As filed with the Securities and Exchange Commission on_________ ___, 1997.
Registration No. 33-
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
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
Minnetonka, Minnesota 55343
(Address of principal executive offices of registrant)
David G. Reinhart, Vice-President & Secretary
American Church Mortgage Company
10237 Yellow Circle Drive
Minnetonka, 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)
Approximate date of commencement of proposed sale to
the public: As soon as practicable after the Registration
Statement becomes effective.
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
<S> <C> <C> <C> <C>
Proposed Maximum Proposed Maximum
Title of Securities Being Amount Being Offering Price Aggregate Offering Price Amount of Registration
Registered Registered per Share (2) (2) Fee
Common Stock, $.01 par value 1,650,000 (1) $10.00 $16,500,000 $5,000.00
============================= ================== ======================= ======================= ======================
</TABLE>
(1) Includes (i) 1,500,000 authorized and unissued shares to be offered to
the public, and (ii) 150,000 authorized and unissued shares reserved
for issuance under the Registrant's dividend reinvestment plan.
(2) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457 (a) under the Securities Act of 1933, as
amended based on (i) actual $10.00 per share for 1,500,000 shares to be
offered to public, and (ii) estimated $10.00 per share purchase price
of 150,000 shares to be registered and reserved for future issuance
under the Registrant's dividend reinvestment plan. There is no current
market for the shares.
The Registrant hereby amends this Registration Statement on such date
or dates am may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until this Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a)
may determine.
<PAGE>
AMERICAN CHURCH MORTGAGE COMPANY
PART 1
INFORMATION REQUIRED IN PROSPECTUS
CROSS REFERENCE SHEET
Required by Item 501(b) of Regulation S-K
<TABLE>
<CAPTION>
<S> <C>
Item Number and Caption in Form S-11 Heading in Prospectus
1. Forepart of Registration Statement and Outside Cover Page of Registration Statement; Outside Cover
Front Cover Page of Prospectus. Page of Prospectus
2. Inside Front and Outside Back Cover Pages of Inside Front and Outside Back Cover Pages of
Prospectus Prospectus
3. Summary Information, Risk Factors and Ratio Front Cover Page; Prospectus Summary;
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 ofOperations Condition and Results of 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
2
<PAGE>
Item Number and Caption in Form S-11 Heading in Prospectus
15.Operating Data Not Applicable
16.Tax Treatment of Registrant and Its Security Summary--Tax Status of Company; Risk Factors--Risks
Holders Related to Federal Income Taxation; Federal Income
Tax Considerations
17.Market Price of and Dividends on Registrant's Inside Front Cover; Summary--Dividends and
Common Equity and Related Shareholder Matters Distributions; Distributions
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 Interest;
Registrant's Investments Compensation to Advisor and Affiliates; Business of the
Company; Management; The Advisor and the Advisory
Agreement
25.Policies with Respect to Certain Transactions Risk Factors; Use of Proceeds; Conflicts of 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 Liabilities Directors, Possible Inadequacy of Remedies
</TABLE>
3
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
soliciation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
<PAGE>
SUBJECT TO COMPLETION, DATED MAY 22, 1997
PROSPECTUS
[GRAPHIC OMITTED]
1,500,000 Shares
American Church Mortgage Company
Common Stock
The shares of Common Stock offered hereby (the "Shares") are being sold
on a best efforts basis by American Church Mortgage Company (the "Company").
Prior to this Offering, there has been no public market for the common stock of
the Company. The Offering price has been determined by negotiations between the
Company and the Managing Underwriter. American Investors Group, Inc., an
affiliate of the Company, is the Managing Underwriter 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'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 interest rate
fluctuations or payment default, which could adversely affect the Company's
ability to make distributions or to qualify as a REIT.
* Potential conflicts of interest and mutual benefits to affiliates of the
Company, the Managing Underwriter 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.
* 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 were to lose its status as a
REIT.
* Potential anti-takeover effects of limiting ownership to 9.8% of the
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 $.595 $9.405
Total ...................................$15,000,000 $892,500 $14,107,500
</TABLE>
(footnotes on following page)
LASALLE ST. SECURITIES, INC. AMERICAN INVESTORS GROUP, INC.
Chicago, Illinois Minneapolis, Minnesota
The date of this Prospectus is ___________, 1997.
4
<PAGE>
(FOOTNOTES FROM PREVIOUS PAGE)
(1) The Shares are being offered on a "best efforts" basis. The Company will pay
the Underwriters selling commissions equal to 5.95% of the gross proceeds from
the sale of the Shares, all or any part of which commissions may be reallowed
to Soliciting Dealers. The Company has also agreed to pay the non-accountable
expenses of the Managing Underwriter in the amount of $35,000 on the first
100,000 Shares sold and $7,000 on each increment of 100,000 Shares sold
thereafter . In addition, the Company has agreed to indemnify the Underwriters
against certain civil liabilities, including liabilities under the Securities
Act of 1933. The public offering price of the Shares was determined by
negotiations between the Company and the Managing Underwriter based on the
price paid ($10.00 per share) by the Company's initialshareholder and
shareholders who purchased shares in the Company's initial public offering
completed November 8, 1996. See "Plan of Distribution." The Managing
Underwriter 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 $195,150, payable by the Company, including the Underwriter's
non-accountable expenses of up to $133,000. See "Plan of Distribution."
The Company has registered 1,650,000 Shares of common stock, $.01 par
value per share of which 150,000 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 Managing
Underwriter of the Offering and LaSalle St. Securities, Inc., Chicago, Illinois
serves as Co-Underwriter of the Offering. The Company began active business
operations April 15, 1996 and as of May 15, 1997 had Average Invested Assets of
$2,921,217, having sold 335,481 Shares in its initial public offering. This
Offering will terminate no later than 365 days from the date of this Prospectus,
subject to extension by mutual agreement of the Company and Managing Underwriter
for an additional 120 days, or until completion of the sale of the Shares,
whichever first occurs. The Company reserves the right to terminate this
Offering at any time. The Company intends to continue to deploy net proceeds
from the sale of Shares in this Offering as they are sold and on a regular basis
pursuant to its investment and operating strategy. 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. 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,
UNDERWRITERS 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 UNDERWRITERS AND
SOLICITING DEALERS ON BEHALF OF THE COMPANY SUBJECT TO PRIOR SALE, WITHDRAWAL,
CANCELLATION OR MODIFICATION OF THE OFFERING BY THE COMPANY AND THE UNDERWRITERS
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 UNDERWRITERS 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 summary financial
and other information, and such other reports as the Company deems appropriate
or as required by law.
2
<PAGE>
- -------------------------------------------------------------------------------
--- TABLE OF CONTENTS ---
THE OFFERING SUMMARY............................................... 4
RISK FACTORS....................................................... 9
Best Efforts Offering............................................ 9
Qualification as a Real Estate Investment Trust................. 9
Terms of Certain of the Formation Transactions Not
Determined By Arm's Length Negotiation...................... 9
Price of Shares Arbitrarily Determined.......................... 10
Risks Related to Management..................................... 10
Risks Related to Organization, Offering, Loan and
Advisor Expenses............................................ 11
Risks Related to Mortgage Lending Generally..................... 11
Risks Related to Mortgage Lending to Churches................... 12
Use of Borrowed Funds........................................... 12
Potential Liability Under Federal and State
Environmental Laws........................................... 12
Future Dividends................................................. 13
Reliance on Management........................................... 13
Certain Restrictions on Transfer of Shares....................... 13
Risks Related to Federal Income Taxation......................... 13
Changes in Tax Laws.............................................. 14
Liquidity and Market Price....................................... 14
WHO MAY INVEST..................................................... 14
USE OF PROCEEDS.................................................... 15
COMPENSATION TO ADVISOR AND AFFILIATES............................. 15
CONFLICTS OF INTEREST.............................................. 17
Transactions with Affiliates and Related Parties................. 17
Compensation to the Advisor and Conflicts of Interest............ 17
Competition by the Company with Affiliates....................... 18
Non-Arm's-Length Agreements...................................... 18
Lack of Separate Representation.................................. 19
Shared Operations Facilities..................................... 19
DISTRIBUTIONS...................................................... 19
CAPITALIZATION.................................................... 20
SELECTED FINANCIAL DATA........................................... 21
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS............................. 22
Plan of Operations.............................................. 22
Results of Operations........................................... 22
Liquidity and Capital Resources................................. 23
BUSINESS OF THE COMPANY........................................... 24
General......................................................... 24
The Company's Business Activities................................ 24
Financing Business............................................... 24
Current First Mortgage Loan Terms............................... 25
Property Portfolio of the Company............................... 25
Mortgage Loan Processing and Underwriting........................ 27
Loan Commitments................................................. 27
Loan Portfolio Management....................................... 27
Loan Funding and Bank Borrowing.................................. 28
Financing Policies............................................... 28
Prohibited Investments and Activities............................ 29
Policy Changes................................................... 30
Competition...................................................... 30
Employees........................................................ 30
Operations....................................................... 31
MANAGEMENT........................................................ 31
General.......................................................... 31
Fiduciary Responsibility of Board of Directors; Possible
Inadequacy of Remedies.................................... 33
Warrants and Options............................................ 33
SECURITY OWNERSHIP OF MANAGEMENT AND OTHERS ...................... 34
CERTAIN RELATIONSHIPS AND TRANSACTIONS WITH
MANAGEMENT...................................................... 34
THE ADVISOR AND THE ADVISORY AGREEMENT ............................ 35
Church Loan Advisors, Inc........................................ 35
The Advisory Agreement........................................... 36
Prior Performance of Advisor and Affiliates.......................37
Material factors common to all of the church bond finanicng
projects . . . . . . . . . . . . . . . . . .. . . . . . . . . . 37
FEDERAL INCOME TAX CONSIDERATIONS.................................. 41
Qualification as a Real Estate Investment Trust.................. 41
Failure of the Company to Qualify as a Real
Estate Investment Trust................................... 45
Taxation of the Company's Shareholders........................... 45
Taxation of Tax-Exempt Shareholders.............................. 45
Tax Considerations of Foreign Investors.......................... 46
Backup Withholding............................................... 46
State and Local Taxes.............................................. 46
Other Tax Considerations......................................... 46
ERISA CONSIDERATIONS............................................... 47
Fiduciary Considerations......................................... 47
Plan Assets Issue................................................ 47
DESCRIPTION OF CAPITAL STOCK....................................... 48
General.......................................................... 48
Repurchase of Shares and Restrictions on Transfer................ 48
Dividend Reinvestment Program.................................... 49
Transfer Agent and Registrar ................................... 49
SUMMARY OF THE ORGANIZATIONAL DOCUMENTS............................ 49
Certain Article and Bylaw Provisions............................. 50
Board of Directors............................................... 50
Limitations on Director Actions.................................. 50
Minnesota Anti-Takeover Law...................................... 50
Restrictions on Roll-Ups......................................... 50
Limitation on Total Operating Expenses........................... 51
Transactions with Affiliates..................................... 51
Restrictions on Investments...................................... 51
Advisory Arrangements............................................ 53
PLAN OF DISTRIBUTION............................................... 53
General.......................................................... 53
Compensation..................................................... 53
Subscription Process............................................. 53
Determination of Investor Suitability............................ 54
Suitability of the Investment.................................... 55
COMMISSION POSITION ON INDEMNIFICATION FOR
SECURITIES ACT LIABILITIES....................................... 55
LEGAL MATTERS...................................................... 55
EXPERTS............................................................ 56
REPORTS TO SHAREHOLDERS, RIGHTS OF EXAMINATION
AND ADDITIONAL INFORMATION....................................... 56
GLOSSARY........................................................... 57
FINANCIAL STATEMENTS.............................................. F-1
APPENDIX I........................................................ A-1
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3
<PAGE>
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 Real Estate Investment Trust ("REIT") 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.
Incorporated on May 27, 1994, the Company commenced active business operations
on or about April 15, 1996 and concluded its initial public offering on November
8, 1996. As of May 15, 1997 the Company had funded seven mortgage loans in the
aggregate principal amount of $2,802,000, and has purchased for $119,217 church
bonds having a face value of $150,000. The Company intends 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. Mssrs. Davis, Reinhart and Myers have a
combined 34 years of experience in the area of mortgaged-backed lending to
churches through their current and former associations with the Managing
Underwriter (American Investors Group, Inc.), of which Mr. Myers is also
President and Director, and Mr. Reinhart is Chairman of the Board of Directors.
Mssrs. 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, Minnetonka (Minneapolis), Minnesota 55343 and their
telephone number is (612) 945-9455.
THE OFFERING
Common Stock Offered (1)............... 1,500,000 Shares
Common Stock Outstanding After Offering (2) 1,859,791 Shares
Percentage Owned by Non-Affiliates After Offering 99%
Net Proceeds of Offering (3)............... $14,107,500
Use of Proceeds.............. Principally, to Make Mortgage-Backed Loans
to Churches. See "Use of Proceeds."
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(1) All of the Shares of Common Stock are being offered by the Company on a
"best efforts" basis through the Underwriters.
(2) Assumes sale of all Shares being offered hereby. Excludes (i) 9,000
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
over various periods and expire on various dates from November 15, 1999 to
November 15, 2001 (See "Management -- Warrants and Options"); and (ii) shares
which may continue to be issued during this Offering to shareholders
participating in the Company's Dividend Reinvestment Plan.
(3) Before deducting other expenses of issuance and distribution payable by
the Company, estimated at $194,150. See "Use of Proceeds."
4
<PAGE>
RISK FACTORS
An investment in the Shares involves a high degree of risk. 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:
o Fluctuations in interest rates or default in payment by borrowers
could adversely affect the Company's distributions to its
Shareholders.
o Potential conflicts of interest and mutual benefits to Affiliates of
the Company, the Managing Underwriter and the Advisor in connection
with the formation of the Company, offering of the Shares, and
on-going business operations of the Company.
o There is no market for the Shares and no assurance that any market
will develop after the Offering. Trading in the Shares is currently
limited.
o 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.
o Taxation of the Company as a corporation if it fails to maintain
status as a REIT.
o Potential anti-takeover effects of limiting ownership of any single
Shareholder to 9.8% of the outstanding shares of the Company.
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 primarily 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. 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 or medium 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>
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:
o 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.
o The maximum amount of a loan or loans by the Company to a single borrower
will be limited to $1,000,000.
o 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.
o 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.
o 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.
o 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.
o 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.
o In its discretion, the Advisor may require that the borrower arrange for
automatic electronic or drafting of monthly payments to the Company.
o 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.
o 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>
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 period in which this
Offering is being made the capital of the Company represented by the proceeds
from the sale of the Shares will be held in relatively low-yield secure
investments pending application to fund loans to be 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.
As of May 15, 1997, the Company had deployed approximately $2,900,000 in net
proceeds from the sale of approximately 335,000 Shares and pre-existing capital
in accordance with its investment and operating strategy. Dividends paid by the
Company to its Shareholders to date are as follows:
<TABLE>
<CAPTION>
Distribution Date: For Quarter Ended: Dollar Amount Distributed Annualized Yield Per
Per Share: Share Represented:
<S> <C> <C> <C>
July 30, 1996 June 30, 1996 $.1927 9.25%*
October 30, 1996 September 30, 1996 $.23125 9.25%
January 30, 1997 December 31, 1996 $.240625 9.625%
April 30,1997 March 31, 1997 $.225 9.00%
</TABLE>
*Represents a 75 day operating quarter (April 15th to June 30th, 1996)
TAX STATUS OF THE COMPANY
The Company has elected 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 and
as long as 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."
7
<PAGE>
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 years ended December 31, 1995 and
1996 and from the Company's interim unaudited financial statements for the three
month periods ended March 31, 1996 and 1997. 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>
Three Months Three Months
Year Ended Year Ended Ended Ended
December 31, December 31, March 31, March 31,
1995 1996 1996 1997
Statement of Operations Data:
<S> <C> <C> <C> <C>
Revenues
Interest Income Loans. $ - 0 - $152,259 $ - 0 - $ 61,244
Interest Income Other. 4,436 20,729 1,270 7,170
Capital Gains Realized - 0 - - 0 - - 0 - 1,007
Origination Income.... - 0 - 6,925 - 0 - 3,033
Escrow Interest Income - 0 - 37,477 22,402 - 0 -
Total Revenues............. 4,436 217,390 23,672 72,454
Operating Expenses
Professional Fees..... - 0 - 8,411 1,310 1,230
Director Fees......... - 0 - 1,600 - 0 - 800
Amortization ......... 303 303 76 76
Escrow Interest Expense - 0 - 37,274 22,249 - 0 -
Advisory Fees......... - 0 - 11,825 - 0 - - 0 -
Other................. 5,456 12,591 1,205 1,752
Total Expenses............. 5,759 72,004 24,840 3,858
Benefit From Income Taxes (20,000) 5,000
Net Income (loss).......... $ (1,323) $165,386 $ (1,168) $ 63,596
Income (loss) per Common Share $ (.07) $ .79 $ (.06) $ .18
Weighted Average Common
Shares Outstanding (1) 20,000 209,072 20,000 361,677
Dividends Declared......... $ - 0 - $ 189,435 $ - 0 - $ 81,377
</TABLE>
<TABLE>
<CAPTION>
December 31, December 31, March 31, March 31,
1995 1996 1996 1997
Balance Sheet Data:
<S> <C> <C> <C> <C>
Assets:
Cash and Cash Equivalents $135,282 $ 612,744 $ 136,000 $ 511,894
Current Maturities of
Loans Receivable... - 0 - 55,436 - 0 - 56,982
Loans Receivable, net of
current maturities. - 0 - 2,605,388 - 0 - 2,709,948
Bonds Receivable...... - 0 - 120,640 - 0 - 121,647
Prepaid Expense....... - 0 - - 0 - 695 - 0 -
Deferred Offering Costs 107,295 - 0 - 107,295 - 0 -
Deferred Tax Asset.... - 0 - 20,000 - 0 - 15,000
Organizational Expenses (net) 1,071 769 996 692
.......................
Total Assets: $243,648 $3,414,977 $ 244,986 $3,416,163
Liabilities and Shareholder's
Equity:
Accounts Payable...... $ 49,493 $ 8,482 $ 37,890 $ 1,699
Deferred Income....... - 0 - 45,930 - 0 - 42,897
Notes Payable......... - 0 - - 0 - 14,109 - 0 -
Dividends Payable..... - 0 - 80,424 - 0 - 81,377
Shareholder's Equity (net of
deficit accumulated during
development stage) 194,155 3,280,141 192,987 3,290,190
$ 243,648 $3,414,977 $ 244,986 $3,416,163
</TABLE>
(1) Excludes (i) 9,000 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 over various periods beginning November 15, 1995
to 1997 and expire November 15, 1999 to 2001 (See "Management -- Warrants and
Options" and "Security Ownership of Management and Others").
8
<PAGE>
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 Underwriters on a "best efforts" basis
whereby the Underwriters are required to use their best efforts to locate
purchasers of the Shares on behalf of the Company, but are 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 the
Company would have fewer cash assets to apply toward its business plan of
extending mortgage loans to churches and other religious organizations. As a
general rule, the fixed operating expenses of the Company, as a percentage of
gross income, would be higher with fewer assets in the Company's Portfolio and
lower with more assets in the Company's Portfolio, and thus effect 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.
Qualification 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 qualifies or will 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 Managing
Underwriter. 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 Managing Underwriter) 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 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>
Price of Shares Arbitrarily Determined
The initial price of the Shares has been determined by negotiations between
the Managing Underwriter and the Company and is the same price paid by
purchasers of the shares in the Company's initial public offering and by DRM
Holdings, Inc., an affiliate of the Advisor, which purchased 20,000 Shares prior
to the Company's initial public 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. Although they have extensive experience in the
business in which the Company is engaged, neither the Company nor the Advisor
have extensive experience operating or managing a REIT. The Officers,
Shareholders and Directors of the Advisor have a combined experience of 34 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 recently established 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 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 most
aspects of its business operations, including but not limited to, mortgage loan
underwriting and serving, 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 operates, 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. Various affiliations exist among certain members of
the Board of Directors and officers of the Company and officers and directors of
the Advisor and the Managing Underwriter. The Advisor and the Managing
Underwriter are affiliated by virtue of their common direct and indirect
ownership by one of the Directors of the Company and the officers, directors and
shareholders of the Advisor. An Executive Officer and Director of the Company
and retained officers and directors of the Advisor are involved actively in the
church financing business through their affiliation with the Managing
Underwriter, 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 Managing Underwriter 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
Managing Underwriter in its capacity as underwriter for the issuing church, or
as broker or dealer on the secondary market. In such event, the Managing
Underwriter 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 Managing Underwriter, in which case the Managing
Underwriter 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 Managing
Underwriter 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 Managing
Underwriter. 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>
Risks Related to Offering, Loan and Advisor Expenses
The Company will incur expenses in connection with this Offering, which
expenses reduce the assets of the Company that will be available for investment
in income-producing assets. 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. See "Use of Proceeds" and "Plan
of Distribution."
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 risks include 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 loan default. 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 could
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 have an impact
on borrower decisions to obtain new loans or to refinance existing loans, effect
the Company's ability to originate mortgage loans. Future fluctuations in
interest rates may 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 likely reduce the portfolio's overall rate of return
(yield). The Company's strategy of charging origination fees at the outset of
each 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.
11
<PAGE>
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 borrower 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 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 no more than 50% of the value of its
Average Invested Assets before deduction for non-cash reserves. See "Business of
the Company - Financing Policies."
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.
12
<PAGE>
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 intends to deploy proceeds from Share sales during the Offering
Period as rapidly yet prudently as possible in order to generate the best
possible yields to Shareholders. Nevertheless, prior to deployment, the proceeds
from the sale of the Shares may 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. 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."
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 continue to so qualify. As a real estate investment trust, the Company
would 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 must 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
13
<PAGE>
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 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
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 Underwriters 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 Underwriters 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.
14
<PAGE>
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 (1): $15,000,000 100.00%
Less Expenses:
Selling Commissions (2) 892,500 5.950
Managing Underwriter's Expense Allowance (3) 133,000 .886
Offering Expenses (4) 70,000 .466
Total Public Offering-Related Expenses 1,095,500 7.302
Amount Available for Investment (5) $13,904,500 92.70%
- -------------------------------------------------------
</TABLE>
(1) All of the Shares of Common Stock are being offered by the Company on a
"best efforts" basis through the Underwriters. There can be no assurance that
all or any amount of the Shares offered will be sold. See "Plan of
Distribution."
(2) The Company will pay the Underwriters selling commissions equal to
5.95% of the gross offering proceeds, all or any portion of which may be
re-allowed to Soliciting Dealers. See "Compensation to Advisor and Affiliates"
and "Plan of Distribution."
(3) The Company will pay the Managing Underwriter a non-accountable expense
allowance of up to $133,000 (assuming all the Shares are sold) to defray the
Managing Underwriter'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 is payable upon sale of 100,000 Shares and the balance
of $98,000 will be paid ratably in the sum of $7,000 per 100,000 Shares sold in
the Offering. The Managing Underwriter may re-allow to the Co-Underwriter any
portion of the Managing Underwriter's Expense Allowance as it determines in its
discretion. See "Compensation to Advisor and Affiliates" and "Plan of
Distribution."
(4) 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 Managing Underwriter. See "Plan of Distribution."
(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, if any, 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 Company may also use its existing current cash resources to establish a
Working Capital Reserve. 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 Advisor 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 any such
additional expenses. See "Reports to Shareholders." There are certain additional
restrictions on expenses that will be borne by the Company.
15
<PAGE>
<TABLE>
<CAPTION>
ADVISOR COMPENSATION
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 may be
Expenses (2) 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 each
Fee (3) mortgage loan made by the Company, payable when and only if an origination
fee is charged and collected.
Advisor Termination Advisor 2% of the value of the Average Invested Assets of the Company, payable if
Fee (4) the Advisor's services are terminated by the Company.
Warrants/Options (5) Advisor Options to purchase 9,000 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.
AFFILIATE COMPENSATION
ITEM OF COMPENSATION RECIPIENT AMOUNT OR METHOD OF COMPENSATION
Commissions on the Managing Underwriter 5.95% of the gross proceeds from the sales of the Shares. The
Sale of Shares Managing Underwriter 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 Managing Underwriter The sum of $35,000 paid upon the sale of the first 100,000 Shares in
Allowance Relating to the and Co-Underwriter's this Offering, with an additional $98,000 payable ratably based on the
sale of Shares in this number of Shares sold thereafter, to cover the Managing Underwriter's
Offering (6) 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 63,000 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.
Commissions and Managing Underwriter Customary mark-ups and mark-downs on first mortgage church bonds purchased
Expenses on and sold by the Company through the Managing Underwriter on the secondary
First Mortgage Bonds 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 associated expenses it incurs. It
does not include the excess, if any, of funds 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
16
<PAGE>
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 9,000 Shares each at an
exercise price of $10.00 per share. These warrants may be exercised in
limited amounts commencing November 15, 1995 and expire ratably over
three years beginning 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 Managing Underwriter is
affiliated with the Advisor and a director and officer of the Company by
virtue of the common ownership of the Managing Underwriter by DRM,
Holdings, Inc., which is owned and the Advisor by Mssrs. Reinhart and
Myers, who together with Mr. Davis, are shareholders of the Advisor
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 Managing Underwriter in order to (i)
enhance yields on the Company's assets; and (ii) diversify the Company's
holdings. 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 the Managing Underwriter
on the secondary market, in which event the Company will pay to the
Managing Underwriter customary mark-ups on a basis no more or less
favorable than charged by the Managing Underwriter to its general
customers in arms-length transactions. Likewise, first mortgage bonds
owned by the Company may be sold by the Managing Underwriter on the
Company's behalf from time to time in which event the Managing
Underwriter 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 the Managing Underwriter. The
Managing Underwriter 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 the Managing Underwriter. 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 34 years collectively. 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 or through the Managing Underwriter, 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 the Managing Underwriter of
commissions and other income even though 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
17
<PAGE>
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.
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 determine not to 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 Managing Underwriter is engaged in the same market segment as the
Company, i.e., providing financing to churches and other not-for-profit
religious organizations. Therefore, a conflict could arise if the Managing
Underwriter were to usurp a lending opportunity otherwise available to the
Company. However, the average size of first mortgage bond financings undertaken
by the Managing Underwriter is approximately $1.45 Million, with $1,000,000
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 the Managing Underwriter and the Advisor will share employees,
facilities and some 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 Managing Underwriter or
its Affiliates shall have the opportunity to otherwise provide finanicng to that
prospective borrower.
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
Many agreements and arrangements between the Company and the Advisor or
any of their Affiliates, including those relating to compensation, were not the
result of arm's-length negotiations. However, such conflicts or potential
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.
18
<PAGE>
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.
Shared Operations Facilities
The Company's operations are located in the leased offices of the
Managing Underwriter, American Investors Group, Inc., in Minnetonka
(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 the Managing Underwriter'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 the Managing Underwriter's parent
corporation, DRM Holdings, Inc.
DISTRIBUTIONS
The Company intends to make 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 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 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 of such proceeds 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.
As of May 15, 1997, the Company has deployed approximately $2,921,217 in
net proceeds from the sale of Shares in its initial public offering and
pre-existing capital in accordance with its investment and operating strategy.
The Company began making regular quarterly distributions to its Shareholders for
the period of operations ended June 30, 1996. Distributions to date and the
annualized effective yield represented by the distributions are as follows:
<TABLE>
<CAPTION>
Distribution Date: For Quarter Ended: Dollar Amount Distributed Annualized Yield Per
Per Share: Share Represented:
<S> <C> <C> <C>
July 30, 1996 June 30, 1996 $.1927 9.25%*
October 30, 1996 September 30, 1996 $.23125 9.25%
January 30, 1997 December 31, 1996 $.240625 9.625%
April 30, 1997 March 31, 1997 $.225 9.00%
</TABLE>
*Represents a 75 day operating quarter (April 15th to June 30th, 1996)
The Company intends to ameliorate to some extent the possibility of low
yields during the deployment of new capital 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. See "Business of the
Company." In order to qualify for the beneficial
19
<PAGE>
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 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
March 31, 1997 and as adjusted to give effect to the net proceeds received by
the Company, assuming sale of all of the Shares by the Company. See "Use of
Proceeds" and "Financial Statements." March 31, 1997
<TABLE>
<CAPTION>
March 31, 1997
Actual As Adjusted (1)
<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 359,791 shares;
and 1,859,791 shares, respectively......................... 3,598 18,598
Additional Paid-In Capital (3)................................ 3,306,437 17,195,937
Accumulated Deficit........................................... (29,894) (29,894)
Total Shareholder's Equity.................................... 3,280,141 17,181,641
Total Capitalization.......................................... $3,280,141 $17,181,641
- --------------------------------------
</TABLE>
(1) There can be no assurance that all or a substantial portion of the
1,500,000 Shares offered hereby will be sold. See "Plan of Distribution."
(2) Excludes 9,000 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, 1995-1997 and expire
November 15, 1999-2001 (See "Management -- Warrants and Options" and "Security
Ownership of Management and Others"). See "Plan of Distribution."
(3) As adjusted, is net of offering-related expenses estimated at
$1,086,000, assuming all the Shares are sold. See "Use of Proceeds."
20
<PAGE>
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 years ended December 31, 1995 and
1996, 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 three-month periods ended March
31, 1996 and 1997. 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>
Three Months Three Months
Year Ended Year Ended Ended Ended
December 31, December 31, March 31, March 31,
1995 1996 1996 1997
Statement of Operations Data:
<S> <C> <C> <C> <C>
Revenues
Interest Income Loans. $ - 0 - $152,259 $ - 0 - $ 61,244
Interest Income Other. 4,436 20,729 1,270 7,170
Capital Gains Realized - 0 - - 0 - - 0 - 1,007
Origination Income.... - 0 - 6,925 - 0 - 3,033
Escrow Interest Income - 0 - 37,477 22,402 - 0 -
Total Revenues............. 4,436 217,390 23,672 72,454
Operating Expenses
Professional Fees..... - 0 - 8,411 1,310 1,230
Director Fees......... - 0 - 1,600 - 0 - 800
Amortization ......... 303 303 76 76
Escrow Interest Expense - 0 - 37,274 22,249 - 0 -
Advisory Fees......... - 0 - 11,825 - 0 - - 0 -
Other................. 5,456 12,591 1,205 1,752
Total Expenses............. 5,759 72,004 24,840 3,858
Benefit From Income Taxes (20,000) 5,000
Net Income (loss).......... $ (1,323) $165,386 $ (1,168) $ 63,596
Income (loss) per Common Share $ (.07) $ .79 $ (.06) $ .18
Weighted Average Common
Shares Outstanding (1) 20,000 209,072 20,000 361,677
Dividends Declared......... $ - 0 - $ 189,435 $ - 0 - $ 81,377
</TABLE>
<TABLE>
<CAPTION>
December 31, December 31, March 31, March 31,
1995 1996 1996 1997
Balance Sheet Data:
<S> <C> <C> <C> <C>
Assets:
Cash and Cash Equivalents $135,282 $ 612,744 $ 136,000 $ 511,894
Current Maturities of
Loans Receivable... - 0 - 55,436 - 0 - 56,982
Loans Receivable, net of
current maturities. - 0 - 2,605,388 - 0 - 2,709,948
Bonds Receivable...... - 0 - 120,640 - 0 - 121,647
Prepaid Expense....... - 0 - - 0 - 695 - 0 -
Deferred Offering Costs 107,295 - 0 - 107,295 - 0 -
Deferred Tax Asset.... - 0 - 20,000 - 0 - 15,000
Organizational Expenses (net) 1,071 769 996 692
.......................
Total Assets: $243,648 $3,414,977 $ 244,986 $3,416,163
Liabilities and Shareholder's
Equity:
Accounts Payable...... $ 49,493 $ 8,482 $ 37,890 $ 1,699
Deferred Income....... - 0 - 45,930 - 0 - 42,897
Notes Payable......... - 0 - - 0 - 14,109 - 0 -
Dividends Payable..... - 0 - 80,424 - 0 - 81,377
Shareholder's Equity (net of
deficit accumulated during
development stage) 194,155 3,280,141 192,987 3,290,190
$ 243,648 $3,414,977 $ 244,986 $3,416,163
</TABLE>
21
<PAGE>
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
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. 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 Managing Underwriter. As of such date the Company had sold
335,481 shares to approximately 281 individuals, not including 20,000 shares
($200,000) previously purchased by the Company's initial shareholder -- DRM
Holdings, Inc.
Between the date upon which the Company began active business operations
(April 15, 1996) and May 15, 1997, the date hereof, the Company made loans to
seven churches in the aggregate amount of $2,802,000, with the average size
being $400,000. The Company has also purchased in the secondary market three
church mortgage bonds at a discount, including two First Mortgage Church Bonds
in the face amount of $50,000 and one Second Mortgage Church Bond in the face
amount of $100,000. 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; (ii) prepayment and
repayment at maturity of existing loans; (iv) borrowed funds; and (v) dividends
reinvested under the Company's Dividend Reinvestment Plan. The Company's initial
public offering ended November 8, 1996.
Results of Operations
The Company commenced active business operations on or about April 15,
1996, therefore, results of operations through December 31, 1996 are reflective
of approximately 255 days of operations. As of May 15, 1997, the Company had
funded seven first mortgage loans to churches for an aggregate amount of
$2,685,288 and purchased $50,000 principal amount of First Mortgage Church Bonds
for a purchase price of $46,412 (which includes $407 in accrued interest), and
for $72,805 Second Mortgage Church Bonds in the face amount of $100,000. 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 May 15, 1997, the average, principal-adjusted
interest rate on the Company's portfolio of loans was 10.86% and the average
current yield on the Company's portfolio of bonds was 11.68% .
Net operating income for the Company's fiscal year ended December 31,
1996 (reflecting 255 days of operations) was $145,386 on total revenues of
$217,390. Revenues for the fiscal year 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 ending June 30, 1996 based on the
duration that their investment was held in escrow, which disbursement is
reflected in the Company's Statement of Operations for the fiscal year ending
December 31, 1996. Interest income earned on the Company's portfolio of loans
was $152,259, reflecting the fact that its loans were originated at various
dates during the year and, therefore, did not all accrue interest for the entire
fiscal year. Excluded from revenue for the year ended December 31, 1996 is
$45,930 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 dividends declared and to be paid to Shareholders for the quarters
ended June 30, 1996, September 30, 1996 and December 31, 1996 includes
origination income even though it is not recognized in its entirety for the
period under GAAP. Operating expenses for the fiscal year ended December 31,
1996 were generally as anticipated.
22
<PAGE>
Net operating income for the Company's fiscal quarter ended March 31,
1997 was $68,596 ($.19 per share) on total revenues of $72,454. Revenues
included segments of income from interest paid by borrowers, capital gains and
origination income, all of which constitute the Company's "core" income segments
under its business plan. Operations expenses likewise are believed to be
reasonably reflective of the Company's expected on-going expenses which, for the
most part, consist mostly of the Advisory Fee. The Advisory Fee absorbs all
operating expenses of the Company with the exception of professional fees,
director fees and costs related to capital-raising activities. It should be
noted, that the Advisor waived $8,641 in fees otherwise payable to it during the
three month period ended March 31, 1997. Comparison of the three month period
ended March 31, 1997 with 1996 is not believed to be illustrative because the
Company had no active business operations for the period ended March 31, 1996.
The Company's Board of Directors declared dividends of $.1927 for each
share held of record on June 30, 1996, $.23125 for each share held of record
September 30, 1996, and $.240625 for each share held of record on December 31,
1996. During the Company's public offering, dividends were 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 days of operation for the
quarter ending July 30, 1996 and the subsequent quarters ended September 30,
1996 and December 31, 1996, the dividends paid represented a 9.25%, 9.25% and
9.625% annualized yield to Shareholders respectively.
Total assets of the Company increased from $243,648 as of December 31,
1995 to $3,414,977 as of December 31, 1996, primarily as a result of the sale
and issuance of the Company's common stock pursuant to its initial public
offering, the proceeds of which were deployed into mortgage loans, church bonds
purchased in the secondary market, and cash and cash equivalent money market
obligations. Shareholders' Equity rose from $194,155 to $3,280,141 for the same
reason. Company liabilities at the end of the fiscal year ended December 31,
1996 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, and
dividends declared as of December 31, 1996 but not yet paid.
Liquidity and Capital Resources
On March 31, 1996 the Company had no assets other than the $200,000 cash
paid by its promoter, DRM Holdings, for the 20,000 shares owned by it ($10.00
per share) and had incurred no material obligations, other than accumulated and
unpaid expenses pertaining to its initial public offering. The initial $200,000
capital contribution by DRM Holdings, Inc. promoter was 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 Company's initial public offering. On or about April 15,
1996, the Company recorded additional paid-in capital of $2,019,205 in
connection with the sale of the Company's common stock in its initial public
offering and began active business operations. As of December 31, 1996, the
Company had recorded a total of $3,306,437 in additional paid in capital, which
includes the initial $200,000 investment by DRM Holdings, Inc.
On March 31, 1997 the Company had liquid assets consisting mainly of cash
and cash equivalents of approximately $512,000, substantially all of which was
available to be loaned by the Company; loans receivable (including current
portion) in the amount of $2,767,000; and church bonds receivable in the amount
of $121,647. The Company believes that it is not necessary for the Company to
maintain large amount of cash or cash equivalents for reserve or other purposes,
since most operational costs are included within the Advisory Fee paid to the
Advisor. Therefore, the intent of the Company is to deploy materially all of the
Company's assets into loans in order to maximize returns to the Company and
yields to its Shareholders.
The Company's revenue is derived principally from interest income, and
secondarily, origination fees and renewal fees generated by mortgage loans made
by it. The Company also earns 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 generates revenue through (i) Permitted Temporary Investments of the
net proceeds from the sale of Shares, and (ii) implementation of its business
plan of making mortgage loans to churches and other non-profit religious
organizations. The principal expenses of the Company will be Advisory Fees,
legal and accounting fees, communications costs with its Shareholders, and the
expenses of its stock transfer agent, registrar and dividend reinvestment agent.
The Company's future capital needs are expected to be met by (i)
additional sale of its shares to the public (ii) prepayment, repayment at
maturity and renewal of mortgage loans made by the Company, and (iii) borrowed
funds. The Company believes that the "rolling" effect of mortgage loans
maturing, together with dividends reinvested under the Company's Dividend
Reinvestment Plan, will provide a supplemental source of capital to fund
business operations. 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.
23
<PAGE>
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. The Company had
made loans to seven churches in the aggregate amount of $2,802,000, with the
average size being $400,000, and had purchased in the secondary market for
$72,805 second mortgage church bonds in the face amount of $100,000 and for
$46,412 first mortgage bond in the face amount of $50,000. See "Properties of
the Company." The Company makes loans throughout the United States in principal
amounts limited in range from $100,000 to $1,000,000. The Company may 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 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 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 "Managing
Underwriter" 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 34 years in this
business. Since its inception, American has underwritten approximately 113
church bond financings, in which approximately $156 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 $1.45
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. 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 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) 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
24
<PAGE>
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 is
entitled to 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)
<C> <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 chosen 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 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 May 15, 1997, the Company has funded seven first mortgage loans
aggregating $2,802,000 principal amount, and purchased $100,000 principal amount
(face amount) of second mortgage bonds and $50,000 principal amount first
mortgage bonds issued by churches. 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.
25
<PAGE>
<TABLE>
<CAPTION>
Borrowing Church and Loan Loan Interest Collateral Funding Date
Location Amount Term Rate Appraised Value
<S> <C> <C> <C> <C> <C>
Middlebury Chapel $262,000 20 years 9.25%, Variable $410,000 4/24/96
Landmark Apostolic Church $290,000 5 years 10.75% Fixed $650,000 4/25/96
Hope Chapel $465,000 5 years 10.50% Fixed $660,000 4/30/96
Fountain of Life Church $375,000 15 years 11.25% Fixed $500,000 5/15/96
River of Life Church $425,000 7 years 11.25% Fixed $600,000 5/06/96
Oak Hill Baptist Church $500,000 15 years 11.25% Fixed $800,000 7/02/96
Chesapeake Christian $490,000 5 years 1.00% Fixed $850,000 10/30/96
Center
</TABLE>
The following mortgage-secured bonds have been purchased by the Company:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Issuer Principal Company Face Yield to Current Maturity Original
Amount Purchase Yield of Maturity Yield Date Issue
Price Bonds Date
Resurrection Life $100,000 $ 72,800 8.50% 16.79% 11.68% 05/15/01 05/15/94
Ministries
First Baptist $ 25,000 $ 23,000 9.45% 10.625% 10.27% 04/01/09 04/01/94
Church of Hampton
Church of Jesus $ 25,000 $ 23,000 9.55% 10.683% 10.38% 06/01/10 06/01/94
Christ
</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 Prairie, Minnesota,
issuer of these bonds, has also issued and sold through the Managing 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 May 15, 2001.
However, the Issuer can extend their maturity until 2014, whereupon the interest
rate as such will change from 8.50% to the then prevailing prime rate of
interest plus 3.25%. The Issuer is current on it obligations with respect to the
bonds purchased by the Company. See "Certain Relationships and Transaction with
Management."
26
<PAGE>
The First Baptist Church of Hampton and Church of Jesus Christ Bonds,
which are secured by a first mortgage, were purchased at a discount to the
Company from the Managing Underwriter in the secondary market. There can be no
assurance that a secondary market for resale of the Bonds will be available in
the future, and therefore, the Company purchased the bonds to retain them until
maturity or redemption by the Church.
The First Baptist Church of Hampton, Hampton Virginia, issued $2,600,000
First Mortgage Bonds in 1993 and $740,000 additional First Mortgage Bonds in
1994. The bonds are secured by a First Mortgage on the Church's real property
appraised at $5,995,000. The Church of Jesus Christ, Inc., Washington, District
of Columbia, issued $1,735,000 First Mortgage Bonds in 1994. The bonds are
secured by a first mortgage on the Church's worship facility appraised at
$2,165,000 and a residence owned by the Church appraised at $152,000.
The Company's policies limit the amount of second mortgage bonds to 20%
of the Company's Average Invested Assets on the date any second mortgage bond is
purchased and limit the amount of mortgage-secured debt securities to 30% of
Average Invested Assets on the date of their purchase. As of May 15, 1997 the
percentage of Average Invested Assets in second mortgage bonds and the
percentage invested in mortgage-secured debt securities was 2.7% and 4.3%
respectively.
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 Managing
Underwriter. 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,
27
<PAGE>
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 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 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
Mortgagee 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.
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<PAGE>
(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.
(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;
29
<PAGE>
(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 implementation of the Company's business plan,
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 two 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
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.
30
<PAGE>
Operations
The Company's operations currently are located in the 8,400 square foot
offices of the Managing Underwriter, American Investors Group, Inc., 10237
Yellow Circle Drive, Minnetonka, Minnesota 55343. These facilities are owned by
DRM Holdings, Inc. (an affiliate of the Managing Underwriter) 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
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 53 President, Treasurer and Director 1994
David G. Reinhart 44 Vice President, Secretary and Director 1994
Kirbyjon H. Caldwell 44 Independent Director 1994
Robert O. Naegele, Jr. 57 Independent Director 1994
Dennis J. Doyle 45 Independent Director 1994
John M. Clarey 55 Independent Director 1994
</TABLE>
V. James Davis, has been the President and a Director of the Company
since its inception. From November 1986 to October 1996 he served as President
and a Director of the Managing Underwriter, American Investors Group, Inc. 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 Chairman of the Board of
Directors of the Managing Underwriter, American Investors Group, Inc., a
Director and Officer of the Advisor, and President, director and shareholder of
DRM Holdings, Inc. ("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 Managing Underwriter. 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.
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
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<PAGE>
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. 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.
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. 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 Managing
Underwriter.
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 ($200 for telephonic meetings), 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. In 1996, the
Independent Directors (four in number) were paid a total of $1,600 in director's
fees. 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
32
<PAGE>
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, 1995 and 1996 the Company issued
options under the Option Plan to each of the six Directors and the President of
the Advisor, to purchase 3,000 shares each (an aggregate of 63,000 shares) at a
price of $10 per share. These options vest and are thus exercisable beginning
November 15, 1995 through 1997 and expire November 15, 1999 through 2001.
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.
33
<PAGE>
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 Percent of
Number of Class before Class after
Shares (1) Offering Offering (3)
<S> <C> <C> <C>
V. James Davis..................................... 1,013 .28% .05%
David G. Reinhart.................................. 10,420 (2) 2.90% .56%
Kirbyjon H. Caldwell............................... ---- ---- ----
Robert O. Naegele, Jr.............................. 5,000 1.39% .26%
Dennis J. Doyle.................................... ---- ---- ----
John M. Clarey..................................... ---- ---- ----
All Executive Officers and Directors
as a Group (five individuals)................. 16,433 4.57% .88%
</TABLE>
- --------------------------------------------------------
(1) Excludes 9,000 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 beginning November
15, 1995 and expire beginning 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 ($10.00 per share).
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 David G. Reinhart, the Company's Vice
President, Secretary and a Director; and by Philip J. Myers, the
Advisor's President. Mssrs. Reinhart and Myers are also directors of
the Advisor and of the Managing Underwriter. 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 9,580 shares (2.67% before
Offering and .52% after Offering). See "Management" and "Conflicts of
Interest."
(3) Assumes sale of all 1,500,000 shares offered hereby.
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 by V.
James Davis, David G. Reinhart and Philip J. Myers. Mssrs. Davis and Reinhart
are officers and Directors of the Company. Mssrs. Reinhart and Myers are also
shareholders, officers and directors of DRM Holdings, Inc, which owns American
Investors Group, Inc. (the "Managing Underwriter"). Mssrs. Reinhart and Myers
together 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, two
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. In 1996, the Company paid to the
Advisor total advisory fees in the amount of $11,825, and the Advisor received
origination fee income of $52,855. Advisor fees in the amount of $6,736 were
voluntarily waived by the Advisor in 1996.
See "The Advisory Agreement" below.
Pursuant to the Underwriting Agreement, the Company will pay the
Underwriters, a sales commission equal to 5.95% of the gross amount of sales of
the Shares in this Offering, plus a non-accountable expense reimbursement of up
to $133,000, assuming all the Shares are sold. See "Plan of Distribution." The
Managing Underwriter is an affiliate of the Advisor. The following table sets
forth the name and positions of certain officers and all directors of the
Managing Underwriter:
34
<PAGE>
<TABLE>
<CAPTION>
Name Position
<S> <C> <C>
Philip J. Myers President, Secretary and Director
Scott J. Marquis Vice President
David G. Reinhart Chairman of Board of Directors
</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 may benefit from such purchase
as a result of commissions paid to it by the issuer of such bonds. American also
may 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
Managing Underwriting. 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 Managing Underwriter
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.
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, Minnetonka (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> <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 41, 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 President, Secretary and a Director of the
Managing Underwriter, 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, 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.
35
<PAGE>
Scott J. Marquis, age 39, 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 Managing Underwriter,
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 provides advice and recommendations
concerning the affairs of the Company, provides administrative services to the
Company and manages the Company's day-to-day affairs. Among other things, the
Advisor: (i) serves as the Company's mortgage loan underwriter and advisor in
connection with its primary business of making loans to churches; (ii) advises
and selects Church Bonds to be purchased and held for investment by the Company;
(iii) provides marketing and advertising and generate loan leads directly and
through its Affiliates; (iv) on behalf of the Company, deals 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 acts on
behalf of the Company in connection with Shareholder relations; (vi) provides
office space and personnel as required for the performance of the foregoing
services as Advisor; and (vii) as requested by the Company, makes 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
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.
36
<PAGE>
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."
Prior Performance of Advisor and Affiliates
The principals of the Advisor, and the officers of the Company, have,
through the Managing Underwriter, been engaged in the underwriting of first
mortgage bonds issued by churches since 1987. Mssrs. Myers and Reinhart,
together with American's Director of Underwriting comprise the American'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 has underwritten approximately 113 church bond financings involving the
sale of approximately $156 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 $1.45 Million, and
ranges in size from approximately $100,000 to $15.5 million. 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, 20 have been retired
early. Two of the bond issues underwritten by American since its inception have
experienced an event of default, as described below. Otherwise, all bond issues
currently are in good standing with respect to their payment obligations.
Additional information with respect to the bond financings conducted by the
Advisor's affiliate and Managing Underwriter, 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 Managing Underwriter (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:
o 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.
37
<PAGE>
o Fixed interest rate loans with level or limited graduated payments.
o ALTA or equivalent mortgagee title insurance policy required.
o 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.
o 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.
o A security interest in all personal property of the borrower is
required.
o Key-man life insurance and automatic weekly loan payments are
required.
<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 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 5/87 $1,038,000 51% 11.00%/May 2002 10.63% Current 1.13 15 yrs
Fellowship, Inc.
2. Isrealite Church of God 5/87 460,000 71% 11.25%/May 1998 11.00% Current 2.13 15 yrs
in Christ, Inc.
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
4. Raleigh Christian Community 9/87 1,425,000 62% 11.25%/Sept 2000 11.00% Repaid 3.24 13 yrs
5. Palm Beach Cathedral AOG, Inc. 1/88 1,425,000 75% 11.25%/Jan 2001 11.00% Default 3.13 13 yrs
6. Windsor Village United 4/88 1,570,000 75% 12.2%/Apr 2000 12.00% Repaid 1.78 12 yrs
Methodist
7. Deeper Life Christian 6/88 332,000 67% 11.0%/Nov 1996 10.80% Current 1.85 11 yrs
Fellowship, Inc.
8. Macedonia Missionary 9/88 750,000 71% 12.25%/Sept 2003 12.15% Repaid 2.85 15 yrs
Baptist Church
9. St. Agnes Missionary 9/88 900,000 58% 12.25%/Sept 2002 12.15% Repaid 2.45 14 yrs
Baptist Church
10. Way of the Cross Church 11/88 895,000 39% 11.0%/July 2000 10.85% Repaid 1.32 11 yrs
11. Grace Community Fellowship 1/89 750,000 71% 12.25%/July 2002 12.10% Repaid 2.50 13.5 yrs
12. Faith Outreach International 4/89 1,720,000 75% 12.40%/Apr 2004 12.25% Repaid 1.52 15 yrs
d/b/a Christian Faith Centre
13. By His Word Christian Center 5/89 1,040,000 75% 12.50%/May 2004 12.50% Repaid 1.92 15 yrs
14. Minneapolis Church of God 6/89 200,000 36% 12.50%/June 2000 12.15% Current 1.33 15 yrs
15. Austin Church on the Rock 9/89 960,000 75% 12.50%/Sept 2004 12.40% Current 2.80 15 yrs
16. Macedonia Missionary Baptist 9/89 390,000 71% 12.50%/Sept 2004 12.25% Repaid 3.45 15 yrs
Church
17. Reid Temple A.M.E. Church 12/89 1,350,000 75% 12.40%/Dec 2004 12.00% Current 4.27 15 yrs
18. Unity Palo Alto Church 2/90 2,000,000 38% 12.25%/Feb 1990 12.00% Repaid 2.40 15 yrs
19. Bishop Pickens Memorial Temple 3/90 340,000 54% 12.40%/Mar 2005 12.20% Repaid 3.00 15 yrs
20. Greater New Zion Baptist Church 5/90 570,000 59% 12.40%/May 2005 12.20% Current 2.93 15 yrs
21. St. Stephen's Missionary 6/90 1,100,000 63% 12.40%/June 2005 12.30% Repaid 3.10 15 yrs
Baptist Church
22. Church of the Living God 6/90 1,145,000 64% 12.40%/June 2004 12.20% Current 2.49 15 yrs
23. Bethlehem Missionary Church 8/90 675,000 55% 12.25%/Aug 2005 12.20% Current 2.44 15 yrs
24. Central Holiness Church 10/90 1,065,000 70% 12.30%/Oct 2005 12.00% Repaid 2.76 15 yrs
25. Hopewell Missionary Baptist 1/91 3,700,000 64% 12.30%/Jan 2006 11.90% Repaid 4.08 15 yrs
Church
26. New Life Christian Ministry 3/91 715,000 65% 12.30%/Mar 2006 11.90% Repaid 2.19 15 yrs
27. Triumph New Testament Church 3/91 850,000 53% 12.20%/Mar 2006 11.90% Repaid 1.55 15 yrs
28. Mount Moriah A.M.E. Church 5/91 1,290,000 69% 12.00%/May 2006 11.80% Repaid 8.05 15 yrs
29. Temple Baptist Church 8/91 1,850,000 58% 12.20%/Aug 2006 12.10% Repaid 2.92 15 yrs
</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.
38
<PAGE>
<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 Effective Financing Ratio (1) Maturity Date Rate (3) Status Revenue(4) Years
<S> <C> <C> <C> <C> <C> <C> <C> <C>
30. Lake Baptist Church 8/91 1,800,000 51% 12.00%/Aug 2006 11.80% Current 2.94 15 yrs
31. North Stelton A.M.E. Church 10/91 725,000 53% 12.00%/Oct 2006 11.80% Current 2.81 15 yrs
32. Shorter Community A.M.E. 11/91 1,860,000 53% 12.00%/Nov 2006 11.80% Current 2.83 15 yrs
Church
33. New Life Christian Ministry 12/91 110,000 72% 12.00%/Mar 2007 11.80% Repaid 2.53 15 yrs
34. Mount Vernon Baptist Church 12/91 1,350,000 65% 11.90%/Dec 2006 11.75% Repaid 1.84 15 yrs
35. Macedonia Missionary Baptist 2/92 1,195,000 75% 11.20%/Feb 2007 11.00% Current 3.37 15 yrs
Church
36. First Baptist Church of Corona 3/92 1,040,000 40% 11.20%/Mar 2007 11.00% Current 2.47 15 yrs
37. World Missions Assembly 3/92 720,000 64% 11.20%/Mar 2007 11.00% Default 2.04 15 yrs
38. By His Word Christian Center 4/92 1,215,000 74% 11.00%/Apr 2007 10.60% Repaid 2.03 15 yrs
39. Metropolitan Baptist Church 4/92 475,000 75% 11.20%/Apr 2007 10.90% Current 1.73 15 yrs
40. Christian Hope Center, Ltd. 5/92 506,000 70% 11.00%/May 2007 10.60% Current 2.89 15 yrs
41. Bible Missionary 5/92 1,300,000 62% 11.00%/May 2007 10.50% Current 2.55 15 yrs
Baptist Church-Miami
42. Central Holiness Church 6/92 250,000 69% 11.20%/June 2007 11.20% Repaid 3.42 15 yrs
43. St. James Episcopal Church 6/92 1,430,000 45% 10.00%/June 2009 9.25% Current 1.86 17 yrs
44. Church of Jesus Christ 7/92 1,280,000 55% 11.00%/July 2007 10.50% Repaid 3.00 15 yrs
45. Temple Baptist Church 8/92 380,000 65% 11.20%/Feb 2008 11.50% Repaid 3.00 15 yrs
of Nashville
46. Mount Zion A.M.E. Church 8/92 875,000 38% 10.00%/Aug 2005 9.50% Repaid 3.30 13 yrs
47. Calvary Temple of Allentown, PA 9/92 1,820,000 38% 11.00%/Sept 2007 10.25% Repaid 2.23 15 yrs
48. Bethel Baptist Church 9/92 525,000 56% 11.00%/Sept 2007 10.75% Current 2.40 15 yrs
49. Palo Alto Community Church 10/92 2,180,000 41% 10.25%/Oct 2007 9.40% Current 1.93 15 yrs
50. Christian Love Baptist Church 11/92 500,000 44% 10.30%/Nov 2007 9.80% Current 1.02 15 yrs
51. Tabernacle Baptist Church 11/92 1,550,000 63% 10.75%/Nov 2007 10.40% Repaid 2.55 15 yrs
52. Lee Memorial A.M.E. Church 12/92 1,225,000 63% 10.30%/Dec 2007 9.90% Current 3.94 15 yrs
53. Nazareth Baptist Church 1/93 390,000 24% 10.30%/Jan 2008 10.20% Current 3.14 15 yrs
54. Christian Pentecostal 2/93 1,600,000 46% 10.30%/Feb 2008 9.80% Current 3.28 15 yrs
Church of Christ
55. Mt. Zion Christian 1/93 750,000 59% 10.30%/Jan 2008 9.80% Current 3.30 15 yrs
Baptist Church
56. Lake Baptist Church 2/93 365,000 60% 10.00%/Aug 2007 10.00% Current 2.66 14.5 yrs
57. St. Mark's Missionary 2/93 1,500,000 67% 10.30%/Feb 2008 9.90% Current 2.90 15 yrs
Baptist Church
58. Friendship Missionary 4/93 700,000 48% 10.00%/Apr 2008 9.90% Current 1.77 15 yrs
Baptist Church
59. Christian Faith Centre 5/93 1,765,000 66% 10.00%/May 2008 9.50% Current 1.86 15 yrs
60. Raleigh Christian Community 6/93 1,452,000 70% 10.00%/June 2008 9.50% Current 1.19 15 yrs
61. Porter's Day Care and 5/93 350,000 51% 10.00%/May 2008 9.80% Current .65 15 yrs
Educational Ctr.
62. Outreach Christian Center 5/93 575,000 46% 10.00%/May 2008 9.60% Current 1.86 15 yrs
63. Evergreen Baptist Church 6/93 345,000 36% 10.00%/June 2008 9.80% Repaid 1.73 15 yrs
64. Faith Southwest Baptist Church 6/93 700,000 66% 10.00%/Jun 2008 9.70% Current 2.07 15 yrs
65. Cornerstone Church 7/93 4,355,000 66% 10.00%/July 2008 9.70% Current 1.92 15 yrs
66. St. Paul A.M.E. Church 8/93 1,000,000 29% 9.80%/Aug 2008 9.50% Current 2.25 15 yrs
67. Windsor Village United 9/93 3,100,000 37% 9.65%/Sept 2008 9.25% Current 1.03 15 yrs
Methodist
</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.
39
<PAGE>
<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 Effective Financing Ratio (1) Maturity Date Rate (3) Status Revenue(4) Years
<S> <C> <C> <C> <C> <C> <C> <C> <C>
68. First Baptist Church 10/93 2,600,000 55% 9.70%/Oct 2008 9.35% Current 2.86 15 yrs
of Hampton
69. Peaceful Zion Missionary 10/93 750,000 59% 9.70%/Oct 2008 9.65% Current 2.72 15 yrs
Baptist
70. Central Holiness Church 11/93 1,405,000 67% 9.65%/Nov 2008 9.25% Current 3.18 15 yrs
71. The Apostolic Faith Home 12/93 2,600,000 45% 9.50%/Dec 2008 9.20% Current 1.75 15 yrs
Assembly
72. New Life Christian Ministry 2/94 2,000,000 70% 9.75%/Feb 20012 9.45% Current 2.60 18 yrs
73. Calvary Temple of Allentown 2/94 1,950,000 41% 10.00%/Dec 20014 9.50% Current 2.34 20 yrs
74. First Baptist Church of Hampton 4/94 740,000 54% 9.55%/Octo 2010 9.50% Current 3.31 16.5 yrs
75. Woodinville Church of Christ 5/94 440,000 58% 9.75%/May 2014 9.38% Current 2.03 20 yrs
76. Resurrection Life Ministries 5/94 620,000 72% 8.50%/May 2001 8.40% Current 2.50 7 yrs
77. Church of Jesus Christ 6/94 1,735,000 75% 9.80%/June 2014 9.38% Current 3.96 20 yrs
78. Liberty Church 7/94 900,000 75% 8.55%/July 2001 8.45% Current 2.14 7 yrs
79. By His Word Christian Center 9/94 1,665,000 75% 9.80%/Aug 2014 9.40% Current 2.39 20 yrs
80. Morningstar Missionary 9/94 800,000 57% 9.80%/Sept 2014 9.60% Current 1.45 20 yrs
Baptist Church
81. Iglesia Puerta Del Cielo 11/94 3,400,000 62% 10.00%/Nov 2014 9.75% Current 1.70 20 yrs
82. Hopewell Missionary Baptist 1/95 6,350,000 68% 10.20%/Jan 2015 9.90% Current 4.00 20 yrs
Church
83. Windsor Village United 1/95 725,000 58% 10.00%/Sept 2010 10.00% Current 1.14 15.5 yrs
Methodist
84. St. Agnes Missionary Baptist 3/95 3,200,000 59% 10.20%/Mar 2015 10.00% Current 2.22 20 yrs
Church
85. Church of the Great Commission 4/95 2,200,000 57% 10.20%/Mar 2015 10.00% Current 1.50 20 yrs
86. Zion Evangelistic Temple 4/95 4,375,000 46% 10.20%/Apr 2015 10.00% Current 2.40 20 yrs
87. St. Mark's Missionary 4/95 360,000 72% 10.20%/Feb 2010 10.20% Current 2.04 15 yrs
Baptist Church
88. Emmanuel Baptist Church 7/95 1,655,000 47% 10.20%/July 2015 9.85% Current 1.88 20 yrs
89. The Community Protestant Church 8/95 1,500,000 50% 10.20%/Aug 2015 9.75% Current 2.20 20 yrs
90. Abundant Life Church of Christ 10/95 1,425,000 67% 10.20%/Oct 2015 9.75% Current 2.58 20 yrs
91. Greeley Church of Christ 10/95 500,000 33% 10.20%/Oct 2015 9.75% Current 1.98 20 yrs
92. Twelfth Ave. General 10/95 1,195,000 55% 9.90%/Oct 2010 9.50% Current 1.41 15 yrs
Baptist Church
93. Holden Chapel 11/95 500,000 42% 10.20%/Nov 2015 9.80% Current .65 20 yrs
94. House of Praise Ministries 10/95 675,000 38% 10.20%/Oct 2015 9.75% Current 1.42 20 yrs
95. Pembroke Park Church of Christ 11/95 600,000 68% 10.20%/Nov 2015 9.75% Current 3.25 20 yrs
96. Faith Community Church 12/95 950,000 40% 10.00%/Dec 2010 9.60% Current .78 15 yrs
97. Christ Church of Kirkland 12/95 2,785,000 65% 10.20%/Jan 2016 9.75% Current 2.96 20 yrs
98. Oasis Christian Center 02/96 825,000 69% 10.20%/Feb 2016 9.75% Current 1.55 20 yrs
99. Centennial Star of 02/96 1,195,000 52% 10.20%/Feb 2016 9.75% Current 3.28 20 yrs
Bethlehem Church
100. St. Agnes Missionary 03/96 875,000 67% 10.20%/Mar 2016 10.05% Current 2.82 20 yrs
Baptist Church
101. Lake Baptist Church 03/96 1,840,000 63% 10.05%/Sept 2011 9.95% Current 2.83 15 yrs
102. Cornerstone Church 05/96 6,600,000 68% 10.00%/May 2011 9.70% Current 1.59 15 yrs
103. Abundant Life Family 08/96 2,025,000 70% 10.20%/Aug 2016 9.85% Current 2.68 20 yrs
Worship Ctr, Inc.
104. Vollintine Baptist 08/96 425,000 65% 10.35%/Aug 2016 9.85% Current 1.68 20 yrs
Church, Inc.
105. Aloha Christian Life Center 09/96 1,380,000 48% 10.20%/Sept 2016 9.85% Current 3.30% 20 yrs
106. New Life Baptist Church 10/96 1,300,000 59% 10.20%/Oct 2016 9.85% Current 3.58% 20 yrs
of Thurston Cty
</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>
<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 Effective Financing Ratio (1) Maturity Date Rate (3) Status Revenue(4) Years
<S> <C> <C> <C> <C> <C> <C> <C> <C>
107. Centennial Star of Bethlehem 11/96 450,000 59% 10.30%/Nov 2016 9.85% Current 3.59% 20 yrs
Baptist
108. Cornerstone Church 12/96 4,680,000 69% 10.00%/Dec 2011 9.85% Current 1.58% 15 yrs
109. United Baptist Church 12/96 1,525,000 61% 10.20%/Dec 2016 9.85% Current 2.55% 20 yrs
110. Spring Lake Church of Christ 02/97 600,000 67% 10.20%/Feb 2017 9.85% Current 3.84% 20 yrs
111. New Jerusalem Church 03/97 2,300,000 67% 10.20%/Mar 2017 9.85% Current 2.69% 20 yrs
112. Aloha Christian Life Center 04/97 490,000 52% 10.20%/Apr 2017 9.90% Current 2.34% 20 yrs
113. Bethany Baptist Church 04/97 1,750,000 36% 10.20%/Apr 2017 9.80% Current 2.67% 20 yrs
</TABLE>
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(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. Representatives of the bondholders are currently
negotiating with prospective purchasers of the property.
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 QUALIFIES 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. 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
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the Company's method of operation permits it to meet the requirements
for qualification and taxation as a REIT. It must be emphasized that 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 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.
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.
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<PAGE>
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.
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").
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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 is not 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 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 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
44
<PAGE>
"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
For any year for which the Company is treated as a REIT, 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 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.
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For taxable years beginning in 1994, the code treats a portion of the
dividends paid by a "pension held REIT" as Unrelated Taxable Business Income
("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 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 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
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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. In addition, 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.
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
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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.
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
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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 1.857-9
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.
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 of 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 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.
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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.
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;
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(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" 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;
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(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.
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;
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(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.
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 Underwriters are offering hereby, on a "best efforts"
basis, up to 1,500,000 Shares at a price of $10.00 per Share. "Best efforts"
means there is no obligation on the part of the Underwriters to purchase any
Shares and thus no assurance as to the number of Shares sold or proceeds
received. This Offering will be conducted on a continuous basis pursuant to
applicable rules of the Securities and Exchange Commission and will terminate on
not later than 365 days from the date of this Prospectus, subject to extension
by mutual agreement of the Company and the Managing Underwriter for an adiitonal
120 days, or until completion of the sale of all Shares, whichever first occurs
(the "Offering Period"). The Company reserves the right to terminate this
Offering at any time. Compensation
Pursuant to the Underwriting Agreement, the Company will pay to the
Underwriters (from the proceeds of the sale of the Shares) a commission equal to
5.95% of the proceeds from the sale of the Shares sold (up to $892,500). In
addition, the Company has agreed to pay the Managing Underwriter a
non-accountable expense allowance of up to $133,000 to reimburse the Managing
Underwriter for certain expenses incurred by the Managing Underwriter ("Managing
Underwriter's Expenses") in connection with the offer and sale of the Shares.
Managing Underwriter's Expenses are payable to the Managing Underwriter by the
Company from offering proceeds, $35,000 of which is payable upon the sale of
$1,000,000 in Shares, and the balance ($19,000) is payable ratably based on the
number of Shares sold thereafter. The Managing Underwriter may re-allow to the
Co-Underwriter any portion of the Managing Underwriter's Expenses as it
determines in its discretion.
The Underwriters 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 Underwriters 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.
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.
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Subscription Process
The Shares will be offered to the public through the Underwriters and
Soliciting Dealers. The Soliciting Dealer Agreement between the Underwriters and
the Soliciting Dealers requires the soliciting 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.
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 Underwriters have the right to offer the Shares only through their
own registered representatives and through broker-dealers who are members of the
NASD ("Soliciting Dealers"). In such event, the Underwriters may re-allow to
Soliciting Dealers a portion of their commissions, fees and reimbursable
expenses payable to them under the Underwriting Agreement. In no event will the
compensation re-allowed by the Underwriters to Soliciting Dealers exceed the
total of compensation payable to the Underwriters under the Underwriting
Agreement. The Underwriters 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 Underwriters and must remit payment for the
purchase of Shares directly to the Underwriters payable to the appropriate
Underwriter.
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 Underwriters on the first business day following
the date upon which the Underwriters is advised in writing by the Company that a
subscription has been accepted. Payment of the purchase price must be received
by the Underwriters 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." or "LaSalle St. Securities, Inc."
The Underwriting Agreement provides for reciprocal indemnification
between the Company and the Underwriters against certain liabilities in
connection with this Offering, including liabilities under the Securities Act of
1933. Such indemnification obligations of the Company 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 Underwriters and the Company and is the same price paid by the
initial shareholder of the Company's Shares and Shareholders who purchased
Shares in the Company's initial public 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.
Determination of Investor Suitability
The Company, the Underwriters 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,
54
<PAGE>
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.
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 Underwriters 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 Shares only to
persons who meet similar standards, and the Company may require certain
assurances that these standards are met.
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.
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.
55
<PAGE>
EXPERTS
The financial statements of the Company as of December 31, 1995 and 1996
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 such books of account, together with a
copy of the Company's 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 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 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
56
<PAGE>
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
Definitions of certain terms 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 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.
"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.
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<PAGE>
"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.
"Managing Underwriter" means American Investors Group, Inc.
"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-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 registration of 1,650,000 Shares filed with the Commission on Form S-11, as
amended, in connection with this Offering.
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<PAGE>
"Registration Statement" means the initial registration of Shares on Form
S-11 and related exhibits, as amended, filed by the Company with the Commission,
in connection with this Offering.
"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.
"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 5.95% of the Gross Offering
Proceeds payable to the Underwriters Manager which will be reallowed to
Soliciting Dealers for each Share sold.
"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.
"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.
"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 stock
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<PAGE>
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.
"Underwriters" means the Managing Underwriter (American Investors Group,
Inc.) and LaSalle St. Securities, Inc., Chicago, Illinois.
Balance of page intentionally left blank
60
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AMERICAN CHURCH MORTGAGE COMPANY
Minneapolis, Minnesota
Financial Statements
March 31, 1997 and 1996 (Unaudited)
and December 31, 1996 and 1995
61
<PAGE>
AMERICAN CHURCH MORTGAGE COMPANY
C O N T E N T S
Page
Report of Independent Auditors F-1
Financial Statements
Balance Sheet F-2 - F-5
Statement of Operations F-6
Statement of Stockholders' Equity F-7
Statement of Cash Flows F-8 - F-11
Notes to Financial Statements F-12 - F-18
62
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
American Church Mortgage Company
Minneapolis, Minnesota
We have audited the accompanying balance sheet of American Church Mortgage
Company as of December 31, 1996 and 1995 and the related statements of
operations, stockholders' equity and cash flows for the years 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 audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of American Church Mortgage
Company as of December 31, 1996 and 1995, and the results of its operations and
its cash flows for the years then ended, in conformity with generally accepted
accounting principles.
Boulay, Heutmaker, Zibell & Co. P.L.L.P.
Certified Public Accountants
Minneapolis, Minnesota
February 12, 1997, except for Note 9 as to
which the date is May 6, 1997
F-1
<PAGE>
AMERICAN CHURCH MORTGAGE COMPANY
Balance Sheet
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
March 31
ASSETS 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C>
Current Assets
Cash and equivalents $ 511,894 $136,000
Prepaid expenses 695
Current maturities of loans receivable 56,982
Total current assets 568,876 136,695
Loans Receivable, net of current maturities 2,709,948
Bonds Receivable 121,647
Deferred Offering Costs 107,295
Deferred Tax Asset 15,000
Organization Expenses, net 692 996
Total assets $3,416,163 $244,986
</TABLE>
Notes to Financial Statements are an integral part of this Statement.
F-2
<PAGE>
AMERICAN CHURCH MORTGAGE COMPANY
Balance Sheet
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
March 31
LIABILITIES AND STOCKHOLDERS' EQUITY 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Current Liabilities
Note payable - related party $ 14,109
Accounts payable $ 1,699 37,890
Deferred income 19,016
Dividends payable 81,377
Total current liabilities 102,092 51,999
Deferred Income 23,881
Stockholders' Equity
Common stock, par value $.01 per share
Authorized, 30,000,000 shares
Issued and outstanding, 362,574 at March 31, 1997
and 20,000 shares at March 31, 1996 3,626 200
Additional paid-in capital 3,334,239 199,800
Accumulated deficit (47,675) (7,013)
Total stockholders' equity 3,290,190 192,987
Total liabilities and equity $3,416,163 $244,986
</TABLE>
Notes to Financial Statements are an integral part of this Statement.
F-3
<PAGE>
AMERICAN CHURCH MORTGAGE COMPANY
Balance Sheet
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
December 31
ASSETS 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Current Assets
Cash and equivalents $ 612,744 $135,282
Current maturities of loans receivable 55,436
Total current assets 668,180 135,282
Loans Receivable, net of current maturities 2,605,388
Bonds Receivable 120,640
Deferred Offering Costs 107,295
Deferred Tax Asset 20,000
Organization Expenses, net 769 1,071
Total assets $3,414,977 $243,648
</TABLE>
Notes to Financial Statements are an integral part of this Statement.
F-4
<PAGE>
AMERICAN CHURCH MORTGAGE COMPANY
Balance Sheet
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
December 31
LIABILITIES AND STOCKHOLDERS' EQUITY 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Current Liabilities
Accounts payable $ 8,482 $ 49,493
Deferred income 10,383
Dividends payable 80,424
Total current liabilities 99,289 49,493
Deferred Income 35,547
Stockholders' Equity
Common stock, par value $.01 per share
Authorized, 30,000,000 shares
Issued and outstanding, 359,791 at December 31, 1996
and 20,000 shares at December 31, 1995 3,598 200
Additional paid-in capital 3,306,437 199,800
Accumulated deficit (29,894) (5,845)
Total stockholders' equity 3,280,141 194,155
Total liabilities and equity $3,414,977 $243,648
</TABLE>
Notes to Financial Statements are an integral part of this Statement.
F-5
<PAGE>
AMERICAN CHURCH MORTGAGE COMPANY
Statement of Operations
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Three Months Ended
March 31 Years Ended December 31
1997 1996 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C> <C> <C>
Interest Income $ 72,454 $23,672 $217,390 $ 4,436
Operating Expenses 3,858 24,840 72,004 5,759
Operating Income (Loss) 68,596 (1,168) 145,386 (1,323)
Provision for (Benefit from)
Income Taxes 5,000 - (20,000) -
Net Income (Loss) $ 63,596 ($ 1,168) $165,386 ($1,323)
Income (Loss) Per Common
Share $ .18 ($.06) $ .79 ($.07)
Weighted Average Common
Shares Outstanding 361,677 20,000 209,072 20,000
</TABLE>
Notes to Financial Statements are an integral part of this Statement.
F-6
<PAGE>
AMERICAN CHURCH MORTGAGE COMPANY
Statement of Stockholders' Equity
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Additional
Common Stock Paid-In Accumulated
Shares Amount Capital Deficit
- ------------------------------------------------------------------------------------------------------------------------------------
<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 339,791 shares of
common stock, net of
offering costs 339,791 3,398 3,106,637
Net income 165,386
Dividends declared (189,435)
Balance, December 31, 1996 359,791 3,598 3,306,437 (29,894)
Issuance of 2,783 shares of
common stock, net of
offering costs 2,783 28 27,802
Net income 63,596
Dividends declared (81,377)
Balance, March 31, 1997 (unaudited) 362,574 $3,626 $3,334,239 ($ 47,675)
</TABLE>
Notes to Financial Statements are an integral part of this Statement.
F-7
<PAGE>
AMERICAN CHURCH MORTGAGE COMPANY
Statement of Cash Flows
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Three Months Ended March 31
1997 1996
- ------------------------------------------------------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C>
Cash Flows from Operating Activities
Net income (loss) $ 63,596 ($ 1,168)
Adjustments to reconcile net income (loss) to
net cash from (used for) operating activities:
Deferred income taxes 5,000
Amortization (930) 75
Change in assets and liabilities
Increase in prepaid expenses (695)
Decrease in accounts payable (6,783) (11,603)
Decrease in deferred income (3,033)
Net cash from (used for) operating activities 57,850 (13,391)
Cash Flows from Investing Activities
Investment in mortgage loans (116,712)
Collections on mortgage loans 10,606
Net cash used for investing activities (106,106)
Cash Flows from Financing Activities
Proceeds from issuance of note 14,109
Proceeds from stock offering 27,830
Dividends paid (80,424)
Net cash from (used for) financing activities (52,594) 14,109
Net Increase (Decrease) in Cash and equivalents (100,850) 718
Cash and equivalents - Beginning of Period 612,744 135,282
Cash and equivalents - End of Period $511,894 $136,000
- Continued -
</TABLE>
Notes to Financial Statements are an integral part of this Statement.
F-8
<PAGE>
AMERICAN CHURCH MORTGAGE COMPANY
Statement of Cash Flows - Continued
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Three Months Ended March 31
1997 1996
- ------------------------------------------------------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C>
Supplemental Schedule of Noncash Financing and Investing Activities
Dividends declared but not paid $81,377
Supplemental Cash Flow Information
Cash paid during the year for
Interest $ - $ -
Income taxes $ - $ -
</TABLE>
Notes to Financial Statements are an integral part of this Statement.
F-9
<PAGE>
AMERICAN CHURCH MORTGAGE COMPANY
Statement of Cash Flows
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Years Ended December 31
1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash Flows from Operating Activities
Net income (loss) $ 165,386 ($ 1,323)
Adjustments to reconcile net income (loss) to
net cash used for operating activities:
Deferred income taxes (20,000)
Amortization 303 303
Change in assets and liabilities
Decrease in accounts payable (41,012)
Increase in deferred income 45,930
Net cash from (used for) operating activities 150,607 (1,020)
Cash Flows from Investing Activities
Organization expenses paid (35)
Investment in mortgage loans (2,685,288)
Collections on mortgage loans 24,464
Investment in bonds (120,640)
Net cash used for investing activities (2,781,464) (35)
Cash Flows from Financing Activities
Proceeds from stock offering 3,217,330
Dividends paid (109,011)
Payment of deferred offering costs (12,686)
Net cash from (used for) financing activities 3,108,319 (12,686)
Net Increase (Decrease) in Cash and equivalents 477,462 (13,741)
Cash and equivalents - Beginning of Year 135,282 149,023
Cash and equivalents - End of Year $ 612,744 $135,282
</TABLE>
- Continued -
Notes to Financial Statements are an integral part of this Statement.
F-10
<PAGE>
AMERICAN CHURCH MORTGAGE COMPANY
Statement of Cash Flows - Continued
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Years Ended December 31
1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Supplemental Schedule of Noncash Financing and Investing Activities Deferred
offering costs financed through accounts
payable $34,693
Deferred offering costs reclassified to additional
paid-in capital $107,295
Dividends declared but not paid $ 80,424
Supplemental Cash Flow Information
Cash paid during the year for
Interest $ - $ -
Income taxes $ - $ -
</TABLE>
Notes to Financial Statements are an integral part of this Statement.
F-11
<PAGE>
AMERICAN CHURCH MORTGAGE COMPANY
Notes to Financial Statements
March 31, 1997 and 1996 (Unaudited)
and December 31, 1996 and 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
American Church Mortgage Company, a Minnesota corporation, was incorporated on
May 27, 1994. The Company, which was a development stage company until 1996, was
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 concluded its
public stock offering in November 1996 and commenced its principal business
activities early in 1996.
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 some 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 accounts for its debt securities under Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and Equity
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 amortized cost.
F-12
<PAGE>
AMERICAN CHURCH MORTGAGE COMPANY
Notes to Financial Statements
March 31, 1997 and 1996 (Unaudited)
and December 31, 1996 and 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
Allowance for Loans Receivable
The Company follows a policy of providing an allowance for loans receivable.
However, at March 31, 1997 and December 31, 1996, management believes the loans
receivable to be collectible in all material respects.
Deferred Offering Costs
Deferred offering costs represent amounts incurred in connection with the
Company's public offering of common stock. These costs were offset against
proceeds of the offering in 1996.
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
related primarily to differences in recognition of income from loan origination
fees for financial and income tax reporting. Deferred taxes are recognized for
operating losses that are available to offset future taxable income.
For fiscal 1996, the Company will elect to be taxed as a Real Estate Investment
Trust (REIT). 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 income (loss) per common share are the same
for the periods presented.
F-13
<PAGE>
AMERICAN CHURCH MORTGAGE COMPANY
Notes to Financial Statements
March 31, 1997 and 1996 (Unaudited)
and December 31, 1996 and 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
Newly Issued Accounting Standards
In February 1997, Statement of Financial Accounting Standards No. 128, "Earnings
Per Share" was approved for issuance. The Company will adopt this Statement in
fiscal 1997. 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.
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. MORTGAGES AND BONDS RECEIVABLE
At March 31, 1997 and December 31, 1996 the Company had first mortgage loans
receivable totaling $2,766,930 and $2,660,824, respectively. The loans bear
interest ranging from 9.25% to 11.25%. The maturity schedule for those loans as
of March 31, 1997 and December 31, 1996 is as follows:
<TABLE>
<CAPTION>
March 31 December 31
1997 1996
(Unaudited)
<C> <C> <C>
1997 $ 56,982 $ 55,436
1998 61,987 61,987
1999 69,091 69,091
2000 77,009 77,009
2001 85,836 85,836
Thereafter 2,416,025 2,311,465
Total $2,766,930 $2,660,824
</TABLE>
F-14
<PAGE>
AMERICAN CHURCH MORTGAGE COMPANY
Notes to Financial Statements
March 31, 1997 and 1996 (Unaudited)
and December 31, 1996 and 1995
2. MORTGAGES AND BONDS RECEIVABLE - Continued
The Company also has three bonds receivable, which are carried at cost plus
amortized interest income. The bonds pay quarterly interest ranging from 8.5% to
9.55%. The combined principal of $150,000 is due at various maturity dates
between May 15, 2001 and June 1, 2010.
3. NOTE PAYABLE
The Company has an unsecured note payable due to an affiliate in the amount of
$14,109 at March 31, 1996. Interest is charged at 8% and payment in full was
made on April 22, 1996.
4. 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 5) 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 an aggregate of 21,000 shares of common
stock at $10 per share. These options became exercisable November 15, 1995 and
expire November 15, 1999.
No options have been exercised as of March 31, 1997.
The Company has chosen to account for stock based compensation in accordance
with APB Opinion 25. Management believes that the disclosure requirements of
Statement of Financial Accounting Standards No. 123 are not material to its
financial statements.
5. TRANSACTIONS WITH AFFILIATES
The Company has an Advisory Agreement with Church Loan Advisors, Inc.
(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.
F-15
<PAGE>
AMERICAN CHURCH MORTGAGE COMPANY
Notes to Financial Statements
March 31, 1997 and 1996 (Unaudited)
and December 31, 1996 and 1995
5. TRANSACTIONS WITH AFFILIATES - Continued
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 $64,680 during 1996. The Company
paid no advisory or origination fees during 1995 or from January 1 through March
31, 1997.
The Advisor and the Company are related through common ownership and common
management. See Note 7.
6. INCOME TAXES
The income tax expense (benefit) consists of the following components:
<TABLE>
<CAPTION>
March 31 December 31
1997 1996 1996 1995
(Unaudited)
<S> <C> <C> <C> <C>
Current $ - $ - $ - $ -
Deferred 5,000 (20,000)
Total tax expense (benefit) $5,000 $ - ($20,000) $ -
</TABLE>
The following reconciles the income tax benefit with the expected provision
obtained by applying statutory rates to pretax income:
<TABLE>
<CAPTION>
March 31 December 31
1997 1996 1996 1995
(Unaudited)
<S> <C> <C> <C> <C>
Expected tax expense (benefit) $22,300 ($300) $45,700 ($300)
Increase (decrease) in valuation allowance 300 (1,300) 300
Benefit of REIT distributions (17,300) (64,400)
Totals $ 5,000 $ - ($20,000) $ -
</TABLE>
F-16
<PAGE>
AMERICAN CHURCH MORTGAGE COMPANY
Notes to Financial Statements
March 31, 1997 and 1996 (Unaudited)
and December 31, 1996 and 1995
6. INCOME TAXES - Continued
The components of deferred income taxes are as follows:
<TABLE>
<CAPTION>
March 31 December 31
1997 1996 1996 1995
(Unaudited)
<S> <C> <C> <C> <C>
Deferred tax assets:
Temporary differences (loan origination
fees) $15,000 $20,000
Net operating loss carryforward $1,600 $1,300
Valuation allowance - (1,600) - (1,300)
Net deferred tax asset $15,000 $ - $20,000 $ -
</TABLE>
The Company decreased its valuation allowance against deferred tax assets by
$1,300 in fiscal 1996 and increased the valuation allowance by $300 in fiscal
1995 and at March 31, 1996.
7. PUBLIC OFFERING OF THE COMPANY'S COMMON STOCK
The Company filed a Registration Statement with the Securities and Exchange
Commission for a public offering of its common stock in 1995. The Company
offered to sell 2,000,000 shares of its common stock at a price of $10 per
share. The offering was underwritten by an affiliate of the Advisor on a "best
efforts" basis, but required 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 activities. The Company's public
offering of its shares continued through November 8, 1996.
Pursuant to the terms of the Underwriting Agreement, the Company paid the
affiliated broker-dealer referred to above commissions and nonreimbursable
expenses of approximately $144,000 during 1996.
F-17
<PAGE>
AMERICAN CHURCH MORTGAGE COMPANY
Notes to Financial Statements
March 31, 1997 and 1996 (Unaudited)
and December 31, 1996 and 1995
8. FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair values of the Company's financial instruments, none of which
are held for trading purposes, are as follows at March 31, 1997 and 1996 and
December 31, 1996 and 1995:
<TABLE>
<CAPTION>
March 31
(Unaudited)
1997 1996
Carrying Fair Carrying Fair
Amount Value Amount Value
<S> <C> <C> <C> <C>
Cash and equivalents $ 511,894 $ 511,894 $136,000 $136,000
Loans receivable 2,766,930 2,766,930
Bonds receivable 121,647 121,647
</TABLE>
<TABLE>
<CAPTION>
December 31
1996 1995
Carrying Fair Carrying Fair
Amount Value Amount Value
<S> <C> <C> <C> <C>
Cash and equivalents $ 612,744 $ 612,744 $135,282 $135,282
Loans receivable 2,660,824 2,660,824
Bonds receivable 120,640 120,640
</TABLE>
The carrying value of cash and equivalents approximates fair value. The fair
value of the loans receivable and the bonds receivable are estimated by
discounting future cash flows using current discount rates that reflect the
risks associated with similar types of loans.
9. SUBSEQUENT EVENT
The Company is registering with the Securities and Exchange Commission 1,500,000
shares of common stock to be offered to the public at $10.00 per share.
F-18
<PAGE>
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>
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 Missionary New Life Christian Triumph New Testament Mt. Moriah African
Baptist Church Ministry Church Methodist Episcopal
Church
<S> <C> <C> <C> <C>
Dollar Amount Offered $ 3,700,000 $ 715,000 $ 850,000 $ 1,290,000
Dollar Amount Raised $ 3,700,000 $ 715,000 $ 850,000 $ 1,290,000
Percentage of Funds Raised 100% 100% 100% 100%
Less Offering Expenses:
Selling Commissions &
Discounts Retained by Affiliate$ 259,000 (7%) $ 50,050 (7%) $ 59,500 (7%) $ 90,300 (7%)
Organizational Expenses --- --- --- ---
Other Underwriting Expenses $ 46,425 (1.25%) $ 20,000 (2.8%) $ 21,250 (2.5%) $ 24,000 (1.9%)
Percent Available to Issuer 91.75% 90.02% 90.05% 91.01%
Total Acquisition Cost --- --- --- ---
Percent Leverage (mortgage --- --- --- ---
financing divided by total
acquisition cost)
Date Offering Began 1/15/91 3/1/91 3/15/91 5/15/91
Length of Offering (mos.) 12 2 3 1
Months to Invest 90% of
Amount Available for --- --- --- ---
Investment (measured from
beginning of offering)
<CAPTION>
Lake Baptist Church Temple Baptist Church
<C> <C>
$ 1,800,000 $ 1,850,000
$ 1,800,000 $ 1,850,000
100% 100%
$ 108,000 (6%) $ 129,500 (7%)
--- ---
$ 22,500 (1.25%) $ 35,000 (1.9%)
92.75% 91.1%
--- ---
--- ---
8/1/91 8/1/91
3 2
--- ---
A-1
</TABLE>
<PAGE>
TABLE I - EXPERIENCE IN RAISING AND INVESTING FUNDS (continued)
<TABLE>
<CAPTION>
North Stelton African Shorter African New Life Christian Mt. Vernon Baptist Church
Methodist Episcopal Methodist Ministry, Inc.
Church Episcopal Church
<S> <C> <C> <C> <C>
Dollar Amount Offered $ 725,000 $ 1,860,000 $ 110,000 $ 1,350,000
Dollar Amount Raised $ 725,000 $ 1,860,000 $ 110,000 $ 1,350,000
Percentage of Funds Raised 100% 100% 100% 100%
Less Offering Expenses:
Selling Commissions &
Discounts Retained by Affiliate$ 50,750 (7%) $ 130,200 (7%) $ 8,250 (7.5%) $ 94,500 (7%)
Organizational Expenses --- --- --- ---
Other Underwriting Expenses $ 17,000 (2.3%) $ 34,800 (1.9%) $ 8,000 (7.2%) $ 27,500 (2.0%)
Percent Available to Issuer 90.7% 91.1% 85.3% 91.0%
Total Acquisition Cost --- --- --- ---
Percent Leverage (mortgage --- --- --- ---
financing divided by total
acquisition cost)
Date Offering Began 10/15/91 11/1/91 12/1/91 12/15/91
Length of Offering (mos.) 1 1 1 1
Months to Invest 90% of
Amount Available for --- --- --- ---
Investment (measured from
beginning of offering)
<CAPTION>
Macedonia Missionary First Baptist Church
Baptist Church
<C> <C>
$ 1,195,000 $ 1,040,000
$ 1,195,000 $ 1,040,000
100% 100%
$ 83,650 (7%) $ 72,800 (7%)
--- ---
$ 12,100 (1.0%) $ 22,200 (2.1%)
92.0% 90.90%
--- ---
--- ---
2/15/92 3/1/92
1 1
--- ---
A-2
</TABLE>
<PAGE>
TABLE I - EXPERIENCE IN RAISING AND INVESTING FUNDS (continued)
<TABLE>
<CAPTION>
World Missions Assembly By His Word Christian Metropolitan Baptist Christian Hope Center
Center Church
<S> <C> <C> <C> <C>
Dollar Amount Offered $ 720,000 $ 1,215,000 $ 475,000 $ 506,000
Dollar Amount Raised $ 720,000 $ 1,215,000 $ 475,000 $ 506,000
Percentage of Funds Raised 100% 100% 100% 100%
Less Offering Expenses:
Selling Commissions &
Discounts Retained by Affiliate$ 50,400 (7%) $ 85,050 (7%) $ 33,250 (7%) $ 35,420 (7%)
Organizational Expenses --- --- --- ---
Other Underwriting Expenses $ 15,100 (2.1%) $ 18,500 (1.5%) $ 13,750 (2.9%) $ 11,500 (2.3%)
Percent Available to Issuer 90.9% 91.5% 90.1% 90.7%
Total Acquisition Cost --- --- --- ---
Percent Leverage (mortgage --- --- --- ---
financing divided by total
acquisition cost)
Date Offering Began 3/15/92 4/1/92 4/1/92 5/1/92
Length of Offering (mos.) 2 1 1 1
Months to Invest 90% of
Amount Available for --- --- --- ---
Investment (measured from
beginning of offering)
<CAPTION>
Bible Missionary Central Holiness Church
Baptist Church
<C> <C>
$ 1,300,000 $ 250,000
$ 1,300,000 $ 250,000
100% 100%
$ 91,000 (7%) $ 17,500 (7%)
--- ---
$ 32,250 (2.5%) $ 10,000 (4.0%)
90.5% 89.0%
--- ---
--- ---
5/15/92 6/15/92
1 1
--- ---
</TABLE>
A-3
<PAGE>
TABLE I - EXPERIENCE IN RAISING AND INVESTING FUNDS (continued)
<TABLE>
<CAPTION>
St. James Episcopal Church of Jesus Christ Temple Baptist Church Mt. Zion African
Church Methodist Episcopal
Church
<S> <C> <C> <C> <C>
Dollar Amount Offered $ 1,430,000 $ 1,280,000 $ 380,000 $ 875,000
Dollar Amount Raised $ 1,430,000 $ 1,280,000 $ 380,000 $ 875,000
Percentage of Funds Raised 100% 100% 100% 100%
Less Offering Expenses:
Selling Commissions &
Discounts Retained by Affiliate$ 85,085 (5.95%) $ 89,600 (7%) $ 26,700 (7%) $ 61,250 (7%)
Organizational Expenses --- --- --- ---
Other Underwriting Expenses $ 12,215 (.8%) $ 17,000 (1.3%) $ 11,900 (3.1%) $ 16,000 (1.8%)
Percent Available to Issuer 93.2% 91.7% 89.9% 91.2%
Total Acquisition Cost --- --- --- ---
Percent Leverage (mortgage --- --- --- ---
financing divided by total
acquisition cost)
Date Offering Began 6/24/92 7/1/92 8/1/92 8/15/92
Length of Offering (mos.) 2 1 1 1
Months to Invest 90% of
Amount Available for --- --- --- ---
Investment (measured from
beginning of offering)
<CAPTION>
Calvary Temple of Bethel Baptist Church
Allentown, PA
<C> <C>
$ 1,820,000 $ 525,000
$ 1,820,000 $ 525,000
100% 100%
$ 127,400 (7%) $ 36,750 (7%)
--- ---
$ 37,500 (2.1%) $ 12,250 (2.3%)
90.9% 90.7%
--- ---
--- ---
9/1/92 9/15/92
1 1
--- ---
</TABLE>
A-4
<PAGE>
TABLE I - EXPERIENCE IN RAISING AND INVESTING FUNDS (continued)
<TABLE>
<CAPTION>
Unity Palo Alto Christian Love Baptist Tabernacle Baptist Lee Memorial African
Community Church Church Church Methodist Episcopal
Church
<S> <C> <C> <C> <C>
Dollar Amount Offered $ 2,180,000 $ 500,000 $ 1,550,000 $ 1,225,000
Dollar Amount Raised $ 2,180,000 $ 500,000 $ 1,550,000 $ 1,225,000
Percentage of Funds Raised 100% 100% 100% 100%
Less Offering Expenses:
Selling Commissions &
Discounts Retained by Affiliate$ 147,150 (6.75%) $ 35,000 (7%) $ 108,500 (7%) $ 85,750 (7%)
Organizational Expenses --- --- --- ---
Other Underwriting Expenses $ 20,000 (.92%) $ 13,000 (2.6%) $ 22,000 (1.4%) $ 21,000 (1.7%)
Percent Available to Issuer 92.3% 90.4% 91.6% 91.3%
Total Acquisition Cost --- --- --- ---
Percent Leverage (mortgage --- --- --- ---
financing divided by total
acquisition cost)
Date Offering Began 10/1/92 11/15/92 11/15/92 12/15/92
Length of Offering (mos.) 2 1 1 1
Months to Invest 90% of
Amount Available for --- --- --- ---
Investment (measured from
beginning of offering)
<CAPTION>
Nazareth Baptist Christian Pentecostal
Church Church
<C> <C>
$ 390,000 $ 1,600,000
$ 390,000 $ 1,600,000
100% 100%
$ 27,300 (7%) $ 112,000 (7%)
--- ---
$ 9,700 (2.5%) $ 24,000 (1.5%)
90.5% 91.5%
--- ---
--- ---
1/15/93 2/1/93
1 1
--- ---
</TABLE>
A-5
<PAGE>
TABLE I - EXPERIENCE IN RAISING AND INVESTING FUNDS (continued)
<TABLE>
<CAPTION>
Mount Zion Christian Lake Baptist Church St. Marks Missionary Friendship Missionary
Baptist Church Baptist Church Baptist Church
<S> <C> <C> <C> <C>
Dollar Amount Offered $ 750,000 $ 365,000 $ 1,500,000 $ 700,000
Dollar Amount Raised $ 750,000 $ 365,000 $ 1,500,000 $ 700,000
Percentage of Funds Raised 100% 100% 100% 100%
Less Offering Expenses:
Selling Commissions &
Discounts Retained by Affiliate$ 52,500 (7%) $ 25,550 (7%) $ 105,000 (7%) $ 49,000 (7%)
Organizational Expenses --- --- --- ---
Other Underwriting Expenses $ 14,500 (2.75%) $ 8,000 (2.2%) $ 23,000 (1.5%) $ 15,000 (2.1%)
Percent Available to Issuer 90.25% 90.8% 91.5% 90.9%
Total Acquisition Cost --- --- --- ---
Percent Leverage (mortgage --- --- --- ---
financing divided by total
acquisition cost)
Date Offering Began 1/15/93 2/1/93 2/1/93 4/1/93
Length of Offering (mos.) 1 1 1 1
Months to Invest 90% of
Amount Available for --- --- --- ---
Investment (measured from
beginning of offering)
<CAPTION>
Christian Faith Center Raleigh Christian
Community Church
<C> <C>
$ 1,765,000 $ 1,425,000
$ 1,765,000 $ 1,425,000
100% 100%
$ 119,138 (6.75%) $ 90,750 (6.25%)
--- ---
$ 17,000 (1.0%) $ 14,000 (1.0%)
92.25% 92.75%
--- ---
--- ---
5/15/93 6/1/93
1 1
--- ---
</TABLE>
A-6
<PAGE>
TABLE I - EXPERIENCE IN RAISING AND INVESTING FUNDS (continued)
<TABLE>
<CAPTION>
Porters Day Care and Outreach Christian Evergreen Missionary Faith Southwest Baptist
Education Center Center Baptist Church Church
<S> <C> <C> <C> <C>
Dollar Amount Offered $ 350,000 $ 575,000 $ 345,000 $ 700,000
Dollar Amount Raised $ 350,000 $ 575,000 $ 345,000 $ 700,000
Percentage of Funds Raised 100% 100% 100% 100%
Less Offering Expenses:
Selling Commissions &
Discounts Retained by Affiliate$ 25,500 (7%) $ 39,963 (6.95%) $ 24,150 (7%) $ 48,650 (6.95%)
Organizational Expenses --- --- --- ---
Other Underwriting Expenses $ 14,000 (3.1%) $ 12,000 (1.7%) $ 11,000 (3.2%) $ 14,000 (2.0%)
Percent Available to Issuer 89.9% 91.35% 89.8% 91.05%
Total Acquisition Cost --- --- --- ---
Percent Leverage (mortgage --- --- --- ---
financing divided by total
acquisition cost)
Date Offering Began 5/15/93 5/15/93 6/1/93 6/15/93
Length of Offering (mos.) 2 1 1 1
Months to Invest 90% of
Amount Available for --- --- --- ---
Investment (measured from
beginning of offering)
<CAPTION>
Cornerstone Church St. Paul African
Methodist Episcopal
Church
<C> <C>
$ 4,355,000 $ 1,000,000
$ 4,355,000 $ 1,000,000
100% 100%
$ 293,963 (6.75%) $ 67,500 (6.75%)
--- ---
$ 37,250 (.85%) $ 19,000 (1.9%)
92.4% 91.35%
--- ---
--- ---
7/15/93 8/15/93
1 1
--- ---
</TABLE>
A-7
<PAGE>
TABLE I - EXPERIENCE IN RAISING AND INVESTING FUNDS (continued)
<TABLE>
<CAPTION>
Windsor Village United First Baptist Church Peaceful Zion Missionary Central Holiness Church
Methodist Church Baptist Church
Miami, FL
<S> <C> <C> <C> <C>
Dollar Amount Offered $ 3,100,000 $ 2,600,000 $ 750,000 $ 1,405,000
Dollar Amount Raised $ 3,100,000 $ 2,600,000 $ 750,000 $ 1,405,000
Percentage of Funds Raised 100% 100% 100% 100%
Less Offering Expenses:
Selling Commissions &
Discounts Retained by Affiliate$ 193,750 (6.25%) $ 175,500 (6.75%) $ 52,500 (7%) $ 87,813 (6.25%)
Organizational Expenses --- --- --- ---
Other Underwriting Expenses $ 32,000 (1.0%) $ 30,500 (1.2%) $ 17,500 (2.3%) $ 12,000 (.85%)
Percent Available to Issuer 92.75% 92.05% 90.7% 92.8%
Total Acquisition Cost --- --- --- ---
Percent Leverage (mortgage --- --- --- ---
financing divided by total
acquisition cost)
Date Offering Began 9/1/93 10/1/93 10/15/93 11/15/93
Length of Offering (mos.) 2 1 1 1
Months to Invest 90% of
Amount Available for --- --- --- ---
Investment (measured from
beginning of offering)
<CAPTION>
Apostolic Faith Home New Life Christian
Assembly Ministry
<C> <C>
$ 2,600,000 $ 2,000,000
$ 2,600,000 $ 2,000,000
100% 100%
$ 169,000 (6.5%) $ 130,000 (6.5%)
--- ---
$ 36,500 (1.4%) $ 23,000 (1.15%)
92.1% 92.0%
--- ---
--- ---
12/15/93 2/15/94
9 2
--- ---
</TABLE>
A-8
<PAGE>
TABLE I - EXPERIENCE IN RAISING AND INVESTING FUNDS (continued)
<TABLE>
<CAPTION>
Calvary Temple of First Baptist Church Woodinville Church of Resurrection Life
Allentown, PA Christ Ministries
<S> <C> <C> <C> <C>
Dollar Amount Offered $ 1,950,000 $ 740,000 $ 440,000 $ 620,000
Dollar Amount Raised $ 1,950,000 $ 740,000 $ 440,000 $ 620,000
Percentage of Funds Raised 100% 100% 100% 100%
Less Offering Expenses:
Selling Commissions &
Discounts Retained by Affiliate$ 121,875 (6.25%) $ 46,250 (6.25%) $ 27,500 (6.25%) $ 90,300 (7%)
Organizational Expenses --- --- --- ---
Other Underwriting Expenses $ 18,000 (.9%) $ 11,200 (1.5%) $ 12,000 (2.27%) $ 3,000 (.5%)
Percent Available to Issuer 92.85% 92.25% 91.48% 95.0%
Total Acquisition Cost --- --- --- ---
Percent Leverage (mortgage --- --- --- ---
financing divided by total
acquisition cost)
Date Offering Began 2/15/94 4/1/94 5/15/94 5/15/94
Length of Offering (mos.) 1 2 1 2
Months to Invest 90% of
Amount Available for --- --- --- ---
Investment (measured from
beginning of offering)
<CAPTION>
Church of Jesus Christ By His Word Christian
Center
<C> <C>
$ 1,735,000 $ 1,665,000
$ 1,735,000 $ 1,665,000
100% 100%
$ 103,233 (5.95%) $ 71,595 (5.95%)
--- ---
$ 21,000 (1.2%) $ 17,000 (1.0%)
92.85% 93.05%
--- ---
--- ---
6/1/94 8/28/94
3 2
--- ---
</TABLE>
A-9
<PAGE>
TABLE I - EXPERIENCE IN RAISING AND INVESTING FUNDS (continued)
<TABLE>
<CAPTION>
Liberty Church Morningstar Baptist Gates of Heaven Church Windsor Village United
Church Methodist Church
<S> <C> <C> <C> <C>
Dollar Amount Offered $ 900,000 $ 800,000 $ 3,400,000 $ 725,000
Dollar Amount Raised $ 900,000 $ 800,000 $ 3,400,000 $ 725,000
Percentage of Funds Raised 100% 100% 100% 100%
Less Offering Expenses:
Selling Commissions &
Discounts Retained by Affiliate$ 53,550 (5.95%) $ 47,600 (5.95%) $ 202,300 (5.95%) $ 45,313 (6.25%)
Organizational Expenses --- --- --- ---
Other Underwriting Expenses $ 11,000 (1.2%) $ 10,000 (1.25%) $ 30,000 (1.00%) $ 7,000 (1.00%)
Percent Available to Issuer 93.05% 92.80% 93.05% 92.75%
Total Acquisition Cost --- --- --- ---
Percent Leverage (mortgage --- --- --- ---
financing divided by total
acquisition cost)
Date Offering Began 7/1/94 9/15/94 11/15/94 1/1/95
Length of Offering (mos.) 5 3 10 2
Months to Invest 90% of
Amount Available for --- --- --- ---
Investment (measured from
beginning of offering)
<CAPTION>
Hopewell Missionary St. Agnes Missionary
Baptist Church Baptist Church
<C> <C>
$ 6,350,000 $3,200,000
$ 6,350,000 $1,600,000
100% 100%
$ 377,825 (5.95%) $ 190,400 (5.95%)
--- ---
$ 45,000 (.71%) $ 27,000 (.84%)
94.05% 94.05%
--- ---
--- ---
1/15/95 3/15/95
10 6
--- --
</TABLE>
A-10
<PAGE>
TABLE I - EXPERIENCE IN RAISING AND INVESTING FUNDS (continued)
<TABLE>
<CAPTION>
Church of the Great Zion Evangelistic Temple St. Mark's Missionary Emmanuel Baptist
Commission Baptist Church Church
<S> <C> <C> <C> <C>
Dollar Amount Offered $2,200,000 $4,375,000 $360,000 $1,655,000
Dollar Amount Raised $2,200,000 $4,375,000 $360,000 $1,655,000
Percentage of Funds Raised 100% 100% 100% 100%
Less Offering Expenses:
Selling Commissions &
Discounts Retained by Affiliate$ 130,900 (5.95%) $ 260,313 (5.95%) $ 24,300 (6.25%) $ 98,475 (5.95%)
Organizational Expenses --- --- --- ---
Other Underwriting Expenses $ 25,500 (1.20%) $ 39,000 (.89%) $ 14,500 (4.02%) $ 20,000 (1.21%)
Percent Available to Issuer 93.00% 93.00% 89.00%
Total Acquisition Cost --- --- --- ---
Percent Leverage (mortgage --- ---
financing divided by total
acquisition cost)
Date Offering Began 4/1/95 4/15/95 04/01/95 07/15/95
Length of Offering (mos.) 6 6 6 6
Months to Invest 90% of
Amount Available for --- --- --- ---
Investment (measured from
beginning of offering)
<CAPTION>
The Community Protestant Abundant Life Church of
Church Christ
<C> <C>
$1,500,000 $1,425,000
$1,500,000 $1,425,000
100% 100%
$ 89,250 (5.95%) $ 80,888 (5.68%)
--- ---
$ 24,000 (1.6%) $ 30,000 (2.10%)
--- ---
08/15/95 10/15/95
7 3
--- ---
</TABLE>
A-11
<PAGE>
TABLE I - EXPERIENCE IN RAISING AND INVESTING FUNDS (continued)
<TABLE>
<CAPTION>
Greeley Church of Twelfth Avenue General The Holden Chapel House of Praise
Christ Baptist Church, Inc. Ministries, Inc.
<S> <C> <C> <C> <C>
Dollar Amount Offered $500,000 $1,195,000 $500,000 $675,000
Dollar Amount Raised $500,000 $1,195,000 $500,000 $675,000
Percentage of Funds Raised 100% 100% 100% 100%
Less Offering Expenses:
Selling Commissions &
Discounts retained by Affiliate$ 41,500 (8.30%) $ 83,650 (7.00%) $ 29,750 (5.95%) $ 40,163 (5.95%)
Organization Expenses --- --- --- ---
Other Underwriting Expenses $ 5,000 (1.00%) $ 5,000 (0.41%) $ 5,000 (1.00%) $ 20,837 (3.08%)
Percent Available to Issuer 90.70% 92.58% 93.05% 90.96%
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
Length of Offering (mos.) 2 1 1 10
Months to Invest 90% of
Amount Available for --- --- --- ---
Investment (measured from
beginning of offering)
<CAPTION>
Pembroke Park Church Faith Community
of Christ, Inc. Church, Inc.
<C> <C>
$600,000 $950,000
$600,000 $950,000
100% 100%
$ 35,700 (5.95%) $ 64,800 (7.20%)
--- ---
$ 7,000 (1.00%) $ 13,000 (1.37%)
92.85% 91.81%
--- ---
--- ---
11/15/95 12/01/95
9 1
--- ---
</TABLE>
A-12
<PAGE>
TABLE I - EXPERIENCE IN RAISING AND INVESTING FUNDS (continued)
<TABLE>
<CAPTION>
Christ Church of Kirkland Oasis Christian Center Centennial Star St. Agnes Missionary
of Bethlehem Baptist Church
<S> <C> <C> <C> <C>
Dollar Amount Offered $2,785,000 $825,000 $1,195,000 $875,000
Dollar Amount Raised $2,785,000 $825,000 $1,195,000 $875,000
Percentage of Funds Raised 100% 100% 100% 100%
Less Offering Expenses:
Selling Commissions &
Discounts retained by Affiliates $ 192,165 (6.90%) $ 49,088 (5.95%) $ 71,103 (5.95%) $ 52,063 (5.95%)
Organization Expenses --- --- --- ---
Other Underwriting Expenses $ 8,400 (0.30%) $ 12,000 (1.45%) $ 14,000 (1.17%) $ 15,000 (1.71%)
Percent Available to Issuer 92.78% 92.60% 92.88% 92.33%
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
Length of Offering (mos.) 7 10 8 5
Months to Invest 90% of
Amount Available for --- --- --- ---
Investment (measured from
beginning of offering)
<CAPTION>
Lake Baptist Cornerstone Church
Church
<C> <C>
$1,184,000 $6,600,000
$1,184,000 $6,600,000
100% 100%
$ 109,480 (5.95%) $ 412,500 (6.25%)
--- ---
$ 12,520 (1.06%) $ 32,000 (0.48%)
89.70% 93.26%
--- ---
--- ---
03/15/96 05/15/96
6 3
--- ---
</TABLE>
A-13
<PAGE>
TABLE I - EXPERIENCE IN RAISING AND INVESTING FUNDS (continued)
<TABLE>
<CAPTION>
Abundant Life Family Vollintine Baptist Aloha Christian New Life Baptist
Worship Ctr., Inc. Church Inc. Life Center Church of
Thurston County
<S> <C> <C> <C> <C>
Dollar Amount Offered $2,025,000 $425,000 $1,380,000 $1,300,000
Dollar Amount Raised $2,025,000 $425,000 $1,380,000 $1,300,000
Percentage of Funds Raised 100% 100% 100% 100%
Less Offering Expenses:
Selling Commissions &
Discounts retained by Affiliate$ 120,488 (5.95%) $ 25,288 (5.95%) $ 84,850 (6.15%) $ 77,350 (5.95%)
Organization Expenses --- --- --- ---
Other Underwriting Expenses $ 21,000 (1.03%) $ 8,000 (1.88%) $ 15,000 (1.08%) $ 14,000 (1.08%)
Percent Available to Issuer 93.02% 92.17% 92.76% 92.97%
Total Acquisition Cost --- --- --- ---
Percent Leverage (mortgage --- --- --- ---
financing divided by total
acquisitions costs)
Date Offering Began 08/15/96 08/15/96 09/01/96 10/15/96
Length of Offering (mos.) 5 4 7 5
Months to Invest 90% of
Amount Available for --- --- --- ---
Investment (measured from
beginning of offering)
<CAPTION>
Centennial Star of Cornerstone Church
Bethlehem Baptist
Church of Ossining ,
New York
<C> <C>
$450,000 $4,680,000
$450,000 $4,680,000
100% 100%
$ 29,250 (6.50%) $278,460 (5.95%)
--- ---
$ 13,000 (2.89%) $ 36,540 (.78%)
90.61% 93.27%
--- ---
--- ---
11/15/96 12/15/96
4 4
--- ---
</TABLE>
A-14
<PAGE>
TABLE I - EXPERIENCE IN RAISING AND INVESTING FUNDS (continued)
<TABLE>
<CAPTION>
United Baptist Church Spring Lake Church of New Jerusalem Church Aloha Christian Life
Christ Center
<S> <C> <C> <C> <C>
Dollar Amount Offered $1,525,000 $600,000 $2,300,000 $490,000
Dollar Amount Raised $1,525,000 $600,000 $1,745,000 $490,000
Percentage of Funds Raised 100% 100% 76% (1) 100%
Less Offering Expenses:
Selling Commissions &
Discounts retained by Affiliate$ 90,738 (5.95%) $ 52,800 (8.80%) $136,850 (5.95%) $ 44,100 (9.00%)
Organization Expenses --- --- --- ---
Other Underwriting Expenses $ 19,000 (1.24%) $ 10,000 (1.66%) $ 24,000 (1.04%) $ 7,000 (1.43%)
Percent Available to Issuer 92.81% 89.54% 93.01% 89.57%
Total Acquisition Cost --- --- --- ---
Percent Leverage (mortgage --- --- --- ---
financing divided by total
acquisitions costs)
Date Offering Began 12/15/96 02/15/97 03/15/97 04/01/97
Length of Offering (mos.) 4 2 Open 1
Months to Invest 90% of
Amount Available for --- --- --- ---
Investment (measured from
beginning of offering)
<CAPTION>
Bethany Baptist Church
<S><C>
$1,750,000
$104,125 (5.95%)
---
$ 22,000 (1.25%)
92.80%
---
---
04/01/97
Open
---
</TABLE>
(1) Offering still in progress. Bond sales as of April 15, 1997
A-15
<PAGE>
This page intentionally left blank
A-16
<PAGE>
TABLE II - COMPENSATION TO SPONSOR AND
AFFILIATES For Program Offerings
Concluded Since January 1991
<TABLE>
<CAPTION>
Hopewell Missionary New Life Christian Triumph New Testament Mt. Moriah African
Baptist Church Ministry Church Methodist Episcopal
Church
<S> <C> <C> <C> <C>
Date Offering Commenced 1/15/91 3/1/91 3/15/91 5/15/91
Dollar Amount Raised $ 3,700,000 $ 715,000 $ 850,000 $ 1,290,000
Amount Paid to Sponsor from
Proceeds of Offering:
Underwriting Fees (1)
Acquisition Fees $ 259,000 $ 50,050 $ 59,500 $ 90,300
- real estate fees
- advisory fees --- --- --- ---
- other (type & amount) (2)--- --- --- ---
$ 46,425 $ 20,000 $ 21,250 $ 24,000
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 --- --- --- ---
Annual Advisor Fee earned --- --- --- ---
to date (3) $ 24,574 $ 5,000 $ 6,411 $ 9,751
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) --- --- --- ---
<CAPTION>
Lake Baptist Church Temple Baptist Church
<C> <C>
8/1/91 8/1/91
$ 1,800,000 $ 1,850,000
$ 108,000 $ 129,500
---
--- ---
--- ---
$ 22,500 $ 35,000
--- ---
--- ---
--- ---
--- ---
--- ---
--- ---
$ 10,206 $ 7,333
--- ---
--- ---
--- ---
--- ---
--- ---
--- ---
</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 04/15/97. These fees payable for the duration for
which each issuer's first mortgage bonds are outstanding.
B-1
<PAGE>
TABLE II - COMPENSATION TO SPONSOR AND
AFFILIATES (continued) For Program
Offerings Concluded Since January 1991
<TABLE>
<CAPTION>
North Stelton African Shorter African MethodistNew Life Christian Mt. Vernon Baptist
Methodist Episcopal Episcopal Church Ministry, Inc. Church
Church
<S> <C> <C> <C> <C>
Date Offering Commenced 10/15/91 11/1/91 12/1/91 12/15/91
Dollar Amount Raised $ 725,000 $ 1,860,000 $ 110,000 $ 1,350,000
Amount Paid to Sponsor from
Proceeds of Offering:
Underwriting Fees (1)
Acquisition Fees $ 50,750 $ 130,200 $ 8,250 $ 94,500
- real estate fees
- advisory fees --- --- --- ---
- other (type & amount) (2)--- --- --- ---
$ 7,000 $ 34,800 $ 8,000 $ 27,500
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 --- --- --- ---
Annual Advisory Fee earned --- --- --- ---
to date (3) $ 5,196 $ 14,512 $ 358 $ 5,060
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) --- --- --- ---
<CAPTION>
Macedonia Missionary First Baptist Church
Baptist Church
<C> <C>
2/15/92 3/1/92
$ 1,195,000 $ 1,040,000
$ 83,650 $ 72,800
--- ---
--- ---
$ 12,100 $ 22,200
--- ---
--- ---
--- ---
--- ---
--- ---
--- ---
$ 11,134 $ 9,808
--- ---
--- ---
--- ---
--- ---
--- ---
--- ---
</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.
B-2
<PAGE>
TABLE II - COMPENSATION TO SPONSOR AND
AFFILIATES (continued) For Program
Offerings Concluded Since January 1991
<TABLE>
<CAPTION>
World Missions Assembly By His Word Christian Metropolitan Baptist Christian Hope Center
Center Church
<S> <C> <C> <C> <C>
Date Offering Commenced 3/15/92 4/1/92 4/1/92 5/1/92
Dollar Amount Raised $ 720,000 $ 1,215,000 $ 475,000 $ 506,000
Amount Paid to Sponsor from
Proceeds of Offering:
Underwriting Fees (1) $50,400 $ 85,050 $ 33,250 $ 35,420
Acquisition Fees
- real estate fees --- --- --- ---
- advisory fees --- --- --- ---
- other (type & amount) (2)$15,100 $ 18,500 $ 13,750 $ 11,500
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 --- --- --- ---
Annual Advisory Fee earned --- --- --- ---
to date (3) $ 2,554 $ 4,828 $ 4,282 $ 7,405
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) --- --- --- ---
<CAPTION>
Bible Missionary Baptist Central Holiness Church
Church
<C> <C>
5/15/92 6/15/92
$ 1,300,000 $ 250,000
$ 91,000 $ 17,500
--- ---
--- ---
$ 32,250 $ 10,000
--- ---
--- ---
--- ---
--- ---
--- ---
--- ---
$ 11,402 $ 7,596
--- ---
--- ---
--- ---
--- ---
--- ---
--- ---
</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 04/15/97. These fees remain payable for the
duration for which each issuer's first mortgage bonds are
outstanding.
B-3
<PAGE>
TABLE II - COMPENSATION TO SPONSOR AND
AFFILIATES (Continued) For Program
Offerings Concluded Since January 1991
<TABLE>
<CAPTION>
St. James Episcopal Church of Jesus Christ Temple Baptist Church Mt. Zion African
Church Methodist Episcopal
Church
<S> <C> <C> <C> <C>
Date Offering Commenced 6/24/92 7/1/92 8/1/92 8/15/92
Dollar Amount Raised $ 1,430,000 $ 1,280,000 $ 380,000 $ 875,000
Amount Paid to Sponsor from
Proceeds of Offering:
Underwriting Fees (1) $ 85,085 $ 89,600 $ 26,700 $ 61,250
Acquisition Fees
- real estate fees --- --- --- ---
- advisory fees --- --- --- ---
- other (type & amount) (2)$ 12,215 $ 17,000 $ 11,900 $ 16,000
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 --- --- --- ---
Annual Advisory Fee earned --- --- --- ---
to date (3) $ 7,596 $ 4,022 $ 765 $ 2,243
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) --- --- --- ---
<CAPTION>
Calvary Temple of Bethel Baptist Church
Allentown, PA
<C> <C>
9/1/92 9/15/92
$ 1,820,000 $ 525,000
$ 127,400 $ 36,750
--- ---
--- ---
$ 37,500 $ 12,250
--- ---
--- ---
--- ---
--- ---
--- ---
--- ---
$ 5,356 $ 4,488
--- ---
--- ---
--- ---
--- ---
--- ---
--- ---
</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 04/15/97. These fee remain payable for the
duration for which each issuer's first mortgage bonds are
outstanding.
B-4
<PAGE>
TABLE II - COMPENSATION TO SPONSOR AND
AFFILIATES (Continued) For Program
Offerings Concluded Since January 1991
<TABLE>
<CAPTION>
Unity Palo Alto Christian Love Baptist Tabernacle Baptist ChurchLee Memorial African
Community Church Church Methodist Episcopal
Church
<S> <C> <C> <C> <C>
Date Offering Commenced 10/1/92 11/15/92 11/15/92 12/15/92
Dollar Amount Raised $ 2,180,000 $ 500,000 $ 1,550,000 $ 1,225,000
Amount Paid to Sponsor from
Proceeds of Offering:
Underwriting Fees (1) $ 147,150 $ 35,000 $ 108,500 $ 85,750
Acquisition Fees
- real estate fees --- --- --- ---
- advisory fees --- --- --- ---
- other (type & amount) (2)$ 20,000 $ 13,000 $ 22,000 $ 21,000
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 --- --- --- ---
Annual Advisory Fee earned --- --- --- ---
to date (3) $ 10.858 $ 3,941 $ 11,888 $ 8,054
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) --- --- --- ---
<CAPTION>
Nazareth Baptist Church Christian Pentecostal
Church
<C> <C>
1/15/93 2/1/93
$ 390,000 $ 1,600,000
$ 27,300 $ 112,000
--- ---
--- ---
$ 9,700 $ 24,000
--- ---
--- ---
--- ---
--- ---
--- ---
--- ---
$ 3,628 $ 5,361
--- ---
--- ---
--- ---
--- ---
--- ---
--- ---
</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 04/15/97. These fees remain payable for the
duration for which each issuer's first mortgage bonds are
outstanding.
B-5
<PAGE>
TABLE II - COMPENSATION TO SPONSOR AND
AFFILIATES (Continued) For Program
Offerings Concluded Since January 1991
<TABLE>
<CAPTION>
Mount Zion Christian Lake Baptist Church St. Marks Missionary Friendship Missionary
Baptist Church Baptist Church Baptist Church
<S> <C> <C> <C> <C>
Date Offering Commenced 1/15/93 2/1/93 2/1/93 4/1/93
Dollar Amount Raised $ 750,000 $ 365,000 $ 1,500,000 $ 700,000
Amount Paid to Sponsor from
Proceeds of Offering:
Underwriting Fees (1) $ 52,500 $ 25,550 $ 105,000 $ 49,000
Acquisition Fees
- real estate fees --- --- --- ---
- advisory fees --- --- --- ---
- other (type & amount) (2)$ 14,500 $ 8,000 $ 23,000 $ 15,000
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 --- --- --- ---
Annual Advisory Fee earned --- --- --- ---
to date (3) $ 5,919 $ 1,540 $ 7,775 $ 5,236
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) --- --- --- ---
<CAPTION>
Christian Faith Center Raleigh Christian
Community
<C> <C>
5/15/93 6/1/93
$ 1,765,000 $ 1,425,000
$ 119,138 $ 90,750
--- ---
--- ---
$ 17,000 $ 14,000
--- ---
--- ---
--- ---
--- ---
--- ---
--- ---
$ 7,594 $ 8,194
--- ---
--- ---
--- ---
--- ---
--- ---
--- ---
</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 04/15/97. These fees remain payable for the
duration for which each issuer's first mortgage bonds are
outstanding.
B-6
<PAGE>
TABLE II - COMPENSATION TO SPONSOR AND
AFFILIATES (Continued) For Program
Offerings Concluded Since January 1991
<TABLE>
<CAPTION>
Porters Day Care and Outreach Christian CenterEvergreen Baptist ChurchFaith Southwest Baptist
Educational Center Church
<S> <C> <C> <C> <C>
Date Offering Commenced 5/15/93 5/15/93 6/1/93 6/15/93
Dollar Amount Raised $ 350,000 $ 575,000 $ 345,000 $ 700,000
Amount Paid to Sponsor from
Proceeds of Offering:
Underwriting Fees (1) $ 25,500 $ 39,963 $ 24,150 $ 48,650
Acquisition Fees
- real estate fees --- --- --- ---
- advisory fees --- --- --- ---
- other (type & amount) (2)$ 14,000 $ 12,000 $ 11,000 $ 14,000
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 --- --- --- ---
Annual Advisory Fee earned --- --- --- ---
to date (3) $ 2,638 $ 4,133 $ 966 $ 4,819
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) --- --- --- ---
Cornerstone Church St. Paul African
Methodist Episcopal
Church
<C> <C>
7/15/93 8/15/93
$ 4,355,000 $ 1,000,000
$ 293,963 $ 67,500
--- ---
--- ---
$ 37,250 $ 19,000
--- ---
--- ---
--- ---
--- ---
--- ---
--- ---
$ 10,468 $ 5,448
--- ---
--- ---
--- ---
--- ---
--- ---
--- ---
</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 04/15/97. These fees remain payable for the
duration for which each issuer's first mortgage bonds are
outstanding.
B-7
<PAGE>
TABLE II - COMPENSATION TO SPONSOR AND
AFFILIATES (Continued) For Program
Offerings Concluded Since January 1991
<TABLE>
<CAPTION>
Windsor Village United First Baptist Church Peaceful Zion Missionary Central Holiness Church
Methodist Church Baptist Church
<S> <C> <C> <C> <C>
Date Offering Commenced 9/1/93 10/1/93 10/15/93 11/15/93
Dollar Amount Raised $ 3,100,000 $ 2,600,000 $ 750,000 $ 1,045,000
Amount Paid to Sponsor from
Proceeds of Offering:
Underwriting Fees (1) $ 193,750 $ 175,000 $ 52,500 $ 87,813
Acquisition Fees
- real estate fees --- --- --- ---
- advisory fees --- --- --- ---
- other (type & amount) (2)$ 32,000 $ 30,500 $ 17,500 $ 12,000
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 --- --- --- ---
Annual Advisory Fee earned --- --- --- ---
to date (3) $ 16,190 $ 13,736 $ 4,824 $ 8,852
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) --- --- --- ---
<CAPTION>
Apostolic Faith Home New Life Christian
Assembly Ministry
<C> <C>
12/15/93 2/15/94
$ 2,600,000 $ 1,850,000
$ 169,000 $ 130,000
--- ---
--- ---
$ 36,500 $ 23,000
--- ---
--- ---
--- ---
--- ---
--- ---
--- ---
$ 12,697 $ 11,588
--- ---
--- ---
--- ---
--- ---
--- ---
--- ---
</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 04/15/97. These fees remain payable for the
duration for which each issuer's first mortgage bonds are
outstanding.
B-8
<PAGE>
TABLE II - COMPENSATION TO SPONSOR AND
AFFILIATES (Continued) For Program
Offerings Concluded Since January 1991
<TABLE>
<CAPTION>
Calvary Temple of First Baptist Church Woodinville Church of Resurrection Life
Allentown, PA Christ Ministries
<S> <C> <C> <C> <C>
Date Offering Commenced 2/15/94 4/1/94 5/15/94 5/15/94
Dollar Amount Raised $ 1,950,000 $ 740,000 $ 440,000 $ 620,000
Amount Paid to Sponsor from
Proceeds of Offering:
Underwriting Fees (1) $ 121,875 $ 46,250 $ 27,500 $ 90,300
Acquisition Fees
- real estate fees --- --- --- ---
- advisory fees --- --- --- ---
- other (type & amount) (2)$ 18,000 $ 11,200 $ 12,000 $ 3,000
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 --- --- --- ---
Annual Advisory Fee earned --- --- --- ---
to date (3) $ 7,104 $ 11,830 $ 1,889 $ 13,400
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) --- --- --- ---
<CAPTION>
Church of Jesus Christ By His Word Christian
Center
<C> <C>
6/1/94 8/28/94
$ 1,735,000 $ 1,665,000
$ 103,233 $ 71,595
--- ---
--- ---
$ 21,000 $ 17,000
--- ---
--- ---
--- ---
--- ---
--- ---
--- ---
$ 11,175 $ 10,267
--- ---
--- ---
--- ---
--- ---
--- ---
--- ---
</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 04/15/97. These fees remain payable for the
duration for which each issuer's first mortgage bonds are
outstanding.
B-9
<PAGE>
TABLE II - COMPENSATION TO SPONSOR AND
AFFILIATES (Continued) For Program
Offerings Concluded Since January 1991
<TABLE>
<CAPTION>
Liberty Church Morningstar Baptist Gates of Heaven Windsor Village United
Church Methodist Church
<S> <C> <C> <C> <C>
Date Offering Commenced 7/1/94 9/15/94 11/15/94 1/1/95
Dollar Amount Raised $ 900,000 $ 800,000 $ 3,400,000 $ 725,000
Amount Paid to Sponsor from
Proceeds of Offering:
Underwriting Fees (1) $ 53,550 $ 47,600 $ 202,300 $ 45,313
Acquisition Fees
- real estate fees --- --- --- ---
- advisory fees --- --- --- ---
- other (type & amount) (2)$ 11,000 $ 10,000 $ 30,000 $ 7,000
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 --- --- --- ---
Annual Advisor Fee earned --- --- --- ---
to date (3) $ 5,799 $ 6,147 $ 11,849 $ 2,590
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) --- --- --- ---
<CAPTION>
Hopewell Missionary St. Agnes Missionary
Baptist Church Baptist Church
<C> <C>
1/15/95 3/15/95
$ 6,350,000 $3,200,000
$ 377,825 $ 190,400
--- ---
--- ---
$ 45,000 $ 27,000
--- ---
--- ---
--- ---
--- ---
--- ---
--- ---
--- ---
$ 22,112 $ 6,395
--- ---
--- ---
--- ---
--- ---
--- ---
--- ---
</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 04/15/97. These fees remain payable for the
duration for which each issuer's first mortgage bonds are
outstanding.
B-10
<PAGE>
TABLE II - COMPENSATION TO SPONSOR AND
AFFILIATES (Continued) For Program
Offerings Concluded Since January 1991
<TABLE>
<CAPTION>
Church of the Great Zion Evangelistic Temple St. Mark's Missionary Emmanuel Baptist
Commission Baptist Church Church
<S> <C> <C> <C> <C>
Date Offering Commenced 4/1/95 4/15/95 04/01/95 07/15/95
Dollar Amount Raised $ 2,200,000 $4,375,000 $360,000 $1,655,000
Amount Paid to Sponsor from
Proceeds of Offering:
Underwriting Fees (1) $ 130,900 $ 260,313 $ 24,300 $ 98,475
Acquisition Fees
- real estate fees --- --- --- ---
- advisory fees --- --- --- ---
- other (type & amount) (2)$ 25,500 $ 39,000 $ 14,500 $ 20,000
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 --- --- --- ---
Annual Advisor Fee earned --- --- --- ---
to date (3) $ 7,675 $ 14,386 $ 1,760 $ 5,940
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) --- --- --- ---
<CAPTION>
The Community Abundant Life Church
Protestant Church of Christ
<C> <C>
08/15/95 10/15/95
$1,500,000 $1,425,000
$ 89,250 $ 80,888
--- ---
--- ---
$ 24,000 $ 30,000
___ ___
--- ---
--- ---
--- ---
--- ---
--- ---
$ 5,278 $ 4,343
--- ---
--- ---
--- ---
--- ---
--- ---
--- ---
</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 04/15/97. These fees remain payable for the
duration for which each issuer's first mortgage bonds are
outstanding.
B-11
<PAGE>
TABLE II - COMPENSATION TO SPONSOR AND
AFFILIATES (Continued) For Program
Offerings Concluded Since January 1991
<TABLE>
<CAPTION>
Greeley Church of Twelfth Avenue General The Holden Chapel House of Praise
Christ Baptist Church, Inc. Ministries, Inc.
<S> <C> <C> <C> <C>
Date Offering Commenced 10/15/95 10/15/95 11/01/95 10/01/95
Dollar Amount Raised $500,000 $1,195,000 $500,000 $675,000
Amount Paid to Sponsor from
Proceeds of Offering:
Underwriting Fees (1) $ 41,500 83,650 29,750 $ 40,163
Acquisition Fees
- real estate fees --- --- --- ---
- advisory fees --- --- --- ---
- other (type & amount) (2)$ 5,000 $ 5,000 $5,000 $ 20,837
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 --- --- --- ---
Annual Advisor Fee earned --- --- --- ---
to date (3) --- --- $ 940 $ 2,028
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) --- ---
<CAPTION>
Pembroke Park Church Faith Community
of Christ, Inc. Church, Inc.
<C> <C>
11/15/95 12/01/95
$600,000 $950,000
$ 37,500 $ 84,800
--- ---
--- ---
$ 6,000 $ 13,000
___ ___
--- ---
--- ---
--- ---
--- ---
--- ---
$ 891 ---
--- ---
--- ---
--- ---
--- ---
--- ---
--- ---
</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 04/15/97. These fees remain payable for the
duration for which each issuer's first mortgage bonds are
outstanding.
B-12
<PAGE>
TABLE II - COMPENSATION TO SPONSOR AND
AFFILIATES (Continued) For Program
Offerings Concluded Since January 1991
<TABLE>
<CAPTION>
Christ Church of KirklandOasis Christian Center Centennial Star of St. Agnes Missionary
Bethlehem Baptist Church
<S> <C> <C> <C> <C>
Date Offering Commenced 12/29/95 02/15/96 02/01/96 03/15/96
Dollar Amount Raised $2,785,000 $825,000 $1,195,000 $875,000
Amount Paid to Sponsor from
Proceeds of Offering:
Underwriting Fees (1) $ 192,165 $ 49,088 $ 71,103 $ 52,063
Acquisition Fees
- real estate fees --- --- --- ---
- advisory fees --- --- --- ---
- other (type & amount) (2)$ 8,400 $ 5,912 $ 17,000 $ 15,000
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 --- --- --- ---
Annual Advisor Fee earned --- --- --- ---
to date (3) $ 6,841 $ 2,130 $ 2,640 $ 7,745
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) --- --- --- ---
<CAPTION>
Lake Baptist Cornerstone Church
Church
<C> <C>
03/15/96 05/15/96
$1,184,000 $6,600,000
$ 109,480 $ 412,500
--- ---
--- ---
$ 15,520 $ 32,000
___ ___
--- ---
--- ---
--- ---
--- ---
--- ---
$ 4,470 $ 4,417
--- ---
--- ---
--- ---
--- ---
--- ---
--- ---
</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 04/15/97. These fees remain payable for the
duration for which each issuer's first mortgage bonds are
outstanding.
B-13
<PAGE>
TABLE II - COMPENSATION TO SPONSOR AND
AFFILIATES (Continued) For Program
Offerings Concluded Since January 1991
<TABLE>
<CAPTION>
Abundant Life Family Vollintine Baptist Aloha Christian Life New Life Baptist Church
Worship Ctr. Inc. Church Inc. Center of Thurston County
<S> <C> <C> <C> <C>
Date Offering Commenced 08/15/96 08/15/96 09/01/96 10/15/96
Dollar Amount Raised $2,025,000 $ 425,000 $1,380,000 $1,300,000
Amount Paid to Sponsor from
Proceeds of Offering:
Underwriting Fees (1) $120,488 $ 25,288 $ 84,850 $ 77,350
Acquisition Fees
- real estate fees --- --- --- ---
- advisory fees --- --- --- ---
- other (type & amount) (2)$ 21,000 $ 8,000 $ 15,000 $ 14,000
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 --- --- --- ---
Annual Advisor Fee earned --- --- --- ---
to date (3) $ 3,222 $ 510 $ 1,378 $ 0
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) --- --- --- ---
<CAPTION>
Centennial Star of Cornerstone Church
Bethlehem Baptist Church
of Ossining, New York
<C> <C>
11/15/96 12/15/96
$ 450,000 $4,680,000
$ 29,250 $278,460
--- ---
--- ---
$ 13,000 $ 36,540
___ ___
--- ---
--- ---
--- ---
--- ---
--- ---
$ 0 $ 0
--- ---
--- ---
--- ---
--- ---
--- ---
--- ---
</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 04/15/97. These fees remain payable for the
duration for which each issuer's first mortgage bonds are
outstanding.
B-14
<PAGE>
TABLE II - COMPENSATION TO SPONSOR AND
AFFILIATES (Continued) For Program
Offerings Concluded Since January 1991
<TABLE>
<CAPTION>
United Baptist Church Spring Lake Church of New Jerusalem Church Aloha Christian Life
Christ Center
<S> <C> <C> <C> <C>
Date Offering Commenced 12/15/96 02/15/97 03/15/97 04/01/97
Dollar Amount Raised $1,525,000 $ 600,000 $1,745,000 $490,000
Amount Paid to Sponsor from
Proceeds of Offering:
Underwriting Fees (1) $ 90,738 $ 52,800 $136,850 $ 44,100
Acquisition Fees
- real estate fees --- --- --- ---
- advisory fees --- --- --- ---
- other (type & amount) (2)$ 19,000 $ 10,000 $ 24,000 $ 7,000
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 --- --- --- ---
Annual Advisor Fee earned --- --- --- ---
to date (3) $ 0 $ 0 $ 0 $ 0
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) --- --- --- ---
<CAPTION>
Bethany Baptist Church
<S><C>
04/01/97
$104,125
---
---
$ 22,000
___
---
---
---
---
---
$ 0
---
---
---
---
---
---
</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 04/15/97. These fees remain payable for the
duration for which each issuer's first mortgage bonds are outstanding.
B-15
<PAGE>
TABLE II B
LOCATION OF PRIOR MORTGAGE LOANS TO CHURCHES
MADE BY AFFILIATE* OF ADVISOR
1987 to April 1997
<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 0.61%
California 8 13,840,000 8.86%
Colorado 3 2,820,00 1.80%
Connecticut 1 1,655,000 1.06%
District of Columbia 4 5,510,000 3.53%
Florida 4 4,075,000 2.61%
Georgia 5 12,770,000 8.71%
Illinois 4 3,725,000 2.38%
Indiana 1 1,195,000 0.76%
Kansas 1 475,000 0.30%
Maryland 3 4,205,000 2.69%
Massachusetts 1 500,000 0.32%
Michigan 2 6,675,000 4.27%
Minnesota 4 5,365,000 3.43%
New Jersey 8 8,190,000 5.24%
New York 14 11,510,000 7.37%
North Carolina 3 3,477,000 2.22%
Ohio 1 1,225,000 0.78%
Oklahoma 2 1,470,000 0.94%
Oregon 6 6,625,000 4.24%
Pennsylvania 3 4,120,000 2.64%
Tennessee 8 7,440,000 4.76%
Texas 16 34,740,000 22.23%
Virginia 4 5,271,000 3.37%
Washington 6 8,445,000 5.40%
113 $ 156,273,000 100.00%
</TABLE>
* Loans were made through first mortgage bond underwritings
conducted by the Managing Underwriter, 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.
White - Issuer Yellow - Investor Pink - Broker-Dealer Gold - Broker
B-16
<PAGE>
<TABLE>
<S><C>
EXHIBIT A
American Church Mortgage Company
Subscription Agreement
Amount $ _________________________ Number of Shares__________________
Dividend Reinvestment Option ______ yes ______ no
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 Church Mortgage Company, 10237 Yellow Circle Drive, Minnetonka, MN 55343
- -----------------------------------------------------------------------------------------------------------------------------------
Accepted by: AMERICAN CHURCH MORTGAGE CORPORATION
By: Church Loan Advisors, Inc. __________________________________________________ Date___________________
(Advisor) (President)
White - Issuer Yellow - Investor Pink - Broker-Dealer Gold - Broker
B-17
</TABLE>
<PAGE>
EXHIBIT B
1,500,000 Common Shares
American Church Mortgage Company
SUITABILITY CERTIFICATE
(to be returned with Subscription Agreement)
TO: American Church Mortgage Company
10237 Yellow Circle Drive
Minnetonka, 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
B-18
<PAGE>
Page intentionally left blank
B-19
<PAGE>
- ----------------------------------------------------------
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 Underwriters. 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 OF CONTENTS
THE OFFERING SUMMARY.................................................... 4
RISK FACTORS............................................................. 9
WHO MAY INVEST.......................................................... 14
USE OF PROCEEDS........................................................ 15
COMPENSATION TO ADVISOR AND AFFILIATES.................................. 15
CONFLICTS OF INTEREST................................................... 17
DISTRIBUTIONS........................................................... 19
CAPITALIZATION.......................................................... 20
SELECTED FINANCIAL DATA................................................. 21
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION................................................ 22
BUSINESS OF THE COMPANY................................................. 24
MANAGEMENT.............................................................. 31
SECURITY OWNERSHIP OF MANAGEMENT
AND OTHERS............................................................ 34
CERTAIN RELATIONSHIPS AND TRANSACTIONS
WITH MANAGEMENT...................................................... 34
THE ADVISOR AND THE ADVISORY AGREEMENT ................................. 35
FEDERAL INCOME TAX CONSIDERATIONS....................................... 41
ERISA CONSIDERATIONS.................................................... 47
DESCRIPTION OF CAPITAL STOCK............................................ 48
SUMMARY OF THE ORGANIZATIONAL DOCUMENTS................................. 49
PLAN OF DISTRIBUTION.................................................... 53
COMMISSION POSITION ON INDEMNIFICATION
FOR SECURITIES ACT LIABILITIES........................................ 55
LEGAL MATTERS........................................................... 55
EXPERTS................................................................. 56
REPORTS TO SHAREHOLDERS, RIGHTS
OF EXAMINATION AND
ADDITIONAL INFORMATION................................................ 56
GLOSSARY................................................................ 57
FINANCIAL STATEMENTS.................................................... F-1
APPENDIX I............................................................... A-1
-----------------------
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.
--------------------------------------------------------------------
1,500,000 Shares
[GRAPHIC OMITTED]
American Church
Mortgage Company
Common Stock
------------------------
PROSPECTUS
------------------------
LASALLE ST. SECURITIES, INC.
AMERICAN INVESTORS GROUP, INC.
_______________ , 1997
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 30. Other Expenses of Issuance and Distribution.
SEC Registration Fee..................................... $ 5,000
NASD Filing Fee.......................................... 2,150
*Blue Sky Qualification Fees and Expenses................ 15,000
*Fees of Transfer Agent.................................. 4,000
*Printing and Engraving.................................. 15,000
**Underwriters' Expense Allowance........................ 133,000
*Legal Fees and Expenses................................. 7,000
*Accounting Fees and Expenses............................ 3,000
*Miscellaneous........................................... 10,000
Total........................................ $ 194,150
- ----------------------------------------
*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 sold as 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.
4
<PAGE>
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 Underwriters 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.
Item 35. Financial Statements and Exhibits.
(a) Financial Statements
Audited Financial Statement:
Report of Independent Auditor
Balance Sheet at March 31, 1997
Statements of Operations for the Years Ended December 31, 1995 and
1996 and for the Three Months Ended March 31, 1997
Statements of Shareholders' Equity for the Years Ended December
31, 1995 and 1996 and for the Three Months Ended March 31,
1997
Statements of Cash Flows for the Years Ended December 31, 1995 and
1996 and for the Three Months Ended March 31, 1997
Schedules
None
(b) Exhibits
Exhibit
Number Title Method of Filing
1 Forms of Underwriting Agreement, Soliciting Dealer
Agreement and Agreement Between Underwriters....... filed herewith
3.1 Amended & Restated Articles of Incorporation
of the Company..................................... *
3.2 Amended & Restated By-laws of the Company.......... *
4 Specimen Certificate of Common Stock, $0.1 par value *
5 Opinion Letter of Maun & Simon, PLC
as to the legality of the securities................ filed herewith
8 Opinion Letter of Maun & Simon, PLC as to certain tax
matters relating to the securities................. filed herewith
10.1 Advisory Agreement Between the Company and
Church Loan Advisors, Inc.......................... *
10.2 Dividend Reinvestment Plan of the Company.......... *
5
<PAGE>
10.3 Stock Option Plan for Directors and Advisor (includes form of
Stock Option Agreement Exhibit "A")................ *
10.4 Gemisys Corporation Agreement to act as Transfer Agent, Registrar
and Dividend Reinvestment Agent.................... *
24.1 Consent of Auditor................................. filed herewith
24.2 Consent of Counsel................................. filed herewith**
25 Power of Attorney.................................. filed herewith***
- --------------------------------------
* Incorporated by reference to the Registrant's filing on
Form S-11 under SEC Registration No. 33-87570
** Included within Exhibit 5
*** included within Signature Page
Balance of page intentionally left blank.
6
<PAGE>
SIGNATURES
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints V. James Davis and David G. Reinhart his
true and lawful attorneys-in-fact and agents, with full power of substitution
and resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments to this registration statement, and
to file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them full power and authority to do
and perform each and every act and this requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue.
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
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized in the City of Minneapolis, State of Minnesota, on the 21st day
of May, 1997.
AMERICAN CHURCH MORTGAGE COMPANY
By: /s/ David G. Reinhart
David G. Reinhart, Vice-President & Secretary
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
/s/ V. James Davis Chief Executive Officer, May 22, 1997
V. James Davis Treasurer (and Chief
Financial Officer) and
Director
/s/ David G. Reinhart Vice President, May 22, 1997
David G. Reinhart Secretary and Director
/s/ Kirbyjon H. Caldwell Director May 22, 1997
Kirbyjon H. Caldwell
/s/ Robert O. Naegele Jr. Director May 22, 1997
Robert O. Naegele, Jr.
/s/ Dennis J.. Doyle Director May 22, 1997
/s/ John M. Clarey Director May 22, 1997
John M. Clarey
data\acmc\secondar\secfile.wpd
7
<PAGE>
AMERICAN CHURCH MORTGAGE COMPANY
1,500,000
Shares of Common Stock
$.0l Par Value
UNDERWRITING AGREEMENT
__________, 1997
American Investors Group, Inc.
10237 Yellow Circle Drive
Minnetonka, Minnesota 55343
Ladies/Gentlemen:
American Church Mortgage Company (the "Company") is a Minnesota corporation
which intends to qualify as a real estate investment trust (a "REIT") under
federal income tax laws. The Company was formed on May 27, 1994 and is governed
by the Bylaws (the "Bylaws") and the Articles of Incorporation (the "Articles")
in the form included as Exhibits to the Registration Statement, as described in
Section 1(a) hereof (such Bylaws and Articles being hereinafter referred to as
the "Organizational Documents"). The advisor to the Company is Church Loan
Advisors, Inc., a Minnesota corporation (the "Advisor").
The Company is offering on a "best efforts, minimum or none" basis
1,500,000 shares of common stock (the "Shares") for a purchase price of $10.00
per Share with a minimum purchase of 250 Shares ($2,500) or IRAs and qualified
plans which purchase a minimum of 200 Shares (2,000), all upon the other terms
and conditions set forth in the Prospectus, as described in Section 1(a) hereof.
The subscribers, each of whom will be required to enter into a subscription
agreement substantially similar to the form of Subscription Agreement (the
"Subscription Agreement") attached to, or inserted together with the Prospectus,
will, upon acceptance of their subscriptions by and in the discretion of the
Company, become stockholders of the Company (the "Stockholders").
We understand that American Investors Group, Inc., ("American") and LaSalle
St. Securities, Inc., Chicago, Illinois ("LaSalle") intend to work together as
co-underwriters in connection with the offer and sale of the Company's Shares.
All representations and warranties made herein to American shall be deemed also
to be made to LaSalle and any Soliciting Dealer under it.
1. Representation and Warranties of the Company. The Company hereby
represents, warrants and agrees with you that:
(a) Registration Statement and Prospectus. A registration statement (File
No. ___________) on Form S-11 with respect to 1,650,000 Shares, has been
prepared by the Company pursuant to the Securities Act of 1933, as amended
(the"Act"), and the rules and
<PAGE>
regulations (the "Rules and Regulations") of the Securities and
Exchange Commission (the "Commission") thereunder and has been filed
with the Commission under the Act; one or more amendments to such
registration statement have been or may be so prepared and filed. As
used in this Agreement, the term "Registration Statement" means such
registration statement in the form in which it becomes effective, the
term "Effective Date" means the date upon which the Registration
Statement is or was first declared effective by the Commission and the
term "Prospectus" means the prospectus in the form constituting a part
of the Registration Statement as well as in the form first filed with
the Commission pursuant to its Rule 424 after the Registration
Statement becomes effective. The Commission has not issued any stop
order suspending the effectiveness of the Registration Statement and no
proceedings for that purpose have been instituted or are pending before
or threatened by the Commission under the Act. Of the 1,650,000 shares
to be registered pursuant to the Registration Statement, only 1,500,000
are to be offered to the public pursuant to the Prospectus.
(b) Compliance with the Act. From the time the Registration
Statement becomes effective and at all times subsequent thereto up to
and including the Termination Date (as defined in Section 2(c) hereof):
(i) the Registration Statement, the Prospectus and
any amendment or supplements thereto will contain all statements which
are required to be stated therein by the Act and the Rules and
Regulations and will comply in all material respects with the Act and
the Rules and Regulations; and
(ii) neither the Registration Statement nor the
Prospectus nor any amendment or supplement thereto will at any such
time include any statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were
made, not misleading.
(c) No Subsequent Material Events. Subsequent to the
respective dates as of which information is given in the Registration
Statement and Prospectus and prior to the Termination Date, except as
contemplated in the Prospectus or as disclosed in a supplement or
amendment thereto or in the periodic financial statements of the
Company, the Company has not and will not have:
(i) incurred any material liabilities or obligations, direct or
contingent; or
(ii) entered into any material transaction, not in the ordinary course of
business and, except as so disclosed, there has not been and will not be any
material adverse change in the financial position or results of operations of
the Company.
(d) Corporation Status. The Company is a corporation duly and validly
existing under the Minnesota Corporation Act, as amended (the "Corporation
Act").
2
<PAGE>
(e) Authorization of Agreement, This Agreement has been duly
and validly authorized, executed and delivered by or on behalf of the
Company and constitutes the valid and binding agreement of the Company
in accordance with its terms (except as such enforceability may be
limited by bankruptcy, insolvency, reorganization, moratorium or other
similar Laws of the United States, any state or any political
subdivision which affect creditors' rights generally or by equitable
principles relating to the availability of remedies); the performance
of this Agreement and the Organizational Documents and the consummation
of the transactions contemplated herein and therein, respectively, and
the fulfillment of the terms hereof and thereof, respectively, do not
and will not result in a breach of any of the terms and provisions of,
or constitute a default under, any statute, indenture, mortgage, deed
of trust, voting trust agreement, note, lease or other agreement or
instrument to which the Company is a party or by which the Company or
its property is bound, or under any rule or regulation or order of any
court or other governmental agency or body with jurisdiction over the
Company or any of its properties; and no consent, approval,
authorization or order of any court or governmental agency or body has
been or is required for the performance of this Agreement or by the
Organizational Documents, or for the consummation of the transactions
contemplated hereby and thereby, respectively (except as have been
obtained under the Act, from the National Association of Securities
Dealers, Inc. (the "NASD") or as may be required under state securities
or blue sky laws in connection with the offer and sale of the Shares or
under the laws of states in which the Company may own real properties
in connection with its qualification to transact business in such
states or as may be required by subsequent events which may occur).
(f) Pending Actions. There is no material action, suit or
proceeding pending or, to the knowledge of the Company, threatened, to
which the Company is a party, before or by any court or governmental
agency or body which adversely affects the offering of the Shares.
(g) Required Filings. There are no contracts or other
documents required to be filed by the Act or the Rules and Regulations
of the Commission thereunder as exhibits to the Registration Statement
which have not been so filed.
(h) Federal Income Tax Law. The Company has obtained an
opinion of Maun and Simon, PLC stating, that under existing federal
income tax laws and regulations, assuming the Company acts as described
in the "Federal Income Tax Considerations" section of the Prospectus
and the Company timely files the requisite elections, counsel is of the
opinion that the Company has been organized in conformity with the
requirements for qualification as a REIT beginning with its taxable
year ending December 31, 1996, and its method of operation (as
described in the Prospectus and represented by management) will enable
it to satisfy the REIT Requirements (as defined in the Prospectus).
(i) Independent Public Accountants. To the best of the
Company's knowledge, the accountants who have certified certain
financial statements appearing in the Prospectus are independent public
accountants within the meaning of the Act and the Rules and
Regulations.
3
<PAGE>
(j) Sales Literature. In addition to and apart from the
Prospectus, the Company will use certain supplemental sales material in
connection with the offering of the Shares. This material, prepared by
the Company, will consist of a brochure describing the Advisor and its
Affiliates and the objectives of the Company. These materials shall be
hereinafter referred to collectively as the "sales literature." No
person has been authorized to prepare for, or furnish to, a prospective
investor any sales literature other than: (i) that described herein;
and (ii) newspaper advertisements or solicitations of interested
limited to identifying the Offering and the location of sources of
further information. Use of any sales literature is conditioned upon
filing with and, if required clearance by appropriate regulatory
agencies. Such clearance (if provided), however, does not indicate that
the regulatory agency allowing the use of the materials has passed on
the merits of the Offering or the adequacy or accuracy of the sales
materials. Except as described herein, the Company has not authorized
the use of other supplemental literature or sales literature in
connection with this Offering. Although it is believed that the
information contained in the sales literature does not conflict with
any of the information set forth in the Prospectus, the sales
literature does not purport to be complete, and should not be
considered as a part of the Prospectus, or as incorporated in the
Prospectus by reference, or as forming the basis of the Offering.
(k) Authorization of the Shares. The Company has an authorized
and outstanding capitalization as set forth in the Registration
Statement and Prospectus. The sale of the Shares has been duly and
validly authorized by the Company, and when subscriptions for the
Shares have been accepted by the Company as contemplated in the
Prospectus and the Shares have been issued to the respective
subscribers, the Shares will represent ownership in the Company and
will conform to the description thereof contained in the Prospectus.
Stockholders have no preemptive rights to purchase or subscribe for
securities of the Company, and the Shares are not convertible or
subject to redemption at the option of the Company. The Shares are
entitled to one vote per Share and do not have cumulative voting
rights. Subject to the rights of the holders of any class of capital
stock of the Company having any preference or priority over the Shares,
the Stockholders are entitled to distributions in such amounts as may
be declared by the Board of Directors from time to time out of funds
legally available for such payments and, in the event of liquidation,
to share ratably in any assets of the Company remaining after payment
in full of all creditors and provisions for any liquidation preferences
on any outstanding preferred stock ranking prior to the Shares.
2. Offering and Sale of the Shares. On the basis of the
representations, warranties and agreements herein contained, and subject to the
terms and conditions herein set forth, the Company hereby appoints you as its
exclusive Managing Underwriter to solicit and to cause other dealers (as
described in subparagraph (a) below) to solicit subscriptions for the Shares at
the subscription price and upon the other terms and conditions set forth in the
Prospectus and in the Subscription Agreement, and you agree to use your best
efforts as such Managing Underwriter to procure subscribers for 1,500,000
Shares, during the period commencing with the Effective Date and ending on the
Termination Date (the "Offering Period"). The number of Shares, if any, to be
reserved for sale by each Soliciting Dealer may be decided by the mutual
agreement, from time to time, of you and the
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Company. In the absence of such mutual agreement, the Company shall, subject to
the provisions of Section 2(b) hereof, accept Subscription Agreements based upon
a first-come, first accepted reservation or other similar method.
(a) Soliciting Dealers. The Shares offered and sold through
you under this Agreement shall be offered and sold only by you and, at
your sole option, and other securities dealers (collectively the
"Soliciting Dealers"), each of whom are members of the NASD, executing
agreements with you substantially in the form of the Soliciting Dealers
Agreement attached hereto as Exhibit A.
(b) Subscription Agreements and Subscribers' Funds. Each
person desiring to purchase Shares through you or any other Soliciting
Dealer will be required to complete and execute the Subscription
Agreement and to deliver such document to you or such Soliciting
Dealer, together with a check made payable to the Managing Underwriter
or Co-Underwriter (as the case may be) or if sold by a Soliciting
Dealer qualified to handle customer funds under NASD rules, to such
Soliciting Dealer, upon which the Managing Underwriter or Co-
Underwriter shall collect and remit (net of commissions) all such funds
to the Company on a regular basis in accordance with NASD rules.
Each Soliciting Dealer shall forward any such Subscription
Agreement and check to you not later than noon of the next business day
after receipt of the Subscription Agreement (and if the Soliciting
Dealer conducts its internal supervisory procedures at the location
where the Subscription Agreement and check were initially received).
When such internal supervisory procedures are performed at a different
location (the "Final Review Office"), the Subscription Agreement and
check must be transmitted to the Final Review Office by noon of the
next business day following receipt of the Subscription Agreement and
check by the Soliciting Dealer. The Final Review Office will, by noon
of the next business day following receipt of the Subscription
Agreement and check, forward both to you as processing broker-dealer in
order that you may complete your review of the documentation and
process the Subscription Agreement and check. The Company will have
representatives available to review the Subscription Agreement at the
Minnetonka office of American in order to determine whether it wishes
to accept the proposed purchaser as a Stockholder, it being understood
that the Company reserves the unconditional right to reject the tender
of any Subscription Agreement and to reject all tenders after 1,500,000
Shares have been sold. Any check received by you directly or as
processing broker-dealer from the Soliciting Dealers will, in all cases
(and subject to the foregoing), be forwarded to the Company as soon as
practicable, but in any event by the end of the second business day
following receipt by you of the Subscription Agreement and check.
Should the Company determine to reject the tender of any Subscription
Agreement, the Company will promptly notify you or such Soliciting
Dealer of such determination, and you shall send the check and the
Subscription Agreement to the Escrow Agent with directions to promptly
return both to the rejected subscriber.
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(c) Termination of the Offering. The Offering Period will
terminate upon the earlier of (i) one year from the date of the
Prospectus (subject to requalification in certain states, the Company
may extend the Offering Period from time to time, but no event for
longer than one year and one-hundred twenty (120) days from the date of
the original Prospectus); (ii) the sale of all the Shares (1,500,000);
or (iii) election by the Company to terminate.
(d) Underwriter Compensation.
(i) The Company agrees to pay to you a sales commission of
5.95% of the sales price (or $.595) for each Share sold, as set forth in the
Prospectus under the caption "Plan of Distribution," subject to the limitation
described below, all or any part of which may be reallowed by the Managing or
Co-Underwriter, as the case may be, subject to federal and state securities
laws, to the Soliciting Dealers who sell the Shares as described more fully in
the Soliciting Dealers Agreement. As Managing Underwriter, American will also
receive a non-accountable expense allowance of up to $133,000, of which $35,000
shall be payable upon the sale of the first 100,000 Shares ($1,000,000), and the
balance ($98,000) of which shall be payable ratably thereafter at the rate of
$7,000 per 100,000 Shares sold after the first 100,000 Shares. We understand
that American has agreed to reallow to LaSalle a portion of such non-accountable
expense allowance pursuant to that certain Agreement Between Underwriters, to
which we are not a party.
Notwithstanding the foregoing, it is understood and agreed
that no commission shall be payable with respect to particular Shares if the
Company rejects a proposed subscriber's Subscription Agreement.
(ii) The sales commissions to you shall be paid not less
frequent than weekly basis, based upon the acceptance of a subscriber as a
Stockholder by the Company since the last date of such payment to you, in an
amount equal to the sales commissions payable with respect to such Shares.
3. Covenants of the Company. The Company covenants and agrees
with you as follows:
(a) Registration Statement. The Company will use its best efforts to
cause the Registration Statement and any subsequent amendments thereto to become
effective as promptly as possible and will not at any time after the Effective
Date of the Registration Statement, file any amendment to the Registration
Statement or supplement to the Prospectus of which you shall not previously have
been advised and furnished a copy at a reasonable time prior to the proposed
filing or to which you shall have reasonably objected or which is not, to the
best of the Company's knowledge, in compliance with the Act and the Rules and
Regulations, the Company will prepare and file with the Commission and will use
its best efforts to cause to become effective as promptly as possible:
(i) any amendments to the Registration Statement or supplements to the
Prospectus which may be required pursuant to the undertakings in the
Registration Statement; and
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(ii) upon your reasonable request, any amendments to the
Registration Statement or supplements to the Prospectus which, in the opinion of
you or your counsel, may be necessary or advisable in view of the requirements
of the Act and the Rules and Regulations in connection with the offer and sale
of the Shares during the Offering Period.
(b) SEC Orders. As soon as the Company is advised or obtains knowledge
thereof, it will advise you of any request made by the Commission for amending
the Registration Statement, supplementing the Prospectus or for additional
information, or of the issuance by the Commission of any stop statement or of
any order preventing or suspending the use of the Prospectus or the institution
of any proceedings for that purpose, and will use its best efforts to prevent
the issuance of any such order and, if any such order is issued, to obtain the
removal thereof as promptly as possible.
(c) Blue Sky Qualifications. The Company will use its best efforts to
qualify the Shares for offering and sale under the securities or blue sky laws
of such jurisdictions as you may reasonably request and to make such
applications, file such documents and furnish such information on as may be
reasonably required for that purpose. The Company will, at your request, furnish
you copies of all material documents and correspondence sent to or received from
such jurisdictions and will promptly advise you as soon as the Company obtains
knowledge thereof when the Shares are qualified for offering and sale in each
such jurisdiction. The Company will promptly advise you of any request made by
the securities administrators of each such jurisdiction for revising the
Registration Statement or the Prospectus or for additional information or of the
issuance by such securities administrators of any stop order preventing or
suspending the use of the Prospectus or of the institution of any proceedings
for that purpose, and will use its best efforts to prevent the issuance of any
such order and if any such order is issued, to obtain the removal thereof as
promptly as possible. The Company will furnish you with a Blue Sky Memorandum
dated as of the Effective Date, which will be supplemented to reflect changes or
additions to the information disclosed in such memorandum.
(d) Amendments and Supplements. If at any time when a Prospectus
relating to the Shares is required to be delivered under the Act, any event
shall have occurred to the knowledge of the Company as a result of which the
Prospectus as then amended or supplemented would include any untrue statement of
a material fact, or omit to state a material fact necessary to make the
statements therein not misleading in light of the circumstances existing at the
time it is so required to be delivered to a subscriber, or if it is necessary at
any time to amend the Registration Statement or supplement the Prospectus
relating to the Shares to comply with the Act, the Company will promptly notify
you thereof and will prepare and file with the Commission an amendment or
supplement which will correct such statement or effect such compliance.
(e) Copies of Registration Statement, The Company will furnish you
copies of the Registration Statement (only one of which need be signed and need
include all exhibits), the Prospectus and all amendments and supplements
thereto, including any amendment or supplement prepared after the Effective
Date, and such other information with respect to the Company as you may from
time to time reasonably request, in each case as soon as available and in such
quantities as you may reasonably request.
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(f) Qualification to Transact Business. The Company will take all steps
necessary to ensure that at all times the Company will be validly existing as a
corporation and will be qualified to do business in all jurisdictions in which
the conduct of its business requires such qualification and where such
qualification is required under local law.
(g) Authority to Perform Agreements. The Company undertakes to obtain
all consents, approvals, authorizations or orders of any court or governmental
agency or body which are required for the performance of this Agreement and
under the Organizational Documents or the consummation of to transactions
contemplated hereby and thereby, respectively, or the conducting by the Company
of the business described in the Prospectus.
(h) Copies of Reports. The Company will use its best efforts to furnish to
you as promptly as shall be practicable the following:
(i) a copy of each report or general communication (whether financial or
otherwise) sent to the Stockholders;
(ii) a copy of each report (whether financial or otherwise) filed with the
Commission; and reasonably request regarding the financial condition and
operations of the Company.
(i) Use of Proceeds. The Company will apply the proceeds from the sale of
the Shares as stated in the Prospectus.
(j) Organization and Offering Expenses. In no event shall the total of the
organizational expenses and expenses of the Offering to be paid directly by the
Company exceed 10% of the gross proceeds of the Offering.
4. Covenants of the Managing Underwriter, You covenant and agree with the
Company on your behalf and on behalf of the Soliciting Dealers as follows:
(a) Compliance with Laws. With respect to your participation and the
participation by each Soliciting Dealer in the offer and sale of the Shares
(including, without limitation, any resales and transfers of Shares), you agree,
and each Soliciting Dealer agrees, to comply and shall comply with any
applicable requirements of the Act, the Securities Exchange Act of 1934, as
amended, and the published rules and regulations of the Commission thereunder,
and the applicable state securities or blue sky laws, the Rules of Fair Practice
of the NASD, including the requirements of Section 34 of Article III and in
particular, the investor suitability requirements of Sections 3(b)(1), 3(b)(2)
and 3(c) and the disclosure and due diligence requirements of Sections 4(a),
4(b) or 4(c), and 4(d) therein and all rules and regulations promulgated or
issued with respect to any of the foregoing and also including Sections 2730,
2740, 2420 and 2750 of Article III therein. In particular, you agree not to
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deliver the sales literature to any person prior to the Effective Date and,
after the Effective Date, not to deliver the sales literature to any person
unless the sales literature is accompanied or preceded by the Prospectus. In
addition, you shall, in accordance with applicable law or any state securities
administrator, provide or cause Soliciting Dealers to provide to any prospective
investor copies of any document which is part of the Registration Statement;
including, without limitation, documents which are required by specific states
to be delivered to investors resident in their state, of which requirements the
Company shall so advise you be means of written instruction which shall be
considered a supplement hereto.
With respect to your and each Soliciting Dealer's
participation in any resales or transfers of the Shares, you agree, and each
Soliciting Dealer agrees, to comply and shall comply with any applicable
requirements, as set forth above. In addition, you and each Soliciting Dealer
agree that should you assist with the resale or transfer of the Shares, you and
each Soliciting Dealer will fulfill the obligations pursuant to Sections 3(b)
and 4(d) of Article III, Section 34 of the Rules of Fair Practice of the NASD.
(b) No Additional Information. In offering the Shares for sale, you and
each Soliciting Dealer shall not give or provide any information or make any
representations other than those contained in the Prospectus, the sales
literature or any other document provided to you for such purpose by the
Company.
(c) Sales of Shares. You and each Soliciting Dealer shall solicit
purchases of the Shares only in the jurisdictions in which you and such
Soliciting Dealer are legally qualified to so act and in which you and each
Soliciting Dealer have been advised by the Company, by means of the Blue Sky
Memorandum, that such solicitations can be made.
(d) Subscription Agreement. Subscriptions will be submitted by you and
each Soliciting Dealer to the Company only on the form which is included with
the Prospectus. You and each Soliciting Dealer understand and acknowledge that
the Subscription Agreement must be executed and signed by the subscriber.
(e) Suitability. In offering the Shares to any person. you and each
Soliciting Dealer shall have reasonable grounds to believe (based on such
information as the investment objectives, other investments, financial situation
and needs of the person or any other information known by you after due inquiry)
that:
(i) such person has the capability of understanding the fundamental
aspect 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) such person has apparent
understanding of (A) the fundamental risks and possible financial
hazards of this type of investment; (B) the lack of liquidity of this
investment, (C) the Advisor's role in directing or managing the
investment; and (D) the tax consequences of the
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investment; and (iii) such person has the financial capability to
invest in the Company and you or each Soliciting Dealer (as the case
may be) shall maintain records disclosing the basis upon which you and
each Soliciting Dealer determined the suitability of any persons
offered Shares. Notwithstanding the foregoing, you and each Soliciting
Dealer shall have reasonable grounds to believe that such person has
either (a) a minimum annual gross income of $45,000 and a net worth
(exclusive of home, home furnishing and automobiles) of $45,000; or (b)
a net worth (determined with the foregoing exclusions) of $150,000.
Suitability standards may be higher in certain states as set forth in
the Subscription Agreement. You and/or the Soliciting Dealers shall
maintain for at least six years a record of the information obtained to
determine that an investor meets the suitability standards imposed on
the offer and sale of the Shares (both at the time of the initial
subscription and at the time of any additional subscriptions) and a
representation of the investor that the investor is investing for the
investors own account or, in lieu of such representation, information
indicating that the investor for whose account the investment was made
met the suitability standards.
(f) Due Diligence. Prior to offering the Shares for sale, you and each
Soliciting Dealer shall have conducted an inquiry such that you have reasonable
grounds to believe and do believe, based on information made available to you by
the Company through the Prospectus or other materials, that all material facts
are adequately and accurately disclosed and provide a basis for evaluating the
purchase of the Shares. In determining the adequacy of disclosed facts pursuant
to the foregoing, you and each Soliciting Dealer may obtain, upon request,
information on material facts relating at a minimum to the following:
(1) items of compensation;
(2) Company properties;
(3) tax aspects;
(4) conflicts and risk factors; and
(5) financial statements and other pertinent reports.
Notwithstanding the foregoing, you and each Soliciting Dealer may rely upon the
results of an inquiry conducted by another Soliciting Dealer, provided that:
(i) such Soliciting Dealer has reasonable grounds to believe that such
inquiry was conducted with due care;
(ii) the results of the inquiry were provided to you with the consent of
the Soliciting Dealer conducting or directing the inquiry; and
(iii) no Soliciting Dealer that participated in the inquiry is an affiliate
of the Company or the Advisor.
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Prior to the sale of the Shares, you and each Soliciting Dealer shall
inform the prospective purchaser of all pertinent facts relating to the
liquidity and marketability of the Shares during the term of the investment.
5. Expenses. The Company agrees with you that, whether or not the
transactions contemplated in this Agreement are consummated, the Company will
pay all fees and expenses incident to the performance of its obligations under
this Agreement, including, but not limited to:
(a) the Commission's registration fee;
(b) expenses of printing the Registration Statement, the Prospectus and
any amendment or supplement thereto and the expense of furnishing to you copies
of the Registration Statement, the Prospectus and any amendment or supplement
thereto as herein provided;
(c) fees and expenses of its accountants and counsel in connection with the
Offering contemplated by this Agreement.
(d) fees and expenses incurred in connection with any required filing with
the NASD;
(e) all of your expenses in connection with the Offering contemplated
hereby and as limited by the Prospectus, including, but not limited to, the
salaries, fringe benefits, travel expenses and similar expenses of your
employees and personnel incurred in connection with the Offering; and
(f) expenses of qualification of the Shares for offering and sale under
state blue sky and securities laws, and expenses in connection with the
preparation and printing of the Blue Sky Survey.
In no event, however, will the total of: (a) the selling commissions
paid to the Soliciting Dealers, (b) the marketing contribution and due diligence
expense allowance fee paid to the Soliciting Dealers, and (c) reimbursement of
certain expenses to be paid to Soliciting Dealers for special incentive
marketing programs as described in the Prospectus, exceed 10.0% of the gross
proceeds of the Offering.
6. Conditions of Obligations. Your obligations hereunder shall be
subject to the accuracy of the representations and warranties on the part of the
Company contained in Section 1 hereof, the accuracy of the statements of the
Company made pursuant to the provisions hereof, to the performance by the
Company of its covenants, agreements and obligations contained in Sections 3 and
5 hereof, and to the following additional conditions:
(a) Effectiveness of Registration Statement The Registration Statement
shall have become effective at such time and date as you and the Company shall
have agreed; no stop order suspending the effectiveness of the Registration
Statement shall have been issued and, to the best knowledge of the Company or
you, no proceedings for that purpose shall have been in threatened or
contemplated
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by the Commission; and any request by the Commission for additional information
(to be included in the Registration Statement or Prospectus or otherwise) shall
have been complied with to the reasonable satisfaction of you or your counsel.
(b) Accuracy of Registration Statement. You shall not have advised the
Company that the Registration Statement or the Prospectus, or any amendment or
any supplement thereto, in the reasonable opinion of you or your counsel,
contains any untrue statement of fact which is material, or omits to state a
fact which is material and is required to be stated therein or is necessary to
make the statements therein not misleading.
7. Indemnification.
(a) The Company agrees to indemnify and hold harmless you, each
Soliciting Dealer and each person, if any, who controls you or any Soliciting
Dealer within the meaning of the Act (collectively, the "Indemnified Parties"),
against any and all loss, liability, claim, damage and expense whatsoever caused
by any untrue statement or alleged untrue statement of a material fact contained
in the Registration Statement, the Prospectus or any amendment or supplement
thereto, or the omission or alleged omission therefrom of a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading. Such
indemnification shall be subject to the provisions of Sections 7(b) and (c) of
this Agreement.
The Company shall not provide for indemnification for any liability or
loss suffered by you, nor shall it provide that you be held harmless for any
loss or liability suffered by the Company unless all of the following conditions
are met (i) the 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 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; and (iv) such indemnification or agreement to be
held harmless is recoverable only out of the assets of the Company and not from
the Stockholders.
In no case shall the Company be liable under this indemnity agreement
with respect to any claim made against any of the Indemnified Parties unless the
Company shall be notified in writing (as provided in Section 10) of the nature
of the claim within a reasonable time after the assertion thereof, but failure
to so notify the Company shall not relieve the Company from any liability which
the Company may have incurred otherwise than on account of this indemnity
agreement. The Company shall be entitled to participate, at its own expense, in
the defense of, or if it so elects within a reasonable time after receipt of
such notice, to assume the defense of any claim or suit for which the
Indemnified Parties seek indemnification hereunder. If the Company elects to
assume the defense, such defense shall be conducted by counsel chosen by it and
reasonably satisfactory to the Indemnified Parties. In the event that the
Company elects to assume the defense of any such suit and retain such counsel,
the Company shall not be liable to the Indemnified Parties in the suit under
this Section 7 for any legal or other expenses subsequently incurred by the
Indemnified Parties, and the Indemnified Parties shall bear the fees and
expenses of any additional counsel thereafter retained by
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the Indemnified Parties unless: (A) the employment of counsel by the indemnified
Party has been authorized by the Company; or (B) the Company shall not in fact
have employed counsel to assume the defense of such action, in any of which
events such fees and expenses shall be borne by the Company.
The Company may advance amounts to the Indemnified Parities for legal
and other expenses and costs incurred as a result of any legal action for which
indemnification is being sought only if all of the following conditions are
satisfied: (i) the legal action relates to acts or omissions with respect to the
performance of duties or services by the Indemnified Party for or on behalf of
the Company, (ii) the legal action is initiated by a third party who is not a
Stockholder and a court of competent jurisdiction specifically approves such
advancement; and (iii) the Indemnified Parties receiving such advances undertake
to repay the advanced funds to the Company, together with the applicable legal
rate of interest thereon, in cases in which such Indemnified Parties are found
not to be entitled to indemnification.
Notwithstanding the foregoing provisions of this Section 7, the Company
will not be liable in any such case to the extent that any loss, liability,
claim, damage or expense arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission made in reliance upon
and in conformity with written information furnished to the Company by or on
behalf of you or any Soliciting Dealer specifically for use with reference to
you or such Soliciting Dealer in the preparation of the Registration Statement
(or any amendment thereof) or the Prospectus (or any supplement thereto). The
foregoing indemnity agreement is subject to the condition that, insofar as it
relates to any untrue statement, alleged untrue statement, omission or alleged
omission made in the Prospectus but eliminated or remedied in any amendment or
supplement thereto, such indemnity agreement shall not inure to your benefit or
any Soliciting Dealer from whom the person asserting any loss, liability, claim,
damage or expense purchased the Shares which are the subject thereof (or to the
benefit of any person who controls you or any Soliciting Dealer), if a copy of
the Prospectus as so amended or supplemented was not sent or given to such
person at or prior to the time the subscription of such person was accepted by
the Company but only if a copy of the Prospectus (as so amended or supplemented)
has been supplied by the Company to you or any Soliciting Dealer prior to such
acceptance. This indemnity agreement will be in addition to any liability which
the Company may otherwise have.
(b) The Company agrees to indemnity and hold harmless you and the
Soliciting Dealers in the manner and to the extent provided in subparagraph (a)
of this Section 7; provided, however, that no such indemnification by the
Company of you or a Soliciting Dealer shall be permitted under this Agreement
from or out of an alleged violation of federal or state securities laws unless
one or more of the following conditions are met: (i) there has been a successful
adjudication on the merits of each count involving alleged securities law
violations by you or any Soliciting Dealer and a court of competent jurisdiction
has approved indemnification of the litigation costs; (ii) such claims against
you or any Soliciting Dealer have been dismissed with prejudice on the merits by
a court of competent jurisdiction as to the particular indemnitee and the court
has approved indemnification of the litigation costs; or (iii) a court of
competent jurisdiction approves a settlement of the claims against you or any
Soliciting Dealer and finds that indemnification of the settlement and related
costs should be made
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and the court considering the request has been advised of the position of the
Commission and of the published position of any state securities regulatory
authority in which securities of the Company were offered and sold as to
indemnification for securities law violations.
(c) You and each Soliciting Dealer agree to indemnify and hold harmless
the Company, and each person, if any, who controls the Company within the
meaning of the Act and any controlling person of the Company (i) to the same
extent as in the foregoing indemnity from the Company to you and each Soliciting
Dealer but only with reference to statements or omissions based upon the
information relating to you or any Soliciting Dealer furnished in writing by you
or such Soliciting Dealer or on your or their behalf expressly for use in the
Registration Statement or the Prospectus, or any amendment or supplement
thereto, and (ii) for any violation by you or any Soliciting Dealer, in the sale
of the Shares, of any applicable state or federal law or any rule, regulation or
instruction thereunder, provided that such violation is not in reliance on any
violation by the Company of such law, rule, regulation or instruction.
You and each Soliciting Dealer further agree to indemnify and hold
harmless the Company and any controlling person of the Company against any
losses, liabilities claims, damages or expenses to which the Company or any such
controlling person may become subject under the securities or blue sky laws of
any jurisdiction insofar as such losses, liabilities, claims, damages or
expenses (or actions, proceedings or investigations in respect thereof) arise by
reason of a sale of the Shares through the efforts of you (with respect to sales
effected without the assistance of a Soliciting Dealer) or a Soliciting Dealer
(with respect to sales effected by such Soliciting Dealer) which is effected
other than in accordance with the Blue Sky Memorandum supplied to you by the
Company (a "Non-Permitted Sale"). whether such Non-Permitted Sale is caused by a
sale in a jurisdiction on other than those specified in the Blue Sky Memorandum,
by a sale in a jurisdiction in which you or the Soliciting Dealer is not
registered to sell the Shares or which results in a sale in a jurisdiction in
excess of the number of Shares permitted to be sold in such jurisdiction, and
will reimburse the Company or any such controlling person for any legal fees,
monetary penalties or other expenses reasonably incurred by any of them in
connection with investigating, curing or defending against any such losses,
liabilities, claims, damages, actions, proceedings or investigations. This
indemnity agreement will be in addition to any liability which you or any
Soliciting Dealer may otherwise have.
(d) The notice provisions contained in Section 7(a) hereof, relating to
notice to the Company, shall be equally applicable to you and each Soliciting
Dealer if the Company or any controlling person of the Company seeks
indemnification pursuant to Section 7(c) hereof. In addition, you and each
Soliciting Dealer may participate in the defense, or assure the defense, of any
such suit so brought under Section 7(c) hereof and have the same rights and
privileges as the Company enjoys with respect to such suits under Section 7(a)
hereof.
8. Termination of this Agreement, This Agreement may be terminated by
you in the event that the Company shall have materially failed to comply with
any of the material provisions of this Agreement on its part to be performed at
or prior to the Effective Date or if any of the representations, warranties,
covenants or agreements of the Company herein contained shall not have been
materially complied with or satisfied within the time specified. In any case,
this Agreement shall terminate at
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the close of business on the Termination Date. Termination of this Agreement
pursuant to this Section 8 shall be without liability of any party to any other
party other than as provided in Sections 5 and 7 hereof which shall survive such
termination.
9. Representations, Warranties and Agreements to Survive Delivery. All
representations, warranties and agreements contained in this Agreement or
contained in certificates of the Company submitted pursuant hereto shall remain
operative and in full force and effect, regardless of any investigation made by
or on behalf of you or any person who controls you, or by or on behalf of the
Company and shall survive the Termination Date.
10. Notices. All communications hereunder shall be in writing and, if sent
to you, shall be mailed by registered mail or delivered or telegraphed and
confirmed in writing to American Investors Group, Inc., 10237 Yellow Circle
Drive, Minnetonka, Minnesota 55343 (Attention: Ms. Kimberly Nygren) and, if sent
to the Company, shall be mailed by registered mail or delivered or telegraphed
and confirmed in writing to American Church Mortgage Company, 10237 Yellow
Circle Drive, Minnetonka, Minnesota 55343 (Attention: Mr. David Reinhart).
11. Parties. This Agreement shall inure to the benefit of and be binding
upon you, the Company and its successors and assigns. This Agreement and the
conditions and provisions hereof, are intended to be and shall be for the sole
and exclusive benefit of the parties hereto and their respective successors and
controlling persons, and for the benefit of no other person, firm or
corporation, and the term "successors and assigns," as used herein, shall not
include any purchaser of Shares as such.
12. Applicable Law. This Agreement and any disputes relative thereto shall
be governed by and construed under the laws of the State of Minnesota.
13. Effectiveness of Agreement, This Agreement shall become effective on
the date set forth on the first page hereof, and the obligations of the parties
shall be effective on the Effective Date, or at such earlier time as you and the
Company agree.
14. Not a Separate Entity. Nothing contained herein shall you and/or the
Soliciting Dealers or any of them an association, partnership, limited liability
company, unincorporated business or other separate entity.
15
<PAGE>
If the foregoing is in accordance with your understanding of our
agreement kindly sign and return it to us, whereupon this instrument will become
a binding agreement between you and the Company in accordance with its terms.
AMERICAN CHURCH MORTGAGE COMPANY
a Minnesota corporation
-------------------------------
V. James Davis, President
Accepted as of the date first above written:
AMERICAN INVESTORS GROUP, INC.
- ------------------------------
Philip J. Myers, President
\data\acmc\second\und.agr
16
<PAGE>
AMERICAN CHURCH MORTGAGE COMPANY
SOLICITING DEALERS AGREEMENT
Ladies and Gentlemen:
We have entered into an agreement (the "Underwriting Agreement") which
is a part hereof and attached hereto, with American Church Mortgage Company, a
Minnesota corporation (the "Corporation"), under which we have agreed to use our
best efforts to solicit subscriptions for the shares of Common Stock (the
"Shares") in the Corporation. The Corporation is offering to the public an
aggregate maximum of 1,500,000 Shares at a price of $10 per Share (the
"Offering").
In connection with the performance of our obligations under Section 2
of the Underwriting Agreement, we are authorized to use the services of
securities dealers who are members of the National Association of Securities
Dealers, Inc. (the "Soliciting Dealers') to solicit subscriptions. You are
hereby invited to become a Soliciting Dealer and, as such, to use your best
efforts to solicit subscribers for Shares, in accordance with the following
terms and conditions:
1 . A registration statement (the "Registration Statement") with
respect to 1,650,000 Shares has been filed with the Securities and Exchange
Commission (the "Commission") under the Securities Act of 1933, as amended (the
"Act"), and has become effective. Of these Shares only 1,500,000 are being
offered to the public pursuant to the enclosed prospectus (the "Prospectus").
The 1,500,000 Shares and the Offering are more particularly described in the
Prospectus which is part of the Registration Statement. Additional copies of the
Prospectus will be supplied to you in reasonable quantities upon request. We
will also provide you with reasonable quantities of any supplemental literature
prepared by the Corporation in connection with the offering of the Shares.
2. Solicitation and other activities by the Soliciting Dealers
hereunder shall be undertaken only in accordance with the Underwriting
Agreement, this Agreement, the Act, the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), the applicable rules and regulations of the
Commission, the Blue Sky Memorandum hereinafter referred to and the Rules of
Fair Practice of the National Association of Securities Dealers, Inc. (the
"NASD"), specifically including, but not in any way limited to, Sections 2730,
2740, 2420 and 2750 of Article III of the Rules of Fair Practice. In offering
the sale of Shares to any person, each Soliciting Dealer shall have reasonable
grounds to believe (based on such information as the investment objectives,
other investments, financial situation and needs of the person or any other
information known by you after due inquiry) that: (i) such person is or will be
in a financial position appropriate to enable such person to realize to a
significant extent the benefits described in the Prospectus and has a net worth
sufficient to sustain the risks inherent in the program, including loss of
investment and lack of liquidity, (ii) the purchase of the Shares is otherwise
suitable for such person, and each Soliciting Dealer shall maintain records
disclosing the basis upon which each Soliciting Dealer determined the
suitability of any persons offered Shares; and (iii) such person has either: (a)
a minimum annual gross income of $45,000 and a net worth (exclusive of home,
home furnishings and automobiles) of $45,000; or (b) a net worth (determined
with the foregoing exclusions) of at least $150,000.
Each Soliciting Dealer agrees: (i) to deliver to each person who
subscribes for the Shares, a Prospectus, as then supplemented or amended. prior
to the tender of his subscription agreement (the "Subscription Agreement"); (ii)
to comply promptly with the written request of any person for a copy of the
Prospectus during the period between the effective date of the Registration
Statement and the later of the termination of the distribution of the Shares or
the expiration of 90 days after the first date upon which the
<PAGE>
Shares were offered to the public; (iii) deliver in accordance with applicable
law or as prescribed by any state securities administrator to any person a copy
of any document included within the Registration Statement, including delivering
the Articles and Bylaws (as each is defined in the Prospectus) to investors who
are residents of states which we advise you in writing require delivery of such
additional documents to prospective investors resident in their states; and (iv)
to maintain in its files for at least six years documents disclosing the basis
upon which the determination of suitability was reached as to each purchaser of
Shares.
3. Subject to the terms and conditions set forth herein and in the
Underwriting Agreement,the Company shall pay to you (i) a selling commission of
_____ per Share, and (ii) a non-accountable due diligence expense reimbursement
of _____ per Share for all Shares sold for which you have acted as Soliciting
Dealer pursuant to this Agreement. Notwithstanding the foregoing, it is
understood and agreed that no commission shall be payable with respect to
particular Shares if the Company rejects a proposed subscriber's Subscription
Agreement.
4. We reserve the right to notify you by telegram or by other means of
the number of Shares reserved for sale by you. Such Shares will be reserved for
sale by you until the time specified in our notification to you. Sales of any
reserved Shares after the time specified in the notification to you or any
requests for additional Shares will be subject to rejection in whole or in part.
5. Payments for Shares shall be made payable to "American Investors
Group, Inc." or "LaSalle St. Securities, Inc." (depending on which introducing
underwriter you are participating through) and forwarded together with a copy of
the Subscription Agreement, which is attached to the Prospectus, executed by the
subscriber, to American Investors Group, Inc., 10237 Yellow Circle Drive,
Minnetonka, Minnesota 55343, or to LaSalle St. Securities, Inc., 810 West
Washington, Blvd., Chicago, IL 60607 and in either case shall be transmitted not
later than noon of the next business day after receipt of such Subscription
Agreement and check (when your internal supervisory procedures are completed at
the site at which the Subscription Agreement and check were received by you) or,
when your internal supervisory procedures are performed at a different location
(the "Final Review Office"), you shall transmit the check and Subscription
Agreement to the Final Review Office by noon of the next business day following
your receipt of the Subscription Agreement and check. The Final Review Office
will, by noon of the next business day following its receipt of the Subscription
Agreement and check, forward both to the Dealer Manager as processing
broker-dealer. If any Subscription Agreement solicited by you is rejected by the
Company, the Subscription Agreement and check will be forwarded to the
appropriate introducing underwriter for prompt return to the rejected
subscriber.
6. We will inform you in writing as to the jurisdictions in which we
have been advised by the Company that the Shares have been qualified for sale or
are exempt under the respective securities or "blue sky" laws of such
jurisdictions; but we have not assumed and will not assume any obligation or
responsibility as to your right to act as a broker with respect to the Shares in
any such jurisdiction. You agree that you will not make any offers except in
states in which we may advise you that the Offering has been qualified or is
exempt and further agree to assure that each person to whom you sell Shares (at
both the time of the initial purchase as well as at the time of any subsequent
purchases) meets any special suitability standards which apply to sales in a
particular jurisdiction, as described in the Blue Sky Memorandum and the
Subscription Agreement. Neither we, nor the Company assume any obligation or
responsibility in respect of the qualification of the Shares covered by the
Prospectus under the laws of any jurisdiction or your qualification to act as a
broker with respect to the Shares in any jurisdiction. The Blue Sky Memorandum
which has been or will be furnished to you indicates the jurisdictions in which
it is believed that the offer and sale of Shares covered by the Prospectus is
exempt from, or requires action under, the applicable blue sky or securities
laws thereof, and what action, if any, has been taken with respect thereto.
2
<PAGE>
It is understood and agreed that under no circumstances will you, as a
Soliciting Dealer, engage in any activities hereunder in any jurisdiction in
which you may not lawfully so engage or in any activities in any jurisdiction
with respect to the Shares in which you may lawfully so engage unless you have
complied with the provisions hereof.
7. Neither you nor any other person is authorized by the Company or by
us to give any information or make any representations in connection with this
Agreement it or the offer of Shares other than those contained in the
Prospectus, as then amended or supplemented, or any sales literature approved by
us and the Company. You agree not to publish, circulate or otherwise use any
other advertisement or solicitation material without our prior written approval.
You are not authorized to act as our agent in any respect, and you agree not to
act as such agent and not to purport to act as such agent
8. We shall have full authority to take such action as we may deem
advisable with respect to all matters pertaining to the Offering or arising
thereunder. We shall not be under any liability (except for our own want of good
faith and for obligations expressly assumed by us hereunder) for or in respect
of the validity or value of or title to, the Shares; the form of, or the
statements contained in, or the validity of, the Registration Statement, the
Prospectus or any amendment or supplement thereto, or any other instrument
executed by Church Loan Advisors, Inc., the Company's advisor (the "Advisor"),
the Company or by others; the form or validity of the Underwriting Agreement or
this Agreement; the delivery of the Shares; the performance by the Advisor, the
Company or by any of them of any agreement on its or their part; the
qualification of the Shares for sale under the laws of any jurisdiction; or any
matter in connection with any of the foregoing; provided, however, that nothing
in this paragraph shall be deemed to relieve the Company or the undersigned from
any liability imposed by the Act. No obligations on the part of the Company or
the undersigned shall be implied or inferred herefrom.
9. Under the Underwriting Agreement, the Company has agreed to
indemnify you and us and each person, if any, who controls you or us, in certain
instances and against certain liabilities, including liabilities under the Act
in certain circumstances. You agree to indemnify the Company and each person who
controls it as provided in the Underwriting Agreement and to indemnify us to the
extent and in the manner that you agree to indemnify the Company in such
Underwriting Agreement.
10. Each Soliciting Dealer hereby authorizes and ratifies the execution
and delivery of the Underwriting Agreement by us as Underwriting for ourselves
and on behalf of the Soliciting Dealers and authorizes us to agree to any
variation of its terms or provisions and to execute and deliver any amendment,
modification or supplement thereto. Each Soliciting Dealer hereby agrees to be
bound by all provisions of the Underwriting Agreement relating to Soliciting
Dealers. Each Soliciting Dealer also authorizes us to exercise, in our
discretion, all the authority or discretion now or hereafter vested in us by the
provisions of the Underwriting Agreement and to take all such action as we may
believe desirable in order to carry out the provisions of the Underwriting
Agreement and of this Agreement.
11. This Agreement, except for the provisions of Sections 8 and 9
hereof, may be terminated at any time by either party hereto by two days' prior
written notice to the other party and, in all events, this Agreement shall
terminate on the termination date of the Underwriting Agreement, except for the
provisions of Sections 8 and 9 hereof.
12. Any communications from you should be in writing addressed to us at (i)
American Investors Group, Inc., 10237 Yellow Circle Drive, Minnetonka, Minnesota
55343, Attention: Ms. Kimberly Nygren
3
<PAGE>
or (ii) LaSalle St. Securities, Inc., 801 West Washington Boulevard,
Chicago, Illinois 60607, Attention: ___________________. Any notice from us to
you shall be deemed to have been duly given if mailed, telegraphed or delivered
by overnight courier to you at your address shown below.
13. Nothing herein contained shall constitute the Soliciting Dealers or
any of them as an association, partnership, limited liability company,
unincorporated business or other separate entity.
14. Prior to offering the Shares for sale, each Soliciting Dealer shall
have conducted an inquiry such that you have reasonable grounds to believe,
based on information made available to you by the Company or the Advisor through
the Prospectus or other materials, that all material facts are adequately and
accurately disclosed and provide a basis for evaluating a purchase of Shares. In
determining the adequacy of disclosed facts pursuant to the foregoing, each
Soliciting Dealer may obtain, upon request, information on material facts
relating at a minimum to the following:
(1) items of compensation;
(2) loan policies and investment guidelines;
(3) tax aspects;
(4) financial stability and experience of the Company
and the Advisor;
(5) conflicts and risk factors; and
(6) other pertinent reports.
Notwithstanding the foregoing, each Soliciting Dealer may rely upon the results
of an Inquiry conducted by another Soliciting Dealer, provided that:
(i) such Soliciting Dealer has reasonable grounds to
believe that such inquiry was conducted with due
care;
(ii) the results of the inquiry were provided to you with
the consent of the Soliciting Dealer conducting
or directing the inquiry; and
(iii) no Soliciting Dealer that participated in the inquiry
is an affiliate of the Company.
4
<PAGE>
Prior to the sale of the Shares, each Soliciting Dealer shall inform
the prospective purchaser of all pertinent facts relating to the liquidity and
marketability of the Shares during the term of the investment
If the foregoing is in accordance with your understanding, please sign
and return the attached duplicate. Your indicated acceptance thereof shall
constitute a binding agreement between you and us.
Very truly yours,
LASALLE ST. SECURITIES, INC. AMERICAN INVESTORS GROUP, INC.
By:_____________________________ ______________________________
Its: ___________________________ Philip J. Myers, President
Dated: _____________, 1997
We confirm our agreement to act as a Soliciting Dealer pursuant to all the terms
and conditions of the above Soliciting Dealer Agreement and the attached
Underwriting Agreement. We hereby represent that we will comply with the
applicable requirements of the Act and the Exchange Act and the published Rules
and Regulations of the Commission thereunder, and applicable blue sky or other
state securities Laws. We confirm that we are a member in good standing of the
NASD. We hereby represent that we will comply with the Rules of Fair Practice of
the NASD (including, but not limited to, Sections 2730, 2740, 2420 and 2750 of
Article III) and all rules and regulations promulgated by the NASD.
------------------------------
Dated:________________, 1997 Name of Soliciting Dealer
-----------------------------
Address of Soliciting Dealer
- ----------------------------------
Federal Tax Identification Number
By:__________________________
Authorized Signature
Title:___________________
Kindly have checks representing commissions forwarded as follows (if different
than above):
Name of Firm: _____________________________________
Address:
--------------------------------------
Street
--------------------------------------
City
--------------------------------------
State and Zip Code
--------------------------------------
(Area Code) Telephone No.
\data\acmc\secondar\dlr.agr Attention:_______________________
5
<PAGE>
AMERICAN CHURCH MORTGAGE COMPANY
$15,000,000 Shares - Common Stock
Agreement Between Underwriters
__________, 1997
THIS AGREEMENT, is made as of the date set forth above, by and between
American Investors Group, Inc., Minneapolis, Minnesota ("American") and LaSalle
St. Securities, Inc., Chicago, Illinois ("LaSalle").
WHEREAS, American Church Mortgage Company, Minnetonka, Minnesota (the
"Issuer") has appointed American the exclusive underwriter to sell, on a "best
efforts" basis, up to $15,000,000 (1,500,000) shares of its $.01 par value per
share common stock (the "Shares"), and as described in the enclosed Prospectus;
and
WHEREAS, LaSalle and American have agreed to work together, in
accordance with the terms expressed herein, as co-underwriters, in connection
with the offer and sale of the Shares (LaSalle and American being jointly
referred to herein as the "Underwriters"); and
WHEREAS, the Shares will be offered by the Underwriters when, as, and
if issued and accepted by them, and each of them, and subject to their right,
upon their joint agreement, at any time, to withdraw, cancel, or modify the
offer without notice to any other broker-dealers, and to the other terms and
conditions hereof.
NOW, THEREFORE, IT IS AGREED AS FOLLOWS:
1. The Offering. The Offering is comprised of up to 1,500,000 Shares which
are the subject of this Agreement. The public offering price of the Shares is
$10.00 per Share. The Shares may be sold only to the public in qualified states,
at the Price to Public set forth on the cover of the Prospectus, and in
conformity with the other terms of the Offering as set forth in the Prospectus,
terms hereof, and the terms and provisions of the definitive Underwriting
Agreement to be signed by the Issuer and American.
2. Allocations. LaSalle shall be entitled to sell up to 1,000,000 shares of
the Shares offered, and may offer and sell the Shares through other NASD member
broker-dealers acceptable to American and LaSalle and who enter into the
approved form of Selected Dealer Agreement.
3. Compensation. American's compensation as underwriter is set forth in
that certain Underwriting Agreement between American and the Issuer dated
_________, 1997 (the "Underwriting Agreement") , which is incorporated herein by
this referenced and made a part hereof. Both LaSalle and American agree to the
terms and conditions set forth in the Underwriting Agreement, as they apply to
the Underwriter, as referenced therein. LaSalle's compensation in connection
with the offer and sale of the Shares shall be a total of 5.95% of the public
offering price of the Shares sold by or through it.
<PAGE>
In addition, LaSalle shall be entitled to a non-accountable expense
reimbursement allowance equal to (i) $10,000 at such time as LaSalle has sold
and remitted proceeds from the sale of at least $2,000,000 (200,000 Shares), and
(ii) $1,000 for each $1,000,000 (100,000 Shares) sold over $2,000,000 (200,000
Shares) paid ratably for the last $1,000,000 (100,000 Shares) increment sold.
4. Clearing Trades/Registration/Funds Transmittal. LaSalle agrees to keep
American informed, on at least a weekly basis, of the number of Shares sold and
amount of funds transmitted to the Issuer, in order to facilitate American's
management of the underwriting.
5. Customer Identities Proprietary. American and LaSalle agree that the
names and addresses of their respective customers who purchase the Shares, or
who otherwise become known to the other as a result of the Offering of the
Shares, shall be considered proprietary information, and that neither party has
any contractual or other right or privilege to such other party's customers
arising from this Agreement.
6. Sales Disclosure. Upon commencement of the offering of the Shares, a
Prospectus relating to the Shares will have become effective under the
applicable SEC, NASD and State regulations. Neither party shall give any
information or make any representations other than those contained in the
Prospectus or other authorized documents when offering the Shares to the public
or otherwise.
7. Blue Sky Matters. A Blue Sky Memorandum will be prepared in connection
with the offering of the Shares, which indicates the jurisdictions in which the
Shares may be offered and sold to the public. The parties mutually agree that
they will not offer, sell, or otherwise engage in any activities with respect to
the Shares in any jurisdiction in which the Shares have not been registered,
qualified or are not exempt from the securities or blue sky laws of such
jurisdiction, or in any jurisdiction in which the respective party may not
lawfully so engage in offers and sales. The parties further agree that they will
cooperate with each other for the purpose of preventing, to the extent
practicable, the sale of more Shares in any jurisdiction than may lawfully be
sold in such jurisdiction if a limitation is placed thereon.
8. Sales on a Principal Basis. If LaSalle, as a broker-dealer, purchases
Shares on a principal basis, it shall furnish to American, for purposes of
complying with the report of sales requirements of various jurisdictions, a
report, in such form as American may request, showing the amount of the Shares
that were sold in each jurisdiction and showing the distribution of the
purchasers in such jurisdiction classified by type of purchaser and amount of
Shares purchased, but no such report shall require LaSalle to inform American of
the names of any such purchaser or beneficial owner.
9. Market Activities. The parties agree that until the termination of this
Agreement, they will not make offers or sales of the Shares other than as
permitted by this Agreement, and they further agree that they will not engage in
stabilizing the price of the Shares or any other securities of the Issuer, or,
until completion of the distribution, in bidding for or purchasing, directly or
indirectly, the Shares or any other comparable securities of the Issuer, except
as contemplated by this Agreement.
10. Termination. This Agreement will terminate at the end of the Offering
Period, as defined in the Prospectus, provided, however, that this Agreement
will terminate in any event when the Underwriting Agreement between American and
the Issuer terminates, which Agreement may be terminated by American and/or the
Issuer in accordance with the terms set forth therein, without the necessity of
prior notice to any other parties. Notwithstanding the foregoing, in the event
that American or LaSalle foresee the possibility
2
<PAGE>
of terminating this Agreement (and, in the case of American, the Underwriting
Agreement), they shall communicate such fact to the other not less than ten (10)
business days in advance of such foreseeable termination.
11. Parties Independent. Nothing herein contained shall constitute LaSalle
and American a partnership, association, or separate entity, and each party
shall be responsible for their share of any liability or expense based on any
claim to the contrary. Further, neither party shall be under any liability to
each other, except for obligations expressly assumed in this Agreement, and no
obligation on the part of either party shall be implied hereby or inferred
herefrom, except as specifically provided herein. The parties agree,
notwithstanding the termination of this Agreement, to bear their proper
proportion of any tax, liability or other claim in connection herewith imposed
at any time against either or both of them, and a like share of any expenses of
resisting such claims.
12. Representations/Warranties. LaSalle and American represent and warrant
to each other as follows: (i) they are members in good standing of the National
Association of Securities Dealers, Inc., and (ii) they are registered or
licensed as a broker-dealer where required under the state securities or blue
sky laws of those jurisdictions in which they intend to or will make offers or
sales of the Shares and where such registration or licensing is required.
13. NASD Representations. The parties hereby confirm their agreement to
abide by and conform to the terms and conditions of this Agreement and the
Underwriting Agreement with respect to any Shares sold by them. The parties
acknowledge receipt of the Registration Statement and Prospectus relating to the
Shares and hereby state that they have relied and will rely upon such
Registration Statement and Prospectus and on no other statements whatsoever,
written or oral. The parties confirm that they are a member in good standing
with the National Association of Securities Dealers, Inc., and that they will,
in making sales of the Shares, conform to and abide by the Rules of Fair
Practice of the NASD, including, but not limited to, Sections 2730, 2740, 2420
and 2750 of Article III of the NASD Rules of Fair Practice.
The parties confirm their agreement hereto by signing, in the manner
indicated below, effective as of the date first set forth above.
AMERICAN INVESTORS GROUP, INC. LASALLE ST. SECURITIES, INC.
- -------------------------------- -----------------------------------
Philip J. Myers, President Jay Carstensen, First Vice President
lasalle.int
3
<PAGE>
We consent to the incorporation by reference in this Registration Statement of
American Church Mortgage Company on Form S-11 of our report dated February 12,
1997 except for Note 9 as to which the date is May 6, 1997, appearing in (or
incorporated by reference in) the Registration Statement on Form S-11 of
American Church Mortgage Company for the years ended December 31, 1996 and 1995.
/s/ Boulay, Heutmaker, Zibell & Co. P.L.L.P.
Boulay, Heutmaker, Zibell & Co. P.L.L.P.
Certified Public Accountants
Minneapolis, Minnesota
May 20, 1997
<PAGE>
May 21, 1997
Reply to: Minneapolis
Writer's Direct Dial: (612) 904-7408
American Church Mortgage Company
10237 Yellow Circle Drive
Minnetonka, MN 55343
Re: American Church Mortgage Company
Gentlemen:
We have acted as counsel to you in connection with the preparation and
filing by you of a Registration Statement on Form S-11 (the "Registration
Statement"), containing a Prospectus (the "Prospectus"), under the Securities
Act of 1933, as amended (the "Act"), with respect to the registration of
1,650,000 shares of common stock, with a par value of $.01 per share (the
"Shares"), of American Church Mortgage Company ("ACMC"), a Minnesota
corporation. We have examined such documents, records and matters of law as we
have deemed necessary for purposes of this opinion and, based thereon, we are of
the opinion that the Shares are duly and validly authorized for issuance and,
when issued and paid for, as described in the Prospectus, will be validly
issued, fully paid and nonassessable.
We consent to the use of this opinion as an exhibit to the Registration
Statement and to the reference to our name under the heading "LEGAL MATTERS" in
the Prospectus. In giving such consent, we do not hereby admit that we come
within the category of persons whose consent is required under Section 7 of the
Act or the Rules and Regulations of the Securities and Exchange Commission
promulgated under the Act.
Very truly yours,
MAUN & SIMON, PLC
By: /s/Albert A. Woodward
Albert A. Woodward, a Member
PTC:mjm
5/21/97,PTC,66653_1M
<PAGE>
May 21, 1997
Reply to: Minneapolis
Writer's Direct Dial: (612) 904-7408
American Church Mortgage Company
10237 Yellow Circle Drive
Minnetonka, MN 55343
Re: American Church Mortgage Company ("ACMC")
Gentlemen:
We have acted as counsel to you with respect to the preparation and
filing by you of a Registration Statement on Form S-11 (the "Registration
Statement"), containing a Prospectus (the "Prospectus"), under the Securities
Act of 1933, as amended (the "Act"), with respect to the registration of
1,665,000 shares of common stock, with a par value of $.01 per share (the
"Shares"), of American Church Mortgage Company ("ACMC"), a Minnesota
corporation. In connection therewith, you have requested our opinion as to
whether the Company has been organized in conformity with the requirements for
qualification as a real estate investment trust, and whether its method of
operation will enable it to meet the requirements for qualification as a real
estate investment trust under the Internal Revenue Code of 1986, as amended (the
"Code").
In rendering our opinion, we have examined certain documents,
including:
(a) The Articles of Incorporation and Bylaws of the Company;
(b) The Advisory Agreement between the Company and Church Loan
Advisors, Inc.;
(c) the Registration Statement, including exhibits to the Registration
Statement; and
(d) such other certificates, opinions and instruments as we have deemed
necessary.
As to various questions of fact which are material to the opinion set forth in
this letter, we have relied upon certain representations, statements and
information set forth in the foregoing documents and certificates of officers of
the Company and of public officials. In addition, we have
<PAGE>
American Church Mortgage Company
May 21, 1997
Page 2
assumed that the business of the Company will be conducted as described in the
Registration Statement.
As to matters of law, we have based our opinion upon the provisions of
the Code, the legislative history of the Code, the Treasury Department Income
Tax Regulations promulgated or proposed under the Code (the "Regulations"), and
the interpretations of the Code and the Regulations by the Internal Revenue
Service (the "Service") and by the courts as of the date of this letter. The
provisions of the Code or of the Regulations may be amended, or the
interpretations of the Service or of the courts may change in a manner which
would affect our opinions, and any such changes may have retroactive effect.
Based upon and subject to the foregoing, we are of the opinion that
ACMC is organized in conformity with the requirements for qualification as a
real estate investment trust and that its method of operation, as described in
the Prospectus, will enable it to meet the requirements for qualification and
taxation as a real estate investment trust under the Code.
We are rendering no opinions regarding federal income tax matters other
than as expressly set forth in this letter. We consent to the use of this
opinion as an exhibit to the Registration Statement and to the reference to our
name under the headings "TAXATION" and "LEGAL MATTERS" in the Prospectus.
Very truly yours,
MAUN & SIMON, PLC
By: /s/Albert A. Woodward
Albert A. Woodward, a Member
PTC:mjm
5/21/97,PTC,66654_1M
<PAGE>
