Directors and officers of the Company and officers and
directors of the Advisor and the Dealer Manager. The Advisor and the Dealer
Manager are affiliated by virtue of their common direct and indirect ownership
by two of the Directors of the Company and the Officers, Directors and
shareholders of the Advisor. Additionally, the Executive Officers and certain
of the Directors of the Company and the Advisor are involved actively in the
church financing business through their affiliation with the Dealer Manager,
and management and operations of these other companies may compete with the
Advisor and the Company for their time and attention and conflict with the
Company through competition for specific financing projects and lending
opportunities. Future business dealings between the Company and the Advisor
and its affiliates must be approved by a majority of the Board of Directors,
including a majority of the Company's Independent Directors. The principal
business of the Dealer Manager since its inception in 1987, has been the
underwriting of first mortgage bonds for churches. To the extent the Company
diversifies its portfolio through the purchase of first mortgage bonds issued
by churches, it is most likely that such bonds would be purchased through the
Dealer Manager in its capacity as underwriter for the issuing church, or as
broker or dealer on the secondary market. In such event, the Dealer Manager
would receive commissions (paid by the issuing church) on original issue bonds,
or "mark-ups" in connection with any such secondary transactions. In addition,
in the event the Company sells from time to time church bonds in its portfolio,
it is likely (and as a practical matter, necessary) that such bonds would be
sold through the Dealer Manager, in which case the Dealer Manager would realize
income in the form of a "mark-down." All such commissions, mark-downs or
mark-ups are limited by standards set forth in the Company's Bylaws and can be
no more than those charged by the Dealer Manager to its other customers and
would not exceed industry standards or in any event (in the case of mark-ups
and mark-downs on secondary bond sales and purchases) exceed five percent of
the principal amount of bonds purchased or sold. Principals of the Company and
the Advisor may receive a benefit in connection with such transactions due to
their affiliation with the Dealer Manager. The Company's policies limit the
amount of mortgage-secured debt securities (such as church bonds) to 30% of its
Average Invested Assets on the date of their purchase. See "Conflicts of
Interest."
10
<PAGE> 14
RISKS RELATED TO ORGANIZATIONAL, OFFERING, LOAN AND ADVISOR EXPENSES
The expenses associated with the organization of the Company and this
Offering have been significant. The expenses and costs associated with the
Company's business and use of an Advisor will also be significant. These
expenses reduce the assets of the Company that will be available for investment
in income-producing assets. See "Use of Proceeds." Upon a liquidation of the
Company, the value of the Company's assets would have to appreciate
significantly in order to offset these expenses and enable investors to recover
their original investment. Appreciation of the value of mortgage loans to be
made or first mortgage bonds acquired by the Company is beyond the control of
the Company and the Advisor. A direct investment in mortgage loans or first
mortgage bonds may avoid costs incurred by the Company. In addition, until a
market develops for the Company's securities it may be impossible for an
investor to recoup his/her investment, even if the Company's performance
permits such a valuation.
RISKS RELATED TO MORTGAGE LENDING GENERALLY
In General. Mortgage lending involves various business risks, many of
which are unpredictable and beyond the control and foresight of management of
the Company and the Advisor, such as national and local economic conditions,
demographic and population patterns, zoning regulations, taxes, interest rate
fluctuations, general availability of financing and general competitive
conditions. It is not possible to identify all potential risks associated with
mortgage lending; however, some of the more common risks encountered can be
summarized as follows: low demand for mortgage loans by potential borrowers;
changes in the level of consumer confidence; availability of credit-worthy
borrowers; bankruptcy or insolvency of a borrower resulting in delay in
exercising remedies against the borrower and/or reduction of the Company's
claim against a specific borrower; general and local economic conditions and
factors affecting specific borrowers; interest rate fluctuations as they affect
the ability of a borrower to afford debt service obligations; the valuation,
marketability and single-use nature of the real estate and improvements
securing or collateralizing church loans; and state and federal laws and
regulations currently existing and which may be promulgated in the future,
which govern the process of foreclosure of mortgages by lenders following a
default on a loan. In the event of a default, foreclosure of its mortgage, and
sale of the mortgaged property by the Company, the proceeds of such sale could
be more or less than the Company's investment in such loan.
Risk of Second Mortgage Loans. The Company's Financing Policies allow
it to fund second mortgage loans. However, the principal amount of such loans
may not exceed 20% of the Company's Average Invested Assets. Such second
mortgage loans may be considered to entail more risk than first mortgage loans
due to the fact foreclosure of senior indebtedness or liens could extinguish
the Company's investment.
Risk of Fixed-Rate Debt. There are certain risks inherent in fixed-rate
debt obligations, including the risk that a general rise in interest rates
would make the yield to the Company on a particular mortgage loan lower than
prevailing rates at a given time, which, in turn, could negatively affect the
value of the Company and consequently the Shares. Neither the Company nor the
Advisor can predict the direction, and extent or duration of interest rate
changes, however, it will attempt to reduce this risk by maintaining a balanced
portfolio of short, medium and longer-term mortgage loans and through offering
variable or otherwise adjustable rate loans to borrowers.
Competition. The mortgage banking industry generally is highly
competitive. The Company will compete within its geographic areas of operation
with a wide variety of investors, including banks, savings and loan
associations, insurance companies, pension funds and fraternal organizations
which may have investment objectives similar to those of the Company. A number
of these competitors have greater financial resources, larger staffs and longer
operating histories than those of the Company. The Company intends to compete
principally by limiting its business "niche" to lending to churches and other
non-profit religious organizations, offering loans with competitive and
flexible terms, and emphasizing the expertise of the Company in the specialized
industry segment of lending to churches.
Interest Rate Fluctuations. Prevailing market interest rates, which
have an impact on borrower decisions to obtain new loans or to refinance
existing loans, affect the Company's ability to originate mortgage loans. In
recent years, a declining interest rate environment favorable to mortgage loan
originations has existed; however, in 1994 this trend began to reverse and the
effect of such changing interest rate environment on the demand for mortgage
loans by churches and other non-profit organizations is unpredictable. Future
fluctuations in interest rates could be expected to cause the value of the
Shares to fluctuate unpredictably. Finally, if interest rates decrease and the
economic advantages of refinancing mortgage loans increase, prepayments of
higher interest mortgage loans in the Company's portfolio would
11
<PAGE> 15
likely reduce the portfolio's overall rate of return (yield). The Company's
strategy of charging origination fees at the outset of a new mortgage loan, and
upon any extension or renewal thereof, is expected to mitigate the effect of
any such prepayments.
Regulation. Although the Company believes it is not subject to any
specific government regulations affecting its proposed business, there can be
no assurance that this is the case, and the Company may be required, or in its
discretion determine, to register, become licensed, or otherwise qualify to do
business in various states. The Company believes it has the ability to make
such determinations on a jurisdictional basis as its business expands
geographically, and that any regulations as might exist will not materially
impact its ability to execute its plan of business operations.
RISKS RELATED TO MORTGAGE LENDING TO CHURCHES
Source of Church Revenues. Voluntary contributions made by members
constitute a church's primary source of income. Such income provides the
primary source of funds for repayment of its loan obligations and other
expenses. There can be no assurance that the membership of a church or the per
capita contributions of its members will increase or remain constant after a
loan is funded. A decrease in a church's income could result in its inability
to pay its obligation to the Company, in which case an event of default could
occur and the Company could be required to exercise its remedies - including,
among others, foreclosure of its mortgage.
Dependence Upon Pastor. A church's senior pastor most often plays an
important role in the management, spiritual leadership and continued viability
of that church. While significant administrative and ministerial duties are
often delegated to a church's assistant pastors (if any), board of trustees,
board of deacons and church members, a senior pastor's absence, resignation or
death could have a negative impact on a church's operations and, thus its
continued ability to generate revenues sufficient to service its loan
obligation to the Company. The Company's lending policies provide that the
Advisor, in its discretion, may require a borrower to maintain Key-Man life
insurance policies on its senior pastor and his successors for the term of the
loan. See "Business of the Company -- Financing Policies."
Value of Mortgage Collateral -- Limited/Restricted/Single-Use. Loans
made by the Company to churches and other religious and non-profit
organizations will be secured by principally first mortgages upon the real
estate and improvements owned or to be owned by such organizations. Although
the Company will require an appraisal of the value of the premises as a
pre-condition to making a loan, the appraised value of the premises is an
estimate only and can seldom if ever be relied upon as being the actual amount
which might be obtained on behalf of the Company if it became necessary to sell
the premises in the event of a default by the organization on the loan. The
actual liquidation value of church, school or other institutional premises
could be adversely affected by, among other factors: (i) its single-use or
limited use nature; (ii) the availability on the market of similar properties;
(iii) the availability and cost of financing to prospective buyers; and (iv)
the length of time the seller is willing to hold the property on the market.
Finally, in the event the Company forecloses its mortgage upon a religious
organization's property and takes legal title thereto, real estate taxes could
be levied and assessed against the property. This expense would be the
financial responsibility of the Company, and could be substantial in relation
to the Company's prior loan if the Company cannot readily dispose of the
property. Such expenses could prevent the Company from recovering the value of
its loan in the event of foreclosure. Further, until such time as the property
is sold, such taxes would be a direct expense to the Company, which may reduce
the amount of funds available for distribution to the Company's Shareholders as
a dividend.
USE OF BORROWED FUNDS
The Company may, but does not presently intend to, borrow funds to
assure its capacity to make loans on a continual basis. Lending through use of
borrowed funds is subject to greater risks than in unleveraged lending,
although it offers the potential of greater returns on investment. The
Company's cash flow, including its ability to pay dividends, will be impacted
by the financing costs associated with the use of borrowed funds. Financing
costs are obligations of the Company that must be paid regardless of whether
the Company has sufficient revenue from operations and the Company's assets
(primarily its mortgage loan portfolio) would be assigned to a bank as
collateral for any such loan. The Company's Bylaws (the "Bylaws") limit the
ability of the Company to borrow up to 50% of the value of its Average Invested
Assets before deduction for non-cash reserves. See "Business of the Company -
Financing Policies."
12
<PAGE> 16
POTENTIAL LIABILITY UNDER FEDERAL AND STATE ENVIRONMENTAL LAWS
Under various federal, state and local laws and regulations, an owner of
real property or a secured lender (such as the Company) may be liable in
certain circumstances for the costs of removal or remediation of certain
hazardous or toxic substances at, under or disposed of in connection with such
property, as well as certain other potential costs relating to hazardous and
toxic substances (including government fines and injuries to persons and
adjacent property). Such laws often impose such liability without regard to
whether the owner or lender knew of, or was responsible for the presence of
such hazardous or toxic substances. The costs of remediation or removal of
such substances, or of fines or personal or property damages, may be
substantial and material to the Company's business operations and the presence
of such substances, or the failure to promptly remediate such substances may
adversely affect the Company's ability to resell such real estate after
foreclosure or could cause the Company to forego foreclosure and, thus avoid
taking title to real estate as a remedy in the event of default on a mortgage
loan. This is a changing area of the law, as the courts have found both in
favor and against lender liability in this area under various factual
scenarios. Although Congress could enact legislation designed to limit or
preclude mortgagee liability in this area, there can be no assurance that such
legislation will become law or, if it does become law, that it will fully
protect lenders from such liabilities.
FUTURE DIVIDENDS
Payment of dividends will be affected by cash available for
distribution, results of operations, economic conditions, applicable state law,
the need for payment of advisory fees, and other facts and circumstances deemed
relevant by the Board of Directors from time to time. The Company has
commenced business operations and deployed net proceeds from the sale of some
of the Shares offered in this Offering, and intends to continue to deploy
proceeds from continued Share sales during the Offering Period as rapidly yet
prudently as possible in order to generate the best possible yields to
Shareholders. Nevertheless, during the start-up phase of its operations, the
capital of the Company (comprised primarily of the proceeds from the sale of
the Shares), could be held in relatively low-yield secure investments pending
application to fund loans made by the Company. The relative yield generated by
such capital, and, thus, dividends (if any) to Shareholders could be less than
could be expected once the Company has fully invested its capital in accordance
with its business plan. The Company intends to ameliorate to some extent the
possibility of low yields during the start-up phase by (i) its practice of
collecting from borrowers an origination fee at the time a loan is made, and
(ii) timing its lending activities to coincide as much as possible with sales
of the Shares. The Advisor is entitled to one-half of any origination fees
collected from borrowers at the origination of any loan made by the Company.
There can be no assurance that either or both of these operational methods will
have the desired effect of bolstering significantly current yields to
Shareholders in the early periods of the Company's business operations. See
"Distributions."
RELIANCE ON MANAGEMENT
Most decisions with respect to the management of the Company, including
the selection of investments, are made by the Advisor, subject to the general
supervision of the Board of Directors and substantial compliance with the
Company's lending policies outlined herein. The success of the Company will
depend, in large part, upon the quality of the management provided by the
Advisor, particularly as it relates to underwriting (review, analysis and
borrower qualification) of mortgage loans on behalf of the Company and
selecting mortgage backed securities for the Company's portfolio. Shareholders
rights or power to take part in the management of the Company are generally
limited to the right to elect Directors. Thus, no person should purchase any
of the Shares offered hereby unless the person is willing to entrust the
management of the Company to the Advisor and the Board of Directors. See "The
Advisor and the Advisory Agreement," "Conflicts of Interest" and "Management."
CERTAIN RESTRICTIONS ON TRANSFER OF SHARES
Provisions of the Articles of Incorporation and Bylaws of the Company,
primarily intended to enable the Company to maintain its status as a real
estate investment trust, authorize the Company (i) to refuse to effect a
transfer of shares of Common Stock to any person who, as a result, would
beneficially own shares in excess of 9.8% of the outstanding capital stock
("Excess Shares") and (ii) to redeem Excess Shares. Such provisions may
inhibit market activity and the resulting opportunity for shareholders to
receive a premium for their shares that might otherwise exist if an investor
were attempting to assemble a block of shares in excess of 9.8% of the
outstanding capital stock. See "Description of Capital Stock."
13
<PAGE> 17
RISKS RELATED TO FEDERAL INCOME TAXATION
The Company intends to conduct its operations to enable it to qualify as
a real estate investment trust under the Internal Revenue Code of 1986, as
amended (the "Code"). However, the Company has not sought, nor does it intend
to seek, a ruling from the Internal Revenue Service with respect to its
qualification as a real estate investment trust, and no assurance can be given
that the Company will so qualify, or that once it qualifies, that it will
continue to so qualify. If the Company qualifies as a real estate investment
trust, in computing its taxable income, it will generally be allowed a
deduction for dividends paid to its Shareholders. This treatment substantially
eliminates the "double taxation" of earnings.
To qualify as a real estate investment trust, the Company is required to
meet certain share ownership, income, asset and distribution tests. No
assurance can be given that the Company will at all times satisfy these tests.
In order to maintain its status as a real estate investment trust, the Company
must satisfy certain requirements on a continuing basis, which requirements may
substantially affect day-to-day decision making by the Advisor. In some cases,
the Company may be forced to take action it would not otherwise take or refrain
from action which might otherwise be desirable in order to maintain its tax
status. If, in any taxable year, the Company should not qualify as a real
estate investment trust, any previous election by the Company to be taxed as a
real estate investment trust would generally terminate and, under certain
conditions, the Company would be unable to elect to be taxed as a real estate
investment trust until the fifth year after the disqualification. Failure of
the Company to meet the qualification tests will cause the Company to be taxed
as a regular corporation, and distributions to its Shareholders would not be
deductible by the Company in computing its taxable income. The payment of any
tax by the Company resulting from its disqualification as a real estate
investment trust would reduce the funds available for distribution to
Shareholders or for investment, or if shareholder distributions had been made
in anticipation of the Company's qualifying for taxation as a real estate
investment trust, could force the Company to borrow funds or to liquidate
certain of its loans or investments in order to pay the applicable tax. If the
Company has significant charges to its cash flow which are not deductible in
determining its real estate investment trust taxable income, such as principal
payments on loans, it may be required to distribute amounts in excess of its
available cash in order to maintain its qualification as a real estate
investment trust. See "Federal Income Tax Considerations."
CHANGES IN TAX LAWS
The discussion in this Prospectus of the tax treatment of the Company as
a real estate investment trust and the tax effect on Shareholders is based on
existing provisions of the Code, existing and proposed regulations, existing
administrative interpretations and existing court decisions. No assurance can
be given that legislation, new regulations, administrative interpretations or
court decisions will not significantly change the tax laws such that the
treatment of a real estate investment trust or the consequences of an
investment in the Company would vary substantially from the treatment described
elsewhere in this Prospectus. Any such change might apply to transactions
taking place before the change occurs.
LIQUIDITY AND MARKET PRICE
There currently is no market for the Shares and there can be no
assurance that a market will develop. It is not expected that a material
market for the Shares will develop during the Offering Period. In addition,
the market for REIT securities historically has been less liquid than non-real
estate types of publicly-traded equity securities. Further, because of such
illiquidity and the fact that the Shares are valued by market-makers (if a
market develops) based on market forces which consider various factors beyond
the Company's control, there can be no assurance that the market value of the
Shares at any given time, if a market develops, would be the same or higher
than the public offering price offered hereby. In addition, the market price
could decline if the yields from other competitive investments exceed the
actual dividends on the Shares. The common stock of the Company will not be
listed on any exchange and initially will not be qualified for quotation on the
National Association of Securities Dealers, Inc. Automated Quotation System
("NASDAQ").
WHO MAY INVEST
An investment in the Shares involves certain risks and is suitable only
as a long-term investment for persons of adequate financial means who have no
immediate need for liquidity in their investment. Shares will be sold only to
persons who purchase a minimum of 250 Shares ($2,500) or IRAs and qualified
plans which purchase a minimum of 200 Shares ($2,000). In addition, the
Company has established financial suitability standards for investors who
purchase
14
<PAGE> 18
Shares. These standards require investors to have either: (i) a minimum
annual gross income of $45,000 and a net worth (exclusive of home, home
furnishings and automobiles) of $45,000; or (ii) a net worth (determined with
the foregoing exclusions) of $150,000. Suitability standards may be higher in
some states.
The Soliciting Dealer Agreements between the Dealer Manager and each of
the Soliciting Dealers require such securities dealers to make diligent
inquires as required by law of all prospective purchasers in order to ascertain
whether a purchase of Shares is suitable for such person and to transmit
promptly to the Company, the fully completed subscription documentation and any
other supporting documentation reasonably required by the Company. By
executing the subscription agreement relating to the Shares (the "Subscription
Agreement"), by tendering payment for Shares and by acceptance of the purchase
or delivery of the Shares, an investor represents that it satisfies any
applicable suitability standards.
In addition, each Soliciting Dealer will, by completing the Subscription
Agreement, acknowledge its determination that the Shares are a suitable
investment for the investor, and will be required to represent and warrant his
or her compliance with applicable laws requiring the determination of the
suitability of the Shares as an investment for the subscriber. The Company
will, in addition to the foregoing, coordinate the processes and procedures
utilized by the Dealer Manager and Soliciting Dealers and, where necessary,
implement such additional reviews and procedures deemed necessary to assure the
adherence by registered representatives to the suitability standards set forth
herein.
USE OF PROCEEDS
The following represents the Company's current estimate of the use of
the gross offering proceeds from the sale of the Shares, assuming the sale of
all the Shares offered hereby.
<TABLE>
<CAPTION>
Dollar
Amount Percent
------ -------
<S> <C> <C>
Gross Offering Proceeds: $20,000,000 100.00%
Less Expenses:
Selling Commissions (1) 860,000 4.30
Dealer Manager's Expense Allowance (2) 53,000 .265
Organization and Offering Expenses (3) 147,000 .735
---------- --------
Total Public Offering-Related Expenses (4) 1,060,000 5.30
---------- ----------
Amount Available for Investment (5) $18,940,000 94.70%
</TABLE>
- --------------
(1) The Company will pay the Dealer Manager selling commissions equal to 4.3%
of the gross offering proceeds, and one Soliciting Dealer Warrant for every
10 Shares sold, all or any portion of which commissions or warrants may be
re-allowed to Soliciting Dealers. See "Compensation to Advisor and
Affiliates" and "Plan of Distribution." For purposes of analyzing overall
estimated Offering-Related Expenses, the Soliciting Dealer Warrants have
been valued at 2% of the amount raised (i.e., $400,000 in the event all the
Shares are sold), however, such valuations are not included in the above
estimate of use of offering proceeds because offering proceeds will not be
reduced or otherwise effected by the issuance of warrants. Such valuation
may or may not be indicative of the actual value of such warrants.
(2) The Company will pay the Dealer Manager a non-accountable expense allowance
of up to $53,000 (assuming all the Shares are sold) to defray the Dealer
Manager's costs associated with the marketing and sales of the Shares in
this Offering, and to cover registration expenses and communication costs.
Of this, $35,000 has been paid as of the date of this Prospectus and the
balance of $18,000 of the non-accountable expense allowance will be paid
ratably based on the number of Shares sold over 200,000 in the Offering.
See "Compensation to Advisor and Affiliates" and "Plan of Distribution."
(3) These figures are the Company's best estimates of the legal, accounting,
printing, filing fees and other expenses attendant to this Offering, all of
which fees, expenses and costs have been or will be paid to independent
professional and service providers not affiliated with the Company, the
Advisor or the Dealer Manager. The Company has agreed with certain state
securities administrators to limit the amount of these expenses to the
lesser of $250,000 or 6.95% of the Gross Offering Proceeds. To date,
organizational and offering expenses have totaled approximately $122,000,
or 5.1% of the gross proceeds from the sale of Shares as of the date of
this Prospectus. A majority of the initial organizational and offering
expenses were funded out of the $200,000 capital investment by the
Company's initial Shareholder.
(4) Excludes estimated putative value of Soliciting Dealer Warrants. See
Footnote (1) above. Total Public Offering-Relating Expenses will vary as a
percentage inversely with the dollar amount raised.
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<PAGE> 19
(5) The Company's Bylaws limit the total of all Acquisition Fees and
Acquisition Expenses to a reasonable amount and in no event in excess of
six percent (6%) of the funds advanced. Such fees and expenses are payable
by prospective borrowers and not by the Company. Thus, the estimated use
of offering proceeds will not be reduced or otherwise effected by such fees
and expenses. The Amount Available for Investment, in addition to other
current cash resources of the Company, will be available for use in the
Company's business of mortgage lending. Aside from fees of the Advisor,
substantially all of the net proceeds from the sale of the Shares will be
used to fund the Company's business of making mortgage loans to churches
and other non-profit religious organizations and purchasing first mortgage
bonds issued by churches. The initial organizational expenses of the
Company were funded out of the $200,000 capital investment by the Company's
initial shareholder. The Company will also use its existing current cash
resources to establish a Working Capital Reserve estimated to be $5,000.
See "Business of the Company."
Pending application of the proceeds as outlined above, the net
proceeds of this Offering will be invested in permitted temporary investments
such as short-term United States government securities, certificates of
deposit, interest-bearing bank accounts and other similar short-term
obligations which can be readily liquidated and which are determined not to
impair the Company's ability to qualify as a real estate investment trust under
the Code ("Permitted Temporary Investments").
COMPENSATION TO ADVISOR AND AFFILIATES
This table discloses all the compensation the Sponsor and its
Affiliates can receive either directly or indirectly. In accordance with
applicable state law, the total of all Acquisition Fees and Expenses paid by
the Company in connection with its business shall in no event exceed an amount
equal to 6% of the amount loaned, unless a majority of the Directors (including
a majority of the Independent Directors), not otherwise interested in the
transaction, approve the transaction as being commercially competitive, fair
and reasonable to the Company. The Total Operating Expenses of the Company
shall not (in the absence of a satisfactory showing to the contrary) in any
fiscal year exceed the greater of: (a) 2% of the Average Invested Assets; or
(b) 25% of its Net Income for such year. The Independent Directors may, upon a
finding of unusual and nonrecurring factors which they deem sufficient,
determine that a higher level of expenses is justified in any given year. The
Company's Annual Report will provide Shareholders with an explanation of the
factors considered in approving such additional expenses. See "Reports to
Shareholders." There are certain additional restrictions on expenses that will
be borne by the Company.
ADVISOR COMPENSATION
<TABLE>
<CAPTION>
ITEM OF COMPENSATION RECIPIENT AMOUNT OR METHOD OF COMPENSATION
-------------------- --------- --------------------------------
<S> <C> <C>
Advisory Fee (1) Advisor 1 1/4% annually, paid monthly, of the Average Invested Assets of
the Company.
Acquisition Fees/ Advisor In connection with mortgage loans made by the Company, borrowers
Expenses (2) may be required to pay expenses to the Advisor for various
closing and other loan-related expenses, such as accounting fees
and appraisal fees paid over by the Advisor to independent
service providers, and other costs. The Company's Bylaws limit
the total of all Acquisition Fees and Acquisition Expenses to a
reasonable amount and in no event in excess of six percent (6%)
of the funds advanced.
Advisor Loan Origination Advisor One-half of the origination fees collected in connection with
Fee (3) each mortgage loan made by the Company, payable when and only if
an origination fee is charged and collected.
<CAPTION>
ITEM OF COMPENSATION RECIPIENT AMOUNT OR METHOD OF COMPENSATION
-------------------- --------- --------------------------------
<S> <C> <C>
Advisor Termination Advisor 2% of the value of the Average Invested Assets of the Company
Fee (4) payable if the Advisor's services are terminated by the Company.
Warrants/Options (5) Advisor Options to purchase 3,000 Shares at an exercise price of $10.00
per share; annual options to President of Advisor to purchase
3,000 Shares at a purchase price equal to the fair market value
on the date of grant.
</TABLE>
16
<PAGE> 20
AFFILIATE COMPENSATION
<TABLE>
<CAPTION>
ITEM OF COMPENSATION RECIPIENT AMOUNT OR METHOD OF COMPENSATION
-------------------- --------- --------------------------------
<S> <C> <C>
Commissions on the Dealer Manager 4.3% of the gross proceeds from the sales of the Shares. The
Sale of Shares Dealer Manager may re-allow all or a portion of this amount to
in this Offering (6) other participating broker-dealers who are members of the
National Association of Securities Dealers, Inc. See "Plan of
Distribution."
Non-Accountable Expense Dealer Manager The sum of $35,000 paid upon the sale of the first 200,000 Shares
Allowance Relating to the in this Offering, with an additional $18,000 payable ratably
sale of Shares based on the number of Shares sold thereafter, to cover the
in this Offering (6) Dealer Manager's costs and expenses relating to the sale of the
Shares in this Offering. See "Plan of Distribution."
Warrants/Options (5) Directors/Advisor Options to purchase 21,000 Shares at an exercise price of $10.00
per share; annual options to Directors to purchase 3,000 Shares
at a purchase price equal to the fair market value on the date of
grant.
Soliciting Dealer Dealer Manager/ Options to purchase the number of Shares equal to 10% of the
Warrants Soliciting Dealers Shares sold in this Offering at an exercise price of $10.00 per
share. For purposes of analyzing overall estimated Offering-
Related Expenses, the Soliciting Dealer Warrants have been valued
at 2% of the amount raised, however, such valuation may or may
not be indicative of the actual value of such warrants. See "Plan
of Distribution."
Commissions and Dealer Manager Customary mark-ups and mark-downs on first mortgage church bonds
Expenses on purchased and sold by the Company through American on the
First Mortgage Bonds secondary market.
Purchased (7)
</TABLE>
- --------------
(1) The advisory fee is intended to compensate the Advisor for its services
to the Company in that capacity and for all associated expenses it
incurs. It does not include the excess of any funds to be retained by
the Advisor received from borrowers for prepayment of loan application
and closing fees. A majority of the Independent Directors may determine
not to defer such advisory fees or may determine to accelerate any
deferred advisory fees if it is determined that such payment will not
jeopardize the Company's ability to pay cash dividends, create cash flow
problems or violate applicable state law. The Company may terminate the
Advisory Agreement for any reason upon 60 days written notice. See
"Conflicts of Interest - Compensation" for a discussion of the conflicts
associated with different fees payable to the Advisor for different types
of transactions and "Distributions" for a discussion of the Company's
dividend policy.
(2) To the extent such payments exceed the actual cost of such services, the
difference may be retained by the Advisor. These fees are included in
the total Acquisition Fees and Acquisition Expenses which are limited by
the Company's Bylaws to six percent (6%) of the funds advanced.
(3) The Advisor Loan Origination Fee is collected by the Advisor directly
from the borrower at the closing of a loan. See "Business of the
Company."
(4) The Advisor Termination Fee may not exceed the amount determined by the
following formula: 15% of the balance of assets remaining presuming
payment to the Company's Shareholders, in the aggregate, of an amount
equal to 100% of the original issue price of the Company's Shares, plus
an amount equal to 6% of the original issue price of the Company's Shares
per annum cumulative. For purposes of the termination fee, the original
issue price of the Company's Shares may be reduced by prior cash
distributions to Shareholders.
(5) The Company issued options to six directors of the Company and the
President of the Advisor to purchase up to 3,000 Shares each at an
exercise price of $10.00 per share. These warrants may be exercised
commencing November 15, 1995 and expire on November 15, 1999. See
"Management -- Warrants and Options."
(6) Organization and Offering Expenses paid in connection with the Company's
formation or the distribution of its Shares must be reasonable and may in
no event exceed an amount equal to 15% of the proceeds raised in an
offering. See "Plan of Distribution." The Dealer Manager
17
<PAGE> 21
is affiliated with the Advisor and two of the directors and officers of
the Company by virtue of the common ownership of the Dealer Manager by
DRM and the Advisor by Messrs.. Davis, Reinhart and Myers, respectively.
See "Management" and "Conflicts of Interest."
(7) It is anticipated that from time to time, the Company may purchase
mortgage-secured bonds from the Advisor's affiliate, American, in order
to (i) enhance yields on the Company's assets; and (ii) diversify the
Company's holdings. The terms of purchases are subject to approval of a
majority of the Company's Independent Directors and other Bylaw
limitations. The underwriting commission in respect of any bonds
purchased by the Company in an initial distribution of such bonds will be
paid by the issuer of the bonds and not by the Company. In certain cases
the Company may purchase first mortgage bonds from American on the
secondary market, in which event the Company will pay to American
customary mark-ups on a basis no more or less favorable than charged by
American to its general customers in arms-length transactions. Likewise,
first mortgage bonds owned by the Company may be sold by American on the
Company's behalf from time to time in which event American will charge a
customary mark-down on the same basis as it deals with its other
customers in arm's length transactions and would not exceed industry
standards or in any event (in the case of mark-ups and mark-downs on
secondary bond sales and purchases) exceed five percent of the principal
amount of bonds purchased or sold. Principals of the Company and the
Advisor may receive a benefit in connection with such transactions due to
their affiliation with American. American is primarily engaged in the
business of underwriting, marketing and selling of first mortgage bonds
for churches. See "The Advisor and the Advisory Agreement -- Prior
Performance of Advisor and Affiliates."
CONFLICTS OF INTEREST
The Company will be subject to various conflicts of interest arising
from its relationship with the Advisor, its affiliates (V. James Davis, Philip
J. Myers and David G. Reinhart) and American. The Advisor, its affiliates and
the directors of the Company and the Advisor are not restricted from engaging
for their own accounts in business activities of the type conducted by the
Company, and occasions may arise when the interests of the Company would be in
conflict with those of one or more of the Directors, the Advisor or their
Affiliates. These individuals have been engaged in the business of church
financing for approximately 31 years collectively, since 1984. With respect to
the conflicts of interest described herein, the Directors of the Company, of
which a majority are independent, will endeavor to exercise their fiduciary
duties to the Company in a manner that will preserve and protect the rights of
the Company and the interests of the Shareholders in the event of any conflicts
of interest between the Company and the Advisor or its Affiliates. Any
transactions between the Company and any director, the Advisor or any of their
affiliates, other than the purchase or sale, in the ordinary course of the
Company's business, of church bonds from American Investors Group serving as
agent on behalf of an issuer, will require the approval of a majority of the
Directors who are not interested in the transaction.
TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES
The Advisor and its Affiliates may receive compensation from the
Company for providing various services. The Company's Board of Directors (a
majority of whom are independent of the Advisor and its affiliates) will have
oversight responsibility with respect to such services to ensure that such
services are provided on terms no less favorable to the Company than the
Company could obtain from unrelated persons or entities and are consistent with
the Company's investment objectives and policies. In addition, transactions by
the Company in church bonds may result in the realization by American of
commissions and other income not paid by the Company. See "Compensation to
Advisor and Affiliates" and "The Advisor and the Advisory Agreement."
COMPENSATION TO THE ADVISOR AND CONFLICTS OF INTEREST
The Advisor is entitled to receive an advisory fee equal to a
percentage of the Average Invested Assets of the Company. See "Compensation to
Advisor and Affiliates." Such fee is payable whether or not any mortgage loan
is made or held on a basis that is advantageous to the Company. The Advisor
also will receive fees in connection with the Company's mortgage lending
business based upon a percentage of the amount paid by a mortgage borrower as
"points" or origination fees at the outset or renewal of each mortgage loan
made by the Company. Accordingly, a conflict of interest could arise since,
depending upon the circumstances, the retention, acquisition or disposition of
a particular loan could be advantageous to the Advisor, but detrimental to the
Company, or vice-versa. Because the origination fees are payable upon the
closing of the loan or its renewal, and the amount is dependent upon the size
of the mortgage loan, the Advisor may have a conflict of interest in
negotiating the terms of the loan and in determining the appropriate amount of
indebtedness to be incurred by the borrower. See "Business of the Company
- -Lending Policies." The decision whether to liquidate the Company or the
decision to acquire, retain or dispose of certain properties and the terms and
conditions thereof, may also create conflicts of interest.
18
<PAGE> 22
In resolving conflicts of interest, the Board of Directors has a
fiduciary duty to act in the best interests of the Company as a whole. The
Company and the Advisor believe that it would not be possible, as a practical
matter, to eliminate these potential conflicts of interest. However, the
Advisory Agreement must be renewed annually by the affirmative vote of a
majority of the Independent Directors. Any conflict will be resolved by a
majority of the Independent Directors, who may not renew the Advisory Agreement
if they determine that the Advisor is not satisfactorily performing its duties.
In connection with the performance of their fiduciary responsibilities, the
existence of such possible conflicts will be only one of the factors for the
Directors to consider in determining the appropriate action to be taken by the
Company. See "Management," "Compensation to Advisor and Affiliates" and "The
Advisor and the Advisory Agreement."
COMPETITION BY THE COMPANY WITH AFFILIATES
Any Director or officer may have personal business interests and may
engage in personal business activities, which may include the acquisition,
syndication, holding, management, development, operation or investment in, for
his own account or for the account of others, interests in entities engaged in
the church lending business and any other business. Any Director or officer
may be interested as trustee, officer, director, shareholder, partner, member,
advisor or employee, or otherwise have a direct or indirect interest in any
entity which may be engaged to render advice or services to the Company, and
may receive compensation from such entity as well as compensation as director,
officer or otherwise hereunder.
The Advisor's affiliate, American is engaged in the same market
segment as the Company, i.e., making mortgage "loans" to churches. Therefore,
a conflict could arise if American were to usurp a lending opportunity
otherwise available to the Company. However, the average size of first
mortgage bond financings undertaken by American is approximately $1.35 Million,
with $750,000 being its stated (but not required) minimum financing. The
Company, on the other hand, will focus on financings ranging from $100,000 to
$1,000,000 in size. Thus, although American and the Advisor will share some
employees, facilities and marketing efforts, it is believed (but not assured)
that conflicts of interest between them will be reduced by virtue of the
targeted size of loans pursued by each. The Advisor and the Company have
agreed that financing prospects of less than $1 Million will be first directed
to the Company for consideration. If the Company determines that the loan is
not suitable or has insufficient funds to make the loan, the Advisor or its
Affiliates shall have the opportunity to make the loan.
Neither the Advisor nor its Affiliates are prohibited from providing
the same services to others, including competitors. These relationships may
produce conflicts in the Advisor's and its Affiliates' allocation of time and
resources among various projects. The Advisor and its Affiliates believe they
have sufficient personnel to discharge their responsibilities to the Company.
See "Management."
NON-ARM'S-LENGTH AGREEMENTS
All agreements and arrangements, including those relating to
compensation, between the Company and the Advisor or any of their Affiliates
will not be the result of arm's-length negotiations. However, such conflicts
will be resolved by the following factors: (i) the Company intends to be in
substantial compliance with the Statement of Policy Regarding Real Estate
Investment Trusts adopted by the North American Securities Administrators
Association, Inc. ("NASAA") which has a specific limitation on certain fees and
on the amount of the Company's operating expenses, including compensation to
the Advisor during the operating stage of the Company; (ii) the Advisor is
aware of other programs being offered in the marketplace and intends to
structure its business relationships so as to be competitive with such other
programs; and (iii) such agreements and arrangements are subject to approval by
a majority of the Company's Independent Directors.
LACK OF SEPARATE REPRESENTATION
The Company, the Advisor and the principals of the Company and Advisor
are not represented by separate counsel. The Company is represented by the law
firm of Maun & Simon, PLC, Minneapolis, Minnesota, which has also acted and
will continue to act as counsel to the Company and various affiliates of the
Advisor with respect to other matters.
19
<PAGE> 23
SHARED OPERATIONS FACILITIES
The Company's operations are located in the leased offices of the
Dealer-Manager, American Investors Group, Inc., in Minneapolis, Minnesota.
Although the growth of the Company may require it to relocate to larger
premises in the future, it is expected that the Company's operations will
continue to be housed in these or similar leased premises along with American's
operations and those of its Affiliates. The Company is not directly charged
for rent, nor does it incur other costs relating to such leased space, since
the Advisor is including this expense in the Advisory Fee. The office building
is owned by American's parent corporation, DRM Holdings, Inc.
DISTRIBUTIONS
The Company intends to make regular quarterly distributions to
Shareholders in an amount equal to at least 95% of the Company's "real estate
investment trust taxable income." Such amount will be estimated for the first
three quarters of each fiscal year and adjusted annually based upon the
Company's audited year-end financial report. Cash available for distribution
to Shareholders will be derived primarily from the interest portion of monthly
mortgage payments received from churches borrowing money from the Company, from
origination and other fees paid to the Company by borrowers in connection with
such loans, interest income from mortgage-backed securities issued by churches
and other non-profit religious organizations purchased and held by the Company
for investment purposes, and earnings on any Permitted Temporary Investments
made by the Company. All dividends will be paid by the Company at the
discretion of the Board of Directors and will depend upon the earnings and
financial condition of the Company, maintenance of real estate investment trust
status, funds available for distribution, results of operations, economic
conditions, and such other factors as the Board of Directors deems relevant.
During the initial distribution of Shares in this Offering, dividends paid in
any quarter (and year) will be pro-rated based on the number of days in such
quarter (or year) the Shares were issued and outstanding. Further, during the
start-up phase of its operations, the capital of the Company represented by the
proceeds from the sale of the Shares will be held in relatively low-yielding
secure investments pending application to fund loans made by the Company. The
relative yield generated by such capital, and, thus, dividends (if any) to
Shareholders could be less than they are expected to be once the Company has
fully invested its capital in accordance with its business plan. Dividends
will be determined by the Company's Board of Directors and will be dependent
upon a number of factors, including but not limited to, earnings and financial
condition of the Company, maintenance of REIT tax status, funds available for
distribution, results of operations, economic conditions and other facts and
circumstances which the Board of Directors deems relevant.
To date, the Company has deployed approximately $2,390,000 in net
proceeds from the sale of the Shares and pre-existing capital in accordance
with its investment and operating strategy. For the first quarter of the
Company's operations ended June 30, 1996, the Company's Board of Directors
declared a dividend of $.1927 per Share, payable on July 30, 1996 to
shareholders of record on June 30, 1996. This dividend represents an
annualized effective yield of 9.25%. This distribution was based on the
Company's performance during the period from April 15, 1996 (commencement of
active business operations) through June 30, 1996, and there can be no
assurance that subsequent distributions will equal the first distribution. See
"Distributions." The Company intends to ameliorate to some extent the
possibility of low yields during the start- up phase by (i) collecting from
borrowers an origination fee at the time a loan is made (of which one-half of
any origination fee charged in connection with a loan is paid directly to the
Advisor as additional compensation--the other one-half is payable to the
Company), and (ii) timing its lending activities to coincide as much as
possible with sales of the Shares. However, there can be no assurance that
either or both of these strategies will improve current yields to Shareholders
in the early period of the Company's business operations. See "Business of the
Company." In order to qualify for the beneficial tax treatment afforded real
estate investment trusts by the Code, the Company is required to pay dividends
to holders of its Shares in annual amounts which are equal to at least 95% of
the Company's "real estate investment trust taxable income." The Company
intends to distribute all or a portion of such income to the Shareholders on a
quarterly basis, subject to (i) limitations imposed by applicable state law,
and (ii) the factors identified above. The portion of any dividend that
exceeds the Company's earnings and profits will be considered a return of
capital and will not currently be subject to federal income tax to the extent
that such dividends do not exceed a Shareholder's basis in the Shares. See
"Federal Income Tax Considerations - Taxation of the Company's Shareholders."
Funds available to the Company from the repayment of principal
(whether at maturity or otherwise) of loans made by the Company, or from sale
or other disposition of any properties or any of its other investments may be
20
<PAGE> 24
reinvested in additional loans to churches, invested in mortgage-backed
securities issued by churches or other non-profit organizations, or in
Permitted Temporary Investments, rather than distributed to the Shareholders.
The Company can pass through the capital gain character of any income generated
by computing its net capital gains and designating a like amount of its
distribution to the Shareholders as capital gain dividends. The distribution
requirement to maintain qualification as a real estate investment trust does
not require distribution of net capital gains, if generated. Thus, the Company
has a choice of whether to distribute any such gains. Undistributed net
capital gains (if any) will be taxable to the Company. The Board of Directors,
including a majority of the Independent Directors, will determine whether and
to what extent the proceeds of any disposition of property will be distributed
to Shareholders. See "Business of the Company - Investment Objectives for
Mortgage Loans, Investment and Certain Other Policies."
The Company has a dividend reinvestment plan (the "Plan") which allows
Shareholders to reinvest their dividends in Shares of Common Stock of the
Company. Under the Plan, the dividends due participating Shareholders are
deposited directly with Gemisys Corporation, Englewood, Colorado ("Gemisys"),
which combines the purchases of all participating Shareholders. There are no
brokerage fees or service charges incurred by Shareholders although any
brokerage fees paid on amounts reinvested by the Company are treated as
dividend income to the participating Shareholder. Shares held on behalf of a
Shareholder by Gemisys will be voted in the same way as the Shareholder votes
by regular proxy sent by the Company or by separate proxy sent by Gemisys.
Shareholders can also invest additional amounts, subject to certain minimums
and maximums, on a regular basis or from time to time and can terminate
participation in the Plan at any time. See "Description of Capital Stock --
Dividend Reinvestment Program."
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
June 30, 1996 and as adjusted to give effect to the net proceeds received by
the Company upon sale of all of the Shares by the Company. See "Use of
Proceeds" and "Financial Statements."
<TABLE>
<CAPTION>
June 30, 1996
-------------------------------------
Actual As Adjusted (1)
---------- ----------------
(unaudited) (unaudited)
<S> <C> <C>
Long Term Debt . . . . . . . . . . . . . . . . . $ - 0 - $ - 0 -
--------- ---------
Shareholder's Equity (2)
Common Stock, $.01 par value per share; 30,000,000
shares authorized; issued and outstanding 250,170 shares;
and 2,020,000 shares, respectively . . . . . 2,502 20,200
Additional Paid-In Capital (3) . . . . . . . . . . 2,256,620 19,119,800
Deficit Accumulated During Development Stage . . . (31,720) (31,720)
--------- ----------
Total Shareholder's Equity . . . . . . . . . 2,227,402 19,108,280
--------- ----------
Total Capitalization . . . . . . . . $ 2,227,402 $ 19,108,280
========= ==========
</TABLE>
- --------------
(1) There can be no assurance that all or a substantial portion of the
2,000,000 Shares offered will be sold and it is most likely that
substantially fewer than all the Shares will be sold. See "Plan of
Distribution."
(2) Excludes (i) 3,000 Shares which each Director and the President of the
Advisor (7 individuals) have an option to purchase, at a price of $10.00
per share, pursuant to the Stock Option Plan for Directors and the Advisor,
which vest and are thus exercisable on or after November 15, 1995 and
expire November 15, 1999 (See "Management -- Warrants and Options" and
"Security Ownership of Management and Others"); and (ii) up to 200,000
Shares which may be purchased, at a price of $10.00 per share, pursuant to
Soliciting Dealer Warrants to be issued to the Dealer Manager and
Soliciting Dealers in connection with this Offering. See "Plan of
Distribution."
(3) As adjusted, is net of offering-related expenses estimated at $1,060,000,
assuming all the Shares are sold. See "Use of Proceeds."
(4) Deficit accumulated during Development Stage does not reflect deferred
income of $30,028 through June 30,1996. The Accumulated Deficit figure is
net of dividends payable on June 30, 1996 in the amount of $46,667 for the
quarter then ended.
21
<PAGE> 25
SELECTED FINANCIAL DATA
The selected financial data presented below under the captions
"Statement of Operations Data" and "Balance Sheet Data" has been derived from
the Company's financial statements for the period from May 27, 1994 (date of
inception) to December 31, 1994, and at such date as audited by McGladrey &
Pullen, independent certified public accountants, from the Company's financial
statements for the year ended December 31, 1995, and at such date as audited by
Boulay, Heutmaker, Zibell and Company, P.L.L.P., independent certified public
accountants, and from the Company's unaudited financial statements as of and
for the six-month periods ended June 30, 1995 and 1996. This data should be
read in conjunction with the financial statements and related notes, and the
accountant's reports thereon, appearing elsewhere herein.
<TABLE>
<CAPTION>
PERIOD FROM SIX MONTHS SIX MONTHS
MAY 27, 1994 YEAR ENDED ENDED ENDED
TO DECEMBER 31, DECEMBER 31, JUNE 30, JUNE 30,
1994 1995 1995 1996
--------------- ----------- ---------- ------------
STATEMENT OF OPERATIONS DATA: (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Revenues
Interest Income Loans . . . . . . . $ - 0 - $ - 0 - $ - 0 - $ 22,661
Interest Income Other . . . . . . . 731 4,436 1,991 7,179
Origination Income . . . . . . . . . - 0 - - 0 - - 0 - 3,027
Escrow Interest Income . . . . . . . - 0 - - 0 - - 0 - 37,477
--------- --------- --------- ---------
Total Revenues . . . . . . . . . 731 4,436 1,991 70,344
Operating Expenses
Professional Fees . . . . . . . . . 1,404 - 0 - - 0 - 5,778
Director Fees . . . . . . . . . . . 2,000 - 0 - - 0 - - 0 -
Amortization . . . . . . . . . . . 177 303 152 152
Advisory Fees . . . . . . . . . . . - 0 - - 0 - - 0 - 3,714
Escrow Interest Paid . . . . . . . . 1,672 5,456 567 39,908
--------- --------- --------- ---------
Total Expenses . . . . . . . . . 5,253 5,759 719 49,552
Net Income (loss) . . . . . . . . . $ (4,522) $ (1,323) $ 1,272 $ 20,792
========= ========= ========= =========
Income (loss) per Common Share . . . $ (.23) $ (.07) $ .06 $ .18
Weighted Average Common
Shares Outstanding . . . . . . 20,000 20,000 20,000 112,341
Dividends Declared Per Share . . . . $ - 0 - $ - 0 - $ - 0 - $ .1927
<CAPTION>
DECEMBER 31, DECEMBER 31, JUNE 30, JUNE 30,
1994 1995 1995 1996
------------ ------------ -------- ---------
BALANCE SHEET DATA: (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Assets:
Cash and Cash Equivalents . . . $ 149,023 $ 135,282 $ 134,297 $ 428,025
Deferred Offering Costs . . . . 59,916 107,295 90,687 - 0 -
Organizational Expenses (net) . 1,339 1,071 1,188 920
Prepaid Expenses . . . . . . . - 0 - - 0 - 348 695
Loans Receivable . . . . . . . - 0 - - 0 - - 0 - 1,806,031
Bonds . . . . . . . . . . . . . - 0 - - 0 - - 0 - 72,805
---------- --------- --------- ----------
Total Assets: $ 210,278 $ 243,648 $ 226,520 $ 2,308,476
========== ========= ========= ==========
Liabilities and Shareholder's Equity:
Accounts Payable . . . . . . . $ 14,800 $ 49,493 $ 29,770 $ 4,379
Deferred Income . . . . . . . . - 0 - - 0 - - 0 - 30,028
Dividend Payable . . . . . . . - 0 - - 0 - - 0 - 46,667
Shareholder's Equity (net of deficit
accumulated during development stage) . 195,478 194,155 196,750 2,227,402
--------- --------- ------- ----------
$ 210,278 $ 243,648 $ 226,520 $ 2,308,476
========= ========= ======= ==========
</TABLE>
22
<PAGE> 26
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PLAN OF OPERATION
The Company was founded in May 1994, began a "best efforts" offering
of its common stock on July 11, 1995, and commenced active business operations
on approximately April 15, 1996 after completion of the "Minimum Amount" in its
public offering (described below). Consequently, for the years ended December
31, 1994 and 1995, the Company had no operating revenues, and expenses were
limited to organizational and offering-related costs.
On July 11, 1995, the Securities and Exchange Commission declared
effective the Company's offering of 2,000,000 common shares at a price of
$10.00 per share. The Company achieved the Minimum Offering of at least
200,000 shares ($2,000,000) sold to not less than 100 individuals (the "Minimum
Offering") on April 15, 1996. As of such date the Company had sold 216,000
shares to approximately 175 individuals, not including 20,000 shares ($200,000)
previously purchased by the Company's initial shareholder -- DRM Holdings, Inc.
Until the Minimum Offering was achieved, the Company could not commence its
active business of making mortgage loans to churches. Consequently, business
operations from Inception (May 27, 1994) to completion of the Minimum Offering
(April 15, 1996) were limited to daily business organizational efforts,
activities relating to the offering, reviewing potential candidates for church
mortgage loans to be made by the Company once the Minimum Offering was
achieved, and conducting informational meetings with brokers and broker-dealers
identified to the Company by the Dealer/Manager--American Investors Group,
Inc., an affiliate of the Company.
Between the date upon which the Company began active business
operations (April 15, 1996), and the end of its last fiscal quarter (June 30,
1996), the Company funded five first mortgage loans to churches, in the
aggregate principal amount of $1,812,000, and purchased $100,000 principal
amount of church-issued, mortgage-secured bonds for an aggregate purchase price
of $72,805. On July 3, 1996, subsequent to the end of the June 30, 1996
quarter, the Company closed on another first mortgage loan in the principal
amount of $500,000. Funding of additional first mortgage loans is expected to
continue on an on-going basis as the Company's investable assets become
available through (i) the sale of additional shares in the public offering;
(ii) prepayment and repayment at maturity of existing loans; (iv) borrowed
funds; and (v) dividends reinvested under the Company's Dividend Reinvestment
Plan. The "best efforts" public offering of the Company's shares is expected
to continue through November 8, 1996, however, there can be no assurance that a
meaningful number of the remaining Shares being offered will be sold. As of
August 31, 1996, a total of 286,175 shares of the Company's common stock were
issued and outstanding, held by approximately 240 investors. The Company and
the Dealer Manager (American Investors Group, Inc.) may discontinue the public
offering at any time.
RESULTS OF OPERATIONS
The Company's business is to extend mortgage loans to churches and
other non-profit religious organizations and to purchase for investment
mortgage-secured bonds issued by churches and other non-profit religious
organizations, and to operate as a real estate investment trust for tax
purposes by distributing at least 95% of taxable income to shareholders in the
form of dividends. As of June 30, 1996, the Company had funded five first
mortgage loans to churches for an aggregate amount of $1,812,000 and purchased
$100,000 principal amount of church-issued mortgage-secured bonds for a
purchase price of $72,805. The loans made by the Company range in interest
rate charged to the borrowers from 9.25% for annually adjustable, 20 year
amortized loans, to 11.25% for 15 year fixed interest rate loans. As of June
30, 1996, the average, principal-adjusted interest rate on the Company's
portfolio of loans was 10.68%. The Company's portfolio of bonds has a current
yield of 11.68% and a yield to maturity of 16.78%.
Net income for the Company's fiscal quarter ended June 30, 1996
(reflecting 75 days of operations) was $20,792 on total revenues of $70,344.
Revenues for the quarter included $37,477 of "Escrow Interest" earned on
proceeds of the Company's common stock offering held in escrow pending
achievement of the sale of the Minimum Amount which occurred just prior to
April 15, 1996. This escrow interest revenue was disbursed to purchasers of the
Company's common shares during the quarter based on the duration that their
investment was held in escrow, which disbursement is reflected in the Company's
Statement of Operations for the period ended June 30, 1996. Interest income
earned on the Company's portfolio of loans was $22,661, reflecting the fact
that its loans were originated at various dates during the quarter and,
23
<PAGE> 27
therefore, did not all accrue interest for all days in the period. Excluded
from revenue for the quarter is $30,028 of origination income, or "points,"
received by the Company, recognition of which under generally accepted
accounting principles ("GAAP") must be deferred over the expected life of each
loan. However, under tax principles, origination income is recognized in the
period received. Accordingly, because the status of the Company as a real
estate investment trust requires, among other things, the distribution to
shareholders of at least 95% of "Taxable Income," the dividend declared and to
be paid to shareholders for the quarter ending June 30, 1996 includes
origination income even though it is not recognized in its entirety for the
period under GAAP.
The Company's Board of Directors declared a dividend of $.1927 for
each share held of record on June 30, 1996 for the fiscal quarter ending June
30, 1996. During the Company's public offering, dividends are computed and
paid to each Shareholder based on the number of days during a quarter that the
Shareholder owned his or her shares. Based on the 75 day quarter of
operations, the Company's dividend represents a 9.25% annualized yield to its
Shareholders.
Total assets of the Company increased from $243,648 as of December 31,
1995 to $2,308,476 as of June 30, 1996, primarily as a result of the sale and
issuance of the Company's common stock pursuant to its public offering.
Shareholders' Equity rose from $194,155 to $2,274,069 for the same reason.
Company liabilities at the end of the June 30, 1996 quarter are primarily
comprised of a "Deferred Income" item, reflecting the practice of the Company
of recognizing its origination income -- fees charged to borrowers at the
commencement of its loans -- over the life of each loan.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 1996, the Company had funded first mortgage loans to
five churches in the aggregate principal amount of $1,812,000. An additional
loan in the principal amount of $500,000 was closed on July 3, 1996. As
additional shares of the Company's common stock are sold in the public
offering, the Company intends to fund future first mortgage loans.
Notwithstanding the foregoing, there can be no assurance that the Company will
sell any meaningful number of the remaining shares in the public offering. The
offering period for the public offering expires on or about November 8, 1996,
and the Offering could be discontinued at any time prior thereto at the option
of the Company and the Dealer Manager.
On March 31, 1996, the Company had no assets other than the $200,000
capital contribution by its initial shareholder for the 20,000 shares that it
purchased ($10.00 per share), and had incurred no material obligations, other
than accumulated and unpaid expenses pertaining to the public offering. The
initial $200,000 capital contribution by the initial shareholder has been
partially used to pay legal and accounting costs relating to the organization
of the Company, Independent Director's fees and certain professional and other
fees and costs associated with the public offering. Subsequent to March 31,
1996, on or about April 15, 1996, the Company recorded additional paid-in
capital of $2,019,205 in connection with the sale of Company's stock in the
public offering.
The Company anticipates that its revenue will be derived principally
from interest income, and secondarily, from origination fees generated by
mortgage loans that it has made. The Company will also earn income through
interest on funds that are invested pending their use in funding mortgage loans
or distributions of dividends to its shareholders, and on income generated on
church bonds it may purchase and own.
The Company began generating operating revenues shortly after
completion of the Minimum Offering on April 15, 1996, through (i) permitted
temporary investments of the net proceeds from the sale of the Shares, and (ii)
implementation of its business plan of making mortgage loans to churches.
The principal expenses of the Company are Advisory Fees, legal and
accounting fees, director fees, costs associated with its communications with
shareholders, and the expenses of its stock transfer agent, registrar and
dividend reinvestment agent. Personnel, office space and other administrative
expenses are absorbed by the Advisor pursuant to the Advisory Agreement.
The public offering of up to 2,000,000 shares ($20,000,000) of the
Company's common stock is expected to continue on a "best efforts" basis up to
November 8, 1996. However, there can be no assurance that any meaningful
number of additional shares will actually be sold. After the initial offer and
sale of shares in its public offering, the Company's capital needs are expected
to be met in the future by (i) additional sales of its common stock; (ii)
prepayment,
24
<PAGE> 28
repayment at maturity and renewal of mortgage loans made by the Company; (iii)
borrowed funds, and (iv) the receipt of additional paid-in capital through the
reinvestment of dividends by shareholders pursuant to the Company's Dividend
Reinvestment Plan. The Company believes that the "rolling" effect of mortgage
loans maturing, together with dividends reinvested under the Company's Dividend
Reinvestment Plan, will provide an on-going source of capital to fund its
business operations for the foreseeable future. Nevertheless, the Company
believes that it may be desirable, if not necessary, to sell additional shares
of common stock, in order to enhance its capacity to make mortgage loans on a
continuous basis and to maximize the Company's earnings. There can be no
assurance that the Company will be able to raise additional capital on terms
acceptable for such purposes. Although the Company may borrow funds in an
amount not to exceed 50% of its Average Invested Assets in order to increase
its lending capacity, it has not secured a source for such borrowing.
BUSINESS OF THE COMPANY
GENERAL
The Company was incorporated as a Minnesota corporation on May 27,
1994 to become a REIT for the purpose of engaging in the business of making
mortgage loans to churches and other non-profit religious organizations. As of
the date of this Prospectus, the Company has made loans to six churches in the
aggregate amount of $2,317,000, with the average size being $385,000, and has
purchased in the secondary market for $72,805 second mortgage church bonds in
the face amount of $100,000. See "Properties of the Company." The Company
makes loans throughout the United States. The principal amount of such loans
will range from $100,000 to $1,000,000. The Company may also invest up to 30%
of its Average Invested Assets in mortgage-secured debt securities (bonds)
issued by churches and other non-profit religious organizations. The Company
has been actively engaged in the business of making such loans or investing
only since April 15, 1996, but intends to continue lending funds and acquiring
mortgage secured investments pursuant to its business plan as additional funds
for such purposes become available from the continued sale of Shares in this
Offering, and thereafter as funds from loan repayments, bond maturities,
Dividend Reinvestment Plan funds and other resources become available for such
purpose.
THE COMPANY'S BUSINESS ACTIVITIES
The Advisor's affiliate, American Investors Group, Inc. (the "Dealer
Manager" or "American") has been engaged since January 1987, in the business of
underwriting first mortgage bonds for churches throughout the United States.
In underwriting such bonds, American reviews financing proposals, analyzes a
prospective borrower's financial capability, and structures, markets and sells,
mortgage-backed bond securities which are debt obligations (notes) of such
borrowers to the investing general public. The shareholders, officers and
directors of American, have been engaged in the business of church financing
since 1983, with a combined experience of approximately 31 years in this
business. Since its inception, American has underwritten approximately 102
church bond financings, in which approximately $140 million in first mortgage
bonds have been sold to public investors. The average size of church bond
financings underwritten by American since its inception is approximately $1.35
Million. See "Prior Performance."
In the course of its business, American identified a demand from
potential borrowers for smaller loans of $100,000 to $1,000,000. Because of
the regulatory and administrative expenses associated with the bond financing
business, American believes that the economic feasibility of bond financing has
diminished for financings under $750,000. As a result, the Company believes
that many churches are forced to either forego the project for which their
financing request was made, fund their project from cash flow over a period of
time and at greater expense, or seek bank financing at terms not always
favorable or available to them, due to the historic reticence of banks toward
lending to churches for other than economic reasons. The Company provides a
lending source to this segment of the industry, capitalizing on the human
resources available at American and the Advisor and the marketing, advertising
and general goodwill of American.
FINANCING BUSINESS
The Company's primary business is making first mortgage loans in
amounts ranging from $100,000 to $1,000,000, to churches and other non-profit
religious organizations, and selecting and investing in mortgage-secured debt
instruments ("Church Bonds") issued by churches and other non-profit religious
organizations throughout the United States. The Company will apply essentially
all of its working capital (after adequate reserves determined by the Advisor)
25
<PAGE> 29
toward making mortgage loans and investing in Church Bonds. The Company seeks
to enhance returns on investments on such loans by (i) emphasizing shorter-term
(0-5 years) and mid-term (5-15 years) loans and construction loans (although
there is no limit on the term of loans the Company will make); (ii) seeking
origination fees (i.e. "points") from the borrower at the outset of a loan and
upon any renewal of a loan; (iii) making a limited amount of higher-interest
rate second mortgage loans to qualified borrowers; and (iv) purchasing a
limited amount of mortgage-secured debt securities having various maturities
issued by churches and other non-profit religious organizations. The Company's
policies limit the amount of second mortgage loans and bonds to 20% of the
Company's Average Invested Assets on the date any second mortgage loan is
closed (or bond is purchased) and limit the amount of mortgage-secured debt
securities to 30% of Average Invested Assets on the date of their purchase.
All other mortgage loans made by the Company (or Church Bonds purchased for
investment) will be secured by a first mortgage (or deed of trust) lien in
favor of the Company. Although the Company attempts to make mortgage loans for
terms of short (0-5 years) or medium (5-15 years) duration, and/or with
variable interest rate provisions, it may make longer-term fixed-rate loans in
its discretion, in order to reduce the risk to the Company of downward interest
rate fluctuations.
The Company's lending and investing operations, including
determination of a prospective borrower's or church bond issuer's financial
credit worthiness, are made on behalf of the Company by the Advisor. The
Company has no employees. Employees and agents of the Advisor conduct all
aspects of the Company's business, including (i) marketing and advertising;
(ii) communication with prospective borrowers; (iii) processing loan
applications; (iv) closing the loans; (v) servicing the loans; and (vi)
administering the Company's day-to-day business. In consideration of its
services to the Company, the Advisor will receive a fee equal to 1 1/4%
annually of the Company's Average Invested Assets, plus one-half of any
origination fee charged to borrowers on mortgage loans made by the Company.
See "The Advisory Agreement" and "Compensation to Advisor and Affiliates."
CURRENT FIRST MORTGAGE LOAN TERMS
The Company offers prospective borrowers a selection of "Loan Types,"
which include a choice of fixed or variable rates of interest indexed to the
"prime" rate of interest, the U.S. Treasury 10-Year Notes, or other generally
recognized reference index, and having various terms to maturity, origination
fees and other terms and conditions. The Loan Types, interest rates and fees
offered and charged by the Company may from time-to-time be limited, changed or
otherwise unilaterally amended by the Advisor in its discretion as a result of
such factors (among others) as (i) balance of Loan Types in the Company's
portfolio; (ii) competition from other lenders; (iii) anticipated need to
increase the overall yield to the Company on its mortgage loan portfolio; (vi)
local and national economic factors; and (v) actual experience in borrowers'
demand for the loans. In addition, the Company may make mortgage loans on
terms other than those identified in its list of Loan Types. Subject to
change, modification or elimination at the complete discretion of the Company,
the following is a list of the Loan Types which the Company currently makes
available:
<TABLE>
<CAPTION>
LOAN TYPE Interest Rate (1) ORIGINATION FEE (2)
<S> <C> <C>
15 Year Term (3) Fixed @ Prime + 3.0% 4.0%
20 Year Term (3) Variable Annually @ Prime + 1.25% 3.0%
Renewable Term (4) Fixed @ Prime plus:
3 Year 2.00% 3.5%
5 Year 2.25% 3.5%
7 Year 2.50% 3.5%
Construction 1 Year Term Fixed @ Prime + 3% 2.0%
</TABLE>
(1) "Prime" means the prime rate of interest charged to preferred
customers, as published by a federally chartered bank identified
by the Company.
(2) Origination fees are based on the original principal amount of the
loan and are collected from the borrower at the origination and
renewal of loans, one-half of which is payable directly to the
Advisor. See "Compensation to Advisor and Affiliates."
(3) Fully amortized repayment term.
(4) Renewable term loans are repaid based on a 20-year amortization
schedule, and are renewable at the conclusion of their initial
term for additional like terms up to an aggregated maximum of 20
years. A fee of 1% is charged by the Company upon the date of
each
26
<PAGE> 30
renewal. If renewed by the borrower, the interest rate is
adjusted upon renewal to Prime plus two percent (2%).
THE ABOVE TABLE DESCRIBES CERTAIN OF THE MATERIAL TERMS OF LOAN TYPES,
INTEREST RATES AND FEES CURRENTLY OFFERED AND CHARGED BY THE COMPANY. THE
TABLE DOES NOT, HOWEVER, PURPORT TO IDENTIFY ALL POSSIBLE LOAN TYPES, TERMS,
RATES, AND FEES THE COMPANY MAY OFFER FROM TIME-TO- TIME. THE COMPANY MAY
DETERMINE AT ANY TIME TO MODIFY THE TERMS IDENTIFIED ABOVE AND/OR OFFER LOAN
TERMS DIFFERENT THAN ANY OF THE LOAN TYPES, INTEREST RATES AND FEES IDENTIFIED
ABOVE.
PROPERTY (PORTFOLIO) OF THE COMPANY
As of the date of this Prospectus, the Company has funded six first
mortgage loans aggregating $2,317,000 principal amount, and purchased $100,000
principal amount (face amount) of second mortgage bonds issued by a church.
The Company has not yet funded any second mortgage loans. The table below
summarizes the identity of the borrowing institutions, and certain key terms of
the loans currently comprising the Company's loan portfolio.
<TABLE>
<CAPTION>
Borrowing Church and Loan Loan Interest Collateral Appraised Funding Date
Location Amount Term Rate Value
<S> <C> <C> <C> <C> <C>
Middlebury Chapel $262,000 20 years 9.25%, Variable $410,000 April 24, 1996
Akron, OH
Landmark Apostolic $290,000 5 years 10.75% Fixed $650,000 April 25, 1996
Church
Hollywood, FL
Hope Chapel $465,000 5 years 10.50% Fixed $660,000 April 30, 1996
Glendale, AZ
Fountain of Life $375,000 15 years 11.25% Fixed $500,000 May 15, 1996
Church
Islip, NY
River of Life Church $425,000 7 years 11.25% Fixed $600,000 May 6, 1996
St. Paul, MN
Oak Hill Baptist $500,000 15 years 11.25% Fixed $800,000 July 2, 1996
Church
Bassett, VA
</TABLE>
The following mortgage-secured bonds have been purchased by the
Company:
ISSUER: Resurrection Life Ministries, Eden Prairie MN
<TABLE>
<CAPTION>
Principal Company's Face Yield Yield to Current Maturity Original Date of
Amount Purchase Price of Bonds Maturity Yield Date Issue Date Purchase
<S> <C> <C> <C> <C> <C> <C> <C>
$100,000 $72,805 8.50% 16.79% 11.68% 5/15/01 5/15/94 5/15/96
</TABLE>
The Resurrection Life Ministries Bonds, which are secured by a second
mortgage, were purchased at a discount to the Company from one of its
Independent Directors. Resurrection Life Ministries, Eden Prarie, Minnesota,
issuer of these bonds, has also issued and sold through the Underwriter
$525,000 principal amount of its First Mortgage bonds. The Issuer's First
Mortgage Bonds and its $100,000 principal amount of Second Mortgage bonds,
which are now owned by the Company, are secured by the Issuer's worship
facilities, appraised at $725,000 in 1994. The Second Mortgage Bonds are due
to May 15, 2001. However, the Issuer can extend their maturity until 2014,
whereupon the interest rate
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<PAGE> 31
as such will change from 8.50% to the then prevailing prime rate of interest
plus 3.25%. Th Issuer is current on it obligations with respect to the bonds
purchased by the Company. See "Certain Relationships and Transaction with
Management."
MORTGAGE LOAN PROCESSING AND UNDERWRITING
Mortgage loan applications are processed and verified by the Advisor's
personnel in the Company's Loan Origination and Underwriting Department.
Verification procedures are designed to assure a borrower's qualification under
the Company's Financing Policies which are specifically identified herein and
include, among other things, obtaining; (i) written applications (and exhibits)
signed and authenticated by the prospective borrower in form and substance
dictated by the Company; (ii) financial statements in accordance with the
Company's Financing Policies; (iii) corporate records and other organizational
documents of the borrower; (iv) preliminary title report or commitment for
mortgagee title insurance, and (v) a real estate appraisal in accordance with
the Financing Policies. All appraisals and financial statements will be
prepared by independent third-party professionals who are pre-approved based on
their experience, reputation and education. Completed loan applications,
together with a written summary are then presented to the Company's
Underwriting Committee which will initially be comprised of the Advisor's
President, the Company's President and Vice President, and the Director of
Underwriting of the Dealer Manager. The Advisor may arrange for the provision
of mortgage title insurance and for the services of professional independent
third-party accountants and appraisers on behalf of borrowers in order to
achieve pricing efficiencies on their behalf and to assure the efficient
delivery of title commitments, preliminary title reports and title policies,
and financial statements and appraisals meeting the Company's underwriting
criteria. The Advisor may arrange for the direct payment for such professional
services and for the direct reimbursement to it of such expenditures by
borrowers and prospective borrowers. Upon closing and funding of mortgage
loans, a negotiable origination fee based on the original principal amount of
each loan may be charged, of which one-half will be payable to the Advisor.
See "Proposed First Mortgage Loan Terms," "Compensation to Advisor and
Affiliates" and "Conflicts of Interest."
LOAN COMMITMENTS
Subsequent to approval by the Company's Underwriting Committee, and
prior to funding a loan, the Company issues a loan commitment to qualified
applicants. A modest loan commitment fee may be charged by the Company.
Commitments indicate the loan amount, origination fees, closing costs,
underwriting expenses (if any), funding conditions, approval expiration dates
and interest rate and other terms. Commitments generally set forth a
"prevailing" interest rate that is subject to change in accordance with market
interest rate fluctuations until the final loan closing documents are prepared,
at which time the Company commits to a stated interest rate. In certain cases
the Company may establish ("lock in") interest rate commitments up to sixty
(60) days from the commitment to closing; however, interest rate commitments
beyond sixty days will not normally be issued unless the Company receives an
appropriate fee premium based upon the assessment of the risk associated with a
longer period.
LOAN PORTFOLIO MANAGEMENT
The Company's portfolio of mortgage loans is managed and serviced by
the Advisor in accordance with the Advisory Agreement. The Advisor is
responsible for all aspects of the Company's mortgage loan business, including
closing and recording of mortgage documents; collecting principal and interest
payments regularly and upon the maturity of a loan; enforcing loan terms and
other borrower's requirements; periodic review of each mortgage loan file and
determination of its reserve classification; and exercising the Company's
remedies in connection with any defaulted or non-performing loans. Fees and
costs of attorneys, insurance, bonds and other direct expenses incurred in
connection with the exercise of such remedies are the responsibility of the
Company, although they may be recouped from the borrower in the process of
pursuing the Company's remedies. The Advisor will not receive any additional
compensation for services rendered in connection with on-going loan portfolio
management or exercising the Company's remedies in the event of a loan default.
LOAN FUNDING AND BANK BORROWING
The Company's mortgage loans (and purchases of Church Bonds) are
funded with available cash resources and, at the discretion of the Advisor,
with borrowings under a line of credit with a commercial lender or bank. The
Company does not presently have a line of credit, and does not presently intend
to obtain one. Nonetheless, the Company may
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<PAGE> 32
borrow up to 50% of the value of its Average Invested Assets to make loans
regardless of the Company's capacity to (i) sell the Shares on a continuing
basis, or to (ii) reposition assets from the maturity or early repayment of
mortgage loans in its portfolio. Initially, the cash resources available to
the Company will be limited to the net proceeds from the sale of the Shares,
minus reserves for operating expenses, and bad-debt reserves, as determined by
the Advisor. As the business of the Company develops and over the course of
time, cash resources available to the Company for lending purposes will
include, in addition to the net proceeds from future sales of Shares (if any),
(i) principal repayments from borrowers on loans made by the Company, (ii)
dividends reinvested in the Company by shareholders electing the Company's
Dividend Reinvestment Plan, and (iii) funds (if any) borrowed under any line of
credit arrangement, if obtained.
FINANCING POLICIES
The Company's business of mortgage lending to churches and other
non-profit religious organizations is managed in accordance with and subject to
the policies, guidelines, restrictions and limitations identified herein
(collectively, the "Financing Policy"). The intent of the Financing Policy is
to identify for prospective investors in the Shares not only the general
business in which the Company is involved, but the parameters of the Company's
lending business. These policies may not be changed (except in certain
immaterial respects by majority approval of the Board of Directors) without the
approval of a majority of the Independent Directors, and the holders of a
majority of the outstanding Shares of the Company at a duly held meeting for
that purpose:
(i) Loans made by the Company are limited to churches and other
non-profit religious organizations, and will be secured by
mortgages. The total principal amount of all second mortgage
loans funded by the Company is limited to 20% of Average
Invested Assets. All other loans will be first mortgage loans.
(ii) The loan amount cannot exceed 75% of the value of the real
estate and improvements securing each loan, such value being
determined based on a written appraisal prepared by an appraiser
acceptable to the Advisor. On loans over $500,000, the Company
will require a written appraisal certified by a member of the
Appraisal Institute ("MAI"), or a state-certified appraiser.
(iii) An ALTA (American Land Title Association) or equivalent Mortgage
Title Policy must be furnished to the Company by the borrower
insuring the mortgage interest of the Company.
(iv) The borrower's long-term debt (including the proposed loan)
cannot exceed four (4) times the borrower's gross income for the
previous twelve (12) months.
(v) The borrower must furnish the Company with financial statements
(balance sheet and income and expense statement) for the last
two (2) complete fiscal years and a current financial statement
as of and for the period within ninety (90) days of the loan
closing date. On loans less than $500,000, the last complete
fiscal year must be reviewed by an independent accounting firm.
On loans in excess of $500,000, the last complete fiscal year
financial statements must be audited by an independent auditor.
Borrowers in existence for less than three fiscal years must
provide financial statements since inception. No loan will be
extended to a borrower in operation less than two years (24
months) absent express approval by the Company's Board of
Directors.
(vi) In its discretion, the Advisor, on behalf of the Company, may
require the borrower to arrange for automatic electronic or
drafting of monthly payments.
(vii) In its discretion, the Advisor, on behalf of the Company, may
require (I) key-man life insurance on the life of the senior
pastor of a church; (ii) personal guarantees of church members
and/or affiliates; and (iii) other security enhancements for the
benefit of the Company.
(viii) The borrower must agree to provide to the Company annual reports
(including financial statements) within 120 days of each fiscal
year end beginning with the fiscal year end next following the
funding of the loan.
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<PAGE> 33
(ix) In its discretion, the Advisor, on behalf of the Company, may
require the borrower to grant to the Company a security interest
in all personal property located and to be located upon the
mortgaged premises (excluding property leased by the borrower).
These Financing Policies are in addition to the prohibited investments
and activities identified hereinafter and which are set forth in the Company's
Bylaws.
PROHIBITED INVESTMENTS AND ACTIVITIES
The Company's Bylaws impose certain prohibitions and restrictions on
various investment practices and activities of the Company, including
prohibitions against:
(i) Investing more than 10% of its total assets in unimproved real
property or mortgage loans on unimproved real property;
(ii) Investing in commodities or commodity futures contracts other
than "interest rate futures" contracts intended only for hedging
purposes;
(iii) Investing in mortgage loans (including construction loans) on
any one property which in the aggregate with all other mortgage
loans on the property would exceed 75% of the appraised value of
the property unless substantial justification exists because of
the presence of other underwriting criteria;
(iv) Investing in mortgage loans that are subordinate to any mortgage
or equity interest of the Advisor or the Directors or any of
their Affiliates;
(v) Investing in equity securities;
(vi) Engaging in any short sales of securities or in trading, as
distinguished from investment activities;
(vii) Issuing redeemable equity securities;
(viii) Engaging in underwriting or the agency distribution of securities
issued by others;
(ix) Issuing options or warrants to purchase its Shares at an
exercise price less than the fair market value of the Shares on
the date of the issuance or if the issuance thereof would exceed
10% in the aggregate of its outstanding Shares;
(x) Issuing debt securities unless the debt service coverage for the
most recently completed fiscal year, as adjusted for known
changes, is sufficient to properly service the higher level of
debt;
(xi) Investing in real estate contracts of sale unless such contracts
are in recordable form and are appropriately recorded in the
chain of title;
(xii) Selling or leasing to the Advisor, a Director or any Affiliate
thereof unless approved by a majority of Directors (including a
majority of Independent Directors), not otherwise interested in
such transaction, as being fair and reasonable to the Company;
(xiii) Acquiring property from any Advisor or Director, or any Affiliate
thereof, unless a majority of Directors (including a majority of
Independent Directors) not otherwise interested in such
transaction approve the transaction as being fair and reasonable
to the Company and at a price to the Company no greater than
the cost of the asset to such Advisor, Director or any Affiliate
thereof, or if the price to the Company is in excess of such
cost, that substantial justification for such excess exists and
such excess is reasonable. In no event shall the cost of such
asset to the Company exceed its current appraised value;
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<PAGE> 34
(xiv) Investing or making mortgage loans unless a mortgagee's or
owner's title insurance policy or commitment as to the priority
of the mortgage or condition of title is obtained; or
(xv) Issuing its shares on a deferred payment basis or other similar
arrangement.
The Company does not intend to invest in the securities of other
issuers for the purpose of exercising control, to engage in the purchase and
sale of investments other than as described in this Prospectus, to offer
securities in exchange for property unless deemed prudent by a majority of the
Directors, to repurchase or otherwise reacquire Shares except as may be
necessary to maintain qualification as a real estate investment trust under the
Code, to issue senior securities or to make loans to other persons except in
the ordinary course of its business as described herein.
The Company in the future will not make loans to or borrow from, or
enter into any contract, joint venture or transaction with, any director or
officer of the Company, the Advisor or any Affiliate of any of the foregoing
unless a majority of the Directors, including a majority of the Independent
Directors, approves the transaction as fair and reasonable to the Company and
the transaction is on terms and conditions no less favorable to the Company
than those available from unaffiliated third parties. Any investment by the
Company in any property, mortgage or other real estate interest pursuant to a
transaction with the Advisor or any Directors or officers thereof will be based
upon an appraisal of the underlying property from an independent qualified
appraiser selected by the Independent Directors and will not be made at a price
greater than fair market value as determined by such appraisal. See "Conflicts
of Interest."
POLICY CHANGES
The Bylaw relating to policies, prohibitions and restrictions referred
to under "Business of the Company - Prohibited Investments and Activities"
above may not be changed (except in certain immaterial respects by a majority
approval of the Board of Directors) without the approval of a majority of the
Independent Directors and the approval of the holders of a majority of the
Company's Shares, at a duly held meeting for that purpose.
COMPETITION
The real estate financing industry generally is highly competitive.
The Company competes within its geographic areas of operation with a wide
variety of investors, including banks, savings and loan associations, insurance
companies, pension funds and fraternal organizations which may have investment
objectives similar to those of the Company. A number of these competitors have
greater financial resources, larger staffs and longer operating histories than
those of the Company. The Company competes principally by limiting its
business "niche" to lending to churches and other non-profit religious
organizations, offering loans with competitive and flexible terms, and
emphasizing the expertise of the Company in the specialized industry segment of
lending to churches and other religious organizations.
EMPLOYEES
The Company has no employees, as it is managed by the Advisor on a
"turn-key" basis using employees of the Advisor and/or its Affiliates. At
present, certain officers and directors of American and the Advisor are
providing services to the Company at no charge to the Company and which will
not be reimbursed by the Company. These services include, among others, legal
and analytic services relating to the development of the Company's business
plan, organization and incorporation of the Company, development and
preparation of this Prospectus (and Registration Statement of which this
Prospectus is a part) and development and drafting of proprietary forms and
documents to be utilized by the Advisor in connection with the Company's
business operations.
Subject to the supervision of the Company's Board of Directors, the
business of the Company is managed by Church Loan Advisors, Inc. (the
"Advisor"), which provides investment advisory and administrative services to
the Company and which is owned by V. James Davis, David G. Reinhart and Philip
J. Myers, officers and directors of the Company and directors of the Advisor.
See "Conflicts of Interest" and "The Advisor and the Advisory Agreement."
Philip J. Myers is President of the Advisor. The Advisor is not a registered
advisor under the Investment Advisors Act of 1940, nor is the Company a
registered investment company under the Investment Company Act of 1940. As of
the date of this Prospectus, the Advisor employs three persons on a part-time
or other basis. The Company does not presently expect to directly employ any
persons in the foreseeable future, since all administrative functions and
operations will be
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<PAGE> 35
contracted for through the Advisor. However, legal and accounting services to
the Company will be provided by outside professionals and paid for directly by
the Company.
OPERATIONS
The Company's operations currently are located in the 8,400 square
foot offices of the Dealer Manager, American Investors Group, Inc., 10237
Yellow Circle Drive, Minneapolis, Minnesota 55343. These facilities are owned
by DRM Holdings, Inc. (an affiliate of the Dealer Manager) and the Company is
not charged any rent for its use of these facilities, or for its use of copying
services, telephones, facsimile machines, postage service, office supplies or
employee services. Payments to the Advisor under the Advisory Agreement are
intended, at least in part, to cover the general costs of such facilities,
equipment and services used on a ratable basis by and on behalf of the Company
from April 15, 1996 forward and the Company will not reimburse the Advisor for
these expenses. The Company believes that the terms of this arrangement are at
least as favorable to the Company as those obtainable from unaffiliated third
parties in arm's-length discussions. See "The Advisor and the Advisory
Agreement" and "Conflicts of Interest."
MANAGEMENT
GENERAL
Directors are elected for a term expiring at the next annual meeting
of the Company's Shareholders and serve for one-year terms and until their
successors are duly elected and qualified. Officers of the Company serve at
the discretion of the Company's Board of Directors. Among other requirements,
in order to maintain its REIT status, a majority of the Company's directors
must be "independent." The Company's executive officers and Directors are as
follows:
<TABLE>
<CAPTION>
Name Age Office Director Since
------------ --- ------ --------------
<S> <C> <C> <C>
V. James Davis 52 President, Treasurer and Director 1994
David G. Reinhart 43 Vice President, Secretary and Director 1994
Kirbyjon H. Caldwell 43 Independent Director 1994
Robert O. Naegele, Jr. 56 Independent Director 1994
Dennis J. Doyle 44 Independent Director 1994
John M. Clarey 54 Independent Director 1994
</TABLE>
V. James Davis, has been the President and a Director of the Company
since its inception. He is also currently the President and a Director of the
Dealer Manager, American Investors Group, Inc., in which capacity he has served
since November 1986, and is an officer, director and shareholder of the parent
corporation of American -- DRM Holdings, Inc. ("DRM"). Prior to November,
1986, he was employed as President of Keenan & Clarey, Inc., Minneapolis,
Minnesota, a church bond underwriter and broker-dealer, where he also served as
Financial and Operations Principal and as a Director. From January 1976 to
March 1984, Mr. Davis was employed as Administrative Vice-President, and
Financial and Operations Principal, by Offerman & Co., Inc., Minneapolis,
Minnesota, a national broker-dealer and originator of corporate bond financing
projects. Mr. Davis has been in the securities business since 1970 and was
previously employed with other securities firms in Appleton, Wisconsin and
Rockford, Illinois. He holds a Bachelor of Science degree in Liberal Arts from
the University of Wisconsin - Whitewater (1967) and completed course work at
St. Joseph College, Rensselaer, Indiana. Mr. Davis holds a General Operations
Principal license and a Financial Operations Principal license with the
National Association of Securities Dealers, Inc.
David G. Reinhart, has been the Vice-President, Secretary and a
Director of the Company since its inception. He is also General Counsel and a
Director of the Dealer Manager, American Investors Group, Inc., a Director and
General Counsel of the Advisor, and President, director and shareholder of DRM,
the parent corporation of American. Mr. Reinhart has served as legal counsel
to banks, trust companies and broker-dealers in the area of church financings
and otherwise since approximately March 1984. He currently acts as counsel for
the Dealer Manager. He was employed in the St. Paul firm of Reinhart Law
Offices, P. A. from November 1985 to February 1987, and from July 1983 to
November 1985 he was employed as an Associate Attorney with the law firm of
Robins, Kaplan, Miller & Ciresi, Minneapolis, Minnesota. Mr. Reinhart
received his Juris Doctor degree, cum laude, in May 1979, from Hamline
University School of Law, St. Paul, Minnesota and received his Bachelor of
Science degree in May 1976, from Northern Michigan University, Marquette,
Michigan. Mr. Reinhart has practiced law in the areas of corporate finance and
general business law since 1979 and has developed expertise in the area of
church financing.
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<PAGE> 36
Kirbyjon H. Caldwell, has served as an independent Director of the
Company since September 1994. He currently is Senior Pastor of Windsor Village
United Methodist Church and St. John's United Methodist Church in Houston,
Texas, in which capacities he has served since January 1982 and September 1992,
respectively. Membership in both churches is approximately 7,500 combined and
their ministries reach a broad segment of the Houston region. Kirbyjon
Caldwell received his B.A. degree in Economics from Carlton College (1975), an
M.B.A. in Finance from the University of Pennsylvania's Wharton School (1977),
and his Masters in Theology from Southern Methodist University School of
Theology (1981). He is a member of the Boards of Directors of Texas Commerce
Bank (Houston), Hermann Hospital (Houston), Greater Houston Partnership, The
United Way of The Texas Gulf Coast, and the American Cancer Society. He is
also the founder and member of several foundations and other community
development organizations.
Robert O. Naegele, Jr., has served as an independent Director of the
Company since September 1994. . From 1986 to 1995, he served as Chairman of
Rollerblade, Inc., Minneapolis, Minnesota -- a manufacturer of in-line skates
and related products, and served on the Executive Committee of the
International In-line Skating Association from 1991 to present. For more than
the past five years Mr. Naegele has been actively involved as a part-owner of
outdoor advertising companies located in Indiana; Illinois; Iowa; Kansas;
Missouri and Georgia. He has served on the Executive Committee of the Outdoor
Advertising Association of America and as a Planning Commission Member and
Councilman for the City of Shorewood, Minnesota, and as a member of the
Advisory Board of Speak the Word Church and World Outreach, Minneapolis,
Minnesota. He attends First Baptist Church of Naples, Florida where he and his
wife reside.
Dennis J. Doyle, has served as an independent Director of the Company
since September 1994. He is the owner and co-founder of Welsh Companies, Inc.,
Minneapolis, Minnesota -- a full-service real estate company involved in
property management, brokerage, investment sales, construction and residential
and commercial development. Welsh Companies was co-founded by Mr. Doyle in
1980, and has five regional offices and 220 employees. Mr. Doyle is the
recipient of numerous civic awards relating to his business skills. He also is
a member of the Board of Directors of HEART (a non-profit organization), The
Children's Theater (Minneapolis) and Grow Biz International, a publicly-owned
company. He is also a member of the Board of Advisors of the Minnesota Real
Estate Journal, and a member of the International Commercial Realty Services
("ICRS") and National Association of Office and Industrial Parks ("NAIOP").
John M. Clarey, has served as an independent Director of the Company
since September 1994. Since January 1992, he has been employed as First Vice
President of Miller & Schroeder Financial, Inc., a Minneapolis, Minnesota based
investment banking firm and NASD-member broker- dealer. From February 1991
through December 1991, Mr. Clarey was a general partner of the Clarepoint
Partners, LP, a private venture capital firm, of which he was one of the
founders. From July 1989 to February 1991, he was a Senior Vice President of
Miller, Johnson and Kuehn, Inc., a Minneapolis-based broker-dealer. From
November 1980 to July 1989, Mr. Clarey served as President and Chief Executive
Officer of Allison- Williams Company, a Minneapolis-based investment banking
firm specializing in municipal and corporate finance. From September 1965 to
November 1970, he was employed as Executive Vice President of Keenan & Clarey,
Inc., a Minneapolis broker-dealer specializing in structuring and development
of corporate debt issues and financings for churches and other non-profit
corporations. During his career in the securities and finance industry, Mr.
Clarey has been active as a senior officer and director of local, regional, and
national trade and professional associations and has served as a volunteer
officer and director of various charitable organizations. He graduated from
Marquette University, Milwaukee, Wisconsin (1963) with a B.A. in economics.
Administration of the day-to-day operations of the Company is provided
by the Advisor under the Advisory Agreement. See "The Advisor and the Advisory
Agreement." The Company currently has no employees and the Company's officers
receive no compensation for their services, other than through their interests
in affiliates of the Company. See "Conflicts of Interest." The Company's
officers have no employment contracts with the Company or the Advisor and are
considered employees "at will." The Company believes that, because of the
depth of management of the Advisor and its Affiliates, the loss of one or more
key employees of the Advisor, or one or more officers of the Company, would not
have a material adverse effect upon its operations. Accordingly, their
association with the Company or the Advisor could be terminated at any time.
As required by the Company's Bylaws, a majority of the Directors are
Independent Directors in that they are otherwise unaffiliated with and do not
receive compensation from the Company (other than in their capacity as
Directors) or from the Advisor or the Dealer Manager.
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<PAGE> 37
The Directors are responsible for considering and approving, by
majority vote, the policies of the Company and meet as often and devote such
time to the business of the Company as their oversight duties may require.
Pursuant to the Company's Bylaws, the Independent Directors have the
responsibility of evaluating the capability and performance of the Advisor and
determining that the compensation being paid to the Advisor by the Company is
reasonable.
The Company currently pays each Independent Director a fee of $500 for
each board meeting, limited to $2,500 per year. In addition, the Company
reimburses directors for travel expenses incurred in connection with their
duties as Directors of the Company. The Company also has adopted a Stock
Option Plan for Directors and the Advisor, under which each Director and the
Advisor's president are granted annually options to purchase 3,000 Shares each
of the Company's common stock at a price equal to the fair market value at the
date of the grant. See "Management -- Warrants and Options."
Directors and officers are permitted to engage in other activities of
the type conducted by the Company, and neither the Company's Articles of
Incorporation or Bylaws nor any policy of the Company restricts officers or
Directors from conducting, for their own account or on behalf of others,
business activities of the type conducted by the Company. See "Conflicts of
Interest." The Directors and officers are nevertheless not relieved of their
duties of loyalty to the Company and its Shareholders. The Directors may be
removed by a majority vote of all Shares outstanding and entitled to vote at
any annual meeting or special meeting called for such purpose.
FIDUCIARY RESPONSIBILITY OF BOARD OF DIRECTORS; POSSIBLE INADEQUACY OF REMEDIES
The Board of Directors is accountable to the Company and its
Shareholders as fiduciaries and consequently must exercise good faith and
integrity in handling the Company's affairs. This is a rapidly developing and
changing area of the law, and Shareholders who have questions concerning the
duties of the directors should consult with their own counsel. The Company's
Articles and Bylaws authorize it, to the fullest extent permitted by Minnesota
Business Corporation Act to indemnify and pay or reimburse reasonable expenses
to any individual who is a present or former Director, officer, employee or
agent of the Company, provided that: (i) the Director, Advisor or other party
seeking indemnification has determined, in good faith, that the course of
conduct which caused the loss or liability was in the best interest of the
Company; (ii) the Director, the Advisor or other person seeking indemnification
was acting on behalf of or performing services on the part of the Company;
(iii) such liability or loss was not the result of negligence or misconduct on
the part of the indemnified party, except that in the event the indemnified
party is or was an Independent Director, such liability or loss shall not have
been the result of gross negligence or wilful misconduct; and (iv) such
indemnification or agreement to be held harmless is recoverable only out of the
assets of the Company and not from the Shareholders. The Company may advance
amounts to persons entitled to indemnification for legal and other expenses and
costs incurred as a result of legal action instituted against or involving such
person if: (i) the legal action relates to the performance of duties or
services by the indemnified party for or on behalf of the Company; and (ii) the
indemnified party receiving such advances undertakes, in writing, to repay the
advanced funds to the Company, with interest at the rate determined by the
Company, in cases in which such party would not be entitled to indemnification;
provided, however, that the Board of Directors may deny the payment of advances
to a non-Independent Director if a majority of the Independent Directors shall
determine, in the exercise of their reasonable discretion, that the
non-Independent Director seeking advances would not be entitled to
indemnification. As a result of the above-described exculpation provisions of
the Company's Articles and Bylaws, a Shareholder may have a more limited right
of action than he or she would otherwise have had in the absence of such
provisions, because recovery of monetary damages may be limited in certain
circumstances.
Subject to the limitations described above, the Company shall have the
power to purchase and maintain insurance on behalf of an indemnified party.
WARRANTS AND OPTIONS
On September 30, 1994, the Board of Directors adopted a Stock Option
Plan for Directors and the Advisor (the "Option Plan") to be administered by
the Directors, which provides for a grant of an option to purchase 3,000 shares
of $.01 par value Common Stock, subject to certain adjustments, to a Director
upon his or her appointment or election and upon each re-election (directors
are elected annually) or to the Advisor upon the Advisor's appointment or
annual re-appointment. The purchase price of the Common Stock granted under
each option shall be the fair market value, as defined in the Option Plan, at
the time the option is granted. On November 15, 1994, the Company issued
options under
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<PAGE> 38
the Option Plan to each of the six Directors and the Advisor, to purchase 3,000
shares each (an aggregate of 21,000 shares) at a price of $10 per share. These
options vest and are thus exercisable on or after November 15, 1995 and expire
November 15, 1999.
Pursuant to the terms of the Underwriting Agreement, the Company has
agreed to issue warrants to the Dealer Manager (and/or the Soliciting Dealers)
to purchase shares of the Company's $.01 par value Common Stock equal to one
Share for every ten Shares sold in this offering, at a price of $10.00 per
share. These warrants (the "Soliciting Dealer Warrants") will be issued on a
periodic basis during the Offering period commencing 60 days after the Minimum
Amount has been achieved. The Dealer Manager is an Affiliate of the Advisor
and certain officers and directors of the Company and Advisor. See "Plan of
Distribution" and "Security Ownership of Management and Others."
The Company may, from time to time, grant full-time employees and
existing Directors and officers of the Company and the Advisor warrants,
options, stock purchase rights, incentive stock options or similar arrangements
to purchase shares of Common Stock of the Company. In accordance with
applicable state law, the Company has agreed to limit the number of options or
warrants issuable to the Advisor, Affiliates or any Directors to ten percent
(10%) of the outstanding Shares of the Company on the date of grant of any
options or warrants. The purchase price of Shares issuable pursuant to such
warrants or options will not be less than the fair market value at the time of
the grant.
The Company may refuse to allow the exercise of a warrant into Common
Stock if the effect of such exercise or conversion would, in the opinion of
counsel for the Company, disqualify or jeopardize the Company as a real estate
investment trust under the Code.
SECURITY OWNERSHIP OF MANAGEMENT AND OTHERS
The following table sets forth as of the date of this Prospectus, the
number of Shares beneficially owned by each Director and by all executive
officers and Directors as a group. Except as identified below, the Company is
unaware of any beneficial owner of more than five percent (5%) of the
outstanding Shares of the Company's capital stock.
<TABLE>
<CAPTION>
Percent of Class
----------------
Assuming
Number of Before All Shares
Shares (1) Offering Sold in Offering
---------- -------- ----------------
<S> <C> <C> <C> <C>
V. James Davis . . . . . . . . . . . . 10,246 (2) 51.23% .51%
David G. Reinhart . . . . . . . . . . . 5,080 (2) 25.40% .25%
Kirbyjon H. Caldwell . . . . . . . . . ---- ---- ----
Robert O. Naegele, Jr. . . . . . . . . ---- ---- ----
Dennis J. Doyle . . . . . . . . . . . . ---- ---- ----
John M. Clarey . . . . . . . . . . . . ---- ---- ----
All Executive Officers and Directors
as a Group (five individuals) . . 15,326 76.63% .76%
</TABLE>
- ---------------
(1) Excludes 3,000 Shares which each Director and the President of the Advisor
have an option to purchase pursuant to the Stock Option Plan for Directors
and the Advisor, which options vest November 15, 1995 and expire November
15, 1999. See "Management -- Warrants and Options."
(2) Shares indicated are owned of record by DRM Holdings, Inc., a Minnesota
corporation ("DRM") which owns a total of 20,000 shares of the Company's
stock for which it paid $200,000. These shares are "restricted securities"
and may not be sold, transferred or assigned without compliance with state
and federal rules and regulations governing the transfer of securities
considered "restricted," and may be further subject to additional
restrictions imposed by states in which the Shares in this Offering are
being offered. DRM is owned by V. James Davis, the Company's President,
Treasurer and a Director; by David G. Reinhart, the Company's Vice
President, Secretary and a Director; and by Philip J. Myers, the Advisor's
President. Messrs. Davis, Reinhart and Myers are also directors of the
Advisor and of the Dealer Manager. The number of shares and percentages
set forth above are calculated by multiplying the total number of Shares
owned by DRM by the percentage such individuals' ownership of stock in DRM
relates to the total outstanding shares of stock of DRM. Philip J. Myers,
the Advisor's President, could be considered the beneficial owner of 4,664
shares (23.32% before Offering and .231% after Offering). See "Management"
and "Conflicts of Interest."
35
<PAGE> 39
CERTAIN RELATIONSHIPS AND TRANSACTIONS WITH MANAGEMENT
Subject to the supervision of the Company's Board of Directors, the
business of the Company is managed by the Advisor, which provides investment
advisory and administrative services to the Company. The Advisor is owned
equally by V. James Davis, David G. Reinhart and Philip J. Myers. Mssrs. Davis
and Reinhart are officers and Directors of the Company. Mssrs. Davis, Reinhart
and Myers are also shareholders, officers and directors of DRM Holdings, Inc,
which owns 100% of American Investors Group, Inc. (the "Dealer Manager").
Mssrs. Davis, Reinhart and Myers collectively own all of the total outstanding
common stock of DRM Holdings, Inc. As of the date of this Prospectus, the
Advisor employed, directly or otherwise, three persons on a part-time basis,
including Philip J. Myers, President and Scott J. Marquis, Vice President of
the Company.
Pursuant to the Advisory Agreement, the Company must pay the Advisor
certain advisory fees and expenses, as defined in the agreement and remit
one-half of any origination fee collected from a borrower in connection with
mortgage loans made or renewed by the Company. See "The Advisory Agreement"
below.
Pursuant to the Underwriting Agreement, the Company will pay the
Dealer Manager, a sales commission equal to 4.3% of the gross amount of sales
of the Shares in this Offering, plus a non-accountable expense reimbursement of
$53,000, assuming all the Shares are sold. Also, the Company has agreed to
issue Soliciting Dealer Warrants to the Dealer Manager and Soliciting Dealers.
See "Plan of Distribution." The Dealer Manager is an affiliate of the Advisor.
The following table sets forth the name and positions of certain officers and
all directors of the Dealer Manager:
<TABLE>
<CAPTION>
Name Position
---- --------
<S> <C>
V. James Davis President and Director
Philip J. Myers Sr. Vice President, Secretary and Director
Scott J. Marquis Vice President and Controller
David G. Reinhart Director
</TABLE>
In the course of its business, it is expected that the Company will
purchase Church Bonds being underwritten and sold by American. Although the
Company would not pay any commissions, American would benefit from such
purchase as a result of commissions paid to it by the issuer of such bonds.
American also would benefit from mark-ups on bonds bought from it and
mark-downs on bonds sold through it by the Company on the secondary market.
Any Church Bonds purchased by the Company will be purchased for investment
purposes only at the public offering price. Church bonds purchased in the
secondary market, if any, will be purchased at the best price available,
subject to customary markups (or in the case of sales -- markdowns), on terms
no less favorable than those applied to other customers of American, and would
not exceed industry standards or in any event (in the case of mark-ups and
mark-downs on secondary bond sales and purchases) exceed five percent of the
principal amount of bonds purchased or sold. Purchases of first mortgage bonds
must be approved by a majority of the Company's Independent Directors and are
subject to other limitations contained in the Company's Bylaws. Principals of
the Company and the Advisor may receive a benefit in connection with such
transactions due to their affiliation with the Dealer Manager. It is the
policy of the Company not to invest in excess of 30% of its Average Invested
Assets in Church Bonds.
In May 1996, the Company purchased, at a discount, from Mr. Dennis
Doyle, an Independent Director of the Company, $100,000 principal amount of
Second Mortgage Bonds -- Series 1994 (the "Bonds") issued to Mr. Doyle by
Resurrection Life Church, Eden Prairie, Minnesota. The bonds had been issued
to Mr. Doyle in May 1994 in connection with the sale to the Church by Mr. Doyle
and his affiliates of a parcel of land and building. The Dealer Manager
concurrently underwrote a $525,000 First Mortgage Bond issue for this Church in
May 1994 in connection with its purchase of the facility. The Church's worship
facility was appraised at $725,000 in 1994. The Bonds purchased by the Company
have a face value of $100,000 and bear interest at 8.5% per annum. The Company
purchased the Bonds for $72,805 and, thus generate a yield of 11.68% on a
current basis, maturing in May 2001. This transaction was unanimously approved
by the Board of Directors, including all the Independent Directors.
36
<PAGE> 40
THE ADVISOR AND THE ADVISORY AGREEMENT
CHURCH LOAN ADVISORS, INC.
Church Loan Advisors, Inc., a Minnesota corporation (the "Advisor"),
was organized on May 27, 1994 to engage in the business of rendering lending
and advisory services solely to the Company, and to administer the business
affairs and operations of the Company. The Advisor's offices are located at
10237 Yellow Circle Drive, Minneapolis, Minnesota 55343.
The following table sets forth the names and positions of the officers
and directors of the Advisor:
<TABLE>
<CAPTION>
Name Position
---- --------
<S> <C>
Philip J. Myers President, Treasurer and Director
Scott J. Marquis Vice President, Secretary
V. James Davis Director
David G. Reinhart Director
</TABLE>
Philip J. Myers, age 40, is President, Treasurer and a Director of the
Advisor, having served in such capacities since its inception. He is also
currently employed full-time as Senior Vice President, Secretary and a Director
of the Dealer Manager, American Investors Group, Inc. Mr. Myers earned his
Bachelor of Arts degree in Political Science in 1977 from the State University
of New York at Binghamton and his Juris Doctor Degree from the State University
of New York at Buffalo School of Law in 1980. From 1980 until 1982, Mr. Myers
served as an attorney with the Division of Market Regulation of the U. S.
Securities and Exchange Commission in Washington, D. C. and, from 1982 to 1984,
as an attorney with the Division of Enforcement of the Securities and Exchange
Commission in San Francisco. From August 1984 to January 1986, he was employed
as an attorney with the San Francisco law firm of Wilson, Ryan and Compilongo
where he specialized in corporate finance, securities and broker-dealer
matters. From January 1986 to January 1989 when he became affiliated with
American Investors Group, Inc., Mr. Myers was engaged as Senior Vice-President
and General Counsel of Financial Planners Equity Corporation ("FPEC"), a 400
broker securities dealer formerly located in Marin County, California. He is a
member of the New York, California (inactive status) and Minnesota Bar
Associations, and a registered General Securities Principal.
Scott J. Marquis, age 38, is Vice-President and Secretary of the
Advisor, having served in such capacities since December 13, 1994. He is also
currently employed full-time as Vice-President and Controller of the Dealer
Manager, American Investors Group, Inc., where he has been employed since
February 1987. Prior to his employment with American Investors Group, Inc.,
Mr. Marquis was employed for approximately seven years with the
Minneapolis-based broker dealer, Piper, Jaffray & Hopwood, in the capacity of
supervisor of its trade clearance department. Mr. Marquis is a licensed
financial principal and registered representative of American Investors Group,
Inc., and holds his Series 7, 63 and 27 licenses from the National Association
of Securities Dealers, Inc.
See "Management" for a description of the positions and business
experience of V. James Davis and David G. Reinhart, both of whom are Directors
of the Advisor.
THE ADVISORY AGREEMENT
The Company has entered into a contract with the Advisor (the
"Advisory Agreement") under which the Advisor has agreed to furnish advice and
recommendations concerning the affairs of the Company, provide administrative
services to the Company and manage the Company's day-to-day affairs. Among
other things, the Advisor will: (i) serve as the Company's mortgage loan
underwriter and advisor in connection with its primary business of making loans
to churches; (ii) advise and select Church Bonds to be purchased and held for
investment by the Company; (iii) provide marketing and advertising and generate
loan leads directly and through its Affiliates; (iv) on behalf of the Company,
deal with borrowers, lenders, banks, consultants, accountants, brokers,
attorneys, appraisers, insurers and others; (v) supervise the preparation,
filing and distribution of tax returns and reports to governmental agencies and
to Shareholders and act on behalf of the Company in connection with Shareholder
relations; (vi) provide office space and personnel as required for the
performance of the foregoing services as Advisor; and (vii) as requested by the
Company, make reports to the Company of its performance of the foregoing
services and furnish advice and recommendations with respect to other aspects
of the business of the Company. In performing its services under the Advisory
Agreement, the Advisor may use
37
<PAGE> 41
facilities, personnel and support services of its Affiliates. Expenses such as
legal and accounting fees, stock transfer agent, registrar and paying agent
fees, and dividend reinvestment agent fees are direct expenses of the Company
and are not provided for by the Advisor as part of its services.
The term of the Advisory Agreement expires annually and is expected to
be renewed annually by the Company, subject to a determination by the Company,
including a majority of the Independent Directors, that the Advisor's
performance has been satisfactory and that the compensation paid the Advisor by
the Company has been reasonable. The Advisory Agreement may be terminated with
or without cause by the Company on 60 days written notice. Upon termination of
the Advisory Agreement by either party, the Advisor may require the Company to
change its name to a name that does not contain the word "American," "America"
or the name of the Advisor or any approximation or abbreviation thereof, and
that is sufficiently dissimilar to the word "America" or "American" or the name
of the Advisor as to be unlikely to cause confusion or identification with
either the Advisor or any person or entity using the word "American" or
"America" in its name, however, the Company may continue to use the word
"church" in its name. In addition, upon non-renewal or termination of the
Advisory Agreement by the Company, the Advisor may be entitled to a termination
fee. See "Compensation to Advisor and Affiliates." The Company's Directors
shall determine that any successor Advisor possess sufficient qualifications to
perform the advisory function for the Company and justify the compensation
provided for in its contract with the Company.
The Advisor's compensation under the Advisory Agreement is set forth
under "Compensation to Advisor and Affiliates." Pursuant to the Advisory
Agreement, the Advisor is required to pay all of the expenses it incurs in
providing services to the Company, including, but not limited to, personnel
expenses, rental and other office expenses, expenses of Directors, officers and
employees of the Advisor (except out-of-pocket expenses of such persons who
are directors or officers of the Company incurred in their capacities as
Directors and officers of the Company), and all of its overhead and
miscellaneous administrative expenses relating to performance of its functions
under the Advisory Agreement. The Company will be required to pay all other
expenses of the Company, including the costs and expenses of reporting to
various governmental agencies and the Shareholders and of conducting its
operations as a mortgage lender, fees and expenses of appraisers, directors,
auditors, outside legal counsel and transfer agents, and costs directly
incurred relating to closing of loan transactions and to enforcing loan
agreements.
In the event that Total Operating Expenses of the Company exceed in
any calendar year the greater of (a) 2% of the Average Invested Assets of the
Company or (b) 25% of the Company's net income, the Advisor is obligated to
reimburse the Company, to the extent of its fees for such calendar year, for
the amount by which the aggregate annual operating expenses paid or incurred by
the Company exceed the limitation. The Independent Directors may, upon a
finding of unusual and non-recurring factors which they deem sufficient,
determine that a higher level of expenses is justified in any given year.
The Company's Bylaws provide that the Independent Directors are to
determine at least annually the reasonableness of the compensation which the
Company pays to the Advisor. The Company's Independent Directors approved the
Amended and Restated Advisory Agreement and the Amended and Restated Bylaws on
May 19, 1995 and approved on June 28, 1996 the renewal of the Restated Advisory
Agreement for another year. Factors to be considered in reviewing the Advisory
Fee include the size of the fees of the Advisor in relation to the size,
composition and profitability of the Company's loan portfolio, the rates
charged by other investment advisors performing comparable services, the
success of the Advisor in generating opportunities that meet the Company's
investment objectives, the amount of additional revenues realized by the
Advisor for other services performed for the Company, the quality and extent of
service and advice furnished by the Advisor, the quality of the Company's
investments in relation to investments generated by the Advisor for its own
account, if any, and the performance of the Company's investments.
The Advisory Agreement provides for indemnification by the Company of
the Advisor and each of its directors, officers and employees against expense
or liability arising out of such person's activities in rendering services to
the Company, provided that the conduct against which the claim is made was
determined by such person, in good faith, to be in the best interests of the
Company and was not the result of negligence or misconduct.
The foregoing is only a summary of the Advisory Agreement. Reference
is made to the Advisory Agreement, filed as an Exhibit to the Registration
Statement of which this Prospectus is a part, for a complete statement of its
provisions. See "Additional Information."
38
<PAGE> 42
PRIOR PERFORMANCE OF ADVISOR AND AFFILIATES
The principals of the Advisor, and the officers of the Company, have,
through the Dealer Manager, been engaged in the underwriting of first mortgage
bonds issued by churches since 1987. Messrs.. Myers, Reinhart and Davis and
the Dealer Manager's Director of Underwriting comprise the Dealer Manager's
"Underwriting Committee," which has been responsible for the review and
approval of church mortgage bond financings. These individuals, serving on
behalf of the Advisor and the Company, constitute the Company's Underwriting
Committee which selects and approves mortgage loans to churches to be made by
the Company and mortgage-backed securities and investments acquired by the
Company.
Since its inception in January 1987 through the date of this
Prospectus, American underwrote approximately 102 church bond financings
involving the sale of approximately $140 million in aggregate principal amount
of first mortgage bonds issued by churches. Of these, approximately 75
involved construction projects, and the balance represented purchase or loan
refinancing projects. The average size of the financings is approximately
$1.35 Million, and ranges in size from $110,000 to $6,600,000. The number of
bondholders (investors) in an average size bond financing is approximately 380.
The locations of these financings include 21 states and all regions of the
United States.
Of the bond financings underwritten by American, 19 have been retired
early. Two of the bond issues underwritten by American since its inception
have defaulted, as described below. Otherwise, all bond issues currently are
in good standing with respect to their payment obligations. Information with
respect to the bond financings conducted by the Advisor's affiliate and Dealer
Manager, American Investors Group, Inc. ("American") are set forth below and in
Appendix I. See "Appendix I."
Summarized below is information on first mortgage church bond
financing projects underwritten (i.e., reviewed, analyzed, structured, marketed
and sold) in the form of bond issues by the Dealer Manager (American) an
affiliate of the Advisor. See "Business of the Company," or "Transactions with
Management" and "Conflicts of Interest." The purpose of this summary is to
provide information on the prior performance of the first mortgage church
financing programs underwritten by American, so as to provide a basis to
evaluate the experience of the Advisor's affiliate -- American, which is owned
and controlled by the principals of the Advisor. Notwithstanding the
foregoing, although many of the financing guidelines and principles applicable
to the Company's investment and business plan are applied in American's bond
underwriting procedures, there can be no assurance that the results of
financings underwritten by American, or the yields represented thereby, can or
will be achieved by the Company, and the data herein is presented for
information purposes only.
Material factors common to all of the church bond financing projects
listed below include:
- Secured by first mortgages with loan-to-value ratios of 75% or less,
based on written appraisals issued by a Member of the Appraisal
Institute ("MAI") or a state-certified appraiser.
- Fixed interest rate loans with level or limited graduated payments.
- ALTA or equivalent mortgagee title insurance policy required.
- Borrower's total long-term debt (including the financing) limited to a
multiple of four (4) times gross income for its most recent 12 months.
- Borrower required to furnish audited financial statements for its most
recent complete fiscal year, and reviewed or compiled financial
statements for the two complete fiscal years prior to the most recent
and, on a comparative basis, for the current period within 90 days of
the financing date.
- A security interest in all personal property of the borrower is
required.
- Key-man life insurance and automatic weekly loan payments are
required.
39
<PAGE> 43
<TABLE>
<CAPTION>
Ratio of
Mortgage Debt
Date Principal Loan-to- High Bond (2) Average to Annual Term
Financing Amount of Value Yield/Last Interest Payment Support & in
Issuer Name & Location Effective Financing Ratio (1) Maturity Date Rate (3) Status Revenue (4) Years
- ----------------------- ---------- --------- --------- ------------- -------- ------ ------------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1. Deeper Life Christian Fellowship, 5/87 $1,038,000 51% 11.00%/May 2002 10.63% Current 1.13 15 yrs
Inc. Richmond Hill, NY
2. Isrealite Church of God in Christ, 5/87 460,000 71% 11.25%/May 1998 11.00% Current 2.13 15 yrs
Inc. Security, CO
3. Speak the Word Church and 7/87 3,650,000 70% 10.50%/July 1999 10.25% Current 2.57 12 yrs
World Outreach, Golden Valley, MN
4. Raleigh Christian Community 9/87 1,425,000 62% 11.25%/Sept 2000 11.00% Repaid 3.24 13 yrs
Raleigh, NC
5. Palm Beach Cathedral AOG, Inc. 1/88 1,425,000 75% 11.25%/Jan 2001 11.00% Default 3.13 13 yrs
Palm Beach, FL
6. Windsor Village United Methodist 4/88 1,570,000 75% 12.2%/Apr 2000 12.00% Repaid 1.78 12 yrs
Church, Houston, TX
7. Deeper Life Christian Fellowship, 6/88 332,000 67% 11.0%/Nov 1996 10.80% Current 1.85 11 yrs
Inc. Richmond Hill, NY
8. Macedonia Missionary Baptist Church 9/88 750,000 71% 12.25%/Sept 2003 12.15% Repaid 2.85 15 yrs
Memphis, TN
9. St. Agnes Missionary Baptist Church 9/88 900,000 58% 12.25%/Sept 2002 12.15% Current 2.45 14 yrs
Houston, TX
10. Way of the Cross Church 11/88 895,000 39% 11.0%/July 2000 10.85% Repaid 1.32 11 yrs
Blaine, MN
11. Grace Community Fellowship 1/89 750,000 71% 12.25%/July 2002 12.10% Current 2.50 13.5 yrs
Eugene, Oregon
12. Faith Outreach International d/b/a 4/89 1,720,000 75% 12.40%/Apr 2004 12.25% Repaid 1.52 15 yrs
Christian Faith Centre, LaMesa, CA
13. By His Word Christian Center 5/89 1,040,000 75% 12.50%/May 2004 12.50% Repaid 1.92 15 yrs
Tacoma, WA
14. Minneapolis Church of God 6/89 200,000 36% 12.50%/June 2000 12.15% Current 1.33 15 yrs
Brooklyn Park, MN
15. Austin Church on the Rock 9/89 960,000 75% 12.50%/Sept 2004 12.40% Current 2.80 15 yrs
Austin, TX
16. Macedonia Missionary Baptist Church 9/89 390,000 71% 12.50%/Sept 2004 12.25% Repaid 3.45 15 yrs
Memphis, TN
17. Reid Temple A.M.E. Church 12/89 1,350,000 75% 12.40%/Dec 2004 12.00% Current 4.27 15 yrs
Lanham, MD
18. Unity Palo Alto Church 2/90 2,000,000 38% 12.25%/Feb 1990 12.00% Repaid 2.40 15 yrs
Palo Alto, CA
19. Bishop Pickens Memorial Temple 3/90 340,000 54% 12.40%/Mar 2005 12.20% Repaid 3.00 15 yrs
Chicago, Illinois
20. Greater New Zion Baptist Church 5/90 570,000 59% 12.40%/May 1990 12.20% Current 2.93 15 yrs
Oklahoma City, OK
21. St. Stephen's Missionary Baptist 6/90 1,100,000 63% 12.40%/June 2005 12.30% Repaid 3.10 15 yrs
Church Memphis, TN
22. Church of the Living God 6/90 1,145,000 64% 12.40%/June 2004 12.20% Current 2.49 15 yrs
Hyattsville, MD
23. Bethlehem Missionary Church 8/90 675,000 55% 12.25%/Aug 2005 12.20% Current 2.44 15 yrs
Queens, NY
24. Central Holiness Church 10/90 1,065,000 70% 12.30%/Oct 2005 12.00% Repaid 2.76 15 yrs
Atlanta, GA
</TABLE>
- ---------------
(1) Ratio (expressed as a percentage) of the principal amount of the loan
to the appraised value of the real property serving as collateral for
the loan.
(2) Represents the highest interest rate payable on the longest maturing
bonds issued by the borrowing church in the financing.
(3) Represents the average interest payable by the borrowing church
assuming the loan remains outstanding through its full term.
(4) Multiple of principal amount of bond loan times the borrower's total
support and revenues in the most recently completed fiscal year prior
to the bond underwriting.
40
<PAGE> 44
<TABLE>
<CAPTION>
Ratio of
Mortgage Debt
Date Principal Loan-to- High Bond (2) Average to Annual Term
Financing Amount of Value Yield/Last Interest Payment Support & in
Issuer Name & Location Effective Financing Ratio (1) Maturity Date Rate (3) Status Revenue (4) Years
- ----------------------- ---------- --------- --------- ------------- -------- ------ ------------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
25. Hopewell Missionary Baptist Church 1/91 3,700,000 64% 12.30%/Jan 2006 11.90% Current 4.08 15 yrs
Norcross, GA
26. New Life Christian Ministry 3/91 715,000 65% 12.30%/Mar 2006 11.90% Repaid 2.19 15 yrs
San Antonio, TX
27. Triumph New Testament Church 3/91 850,000 53% 12.20%/Mar 2006 11.90% Repaid 1.55 15 yrs
Nederland, TX
28. Mount Moriah A.M.E. Church 5/91 1,290,000 69% 12.00%/May 2006 11.80% Current 8.05 15 yrs
Queens, NY
29. Temple Baptist Church 8/91 1,850,000 58% 12.20%/Aug 2006 12.10% Repaid 2.92 15 yrs
Nashville, TN
30. Lake Baptist Church 8/91 1,800,000 51% 12.00%/Aug 2006 11.80% Current 2.94 15 yrs
Lake Oswego, OR
31. North Stelton A.M.E. Church 10/91 725,000 53% 12.00%/Oct 2006 11.80% Current 2.81 15 yrs
Piscataway, NJ
32. Shorter Community A.M.E. Church 11/91 1,860,000 53% 12.00%/Nov 2006 11.80% Current 2.83 15 yrs
Denver, CO
33. New Life Christian Ministry 12/91 110,000 72% 12.00%/Mar 2007 11.80% Repaid 2.53 15 yrs
San Antonio, TX
34. Mount Vernon Baptist Church 12/91 1,350,000 65% 11.90%/Dec 1991 11.75% Repaid 1.84 15 yrs
Memphis, TN
35. Macedonia Missionary Baptist 2/92 1,195,000 75% 11.20%/Feb 2007 11.00% Current 3.37 15 yrs
Church Memphis, TN
36. First Baptist Church of Corona 3/92 1,040,000 40% 11.20%/Mar 2007 11.00% Current 2.47 15 yrs
East Elmhurst, NY
37. World Missions Assembly 3/92 720,000 64% 11.20%/Mar 2007 11.00% Default 2.04 15 yrs
Brooklyn, NY
38. By His Word Christian Center 4/92 1,215,000 74% 11.00%/Apr 2007 10.60% Current 2.03 15 yrs
Tacoma, WA
39. Metropolitan Baptist Church 4/92 475,000 75% 11.20%/Apr 2007 10.90% Current 1.73 15 yrs
Kansas City, KS
40. Christian Hope Center, Ltd. 5/92 506,000 70% 11.00%/May 2007 10.60% Current 2.89 15 yrs
Woodbridge, VA
41. Bible Missionary Baptist 5/92 1,300,000 62% 11.00%/May 2007 10.50% Current 2.55 15 yrs
Church-Miami Miami, FL
42. Central Holiness Church 6/92 250,000 69% 11.20%/June 2007 11.20% Repaid 3.42 15 yrs
Atlanta, GA
43. St. James Episcopal Church 6/92 1,430,000 45% 10.00%/June 2009 9.25% Current 1.86 17 yrs
Potomac, MD
44. Church of Jesus Christ 7/92 1,280,000 55% 11.00%/July 2007 10.50% Repaid 3.00 15 yrs
Washington, D.C.
45. Temple Baptist Church of Nashville 8/92 380,000 65% 11.20%/Feb 2008 11.50% Repaid 3.00 15 yrs
Nashville, TN
46. Mount Zion A.M.E. Church 8/92 875,000 38% 10.00%/Aug 2005 9.50% Repaid 3.30 13 yrs
New Brunswick, NJ
47. Calvary Temple of Allentown, PA 9/92 1,820,000 38% 11.00%/Sept 2007 10.25% Current 2.23 15 yrs
Allentown, PA
48. Bethel Baptist Church 9/92 525,000 56% 11.00%/Sept 2007 10.75% Current 2.40 15 yrs
Orange, NJ
49. Palo Alto Community Church 10/92 2,180,000 41% 10.25%/Octo 2007 9.40% Current 1.93 15 yrs
Palo Alto, CA
</TABLE>
- ---------------
(1) Ratio (expressed as a percentage) of the principal amount of the loan
to the appraised value of the real property serving as collateral for
the loan.
(2) Represents the highest interest rate payable on the longest maturing
bonds issued by the borrowing church in the financing.
(3) Represents the average interest payable by the borrowing church
assuming the loan remains outstanding through its full term.
(4) Multiple of principal amount of bond loan times the borrower's total
support and revenues in the most recently completed fiscal year prior
to the bond underwriting.
41
<PAGE> 45
<TABLE>
<CAPTION>
Ratio of
Mortgage Debt
Date Principal Loan-to- High Bond (2) Average to Annual Term
Financing Amount of Value Yield/Last Interest Payment Support & in
Issuer Name & Location Effective Financing Ratio (1) Maturity Date Rate (3) Status Revenue (4) Years
- ----------------------- ---------- --------- --------- ------------- -------- ------ ------------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
50. Christian Love Baptist Church 11/92 500,000 44% 10.30%/Nov 2007 9.80% Current 1.02 15 yrs
Irvington, NJ
51. Tabernacle Baptist Church 11/92 1,550,000 63% 10.75%/Nov 2007 10.40% Current 2.55 15 yrs
Burlington, NJ
52. Lee Memorial A.M.E. Church 12/92 1,225,000 63% 10.30%/Dec 2007 9.90% Current 3.94 15 yrs
Cleveland, OH
53. Nazareth Baptist Church 1/93 390,000 24% 10.30%/Jan 2008 10.20% Current 3.14 15 yrs
Philadelphia, PA
54. Christian Pentecostal Church of Christ 2/93 1,600,000 46% 10.30%/Feb 2008 9.80% Current 3.28 15 yrs
Irvington, NJ
55. Mt. Zion Christian Baptist Church 1/93 750,000 59% 10.30%/Jan 2008 9.80% Current 3.30 15 yrs
Mount Vernon, NY
56. Lake Baptist Church 2/93 365,000 60% 10.00%/Aug 2007 10.00% Current 2.66 14.5 yrs
Lake Oswego, OR
57. St. Mark's Missionary Baptist Church 2/93 1,500,000 67% 10.30%/Feb 2008 9.90% Current 2.90 15 yrs
Harvey, IL
58. Friendship Missionary Baptist Church 4/93 700,000 48% 10.00%/Apr 2008 9.90% Current 1.77 15 yrs
Buffalo, NY
59. Christian Faith Centre 5/93 1,765,000 66% 10.00%/May 2008 9.50% Current 1.86 15 yrs
La Mesa, CA
60. Raleigh Christian Community 6/93 1,452,000 70% 10.00%/June 2008 9.50% Current 1.19 15 yrs
Raleigh, NC
61. Porter's Day Care and Educational Ctr. 5/93 350,000 51% 10.00%/May 2008 9.80% Current .65 15 yrs
Philadelphia, PA
62. Outreach Christian Center 5/93 575,000 46% 10.00%/May 2008 9.60% Current 1.86 15 yrs
Suitland, MD
63. Evergreen Baptist Church 6/93 345,000 36% 10.00%/June 2008 9.80% Current 1.73 15 yrs
Huntington, NY
64. Faith Southwest Baptist Church 6/93 700,000 66% 10.00%/Jun 2008 9.70% Current 2.07 15 yrs
Houston, TX
65. Cornerstone Church 7/93 4,355,000 66% 10.00%/July 2008 9.70% Current 1.92 15 yrs
San Antonio, TX
66. St. Paul A.M.E. Church 8/93 1,000,000 29% 9.80%/Aug 2008 9.50% Current 2.25 15 yrs
Berkeley, CA
67. Windsor Village United Methodist 9/93 3,100,000 37% 9.65%/Sept 2008 9.25% Current 1.03 15 yrs
Church, Houston, TX
68. First Baptist Church of Hampton 10/93 2,600,000 55% 9.70%/Oct 2008 9.35% Current 2.86 15 yrs
Hampton, VA
69. Peaceful Zion Missionary Baptist 10/93 750,000 59% 9.70%/Oct 2008 9.65% Current 2.72 15 yrs
Miami, FL
70. Central Holiness Church 11/93 1,405,000 67% 9.65%/Nov 2008 9.25% Current 3.18 15 yrs
Atlanta, GA
71. The Apostolic Faith Home Assembly 12/93 2,600,000 45% 9.50%/Dec 2008 9.20% Current 1.75 15 yrs
Los Angeles, CA
72. New Life Christian Ministry 2/94 2,000,000 70% 9.75%/Feb 20012 9.45% Current 2.60 18 yrs
San Antonio, TX
73. Calvary Temple of Allentown 2/94 1,950,000 41% 10.00%/Dec 20014 9.50% Current 2.34 20 yrs
Allentown, PA
</TABLE>
- ---------------
(1) Ratio (expressed as a percentage) of the principal amount of the loan
to the appraised value of the real property serving as collateral for
the loan.
(2) Represents the highest interest rate payable on the longest maturing
bonds issued by the borrowing church in the financing.
(3) Represents the average interest payable by the borrowing church
assuming the loan remains outstanding through its full term.
(4) Multiple of principal amount of bond loan times the borrower's total
support and revenues in the most recently completed fiscal year prior
to the bond underwriting.
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<PAGE> 46
<TABLE>
<CAPTION>
Ratio of
Mortgage Debt
Date Principal Loan-to- High Bond (2) Average to Annual Term
Financing Amount of Value Yield/Last Interest Payment Support & in
Issuer Name & Location Effective Financing Ratio (1) Maturity Date Rate (3) Status Revenue (4) Years
- ----------------------- ---------- --------- --------- ------------- -------- ------ ------------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
74. First Baptist Church of Hampton 4/94 740,000 54% 9.55%/Octo 2010 9.50% Current 3.31 16.5 yrs
Hampton, VA
75. Woodinville Church of Christ 5/94 440,000 58% 9.75%/May 2014 9.38% Current 2.03 20 yrs
Woodinville, WA
76. Resurrection Life Ministries 5/94 620,000 72% 8.50%/May 2001 8.40% Current 2.50 7 yrs
Eden Prairie, MN
77. Church of Jesus Christ 6/94 1,735,000 75% 9.80%/June 2014 9.38% Current 3.96 20 yrs
Washington, D.C.
78. Liberty Church 7/94 900,000 75% 8.55%/July 2001 8.45% Current 2.14 7 yrs
Edmond, OK
79. By His Word Christian Center 9/94 1,665,000 75% 9.80%/Aug 2014 9.40% Current 2.39 20 yrs
Tacoma, WA
80. Morningstar Missionary Baptist Church 9/94 800,000 57% 9.80%/Sept 2014 9.60% Current 1.45 20 yrs
Jamaica, NY
81. Iglesia Puerta Del Cielo 11/94 3,400,000 62% 10.00%/Nov 2014 9.75% Current 1.70 20 yrs
El Paso, TX
82. Hopewell Missionary Baptist Church 1/95 6,350,000 68% 10.20%/Jan 2015 9.90% Current 4.00 20 yrs
Norcross, GA
83. Windsor Village United Methodist 1/95 725,000 58% 10.00%/Sept 2010 10.00% Current 1.14 15.5 yrs
Houston, TX
84. St. Agnes Missionary Baptist Church 3/95 3,200,000 59% 10.20%/Mar 2015 10.00% Current 2.22 20 yrs
Houston, TX
85. Church of the Great Commission 4/95 2,200,000 57% 10.20%/Mar 2015 10.00% Current 1.50 20 yrs
Camp Springs, MD
86. Zion Evangelistic Temple 4/95 4,375,000 46% 10.20%/April 2015 10.00% Current 2.40 20 yrs
Troy, MI
87. St. Mark's Missionary Baptist Church 4/95 360,000 72% 10.20%/Feb 2010 10.20% Current 2.04 15 yrs
Harvey, IL
88. Emmanuel Baptist Church 7/95 1,655,000 47% 10.20%/July 2015 9.85% Current 1.88 20 yrs
Newington, CT
89. The Community Protestant Church 8/95 1,500,000 50% 10.20%/Aug 2015 9.75% Current 2.20 20 yrs
Bronx, NY
90. Abundant Life Church of Christ 10/95 1,425,000 67% 10.20%/Oct 2015 9.75% Current 2.58 20 yrs
Richmond, VA
91. Greeley Church of Christ 10/95 500,000 33% 10.20%/Oct 2015 9.75% Current 1.98 20 yrs
Greeley, CO
92. Twelfth Ave. General Baptist Church 10/95 1,195,000 55% 9.90%/Oct 2010 9.50% Current 1.41 15 yrs
Evansville, IN
93. Holden Chapel 11/95 500,000 42% 10.20%/Nov 2015 9.80% Current .65 20 yrs
Holden, MA
94. House of Praise Ministries 10/95 675,000 38% 10.20%/Oct 2015 9.75% Current 1.42 20 yrs
Castleton, NY
95. Pembroke Park Church of Christ 11/95 600,000 68% 10.20%/Nov 2015 9.75% Current 3.25 20 yrs
Pembroke Park, FL
96. Faith Community Church 12/95 950,000 40% 10.00%/Dec 2010 9.60% Current .78 15 yrs
Tucson, AZ
97. Christ Church of Kirkland 12/95 2,785,000 65% 10.20%/Jan 2016 9.75% Current 2.96 20 yrs
Kirkland, WA
98. Oasis Christian Center 02/96 825,000 69% 10.20%/Feb 2016 9.75% Current 1.55 20 yrs
Bakersfield, CA
</TABLE>
- ---------------
(1) Ratio (expressed as a percentage) of the principal amount of the loan
to the appraised value of the real property serving as collateral for
the loan.
(2) Represents the highest interest rate payable on the longest maturing
bonds issued by the borrowing church in the financing.
(3) Represents the average interest payable by the borrowing church
assuming the loan remains outstanding through its full term.
(4) Multiple of principal amount of bond loan times the borrower's total
support and revenues in the most recently completed fiscal year prior
to the bond underwriting.
43
<PAGE> 47
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
99. Centennial Star of Bethlehem Church 02/96 1,195,000 52% 0.20%/Feb 2016 9.75% Current 3.28 20 yrs
Ossining, NY
100. St. Agnes Missionary Baptist Church 03/96 875,000 67% 10.20%/Mar 2016 10.05% Current 2.82 20 yrs
Houston, TX
101. Lake Baptist Church 03/96 1,840,000 63% 10.05%/Sept 2011 9.95% Current 2.83 15 yrs
Lake Oswego, OR
102. Cornerstone Church 05/96 6,600,000 68% 10.00%/May 2011 9.70% Current 1.59 15 yrs
San Antonio, TX
</TABLE>
- ---------------
(1) Ratio (expressed as a percentage) of the principal amount of the loan
to the appraised value of the real property serving as collateral for
the loan.
(2) Represents the highest interest rate payable on the longest maturing
bonds issued by the borrowing church in the financing.
(3) Represents the average interest payable by the borrowing church
assuming the loan remains outstanding through its full term.
(4) Multiple of principal amount of bond loan times the borrower's total
support and revenues in the most recently completed fiscal year prior
to the bond underwriting.
In January 1988, American, including the principals of the Advisor,
underwrote the offering of $1,425,000 principal amount of insured first
mortgage bonds issued by Palm Beach Cathedral Assembly of God, Inc., Lake Park,
Florida ("Palm Beach"). In approximately July 1990, Palm Beach defaulted in
its obligation to make weekly sinking fund payments, thus interest payments to
bondholders ceased. Palm Beach filed for reorganization under Chapter 11 of
the United States Bankruptcy Code, and in early 1994, its Plan of
Reorganization (the "Plan") was confirmed by the bankruptcy court. Pursuant to
the Plan, holders of the bonds received a ratable distribution of $550,000
cash, representing a return of approximately 39% of their principal investment.
In addition, the holders of the bonds retained their first mortgage interest in
the real estate and improvements, and Palm Beach is required to repay the
balance of the principal in its entirety over 18 years, plus interest accrued
to the confirmation date of the Plan, subject to earlier repayment in certain
circumstances. The $550,000 distribution to the holders of the bonds was
derived from a portion of a $700,000 loan made by the bond insurance company to
Palm Beach in consideration of a complete release of further obligations, if
any, of the insurer in connection with the bond default. The balance currently
owed to bondholders is approximately $1 Million (including accrued interest).
In March 1992, American, including the principals of the Advisor,
underwrote the offering of $720,000 principal amount of first mortgage bonds
issued by World Missions Assembly, Inc., Brooklyn, New York ("World"). In
September 1993, the bond trustee declared World's bonds in default due to
World's failure to make all payments of principal and interest with respect to
the bonds as due. Shortly thereafter, the bond trustee filed an action in New
York State Supreme Court to prosecute the bondholders' rights under the trust
indenture governing the bonds and to foreclose upon World's real property and
improvements securing the bonds. The outstanding principal balance of the
bonds at the time of default was $687,000. Interest accrues on the remaining
principal balance at a rate of approximately 11% per annum. The foreclosure
action has been prosecuted on behalf of the bondholders and the bond trustee
has listed the real estate and improvements for sale on behalf and for the
benefit of the bondholders. World has agreed to occupy, maintain and insure
the premises until the property is sold.
FEDERAL INCOME TAX CONSIDERATIONS
THE DISCUSSION OF FEDERAL INCOME TAX TREATMENT OF REAL ESTATE
INVESTMENT TRUSTS AND THEIR SHAREHOLDERS SET FORTH BELOW IS INTENDED AS A
SUMMARY ONLY. IT IS NOT MEANT TO ADDRESS ALL POTENTIAL CONSIDERATIONS IN
DETERMINING WHETHER THE COMPANY WILL QUALIFY AS A REIT NOR IS IT MEANT TO
ADDRESS THE SPECIFIC CONSIDERATIONS TO EACH PURCHASER OF AN INVESTMENT IN THE
SHARES. EACH PURCHASER SHOULD CONSULT HIS OR HER OWN TAX ADVISOR AS TO THE
SPECIFIC CONSIDERATIONS TO SUCH PURCHASER OF THE PURCHASE OF SHARES, INCLUDING
THE APPLICATION AND EFFECT OF STATE AND LOCAL INCOME AND OTHER TAX LAWS AND OF
ANY POSSIBLE CHANGES IN THE TAX LAWS.
QUALIFICATION AS A REAL ESTATE INVESTMENT TRUST
GENERAL. The Board of Directors intends to cause the Company to
operate in such a manner as to qualify as a real estate investment trust under
Sections 856 through 860 of the Internal Revenue Code (the "Code"). The
ability of the Company to qualify as a real estate investment trust will
depend, in part, on the timing and nature of the Company's investments. Among
other things, if the Company encounters difficulties in making the proposed
investments, the time when the Company is able to qualify as a real estate
investment trust may be delayed. There can be no assurance as to whether or
when the Company will qualify to be taxed as a real estate investment trust and
qualification as a real estate investment trust is dependent, in part, on
future events.
In the opinion of Maun & Simon, PLC, whose opinion has been filed as
an exhibit to the Registration Statement of which this Prospectus is a part,
the Company has been organized in conformity with the requirements for
qualification as a REIT and assuming that there are more than 100 Shareholders
after this offering, the Company's proposed method of operation will permit it
to meet the requirements for qualification and taxation as a REIT. It must be
emphasized that
44
<PAGE> 48
this opinion is based on various assumptions and is conditioned upon certain
representations made by the Company as to factual matters. In addition, this
opinion is based upon the factual representations made by the Company
concerning its proposed business as set forth in this Prospectus. Moreover,
such qualification and taxation as a REIT depends upon the Company's ability to
meet, through actual annual operating results, distribution levels and
diversity of stock ownership, the various qualification tests imposed under the
Code discussed below, the results of which will not be reviewed by Maun &
Simon, PLC. Accordingly, no assurance can be given that the Company's proposed
business or that the actual results of the Company's operation for any
particular taxable year will satisfy such requirements. Further, the
anticipated income tax treatment described in this Prospectus may be changed,
perhaps retroactively, by legislative, administrative or judicial action at any
time.
The following is a general summary of the provisions that govern the
federal income tax treatment of a real estate investment trust and its
shareholders. This summary is qualified in its entirety by the applicable Code
provisions, rules and regulations promulgated thereunder, and administrative
and judicial interpretations thereof.
The Code provides special tax treatment for organizations that qualify
as REITs. If certain conditions are met as a REIT, an entity that so qualifies
generally will not be subject to federal corporate income taxes on its net
income that is currently distributed to Shareholders. This treatment
substantially eliminates the "double taxation" (at the corporate and
shareholder levels) that generally results from investment in a corporation.
However, even if the Company qualifies as a REIT, the Company will be subject
to federal income tax as follows. First, the Company will be taxed at regular
corporate rates on any undistributed REIT taxable income, including
undistributed net capital gains; provided, however, that if the Company has a
net capital gain, it will be taxed at regular corporate rates on its
undistributed REIT taxable income, computed without regard to net capital gain
and the deduction for capital gains dividends, plus a 35% tax on undistributed
net capital gain, if its tax as thus computed is less than the tax computed in
the regular manner. Second, under certain circumstances, the Company may be
subject to the "alternative minimum tax" on its items of tax preference.
Third, if the Company has (i) net income from the sale or other disposition of
"foreclosure property" which is held primarily for sale to customers in the
ordinary course of business or (ii) other non-qualifying income from
foreclosure property, it will be subject to tax at the highest regular
corporate rate on such income. Fourth, if the Company has net income from
"prohibited transactions" (which are, in general, certain sales or other
dispositions of property (other than foreclosure property) held primarily for
sale to customers in the ordinary course of business by the Company, (i.e.,
when the Company is acting as a dealer)), such income will be subject to a 100%
tax. Fifth, if the Company should fail to satisfy the 75% gross income test or
the 95% gross income test (as discussed below), and has nonetheless qualified
as a real estate investment trust because certain other requirements have been
met, it will be subject to a 100% penalty tax on the gross income attributable
to the greater of the amount by which the Company fails the 75% or 95% test,
multiplied by a fraction intended to reflect the Company's profitability.
Sixth, if the Company should fail to distribute by the end of each year at
least the sum of (i) 85% of its REIT ordinary income for such year, (ii) 95% of
its REIT capital gain net income for such year, and (iii) any undistributed
taxable income from prior periods, the Company will be subject to a 4% excise
tax on the excess of such required distribution over the amounts actually
distributed. Seventh, if the Company acquires any asset (a "Built-In Gain
Asset") from a C corporation (i.e., generally a corporation subject to full
corporate-level tax) in a transaction in which the basis of the asset in the
Company's hands is determined by reference to the basis of the asset (or any
other property) in the hands of the C corporation, and the Company recognizes
gain on the disposition of such asset during the 10-year period (the
"Recognition Period") beginning on the date on which such asset was acquired by
the Company, then, to the extent of the built-in gain (i.e., the excess of the
fair market value of such asset on the date such asset was acquired by the
Company over the Company's adjusted basis in such asset on such date), such
gain will be subject to tax at the highest regular corporate rate pursuant to
Treasury Regulations that have not yet been promulgated.
REQUIREMENTS FOR QUALIFICATION. The Code defines a REIT as a
corporation, trust or association (i) which is managed by one or more trustees
or directors; (ii) the beneficial ownership of which is evidenced by
transferable shares, or by transferable certificates of beneficial interest;
(iii) which would be taxable, but for Sections 856 through 859 of the Code, as
a domestic corporation; (iv) which is neither a financial institution nor an
insurance company subject to certain provisions of the Code; (v) the beneficial
ownership of which is held by 100 or more persons; (vi) during the last half of
each taxable year not more than 50% of the outstanding stock of which is owned,
directly or indirectly, by five or fewer individuals (which term includes
certain entities); and (vii) which meets certain other tests, described below.
The Code provides that conditions (i) to (iv), inclusive, must be met during
the entire taxable year and that condition (v) must be met during at least 335
days of a taxable year of 12 months, or during a proportionate part of a
taxable year of less than 12 months.
45
<PAGE> 49
To qualify as a REIT for a taxable year under the Code, the Company
must elect or previously have elected to be so treated and must meet other
requirements, certain of which are summarized below, including percentage tests
relating to the sources of its gross income, the nature and diversification of
the Company's assets and the distribution of its income to Shareholders.
ASSET TESTS. At the close of each quarter of its taxable year, the
Company must satisfy three tests relating to the nature and diversification of
its assets. First, at least 75% of the value of the Company's total assets
must be represented by real estate assets, cash, cash items and government
securities. Second, not more than 25% of the Company's total assets may be
represented by certain securities other than those includable in the 75% asset
class. Third, of the investments included in the 25% asset class, the value of
any one issuer's securities owned by the Company may not exceed 5% of the value
of the Company's total assets and the Company may not own more than 10% of any
one issuer's outstanding voting securities.
INCOME TESTS. There are three income requirements necessary for
maintenance of REIT status.
First, at least 75% of the Company's gross income (excluding gross
income from certain sales of property held primarily for sale) for each taxable
year must be derived directly or indirectly from: (i) rents from real property;
(ii) interest on obligations secured by mortgages on real property or interests
in real property; (iii) gain from the sale or other disposition of real
property (including interests in real property and interests in mortgages on
real property) not held primarily for sale to customers in the ordinary course
of business; (iv) dividends or other distributions on, and gain (other than
gain from prohibited transactions) from the sale or other disposition of,
transferable shares in other real estate investment trusts; (v) abatements and
refunds of taxes on real property; (vi) income and gain derived from
foreclosure property (as defined in the Code); (vii) amounts (other than
amounts the determination of which depend in whole or in part on the income or
profits of any person) received or accrued as consideration for entering into
agreements to make loans secured by mortgages on real property or interests in
real property, or to purchase or lease real property (including interests in
real property and interests in mortgages on real property); (viii) gain from
the sale or other disposition of a real estate asset which is not a prohibited
transaction; and (ix) qualified temporary investment income.
Second, at least 95% of the Company's gross income (excluding gross
income from certain sales of property held primarily for sale) for each taxable
year must be derived from the sources described above with respect to the 75%
test, or from dividends, interest, or gain from the sale, exchange or other
disposition of stock or securities. Dividends and interest on any obligations
not secured by an interest in real property are included for purposes of the
95% test, but not for purposes of the 75% test.
Third, short-term gain from the sale or other disposition of stock or
securities, gain from certain sales of property held primarily for sale, and
gain from certain sales of real property held for less than four years (apart
from involuntary conversions and foreclosure property) must represent less than
30% of the Company's gross income for each taxable year.
Interest that may be received by the Company generally will not
qualify as "interest" in satisfying the gross income requirements if the amount
of interest received is based in whole or in part on the income or profits of
any person. However, interest based on a fixed percentage or percentages of
gross receipts or sales may qualify as "interest." Generally, if a loan is
secured by both personal property and real property, interest must be allocated
between the personal property and the real property, with only the interest
allocable to the real property qualifying as mortgage interest under the 75%
gross income test. Treasury Regulations provide that if a loan is secured by
both personal and real property and the fair market value of the real property
as of the commitment date equals or exceeds the amount of the loan, the entire
interest amount will qualify under the 75% gross income test. If the amount of
the loan exceeds the fair market value of the real property, the interest
income is allocated between real property and personal property based on the
relative fair market value of each. Under certain circumstances, income from
shared appreciation mortgages may qualify under the REIT gross income
requirements.
The Company believes that interest received under the Company's
mortgage loans should qualify as "interest" for purposes of the REIT gross
income requirements and, except for certain interest receipts, should qualify
as mortgage interest for purposes of the REIT 75% gross income requirement.
46
<PAGE> 50
In the case of a real estate investment trust which is a partner in a
partnership, Treasury Regulations provide that the character of gross income of
the partnership shall retain the same character in the hands of the partners
for purposes of Section 856 of the Code, including satisfying the 75% and 95%
gross income tests.
If the Company fails to satisfy one or both of the 75% or 95% gross
income tests for any taxable year, it may nevertheless qualify as a REIT for
such year if it is entitled to relief under certain provisions of the Code.
These relief provisions may be available if the Company can establish that its
failure to meet such tests was due to reasonable cause and not due to willful
neglect, the Company attaches a schedule of sources of its income to its
return, and any incorrect information was not due to fraud with intent to evade
tax. It is not possible, however, to state whether in all circumstances the
Company would be entitled to the benefit of these relief provisions. If these
relief provisions apply, a special 100% tax is imposed (see "General").
The Company does not intend to hold any property "primarily for sale
to customers in the ordinary course of its trade or business" and intends to do
whatever is reasonably prudent to avoid so holding any property, consistent
with the investment objectives of the Company. However, whether property is
held as "dealer property" depends on the facts and circumstances in effect from
time to time, including those relating to a particular property. As a result,
complete assurance cannot be given that the Company can avoid "dealer" status.
If the Service were to successfully characterize the Company as a dealer, sales
of Company property could be subject to a 100% excise tax, capital gain
treatment on sales of Company property could be unavailable and the Company
could fail to satisfy the 95%, 75% or 30% income tests.
OWNERSHIP REQUIREMENTS. The Company's capital stock must be held by
100 or more persons for at least 335 days of each full taxable year (or
proportionate part of any shorter taxable year). In addition, no more than 50%
in value of the Company's outstanding capital stock may be owned, directly or
indirectly, by five or fewer individuals at any time during the last half of
the Company's taxable year. To attempt to assure compliance with this 50%
diversity of ownership requirement, the Company's Articles of Incorporation
prohibit any Shareholder from acquiring, directly or indirectly, more than 9.8%
of the outstanding capital stock of the Company. For purposes of the 50%
ownership test, pension funds and certain other tax-exempt entities are treated
as individuals. In addition, for purposes of this 50% ownership test, certain
attribution rules of the Code are applied to determine whether such test is
satisfied. These attribution rules provide, among other things, that capital
stock owned by a member of a partnership are attributed to its partners.
Treasury Regulations require a real estate investment trust to maintain records
which demonstrate compliance with these stock ownership requirements. In
accordance with these Treasury regulations, the Company must demand from record
Shareholders written statements which disclose information concerning the
actual ownership of the capital stock. Any record Shareholder who does not
provide the Company with the required information concerning actual ownership
of the Shares is required to include certain specified information relating
thereto on the Shareholder's income tax return.
The Company will elect to be treated as a real estate investment trust
upon the completion of the Minimum Offering, if it meets all the requirements
of becoming a REIT. It is anticipated, but not assured, that the first taxable
year of the Company as a real estate investment trust will be the period from
the completion of the Minimum Offering through December 31, 1995. The Company
will use the calendar year as its annual accounting period for federal income
tax purposes. The Company will also use the accrual method of accounting for
federal income tax and accounting purposes.
Treasury Regulations require that the Directors have continuing
exclusive authority over the management of the Company, the conduct of its
affairs and, with certain limitations, the management and disposition of the
Company's assets. It is the intention of the Company to do all things that may
be necessary for the Company to meet these requirements. Absent a ruling from
the Service, however, there can be no guarantee that certain Shareholder or
Advisor rights would not be considered to violate the "exclusive authority"
requirement.
DISTRIBUTION REQUIREMENTS. The Company, in order to qualify as a real
estate investment trust, is required to distribute to its Shareholders, on a
non-preferential basis, an amount at least equal to the sum of 95% of the
Company's "real estate investment trust taxable income" (which is computed
without regard to net capital gains) and 95% of the net income from foreclosure
property. Such distributions must be made in the taxable year to which they
relate or, if declared before the timely filing (including extensions) of the
Company's tax return for such year and paid not later than the first dividend
payment made after such declaration, such distribution may be made in the
following taxable year and
47
<PAGE> 51
still be considered in determining whether the Company satisfied its minimum
distribution requirements for the preceding year.
To the extent that the Company does not distribute all of its net
long-term capital gain or distributes at least 95%, but less than 100%, of its
"REIT taxable income," as adjusted, it will be subject to tax thereon at
regular corporate tax rates. Furthermore, if the Company should fail to
distribute during each calendar year at least the sum of (i) 85% of its REIT
ordinary income for such year, (ii) 95% of its REIT capital gain net income for
such year, and (iii) any undistributed taxable income for prior periods, the
Company would be subject to a 4% excise tax on the excess of such required
distribution over the amounts actually distributed. The Company intends to
make timely distributions sufficient to qualify for tax status as a REIT.
The distribution requirement is based on taxable income rather than
available cash. Therefore, while the Company expects to meet this distribution
requirement, the Company's ability to make the required distributions may be
impaired if the Company has insufficient cash flow or otherwise has excessive
noncash income or nondeductible expenditures. The Company's ability to make
the required distributions depends on many factors which are beyond the
Company's control. The Company may find it necessary to arrange for
short-term, or possibly long-term borrowings in order to meet the 95%
requirement. Any distributions, however, which are reinvested pursuant to the
Dividend Reinvestment Plan will be treated as distributions for purposes of
determining compliance with the 95% distribution requirement.
Under certain circumstances, the Company may be able to rectify a
failure to meet the distribution requirement for a year by paying "deficiency
dividends" to Shareholders in a later year, which may be included in the
Company's deduction for dividends paid for the earlier year. The Company may
be able to avoid being taxed on amounts distributed as deficiency dividends;
however, the Company will be required to pay interest and a penalty based upon
the amount of any deduction taken for deficiency dividends.
FAILURE OF THE COMPANY TO QUALIFY AS A REAL ESTATE INVESTMENT TRUST
Although the Company intends to operate so as to qualify as a real
estate investment trust, if the Company should fail to so qualify in any
taxable year and the relief provisions described above do not apply, the
Company will be subject to a tax (including any applicable minimum tax) on its
taxable income computed in the usual manner for corporate taxpayers without any
deduction for dividends paid. In such event, to the extent of current and
accumulated earnings and profits, all distributions to Shareholders will be
taxable as ordinary income, and, subject to certain limitations in the Code,
corporate distributees may be eligible for the dividends received deduction.
Unless entitled to relief under specific statutory provisions, the Company will
also be prohibited from electing to be taxed as a real estate investment trust
for the four taxable years following the year during which qualification is
lost. In order to renew its REIT qualifications at the end of such a four-
year period, the Company would be required to distribute all of its current and
accumulated earnings and profits before the end of the period. Any
distributions would be taxable as ordinary income to Shareholders. In
addition, if the Company fails to qualify as a real estate investment trust in
any year, the Company could incur significant income tax liabilities which
could reduce the amount of cash available for distribution to its Shareholders
and cause the Company to incur substantial indebtedness or liquidate
investments in order to pay the resulting taxes.
TAXATION OF THE COMPANY'S SHAREHOLDERS
If the Company qualifies as a REIT, and so long as the Company so
qualifies, distributions made to the Company's Shareholders out of current or
accumulated earnings and profits will be taken into account by them as ordinary
income (which will not be eligible for the dividends received deduction for
corporations). Distributions that are designated as capital gain dividends
will be taxed as long-term capital gains to the extent they do not exceed the
Company's actual net capital gain dividend for the taxable year, although
corporate Shareholders may be required to treat up to 20% of any such capital
gain dividend as ordinary income. Distributions in excess of current or
accumulated earnings and profits will not be taxable to a Shareholder to the
extent that they do not exceed the adjusted basis of the Shareholder's shares
of stock, but rather will reduce the adjusted basis of such shares of stock.
To the extent that such distributions exceed the adjusted basis of
Shareholder's shares of stock they will be included in income as long-term or
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short-term capital gain assuming the shares are held as a capital asset in the
hands of the Shareholder. The Company will notify Shareholders at the end of
each year as to the portions of the distributions which constitute ordinary
income, net capital gain or return of capital.
In addition, any dividend declared by the Company in October, November
or December of any year payable to a Shareholder of record on a specified date
in any such month shall be treated as both paid by the Company and received by
the shareholder on December 31 of such year, provided that the dividend is
actually paid by the Company during January of the following calendar year.
Shareholders may not include in their individual income tax returns any net
operating losses or capital losses of the Company.
In general, any gain or loss upon a sale or exchange of shares by a
Shareholder who has held such Shares as a capital asset will be long-term or
short-term depending on whether the stock was held for more than one year;
provided, however, any loss on the sale or exchange of Shares that have been
held by such Shareholder for six months or less will be treated as a long-term
capital loss to the extent of distributions from the Company required to be
treated by such Shareholders as long-term capital gain.
TAXATION OF TAX-EXEMPT SHAREHOLDERS
The IRS has ruled that amounts distributed as dividends by a qualified
REIT do not constitute unrelated business taxable income ("UBTI") when received
by a tax-exempt entity. Based on that ruling the dividend income from the
Company should not, subject to certain exceptions described below, be UBTI to a
qualified plan, IRA or other tax-exempt entity (a "Tax-Exempt Shareholder")
provided the Tax-Exempt Shareholder has not held its shares as "debt financed
property" within the meaning of the Code and the shares are not otherwise used
in an unrelated trade or business of the Tax-Exempt Shareholder. Similarly,
income from the sale of Common Stock should not, subject to certain exceptions
described below, constitute UBTI unless the Tax-Exempt Shareholder has held
such Common Stock as a dealer (under Section 512(b)(5)(B) of the Code) or as
"debt financed property" within the meaning of Section 514 of the Code.
For Tax-Exempt Shareholders which are social clubs, voluntary employee
benefit associations, supplemental unemployment benefit trusts, and qualified
group legal services plans exempt from federal income taxation under Sections
501(c)(7), (c)(9), (c)(17) and (c)(20) of the Code respectively, income from an
investment in the Company will constitute UBTI unless the organization is able
to deduct properly amounts set aside or placed in reserve for certain purposes
so as to offset the income generated by its investment in the Company. Such
prospective investors should consult their tax advisors concerning these
"set-aside" and reserve requirements.
Notwithstanding the above, however, the recently enacted Omnibus
Budget Reconciliation Act of 1993 (the "1993 Act") provides that, effective for
taxable years beginning in 1994, a portion of the dividends paid by a "pension
held REIT" shall be treated as UBTI as to any trust which (I) is described in
Section 401(a) of the Code, (ii) is tax-exempt under Section 501(a) of the
Code, and (iii) holds more than 10% (by value) of the interests in the REIT.
Tax-exempt pension funds that are described in Section 401(a) of the Code are
referred to below as "qualified trusts."
A real estate investment trust is a "pension held REIT" if (i) it
would not have qualified as a real estate investment trust but for the fact
that Section 856(h)(3) of the Code (added by the 1993 Act) provides that stock
owned by qualified trusts shall be treated, for purposes of the "not closely
held" requirement, as owned by the beneficiaries of the trust (rather than by
the trust itself), and (ii) either (a) at least one such qualified trust holds
more than 25% (by value) of the interests in the REIT, or (b) one or more such
qualified trusts, each of whom owns more than 10% (by value) of the interests
in the REIT, hold in the aggregate more than 50% (by value) of the interests in
the REIT.
TAX CONSIDERATIONS FOR FOREIGN INVESTORS
The preceding discussion does not address the federal income tax
considerations to foreign investors of an investment in the Company. Foreign
investors in the Shares should consult their own tax advisors concerning those
provisions of the Code which deal with the taxation of foreign taxpayers. In
particular, foreign investors should consider, among other things, the impact
of the Foreign Investors Real Property Tax Act of 1980. In addition, various
income tax treaties between the United States and other countries could affect
the tax treatment of an investment in the Shares. Furthermore, the backup
withholding and information reporting rules are under review by the United
States
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Treasury, and their application to the Common Stock could be changed
prospectively or retroactively by future Treasury Regulations.
BACKUP WITHHOLDING
The Company will report to its domestic Shareholders and the IRS the
amount of dividends paid during each calendar year, and the amount of tax
withheld, if any. Under the backup withholding rules, a Shareholder may be
subject to backup withholding at the rate of 31% with respect to dividends paid
unless such holder (a) is a corporation or comes within certain other exempt
categories and when required, demonstrates this fact, or (b) provides a correct
taxpayer identification number, certifies as to no loss of exemption from
backup withholding, and otherwise complies with applicable requirements of the
backup withholding rules. A Shareholder that does not provide the Company with
a correct taxpayer identification number may also be subject to penalties
imposed by the IRS. Any amount paid as backup withholding will be creditable
against the Shareholder's income tax liability. In addition, the Company may
be required to withhold a portion of capital gain distributions to any
Shareholders who fail to certify their non-foreign status to the Company.
STATE AND LOCAL TAXES
The Company or its Shareholders may be subject to state or local
taxation in the state or local jurisdiction in which the Company's investments
or loans are located or in which the Shareholders reside. Prospective
Shareholders should consult their tax advisors for an explanation of how state
and local tax laws could affect their investment in the Shares.
OTHER TAX CONSIDERATIONS
In the event the Company enters into any joint venture transactions,
special tax risks might arise. Such risks include possible challenge by the
IRS of (I) allocations of income and expense items, which could affect the
computation of taxable income of the Company and (ii) the status of the joint
venture as a partnership (as opposed to a corporation). If a joint venture
were treated as a corporation, the joint venture would be treated as a taxable
entity and if the Company's ownership interest in the joint venture exceeds
10%, the Company would cease to qualify as a REIT. Furthermore, in such a
situation even if the Company ownership does not exceed 10%, distributions from
the joint venture to the Company would be treated as dividends, which are not
taken into account in satisfying the 75% gross income test described above and
which could therefore make it more difficult for the Company to qualify as a
REIT for the taxable year in which such distribution was received and the
interest in the joint venture held by the Company would not qualify as a "real
estate asset" which could make it more difficult for the Company to meet the
75% asset test described above. Finally, in such a situation the Company would
not be able to deduct its share of losses generated by the joint venture in
computing its taxable income. See "Failure of the Company to Qualify as a Real
Estate Investment Trust" above for a discussion of the effect of the Company's
failure to meet such tests for a taxable year. The Company will not enter into
any joint venture, however, unless it has received from its counsel an opinion
to the effect that the joint venture will be treated for tax purposes as a
partnership. Such opinion will not be binding on the IRS and no assurance can
be given that the IRS might not successfully challenge the status of any such
joint venture as a partnership.
ERISA CONSIDERATIONS
The following is a summary only of material considerations arising
under ERISA and the prohibited transaction provisions of Code Section 4975 that
may be relevant to a prospective purchaser. This discussion does not deal with
all aspects of ERISA or Code Section 4975 or, to the extent not preempted,
state law that may be relevant to particular employee benefit plan Shareholders
(including plans subject to Title I of ERISA, other employee benefit plans and
IRAs subject to the prohibited transaction provisions of Code Section 4975, and
governmental plans and church plans that are exempt from ERISA and Code Section
4975 but that may be subject to state law requirements) in light of their
particular circumstances. EMPLOYEE BENEFIT PLANS SUBJECT TO ERISA AND THE CODE
("Plans") CONSIDERING PURCHASING THE SHARES SHOULD CONSULT WITH THEIR OWN TAX
OR OTHER APPROPRIATE COUNSEL REGARDING THE APPLICATION OF ERISA AND THE CODE TO
THEIR PURCHASE OF THE SHARES.
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FIDUCIARY CONSIDERATIONS
Certain employee benefit plans and individual retirement accounts and
individual retirement annuities ("IRAs") (collectively, "Plans"), are subject
to various provisions of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA") and the Code. Before investing in the Shares, a Plan
fiduciary should ensure that such investment is in accordance with ERISA's
general fiduciary standards. In making such a determination, a Plan fiduciary
should ensure that the investment is in accordance with the governing
instruments and the overall policy of the Plan and that the investment will
comply with the diversification and composition requirements of ERISA. In
addition, provisions of ERISA and the Code prohibit certain transactions in
Plan assets that involve persons who have specified relationships with a Plan.
The consequences of such prohibited transactions include excise taxes,
disqualifications of IRAs and other liabilities. A Plan fiduciary should
ensure that any investment in the Shares will not constitute such a prohibited
transaction.
PLAN ASSETS ISSUE
A prohibited transaction may occur if the assets of the Company are
deemed to be Plan assets. In certain circumstances where a Plan holds an
interest in an entity, the assets of the entity are deemed to be Plan assets
(the "look-through rule"). Under such circumstances, any person that exercises
authority or control with respect to the management or disposition of such
assets is a Plan fiduciary. Plan assets are not defined in ERISA or the Code,
but the United States Department of Labor has issued Regulations, effective
March 13, 1987 (the "Regulations"), that outline the circumstances under which
a Plan's interest in an entity will be subject to the look-through rule.
The Regulations apply only to the purchase of a Plan of an "equity
interest" in an entity, such as common stock of a REIT. The term "equity
interest" means any interest in an entity other than an investment that is
treated as indebtedness under applicable local law and which has no substantial
equity features. However, the Regulations provide an exception to the
look-through rule for equity interests that are "publicly-offered securities"
and for equity interests in an "operating company."
Under the Regulations a "publicly-offered security" is a security that
is (1) freely transferable, (2) part of a class of securities that is
widely-held, and (3) part of a class of securities that is registered under
Section 12(b) or 12(g) of the Exchange Act or sold to a Plan as part of an
offering of securities to the public pursuant to an effective registration
statement under the Securities Act and the class of securities of which such
security is a part is registered under the Exchange Act within 120 days (or
such later time as may be allowed by the Securities and Exchange Commission)
after the end of the fiscal year of the issuer during which the offering of
such securities to the public occurred. Whether a security is considered
"freely-transferable" depends on the facts and circumstances of each case.
Generally, if the security is part of an offering in which the minimum
investment is $10,000 or less and any restriction on or prohibition against any
transfer or assignment of such security is for the purposes of preventing a
termination or reclassification of the entity for federal or state tax
purposes, the security will not be prevented from being considered freely
transferable. A class of securities is considered "widely-held" if it is a
class of securities that is owned by 100 or more investors independent of the
issuer and of one another.
Although no assurance can be provided, the Company believes that the
Shares offered hereby will meet the criteria of the publicly-offered
securities exception to the look-through rule. First, the Company anticipates
that the Shares will be considered to be freely transferable, as the only
restriction upon its transfer are those required under federal tax laws to
maintain the Company's status as a REIT. Second, the Company believes that the
Shares will be held by 100 or more investors and that at least 100 or more of
these investors will be independent of the Company and of one another. Third,
the Shares will be part of an offering of securities to the public pursuant to
an effective registration statement under the Exchange Act and will be
registered under the Exchange Act within 120 days (or such later time as may be
allowed by the Securities and Exchange Commission) after the end of the fiscal
year of the Company during which the offering of such securities to the public
occurs. Moreover, the Company believes that equity participation in the
Company by Plans will not be significant as defined by the Regulations.
Accordingly, the Company believes that if a Plan purchases the Shares, the
Company's assets should not be deemed to be Plan assets and, therefore, that
any person who exercises authority or control with respect to the Company's
assets should not be a Plan fiduciary.
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DESCRIPTION OF CAPITAL STOCK
GENERAL
The authorized capital stock of the Company consists of 50,000,000
undesignated shares, of which the Company's Board of Directors has established
that 30,000,000 shares are Common Stock, par value of $0.01 per share (the
"Authorized Shares"). Pursuant to the Company's Articles of Incorporation, the
Company's Board of Directors has the authority to divide the balance of the
authorized capital stock into classes and series with relative rights and
preferences and at such par value as the Board of Directors may establish from
time to time. Each Authorized Share is entitled to participate equally in
dividends when and as declared by the directors and in the distribution of
assets of the Company upon liquidation. Each Authorized Share is entitled to
one vote and will be fully paid and nonassessable by the Company upon issuance
and payment therefor. Each Authorized Share has no preference, conversion,
exchange, preemptive or cumulative voting rights. There are no cumulative
voting rights in electing directors.
REPURCHASE OF SHARES AND RESTRICTIONS ON TRANSFER
Two of the requirements for qualification for the tax benefits
accorded by the real estate investment trust provisions of the Code are that
(i) during the last half of each taxable year not more than 50% of the
outstanding capital stock may be owned directly or indirectly by five or fewer
individuals and (ii) there must be at least 100 shareholders for at least 335
out of 365 days of each taxable year or the proportionate amount for any
partial taxable year. See "Federal Income Tax Considerations."
The Company's Articles of Incorporation prohibit any person or group
of persons from holding, directly or indirectly, ownership of a number of
Shares in excess of 9.8% of the outstanding capital stock. Shares owned by a
person or group of persons in excess of such amounts are referred to in the
Articles of Incorporation and herein as "Excess Shares." For this purpose,
Shares shall be deemed to be owned by a person if they are constructively owned
by such person under the provisions of Section 544 of the Code (as modified by
Section 856(h) of the Code) or are beneficially owned by such person under the
provisions of Rule 13d-3 promulgated under the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), and the term "group" has the same meaning as
that term has for purposes of Section 13(d)(3) of the Exchange Act.
Accordingly, Shares owned or deemed to be owned by a person who individually
owns less than 9.8% of the outstanding capital stock may nevertheless be Excess
Shares if such person is a member of a group which owns more than 9.8% of the
outstanding capital stock.
The Company's Articles of Incorporation also provide that in the event
any person acquires Excess Shares, such Excess Shares may be redeemed by the
Company, at the discretion of the Board of Directors. Except as set forth
below, the redemption price for such Excess Shares shall be the closing price
as reported on the NASDAQ System on the last business day prior to the
redemption date or, if the shares are listed on an exchange, the closing price
on the last business day prior to the redemption date or, if neither listed on
an exchange nor quoted on the NASDAQ System, the net asset value of the Excess
Shares as determined in good faith by the Board of Directors. In no event,
however, may the purchase price of the Shares redeemed be greater than their
net asset value as determined by the Board of Directors in good faith. To
redeem Excess Shares, the Board of Directors must give a notice of redemption
to the holder of such Excess Shares not less than 30 days prior to the date
fixed by the Board of Directors for redemption. The redemption price for such
Excess Shares shall be paid on the redemption date fixed by the Board of
Directors and included in such notice. From and after the date fixed for
redemption of the Excess Shares, such shares shall cease to be entitled to any
distribution and other benefits, except only the right to payment of the
redemption price for such Shares.
Under the Company's Articles of Incorporation, any transfer of Shares
that would result in the disqualification of the Company as a real estate
investment trust under the Code is void to the fullest extent permitted by law,
and the Board of Directors is authorized to refuse to transfer the Shares to a
person if, as a result of the transfer, that person would own Excess Shares.
Prior to any transfer or transaction which, if consummated, would cause a
shareholder to own Excess Shares, and in any event upon demand by the Board of
Directors, a Shareholder is required to file with the Company an affidavit
setting forth, as to that Shareholder, the information required to be reported
in returns filed by Shareholders under the Treasury Regulation Section I.857-9
and in reports filed under Sections 13(d) and 16(b) of the Exchange Act.
Additionally, each proposed transferee of Shares, upon demand of the Board of
Directors, also may be required to file a statement or affidavit with the
Company setting forth the number of Shares already owned by the transferee and
any related persons. The transfer or sale of Shares also are subject to
compliance with applicable state "Blue Sky" laws.
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SOLICITING DEALER WARRANTS
The Company has agreed, for consideration stated in the Underwriting
Agreement, to issue warrants to the Dealer Manager to purchase Shares in the
Company equal to 10% of the number of Shares sold by the Dealer Manager (and/or
Soliciting Dealers) in this Offering. These warrants (the "Soliciting Dealer
Warrants") will be issued after termination of the Offering. The Dealer
Manager may re-allow all or any portion of the Soliciting Dealer Warrants to
the Soliciting Dealers.
Each Soliciting Dealer will receive from the Dealer Manager, one
Soliciting Dealer Warrant for each 10 Shares sold by such Soliciting Dealer
during the Offering. All Shares sold by the Company in the Offering will be
included in the computation of the number of Shares sold to determine the
number of Soliciting Dealer Warrants to be issued. The holder of a Soliciting
Dealer Warrant will be entitled to purchase one Share from the Company at a
price of $10 during the time period beginning from the one year anniversary
date of the effective date of the Registration Statement in this Offering (the
"Effective Date") and ending upon the first to occur of: (i) 60 months after
the Effective Date; or (ii) the closing date of a secondary offering of Shares
by the Company (the "Exercise Period"). A Soliciting Dealer Warrant may not be
exercised if the Shares to be issued upon the exercise of the Soliciting Dealer
Warrant have not been registered in the state of residence of the holder of the
Soliciting Dealer Warrant or if a prospectus required under laws of such state
cannot be delivered to the buyer on behalf of the Company. In addition,
holders of Soliciting Dealer Warrants may not exercise the Soliciting Dealer
Warrants to the extent such exercise will cause them to exceed the Ownership
Limit set forth in the Articles.
The terms of the Soliciting Dealer Warrants, including the exercise
price and the number and type of securities issuable upon exercise of a
Soliciting Dealer Warrant and the number of such Warrants may be adjusted in
the event of stock dividends, certain subdivisions, combinations and
reclassification of Shares or the issuance to Shareholders of rights, options
or warrants entitling them to purchase Shares or securities convertible into
Shares. The terms of the Soliciting Dealer Warrants may also be adjusted if
the Company engages in certain merger or consolidation transactions or if all
or substantially all of the Company's assets are sold. Soliciting Dealer
Warrants are not transferable or assignable except by the Dealer Manager, the
Soliciting Dealers, their successors in interest, or to individuals who are
either officers or partners of such a person. Exercise of these Warrants will
be under the terms and conditions detailed in this Prospectus and in the Dealer
Manager Warrant Purchase Agreement, which is an exhibit to the Registration
Statement. Such rights include, among others, so-called "piggy-back" rights
which require the Company to register with the Securities Exchange Commission
the Shares underlying such Soliciting Dealer Warrants under specified
situations. Holders of Soliciting Dealer Warrants prior to exercise do not
have the rights of shareholders, may not vote on Company matters and are not
entitled to receive Dividends.
DIVIDEND REINVESTMENT PROGRAM
The Dividend Reinvestment Program (the "DRP") allows Shareholders to
automatically reinvest Dividends by purchasing additional Shares from the
Company. Shareholders who elect to take part in the DRP will authorize the
Company to use Dividends payable to them to purchase additional Shares.
However, a Shareholder will not be able to acquire Shares under the DRP to the
extent such purchase would cause it to own, directly or indirectly, more than
9.8% of the outstanding common stock of the Company.
Purchases under the DRP are not subject to selling commissions or
other distribution-type fees and costs. Participants in the DRP may also
purchase fractional Shares so that 100% of Dividends will be used to acquire
Shares. Shares will be purchased under the DRP on the record date for the
Dividend used to purchase Shares. The record date for dividends for such
Shares acquired under the DRP will be on the first day of the month subsequent
to the month of purchase. Each Shareholder electing to participate in the DRP
agrees that if, at any time prior to listing of the Shares on a national
securities exchange or market, he fails to meet the suitability requirements
for making an investment in the Company or cannot make the other
representations or warranties set forth in the Subscription Agreement, he will
promptly so notify the Company in writing.
During the Offering Period and until such time as a market develops
for the Shares (of which there can be no assurance) DRP participants will
acquire Shares from the Company at a fixed price of $10.00 per Share. It is
possible that a secondary market will develop for the Shares, and that Shares
may be bought and sold on the secondary market
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at prices lower or higher than the $10.00 per Share price which will be paid
under the DRP. The Company will receive no fee for selling Shares under the
DRP. The Company does not warrant or guarantee that DRP participants will be
acquiring Shares at the lowest possible price. A participant may terminate
participation in the DRP at any time without penalty, by delivering written
notice to the Company a minimum of ten business days prior to the record date
for the next Dividend. Upon termination, Dividends will be distributed to the
Shareholder instead of being used to purchase Shares under the DRP. Within 90
days after the end of the Company's fiscal year, the Company will (i) issue
certificates evidencing ownership of Shares purchased through the DRP during
the prior fiscal year (ownership of said Shares will be in book-entry form
prior to the issuance of certificates); and (ii) provide each shareholder with
an individualized report on his or her investment, including the purchase
date(s), purchase price and number of Shares owned, as well as the dates of
distribution and amounts of dividends received during the prior fiscal year.
The individualized statement to Shareholders will include receipts and
purchases relating to each participant's participation in the DRP upon 30 day's
notice to participants. The servicing agent for the Company's DRP program is
Gemisys Corporation, 7103 South Revere Parkway, Englewood, Colorado, 80112,
telephone: (303) 705-6000.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Company's capital stock is
Gemisys Corporation, 7103 South Revere Parkway, Englewood, Colorado 80112,
Telephone: (303) 705-6000.
SUMMARY OF THE ORGANIZATIONAL DOCUMENTS
Each Shareholder shall be bound by and deemed to have agreed to the
terms of the organizational documents by his, her or its election to become a
Shareholder. The organizational documents, consisting of Amended and Restated
Articles of Incorporation and Amended and Restated Bylaws, were reviewed and
ratified by the Directors (including the Independent Directors) on May 19,
1995. The following is a summary of certain provisions of these documents and
this summary is qualified in its entirety by specific reference to the
organizational documents filed as Exhibits to the Registration Statement of
which this Prospectus is a part.
CERTAIN ARTICLE AND BYLAW PROVISIONS
Shareholders' rights and related matters are governed by the Minnesota
Business Corporation Act, the Amended and Restated Articles (the "Articles")
and Amended and Restated Bylaws (the "Bylaws"). Certain provisions of the
Articles and Bylaws, which are summarized below, may make it more difficult to
change the composition of the Board and may discourage or make more difficult
any attempt by a person or group to obtain control of the Company.
The Bylaws provide for annual meetings of Shareholders. Special
meetings of Shareholders may be called by (i) the Chief Executive Officer of
the Company, (ii) a majority of the members of the Board of Directors or a
majority of the Independent Directors or (iii) Shareholders holding at least
10% of the outstanding Shares of common stock entitled to vote at the meeting.
BOARD OF DIRECTORS
The Bylaws provide that the number of directors of the Company may be
established by the Board but may not be fewer than three (3) nor more than nine
(9), a majority of which must be Independent Directors. Any vacancy will be
filled by a majority of the remaining Directors, except that a vacancy of an
Independent Director position must follow a nomination by the remaining
Independent Directors. The Directors may leave the vacancy unfilled until the
next regular meeting of the Shareholders.
LIMITATIONS ON DIRECTOR ACTIONS
Without concurrence of a majority of the outstanding Shares, the
Directors may not: (i) amend the Articles or Bylaws, except for amendments
which do not adversely affect the rights, preferences and privileges of
Shareholders including amendments to provisions relating to, Director
qualifications, fiduciary duty, liability and indemnification, conflicts of
interest, investment policies or investment restrictions; (ii) sell all or
substantially all of the Company's assets other than in the ordinary course of
the Company business or in connection with liquidation and dissolution; (iii)
cause the merger or other reorganization of the Company; or (iv) dissolve or
liquidate the Company.
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A majority of the then outstanding Shares may, without the necessity
for concurrence by the Directors, vote to: (i) amend the Bylaws; (ii)
terminate the corporation; or (iii) remove the Directors.
MINNESOTA ANTI-TAKEOVER LAW
The Company is governed by the provisions of Sections 302A.671 and
302A.673 of the Minnesota Business Corporation Act. In general, Section
302A.671 provides that the shares of a corporation acquired in a "control share
acquisition" have no voting rights unless voting rights are approved in a
prescribed manner. A "control share acquisition" is an acquisition, directly
or indirectly, of beneficial ownership of shares that would, when added to all
other shares beneficially owned by the acquiring person, entitle the acquiring
person to have voting power of 20% or more in the election of directors. In
general, Section 302A.673 prohibits a public Minnesota corporation from
engaging in a "business combination" with an "interested shareholder" for a
period of four years after the date of the transaction in which the person
became an interested shareholder, unless the business combination is approved
in a prescribed manner. "Business combination" includes mergers, asset sales
and other transactions resulting in a financial benefit to the interested
shareholder. An "interested shareholder" is a person who is the beneficial
owner, directly or indirectly, of 10% or more of the corporation's voting stock
or who is an affiliate or associate of the corporation and at any time within
four years prior to the date in question was the beneficial owner, directly or
indirectly, of 10% or more of the corporation's stock.
RESTRICTIONS ON ROLL-UPS
In connection with a proposed Roll-Up, an appraisal of all of the
Company's assets shall be obtained from a competent Independent Expert which
shall be based upon an evaluation of all relevant information, shall indicate
the value of the assets as of a date immediately prior to the announcement of
the Roll-Up and shall assume an orderly liquidation of the assets over a
12-month period. Notwithstanding the foregoing, the Company may not
participate in any proposed Roll-Up which would:
(i) result in the Shareholders having rights to meeting less frequently or
which are more restrictive to Shareholders than those provided in the
Bylaws;
(ii) result in the Shareholders having voting rights that are less than
those provided in the Bylaws;
(iii) result in the Shareholders having greater liability than as provided
in the Bylaws;
(iv) result in the Shareholders having rights to receive reports that are
less than those provided in the Bylaws;
(v) result in the Shareholders having access to records that are more
limited than those provided in the Bylaws;
(vi) include provisions which would operate to materially impede or
frustrate the accumulation of Shares by any purchaser of the
securities of the Roll-Up Entity (except to the minimum extent
necessary to preserve the tax status of the Roll-Up Entity);
(vii) limit the ability of an investor to exercise the voting rights of its
securities in the Roll-Up Entity on the basis of the number of the
Shares held by that investor;
(viii) result in investors in the Roll-Up Entity having rights of access to
the records of the Roll-Up Entity that are less than those provided in
the Bylaws; or
(ix) place any of the costs of the transaction on the Company if the
Roll-Up is not approved by the Shareholders;
provided, however, that nothing shall be construed to prevent participation in
any proposed Roll-Up which would result in Shareholders having rights and
restrictions comparable to those contained in the Bylaws, with the prior
approval of a majority of the Shareholders.
The Bylaws also require that an appraisal of all the Company's assets
shall be obtained from a competent expert in connection with a proposed
Roll-Up. Also, in connection with any proposed Roll-Up, Shareholders who vote
"no"
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shall have the choice of (i) accepting the securities of the Roll-Up Entity
offered in the proposed Roll-Up; or (ii) one of either: (a) remaining as
Shareholders of the Company and preserving their interests therein on the same
terms and conditions as previously existed, or (b) receiving cash in an amount
equal to the Shareholders' pro rata share of the appraised value of the net
assets of the Company.
LIMITATION ON TOTAL OPERATING EXPENSES
The Bylaws provide that, subject to the conditions described in this
paragraph, the annual Total Operating Expenses of the Company shall not exceed
in any fiscal year the greater of 2% of the Average Invested Assets of the
Company or 25% of the Company's Net Income. The Independent Directors have a
fiduciary responsibility to limit the Company's annual Total Operating Expenses
to amounts that do not exceed the foregoing limitations. The Independent
Directors may, however, determine that a higher level of Total Operating
Expenses is justified for such period because of unusual and non-recurring
expenses. Any such finding by the Independent Directors and the reasons in
support thereof shall be recorded in the minutes of the meeting of Directors.
Within 60 days after the end of any fiscal quarter of the Company for which
Total Operating Expenses (for the 12 months then ended) exceed 2% of the
Average Invested Assets or 25% of Net Income, whichever is greater, there shall
be sent to the Shareholders a written disclosure of such fact. In the event
the Total Operating Expenses exceed the limitations described above and if the
Directors are unable to conclude that such excess was justified then within 60
days after the end of the Company's fiscal year, the Advisor shall reimburse
the Company in the amount by which the aggregate annual Total Operating
Expenses paid or incurred by the Company exceed the limitation.
TRANSACTIONS WITH AFFILIATES
The Bylaws impose certain restrictions upon dealings between the
Company and the Advisor, any Director or Affiliates thereof. In particular, in
approving any transaction or series of transactions between the Company and the
Advisor, Sponsor, Director or any Affiliate thereof, a majority of the
Directors not otherwise interested in such transaction, including a majority of
the Independent Directors must determine that:
(a) the transaction as contemplated is fair and reasonable to the Company
and its Shareholders and its terms and conditions are not less
favorable to the Company than those available from unaffiliated third
parties;
(b) if the transaction involves compensation to any Advisor or its
Affiliates for services rendered in a capacity other than contemplated
by the advisory arrangements, such compensation, is not greater than
the customary charges for comparable services generally available from
other competent unaffiliated persons and is not in excess of
compensation paid to any Advisor and its Affiliates for any comparable
services;
(c) if the transaction involves the making of loans (other than in the
ordinary course of the Company's business) or the borrowing of money,
the transaction is fair, competitive, and commercially reasonable and
no less favorable to the Company than loans between unaffiliated
lenders and borrowers under the same circumstances; and
(d) if the transaction involves the investment in a joint venture, the
transaction is fair and reasonable and no less favorable to the
Company than to other joint venturers.
Notwithstanding anything to the contrary above, if the proposed
transaction involves a loan by the Company to any Advisor, Director or any
Affiliate thereof, or to a wholly-owned subsidiary of the Company, a written
appraisal must be obtained from an Independent Expert concerning the underlying
property and such appraisal must be maintained in the Company's records for at
least five years and be available for inspection and duplication by any
Shareholder. In addition to the appraisal, such loan shall be subject to all
requirements of the Company's Financing Policy.
The Company shall not borrow money from any Advisor, Director or any
Affiliate thereof, unless a majority of the Company's Directors (including a
majority of the Independent Directors) not otherwise interested in such
transaction approve the transaction as being fair, competitive, and
commercially reasonable and no less favorable to the Company than loans between
unaffiliated parties under the same circumstances.
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Notwithstanding anything to the contrary, the Company shall not make
or invest in any mortgage loans that are subordinate to any mortgage or equity
interest of the Advisor, Directors, Sponsors or any Affiliate of the Company.
RESTRICTIONS ON INVESTMENTS
The investment policies and restrictions set forth in the Bylaws have
been approved by a majority of Independent Directors. In addition to other
investment restrictions imposed by the Directors from time to time consistent
with the Company's objective to qualify as a REIT, the Company will observe the
following guidelines and prohibitions on its investments set forth in its
Bylaws, including prohibitions against:
(i) Investing more than 10% of its total assets in unimproved real
property or mortgage loans on unimproved real property;
(ii) Investing in commodities or commodity futures contract, other
than "interest rate futures" intended only for hedging
purposes;
(iii) Investing in mortgage loans (including construction loans) on
any one property which in the aggregate with all other
mortgage loans on the property would exceed 75% of the
appraised value of the property, unless substantial
justification exists because of the presence of other
underwriting criteria;
(iv) Making or investing in any mortgage loans that are subordinate
to any mortgage or equity interest of the Advisor or the
Directors or any of their Affiliates;
(v) Investing in equity securities;
(vi) Engaging in any short sales of securities or in trading, as
distinguished from investment activities;
(vii) Issuing redeemable equity securities;
(viii) Engaging in underwriting or the agency distribution of
securities issued by others;
(ix) Issuing options or warrants to purchase its Shares at an
exercise price less than the fair market value of such Shares
on the date of the issuance, or if the issuance thereof would
exceed 10% in the aggregate of its outstanding Shares;
(x) Issuing debt securities unless the debt service coverage for
the most recently completed fiscal year, as adjusted for known
changes, is sufficient to properly service the higher level of
debt;
(xi) Investing in real estate contracts of sale unless such
contracts are in recordable form and are appropriately
recorded in the chain of title;
(xii) Selling or leasing to the Advisor, a Director or any Affiliate
thereof unless approved by a majority of directors (including
a majority of Independent Directors), not otherwise interested
in such transaction, as being fair and reasonable to the
Company;
(xiii) Acquiring property from any Advisor or Director, or any
Affiliate thereof, unless a majority of Directors (including a
majority of Independent Directors) not otherwise interested in
such transaction approve the transaction as being fair and
reasonable to the Company and at a price to the Company no
greater than the cost of the asset to such Advisor, Director
or any Affiliate thereof, or if the price to the Company is in
excess of such cost, that substantial justification for such
excess exists and such excess is reasonable. In no event
shall the cost of such asset to the Company exceed its current
appraised value;
(xiv) Investing or making mortgage loans unless a mortgagee's or
owner's title insurance policy or commitment as to the
priority of the mortgage or condition of title is obtained; or
(xv) Issuing its Shares on a deferred payment basis or other similar
arrangement.
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ADVISORY ARRANGEMENTS
The Board of Directors shall cause the Company to engage an Advisor
on a year-to-year basis to furnish advice and recommendations concerning the
affairs of the Company, provide administrative services to the Company and
manage the Company's day-to-day affairs pursuant to a written contract or
contracts, or any renewal thereof, which have obtained the requisite approvals
of the Board of Directors, including a majority of the Independent Directors.
PLAN OF DISTRIBUTION
GENERAL
Pursuant to the terms and conditions of the Underwriting Agreement (a
copy of which is filed as an exhibit to the Registration Statement of which
this Prospectus is a part), the Dealer Manager is offering hereby, on a "best
efforts" basis, up to 2,000,000 Shares at a price of $10.00 per Share. "Best
efforts" means there is no obligation on the part of the Dealer Manager to
purchase any Shares and thus no assurance as to the number of Shares sold or
proceeds received. The Offering became effective July 11, 1995 as a "best
efforts, minimum/maximum" offering and the "Minimum Offering" of 200,000 Shares
was completed prior to April 15, 1996 and the Offering has continued since that
date. The Company began active business operations on or about April 15, 1996.
This Offering will terminate on November 8, 1996, or until completion of the
sale of all Shares, whichever first occurs. The Company reserves the right to
terminate this Offering at any time.
COMPENSATION
Pursuant to the Underwriting Agreement, the Company will pay to the
Dealer Manager (from the proceeds of the sale of the Shares) a commission equal
to 4.3% of the proceeds from the sale of the Shares sold (up to $860,000). In
addition, the Company has agreed to pay the Dealer Manager a non-accountable
expense allowance of up to $53,000 to reimburse the Dealer Manager for certain
expenses incurred by the Dealer Manager ("Dealer Manager's Expenses") in
connection with the offer and sale of the Shares. Dealer Manager's Expenses
are payable to the Dealer Manager by the Company from offering proceeds,
$35,000 of which was paid upon achievement of the Minimum Offering, and the
balance ($18,000) is payable ratably based on the number of Shares sold
thereafter. The Dealer Manager will also receive one Soliciting Dealer Warrant
for each 10 Shares sold during the Offering, all or any part of which may be
reallowed to Soliciting Dealers in the discretion of the Dealer Manager. The
holder of a Soliciting Dealer Warrant will be entitled to purchase one Share
from the Company at a price of $10.00. For purposes of analyzing overall
estimated Offering-Related Expenses, the Soliciting Dealer Warrants have been
valued at 2% of the amount raised (i.e., $400,000 assuming all 2,000,000 Shares
are sold), however, such valuations may or may not be indicative of the actual
value of such warrants. See "Description of Capital Stock--Soliciting Dealer
Warrants."
The Dealer Manager may award sales incentive items to Soliciting
Dealers, and persons associated with them as licensed registered
representatives, in connection with their sales activities. The value of each
item will be less than $50. In addition, the Dealer Manager may pay incentive
compensation to regional marketing representatives for their activities as
wholesalers in connection with the distribution of the Shares, subject to the
overall restrictions on commissions described herein. All sales incentive
programs, including re-allowance of additional commissions, if any, must be
reviewed by the NASD prior to their implementation.
The Company will not pay or award, directly or indirectly, any
commissions or other compensation to any person engaged by a potential investor
for investment advice as an inducement to such advisor to advise the investor
to purchase Shares; provided, however, that this provision shall not prohibit
the normal sales commission payable to a registered broker-dealer or other
properly licensed person for selling the Shares.
SUBSCRIPTION PROCESS
The Shares will be offered to the public through the Dealer Manager
and Soliciting Dealers. The Soliciting Dealer Agreement between the Dealer
Manager and the Soliciting Dealers requires the broker-dealers to make diligent
inquiries as required by law of all prospective purchasers in order to
ascertain whether a purchase of Shares is suitable for such person and transmit
promptly to the Company the fully completed subscription documentation and any
supporting documentation reasonably required by the Company.
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The Shares are being sold when, as and if subscriptions therefor are
received and accepted by the Company, subject to the satisfaction by the
Company of certain other conditions and approval by counsel of certain legal
matters. The Company has the unconditional right to accept or reject any
subscription. Subscriptions will be accepted or rejected within five business
days (and generally within 24 hours). If the subscription is accepted, a
confirmation will be mailed within two weeks of acceptance of the investors as
a shareholder. If for any reason the subscription is rejected, the funds will
be returned to the Soliciting Dealer, without interest. Initial subscriptions
will not be accepted for less than 250 Shares (200 Shares for IRA accounts).
The Dealer Manager has the right to offer the Shares only through its
own registered representatives and through broker-dealers who are members of
the NASD ("Soliciting Dealers"). In such event, the Dealer Manager may
re-allow to Soliciting Dealers a portion of its commissions, fees, warrants and
reimbursable expenses payable to it under the Underwriting Agreement. In no
event will the compensation re-allowed by the Dealer Manager to Soliciting
Dealers exceed the total of compensation payable to the Dealer Manager under
the Underwriting Agreement. The Dealer Manager may also enter into limited
Securities Clearing Agreements with Soliciting Dealers whose minimum net
capital requirements are $25,000 for the sole purpose of clearing transactions
in the Shares. CLIENTS OF SUCH SOLICITING DEALERS WHO WISH TO PURCHASE SHARES
WILL RECEIVE A CONFIRMATION OF THEIR PURCHASE DIRECTLY FROM THE DEALER MANAGER
AND MUST REMIT PAYMENT FOR THE PURCHASE OF SHARES DIRECTLY TO THE DEALER
MANAGER PAYABLE TO "AMERICAN INVESTORS GROUP, INC."
A sale will be deemed to have been made on the date reflected in the
written confirmation of the purchase thereof (the "Trade Date") which shall be
sent to each purchaser by the Dealer Manager on the first business day
following the date upon which the Dealer Manager is advised in writing by the
Company that a subscription has been accepted. Payment of the purchase price
must be received by the Dealer Manager by the Settlement Date, which date is
set forth in the confirmation. No sale of the Shares offered hereby may be
completed until at least five (5) business days after the Shareholder receives
a final Prospectus.
PAYMENT OF THE PURCHASE PRICE OF THE SHARES SHOULD BE MADE PAYABLE TO "AMERICAN
INVESTORS GROUP, INC."
The Underwriting Agreement provides for reciprocal indemnification
between the Company and the Dealer Manager against certain liabilities in
connection with this Offering, including liabilities under the Securities Act
of 1933. Such indemnification obligations of the Company's may be limited by
the Company's Articles and Bylaws. See "Management -- Fiduciary Responsibility
of Board of Directors, Possible Inadequacy of Remedies."
The foregoing discussion of the material terms and provisions of the
Underwriting Agreement is qualified in its entirety by reference to the
detailed terms and provisions of the Underwriting Agreement, a copy of which
has been filed as an exhibit to the Registration Statement of which this
Prospectus is a part.
Prior to this Offering, there has been no market for the Shares and it
is not expected that a market will develop during or immediately after the
Offering Period. The initial price of the Shares has been determined by
negotiations between the Dealer Manager and the Company and is the same price
paid by the initial shareholder of the Company's Shares. The public offering
price set forth on the cover page of this Prospectus should not, however, be
considered an indication of the actual value of the Shares.
DETERMINATION OF INVESTOR SUITABILITY
The Company, the Dealer Manager and each Soliciting Dealer shall make
every reasonable effort to determine that those persons being offered or sold
the Shares are appropriate in light of the suitability standards set forth
herein and are appropriate to such investor's investment objectives and
financial situation. The Soliciting Dealer shall ascertain that the investor
can reasonably benefit from the Company, and the following shall be relevant to
such determination: (i) the investor has the capability of understanding the
fundamental aspects of the Company, which capacity may be evidenced by the
following: (a) the nature of employment experience; (b) educational level
achieved; (c) access to advice from qualified sources, such as attorneys,
accountants, tax advisors, etc.; and (d) prior experience with investments of a
similar nature; (ii) the investor has apparent understanding of (a) the
fundamental risk and possible financial hazards of this type of investment; (b)
the lack of liquidity of this investment; (c) the investment will be directed
and managed by the Advisor; and (d) the tax consequences of the investment; and
(iii) the investor has the financial capability to invest in the Company.
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By executing the subscription agreement, each Soliciting Dealer
acknowledges its determination that the Shares are a suitable investment for
the investor, and will be required to represent and warrant his compliance with
the applicable laws requiring the determination of the suitability of the
Shares as an investment for the subscriber. The Company will, in addition to
the foregoing, coordinate the processes and procedures utilized by the Dealer
Manager and Soliciting Dealers and, where necessary, implement such additional
reviews and procedures deemed necessary to determine that investors meet the
suitability standards set forth herein. The Dealer Manager and/or the
Soliciting Dealers shall maintain for at least six (6) years a record of the
information obtained to determine that an investor meets the suitability
standards imposed on the offer and sale of Shares and a representation of the
investor that the investor is investing for the investor's own account or, in
lieu of such representation, information indicating that the investor for whose
account the investment was made met the suitability standards.
SUITABILITY OF THE INVESTMENT
An investment in the Shares involves certain risks. Accordingly,
Shares are suitable only for long-term investment by persons who have adequate
financial means. Shares will be sold only to a person who meets either of the
following standards: (i) he/she has a net worth (excluding home, home
furnishings and automobiles) of at least $45,000 and estimates that he will
have gross income during the current year (without regard to investment in the
Company) of at least $45,000; or (ii) he/she has a net worth (excluding home,
home furnishings and automobiles) of at least $150,000. In the case of gifts
to minors, the suitability standards must be met by the custodian account or by
the donor agreement and by acceptance of the confirmation of purchase or
delivery of the Shares, an investor represents that he satisfied any applicable
suitability standards.
In purchasing Shares, custodians or trustees of employee pension
benefit plans or IRAs may be subject to the fiduciary duties employed by the
Employee Retirement Income Security Act of 1974 ("ERISA") or other applicable
laws and to the prohibited transaction rules prescribed by ERISA and related
provisions of the Code. In addition, prior to purchasing Shares, the trustee
or custodian of an employee pension benefit plan or an IRA should determine
that such an investment would be permissible under the governing instruments of
such plan or account and applicable law. See "Federal Income Tax
Considerations -- Taxation of Tax-Exempt Stockholders" and "ERISA
Considerations."
Suitability standards may be higher in certain states. Investors must
meet all of the applicable requirements set forth in the Subscription
Agreement. Under the laws of certain states, an investor may transfer his
Shares only to persons who meet similar standards, and the Company may require
certain assurances that these standards are met.
CAPITAL CONTRIBUTION BY AFFILIATE OF ADVISOR
The Advisor's affiliate, DRM Holdings, Inc., ("DRM") has made a
capital contribution to the Company in the amount of $200,000 for which DRM
received 20,000 Shares. The Advisor and its affiliates may purchase additional
Shares for their own personal accounts. However, at no time will DRM own 9.8%
or more of the total number of the Company's Shares outstanding. The Shares
owned by DRM are "restricted securities" and their sale, transfer or assignment
may be effected only though transactions in compliance with state and federal
rules and regulations governing the transfer of restricted securities. The
sale or transfer of such Shares may be further restricted by agreement with
certain states in which this Offering is being made.
COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to Directors, officers and controlling persons
of the Registrant pursuant to its Bylaws, or otherwise, the Registrant has been
advised that in the opinion of the Commission such indemnification is against
public policy as expressed in the Securities Act, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred or paid by a Director,
officer or controlling persons of the Registrant in the successful defense of
any action, suit or proceeding) is asserted by such Director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the questions of whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
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LEGAL MATTERS
Certain legal matters, including the legality of the Shares being
offered hereby, and certain federal income tax matters as set forth under
sections entitled "Risk Factors -- Federal Income Tax Considerations" and
"Federal Income Tax Considerations," are being passed upon for the Company by
Maun & Simon, PLC, Minneapolis, Minnesota.
EXPERTS
The financial statements of the Company as of December 31, 1994 and
for the period from May 27, 1994 (date of inception) to December 31, 1994
included in this Prospectus have been audited by McGladrey & Pullen, LLP
independent certified public accountants, as set forth in the report thereon
appearing elsewhere herein, and are included herein in reliance upon such
report given on the authority of said firm as experts in accounting and
auditing. The financial statements of the Company as of December 31, 1995
included in this Prospectus have been audited by Boulay, Heutmaker, Zibell and
Company, P.L.L.P., independent certified public accountants, as set forth in
the report thereon appearing elsewhere herein, and are included herein in
reliance upon such report given on the authority of said firm as experts in
accounting and auditing.
REPORTS TO SHAREHOLDERS, RIGHTS OF EXAMINATION AND ADDITIONAL INFORMATION
The Advisor will keep, or cause to be kept, full and true books of
account on an accrual basis of accounting, in accordance with generally
accepted accounting principles ("GAAP"). All of the such books of account,
together with a copy of the Articles and any amendments thereto, will at all
times be maintained at the principal office of the Company, and will be open to
inspection, examination and duplication at reasonable times by the Shareholders
or their agents. Shareholders may receive, upon request, a list of the names
and addresses of all of the Shareholders from the Company by mail. The
Shareholders will also have the right to inspect the Company's records in the
same manner as Shareholders of any other Minnesota Corporation. The
Shareholders also have the specific rights under the Company's Bylaws to
inspect Company records that are in addition to those available under
applicable federal and state law.
The Advisor will submit to each Shareholder annual reports of the
Company within 120 days following the close of each fiscal year. The annual
reports will contain the following: (i) audited financial statements; (ii) the
ratio of the costs of raising capital during the period to the capital raised;
(iii) the aggregate amount of advisory fees and the aggregate amount of fees
paid to the Advisor and any Affiliate of the Advisor by the Company and
including fees or charges paid to the Advisor and any Affiliate of the Advisor
by third parties doing business with the Company; (iv) the Total Operating
Expenses of the Company, stated as a percentage of the Average Invested Assets
and as a percentage of its Net Income; (v) a report from the Independent
Directors that the policies being followed by the Company are in the best
interests of its Shareholders and the basis for determination; and (vi)
separately stated, full disclosure of all material terms, factors and
circumstances surrounding any and all transactions involving the Company,
Directors, Advisor and any Affiliate thereof occurring in the year for which
the annual report is made. Independent Directors shall be specifically charged
with the duty to examine and comment in the report on the fairness of such
transactions. In addition, unaudited quarterly reports containing the
information the Directors deem proper will be submitted to each Shareholder
within 60 days after the end of the first three fiscal quarters of each fiscal
year. Within 60 days following the end of any calendar quarter during the
period of the Offering in which the Company has closed a loan, a report will be
submitted to each Shareholder containing: (i) the location and a description
of the general characteristics of each loan made during the quarter and the
property securing the same; (ii) the material terms of the loan; (iii) a
statement that an appraisal and title insurance have been obtained on the
property. In addition, a report will be sent to each Shareholder and submitted
to prospective investors at such time as the Advisor believes a reasonable
probability exists that a loan will be made: (i) on specified terms (i.e.,
upon completion of due diligence which includes review of the title insurance
commitment, appraisal and environmental analysis); and (ii) involving the use
of 10% or more, on a cumulative basis, of the net proceeds of this Offering.
The Company's federal tax return and any applicable state income tax
returns will be prepared by the accountants regularly retained by the Company.
Appropriate tax information will be submitted to the Shareholders within 90
days following the end of each fiscal year of the Company. A specific
reconciliation between GAAP and income tax information will not be provided to
the Shareholders; however, such reconciling information will be
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available in the office of the Company for inspection and review by any
interested Shareholder. Concurrent with the dissemination of appropriate tax
information to Shareholders, the Company will annually provide each Shareholder
with an individualized report on his or her investment, including the purchase
date(s), purchase price and number of Shares owned, as well as the dates of
distribution and amounts of dividends received during the prior fiscal year.
The individualized statement to Shareholders will include any purchases of
Shares under the Company's Dividend Reinvestment Plan. Shareholders requiring
individualized reports on a more frequent basis may request such reports. The
Company will make every reasonable effort to supply more frequent reports, as
requested, but the Company, at its sole discretion, may require payment of an
administrative charge which will be paid: (i) directly by the Shareholder; or
(ii) through pre-authorized deductions from Dividends payable to the
Shareholder making the request.
The Company has filed with the Securities And Exchange Commission (the
"Commission") in Washington, D.C., a Registration Statement (as amended) on
Form S-11 (of which this Prospectus is a part) under the Securities Act of
1933, as amended, with respect to the Shares offered hereby. This Prospectus
does not contain all the information set forth in the Registration Statement.
Statements contained in the Prospectus as to the contents of any contract or
other document are not necessarily complete, and in each instance reference is
made to the copy of such contract or document filed as an exhibit to the
Registration Statement, each such statement being qualified in all respects by
such reference. For further information regarding the Company and the Shares
offered hereby, reference is made to the Registration Statement and to the
exhibits and schedules thereto.
GLOSSARY
The definitions used in the Prospectus are set forth below:
"ACQUISITION EXPENSES" means expenses including but not limited to
legal fees and expenses, travel and communications expenses, costs of
appraisals, non-refundable option payments on property not acquired, accounting
fees and expenses, title insurance, and miscellaneous expenses related to
selection and acquisition of properties, whether or not acquired.
"ACQUISITION FEE" means the total of all fees and commissions paid by
any party to any party in connection with making or investing in mortgage loans
by the Company. Included in the computation of such fees or commissions shall
be any commission, selection fee, nonrecurring management fee, reinvestment
fees, loan fee or points or origination fee or any fee of a similar nature,
however designated. Excluded shall be development and construction fees paid
to Persons not affiliated with the Sponsor in connection with the acquisition
and funding of the Company's properties.
"ADVISOR" means, initially, Church Loan Advisors, Inc., or its
successors, and generally, the Person(s) or entity responsible for directing or
performing the day-to-day business affairs of the Company, including a Person
or entity to which an Advisor subcontracts substantially all such functions.
"ADVISORY AGREEMENT" means the agreement between the Company and the
Advisor pursuant to which the Advisor will act as the administrator of the
Company.
"AFFILIATE" an Affiliate of another Person includes any of the
following: (a) any Person directly or indirectly owning, controlling, or
holding, with power to vote ten percent or more of the outstanding voting
securities of such other Person; (b) any Person ten percent or more of whose
outstanding voting securities are directly or indirectly owned, controlled, or
held, with power to vote, by such other Person; (c) any Person directly or
indirectly controlling, controlled by, or under common control with such other
Person; (d) any executive officer, director, trustee or general partner of such
other Person; or (e) any legal entity for which such Person acts as an
executive officer, director, trustee or general partner.
"ARTICLES" means the Company's Amended and Restated Articles of
Incorporation.
"AVERAGE INVESTED ASSETS" for any period shall mean the average of the
aggregate book value of the assets of the Company invested, directly or
indirectly, in loans (or interests in loans) secured by real estate, and first
mortgage bonds, before reserves for depreciation of bad debts or other similar
non-cash reserves computed by taking the average
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of such values at the end of each calendar month during such period.
"BOARD" means the Board of Directors of the Company.
"BYLAWS" means the Amended and Restated Bylaws of the Company.
"CODE" means the Internal Revenue Code of 1986, as amended, or
corresponding provisions of subsequent revenue laws.
"COMMISSION" means the Securities and Exchange Commission.
"COMPANY" means American Church Mortgage Company.
"DEALER MANAGER" means American Investors Group, Inc.
"DIRECTORS" means the members of the Board of Directors of the
Company.
"DIVIDENDS" means any cash distributed to Shareholders arising from
their interest in the Company.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"EXCESS SHARES" means shares held by a Shareholder in excess of 9.8%
of the outstanding Shares entitled to vote.
"INDEPENDENT DIRECTOR(S)" means the Directors of the Company who are
not associated and have not been associated within the last two years, directly
or indirectly, with the Sponsor or Advisor of the Company. A Director shall be
deemed to be associated with the Sponsor or Advisor if he or she: (i) owns an
interest in the Sponsor, Advisor, or any of their Affiliates; or (ii) is
employed by the Sponsor, Advisor or any of their Affiliates; or (iii) is an
officer or director of the Sponsor, Advisor, or any of their Affiliates; or
(iv) performs services, other than as a Director, for the Company; or (v) is a
Director for more than three real estate investment trusts organized by the
Sponsor or advised the Advisor; or (vi) has any material business or
professional relationship with the Sponsor, Advisor, or any of their
Affiliates. For purposes of determining whether or not the business or
professional relationship is material, the gross revenue derived by the
prospective Independent Director from the Sponsor and Advisor and Affiliates
shall be deemed material per se if it exceeds 5% of the prospective Independent
Director's: (i) annual gross revenue, derived from all sources, during either
of the last two years; or (ii) net worth, on a fair market value basis. An
indirect relationship shall include circumstances in which a Director's spouse,
parents, children, siblings, mothers- or fathers-in-law, sons- or
daughters-in-law, or brothers- or sisters-in-law is or has been associated with
the Sponsor, Advisor, any of their Affiliates, or the Company.
"INDEPENDENT EXPERT" means a Person with no material current or prior
business or personal relationship with the Advisor or Directors who is engaged
to a substantial extent in the business of rendering opinions regarding the
value of assets of the type held by the Company.
"INITIAL INVESTMENT" means that portion of the initial capitalization
of the Company contributed by the Sponsor or its Affiliates pursuant to Section
IIA of NASAA REIT Policy.
"LEVERAGE" the aggregate amount of indebtedness of the Company for
money borrowed (including purchase money mortgage loans) outstanding at any
time, both secured and unsecured.
"NASAA REIT POLICY" means the Statement of Policy Regarding Real
Estate Investment Trusts, as adopted September 29, 1993, as amended,
promulgated by the North American Securities Administrators Association,
Washington. D.C.
"NASD" means the National Association of Securities Dealers, Inc.
"NET ASSETS" means the total assets (other than intangibles) at cost
before deducting depreciation or other non-
63
<PAGE> 67
cash reserves less total liabilities, calculated at least quarterly on a basis
consistently applied.
"NET INCOME" for any period shall mean total revenues applicable to
such period, less the expenses applicable to such period, other than additions
to reserves for depreciation, bad debts or other similar non-cash reserves
determined in accordance with generally accepted accounting principles.
"NON-U.S. SHAREHOLDER" means a Shareholder which is a foreign
corporation or a nonresident alien of the United States.
"OFFERING" means the offering of Shares of the Company pursuant to
this Prospectus.
"ORGANIZATION AND OFFERING EXPENSES" means all expenses incurred by
and to be paid from the assets of the Company in connection with and in
preparing the Company's shares for registration and subsequently offering and
distributing them to the public, including, but not limited to, total
underwriting and brokerage discounts and commissions (including fees of the
underwriters' attorneys), warrants to dealers, expenses for printing,
engraving, mailing, salaries of employees while engaged in sales activity,
charges of transfer agents, registrars, trustees, escrow holders, depositaries,
experts, expenses of qualification of the sale of the securities under Federal
and State laws, including taxes and fees, accountants' and attorneys' fees.
"PERSON" means any natural persons, partnership, corporation,
association, trust, limited liability company or other legal entity.
"PROSPECTUS" means the final prospectus of the Company in connection
with the initial registration of Shares filed with the Commission on Form S-11,
as amended.
"REGISTRATION STATEMENT" means the initial registration of Shares on
Form S-11 and related exhibits, as amended, filed by the Company with the
Commission.
"REIT" means a corporation or trust which qualified as a real estate
investment trust described in the REIT provisions.
"REIT PROVISIONS" means Code Sections 856 through 860.
"TAXABLE REIT INCOME" means the taxable income as computed for a
corporation which is not a REIT: (i) without the deductions allowed by Code
Sections 241 through 247, 249 and 250 (relating generally to the deduction for
dividends received); (ii) excluding amounts equal to (a) the net income from
foreclosure property, and (b) the net income derived from prohibited
transactions; (iii) deducting amounts equal to (a) any net loss derived from
prohibited transactions, and (b) the tax imposed by section 857(b)(5) of the
Code upon a failure to meet the 95% and/or the 75% gross income tests; and (iv)
disregarding the dividends paid, computed without regard to the amount of the
net income from foreclosure property which is excluded from REIT Taxable
Income.
"ROLL-UP" means a transaction involving the acquisition, merger,
conversion, or consolidation either directly or indirectly of the Company and
the issuance of securities of a Roll-up Entity. Such term does not include:
(i) a transaction involving securities of the Company that have been for at
least 12 months listed on a national securities exchange or traded through the
National Association of Securities Dealers Automated Quotation National Market
System; or (ii) a transaction involving the conversion to corporate, trust, or
association form of only the Company if, as consequence of the transaction
there will be no significant adverse change in any of the following: (a)
Shareholders' voting rights; (b) the term of existence of the Company; (c)
Sponsor or Advisor compensation; (d) the Company's investment objectives.
"ROLL-UP ENTITY" a partnership, real estate investment trust,
corporation, trust, or other entity that would be created or would survive
after the successful completion of a proposed Roll-up transaction.
"SELLING COMMISSION" means an amount equal to 4.3% of the Gross
Offering Proceeds payable to the Dealer Manager which will be reallowed to
Soliciting Dealers for each Share sold.
64
<PAGE> 68
"SERVICE" means the Internal Revenue Service of the United States of
America.
"SHARES" means shares of beneficial interest or of common stock of
the Company of the class that has the right to elect the Company's Directors.
"SOLICITING DEALERS" means the dealer members of the National
Association of Securities Dealers, Inc. designated by the Dealer Manager and
the Advisor.
"SHAREHOLDERS" means the registered holders of the Company's Shares.
"SPONSOR" means any Person directly or indirectly instrumental in
organizing wholly or in part, a real estate investment trust or any Person who
will control, manage or participate in the management of a real estate
investment trust, and any Affiliate of such Person. Not included is any Person
whose only relationship with the real estate investment trust is as that of an
independent property manager of real estate investment trust assets, and whose
only compensation is as such. Sponsor does not include wholly independent
third parties such as attorneys, accountants and underwriters whose only
compensation is for professional services. A Person may also be deemed a
Sponsor of the Company by: (i) taking the initiative, directly or indirectly,
in founding or organizing the business or enterprise of the Company; either
alone or in conjunction with one or more other Persons; (ii) receiving a
material participation in the Company in connection with the founding or
organizing of the business of the Company, in consideration of services or
property, or both services and property; (iii) having a substantial number of
relationships and contacts with the Company; (iv) possessing significant rights
to control Company properties; (v) receiving fees for providing services to the
Company which are paid on a basis that is not customary in the industry; or
(vi) providing goods or services to the Company on a basis which was not
negotiated at arms length with the Company.
"TOTAL OPERATING EXPENSES" means aggregate expenses of every character
paid or incurred by the Company as determined under Generally Accepted
Accounting Principles, including Advisors' fees but excluding: (a) the
expenses of raising the capital such as Organization and Offering Expenses,
legal, audit, accounting, underwriting, brokerage, listing, registration and
other fees, printing and other such expenses, and tax incurred in connection
with the issuance, distribution, transfer, registration, and shock exchange
listing of the Company's Shares; (b) interest payments; (c) taxes; (d) non-cash
expenditures such as depreciation, amortization and bad debt reserves; (e)
incentive fees; (f) Acquisition Fees, Acquisition Expenses, real estate
commissions on resale of property and other expenses connected with the
acquisition, disposition, and ownership of real estate interests, mortgage
loans, or other property, (such as the costs of foreclosure, insurance
premiums, legal services, maintenance, repair, and improvement of property).
"UBTI" means unrelated business taxable income as described in the
Code.
Balance of page intentionally left blank.
65
<PAGE> 69
REPORT OF INDEPENDENT AUDITORS
Board of Directors
American Church Mortgage Company
(A Development Stage Company)
Minneapolis, Minnesota
We have audited the accompanying balance sheet of American Church Mortgage
Company (A Development Stage Company) as of December 31, 1995, and the related
statements of operations, stockholder's equity and cash flows for the year then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of American Church Mortgage
Company (A Development Stage Company) as of December 31, 1995, and the results
of its operations and its cash flows for the year then ended, in conformity
with generally accepted accounting principles.
Boulay, Heutmaker, Zibell & Co. P.L.L.P.
Certified Public Accountants
Minneapolis, Minnesota
March 12, 1996
F-1
<PAGE> 70
AMERICAN CHURCH MORTGAGE COMPANY
(A DEVELOPMENT STAGE COMPANY)
Balance Sheet
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
December 31 June 30
ASSETS 1995 1996 1995
(Unaudited)
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CURRENT ASSETS
Cash and equivalents $135,282 $ 428,025 $134,297
Prepaid expenses 695 348
Current maturities of loans receivable 32,834
-------- ---------- --------
Total current assets 135,282 461,554 134,645
LOANS RECEIVABLE, net of current
maturities 1,773,197
BOND RECEIVABLE 72,805
DEFERRED OFFERING COSTS 107,295 90,687
ORGANIZATION EXPENSES, net 1,071 920 1,188
-------- ---------- --------
TOTAL ASSETS $243,648 $2,308,476 $226,520
======== ========== ========
</TABLE>
Notes to Financial Statements are an integral part of this Statement.
F-2
<PAGE> 71
AMERICAN CHURCH MORTGAGE COMPANY
(A DEVELOPMENT STAGE COMPANY)
Balance Sheet
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
December 31 June 30
LIABILITIES AND STOCKHOLDER'S 1995 1996 1995
EQUITY (Unaudited)
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CURRENT LIABILITIES
Accounts payable $ 49,493 $ 4,379 $ 29,770
Dividends payable 46,667
--------- ---------- ---------
Total current liabilities 49,493 51,046 29,770
DEFERRED INCOME 30,028
COMMITMENTS
STOCKHOLDER'S EQUITY
Common stock, par value $.01 per share
Authorized, 30,000,000 shares
Issued and outstanding, 20,000 shares
at December 31, 1995 and June 30,
1995, and 250,170 at June 30, 1996 200 2,502 200
Additional paid-in capital 199,800 2,256,620 199,800
Deficit accumulated during the
development stage (5,845) (31,720) (3,250)
--------- ---------- ---------
Total stockholder's equity 194,155 2,227,402 196,750
--------- ---------- ---------
TOTAL LIABILITIES AND EQUITY $243,648 $2,308,476 $226,520
======== ========== ========
</TABLE>
Notes to Financial Statements are an integral part of this Statement.
F-3
<PAGE> 72
AMERICAN CHURCH MORTGAGE COMPANY
(A DEVELOPMENT STAGE COMPANY)
Statement of Operations
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
Six Months Ended Six Months Ended
June 30 June 30
1996 1995
(Unaudited)
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
INTEREST INCOME $ 70,344 $ 1,991
OPERATING EXPENSES 49,552 719
--------- --------
NET INCOME (LOSS) $ 20,792 $ 1,272
========= ========
INCOME (LOSS) PER COMMON SHARE $ .19 $ .06
========= ========
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING 112,341 20,000
========= ========
</TABLE>
Notes to Financial Statements are an integral part of this Statement.
F-4
<PAGE> 73
AMERICAN CHURCH MORTGAGE COMPANY
(A DEVELOPMENT STAGE COMPANY)
Statement of Operations
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
Period From Period From
May 27, 1994 May 27, 1994
Year Ended (Date of Inception) (Date of Inception)
December 31, to December 31, to June 30,
1995 1995 1996
(Unaudited)
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
$ 4,436 $ 5,167 $ 75,511
5,759 11,012 60,564
-------- -------- ---------
($ 1,323) ($ 5,845) $ 14,947
======== ======== =========
($ .07) ($ .30) $ .31
======== ======== =========
20,000 20,000 107,571
======== ======== =========
</TABLE>
Notes to Financial Statements are an integral part of this Statement.
F-5
<PAGE> 74
AMERICAN CHURCH MORTGAGE COMPANY
(A DEVELOPMENT STAGE COMPANY)
Statements of Stockholder's Equity
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
Deficit
Accumulated
Common Stock Additional During the
---------------------- Paid-In Development
Shares Amount Capital Stage
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1994 20,000 $ 200 $ 199,800 ($ 4,522)
Net loss (1,323)
------- ------ ---------- -------
BALANCE, DECEMBER 31, 1995 20,000 200 199,800 (5,845)
Issuance of 230,170 shares of
common stock 230,170 2,302 2,056,820
Net income 20,792
Dividends declared (46,667)
------- ------ ---------- -------
BALANCE, JUNE 30, 1996
(unaudited) 250,170 $2,502 $2,256,620 ($31,720)
======= ====== ========== =======
</TABLE>
Notes to Financial Statements are an integral part of this Statement.
F-6
<PAGE> 75
AMERICAN CHURCH MORTGAGE COMPANY
(A DEVELOPMENT STAGE COMPANY)
Statements of Cash Flows
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
Six Months Ended Six Months Ended
June 30, June 30,
1996 1995
(Unaudited)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 20,792 $ 1,272
Adjustments to reconcile net income (loss) to
net cash used for operating activities:
Amortization 151 151
Change in assets and liabilities
Increase in prepaid expenses (695) (348)
Increase (decrease) in accounts payable (45,114) 14,970
Increase in deferred income 30,028
------------ ------------
Net cash from (used) for operating activities 5,162 16,045
CASH FLOWS FROM INVESTING ACTIVITIES
Organization expenses
Investment in mortgage loans (1,817,000)
Collections on mortgage loans 10,969
Investment in bonds (72,805)
------------- ------------
Net cash used for investing activities (1,878,836)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from stock offering 2,166,417
Amounts received in payment of
common stock subscription
Payment of deferred offering costs (30,771)
------------ ------------
Net cash from (used for) financing activities 2,166,417 (30,771)
------------ ------------
NET INCREASE (DECREASE) IN CASH 292,743 (14,726)
CASH - Beginning of Period 135,282 149,023
------------ ------------
CASH - End of Period $ 428,025 $ 134,297
============ ============
</TABLE>
Notes to Financial Statements are an integral part of this Statement.
F-7
<PAGE> 76
AMERICAN CHURCH MORTGAGE COMPANY
(A DEVELOPMENT STAGE COMPANY)
Statements of Cash Flows
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
Period From Period From
May 27, 1994 May 27, 1994
Year Ended (Date of Inception) (Date of Inception)
December 31, to December 31, to June 30,
1995 1995 1996
(Unaudited)
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------
($ 1,323) ($ 5,845) $ 14,947
303 480 631
(695)
(45,114)
30,028
--------- --------- -----------
(1,020) (5,365) (203)
(35) (1,551) (1,551)
(1,817,000)
10,969
(72,805)
--------- --------- -----------
(35) (1,551) (1,880,387)
2,166,417
200,000 200,000
(12,686) (57,802) (57,802)
--------- --------- -----------
(12,686) 142,198 2,308,615
--------- --------- -----------
(13,741) 135,282 428,025
149,023 - -
--------- --------- -----------
$ 135,282 $ 135,282 $ 428,025
========= ========= ===========
</TABLE>
Notes to Financial Statements are an integral part of this Statement.
F-8
<PAGE> 77
AMERICAN CHURCH MORTGAGE COMPANY
(A DEVELOPMENT STAGE COMPANY)
Statements of Cash Flows - Continued
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
Six Months Ended Six Months Ended
June 30, June 30,
1996 1995
(Unaudited)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
SUPPLEMENTAL SCHEDULE OF NONCASH FINANCING AND INVESTING ACTIVITIES
Subscription received for 20,000 shares of common
stock
Deferred offering costs financed through accounts
payable
Deferred offering costs reclassified to additional
paid-in capital $ 107,295
=========
Dividends declared $ 46,667
=========
</TABLE>
Notes to Financial Statements are an integral part of this Statement.
F-9
<PAGE> 78
AMERICAN CHURCH MORTGAGE COMPANY
(A DEVELOPMENT STAGE COMPANY)
Statements of Cash Flows - Continued
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
Period From Period From
May 27, 1994 May 27, 1994
Year Ended (Date of Inception) (Date of Inception)
December 31, to December 31, to June 30,
1995 1995 1996
(Unaudited)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
$ 200,000 $ 200,000
========= ===========
$ 34,693 $ 49,493 $ 49,493
========= ========= ===========
$ 107,295
===========
$ 46,667
===========
</TABLE>
Notes to Financial Statements are an integral part of this Statement.
F-10
<PAGE> 79
AMERICAN CHURCH MORTGAGE COMPANY
(A DEVELOPMENT STAGE COMPANY)
Notes to Financial Statements
December 31, 1995 and
June 30, 1996 and 1995 (Unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
American Church Mortgage Company, a Minnesota corporation, was incorporated on
May 27, 1994. The Company is a development stage company organized to engage
in the business of making mortgage loans to churches and other nonprofit
religious organizations throughout the United States, on terms that it
establishes for individual organizations. The Company is currently in the
process of securing financing through a public stock offering and has not yet
commenced its principal business activity.
Accounting Estimates
Management uses estimates and assumptions in preparing these financial
statements in accordance with generally accepted accounting principles. Those
estimates and assumptions affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities, and the
reported revenues and expenses. Actual results could differ from those
estimates.
Cash
The Company considers all highly liquid debt instruments purchased with a
maturity of three months or less to be cash equivalents.
The Company maintains its cash in bank deposit accounts which, at times, may
exceed federally insured limits. The Company has not experienced any losses in
such accounts.
Marketable Securities
The Company classifies its marketable debt securities as "held-to-maturity"
because it has the intent and ability to hold the securities to maturity.
Securities classified as held to maturity are carried at cost, which is not
materially different from amortized cost.
Deferred Offering Costs
Deferred offering costs represent amounts incurred in connection with the
Company's proposed public offering of common stock. These costs will be offset
against proceeds of the proposed offering.
F-11
<PAGE> 80
AMERICAN CHURCH MORTGAGE COMPANY
(A DEVELOPMENT STAGE COMPANY)
Notes to Financial Statements
December 31, 1995 and
June 30, 1996 and 1995 (Unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
Organization Expenses
Organization expenses are stated at cost and are amortized using the
straight-line method over five years.
Deferred Income
Deferred income represents loan origination fees which are recognized over the
life of the loan as an adjustment to the yield on the loan.
Income Taxes
Income taxes are provided for the tax effects of transactions reported in the
financial statements and consist of taxes currently due plus deferred taxes.
Deferred taxes are recognized for operating losses that are available to offset
future taxable income.
The Company will elect to be taxed as a Real Estate Investment Trust (REIT) and
to comply with the provisions of the Internal Revenue Code with respect
thereto. Accordingly, the Company will not be subject to Federal income tax to
the extent of distributions to its shareholders if the Company meets all the
requirements under the REIT provisions of the Internal Revenue Code.
Income (Loss) Per Common Share
Income (loss) per common share is computed based upon the weighted average
number of common and dilutive common equivalent shares outstanding during the
period. Fully diluted and primary loss per common share are the same for the
periods presented.
Newly Issued Accounting Standards
In October 1995, Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" was issued. The Company will adopt
this Statement in fiscal 1996. The effect of this Statement has not been
determined, however, the impact on the Company's financial position and results
of operations is not expected to be material.
F-12
<PAGE> 81
AMERICAN CHURCH MORTGAGE COMPANY
(A DEVELOPMENT STAGE COMPANY)
Notes to Financial Statements
December 31, 1995 and
June 30, 1996 and 1995 (Unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
Interim Financial Statements
Although the interim financial statements of the Company are unaudited, it is
the opinion of the Company's management that all normal recurring adjustments
necessary for a fair statement of the results have been reflected therein.
Operating revenues and net earnings for any interim period are not necessarily
indicative of results that may be expected for the entire year.
2. CAPITAL STOCK
The Company has authorized 50,000,000 shares of capital stock pursuant to its
Articles of Incorporation, of which 30,000,000 shares have been designated as
common stock, with a par value of $.01 per share. The remaining 20,000,000
shares have not been designated as to classification.
On November 9, 1994, the Company issued to an affiliated company a ten-year
warrant to purchase up to 50,000 additional shares of common stock at $10 per
share. The warrant was to become exercisable on November 9, 1995, and expire
November 9, 2004. This warrant was subsequently canceled on May 19, 1995.
3. STOCK OPTION PLAN
The Company has adopted a Stock Option Plan granting each member of the Board
of Directors and the president of the Advisor (Note 4) an option to purchase
3,000 shares of common stock annually upon their re-election. The purchase
price of the stock will be the fair market value at the grant date. On November
15, 1994, the Company granted options to purchase 21,000 shares of common stock
at $10 per share. These options become exercisable one year from the date of
grant and expire November 15, 1999.
F-13
<PAGE> 82
AMERICAN CHURCH MORTGAGE COMPANY
(A DEVELOPMENT STAGE COMPANY)
Notes to Financial Statements
December 31, 1995 and
June 30, 1996 and 1995 (Unaudited)
4. TRANSACTIONS WITH AFFILIATES
The Company has an Advisory Agreement with Church Loan Advisors, Inc. (the
Advisor). The Advisor is responsible for the day-to-day operations of the
Company and provides administrative services and personnel.
Upon nonrenewal or termination of the Advisory Agreement, the Company is
required to pay the Advisor a termination fee equal to two percent of the value
of the average invested assets of the Company as of the date of termination,
subject to limitations set forth in the Advisory Agreement.
The Company pays the Advisor an annual base management fee of 1.25 percent of
average invested assets (generally defined as the average of the aggregate book
value of the assets invested in securities and equity interests in and loans
secured by real estate), which is payable on a monthly basis. The Advisor will
also receive one-half of the origination fees paid by a mortgage loan borrower,
in connection with a mortgage loan made or renewed by the Company. The Company
paid advisory and origination fees totaling $36,679 during the six months
ended June 30, 1996. The Company paid no advisory fees during the periods
ended December 31, 1995 and June 30, 1995.
The affiliate (as described in Note 2), the Advisor and the Company are related
through common ownership and common management.
F-14
<PAGE> 83
AMERICAN CHURCH MORTGAGE COMPANY
(A DEVELOPMENT STAGE COMPANY)
Notes to Financial Statements
December 31, 1995 and
June 30, 1996 and 1995 (Unaudited)
5. INCOME TAXES
Tax expense for all periods presented is $0. The following reconciles the
income tax expense with the expected provision obtained by applying statutory
rates to pretax income:
<TABLE>
<CAPTION>
Six Months Ended Year Ended
June 30, December 31,
-------------------- ------------
1996 1995 1995
---- ---- ----
(Unaudited)
<S> <C> <C> <C>
Expected tax expense $4,600 $300 ($300)
Increase (decrease) in valuation allowance 300
Benefit of net operating loss carryforward (1,300) (300)
Benefit of REIT distributions (3,300)
----- ---- ----
$ - $ - $ -
====== ==== ====
</TABLE>
The components of deferred income taxes are as follows:
<TABLE>
<CAPTION>
June 30, December 31,
-------------------- ------------
1996 1995 1995
---- ---- ----
(Unaudited)
<S> <C> <C> <C>
Deferred tax asset - net operating
loss carryforward $300 $1,300
Valuation allowance (300) (1,300)
-------- --- ------
Net deferred tax asset $ - $ - $ -
======== ==== ======
</TABLE>
During the year ended December 31, 1995, the Company increased its valuation
allowance against deferred tax assets by $300. During the periods ended June
30, 1996 and 1995 the Company decreased its valuation allowance by $1,300 and
$300, respectively.
F-15
<PAGE> 84
AMERICAN CHURCH MORTGAGE COMPANY
(A DEVELOPMENT STAGE COMPANY)
Notes to Financial Statements
December 31, 1995 and
June 30, 1996 and 1995 (Unaudited)
5. INCOME TAXES - Continued
At December 31, 1995, the Company had net operating loss carryforwards
available to reduce future taxable income of approximately $5,800, which expire
in 2009 to 2010. The amount of net operating loss carryforward that may be
utilized annually will be limited due to the anticipated changes in ownership
of the Company's common stock in 1996.
6. PUBLIC OFFERING OF THE COMPANY'S COMMON STOCK
The Company has filed a Registration Statement with the Securities and Exchange
Commission for a public offering of its $.01 par value common stock. The
Company is offering to sell 2,000,000 shares of its common stock at a price of
$10 per share. The offering is being underwritten by an affiliate of the
Advisor on a "best efforts" basis, but requires a minimum sale of at least
200,000 shares of common stock. This minimum amount of shares was sold as of
April 15, 1996, whereupon the Company commenced its principal operating
activity. The Company's public offering of its shares is expected to continue
until November 9, 1996, unless terminated at the Company's discretion prior
thereto.
Pursuant to the terms of the Underwriting Agreement, the Company will pay the
dealer-manager a sales commission equal to 4.3 percent of the gross amount of
sales of the shares in this offering, plus a nonaccountable expense
reimbursement of $35,000 (minimum offering) or $53,000 (maximum offering). In
addition, the Company will issue to the dealer-manager (and/or soliciting
dealers), one soliciting dealer warrant for one share of common stock for every
ten shares sold in the offering, to purchase up to 20,000 shares (minimum
offering) and 200,000 shares (maximum offering) at $10 per share. These
soliciting dealer warrants become exercisable one year from the date of their
issuance and expire on the fifth year anniversary date of their issuance. The
dealer-manager is affiliated to the Advisor through common management.
As of March 12, 1996, the Company has raised proceeds of $1,509,000.
As of June 30, 1996, the Company had raised net proceeds of $2,166,417 in its
public offering. In conjunction with the offering, 23,017 warrants were issued
on the terms noted above as of June 30, 1996.
F-16
<PAGE> 85
AMERICAN CHURCH MORTGAGE COMPANY
(A DEVELOPMENT STAGE COMPANY)
Notes to Financial Statements
December 31, 1995 and
June 30, 1996 and 1995 (Unaudited)
7. MORTGAGES AND BONDS RECEIVABLE
At June 30, 1996, the Company had first mortgage loans receivable totaling
$1,806,031. The loans bear interest ranging from 9.25% to 11.25%. The
maturity schedule for those loans as of June 30, 1996 is as follows:
<TABLE>
<S> <C>
1997 $ 32,834
1998 36,533
1999 40,651
2000 45,236
2001 725,343
Thereafter 925,434
----------
Total mortgage loans
receivable $1,806,031
==========
</TABLE>
The Company also has a bond receivable, which is carried at cost, paying 8.5%
interest quarterly, with the principal of $100,000 due at maturity on May 15,
2001.
Fair value approximates carrying value for both the mortgage loans and the
bond. Fair value has been estimated by discounting future cash flows using
current discount rates that reflect the risks associated with similar
investments.
F-17
<PAGE> 86
AMERICAN CHURCH MORTGAGE COMPANY
(A DEVELOPMENT STAGE COMPANY)
FINANCIAL REPORT
DECEMBER 31, 1994
<PAGE> 87
AMERICAN CHURCH MORTGAGE COMPANY
(A DEVELOPMENT STAGE COMPANY)
- ----------------------------------------------------------------------------
CONTENTS PAGE
- ----------------------------------------------------------------------------
INDEPENDENT AUDITOR'S REPORT
ON THE FINANCIAL STATEMENTS F-19
- ----------------------------------------------------------------------------
FINANCIAL STATEMENTS
Balance sheet F-20
Statements of operations and shareholder's equity F-21
Statement of cash flows F-22
Notes to financial statements F-23
- ----------------------------------------------------------------------------
F-18
<PAGE> 88
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
American Church Mortgage Company
(A Development Stage Company)
We have audited the accompanying balance sheet of AMERICAN CHURCH MORTGAGE
COMPANY (A DEVELOPMENT STAGE COMPANY) as of December 31, 1994, and the related
statements of operations, shareholder's equity and cash flows for the period
from May 27, 1994 (date of inception), to December 31, 1994. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of American Church Mortgage
Company (A Development Stage Company) as of December 31, 1994, and the results
of its operations and its cash flows for the period from May 27, 1994, to
December 31, 1994, in conformity with generally accepted accounting principles.
McGLADREY & PULLEN, LLP
Minneapolis, Minnesota
February 17, 1995 (May 19, 1995, as to the last
paragraph of Note 2)
F-19
<PAGE> 89
AMERICAN CHURCH MORTGAGE COMPANY (A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
<TABLE>
<S> <C>
- -------------------------------------------------------------------------------------------------------------------------
December 31, 1994
- -------------------------------------------------------------------------------------------------------------------------
ASSETS
- -------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS $ 149,023
- -------------------------------------------------------------------------------------------------------------------------
DEFERRED OFFERING COSTS 59,916
- -------------------------------------------------------------------------------------------------------------------------
ORGANIZATION EXPENSES, net of accumulated amortization of $177 1,339
- -------------------------------------------------------------------------------------------------------------------------
$ 210,278
=========================================================================================================================
LIABILITIES AND SHAREHOLDER'S EQUITY
- -------------------------------------------------------------------------------------------------------------------------
ACCOUNTS PAYABLE $ 14,800
- -------------------------------------------------------------------------------------------------------------------------
COMMITMENTS (Notes 3, 4 and 6)
SHAREHOLDER'S EQUITY (Notes 2, 3 and 6)
Common stock, par value $.0l per share; authorized 30,000,000 shares;
issued and outstanding 20,000 shares 200
Additional paid-in capital 199,800
Deficit accumulated during the development stage (4,522)
- -------------------------------------------------------------------------------------------------------------------------
Total shareholder's equity 195,478
- -------------------------------------------------------------------------------------------------------------------------
$ 210,278
=========================================================================================================================
</TABLE>
See Notes to Financial Statements.
F-20
<PAGE> 90
AMERICAN CHURCH MORTGAGE COMPANY (A DEVELOPMENT STAGE COMPANY)
STATEMENT OF OPERATIONS
<TABLE>
<S> <C>
- -------------------------------------------------------------------------------------------------------------------------
Period From May 27, 1994 (Date of Inception), to December 31, 1994
- -------------------------------------------------------------------------------------------------------------------------
INTEREST INCOME $ 731
- -------------------------------------------------------------------------------------------------------------------------
EXPENSES
Professional fees 1,404
Director's fees 2,000
Amortization 177
Other 1,672
- -------------------------------------------------------------------------------------------------------------------------
5,253
- -------------------------------------------------------------------------------------------------------------------------
Net loss (4,522)
=========================================================================================================================
LOSS PER COMMON SHARE $ (.23)
=========================================================================================================================
WEIGHTED AVERAGE COMMONS SHARES OUTSTANDING 20,000
=========================================================================================================================
</TABLE>
STATEMENT OF SHAREHOLDER'S EQUITY
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
Period From May 27, 1994 (Date of Inception), to December 31, 1994
- ---------------------------------------------------------------------------------------------------------------------
Deficit
Accumulated
Additional During the
Common Stock Paid-In Development
Shares Amount Capital Stage Total
<S> <C> <C> <C> <C> <C>
BALANCE, May 27, 1994 - $ - $ - $ $ -
Issuance of 20,000 shares
of common stock
(Note 2) 20,000 200 199,800 200,000
Net loss - - - (4,522) (4,522)
- ---------------------------------------------------------------------------------------------------------------------
BALANCE, December 31, 1994 20,000 $ 200 $ 199,800 $ (4,522) $ 195,478
=====================================================================================================================
</TABLE>
See Notes to Financial Statements.
F-21
<PAGE> 91
AMERICAN CHURCH MORTGAGE COMPANY (A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CASH FLOWS
<TABLE>
<S> <C>
Period From May 27, 1994 (Date of Inception), to December 31, 1994
- -------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (4,522)
- -------------------------------------------------------------------------------------------------------------------------
Adjustments to reconcile net loss to net cash provided by operating
activities:
Amortization 177
- -------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities (4,345)
CASH FLOWS FROM INVESTING ACTIVITIES
Organization expenses (1,516)
- -------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Amounts received in payment of common stock subscription 200,000
Deferred offering cost (45,116)
- -------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 154,884
Net increase in cash 149,023
- -------------------------------------------------------------------------------------------------------------------------
CASH
- -------------------------------------------------------------------------------------------------------------------------
Beginning of period -
- -------------------------------------------------------------------------------------------------------------------------
End of period $149,023
=========================================================================================================================
SUPPLEMENTAL SCHEDULE OF NONCASH FINANCING ACTIVITIES
Subscription received for 20,000 shares of common stock $200,000
Deferred offering costs financed through accounts payable 14,800
=========================================================================================================================
</TABLE>
See Notes to Financial Statements.
F-22
<PAGE> 92
AMERICAN CHURCH MORTGAGE COMPANY
(A DEVELOPMENT STAGE COMPANY)
- -------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS: American Church Mortgage Company, a Minnesota corporation,
was incorporated on May 27, 1994. The Company is a development stage company
organized to engage in the business of making mortgage loans to churches and
other nonprofit religious organizations throughout the United States, on terms
that it establishes for individual organizations. The Company is currently in
the process of securing financing through a public stock offering and has not
yet commenced its principal business activity.
A summary of the Company's significant accounting policies follows:
CASH AND CASH EQUIVALENTS: For purposes of reporting cash flows, the Company
includes all cash accounts, which are not subject to withdrawal restrictions or
penalties, and all highly liquid debt instruments purchased with an original
maturity of three months or less as cash and cash equivalents on the
accompanying balance sheet.
The Company maintains its cash in bank deposit accounts which, at times, may
exceed federally insured limits. The Company has not experienced any losses in
such accounts.
DEFERRED OFFERING COSTS: Deferred offering costs represent amounts incurred in
connection with the Company's proposed public offering of common stock. These
costs will be offset against proceeds of the proposed offering if successful or
expensed if the offering is unsuccessful.
ORGANIZATION EXPENSES: Organization expenses are stated at cost and are
amortized using the straight-line method over five years.
INCOME TAXES: Deferred taxes are provided on an asset and liability method
whereby deferred tax assets are recognized for deductible temporary differences
and operating loss and tax credit carryforwards and deferred tax liabilities
are recognized for taxable temporary differences. Temporary differences are
the differences between the reported amounts of assets and liabilities and
their tax basis. Deferred tax assets are reduced by a valuation allowance
when, in the opinion of management, it is more likely than not that some
portion or all of the deferred tax assets will not be realized. Deferred tax
assets and liabilities are adjusted for the effects of changes in tax laws and
rates on the date of enactment.
In 1995, the Company intends to elect to be taxed as a Real Estate Investment
Trust (REIT) and to comply with the provisions of the Internal Revenue Code
with respect thereto. Accordingly, the Company will not be subject to federal
income tax to the extent of distributions to its shareholders if the Company
meets all the requirements under the REIT provisions of the Internal Revenue
Code.
Loss per common share: Loss per common share is computed based upon the
weighted average number of common and dilutive common equivalent shares
outstanding during the period. Fully diluted and primary loss per common share
are the same for the period presented.
F-23
<PAGE> 93
- -------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 2. CAPITAL STOCK
The Company has authorized 50,000,000 shares of capital stock pursuant to its
Articles of Incorporation, of which 30,000,000 shares have been designated as
common stock, with a par value of $.0l per share. The remaining 20,000,000
shares have not been designated as to classification as of the date of this
report.
On June 1, 1994, the Company accepted a subscription for 20,000 shares of its
common stock for $200,000 from an affiliated company (Note 4). The
subscription receivable was paid in full by November 9, 1994, through three
installments of varying amounts.
On November 9, 1994, the Company issued to the same affiliated company a
ten-year warrant to purchase up to 50,000 additional shares of common stock at
$10 per share. The warrant becomes exercisable on November 9, 1995, and
expires November 9, 2004. This warrant was subsequently canceled on May 19,
1995.
NOTE 3. STOCK OPTION PLAN
The Company has adopted a Stock Option Plan granting each member of the Board
of Directors and the president of the Advisor (Note 4) an option to purchase
3,000 shares of common stock annually upon their re-election. The purchase
price of the stock will be the fair market value at the grant date. On
November 15, 1994, the Company granted options to purchase 21,000 shares of
common stock at $10 per share. These options become exercisable one year from
the date of grant and expire November 15, 1999.
NOTE 4. TRANSACTIONS WITH AFFILIATES
The Company has an Advisory Agreement with Church Loan Advisors, Inc. (the
Advisor). The Advisor is responsible for the day-to-day operations of the
Company and provides administrative services and personnel. The initial term
of the Advisory Agreement expires November 30, 1995, but may be renewed
annually.
Upon nonrenewal or termination of the Advisory Agreement, the Company is
required to pay the Advisor a termination fee equal to two percent of the value
of the average invested assets of the Company as of the date of termination.
The Company pays the Advisor an annual base management fee of 1.25 percent of
average invested assets (generally defined as the average of the aggregate book
value of the assets invested in securities and equity interests in and loans
secured by real estate), which is payable on a monthly basis. The Advisor will
also receive one-half of the origination fees paid by a mortgage loan borrower,
in connection with a mortgage loan made or renewed by the Company. For the
period ended December 31, 1994, the Company paid no advisory fees.
The affiliate (as described in Note 2), the Advisor and the Company are related
through common ownership and common management.
F-24
<PAGE> 94
NOTES TO FINANCIAL STATEMENTS
NOTE 5. INCOME TAXES
The components of deferred income taxes are as follows:
December 31, 1994 Total
Deferred tax asset - net operating loss carryforward $ 1,000
Valuation allowances (1,000)
------
Net deferred tax asset $ -
======
During the year ended December 31, 1994, the Company recorded a valuation
allowance of $1,000 on the deferred tax assets to reduce the total to an amount
that management believes will ultimately be realized. Realization of deferred
tax assets is dependent upon sufficient future taxable income during the period
that deductible temporary differences and carryforwards are expected to be
available to reduce taxable income.
At December 31, 1994, the Company had net operating loss carryforwards
available to reduce future taxable income of approximately $4,500, which
expires in 2009. The amount of net operating loss carryforward that may be
utilized annually will be limited due to the anticipated changes in ownership
of the Company's common stock in 1995.
NOTE 6. SUBSEQUENT EVENT - PUBLIC OFFERING OF THE COMPANY'S COMMON STOCK
The Company is in the process of filing a Registration Statement with the
Securities and Exchange Commission for a public offering of its $0.01 par value
common stock. The Company is offering to sell 2,000,000 shares of its common
stock at a price of $10 per share with anticipated net proceeds of
approximately $19,140,000, after considering estimated selling commissions and
expenses, and assuming the maximum number of shares offered are sold. The
offering is being underwritten by an affiliate of the Advisor on a "best
efforts" basis, but requires a minimum sale of at least 200,000 shares of
common stock.
Pursuant to the terms of the Underwriting Agreement, the Company will pay the
Dealer Manager a sales commission equal to 4.3 percent of the gross amount of
sales of the Shares in this Offering, plus a nonaccountable expense
reimbursement of $35,000 (Minimum Offering) and/or $53,000 (Maximum Offering).
In addition, the Company will issue to the Dealer Manager (and/or soliciting
dealers), one Soliciting Dealer Warrant for one share of common stock for every
ten shares sold in the offering, to purchase up to 20,000 shares (Minimum
Offering) and 200,000 shares (Maximum Offering) at $10 per share. These
Soliciting Dealer Warrants become exercisable one year from the date of their
issuance and expire on the fifth year anniversary date of their issuance. The
Dealer Manager is affiliated to the Advisor through common management.
F-25
<PAGE> 95
APPENDIX I
PRIOR PERFORMANCE TABLES
The prior performance tables, Appendix I of the Prospectus, contain certain
information about specific church bond mortgage financing projects
conducted by the Dealer Manager, American Investors Group, Inc., an affiliate
of the Advisor. The purpose of the tables is to provide certain
information on the prior performance of these bond financing programs so as to
evaluate the experience of the affiliate of the Company.
However, the programs discussed in this section do not necessarily have
investment objectives and policies similar to those of the Advisor, and
the results of those programs cannot be used or relied upon as being
representative of the returns or yields that can be expected by
shareholders of the Company. The following tables are included herein:
Table I--Experience in Raising and Investing Funds
Table II--Compensation to Sponsor (Dealer Manager and Affiliates)
Table IIB--Location of Prior First Mortgage Bond Financings underwritten by the
Dealer Manager
Balance of page intentionally left blank.
<PAGE> 96
TABLE I - EXPERIENCE IN RAISING AND INVESTING FUNDS
(since January 1991)
Table I summarizes the funds raised and the use of those funds for the public
offerings completed since January 1991 by
American Investors Group, Inc., an affiliate of the Company and the Advisor.
<TABLE>
<CAPTION>
Hopewell New Life Triumph New Mt. Moriah Lake Baptist Temple
Missionary Christian Testament African Church Baptist
Baptist Church Ministry Church Methodist Church
Episcopal
Norcross, GA San Antonio, TX Nederland, TX Church Lake Oswego, OR Nashville,
St. Albans, NY TN
<S> <C> <C> <C> <C> <C> <C>
Dollar Amount $ 3,700,000 $ 715,000 $ 850,000 $ 1,290,000 $ 1,800,000 $
Dollar Amount $ 3,700,000 $ 715,000 $ 850,000 $ 1,290,000 $ 1,800,000 $
Percentage of Funds 100% 100% 100% 100% 100% 100%
Less Offering Expenses:
Selling Commissions &
Discounts Retained by $ 259,000 $ 50,050 $ 59,500 $ 90,300 $ 108,000 $ 129,500
Affiliates (7%) (7%) (7%) (7%) (6%) (7%)
Organizational --- --- --- --- --- ---
Expenses $ 46,425 $ 20,000 $ 21,250 $ 24,000 $ 22,500 $ 35,000
Other Underwriting (1.25%) (2.8%) (2.5%) (1.9%) (1.25%) (1.9%)
Expenses 91.75% 90.02% 90.05% 91.01% 92.75% 91.10%
Percent Available to
Issuer
Total Acquisition --- --- --- --- --- ---
Percent Leverage --- --- --- --- --- ---
(mortgage financing
divided by total
acquisition cost)
Date Offering Began 1/15/91 3/1/91 3/15/91 5/15/91 8/1/91 8/1/91
Length of Offering 12 2 3 1 3 2
Months to Invest 90% of
Amount Available for --- --- --- --- --- ---
Investment (measured
from beginning of
offering)
</TABLE>
A-1
<PAGE> 97
TABLE I - EXPERIENCE IN RAISING AND INVESTING FUNDS (CONTINUED)
<TABLE>
<CAPTION>
North Stelton Shorter African New Life Mt. Vernon Macedonia First Baptist
African Methodist Christian Baptist Church Missionary Church
Methodist Episcopal Ministry, Inc. Baptist Church
Episcopal Church Church
Piscataway, NJ Denver, CO San Antonio, TX Memphis, TN Memphis, TN East Elmhurst, NY
<S> <C> <C> <C> <C> <C> <C>
Dollar Amount $ 725,000 $ 1,860,000 $ 110,000 $ 1,350,000 $ 1,195,000 $
Dollar Amount $ 725,000 $ 1,860,000 $ 110,000 $ 1,350,000 $ 1,195,000 $
Percentage of Funds 100% 100% 100% 100% 100% 100%
Less Offering Expenses:
Selling Commissions &
Discounts Retained by $ 50,750 $ 130,200 $ 8.250 $ 94,500 $ 83,650 $ 72,800
Affiliates (7%) (7%) (7.5%) (7%) (7%) (7%)
Organizational --- --- --- --- --- ---
Expenses $ 17,000 $ 34,800 $ 8,000 $ 27,500 $ 12,100 $ 22,200
Other Underwriting (2.3%) (1.9%) (7.2%) (2.0%) (1.0%) (2.1%)
Expenses 90.7% 91.1% 85.3% 91.0% 92.0% 90.90%
Percent Available to
Issuer
Total Acquisition --- --- --- --- --- ---
Percent Leverage --- --- --- --- --- ---
(mortgage financing
divided by total
acquisition cost)
Date Offering Began 10/15/91 11/1/91 12/1/91 12/15/91 2/15/92 3/1/92
Length of Offering 1 1 1 1 1 1
Months to Invest 90% of
Amount Available for --- --- --- --- --- ---
Investment (measured
from beginning of
offering)
</TABLE>
A-2
<PAGE> 98
TABLE I - EXPERIENCE IN RAISING AND INVESTING FUNDS (CONTINUED)
<TABLE>
<CAPTION>
World By His Word Metropolitan Christian Hope Bible Central
Missions Christian Baptist Church Center Missionary Holiness
Assembly Center Baptist Church Church
Kansas City, Atlanta,
Brooklyn, NY Tacoma, WA KS Woodbridge, VA Miami, FL GA
<S> <C> <C> <C> <C> <C> <C>
Dollar Amount $ 720,000 $ $ 475,000 $ 506,000 $ 1,300,000 $ 250,000
Dollar Amount $ 720,000 $ $ 475,000 $ 506,000 $ 1,300,000 $ 250,000
Percentage of Funds 100% 100% 100% 100% 100% 100%
Less Offering Expenses:
Selling Commissions & $ 50,400 $ 85,050 $ 33,250 $ 35,420 $ 91,000 $ 17,500
Discounts Retained by (7%) (7%) (7%) (7%) (7%) (7%)
Affiliates --- --- --- --- --- ---
Organizational Expenses $ 15,100 $ 18,500 $ 13,750 $ 11,500 $ 32,250 $ 10,000
Other Underwriting (2.1%) (1.5%) (2.9%) (2.3%) (2.5%) (4.0%)
Expenses 90.9% 91.5% 90.1% 90.7% 90.5% 89.0%
Percent Available to
Issuer
Total Acquisition --- --- --- --- --- ---
Percent Leverage (mortgage --- --- --- --- --- ---
financing divided by total
acquisition cost)
Date Offering Began 3/15/92 4/1/92 4/1/92 5/1/92 5/15/92 6/15/92
Length of Offering 2 1 1 1 1 1
Months to Invest 90% of
Amount Available for --- --- --- --- --- ---
Investment (measured from
beginning of offering)
</TABLE>
A-3
<PAGE> 99
TABLE I - EXPERIENCE IN RAISING AND INVESTING FUNDS (CONTINUED)
<TABLE>
<CAPTION>
St. James Church of Temple Baptist Mt. Zion Calvary Bethel
Episcopal Jesus Christ Church African Temple of Baptist
Church Methodist Allentown, PA Church
Episcopal
Potomac, MD Washington, DC Memphis, TN Church Allentown, PA Orange, NJ
New Brunswick
NJ
<S> <C> <C> <C> <C> <C> <C>
Dollar Amount $ 1,430,000 $ 1,280,000 $ 380,000 $ 875,000 $ 1,820,000 $ 525,000
Dollar Amount $ 1,430,000 $ 1,280,000 $ 380,000 $ 875,000 $ 1,820,000 $ 525,000
Percentage of Funds Raised 100% 100% 100% 100% 100% 100%
Less Offering Expenses:
Selling Commissions &
Discounts Retained by $ 85,085 $ 89,600 $ 26,700 (7%) $ 61,250 $ 127,400 $ 36,750
Affiliates (5.95%) (7%) --- (7%) (7%) (7%)
Organizational Expenses --- --- $ 11,900 --- --- ---
Other Underwriting $ 12,215 $ 17,000 (3.1%) $ 16,000 $ 37,500 $ 12,250
Expenses (.8%) (1.3%) 89.9% (1.8%) (2.1%) (2.3%)
Percent Available to 93.2% 91.7% 91.2% 90.9% 90.7%
Issuer
Total Acquisition --- --- --- --- --- ---
Percent Leverage (mortgage --- --- --- --- --- ---
financing divided by total
acquisition cost)
Date Offering Began 6/24/92 7/1/92 8/1/92 8/15/92 9/1/92 9/15/92
Length of Offering 2 1 1 1 1 1
Months to Invest 90% of
Amount Available for --- --- --- --- --- ---
Investment (measured from
beginning of offering)
</TABLE>
A-4
<PAGE> 100
TABLE I - EXPERIENCE IN RAISING AND INVESTING FUNDS (CONTINUED)
<TABLE>
<CAPTION>
Unity Palo Alto Christian Love Tabernacle Lee Memorial Nazareth Baptist Christian
Community Baptist Church Baptist Church African Church Pentecostal
Church Methodist Church
Irvington, NJ Burlington, NJ Episcopal
Palo Alto, CA Church Philadelphia, PA Irvington, NJ
Cleveland, OH
<S> <C> <C> <C> <C> <C> <C> C>
Dollar Amount $ 2,180,000 $ 500,000 $ 1,550,000 $ 1,225,000 $ 390,000 $
Dollar Amount $ 2,180,000 $ 500,000 $ 1,550,000 $ 1,225,000 $ 390,000 $
Percentage of Funds 100% 100% 100% 100% 100% 100%
Less Offering Expenses:
Selling Commissions &
Discounts Retained by $ 147,150 $ 35,000 $ 108,500 $ 85,750 $ 27,300 $ 112,000
Affiliates (6.75%) (7%) (7%) (7%) (7%) (7%)
Organizational Expenses --- --- --- --- $ 9,700 ---
Other Underwriting $ 20,000 $ 13,000 $ 22,000 $ 21,000 (2.5%) $ 24,000
Expenses (.92%) (2.6%) (1.4%) (1.7%) 90.5% (1.5%)
Percent Available to 92.3% 90.4% 91.6% 91.3% 91.5%
Issuer
Total Acquisition --- --- --- --- --- ---
Percent Leverage (mortgage --- --- --- --- --- ---
financing divided by total
acquisition cost)
Date Offering Began 10/1/92 11/15/92 11/15/92 12/15/92 1/15/93 2/1/93
Length of Offering 2 1 1 1 1 1
Months to Invest 90% of
Amount Available for --- --- --- --- --- ---
Investment (measured from
beginning of offering)
</TABLE>
A-5
<PAGE> 101
TABLE I - EXPERIENCE IN RAISING AND INVESTING FUNDS (CONTINUED)
<TABLE>
<CAPTION>
Mount Zion Lake Baptist St. Marks Friendship Christian Faith Raleigh
Christian Church Missionary Missionary Center Christian
Baptist Church Baptist Church Baptist Church Community
Church
Mt. Vernon, NY Lake Oswego, OR Harvey, IL Buffalo, NY La Mesa, CA Raleigh, NC
<S> C> <C> <C> <C> <C> <C>
Dollar Amount $ 750,000 $ 365,000 $ 1,500,000 $ 700,000 $ 1,765,000 $
Dollar Amount $ 750,000 $ 365,000 $ 1,500,000 $ 700,000 $ 1,765,000 $
Percentage of Funds 100% 100% 100% 100% 100% 100%
Less Offering
Expenses:
Selling Commissions & $ 52,500 $ 25,550 $ 105,000 $ 49,000 $ 119,138 $ 90,750
Discounts Retained by (7%) (7%) (7%) (7%) (6.75%) (6.25%)
Affiliates --- --- --- --- --- ---
Organizational $ 14,500 $ 8,000 $ 23,000 $ 15,000 $ 17,000 $ 14,000
Expenses (2.75%) (2.2%) (1.5%) (2.1%) (1.0%) (1.0%)
Other Underwriting 90.25% 90.8% 91.5% 90.9% 92.25% 92.75%
Expenses
Percent Available to
Issuer
Total Acquisition --- --- --- --- --- ---
Percent Leverage (mortgage --- --- --- --- --- ---
financing divided by total
acquisition cost)
Date Offering Began 1/15/93 2/1/93 2/1/93 4/1/93 5/15/93 6/1/93
Length of Offering 1 1 1 1 1 1
Months to Invest 90% of
Amount Available for --- --- --- --- --- ---
Investment (measured from
beginning of offering)
</TABLE>
A-6
<PAGE> 102
TABLE I - EXPERIENCE IN RAISING AND INVESTING FUNDS (CONTINUED)
<TABLE>
<CAPTION>
Porters Day Outreach Evergreen Faith Southwest Cornerstone St. Paul
Care and Christian Missionary Baptist Church Church African
Education Center Baptist Church Methodist
Center Houston, TX Episcopal
Suitland, MD Huntington, NY San Antonio, TX Church
Philadelphia, Berkeley, CA
PA
<S> <C> <C> <C> <C> <C> <C>
Dollar Amount $ 350,000 $ 575,000 $ 345,000 $ 700,000 $ 4,355,000 $
Dollar Amount $ 350,000 $ 575,000 $ 345,000 $ 700,000 $ 4,355,000 $
Percentage of Funds 100% 100% 100% 100% 100% 100%
Less Offering
Expenses:
Selling Commissions & $ 25,500 $ 39,963 $ 24,150 $ 48,650 $ 293,963 $ 67,500
Discounts Retained by (7%) (6.95%) (7%) (6.95%) (6.75%) (6.75%)
Affiliates --- --- --- --- --- ---
Organizational $ 14,000 $ 12,000 $ 11,000 $ 14,000 $ 37,250 $ 19,000
Expenses (3.1%) (1.7%) (3.2%) (2.0%) (.85%) (1.9%)
Other Underwriting 89.9% 91.35% 89.8% 91.05% 92.4% 91.35%
Expenses
Percent Available to
Issuer
Total Acquisition --- --- --- --- --- ---
Percent Leverage (mortgage --- --- --- --- --- ---
financing divided by total
acquisition cost)
Date Offering Began 5/15/93 5/15/93 6/1/93 6/15/93 7/15/93 8/15/93
Length of Offering 2 1 1 1 1 1
Months to Invest 90% of
Amount Available for --- --- --- --- --- ---
Investment (measured from
beginning of offering)
</TABLE>
A-7
<PAGE> 103
TABLE I - EXPERIENCE IN RAISING AND INVESTING FUNDS (CONTINUED)
<TABLE>
<CAPTION>
Windsor Village First Baptist Peaceful Zion Central Apostolic Faith New Life
United Methodist Church Missionary Holiness Home Assembly Christian
Church Baptist Church Church Ministry
Miami, FL Los Angeles, CA
Houston, TX Hampton, VA San Antonio,
Atlanta , GA TX
<S> <C> <C> <C> <C> <C> <C>
Dollar Amount $ 3,100,000 $ $ 750,000 $ 1,405,000 $ 2,600,000 $
Dollar Amount $ 3,100,000 $ $ 750,000 $ 1,405,000 $ 2,600,000 $
Percentage of Funds 100% 100% 100% 100% 100% 100%
Less Offering
Expenses:
Selling Commissions & $ 193,750 $ 175,500 $ 52,500 $ 87,813 $ 169,000 $ 130,000
Discounts Retained by (6.25%) (6.75%) (7%) (6.25%) (6.5%) (6.5%)
Affiliates --- --- --- --- --- ---
Organizational $ 32,000 $ 30,500 $ 17,500 $ 12,000 $ 36,500 $ 23,000
Expenses (1.0%) (1.2%) (2.3%) (.85%) (1.4%) (1.15%)
Other Underwriting 92.75% 92.05% 90.7% 92.8% 92.1% 92.0%
Expenses
Percent Available to
Issuer
Total Acquisition --- --- --- --- --- ---
Percent Leverage (mortgage --- --- --- --- --- ---
financing divided by total
acquisition cost)
Date Offering Began 9/1/93 10/1/93 10/15/93 11/15/93 12/15/93 2/15/94
Length of Offering 2 1 1 1 9 2
Months to Invest 90% of
Amount Available for --- --- --- --- --- ---
Investment (measured from
beginning of offering)
</TABLE>
A-8
<PAGE> 104
TABLE I - EXPERIENCE IN RAISING AND INVESTING FUNDS (CONTINUED)
<TABLE>
<CAPTION>
Calvary First Baptist Woodinville Resurrection Church of By His Word
Temple of Church Church of Life Ministries Jesus Christ Christian
Allentown, PA Christ Center
Eden Prairie,
Allentown, PA Hampton, VA Woodinville, WA MN Washington, DC Tacoma,
Washington
<S> <C> <C> <C> <C> <C> <C>
Dollar Amount Offered $ 1,950,000 $ 740,000 $ 440,000 $ 620,000 $ 1,735,000 $
Dollar Amount Raised $ 1,950,000 $ 740,000 $ 440,000 $ 620,000 $ 1,735,000 $
Percentage of Funds Raised 100% 100% 100% 100% 100% 100%
Less Offering Expenses:
Selling Commissions &
Discounts Retained by $ 121,875 $ 46,250 $ 27,500 $ 90,300 $ 103,233 $ 71,595
Affiliates (6.25%) (6.25%) (6.25%) (7%) (5.95%) (5.95%)
Organizational Expenses --- --- --- --- --- ---
Other Underwriting $ 18,000 $ 11,200 $ 12,000 $ 3,000 $ 21,000 $ 17,000
Expenses (.9%) (1.5%) (2.27%) (.5%) (1.2%) (1.0%)
Percent Available to 92.85% 92.25% 91.48% 95.0% 92.85% 93.05%
Issuer
Total Acquisition --- --- --- --- --- ---
Percent Leverage (mortgage --- --- --- --- --- ---
financing divided by total
acquisition cost)
Date Offering Began 2/15/94 4/1/94 5/15/94 5/15/94 6/1/94 8/28/94
Length of Offering 1 2 1 2 3 2
Months to Invest 90% of
Amount Available for --- --- --- --- --- ---
Investment (measured from
beginning of offering)
</TABLE>
A-9
<PAGE> 105
TABLE I - EXPERIENCE IN RAISING AND INVESTING FUNDS (CONTINUED)
<TABLE>
<CAPTION>
Liberty Church Morningstar Gates of Windsor Hopewell St. Agnes
Baptist Church Heaven Church Village United Missionary Missionary
Methodist Baptist Church Baptist Church
Edmond, OK Brooklyn, NY Church
El Paso, TX Norcross, GA Houston, TX
Houston, TX
<S> <C> <C> <C> <C> <C> <C>
Dollar Amount Offered $ 900,000 $ 800,000 $ 3,400,000 $ 725,000 $ 6,350,000 $3,200,000
Dollar Amount $ 900,000 $ 800,000 $ 3,400,000 $ 725,000 $ 6,350,000 $1,600,000
Percentage of Funds 100% 100% 100% 100% 100% 100%
Less Offering Expenses:
Selling Commissions & $ 53,550 $ 47,600 $ 202,300 $ 45,313 $ 377,825 $ 190,400
Discounts Retained by (5.95%) (5.95%) (5.95%) (6.25%) (5.95%) (5.95%)
Affiliates --- --- --- --- --- ---
Organizational Expenses $ 11,000 $ 10,000 $ 30,000 $ 7,000 $ 45,000 $ 27,000
Other Underwriting (1.2%) (1.25%) (1.00%) (1.00%) (.71%) (.84%)
Expenses 93.05% 92.80% 93.05% 92.75% 94.05% 94.05%
Percent Available to
Issuer
Total Acquisition --- --- --- --- --- ---
Percent Leverage (mortgage --- --- --- --- --- ---
financing divided by total
acquisition cost)
Date Offering Began 7/1/94 9/15/94 11/15/94 1/1/95 1/15/95 3/15/95
Length of Offering 5 3 10 2 10 6
Months to Invest 90% of
Amount Available for --- --- --- --- --- --
Investment (measured from
beginning of offering)
</TABLE>
A-10
<PAGE> 106
TABLE I - EXPERIENCE IN RAISING AND INVESTING FUNDS (CONTINUED)
<TABLE>
<CAPTION>
Church of the Zion Evangelistic St. Mark's Emmanuel The Abundant Life
Great Temple Missionary Baptist Church Community Church of
Commission Baptist Church Protestant Christ
Troy, MI Newington, CT Church
Harvey, IL Richmond, VA
Camp Springs, Bronx, NY
MD
<S> <C> <C> <C> <C> <C> <C>
Dollar Amount $2,200,000 $4,375,000 $360,000 $1,655,000 $1,500,000 $1,425,000
Dollar Amount $2,200,000 $4,375,000 $360,000 $1,655,000 $1,500,000 $1,425,000
Percentage of Funds 100% 100% 100% 100% 100% 100%
Less Offering Expenses:
Selling Commissions & $ 130,900 $ 260,313 $ 24,300 $ 98,475 $ 89,250 $ 80,888
Discounts Retained by (5.95%) (5.95%) (6.25%) (5.95%) (5.95%) (5.68%)
Affiliates --- --- --- --- --- ---
Organizational Expenses $ 25,500 $ 39,000 $ 14,500 $ 20,000 $ 24,000 $ 30,000
Other Underwriting (1.20%) (.89%) (4.02%) (1.21%) (1.6%) (2.10%)
Expenses 93.00% 93.00% 89.00%
Percent Available to
Issuer
Total Acquisition --- --- --- --- --- ---
Percent Leverage (mortgage --- ---
financing divided by total
acquisition cost)
Date Offering Began 4/1/95 4/15/95 04/01/95 07/15/95 08/15/95 10/15/95
Length of Offering 6 6 6 6 7 3
Months to Invest 90% of
Amount Available for --- --- --- --- --- ---
Investment (measured from
beginning of offering)
</TABLE>
A-11
<PAGE> 107
TABLE I - EXPERIENCE IN RAISING AND INVESTING FUNDS (CONTINUED)
<TABLE>
<CAPTION>
Greely Church Twelfth Avenue The Holden House of Praise Pembroke Park Faith
of General Chapel Ministries, Church Community
Christ Baptist Church, Inc. of Christ, Inc. Church,
Inc. Inc.
Greely, CO Holden, MA Castleton, NY Pembroke Park, FL Tucson, AZ
Evansville, IN
<S> <C> <C> <C> <C> <C> <C>
Dollar Amount Offered $500,000 $1,195,000 $500,000 $675,000 $600,000 $950,000
Dollar Amount Raised $500,000 $1,195,000 $500,000 $675,000 $542,000 (1) $950,000
Percentage of Funds Raised 100% 100% 100% 100% 90% 100%
Less Offering Expenses:
Selling Commissions & $ 41,500 $ 83,650 $ 29,750 $ 40,163 $ 37,500 $ 64,800
Discounts retained by (8.30%) (7.00%) (5.95%) (5.95%) (5.95%) (7.20%)
Affiliates --- --- --- --- --- ---
Organization Expenses $ 5,000 $ 5,000 $ 5,000 $ 20,837 $ 6,000 $ 13,000
Other Underwriting (1.00%) (0.41%) (1.00%) (3.08%) (1.00%) (1.37%)
Expenses 90.70% 92.58% 93.05% 90.96% 91.98% 91.81%
Percent Available to
Issuer
Total Acquisition Cost --- --- --- --- --- ---
Percent Leverage (mortgage --- --- --- --- --- ---
financing divided by total
acquisitions costs)
Date Offering Began 10/15/95 10/15/95 11/01/95 10/01/95 11/15/95 12/01/95
Length of Offering (mos.) 2 1 1 10 Open 1
Months to Invest 90% of
Amount Available for --- --- --- --- --- ---
Investment (measured from
beginning of offering)
</TABLE>
(1) Offering still in progress. Bond Sales as of August 31, 1996
A-12
<PAGE> 108
TABLE I - EXPERIENCE IN RAISING AND INVESTING FUNDS (CONTINUED)
<TABLE>
<CAPTION>
Christ Church of Oasis Centennial St. Agnes Lake Baptist Cornerstone
Kirkland Christian Star Missionary Church Church
Center of Bethlehem Baptist Church
Kirkland, WA Lake Oswego, OR
Bakersfield, Ossing, NY Houston, TX San Antonio,TX
CA
<S> <C> <C> <C> <C> <C> <C>
DOLLAR AMOUNT OFFERED $2,785,000 $825,000 $1,195,000 $875,000 $1,184,000 $6,600,000
DOLLAR AMOUNT RAISED $2,785,000 $797,000 (1) $1,194,000 (1) $875,000 $1,184,000 $6,600,000
PERCENTAGE OF FUNDS RAISED 100% 97% 99% 100% 100% 100%
LESS OFFERING EXPENSES:
Selling Commissions & $ 192,165 $ 49,088 $ 71,103 $ 52,063 $ 109,480 $ 412,500
Discounts retained by (6.90%) (5.95%) (5.95%) (5.95%) (5.95%) (6.25%)
Affiliates --- --- --- --- --- ---
Organization Expenses $ 8,400 $ 5,912 $ 17,000 $ 15,000 $ 12,520 $ 32,000
Other Underwriting Expenses (0.30%) (.072%) (1.42%) (1.71%) (1.06%) (0.48%)
Percent Available to Issuer 92.78% 93.33% 92.63% 92.33% 89.70% 93.26%
TOTAL ACQUISITION COST --- --- --- --- --- ---
PERCENT LEVERAGE (mortgage --- --- --- --- --- ---
financing divided by total
acquisitions costs)
DATE OFFERING BEGAN 12/29/95 02/15/96 02/01/96 03/15/96 03/15/96 05/15/96
LENGTH OF OFFERING (mos.) 7 Open Open 5 6 3
MONTHS TO INVEST 90% OF
AMOUNT AVAILABLE FOR --- --- --- --- ---
INVESTMENT (measured from
beginning of offering)
</TABLE>
(1) Offering still in progress. Bond Sales as of August 31, 1996
A-13
<PAGE> 109
TABLE II - COMPENSATION TO SPONSOR AND AFFILIATES
For Program Offerings Concluded Since January 1991
<TABLE>
<CAPTION>
Hopewell Missionary New Life Triumph New Mt. Moriah Lake Baptist Temple
Baptist Church Christian Testament African Church Baptist
Ministry Church Methodist Church
Norcross, GA Episcopal
San Antonio, TX Nederland, TX Church Lake Oswego, OR
St. Albans, NY Nashville,
TN
<S> <C> <C> <C> <C> <C> <C>
Date Offering 1/15/91 3/1/91 3/15/91 5/15/91 8/1/91 8/1/91
Dollar Amount Raised $ 3,700,000 $ 715,000 $ 850,000 $ 1,290,000 $ 1,800,000 $1,850,000
1,850,000
Amount Paid to Sponsor from
Proceeds of Offering:
Underwriting Fees (1) $ 259,000 $ 50,050 $ 59,500 $ 90,300 $ 108,000 $ 129,500
Acquisition Fees
- real estate fees ---
- advisory fees --- --- --- --- --- ---
- other (type & --- --- --- --- --- ---
amount) (2) $ 46,425 $ 20,000 $ 21,250 $ 24,000 $ 22,500 $ 35,000
Dollar Amount of Cash --- --- --- --- --- ---
Generated from Operations
before Deducting Payments
to Sponsor
Amount Paid to Sponsor from
Operations:
Property Management --- --- --- --- --- ---
Fees --- --- --- --- --- ---
Partnership Management --- --- --- --- --- ---
Fees --- --- --- --- --- ---
Reimbursements --- --- --- --- --- ---
Leasing Commissions $ 24,574 $ 5,000 $ 6,411 $ 9,751 $ 10,206 $ 7,333
Annual Advisor Fee --- --- --- --- --- ---
earned
to date (3)
Other (identify &
quantify)
Dollar Amount of Property
Sales and Refinancing
before Deducting Payments
to Sponsor: --- --- --- --- --- ---
Cash --- --- --- --- --- ---
Notes
Amount Paid to Sponsor from
Property Sales &
Refinancing: --- --- --- --- --- ---
Real Estate Commissions --- --- --- --- --- ---
Incentive Fees --- --- --- --- --- ---
Other (identify &
quantify)
</TABLE>
(1) Represents Broker-Dealer discounts paid to American Investors Group, Inc.,
Underwriter, an affiliate of the Advisor and the Dealer Manager of the
Company's offering of its shares.
(2) Represent direct expense reimbursements for expenses incurred by American
Investors Group, Inc., in connection with the offer and sale of the
respective issuers' first mortgage bonds.
(3) Represents the aggregate quarterly administrative fees paid by the issuers
to American Investors Group, Inc., through 08/31/96. These fees payable
for the duration for which each issuer's first mortgagebonds are
outstanding.
Page B-1
<PAGE> 110
TABLE II - COMPENSATION TO SPONSOR AND AFFILIATES (CONTINUED)
For Program Offerings Concluded Since January 1991
<TABLE>
<CAPTION>
North Stelton Shorter African New Life Mt. Vernon Macedonia First
Baptist
African Methodist Christian Baptist Church Missionary Church
Methodist Episcopal Church Ministry, Inc. Baptist Church
Episcopal Church Denver, CO
Piscataway, NJ San Antonio, TX Memphis, TN Memphis, TN East
Elmhurst,
NY
<S> <C> <C> <C> <C> <C> <C>
Date Offering 10/15/91 11/1/91 12/1/91 12/15/91 2/15/92 3/1/92
Dollar Amount Raised $ 725,000 $ 1,860,000 $ 110,000 $ 1,350,000 $ 1,195,000 $1,040,000
Amount Paid to Sponsor
from Proceeds of Offering:
Underwriting Fees (1)
Acquisition Fees $ 50,750 $ 130,200 $ 8,250 $ 94,500 $ 83,650 $ 72,800
- real estate fees
- advisory fees --- --- --- --- --- ---
- other (type & --- --- --- --- --- ---
amount) (2) $ 7,000 $ 34,800 $ 8,000 $ 27,500 $ 12,100 $ 22,200
Dollar Amount of Cash --- --- --- --- --- ---
Generated from Operations
before Deducting Payments
to Sponsor
Amount Paid to Sponsor
from Operations:
Property Management --- --- --- --- --- ---
Fees --- --- --- --- --- ---
Partnership Management --- --- --- --- --- ---
Fees --- --- --- --- --- ---
Reimbursements --- --- --- --- --- ---
Leasing Commissions $ 5,196 $ 13,241 $ 358 $ 5,060 $ 9,978 $ 8,452
Annual Advisory Fee --- --- --- --- --- ---
earned
to date (3)
Other (identify &
quantify)
Dollar Amount of Property
Sales and Refinancing
before Deducting Payments
to Sponsor: --- --- --- --- --- ---
Cash --- --- --- --- --- ---
Notes
Amount Paid to Sponsor
from Property Sales &
Refinancing: --- --- --- --- --- ---
Real Estate --- --- --- --- --- ---
Commissions --- --- --- --- --- ---
Incentive Fees
Other (identify &
quantify)
</TABLE>
(1) Represents Broker-Dealer discounts paid to American Investors Group, Inc.,
Underwriter, an affiliate of the Advisor and the Dealer Manager of the
Company's offering of its shares.
(2) Represent direct expense reimbursements for expenses incurred by American
Investors Group, Inc., in connection with the offer and sale of the
respective issuers' first mortgage bonds.
(3) Represents the aggregate quarterly administrative fees paid by the issuers
to American Investors Group, Inc., through 08/31/96. These fees remain
payable for the duration for which each issuer's first mortgage bonds are
outstanding.
Page B-2
<PAGE> 111
TABLE II - COMPENSATION TO SPONSOR AND AFFILIATES (CONTINUED)
For Program Offerings Concluded Since January 1991
<TABLE>
<CAPTION>
World By His Word Metropolitan Christian Bible Central
Missions Christian Baptist Church Hope Center Missionary Holiness
Assembly Center Baptist Church Church
Kansas City, KS
Brooklyn, NY Tacoma, WA Woodbridge, Miami, FL Atlanta, GA
VA
<S> <C> <C> <C> <C> <C> <C>
Date Offering 3/15/92 4/1/92 4/1/92 5/1/92 5/15/92 6/15/92
Dollar Amount Raised $ 720,000 $ 1,215,000 $ 475,000 $ 506,000 $ 1,300,000 $ 250,000
Amount Paid to Sponsor
from Proceeds of Offering:
Underwriting Fees (1) $50,400 $ 85,050 $ 33,250 $ 35,420 $ 91,000 $ 17,500
Acquisition Fees
- real estate fees --- --- --- --- --- ---
- advisory fees --- --- --- --- --- ---
- other (type & $15,100 $ 18,500 $ 13,750 $ 11,500 $ 32,250 $ 10,000
amount) (2)
Dollar Amount of Cash
Generated from Operations
before Deducting Payments --- --- --- --- --- ---
to Sponsor
Amount Paid to Sponsor
from Operations:
Property Management --- --- --- --- --- ---
Fees --- --- --- --- --- ---
Partnership Management --- --- --- --- --- ---
Fees --- --- --- --- --- ---
Reimbursements --- --- --- --- --- ---
Leasing Commissions $ 2,554 $ 4,828 $ 3,832 $ 6,977 $ 10,312 $ 224
Annual Advisory Fee --- --- --- --- --- ---
earned
to date (3)
Other (identify &
quantify)
Dollar Amount of Property
Sales and Refinancing
before Deducting Payments
to Sponsor: --- --- --- --- --- ---
Cash --- --- --- --- --- ---
Notes
Amount Paid to Sponsor
from Property Sales &
Refinancing: --- --- --- --- --- ---
Real Estate --- --- --- --- --- ---
Commissions --- --- --- --- --- ---
Incentive Fees
Other (identify &
quantify)
</TABLE>
(1) Represents Broker-Dealer discounts paid to American Investors Group, Inc.,
Underwriter, an affiliate of the Advisor and the Dealer Manager of the
Company's offering of its shares.
(2) Represent direct expense reimbursements for expenses incurred by American
Investors Group, Inc., in connection with the offer and sale of the
respective issuers' first mortgage bonds.
(3) Represents the aggregate quarterly administrative fees paid by the issuers
to American Investors Group, Inc., through 08/31/96. These fees remain
payable for the duration for which each issuer's first mortgage bonds are
outstanding.
Page B-3
<PAGE> 112
TABLE II - COMPENSATION TO SPONSOR AND AFFILIATES (CONTINUED)
For Program Offerings Concluded Since January 1991
<TABLE>
<CAPTION>
St. James Church of Temple Baptist Mt. Zion Calvary Bethel Baptist
Episcopal Jesus Christ Church African Temple of Church
Church Methodist Allentown, PA
Episcopal
Potomac, MD Washington, DC Memphis, TN Church Allentown, PA Orange, NJ
New
Brunswick, NJ
<S> <C> <C> <C> <C> <C> <C>
Date Offering 6/24/92 7/1/92 8/1/92 8/15/92 9/1/92 9/15/92
Dollar Amount Raised $ 1,430,000 $ 1,280,000 $ 380,000 $ 875,000 $ 1,820,000 $ 525,000
Amount Paid to Sponsor
from Proceeds of Offering:
Underwriting Fees (1) $ 85,085 $ 89,600 $ 26,700 $ 61,250 $ 127,400 $ 36,750
Acquisition Fees
- real estate fees --- --- --- --- --- ---
- advisory fees --- --- --- --- --- ---
- other (type & $ 12,215 $ 17,000 $ 11,900 $ 16,000 $ 37,500 $ 12,250
amount) (2)
Dollar Amount of Cash
Generated from Operations
before Deducting Payments --- --- --- --- --- ---
to Sponsor
Amount Paid to Sponsor
from Operations:
Property Management --- --- --- --- --- ---
Fees --- --- --- --- --- ---
Partnership Management --- --- --- --- --- ---
Fees --- --- --- --- --- ---
Reimbursements --- --- --- --- --- ---
Leasing Commissions $ 6,488 $ 4,022 $ 765 $ 2,243 $ 5,356 $ 3,786
Annual Advisory Fee --- --- --- --- --- ---
earned
to date (3)
Other (identify &
quantify)
Dollar Amount of Property
Sales and Refinancing
before Deducting Payments
to Sponsor: --- --- --- --- --- ---
Cash --- --- --- --- --- ---
Notes
Amount Paid to Sponsor
from Property Sales &
Refinancing: --- --- --- --- --- ---
Real Estate --- --- --- --- --- ---
Commissions --- --- --- --- --- ---
Incentive Fees
Other (identify &
quantify)
</TABLE>
(1) Represents Broker-Dealer discounts paid to American Investors Group, Inc.,
Underwriter, an affiliate of the Advisor and the Dealer Manager of the
Company's offering of its shares.
(2) Represent direct expense reimbursements for expenses incurred by American
Investors Group, Inc., in connection with the offer and sale of the
respective issuers' first mortgage bonds.
(3) Represents the aggregate quarterly administrative fees paid by the issuers
to American Investors Group, Inc., through 08/31/96. These fee remain
payable for the duration for which each issuer's first mortgage bonds are
outstanding.
Page B-4
<PAGE> 113
TABLE II - COMPENSATION TO SPONSOR AND AFFILIATES (CONTINUED)
For Program Offerings Concluded Since January 1991
<TABLE>
<CAPTION>
Unity Palo Christian Love Tabernacle Lee Memorial Nazareth Christian
Alto Baptist Church Baptist Church African Baptist Church Pentecostal
Community Methodist Church
Church Irvington, NJ Burlington, NJ Episcopal Church
Cleveland, OH Irvington, NJ
Palo Alto, CA Irvington, NJ
<S> <C> <C> <C> <C> <C> <C>
Date Offering 10/1/92 11/15/92 11/15/92 12/15/92 1/15/93 2/1/93
Dollar Amount Raised $ 2,180,000 $ 500,000 $ 1,550,000 $ 1,225,000 $ 390,000 $ 1,600,000
Amount Paid to Sponsor
from Proceeds of Offering:
Underwriting Fees (1) $ 147,150 $ 35,000 $ 108,500 $ 85,750 $ 27,300 $ 112,000
Acquisition Fees
- real estate fees --- --- --- --- --- ---
- advisory fees --- --- --- --- --- ---
- other (type & $ 20,000 $ 13,000 $ 22,000 $ 21,000 $ 9,700 $ 24,000
amount) (2)
Dollar Amount of Cash --- --- --- --- --- ---
Generated from Operations
before Deducting Payments
to Sponsor
Amount Paid to Sponsor
from Operations:
Property Management --- --- --- --- --- ---
Fees --- --- --- --- --- ---
Partnership Management --- --- --- --- --- ---
Fees --- --- --- --- --- ---
Reimbursements --- --- --- --- --- ---
Leasing Commissions $ 9,197 $ 3,517 $ 10,943 $ 6,694 $ 2,981 $ 4,249
Annual Advisory Fee --- --- --- --- --- ---
earned
to date (3)
Other (identify &
quantify)
Dollar Amount of Property
Sales and Refinancing
before Deducting Payments
to Sponsor: --- --- --- --- --- ---
Cash --- --- --- --- --- ---
Notes
Amount Paid to Sponsor
from Property Sales &
Refinancing: --- --- --- --- --- ---
Real Estate --- --- --- --- --- ---
Commissions --- --- --- --- --- ---
Incentive Fees
Other (identify &
quantify)
</TABLE>
(1) Represents Broker-Dealer discounts paid to American Investors Group, Inc.,
Underwriter, an affiliate of the Advisor and the Dealer Manager of the
Company's offering of its shares.
(2) Represent direct expense reimbursements for expenses incurred by American
Investors Group, Inc., in connection with the offer and sale of the
respective issuers' first mortgage bonds.
(3) Represents the aggregate quarterly administrative fees paid by the issuers
to American Investors Group, Inc., through 08/31/96. These fees remain
payable for the duration for which each issuer's first mortgage bonds are
outstanding.
Page B-5
<PAGE> 114
TABLE II - COMPENSATION TO SPONSOR AND AFFILIATES (CONTINUED)
For Program Offerings Concluded Since January 1991
<TABLE>
<CAPTION>
Mount Zion Lake Baptist St. Marks Friendship Christian Faith Raleigh
Christian Church Missionary Missionary Center Christian
Baptist Baptist Church Baptist Church Community
Church
Lake Oswego, OR Harvey, IL Buffalo, NY La Mesa, CA Raleigh, NC
Mt. Vernon,
NY
<S> <C> <C> <C> <C> <C> <C>
Date Offering 1/15/93 2/1/93 2/1/93 4/1/93 5/15/93 6/1/93
Dollar Amount Raised $ 750,000 $ 365,000 $ 1,500,000 $ 700,000 $ 1,765,000 $ 1,425,000
Amount Paid to Sponsor
from Proceeds of Offering: $ 52,500 $ 25,550 $ 105,000 $ 49,000 $ 119,138 $ 90,750
Underwriting Fees (1)
Acquisition Fees --- --- --- --- --- ---
- real estate fees --- --- --- --- --- ---
- advisory fees $ 14,500 $ 8,000 $ 23,000 $ 15,000 $ 17,000 $ 14,000
- other (type &
amount) (2)
Dollar Amount of Cash --- --- --- --- --- ---
Generated from Operations
before Deducting Payments
to Sponsor
Amount Paid to Sponsor
from Operations:
Property Management --- --- --- --- --- ---
Fees --- --- --- --- --- ---
Partnership Management --- --- --- --- --- ---
Fees --- --- --- --- --- ---
Reimbursements --- --- --- --- --- ---
Leasing Commissions $ 4,952 $ 1,540 $ 7,415 $ 4,508 $ 6,522 $ 6,984
Annual Advisory Fee --- --- --- --- --- ---
earned
to date (3)
Other (identify &
quantify)
Dollar Amount of Property
Sales and Refinancing
before Deducting Payments --- --- --- --- --- ---
to Sponsor: --- --- --- --- --- ---
Cash
Notes
Amount Paid to Sponsor
from Property Sales &
Refinancing: --- --- --- --- --- ---
Real Estate --- --- --- --- --- ---
Commissions --- --- --- --- --- ---
Incentive Fees
Other (identify &
quantify)
</TABLE>
(1) Represents Broker-Dealer discounts paid to American Investors Group, Inc.,
Underwriter, an affiliate of the Advisor and the Dealer Manager of the
Company's offering of its shares.
(2) Represent direct expense reimbursements for expenses incurred by American
Investors Group, Inc., in connection with the offer and sale of the
respective issuers' first mortgage bonds.
(3) Represents the aggregate quarterly administrative fees paid by the issuers
to American Investors Group, Inc., through 12/31/94. These fees remain
payable for the duration for which each issuer's first mortgage bonds are
outstanding.
Page B-6
<PAGE> 115
TABLE II - COMPENSATION TO SPONSOR AND AFFILIATES (CONTINUED)
For Program Offerings Concluded Since January 1991
<TABLE>
<CAPTION>
Porters Day Outreach Evergreen Faith Cornerstone St. Paul
Care and Christian Baptist Church Southwest Church African
Educational Center Baptist Church Methodist
Center Huntington, NY Episcopal
Suitland, MD Houston, TX San Antonio, Church
Philadelphia, TX Berkeley, CA
PA
<S> <C> <C> <C> <C> <C> <C>
Date Offering 5/15/93 5/15/93 6/1/93 6/15/93 7/15/93 8/15/93
Dollar Amount Raised $ 350,000 $ 575,000 $ 345,000 $ 700,000 $ 4,355,000 $ 1,000,000
Amount Paid to Sponsor
from Proceeds of Offering: $ 25,500 $ 39,963 $ 24,150 $ 48,650 $ 293,963 $ 67,500
Underwriting Fees (1)
Acquisition Fees --- --- --- --- --- ---
- real estate fees --- --- --- --- --- ---
- advisory fees $ 14,000 $ 12,000 $ 11,000 $ 14,000 $ 37,250 $ 19,000
- other (type &
amount) (2)
Dollar Amount of Cash --- --- --- --- --- ---
Generated from Operations
before Deducting Payments
to Sponsor
Amount Paid to Sponsor
from Operations:
Property Management --- --- --- --- --- ---
Fees --- --- --- --- --- ---
Partnership Management --- --- --- --- --- ---
Fees --- --- --- --- --- ---
Reimbursements --- --- --- --- --- ---
Leasing Commissions $ 2,175 $ 3,549 $ 966 $ 4,024 $ 9,988 $ 4,708
Annual Advisory Fee --- --- --- --- --- ---
earned
to date (3)
Other (identify &
quantify)
Dollar Amount of Property
Sales and Refinancing
before Deducting Payments --- --- --- --- --- ---
to Sponsor: --- --- --- --- --- ---
Cash
Notes
Amount Paid to Sponsor
from Property Sales &
Refinancing: --- --- --- --- --- ---
Real Estate --- --- --- --- --- ---
Commissions --- --- --- --- --- ---
Incentive Fees
Other (identify &
quantify)
</TABLE>
(1) Represents Broker-Dealer discounts paid to American Investors Group, Inc.,
Underwriter, an affiliate of the Advisor and the Dealer Manager of the
Company's offering of its shares.
(2) Represent direct expense reimbursements for expenses incurred by American
Investors Group, Inc., in connection with the offer and sale of the
respective issuers' first mortgage bonds.
(3) Represents the aggregate quarterly administrative fees paid by the issuers
to American Investors Group, Inc., through 08/31/96. These fees remain
payable for the duration for which each issuer's first mortgage bonds are
outstanding.
Page B-7
<PAGE> 116
TABLE II - COMPENSATION TO SPONSOR AND AFFILIATES (CONTINUED)
For Program Offerings Concluded Since January 1991
<TABLE>
<CAPTION>
Windsor First Baptist Peaceful Zion Central Apostolic Faith New Life
Village United Church Missionary Holiness Home Christian
Methodist Baptist Church Church Assembly Ministry
Church Miami, FL
Hampton, VA Los Angeles, CA San Antonio,
Houston, TX Atlanta, GA TX
<S> <C> <C> <C> <C> <C> <C>
Date Offering 9/1/93 10/1/93 10/15/93 11/15/93 12/15/93 2/15/94
Dollar Amount Raised $ 3,100,000 $ 2,600,000 $ 750,000 $ 1,045,000 $ 2,600,000 $ 1,850,000
Amount Paid to Sponsor
from Proceeds of Offering: $ 193,750 $ 175,000 $ 52,500 $ 87,813 $ 169,000 $ 130,000
Underwriting Fees (1)
Acquisition Fees --- --- --- --- --- ---
- real estate fees --- --- --- --- --- ---
- advisory fees $ 32,000 $ 30,500 $ 17,500 $ 12,000 $ 36,500 $ 23,000
- other (type &
amount) (2)
Dollar Amount of Cash --- --- --- --- --- ---
Generated from Operations
before Deducting Payments
to Sponsor
Amount Paid to Sponsor
from Operations:
Property Management --- --- --- --- --- ---
Fees --- --- --- --- --- ---
Partnership Management --- --- --- --- --- ---
Fees --- --- --- --- --- ---
Reimbursements --- --- --- --- --- ---
Leasing Commissions $ 13,064 $ 10,959 $ 4,070 $ 7,068 $ 10,006 $ 9,728
Annual Advisory Fee --- --- --- --- --- ---
earned
to date (3)
Other (identify &
quantify)
Dollar Amount of Property
Sales and Refinancing
before Deducting Payments --- --- --- --- --- ---
to Sponsor: --- --- --- --- --- ---
Cash
Notes
Amount Paid to Sponsor
from Property Sales &
Refinancing: --- --- --- --- --- ---
Real Estate --- --- --- --- --- ---
Commissions --- --- --- --- --- ---
Incentive Fees
Other (identify &
quantify)
</TABLE>
(1) Represents Broker-Dealer discounts paid to American Investors Group, Inc.,
Underwriter, an affiliate of the Advisor and the Dealer Manager of the
Company's offering of its shares.
(2) Represent direct expense reimbursements for expenses incurred by American
Investors Group, Inc., in connection with the offer and sale of the
respective issuers' first mortgage bonds.
(3) Represents the aggregate quarterly administrative fees paid by the issuers
to American Investors Group, Inc., through 08/31/96. These fees remain
payable for the duration for which each issuer's first mortgage bonds are
outstanding.
Page B-8
<PAGE> 117
TABLE II - COMPENSATION TO SPONSOR AND AFFILIATES (CONTINUED)
For Program Offerings Concluded Since January 1991
<TABLE>
<CAPTION>
Calvary First Baptist Woodinville Resurrection Church of By His Word
Temple of Church Church of Life Ministries Jesus Christ Christian
Allentown, PA Christ Center
Eden Prairie,
Allentown, PA Hampton, VA Woodinville, MN Washington, Tacoma, WA
WA DC
<S> <C> <C> <C> <C> <C> <C>
Date Offering 2/15/94 4/1/94 5/15/94 5/15/94 6/1/94 8/28/94
Dollar Amount Raised $ 1,950,000 $ 740,000 $ 440,000 $ 620,000 $ 1,735,000 $ 1,665,000
Amount Paid to Sponsor
from Proceeds of Offering: $ 121,875 $ 46,250 $ 27,500 $ 90,300 $ 103,233 $ 71,595
Underwriting Fees (1)
Acquisition Fees --- --- --- --- --- ---
- real estate fees --- --- --- --- --- ---
- advisory fees $ 18,000 $ 11,200 $ 12,000 $ 3,000 $ 21,000 $ 17,000
- other (type &
amount) (2)
Dollar Amount of Cash --- --- --- --- --- ---
Generated from Operations
before Deducting Payments
to Sponsor
Amount Paid to Sponsor
from Operations:
Property Management --- --- --- --- --- ---
Fees --- --- --- --- --- ---
Partnership Management --- --- --- --- --- ---
Fees --- --- --- --- --- ---
Reimbursements --- --- --- --- --- ---
Leasing Commissions $ 5,730 $ 10,959 $ 1,553 $ 11,012 $ 8,196 $ 7,884
Annual Advisory Fee --- --- --- --- --- ---
earned
to date (3)
Other (identify &
quantify)
Dollar Amount of Property
Sales and Refinancing
before Deducting Payments --- --- --- --- --- ---
to Sponsor: --- --- --- --- --- ---
Cash
Notes
Amount Paid to Sponsor
from Property Sales &
Refinancing: --- --- --- --- --- ---
Real Estate --- --- --- --- --- ---
Commissions --- --- --- --- --- ---
Incentive Fees
Other (identify &
quantify)
</TABLE>
(1) Represents Broker-Dealer discounts paid to American Investors Group, Inc.,
Underwriter, an affiliate of the Advisor and the Dealer Manager of the
Company's offering of its shares.
(2) Represent direct expense reimbursements for expenses incurred by American
Investors Group, Inc., in connection with the offer and sale of the
respective issuers' first mortgage bonds.
(3) Represents the aggregate quarterly administrative fees paid by the issuers
to American Investors Group, Inc., through 08/31/96. These fees remain
payable for the duration for which each issuer's first mortgage bonds are
outstanding.
Page B-9
<PAGE> 118
TABLE II - COMPENSATION TO SPONSOR AND AFFILIATES (CONTINUED)
For Program Offerings Concluded Since January 1991
<TABLE>
<CAPTION>
Liberty Church Morningstar Gates of Windsor Hopewell St. Agnes
Baptist Heaven Village United Missionary Missionary
Church Methodist Baptist Church Baptist
Edmond, OK Church Church
Brooklyn, NY El Paso, TX Norcross, GA
Houston, TX Houston, TX
<S> <C> <C> <C> <C> <C> <C>
Date Offering 7/1/94 9/15/94 11/15/94 1/1/95 1/15/95 3/15/95
Dollar Amount Raised $ 900,000 $ 800,000 $ 3,400,000 $ 725,000 $ 6,350,000 $3,200,000
Amount Paid to Sponsor
from Proceeds of Offering: $ 53,550 $ 47,600 $ 202,300 $ 45,313 $ 377,825 $ 190,400
Underwriting Fees (1)
Acquisition Fees --- --- --- --- --- ---
- real estate fees --- --- --- --- --- ---
- advisory fees $ 11,000 $ 10,000 $ 30,000 $ 7,000 $ 45,000 $ 27,000
- other (type &
amount) (2)
Dollar Amount of Cash --- --- --- --- --- ---
Generated from Operations
before Deducting Payments
to Sponsor
Amount Paid to Sponsor
from Operations: --- --- --- ---
Property Management --- --- --- --- --- ---
Fees --- --- --- --- --- ---
Partnership Management --- --- --- --- --- ---
Fees --- --- --- --- --- ---
Reimbursements --- --- --- --- --- ---
Leasing Commissions $ 4,258 $ 3,357 $ 8,488 $ 1,740 $ 15,094 $ 6,395
Annual Advisor Fee --- --- --- --- --- ---
earned
to date (3)
Other (identify &
quantify)
Dollar Amount of Property
Sales and Refinancing
before Deducting Payments --- --- --- --- --- ---
to Sponsor: --- --- --- --- --- ---
Cash
Notes
Amount Paid to Sponsor
from Property Sales &
Refinancing: --- --- --- --- --- ---
Real Estate --- --- --- --- --- ---
Commissions --- --- --- --- --- ---
Incentive Fees
Other (identify &
quantify)
</TABLE>
(1) Represents Broker-Dealer discounts paid to American Investors Group, Inc.,
Underwriter, an affiliate of the Advisor and the Dealer Manager of the
Company's offering of its shares.
(2) Represent direct expense reimbursements for expenses incurred by American
Investors Group, Inc., in connection with the offer and sale of the
respective issuers' first mortgage bonds.
(3) Represents the aggregate quarterly administrative fees paid by the issuers
to American Investors Group, Inc., through 08/31/96. These fees remain
payable for the duration for which each issuer's first mortgage bonds are
outstanding.
Page B-10
<PAGE> 119
TABLE II - COMPENSATION TO SPONSOR AND AFFILIATES (CONTINUED)
For Program Offerings Concluded Since January 1991
<TABLE>
<CAPTION>
Church of the Zion St. Mark's Emmanuel The Abundant Life
Great Evangelistic Missionary Baptist Community Church
Commission Temple Baptist Church Church Protestant of Christ
Church
Camp Springs, Troy, MI Harvey, IL Newington, CT Richmond, VA
MD Bronx, NY
<S> <C> <C> <C> <C> <C> <C>
Date Offering 4/1/95 4/15/95 4/01/95 07/15/95 08/15/95 10/15/95
Dollar Amount Raised $ 2,200,000 $4,375,000 $360,000 $1,655,000 $1,500,000 $1,425,000
Amount Paid to Sponsor
from Proceeds of Offering: $ 130,900 $ 260,313 $24,300 $ 98,475 $ 89,250 $ 80,888
Underwriting Fees (1)
Acquisition Fees --- --- --- --- --- ---
- real estate fees --- --- --- --- --- ---
- advisory fees $ 25,500 $ 39,000 $14,500 $ 20,000 $ 24,000 $ 30,000
- other (type &
amount) (2)
Dollar Amount of Cash --- --- --- --- --- ---
Generated from Operations
before Deducting Payments
to Sponsor
Amount Paid to Sponsor
from Operations:
Property Management --- --- --- --- --- ---
Fees --- --- --- --- --- ---
Partnership Management --- --- --- --- --- ---
Fees --- --- --- --- --- ---
Reimbursements --- --- --- --- --- ---
Leasing Commissions $ 5,497 $ 8,720 $ 720 $ 3,972 $ 3,560 $ 2,271
Annual Advisor Fee --- --- --- --- --- ---
earned
to date (3)
Other (identify &
quantify)
Dollar Amount of Property
Sales and Refinancing
before Deducting Payments --- --- --- --- --- ---
to Sponsor: --- --- --- --- --- ---
Cash
Notes
Amount Paid to Sponsor
from Property Sales &
Refinancing: --- --- --- --- --- ---
Real Estate --- --- --- --- --- ---
Commissions --- --- --- --- --- ---
Incentive Fees
Other (identify &
quantify)
</TABLE>
(1) Represents Broker-Dealer discounts paid to American Investors Group, Inc.,
Underwriter, an affiliate of the Advisor and the Dealer Manager of the
Company's offering of its shares.
(2) Represent direct expense reimbursements for expenses incurred by American
Investors Group, Inc., in connection with the offer and sale of the
respective issuers' first mortgage bonds.
(3) Represents the aggregate quarterly administrative fees paid by the issuers
to American Investors Group, Inc., through 08/31/96. These fees remain
payable for the duration for which each issuer's first mortgage bonds are
outstanding.
Page B-11
<PAGE> 120
TABLE II - COMPENSATION TO SPONSOR AND AFFILIATES (CONTINUED)
For Program Offerings Concluded Since January 1991
<TABLE>
<CAPTION>
Greely Twelfth Avenue The Holden House of Pembroke Park Faith
Church of General Baptist Chapel Praise Church Community
Christ Church, Inc. Ministries, of Christ, Inc. Church, Inc.
Holden, MA Inc.
Greely, CO Evansville, IN Pembroke Park, FL Tucson, AZ
Castleton, NY
<S> <C> <C> <C> <C> <C> <C>
Date Offering 10/15/95 10/15/95 11/01/95 10/01/95 11/15/95 12/01/95
Dollar Amount Raised $500,000 $1,195,000 $500,000 $675,000 $600,000 $950,000
Amount Paid to Sponsor
from
Proceeds of Offering: $ 41,500 $83,650 $29,750 $ 40,163 $ 37,500 $ 84,800
Underwriting Fees (1)
Acquisition Fees --- --- --- --- --- ---
- real estate fees --- --- --- --- --- ---
- advisory fees $ 5,000 $ 5,000 $5,000 $ 20,837 $ 6,000 $ 13,000
- other (type &
amount) (2)
Dollar Amount of Cash --- --- --- --- --- ---
Generated
from Operations before
Deducting
Payments to Sponsor
Amount Paid to Sponsor
from
Operations: --- --- --- --- --- ---
Property Management --- --- --- --- --- ---
Fees --- --- --- --- --- ---
Partnership Management --- --- --- --- --- ---
Fees --- --- --- --- --- ---
Reimbursements --- --- $ 654 $ 1,014 $ 538 ---
Leasing Commissions --- --- --- --- --- ---
Annual Advisor Fee
earned
to date (3)
Other (identify &
quantify)
Dollar Amount of Property
Sales
and Refinancing before
Deducting --- --- --- --- --- ---
Payments to Sponsor: --- --- --- --- --- ---
Cash
Notes
Amount Paid to Sponsor
from --- --- --- ---
Property Sales & --- --- --- --- --- ---
Refinancing: --- --- --- --- --- ---
Real Estate --- ---
Commissions
Incentive Fees
Other (identify &
quantify)
</TABLE>
(1) Represents Broker-Dealer discounts paid to American Investors Group, Inc.,
Underwriter, an affiliate of the Advisor and the Dealer Manager of the
Company's offering of its shares.
(2) Represent direct expense reimbursements for expenses incurred by American
Investors Group, Inc., in connection with the offer and sale of the
respective issuers' first mortgage bonds.
(3) Represents the aggregate quarterly administrative fees paid by the issuers
to American Investors Group, Inc., through 08/31/96. These fees remain
payable for the duration for which each issuer's first mortgage bonds are
outstanding.
Page B-12
<PAGE> 121
TABLE II - COMPENSATION TO SPONSOR AND AFFILIATES (CONTINUED)
For Program Offerings Concluded Since January 1991
<TABLE>
<CAPTION>
Christ Church of Oasis Centennial St. Agnes Lake Cornerstone
Kirkland Christian Star of Missionary Baptist Church
Center Bethlehem Baptist Church Church
Lake
Kirkland ,WA Bakersfield, Ossing, NY Houston, TX Oswego, OR San Antonio, TX
CA
<S> <C> <C> <C> <C> <C> <C>
Date Offering 12/29/95 02/15/96 02/01/96 03/15/96 03/15/96 05/15/96
Dollar Amount Raised $2,785,000 $825,000 $1,195,000 $875,000 $1,184,000 $6,600,000
Amount Paid to Sponsor
from
Proceeds of Offering: $ 192,165 $ 49,088 $ 71,103 $ 52,063 $ 109,480 $ 412,500
Underwriting Fees (1)
Acquisition Fees --- --- --- --- --- ---
- real estate fees --- --- --- --- --- ---
- advisory fees $ 8,400 $ 5,912 $ 17,000 $ 15,000 $ 15,520 $ 32,000
- other (type &
amount) (2)
Dollar Amount of Cash --- --- --- --- --- ---
Generated
from Operations before
Deducting
Payments to Sponsor
Amount Paid to Sponsor from
Operations: --- --- --- --- --- ---
Property Management --- --- --- --- --- ---
Fees --- --- --- --- --- ---
Partnership Management --- --- --- --- --- ---
Fees --- --- --- --- --- ---
Reimbursements $ 2,786 $ 990 $ 1,320 $ 6,395 $ 920 $ 1,320
Leasing Commissions --- --- --- --- --- ---
Annual Advisor Fee
earned
to date (3)
Other (identify &
quantify)
Dollar Amount of Property
Sales
and Refinancing before
Deducting --- --- --- --- --- ---
Payments to Sponsor: --- --- --- --- --- ---
Cash
Notes
Amount Paid to Sponsor from
Property Sales & --- --- --- --- --- ---
Refinancing: --- --- --- --- --- ---
Real Estate Commissions --- --- --- --- --- ---
Incentive Fees
Other (identify &
quantify)
</TABLE>
(1) Represents Broker-Dealer discounts paid to American Investors Group, Inc.,
Underwriter, an affiliate of the Advisor and the Dealer Manager of the
Company's offering of its shares.
(2) Represent direct expense reimbursements for expenses incurred by American
Investors Group, Inc., in connection with the offer and sale of the
respective issuers' first mortgage bonds.
(3) Represents the aggregate quarterly administrative fees paid by the issuers
to American Investors Group, Inc., through 08/31/96. These fees remain
payable for the duration for which each issuer's first mortgage bonds are
outstanding.
<PAGE> 122
TABLE II B
LOCATION OF PRIOR MORTGAGE LOANS TO CHURCHES
MADE BY AFFILIATE* OF ADVISOR
1987 to August 1996
<TABLE>
<CAPTION>
Total Original Principal Loans Made in Each
Number of Amount of Loans State as Percentage
Loans** Made Made In Each State Of Total Loans Made
------------ -------------------- -------------------
<S> <C> <C> <C>
Arizona 1 $ 950,000 0.64%
California 7 12,095,000 8.19%
Colorado 3 2,820,00 1.91%
Connecticut 1 1,655,000 1.12%
District of Columbia 2 3,015,000 2.04%
Florida 4 4,075,000 2.76%
Georgia 5 18,895,000 12.79%
Illinois 3 2,200,000 1.49%
Indiana 1 1,195,000 0.81%
Kansas 1 475,000 0.32%
Maryland 5 6,700,000 4.54%
Massachusetts 1 500,000 0.34%
Michigan 1 4,375,000 2.96%
Minnesota 4 5,165,000 3.50%
New Jersey 6 5,770,000 3.91%
New York 13 11,060,000 7.49%
North Carolina 2 2,877,000 1.95%
Ohio 1 1,225,000 0.83%
Oklahoma 2 2,370,000 1.60%
Oregon 4 4,755,000 3.22%
Pennsylvania 4 4,510,000 3.05%
Texas 15 31,600,000 21.39%
Virginia 4 5,265,000 3.56%
Washington 5 7,145,000 4.84%
Tennessee 7 7,020,000 4.75%
---- ------------ ------
102 $ 124,232,000 100%
</TABLE>
* Loans were made through first mortgage bond underwritings
conducted by the Dealer Manager, American Investors Group, Inc.,
which is an affiliate of the Advisor.
** Data includes refinancings of prior bond underwriting programs
underwritten by American Investors Group, Inc.
<PAGE> 123
EXHIBIT A
American Church Mortgage Company
Subscription Agreement
Amount $ _________________________ Number of Shares__________________
Dividend Reinvestment Option ______ yes ______ no
<TABLE>
<S><C>
OWNERSHIP Name(s)_____________________________________________________________________________________________________
REGISTRATION: (investor(s) names)
Address_____________________________________________________________________________________________________
City_____________________________________________________________State_________________Zip__________________
Social Security # _____-_____-______ or Tax I.D.# _____-________Date(s) of Birth ______/______/______
_____-_____-______ ______/______/______
Under penalties of perjury, the undersigned certifies (1) that the number shown as his taxpayer identification number is his correct
taxpayer identification number and (2) that he is not subject to back up withholding either because he has not been notified that he
is subject to backup withholding as a result of a failure to report all interest and dividends or because the Internal Revenue
Service has notified him that he is no longer subject to backup withholding.
- ------------------------------------------------------------------------------------------------------------------------------------
MAILING ADDRESS Name(s)_________________________________________________________________________________________________
FOR CORRES-
PONDENCE AND CASH Address_________________________________________________________________________________________________
DISTRIBUTIONS:
(If different from above) City_______________________________________________________State_____________________Zip_________________
- ------------------------------------------------------------------------------------------------------------------------------------
TITLE TO _______Individual _______Tenants in Common _______IRA _______Partnership
BE HELD: _______Joint Tenants/Rights _______Corporation _______Trust _______Pension Plan
of Survivorship _______Marital Property _______Custodian _______Profit Sharing
- ------------------------------------------------------------------------------------------------------------------------------------
SIGNATURES: The undersigned hereby represents and warrants that:
(i) he/she is or will be in a financial position appropriate to enable him/her to realize, to a significant
extent, the benefits discussed in the Prospectus;
(ii) he/she has a fair market net worth sufficient to sustain the risks inherent in the Shares, including loss of
investment and lack of liquidity;
(iii) the Shares are otherwise suitable for the above-named investor based on the factors set forth in the
Prospectus; and
(iv) a copy of the Prospectus, as amended and/or supplemented to date, has been delivered to me, and I
acknowledge that such Prospectus was received.
Executed this ______day of ______________, 199_____at_____________________________________(city)
_______________(state)
Signature (investor's, otherwise Trustee of IRA, Pension Plan, etc.)_______________________________________________
Additional Signature (if joint tenant)_____________________________________________________________________________
- ------------------------------------------------------------------------------------------------------------------------------------
On the basis of the foregoing representations and warranties, the Soliciting Dealer believes that the Shares are suitable for the
above-named investor(s) and we have informed the investor(s) of the illiquidity of the Shares, and the investor(s) has a fair
market net worth sufficient to sustain the risks inherent in the Shares.
SOLICITING Firm__________________________________________________________________________________________________________
DEALER
ENDORSEMENT: Registered Representative_____________________________________________Phone___________________________________
Address_______________________________________________________________________________________________________
Dealer Authorized Signature___________________________________________________________________________________
NOTE: Checks to be made payable to: American Investors Group, Inc., 10237 Yellow Circle Drive, Minneapolis, MN 55343
- ------------------------------------------------------------------------------------------------------------------------------------
Accepted by: AMERICAN CHURCH MORTGAGE CORPORATION
By: Church Loan Advisors, Inc. Date
-----------------------------------------------------------------------------------------------
(Advisor) (President)
</TABLE>
WHITE-ISSUER YELLOW-INVESTOR PINK-BROKER-DEALER GOLD-BROKER
<PAGE> 124
EXHIBIT B
2,000,000 Common Shares
AMERICAN CHURCH MORTGAGE COMPANY
SUITABILITY CERTIFICATE
(to be returned with Subscription Agreement)
TO: American Church Mortgage Company
10237 Yellow Circle Drive
Minneapolis, Minnesota 55343
I certify that: (please check one)
_____ I (either individually or with my spouse) had an annual gross income of
at least $45,000 during the previous calendar year, have a net worth of
at least $45,000 (exclusive of my (our) principal residence and its
furnishings and automobiles), and am purchasing Common Shares for my
(our) own account or for my (our) retirement plan or trust.
_____ I (either individually or with my spouse) have a net worth of at least
$150,000 (exclusive of my (our) principal residence and its furnishings
and automobiles) and am purchasing Common Shares for my (our) own
account or for my (our) retirement plan or trust.
In the case of sales to fiduciary accounts, these minimum standards shall
be met by the beneficiary, the fiduciary account, or by the donor or grantor
who directly or indirectly supplies the funds to purchase the Shares if the
donor or grantor is the fiduciary.
Dated:_________________________________________
____________________________________________________
(Signature)
_____________________________________________________
(Print or type name)
If the purchaser is an entity:
_____________________________________________________
(Print or type name of entity)
_____________________________________________________
(Print or type title or position of signatory)
NOTE: The person signing this
Certificate warrants, by his
signature above, that he or she
is fully authorized and
empowered by the entity named
above to make the
representations contained
herein with respect to such
entity.
WHITE-ISSUER YELLOW-INVESTOR PINK-BROKER-DEALER GOLD-BROKER
<PAGE> 125
Page intentionally left blank
<PAGE> 126
__________________________________________________________
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE COMPANY OR THE DEALER MANAGER. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY ANY
SECURITIES OTHER THAN THE SECURITIES TO WHICH IT RELATES OR AN OFFER TO SELL OR
A SOLICITATION OF AN OFFER TO BUY SUCH SECURITIES IN ANY CIRCUMSTANCES OR IN
ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
_______________________
<TABLE>
TABLE OF CONTENTS
<S> <C>
THE OFFERING SUMMARY........................... 4
RISK FACTORS................................... 9
WHO MAY INVEST................................. 14
USE OF PROCEEDS................................ 15
COMPENSATION TO ADVISOR AND AFFILIATES......... 16
CONFLICTS OF INTEREST.......................... 18
DISTRIBUTIONS.................................. 20
CAPITALIZATION................................. 21
SELECTED FINANCIAL DATA........................ 22
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION.................... 23
BUSINESS OF THE COMPANY........................ 25
MANAGEMENT..................................... 32
SECURITY OWNERSHIP OF MANAGEMENT
AND OTHERS................................ 35
CERTAIN RELATIONSHIPS AND TRANSACTIONS
WITH MANAGEMENT.......................... 36
THE ADVISOR AND THE ADVISORY AGREEMENT......... 37
FEDERAL INCOME TAX CONSIDERATIONS.............. 44
ERISA CONSIDERATIONS........................... 50
DESCRIPTION OF CAPITAL STOCK................... 52
SUMMARY OF THE ORGANIZATIONAL DOCUMENTS........ 54
PLAN OF DISTRIBUTION........................... 58
COMMISSION POSITION ON INDEMNIFICATION
FOR SECURITIES ACT LIABILITIES............... 60
LEGAL MATTERS.................................. 61
EXPERTS........................................ 61
REPORTS TO SHAREHOLDERS, RIGHTS
OF EXAMINATION AND
ADDITIONAL INFORMATION.................. 61
GLOSSARY....................................... 62
FINANCIAL STATEMENTS........................... F-1
APPENDIX I..................................... A-1
</TABLE>
__________________________________________________________
UNTIL 45 DAYS AFTER COMPLETION OF THIS OFFERING, ALL DEALERS EFFECTING
TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS
DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO
THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS
AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
__________________________________________________________
2,000,000 Shares
American Church
Mortgage Company
Common Stock
________________________
PROSPECTUS
________________________
AMERICAN INVESTORS GROUP, INC.
September 6 , 1996
__________________________________________________________
<PAGE> 127
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 30. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
<TABLE>
<S> <C>
SEC Registration Fee ....................... $ 7,586
NASD Filing Fee ............................ 2,720
*Blue Sky Qualification Fees and Expenses .. 15,000
*Fees of Transfer Agent .................... 4,000
*Printing and Engraving .................... 30,000
*Underwriters' Expense Allowance ........... 53,000 **
*Legal Fees and Expenses ................... 45,000
*Accounting Fees and Expenses .............. 26,000
*Miscellaneous ............................. 16,694
--------
Total .................................. $200,000 **
========
</TABLE>
- ---------------
*The amount has been estimated.
** Assumes all Shares are sold.
ITEM 33. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article 7 of the Registrant's Amended and Restated Articles of
Incorporation, and Article 5 of the Registrant's Amended and Restated Bylaws,
included as Exhibits 3.1 and 3.2 respectively, provide for indemnification of
the Directors and Officers of the Registrant against liability to the full
extent permitted under Minnesota law, as limited by the NASAA Statement of
Policy Regarding REIT's, adopted September 29, 1993. Subject to any
limitations contained below, the Company shall indemnify and hold harmless the
Directors, Advisors or Affiliates who are performing services on behalf of the
Company and acting within the scope of the Director's authority against any and
all losses or liabilities reasonably incurred by them and connection with or by
reason of any act performed or omitted to be performed by them and that (I) the
Directors, Advisors or Affiliates have determined, in good faith, that the
course of conduct which caused the loss or liability was in the best interests
of the Company, (ii) such liability or loss was not the result of: (a)
negligence or misconduct by the Directors, excluding the Independent Directors,
Advisors or Affiliates, or (b) gross negligence or willful misconduct by the
Independent Trustees, and (iii) such indemnification or agreement to hold
harmless is recoverable only out of the assets of the Company and not from the
Shareholders.
The Company shall not indemnify any Person, including any person acting as
a broker-dealer, for any liability imposed by the judgment, and costs
associated therewith, including attorney's fees, arising from or out of a
violation of state or federal securities laws associated with the offer and
sale of Shares. Notwithstanding anything to the contrary in the preceding
paragraph, however, the Company may indemnify a Director, Advisor or Affiliate
for any losses, liabilities, or expenses arising from or out of an alleged
violation of federal or state securities laws provided one or more of the
following conditions are met: (a) there has been a successful adjudication on
the merits of each count involving alleged securities law violations as to the
particular indemnitee, or (b) such claims have been dismissed with prejudice on
the merits by a court of competent jurisdiction as to the particular
indemnitee, or (C) a court of competent jurisdiction approves a settlement or
the claims against a particular indemnitee and finds that indemnification of
the settlement and the related costs should be made, and the court considering
the request for indemnification has been advised of the position of the
Securities and Exchange Commission and of the published position of any state
securities regulatory authority in which the Company's Shares were offered and
break7s to indemnification for violations of securities laws.
The indemnification provided by the provisions of the Amended and Restated
Articles of Incorporation shall continue for the period of time of service or
for any matter arising out of the term of service as to an indemnified party
and shall inure to the benefit of the heirs, executors and administrators of
such a person.
The Company shall not pay for any insurance covering liability of the
indemnified party for actions or omissions for which indemnification is not
permitted hereunder; provided, however, that nothing contained herein shall
preclude the Company from purchasing and paying for such types of insurance,
including extended coverage liability and casualty and workers' compensation,
as would be customary for any person owning comparable assets and engaged in a
similar business, or from naming an indemnified party or a party potentially
entitled to indemnification hereunder as an additional insured party
thereunder. Nothing contained in the Amended and Restated Articles of
Incorporation shall constitute a waiver by any person entitled to
indemnification of any right which he or she may have against any party under
federal or state securities laws.
II-1
<PAGE> 128
The Company may not advance funds to a Director, Advisor or Affiliate for
legal expenses and other costs incurred as a result of a legal action for which
indemnification is being sought unless all of the following conditions are
satisfied: (1) The legal action relates to acts or omissions with respect to
the performance of duties or services on behalf of the Company; (2) The legal
action is initiated by a third party who is not a Shareholder or the legal
action is initiated by a Shareholder acting in his or her capacity as such and
a court of competent jurisdiction specifically approves such advancement; and
(3) The Directors, Advisors or Affiliates undertake to repay the advanced funds
to the Company, together with the applicable legal rate of interest thereon, in
cases in which such Directors, Advisors or Affiliates are found not to be
entitled to indemnification.
Section 6 of the form of Underwriting Agreement, included as Exhibit 10.0
hereto provides for the indemnification by the Dealer-Manager of the
Registrant's Directors and Officers who have signed or will sign any
Registration Statement of the Company against certain civil liabilities arising
in connection with the offer and sale of the Shares, including liabilities
under the Securities Act of 1933, as amended. Such indemnification is limited
by the above provisions.
Balance of page intentionally left blank.
II-2
<PAGE> 129
ITEM 35. FINANCIAL STATEMENTS AND EXHIBITS.
(a) FINANCIAL STATEMENTS
None
SCHEDULES
None
(b) EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Title Method of Filing
- ------- ----- ----------------
<S> <C> <C>
1.1 Third Amendment and Supplement to
Underwriting Agreement .................................... filed herewith
24.1 Consent of Auditor (McGladrey & Pullen) ................... filed herewith
24.2 Consent of Auditor (Boulay Heutmaker Zibell & Co., PLLP) .. filed herewith
</TABLE>
Balance of page intentionally left blank.
II-3
<PAGE> 130
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 the Registrant
hereby certifies that it has reasonable grounds to believe that it meets all of
the requirements for filing on Form S-11 and has duly caused this
Post-Effective Amendment No. 3 to the Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized in the City of
Minneapolis, State of Minnesota, on the 6th day of September, 1996.
AMERICAN CHURCH MORTGAGE COMPANY
By:
--------------------------------------
V. James Davis, President
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed below by the following persons in
the capacities and on the dates set forth below opposite their respective
names:
Signature Capacity Date
- ------------------------------ Chief Executive September 6, 1996
V. James Davis Officer,
Treasurer (and Chief
Financial Officer)
and Director
- ------------------------------ Vice President, September 6, 1996
David G. Reinhart Secretary and Director
/s/ Kirbyjon H. Caldwell Director September 6, 1996
- ------------------------------
Kirbyjon H. Caldwell*
/s/ Robert O. Naegele, Jr. Director September 6, 1996
- -----------------------------
Robert O. Naegele, Jr.*
/s/ Dennis J. Doyle Director September 6, 1996
- -----------------------------
Dennis J. Doyle*
/s/ John M. Clarey Director September 6, 1996
- -----------------------------
John M. Clarey*
* By: V. James Davis and David G. Reinhart, Attorneys-in-Fact.
II-4
<PAGE> 1
EXHIBIT 1.1 TO POST-EFFECTIVE AMENDMENT NO. 3
THIRD AMENDMENT AND SUPPLEMENT TO
UNDERWRITING AGREEMENT
THIS AGREEMENT is made and entered into this 11th day of July, 1996, by and
between American Church Mortgage Company, a Minnesota corporation (the
"Company"), and American Investors Group, Inc., a Delaware corporation (the
"Dealer Manager").
WHEREAS, the parties have entered into that certain Underwriting Agreement
dated as of the 11th day of July, 1995 (the "Underwriting Agreement"), as
amended; and
WHEREAS, the Securities and Exchange Commission declared the Company's
Registration Statement on Form S-11 effective on July 11, 1995, as amended by
Post-Effective Amendment No. 1 effective October 31, 1995 and by
Post-Effective Amendment No. 2 effective February 1, 1996 (the "Public
Offering"); and
WHEREAS, the Public Offering and Underwriting Agreement, as amended provided
that the Offering Period would end July 11, 1996 unless extended by the company
and the Dealer Manager; and
WHEREAS, the Company and Dealer Manager have agreed to amend the Underwriting
Agreement (as amended) to extend the Offering Period to November 8, 1996.
NOW, THEREFORE, for good and valuable consideration, the parties hereto agree
as follows:
1. The terms and conditions of the Underwriting Agreement and First and
Second Amendments thereto are hereby acknowledged to be the continuing
agreement of the parties, subject to the specific changes and amendments herein
set forth.
2. The Offering Period, as defined in the Underwriting Agreement, is
hereby extended to November 8, 1996.
3. Except as specifically amended and modified hereby, all other terms and
provisions of the Underwriting Agreement and First and Second Amendments
thereto shall remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have duly executed this Third Amendment
and Supplement to Underwriting Agreement as of the date first above written.
DEALER MANAGER: COMPANY:
AMERICAN INVESTORS GROUP, INC. AMERICAN CHURCH MORTGAGE COMPANY
Philip J. Myers, Senior V. Pres V. James Davis, President
<PAGE> 1
24.1 TO POST EFFECTIVE AMENDMENT NO.3
CONSENT OF INDEPENDENT AUDITOR
We hereby consent to the use of our report, dated February 17, 1995 (May 19,
1995, as to the last paragraph of Note 2), and to the reference to our Firm
under the captions "Selected Financial Data" and "Experts" included in or made
a part of the Amendment No. 4 to the Registration Statement on Form S-11 of
American Church Mortgage Company, filed on September 6, 1996, and the
Prospectus contained therein.
McGLADREY & PULLEN, LLP
Minneapolis, Minnesota
September 6, 1996
<PAGE> 1
24.2 TO POST-EFFECTIVE AMENDMENT NO. 3
BOULAY, HEUTMAKER, ZIBELL &CO. P.L.L.P.
CERTIFIED PUBLIC ACCOUNTANTS & CONSULTANTS
We consent to the incorporation by reference in this Registration Statement of
American Church Mortgage Company on Form S- I I of our report dated March 12,
1996, appearing in (or incorporation by reference in) the Registration
Statement on Form S- I I of American Church Mortgage Company for the year ended
December 31, 1995.
Boulay, Heutmaker, Zibell & Co. P.L.L.P.
Certified Public Accountants
Minneapolis, Minnesota
September 6, 1996
